<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WOMEN FIRST HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 13-3919601
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
12220 EL CAMINO REAL, SUITE 400
SAN DIEGO, CALIFORNIA 92130
(619) 509-1171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID F. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WOMEN FIRST HEALTHCARE, INC.
12220 EL CAMINO REAL, SUITE 400
SAN DIEGO, CALIFORNIA 92130
(619) 509-1171
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT N. WOLFE, ESQ. GREGORY C. SMITH, ESQ.
BARRY M. CLARKSON, ESQ. MELANIE D. VINSON, ESQ.
ROBERT E. BURWELL, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
LATHAM & WATKINS 525 UNIVERSITY AVENUE, SUITE 220
701 "B" STREET, SUITE 2100 PALO ALTO, CALIFORNIA 94301
SAN DIEGO, CALIFORNIA 92101 (650) 470-4500
(619) 236-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value...................... $50,000,000 $13,900
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
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 MARCH 12, 1999
PROSPECTUS
Shares
[LOGO]
WOMEN FIRST HEALTHCARE, INC.
Common Stock
-------------------------
This is an initial public offering of 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 $ and $ per share. We
intend to apply 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 8.
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
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.
BEAR, STEARNS & CO. INC.
ALLEN & COMPANY INCORPORATED
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, the "Company," "Women First HealthCare," "Women First," "we," "us,"
and "our" 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),
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 HealthCare, Inc. and companies other than Women First HealthCare,
Inc.
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, reflects the
automatic conversion of all outstanding shares of our preferred stock into
common stock upon the consummation of this offering and reflects a .61 for 1
reverse stock split effected March 11, 1999.
THE COMPANY
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 the Internet.
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
research indicates that midlife 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 found that midlife women also
want choice and individualized solutions that address their changing physical
and emotional requirements. We believe that the products, support systems and
educational programs we offer will address many of these unmet needs.
The pharmaceutical products we currently offer are:
- Ortho-Est(R), an oral estrogen product used in hormonal replacement
therapy that we distribute pursuant to an agreement with Ortho-McNeil
Pharmaceutical Corporation, a subsidiary of Johnson & Johnson,
- Pravachol(R), a leading cholesterol-lowering drug that we market to
obstetricians and gynecologists and to the nurse practitioners and
physician assistants in their offices pursuant to a co-promotion
agreement 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(TM).
We intend to obtain rights to additional pharmaceutical products through
license, acquisition and co-promotion agreements.
3
<PAGE> 5
The self-care products we offer 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. In addition, we are developing programs with Dr. Deepak Chopra,
a noted author and physician, to offer women practical approaches to achieve a
sense of well-being in midlife. We are also developing a patient health
questionnaire and software program entitled "Benefit:Risk Assessment Model" with
Dr. Nananda Col of the Tufts University School of Medicine that assesses a
woman's risk of developing heart disease, breast cancer and osteoporosis.
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
- increasing opportunities for product licensing, acquisition, co-promotion
and development by specialty pharmaceutical companies.
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. OB/GYNs
increasingly function as the primary care physician for midlife women. Nurse
practitioners and physician assistants also are assuming broader roles in the
treatment of midlife women and can prescribe medications in a growing number of
states. 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
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 55 sales representatives and expect to increase that number to
approximately 100 during 1999. We intend to hire additional sales
4
<PAGE> 6
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 that will include WOMENFIRST.COM, our
Internet site currently under development. 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(TM)
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 our company, the Mount Sinai
School of Medicine and the Women's Health Care Education Foundation will sponsor
and develop the clinician education portion of the program in cooperation with
the University of Southern California School of Medicine. We believe that our
education 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 are designing the WOMENFIRST.COM Internet site as an on-line community
for midlife women and plan to launch this site by mid-1999. We anticipate that
this Internet site will contain extensive educational information for women and
professional materials for the clinicians who care for them. We are designing
the site to be interactive and to provide access to members of our Health
Advisory Board through question and answer sessions, information on upcoming
educational events across the country and chat rooms for women to discuss
midlife health issues. We believe that the WOMENFIRST.COM site also will be 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 licensing, co-marketing and 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 to our
target markets on an exclusive basis. We continue to engage in discussions with
major pharmaceutical companies to license, acquire or co-promote pharmaceutical
products that have been approved by the Food and Drug Administration or
pharmaceutical products in the late stages of clinical development.
------------------------
This prospectus may contain, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual
results and the timing of certain events could differ significantly from those
discussed in these forward-looking statements. Factors that could cause or
contribute to these differences are discussed under "Risk Factors" and elsewhere
in this prospectus.
5
<PAGE> 7
THE OFFERING
COMMON STOCK OFFERED BY US...... shares
COMMON STOCK TO BE OUTSTANDING
AFTER THIS OFFERING............. 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 also may use a portion of the
proceeds to repay $7.5 million principal
amount of short-term notes we have agreed to
issue 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 in
the foreseeable future. See "Dividend
Policy."
RISK FACTORS.................... This offering involves a high degree of
risk. See "Risk Factors" beginning on page 8
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
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
February 28, 1999. This information excludes:
- 1,980,909 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 $1.06 per share,
- 480,375 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 we
have agreed to issue 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"),
- 296,526 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.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1996 YEARS ENDED DECEMBER 31,
(INCEPTION) THROUGH -------------------------
DECEMBER 31, 1996 1997 1998
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<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue............................ $ -- $ -- $ 4,834
Costs and expenses..................... -- 1,766 15,098
----------- ----------- -----------
Loss from operations................... -- (1,766) (10,264)
Interest income........................ -- 39 394
----------- ----------- -----------
Net loss............................... $ -- $ (1,727) $ (9,870)
=========== =========== ===========
Net loss per share (basic and
diluted)............................ $ -- $ (0.23) $ (1.28)
=========== =========== ===========
Weighted average shares used in
computing net loss per share (basic
and diluted)........................ 6,806,353 7,551,484 7,685,993
=========== =========== ===========
Pro forma net loss per share (basic and
diluted)............................ $ (1.00)
===========
Pro forma weighted average shares used
in computing net loss per share
(basic and diluted)................. 9,904,834
===========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $4,438
Working capital........................................... 3,364
Total assets.............................................. 12,504
Short-term notes payable.................................. -- 7,315
Total stockholders' equity................................ 7,948
</TABLE>
The pro forma net loss per share, pro forma weighted average shares and the
Pro Forma As Adjusted column give effect to the conversion of 1,650,000 shares
of our Series A Preferred Stock and 594,000 shares of our Series B Convertible
Preferred Stock issued and deemed to have been issued at December 31, 1998 into
3,351,831 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 also gives effect to:
- - this offering of common stock at an assumed initial public offering price of
$ per share and our receipt of $ in estimated net proceeds,
- - our issuance of 550,000 shares of Series A Preferred Stock (equivalent to
1,006,500 shares of common stock) in February 1999 for net proceeds of $5.3
million, and
- - the issuance of $7.5 million in principal amount of short-term notes and
warrants we have agreed to issue in a private placement in March 1999 and our
receipt of $7.5 million in estimated net proceeds from this issuance.
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<PAGE> 9
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 ARE AN EARLY STAGE COMPANY WITH A HISTORY OF LOSSES
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. For our business to be successful, among other
things, we need to substantially augment our sales and marketing organization,
achieve acceptance of the products we offer and maintain and obtain rights to
market pharmaceutical and self-care products that meet the needs of midlife
women. 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."
OUR BUSINESS MODEL IS STILL EVOLVING
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. We only recently formed our company, and
we have a broad business model that will require the development of many
different areas. 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,
- obtain rights to market and distribute additional products and integrate
them into our business, and
- manage different marketing and distribution channels for the products we
offer.
If we fail to implement any of the key elements of our business plan, our
business may not succeed. 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, if we fail to develop the market-wide brand identity
that we are seeking, our business will be adversely affected.
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MANY OF OUR PRODUCT AGREEMENTS REQUIRE MINIMUM PURCHASES
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 purchase a minimum amount of the product covered by the
agreement. 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.
Under our pharmacy management agreement with Health Script, a wholly owned
division of Dura Pharmaceuticals, Inc., we are required to pay a minimum monthly
management fee of $22,800 during the two-year term of the agreement. We are also
obligated to pay future development fees of $625,000 to CHPNC, LLC prior to
September 25, 2000 for the development of the Benefit: Risk Assessment Model. In
addition, under 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, we have agreed 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.
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, as a result, our marketing and distribution of some or all of these
products may not be profitable. Our failure to generate sales exceeding the
specified minimum payments could have a material adverse effect on our business,
and, in addition, could give the other party the right to terminate or modify
the contract. See "Business -- Licensing and Co-Promotion Agreements."
MANY OF OUR PRODUCT AGREEMENTS MAY BE TERMINATED
Our contracts 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 OB/GYNs, primary care physicians designated as OB/GYNs by
Bristol-Myers Squibb and nurse practitioners and physician assistants associated
with OB/GYN practices do not exceed these minimum amounts for two consecutive
quarters or on a yearly basis. 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 designated OB/GYNs and the nurse practitioners and
physician assistants in their offices 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 are acquired. In addition,
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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 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. See
"Business -- Licensing and Co-Promotion Agreements."
WE ARE DEPENDENT ON THE ACCEPTANCE BY MIDLIFE WOMEN AND THEIR CLINICIANS OF THE
PRODUCTS WE OFFER
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, and
- the reimbursement policies of the government and third-party payors.
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.
SOME OF THE PRODUCTS WE OFFER FACE SPECIFIC CHALLENGES
Some of the products we offer, such as the Ortho-Est(R) oral estrogen
product, have experienced declining sales and market share. The Ortho-Est(R)
product currently represents less than 1% of the market share of estrogen
replacement products sold in the U.S., and its U.S. sales have declined from
approximately $12.5 million in 1996 to approximately $10.0 million in 1998,
according to IMS Health. Our ability to stem or reverse this decline may depend
on factors beyond our control, including competitive marketing programs,
physicians' and women's preferences for particular therapies or modes of
delivery, actual or perceived side effects associated with hormonal replacement
therapies and the development of competing products that combine estrogen and
progestin in a single dosage form. The Pravachol(R) cholesterol-lowering drug,
the IntegraVie(TM) line of skin care products and the ViAmor(TM) vaginal
moisturizer, among other products we offer, are in highly competitive markets.
In addition, products compounded by Women First Pharmacy Services(TM) 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. See "--Regulatory Matters Could Affect Our Ability to
Conduct Our Business." If we are unable to address these and other challenges
faced by the products we offer, our sales of these products may not be
profitable and may be discontinued.
WE ARE DEPENDENT ON OUR ABILITY TO OBTAIN RIGHTS TO ADDITIONAL PRODUCTS OR
ACQUIRE COMPANIES AND SUCCESSFULLY INTEGRATE THEM
We plan to obtain rights to additional products through license,
co-promotion or acquisition agreements or to acquire companies that complement
our business. However, we may not be able to identify appropriate candidates in
the future. Even if we identify an
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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. Moreover, we may be unable to
finance an acquisition or integrate a new product or company into our existing
business. We are still in the process of integrating into our business As We
Change, LLC, which we acquired in October 1998. In addition, 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. If we use
shares of our common stock as consideration for one or more significant
acquisitions, our stockholders could suffer significant dilution of their
ownership interests. Our failure to obtain rights to market products or acquire
products or companies on acceptable terms or to integrate these products or
companies into our organization could harm our business.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY AFFECT THE PRICE OF OUR
STOCK
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. We may experience significant,
unanticipated quarterly losses. 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
THE HEALTH CARE INDUSTRY IS VERY COMPETITIVE
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 pharmaceutical products we
market and distribute could be rendered obsolete or uneconomical by
pharmaceutical products developed by competitors, technological advances
affecting the cost of production, or marketing or pricing action by one or more
competitors. In addition, competitors may elect to devote substantial resources
to marketing their products to midlife women and may choose to develop
educational and information programs like those we have developed to support
their marketing efforts. Our business, financial condition and results of
operations could be materially and adversely affected by any one or more of such
developments.
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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, competes with the Premarin(R)
oral estrogen product and the Prempro(R) and Premphase(R) combination oral
estrogen and progestin products, all of which are marketed by Wyeth-Ayerst
Laboratories, Inc. The Ortho-Est(R) product also competes with several other
estrogen products, including branded and generic products, taken orally and
through transdermal patches and creams, as well as non-hormonal replacement
therapy products marketed by Merck & Co., Inc. and Eli Lilly & Company. The
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(TM) 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(TM) 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 currently under development,
WOMENFIRST.COM, will compete 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.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MANAGE GROWTH
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. 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 ARE DEPENDENT ON THE AVAILABILITY OF REIMBURSEMENT FOR THE PHARMACEUTICAL
PRODUCTS WE OFFER
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
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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(TM) may be limited by pharmacy benefit management
groups that restrict participation in their networks. Moreover, limits on
reimbursement available from third-party payors may reduce the demand for, or
adversely affect the price of, the products we offer. The unavailability or
inadequacy of third-party reimbursement for the products we offer would have a
material adverse effect on our results of operations.
WE DO NOT CURRENTLY CONDUCT PHARMACEUTICAL RESEARCH AND DEVELOPMENT
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. If we obtain rights to develop
and market a product in clinical development, 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 A SMALL NUMBER OF SUPPLIERS
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
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 such 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 WILL BE REQUIRED TO OBTAIN ADDITIONAL FINANCING
We will require significant amounts of additional capital to achieve our
goals. We believe that the net proceeds from the offering, together with
existing working capital, gross profits from product sales and the proceeds we
expect to receive from the sale of short-term notes and warrants we have agreed
to issue in a private placement in March 1999, will be sufficient to meet our
working capital and capital expenditure requirements 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF THE PROCEEDS OF THE
OFFERING
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 may
use a portion of the proceeds to repay $7.5 million principal amount of
short-term notes we have agreed to issue 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.
INTELLECTUAL PROPERTY RIGHTS ARE IMPORTANT TO OUR SUCCESS
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. Due to
the length of time and expense associated with bringing new pharmaceutical
products to market, there are benefits associated with acquiring or licensing
products that are protected by existing patents or for which patent protection
can be obtained. While some products we offer, such as the Pravachol(R)
cholesterol-lowering drug, the SafeStart(TM) umbilical cord clamp/cutter and the
IntegraVie(TM) line of skin care products, incorporate patented technology, most
of the products we sell are not protected by patents. We have applied for
registration of a number of key trademarks such as "Women First HealthCare,"
"Women First," "ViAmor," "A Better Way" and "Women First Pharmacy Services" and
our subsidiary, As We Change, LLC, has obtained a registration for "As We
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Change" in the United States Patent and Trademark Office. We will be introducing
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. See "Business -- Intellectual
Property."
REGULATORY MATTERS COULD AFFECT OUR ABILITY TO CONDUCT OUR BUSINESS
Certain of our activities are subject to extensive regulation by one or
more federal agencies including the Food and Drug Administration, the Drug
Enforcement Administration, the Environmental Protection Agency, the Federal
Trade Commission, the Occupational Safety and Health Administration, the
Department of Agriculture, the 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.
In particular, all pharmaceutical firms, including companies whose products
we license or distribute, are subject to regulation by the FDA. New drugs must
be approved by the FDA before they may be marketed, with limited exceptions. The
FDA has the authority to revoke existing approvals if new information reveals
that they are not safe or effective. The FDA also regulates the promotion,
including advertising, of prescription drugs and other health care products. The
FDA has extensive enforcement powers over the activities of pharmaceutical
firms, 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 standards known as current Good Manufacturing Practices. The FDA
may seek criminal and other penalties arising from non-compliance with
applicable regulations. The FDA also has the authority to regulate medical
devices. The FDA may classify the Benefit:Risk Assessment model as a medical
device subject to premarket clearance or approval prior to commercialization and
to other device regulatory requirements. Any restriction or prohibition
applicable to sales of products we offer could materially adversely affect us.
Our business includes the operation of a pharmacy in Colorado, Women First
Pharmacy Services(TM), through which we dispense pharmaceutical products in
Colorado and distribute these products through interstate commerce, including
compounded pharmaceutical products and other health care products. Women First
Pharmacy Services(TM) is subject to state and federal regulation, including
regulation by state pharmacy boards. The Colorado State Board of Pharmacy has
the authority to inspect our pharmacy. The failure to comply with the State
Board's requirements can result in criminal and civil sanctions, including
fines, suspension of our license, and revocation of our license. In addition,
the DEA regulates controlled substances that are stored or dispensed by
pharmacies. The failure to comply with DEA regulations can result in significant
penalties, including criminal and civil penalties.
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, restrictions on the advertising of
compounded products, a strict limit on the compounding of drugs that are
essentially copies of FDA-approved drug products and a proposed restriction on
compounded drugs that can be shipped in interstate commerce. Based on this
legislation, the FDA may seek to force us to discontinue compounding and selling
the
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micronized progesterone product and other products compounded by Women First
Pharmacy Services(TM) 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
or more than 5% of any one compounded pharmaceutical product by a given
pharmacy, 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 the rules implementing the new law. We cannot predict the
eventual resolution of these matters, but the implementation and enforcement of
this new law may have a materially adverse effect on our business.
Our business has an educational component, which includes informational
programs for women and clinicians, as well as publication of informational
materials such as booklets and consensus reports written by our Health Advisory
Board. Certain of these activities may be restricted by the FDA through the
exercise of its authority to regulate the promotion and advertising of
prescription drugs.
The FDA and other federal authorities are reviewing alternative approaches
to assure the safety of, and accuracy of, claims relating to vitamins, minerals,
herbals and other products sold as dietary supplements. Increased regulatory
oversight could subject us 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.
For a further discussion of regulatory matters, see "Business -- Government
Regulation."
WE ARE DEPENDENT ON THE PRINCIPAL MEMBERS OF OUR MANAGEMENT TEAM
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 STOCK OWNERSHIP WILL CONTINUE TO BE CONCENTRATED IN THE HANDS OF MANAGEMENT
AND EXISTING STOCKHOLDERS
Upon completion of this offering, Edward F. Calesa and his family members
will jointly own % of our common stock. Johnson & Johnson Development
Corporation, a subsidiary of Johnson & Johnson, will own approximately % of
our common stock. Our present directors, executive officers and principal
stockholders as a group will beneficially own approximately % 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 our company and the outcome of certain corporate transactions or other
matters submitted to our
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stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets.
Management and our existing stockholders, acting together, will be able to
prevent or effect a change in control of our company 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. See "Management"; "Principal Stockholders"
and "Certain Transactions."
WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 PROBLEM
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. 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 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, 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 suppliers, customers and payors will be Year 2000 ready. Expenditures
required to make our internal systems Year 2000 compliant will be expensed as
incurred and we do not expect such expenditures to be material to our
consolidated financial position or results of operations. Some of our internal
systems may not be Year 2000 compliant by December 31, 1999, which could result
in our being unable to sell products in our current distribution channels or
being unable to use our financial and accounting systems. Any failure on the
part of our suppliers, customers or payors and other parties that provide us
with significant products and services to achieve Year 2000 compliance on a
timely basis could materially adversely affect us. 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Year 2000 Compliance."
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND THE MARKET PRICE OF OUR
SHARES WILL FLUCTUATE
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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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:
- changes in the acceptance or availability of the products we offer,
- differences between our actual financial and operating results and those
expected by investors and securities analysts and changes in securities
analysts' recommendations and projections,
- 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.
We intend to apply to list the common stock for trading on the Nasdaq
National Market under the symbol "WFHC." We do not know whether investor
interest in our company 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.
EXISTING STOCKHOLDERS MAY SELL THEIR COMMON STOCK
Upon completion of this offering, we will have shares of
common stock outstanding. The 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 12,047,487
shares of common stock outstanding as of February 28, 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 180-day lock-up agreements
described below. In addition, certain persons who hold common stock will be
entitled to register their common stock under the Securities Act at our expense.
We cannot predict the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price of our
common stock. Sales of substantial amounts of common stock, or the perception
that such sales could occur, may adversely affect prevailing market prices for
the common stock. 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. Bear, Stearns & Co. Inc. 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.
As of February 28, 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. Of these shares,
1,980,909 shares of common stock are reserved for issuance upon the exercise of
stock options currently outstanding under the Long-Term Incentive Plan and the
Women First Incentive Stock Plan at exercise prices ranging from $0.29 to $4.81
per share. We also have reserved for issuance 480,375 shares of common stock
issuable upon the exercise of outstanding warrants at an exercise price of $5.46
per share. In addition, we have agreed to issue warrants to purchase 60,756
shares of common stock in connection with the private placement of short-term
notes we have agreed to issue in March
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1999. For a discussion of the exercise price of these warrants, see "Description
of Capital Stock -- Warrants."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price will be substantially higher than the net
tangible book value per share of the common stock. Therefore, you will incur
immediate and substantial dilution in the amount of $ per share in the net
tangible book value per share of common stock as of December 31, 1998, after
deducting estimated underwriting discounts and other estimated expenses of the
offering. You will incur additional dilution if holders of stock options
exercise their options or if holders of warrants exercise their warrants to
purchase common stock. See "Dilution."
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DISCOURAGE OR PREVENT AN ACQUISITION OF OUR COMPANY
Certain 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 inhibit changes of control that are not approved by our board
of directors. 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, as a
Delaware corporation, we are subject to Section 203 of the Delaware General
Corporation Law which, in general, prevents an interested stockholder (defined
generally as a person owning 15% or more of the corporation's outstanding voting
stock) from engaging in a business combination (as defined) for three years
following the date that person became an interested stockholder unless certain
conditions are satisfied. Our proposed certificate of incorporation and bylaw
provisions and Delaware law could 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 that could result from
takeover attempts. In addition, the Amended and Restated 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. We have no present plans to
issue any preferred stock. 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 could limit the price that investors might be
willing to pay in the future for shares of our common stock.
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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.
20
<PAGE> 22
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We estimate that we will receive net proceeds from the sale of the
shares of common stock in this offering of approximately
$ ($ if the underwriters' over- allotment option is exercised
in full) based upon an assumed offering price per share of $ and the
deduction of the underwriting discount and commissions and estimated offering
expenses. 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 may use a portion of the proceeds to repay $7.5 million of
short-term notes we have agreed to issue 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 working capital, gross profits from
product sales and the proceeds we expect to receive from the issuance of the
short-term notes, will be sufficient to meet our working capital and capital
expenditure requirements through the end of the year 2000. See "Risk Factors --
Many of Our Product Agreements Require Minimum Purchases"; "-- We Will Be
Required to Obtain Additional Financing"; and "-- Management Will Have
Substantial Discretion Over the Use of the Proceeds of the Offering" 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 in the foreseeable future. We have not paid any dividends on our common
stock in the past.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization and cash and cash
equivalents of Women First as of December 31, 1998. The Actual column sets forth
information on our actual basis as of December 31, 1998. The Pro Forma column
gives effect to (1) the issuance of 550,000 shares of Series A Preferred Stock
in February 1999; (2) the issuance of short-term notes and warrants we have
agreed to issue in a private placement in March 1999; and (3) the conversion of
all shares of Series A Preferred Stock and Series B Preferred Stock into
4,388,334 shares of common stock upon the closing of this offering. The Pro
Forma As Adjusted column gives further effect to the issuance of shares
of common stock at an assumed initial public offering price of $ per share
and the receipt of the estimated net proceeds from this offering of $
million as if it had occurred as of December 31, 1998. 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>
DECEMBER 31, 1998
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 4,438 $ 17,288
Short-term notes payable................................ -- 7,315 7,315
Stockholders' equity:
Series A Preferred Stock, $.01 par value; 2,200,000
shares authorized; 1,650,000 shares issued and
outstanding at December 31, 1998................... 16 -- --
Series B Convertible Preferred Stock, $.01 par value;
690,000 shares authorized; 398,540 shares issued
and outstanding and 195,460 shares to be issued at
December 31, 1998.................................. 6 -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 8,026,310 shares issued and 7,685,993
shares outstanding at December 31, 1998 (12,414,644
and shares issued pro forma and pro forma
as adjusted; 12,074,327 and shares
outstanding pro forma and pro forma as
adjusted)(1)....................................... 77 121
Treasury stock.......................................... (97) (97) (97)
Additional paid-in capital.............................. 20,103 25,556
Deferred compensation................................... (560) (560) (560)
Accumulated deficit..................................... (11,597) (11,597) (11,597)
-------- -------- --------
Total stockholders' equity......................... 7,948 13,423
-------- -------- --------
Total capitalization.......................... $ 7,948 $ 20,738
======== ======== ========
</TABLE>
- -------------------------
(1) Excludes (a) 1,980,909 shares of common stock issuable upon the exercise of
options outstanding as of February 28, 1999 under the Women First HealthCare
Long-Term Incentive Plan and the Women First Incentive Stock Plan at a
weighted average exercise price of $1.06 per share; (b) 480,375 shares of
common stock issuable upon the exercise of warrants outstanding as of
February 28, 1999; (c) 60,756 shares of common stock issuable upon the
exercise of warrants we have agreed to issue in conjunction with short-term
notes in a private placement in March 1999; (d) 296,526 additional shares of
common stock issuable upon the exercise of options available for issuance
under the Women First HealthCare Long-Term Incentive Plan; and (e) 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.
22
<PAGE> 24
DILUTION
The pro forma net tangible book value of Women First as of December 31,
1998 was $9.5 million or $0.79 per share after giving effect to the issuance of
550,000 shares of Series A Preferred Stock in February 1999, the conversion of
all shares of preferred stock into 4,388,344 shares of common stock upon
consummation of this offering and the issuance of short-term notes and warrants
we have agreed to issue in a private placement in March 1999. 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 December 31, 1998 would
have been $ , or $ per share of common stock after giving effect to
the sale of million shares of common stock at an assumed initial
public offering price of $ 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 $ per share to
existing stockholders and an immediate dilution of $ 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....................... $
--------
Pro forma net tangible book value per share as of December
31, 1998.................................................. $ 0.79
--------
Increase per share attributable to new investors............
--------
Pro forma as adjusted net tangible book value per share
after the offering........................................
--------
Dilution per share to new investors(1)...................... $
--------
</TABLE>
The following table summarizes as of December 31, 1998 on a pro forma basis
(after giving effect to the issuance of 550,000 shares of Series A Preferred
Stock in February 1999 and the conversion of all outstanding shares of preferred
stock into common stock into 4,388,344 shares of common stock upon the
consummation of the offering and the issuance of short-term notes and warrants
we have agreed to issue in a private placement in March 1999) 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
$ 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(2).................. 12,074,327 % $25,690,731 % $2.13
New investors(1)..........................
----------- ----- ----------- -----
Total(1)........................ 100.0% $ 100.0%
----------- ----- ----------- -----
</TABLE>
- -------------------------
(1) If the underwriters' over-allotment option is exercised in full, Women First
will issue an additional shares to new investors ( % of
the total of shares outstanding) and the total consideration
from new investors will be $ ( % of the total of $
consideration paid for all shares outstanding) at an assumed initial public
offering price of $ per share.
(2) Excludes (a) 1,980,909 shares of common stock issuable upon the exercise of
options outstanding as of February 28, 1999 under the Women First HealthCare
Long-Term Incentive Plan and the Women First Incentive Stock Plan at a
weighted average exercise price of $1.06 per share; (b) 480,375 shares of
common stock issuable upon the exercise of outstanding warrants and 60,756
shares of common stock issuable upon the exercise of warrants we have agreed
to issue in conjunction with short-term notes in a private placement in
March 1999; (c) 296,526 shares of common stock issuable upon the exercise of
options available for issuance under the Women First HealthCare Long-Term
Incentive Plan, and (d) 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.
23
<PAGE> 25
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 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
(INCEPTION) YEARS ENDED DECEMBER 31,
THROUGH --------------------------
DECEMBER 31, 1996 1997 1998
----------------- ----------- -----------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue........................................... $ -- $ -- $ 4,834
Costs and expenses
Cost of sales....................................... -- -- 3,136
Marketing and sales................................. -- 791 5,478
General and administrative.......................... -- 975 5,912
Research and development............................ -- -- 572
----------- ----------- -----------
Total costs and expenses........................ -- 1,766 15,098
----------- ----------- -----------
Loss from operations.................................. -- (1,766) (10,264)
Interest income....................................... -- 39 394
----------- ----------- -----------
Net loss.............................................. $ -- $ (1,727) $ (9,870)
=========== =========== ===========
Net loss per share (basic and diluted)................ $ -- $ (0.23) $ (1.28)
=========== =========== ===========
Weighted average shares used in computing net loss per
share (basic and diluted)........................... 6,806,353 7,551,484 7,685,993
=========== =========== ===========
Pro forma net loss per share (basic and diluted)...... $ (1.00)
===========
Pro forma weighted average shares used in computing
net loss per share (basic and diluted).............. 9,904,834
===========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------ DECEMBER 31, 1998
1996 1997 1998 PRO FORMA AS ADJUSTED
------ ---- ------ ---------------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $1,000 $567 $4,438
Working capital.................................... 967 394 3,364
Total assets....................................... 1,033 776 12,504
Short-term notes payable........................... -- -- -- 7,315
Total stockholders' equity......................... 1,000 531 7,948
</TABLE>
24
<PAGE> 26
The pro forma net loss per share, pro forma weighted average shares and the
Pro Forma As Adjusted column give effect to the conversion of 1,650,000 shares
of our Series A Preferred Stock and 594,000 shares of our Series B Convertible
Preferred Stock issued and deemed to have been issued at December 31, 1998 into
3,351,831 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 also gives effect to:
- - this offering of common stock at an assumed initial public offering price of
$ per share and our receipt of $ in estimated net proceeds,
- - our issuance of 550,000 shares of Series A Preferred Stock (currently
convertible into 1,006,500 shares of common stock) in February 1999 for net
proceeds of $5.3 million, and
- - the issuance of $7.5 million in principal amount of short-term notes and
warrants we have agreed to issue in a private placement in March 1999 and our
receipt of $7.5 million in estimated net proceeds from this issuance.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our company'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 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.
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 in the future. See "Risk Factors -- We Are an Early Stage
Company with a History of Losses" and "-- Our Business Model Is Still Evolving."
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.
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 and sales from our subsidiary As We Change, LLC,
a national mail-order catalog and Internet retailer, beginning October 21, 1998.
We were in the development stage during 1997 and 1996 and recorded no revenue
through March 31, 1998.
26
<PAGE> 28
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 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 agreements with
third parties.
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. 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. 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. As such, all losses for 1997 were passed through
to the stockholders and we did not record a provision for taxes.
27
<PAGE> 29
FACTORS AFFECTING RESULTS OF OPERATIONS
Our results of operations have varied during our short operating history
and will fluctuate significantly in the future as a result of a variety of
factors, many of which are beyond our control. Factors that may affect our
results of operations include, but are not limited to:
- 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 amount and timing of expenditures for the expansion of our
operations, and
- general economic and market conditions and conditions specific to the
health care industry.
Any one of these factors could cause our revenues and operating results to
vary significantly in the future. In addition, as a strategic response to
changes in the competitive environment, we could from time to time make certain
pricing or marketing decisions or acquisitions that could adversely affect our
results of operations.
Due to our short operating history, we are unable to forecast accurately
our revenues. Our expense levels are based, in part, on our expectations with
regard to future revenues, and many of our expenses are fixed, especially in the
short term. In addition, we plan to increase operating expenses associated with
obtaining rights to market and distribute additional products and to expand our
sales and marketing and general and administrative activities.
We also are obligated to make significant minimum payments under certain of
our agreements with our collaborative partners. These commitments include an
annual minimum purchase for the Ortho-Est(R) oral estrogen product. The minimum
commitment 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. See "Risk Factors -- Many of Our Product Agreements
Require Minimum Purchases."
To the extent our revenues do not increase in line with these 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. See "Risk Factors -- Fluctuations in Our Quarterly
Operating Results May Affect the Price of Our Stock."
LIQUIDITY AND CAPITAL RESOURCES
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 and
$1,000,000 at December 31, 1997 and 1996, respectively.
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 certain holders, at
a price of $10.00 per share. We issued
28
<PAGE> 30
1,050,000 shares of Series A Preferred Stock (equivalent to 1,921,500 shares of
common stock) and warrants immediately upon signing the January agreement and
50,000 shares of Series A Preferred Stock (equivalent to 91,500 shares of common
stock) and warrants immediately upon signing the May agreement for net proceeds
of $10.0 million and $453,000, respectively, with the balance of the shares
issuable upon the achievement of certain operational milestones.
In October 1998, we successfully completed the initial milestone events and
issued 550,000 shares of Series A Preferred Stock (equivalent to 1,006,500
shares of common stock) and warrants for additional net proceeds of $5.3
million. During January 1999, we reached the subsequent milestone event, and in
February 1999, we issued an additional 550,000 shares of Series A Preferred
Stock (equivalent to 1,006,500 shares of common stock) and warrants for
additional net proceeds of $5.3 million.
In March 1999, we entered into binding subscription agreements obligating
us to issue and obligating the purchasers to purchase $7.5 million of short-term
notes and warrants to purchase 60,756 shares of common stock in a private
placement. The notes will bear interest at 9% per year, payable quarterly, and
mature on March 1, 2000. We may prepay the notes at any time without penalty.
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 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 due March
31, 1999, 594,000 shares of Series B Preferred Stock (equivalent to 362,334
shares of common stock) and $107,000 of acquisition related expenses. We expect
to issue a total of 44,000 of these shares (equivalent to 26,840 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 believe that based on our current performance and present plans, the
proceeds from this offering together with existing working capital, gross
profits from product sales and the proceeds we expect to receive from the
issuance of the short-term notes will be sufficient to fund our operations and
make planned capital expenditures through the end of fiscal 2000. Our ability to
fund our operations and to make planned capital expenditures 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. See "Risk
Factors -- Many of Our Product Agreements Require Minimum Purchases" and "-- We
Will Be Required to Obtain Additional Financing."
29
<PAGE> 31
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. There was no difference between our net loss and our total comprehensive
loss for the years ended December 31, 1996, 1997 and 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 replaces SFAS 14,
Financial Reporting for Segments of a Business Enterprise and changes the way
companies report segment information. SFAS 131 is effective for fiscal years
beginning after December 15, 1997 and has been adopted by us for the year ending
December 31, 1998.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting for the Costs of Start-up
Activities (SOP 98-5). This standard requires companies to expense the cost of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 although earlier
adoption is encouraged. We adopted the provisions of this SOP for the year ended
December 31, 1998. The adoption of SOP 98-5 did not have a material impact on
our results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to affect us because we currently do not hold any
derivative instruments or conduct any hedging activities.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs having been written
using two digits rather than four to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the 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.
30
<PAGE> 32
Nature and Level of Importance of Third Parties and their Exposure to the Year
2000
Our electronic transactions with suppliers or customers are not currently
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 suppliers will be Year 2000 ready. The
inability of suppliers, customers and payors to complete their Year 2000
resolution process in a timely fashion could have a material adverse effect on
us.
Year 2000 Remediation Costs
We will utilize both internal and, if necessary, external resources to
reprogram or replace, test and implement our internal systems and equipment for
Year 2000 modifications. Expenditures required to make us Year 2000 compliant
will be expensed as incurred and are not expected to be material to our
consolidated financial position or results of operations. Actual costs incurred
to date have not been material.
Contingency Plans
We have developed certain contingency plans to address failure of
remediation activities as applied to internal management information systems and
other significant equipment and the failure of our key suppliers to be Year 2000
ready. We have prioritized our critical suppliers and are developing plans to
provide for the continuance of product availability through accelerated
purchasing if we cannot obtain adequate assurances regarding a specific entity's
ability to become ready for the Year 2000. We also have considered the
implementation of manual order processing and fulfillment systems should the
electronic systems fail.
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 testing phase indicates that our
internal systems are not Year 2000 ready, or that our suppliers or customers are
not Year 2000 ready or will not be Year 2000 ready in a timely manner, we may be
temporarily unable to sell products in our current distribution channels, and we
may be temporarily unable to use our financial systems to operate finance and
accounting functions.
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 the Internet.
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(TM). We intend to obtain rights to additional
pharmaceutical products through license, acquisition and co-promotion
agreements.
The self-care products we offer 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 ASWECHANGE.COM Internet
site. In addition, we are developing programs with Dr. Deepak Chopra, a noted
author and physician, to offer women practical approaches to achieve a sense of
well-being in midlife. We are also developing a patient health questionnaire and
software program entitled "Benefit:Risk Assessment Model" with Dr. Nananda Col
of the Tufts University School of Medicine that assesses a woman's risk of
developing heart disease, breast cancer and osteoporosis.
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 have also 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,
- 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 awareness of 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
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incidence of these conditions among midlife women, researchers at the National
Center on Women and Aging at Brandeis University found that nearly 60% of the
women they surveyed between the ages of 45 and 75 were unaware of significant
health risks such as heart disease. Studies have shown that HRT alleviates the
symptoms commonly associated with menopause and may reduce the risk of
cardiovascular disease and osteoporosis. We expect that the market for HRT will
grow as the number of midlife women increases and the benefits of HRT relative
to its side effects become better understood by women and their clinicians.
The expanding roles of OB/GYNs and nurse practitioners and physician
assistants focused on women's health
We believe women typically seek treatment for the symptoms of menopause
from OB/GYNs. In addition, approximately 54% of midlife women now utilize their
OB/GYN as their primary health care provider. We believe this number will
continue to grow as a result of the enactment of new laws in a number of states,
including California, that require health maintenance organizations to permit
women to see OB/GYNs without a referral from their primary care physicians. In
addition, nurse practitioners and physician assistants are assuming broader
roles in the treatment of midlife women and can now prescribe medications in a
growing number of states. Notwithstanding the large number of women who use
OB/GYNs as primary care physicians, we believe that OB/GYNs typically have not
prescribed pharmaceutical products outside of their traditional practice area,
such as pharmaceutical products that treat high cholesterol, hypertension,
depression and incontinence. As their roles expand, we believe OB/GYNs and the
nurse practitioners and physician assistants focused on women's health will
increasingly prescribe products that address the full range of diseases and
conditions that affect midlife women. We also believe that these clinicians
increasingly will be called upon to recommend nonprescription self-care products
to their patients, such as nutritional supplements and skin-care products.
Increasing opportunities for product licensing, acquisition, co-promotion and
development by specialty pharmaceutical companies
Industry consolidation and cost containment pressures from government and
managed care companies have increased the minimum revenues that an individual
product must generate to justify active marketing and promotion by large
pharmaceutical companies. Large pharmaceutical companies are focusing on current
or new drugs with perceived high-volume sales potential, drugs that address
global market opportunities and drugs that fit within core therapeutic or
marketing priorities. As a result, major pharmaceutical companies increasingly
have sought to divest non-strategic product lines or to license or co-promote
products with specialty pharmaceutical companies.
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
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therapy and cholesterol-lowering pharmaceutical products. We also
anticipate using it to promote pharmaceutical products that address other
conditions and diseases often affecting women later in life, such as
hypertension, osteoporosis, depression and incontinence. Furthermore, we
believe that these clinicians increasingly will be called upon to
recommend nonprescription self-care products to their patients, such as
nutritional supplements and skin-care products.
- ENHANCE SALES THROUGH FOCUSED MARKETING EFFORTS. We intend to reach our
target market of 57 million midlife women through our sales and marketing
program to OB/GYN practices and our direct-to-consumer marketing program.
We employ 55 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 that will include WOMENFIRST.COM, our Internet site currently under
development. 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(TM) 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 our
company, the Mount Sinai School of Medicine and the Women's Health Care
Education Foundation will sponsor and develop 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 are designing the
WOMENFIRST.COM site as an on-line community for midlife women and plan to
launch this site by mid-1999. We anticipate that this Internet site will
contain extensive educational information for women and professional
materials for the clinicians who care for them. We are designing the site
to be interactive and to provide access to members of our Health Advisory
Board through question and answer sessions, information on upcoming
educational events across the country and chat rooms for women to discuss
midlife health issues. We believe that the WOMENFIRST.COM site also will
be 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
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and physician assistants focused on women's health, that complement the
product lines we currently offer or that we can distribute on an
exclusive basis. We continue to engage in discussions with major
pharmaceutical companies to license, acquire or co-promote pharmaceutical
products that have been approved by the FDA or pharmaceutical products in
the late stages of clinical development.
Our business model is relatively new and still evolving. See "Risk
Factors -- Our Business Model Is Still Evolving."
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(TM).
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.
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, the
overall market for HRT was 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 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
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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(TM), 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 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,
represented approximately $438 million in sales in 1998.
SafeStart(TM). SafeStart(TM) is a device that clamps and cuts the umbilical
cord of newborns. The SafeStart(TM) clamp/cutter is designed to prevent blood
splashing during the procedure and, therefore, reduces the risk to health care
practitioners of infections by blood borne diseases, such as HIV and Hepatitis
B, C and E. We obtained rights to distribute the product through an exclusive
distributorship agreement with Price Invena ApS of Denmark. We currently market
the product in the United States, and Price Invena currently markets it in
certain countries in Europe, Asia and South America. We received FDA clearance
to sell the product in the United States in August 1998 and began
commercialization in the first quarter of 1999. According to the U.S. Census
Bureau, there were 3.8 million live births in the United States in 1998.
Self-Care 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.
Nutritional Products. We currently offer nutritional products through As We
Change, LLC, our national mail-order catalog and Internet retailer. We are
working 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 be available during the third quarter of 1999. According to
Packaged Facts, a market research company, the market for nutritional products
is large and growing, exceeding $5 billion in annual sales in the United States
in 1998.
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Midlife Renewal and Transformation for Body, Mind and Soul. We are
developing this product in conjunction with Dr. Deepak Chopra based on his
research in mind/body connectivity. We believe this product will offer women
practical approaches to achieve a sense of well-being in midlife. We expect the
product to consist of a videotape, audio tape and booklet. Dr. Chopra has sold
over 10 million books and numerous audio and video tapes and has achieved
worldwide recognition in his field. 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 relating to yoga, meditation and other selected topics.
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.
Newsletter. We created the My Generation, My Choice(TM) subscription
newsletter to provide a credible source of practical, on-going information on
health care topics for midlife women. The newsletter is being published under
the direction of the Health Advisory Board in an upbeat, lively, easy-to-read
and concise fashion. The My Generation, My Choice(TM) newsletter will cover a
broad range of health and lifestyle topics, such as the physical and emotional
issues surrounding menopause, the use of hormonal replacement therapy, the
integration of exercise and proper nutrition into a busy schedule and articles
related to alternative medicine. We recently published the first issue of the
newsletter in January 1999 and intend to publish issues six times per year.
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 second 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. 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.
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
Minimum Purchases;" "-- Many of Our Product Agreements May Be Terminated,"
"-- We are Dependent on the Acceptance
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by Midlife Women and Their Clinicians of the Products We Offer"; and "-- Some of
the Products We Offer Face Specific Challenges."
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 55 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
the development of our Internet site, WOMENFIRST.COM, that we plan to launch by
mid-1999. Through this site, we intend to provide extensive educational
information for women and 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, information
on upcoming educational events across the country and chat rooms for women to
discuss midlife health issues with each other. In addition, we are designing the
site to allow women to shop online for our consumer products and to contain a
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
intend to place on the WOMENFIRST.COM Internet site, we believe that the site
will be an attractive web link and have initiated discussions with major web
sites of interest to women to establish links with the WOMENFIRST.COM Internet
site. Our subsidiary As We Change, LLC, has entered into an agreement with
iVillage Inc. under which iVillage will establish 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(TM). We established Women First Pharmacy
Services(TM) 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(TM) 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(TM) 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.
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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.(TM)
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 90,000 orders and currently has an in-house database of
nearly 100,000 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 is
developing 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
our company, the Mount Sinai School of Medicine and the Women's Health Care
Education Foundation will sponsor and develop 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 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 will
be disseminated to clinicians across the country. This video monograph describes
the Health Advisory Board's position on clinical issues affecting women in
midlife. The conference content will be 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 will develop "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.
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The Women First Consumer Education Program. We are developing 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 will include 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 our WOMENFIRST.COM Internet site, which we plan to launch in
mid-1999.
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 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 will be responsible for the supply of the Pravachol(R)
product in all distribution channels. See "Risk Factors -- We Are Dependent on a
Small Number of Suppliers."
Initially, we intend to engage independent companies specializing in the
distribution of pharmaceutical and medical products to pharmacies and hospitals
to provide physical distribution and logistics management for the pharmaceutical
and medical device products we distribute. Livingston Healthcare Services, Inc.
currently provides these services.
COMPETITION
The health care industry is highly competitive. Most of our competitors and
those of our collaborative partners are large well-known pharmaceutical, life
science and health care companies that have considerably greater financial,
sales, marketing and technical resources than we have. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. The pharmaceutical industry is characterized by continuous
product development and technological change. The pharmaceuticals we market and
distribute could be rendered obsolete or uneconomical by pharmaceuticals
developed by competitors, technological advances affecting the cost of
production, or marketing or pricing action by one or more competitors. In
addition, competitors may elect to devote substantial resources to marketing
their products to midlife women and may choose to develop educational and
information programs like those we have developed to support their marketing
efforts. Our business, financial condition and results of operations could be
materially and adversely affected by any one or more of such developments.
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, 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.,
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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(TM) 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(TM) may
also compete with FDA-approved pharmaceuticals. Each of these competitors has
substantially greater marketing, sales and financial resources than we do. See
"Risk Factors -- The Health Care Industry Is Very Competitive."
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. See "Risk
Factors -- The Health Care Industry Is Very Competitive."
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 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 (collectively, "Covered Physicians") 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 Covered
Physicians (less a specified credit) and for the training of our sales force
relating to the
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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 Covered Physician education. Bristol-Myers
Squibb compensates us with a performance fee paid quarterly based upon the
number of prescriptions written by Covered Physicians 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 Covered Physicians 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 Covered Physicians 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 our company, or (3) any person becoming the beneficial owner of 50% of the
combined voting power of our company. 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 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 (IPM) for the development of a product entitled
Midlife Renewal and Transformation for Body, Mind and Soul. IPM 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 IPM 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. IPM has
granted us a non-exclusive worldwide license to utilize trademarks owned or
controlled by IPM or Dr. Chopra that relate to the marketing and sale of the
Midlife Renewal product and any additional products developed with Dr. Chopra.
Further, in consideration of the license granted, we must pay IPM a percentage
of the profits (based on a formula set forth in the agreement)
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with respect to each product. In the event that we do not sell any product in
the United States by December 31, 2000, IPM 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.
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.
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
Minimum Purchases" and "-- Many of Our Product Agreements may be Terminated."
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.
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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.
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 Midlife Renewal and Transformation for Body, Mind and Soul,
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 US 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 IPM. 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 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
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adverse effect on our business, financial condition and results of operations.
See "Risk Factors -- Intellectual Property Rights Are Important to Our Success."
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, United States
Department of Agriculture, 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.
Pharmaceuticals. All pharmaceutical firms, including manufacturers from
whom the Company licenses or distributes products, are subject to regulation by
the FDA. 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. In
certain circumstances, the FDA may also regulate the content of educational
programs and informational materials sponsored by pharmaceutical firms.
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. 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. Both FDA and DEA may
impose criminal penalties arising from non-compliance with applicable
regulations. Any restriction or prohibition applicable to sales of products we
market could materially adversely affect our business, financial condition, and
results of operation.
In order for a manufacturer to obtain a New Drug Application approval for a
drug, the FDA generally requires each of the following steps and possibly others
to be conducted: (1) preclinical testing (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
NDA prior to any commercial sale or shipment.
Clinical trials for new products are typically conducted in three
sequential phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy volunteers, the emphasis is on testing for safety
(adverse effects), dosage tolerance, metabolism, distribution, excretion, and
clinical pharmacology. Phase II involves studies in a limited patient population
to determine the initial efficacy of the pharmaceutical for specific targeted
indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks. Once a compound is found to be
effective and to have an acceptable safety profile in Phase II evaluations,
Phase III trials are undertaken to more fully evaluate clinical outcomes. The
FDA reviews both the clinical plans and the results of the trials and may
require the study to be discontinued at any time if there are significant safety
or other regulatory issues.
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Once an application is submitted, FDA approval generally takes from one to
two years but may take longer, or approval may be denied. The approval process
may be affected by a number of factors, including the severity of the side
effects, and the risks and benefits demonstrated in clinical trials. Additional
animal studies or clinical trials may be requested during the FDA review process
and may delay marketing approval. After FDA approval for the initial indication,
further clinical trials are generally necessary to gain approval to market the
product for any additional indications. The FDA may also require post-marketing
testing and surveillance to monitor for adverse effects, which can involve
significant additional expense.
Abbreviated New Drug Application approval is required for most drug
products that are duplicates or generic versions of "original" drug products
that have already been the subject of FDA review and approval. The applicant is
generally required to demonstrate that its version is properly manufactured and
labeled, is bioequivalent to the original product and is stable after
manufacture. ANDA approvals typically take from one to two years to obtain from
the date of the initial application, although the time required varies greatly
depending upon the particular drug product and dosage form involved. There can
be no assurance that the FDA will approve a particular ANDA, or that the FDA
will agree that an ANDA is a suitable vehicle through which to secure marketing
approval for a particular product.
In addition to obtaining approval for each drug product, the drug
manufacturing facility must be registered with and approved by FDA and must list
with the Agency the drug products it intends to distribute. The manufacturer is
subject to biennial inspections by the FDA and periodic inspections by other
regulatory agencies.
With regard to the practice of sampling pharmaceutical products as part of
the marketing of drug products to prescribing physicians, our activities are
subject to the Prescription Drug Marketing Act which authorizes regulation of
such activities at both the federal and state level. Under the Prescription Drug
Marketing Act, states are permitted to require registration of manufacturers and
distributors who provide sample pharmaceuticals even if such manufacturers or
distributors have no place of business within the state. States are also
permitted to adopt regulations limiting the distribution of sample products to
licensed practitioners. The Prescription Drug Marketing Act also imposes
extensive recordkeeping, packaging, quantity and labeling requirements intended
to prevent the sale of sampled pharmaceutical products or other diversion from
their intended use.
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 which 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.
Medical Devices. The Medical Device Amendments to the Federal Food, Drug,
and Cosmetic Act, promulgated in May 1976, granted authority to the FDA to
regulate the manufacture and distribution of medical devices and diagnostics
placed in interstate commerce. Medical devices have been categorized based on a
class of regulatory control appropriate to the level of risk associated with the
use of the device or diagnostic. Class I products are subject only to general
controls which are sufficient to provide reasonable assurance of safety and
effectiveness and in some instances, the submission of 510(k) pre-market
notifications.
Class II products are subject to special controls and generally require the
submission of a 510(k) premarket notification to the FDA prior to commercial
distribution of the product. This notification is designed to demonstrate that
the device is substantially equivalent to products on the market prior to the
promulgation of the device amendments or to products legally being
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marketed. The FDA may determine that a proposed device or diagnostic test is not
substantially equivalent to a legally marketed product or that additional
information is needed before a substantial equivalence determination may be
made. A "not substantially equivalent" determination, or a request for
additional information, could prevent or delay market introduction of new
products that fall into this category. For devices or diagnostics that are
cleared through the 510(k) process, any modifications or enhancements made that
could significantly affect safety or effectiveness or constitute a major change
in the intended use of the product may require a new 510(k) submission. The time
it takes for the FDA to review a 510(k) submission for premarket clearance
ranges between two months to one year or longer.
Class III products are subject to the highest level of control and require
the submission, in most instances, of a Premarket Approval Application. The
Premarket Approval Application is designed to demonstrate, based on clinical
investigations with human subjects, that the device is safe and effective for
its intended use. A Premarket Approval Application must be supported by valid
scientific evidence to demonstrate safety and effectiveness of the device
including the results of clinical investigations and laboratory testing. The
application must also contain a detailed description of the product and its
components, the methods, facilities, and controls used to manufacture the
product, and proposed labeling and advertising materials. Premarket Approval
Application review and approval typically take between one to two years but may
take longer.
In addition to obtaining FDA approval or clearance to market a medical
device or diagnostic, 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.
Dietary Supplements. The manufacturing and production of dietary
supplements has historically been subject to less intensive regulation than
pharmaceutical products. Under the Dietary Supplement Health & Education Act of
1994, the FDA may exercise increased authority over the labeling and sales of
dietary supplements. In addition, the United States Postal Service regulates
claims with respect to products sold by solicitation 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.
Regulations issued by the FDA require the relabeling of dietary supplements
to comply with the requirements of ingredient information and nutrient content
claims and will become fully effective on March 23, 1999. In February 1997, FDA
issued an advance notice of proposed rulemaking which would apply current Good
Manufacturing Practices standards to the formulation and manufacture of all
dietary supplements. Until a final regulation establishes current Good
Manufacturing Practices for dietary supplements, FDA's general current Good
Manufacturing Practices food regulations will apply.
With respect to formulations which include ingredients not marketed as or
included in dietary supplements prior to October 1994, premarket notification of
the FDA is now required 75 days in advance of marketing. Premarket notifications
are required to be accompanied by studies or other evidence concerning the
safety and efficacy of the product or ingredient. We do not currently market
dietary supplements which contain ingredients not used as ingredients in
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dietary supplements prior to October 1994. Regulations applicable to the use of
formulations including new ingredients, and possible patent claims in respect of
such formulations including new ingredients, may make it more difficult for
manufacturers of dietary supplements to replicate competitors' formulations or
variants thereof.
Pharmacy Regulations. Our business plan includes the operation of a
pharmacy, Women First Pharmacy Services, through which we dispense drug
products, including compounded drug products, to patients who have doctors'
prescriptions. Women First Pharmacy Services is subject to state and federal
regulation, including regulation by state pharmacy boards. These sources of
regulation may restrict or prohibit us from advertising or otherwise promoting
or selling compounded pharmaceuticals. In addition, pharmacies are subject to
regulation by other federal and state agencies with respect to reimbursements
for prescription drug benefits provided to individuals covered primarily by
publicly funded programs.
The 1997 Food and Drug Administration Modernization Act contains provisions
restricting the advertising, promotion, and sale of compounded products. This
new law includes, among other elements, a strict limit on the compounding of
drugs that are essentially copies of FDA-approved drug products, and a proposed
restriction on the amount of compounded drugs that can be shipped in interstate
commerce by a given pharmacy. Based on this legislation, the FDA could seek to
force us to discontinue compounding and selling the micronized progesterone
product and other products compounded by Women First Pharmacy Services(TM) 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. The Federal Food, Drug, and Cosmetic Act defines
cosmetics as articles intended to be applied to the human body for cleansing,
beautifying, promoting attractiveness or altering the appearance without
affecting the body's structure or functions. The FDA regulates the labeling on
cosmetic products and is not able to 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.
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. See "Risk
Factors -- Regulatory Matters Could Affect Our Ability to Conduct Our Business"
and "-- We Are Dependent on the Availability of Reimbursement for the
Pharmaceutical Products We Offer."
EMPLOYEES
As of February 28, 1999, we employed 116 full-time people, of whom 65 were
employed in sales and marketing, 16 were employed in operations, five were
employed in education and program development and 30 were employed in
administration. None of our employees are
49
<PAGE> 51
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 technical 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. See "Risk Factors -- Our
Success is Dependent on Our Ability to Manage Growth" and "-- We Are Dependent
on the Principal Members of Our Management Team."
FACILITIES
We are headquartered in facilities consisting of approximately 13,400
square feet in San Diego, California, pursuant to a lease expiring in August
2003. As We Change, LLC is headquartered in facilities consisting of
approximately 6,000 square feet in San Diego, California, pursuant to a lease
expiring in July 2000.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
SEASONALITY
Catalog sales are typically higher in the fourth calendar quarter due to
larger catalog circulation, merchandising improvements during the year, and some
increase in consumer buying surrounding the holiday season. We anticipate this
trend will continue.
50
<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND MEDICAL DIRECTOR
The following table sets forth certain information with respect to the
executive officers, directors and consulting medical director 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
Harold L. Krell..................... 54 Vice President, Professional Education
Nancy J. Casey...................... 47 Vice President, Public Relations
Julie G. Martin..................... 43 Vice President, Catalog Operations
Dale F. Steele...................... 52 Vice President, Catalog Operations
Meredith A. Brokaw.................. 58 Director
JoAnn Heffernan Heisen(1)(2)........ 49 Director
Gary V. Parlin(2)................... 57 Director
Richard L. Rubin(1)................. 70 Director
John Simon(1)....................... 56 Director
Florence Comite, M.D. .............. 47 Consulting Medical 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
51
<PAGE> 53
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 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 April 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
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<PAGE> 54
Program Development in February 1998 and currently holds this position. From
November 1995 until joining Women First, Ms. Crawford was a research analyst
with Calesa Associates specializing in investment opportunities in health care
companies. From October 1991 to 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.
Harold L. Krell joined Women First in March 1999 as Vice President,
Professional Education. From October 1996 until joining Women First, Mr. Krell
was Executive Vice
53
<PAGE> 55
President of Health Learning Systems, Inc. From September 1993 to September
1996, Mr. Krell served as the Chief Executive Officer of American Medical
Communications. Mr. Krell was Senior Vice President at American Express Health
Care Systems from November 1990 to September 1993. From July 1986 to August
1990, Mr. Krell served as the Executive Vice President of Lifecard
International. From 1983 to 1986, he was the President of Micromed, Inc., and
from 1982 to 1983, he was Vice President of Operations at Health Learning
Systems. Mr. Krell holds a B.A. in accounting from Union College.
Nancy J. Casey joined Women First in October 1998 as Vice President,
Catalog Operations and in February 1999 became Vice President, Public Relations.
From August 1995 until October 1998, Ms. Casey was a Co-Chief Executive Officer
of As We Change, LLC and was a co-founder of that company. From June 1985 to
January 1997, Ms. Casey was the owner of Nancy Casey Public Relations. Ms. Casey
was a Sales Assistant with Dale Fitzmorris from 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.
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.
JoAnn Heffernan Heisen has served as a Director of Women First since
February 1998. Since January 1997 Ms. Heisen has served as Vice President, Chief
Information Officer and a member of the Executive Committee with Johnson &
Johnson. Ms. Heisen joined Johnson & Johnson in March 1989 as Assistant
Treasurer and Investor Relations Officer. She served as Corporate Controller at
Johnson & Johnson from May 1995 to December 1996 and as Treasurer from October
1991 to May 1995. From 1982 to 1989, Ms. Heisen was Vice President, Corporate
Affairs at Primerica Corporation and a member of its Executive Committee. Ms.
Heisen holds a B.A. in economics from Syracuse 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
54
<PAGE> 56
retirement, he was a Company Group Chairman and previously had worldwide
responsibility for the Cilag Pharmaceutical Group and Ortho Biotech. Mr. Parlin
joined Ortho Pharmaceutical Corporation in 1964 and held a number of sales and
marketing positions. In 1997, he was promoted to Vice President, Sales and
Marketing and a became a member of the Ortho Pharmaceutical Corporation Board of
Directors at that time. In 1980, Mr. Parlin was appointed Managing Director of
Ortho-Cilag Limited and in 1983 he was named President of Ortho Pharmaceuticals,
Inc. Mr. Parlin was appointed to the Pharmaceutical/Diagnostics Group Operating
Committee in 1985. Mr. Parlin holds a B.S. in business from California State
University, San Jose.
Richard L. Rubin, Ph.D. has served as a Director of Women First since
November 1996 and held the positions of Vice President from December 1996 to
March 1998, Secretary from 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.
Florence Comite, M.D. joined Women First in May 1998 as Medical Director on
a part-time consulting basis. Dr. Comite is an Associate Clinical Professor at
Yale University School of Medicine. Dr. Comite founded, and directed until June
1998, Women's Health at Yale as an Associate Professor in Endocrinology,
Departments of Internal Medicine, Pediatrics and Obstetrics and Gynecology. She
joined the Yale faculty in 1985. From January 1994 to December 1997, Dr. Comite
was Deputy Medical Director of Patient Education Media, Inc. (Time Life
Medical). From August 1994 to August 1995, she was Senior Clinical and Research
Advisor to the National Institutes of Health Offices of Alternative Medicine and
Research in Women's Health. Dr. Comite received a B.S. from Brooklyn College of
the City University of New York in 1973, and an M.D. from Yale University School
of Medicine in 1976. She completed her residency at Yale. Dr. Comite completed
an NIH fellowship at the National Institute of Child Health and Human
Development in Reproductive Endocrinology (Medicine, Gynecology, and
Pediatrics), and remained at National Institutes of Health as a Senior Clinical
Associate until 1984.
CLASSIFIED BOARD OF DIRECTORS
The Company'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 JoAnn
Heffernan Heisen will be Class II directors, and Edward F. Calesa, David F. Hale
and Gary V. Parlin will be Class III
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<PAGE> 57
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, JoAnn Heffernan Heisen and Richard L. Rubin.
Compensation Committee. The Compensation Committee determines compensation
for the Company's senior management and administers the Women First Long-Term
Incentive Plan. The members of the Compensation Committee are Gary V. Parlin and
JoAnn Heffernan Heisen.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Edward F. Calesa, the Chairman of the Board of Women
First, JoAnn Heffernan Heisen, a Director of Women First and Gary V. Parlin, a
Director of Women First, served on the Compensation Committee of the Board of
Directors. Mr. Calesa is an employee of Women First and receives an annual
salary of $350,000 per year. He is a party 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 has also
agreed to purchase $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 agreed to purchase $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. 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 has also
agreed to purchase $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. See "Certain
Transactions."
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<PAGE> 58
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 the Company 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
the Company, currently has a consulting arrangement with the Company pursuant to
which Mr. Parlin receives fees of $5,000 per month. Outside directors of Women
First who are not employees of Women First also are eligible to receive stock
options under the Women First Long-Term Incentive Plan. See "-- Long-Term
Incentive Plan."
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of our
President and Chief Executive Officer and our four most highly compensated
executive officers other than the President and Chief Executive Officer who were
serving as executive officers at the end of the last completed fiscal year (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------ COMPENSATION
OTHER ANNUAL SHARES ALL OTHER
NAME AND COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#) ($)
------------------ ---- --------- -------- ------------ ------------ ------------
<S> <C> <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. 1998 175,192 -- -- 45,750 --
Maris(5)...........
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 April 1, 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
$31,362 in 1998.
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<PAGE> 59
(5) Mr. Maris resigned as Vice President, Finance and Secretary on February 10,
1999. He currently provides periodic consulting services to the Company.
OPTION GRANTS AND EXERCISES
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1998 to
the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTION EMPLOYEES IN PRICE EXPIRATION -------------------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/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% $0.84 3/30/08 5,340 32,574 74,632
</TABLE>
- -------------------------
(1) The potential realizable values are based on an assumption that the price of
our common stock will appreciate at the annual rate shown (compounded
annually) from the date of grant until the end of the option term. These
values do not take into account amounts required to be paid as income taxes
under the Internal Revenue Code and any applicable state laws or option
provisions providing for termination of an option following termination of
employment, non-transferability or vesting. These amounts are calculated
based on the requirements promulgated by the Securities and Exchange
Commission and do not reflect our estimate of future stock price growth of
the shares of our common stock.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information concerning exercises of options to
purchase the Company's common stock in the fiscal year ended December 31, 1998
and unexercised options held as of December 31, 1998 by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE EXERCISABLE(#)/ EXERCISABLE($)/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(#) UNEXERCISABLE($)
---- ----------- ----------- ---------------------- ---------------------
<S> <C> <C> <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>
- -------------------------
(1) Calculated 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.
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<PAGE> 60
EMPLOYMENT AGREEMENTS
The Company 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 the Company 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. Pursuant to the agreement,
the Company may immediately terminate the employment agreement for cause or upon
the permanent disability of Mr. Calesa. If the Company terminates the employment
agreement for the "permanent disability" of Mr. Calesa or if Mr. Calesa
terminates for "good reason" (as such terms are defined in the employment
agreement), 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 -- We Are Dependent on the Principal Members of Our Management Team."
David F. Hale entered into an employment agreement with the Company for a
term of five years commencing January 14, 1998. Pursuant to this agreement, Mr.
Hale is entitled to receive a base annual salary of $350,000, which is subject
to increase upon annual review by the Compensation Committee of the Board of
Directors. Mr. Hale may receive a bonus for each fiscal quarter of $25,000 based
upon Mr. Hale's and the Company's performance. Further, Mr. Hale is entitled to
participate in the Women First HealthCare Management Incentive Compensation Plan
and may receive an annual bonus in addition to his quarterly bonus. Under the
employment agreement, the Company agreed to grant Mr. Hale options to purchase
up to 576,450 shares of the Company'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 the Company's common stock, at an exercise price of
$0.84 per share, which will vest over a four-year period in equal daily
installments. The Company may terminate the agreement with or without cause or
in the event Mr. Hale becomes permanently disabled. If the Company terminates
the agreement for cause (as defined in the employment agreement), Mr. Hale would
be entitled to receive any unpaid portion of his base salary, any bonus earned
but not paid and any insurance benefits. Mr. Hale, however, would forfeit any
unvested stock rights and stock options. The vested portion of Mr. Hale's stock
rights and stock options may be exercised for a period of one year from
termination. If the Company terminates Mr. Hale without cause or if Mr. Hale
terminates for "good reason" (as such term is defined in employment agreement),
the Company must make a severance payment equal to (1) the amount of his base
salary for the longer of 15 months or the remainder of what would have been the
term of the agreement, (2) the quarterly bonus for what would have been the
remainder of the term; (3) 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 certain conditions); and (4) life and disability insurance
benefits pursuant to any insurance purchased by the Company for Mr. Hale's
benefit. 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. If Mr. Hale's employment is terminated by reason of his
death, Mr. Hale's estate will be entitled to receive (1) the amount of his base
salary for one year, (2) the quarterly bonus applicable to the calendar quarter
in which his death occurs and each of the three calendar quarters following such
quarter, (3) the full prior year's bonus under the Women First HealthCare
Management Incentive Compensation Plan, and (4) life insurance benefits pursuant
to any life insurance purchased by the Company for Mr. Hale's benefit. The
agreement also contains confidentiality
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and non-compete provisions and other terms and conditions customary to executive
employment agreements. See "Risk Factors -- We Are Dependent on the Principal
Members of Our Management Team."
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
the Company'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 the Company's 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 the
Company'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" (as such terms are defined in the employment agreements). 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.
401(K) PLAN
Women First maintains a savings plan (the "401(k) Plan") qualified under
Section 401(a) and 401(k) of the Internal Revenue Code. Generally, all employees
of the Company who are at least 21 years of age are eligible to participate in
the 401(k) Plan. The Company may make discretionary matching contributions of up
to 4% of a participant's compensation to the 401(k) Plan, but the Company 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 the Company
and its subsidiaries ("Eligible Persons") of outstanding ability and to promote
the identification of their interests with those of the stockholders of the
Company. 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 the Company. In no event may the
number of awards issued under the Plan during any 12-month period exceed 15% of
the Company'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.
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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 the Company'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 February 28, 1999, Women First had
granted options to purchase an aggregate of 72,895 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 the Company, sale of all or substantially all of the Company'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 the Company.
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 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 the Company 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.
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As of February 28, 1999, the Committee has granted currently outstanding
options to purchase 1,980,909 shares of common stock under the Plan, at exercise
prices ranging from $0.84 to $4.81. 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 February 28, 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 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 the Company. The Compensation Committee, however, is responsible for
approving any incentive awards to officers of the Company 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
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<PAGE> 64
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 and manager-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 the Company'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 the Company 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 the Company
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 certain information as of February 28, 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 the
Company's common stock; (b) each director of the Company; (c) the Named
Executive Officers; and (d) all directors and executive officers of the Company
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.
<TABLE>
<CAPTION>
PERCENT OWNERSHIP
SHARES --------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OWNED(1) OFFERING(1) OFFERING(2)
---- ------------ ----------- -----------
<S> <C> <C> <C>
Edward F. Calesa................................ 5,283,324 43.9%
David F. Hale(3)................................ 422,172 3.4
Jeffrey W. Raser(4)............................. 12,503 *
Robert L. Jones(5).............................. 13,506 *
Anthony P. Maris(6)............................. 45,750 *
Meredith A. Brokaw(7)........................... 4,408 *
JoAnn Heffernan Heisen(8)....................... -- --
Gary V. Parlin(9)............................... 21,518 *
Richard L. Rubin................................ 183,000 1.5
John Simon...................................... -- *
Johnson & Johnson Development Corporation(10)... 1,852,875 15.1
Randi C. Crawford(11)........................... 1,062,047 8.8
Jeff E. Calesa(12).............................. 763,121 6.3
Executive officers and directors as a group
(14 persons)(13).............................. 7,014,668 55.7
</TABLE>
- -------------------------
* Less than 1%
(1) 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 are based on
12,047,487 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.
(2) Percentage ownership calculations after the offering are based on
shares of common stock outstanding, giving effect to the
issuance of a total of 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.
(3) Includes 18,300 shares held by the David F. & Linda C. Hale Trust, of which
Mr. Hale is a trustee. Also includes 403,872 shares subject to options
exercisable within 60 days of the date of this table.
(4) Includes 12,503 shares subject to options exercisable within 60 days of the
date of this table.
(5) Includes 13,506 shares subject to options exercisable within 60 days of the
date of this table.
(6) Includes 45,750 shares subject to options exercisable within 60 days of the
date of this table.
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<PAGE> 70
(7) Includes 4,408 shares subject to options exercisable within 60 days of the
date of this table.
(8) Excludes the shares owned by Johnson & Johnson Development Corporation
described in footnote 10 below. Ms. Heisen is an officer of Johnson &
Johnson, which owns and controls Johnson & Johnson Development Corporation,
but she disclaims beneficial ownership of the shares owned by Johnson &
Johnson Development Corporation.
(9) Includes 21,518 shares subject to options exercisable within 60 days of the
date of this table.
(10) The address for Johnson & Johnson Development Corporation is One Johnson &
Johnson Plaza, New Brunswick, NJ 08932. Includes 205,875 shares subject to
currently exercisable warrants.
(11) Includes 27,450 shares subject to options exercisable within 60 days of the
date of this table. Ms. Crawford is Edward F. Calesa's daughter and Jeff
Calesa's sister.
(12) Jeff E. Calesa is Edward F. Calesa's son and Randi Crawford's brother. Mr.
Calesa's address is c/o Women First HealthCare, Inc., 12220 El Camino Real,
Suite 400, San Diego, CA 92130.
(13) See notes (3) - (7) and (9). Also includes 12,190 shares subject to options
exercisable within 60 days of the date of this table held by Jeanne-Marie
Varga.
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<PAGE> 71
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.
The Company 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. The Company 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, the Company 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, the Company
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, the
Company'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, the Company'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. The Company
also issued warrants to purchase 205,875 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 274,500 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 % of
the Company's outstanding common stock. In addition, JoAnn Heffernan Heisen, a
Director of the Company, is the Vice President, Chief Information Officer and a
member of the Executive Committee of Johnson & Johnson. John Simon, a Director
of the Company, is a managing director with Allen & Company Incorporated.
In July 1998, the Company 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, the Company paid $2.5 million to
Ortho-McNeil pursuant to the Ortho-Est(R) agreement. See "Business--Licensing
and Co-Promotion Agreements."
Johnson & Johnson Development Corporation agreed to purchase 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 agreed to purchase
$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, agreed to purchase $110,000 principal amount
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<PAGE> 72
of the short-term notes and warrants to purchase 892 shares of common stock for
$110,000. These short-term notes bear interest at a rate of 9% per annum,
payable quarterly. All principal and unpaid interest is due and payable on March
1, 2000. The notes may be prepaid by the Company without penalty.
Gary V. Parlin, a Director of the Company, has a consulting arrangement
with the Company pursuant to which Mr. Parlin receives a monthly consulting fee
of $5,000. Mr. Parlin agreed to purchase $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. To secure its
obligations under the purchase agreement, Women First pledged all of the
membership interests in As We Change, LLC to the former holders of the
membership interests in MenoMorphosis, LLC, including Ms. Martin, Ms. Casey and
Ms. Steele.
The Company 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 the
Company's wholly owned subsidiary As We Change, LLC. See
"Management -- Employment Agreements."
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<PAGE> 73
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have
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 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
the Company, as such term is defined under Rule 144 under the Securities Act. Of
the 12,047,487 shares of common stock outstanding as of February 28, 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 the Company covering the 180-day period
commencing on the date of the underwriting agreement. Bear, Stearns & Co. Inc.
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," as
that term is defined in Rule 144, 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 the Company. 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 12,047,487 shares outstanding as of February
28, 1999, affiliates hold 8,996,506 shares. Of the shares owned by
non-affiliates, 303,963 shares have been held by such non-affiliates in excess
of two years. See "Risk Factors -- Existing Stockholders May Sell Their Common
Stock."
Any employee, officer, director, advisor or consultant to the Company 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 the Company becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934.
As of February 28, 1999, there were outstanding stock options to purchase
an aggregate of 1,980,909 shares of common stock, of which 577,913 are presently
exercisable or exercisable within 60 days. All outstanding stock options are
held by executive officers or employees of and certain consultants to the
Company.
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. See "Risk
Factors -- There Has Been No Prior Market for Our Common Stock and the Market
Price of Our Shares Will Fluctuate" and "-- Existing Stockholders May Sell Their
Common Stock."
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<PAGE> 74
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 (the "Certificate") and the Amended and
Restated Bylaws (the "Bylaws") to be adopted prior to the consummation of the
offering. Forms of the Certificate and Bylaws are included as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
As of February 28, 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 4,338,334 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 the Company in the offering, when issued and paid for,
will be, fully paid and nonassessable. The rights, preferences and privileges of
holders 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 the Company may
designate and issue in the future. See "Risk Factors -- Our Stock Ownership Will
Continue to be Concentrated in the Hands of Management and Existing
Stockholders."
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. Thereafter, 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> 75
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 the Company. 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. The Company currently has no plans to issue any
additional shares of preferred stock.
WARRANTS
The Company has issued two classes of warrants to purchase an aggregate of
541,131 shares of common stock, subject to certain adjustments.
Series A Preferred Stock Financings. The Company issued warrants to
purchase an aggregate of 480,375 shares of common stock to Johnson & Johnson
Development Corporation and Allen & Company Incorporated in connection with the
Company's Series A Preferred Stock financing. Each of the warrants currently
entitles the holder to purchase shares of the Company'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. The Company agreed to issue 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 the Company'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 the Company'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 the Company's
common stock or securities convertible into common stock which results in gross
proceeds to the Company of at least $1,000,000, if the Company 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.
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
The following is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL") and the Certificate and Bylaws. This
summary does not purport to be complete and is qualified in its entirety by
reference to the DGCL, the Certificate and the Bylaws.
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<PAGE> 76
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.
Certain provisions of the Certificate 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 the Company 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 the Company and its
stockholders. These provisions also are designed to reduce the vulnerability of
the Company to an unsolicited proposal for a takeover of the Company 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 the Company
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 the Company's stockholders.
Classified Board of Directors. The Certificate 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 JoAnn Heffernan Heisen, 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 the Company 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 the
Company. 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
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 also provides that special meetings of
stockholders may be called only by the Board of Directors, its Chairman, the
President or the Secretary of the Company. 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 the Company (the
"Stockholder Notice Procedure"). 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 the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The
Stockholder Notice Procedure also provides that at an annual
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<PAGE> 77
meeting only such business may be 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 the Company 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 the
Company 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, such business shall not be
discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The Certificate 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 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. The Company has included in its Certificate 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. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers. The
Company also intends to enter into indemnification agreements with certain
officers and directors upon consummation of the offering.
Bylaws. The Certificate 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.
Certain provisions of the Certificate and Bylaws and the DGCL could
discourage or prevent an acquisition of our company. See "Risk
Factors -- Anti-Takeover Provisions in Our Certificate of Incorporation and
Bylaws Could Discourage or Prevent an Acquisition of Our Company."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Women First Common Stock is
.
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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 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 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 Bear, Stearns &
Co. Inc. and Allen & Company Incorporated, 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>
Bear, Stearns & Co. Inc.....................................
Allen & Company Incorporated................................
---------
Total.............................................
=========
</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 additional shares of common stock to cover over-allotments, if any, at
the same price per share as the initial 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.
78
<PAGE> 80
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 Bear, Stearns & Co. Inc.:
- 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.
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 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
79
<PAGE> 81
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.
Each underwriter has agreed that (1) it has not offered or sold, and will
not offer or sell, any shares to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which do not constitute an offer to the
public in the United Kingdom for the purposes of the Public Offers of Securities
Regulations 1995, (2) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares in, from or otherwise involving the United Kingdom
and (3) it has only issued or passed on, and will only issue or pass on, to any
person in the United Kingdom any document received by it in connection with the
offer or sale of the shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or who is a person to whom the document may
otherwise lawfully be issued or passed on.
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."
Anthony P. Maris, a former Vice President, Finance and Secretary of Women
First who currently provides periodic consulting services to Women First, is the
father of David Maris, a Managing Director of Bear, Stearns & Co. Inc. See
"Management -- Executive Compensation"; "-- Option Grants and Exercises";
"-- Option Exercises and Fiscal Year-End Values"; and "Principal Stockholders."
80
<PAGE> 82
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
The Company 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 the
Company 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, the Company 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 the Company 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.
81
<PAGE> 83
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...................................................... 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................ 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... 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................ F-6
Notes to Consolidated Financial Statements.................. F-7
AS WE CHANGE
Report of Independent Auditors.............................. F-18
Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)............................ F-19
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-20
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-21
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-22
Notes to Financial Statements............................... F-23
PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Statement of Operations for the year ended
December 31, 1998 (unaudited)............................. F-26
</TABLE>
F-1
<PAGE> 84
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 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 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> 85
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- DECEMBER 31,
1997 1998 1998
----------- ------------ --------------
(UNAUDITED)
(See Note 1)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 567,300 $ 4,438,445
Accounts receivable, net........................ -- 1,114,283
Inventory....................................... -- 1,205,597
Prepaid expenses and other current assets....... 71,251 673,569
----------- ------------
Total current assets..................... 638,551 7,431,894
Property and equipment, net....................... 65,609 690,912
Intangible assets, net............................ -- 3,922,847
Other assets...................................... 71,910 458,010
----------- ------------
Total assets............................. $ 776,070 $ 12,503,663
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 126,374 $ 1,473,674
Accrued salaries and employee benefits.......... -- 1,307,167
Other accrued liabilities....................... 118,652 1,287,312
----------- ------------
Total current liabilities................ 245,026 4,068,153
Deferred credit................................... -- 487,593
Commitments
Stockholders' equity:
Series A convertible preferred stock, $.01 par
value; 2,200,000 shares authorized; 1,650,000
shares issued and outstanding at December 31,
1998 (no shares issued and outstanding pro
forma); preference in liquidation of
$17,440,000................................... -- 16,500 $ --
Series B convertible preferred stock, $.01 par
value; 690,000 shares authorized; 398,540
shares issued and outstanding and 195,460
shares to be issued at December 31, 1998 (no
shares issued and outstanding pro forma);
preference in liquidation of $3,010,000....... -- 5,940 --
Common stock, $.01 par value; 40,000,000 shares
authorized; 8,026,310 shares issued and
7,685,993 shares outstanding at December 31,
1997 and December 31, 1998, (11,408,141 shares
issued and 11,067,824 shares outstanding pro
forma)........................................ 76,860 76,860 110,678
Treasury stock.................................. (96,597) (96,597) (96,597)
Additional paid-in capital...................... 2,278,215 20,102,627 20,091,249
Deferred compensation........................... -- (560,003) (560,003)
Accumulated deficit............................. (1,727,434) (11,597,410) (11,597,410)
----------- ------------ ------------
Total stockholders' equity............... 531,044 7,947,917 $ 7,947,917
----------- ------------ ============
Total liabilities and stockholders'
equity................................. $ 776,070 $ 12,503,663
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 86
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996
(INCEPTION)
THROUGH YEARS ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1996 1997 1998
------------ ----------- ------------
<S> <C> <C> <C>
Net revenue............................... $ -- $ -- $ 4,834,196
Costs and expenses:
Cost of sales........................... -- -- 3,135,707
Marketing and sales..................... -- 790,703 5,478,056
General and administrative.............. -- 975,244 5,912,066
Research and development................ -- -- 572,688
---------- ----------- ------------
Total costs and expenses........ -- 1,765,947 15,098,517
---------- ----------- ------------
Loss from operations...................... -- (1,765,947) (10,264,321)
Interest income........................... -- 38,513 394,345
---------- ----------- ------------
Net loss.................................. $ -- $(1,727,434) $ (9,869,976)
========== =========== ============
Net loss per share (basic and diluted).... $ -- $ (0.23) $ (1.28)
========== =========== ============
Weighted average shares used in computing
net loss per share
(basic and diluted)..................... 6,806,353 7,551,484 7,685,993
========== =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 87
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
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) $20,102,627
========= ======= ======= ====== ========= ======= ======== ===========
<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
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) $(11,597,410) $ 7,947,917
=========== ========= ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 88
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996 (INCEPTION) YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, --------------------------
1996 1997 1998
---------------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................. $ -- $(1,727,434) $(9,869,976)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... -- 16,275 161,898
Amortization of intangibles............ -- 4,652 79,751
Amortization of deferred
compensation........................ -- -- 112,439
Changes in operating assets and
liabilities, net of effect of
acquisition:
Accounts receivable................. -- -- (1,113,718)
Inventory........................... -- -- (1,013,306)
Prepaid expenses and other current
assets............................ -- (71,251) (355,083)
Accounts payable.................... -- 126,374 1,135,189
Accrued salaries and employee
benefits.......................... -- -- 1,262,782
Other accrued liabilities........... -- 118,652 558,948
---------- ----------- -----------
Net cash used in operating activities.... -- (1,532,732) (9,041,076)
INVESTING ACTIVITIES
Purchases of property and equipment...... -- (81,884) (697,068)
Deposit on facilities.................... -- -- (335,000)
Acquisition of subsidiary, net of cash
acquired............................... -- -- (1,745,802)
Acquisition of licenses and other assets,
net.................................... -- (76,562) (52,066)
---------- ----------- -----------
Net cash used in investing activities.... -- (158,446) (2,829,936)
FINANCING ACTIVITIES
Issuance of Series A preferred stock..... -- -- 15,742,157
Issuance of common stock................. 1,000,000 358,478 --
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
---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 1,000,000 (432,700) 3,871,145
Cash and cash equivalents at beginning of
the period............................. -- 1,000,000 567,300
---------- ----------- -----------
Cash and cash equivalents at end of the
period................................. $1,000,000 $ 567,300 $ 4,438,445
========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 89
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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.
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.
F-7
<PAGE> 90
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
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.
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.
F-8
<PAGE> 91
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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 6, 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
F-9
<PAGE> 92
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sheet assumes the conversion of preferred stock into common stock as of December
31, 1998 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 intends to file a registration statement
with the Securities and Exchange Commission in March 1999 with an expected
effective date during the second quarter of 1999.
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, inventory, prepaid
expenses and other current assets, accounts payable, accrued salaries and
employee benefits, other accrued liabilities and deferred credit are considered
to be representative of their respective fair values because of the short-term
nature of these financial instruments.
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 5)....................... 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 operations. The Company may be required to issue up to an additional
90,000 shares of Series B Preferred Stock based on 1999 operations. The value of
any additional shares issued will be accounted for in 1999 and would increase
goodwill.
F-10
<PAGE> 93
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION OF AS WE CHANGE (CONTINUED)
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>
3. INVENTORY
Inventory consisted of the following components as of December 31, 1998:
<TABLE>
<S> <C>
Pharmaceutical products..................................... $ 415,815
Self-care products.......................................... 589,138
Video cassettes............................................. 200,644
----------
Total Inventory................................... $1,205,597
==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Furniture and fixtures............................... $ 1,802 $409,602
Office equipment..................................... 80,082 379,129
Leasehold improvements............................... -- 122,762
-------- --------
81,884 911,493
Accumulated depreciation............................. (16,275) (220,581)
-------- --------
$ 65,609 $690,912
======== ========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following balances and estimated lives at
December 31, 1998:
<TABLE>
<S> <C> <C>
Trademark........................................... 15 years $1,500,000
Assembled workforce................................. 10 years 170,000
Customer list....................................... 3 years 580,000
Non-compete agreements.............................. 4 years 280,000
Goodwill............................................ 15 years 1,472,598
-------- ----------
4,002,598
Accumulated amortization............................ (79,751)
----------
$3,922,847
==========
</TABLE>
F-11
<PAGE> 94
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS (CONTINUED)
The intangible assets resulted from the 1998 acquisition of As We Change as
discussed in note 2.
6. 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. 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 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, demand and piggyback registration rights, and drag along and tag-along
provisions upon certain ownership changes in the Preferred Stock and Common
Stock. 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 fails to complete a qualified public
offering and fails to meet certain
F-12
<PAGE> 95
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
cumulative 1999 financial milestones, the conversion rate is subject to
adjustment, in which case the conversion price may be reduced by up to 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 480,375 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. 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
F-13
<PAGE> 96
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
nonstatutory stock options. 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
========= ====
</TABLE>
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>
Included in the options outstanding at December 31, 1998 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>
F-14
<PAGE> 97
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The adjusted pro forma net loss and net loss per share for 1997 were not
materially different than actual 1997 amounts.
Deferred Compensation
Through December 31, 1998, the Company recorded deferred compensation for
the difference between the exercise price of stock options granted and the
deemed fair value for financial statement presentation purposes of the Company's
common stock at the date of grant. The deferred compensation will be amortized
over the vesting period of the related options which is generally four years.
Gross deferred compensation recorded during the year ended December 31, 1998
totaled $672,442 and related amortization expense totaled $112,439 in 1998. From
January 1, 1999 through February 28, 1999, the Company granted options to
purchase 171,025 shares at exercise prices of $0.84 to $4.81. The Company
intends to record deferred compensation of approximately $344,000 related to
these grants. There are 1,980,909 options outstanding at February 28, 1999.
7. 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, $2,515,000 was charged to cost of
sales and $170,000 was charged to marketing and sales in the accompanying
Statement of Operations for products purchased from Ortho. The agreement
requires minimum payments of $6.6 million during 1999 and $40.1 million over the
remaining term of the agreement. 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.
8. 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-15
<PAGE> 98
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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>
9. 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. 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.
10. SUBSEQUENT EVENTS
In March 1999, the Company entered into binding Subscription Agreements
obligating the Company to issue and obligating the purchasers to purchase $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
F-16
<PAGE> 99
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUE)
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-17
<PAGE> 100
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-18
<PAGE> 101
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-19
<PAGE> 102
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-20
<PAGE> 103
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-21
<PAGE> 104
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-22
<PAGE> 105
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-23
<PAGE> 106
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-24
<PAGE> 107
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-25
<PAGE> 108
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)
============ ========== ========= ============
Net loss per share (basic and
diluted).................... $ (1.39)
============
Weighted average shares used
in computing net loss per
share (basic and diluted)... 7,685,993
============
</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.
F-26
<PAGE> 109
- ------------------------------------------------------
- ------------------------------------------------------
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.......................... 8
Cautionary Note on Forward-Looking
Statements.......................... 20
How We Intend to Use the Proceeds from
the Offering........................ 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Selected Consolidated Financial
Information......................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 32
Management............................ 51
Health Advisory Board................. 64
Principal Stockholders................ 68
Certain Transactions.................. 70
Shares Eligible for Future Sale....... 72
Description of Capital Stock.......... 73
Underwriting.......................... 78
Legal Matters......................... 81
Experts............................... 81
Available Information................. 81
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
WOMEN FIRST
HEALTHCARE, INC.
Common Stock
---------------
PROSPECTUS
---------------
BEAR, STEARNS & CO. INC.
ALLEN & COMPANY
INCORPORATED
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 110
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................... $
NASD Filing Fee..........................................
Nasdaq National Market Listing Fee.......................
*Legal Fees and Expenses..................................
*Accounting Fees and Expenses.............................
*Printing Expenses........................................
*Blue Sky Fees and Expenses...............................
*Registrar and Transfer Agent Fees and Expenses...........
*Miscellaneous............................................ --
-------
*Total.......................................... $
=======
</TABLE>
- -------------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company'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 the Company shall be liable to the Company 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
the Company 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.
The Company's Certificate of Incorporation and the Bylaws also provide
mandatory indemnification for the benefit of directors, officers, employees and
agents of the Company 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, the Company 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 the Company pursuant to the foregoing provisions, the Company 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. The Company also will provide directors'
and officers' liability insurance coverage for its directors and officers.
II-1
<PAGE> 111
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since 1996, the Company 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. The Company 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 the Company'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. The Company 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, the Company 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, the Company 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) The Company issued warrants to purchase an aggregate of 430,375 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 the Company's private placement of Series A
Preferred Stock.
(3) In October 1998, the Company issued an aggregate of 550,000 shares of
Series B Preferred Stock to the holders of the membership interests in
MenoMorphosis, LLC in connection with the Company's acquisition of that
company. The Company received all of the outstanding membership
interests in MenoMorphosis, LLC as consideration for such issuances.
(4) As of February 28, 1999, the Company has granted currently outstanding
stock options to employees, officers, directors and consultants to
purchase an aggregate of 1,980,909 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 1,841,022 shares of common stock,
the exercise price is $0.84; and for the balance of the options, the
exercise price is $4.81.
The sales of the securities listed in paragraphs (1) - (3) 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.
The Company 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. The Company did not retain
underwriters in connection with the issuance of any of the Company's currently
outstanding securities.
II-2
<PAGE> 112
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(2) Form of Fourth Amended and Restated Certificate of
Incorporation.
3.3(1) Bylaws.
3.4(2) Form of 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
the Company and Edward F. Calesa.
10.2(1) Employment Agreement dated January 14, 1998 by and between
the Company and David F. Hale.
10.3(1) Long-Term Incentive Plan.
10.4(2) Management Incentive Compensation Plan.
10.5(1) Lease Agreement dated April 3, 1998 by and between the
Company and Prentiss Properties Acquisition Partners, L.P.
10.6(1) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare, Inc.*
10.7(1) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical
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(1) Agreement dated September 30, 1998 between Women First
Pharmacy Services, Inc. and Health Script.*
10.10(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Julie G. Martin.
10.11(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Dale F. Steele.
10.12(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Nancy J. Casey.
21.1(1) Subsidiaries.
23.1(1) 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) Filed herewith.
(2) To be filed by amendment.
* The Company 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
II-3
<PAGE> 113
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> 114
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 MARCH 9, 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 March 9, 1999
- --------------------------------------------------- Director
Edward F. Calesa
/s/ DAVID F. HALE President and Chief March 9, 1999
- --------------------------------------------------- Executive Officer
David F. Hale (Principal Executive
Officer)
/s/ DEBRA P. CRAWFORD Vice President and Chief March 9, 1999
- --------------------------------------------------- Financial Officer
Debra P. Crawford (Principal Financial
Officer and Principal
Accounting Officer)
/s/ MEREDITH A. BROKAW Director March 9, 1999
- ---------------------------------------------------
Meredith A. Brokaw
/s/ JOANN HEFFERNAN HEISEN Director March 9, 1999
- ---------------------------------------------------
JoAnn Heffernan Heisen
</TABLE>
II-5
<PAGE> 115
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GARY V. PARLIN Director March 9, 1999
- ---------------------------------------------------
Gary V. Parlin
/s/ RICHARD L. RUBIN Director March 9, 1999
- ---------------------------------------------------
Richard L. Rubin
/s/ JOHN SIMON Director March 9, 1999
- ---------------------------------------------------
John Simon
</TABLE>
II-6
<PAGE> 116
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(2) Form of Fourth Amended and Restated Certificate of
Incorporation...........................................
3.3(1) Bylaws..................................................
3.4(2) Form of 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 the Company and Edward F. Calesa................
10.2(1) Employment Agreement dated January 14, 1998 by and
between the Company and David F. Hale...................
10.3(1) Long-Term Incentive Plan................................
10.4(2) Management Incentive Compensation Plan..................
10.5(1) Lease Agreement dated as of April 3, 1998 by and between
the Company and Prentiss Properties Acquisition
Partners, L.P. .........................................
10.6(1) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare,
Inc.*...................................................
10.7(1) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical
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(1) Agreement dated September 30, 1998 between Women First
Pharmacy Services, Inc. and Health Script*..............
10.10(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Julie G. Martin.
10.11(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Dale F. Steele.
10.12(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Nancy J. Casey.
21.1(1) Subsidiaries............................................
23.1(1) 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) Filed herewith.
(2) To be filed by amendment.
* The Company is seeking confidential treatment with respect to portions of
this exhibit.
<PAGE> 1
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WOMEN FIRST HEALTHCARE, INC.
This Third Amended and Restated Certificate of Incorporation of
Women First HealthCare, Inc., a corporation incorporated under the General
Corporate Law of the State of Delaware on November 1, 1996 under the name
"Healthy Living for Women, Inc." (the "corporation"), has been duly adopted and
executed in accordance with the provisions of Sections 103, 242 and 245 of the
General Corporation Law of the State of Delaware. The undersigned, being an
authorized officer of the corporation, hereby certifies that:
FIRST. The name of the corporation is Women First HealthCare, Inc.
SECOND. The period of duration of the corporation shall be perpetual.
THIRD. The purpose of the corporation is to engage in any and all lawful
acts or activities for which corporations may be incorporated under the Delaware
General Corporation Law, as from time to time amended.
FOURTH. The street address of the registered office of the corporation
is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805 and the name
of the registered agent at such address is The Prentice-Hall Corporation System,
Inc.
FIFTH. The total number of shares of all classes of stock which the
corporation shall have authority to issue is 43,190,000 shares, consisting of
40,000,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), and 3,190,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of which 2,200,000 shares of Preferred Stock shall be
designated as Series A Preferred Stock (the "Series A Preferred Stock"), 690,000
shares of Preferred Stock shall be designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock") and 300,000 shares shall remain
undesignated, but shall be subject to designation by the Board of Directors of
the corporation.
A description of the respective classes of stock and a statement of the
designation, preferences, voting powers (or lack thereof), relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the Preferred Stock and the Common Stock are as
follows:
A. Undesignated Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series as may be determined from time to time
by the board of directors of the corporation (the "Board of Directors"), each of
said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular. The voting rights, if any,
of each such series and the preferences and relative, participating, optional
and other special rights of each such series and the qualification, limitations
or restrictions thereof, if any, may differ from those of any and all other
series at any time outstanding. The Board of Directors is hereby expressly
granted authority to fix, by resolutions duly adopted prior
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to the issuance of any shares of any series of Preferred Stock, the voting
powers, if any, of stock of such series and the designations, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
1. The rate and times at which, and the terms and conditions on which,
dividends on Preferred Stock of such series shall be paid;
2. The right, if any, of the holders of Preferred Stock of such series
to convert the same into, or exchange the same for shares of other classes or
series of stock of the corporation and the terms and conditions of such
conversion or exchange;
3. The redemption price or prices and the time or times at which, and
the terms and conditions on which, Preferred Stock of such series may be
redeemed;
4. The rights of the holders of Preferred Stock of such series upon the
voluntary or involuntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding up of the corporation;
5. The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Preferred Stock of such series;
6. The distinctive designation of, and the number of shares of Preferred
Stock which shall constitute such series, which number may be increased (except
where otherwise provided by the Board of Directors) or decreased (but not below
the number of shares thereof then outstanding) from time to time by like action
of the Board of Directors; and
7. The voting powers, if any, of the holders of such series of Preferred
Stock which may, without limiting the generality of the foregoing, include (i)
the right to more or less than one vote per share on any or all matters voted
upon by the stockholders and (ii) the right, voting as a class or series by
itself or together with other series, of Preferred Stock or all series of
Preferred Stock as a class, to elect one or more directors of the corporation if
there shall have been a default in the payment of dividends on any one or more
series of Preferred Stock or under such other circumstances and on such
conditions as the Board of Directors may determine.
B. Rights, Preferences and Restrictions of Series A Preferred Stock. The
rights, preferences, privileges and restrictions granted to and imposed on the
Series A Preferred Stock are as set forth below in this Article.
1. Definitions. As used herein, the following terms shall have the
following definitions:
(a) "Additional Stock" shall have the meaning set forth in
Section 4(c)(ii) hereof.
(b) "Common Stock Equivalents" shall have the meaning set forth
in Section 4(c)(iii) hereof
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<PAGE> 3
(c) "Common Stock Equivalents Outstanding" means the number of
shares of Common Stock that is the sum of: (i) all shares of Common Stock that,
at the time in question, are then outstanding plus (ii) all shares of Common
Stock issuable upon the conversion in full of all Preferred Stock or other
Convertible Securities that are then outstanding plus (iii) all shares of Common
Stock that are issuable upon the exercise in full of all Options that are then
outstanding (assuming the full conversion of any Convertible Securities issuable
upon exercise of any of such Options that are Options to purchase Convertible
Securities).
(d) "Conversion Price" shall have the meaning set forth in
Section 4(a)(i) hereof.
(e) "Conversion Rate" shall have the meaning set forth in Section
4(a)(i) hereof.
(f) "Conversion Rights" shall have the meaning set forth in
Section 4 hereof.
(g) "Convertible Securities" means any indebtedness or shares of
stock convertible into or exchangeable for Common Stock.
(h) The "Effective Price" of a share of Additional Stock means
the quotient determined by dividing (i) the total number of such shares of
Additional Stock issued or sold, or deemed to have been issued or sold, by the
corporation, into (ii) the consideration received by the corporation under
Section 4 hereof for the issuance of such shares of Additional Stock.
(i) "Issuance Date" means the date on which the first share of
Series A Preferred Stock is issued.
(j) "Liquidation Preference" means an amount equal to the
Original Issue Price (as adjusted from time to time to reflect stock dividends,
splits, combinations or like transactions for the Series A Preferred Stock) (as
in effect on the date of determination) per share of the Series A Preferred
Stock, plus all declared and unpaid dividends thereon, if any.
(k) "Option" means rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities.
(l) "Original Issue Price" means Ten Dollars ($10.00) per share
of the Series A Preferred Stock.
(m) "Purchase Agreement" means the Stock Purchase Agreement dated
as of January 8, 1998, by and among the corporation and each of the purchasers
of Series A Preferred Stock set forth therein, as the same may be amended,
modified or supplemented from time to time.
(n) "Sales and Profits Milestone" shall occur upon the
corporation having (i) cumulative sales in excess of $40,200,000, and (ii)
cumulative losses not in excess of $12,160,000, as determined by the independent
accounting firm selected in accordance with Section 7.1(a) of the Purchase
Agreement.
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2. Dividend Provisions.
No dividends shall be declared or paid in any calendar year
(including any dividend payable in Common Stock or other securities or rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of the corporation) without the
written consent of the holders of more than 50% of the outstanding shares of
Series A Preferred Stock.
3. Liquidation Preference.
(a) Series A Preferred Stock. In the event of any liquidation,
dissolution or winding up of the corporation, either voluntary or involuntary,
each holder of Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution in such liquidation, dissolution or winding up
of any of the assets of the corporation to the holders of the Common Stock by
reason of their ownership thereof, an amount per share equal to the Liquidation
Preference for each outstanding share of Series A Preferred Stock held by such
holder on the date of determination plus an amount equal to 8% per annum of the
Liquidation Preference per share, compounded annually. If upon the occurrence of
any such distribution, the assets and funds of the corporation thus distributed
among the holders of the Series A Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the number of shares of Series A Preferred
Stock held by each such holder.
(b) Other Preferred Stock and Common Stock. After the
distributions described in Section 3(a) hereof have been paid, then the
remaining assets of the corporation available for distribution to shareholders
shall be distributed first to the holders of any outstanding shares of any
series of Preferred Stock (other than Series A Preferred Stock) in accordance
with the liquidation preference set forth in the applicable certificate of
designations therefor, and then among the holders of Common Stock pro rata based
on the number of shares of Common Stock held by each.
(c) Consolidation, Merger, Etc. For purposes of Section 3(a), a
merger or consolidation of the corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
corporation, in which consolidation or merger the shareholders of the
corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger, or a sale of all or
substantially all of the assets of the corporation, shall be treated as a
liquidation, dissolution or winding up of the corporation. The corporation shall
provide written notice of any such liquidation, dissolution, winding up, merger,
consolidation, or sale of assets of the corporation as provided in Section 4(j)
hereof. Notwithstanding anything else contained herein to the contrary, each
holder of Series A Preferred Stock shall have the right to elect to have the
shares of Series A Preferred Stock held converted into Common Stock as provided
in Section 4(a) hereof, in which event the provisions of Section 3(a) hereof
shall be inapplicable with respect to the shares of Series A Preferred Stock so
converted. Notwithstanding anything else contained herein to the contrary, a
consolidation, merger or sale of all or substantially all assets will not be
treated as a liquidation, dissolution, or winding up of this corporation unless
the corporation's shareholders
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<PAGE> 5
of record as constituted immediately prior to such transaction will, immediately
after such transaction, hold less than 50% of the voting power of the surviving
or acquiring entity.
Any securities to be delivered to the holders of Series A Preferred
Stock, any other series of Preferred Stock and the Common Stock pursuant to this
Section 3 shall be valued as follows:
(i) For securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange or a national interdealer
quotation system such as the NASDAQ/National Market System, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange or system over the 30 day period ending three (3) days prior to the
closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) days prior to the closing, and
(C) If there is no active public market, the value shall be the
fair market value thereof, as determined in good faith by a majority of the
members of the Board of Directors.
(ii) For securities subject to investment letter or other restrictions
on free marketability, the method of valuation shall be to make an appropriate
discount from the market value determined as above in Section 3(c)(i)(A), (B) or
(C) to reflect the approximate fair market value thereof, as determined in good
faith by a majority of the Board of Directors.
4. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as following (the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for the Series A Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock (the "Conversion Rate") as is determined by
dividing the Original Issue Price for the Series A Preferred Stock by the
Conversion Price for the Series A Preferred Stock in effect on the Conversion
Date. The initial "Conversion Price" shall be Five Dollars and Forty-Six Cents
($5.46) per share for the Series A Preferred Stock (as adjusted from time to
time, as determined in good faith by the Board of Directors, to reflect stock
dividends, stock splits subsequent to the reverse stock split described in the
last paragraph of Article FIFTH herein, or recapitalizations).
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Rate in
effect for Series A Preferred Stock immediately prior to the closing of the
first sale by the corporation of shares of its Common Stock in a firm commitment
underwriting pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended, at a public offering price (before deduction
of underwriters' discounts and commissions) of at least Sixteen Dollars and
Thirty-Nine Cents
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<PAGE> 6
($16.39) per share (as adjusted from time to time, as determined in good faith
by the Board of Directors, to reflect stock dividends, stock splits subsequent
to the reverse stock split described in the last paragraph of Article FIFTH
herein, or recapitalizations) and at least Fifteen Million Dollars ($15,000,000)
in the aggregate; provided, however, in the event of a underwritten offering of
Common Stock closing prior to December 31, 1999, at a public offering price
(before deduction of underwriters' discounts and commissions) of at least Nine
Dollars and Fifty Cents ($9.50) per share (as adjusted from time to time, as
determined in good faith by the Board of Directors, to reflect stock dividends,
stock splits subsequent to the reverse stock split described in the last
paragraph of Article FIFTH herein, or recapitalizations) and at least Twenty
Million Dollars ($20,000,000), then each share of Series A Preferred Stock shall
automatically convert into shares of Common Stock at the Conversion Rate in
effect for Series A Preferred Stock immediately prior to the public offering.
(b) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert any of such shares into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the corporation or of any transfer
agent for the Series A Preferred Stock, and shall give written notice by mail,
postage prepaid, to the corporation at its principal corporate offices, of the
election to convert the same and shall state herein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates representing the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of the Conversion
Date. If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Series A Preferred Stock
for conversion, be conditioned upon the closing with the underwriter of the sale
of securities pursuant to such offering, in which event the person(s) entitled
to receive the Common Stock issuable upon such conversion of the Series A
Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock until immediately prior to the closing of such sale of securities.
(c) Conversion Price Adjustment of Series A Preferred Stock. The
Conversion Price for the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
(i)(A) Upon each issuance (or deemed issuance pursuant to
Section 4(c)(i)(F) hereof) by the corporation of any Additional Stock (as
defined below) after the Issuance Date, without consideration or for an
Effective Price per share less than the Conversion Price for the Series A
Preferred Stock in effect immediately prior to the issuance (or deemed issuance)
of such Additional Stock, then the Conversion Price for the Series A Preferred
Stock in effect immediately prior to each issuance (or deemed issuance) shall be
adjusted to a price equal to the Effective Price per share pursuant to such
issuance or deemed issuance of Additional Stock.
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<PAGE> 7
(B) In the event that at December 31, 1999, the Sales and
Profits Milestone has not occurred, then the Conversion Price for the Series A
Preferred Stock in effect immediately prior to such date shall be decreased by
(1) 35.70%, in the event that neither the Initial Milestone Closing nor the
Subsequent Milestone Closing (as such terms are defined in the Purchase
Agreement) has occurred, (2) 30.30%, in the event that the Initial Milestone
Closing has occurred and the Subsequent Milestone Closing has not occurred, and
(3) 42.80%, in the event that each of the Initial Milestone Closing and the
Subsequent Milestone Closing has occurred. The provisions of this paragraph (B)
shall terminate and cease to be applicable immediately and automatically upon
the consummation of any public offering by the corporation Company of shares of
its Common Stock.
(C) No adjustment of the Conversion Price for the Series A
Preferred Stock shall be made in an amount less than one-half of one cent
($0.005) per share. No adjustment of the Conversion Price of the Series A
Preferred Stock pursuant to this Section 4(c)(i) shall have the affect of
increasing such Conversion Price of the Series A Preferred Stock above the
Conversion Price in effect immediately prior to such adjustment.
(D) In the case of the issuance of securities of the
corporation for cash, the amount of consideration received by the corporation
for such securities shall be deemed to be the amount of cash paid therefor
before deducting any discounts, commissions or other expenses allowed, paid or
incurred by the corporation for any underwriting or otherwise in connection with
the issuance and sale thereof.
(E) In the case of the issuance of securities of the
corporation for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to have a dollar value equal to
the fair market value of such non-cash consideration as determined in good faith
by the Board of Directors, irrespective of any accounting treatment thereof.
(F) In the case of the issuance (whether before, on or
after the Issuance Date) of Options or Convertible Securities, the following
provisions shall apply for all purposes of this Section 4(c)(i) and 4(c)(ii):
(1) With respect to Options to purchase Common
Stock, the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such Options shall be deemed to have been issued at the time such
Options were issued and for a consideration equal to the consideration
(determined in the manner provided in Section 4(c)(i)(D) and Section 4(c)(i)(E)
hereof), if any, received by the corporation for such Options plus the minimum
exercise price provided in such Options for the Common Stock covered thereby.
(2) With respect to Convertible Securities and
Options to purchase Convertible Securities, the aggregate maximum number of
shares of Common Stock deliverable upon the conversion of or exchange of any
such Convertible Securities and the aggregate maximum number of shares of Common
Stock issuable upon the exercise of such Options to purchase Convertible
Securities and the subsequent conversion or exchange of such Convertible
Securities shall be deemed to have been issued at the time such Convertible
Securities or such Options were issued and for a consideration equal to the
consideration, if any,
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<PAGE> 8
received by the corporation for any such Convertible Securities and Options,
plus the minimum additional consideration, if any, to be received by the
corporation upon the conversion or exchange of such Convertible Securities or
the exercise of such Options and the conversion or exchange of the Convertible
Securities issuable upon exercise of such Options (the consideration in each
case to be determined in the manner provided in Section 4(c)(i)(D) and Section
4(c)(i)(E) hereof).
(3) In the event of any change in the number of
shares of Common Stock deliverable, or in the consideration payable to the
corporation, upon exercise of such Options or upon conversion or exchange of
such Convertible Securities, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed using such
Options or Convertible Securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such Options or
the conversion or exchange of such Convertible Securities.
(4) Upon the expiration or termination of any such
Options or any such rights to convert or exchange Convertible Securities, the
Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such Options or Convertible Securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and Options and Convertible Securities which remain in effect) that are
actually issued upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Section
4(c)(i)(F)(1) and (2) hereof shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(c)(i)(F)(3) or (4) hereof.
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to Section 4(c)(i)(F)
hereof) by the corporation after the Issuance Date other than:
(A) Common Stock issued pursuant to a transaction
described in Section 4(c)(iii) hereof;
(B) Up to 2,277,435 shares of Common Stock (as
adjusted from time to time, as determined in good faith by the Board of
Directors, to reflect stock dividends, stock splits subsequent to the reverse
stock split described in the last paragraph of Article FIFTH herein, or
recapitalizations) issuable or issued to employees, officers, directors or
consultants of the corporation directly or pursuant to a stock option plan or
stock purchase plan or any stock option grant, stock purchase agreement or other
agreement, in each case approved by the Board of Directors. Of the 2,277,435
shares of Common Stock referenced above, 447,435 shares of Common Stock are
authorized for issuance on or after February 9, 1999.
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<PAGE> 9
(C) Common Stock issued or issuable upon conversion
of shares of Series A Preferred Stock;
(D) Any Common Stock issued or issuable upon
exercise of any options outstanding prior to the Issuance Date; or
(E) Common Stock issued or issuable upon exercise
(in whole or in part) of any of the Warrants (as such term is defined in the
Purchase Agreement).
(iii) In the event the corporation at any time or from
time to time after the Issuance Date fixes a record date for the effectuation of
a split or subdivision of the outstanding stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder of the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividends distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock shall be increased in proportion to such
increase in the aggregate numbers of shares issuable with respect to Common
Stock Equivalents, with the number of shares issuable with respect to Common
Stock Equivalents determined from time to time in the manner provided for deemed
issuances in Section 4(c)(i)(F) hereof.
(iv) If the number of shares of Common Stock outstanding
at any time after the Issuance Date is decreased by a combination of the
outstanding shares of Common Stock, then following the record date of such
combination, the Conversion Price for the Series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be decreased in
proportion to such decrease in the outstanding shares of Common Stock.
(d) Other Distribution. In the event the corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(c)(iii) hereof,
then, in each such case for the purpose of this Section 4(d), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were holders of the number of shares of Common Stock
of the corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(e) Reorganizations and Recapitalization. If at any time or from
time to time there shall be a reorganization or recapitalization of the Common
Stock (other than a subdivision, combination or merger or sale of assets
transaction provided for in Section 3 hereof), then, as a condition of such
reorganization or recapitalization, provision shall be made so that the holders
of the Series A Preferred Stock shall thereafter be entitled to receive upon
conversion of the
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Series A Preferred Stock the number of shares of stock or other securities or
property of the corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such reorganization or
recapitalization. In any such case, appropriate adjustment shall be made, in the
good faith determination of the Board, in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series A
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares receivable upon conversion of the Series A Preferred Stock)
shall be applicable after that event in as nearly an equivalent manner as may be
practicable.
(f) No Impairment. The corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action
(including the reduction of par value of the Common Stock or the Series A
Preferred Stock) as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock.
(g) No Fractional Shares. No fractional shares shall be issued
upon conversion of the Series A Preferred Stock and the number of shares of
Common Stock to be issued shall be rounded down to the nearest whole share, and
there shall be no payment to a holder of Series A Preferred Stock for any such
rounded fractional shares. Whether or not fractional shares result from such
conversions shall be determined on the basis of the total number of shares of
Series A Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of Series A Preferred Stock
pursuant to this Section 4, the corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The corporation shall, upon
the written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustment and readjustment, (ii) the Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of a
share of Series A Preferred Stock.
(i) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, then in addition to such other remedies as shall be
available to the holder of such Series A Preferred Stock, the
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corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(j) Notices. In the event that this corporation shall propose at
any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities,
whether or not a regular cash dividend and whether or not out of
earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of
any class or series or any other rights;
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock;
or
(iv) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all of its property
or business or to liquidate, dissolve or wind up;
then, in connection with each such event, this corporation
shall send to the holders of the Series A Preferred Stock:
(1) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend,
distribution or subscription rights (and if specifying the
date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in
respect of the matters referred to in subsections (iii)
and (iv) above; and
(2) in the case of the matters referred to in subsections
(iii) and (iv) above, at least 20 days' prior written
notice of the date when the same shall take place (and
specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the
occurrence of such events or the record date for the
determination of such holders if such record date is
earlier).
Any notice required by the provisions of this Section 4 to be given to
the holders of shares of Series A Preferred Stock shall be deemed given if sent
by facsimile, by telex, or if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his, her or its address
appearing on the books of the corporation.
5. Voting Rights
(a) The holder of each share of Series A Preferred Stock shall
have the right to one vote for each share of Common Stock into which such Series
A Preferred Stock could then be converted (with any fractional share determined
on an aggregate conversion basis being rounded down to the nearest whole share),
and with respect to such vote, such holder shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common
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Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any shareholders' meeting in accordance with the Bylaws of the corporation and
applicable law, and shall be entitled to vote, together with holders of Common
Stock and the holders of record of shares of any other series of Preferred Stock
(to the extent the certificate of designations for such Preferred Stock so
provides), with respect to any questions upon which holders of Common Stock have
the right to vote.
(b) The Board of Directors shall consist of seven directors. All
directors shall serve until their respective successors shall have been duly
elected and shall have qualified or until their earlier resignation or removal.
(c) So long as, but only as long as, there are any shares of
Series A Preferred Stock outstanding, the holders of record of Series A
Preferred Stock, voting together as a single class, shall be entitled to
designate and elect two (2) Class A Directors. The holders of record of the
shares of Common Stock, the holders of record of the Series A Preferred Stock
and the holders of record of shares of any other series of Preferred Stock (to
the extent the certificate of designations for such Preferred Stock so
provides), shall vote together as a single class for the Class B Directors, who
shall constitute the five (5) remaining directors. Each director shall be
entitled to one vote on all matters brought before the Board of Directors.
(d) If there are no shares of Series A Preferred Stock
outstanding, all of the members of the Board of Directors shall be elected by
the affirmative vote of a majority of votes cast by the holders of Common Stock
and the holders of record of any other series of Preferred Stock (to the extent
the certificate of designations for such Preferred Stock so provides).
6. Protective Provisions. So long as any shares of Series A Preferred
Stock are outstanding, the corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) by majority vote of
the Board of Directors and of the holders of at least 66.667% of the outstanding
shares of the Series A Preferred Stock:
(a) amend or repeal any provisions of the corporation's
Certificate of Incorporation or Bylaws (other than customary amendments that are
necessary in connection with an initial public offering of the size referred to
in Section 4(a)(ii) hereof and that do not have an adverse impact upon the
Series A Preferred Stock);
(b) Alter or change the designations, powers, rights, preferences
or privileges, or the qualifications, limitations or restrictions of the Series
A Preferred Stock; or
(c) Increase the authorized number of shares of Series A
Preferred Stock or other preferred stock of the corporation; or
(d) Authorize, create or issue any new class or series of stock
or any other securities convertible into equity securities of the corporation
having a preference over, or being on a parity with, the Series A Preferred
Stock with respect to voting, dividends, redemptions or upon liquidation or
dissolution of the corporation; or
(e) Reclassify the shares of Common Stock or any other shares of
any class or series of capital stock hereafter created junior to the Series A
Preferred Stock into shares of any
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class or series of capital stock (i) ranking either as to payment of dividends,
distributions of assets or redemptions, prior to or on parity with the Series A
Preferred Stock, or (ii) which in any manner adversely affects the holders of
Series A Preferred Stock; or
(f) Declare or pay any dividend on, or make any distributions
with respect to, any shares of any equity security of any kind of the
corporation, other than (i) dividends on Common Stock payable solely in Common
Stock, and (ii) dividends or distributions made in accordance with Sections 2 or
3 hereof; or
(g) Take any other action for which such a vote shall be required
under applicable law.
7. Status of Converted Stock. In case any shares of Series A Preferred
Stock shall be converted pursuant Section 4 hereof, the shares so converted
shall be canceled, retired and eliminated and shall not be reissued by the
corporation. The Certificate of Incorporation of the corporation shall be deemed
amended to effect the corresponding reduction in the corporation's authorized
capital stock.
C. Rights, Preferences and Restrictions of Series B Preferred Stock. The
right, preferences, privileges and restrictions granted to and imposed on the
Series B Preferred Stock are as set forth below in this Article.
1. Certain Definitions. Unless the context otherwise requires,
the terms defined in this paragraph 1 shall have, for all purposes of this
resolution, the meanings herein specified (with terms defined in the singular
having comparable meanings when used in the plural).
(a) "Common Stock" shall mean the common stock, $.001 par value
per share, of the Corporation.
(b) "Corporation" shall mean Women First HealthCare, Inc., a
Delaware corporation.
(c) "Liquidation Preference" with respect to a share of Series B
Preferred Stock shall mean $5.00 per share plus declared but unpaid dividends of
such share, if any, plus an amount equal to 8% per annum per share compounded
annually, as adjusted from time to time for stock splits, combinations,
reorganizations, and the like.
(d) "Series B Preferred Stock" shall mean all of the
Corporation's Series B Preferred Stock.
2. Dividends.
(a) Treatment of Preferred. Subject to the prior preferences, and
other rights of the Corporation's Series A Preferred Stock, the Series B
Preferred Stock Subject shall be entitled to receive dividends out of any assets
at the time legally available therefor, when, as and if declared by the Board of
Directors, prior and in preference to the Common Stock. In addition to the
dividends specified above, no cash dividends shall be paid on any Common Stock
unless an equal dividend is paid with respect to all outstanding shares of the
Series B Preferred Stock in an
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amount for each such share of Series B Preferred Stock equal to the aggregate
amount of such dividends for all Common Stock into which each such share of
Series B Preferred Stock could then be converted. The Board of Directors is
under no obligation to declare dividends, no rights shall accrue to the holders
of Series B Preferred Stock if dividends are not declared, and any dividends
declared shall be noncumulative.
(b) Priority of Dividends. The Corporation shall make no
Distribution (as defined below) to the holders of shares of Common Stock except
in accordance with Section 2(a) above or 2(d) below.
(c) Distribution. As used in this section, "Distribution" means
the transfer of cash or property without consideration, whether by way of
dividend or otherwise (except a dividend in shares of the Corporation) or the
purchase of shares of the Corporation (other than in connection with the
repurchase of shares of Common Stock issued to or held by employees,
consultants, officers and directors at a price not greater than the amount paid
by such persons for such shares upon termination of their employment or services
pursuant to agreements providing for the right of said repurchase) for cash or
property.
(d) Certain Repurchases. As authorized by Section 151(b) of the
Delaware General Corporation Law, the Corporation may repurchase shares of
Common Stock issued to or held by employees, consultants, officers and directors
of the Corporation at a price not greater than the amount paid by such persons
for such shares upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase, which agreements were
authorized by the approval of the Corporation's Board of Directors.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
(a) Liquidation Preference. Subject to the payment of or
provision for payment of the Corporation's liabilities and debts and to the
prior preferences and other rights of the Corporation's Series A Preferred
Stock, in the event of any liquidation, dissolution or winding up of the
Corporation ("Liquidation"), either voluntary or involuntary, the holders of the
Series B Preferred Stock shall be entitled to receive, out of the assets of the
Corporation, the Liquidation Preference specified for each share of Series B
Preferred Stock then held by them before any payment shall be made or any assets
distributed to the holders of Common Stock.
(b) Priority. If upon the liquidation, dissolution or winding up
of the Corporation, and after the payment of or provision for the payment of all
liabilities and debts of the Corporation and the liquidation preference payable
to the Series A Preferred Stock, the assets to be distributed among the holders
of the Series B Preferred Stock are insufficient to permit the payment to such
holders of the full Liquidation Preference for their shares, then the assets of
the Corporation legally available for distribution shall be distributed with
equal priority and pro rata among the holders of the Series B Preferred Stock in
proportion to the numbers of shares of Series B Preferred Stock held by them
multiplied by the Liquidation Preference for such shares of Series B Preferred
Stock.
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(c) Remaining Assets. After the payment to the holders of Series
B Preferred Stock of the full preferential amounts specified above, no further
payments shall be made to the holders of Series B Preferred Stock by reason
thereof and any remaining assets of the Corporation shall be distributed with
equal priority and pro rata among the holders of the Corporation's Common Stock.
(d) Reorganization. Neither the acquisition of the Corporation by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation) nor
a sale of all or substantially all of the assets of the Corporation shall be
deemed to be a Liquidation within the meaning of this Section 3.
(e) Shares not Treated as Both Preferred Stock and Common Stock
in any Distribution. Shares of Series B Preferred Stock shall not be entitled to
be converted into shares of Common Stock in order to participate in any
distribution, or series of distributions, as shares of Common Stock, without
first foregoing participation in the distribution, or series of distributions,
as shares of Series B Preferred Stock.
4. Conversion Rights. The Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer
agent for the Series B Preferred Stock. Each share of Series B Preferred Stock
shall be convertible into that number of fully-paid and nonassessable shares of
Common Stock that is equal to $5.00 divided by the Series B Conversion Price (as
hereinafter defined). The "Series B Conversion Price" shall initially be $8.20
(as adjusted from time to time, as determined in good faith by the Board of
Directors, to reflect stock dividends, stock splits subsequent to the reverse
stock split described in the last paragraph of Article FIFTH herein, or
recapitalizations). The number of shares of Common Stock into which each share
of Series B Preferred Stock may be converted is hereinafter referred to as the
"Series B Conversion Rate."
(b) Automatic Conversion. Each share of Series B Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series B Conversion Rate for such share immediately (i) upon the
consummation of a firmly underwritten public offering of the Corporation's
Common Stock pursuant to the Securities Act of 1933, as amended (the "Securities
Act") on Form S-1 (as defined in the Securities Act), provided, however, that
the aggregate gross proceeds to the Corporation are not less than $15,000,000
(Fifteen Million U.S. Dollars) (a "Qualified IPO").
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the Corporation. For such purpose, all shares of Series B Preferred Stock
held by each holder shall be aggregated, and any resulting fractional share of
Common Stock shall be
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paid in cash. Before any holder of Series B Preferred Stock shall be entitled to
convert the same into full shares of Common Stock, and to receive certificates
therefor, he or she shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series B Preferred Stock, and shall give written notice to the Corporation at
such office that he or she elects to convert the same; provided, however, that
in the event of an automatic conversion pursuant to paragraph 4(b) above, the
outstanding shares of Series B Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided further, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion unless either the certificates evidencing such
shares of Series B Preferred Stock are delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series B Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which he or she shall be entitled as
aforesaid and a check payable to the holder in the amount of any cash amounts
payable as the result of a conversion into fractional shares of Common Stock,
plus any declared and unpaid dividends on the converted Series B Preferred
Stock. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of Series B
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
(d) Adjustments to Series B Conversion Price.
(i) Adjustments for Subdivisions or Combinations of Common
Stock. In the event the outstanding shares of Common Stock shall be subdivided
(by stock split, including the reverse stock split described in Article FIFTH
herein, stock dividend or otherwise), into a greater number of shares of Common
Stock, the Conversion Price in effect for the Series B Preferred Stock
immediately prior to such subdivision shall, concurrently with the effectiveness
of such subdivision, be proportionately decreased. In the event the outstanding
shares of Common Stock shall be combined (by reclassification or otherwise) into
a lesser number of shares of Common Stock, the Series B Conversion Price for any
series of the Series B Preferred Stock in effect immediately prior to such
combination shall, concurrently with the effectiveness of such combination, be
proportionately increased.
(ii) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon conversion of the Series B
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Prices then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the
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Series B Preferred Stock shall be convertible into, in lieu of the number of
shares of Common Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of stock equivalent
to the number of shares of Common Stock that would have been subject to receipt
by the holders upon conversion of the Series B Preferred Stock immediately
before that change.
(iii) Adjustment Upon the Consummation of the Qualified IPO.
In the event that the initial public offering price per share of the shares of
the Corporation's Common Stock sold to the public in the Qualified IPO (the "IPO
Price") is less than $8.20 (as adjusted from time to time, as determined in good
faith by the Board of Directors, to reflect stock dividends, stock splits
subsequent to the reverse stock split described in the last paragraph of Article
FIFTH herein, or recapitalizations), then the Series B Conversion Price will be
reduced to the IPO Price.
(e) Certificate of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series B Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Series B Preferred Stock.
(f) Notices of Record Date. In the event that the Corporation
shall propose at any time (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge with or into any other corporation, or sell, lease or convey all or
substantially all its property or business, or to liquidate, dissolve or wind
up; then, in connection with each such event, the Corporation shall send to the
holders of the Series B Preferred Stock at least 20 days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in clauses (iii) and (iv) above. Each such written
notice shall be given by first class mail, postage prepaid, or nationally
recognized overnight courier, or personally delivered, addressed to the holders
of Series B Preferred Stock at the address for each such holder as shown on the
books of the Corporation.
(g) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
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conversion of all then outstanding shares of the Series B Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series B Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
5. Voting Rights.
Except as otherwise expressly provided herein or as required by
law, the holders of Series B Preferred Stock and the holders of Common Stock
shall vote together and not as separate classes. Each holder of shares of Series
B Preferred Stock shall be entitled to the number of votes equal to the number
of shares of Common Stock into which such shares of Series B Preferred Stock
held by such holder of Series B Preferred Stock could then be converted. The
holders of shares of the Series B Preferred Stock shall be entitled to vote on
all matters on which the Common Stock shall be entitled to vote. The holders of
the Series B Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the By-laws of the Corporation. Fractional votes
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Series B
Preferred Stock held by each holder could be converted), shall be disregarded.
6. Amendments and Changes. The Corporation shall not, without
first obtaining the approval (by vote or consent as provided by law) of a
majority of the votes represented by all of the shares of Series B Preferred
Stock then outstanding, voting together as a single class:
(i) amend the Certificate of Incorporation or the By-laws
of the Corporation in any way that materially adversely changes the rights,
privileges or preferences of the Series B Preferred Stock; or
(ii) increase the number of shares of the Series B
Preferred Stock that the Corporation shall have the authority to issue.
7. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series
B Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation. The shares of Series B Preferred
Stock shall have no preemptive, redemption or subscription rights.
8. Headings of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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9. Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Series B Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
D. Common Stock.
1. Dividend Rights. The holders of the Common Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of any assets
of the corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors, subject to the approval rights of
the Series A Preferred Stock under Section B.2 hereof and any other series of
Preferred Stock (to the extent the certificate of designations for such
Preferred Stock provides a preferential dividend for such Preferred Stock).
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the assets of the corporation shall be distributed as
provided in Section B.3 hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
Upon the filing in the Office of the Secretary of State of the State of
Delaware of this Third Amended and Restated Certificate of Incorporation, each
issued and outstanding share of Common Stock of the corporation shall be
converted into Sixty-One Hundredths (.61) of one share of validly issued, fully
paid and nonassessable Common Stock of the corporation without further action on
the part of any person. After giving effect to the stock split referenced in
this paragraph, the par value of the Common Stock shall be $.001 per share, the
authorized number of shares of Common Stock shall be 40,000,000 and the
authorized number of shares of Preferred Stock shall be 3,192,000. This
conversion shall apply to all shares of Common Stock. No fractional shares
shall be issued as a result of the reverse stock split contemplated hereby.
Instead, the number of shares of Common Stock held by each holder of record
immediately following the reverse stock split shall be rounded down to the
nearest whole share, and there shall be no payment to a holder of Common Stock
for any such rounded fractional shares.
SIXTH. In furtherance and not in limitation of the powers conferred by
law, subject to any limitations contained elsewhere in this Certificate of
Incorporation (including
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those set forth in Sections B.6 and C.6 of Article FIFTH hereof ) by-laws of the
corporation may be adopted, amended or repealed by a majority of the Board of
Directors of the corporation, but any by-laws adopted by the Board of Directors
may be amended or repealed by the stockholders entitled to vote thereon.
SEVENTH. (a) A director of the corporation shall not be personally
liable either to the corporation or to any stockholder for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, or (ii) for
acts or omissions which are not in good faith or which involve intentional
misconduct or knowing violation of the law, or (iii) for any matter in respect
of which such director shall be liable under Section 174 of Title 8 of the
General Corporation Law of the State of Delaware or any amendment or successor
provision thereto, or (iv) for any transaction from which the director shall
have derived an improper personal benefit. If the General Corporation Law of the
State of Delaware shall hereafter be amended so as to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as then amended. Neither amendment nor
repeal of this paragraph (a) nor the adoption of any provision of the
Certificate of Incorporation inconsistent with this paragraph (a) shall
eliminate or reduce the effect of this paragraph (a) in respect of any matter
occurring, or any cause of action. suit or claim that, but for this paragraph
(a) would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
(b) The corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to, or testifies in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted by law, and the corporation may adopt By-laws or enter
into agreements with any such person for the purpose of providing for such
indemnification.
(c) To the extent that a 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 paragraph (b) of this Article, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
(d) Expenses incurred by an officer, director, employee or agent in
defending or testifying in a civil, criminal, administrative or investigative
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 or officer to repay such amount if
it shall ultimately be determined that such director or officer is not entitled
to be indemnified by the corporation against such expenses as authorized by this
Article, and the corporation may
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adopt By-laws or enter into agreements with such persons for the purpose of
providing for such advances.
(e) The indemnification permitted by this Article shall not be deemed
exclusive of any other rights to which any person may be entitled under any
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding an office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
(f) The corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of this Article or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has subscribed his name this 11th
day of March 1999.
/S/ DAVID F. HALE
-----------------------------------
Name: David F. Hale
Title: President
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EXHIBIT 3.3
BY-LAWS
OF
WOMEN FIRST, 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 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 one or more members, the exact number of which shall initially
be fixed by the Incorporator and thereafter from time to time by the Board of
Directors. Except as provided in Section 2 of this Article, 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
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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
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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
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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.
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<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
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<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. 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. 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.
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<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
8th day of January, 1998 by and between Women First HealthCare, Inc., a Delaware
corporation (the "Company"), and Edward Calesa ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Company and, prior to
the date hereof, there was no employment agreement in effect between Executive
and the Company; and
WHEREAS, the Company wishes to secure the continued employment of
Executive, and Executive wishes to accept such employment, for the period and on
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employes Executive as Chairman of the Board and
Chief Executive Officer and Executive hereby accepts such employment, on the
terms and subject to the conditions hereinafter set forth. In such capacity,
Executive shall have full responsibility and authority to manage and direct the
business of the Company, subject to the supervision of the Board.
(b) Executive agrees to perform such other duties as are assigned to
him, consistent with his position as a senior executive, pursuant to the
direction of the Board.
(c) Executive shall be required to devote substantially all of his
business time, attention and effort to the Company's business and affairs and
perform diligently his duties, all subject to the direction of the Board.
Notwithstanding the foregoing, but subject to the terms of the Non-Competition
Agreement referred to in Section 5, this shall not preclude Executive from
serving on community and civic boards, participating in industry associations,
or otherwise engaging in other activities which do not unreasonably interfere
with his duties to the Company.
<PAGE> 2
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement (the "Term") shall begin on the date
hereof, and shall continue through the fourth anniversary of the date hereof.
3. Compensation.
(a) Throughout the Term, the Company shall pay to Executive a "Base
Salary," payable in accordance with the Company's usual pay practices (and in
any event no less frequently than monthly), of $150,000 per annum, which Base
Salary shall be subject to increase upon review annually by the Company's Board
of Directors.
(b) Executive shall be entitled to be reimbursed for all reasonable
business-related expenses incurred by him including, without limitation,
reimbursement for the costs (including a mutually determined hourly charge) of
business-related travel reasonably requiring, in Executive's good faith
judgment, the use of Executive's personal airplane.
(c) It is anticipated that the Company will own or lease an apartment
in New York City for Company business. It is understood that the annual rental
for any such apartment shall not exceed $110,000. Executive shall have access
to and use of such apartment as reasonably required in connection with Company
business.
4. Termination.
(a) Executive's employment under this Agreement and the Term shall
be terminated immediately on the death of Executive and may be terminated by
the Company:
(i) at any time after the Permanent Disability of Executive;
or
(ii) at any time for "Cause" (as defined below) by action of
the Board
For purposes hereof, Cause shall mean active participation by Executive
in an act or series of acts of dishonesty or gross negligence with respect to
the Company or in fraudulent conduct, or if Executive (i) is convicted of a
felony or
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<PAGE> 3
(ii) willfully and habitually fails to perform his duties hereunder in
accordance with the lawful direction of the Company's Board of Directors.
For purposes hereof, Executive's "Permanent Disability" shall be deemed
to have occurred one day after one hundred twenty (120) days in the aggregate
during any consecutive twelve (12) month period, or one day after ninety (90)
consecutive days, during which one hundred twenty (120) or ninety (90) days, as
the case may be, Executive, by reason of his physical or mental disability or
illness, shall have been unable to discharge fully his duties under this
Agreement.
(b) Termination by Death. If Executive's employment is terminated by
death, Executive's estate shall be entitled to receive salary and other benefits
accrued by him hereunder up to and including the date of Executive's death,
payable within ninety (90) days after the date of death.
(c) Termination for Cause. If Executive's employment is terminated by
the Company for Cause, the Company shall not have any other or further
obligations to Executive under this Agreement (except as to that portion of any
unpaid Base Salary and other benefits accrued and earned under this Agreement
through the date of such termination).
(d) Termination for Permanent Disability or for Good Reason. If
Executive's employment is terminated by the Company for Permanent Disability, or
by Executive for "Good Reason," Executive shall be entitled to receive severance
compensation equal to what would have been his Base Salary under Section 3(a),
payable at such times as his Base Salary would have been paid if his employment
had not been terminated (less, in the case of termination for Permanent
Disability, any disability insurance benefits pursuant to any disability
insurance provided by the Company or purchased by Executive, the cost of which
is reimbursed by the Company) for the shorter of one year or the remainder of
what would have been the Term. For purposes of this Agreement, "Good Reason"
means there is a material diminution in Executive's duties and responsibilities,
as the same exist on the date hereof.
5. Non-Competition Agreement
Executive acknowledges the Company's reliance on and expectation of
Executive's continued commitment to performance of his duties and
responsibilities during the Term. In light of such reliance and expectation on
the part of the
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<PAGE> 4
Company, and for other good reasons, Executive and the Company are entering
into a Non-Competition Agreement, dated the date hereof. Executive agrees to
perform each and every obligation of Executive therein contained.
6. MISCELLANEOUS.
(a) The provisions of this Agreement are severable and if any one or
more provisions may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions and any partially unenforceable
provision to the extent enforceable in any jurisdiction nevertheless shall be
binding and enforceable.
(b) The rights and obligations of the Company under this Agreement
shall inure to the benefit of, and shall be binding on, the Company and its
successors and assigns, and the rights and obligations (other than obligations
to perform services) of Executive under this Agreement shall inure to the
benefit of, and shall be binding upon, Executive and his heirs, personal
representatives and assigns.
(c) All notices and other communications required or permitted under
this Agreement shall be in writing, and shall be deemed properly given if
delivered personally, mailed by registered or certified mail in the United
States mail, postage prepaid, return receipt requested, sent by facsimile, or
sent by Express mail, Federal Express or other nationally recognized express
delivery service, as follows:
If to the Company or the Board:
Women First HealthCare, Inc.
1 Meadowlands Plaza
East Rutherford, New Jersey 07073
Telephone: (201) 507-9110
Facsimile: (201) 507-9270
Attention: Anthony Maris
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With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
If to Executive:
Edward Calesa
c/o Women First HealthCare, Inc.
1 Meadowlands Plaza
East Rutherford, New Jersey 07073
Telephone: (201) 507-9110
Facsimile: (201) 507-9270
Notice given by hand, certified or registered mail, or by Express Mail, Federal
Express or other such express delivery service, shall be effective upon actual
receipt. Notice given by facsimile transmission shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All notices by facsimile
transmission shall be confirmed promptly after transmission in writing by
certified mail or personal delivery.
Any party may change any address to which notice is to be given to it
by giving notice as provided above of such change of address.
(d) The failure of either party to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions as to any future violations thereof, nor
prevent that party thereafter from enforcing each and every other provision of
this Agreement. The rights granted the parties herein are cumulative and the
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
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<PAGE> 6
(e) This Agreement supersedes all prior or contemporaneous agreements and
understandings between the parties and may not be modified or terminated
orally. No modification or attempted waiver shall be valid unless in writing
and signed by the party against whom the same is sought to be enforced.
(f) This Agreement shall be governed by, and construed in accordance with
the provisions of, the law of New Jersey, without regard to the conflict of
laws principles thereof.
(g) All payments required to be made by the Company hereunder to
Executive shall be subject to the withholding of such amounts relating to taxes
and other government assessments as the Company may reasonably determine it
should withhold pursuant to any applicable law, rule or regulation.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first set forth above.
WOMEN FIRST HEALTHCARE, INC.
By: /s/ RICHARD RUBIN
-------------------------------
Name: Richard Rubin
Title: Vice President
/s/ EDWARD CALESA
-----------------------------------
Edward Calesa
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of the 14th day of January, 1998 by and between Women First HealthCare, Inc., a
Delaware corporation (the "Company"), and David F. Hale ("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ Executive, and Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein; and
WHEREAS, capitalized terms used herein and not otherwise defined
are used herein as defined in that certain Stock Purchase Agreement, dated as of
January 8, 1998, by and between the Company and the Purchasers signatory
thereto.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment. The Company hereby employs Executive as President
and Chief Executive Officer, and Executive hereby accepts such employment, on
the terms and subject to the conditions hereinafter set forth.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement (the "Term") shall begin on the date hereof
and shall continue through the fifth anniversary of the date hereof.
3. Duties and Responsibilities. During the Term, Executive shall
serve as President and Chief Executive Officer of the Company and shall report
directly to the Chairman of the Board (the "Chairman") and the Board of
Directors (the "Board"). Executive agrees to perform such duties as are
consistent with his position subject to the direction of Chairman and the Board.
Executive shall be required to devote substantially all of his business time,
attention and effort to the Company's business and affairs and perform
diligently his duties hereunder, all subject to the direction of the Chairman
and the Board, together with such other duties as may be reasonably requested
from time to time by the Chairman or the Board. Subject to the terms of the
Non-Competition Agreement referred to in Section 7, this shall not preclude
Executive from serving on community and civic boards or the corporate boards on
which Executive currently serves, or participating in industry associations,
provided such activities do not unreasonably interfere with his duties to the
Company.
4. Support Services. Executive shall be entitled to all of the
administrative, operational and facility support customary for a similarly
situated executive. This support shall include, without limitation, a suitably
appointed private office and a secretary or administrative assistant.
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<PAGE> 2
5. Compensation. Throughout the Term the Company shall pay or
provide, as the case may be, to Executive the compensation and other benefits
and rights set forth in this Section 5.
(a) The Company shall pay to Executive a minimum "Base
Salary," payable in accordance with the Company's usual pay practices (and in
any event no less frequently than monthly), of $350,000 per annum, which Base
Salary shall be subject to increase upon review annually by and at the sole
discretion of the Compensation Committee of the Board and as approved by the
Board.
(b) (i) Executive may be entitled to receive bonus
compensation (each, a "Quarterly Bonus") for each fiscal quarter, or part
thereof, that he is employed by the Company, of $25,000 for each fiscal quarter
during the Term, based upon the performance of Executive and the Company. The
amount of each such Quarterly Bonus, if any, shall be determined quarterly by
the Chairman in his sole discretion, and each such Quarterly Bonus, if any,
shall be paid promptly following such determination.
(ii) Executive shall participate in the Company's
Management Incentive Compensation Plan and shall be paid an annual bonus as
determined by the Compensation Committee of the Board and as approved by the
Board. The Management Incentive Compensation Plan shall incorporate the
milestones described in the Company's initial preferred stock financing into the
goals Executive will be expected to achieve.
(c) Executive shall be entitled to participate in all life
insurance, medical insurance, disability insurance, retirement and other benefit
plans of the Company generally available from time to time to employees of the
Company and for which Executive qualifies under the terms thereof.
Notwithstanding the foregoing, nothing contained herein shall obligate the
Company to continue any insurance and/or benefit plan which it now maintains or
hereafter establishes, except for the insurance policies referred to in the
following sentence. In addition, the Company will pay the annual premiums on
Executive's disability insurance policies currently in effect from New York Life
and Paul Revere and the $1 million whole life insurance policy from Connecticut
Mutual Life Insurance Company naming Executive's trust as the beneficiary.
(d) Executive shall be entitled to payment of or
reimbursement for reasonable business entertainment expenses and any and all
other business expenses reasonably incurred on behalf of or in the course of
performing duties for the Company, all in accordance with the expense
reimbursement policies established from time to time by the Company. In
addition, the Company shall, at Executive's option, lease an automobile for the
Company which will be available to Executive from time to time, or lease an
automobile for Executive's use and, in the event Executive elects to have the
Company lease an automobile for Executive's use, will reimburse Executive for
reasonable gas and maintenance expenses. Executive agrees to provide such
documentation of these expenses as may be reasonably required.
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<PAGE> 3
(e) Executive shall be entitled to such periods of
vacation and sick leave allowance each year as provided under the Company's
vacation and sick leave policy and as otherwise provided for executive officers,
but in no event shall Executive be entitled to less than four weeks of vacation.
(f) Executive shall be entitled to participate in any
equity or other employee benefit plan that is generally available to senior
executive officers, as distinguished from general management, of the Company.
Executive's participation in and benefits under any such plan shall be on the
terms and subject to the conditions specified in the governing document of the
particular plan.
(g) (i) Concurrently with the execution hereof, the
Company shall grant to Executive the right and option, pursuant to the Company's
Long Term Incentive Plan, to purchase up to 945,000 shares of the Company's
common stock, par value $0.01 per share at an exercise price of $0.51 per share
(taking into account the three for one stock split approved by the Board).
Subject to the provisions of Section 6, such options shall vest 25% upon grant
and 25% per year in equal daily installments over a three-year period,
commencing as of January 14, 1998.
(ii) Concurrently with the execution hereof, the
Company shall grant to Executive the right and option, pursuant to the Company's
Long Term Incentive Plan, to purchase up to an additional 375,000 shares of the
Company's common stock, par value $0.01 per share at an exercise price of $0.51
per share (taking into account the three for one stock split approved by the
Board). Subject to the provisions of Section 6, such options shall vest over a
four-year period, in equal daily installments commencing as of January 14, 1998.
(iii) Subject to the vesting provisions set forth in
paragraphs (i) and (ii) above, the options described in paragraphs (i) and (ii)
may be exercised at any time or from time to time during the ten year period
following the date hereof, subject to the terms and provisions contained in the
aforementioned Long Term Incentive Plan and related grant letter to be
authorized by the Board of Directors. Executive shall not have any of the rights
of a shareholder of the Company with respect to any non-exercised options.
6. Termination.
(a) Executive's employment under this Agreement and the
Term shall be terminated immediately on the death of Executive and may be
terminated by Executive for "Good Reason" (as defined below) or by the Company:
(i) at any time after the "Permanent Disability" (as
defined below) of Executive;
(ii) at any time for "Cause" (as defined below) by
action of the Board; or
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<PAGE> 4
(iii) at any time without Cause by action of the Board.
For purposes hereof, "Cause" shall mean:
(A) A willful act by Executive which constitutes
misconduct or fraud and which is injurious to the Company;
provided, however, that no act, or failure to act, by
Executive shall be considered "willful" unless committed
without good faith and without a reasonable belief that the
act or omission was in the Company's best interest;
(B) Conviction of, or a plea of "guilty" or "no
contest" to, a felony; or
(C) Executive's breach of any provision of this
Agreement, which breach has not been cured (if it is of a
nature that can be cured) to the Board's reasonable
satisfaction within ten (10) days after the Company gives
written notice thereof to Executive.
For purposes hereof, Executive's "Permanent Disability" shall be
deemed to have occurred one day after one hundred fifty (150) days in the
aggregate during any consecutive twelve (12) month period, during which one
hundred fifty (150) days, Executive, by reason of his physical or mental
disability or illness, shall have been unable to discharge fully his duties
under this Agreement.
For purposes hereof, "Good Reason" shall mean (i) a termination
by Executive within ninety (90) days following the relocation of the office of
Executive more than fifty (50) miles from the San Diego, California metropolitan
area (unless such relocation is consented to by Executive), (ii) Executive has
been demoted or has incurred a material reduction in his authority or
responsibility as an employee of the Company, including (without limitation) a
reduction or elimination of his authority to approve expenditures or to hire,
promote, demote or terminate subordinates; (iii) Executive has incurred a
reduction in his total compensation (including benefits) as an employee of the
Company, other than pursuant to a Company-wide reduction of total compensation
(including benefits) for employees of the Company generally; (iv) Executive has
not received a contemporaneous increase in his total compensation (including
benefits) which is commensurate with increases in total compensation (including
benefits) received by a majority of executive-level employees of the Company
with duties and responsibilities substantially comparable to those of the
Executive; or (v) Executive has not received a bonus commensurate with bonuses
(if any) received by a majority of executive-level employees of the Company with
duties and responsibilities substantially comparable to those of Executive.
(b) Termination by Death. If Executive's employment is
terminated by death, Executive's estate shall be entitled to receive (i)
compensation equal to what would have been his Base Salary under Section 5(a)
for one (1) year, payable at such times as his Base Salary would have been paid
if his employment had not been terminated, (ii) the Quarterly Bonus applicable
to the calendar quarter in which such termination occurs and each of the three
calendar quarters following such quarter (each of which shall be in the amount
of $25,000) and the full
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prior year's bonus under the Company's Management Incentive Compensation Plan
(or $150,000 if Executive's death occurs during 1998, so long as the initial
milestone in the Company's initial preferred stock financing is met in 1998, and
(iii) life insurance benefits pursuant to any life insurance purchased by the
Company for the benefit of Executive and the life insurance policy referred to
in Section 5(c) above. If Executive's employment is terminated by death, the
provisions of the Company's Long Term Incentive Plan regarding the
exercisability of options upon the death of the optionee shall apply.
(c) Termination for Cause. If Executive's employment is
terminated by the Company for Cause, the Company shall not have any other or
further obligations to Executive under this Agreement except (i) as to that
portion of any unpaid Base Salary, any bonus earned but not paid and other
benefits accrued and earned under this Agreement through the date of such
termination, (ii) as may be provided in accordance with the terms of retirement
and other benefit plans pursuant to Section 5(c), and (iii) as to benefits, if
any, provided by any insurance policies in accordance with their terms. In
addition, if Executive's employment is terminated by the Company for Cause,
Executive shall immediately forfeit any unvested stock rights and stock options
and other such unvested incentives or awards previously granted to him by the
Company, including, without limitation, the stock options to be granted to
Executive pursuant to Section 5(g) (to the extent then unvested). Executive
shall have one year from termination to exercise any vested stock options or
other stock rights. The foregoing shall be in addition to, and not in lieu of,
any and all other rights and remedies which may be available to the Company
under the circumstances, whether at law or in equity.
(d) Termination without Cause or for Good Reason. If
Executive's employment is terminated by the Company without Cause or by
Executive for Good Reason, Executive shall be entitled to receive (i) severance
compensation equal to what would have been his Base Salary under Section 5(a),
payable at such times as his Base Salary would have been paid if his employment
had not been terminated, for the longer of fifteen (15) months or the remainder
of what would have been the Term, (ii) the Quarterly Bonus for the remainder of
what would have been the Term and an annual bonus for the remainder of what
would have been the Term in an amount equal to the average of the prior annual
bonuses paid hereunder (disregarding any year when no bonus was paid and
providing for a $150,000 annual bonus if termination occurs in 1998 so long as
the initial milestone described in the Company's initial preferred stock
financing is met in 1998), (iii) other benefits accrued by him hereunder up to
and including the date of such termination, payable within ninety (90) days
after the date of such termination, and (iv) the benefits set forth in Section
5(c) for the longer of fifteen (15) months or the remainder of what would have
been the Term. In the event Executive's employment is terminated by the Company
without cause or by Executive for Good Reason, Executive's stock options and
other stock rights shall become immediately vested and exercisable in full and
shall be exercisable for one year from termination.
(e) Termination for Permanent Disability. If Executive's
employment is terminated by the Company for Permanent Disability, Executive
shall be entitled to receive (i) severance compensation equal to what would have
been his Base Salary under Section 5(a) for fifteen (15) months, payable at such
times as his Base Salary would have been paid if his employment had not been
terminated, (ii) the Quarterly Bonus applicable to the calendar quarter
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in which such termination occurs and each of the four calendar quarters
following such quarter (each of which shall be in the amount of $25,000) and one
year's annual bonus calculated in the same manner as paragraph (d) above. In
addition, for a period of fifteen (15) months following the date of such
termination, the Company shall continue to pay to Executive all medical benefits
pursuant to any plans and programs in which Executive was entitled to
participate immediately prior to the date of termination as if Executive were
still employed pursuant hereto. If Executive's employment is terminated by the
Company for Permanent Disability, the provisions of the Company's Long Term
Incentive Plan regarding the exercisability of options upon the disability of
the optionee shall apply, except that stock options and other stock rights
granted to Executive shall have their vesting accelerated fifteen (15) months
and shall be exercisable for one year from termination.
7. Confidential Information: Non-Competition.
Executive acknowledges the Company's reliance on and
expectation of Executive's continued commitment to performance of his duties and
responsibilities during the Term. In light of such reliance and expectation on
the part of the Company, and for other good reasons, Executive and the Company
are entering into a Non-Competition Agreement and the Company's standard
employee confidentiality agreement, each dated the date hereof. Executive agrees
to perform each and every obligation of Executive therein contained.
8. Miscellaneous.
(a) Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Agreement.
(b) The provisions of this Agreement are severable and if
any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable in any jurisdiction
nevertheless shall be binding and enforceable.
(c) The rights and obligations of the company under this
Agreement shall inure to the benefit of, and shall be binding on, the Company
and its successors and assigns, and the rights and obligations (other than
obligations to perform services) of Executive under this Agreement shall inure
to the benefit of, and shall be binding upon, Executive and his heirs, personal
representatives and assigns.
(d) All notices and other communications required or
permitted under this Agreement shall be in writing, and shall be deemed properly
given if delivered personally, mailed by registered or certified mail in the
United States mail, postage prepaid, return receipt requests, sent by facsimile,
or sent by Express Mail, Federal Express or other nationally recognized express
delivery service, as follows:
If to the Company or the Board:
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Women First HealthCare, Inc.
1 Meadowlands Plaza
East Rutherford, New Jersey 07073
Telephone: (201) 507-9110
Facsimile: (201) 507-9270
Attention: Edward Calesa
With a copy to:
Latham & Watkins
701 B Street, Suite 2100
San Diego, California 92101
Telephone: (619) 236-1234
Facsimile: (619) 696-7419
Attention: Scott N. Wolfe
If to Executive:
David F. Hale
Post Office Box 8925
16596 Via Lago Azul
Rancho Santa Fe, California 92067
Notice given by hand, certified or registered mail, or by
Express Mail, Federal Express or other such express delivery service, shall be
effective upon actual receipt. Notice given by facsimile transmission shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next business day after receipt if
not received during the recipient's normal business hours. All notices by
facsimile transmission shall be confirmed promptly after transmission in writing
by certified mail or personal delivery.
Any party may change any address to which notice is to be given
to it by giving notice as provided above of such change of address.
(e) The failure of either party to enforce any provisions
of this Agreement shall not in any way be construed as a waiver of any such
provision or provisions as to any future violations thereof, nor prevent that
party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy shall not constitute a waiver of such party's right to
assert all other legal remedies available to it under the circumstances.
(f) This Agreement supersedes all prior or contemporaneous
agreements and understandings between the parties and may not be modified or
terminated orally. No modification or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
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(g) This Agreement shall be governed by, and construed in
accordance with the provisions of the law of California, without regard to the
conflict of laws principles thereof.
(h) All payments required to be made by the Company
hereunder to Executive shall be subject to the withholding of such amounts
relating to taxes and other government assessments as the Company may reasonably
determine it should withhold pursuant to any applicable law, rule or regulation.
(i) Captions and section headings used herein are for
convenience and are not a party of this Agreement and shall not be used in
construing it.
(j) This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which shall constitute one and
the same instrument.
(k) Except as otherwise provided in this Agreement, any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, shall be settled by arbitration in San Diego in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Discovery
shall be permitted to the same extent as in a proceeding under the Federal Rules
of Civil Procedure, including (without limitation) such discovery as is
specifically authorized by section 1283.05 of the California Code of Civil
Procedure, without need of prior leave of the arbitrator under section
1283.05(e) of such Code. Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. All fees and expenses of the
arbitrator and such Association shall be paid as determined by the arbitrator.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year first set forth above.
WOMEN FIRST HEALTHCARE, INC.
By: /S/ EDWARD F. CALESA
______________________________
Name:
Chairman
/S/ DAVID F. HALE
______________________________
David F. Hale
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EXHIBIT 10.3
WOMEN FIRST HEALTHCARE, INC.
1998 LONG-TERM INCENTIVE PLAN
1. Introduction and Purpose. The Plan is submitted to the Board of Directors
for adoption subject to approval by the Company's stockholders. The Plan is
fully effective as of the date approved by the shareholders. The Plan
replaces the current Women First HealthCare, Inc. Incentive Option Plan.
The purpose of the Plan is to promote the interests of Women First
HealthCare, and its shareholders by encouraging officers and Key Associates
to acquire stock or increase their proprietary interest in the Company. By
thus providing the opportunity to acquire Company stock and receive
incentive payments, the Company seeks to attract and retain such Key
Associates upon whose judgment, initiative, and leadership the success of
the Company largely depends.
The Plan shall be governed by, and construed in accordance with the laws of
the State of California.
2. Definitions. Whenever the following terms are used in this Plan, they will
have the meanings specified below unless the context clearly indicates the
contrary.
a) "Board of Directors" or "Board" means the Board of Directors of the
Company, as constituted from time to time.
b) "Change-in-Control" occurs in the following instances (1) a tender or
exchange for all or part of Company Common Stock (except an offer by
the Company itself); (2) Company shareholder approval of a merger in
which the Company does not survive as an independent corporation
(except a merger which leaves Company shareholders with substantially
the same ownership in the new corporation); (3) Company shareholder
approval of a consolidation or sale, exchange or other disposition of
all, or substantially all, of the Company's assets: (4) change in the
composition of the Board over a two consecutive year period so that
individuals who were directors at the beginning of that period no
longer constitute a majority of the Board (unless the election or
nomination of each new director was approved by at least two-thirds of
the directors who had been directors at the beginning of the period
and who were still in office at the time of the election or
nomination).
c) "Code" means the Internal Revenue Code of 1986, as amended.
d) "Committee" means the committee appointed to administer the Plan
pursuant to Section 4.
e) "Company" means Women First HealthCare, Inc. a Delaware corporation.
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WOMEN FIRST HEALTHCARE, INC.
f) "Common Shares" or "Common Stock" means the common shares of Women
First HealthCare, Inc. and any class of common shares into which such
common shares may hereafter be converted.
g) "Dividend Equivalent" means the additional amount of Common Stock
issued in connection with an Option, as described in Section 14.
h) "Eligible Person" means a Key Associate eligible to receive an
Incentive Award.
i) "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
j) "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
i) If none of the provisions ii to iv listed below are applicable,
the Fair Market Value shall be determined by the Committee in
good faith on such basis, as it deems appropriate. Items ii to iv
will be effective when the Company is public.
ii) If the Common Shares were traded over-the-counter on the date in
question but were not traded on the Nasdaq system or the Nasdaq
National Market System, then the Fair Market Value shall be equal
to the mean between the last reported representative bid and
asked prices quoted for such date by the principal automated
inter-dealer quotation system on which the Common Shares are
quoted or, if the Common Shares are not quoted on any such
system, by the "Pink Sheets" published by the National Quotation
Bureau, Inc.
iii) If the Common Shares were traded over-the-counter on the date in
question and were traded on the Nasdaq system or the Nasdaq
National Market System, then the fair Market Value shall be equal
to the last-transaction price quoted for such date by the Nasdaq
system or the Nasdaq National Market System.
iv) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date: and
In all cases, the determination of Fair Market Value by the
Committee shall be conclusive and binding on all persons.
k) "Holder" means a person, estate, trust or entity holding an Incentive
Award.
l) "Incentive Award" means any Nonqualified Stock Option, Incentive Stock
Option, Common Stock, Restricted Stock, Stock Appreciation Right, Dividend
Equivalent, Stock Payment or Performance Award granted under the Plan.
m) "Incentive Stock Option" means an Option as defined under Section 422 of
the Code, including an Incentive Stock Option granted pursuant to Section 8
of the Plan.
n) "Key Associate" shall mean (i) any individual who is a common-law Associate
of the
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WOMEN FIRST HEALTHCARE, INC.
Company or of a Subsidiary, (ii) a member of the Board of Directors,
including (without limitation) an Outside Director, or an affiliate of a
member of the Board of Directors, a member of the Board of Directors of a
Subsidiary and (iv) an independent contractor who performs services for the
Company or a Subsidiary. Service as a member of the Board of Directors, a
member of the board of directors of a Subsidiary or as an independent
contractor shall be considered employment for all purposes of the Plan,
except as provided in Sections 5(b) and 6.
o) "Nonqualified Stock Option" means an Option other than an Incentive Stock
Option granted pursuant to Section 8 of the Plan.
p) "Option" means either a Nonqualified Stock Option or Incentive Stock
Option.
q) "Outside Director" shall mean a member of the Board of Directors who is not
a common-law Associate of the Company or a Subsidiary.
r) "Performance Award" means an award whose value may be linked to stock
value, or other specific performance criteria which may be set by the board
of Directors, but which is paid in cash, stock, or a combination of both.
s) "Plan" means the 1998 Long-Term Incentive Plan, which may be amended from
time to time.
t) "Restricted Stock" means Company stock sold or granted to an Eligible
Person, which is nontransferable and subject to substantial risk of
forfeiture until restrictions lapse.
u) "Stock Appreciation Right" or "Right" means a right granted pursuant to
Section 11 of the Plan to receive a number of shares of Common Stock or, in
the discretion of the Committee, an amount of cash or a combination of
shares and cash, based on the increase in the fair market value or book
value of the shares subject to the right.
v) "Stock Payment" means a payment in shares of the Common Stock to replace
all or any portion of the compensation (other than base salary) that would
otherwise become payable to an Associate in cash.
w) "Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A
Corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
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WOMEN FIRST HEALTHCARE, INC.
x) "Total and Permanent Disability" means that the Holder is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted, or can be expected to last, for a continuous period of
not less than one year.
3. Shares of Common Stock Subject to the Plan.
a) Subject to the provisions of Sections 3(c) and 15 of the Plan, the
aggregate number of shares of Common Stock that may be issued or
transferred pursuant to Incentive Awards or covered by Stock
Appreciation Rights unrelated to Options under the Plan shall not
exceed 3,000,000, and the number of shares that may be issued or
transferred during any 12-month period to any Eligible Person pursuant
to an incentive Award or a Stock Appreciation Right unrelated to an
Option shall not exceed the initial grant to such Eligible Person plus
250,000 (or 350,000 in the event of an Option repricing during that
12-month period).
b) The shares to be delivered under the Plan will be made available, at
the discretion of the Board of Directors or the Committee, either from
authorized but unissued shares of Common Stock or from previously
issued shares of Common Stock reacquired by the Company.
c) If Incentive Awards are forfeited or if Incentive Awards terminate for
any other reason before being exercised, then such Incentive Awards
shall again become available for award under the Plan. If Stock
Appreciation Rights are exercised, then only the number of Common
Shares (if any) actually issued in settlement of such Stock
Appreciation Rights shall reduce the number of Common Shares available
under Section 3(a) and the balance shall again become available for
award under the Plan. If Restricted Stock is forfeited then such
Restricted Stock shall again become available for award under the
Plan.
4. Administration of the Plan.
a) The Plan shall be administered by the Committee. The Committee shall
consist exclusively of Directors of the Company, who shall be
appointed by the Board. In addition, the composition of the Committee
shall satisfy:
i) Prior to the Company becoming a public company and if the Company
does become a publicly owned corporation, the Company will
satisfy such requirements as the Internal Revenue Service may be
established for outside directors acting under plans intended to
qualify for exemption under Section 162(m) of the Code; and
ii) Such requirements, if any, as the Securities and Exchange
Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule l6b-3 (or its
successor), under the Exchange Act.
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WOMEN FIRST HEALTHCARE, INC.
The Board shall act on its own behalf with respect to the grant or
amendment of Incentive Awards to Outside Directors and may also appoint
separate committees of the Board, each composed of one or more officers of
the Company who need not be directors of the Company, to administer the
Plan with respect to Key Associates who are not "covered associates" under
Section 162(m) of the Code and who are not required to report pursuant to
Section 16(a) of the Exchange Act.
b) The Committee has and may exercise such powers and authority as may be
necessary or appropriate for the Committee to carry out its functions
as described in the Plan. The Committee has authority in its
discretion to determine the Eligible Persons to whom, and the time or
times at which, Incentive Awards may be granted and the number of
shares or Rights subject to each award. Subject to the express
provisions of the Plan, the Committee also has authority to interpret
the Plan, and to determine the terms and provisions of the respective
Incentive Award agreements (which need not be identical) and to make
all other determinations necessary or advisable for Plan
Administration. The Committee has authority to prescribe, amend, and
rescind rules and regulations relating to the Plan. All
interpretations, determinations and actions by the Committee will be
final, conclusive, and binding upon all parties. In no event shall the
number of Incentive Awards issued pursuant to the Plan during any
12-month period exceed 15% of the total outstanding Common Shares
(including the Common Shares issuable upon conversion of convertible
securities).
c) No member of the Board of Directors or the Committee will be liable
for any action or determination made in good faith by the Committee
with respect to the Plan or any Incentive and Performance Award under
it.
5. Eligibility and Date of Grant
The date of grant of an Incentive Award will be the date the Committee takes the
necessary action to approve the grant; provided, however, that if the minutes or
appropriate resolutions of the Committee provide that an Incentive Award is to
be granted as of a date in the future, the date of grant will be such future
date.
6. Outside Director Participation. Outside Directors shall receive Option
grants under the Plan as described below:
a) Upon the conclusion of each regular annual meeting of the Company's
shareholders, each incumbent Outside Director who will continue
serving as a member of the Board thereafter may receive a grant of a
Nonstatutory Option for such number of Common Shares (subject to
adjustment under Section 15 and prorated for partial year service) as
the Board shall determine in its sole discretion.
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WOMEN FIRST HEALTHCARE, INC.
b) New Outside Directors shall receive a one-time grant of a Nonstatutory
Option for a number of Common Shares as determined in the sole
discretion of the Board; provided, however, that such grant shall not
be made in any calendar year in which the same individual receives an
Option under (a) above. Such Option, if any, shall be granted on the
date when such Outside Director first joins the Board of Directors of
the Company or the board of directors of a Subsidiary.
c) Total grants under this Section 6 (less forfeitures) shall not exceed
15% of the maximum number of Common Shares available for grant under
Section 3(a) of the Plan (subject to adjustment under Section 15).
7. Nonqualified Stock Options.
The Committee may approve the grant of Nonqualified Stock Options to Eligible
Persons, subject to the following terms and conditions:
a) The purchase price of Common Stock under each Nonqualified Stock
Option may not be less than eighty-five percent (85%) of the Fair
Market Value of the Common Stock on the date the Nonqualified Stock
Option is granted.
b) No Nonqualified Stock Option may be exercised after ten (10) years
from the date of grant.
c) No fractional shares will be issued pursuant to the exercise of a
Nonqualified Stock Option nor will any cash payment be made in lieu of
fractional shares.
8. Incentive Stock 0ptions. The Committee may approve the grant of Incentive
Stock Options to Eligible Persons, subject to the following terms and
conditions.
a) The purchase price of each share of Common Stock under an Incentive
Stock Option will be at least equal to the Fair Market Value of a
share of the Common Stock on the date of grant: provided, however,
that if an associate, at the time an Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company (as
defined in Section 424 of the Code), then the Exercise Price of each
share of Common Stock subject to such Incentive Stock Option shall be
at least one hundred and ten percent (110%) of the Fair Market Value
of such share of Common Stock, as determined in the manner stated
above.
b) No Incentive Stock Option may be exercised after ten (10) years from
the date of grant: provided, however, that if any associate, at the
time an Incentive Stock Option is granted to him or her, owns stock
representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company (as defined in Section
424 of the Code), the Incentive Stock Option granted shall not be
exercisable after the expiration of five (5) years from the date of
grant.
c) No fractional shares will be issued pursuant to the exercise of an
Incentive Stock
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WOMEN FIRST HEALTHCARE, INC.
Option nor will any cash payment be made in lieu of fractional shares.
9. Option Rules. The purchase price under each Option may be paid in cash,
cash equivalents or notes acceptable to the Committee, by arrangement with
a broker which is acceptable to the Committee where payment of the Option
price is made pursuant to an irrevocable direction to the broker to deliver
all or part of the proceeds from the sale of the Option shares to the
Company, by the surrender of shares of Common Stock owned by the Holder
exercising the Option; and having a Fair Market Value on the date of
exercise equal to the purchase price or in any combination of the
foregoing. Each Option granted to an Eligible Person shall be exercisable
in such manner and at such times as the Committee shall determine. The
Committee may modify, accelerate the exercisability of, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or by another issuer) in return for the
grant of now Options for the same or a different number of shares and at
the same or a different purchase price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Holder, alter
or impair his or her rights or obligations under such Option.
Notwithstanding anything to the contrary, each Option shall vest at the
rate of at least 20% per year over 5 years from the date of grant. Each
Option shall provide for a period of exercise of at least 6 months in the
event of a termination of employment as a result of death or disability and
at least 30 days in the case of termination other than death or disability.
10. Restricted Stock. The Committee may approve the grant of Restricted Stock
unrelated to Nonqualified Stock Options or Stock Appreciation Rights to
Eligible Persons, subject to the following terms and conditions:
a) The Committee in its discretion will determine the purchase price.
b) All shares of Restricted Stock sold or granted pursuant to the Plan
(including any shares of Restricted Stock received by the Holder as a
result of stock dividends, stock splits. or any other forms of
capitalization), will be subject to the following restrictions:
i) The shares may not be sold, transferred, or otherwise alienated
or hypothecated until the restrictions are removed or expire.
ii) The Committee may require the Holder to enter into an escrow
agreement providing that the certificates representing Restricted
Stock sold or granted pursuant to the Plan will remain in the
physical custody of an escrow holder until all restrictions are
removed or expire.
iii) Each certificate representing Restricted Stock sold or granted
pursuant to the Plan will bear a legend making appropriate
reference to the Restrictions imposed on the Restricted Stock.
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WOMEN FIRST HEALTHCARE, INC.
iv) The Committee may impose restrictions on any shares sold pursuant
to the Plan as it may deem advisable, including without
limitation, restrictions designed to facilitate exemption from or
compliance with the Securities Exchange Act of 1934, as amended,
with requirements of any stock exchange upon which such shares or
shares of the same class are then listed and with any blue sky or
other securities laws applicable to such shares; provided,
however, the restrictions imposed on any Restricted Stock must
comply with California Securities Rule 260.140.42.
c) The restrictions imposed under subparagraph (b) above upon Restricted
Stock will lapse in accordance with a schedule or other conditions as
determined by the Committee, subject to the provisions of Section 17,
subparagraph (d).
d) Subject to the provisions of subparagraph (b) above and Section 17,
subparagraph (d), the Holder will have all rights of a shareholder
with respect to the Restricted Stock granted or sold, including the
right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
e) Notwithstanding the provisions of subparagraph (b) above and Section
17, subparagraph (d), Restricted Stock granted or sold may be held by
the trustee of a revocable inter vivos trust (or other trust if such
transfer associated therewith does: not cause income to be recognized
pursuant to Code Section 83 and if the trust takes subject to the
forfeiture provisions of the Restricted Stock), approved by the
Company, established in whole or in part by the Holder and/or the
Holder's spouse. So long as the Holder is still an employee, transfer
to such trust shall not violate the provisions of subparagraph (b)
above and ownership by such trust shall not invoke any right or
obligation of the Company under Section 17, subparagraph (d).
11. Stock Appreciation Rights. The Committee may approve the grant of Rights
related or unrelated to Options to Eligible Persons, subject to the
following terms and conditions:
a) A Stock Appreciation Right may be granted
i) at any time if unrelated to an Option:
ii) either at the time of grant, or at any time thereafter during the
Option term if related to a Nonqualified Stock Option: or
iii) only at the time of grant if related to an Incentive Stock
Option.
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WOMEN FIRST HEALTHCARE, INC.
b) A Stock Appreciation Right granted in connection with an Option will
entitle the Holder of the related Option, upon execution of the Stock
Appreciation Right, to surrender such Option or any portion thereof to
the extent unexercised, with respect to the number of shares as to
which such Stock Appreciation Right is exercised, and to receive
payment of an amount computed pursuant to Section 11(d). Such Option
will, to the extent surrendered, then cease to be exercisable.
c) Subject to Section 11(g), a Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time
or times as the Committee in its discretion may determine, and only to
the extent that a related Option is exercisable, and will not be
transferable except to the extent that such related Option is
exercisable.
d) Upon the exercise of a Stock Appreciation Right related to an Option,
the Holder will be entitled to receive payment of an amount determined
by multiplying:
i) The difference obtained by subtracting the purchase price of a
share of Common Stock specified in the related Option from the
Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right, by
ii) The number of shares as to which such Stock Appreciation Right
has been exercised.
e) The Committee may grant Stock Appreciation Rights unrelated to Options
to Eligible Persons which will be exercisable at such times as the
Committee shall determine. Section 11(d) shall be used to determine
the amount payable at exercise under Such Stock Appreciation Right if
Fair Market Value is used, except that Fair Market Value shall not be
used if the Committee specifies in the grant of the Right that book
value or other measure as deemed appropriate by the Committee is to be
used, and the initial share value specified in the award shall be used
in lieu of "price of a Common Stock specified in the related Option,"
as provided in Section 11(d).
f) Payment of the amount determined under Section 11(d) or (c) may be
made solely in whole shares of Common Stock in a number determined at
their Fair Market Value on the date of exercise of the Stock
Appreciation Right or alternatively at the sole discretion of the
Committee, solely in cash or in a combination of cash and shares as
the Committee deems advisable. If the Committee decides to make full
payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in
cash.
g) The Committee shall, at the time a Stock Appreciation Right is
granted, impose such conditions on the exercise of the Stock
Appreciation Right as may be required to satisfy the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934 (or any other
comparable provisions in effect at the time or times in question). In
addition, a Stock Appreciation Right granted under the Plan may
provide that it will be exercisable only in the event of a
Change-in-Control.
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WOMEN FIRST HEALTHCARE, INC.
12. Performance Awards. The Committee may approve Performance Awards to
Eligible Persons. Such awards may be based on Common Stock performance over
a period determined in advance by the Committee or any other measures as
determined appropriate by the Committee. Payment will be in cash unless
replaced by a Stock Payment in full or in part as determined by the
Committee.
13. Stock Payment. The Committee may approve Stock Payments of Common Stock to
Eligible Persons for all or any portion of the compensation (other than
base salary) that would otherwise become payable to an employee in cash.
14. Dividend Equivalents. A Holder may also be granted at no additional cost
"Dividend Equivalents" based on the dividends declared on the Common Stock
on record dates during the period between the date an Option is granted and
the date such Option is exercised, or such other equivalent period, as
determined by the Committee. Such Dividend Equivalents shall be converted
to additional shares or cash by such formula as may be determined by the
Committee.
Dividend Equivalents shall be computed, as of each dividend record date,
both with respect to the number of shares under the Option and with respect
to the number of Dividend Equivalent shares previously earned by the Holder
(or his or her successor in interest) and not issued during the period
prior to the dividend record date.
15. Adjustment Provisions.
a) Subject to Section 15(b), if the outstanding shares of Common Stock
are increased, decreased, or exchanged for a different number or kind
of shares or other securities, or if additional shares or new or
different shares or other securities are distributed with respect to
such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all of the property of the
Company, reorganization, recapitalization, reclassification, stock
dividend stock split, reverse stock split or other distribution with
respect to such shares of Common Stock, or other securities, an
appropriate and proportionate adjustment shall be made in (i) the
maximum number and kind of shares provided in Section 3 of the Plan,
(ii) the number and kind of shares or other securities subject to the
then outstanding Incentive Awards, and (iii) the price for each share
or other unit of any other securities subject to the then outstanding
Incentive Awards without change in the aggregate purchase price or
value as to which Incentive Awards remain exercisable or subject to
restrictions.
b) In addition, upon; Change-in-Control all Options, Stock Appreciation
Rights, and Performance Awards then outstanding under the Plan will be
fully vested and exercisable and all restrictions on Restricted Stock
will immediately cease. The Committee or any agreement of merger or
reorganization may offer the Holder the right to exchange such vested
Incentive Awards for fully vested and equivalent value awards under a
successor plan.
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WOMEN FIRST HEALTHCARE, INC.
16. General Provisions.
a) With respect to any shares of Common Stock issued or transferred under
any provision of the Plan such shares may be issued or transferred
subject to such conditions, in addition to those specifically provided
in the Plan, as the Committee may direct; provided that any such
conditions must comply with California Corporate Securities Rules
260.140.41 and 260.140.42.
b) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Holder any right to continue in the employ of the
Company or any of its Subsidiaries or affect the right of the Company
to terminate the employment of any Holder at any time and for any
reason.
c) No shares of Common Stock will be issued or transferred pursuant to an
Incentive Award unless and until all then applicable requirements
imposed by federal and state securities and other laws, rules, and
regulations and by any regulatory agencies having jurisdiction, and by
any stock exchanges upon which the Common Stock may be listed, have
been fully met. As a condition precedent to the issue of shares
pursuant to the grant or exercise of an Incentive Award, the Company
may require the Holder to take any reasonable action to meet such
requirements.
d) No Holder (individually or as a member of a group) and no beneficiary
or other person claiming under or through such Holder will have any
right, title, or interest in or to any shares of Common Stock
allocated or reserved under the plan or subject to any Incentive Award
except as to such shares of Common Stock, if any, that have been
issued or transferred to such Holder.
e) The Company may make such provisions, as it deems appropriate to
withhold any taxes, which it determines it is required to withhold in
connection with any Incentive or Performance Award.
f) No Incentive Award and no right under the Plan contingent or
otherwise, will be assignable or subject to any encumbrance, pledge
(other than a pledge to secure a loan from the Company), or charge of
any nature except that, under such rules and regulations as the
Company may establish pursuant to the terms of the Plan, a beneficiary
may be designated with respect to an Incentive Award in the event of
death of a Holder of such Incentive Award. If such beneficiary is the
executor or administrator of the estate of the Holder of such
Incentive Award, any rights with respect to such Incentive Award may
be transferred to the person or persons or entity (including a trust)
entitled thereto under the will of the Holder of such Incentive Award
or, in the case of intestacy, under the laws relating to intestacy.
Except as determined by the Committee, no Incentive Award shall be
transferable by any Eligible Person other than by will of the laws of
descent and distribution or pursuant to a qualified domestic relations
order. In considering transferability of an Incentive Award, the
Committee may also consider the registration limitation of SEC Form
S-8 and on that basis may in its discretion determine whether to
prohibit transferability, permit alternative registration of the
Incentive Award, treat the Incentive Award as
11
<PAGE> 12
WOMEN FIRST HEALTHCARE, INC.
SEC Rule 144 "restricted stock," or take such other measures as the
Committee deems appropriate.
g) The Committee may permit a Holder to satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold
all or a portion of any Common Stock that otherwise would be issued to
him or her or by surrendering all or a portion of any Common Stock
that he or she previously acquired. Such Common Stock shall be valued
at its Fair Market Value on the date when taxes otherwise would be
withheld in cash. Any payment of taxes by assigning Common Stock to
the Company may be subject to restrictions, including any restrictions
required by rules of the Securities and Exchange Commission.
h) All Incentive Awards shall become 100% vested in the event of death or
total and permanent disability.
i) The Company will send each Holder of an Incentive Award financial
statements of the Company at least annually.
17. Amendment and Termination.
a) The Board of Directors may, in its discretion, amend, suspend, or
terminate the Plan at any time. An amendment of the Plan shall be
subject to the approval of the Company's shareholders to the extent it
affects the application of the accelerated vesting provisions herein,
Section 15, or to the extent required by applicable laws, regulations
and or rules.
b) The Committee may, with the consent of a Holder, make such
modifications in the terms and conditions of the Incentive Award as it
deems advisable or cancel the Incentive Award (with or without
consideration) with the consent of the Holder.
c) No amendment, suspension, or termination of the Plan will, without the
consent of the Holder, alter, terminate, impair, or adversely affect
any right or obligation under any Incentive Award previously granted
under the Plan.
d) In the event a Holder of Restricted Stock ceases to be an associate
all such Holder's Restricted Stock which remains subject to
substantial risk of forfeiture at the time his or her employment
terminates will be repurchased by the Company at the original price at
which such Restricted Stock had been purchased unless the Committee
determines otherwise.
12
<PAGE> 13
WOMEN FIRST HEALTHCARE, INC.
e) In the event a Holder of a Performance Award ceases to be an
associate, all such Holder's Performance Awards will terminate except
in the case of retirement, death, or Total and Permanent Disability.
The Committee, in its discretion, may authorize full or partial
payment of Performance Awards in all cases involving retirement,
death, or permanent and total disability.
f) The Committee may in its sole discretion determine, with respect to an
Incentive Award that any Holder who is on unpaid leave of absence for
any reason will be considered as still in the employ of the Company,
provided that rights to such Incentive Award during an unpaid leave of
absence will be limited to the extent to which such right was earned
or vested at the commencement of such leave of absence.
18. Effective Date of Plan and Duration of Plan. This Plan will become
effective upon approval by the shareholders of the Company within twelve
(12) months following the date of its adoption by the Board of Directors.
Unless previously terminated by the Board of Directors, the Plan will
terminate ten (10) years after its approval by the shareholders of the
Company.
13
<PAGE> 1
EXHIBIT 10.5
LEASE AGREEMENT
BETWEEN
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
a Delaware limited partnership
("Landlord")
AND
WOMEN FIRST HEALTHCARE, INCORPORATED,
a Delaware corporation
("Tenant")
EXECUTIVE CENTER DEL MAR
San Diego, California
Dated: April 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I BASIC LEASE INFORMATION AND CERTAIN DEFINITIONS............... 1
ARTICLE II PREMISES AND QUIET ENJOYMENT.................................. 2
ARTICLE III TERM; COMMENCEMENT DATE DELIVERY AND ACCEPTANCE OF PREMISES... 2
ARTICLE IV RENT.......................................................... 5
ARTICLE V OPERATING COSTS............................................... 5
ARTICLE VI PARKING....................................................... 8
ARTICLE VII UTILITIES AND SERVICES........................................ 8
ARTICLE VIII ASSIGNMENT AND SUBLETTING..................................... 9
ARTICLE IX REPAIRS....................................................... 11
ARTICLE X ALTERATIONS................................................... 11
ARTICLE XI LIENS......................................................... 12
ARTICLE XII USE AND COMPLIANCE WITH LAWS.................................. 12
ARTICLE XIII DEFAULT AND REMEDIES.......................................... 13
ARTICLE XIV INSURANCE..................................................... 14
ARTICLE XV DAMAGE BY FIRE OR OTHER CAUSE................................. 15
ARTICLE XVI CONDEMNATION.................................................. 16
ARTICLE XVII INDEMNIFICATION............................................... 17
ARTICLE XVIII SUBORDINATION AND ESTOPPEL CERTIFICATES....................... 17
ARTICLE XIX SURRENDER OF THE PREMISES..................................... 18
ARTICLE XX LANDLORD'S RIGHT TO INSPECT................................... 18
ARTICLE XXI SECURITY DEPOSIT.............................................. 19
ARTICLE XXII BROKERAGE..................................................... 19
ARTICLE XXIII OBSERVANCE OF RULES AND REGULATIONS........................... 19
ARTICLE XXIV NOTICES....................................................... 20
ARTICLE XXV MISCELLANEOUS................................................. 20
ARTICLE XXVI SUBSTITUTION SPACE............................................ 22
ARTICLE XXVII OTHER DEFINITIONS............................................. 23
</TABLE>
EXHIBITS AND RIDERS
The following Exhibits and Riders are attached hereto and by this reference
made a part of this Lease:
EXHIBIT A -- FLOOR PLAN OF THE PREMISES
EXHIBIT B -- THE LAND
EXHIBIT C -- WORK LETTER AGREEMENT
EXHIBIT D -- FORM OF COMMENCEMENT NOTICE
EXHIBIT E -- FORM OF LETTER OF CREDIT
EXHIBIT F -- BUILDING TOP SIGNAGE
RIDER NO. 1 -- RULES AND REGULATIONS
-i-
<PAGE> 3
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERMS DEFINITION
- ------------- -----------
<S> <C>
Actual Statement........................................................... 7
ADA........................................................................ 13
All Risk................................................................... 14
Allowance........................................................... Exhibit C
Audit Notice............................................................... 7
Audit Period............................................................... 7
blanket insurance.......................................................... 14
BOMA Standard.............................................................. 24
Building Standards.................................................. Exhibit C
Building Top Signage....................................................... 22
Business Days.............................................................. 23
Business Hours............................................................. 23
Central Systems..................................................... Exhibit C
Common Areas............................................................... 23
Comparison Area............................................................ 8
condemnation............................................................... 16
control.................................................................... 10
day........................................................................ 24
days....................................................................... 24
Event of Default........................................................... 13
Extension Notice........................................................... 4
Extension Options.......................................................... 4
fair market rental rate.................................................... 4
Final Plans......................................................... Exhibit C
Force Majeure Delays....................................................... 3
hereby..................................................................... 24
herein..................................................................... 24
hereof..................................................................... 24
hereunder.................................................................. 24
Holidays................................................................... 23
include.................................................................... 24
including.................................................................. 24
Interest Rate.............................................................. 5
Landlord................................................................... 1
Landlord's Operating Costs Estimate........................................ 5
Lease...................................................................... 1
Leasehold Improvements.............................................. Exhibit C
Letter of Credit........................................................... 19
Net Rentable Area.......................................................... 24
no liability to Tenant..................................................... 24
Non-Permanent Improvements.......................................... Exhibit C
notices.................................................................... 20
Offering Transaction....................................................... 19
Operating Costs ........................................................... 6
Option .................................................................... 5
Option Terms............................................................... 4
Outside Agreement Date..................................................... 4
over-the-counter........................................................... 9
Permitted Transferee....................................................... 5
repair..................................................................... 24
Signage Termination Event.................................................. 22
Stated Amount.............................................................. 19
Substitution Space......................................................... 22
Successor Landlord......................................................... 17
Taxes...................................................................... 6
Tenant..................................................................... 1
Tenant Delays....................................................... Exhibit C
Tenant's Design Development Drawings................................ Exhibit C
Tenant's Operating Costs Payment........................................... 5
Tenant's Property.......................................................... 14
Tenant's Review Period..................................................... 4
termination of this Lease.................................................. 24
terms of this Lease........................................................ 24
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Usable Area................................................................ 24
without liability to Tenant................................................ 24
Work Cost........................................................... Exhibit C
</TABLE>
-iii-
<PAGE> 5
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "LEASE") is made and entered into by and
between PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a Delaware limited
partnership ("LANDLORD"), and WOMEN FIRST HEALTHCARE, INCORPORATED, a Delaware
corporation ("TENANT"), upon all the terms set forth in this Lease and in all
Exhibits and Riders hereto, to each and all of which terms Landlord and Tenant
hereby mutually agree.
ARTICLE I
BASIC LEASE INFORMATION AND CERTAIN DEFINITIONS
1.1 Each reference in this Lease to information and definitions contained
in the Basic Lease Information and Certain Definitions and each use of the
terms capitalized and defined in this Section 1.1 shall be deemed to refer to,
and shall have the respective meaning set forth in, this Section 1.1.
<TABLE>
<S> <C> <C>
A. Premises: That certain space identified by diagonal lines or shaded area
on the floor plan attached hereto as Exhibit "A", commonly
known as Suite 400 on the fourth (4th) floor of the Building.
B. Building: The building located at 12220 El Camino Real, San Diego,
California 92130.
C. Land: Those certain parcels of land underlying the Project.
D. Parking Facility: The parking structure located on the Land.
E. Project: The Land and all improvements thereon, including the
Building, the adjacent building(s), the Parking Facility, and
all Common Areas, initially and substantially as shown on
Exhibit "B" attached hereto.
F. Commencement Date: The date defined in Section 3.1 hereof.
G. Usable Area of Premises: 11,490 square feet.
H. Term: Five(5) years, unless this Lease is sooner terminated as
provided herein, beginning on the Commencement Date.
I. Net Rentable Area of the Premises: 13,392 square feet.
J. Net Rentable Area of the Building: 56,551 square feet.
K. Tenant's Share: 23.68%, representing a fraction, the numerator of which is
the Net Rentable Area of the Premises and the denominator of
which is the Net Rentable Area of the Building, subject to
future adjustment pursuant to the provisions of Section 5.4
hereof.
L. Rent: The Base Rent and the Additional Rent.
M. Base Rent: The Base Rent shall be as shown in this Section 1.1(M)
below. Base Rent includes Base Year Operating Costs.
</TABLE>
<TABLE>
<CAPTION>
Monthly Base
Rent per Square
Month of Lease Monthly Base Foot of Net
Term Rent Rentable Area
---- ---- -------------
<S> <C> <C>
1 - 12 $27,453.60 $2.05
13 - 24 $28,123.20 $2.10
25 - 36 $28,792.80 $2.15
37 - 48 $29,462.40 $2.20
49 - 60 $30,132.00 $2.25
</TABLE>
<TABLE>
<S> <C> <C>
N. Additional Rent The Additional Rent shall be all other sums due and payable
by Tenant under the Lease, including, but not limited to,
Tenant's Share of Operating Costs.
</TABLE>
<PAGE> 6
O. Base Year Operating Costs: The grossed up (to 95% occupancy)
Operating Costs for the calendar year
1998.
P. Parking Permits: Tenant shall be entitled to take, at no
charge during the initial Term, fifty-
seven (57) Parking Permits consisting of
(i) forty-one (41) unassigned parking
spaces to be used in common with others
in the Parking Facility and (ii) eleven
(11) reserved parking spaces in the
Parking Facility.
Q. Tenant's Permitted Uses: Tenant may use the Premises for general
office use and for no other purpose.
R. Security Deposit: $300,000 letter of credit (See Article
21)
S. Broker(s): Business Real Estate Brokerage Company
representing Landlord; John Burnham &
Company representing Tenant
T. Landlord's Address for Notice: Prentiss Properties Acquisition
Partners, L.P.
3890 West Northwest Highway, Suite 400
Dallas, Texas 75220
Attention: Thomas F. August
With a copy to:
Prentiss Properties Acquisition
Partners, L.P.
970 West 190th Street, Suite 550
Torrance, California 90502
Attention: Louey Alsadek
U. Landlord's Address for Payment: Prentiss Properties Acquisition
Partners, L.P.
P.O. Box 100435
Pasadena, California 911898-0435
V. Tenant's Address for Notice: 12220 El Camino Real, Suite 400
San Diego, California 92130
Attention:
W. Guarantor(s): None.
X. Extension Option(s): See Section 3.6 hereof.
Y. Allowance for Leasehold See Exhibit "C".
Improvements:
ARTICLE II
PREMISES AND QUIET ENJOYMENT
2.1 Landlord hereby leases the Premises to Tenant, and Tenant hereby
rents and hires the Premises from Landlord, for the Term. During the Term,
Tenant shall have the right to use, in common with others and in accordance
with the Rules and Regulations, the Common Areas.
2.2 Provided that Tenant fully and timely performs all the terms of this
Lease on Tenant's part to be performed, including payment by Tenant of all
Rent, Tenant shall have, hold and enjoy the Premises during the Term without
hindrance or disturbance from or by Landlord; subject, however, to all of the
terms, conditions and provisions of any and all ground leases, deeds to secure
debt, mortgages, restrictive covenants, easements, and other encumbrances now
or hereafter affecting the Premises or the Project.
ARTICLE III
TERM; COMMENCEMENT DATE
DELIVERY AND ACCEPTANCE OF PREMISES
3.1 The Commencement Date shall be the earlier of (a) the date the
Premises are deemed available for occupancy pursuant to Section 3.2 hereof or
(b) the date Tenant, or anyone claiming by, through or under Tenant, occupies
any portion of the Premises for the purpose of the conduct of Tenant's (or such
other person's) business therein.
3.2 A. The Premises shall be deemed available for occupancy as soon as
the following conditions have been met: (a) the Leasehold Improvements (as
defined in Exhibit "C" to the Lease) have been
-2-
<PAGE> 7
substantially completed as reasonably determined by Landlord's architect or
space planner; (b) either a certificate of occupancy (temporary or final) or
other certificate permitting the lawful occupancy of the Premises has been
issued for the Premises, or such portion of the Premises, as the case may be, by
the appropriate governmental authority; and (c) at least five (5) Business Days'
notice of the anticipated occurrence of the conditions in clauses (a) and (b)
above has been given to Tenant.
B. Notwithstanding anything to the contrary contained herein, if there
is a delay in the availability for occupancy of the Premises due to Tenant Delay
(as defined in Exhibit "C" to the Lease), then the Premises shall be deemed
available for occupancy on the date on which the Premises would have been
available for occupancy but for such Tenant Delay, even though a certificate of
occupancy or other certificate permitting the lawful occupancy of the Premises
has not been issued or the Leasehold Improvements have not been commenced or
completed.
C. In the event that the Premises is not available for occupancy by
the "Outside Date," which shall be September 1, 1998, as such September 1, 1998
date may be extended by the number of days of Tenant Delays and by the number of
days of "Force Majeure Delays" (as defined below), then the sole remedy of
Tenant shall be the right to deliver a notice to Landlord (the "Termination
Notice") electing to terminate this Lease effective upon receipt of the
Termination Notice by Landlord (the "Termination Effective Date"). Except as
provided hereinbelow, the Termination Notice must be delivered by Tenant to
Landlord, if at all, not earlier than the Outside Date and not later than five
(5) business days after the Outside Date. If Tenant delivers the Termination
Notice to Landlord, then Landlord shall have the right to suspend the
Termination Effective Date for a period ending thirty (30) days after the
original Termination Effective Date. In order to suspend the Termination
Effective Date, Landlord must deliver to Tenant, within five (5) business days
after receipt of the Termination Notice, a certificate of the general contractor
certifying that it is such contractor's best good faith judgment that the
Premises will be available for occupancy within thirty (30) days after the
original Termination Effective Date. If the Premises is available for occupancy
within said thirty (30) day suspension period, then the Termination Notice shall
be of no further force and effect; if, however, the Premises is not available
for occupancy within said thirty (30) day suspension period, then this Lease
shall terminate as of the date of expiration of such thirty (30) day period. If
prior to the Outside Data Landlord determines that the Premises will not be
available for occupancy by the Outside Date, Landlord shall have the right to
deliver a written notice to Tenant stating Landlord's opinion as to the date by
which the Premises will be available for occupancy and Tenant shall be required,
within five (5) business days after receipt of such notice, to either deliver
the Termination Notice (which will mean that this Lease shall thereupon
terminate and shall be of no further force and effect) or agree to extend the
Outside Date to that date which is set by Landlord. Failure of Tenant to so
respond in writing within said five (5) business day period shall be deemed to
constitute Tenant's agreement to extend the Outside Date to that date which is
set by Landlord. If the Outside Date is so extended, Landlord's right to request
Tenant to elect to either terminate or further extend the Outside Date shall
remain and shall continue to remain, with each of the notice periods and
response periods set forth above, until the Premises is available for occupancy
or until this Lease is terminated. For purposes of this Section 3.2C, "Force
Majeure Delays" shall mean and refer to a period of delay or delays encountered
by Landlord affecting the work of construction of the Leasehold Improvements
because of delays due to excess time in obtaining governmental permits or
approvals beyond the time period normally required to obtain such permits or
approvals for similar space, similarly improved, in first-class office buildings
in the San Diego County area; fire, earthquake or other acts of God; acts of the
public enemy; riot; insurrection; governmental regulations of the sales of
materials or supplies or the transportation thereof; strikes or boycotts;
shortages of material or labor or any other cause beyond the reasonable control
of Landlord.
3.3 The Net Rentable Area of the Premises and the Building are as stated
in Sections 1.11 and J, respectively. By written instrument substantially in
the form of Exhibit "D" attached hereto, Landlord shall notify Tenant of the
Commencement Date, the Net Rentable Area of the Premises and all other matters
stated therein. The Commencement Notice shall be conclusive and binding on
Tenant as to all matters set forth therein, unless within ten (10) days
following delivery of such Commencement Notice, Tenant contests any of the
matters contained therein by notifying Landlord in writing of Tenant's
objections. The foregoing notwithstanding, Landlord's failure to deliver any
Commencement Notice to Tenant shall not affect Landlord's determination of the
Commencement Date.
3.4 Tenant may not enter or occupy the Premises prior to the Commencement
Date without Landlord's express written consent and any entry by Tenant shall
be subject to all of the terms of this Lease; provided however, that no such
early entry shall change the Commencement Date or the Expiration Date.
3.5 Occupancy of the Premises or any portion thereof by Tenant or anyone
claiming through or under Tenant for the conduct of Tenant's or such other
person's business therein shall be conclusive evidence that Tenant and all
parties claiming through or under Tenant (a) have accepted the Premises or such
portion as suitable for the purposes for which the Premises are leased
hereunder,(b) have accepted the Common Areas as being in a good and
satisfactory condition, and (c) have waived any defects in the Premises and the
Project; provided however, that, if any Leasehold Improvements have been
constructed and installed to prepare the Premises for Tenant's occupancy,
Tenant's acceptance of the Premises, and waiver of any defect therein, shall
occur upon Landlord's substantial completion of the Leasehold Improvements in
accordance with the terms of Exhibit "C" hereof, subject only to Landlord's
completion of items on Landlord's punchlist and latent defects not caused by
Tenant (or Tenant's improvements to the Premises) of which Tenant has given
Landlord notice within forty five (45) days following the later of (i) the date
on which Landlord first makes the Premises available to Tenant for any
occupancy or any work in the Premises to be undertaken by Tenant or (ii)
Tenant's discovery of any such latent defect.
-3-
<PAGE> 8
3.6 A. Subject to the terms of this Section 3.6 and Section 3.7,
Landlord hereby grants to Tenant two (2) separate options (the "EXTENSION
OPTIONS") to extend the Term of this Lease with respect to the entire Premises
for two (2) additional periods of five (5) years each (the "OPTION TERMS"), on
the same terms, covenants and conditions as provided for in this Lease during
the initial Lease Term, except that all economic terms such as, without
limitation, monthly Base Rent, a new Base Year for Operating Costs, if
appropriate, parking charges, etc., shall be established based on the "fair
market rental rate" for the Premises for the Option Terms as defined and
determined in accordance with the provisions of this Section 3.6 below;
provided, however, that under no circumstances shall the "fair market rental
rate" be less than the Base Rent rate paid by Tenant at the end of the original
Lease Term.
B. The Extension Options must be exercised, if at all, by written
notice ("EXTENSION NOTICE") delivered by Tenant to Landlord no earlier than the
date which is twelve (12) months, and no later than the date which is nine (9)
months, prior to the expiration of the then current Term of this Lease or then
Option Term, as the case may be. In no event shall Tenant be entitled to
exercise the second (2nd) Extension Option unless Tenant has properly and
timely exercised the first (1st) Extension Option.
C. The term "FAIR MARKET RENTAL RATE" as used herein shall mean the
annual amount (per rentable square foot, projected during the relevant period,
that a willing, comparable, non-equity tenant (excluding sublease and
assignment transactions) would pay, and a willing, comparable landlord of a
comparable quality building located in the Comparison Area would accept, at
arm's length (what Landlord is accepting in current transactions for the
Building may be considered), for space unencumbered by any other tenant's
expansion right and comparable in size, quality and floor height as the leased
area at issue taking into account the age, quality and layout of the existing
improvements in the leased area at issue and taking into account items that
professional real estate brokers customarily consider, including, but not
limited to, rental rates, office space availability, tenant size, tenant
improvement allowances, operating expenses and allowance, parking charges, and
any other amounts then being charged by Landlord or the lessors of such similar
office buildings.
D. Landlord's determination of fair market rental rate shall be
delivered to Tenant in writing not later than thirty (30) days following
Landlord's receipt of the applicable Extension Notice. Tenant will have thirty
(30) days ("TENANT'S REVIEW PERIOD") after receipt of Landlord's notice of the
fair market rental rate within which to accept such fair market rental rate or
to object thereto in writing, Tenant's failure to accept the fair market rental
rate submitted by Landlord in writing within Tenant's Review Period will
conclusively be deemed Tenant's disapproval thereof. If Tenant objects to the
fair market rental rate submitted by Landlord within Tenant's Review Period,
then Landlord and Tenant will attempt in good faith to agree upon such fair
market rental rate using their best good faith efforts. If Landlord and tenant
fail to reach agreement on such fair market rental rate within fifteen (15) days
following the expiration of Tenant's Review Period (the "OUTSIDE AGREEMENT
DATE"), then Tenant may, within five (5) business days following the Outside
Agreement Date, demand by written notice to Landlord that each party's
determination be submitted to appraisal in accordance with the provisions below
of this Section 3.6. Tenant's failure to timely demand appraisal will constitute
Tenant's rescission of its Extension Notice and the Extension Option (as well as
any subsequent Extension Option (if any)) will be void and of no further force
or effect.
E. (1) Landlord and Tenant shall each appoint one independent,
unaffiliated appraiser who shall by profession be a real estate broker who has
been active over the five (5) year period ending on the date of such
appointment in the leasing of comparable office space in the Comparison Area.
Each such appraiser will be appointed within thirty (30) days after the Outside
Agreement Date.
(2) The two (2) appraisers so appointed will within fifteen (15)
days of the date of the appointment of the last appointed appraiser agree
upon and appoint a third appraiser who shall be qualified under the same
criteria set forth herein above for qualification of the initial two (2)
appraisers.
(3) The determination of the appraisers shall be limited solely
to the issue of whether Landlord's or Tenant's last proposed (as of the
Outside Agreement Date) new fair market rental rate for the Premises is
the closest to the actual new fair market rental rate for the Premises as
determined by the appraisers, taking into account the requirements of
Paragraph C and this Paragraph E regarding same.
(4) The three (3) appraisers shall within thirty (30) days of
the appointment of the third appraiser reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted new fair market rental
rate (i.e., the appraisers may only select Landlord's or Tenant's
submission and may not select a compromise position), and shall notify
Landlord and Tenant thereof.
(5) The decision of the majority of the three (3) appraisers
shall be binding upon Landlord and Tenant. The cost of each party's
appraiser shall be the responsibility of the party selecting such
appraiser, and the cost of the third appraiser (or arbitration, if
necessary) shall be shared equally by Landlord and Tenant.
(6) If either Landlord or Tenant fails to appoint an appraiser
within the time period in Paragraph E(1) herein above, the appraiser
appointed by one of them shall reach a decision within forty-five (45)
days after the Outside Agreement Date, notify Landlord and Tenant thereof
and such appraiser's decision shall be binding upon Landlord and Tenant.
-4-
<PAGE> 9
(7) If the two (2) appraisers fail to agree upon and appoint a
third appraiser, both appraisers shall be dismissed and the matter to be
decided shall be forthwith submitted to arbitration under the provisions
of the American Arbitration Association (but subject to the requirements
of Paragraph C and this Paragraph E).
(8) In the event that the new Monthly Base Rent is not
established prior to end of the initial Term of the Lease, the monthly
Base Rent immediately payable at the commencement of such Option Term
shall be the monthly Base Rent payable in the immediately preceding month.
Notwithstanding the above, once the fair market rental is determined in
accordance with this section, the parties shall settle any underpayment or
overpayment on the next monthly Base Rent payment date falling not less
than thirty (30) days after such determination.
3.7 A. As used in this Section, the word "OPTION" means the Extension
Options pursuant to Section 3.6 herein.
B. The Options are personal to the original Tenant executing this
Lease ("ORIGINAL TENANT") or any successor by merger or acquisition of all or
substantially all of Tenant's assets (the "PERMITTED TRANSFEREE") and may be
exercised only by the original Tenant executing this Lease or a Permitted
Transferee while occupying the entire Premises and may not be exercised or be
assigned, voluntarily or involuntarily, by any person or entity other than the
original Tenant executing this Lease or a Permitted Transferee. The Options are
not assignable separate and apart from this Lease, nor may the Options be
separated from this Lease in any manner, either by reservation or otherwise.
C. Tenant shall have no right to exercise an Option,
notwithstanding any provision of the grant of Option to the contrary, and
Tenant's exercise of any Option may, at Landlord's option, be nullified by
Landlord and deemed of no further force or effect, if Tenant shall be in
default under the terms of this Lease after the expiration of applicable cure
periods as of Tenant's exercise of the Option or at any time after the exercise
of such Option and prior to the commencement of the Option Term.
ARTICLE IV
RENT
4.1 Tenant shall pay to Landlord, without notice, demand, offset or
deduction, in lawful money of the United States of America, at Landlord's
Address for Payment specified in Section 1.V above, or at such other place as
Landlord shall designate in writing from time to time; (a) the Base Rent in
equal monthly installments, in advance, on the first day of each calendar month
during the Term, and (b) the Additional Rent, at the respective times required
hereunder. The first monthly installment of Base Rent shall be paid in advance
on the date of Tenant's execution of this Lease and applied to the first
installment of Base Rent coming due under this Lease. Payment of rent shall
begin on the Commencement Date; provided, however, that, if either the
Commencement Date or the Expiration Date falls on a date other than the first
day of a calendar month, the Rent due for such fractional month shall be
prorated on a per diem basis between Landlord and Tenant so as to charge Tenant
only for the portion of such fractional month falling within the Term.
4.2 All installments of Rent not paid within five (5) days after notice
that such amount is due shall be subject to a late charge of five percent (5%)
of the amount of the late payment and shall further bear interest until paid at
a rate per annum (the "INTEREST RATE") equal to the greater of fifteen percent
(15%) or four percent (4%) above the prime rate of interest from time to time
publicly announced by Bank of America, a national banking association, or any
successor thereof; provided, however, that, if at the time such interest is
sought to be imposed the rate of interest exceeds the maximum rate permitted
under federal law or under the laws of the State of California, the rate of
interest on such past due installments of Rent shall be the maximum rate of
interest then permitted by applicable law.
ARTICLE V
OPERATING COSTS
5.1 Tenant shall pay to Landlord, as Additional Rent, for each year or
fractional year during the Term, an amount ("TENANT'S OPERATING COSTS PAYMENT")
equal to Tenant's Share of Operating Costs, for such year in excess of Tenant's
Share of Base Year Operating Costs, such amount to be calculated and paid as
follows:
A. Beginning on January 1st of the year following the year in which the
Commencement Date occurs, and on the first day of January of each year during
the Term thereafter, or as soon thereafter as is practicable, Landlord shall
furnish Tenant with a statement ("LANDLORD'S OPERATING COSTS ESTIMATE") setting
forth Landlord's reasonable estimate of grossed up Operating Costs for the
forthcoming year and Tenant's Operating Costs Payment for such year. On the
first day of each calendar month during such year, Tenant shall pay to Landlord
one-twelfth (1/12th) of Tenant's Operating Costs Payment as estimated on
Landlord's Operating Costs Estimate. If for any reason Landlord has not
provided Tenant with Landlord's Operating Costs Estimate on the first day of
January of any year during the Term, then (a) until the first day of the
calendar month following the month in which Tenant is given Landlord's
Operating Costs Estimate, Tenant shall continue to pay to Landlord on the first
day of each calendar month the sum, if any, payable by tenant under this
Section 5.1 for the month of
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December of the preceding year, and (b) promptly after Landlords' Operating
Costs Estimate is furnished to Tenant, Landlord shall give notice to Tenant
stating whether the installments of Tenant's Operating Costs Payments previously
made for such year were greater or less than the installments of Tenant's
Operating Costs Payments to be made for such year, and (i) if there shall be a
deficiency, Tenant shall pay the amount thereof to Landlord within ten (10) days
after the delivery of Landlord's Operating Costs Estimate, or (ii) if there
shall have been an overpayment, Landlord shall apply such overpayment as a
credit against the next accruing monthly installment(s) of Tenant's Operating
Costs Payment due from Tenant until fully credited to Tenant (or pay such amount
to Tenant if this Lease has expired or terminated), and (iii) on the first day
of the calendar month following the month in which Landlord's Operating Costs
Estimate is given to Tenant and on the first day of each calendar month
throughout the remainder of such year, Tenant shall pay to Landlord an amount
equal to one-twelfth (1/12th) of Tenant's Operating Costs Payment.
B. On the first day of March of each year during the Term (beginning on
the first day of March of the second year following the year in which the
Commencement Date occurs), or as soon thereafter as is practicable, Landlord
shall furnish Tenant with a statement of the grossed up Operating Costs for the
preceding year. Within thirty (30) days after Landlord's giving of such
statement, Tenant shall make a lump sum payment to Landlord in the amount, if
any, by which Tenants' Operating Costs Payment for such preceding year as shown
on such Landlord's statement, exceeds the aggregate of the monthly installments
of Tenant's Operating Costs Payments paid during such preceding year. If
Tenant's Operating Costs Payment, as shown on such Landlord's statement, is less
than the aggregate of the monthly installments of Tenant's Operating Costs
Payment actually paid by Tenant during such preceding year, then Landlord shall
apply such amount to the next accruing monthly installment(s) of Tenant's
Operating Costs Payment due from Tenant until fully credited to Tenant.
C. If the Term ends on a date other than the last day of December, the
actual Operating Costs for the year in which the Expiration Date occurs shall be
prorated so that Tenant shall pay that portion of Tenant's Operating Costs
Payment for such year represented by a fraction, the numerator of which shall be
the number of days during such fractional year falling within the Term, and the
denominator of which is 365 (or 366, in the case of a leap year). The provisions
of this Section 5.1 shall survive the Expiration Date or any sooner termination
provided for in this Lease.
5.2 A. For purposes of this Lease, the term "OPERATING COSTS" shall mean
any and all expenses, costs and disbursements of every kind which Landlord pays,
incurs or becomes obligated to pay in connection with the operation, management,
repair and maintenance of all portions of the Project and which are allocated by
Landlord to the Building (as opposed to the adjacent building(s)) on a
reasonable and consistent basis. All Operating Costs (including the Base Year
Operating Costs) shall be determined according to consistently applied
accounting principles. Operating Costs include, without limitation, the
following: (a) Wages, salaries, benefits and fees of all personnel or entities
to the extent engaged in the operation, repair, maintenance, management, or
safekeeping of the Project, including taxes, insurance, and benefits relating
thereto and the costs of all supplies and materials used in the operation,
repair, maintenance and security of the Project; (b) Cost of performance by
Landlord's personnel of, or of all service agreements for, maintenance,
janitorial services, access control, alarm service, window cleaning, elevator
maintenance and landscaping for the Project. Such cost shall include the rental
of personal property used by Landlord's personnel in the maintenance and repair
of the Project; (c) Cost of utilities for the Project, including water, sewer,
power, electricity for common areas, gas, fuel, lighting and all
air-conditioning, heating and ventilating costs; (d) Cost of all insurance,
including casualty and liability insurance applicable to the Project and to
Landlord's equipment, fixtures and personal property used in connection
therewith, business interruption or rent insurance against such perils as are
commonly insured against by prudent landlords, such other insurance as may be
required by any lessor or mortgagee of Landlord, and such other insurance which
Landlord considers reasonably necessary in the operation of the Project,
together with all appraisal and consultants' fees in connection with such
insurance; (e) All Taxes. For purposes hereof, the term "TAXES" shall mean, all
taxes, assessments, and other governmental charges, applicable to or assessed
against the Project or any portion thereof, or applicable to or assessed against
Landlord's personal property used in connection therewith, whether federal,
state, county, or municipal and whether assessed by taxing districts or
authorities presently taxing the Project or the operation thereof or by other
taxing authorities subsequently created, or otherwise, and any other taxes and
assessments attributable to or assessed against all or any part of the Project
or its operation; including any reasonable expenses, including fees and
disbursements of attorneys, tax consultants, arbitrators, appraisers, experts
and other witnesses, incurred by Landlord in contesting any taxes or the
assessed valuation of all or any part of the Project. If at any time during the
Term there shall be levied, assessed, or imposed on Landlord or all or any part
of the Project by any governmental entity any general or special ad valorem or
other charge or tax directly upon rents received under leases, or if any fee,
tax, assessment, or other charge is imposed which is measured by or based, in
whole or in part, upon such rents, or if any charge or tax is made based
directly or indirectly upon the transactions represented by leases or the
occupancy or use of the Project or any portion thereof, such taxes, fees,
assessments or other charges shall be deemed to be Taxes; provided, however,
that any (i) franchise, corporation, income or net profits tax, unless
substituted for real estate taxes or imposed as additional charges in connection
with the ownership of the Project, which may be assessed against Landlord or the
Project or both, (ii) transfer taxes assessed against Landlord or the Project or
both, (iii) penalties or interest on any late payments of Landlord, and (iv)
personal property taxes of Tenant or other tenants in the Project, shall be
excluded from Taxes. If any or all of the Taxes paid hereunder are by law
permitted to be paid in installments, notwithstanding how Landlord pays the
same, then, for purposes of calculating Operating Costs, such Taxes shall be
deemed to have been divided and paid in the maximum number of installments
permitted by law, and there shall be included in Operating Costs for each year
only such installments as are required by law to be paid within such year,
together with interest thereon and on future such installments as provided by
law; (f) Legal and
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accounting costs incurred by Landlord or paid by Landlord to third parties
(exclusive of legal fees with respect to disputes with individual tenants,
negotiations of tenant leases, or with respect to the ownership rather than the
operation of the Project), appraisal fees, consulting fees, all other
professional fees and disbursements and all association dues; (g) Cost of
non-capitalized repairs and general maintenance for the Project (excluding
repairs and general maintenance paid by proceeds of insurance or by Tenant,
other tenants of the Project or other third parties); (h) Amortization of the
cost of improvements or equipment which are capital in nature and which (1) are
for the purpose of reducing Operating Costs for the Project, up to the amount
reasonably anticipated to be saved as a result of the installation thereof, as
reasonably estimated by Landlord, or (2) are required by any governmental
authority, or (3) replace any Building equipment needed to operate the Project
at the same quality levels as prior to the replacement. All such costs,
including interest thereon, shall be amortized on a straight-line basis over the
useful life of the capital investment items, as reasonably determined by
Landlord, but in no event beyond the reasonable useful life of the Project as a
first class office project; (i) fair market rental for the Project management
office (if any) based upon the actual rentable square footage of such office;
(j) a management fee of three percent (3%) of revenues from the Building
(whether or not Landlord engages a manager for the Project or manages the
Project with Landlord's personnel) and all items reimbursable to the Project
manager, if any, pursuant to any management contract for the Project; and (k)
amounts payable to any associations created under any instruments of record
affecting the Building or the Land, as amended from time to time.
B. "Operating Costs" shall not include (a) costs for any capital
repairs, replacements or improvements, except as provided above; (b) expenses
for which Landlord is reimbursed or indemnified (either by an insurer,
condemnor, tenant, warrantor or otherwise), to the extent of funds received by
Landlord; (c) expenses incurred in leasing or procuring tenants (including lease
commissions, advertising expenses and expenses of renovating space for tenants);
(d) payments for rented equipment, the cost of which would constitute a capital
expenditure not permitted pursuant to the foregoing if the equipment were
purchased; (e) interest or amortization payments on any mortgages; (f) net basic
rents under ground leases; (g) costs representing an amount paid to an affiliate
of Landlord which is in excess of the amount which would have been paid in the
absence of such relationship; (h) costs specially billed to and paid by specific
tenants; (i) damage and repairs to the extent actually covered under any
insurance policy carried by Landlord in connection with the Building, Common
Areas or Parking Facilities; (j) Landlord's general overhead expenses not
related to the Building, Common Areas or Parking Facility; (k) costs (including
permit, license and inspection fees) incurred in renovating or otherwise
improving, decorating, painting or altering space for other tenants or other
occupants of the vacant space within the Building; (1) costs incurred due to a
violation by Landlord or any other tenant in the Building of the terms and
conditions of any lease (m) costs arising from Landlord's charitable or
political contributions; (n) any costs or expenses relating to the Building's
compliance with any hazardous materials laws in effect on the Commencement Date;
or (o) penalties or interest charges incurred as a result of Landlord's
negligence, inability or unwillingness to make payments when due. There shall be
no duplication of costs or reimbursements. Operating Costs attributable to the
Common Areas or Parking Facilities in general will be equitably prorated among
all of the buildings in the Project and Tenant shall be responsible for Tenant's
Share of those costs attributable to the Building. In the event of any dispute
as to the amount of Tenant's Share of Operating Costs, Tenant or a nationally
recognized accounting firm selected by Tenant and reasonably satisfactory to
Landlord (billing hourly and not on a contingency fee basis) will have the
right, by prior written notice ("AUDIT NOTICE") given within sixty (60) days
("AUDIT PERIOD") following receipt of Landlord's annual reconciliation ("ACTUAL
STATEMENT") and at reasonable times during normal business hours, to audit
Landlord's accounting records with respect to Operating Costs relative to the
year to which such Actual Statement relate at the offices of Landlord's property
manager. In no event will Landlord or its property manager be required to (i)
photocopy any accounting records or other items or contracts, (ii) create any
ledgers or schedules not already in existence, (iii) incur any costs or costs
relative to such inspection, or (iv) perform any other tasks other than making
available such accounting records as aforesaid. Neither Tenant nor its auditor
may leave the offices of Landlord's property manager with copies of any
materials supplied by Landlord. Tenant must pay Tenant's Share of Operating
Costs when due pursuant to the terms of this Lease and may not withhold payment
of Operating Costs or any other rent pending results of the audit or during a
dispute regarding Operating Costs. The audit must be completed within thirty
(30) days of the date of Tenant's Audit Notice and the results of such audit
shall be delivered to Landlord within forty-five (45) days of the date of
Tenant's Audit Notice. If Tenant does not comply with any of the aforementioned
time frames, then such Actual Statement will be conclusively binding on Tenant.
If such audit or review correctly reveals that Landlord has overcharged Tenant,
then within thirty (30) days after the results of such audit are made available
to Landlord, Landlord agrees to reimburse Tenant the amount of such overcharge.
If the audit reveals that Tenant was undercharged, then within thirty (30) days
after the results of the audit are made available to Tenant, Tenant agrees to
reimburse Landlord the amount of such undercharge. In all cases, Tenant agrees
to pay the cost of such audit. Tenant agrees to keep the results of the audit
confidential and will cause its agents, employees and contractors to keep such
results confidential. To that end, Landlord may require Tenant and its auditor
to execute a confidentiality agreement provided by Landlord.
5.3 If the Building is not fully occupied (meaning ninety-five percent
(95%) of the Net Rentable Area of the Building) during any full or fractional
year of the Term, the actual Operating Costs shall be adjusted for such year to
an amount which Landlord estimates would have been incurred in Landlord's
reasonable judgment had the Building been ninety-five percent (95%) occupied.
5.4 If during the Term any change occurs in either the number of square
feet of the Net Rentable Area of the Premises or of the Net Rentable Area of the
Building, Tenant's Share of Operating Costs shall be adjusted, effective as of
the date of any such change. Landlord shall promptly notify Tenant in writing of
such change and the reason therefor. Any changes made pursuant to this Section
5.4 shall not alter the computation of Operating Costs as provided in this
Article 5, but, on and after the date of any such change, Tenant's Operating
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Costs Payment pursuant to Section 5.1A shall be computed upon Tenant's Share
thereof, as adjusted. If such estimated payments of Tenant's Share are so
adjusted during a year, a reconciliation payment for Tenant's Share of
Operating Costs pursuant to this Article 5 for the calendar year in which such
change occurs shall be computed pursuant to the method set forth in Section
5.1B, such computation to take into account the daily weighted average of
Tenant's Share of Operating Costs during such year.
ARTICLE VI
PARKING
Subject to the terms hereof, Landlord hereby grants to Tenant a license to
use in common with other tenants and with the public the Parking Facility and
shall issue Parking Permits for such use. Each unassigned Parking Permit shall
entitle Tenant to one (1) unassigned parking space in the Parking Facility.
Each reserved Parking Permit shall entitle Tenant to one (1) reserved parking
space in the Parking Facility in a location to be designated by Landlord from
time to time. Any commercially reasonable costs incurred by Landlord to
designate Tenant's reserved parking spaces as reserved for Tenant shall be paid
by Tenant, as additional rent, within ten (10) days after Tenant's receipt of
an invoice therefor. All such parking shall be free of charge throughout the
initial Lease Term. Thereafter, the charge for all such parking shall be at the
prevailing rate charged for parking passes at the location of such passes. The
number of Parking Permits to be issued to Tenant is set forth in Section 1.1P.
Landlord shall not be obligated to provide Tenant with any additional Parking
Permits. If Tenant fails to observe the Rules and Regulations with respect to
the Parking Facility, then Landlord, at its option, shall have the right to
treat such failure as a default under this Lease and to terminate Tenant's
Parking Permits, without legal process, and to remove Tenant's vehicles and
those of its employees, licensees or invitees and all of Tenant's personal
property from the Parking Facility. If all or any portion of the Parking
Facility shall be damaged or rendered unusable by fire or other casualty or any
taking pursuant to eminent domain proceeding (or deed in lieu thereof), and as a
result thereof Landlord or the garage operator is unable to make available to
Tenant the parking provided for herein, then the number of cars which Tenant
shall be entitled to park hereunder shall be proportionately reduced so that
the number of cars which Tenant may park in the Parking Facility after the
casualty or condemnation in question shall bear the same ratio to the total
number of cars which can be parked in the Parking Facility at such time as the
number of cars Tenant had the right to park in the Parking Facility prior to
such casualty condemnation bore to the aggregate number of cars which could be
parked therein at that time.
ARTICLE VII
UTILITIES AND SERVICES
7.1 A. During the Term, Landlord shall furnish Tenant with the
following services: (a) hot and cold water in Building Standard bathrooms and
chilled water in Building Standard drinking fountains; (b) heating,
ventilating or air-conditioning, as appropriate, during Business Hours at such
temperatures and in such amounts as customarily and seasonally provided to
tenants occupying comparable space in first-class office buildings in the San
Diego Corporate Center/Del Mar Heights office submarket area ("COMPARISON
AREA"); (c) electric lighting for the Common Areas of the Project; (d)
passenger elevator service, in common with others, for access to and from the
Premises twenty-four (24) hours per day, seven (7) day per week; provided,
however, that Landlord shall have the right to limit the number of (but not
cease to operate all) elevators to be operated after Business Hours and on
Saturdays, Sundays and Holidays; (e) janitorial cleaning services; (f)
facilities for Tenant's loading, unloading, delivery and pick-up activities,
including access thereto during Business Hours, subject to the Rules and
Regulations, the type of facilities, and other limitations of such loading
facilities; and (g) replacement, as necessary, of all Building Standard lamps
and ballasts in Building Standard light fixtures within the Premises. All
services referred to in this Section 7.1A shall be provided by Landlord and
paid for by Tenant as part of Tenant's Operating Costs Payment.
B. If Tenant requires air-conditioning, heating or other services,
including cleaning services, routinely supplied by Landlord for hours or days
in addition to the hours and days specified in Section 7.1A, Landlord shall
make reasonable efforts to provide such additional service after reasonable
prior written request therefor from Tenant, and Tenant shall reimburse Landlord
for the cost of such additional service plus an administrative fee of ten
percent (10%). Landlord shall have no obligation to provide any additional
service to Tenant at any time Tenant is in default under this Lease unless
Tenant pays to Landlord, in advance, the cost of such additional service. If
any machinery or equipment which generates abnormal heat or otherwise creates
unusual demands on the air-conditioning or heating system serving the Premises
is used in the Premises and if Tenant has not, within five (5) days after
demand from Landlord, taken such steps, at Tenant's expense, as shall be
necessary to cease such adverse affect on the air-conditioning or heating
system, Landlord shall have the right to install supplemental air-conditioning
or heating units in the Premises, and the full cost of such supplemental units
(including the cost of acquisition, installation, operation, use and
maintenance thereof) shall be paid by Tenant to Landlord in advance or on
demand.
C. All charges for electricity used within the Premises shall be
separately metered and billed directly to Tenant by the electricity supplier.
Tenant therefore covenants to contract directly with the electricity supplier
for service to the Premises, and at its sole cost and expense, shall pay all
service establishment fees, other service fees which may be imposed by the
supplier in conjunction with its service to Tenant, and all charges for electric
current used by Tenant during the Term of this Lease within the Premises. Tenant
shall make all such payments directly to the electricity supplier as and when
bills are rendered. Should Tenant fail to pay such
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amounts, Landlord shall have the right to pay same on Tenant's behalf and Tenant
shall reimburse Landlord for all costs and expenses incurred by Landlord in
conjunction with such payment within ten (10) days after demand therefor. All
such costs and expenses incurred by Landlord on Tenant's behalf shall be deemed
Additional Rent payable by Tenant and collectible by Landlord as such.
Notwithstanding any contrary provision herein, Tenant acknowledges that in
addition to the foregoing charges, Tenant's Share of electricity charges for the
Common Areas of the Project shall be included as part of Tenant's Share of
Operating Costs. Throughout the Term, Tenant shall keep its electricity meter
and appurtenant equipment in good working order and condition, and shall repair
and if necessary, replace same at Tenant's sole cost and expense. Should Tenant
fail to so repair and maintain the meter and equipment, Landlord may, but shall
have no obligation to, cause such meter and equipment to be repaired or replaced
at Tenant's sole cost and expense, in which event Tenant shall pay to Landlord
as Additional Rent, all costs and expenses incurred by Landlord in conjunction
with maintenance, repair and/or replacement of the electricity meter and
equipment. Any such amounts shall be due and payable by Tenant within ten (10)
days after demand therefor from Landlord. At no time shall use of electricity in
the Premises exceed the capacity of existing feeders and risers to or wiring in
the Premises. Any risers or wiring to meet Tenant's excess electrical
requirements shall, upon Tenant's written request, be installed by Landlord, at
Tenant's sole cost, if, in Landlord's reasonable judgment, the same are
necessary and shall not (i) cause permanent damage or injury to the Project, the
Building or the Premises, (ii) cause or create a dangerous or hazardous
condition, (iii) entail excessive or unreasonable alterations, repairs or
expenses, or (iv) interfere with or disturb other tenants or occupants of the
Building.
7.2 Landlord's obligation to furnish the utility services specified herein
shall be subject to the rules and regulations of the supplier of such
electricity or other utility services and the rules and regulations of any
municipal or other governmental authority regulating the business of providing
electricity and other utility services. Landlord shall have the right, at
Landlord's option, upon not less than thirty (30) days' prior written notice to
Tenant (provided such prior notice will be less if either the discontinuance of
such service is required by applicable law or Landlord receives shorter notice
from the utility company providing electricity or other utility service), to
discontinue utility services to the Premises and arrange for a direct connection
thereof through a public utility supplying such service. If Landlord gives such
notice of discontinuance, Landlord shall make all necessary arrangements with
the public utility supplying such utility service directly to the Building to
furnish such utility service to the Premises, and, unless prohibited by law or
regulations of such public utility, Landlord shall not discontinue such utility
service to the Premises until such public utility is ready to supply service to
the Premises. Tenant shall, however, be responsible for contracting promptly and
directly with such public utility supplying such service and for paying all
deposits for, and all costs relating to, such service.
7.3 No failure to furnish, or any stoppage of, the services referred to
in this Article 7 resulting from any cause shall make Landlord liable in any
respect for damages to any person, property or business, or be construed as an
eviction of Tenant, or entitle Tenant to any abatement of Rent or other relief
from any of Tenant's obligations under this Lease. Should any malfunction of any
systems or facilities occur within the Project or should maintenance or
alterations of such systems or facilities become necessary, Landlord shall
repair the same promptly and with reasonable diligence, and Tenant shall have no
claim for rebate, abatement of Rent, or damages because of malfunctions or any
such interruptions in service. Tenant hereby waives the provisions of California
Civil Code Section 1932(1) or any other applicable existing or future law,
ordinance or governmental regulation permitting the termination of this Lease
due to an interruption, failure or inability to provide any services.
ARTICLE VIII
ASSIGNMENT AND SUBLETTING
8.1 Neither Tenant nor its legal representatives or successors in interest
shall, by operation of law or otherwise, assign, mortgage, pledge, encumber or
otherwise transfer this Lease or any part hereof, or the interest of Tenant
under this Lease, or in any sublease or the rent thereunder. The Premises or any
part thereof shall not be sublet, occupied or used for any purpose by anyone
other than Tenant, without Tenant's obtaining in each instance the prior written
consent of Landlord in the manner hereinafter provided. As indicated in, and
subject to, Section 8.4 below, Landlord's consent shall not be unreasonably
withheld, conditioned or delayed. Tenant shall not modify, extend, or amend a
sublease previously consented to by Landlord without obtaining Landlord's prior
written consent thereto.
8.2 An assignment of this Lease shall be deemed to have occurred (a) if,
in a single transaction or in a series of transactions, more than 50% interest
in Tenant, any guarantor of this Lease, or any subtenant (whether stock,
partnership, interest or otherwise) is transferred, diluted, reduced, or
otherwise affected with the result that the present holder or owners of Tenant,
such guarantor, or such subtenant have less than a 50% interest in Tenant, such
guarantor or such subtenant, or (b) if Tenant's obligations under this Lease are
taken over or assumed in consideration of Tenant leasing space in another office
building. The transfer of the outstanding capital stock of any corporate Tenant,
guarantor or subtenant through the "OVER-THE-COUNTER" market or any recognized
national securities exchange (other than by persons owning twenty-five percent
(25%) or more of the voting calculation of such 50% interest of clause 8.2(a)
above) shall not be included in the calculation of such 50% interest in clause
(a) above. Any initial public offering of Tenant shall not be deemed an
assignment hereunder.
8.3 Notwithstanding anything to the contrary in Section 8.1, Tenant shall
have the right, upon notice to Landlord, to (a) sublet all or part of the
Premises to any related corporation or other entity which controls Tenant, is
controlled by Tenant or is under common control with Tenant; or (b) assign this
Lease to a successor
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corporation into which or with which Tenant is merged or consolidated or which
acquired substantially all of Tenant's assets and property; provided that (i)
such successor corporation assumes substantially all of the obligations and
liabilities of Tenant and shall have assets, capitalization and net worth at
least sufficient to perform the obligations of Tenant under this Lease,
accounting for the obligations assumed by such successor in such transaction,
and (ii) Tenant shall provide in its notice to Landlord the information
required in Section 8.4. No such transaction shall operate to release Tenant
from any liability under this Lease. For the purpose hereof "control" shall
mean ownership of not less than 50% of all the voting stock or legal and
equitable interest in such corporation or entity.
8.4 If Tenant should desire to assign this Lease or sublet the Premises
(or any part thereof), Tenant shall give Landlord written notice no later than
the time required for notice under Section 8.3 in the case of an assignment or
subletting or thirty (30) days in advance of the proposed effective date of any
other proposed assignment or sublease, specifying (a) the name, current
address, and business of the proposed assignee or sublessee, (b) the amount and
location of the space within the Premises proposed to be so subleased, (c) the
proposed effective date and duration of the assignment or subletting, and (d)
the proposed rent or consideration to be paid to Tenant by such assignee or
sublessee. Tenant shall promptly supply Landlord with financial statements and
other information as Landlord may request to evaluate the proposed assignment
or sublease. For assignments and sublettings other than those permitted by
Section 8.3, Landlord shall have fifteen (15) days following receipt of such
notice and other information requested by Landlord within which to notify
Tenant in writing that Landlord elects: (i) to terminate this Lease as to the
space so affected as of the proposed effective date set forth in Tenant's
notice, in which event Tenant shall be relieved of all further obligations
hereunder as to such space, except for obligations under Articles 17, 19 and 22
and all other provisions of this Lease which expressly survive the termination
hereof; or (ii) to permit Tenant to assign or sublet such space; provided,
however, that, if the rent rate agreed upon between Tenant and its proposed
subtenant is greater than the rent rate that Tenant must pay Landlord hereunder
for that portion of the Premises, or if any consideration shall be promised to
or received by Tenant in connection with such proposed assignment or sublease
(in addition to rent), then 50% of such excess rent and other consideration
shall be considered Additional Rent owed by Tenant to Landlord (less brokerage
commissions, advertising and marketing costs, attorneys' fees and other
disbursements reasonably incurred by Tenant for such assignment and subletting
if acceptable evidence of such disbursements is delivered to Landlord), and
shall be paid by Tenant to Landlord, in the case of excess rent, in the same
manner that Tenant pays Base Rent and, in the case of any other consideration,
within ten (10) Business Days after receipt thereof by Tenant; or (iii) to
refuse, in Landlord's reasonable discretion, to consent to Tenant's assignment
or subleasing of such space and to continue this Lease in full force and effect
as to the entire Premises. Landlord cannot unreasonably withhold, condition or
delay its consent, but the parties agree that Landlord shall be deemed
reasonable in its refusal to consent to an assignment or subletting for the
following reasons (without limiting any other reasons): the proposed assignee
or subtenant is not financially creditworthy, is a governmental authority or
agency, an organization or person enjoying sovereign or diplomatic immunity, a
medical or dental practice or a user that will attract a volume, frequency or
type of visitor or employee to the Building which is not consistent with the
standards of a high quality office building or that will impose an excessive
demand on or use of the facilities or services of the Building. It shall also
be reasonable for Landlord to refuse to consent to any assignment or subletting
if (x) Tenant is then in default under this Lease, or (y) such assignment of
subletting would cause a default under another lease in the Building or under
any ground lease, deed of trust, mortgage, restrictive covenant, easement or
other encumbrance affecting the Project. If Landlord should fail to notify
Tenant in writing of such election within the aforesaid fifteen (15) day
period, Landlord shall be deemed to have elected option (iii) above. Tenant
agrees to reimburse Landlord for legal fees and any other reasonable costs
incurred by Landlord in connection with any proposed assignment or subletting
and such payment shall not be deducted from the Additional Rent owed to
Landlord pursuant to subsection (ii) above. Tenant shall deliver to Landlord
copies of all documents executed in connection with any permitted assignment or
subletting, which documents shall be in form and substance reasonably
satisfactory to Landlord. No acceptance by Landlord of any Rent or any other
sum of money from any assignee, sublessee or other category of transferee shall
be deemed to constitute Landlord's consent to any assignment, sublease, or
transfer.
8.5 Any attempted assignment or sublease by Tenant in violation of the
terms and provisions of this Article 8 shall be void and shall constitute a
material breach of this Lease. In no event, shall any assignment, subletting or
transfer, whether or not with Landlord's consent, relieve Tenant of its primary
liability under this Lease for the entire Term, and Tenant shall in no way be
released from the full and complete performance of all the terms hereof. If
Landlord takes possession of the Premises before the expiration of the Term of
this Lease, Landlord shall have the right, at its option, to terminate all
subleases, or to take over any sublease of the Premises or any portion thereof
and such subtenant shall attorn to Landlord, as its landlord, under all the
terms and obligations of such sublease occurring from and after such date, but
excluding previous acts, omissions, negligence, or defaults of Tenant.
8.6 The term "Landlord," as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title to,
or a lessee's interest in a ground lease of, the Land or the Building. In the
event of any transfer, assignment or other conveyance or transfers of any such
title or interest, Landlord herein named (and in case of any subsequent
transfers or conveyances, the then grantor) shall be automatically freed and
relieved from and after the date of such transfer, assignment or conveyance of
all liability as respects the performances of any covenants or obligations on
the part of Landlord contained in this Lease thereafter to be performed and,
without further agreement, the transferee of such title or interest shall be
deemed to have assumed and agreed to observe and
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perform any and all obligations of Landlord hereunder, during its ownership of
the Project. Landlord may transfer its interest in the Project without the
consent of Tenant.
ARTICLE IX
REPAIRS
9.1 Landlord agrees to repair and maintain the structural portions of the
Building and the plumbing, heating, ventilating, air conditioning and
electrical systems installed or furnished by Landlord, unless such maintenance
and repairs are (1) attributable to Items installed in the Premises by Tenant
or which are above standard interior improvements (such as, for example, custom
lighting, special HVAC and/or electrical panels or systems, kitchen or restroom
facilities and appliances constructed or installed within the Premises) or (ii)
caused by the negligence or willful misconduct or gross negligence of Tenant or
its agents, contractors, invitees and licensees, in which case Tenant will pay
to Landlord, as additional rent, the cost of such maintenance and repair plus a
fee equal to ten percent (10%) of the actual costs to cover overhead and a fee
for Landlord's agent or manager. Amounts payable by Tenant pursuant to this
Section 9.1 shall be payable on demand after receipt of an invoice therefor
from Landlord. Landlord has no obligation and has made no promise to maintain,
alter, remodel, improve, repair, decorate, or paint the Premises, the Building
or the Project or any part thereof, except as specifically set forth in this
Lease. In no event shall Landlord have any obligation to maintain, repair or
replace any furniture, furnishings, fixtures or personal property of Tenant.
Tenant hereby waives the provisions of California Civil Code Sections 1932(1),
1941 and 1942 and of any similar law, statute or ordinance now or hereafter in
effect.
9.2 Tenant shall keep the Premises (including the Leasehold Improvements)
in good order and in a safe, neat and clean condition, and, when and if needed,
at Tenant's sole cost and expense, shall make all repairs to the Premises and
every part thereof. In the event Tenant fails to promptly commence and
diligently pursue the performance of such maintenance or the making of such
repairs or replacements, then Landlord, at its option, may perform such
maintenance or make such repairs and Tenant shall reimburse Landlord, on demand
after Tenant receives an invoice therefor, the cost thereof plus a fee equal to
ten percent (10%) of the actual costs to cover overhead and a fee for
Landlord's agent or manager.
9.3 All repairs made by Tenant pursuant to Section 9.2 shall be performed
in a good and workmanlike manner by contractors or other repair personnel
selected by Tenant from an approved list of contractors and repair personnel
maintained by Landlord in the Project's management office; provided, however,
that neither Tenant nor its contractors or repair personnel shall be permitted
to do any work affecting the Central Systems. In no event shall such work be
done for Landlord's account or in a manner which allows any liens to be filed
in violation of Article 11. To the extent any repairs involve the making of
alterations to the Premises, Tenant shall comply with the provisions of Article
10.
9.4 Subject to the other provisions of this Lease imposing obligations
regarding repair upon Tenant, Landlord shall repair all machinery and equipment
necessary to provide the services of Landlord described in Article 7 (provided
that Tenant shall pay the costs of any repair to such systems or any part
thereof damaged by Tenant and Tenant's employees, customers, clients, agents,
licensees and invitees) and for repair of all portions of the Project which do
not comprise a part of the Premises and are not leased to others.
ARTICLE X
ALTERATIONS
10.1 Tenant shall not at any time during the Term make any alterations to
the Premises without first obtaining Landlord's written consent thereto, which
consent Landlord shall not unreasonably withhold or delay; provided, however,
that Landlord shall not be deemed unreasonable by refusing to consent to any
alterations which are visible from the exterior of the Building or the Project,
which will or are likely to cause any weakening of any part of the structure of
the Premises, the Building or the Project or which will or are likely to cause
damage or disruption to the Central Systems or which are prohibited by any
underlying ground lease or mortgage. Notwithstanding the foregoing, Landlord's
prior approval will not be required for any cosmetic alterations to the
interior of the Premises which are not visible from the exterior of the
Premises which are either cosmetic in nature (such as floor or wall coverings)
or are nonstructural in nature and do not affect any Central Systems and cost
less than Ten Thousand Dollars ($10,000), provided Landlord receives prior
notice thereof and the other conditions set forth in this Article X are
satisfied. Should Tenant desire to make any alterations to the Premises, Tenant
shall submit all plans and specifications for such proposed alterations to
Landlord for Landlord's review before Tenant allows any such work to commence,
and Landlord shall approve or disapprove such plans and specifications within
ten (10) business days for any of the reasons set forth in this Section 10.1 or
for any other reason reasonably deemed sufficient by Landlord. Tenant shall
select and use only contractors, subcontractors or other repair personnel from
those listed on Landlord's approved list maintained by Landlord in the Project
management office. Upon Tenant's receipt of written approval from Landlord, and
upon Tenant's payment to Landlord of a reasonable fee prescribed by Landlord
for the work of Landlord and Landlord's employees and representatives in
reviewing and approving such plans and specifications. Tenant shall have the
right to proceed with the construction of all approved alterations, but only so
long as such alterations are in strict compliance with the plans and
specifications so approved by Landlord and with the provisions of this Article
10. All alterations shall be made at Tenant's sole cost and expense, by
contractors retained by Tenant pursuant to this Section 10.1 above; however, if
Tenant
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<PAGE> 16
requests, and Landlord agrees, that Landlord shall retain the contractors.
Tenant shall pay to Landlord a fee of ten percent (10%) of the actual costs of
such work to cover Landlord's overhead and a fee for Landlord's agent or
manager in supervising and coordinating such work, which ten percent (10%) fee
shall not exceed, in any event, Three Thousand Dollars ($3,000.00), excluding
any actual out-of-pocket costs incurred by Landlord. In no event, however,
shall anyone other than Landlord or Landlord's employees or representatives
perform work to be done which affects the Central Systems.
10.2 All construction, alterations and repair work done by or for Tenant
shall (a) be performed in such a manner as to maintain harmonious labor
relations; (b) not adversely affect the safety of the Project, the Building or
the Premises or the systems thereof and not affect the Central Systems; (c)
comply with all building, safety, fire, plumbing, electrical, and other codes
and governmental and insurance requirements; (d) not result in any usage in
excess of Building Standard of water, electricity, gas, or other utilities or of
heating, ventilating or air-conditioning (either during or after such work)
unless prior written arrangements satisfactory to Landlord are made with respect
thereto; (e) be completed promptly and in a good and workmanlike manner and in
compliance with all rules and regulations promulgated by Landlord; and (f) not
reasonably disturb Landlord or other tenants in the Building. After completion
of any alterations to the Premises, Tenant will deliver to Landlord a copy of
"as built" plans and specifications depicting and describing such alternations.
10.3 All Leasehold Improvements, alterations and other physical additions
made to or installed by or for Tenant in the Premises shall be and remain
Landlord's property (except for Tenant's furniture, personal property and
movable trade fixtures) and shall not be removed without Landlord's written
consent; provided, however, Landlord may, by notice to Tenant given
concurrently with Landlord's approval of any alterations or physical additions
made to the Premises after the Commencement Date, elect to require Tenant to
remove same upon the expiration or earlier termination of the Term of this
Lease. Tenant agrees to remove, at its sole cost and expense, all of Tenant's
furniture, personal property and movable trade fixtures, and, if directed to or
permitted to do so by Landlord in writing, all, or any part of, the alterations
and other physical additions made by Tenant to the Premises, on or before the
Expiration Date or any earlier date of termination of this Lease. Tenant shall
repair, or promptly reimburse Landlord for the cost of repairing, all damage
done to the Premises or the Building by such removal. Any alterations or
physical additions made by Tenant which Landlord does not direct or permit
Tenant to remove at any time during or at the end of the Term shall become the
property of Landlord at the end of the Term without any payment to Tenant.
Landlord reserves the right to require Tenant to remove any alterations or
physical additions made by Tenant to which Landlord did not expressly consent.
If Tenant fails to remove any of Tenant's furniture, personal property or
movable trade fixtures by the Expiration Date or any sooner date of termination
of the Lease or, if Tenant fails to remove any alterations and other physical
additions made by Tenant to the Premises which Landlord has in writing directed
Tenant to remove, Landlord shall have the right, on the fifth (5th) day after
Landlord's delivery of written notice to Tenant to deem such property abandoned
by Tenant and to remove, store, sell, discard or otherwise deal with or dispose
of such abandoned property in a commercially reasonable manner. Tenant shall be
liable for all costs of such disposition of Tenant's abandoned property, and
Landlord shall have no liability to Tenant in any respect regarding such
property of Tenant. The provisions of this Section 10.3 shall survive the
expiration or any earlier termination of this Lease.
ARTICLE XI
LIENS
Tenant shall keep the Project, the Building and the Premises and
Landlord's interest therein free from any liens arising from any work
performed, materials furnished, or obligations incurred by, or on behalf of
Tenant (other than by Landlord pursuant to Exhibit "C"). Notice is hereby given
that neither Landlord nor any mortgagee or lessor of Landlord shall be liable
for any labor or materials furnished to Tenant except as furnished to Tenant by
Landlord pursuant to Exhibit "C". If any lien is filed for such work or
materials, such lien shall encumber only Tenant's interest in leasehold
improvements on the Premises. Within ten (10) days after Tenant learns of the
filing of any such lien, Tenant shall notify Landlord of such lien and shall
either discharge and cancel such lien of record or post a bond sufficient under
the laws of the State of California to cover the amount of the lien claim plus
any penalties, interest, attorneys' fees, costs, and other legal expenses in
connection with such lien. If Tenant fails to so discharge or bond such lien
within ten (10) business days after written demand from Landlord, Landlord
shall have the right, at Landlord's option, to pay the full amount of such lien
without inquiry into the validity thereof, and Landlord shall be promptly
reimbursed by Tenant, as Additional Rent, for all amounts so paid by Landlord,
including expenses, interest, and attorneys' fees.
ARTICLE XII
USE AND COMPLIANCE WITH LAWS
12.1 The Premises shall be used only for executive and administrative
offices for the uses specifically set forth in Section 1.1Q and for no other
purposes whatsoever. Tenant shall use and maintain the Premises in a clean,
careful, safe, lawful and proper manner and shall not allow within the
Premises, any offensive noise, odor, conduct or private or public nuisance or
permit Tenant's employees, agents, licensees or invitees to create a public or
private nuisance or act in a disorderly manner within the Building or in the
Project. Any statement as to the particular nature of the business to be
conducted by Tenant in the Premises and uses to be made thereof by Tenant as
set forth in Section 1.1Q hereof shall not constitute a representation or
warranty by Landlord that such business or uses are lawful or permissible under
any certificate of occupancy for the Premises or the Building or are
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<PAGE> 17
otherwise permitted by law. Landlord does, however, represent that any
certificate of occupancy issued with respect to the Premises shall allow use
for executive and administrative offices.
12.2 Tenant shall, at Tenant's sole expense, (a) comply with all laws,
orders, ordinances, and regulations of federal, state, county, and municipal
authorities having jurisdiction over the Premises, (b) comply with any
directive, order or citation made pursuant to law by any public officer
requiring abatement of any nuisance or which imposes upon Landlord or Tenant any
duty or obligation arising from Tenant's occupancy or use of the Premises or
from conditions which have been created by or at the request or insistence of
Tenant, or required by reason of a breach of any of Tenant's obligations
hereunder or by or through other fault or Tenant, (c) comply with all insurance
requirements applicable to the Premises and (d) indemnify and hold Landlord
harmless from any loss, cost, claim or expense which Landlord incurs or suffers
by reason of Tenant's failure to comply with its obligations under clauses (a),
(b) or (c) above. If Tenant receives notice of any such directive, order
citation or of any violation of any law, order, ordinance, regulation or any
insurance requirement, Tenant shall promptly notify Landlord in writing of such
alleged violation and furnish Landlord with a copy of such notice.
12.3 After completion of the Leasehold Improvements in the Premises,
Tenant shall be responsible for causing, at Tenant's sole cost and expense, the
Premises to comply with the Americans With Disabilities Act of 1990, as
subsequently amended (the "ADA"), and all similar federal, state and local laws,
rules and regulations and subsequent amendments thereof. Landlord shall be
responsible for causing the initial Leasehold Improvements to comply with the
requirements of the ADA then in effect Landlord shall be responsible for
causing, as and when deemed appropriate by Landlord, the Common Areas to comply
with the ADA, the costs for which shall constitute a component of Operating
Costs, except to the extent such costs are incurred as a result of Tenant's
specific use of the Premises, or as a result of any alterations to the Premises
made by or on behalf of Tenant, in which case such costs will be the sole
responsibility of Tenant.
ARTICLE XIII
DEFAULT AND REMEDIES
13.1 The occurrence of any one or more of the following events shall
constitute an "EVENT OF DEFAULT" of Tenant under this Lease: (a) if Tenant falls
to pay any Rent hereunder as and when such Rent becomes due and such failure
shall continue for more than five (5) days after Landlord gives Tenant notice of
past due Rent; (b) if the Premises are abandoned; (c) if Tenant permits to be
done anything which creates a lien upon the Premises and fails to discharge or
bond such lien or post such security with Landlord as is required by Article 11;
(d) if Tenant violates the provisions of Article 8 by attempting to make an
unpermitted assignment of sublease; (c) if Tenant fails to maintain in force all
policies of insurance required by this Lease and such failure shall continue for
more than ten (10) days after Landlord gives Tenant notice of such failure; or
(f) if Tenant fails to perform or observe any other terms of this Lease and such
failure shall continue for more than thirty (30) days after Landlord gives
Tenant notice of such failure, or if such failure cannot be corrected within
such thirty (30) day period, if Tenant does not commence to correct such
default within said thirty (30) day period and thereafter diligently prosecute
the correction of same to completion within a reasonable time and in any event
prior to the time a failure to complete such correction could cause Landlord to
be subject to prosecution for violation of any law, rule, ordinance or
regulation or causes, or could cause, a default under any mortgage, underlying
lease, tenant leases or other agreements applicable to the Project. The
provisions of any notice given pursuant to the foregoing will be in lieu of,
and not in addition to, any notice required under applicable law (including,
without limitation, California Code of Civil Procedure Section 1161 regarding
unlawful detainer actions and any successor statute or similar law).
13.2 If an Event of Default occurs, Landlord shall have the right at any
time to give a written termination notice to Tenant and, on the date specified
in such notice, Tenant's right to possession shall terminate and this Lease
shall terminate. Upon such termination, Landlord shall have the right to recover
from Tenant:
A. The worth at the time of award of all unpaid Base Rent and
Additional Rent which had been earned at the time of termination;
B. The worth at the time of award of the amount by which all unpaid
Base Rent and Additional Rent which would have been earned after termination
until the time of award exceeds the amount of such rental that Tenant proves
could have been reasonably avoided;
C. The worth at the time of award of the amount by which all unpaid
Base Rent and Additional Rent for the balance of the term of this Lease after
the time of award exceeds the amount of such rental loss that Tenant proves
could be reasonably avoided; and
D. All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom. The "worth at the time of award" of the amounts
referred to in clauses (a) and (b) above shall be computed by allowing interest
at the Interest Rate. The "worth at the time of award" of the amount referred
to in clause (c) above shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
Notwithstanding the occurrence of an Event of Default, pursuant to
California Civil Code Section 1951.4, or any successor statute thereof,
Landlord may continue this Lease in effect after Tenant's breach and
abandonment and
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<PAGE> 18
recover all rent as it becomes due, if Tenant has the right to sublet or
assign, subject only to reasonable restrictions. Acts of maintenance or
preservation or efforts to relet the Premises or the appointment of a receiver
upon initiative of Landlord to protect Landlord's interest under this Lease
shall not constitute a termination of Tenant's right to possession unless
written notice of termination is given by Landlord to Tenant. The remedies
provided for in this Lease are in addition to all other remedies available to
Landlord at law or in equity by statute or otherwise.
13.3 No agreement to accept a surrender of the Premises and no act or
omission by Landlord or Landlord's agents during the Term shall constitute an
acceptance or surrender of the Premises unless made in writing and signed by
Landlord. No re-entry or taking possession of the Premises by Landlord shall
constitute an election by Landlord to terminate this Lease unless a written
notice of such intention is given to Tenant.
13.4 No provision of this Lease shall be deemed to have been waived by
Landlord unless such waiver is in writing and signed by Landlord. Landlord's
acceptance of Rent following an Event of Default hereunder shall not be
construed as a waiver of such Event of Default. No custom or practice which may
arise between the parties in connection with the terms of this Lease shall be
construed to waive or lessen Landlord's right to insist upon strict performance
of the terms of this Lease, without a written notice thereof to Tenant from
Landlord.
13.5 The rights granted to Landlord in this Article 13 shall be
cumulative of every other right or remedy provided in this Lease or which
Landlord may otherwise have at law or in equity or by statute, and the exercise
of one or more rights or remedies shall not prejudice or impair the concurrent
or subsequent exercise of other rights or remedies or constitute a forfeiture or
waiver of Rent or damages accruing to Landlord by reason of any Event of Default
under this Lease. Tenant agrees to pay to Landlord all reasonable costs and
expenses incurred by Landlord in the enforcement of this Lease, including all
reasonable attorney's fees incurred in connection with the collection of any
sums due hereunder or the enforcement of any right or remedy of Landlord.
13.6 Landlord will not be in default in the performance of any
obligation required to be performed by Landlord under this Lease unless Landlord
fails to perform such obligation within thirty (30) days after the receipt of
written notice from Tenant specifying in detail Landlord's failure to perform;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance, then Landlord will not be
deemed in default if it commences such performance within such thirty (30) day
period and thereafter diligently pursues the same to completion. Upon any
default by Landlord, Tenant may exercise any of its rights provided at law or in
equity, subject to the limitations on liability set forth in Section 25.5 of
this Lease.
ARTICLE XIV
INSURANCE
14.1 A. Tenant, at its sole expense, shall obtain and keep in force
during the Term the following insurance: (a) "All Risk" insurance insuring all
property located in the Premises, including furniture, equipment, fittings,
installations, fixtures, supplies and any other personal property, leasehold
improvements and alterations, other than the Lease Improvements ("TENANT'S
PROPERTY"), in an amount equal to the full replacement value, it being
understood that no lack or inadequacy of insurance by Tenant shall in any event
make Landlord subject to any claim by virtue of any theft of or loss or damage
to any uninsured or inadequately insured property; (b) Business Interruption
insurance in an amount that will reimburse Tenant for direct or indirect loss
of earnings attributable to all perils insured against under Section 14.1(a) or
attributable to the prevention of access to the Premises by civil authority;
(c) Commercial general public liability insurance including personal injury,
bodily injury, broad form property damage, operations hazard, owner's
protective coverage, contractual liability, with a cross liability clause and a
severability of interests clause to cover Tenant's indemnities set forth
herein, and products and completed operations liability, in limits not less
than $2,000,000.00 inclusive per occurrence or such higher limits as Landlord
may reasonably require form time to time during the Term; (d) Worker's
Compensation and Employer's Liability insurance, with a waiver of subrogation
endorsement, in form and amount as required by applicable law for Worker's
Compensation, and $1,000,000 per occurrence for Employer's Liability; and (e)
any other form or forms of insurance or any changes or endorsements to the
insurance required herein as Landlord, or any mortgagee or lessor of Landlord
may reasonably require, form time to time, in form or in amount, and for
insurance risks against which a prudent tenant would protect itself, but only
to the extent coverage for such risks and amounts are available in the
insurance market at commercially acceptable rates.
B. Tenant shall have the right to include the insurance required
by Section 14.1A under Tenant's policies of "blanker insurance," provided that
no other loss which may also be insured by such blanket insurance shall affect
the insurance coverages required hereby and further provided that Tenant
delivers to Landlord a certificate specifically stating that such coverages
apply to Landlord, the Premises and the Project. All policies of Insurance
required by Section 14.1A(c) shall name Landlord as additional insured and shall
also name all mortgagees and lessors of Landlord, of which Tenant has been
notified, additional insureds, all as their respective interest may appear. All
such policies or certificates shall be issued by insurers reasonably acceptable
to Landlord and in form satisfactory to Landlord. Tenant shall deliver to
Landlord certificates with copies of policies, together with satisfactory
evidence of payment of premiums for such policies, by the Commencement Date and,
with respect to renewals of such policies, not later than thirty (30) days prior
to the end of the expiring term of coverage. All policies of insurance shall be
endorsed to be primary and noncontributory to any insurance which may be carried
by Landlord. All such policies shall contain an agreement by the insurers that
the insurers shall notify Landlord and any mortgagee or lessor of Landlord in
writing, by certified mail, return receipt requested, not less than thirty (30)
days before any material change, reduction in coverage, cancellation, including
cancellation
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<PAGE> 19
for nonpayment of premium, or other termination thereof or change therein and
shall (with respect to the insurance required by clauses (a) and (b) of Section
14.1A) include a clause or endorsement denying the insurer any rights or
subrogation against Landlord.
14.2 Landlord shall insure the building and Leasehold improvements against
damage with property insurance and shall carry commercial general public
liability insurance, all in such amounts and with such deductible as Landlord
reasonably deems appropriate. As provided hereinabove, Landlord shall not be
required to carry insurance of any kind on Tenant's Property, and Tenant hereby
agrees that Tenant shall have no right to receive any proceeds from any
insurance policies carried by Landlord.
14.3 Tenant shall not knowingly conduct or permit to be conducted in the
Premises any activity, or place any equipment in or about the Premises or the
Building, which will invalidate the insurance coverage in effect or increase
the rate of insurance on the Premises or the Building, and Tenant shall comply
with all requirements and regulations of Landlord's insurers. If any
invalidation of coverage or increase in the rate of fire insurance or other
insurance occurs or is threatened by any insurance company due to any act or
omission by Tenant, or its agents, employees, representatives, or contractors,
such statement or threat shall be conclusive evidence that the increase in such
rate is due to such act of Tenant or the contents or equipment in or about the
Premises, and, as a result thereof, Tenant shall be liable for such increase
and shall be considered Additional Rent payable with the next monthly
installment of Base Rent due under this Lease. In no event shall Tenant
introduce or permit to be kept on the Premises or brought into the Building any
dangerous, noxious, radioactive or explosive substance.
14.4 Landlord and Tenant each hereby waive any right of subrogation and
right of recovery or cause of action for injury or loss to the extent that such
injury or loss is covered by fire, extended coverage, "All Risk" or similar
policies covering real property or personal property (or which would have been
covered if Tenant or Landlord, as the case may be, was carrying the insurance
required by this Lease). Said waivers shall be in addition to, and not in
limitation or derogation of, any other waiver or release contained in this
Lease. Insurance policies shall be properly endorsed, if necessary, to prevent
the invalidation of said policies by reason of such waivers.
ARTICLE XV
DAMAGE BY FIRE OR OTHER CAUSE
15.1 If the Building or any portion thereof (exclusive of the Premises) is
damaged or destroyed by any casualty to the extent that, in Landlord's
reasonable judgment, (a) repair of such damage or destruction would not be
economically feasible, or (b) the damage or destruction to the Building cannot
be repaired within two hundred seventy (270) days after the date landlord
learns of the necessity for repairs as a result of such damage or destruction,
or if the proceeds from insurance remaining after any required payment to any
mortgagee or lessor of Landlord are insufficient to repair such damage or
destruction, Landlord shall have the right, at Landlord's option, to terminate
this Lease (provided Landlord terminates the leases of all of the other tenants
of the Building similarly situated) by giving Tenant notice of such
termination, within sixty (60) days after the date Landlord learns of the
necessity for repairs as a result of such damage or destruction.
15.2 If the Premises or any portion thereof is damaged or destroyed by
any casualty, and if, in Landlord's reasonable opinion, the Premises cannot be
rebuilt or made fit for Tenant's purposes within two hundred seventy (270) days
after the date Landlord learns of the necessity for repairs as a result of such
damage or destruction, or if the proceeds from the insurance Landlord is
required to maintain pursuant to Article 14 hereof (or the amount of proceeds
which would have been available if Landlord was carrying such insurance) are
insufficient to repair such damage or destruction, then either Landlord or
Tenant shall have the right, at the option of either party, to terminate this
Lease by giving the other written notice, within sixty (60) days after Landlord
learns of the necessity for repairs as a result of such damage or destruction.
15.3 In the event of partial destruction or damage to the Building or the
Premises which is not subject to Section 15.1 or 15.2, but which renders the
Premises partially but not wholly untenantable, this Lease shall not terminate
and Rent shall be abated in proportion to the area of the Premises which cannot
be used or occupied by Tenant as a result of such casualty. Landlord shall in
such event, within a reasonable time after the date of such destruction or
damage, subject to force majeure (as defined in Section 25.6) or to Tenant
Delay and to the extent and availability of insurance proceeds, restore the
Premises to as near the same condition as existed prior to such partial damage
or destruction. If Landlord fails to proceed with reasonable diligence to
rebuild the Premises, or if the Premises are not repaired or rebuilt within two
hundred seventy (270) days after Landlord learns of the necessity for repairs
as a result of such damage or destruction, for a reason other than force
majeure or Tenant Delays, then Tenant may, at Tenant's sole option, elect to
terminate this Lease upon thirty (30) days written notice to Landlord, unless
Landlord cures the failure within such thirty (30) day period of time, in which
case Tenant's termination notice shall be of no effect. In no event shall rent
abate (except to the extent Landlord recovers insurance therefor) nor shall any
termination by Tenant occur if damage to or destruction of the Premises is the
result of the gross negligence or willful act of Tenant, or Tenant's agents,
employees, representatives, contractors, successors, assigns, licensees or
invitees.
15.4 If any material portion of the Premises is destroyed by fire or other
causes at any time during the last year of the Term, such that the Premises or
a material portion thereof cannot be occupied for in excess of thirty
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(30) days as a result thereof, then either Landlord or Tenant shall have the
right, at the option of either party, to terminate this Lease by giving written
notice to the other within fifteen (15) days after the date of such destruction.
15.5 Landlord shall have no liability to Tenant for inconvenience, loss of
business, or annoyance arising from any repair of any portion of the Premises or
the Building. Tenant hereby waives California Civil Code Section 1932(2) and
1933(4), providing for termination of hiring upon destruction of the thing hired
and Sections 1941 and 1942, providing for repairs to and of the Premises.
15.6 In the event of termination of this Lease pursuant to Sections 15.1,
15.2, 15.3 or 15.4, all Rent shall be apportioned and paid to the date on which
possession is relinquished or the date of such damage, whichever lasts occurs,
and Tenant shall immediately vacate the Premises according to such notice of
termination; provided, however, that those provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof.
ARTICLE XVI
CONDEMNATION
16.1 In the event the whole or substantially the whole of the Building or
the Premises are taken or condemned by eminent domain or by any conveyance in
lieu thereof (such taking, condemnation or conveyance in lieu thereof being
hereinafter referred to as "CONDEMNATION"), this Lease shall terminate on the
earlier of the date the condemning authority takes possession or the date title
vests in the condemning authority.
16.2 In the event any portion of the Building shall be taken by
condemnation (whether or not such taking includes any portion of the Premises),
which taking, in Landlord's reasonable judgment, is such that the Building
cannot be restored in an economically feasible manner for use substantially or
originally designed, then Landlord shall have the right, at Landlord's option,
to terminate this Lease (provided Landlord also terminates the leases of the
other tenants of the Building similarly situated), effective as of the date
specified by Landlord (at least sixty (60) days in the future) in a written
notice of termination from Landlord to Tenant.
16.3 In the event any portion of the Parking Facility shall be taken by
condemnation, which taking in Landlord's judgment is such that the Parking
Facility cannot be restored in an economically feasible manner for use
substantially as originally designed, including in such consideration the
possible use of additional Parking Facility in the vicinity of the Building,
then Landlord shall have the right, at Landlord's option, to terminate this
Lease (provided Landlord also terminates the leases of the other tenants of the
Building similarly situated), effective as of the date specified by Landlord (at
least sixty (60) days in the future) in a written notice of termination from
Landlord to Tenant.
16.4 In the event that a portion, but less than substantially the whole,
of the Premises shall be taken by condemnation, then this Lease shall be
terminated as of the date of such condemnation as to the portion of the Premises
so taken, and unless Landlord exercises its option to terminate this Lease
pursuant to Section 16.2 or Tenant exercises its option to terminate this Lease
pursuant to this Section 16.4 below, this Lease shall remain in full force and
effect as to the remainder of the Premises. If any part of the Premises shall be
taken by condemnation and such partial condemnation renders the Premises
unusable for the business of Tenant, as reasonably determined by Tenant, or in
the event a substantial portion of the Building or the Parking Facility is taken
by condemnation rendering the Premises unusable for the business of Tenant, as
reasonably determined by Tenant, then in either such event Tenant may elect to
terminate this Lease as of the date specified by Tenant in a written notice of
termination from Tenant to Landlord, which date shall not be later than sixty
(60) days following the date of the taking. If such condemnation is not
sufficiently extensive to render the Premises unusable for the business of
Tenant as reasonably determined by Tenant, and Landlord has not elected to
terminate this Lease in accordance with the provisions of Section 16.2, 16.3 or
this Section 16.4, then Landlord shall promptly restore the Premises to a
condition comparable to its condition immediately prior to such condemnation
(excluding Tenant's alterations, furniture, fixtures and equipment), less the
portion thereof lost in such condemnation, and this Lease shall continue in full
force and effect, except that after the date of any such taking of the Premiss,
the Rent shall be equitably apportioned from and after such date.
16.5 In the event of termination of this Lease pursuant to the provisions
of Section 16.1, 16.2, or 16.3, the Rent shall be apportioned as of such date of
termination; provided, however, that those provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof.
16.6 All compensation awarded or paid upon a condemnation of any portion
of the Project shall belong to and be the property of Landlord without
participation by Tenant. Nothing herein shall be construed, however, to preclude
Tenant from prosecuting any claim directly against the condemning authority for
loss of business, loss of good will, moving expenses, damage to, and cost of
removal of, trade fixtures, furniture and other personal property belonging to
Tenant.
16.7 If any portion of the Project other than the Building or the Parking
Facility is taken by condemnation, or if the temporary use or occupancy of all
or any part of the Premises shall be taken by condemnation during the Term, this
Lease shall be and remain unaffected by such condemnation, and Tenant shall
continue to pay in full the Rent payable hereunder. In the event of any such
temporary taking for use or occupancy of all or any part of the Premises, Tenant
shall be entitled to appear, claim, prove and receive the
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portion of the award for such taking that represents compensation for use or
occupancy of the Premises during the Term and Landlord shall be entitled to
appear, claim, prove and receive the portion of the award that represents the
cost of restoration of the Premises and the use or occupancy of the Premises
after the end of the Term hereof. In the event of any such condemnation of any
portion of the Project other than the Building, Landlord shall be entitled to
appear, claim, prove and receive all of that award. In the event of any
permanent taking of the Premises, Tenant will have the right to recover from
the condemning authority (but not from Landlord) any compensation as may be
separately awarded or recoverable by Tenant for the taking of Tenant's
furniture, fixtures, equipment and other personal property within the Premises,
for Tenant relocation expenses, and for any loss of good will or other damage
to Tenant's business by reason of such taking, but Tenant will not be entitled
to any so-called bonus or excess value of this Lease, which will be the sole
property of Landlord.
16.8 Landlord and Tenant each hereby waive the provisions of California
Code of Civil Procedure Section 1265.130 and any other applicable existing or
future law, ordinance or governmental regulation providing for, or allowing
either party to petition the courts of the state in which the Project is
located for, a termination of this Lease upon a partial taking of the Premises
and/or the Building.
ARTICLE XVII
INDEMNIFICATION
17.1 Tenant shall, and hereby agrees to, indemnify and hold Landlord
harmless from any damage to any property or injury to, or death of, any person
arising from the use or occupancy of the Common Areas and the Premises by
Tenant, its agents, employees, representatives, contractors, successors,
assigns, licensees, or invitees, except to the extent such damage or injury is
caused by the gross negligence or willful misconduct of Landlord, its agents,
employees, representatives, or contractors. Landlord shall not be liable for
any damage or injury caused by other tenants or persons in the Building or by
occupants of adjacent property thereto, or by the public, or caused by
construction (except to the extent caused by the gross negligence or willful
misconduct of Landlord) or by any private, public or quasi-public work.
Tenant's foregoing indemnity shall include attorneys' fees, investigation
costs, and all other reasonable costs and expenses incurred by Landlord in any
connection therewith. The provisions of this Article 17 shall survive the
expiration or termination of this Lease with respect to any damage, injury, or
death occurring before such expiration or termination. If Landlord is made a
party to any litigation commenced by or against Tenant or relating to this
Lease or to the Premises, and provided that in any such litigation Landlord is
not finally adjudicated to be solely at fault, then Tenant shall pay all costs
and expenses, including attorneys' fees and court costs, incurred by or imposed
upon Landlord because of any such litigation, and the amount of all such costs
and expenses, including attorneys' fees and court costs, shall be a demand
obligation owing by Tenant to Landlord.
17.2 Landlord shall, and hereby agrees to, indemnify and hold Tenant
harmless from any damages in connection with loss of life, bodily or personal
injury or property damage arising from any occurrence in the Common Areas to
the extent not the result of the gross negligence or willful misconduct of
Tenant.
ARTICLE XVIII
SUBORDINATION AND ESTOPPEL CERTIFICATES
18.1 This Lease and all rights of Tenant hereunder are subject and
subordinate to all underlying leases now or hereafter in existence, and to any
supplements, amendments, modifications, and extensions of such leases
heretofore or hereafter made and to any deeds to secure debt, mortgages, or
other security instruments which now or hereafter cover all or any portion of
the Project or any interest of Landlord therein, and to any advances made on
the security thereof, and to any increases, renewals, modifications,
consolidations, replacements, and extensions of any of such mortgages. This
provision is declared by Landlord and Tenant to be self-operative and no
further instrument shall be required to effect such subordination of this
Lease. Upon demand, however, Tenant shall execute, acknowledge, and deliver to
Landlord any further instruments and certificates evidencing such subordination
as Landlord, and any mortgagee or lessor of Landlord shall reasonably require,
and if Tenant fails to so execute, acknowledge and deliver such instruments
within ten (10) business days after Landlord's request, Tenant shall be in
default of this Lease. Tenant shall not unreasonably withhold, delay, or defer
its written consent reasonable modifications in this Lease which are a
condition of any construction, interim or permanent financing for the Project
or any reciprocal easement agreement with facilities in the vicinity of the
Building, provided that such modifications do not increase the obligations of
Tenant hereunder or materially and adversely affect Tenant's use and enjoyment
of the Premises. This Lease is further subject and subordinate to: (a) all
applicable ordinances of any government authority having jurisdiction over the
Project, relating to easements, franchises, and other interests or rights upon,
across, or appurtenant to the Project; and (b) all utility easements and
agreements, now or hereafter created for the benefit of the Project.
18.2 Notwithstanding the generality of the foregoing provisions of Section
18.1, any mortgagee or lessor of Landlord shall have the right at any time to
subordinate any such mortgage or underlying lease to this Lease, or to any of
the provisions hereof, on such terms and subject to such conditions as such
mortgagee or lessor of Landlord may consider appropriate in its reasonable
discretion. At any time, before or after the institution of any proceedings for
the foreclosure of any such mortgage, or the sale of the Building under any
such mortgage, or the termination of any underlying lease, Tenant shall, upon
request of such mortgagee or any person or entities succeeding to the interest
of such mortgagee or the purchaser at any foreclosure sale ("Successor
Landlord"),
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automatically become the Tenant (or if the Premises has been validly subleased,
the subtenant) of the Successor Landlord, without change in the terms or other
provisions of this Lease (or, in the case of a permitted sublease, without
change in this Lease or in the instrument setting forth the terms of such
sublease); provided, however, that the Successor Landlord shall not be (i)
bound by any payment made by Tenant of Rent or Additional Rent for more than
one (1) month in advance, except for a Security Deposit previously paid to
Landlord (and then only if such Security Deposit has been deposited with and is
under the control of the Successor Landlord), (ii) bound by any termination,
modification, amendment or surrender of the Lease done without the Successor
Landlord's consent, (iii) liable for any damages or subject to any offset or
defense by Tenant to the payment of Rent by reason of any act or omission of
any prior landlord (including Landlord), or (iv) personally or corporately
liable, in any event, beyond the limitations set forth in Section 25.5 of this
Lease. The agreement of Tenant to attorn to a Successor Landlord shall survive
any such foreclosure sale, trustee's sale conveyance in lieu thereof or
termination of any underlying lease. Tenant shall upon demand at any time,
before or after any such foreclosure or termination execute, acknowledge, and
deliver to the Successor Landlord any written instruments and certificates
evidencing such attornment as such Successor Landlord may reasonably require;
provided, however, that Landlord shall use its reasonable efforts to require
that such agreement provide that upon such attornment, as long as Tenant is not
in default hereunder, Tenant's possession of the Premises under this Lease
shall not be disturbed.
18.3 Tenant shall, from time to time, within ten (10) business days after
request from Landlord, or from any mortgagee or lessor of Landlord, execute,
acknowledge and deliver in recordable form a certificate certifying, to the
extent true, that this Lease is in full force and effect and unmodified (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications); that the Term has commenced and the
full amount of the Rent then accruing hereunder; the dates to which the Rent
has been paid; that Tenant has accepted possession of the Premises and that any
improvements required by the terms of this Lease to be made by Landlord have
been completed to the satisfaction of Tenant; the amount, if any, that Tenant
has paid to Landlord as a Security Deposit; that no Rent under this Lease has
been paid more than thirty (30) days in advance of its due date; that the
address for notices to be sent to Tenant is set forth in this Lease (or has
been changed by notice duly given and is as set forth in the certificate); that
Tenant, as of the date of such certificate, has not charge, lien, or claim of
offset under this Lease or otherwise against Rent or other charges due or to
become due hereunder; that, to the knowledge of Tenant, Landlord is not then in
default under this Lease; and such other matters as may be requested by
Landlord or any mortgagee or lessor of Landlord. Any such certificate may be
relied upon by Landlord, any Successor Landlord, or any mortgagee or lessor of
Landlord.
ARTICLE XIX
SURRENDER OF THE PREMISES
Upon the Expiration Date or earlier termination of this Lease, Tenant, at
Tenant's sole cost and expense, shall peacefully vacate and surrender the
Premises to Landlord in good order, broom clean and in the same condition as at
the beginning of the Term or as the Premises may thereafter have been improved
by Landlord or Tenant (subject to Section 10.3 hereof), reasonable use and wear
thereof and repairs which are Landlord's obligations under Article 9, 15 and 16
only excepted, and Tenant shall remove all of Tenant's Property and turn over
all keys for the Premises to Landlord. No provision of this Lease shall impose
upon Landlord any obligation to care for or preserve any of Tenant's Property
left upon the Premises, and Tenant hereby waives and releases Landlord from any
claim or liability in connection with the removal of such property from the
Premises and the storage thereof and specifically waives the provisions of
California Civil Code Section 1542 with respect to such release. Should Tenant
continue to hold the Premises after the expiration or earlier termination of
this Lease, such holding over, unless otherwise agreed to by Landlord in
writing, shall constitute and be construed as a tenancy at sufferance at monthly
installments of Rent equal to one hundred fifty percent (150%) of the monthly
portion of Rent in effect as of the date of expiration or earlier termination,
and subject to all of the other terms, charges and expenses set forth herein
except any right to renew this Lease or to expand the Premises or any right to
additional services. Tenant shall also be liable to Landlord for all damage
which Landlord suffers because of any holding over by Tenant, and Tenant shall
indemnify Landlord against all claims made by any other tenant or prospective
tenant against Landlord resulting from delay by Landlord in delivering
possession of the Premises to such other tenant or prospective tenant. The
provisions of this Article 19 shall survive the expiration or earlier
termination of this Lease.
ARTICLE XX
LANDLORD'S RIGHT TO INSPECT
Landlord shall retain duplicate keys to all doors of the Premises. Tenant
shall provide Landlord with new keys should Tenant receive Landlord's consent
to change the locks. Landlord shall have the right to enter the Premises to
provide janitorial service as required under this Lease and other times at
reasonable hours following reasonable prior notice (or, in the event of an
emergency, at any hour) (a) to exhibit the same to present to prospective
mortgagees, lessors or purchasers during the Term and to prospective tenants
during the last year of the Term, (b) to inspect the Premises, (c) to confirm
that Tenant is complying with all of Tenant's covenants and obligations under
this Lease, (d) to make repairs required of Landlord under the terms of this
Lease, (e) to make repairs to areas adjoining the Premises, and (f) to repair
and service utility lines or other components of the Building; provided,
however, Landlord shall use reasonable efforts to minimize interference with
Tenant's business.
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ARTICLE XXI
SECURITY DEPOSIT
21.1 Concurrently with Tenant's execution of this Lease, Tenant
shall deliver to Landlord the Security Deposit in the form of an unconditional,
irrevocable and renewable letter of credit ("LETTER OF CREDIT") in favor of
Landlord in the form attached hereto as Exhibit E, issued by a bank reasonably
acceptable to Landlord with an office (capable of honoring a demand on the
Letter of Credit) located in San Diego County and Los Angeles, County,
California, in the principal amount ("STATED AMOUNT") specified below, as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease. Tenant shall pay all expenses, points
and/or fees incurred by Tenant in obtaining the Letter of Credit. The Stated
Amount of the Letter of Credit shall be Three Hundred Thousand Dollars
($300,000.00); provided, however, that (i) in the event (1) Tenant, at any
time throughout the Term of this Lease, becomes a publicly traded company with
a net worth (calculated in accordance with generally accepted accounting
principles and evidenced by a balance sheet audited by one of the "Big 6"
accounting firms in the United States) of no less than Forty Million Dollars
($40,000,000.00) (the "OFFERING TRANSACTION"), or (2) Tenant, at any time
throughout the Term of this Lease, otherwise has a net worth (calculated in
accordance with generally accepted accounting principles and evidenced by a
balance sheet audited by one of the "Big 6" accounting firms in the United
States) of no less than Forty Million Dollars ($40,000,000.00), then the Stated
Amount shall be reduced to an amount equal to one month's Base Rent then due
under this Lease and, in such event, Tenant shall have the option to terminate
the Letter of Credit upon providing such reduced Security Deposit amount to
Landlord in the form of a cashier's check payable to Landlord; provided,
however, that if Tenant's net worth, after such Offering Transaction and/or at
anytime throughout the Term of this Lease, is less than Forty Million Dollars
($40,000,000.00) then Tenant agrees to immediately reinstate the Letter of
Credit for the original Stated Amount or then reduced Stated Amount (to the
extent the Stated Amount was otherwise reduced pursuant to the terms hereof),
(ii) so long as Tenant is not then in default under the Lease and has never
been in default under this Lease, the Stated Amount shall (to the extent the
Stated Amount has not been reduced or has been reinstated pursuant to
subsection (i)(1) or (i)(2) above) (1) be reduced to an amount equal to Two
Hundred Thousand Dollars ($200,000.00) on the first day of the eighteenth
(18th) month anniversary of the Commencement Date and (2) reduced to an amount
equal to One Hundred Thousand Dollars ($100,000.00) on the first day of the
thirtieth (30th) month anniversary of the Commencement Date and for the balance
of the Term (subject to reduction pursuant to subsection (i)(1) or (i)(2)
above).
21.2 The Letter of Credit shall be held by Landlord as security
for the faithful performance by Tenant of all of the terms, covenants and
conditions of this Lease. If Tenant commits a default with respect to any
provision of this Lease or if the term of the Letter of Credit held by Landlord
is scheduled to expire prior to the last day of the initial Lease Term, and the
term of the Letter of Credit is not extended at least thirty (30) days prior to
the scheduled date of expiration of the Letter of Credit, Landlord may (but
shall not be required to) draw upon the entire principal amount of the Letter
of Credit, and Landlord may then use, apply or retain all or any part of the
proceeds for the payment of any sum which is in default, or for the payment of
any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any loss or damage
which Landlord may suffer by reason of Tenant's default.
21.3 If any portion of the Letter of Credit proceeds are so
used or applied as provided above, Tenant shall, within ten (10) days after
demand therefor, post an additional Letter of Credit in an amount to cause the
aggregate amount of the unused proceeds and such new Letter of Credit to equal
the principal amount required in this Article 21. Landlord shall not be
required to keep any proceeds from the Letter of Credit separate from its
general funds. Should Landlord sell its interest in the Premises during the
Lease Term and if Landlord deposits with the purchaser thereof the Letter of
Credit and any proceeds of the Letter of Credit, thereupon Landlord shall be
discharged from any further liability with respect to the Letter of Credit and
said proceeds.
ARTICLE XXII
BROKERAGE
Tenant and Landlord each represent and warrant to the other that it has
not entered into any agreement with, or otherwise had any dealings with, any
broker or agent in connection with the negotiation or execution of this Lease
which could form the basis of any claim by any such broker or agent for a
brokerage fee or commission, finder's fee, or any other compensation of any
kind or nature in connection herewith, other than with Broker(s) (who shall be
paid by Landlord in accordance with Landlord's separate agreement(s) with the
Broker(s)) and each party shall, and hereby agrees to, indemnify and hold the
other harmless from all costs (including court costs, investigation costs, and
attorneys' fees), expenses, or liability for commissions or other compensation
claimed by any broker or agent with respect to this Lease which arise out of
any agreement or dealings, or alleged agreement or dealings, between the
indemnifying party and any such agent or broker, other than with Broker(s).
This provision shall survive the expiration or earlier termination of this
Lease.
ARTICLE XXIII
OBSERVANCE OF RULES AND REGULATIONS
Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully and comply strictly with all Rules and Regulations
(herein so called) attached to this Lease as Rider No. 1, as such
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Rules and Regulations may be changed from time to time. Landlord shall at all
times have the right to make reasonable changes in and additions to such Rules
and Regulations; provided Landlord gives Tenant prior notice of such changes and
provided that such new rules and regulations or changes in existing rules and
regulations do not conflict with this Lease, and do not materially interfere
with the lawful conduct of Tenant's business in the Premises. Any failure by
Landlord to enforce any of the Rules and Regulations now or hereafter in effect,
either against Tenant or any other tenant in the Building, shall not constitute
a waiver of any such Rules and Regulations. Landlord shall not be liable to
Tenant for the failure or refusal by any other tenant, guest, invitee, visitor,
or occupant of the Building to comply with any of the Rules and Regulations.
ARTICLES XXIV
NOTICES
All notices, consents, demands, requests, documents, or other
communications (other than payment of Rent) required or permitted hereunder
(collectively, "notices") shall be deemed given, whether actually received or
not, when dispatched for hand delivery or delivery by air express courier (with
signed receipts) to the other party, or on the second Business Day after
deposit in the United States mail, postage prepaid, certified, return receipt
requested, except for notice of change of address which shall be deemed given
only upon actual receipt. The addresses of the parties for notices are set
forth in Article 1, or any such other addresses subsequently specified by each
party in notices given pursuant to this Article 24.
ARTICLE XXV
MISCELLANEOUS
25.1 Professional Fees. In any action or proceeding brought by either
party against the other under this Lease, the prevailing party shall be
entitled to recover from the other party its professional fees for attorneys,
appraisers and accountants, its investigation costs, and any other legal
expenses and court costs incurred by the prevailing party in such action or
proceeding.
25.2 Reimbursements. Wherever the Lease requires Tenant to reimburse
Landlord for the cost of any item, such costs will be the reasonable and
customary charge periodically established by Landlord for such item. Landlord
shall keep in its manager's office a schedule of such charges (which Landlord
may periodically change) for Tenant's examination. The schedule of charges may
include, at the discretion of Landlord, a reasonable allocation of overhead,
administrative, and related costs and a reasonable fee for Landlord's agent or
manager who performs such services or arranges for performance of such
services. All such charges shall be payable upon demand as Additional Rent.
25.3 Severability. Every agreement contained in this Lease is, and shall
be construed as, a separate and independent agreement. If any term of this
Lease or the application thereof to any person or circumstances shall be
invalid or unenforceable, the remaining agreements contained in this Lease
shall not be affected.
25.4 Non-Merger. There shall be no merger of this Lease with any ground
leasehold interest or the fee estate in the Project or any part thereof by
reason of the fact that the same person may acquire or hold, directly or
indirectly, this Lease or any interest in this Lease as well as any ground
leasehold interest or fee estate in the Project or any interest in such fee
estate.
25.5 Landlord's Liability. Anything contained in this Lease to the
contrary notwithstanding, Tenant agrees that Tenant shall look solely to the
estate and property of Landlord in the Project for the collection of any
judgment or other judicial process requiring the payment of money by Landlord
for any default or breach by Landlord under this Lease, subject, however, to
the prior rights of any mortgagee or lessor of the Project. No other assets of
Landlord or any members, partners, shareholders, or other principals of
Landlord shall be subject to levy, execution or other judicial process for the
satisfaction of Tenant's claim.
25.6 Force Majeure. Whenever the period of time is herein prescribed for
action to be taken by Landlord or Tenant, Landlord or Tenant shall not be liable
or responsible for and there shall be excluded from the computation for any such
period of time, any delays due to force majeure, which term shall include
strikes, riots, acts of God, shortages of labor or materials, war, governmental
approvals, laws, regulations, or restrictions, or any other cause of any kind
whatsoever which is beyond the reasonable control of Landlord or Tenant. Force
Majeure shall not excuse or delay Tenant's obligation to pay Rent or any other
amount due under this Lease.
25.7 Headings. The article headings contained in this Lease are for
convenience only and shall not enlarge or limit the scope or meaning of the
various and several articles hereof. Words in the singular number shall be held
to include the plural, unless the context otherwise requires. All agreements
and covenants herein contained shall be binding upon the respective heirs,
personal representatives, and successors and assigns of the parties thereto.
25.8 Successors and Assigns. All agreements and covenants herein contained
shall be binding upon the respective heirs, personal representatives,
successors and assigns or the parties hereto. If there be more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and several. If
there is a guarantor of Tenant's obligations hereunder, Tenant's obligations
shall be joint and several obligations of Tenant and such
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<PAGE> 25
guarantor, and Landlord need not first proceed against Tenant hereunder before
proceeding against such guarantor, and any such guarantor shall not be released
from its guarantee for any reason, including any amendment of this Lease, any
forbearance by Landlord or waiver of any of Landlord's rights, the failure to
give Tenant or such guarantor any notices, or the release of any party liable
for the payment or performance of Tenant's obligations hereunder.
Notwithstanding the foregoing, nothing contained in this Section 25.8 shall be
deemed to override Article 8.
25.9 Landlord's Representations. Neither Landlord nor Landlord's agents
or brokers have made any representations or promises with respect to the
Premises, the Building, the Parking Facility, the Land, or any other portions
of the Project except as herein expressly set forth and all reliance with
respect to any representations or promises is based solely on those contained
herein. No rights, easements, or licenses are acquired by Tenant under this
Lease by implication or otherwise except as, and unless, expressly set forth in
this Lease.
25.10 Entire Agreements; Amendments. This Lease and the Exhibits and
Riders attached hereto set forth the entire agreement between the parties and
cancel all prior negotiations, arrangements, brochures, agreements, and
understandings, if any, between Landlord and Tenant regarding the subject
matter of this Lease. No amendment or modification of this Lease shall be
binding or valid unless expressed in writing executed by both parties hereto.
25.11 Tenant's Authority. If Tenant signs as a corporation, execution
hereof shall constitute a representation and warranty by Tenant that Tenant is a
duly organized and existing corporation, that Tenant has been and is qualified
to do business in the State of California and in good standing with the State of
California, that the corporation has full right and authority to enter into this
Lease, and that all persons signing on behalf of the corporation were authorized
to do so by appropriate corporate action. If Tenant signs as a limited liability
company, partnership, trust, or other legal entity, execution hereof shall
constitute a representation and warranty by Tenant that Tenant has complied with
all applicable laws, rules, and governmental regulations relative to Tenant's
right to do business in the State of California, that such entity has the full
right and authority to enter into this Lease, and that all persons signing on
behalf of Tenant were authorized to do so by any and all necessary or
appropriate company, partnership, trust, or other actions.
25.12 Governing Law. This Lease shall be governed by and construed under
the laws of the State of California. Should any provision of this Lease require
judicial interpretation, Landlord and Tenant hereby agree and stipulate that
the court interpreting or considering same shall not apply the presumption that
the terms hereof shall be more strictly construed against a party by reason of
any rule or conclusion that a document should be construed more strictly
against the party who itself or through its agents prepared the same, it being
agreed that all parties hereto have participated in the preparation of this
Lease and that each party had full opportunity to consult legal counsel of its
choice before the execution of this Lease.
25.13 Tenant's Use of Name of the Building. Tenant shall not, without the
prior written consent of Landlord, use the name of the Building for any purpose
other than as the address of the business to be conducted by Tenant in the
Premises, and Tenant shall not do or permit the doing of anything in connection
with Tenant's business or advertising (including brokers' flyers promoting
sublease space) which in the reasonable judgment of Landlord may reflect
unfavorably on Landlord or the Building or confuse or mislead the public as to
any apparent connection or relationship between Tenant and Landlord, the
Building, or the Land.
25.14 View and Lights. Any elimination or shutting off of light, air, or
view by any structure which may be erected on lands adjacent to the Building
shall in no way affect this Lease and Landlord shall have no liability to
Tenant with respect thereto.
25.15 Changes to Project by Landlord. Landlord shall have the unrestricted
right to make changes to all portions of the Project in Landlord's reasonable
discretion for the purpose of improving access or security to the Project or
the flow of pedestrian and vehicular traffic therein. Landlord shall have the
right at any time, without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor, to change the
arrangement or location of entrances or passageways, doors and doorways,
corridors, elevators, stairs, bathrooms, or any other Common Areas as long as
reasonable access to the Premises remains available. Landlord shall also have
the right to (a) rearrange, change, expand or contract portions of the Project
constituting Common Areas, (b) to use Common Areas while engaged in making
improvements, repairs or alterations to the Project, or any portion thereof,
and (c) to do and perform such other acts and make such other changes in to or
with respect to the Project, or any portion thereof, as Landlord may, in the
exercise of sound business judgment, deem to be appropriate. Landlord shall be
entitled to change the name or address of the Building or the Project. Landlord
shall have the right to close, from time to time, the Common Areas and other
portions of the Project for such temporary periods as Landlord deems legally
sufficient to evidence Landlord's ownership and control thereof and to prevent
any claim of adverse possession by, or any implied or actual dedication to, the
public or any party other than Landlord.
25.16 Time of Essence. Time is of the essence of this Lease.
25.17 Landlord's Acceptance of Lease. The submission of this Lease to
Tenant shall not be construed as an offer and Tenant shall not have any rights
with respect thereto unless said Lease is consented to by mortgagee, and any
lessor of Landlord, to the extent such consent is required, and Landlord
executes a copy of this Lease and delivers the same to Tenant.
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25.18 Performance by Tenant. All covenants and agreements to be performed
by Tenant under any of the terms of this Lease shall be performed by Tenant, at
Tenant's sole cost and expense, and without any abatement of Rent. If Tenant
shall fail to pay any Rent, other than Base Rent, required to be paid by it
hereunder or shall fail to perform any other act on its part to be performed
hereunder, and such failure shall continue for longer than the period of cure,
if any, permitted in Section 13.1, Landlord may, at its option, without waiving
or releasing Tenant from obligations of Tenant, make any such payment or perform
any such other act on behalf of Tenant. All sums so paid by Landlord and all
necessary incidental costs, together with interest thereon at the Interest Rate,
from the date of such payment by Landlord, shall be payable to Landlord on
demand. Tenant covenants to pay any such sums, and Landlord shall have (in
addition to any other right or remedy of Landlord) the same rights and remedies
in the event of the non-payment thereof by Tenant as in the case of default by
Tenant in the payment of Rent.
25.19 Financial Statements. At any time during the term of this Lease,
Tenant shall, upon ten (10) business days prior written notice from Landlord,
provide Landlord with the most recent existing financial statement and existing
financial statements of the two (2) years prior to the most recent financial
statement year. Such statements shall be prepared in accordance with generally
accepted accounting principles and, if such is the normal practice of Tenant,
shall be audited by an independent certified public accountant.
25.20 Top of the Building Signage. The Original Tenant shall be entitled
to install, at Tenant's sole cost and expense, signage identifying Tenant with
the letters "W.F.H.C." only, on the top of the exterior wall of the Building
in either "Location I" or "Location II" (but not both) generally depicted on
Exhibit "F," attached hereto and incorporated herein by this reference. The
signage to which Tenant is entitled pursuant to the immediately preceding
sentence may be referred to herein as Tenant's "BUILDING TOP SIGNAGE." The
materials, color, design, size, specifications and exact location of the
Building Top Signage shall be subject to Landlord's sole and absolute (but good
faith) discretion. In addition, the Building Top Signage shall be subject to
Tenant's receipt of all required governmental permits and approvals and shall be
subject to all applicable governmental laws and ordinances, and any covenants,
conditions and restrictions affecting the Project; provided, however, if Tenant
does not receive the necessary governmental permits and approvals for the
Building Top Signage, Landlord's and Tenant's rights and obligations under the
remaining provisions of this Lease shall be unaffected. The cost of installation
of the Building Top Signage, as well as all costs of design and construction of
such signage and all other costs associated with such signage including, without
limitation, permits and maintenance and repair, shall be the sole responsibility
of Tenant. The rights to the Building Top Signage are personal to the Original
Tenant and shall exist only as long as the Original Tenant actually occupies the
entire Premises. Upon the expiration or sooner termination of this Lease, or if
at any time after the Commencement Date, Tenant fails to occupy one hundred
percent (100%) of the rentable square feet in the Premises (each, a "SIGNAGE
TERMINATION EVENT"), Tenant shall, at Tenant's sole cost and expense, cause the
Building Top Signage to be removed from the Building and to repair any damage
(including any discoloration) to the Building resulting from such removal. If
Tenant fails to remove its Building Top Signage from the Building and to repair
any damage to the Building resulting from such removal within thirty (30) days
following a Signage Termination Event, then Landlord may perform such work, and
all costs and expenses incurred by Landlord in so performing shall be reimbursed
by Tenant to Landlord within thirty (30) days after Tenant's receipt of invoice
therefor. The immediately preceding sentence shall survive the expiration or
earlier termination of this Lease.
25.21 Prohibited Signage and Other Items. Any signs, notices, pictures,
names or advertisements which are installed and that have not been individually
approved by Landlord may be removed without notice by Landlord at the sole
expense of Tenant. Except as provided in Section 25.20 hereof, Tenant may not
install any signs on the exterior or roof of the Building or the common areas of
the Building or the Project. Any signs, window coverings or blinds (event if the
same are located behind the Landlord approved window coverings for the
Building), or other items visible from the exterior of the Premises or Building
are subject to the prior approval of Landlord, in its sole discretion.
25.22 Quiet Enjoyment. Landlord covenants and agrees with Tenant that
upon Tenant paying the rent required under this Lease and paying all other
charges and performing all of the covenants and provisions on Tenant's part to
be observed and performed under this Lease, Tenant may peaceably and quietly
have, hold and enjoy the Premises in accordance with this Lease without
hindrance or molestation by Landlord or its employees or agents.
ARTICLE XXVI
SUBSTITUTION SPACE
26.1 Landlord shall have the right at any time prior to the end of the
Term of this lease, or any renewal or extension hereof, to substitute, instead
of the Premises, other space within the Project (which space shall have a Net
Rentable Area of not less than the Net Rentable Area in the Premises as of the
date of such substitution and shall be located on a floor of a building in the
Project no lower than the floor on which the original Premises are located),
hereinafter called the "SUBSTITUTION SPACE."
26.2 If Landlord desires to exercise such right prior to the Commencement
Date, Landlord shall give written notice thereof to Tenant not later than thirty
(30) days prior to the effective date of such substitution, which notice shall
specify the Substitution Space in question and the description of the Premises
set forth in this Lease shall, without further act on the part of Landlord or
Tenant, be deemed amended so that the Substitution Space shall, for all
purposes, be deemed the Premises hereunder and all of the terms, covenants,
conditions, provisions,
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<PAGE> 27
and agreements of this Lease, including those agreements to pay Rent, shall
continue in full force and effect and shall apply to the Substitution Space.
The Leasehold Improvements in the Substitution Space shall be completed in the
manner set forth in Exhibit "C" of this Lease, and the costs thereof shall be
allocated between Landlord and Tenant as described therein, provided, however,
that if, prior to Landlord's notice of its election to substitute the
Substitution Space for the Premises, Tenant has reasonably incurred costs or
expenses in connection with planning or construction of the Leasehold
Improvements in the original Premises and Tenant is (i) unable to use the plans
or materials in question in connection with the Leasehold Improvements in the
Substitution Space or (ii) unable to cancel orders for or return the materials
in question for credit, Landlord shall reimburse Tenant for such costs and
expenses (net of all applicable credits) upon presentation by Tenant of
appropriate invoices and other substantiating materials therefor.
26.3 If Landlord desires to exercise such right after the Commencement
Date, Landlord shall give Tenant at least sixty (60) days' prior written notice
thereof specifying the effective date of such substitution, whereupon, as of
such effective date: (a) the description of the Premises set forth in this
Lease shall, without further act on the part of Landlord or Tenant, be deemed
amended so that the Substitution Space shall, for all purposes, be deemed the
Premises hereunder, and all of the terms, covenants, conditions, provisions,
and agreements of this Lease, including those agreements to pay Rent, shall
continue in full force and effect and shall apply to the Substitution Space,
and (b) Tenant shall move from the present Premises into the Substitution Space
and shall vacate and surrender possession to Landlord of the present Premises,
and if Tenant continues to occupy the present Premises after such effective
date, then thereafter, during the period of such occupancy, Tenant shall pay
Rent for the present Premises as set forth in this Lease, in addition to the
Rent for the Substitution Space at the above-described rates. Tenant shall
accept possession of the Substitution Space in its "as-is" condition as of such
effective date.
26.4 Notwithstanding the provisions of Section 26.3 above, if Landlord
exercises its right to substitute the Substitution Space for the Premises after
the Commencement Date, then Tenant shall have the option to require Landlord to
alter the Substitution Space in a manner substantially similar to the manner as
the present Premises were finished out or altered pursuant to this Lease. Such
option shall be exercised, if at all, by notice from Tenant to Landlord within
fifteen (15) days after the aforesaid notice from Landlord to Tenant of such
proposed substitution; otherwise, such option in favor of Tenant shall be null
and void. If such option is validly so exercised by Tenant; (a) Tenant shall
continue to occupy the present Premises (upon all of the terms, covenants,
conditions, provisions, and agreements of this Lease, including the covenant
for the payment of Rent) until the date on which Landlord shall have
substantially completed such alteration work in the Substitution Space; and (b)
Tenant shall move from the present Premises into the Substitution Space
immediately upon the date of such substantial completion by Landlord and shall
vacate and surrender possession to Landlord of the present Premises after such
date, and if Tenant continues to occupy the present Premises following such
date of substantial completion, then, thereafter during the period of such
occupancy, Tenant shall pay Rent for the present Premises as set forth in this
lease in addition to the Rent for the Substitution Space at the above-described
rates. With respect to such alteration work in the Substitution Space, if
Tenant requests materials or installations other than those originally
installed by Landlord, or if Tenant shall make changes in the work (such
non-original materials or installations or changes being subject to Landlord's
prior written approval), and if such non-original materials or installations or
changes shall delay the work to be performed by Landlord, or if Tenant shall
otherwise delay the substantial completion of the work, the occurrence of such
delays shall in no event postpone the date for the commencement of the payment
of Rent for such Substitution Space beyond the date on which such work would
have been substantially completed but for such delays, and in addition, Tenant
shall continue to pay Rent for the present Premises as set forth in this Lease
until it vacates and surrenders same as aforesaid. Landlord at its discretion
may substitute materials of like quality for the materials originally utilized.
26.5 If Landlord exercises this relocation right after the Commencement
Date, Landlord shall reimburse Tenant for Tenant's reasonable out-of-pocket
expenses for moving Tenant's furniture, equipment, supplies and telephones and
telephone equipment from the present Premises to the Substitution Space and for
reprinting Tenant's stationery of the same quality and quantity of Tenant's
stationery supply on hand immediately prior to Landlord's notice to Tenant of
the exercise of this substitution right.
ARTICLE XXVII
OTHER DEFINITIONS
When used in this Lease, the terms set forth hereinbelow shall have the
following meanings:
(a) "BUSINESS DAYS" shall mean Monday through Friday (except for
Holidays); "BUSINESS HOURS" shall mean 8:00 a.m. to 6:00 p.m. on Monday through
Friday and 9:00 a.m. to 1:00 p.m. on Saturdays (except for Holidays); and
"HOLIDAYS" shall mean those holidays designated by Landlord, which holidays
shall be consistent with those holidays designated by landlords of other
first-class office buildings in the Comparison Area.
(b) "COMMON AREAS" shall mean those certain areas and facilities of
the Building and the Parking Facility and those certain improvements to the
Land which are from time to time provided by Landlord for the use of tenants of
the Building and their employees, clients, customers, licensees and invitees or
for use by the public, which facilities and improvements include any and all
corridors, elevator foyers, vending areas, bathrooms, electrical and telephone
rooms, mechanical rooms, janitorial areas and other similar facilities of the
Building and of the Parking Facility and any and all grounds, parks, landscaped
areas, outside sitting areas, sidewalks,
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[Women First Healthcare]
<PAGE> 28
walkways, tunnels, pedestrianways, skybridges, and generally all other
improvements located on the Land, or which connect the Land to other buildings.
(c) The words "DAY" or "DAYS" shall refer to calendar days, except
where "Business Days" are specified.
(d) The words "HEREIN", "HEREOF", "HEREBY", "HEREUNDER" and words of
similar import shall be construed to refer to this Lease as a whole and not to
any particular Article or Section thereof unless expressly so stated.
(e) The words "INCLUDE" and "INCLUDING" shall be construed as if
followed by the phrase "without being limited to."
(f) "NET RENTABLE AREA" and "USABLE AREA" shall mean "Net Rentable
Area" and "Usable Area" (as applicable) determined in accordance with the
Standard Method For Measuring Floor Area in Office Buildings ANSI/BOMA
Z65.1-1996 ("BOMA STANDARD"). Landlord shall have the right, within ninety (90)
days after the Commencement Date, to verify the Net Rentable Area and/or Usable
Area of the Premises in accordance with the BOMA Standard. If, as a result of
such verification, it is determined that the Net Rentable Area and/or Usable
Area of the Premises are different than the amounts set forth in Section 1.1
above, all corresponding amounts set forth this Lease (including, without
limitation, Tenant's Share, the amount of monthly Base Rent, the amount of the
Security Deposit and the Allowance) shall be retroactively adjusted and
appropriate payments, if applicable, shall be made by Landlord to Tenant or
Tenant to Landlord (as applicable) within ten (10) days after written notice of
such determination is delivered to Tenant. Both parties agree to execute a
commercially reasonable instrument in order to document such revised amounts.
(g) Reference to Landlord as having "NO LIABILITY TO TENANT" or
being "WITHOUT LIABILITY TO TENANT" or words of like import shall mean that
Tenant is not entitled to terminate this Lease, or to claim actual or
constructive eviction, partial or total, or to receive any abatement or
diminution of rent, or to be relieved in any manner of any of Tenant's other
obligations hereunder, or to be compensated for loss or injury suffered or to
enforce any other right or kind of liability whatsoever against Landlord under
or with respect to this Lease or with respect to Tenant's use or occupancy of
the Premises.
(h) A "REPAIR" shall be deemed to include such rebuilding,
replacement and restoration as may be necessary to achieve and maintain good
working order and condition.
(i) The "TERMINATION OF THIS LEASE" and words of like import
includes the expiration of the Term or the cancellation of this Lease pursuant
to any of the provisions of this Lease or to law. Upon the termination of this
Lease, the Term shall end at 11:59 p.m. (local time for the Building) on the
date of termination as if such date were the Expiration Date, and neither party
shall have any further obligation or liability to the other after such
termination except (i) as shall be expressly provided for in this Lease and
(ii) for such obligations as by their nature or under the circumstances can
only be, or by the provisions of this Lease, may be, performed after such
termination and, in any event, unless expressly otherwise provided in this
Lease, any liability for a payment (which shall be apportioned as of the date
of such termination) which shall have accrued to or with respect to any period
ending at the time of termination shall survive the termination of this Lease.
(j) The "TERMS OF THIS LEASE" shall be deemed to include all terms,
covenants, conditions, provisions, obligations, limitations, restrictions,
reservations and agreements contained in this Lease.
(k) "TENANT" shall be deemed to include Tenant's successors and
assigns (to the extent permitted by Landlord) and any and all occupants of the
Premises permitted by Landlord and claiming by, through or under Tenant.
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<PAGE> 29
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date set forth on the cover page hereof.
TENANT: LANDLORD:
WOMEN FIRST HEALTHCARE, INCORPORATED, PRENTISS PROPERTIES ACQUISITION
a Delaware corporation PARTNERS, L.P., a Delaware limited
partnership
By:/s/ DAVID F HALE By: Prentiss Properties I, Inc.
---------------------------------- Its: General Partner
Name: David F Hale
Title: President & CEO By: /s/ DAVID C. ROBERTSON
---------------------------------
Name: David C. Robertson
Title: Senior V.P.
By: /s/ A.P. MARIS By: /s/ J. KEVAN DILBECK
---------------------------------- ---------------------------------
Name: A.P. Maris Name: J. Kevan Dilbeck
Title: V.P. President Title: Vice President
- -------------------
NOTE:
If Tenant is a California corporation, then one of the following
alternative requirements must be satisfied:
(A) This Lease must be signed by two (2) officers of such corporation; one
being the chairman of the board, the president or a vice president,
and the other being the secretary, an assistant secretary, the chief
financial officer or an assistant treasurer. If one (1) individual is
signing in two (2) of the foregoing capacities, that individual must
sign twice; once as one officer and again as the other officer.
(B) If there is only one (1) individual signing in two (2) capacities, or
if the two (2) signatories do not satisfy the requirements of (A)
above, then Tenant shall deliver to Landlord a certified copy of a
corporate resolution acceptable to Landlord authorizing the
signatory(ies) to execute this Lease.
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<PAGE> 30
EXHIBIT "A"
FLOOR PLAN OF THE PREMISES
[FLOOR PLAN]
Women First Health Care
12220 El Camino Real, Fourth Floor
Suite 400
11,490 Useable Square Feet
13,392 Rentable Square Feet
EXHIBIT 'A" - Page 1
<PAGE> 31
EXHIBIT "B"
THE PROJECT
[EXECUTIVE CENTER DEL MAR LAYOUT]
EXHIBIT "B"
EXECUTIVE CENTER DEL MAR
<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
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<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.
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<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.
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<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.
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<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
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<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.
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<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.
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<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
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<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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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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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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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
- 15 -
<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.
- 16 -
<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
- 18 -
<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 $2,425 $6,637 $5,436 $4,305 $4,188 $4,059 $3,854 $3,631 $3,861 $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> 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) $ ***
((***) + *** + ***)
</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 10.8
COPROMOTION AGREEMENT
This COPROMOTION AGREEMENT is made as of the Effective Date
(defined below), by and between BRISTOL-MYERS SQUIBB U.S. PHARMACEUTICALS GROUP,
a division of E.R. SQUIBB & SONS, INC., a Delaware corporation, having a place
of business at 777 Scudders Mill Road, Plainsboro, New Jersey 08536 ("BMS"), and
WOMEN FIRST HEALTHCARE, INC., a Delaware corporation, maintaining its principal
business offices at 12220 El Camino Real, Suite 400 San Diego, California
92130 ("WFHC").
W I T N E S S E T H:
WHEREAS, BMS markets and distributes pravastatin sodium tablets
under the trademark Pravachol(R) which has been approved by the U.S. Food and
Drug Administration ("FDA") for the treatment of cholesterol-lowering and other
indications (as more fully specified in the labeling for the product); and
WHEREAS, WFHC is engaged in the business of marketing
pharmaceutical products to physicians; and
WHEREAS, BMS wishes to expand the promotion of Pravachol(R) to
obstetricians and gynecologists (and to nurse practitioners and physician
assistants in those offices) and to those primary care physicians whose primary
practices are in the field of OB/GYN medical care and who are designated as an
OB/GYN on BMS' internal tracking databases, and WFHC desires to have the right
to copromote said product to such physicians, upon the terms specified herein;
and
WHEREAS, the parties wish to develop and implement an education
program for OB/GYNs and their patients.
NOW, THEREFORE, in consideration of the mutual covenants herein
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have
the corresponding meanings set forth below:
"Affiliate" means, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person. A Person shall be regarded as in control of
another Person if it/he/she owns, or directly or indirectly controls, more than
fifty percent (50%) of the voting securities (or comparable equity interests) or
other ownership interests of the other Person, or if it/he/she directly or
indirectly possesses the power to direct or cause the direction of the
management or policies of the other Person, whether through the ownership of
voting securities, by contract or any other means whatsoever.
"Agreement" means this agreement, together with all
appendices, exhibits and schedules hereto, and as the same may be amended or
supplemented from time to time hereafter by a written
1
<PAGE> 2
agreement duly executed by authorized representatives of each party hereto.
"Agreement Quarter" means each three-month period commencing
on the first day of January, April, July, or October, as the case may be, during
the Copromotion Term. The first Agreement Quarter shall commence on March 1,
1999 and end on June 30, 1999; thereafter, an Agreement Quarter shall cover a
calendar quarter.
"Agreement Year" means each 12-month period commencing on
April 1 and each anniversary thereof during the Copromotion Term; provided, that
the first Agreement Year shall commence on March 1, 1999 and end on March 31,
2000.
"Average Selling Price per Prescription" has the meaning set
forth in Section 11(b) hereof.
"Baseline Agreement Year Prescriptions" and "Baseline
Quarterly Prescriptions" have the meaning set forth in Section 11(b) hereof.
"Baseline Annual Sales Attributable to Covered Physicians"
has the meaning set forth in Section 11(b) hereof.
"Call Plan" has the meaning specified in Section 5(d)
hereof.
"Confidential and Proprietary Information" has the meaning
set forth in Section 15 hereof.
"Copromotion Term" has the meaning specified in Section
13(a) hereof.
"Costs" with respect to a Funded Activity has the meaning
specified in Section 6(d) hereof.
"Covered Physician" means any obstetrician or gynecologist
whose principal offices are located in the Territory (and including those nurse
practitioners and physician assistants who work with such physicians in those
offices) ) and to those primary care physicians whose primary practices are in
the field of OB/GYN medical care and who are designated as an OB/GYN on BMS'
internal tracking databases.
"Covered Physician Prescriptions" has the meaning set forth
in Section 11(b) hereof.
"Effective Date" of this Agreement means March 1, 1999 (as
to the CoPromotion Term), and January 1, 1999 (as to the Initial Education
Program).
"Funded Activities" has the meaning specified in Section
6(a) hereof.
"IMS America" means the International Marketing Services
Prescription Reporting
2
<PAGE> 3
Service, or such other prescription reporting service to which WFHC and BMS may
mutually agree to in writing.
"Initial Training Sessions" has the meaning in Section 7(a)
hereof.
"Net Sales" means for the applicable period the gross amount
invoiced for the Product by BMS or its licensees to unAffiliated Third Parties
in the Territory, less the following amounts to the extent deducted on such
invoice or absorbed by BMS: (i) quantity, trade, and/or cash discounts,
allowances, rebates, and price adjustments or reductions allowed or given; (ii)
freight, postage and shipping insurance expenses absorbed by BMS and not
reimbursed by the invoicee; (iii) credits, rebates, chargebacks, or refunds
allowed for rejected, outdated or returned Products; and (iv) sales and other
excise taxes and duties directly related to the sale, to the extent that such
items are included in the gross invoice price (but not including taxes assessed
against the income derived from such sale). If a Product is sold for
compensation other than cash, Net Sales shall be calculated based on the fair
market value of the Product in cash.
"Net Sales Attributable to Covered Physicians" has the
meaning set forth in Section 11(b) hereof.
"Person" shall mean an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority, or any other form of entity not
specifically listed herein.
"Product" means all product presentations (including all dosage
strengths) of Pravachol(R) (pravastatin sodium) tablets currently approved by
FDA, and any new tablets or other presentations of Pravachol(R), and any new
dosages or indications or uses (including all dosage strengths) of same that are
approved by FDA during the term of this Agreement.
"Sales/Marketing Committee" has the meaning specified in
Section 5 hereof.
"Serious adverse event" and "Non-serious adverse event" have
the meanings set forth in section 9(h) hereof.
"Territory" means the fifty states of the United States of
America, and specifically excluding Puerto Rico and any U.S. held territories
and possessions.
"Third Party" means any Person other than (i) BMS and any of
its Affiliates and (ii) WFHC and any of its Affiliates.
"Trademark" means the trademark Pravachol(R) and any other
trademark or trade name (whether registered or unregistered) used on or with the
Product or in any promotional material related to the Product in the Territory
during the Copromotion Term.
3
<PAGE> 4
2. GRANT OF RIGHTS TO WFHC.
(a) BMS hereby engages WFHC to promote the Product during
the Copromotion Term on an exclusive (except as provided in subsection (i)
below) basis to Covered Physicians, upon the terms and conditions set forth in
this Agreement. BMS reserves all rights not expressly granted hereunder.
Notwithstanding the foregoing, BMS reserves:
(i) the right to promote the Product through BMS and its
Affiliates to Covered Physicians during the Copromotion
Term within the Territory; provided, however, that BMS may
not grant any unAffiliated Third Party the right to
copromote the Product during the Copromotion Term within
the Territory to Covered Physicians without WFHC's prior
written consent; and
(ii) the right to promote the Product or to grant to one or
more Third Parties the right to promote the Product
outside the Territory to any physician or healthcare
provider; and
(iii) the right to promote the Product or to grant to one or
more Third Parties the right to promote the Product within
the Territory to physicians and health care providers,
other than Covered Physicians,
as and on such terms as BMS may elect and determine in its sole and absolute
discretion.
(b) Subject to the terms and conditions of this Agreement,
BMS hereby grants to WFHC a fully-paid up, nonexclusive right and license to use
the Trademark during the Copromotion Term solely in connection with the
promotion of the Product to Covered Physicians in the Territory in accordance
with this Agreement.
3. COPROMOTION BY WFHC.
(a) WFHC shall use reasonable commercial efforts to
diligently promote the Product in the Territory to Covered Physicians in
accordance with the terms of this Agreement during the Copromotion Term. WFHC
shall not be obligated to conduct any advertising of the Product except as
authorized by the Sales/Marketing Committee upon the unanimous approval of all
members of such Committee.
(b) Except as provided for in Section 6 of this Agreement or
otherwise agreed to by the parties and subject to the terms and conditions of
this Agreement, WFHC shall be solely responsible for the costs and expenses of
establishing and maintaining its sales force and conducting its other activities
under this Agreement and shall have sole authority to control its sales force
and direct the activities of its sales force. It is understood that the WFHC
sales force will not be composed, in any material part, of contract sales
personnel or telemarketers hired by WFHC without the prior written consent of
BMS.
(c) WFHC shall instruct its sales force not to, and shall
use commercially reasonable efforts to ensure that its sales force do not,
promote or detail the Product to any physician, osteopath or health care
professional who is not a Covered Physician. WFHC shall provide BMS, within five
(5) working days of transmission, complete copies and/or transcripts of all home
office generated (for example, those sent out by WFHC's Sales, Marketing and
Sales Training departments) communications
4
<PAGE> 5
(whether written, electronic or visual aids) to a majority of WFHC sales
representatives or detail personnel concerning the promotion of the Product. The
individual to which these shall be sent will be designated by BMS upon execution
of this Agreement. All such written, electronic and visual communications
provided to a majority of WFHC sales representatives regarding Product strategy,
positioning or selling messages shall be consistent in all respects with the
positioning strategy and selling messages then approved by the Sales/Marketing
Committee, shall comply with the product labeling, and shall be in accordance
with applicable law.
(d) BMS shall retain sole responsibility for contractual and
other relationships with managed care organizations, formularies, insurers, and
governmental agencies and instrumentalities (including without limitation
Medicare, Medicaid, the Veterans Administration, and military entities). If any
information derived from such relationships would be pertinent to the
development of the Covered Physician market by WFHC hereunder, BMS will, where
legally able to do so, share such pertinent information with WFHC under an
obligation of confidentiality.
(e) During the Copromotion Term and for one year (1) year
thereafter, WFHC shall not market, promote or otherwise sell any other statin or
other cholesterol-lowering drug product other than the Product; provided, that
the foregoing restriction shall not apply to hormonal therapy products that have
a primary or secondary effect of lowering cholesterol. Said one-year
post-Copromotion Term restriction shall not apply, however, if (1) BMS has
terminated this Agreement pursuant to Section 13(c)(ii) or Section 13(d), or (2)
WFHC has terminated this Agreement pursuant to section 13(b)(ii).
4. RESPONSIBILITIES OF BMS.
(a) Except as may be provided for in Section 6 of this
Agreement, BMS shall be solely responsible for the costs and expenses of
conducting its activities under this Agreement.
(b) BMS shall have the sole authority to determine the price
of the Product sold by BMS, including price increases or decreases and the
timing thereof as determined by BMS.
(c) BMS shall have the sole responsibility, at its cost and
expense, for Product manufacture, shipping, distribution and warehousing, for
the invoicing and billing of purchasers of the Product, for order confirmation
(if any) in accordance with BMS customary practices, and for the collection of
receivables resulting from Net Sales. BMS will book all sales of the Product
sold by BMS and its Affiliates. This Agreement shall not be construed as
creating or implying any obligation on BMS' part to supply WFHC with Product,
other than Product samples.
(d) BMS shall use commercially reasonable efforts, including
maintaining reasonable levels of inventory in light of customary industry
practice, to ensure that sufficient stock of the Product will be available in
its inventory to fill orders from the trade in accordance with normal industry
practices. In the event that there is not sufficient stock of the Product, BMS
shall equitably allocate same between Covered Physicians and Non-Covered
Physicians, and if such insufficient inventory proximately causes sales to
Covered Physicians in an Agreement Year to be materially less than they would
have been and WFHC is able to demonstrate same to BMS' reasonable satisfaction,
then BMS and WFHC shall mutually determine the amount of Net Sales, and the
Baseline Sales figure in Article 11 hereof shall be adjusted, for that Agreement
Year only, to reflect such number of lost Net Sales (and the Agreement Quarter
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<PAGE> 6
targets for such Agreement Year shall also be adjusted to equitably and
appropriately reflect such lost Net Sales in the Agreement Quarter(s) in which
incurred).
(e) BMS shall use reasonable efforts consistent with
applicable legal requirements to maintain all necessary authorizations with the
FDA to market the Product in the Territory, provided that WFHC does not engage
in any act or omission inconsistent with such legal requirements.
(f) If BMS enters into a co-promotion agreement with a Third
Party for the promotion of the Product to persons or entities other than Covered
Physicians, then, subject to reimbursement by WFHC for a proportionate cost for
promotional materials as provided for in Article 6 hereof, BMS shall furnish
WFHC with copies of such promotional materials as BMS makes available to its or
such Third Party's sales force (including translations thereof, if available),
as the Sales/Marketing Committee may determine appropriate for release to WFHC.
(g) Promptly following the execution of this Agreement, BMS
shall furnish WFHC with the names and addresses of those Covered Physicians in
the Territory which BMS believes already prescribe sufficient quantities of the
Product as to lead BMS to believe that such individuals already fully appreciate
the healthcare risks of heart disease in women and are willing to prescribe
Pravastatin for the prevention or treatment of same. WFHC will use commercially
reasonable efforts to coordinate its promotional efforts on Covered Physicians
with the appropriate BMS sales representative.
(h) BMS reserves the right to assign to a Third Party all
rights to the Product (including the IND and NDA), as and upon such terms as BMS
may elect and determine in its sole and absolute discretion.
5. SALES/MARKETING COMMITTEE.
(a) A marketing committee for the Product in the Territory
to Covered Physicians will be established promptly by BMS and WFHC after
execution of this Agreement (such committee being referred to herein as the
"Sales/Marketing Committee"). WFHC shall be entitled to participate in the
activities of the Sales/Marketing Committee related to the development and
coordination of the marketing strategy and promotional plans for the Product in
the Territory to Covered Physicians, which activities shall include:
(i) developing and revising, subject to BMS' prior written
approval before use (with BMS to use commercially
reasonable efforts to review and provide its response
within 30 days after receipt of the material), existing
and new promotional materials for the Product for
in-person promotion to Covered Physicians and related
non-personal promotional activities, to the extent that
the same relate specifically to the marketing of the
Product to Covered Physicians;
(ii) developing promotional programs for the Product to Covered
Physicians;
(iii) reviewing and approving the Call Plan presented by WFHC
identifying the direct selling activity to be performed by
WFHC in any given period;
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(iv) establishing appropriate Product sampling scheduling;
(v) planning market research activities;
(vi) preparing any new materials directly related to the
Product that are to be used to train WFHC's sales force;
(vii) planning symposia, seminars and other professional
relations events of specific interest to Covered
Physicians; and
(viii) designing and implementing programs to encourage and
improve cooperation between BMS and WFHC with respect to
maximizing sales of the Product to Covered Physicians.
(b) The Sales/Marketing Committee shall be composed of two
(2) persons, with WFHC and BMS each being entitled to designate one (1)
individual. The initial members shall be designated by each party in writing
promptly following execution of this Agreement. Each party may change its
designated members at any time upon advance written notice to the other party
(for BMS, notice must be sent to its Senior Vice President, Cardiovascular and
Metabolic Diseases Marketing; for WFHC, notices must be sent to its President)
of any substitution of a member. Decisions and recommendations of the
Sales/Marketing Committee will be made by vote of WFHC and BMS, with each party
having two votes. Except where unanimous agreement of all representatives to the
Sales/Marketing Committee is expressly required under this Agreement, in the
event of a tie, BMS's Senior Vice President, Cardiovascular and Metabolic
Diseases Marketing shall have the deadlock breaking vote. In the event unanimous
agreement of the members of the Sales/Marketing Committee is required hereunder
and there is a tie, the matter for which approval was sought will be deemed to
have been rejected and the matter will not be implemented.
(c) The Sales/Marketing Committee shall meet not less than
once in each Agreement Quarter during the Copromotion Term or as otherwise
agreed by the parties in writing, at such locations as are designated by each
party alternatingly. Each party shall bear the costs and expenses of its
designated members that are incurred in connection with the Sales/Marketing
Committee meetings.
(d) WFHC shall present a Call Plan to the Sales/Marketing
Committee for review and approval not less frequently than annually covering a
period not to exceed one year. Each Call Plan shall identify the direct selling
and marketing activities to be conducted by WFHC in an Agreement Quarter
specifically targeting Covered Physicians shall be subject to the review and
unanimous written approval of all designated representatives of BMS and WFHC to
the Sales/Marketing Committee (the call plan so approved being referred to
herein as the "Call Plan"); provided that, subject to Sections 3(e), 3(f) and
4(h) hereof, WFHC shall have the discretion to determine the particular Covered
Physicians to whom it promotes, the frequency of presentation of, and the
presentation order as this relates to, the Product. Each Call Plan shall remain
in effect until a new Call Plan is again so approved by the Sales/Marketing
Committee.
Where a Call Plan has been approved by the Sales/Marketing
Committee and that Plan clearly and specifically identifies the advertising
programs and related costs to be incurred (and those that will be reimbursed by
BMS in accordance with section 6 hereof), WFHC may implement that Call Plan
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<PAGE> 8
without further approval from the Sales/Marketing Committee. Any material
deviations from such approved Call Plan will require resubmission and unanimous
approval by all members of the Sales/Marketing Committee.
(e) Notwithstanding anything in this Section 5 or that
might otherwise imply to the contrary in this Agreement, BMS shall have
strategic responsibility and sole authority and responsibility for obtaining all
legal, regulatory and medical approvals related to the selling and use of
promotional materials prepared or approved by the Sales/Marketing Committee.
6. FUNDING OF PROMOTIONAL ACTIVITIES.
(a) Subject to Section 6(b) hereof, WFHC shall be solely
responsible during the Copromotion Term for the Costs incurred by it and by BMS
of the following activities related to the promotion of the Product in the
Territory to Covered Physicians (collectively, the "Funded Activities"):
(i) reasonable and customary selling and promotional materials
and advertisements that have been approved by the
Sales/Marketing Committee for use with Covered Physicians;
(ii) advertisements that have been unanimously approved by the
Sales/Marketing Committee primarily targeting Covered
Physicians;
(iii) the purchase by WFHC of Product samples from BMS, as set
forth in Article 8 hereof;
(iv) cost of promotional materials, as determined in accordance
with Section 7(c) hereof; and
(v) cost of training and training materials, as set forth in
Sections 7(a) and 7(b) below.
The incurrence of any Costs by either BMS or WFHC for Funded Activities shall
require the unanimous approval of all members of the Sales/Marketing Committee.
(b) BMS shall be under no obligation to conduct or develop
symposia, seminars, technical and scientific exhibits and other professional
relations events with respect to the Product or to conduct additional Phase I,
II, III or IV clinical trials with respect to the Product. WFHC may conduct or
develop symposia, seminars, technical and scientific exhibits and other
professional relations events with respect to the Product that specifically
target Covered Physicians, provided that a copy of all written materials to be
provided by WFHC at any such event is provided to BMS in advance in sufficient
time for BMS to have a reasonable opportunity to review and comment upon same
(it being understood that the content of the presentations by third party
presenters at such professional relations events and educational seminars shall
be the sole responsibility of such individuals in accordance with applicable law
and prevailing customary scientific practices). Such professional relations
event and educational materials shall be developed in cooperation with WFHC's
Health Advisory Board for Cardiovascular Risk Management and as part of the
Education Program. WFHC may conduct, subject to prior written approval by BMS
(which may be given or denied in BMS' sole and absolute discretion) and subject
to the overall direction and supervision of BMS, additional Phase IV clinical
trials with respect to the use of the Product. Except as
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<PAGE> 9
provided in Article 17 hereof, WFHC shall be solely responsible for all costs or
expenses incurred by WFHC or BMS pursuant to this Section 6(b), and BMS shall
have no contribution or reimbursement obligation hereunder with respect to same.
(c) For purposes of Articles 6, 7 and 8 hereof, the term
"Costs" means, in the case of the Funded Activities (other than Product
samples), the direct, out-of-pocket costs and expenses paid by BMS or WFHC to an
unAffiliated Third Party in connection with such activities during the period in
question. The term "Costs" means, in the case of the Product samples described
in Section 6(a)(iii) above, the Cost of Manufacture of the Product samples.
(d) Each Party shall submit a statement to the other party
within twenty-one (21) days after the end of each Agreement Quarter, identifying
in reasonable detail the Funded Activities and related Costs incurred by it (as
determined in accordance with Section 6(c) above) that are WFHC's responsibility
under this Article 6. Each party shall promptly provide any supplementary
documentation as the other party may reasonably request to verify such Costs.
WFHC shall reimburse BMS for the Costs incurred by BMS for which WFHC is
required to reimburse BMS hereunder within 45 days after the end of each
Agreement Quarter. The calculation of such Costs and the reconciliation thereof
shall be subject to audit and inspection in accordance with Section 12 hereof.
(e) Except as provided in Section 6(a), any marketing and
promotional expenses related to the Product for the Non-Covered Physician
market, including all promotional materials, advertisements, symposia and other
promotional events therefor, shall be borne by BMS.
7. TRAINING OF WFHC SALES FORCE.
(a) The parties intend that BMS will provide WFHC's sales
force with the same or substantially similar training with respect to promotion
of the Product to Covered Physicians as has been given traditionally to BMS's
sales force in the Territory (it being understood that such training shall be
specific to the Product itself, as opposed to general sales training). BMS and
WFHC will hold two initial training sessions ("Initial Training Sessions"),
which shall be held on up to two mutually convenient dates within one (1) year
after the Effective Date of this Agreement, and which will be held at a location
mutually acceptable to BMS and WFHC. The Sales/Marketing Committee will
determine the content of each such Initial Training Session, and shall review
the Product-related training materials and make recommendations for any
revisions and updates thereto as the Committee may deem appropriate; provided,
however, BMS shall determine and be solely responsible for the content,
development, and associated cost of all training materials. Any subsequent
training programs for WFHC personnel following the two Initial Training Sessions
for which participation by BMS personnel will be required shall require the
prior unanimous agreement of all members of the Sales/Marketing Committee.
All members of the WFHC sales force (including detail
personnel, management, and sales representatives) shall attend a Product-related
training program, whether as part of an Initial Training Session or a subsequent
training program conducted by WFHC or BMS, with as many of such individuals as
practicable to attend the two Initial Training Sessions. WFHC shall bear the
full cost and expense of all of its sales force personnel (including management,
detail personnel, sales representatives, and contractors) who attend a
Product-related training programs, without contribution from BMS. BMS shall bear
the costs and expenses of its training personnel provided for the Initial
Training Session and for any
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<PAGE> 10
subsequent training program that has received the prior unanimous approval of
the Sales/Marketing Committee.
(b) WFHC shall have the authority, and shall be responsible
at its cost and expense, for all training to be provided to its sales force
following the Initial Training Sessions; provided, however, that the contents
and strategic direction of any training provided by WFHC that relates to the
Product shall be coordinated and agreed to by WFHC and BMS. From time to time as
training materials for the Product may be revised by BMS (the timing and content
of which shall be determined by BMS in the exercise of its sole and absolute
discretion or as mandated by regulatory agencies or as directed by the
Sales/Marketing Committee), BMS will make such training materials available to
WFHC at BMS' out-of-pocket cost for development and production.
(c) Where BMS has granted to a Third Party the right to
co-promote the Product to Non-Covered Physicians, and where any promotional
materials, advertisements, symposia and other promotional events developed by
such Third Party for the Product in the Territory for Non-Covered Physicians
that will also directly benefit Covered Physicians (i.e., such materials and
activities, while not intended primarily for the benefit of the Covered
Physician market, will nonetheless have a direct benefit to same), then, such
activities and materials shall be discussed within the Sales/Marketing Committee
to determine whether WFHC should bear a portion of the Cost of same. If the
Sales/Marketing Committee approves by unanimous vote of all its members that
WFHC should bear a portion of the Cost of same, the Sales/Marketing Committee
will determine (again, by unanimous vote) an equitable allocation of the Cost of
such materials and activities as will be borne by WFHC, which amount shall be
reimbursed by WFHC to BMS (or which shall be subject to credit by WFHC against
BMS' contribution obligation under Section 6(b) below). WFHC shall have no right
to use such materials without BMS' prior written consent.
(d) Where any promotional and sales literature and
materials, advertisements, symposia and other promotional events have been
developed by BMS for the Product in the Territory for Non-Covered Physicians
that will also directly benefit Covered Physicians, BMS will make such materials
available to WFHC, provided that WFHC reimburses BMS for its out-of-pocket costs
incurred in developing, printing or duplicating such materials. BMS hereby
grants to WFHC a credit of Two Hundred Fifty Thousand Dollars ($250,000) during
each Agreement Year during the term hereof for the payment of such costs as WFHC
may incur under Sections 7(c) and 7(d) hereof.
(e) BMS reserves and retains title and all rights,
including copyright rights, in and to all written, visual and electronic works
and other materials provided by it to WFHC hereunder, as well as any adaptions
thereof or "derivative works" (as such term is defined in the U.S. Copyright
Code, 17 U.S.C. Section 101 et. seq.) derived or developed by WFHC from or with
such works and materials. Subject to the foregoing and to its obligations under
other terms and conditions of this Agreement, WFHC is granted the nonexclusive
right under this subsection to use, copy, modify, and distribute such materials
only in furtherance of this Agreement and the rights granted to it hereunder,
for the Copromotion Term of this Agreement. WFHC will ensure that all copyright
notices and this permission notice appear on all copies of the written materials
provided by BMS and all adaptations and derivative works thereof.
8. PRODUCT SAMPLES; ADDITIONAL CLINICAL STUDIES.
(a) BMS agrees to provide to WFHC reasonable quantities of
Product samples
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in accordance with Section 8(b) below, as requested by WFHC. Such samples shall
be used solely in making detail calls to Covered Physicians in the Territory.
Product samples will in all cases be shipped to WFHC's central distribution
facility. Shipments of Product samples shall require not less than thirty (30)
days advance written notice and shall be subject to the same shipping schedules
as that under which BMS customarily distributes Product samples to its own sales
representatives.
Product samples (and promotional and sales literature where
made available to WFHC under other provisions of this Agreement) will be shipped
to WFHC's central distribution facility. WFHC shall be responsible for the
further distribution of same to its sales representatives. All costs of such
distribution by WFHC shall be borne solely by WFHC. Once WFHC accepts shipment
of Product samples from BMS, WFHC shall be responsible for all Product samples
accountability and compliance with the Prescription Drug Marketing Act, as
amended, and other applicable federal, state and local laws relating to samples.
WFHC is further responsible for adherence by its sales representatives to such
laws.
Product samples shall have a shelf life of not less than
nine (9) months, unless otherwise agreed to by unanimous written consent of all
members of the Sales/Marketing Committee.
BMS shall bear the Product Sample Costs (as determined in
Section 8(b)) of the Product samples provided to WFHC up to the Sample Quantity
Maximum (as defined in Section 8(b) below) for a given Agreement Year, subject
to the following:
(i) BMS shall have no obligation to provide Product
samples in an Agreement Year if the aggregate
Product Sample Cost of the Product samples to be
provided by BMS would exceed *** for such Agreement
Year; and
(ii) Any Product samples requested by WFHC in excess of
the Sample Quantity Maximum for a given Agreement
Year shall require not less than sixty (60) days
advance written notice and shall be paid for by
WFHC at BMS' Cost therefor within thirty (30) days
after receipt of BMS' invoice therefor.
(b) BMS will make available to WFHC for distribution by its
sales representatives in the First Agreement Year up to *** Sleeves based on the
assumption that WFHC will have 100 sales representatives each capable of
sampling 250 key Covered Physicians that are different from those sampled by the
other WFHC sales reps, *** (the "Sample Quantity Maximum"). A Sleeve contains
six (6) 40mg tablets. For Agreement Years after the First Agreement Year, the
Sample Quantity Maximum shall be determined by the Sales & Marketing Committee.
The Product Sample Cost for the First Agreement Year shall
be ***. Said figure shall be adjusted as of the beginning of each Agreement Year
thereafter by the percentage increase or decrease in the Producers Price Index
as published by the Bureau of Statistics, U.S. Department of Labor (or successor
agency) from the first day of the previous Agreement Year through the end of
such previous Agreement Year.
(c) BMS shall have sole control over the design and conduct
of any Phase I
*** 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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through V clinical studies relating to the Product, as well as sole and absolute
discretion as to whether to initiate any such studies. Where WFHC has requested
that BMS conduct a specific study (and BMS has agreed to conduct such study), or
where WFHC has agreed in writing with BMS to participate in the cost of
conducting a specific Study proposed by BMS (it being understood that WFHC has
no obligation to do so hereunder), then the cost of such studies shall be shared
as the parties may mutually agree; otherwise, BMS shall be responsible for the
cost of conducting any such studies. Any costs incurred by WFHC pursuant to this
section 8(b) shall not be subject to reimbursement out of the annual
contribution made by BMS under section 6(b) hereof.
BMS shall have the exclusive right to use for any purpose
the data resulting from clinical studies relating to the Product conducted by it
or WFHC, including, but not limited to, product registrations and product
licenses related to the Product, throughout the world.
9. CERTAIN REGULATORY MATTERS.
(a) All regulatory matters regarding the Product shall
remain under the exclusive control of BMS, subject to the participation by WFHC
in matters related to the marketing of the Product to Covered Physicians and in
certain clinical studies as more fully set forth in Sections 6(c)(ii) and 8(b)
above. BMS will have the sole responsibility, at its cost and expense, to
respond to Product and medical complaints and to handle all returns and recalls
of the Product.
(b) BMS shall furnish WFHC with efficacy and safety
information reasonably requested by WFHC to assist it in promoting the Product
to Covered Physicians, including, without limitation, relevant clinical and
safety data included in the New Drug Application for the Product and information
related to the efficacy and safety profile of the Product since its approval by
the FDA. Such information shall be treated as confidential information of BMS,
and shall not be disclosed to Third Parties without BMS' prior written approval.
(c) Beginning as of the Effective Date of this Agreement,
each party shall promptly notify the other party of any significant event(s)
that affect the marketing of the Product, including, but not limited to, adverse
drug reactions and governmental inquiries, whether within or outside the
Territory. BMS shall have the reporting responsibility for such events to
applicable regulatory health authorities anywhere in the world.
WFHC shall report all such adverse events involving the Product
learned by it to:
Vice President, Worldwide Safety & Surveillance
Bristol-Myers Squibb Company
P.O. Box 5400
Mail Stop HW19-1.01
Princeton, New Jersey 08543-5400
U.S.A.
Facsimile No.:(609) 818-3804
Telephone No.:(609) 818-3737
A CIOMS-I form or a form that contains the data elements of a CIOMS-I form is
recommended.
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Serious adverse events concerning the Product learned by BMS
shall be reported by BMS to WFHC at the time that BMS reports such events to
FDA, and shall be sent to:
Vice President, Regulatory Affairs and Quality Systems
Women First HealthCare, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Facsimile No.: (619) 509-3851
Telephone No.: (619) 509-3812
"Serious" adverse events for a Product (as defined in section 9(g) below)
learned by WFHC shall be submitted to BMS within three (3) working days but no
more than four (4) calendar days from the receipt date by WFHC.
"Non-serious" adverse events for a Product (as defined in
section 9(g) below) that are spontaneously reported to WFHC shall be submitted
to BMS no more than one (1) month from the date received by WFHC; provided,
however, that medical and scientific judgment should be exercised in deciding
whether expedited reporting is appropriate in other situations, such as
important medical events that may not be immediately life-threatening or result
in death or hospitalization but may jeopardize the patient or may require
intervention to prevent a serious adverse event outcome.
(d) Beginning as of the Effective Date of this Agreement,
each party shall promptly notify the other party in writing of any order,
request or directive of a court or other governmental authority to recall or
withdraw the Product in any jurisdiction. BMS shall be responsible, at its sole
cost and expense, for the costs of any recall or withdrawal of the Product.
(e) Upon being contacted by the Food and Drug
Administration (FDA) or any other federal, state or local agency for any
regulatory purpose pertaining to this Agreement or to the Product, WFHC shall,
if not prohibited by applicable law, immediately notify BMS and will not respond
to the agency until consulting with BMS, to the maximum feasible extent;
provided, however, that the foregoing shall not be construed to prevent WFHC in
any way from complying, and WFHC may permit unannounced FDA or similar
inspections authorized by law and respond to the extent necessary to comply,
with its obligation under applicable law.
(f) WFHC shall inform BMS' office of the Vice President,
Worldwide Safety & Surveillance of any Product Quality Complaint received within
three (3) working days but no more than four (4) calendar days from the receipt
date by WFHC. A Product Quality Complaint is defined as any complaint that
questions the purity, identity, potency or quality of the Product, its
packaging, or labeling, or any complaint that concerns any incident that causes
the drug product or its labeling to be mistaken for, or applied to, another
article or any bacteriological contamination, or any significant chemical,
physical, or other change or deterioration in the distributed drug product, or
any failure of one or more distributed batches of the drug product to meet the
specifications therefor in the NDA for the Product. Such information shall be
sent to the same address as set forth in Section 9(c) above
(g) A "serious" adverse event for a Product is defined as
any untoward
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medical occurrence that at any dose for the Product: (i) results in death; (ii)
is life-threatening (as defined below); (iii) requires inpatient hospitalization
or prolongation of existing hospitalization; (iv) results in persistent or
significant disability/incapacity; (v) is a congenital anomaly/birth defect;
(vi) results in drug dependency or drug abuse; (vii) is cancer, (viii) is a
serious medical event (as defined below), or (ix) is an overdose. A "nonserious"
adverse event is defined as that which is not serious.
A "life-threatening" adverse event is defined as an event
in which the patient or subject was at risk of death at the time of the event;
it does not refer to an event which hypothetically might have caused death if it
were more severe.
A "serious medical event" is defined as a medical event
that may not be immediately life-threatening or result in death or
hospitalization but, based on appropriate medical and scientific judgment, may
jeopardize the patient/subject or may require intervention (e.g., medical,
surgical) to prevent one of the other outcomes listed as a serious definition.
Examples of such events include, but are not limited to, intensive treatment in
an emergency room or at home for allergic bronchospasm; blood dyscrasia or
convulsions that do not result in hospitalization.
(h) BMS and WFHC will cooperate and establish a mutually
acceptable procedure designed to ensure access by BMS to samples forming the
basis of a Product complaint received by BMS. BMS will provide WFHC with samples
of return labels for this purpose.
(i) BMS Professional Services Department shall be
responsible for handling all medical inquiries concerning each Product within
the Territory, including without limitation responding to questions concerning
permitted and off-label uses of each Product, requests for journal articles, the
administration of and response to medical inquiries concerning the Products by
consumers, physicians, pharmacists and other health care professionals,
including those forwarded by sales representatives and field force personnel
promoting the Products. WFHC shall refer all routine medical information
requests in writing to:
Bristol-Myers Squibb Company
Professional Services Department
P.O. Box 4500 P15-01
Princeton, NJ 08543-4500
Urgent medical information requests shall be referred by
telephone to: Professional Services Department: (609) 897-6660.
10. COMPLIANCE WITH LAW AND LABELING.
(a) Each party shall maintain in full force and effect all
necessary licenses, permits and other authorizations required by law to carry
out its duties and obligations under this Agreement. Each party shall comply
with all laws, ordinances, rules and regulations (collectively, "Laws")
applicable to its activities under this Agreement, including without limitation,
any requirements of any product license applicable to the Product in the
Territory; provided, however, that WFHC shall be solely responsible for
compliance with those Laws pertaining to the activities conducted by it
hereunder (including, without limitation, those Laws that apply to documentation
and records retention pertaining to the distribution and
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<PAGE> 15
use of Product samples by it under this Agreement), notwithstanding that FDA
may, as a matter of law, be entitled to hold BMS accountable or responsible
(whether primarily or secondarily) for failure of WFHC to comply with such Laws.
The parties will reasonably cooperate with one another with the goal of ensuring
full compliance with Laws. BMS shall be responsible for all labeling changes to
the Product
(b) WFHC shall make no representations or warranties
relative to the Product that conflict or are inconsistent with the NDA,
applicable law, and the FDA-approved label for the Product. WFHC shall be
responsible for any out-of-pocket costs incurred by BMS resulting from
statements made by its sales representatives that relate to the safety or
efficacy of the Product that are not in compliance with applicable law or have
not been authorized by BMS in advance in writing.
11. COPROMOTION COMPENSATION.
(a) As compensation for services rendered by WFHC during
the Copromotion Term and its agreements hereunder, BMS shall pay to WFHC a fee
("Performance Fee") with respect to each Agreement Year during the term hereof
*** of those Net Sales Attributable to Covered Physicians that are in excess of
the Baseline Annual Sales Attributable to Covered Physicians for such Agreement
Year.
(b) For purposes of this Agreement:
"Average Selling Price per Prescription" means, for any Agreement
Year (or any Agreement Quarter or six-month or nine-month period prior to the
end of an Agreement Year), the Total Net Sales of the Product in the Territory
for the applicable period from prescriptions written by all physicians of all
specialties and practices, divided by the total number of retail (TRX) and mail
order prescriptions (TRX) for the Product that are written or ordered in such
applicable period by Covered and Non-Covered Physicians. The number of retail
(TRX) prescriptions shall be determined by the National Prescriptions Audit
Plus: Prescriber Specialty Report as issued by IMS America. The number of mail
order prescriptions shall be determined by BMS using internal data in accordance
with its historical customary practices (with the Average Selling Price for mail
order prescriptions to be adjusted (i.e., trued up) to be equivalent with the
number of tablets per prescription on a retail basis).
"Baseline Annual Sales Attributable to Covered Physicians" for
each Agreement Year shall mean the product of: (i) the Baseline Agreement Year
Prescriptions for such Agreement Year, multiplied by (ii) the Average Selling
Price per Prescription for such Agreement Year;
"Baseline Agreement Year Prescriptions" for an Agreement Year
means the minimum number of Covered Physician Prescriptions for the Product
written for an Agreement Year that must be exceeded before WFHC shall realize
any compensation under this Article 11 for such Agreement. Said minimum numbers
are as follows:
(i) For the first Agreement Year, equal *** Covered
Physician Prescriptions.
(ii) For the second Agreement Year, equal the sum of: (1)
*** (2) a number that is the product of (A) *** (B) ***
*** 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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*** that are marketed by all companies in the Territory
(such percentage increase to be determined by data
reported by IMS America); and
(iii) For the third Agreement Year, equal the sum of (1) the
number obtained in (ii) above, plus (2) a number that is
the product of (A) the number obtained in (ii) above,
multiplied by (B) the percentage increase during the
Second Agreement Year in the number of prescriptions
written by all physicians of all specialties and practices
in the Territory for pravastatin in the Territory (such
percentage increase to be determined by data reported by
IMS America).
"Baseline Quarterly Prescription" shall mean:
(i) For the first Agreement Year,
- *** Covered Physician Prescriptions
for 3/1/99-6/30/99;
- *** Covered Physician Prescriptions
for 7/1/99-9/30/99;
- *** Covered Physician Prescriptions
for 10/1/99-12/31/99;
- *** Covered Physician Prescriptions
for 1/1/00-3/31/00.
(ii) For the second and third Agreement Years, equal the
quotient of (1) the Baseline Agreement Year Prescriptions
for such Agreement Year, divided (2) by four.
"Covered Physician Prescriptions" shall equal the number of
retail prescriptions (TRX) for the Product that are written or ordered by
Covered Physicians as determined by the National Prescriptions Audit Plus:
Prescriber Specialty Report as issued by IMS America.
"Net Sales Attributable to Covered Physicians" means, for any
Agreement Year (or any Agreement Quarter or six-month or nine-month period prior
to the end of an Agreement Year), a number equal to the product of (i) the
number of Covered Physician Prescriptions for the applicable period (such
prescriptions to be determined by the National Prescriptions Audit Plus:
Prescriber Specialty Report as issued by IMS America), multiplied by (ii) the
Average Selling Price per Prescription for such applicable period.
(c) In order for WFHC to receive its Performance Fee on a
quarterly basis, as opposed to waiting until the end of the year and making a
lump sum (if applicable) of the amount that may be due it under Section 11(b),
BMS shall, subject to section 11(d) below, pay to WFHC, on a quarterly basis for
each of the first three Agreement Quarters in any Agreement Year, an amount
equal to the difference between:
(i) *** of the amount by which (A) Net Sales Attributable to
Covered Physicians for such Agreement Quarter and all
previous Agreement Quarters during such Agreement Year
exceeds (B) the product of (1) the sum of the Baseline
Quarterly Prescriptions for such applicable period times
(2) the Average Selling Price per Prescription for such
applicable period, less
*** 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> 17
(ii) all compensation previously paid to WFHC pursuant to this
Article 11 during such Agreement Year.
If (i) less (ii) is less than zero for a given Agreement Quarter, no payment
shall be made by BMS with respect to such Agreement Quarter.
No separate payment shall be made for the fourth Agreement
Quarter in any Agreement Year. Instead, at the end of each such Agreement Year,
a final reconciliation shall be conducted by comparing the amount to which WFHC
is otherwise entitled for such Agreement Year pursuant to Section 11(a) above
(based on the Average Selling Price per Prescription for the entire Agreement
Year) against the sum of all amounts (if any) previously paid to WFHC pursuant
to this Section 11(c) for prior Agreement Quarters during such Agreement Year.
If the calculation determines that WFHC is due further compensation (or has been
overcompensated by BMS) as a result of any quarterly payments made by BMS with
respect to the first three quarters of any Agreement Year, the balance due to
WFHC (or to be refunded by WFHC) shall be computed and paid by the applicable
party to the other within ninety (90) days after the end of such Agreement Year.
(d) Compensation due WFHC under this section 11 above
shall be calculated and paid within 60 days after the end of each Agreement
Quarter (ninety days after the fourth Agreement Quarter) during the Copromotion
Term, in accordance with Sections 11(a)-(c) and 12 hereof. Any payments not made
when due under Sections 11(a)-(c) shall bear interest at the rate of ten percent
(10%) per annum (or the highest rate permitted by applicable law, whichever is
the lower) on the unpaid balance from the date due until paid in full.
(e) In addition to compensation received during the
Copromotion Term, WFHC shall receive residual compensation ("Residual
Compensation") during the 24-month period following expiration or early
termination of the Copromotion Term (the "Residual Period") equal in the
*** of the compensation due by BMS to it for the Agreement Year immediately
preceding termination, but only where:
(A) (i) This Agreement has expired in accordance with its
terms at the end of the term provided for hereunder (or
such longer term as this Agreement may be extended by
mutual written consent);
(ii) WFHC has terminated this Agreement prior to
expiration in accordance with section 13(b)(ii) hereof; or
(iii) BMS has terminated this Agreement pursuant to
section 13(d) hereof; and
(B) WFHC complies with its obligations under Sections 3(e),
10, 14, 15, and 19 hereof.
Termination of this Agreement for any reason other than the above events shall
not trigger any Residual Compensation due WFHC. Such Residual Compensation
payment shall be made by BMS in eight (8) equal quarterly installments, each
installment to be made as of the end of each Agreement Quarter in the Residual
Period.
*** 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> 18
12. PAYMENTS AND REPORTING.
(a) BMS shall furnish WFHC, within 60 days after the end
of each Agreement Quarter (within 90 days at the end of each Agreement Year), a
report setting forth in reasonable detail the calculation of Net Sales
Attributable to Covered Physicians for such Agreement Quarter (and Agreement
Year), and the calculation of WFHC's compensation under Section 11 with respect
to such period (and, in addition to a report for the fourth Agreement Quarter,
with respect to the entire Agreement Year).
(b) All payments to a party under this Agreement shall be
made by wire transfer in immediately available funds in legal currency of the
United States and shall be delivered to the account of such party designated by
it in writing from time to time.
(c) The parties will maintain complete and accurate books
and records in sufficient detail to enable verification of the detail call
activity of WFHC, the Net Sales attributable to Covered Physicians and the basis
for calculating the compensation paid by BMS to WFHC hereunder. Either party may
demand an audit of the other party's relevant books and records in order to
verify the other's reports on the aforesaid matters. Upon reasonable prior
notice to the party to be audited, the independent public accountants of the
other party shall have access to the relevant books and records of the party to
be audited in order to conduct a review or audit thereof. Such access shall be
available during normal business hours not more than once each calendar year
during the Copromotion Term and only until two years after the relevant period
in question. The accountants shall be entitled to report its conclusions and
calculations to the party requesting the audit, except that in no event shall
the accountants disclose the names of customers of either party or the prices,
discounts, rebates, or other terms of sale charged by BMS for the Product.
The party requesting the audit shall bear the full cost of
the performance of any such audit except as hereinafter set forth. If, as a
result of any inspection of the books and records of BMS, it is shown that BMS'
payments to WFHC under this Agreement were less than the amount which should
have been paid, then BMS shall make all payments required to be made to
eliminate any discrepancy revealed by said inspection within 30 days after
WFHC's demand therefor. If, as a result of any inspection of the books and
records of WFHC, it is shown that BMS' reimbursements for costs associated with
Funded Activities to WFHC under this Agreement were more than the amount which
should have been paid, then WFHC shall reimburse BMS for the discrepancy
revealed by said inspection within 30 days after BMS' demand therefor.
Furthermore, if the payments were less than the amount which should have been
paid by an amount in excess of five percent (5%) of the payments actually made
during the period in question, the party responsible for the discrepancy shall
also reimburse the auditing party for its out-of-pocket costs of such
inspection.
13. COPROMOTION TERM AND TERMINATION.
(a) The Copromotion Term shall be for three (3) years and
shall begin effective March 1, 1999 and shall end on March 31, 2002, unless
terminated earlier in accordance with Section 13(b), 13(c) or 13(d) below or
unless extended by the parties' mutual agreement in accordance with Section
13(e) below (the "Copromotion Term").
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<PAGE> 19
(b) WFHC may terminate the Copromotion Term:
(i) at any time, without cause, effective as of the end of an
Agreement Year, upon written notice to BMS given not less
than sixty (60) days' prior to the end of such Agreement
Year. During such notice period, WFHC shall continue to
fulfill its obligations under this Agreement; or
(ii) immediately upon written notice of termination given to
BMS, if BMS has breached a material obligation or duty
under this Agreement that is continuing thirty (30) days
after WFHC has advised BMS in writing of the nature of
said breach.
(c) BMS may terminate the Copromotion Term upon the
occurrence of any of the following:
(i) Upon sixty (60) days' prior written notice to WFHC, if:
(A) Covered Physician Prescriptions for the First
Agreement Year do not exceed *** Covered
Physician Prescriptions for such Agreement Year, or
if Covered Physician Prescriptions for the Second
Agreement Year do not exceed *** Covered
Physician Prescriptions for such Agreement Year, or
if Covered Physician Prescriptions for the Third
Agreement Year do not exceed *** Covered
Physician Prescriptions for such Agreement Year or
(B) Aggregate Covered Physician Prescriptions for each
Agreement Quarter during any two (2) consecutive
Agreement Quarters do not exceed twice the Baseline
Quarterly Prescriptions for such two Agreement
Quarters; or
(ii) Upon written notice to WFHC, if BMS has permanently ceased
manufacturing and marketing the Product because of a
significant safety problem related to the Product; or
(iii) BMS may terminate the Copromotion Term immediately upon
written notice of termination given to WFHC, if WFHC has
breached a material obligation or duty under this
Agreement that is continuing 30 days after BMS has advised
WFHC in writing of the nature of the breach or default.
(d) If during the Copromotion Term WFHC experiences a
"change in control", WFHC will promptly notify BMS in writing of same, and BMS
shall be entitled at any time within one hundred twenty (120) days after receipt
of such notification, in the exercise of its sole and absolute discretion, upon
90 days written notice to WFHC, to terminate the Copromotion Term. For purposes
of this Agreement, the term "change in control" shall mean any sale of voting
securities or sale of assets (whether by sale, merger, consolidation, share
exchange, or otherwise) which, directly or indirectly, (i) transfers over 50% of
the assets of WFHC relating to the Product to any Person other than an Affiliate
of WFHC, or (ii) results in any Person (other than an Affiliate of WFHC existing
as of the Effective Date or a financial institution or venture capital firm)
becoming the beneficial owner, directly or indirectly, of securities 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.
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<PAGE> 20
WFHC representing over: (A) if such Person is a "Pharmaceutical-related Person"
(as defined below), twenty percent (20%) of the combined voting power of WFHC's
then outstanding securities, or (B) if such Person is not a
"Pharmaceutical-related Person", fifty percent (50%) of the combined voting
power of WFHC's then outstanding securities. This termination right may be
exercised by BMS each time there is a change in control, whether or not
exercised with respect to an earlier change in control. Each party shall
continue to fulfill its duties hereunder during such 90-day notice period.
For purposes of this paragraph 13(d) only,
"Person" shall have the meaning used in section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended, and
"beneficial ownership" shall be determined pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended; and
"Pharmaceutical-related Person" means a Person, or any Affiliate
of such a Person, for whom more than fifty percent (50%) of such
Person's gross revenues are derived, as applicable, from (i) the
sale, licensing and/or distribution of drug products (whether
prescription, generic or over-the counter), nutritional agents
and medical devices, and (ii) the provision of drug or device
management services (such as a Pharmaceutical Benefits Management
(PBM) entity).
(e) The Copromotion Term may be extended as the parties
may mutually agree, it being understood that neither party shall be under any
obligation, express or implied, to do so. In order to be binding upon either
party, any such extension, and the terms governing such extension, must be
evidenced by a written agreement executed by duly authorized representatives of
both parties.
(f) Neither the termination nor expiration of the
Copromotion Term shall release or operate to discharge either party from any
liability or obligation that may have accrued prior to such termination or
expiration. Any termination of the Copromotion Term by a party shall not be an
exclusive remedy, but shall be in addition to any legal or equitable remedies
that may be available to the terminating party.
(g) If the Copromotion Term is terminated by either party
prior to the completion of an Agreement Quarter, WFHC shall be entitled to
receive a pro rata portion of the compensation which it would have been entitled
to receive under Section 11 had the Copromotion Term been in effect for the
entire Agreement Quarter (based on the number of days that WFHC was responsible
for marketing the Product to Covered Physicians in the Territory during such
Agreement Quarter).
(h) Upon the termination or expiration of the Copromotion
Term, WFHC shall promptly cease all of its promotion activities pursuant to this
Agreement, discontinue any use of the Trademark, return to BMS all sales
training, promotional, marketing material, BMS call lists and computer files,
and any remaining Product samples (i.e., not already distributed or destroyed
with destruction certified by WFHC) that may have been supplied to WFHC by BMS
under this Agreement. BMS shall be entitled to promote the Product to all
Covered Physicians thereafter without compensation or obligation to WFHC, except
such compensation obligations as may apply as set forth in Section 11(e). It is
understood that the names and addresses of any Covered Physicians to whom WFHC
may have made calls are not considered Confidential Information.
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<PAGE> 21
(i) Notwithstanding the expiration or termination of the
Copromotion Term, this Agreement shall be deemed to continue and shall not be
deemed terminated in its entirety and of no further force and effect unless and
until neither party has any further obligation to the other party in accordance
with the terms hereof.
14. INDEMNIFICATION AND INSURANCE.
(a) BMS shall defend, indemnify and hold WFHC and its
employees, agents, officers, directors and affiliates (a "WFHC Party") harmless
from and against any and all losses, liabilities, obligations, claims, fees
(including, without limitation, attorneys fees), expenses incurred by a WFHC
Party that are claimed by any Third Party and that result from or arise in
connection with (i) the breach of any covenant, representation or warranty of
BMS contained in this Agreement, (ii) the manufacturing, sale or distribution of
the Product by BMS or any licensee or affiliate thereof, including, without
limitation, any claim of patent infringement, (iii) any product liability claim
related to the Product, including, without limitation, the use by any person of
any Product that was manufactured, sold or distributed by BMS or any licensee or
affiliate thereof, (iv) any contamination of or defect in the Product; and (v)
breach by BMS of its obligations under Article 10 hereof. Notwithstanding
anything in this Section 14(a), BMS shall not be obligated to indemnify a WFHC
Party for any liability related to the Product for which WFHC has assumed an
indemnification obligation under Section 14(b) below.
(b) WFHC shall defend, indemnify and hold BMS and its
employees, agents, officers, directors and affiliates (a "BMS Party") harmless
from and against any and all losses, liabilities, obligations, claims, fees
(including, without limitation, attorneys fees), expenses and lawsuits brought
against or incurred by a BMS Party by a Third Party resulting from or arising in
connection with (i) the breach by WFHC of any covenant, representation or
warranty of WFHC contained in this Agreement, (ii) any contamination,
mislabeling, or adulteration of any Samples while such Samples are under the
control of WFHC, and/or (iii) breach by WFHC of its obligations under Article 10
hereof.
(c) To receive the benefits of the indemnity under clauses
(a) or (b) above, as applicable, an indemnified Party must (i) give the
indemnifying party written notice of any claim or potential claim promptly after
the indemnified party receives notice of any such claim; (ii) allow the
indemnifying party to assume the control of the defense and settlement
(including all decisions relating litigation, defense and appeal) of any such
claim (so long as it has confirmed its indemnification obligation responsibility
to such indemnified Party under this Article 14); and (iii) so long as such
cooperation does not vitiate any legal privilege to which it is entitled,
reasonably cooperate with the indemnifying party in its defense of the claim
(including, without limitation, making documents and records available for
review and copying and making persons within its/his/her control available for
pertinent testimony). If the indemnifying party defends the claim, an
indemnified Party may participate in, but not control, the defense of such claim
at its/his/her sole cost and expense. An indemnifying party shall have no
liability under this Article 14 as to any claim for which settlement or
compromise of such claim or an offer of settlement or compromise of such claim
is made by an indemnified Party without the prior consent of the indemnifying
party.
(d) WFHC acknowledges and agrees that any WFHC sales force
personnel (including contract sales personnel, telemarketers, detail personnel,
independent contractors, employees, and agents) used by WFHC to fulfill its
obligations under this Agreement are not, and are not intended to be or
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<PAGE> 22
be treated as, employees of BMS or any of its Affiliates, and that such
individuals are not eligible to participate in any "employee benefit plans", as
such term is defined in section 3(3) of ERISA, that are sponsored by BMS or any
of its Affiliates. BMS shall not be responsible to WFHC, to any employees,
agents, contractors, telemarketers, or other personnel of WFHC used by it to
perform its obligations under this Agreement, or to any governmental entity for
any compensation or benefits (including, without limitation, vacation and
holiday remuneration, healthcare coverage or insurance, life insurance, pension
or profit-sharing benefits and disability benefits), payroll-related taxes or
withholdings, or any governmental charges or benefits (including without
limitation unemployment and disability insurance contributions or benefits and
workmen' compensation contributions or benefits) that may imposed upon or be
related to the performance by WFHC and any of its employees, agents,
contractors, telemarketers, detail or other personnel used by WFHC to discharge
its obligations under this Agreement, all of which shall be the sole
responsibility of WFHC, even if it is subsequently determined by any court, the
IRS or any other governmental agency that such individual may be a common law
employee of BMS or any of its Affiliates. All such matters of compensation,
benefits and other terms of employment for any employee, agent, contractor,
telemarketer, detail or other personnel used by WFHC to fulfill its obligations
hereunder shall be solely a matter between WFHC and such individual(s) or
entities.
WFHC will indemnify, defend, and hold harmless each BMS
Party from and against any damages, liability, loss and costs that may be paid
or payable by any such BMS Indemnitee resulting from or in connection with any
claim or other cause of action asserted by:
(i) any employees, agents, contractors, telemarketers, detail
personnel, or other personnel of WFHC used by it to
perform its obligations under this Agreement, or
(ii) by any Third Party (including federal, state or local
governmental authorities)
with respect to:
(iii) any payment or obligation to make a payment to any
employees, agents, contractors, telemarketers, or other
personnel used by WFHC to perform its obligations under
this Agreement with respect to any compensation, benefits
of any type under any employee benefit plan (as such term
is defined above), and any other bonus, stock option,
stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar
fringe or employee benefit plans, programs or arrangements
that may be sponsored at any time by BMS or any of its
Affiliates or by WFHC or any of its Affiliates, even if it
is subsequently determined by any court, the IRS or any
other governmental agency that any such employee, agent,
contractor, telemarketer, detail and other personnel used
by WFHC to discharge its obligations hereunder may be a
common law employee of BMS or any of its Affiliates; and
(iv) the payment or withholding of any contributions, payroll
taxes, or any other payroll-related item by or on behalf
of WFHC or any of its employees, agents, contractors,
telemarketers, and other personnel with respect to which
BMS, WFHC or any of WFHC's employees, agents, contractors,
telemarketers, and other personnel may be responsible
hereunder or pursuant to applicable law to pay, make,
collect,
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<PAGE> 23
withhold or contribute, even if it is subsequently
determined by any court, the IRS or by any other
governmental agency that any such employee, agent,
contractor, telemarketer, and other person used by WFHC to
discharge its obligations hereunder may be a common law
employee of BMS or any of its Affiliates.
Nothing contained in this Section 14(d) is intended to or will effect or limit
any compensation payable by BMS to WFHC for the services rendered by WFHC
pursuant to this Agreement.
(e) WFHC shall use commercially reasonable efforts to
maintain insurance against such risks (including product liability) and upon
such terms (including coverages, deductible limits and self-insured retentions)
as is customary for the activities to be conducted by it under this Agreement
and is appropriate to cover its indemnification obligations hereunder. Without
limiting the foregoing, WFHC shall carry, during the term of this Agreement and
for five years thereafter, comprehensive general liability insurance, including
product liability and contractual liability endorsements, in an amount of not
less than $5,000,000 per occurrence and $10,000,000 in the aggregate. Such
policy shall be endorsed to include the following: (a) the policies shall
provide for thirty (30) days notice to BMS of cancellation or material change in
the coverage before such cancellation or change takes effect. Such insurance
shall be with insurance companies having a Best's Insurance rating of A:X or
better. WFHC shall furnish to BMS evidence of such insurance, upon request. Such
insurance information shall be kept in confidence in the same manner as any
other confidential information disclosed by WFHC to BMS hereunder.
15. CONFIDENTIALITY.
(a) Each party acknowledges that it may receive
confidential or proprietary information of the other party in the performance of
this Agreement. Each party shall hold confidential and shall not, directly or
indirectly, disclose, publish or use for the benefit of any Third Party or
itself, except in carrying out its duties hereunder, any confidential or
proprietary information of the other party, without first having obtained the
furnishing party's written consent to such disclosure or use. "Confidential or
proprietary information" shall include, inter alia, know-how, scientific
information, clinical data, efficacy and safety data, adverse event information,
formulas, methods and processes, specifications, pricing information (including
discounts, rebates and other price adjustments) and other terms and conditions
of sales, customer information, business plans, and all other intellectual
property. This restriction shall not apply to any information within the
following categories:
(i) information that is known to the receiving party or its
Affiliates prior to the time of disclosure to it, to the
extent evidenced by written records or other competent
proof;
(ii) information that is independently developed by employees,
agents, or independent contractors of the receiving party
or its Affiliates without reference to or reliance upon
the information furnished by the disclosing party, as
evidenced by written records or other competent proof;
(iii) information disclosed to the receiving party or its
Affiliates by a Third Party that has a right to make such
disclosure;
(iv) information that is contained in any written promotional
material prepared by BMS
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<PAGE> 24
for use in connection with the Product; or
(v) any other information that becomes part of the public
domain through no fault or negligence of the receiving
party.
The receiving party shall also be entitled to disclose the
other party's Confidential Information that is required to be disclosed in
compliance with applicable laws or regulations (including, without limitation,
to comply with SEC, NASDAQ or stock exchange disclosure requirements), or by
order of any governmental body or a court of competent jurisdiction; provided
that the party required to disclose such information shall use all reasonable
efforts to obtain confidential treatment of such information by the agency or
court.
(b) This obligation shall survive the termination or
expiration of this Agreement for five (5) years.
(c) The confidentiality obligations described above shall
supersede the Confidential Disclosure Agreement dated as of November 3, 1998
between the parties and shall govern any and all information disclosed by either
party to the other pursuant thereto, and shall be retroactively effective to the
date of such Confidential Disclosure Agreement.
(d) It is expressly understood and agreed that WFHC may
disclose confidential information to members of its board of directors who are
not employees of WFHC (and to consultants who have received BMS' prior written
approval), provided, that WFHC shall ensure that such directors and consultants
are bound by a written obligation of confidentiality to WFHC as regards
confidential information hereunder that is disclosed to them that is reasonably
satisfactory to BMS.
16. REPRESENTATIONS AND WARRANTIES.
(a) BMS represents and warrants to WFHC that (i) the
execution, delivery and performance of this Agreement by BMS does not conflict
with, or constitute a breach of or under, any order, judgment, agreement or
instrument to which BMS is a party; (ii) the execution, delivery and performance
of this Agreement by BMS does not require the consent of any person or the
authorization of (by notice or otherwise) any governmental or regulatory
authority; (iii) the rights granted by BMS to WFHC hereunder do not conflict
with any rights granted by BMS to any Third Party; and (iv) BMS owns the NDA for
the Product.
(b) WFHC represents and warrants to BMS that (i) the
execution, delivery and performance of this Agreement by WFHC does not conflict
with, or constitute a breach of or under, any order, judgment, agreement or
instrument to which WFHC is a party; and (ii) the execution, delivery and
performance of this Agreement by WFHC does not require the consent of any person
or the authorization of (by notice or otherwise) any governmental or regulatory
authority.
17. INITIAL EDUCATION PROGRAM.
(a) Initial Educational Program. In consideration of the
funding set forth in
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section 17(b) hereof, WFHC will work with (i) its existing Health Advisory Board
and (ii) a Medical Advisory Board on Cardiovascular Disease which it will create
to develop an initial educational program (the "Initial Educational Program")
containing those element; set forth in Exhibit A hereto and to implement such
Initial Education Program during the First Agreement Year. WFHC shall fully
consult with BMS with respect to all aspects relating to the development and
implementation of such Initial Educational Program and shall give due
consideration to all recommendations made by BMS. BMS shall have the right to
approve any materials, brochures, educational programs, and other features and
elements of the Initial Education Program that relate in any way to the use of
any statin or statins (whether individually or as a class) and other
cholesterol-lowering drugs to treat, manage, or prevent cardiovascular and
metabolic risks, diseases or conditions or to the importance of lowering
cholesterol; provided, that the content of an outside physician's presentation
at an educational seminar or similar program is the responsibility of such
individual without approval of BMS). WFHC shall consult with BMS regarding the
location, venue, participants, and timing of all speaker programs, mailings,
seminars, monographs, videotapes reports, lectures and lecture series kits,
newsletters and similar programs and materials. The Initial Education Program
shall be commence effective January 1, 1999 and run through March 31, 2000.
(b) Funding. Subject to the terms set forth in this
Article 17, in support of WFHC activities in developing and carrying out the
Initial Educational Program, BMS shall pay WFHC a development fee of ***, which
shall be paid out in equal quarterly installments on 4/1/1999, 7/1/1999,
10/1/1999, and 1/1/2000. Unless otherwise expressly provided for in this
Agreement, WFHC shall, except for such *** of funding, be responsible for all
costs and expenses incurred by it in developing and carrying out such Initial
Education Program.
(c) Ownership of Works. Subject to Section 7(e) hereof,
all educational materials, writings, videos, questionnaires, documentation and
other works (collectively, "Works") pertaining to the educational components and
patient risk assessment components of the Initial Education Program, and all
copyrights and other intellectual property rights pertaining thereto, shall (i)
if solely authored or developed by employees or contractors of a Party, be owned
by such Party, or (ii) if jointly authored or developed by employees or
contractors of both Parties, be jointly owned by the Parties (authorship to be
determined in accordance with the U.S. Copyright Law). If jointly authored or
developed, each party may use such Works as it deems appropriate, without
compensation or accounting to the other party, subject to the following:
(i) Neither party shall use any trademarks owned or
controlled by the other party or its Affiliates, except with the prior written
consent of the other Party (to be given or withheld in the other Party's sole
and absolute discretion), and provided that the other Party, even if such
permission is given, shall have the right to review and must approve in writing
in advance all uses of its Trademark on any materials or other works proposed to
be used by a Party. BMS recognizes that WFHC is the owner of certain trademarks
and trade names, which it may elect to use in the development of the Initial
Educational Program.
(ii) WFHC shall not use such Works to promote,
directly or indirectly, any statin or other cholesterol-lowering medicine (other
than hormonal therapy products) during the Term of this Agreement and for one
year thereafter.
Where any such Works are developed solely by or for WFHC during
the term of this
*** 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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Agreement, WFHC hereby grants to BMS and its Affiliates a non-exclusive, fully
paid-up, irrevocable, perpetual, worldwide, and sublicensable right and license
under any copyrights or other intellectual property rights owned or controlled
by WFHC pertaining to same to use, adapt, copy, modify, make derivative works,
and distribute such Works for any purpose or use, subject to subparagraph (i)
above.
(d) Full Educational Program. Not less than sixty (60)
days prior to the end of the First Agreement Year, the parties will meet and
confer for the purpose of discussing whether BMS would be interested in funding
a Full Education Program during the remaining Term of this Agreement. Such
discussion will cover whether there is mutual interest in BMS funding and WFHC
developing and carrying out such a Full Education Program, and, if so, whether
mutually acceptable terms can be agreed upon. It is understood and agreed that
neither party shall have any obligation express or implied, to negotiate or
reach an agreement. WFHC agrees that it shall not participate in discussions
with or negotiate with any Third Party with respect to the development and/or
implementation of an Initial Education Program or Full Education Program with
respect to cardiovascular disease treatments, prevention, or risk management,
unless (i) the parties have not reached a written agreement for a Full Education
Program , if any, by December 31, 1999, or (ii) BMS has notified WFHC in writing
(which, to be valid, must be signed by a Vice President or higher of BMS) that
BMS has no interest in funding a Full Education Program.
18. NOTICES. Unless otherwise explicitly set forth herein,
any notice required or permitted to be given hereunder shall be in writing and
shall be delivered personally by hand, or sent by reputable overnight courier,
signature required, to the addresses of each party set forth below or to such
other address or addresses as shall be designated in writing in the same matter:
(a) If to BMS:
Bristol-Myers Squibb U.S. Pharmaceutical Group
777 Scudders Mill Road
Plainsboro, NJ 08536
Attention: Senior Vice President - Cardiovascular
and Metabolic Diseases Marketing
with a copy to the attention of the "Vice President and Senior Counsel - USPG"
at the same address.
(b) If to WFHC:
Women First HealthCare, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Attention: David F. Hale, President
All notices shall be deemed given when received by the addressee.
19. NON-SOLICITATION. During the Copromotion Term and for
a period of six (6) months thereafter, neither party shall solicit, directly or
indirectly, any individual who was a member of the other party's sales force or
marketing group related to the Product in the Territory during the Copromotion
Term, without the written consent of the other party.
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<PAGE> 27
20. MISCELLANEOUS PROVISIONS.
(a) Assignment. Neither party shall assign or otherwise
transfer this Agreement or any interest herein or right hereunder without the
prior written consent of the other party, and any such purported assignment,
transfer or attempt to assign or transfer any interest herein or right hereunder
shall be void and of no effect; except that each party (i) may assign its rights
and obligations hereunder to an Affiliate without the prior consent of the other
party (although, in such event, the assigning party shall remain primarily
responsible for all of its obligations and agreements set forth herein,
notwithstanding such assignment) and (ii) may assign its rights and obligations
to a successor (whether by merger, consolidation, reorganization or other
similar event) or purchaser of all or substantially all of its business assets
relating to the Product, provided, that such successor or purchaser has agreed
in writing to assume all of such party's rights and obligations hereunder and a
copy of such assumption is provided to the other party hereunder.
(b) Non-Waiver. Any failure on the part of a party to
enforce at any time or for any period of time any of the provisions of this
Agreement shall not be deemed or construed to be a waiver of such provisions or
of any right of such party thereafter to enforce each and every such provision
on any succeeding occasion or breach thereof.
(c) Dispute Resolution. (i) If any dispute arises under
this Agreement which cannot be resolved expeditiously by the Sales/Marketing
Committee after due consideration, the matter shall be submitted to the
President of WFHC and the President of the BMS U.S. Pharmaceuticals Group for
resolution. If such personnel are unable to resolve such dispute within thirty
(30) days of initiating such negotiations, then, subject to section 20(c)(iii)
below such dispute shall be finally resolved by binding arbitration under
Section 20(c)(ii) below.
(ii) Any such arbitration shall be held in New York,
New York, according to the Commercial Arbitration Rules (the "Rules") of the
American Arbitration Association. Any arbitration herewith shall be conducted in
the English language. The arbitration shall be conducted by one arbitrator who
is knowledgeable in the subject matter which is at issue in the dispute and who
is selected by mutual agreement of the parties or, failing such agreement, shall
be selected according to the AAA rules. The parties shall have such discovery
rights as the arbitrator may allow, but in no event broader than that discovery
permitted under the Federal Rules of Civil Procedure. In conducting the
arbitration, the arbitrator shall apply the New York Rules of Evidence, and
shall be able to decree any and all relief of an equitable nature, including but
not limited to such relief as a temporary restraining order, a preliminary
injunction, a permanent injunction, or replevin of property, as well as specific
performance. The arbitrator shall also be able to award direct, indirect and,
where permitted by this Agreement, consequential damages, but shall not award
any other form of damage (e.g., punitive or exemplary damages). The reasonable
fees and expenses, of the arbitrators, along with the reasonable legal fees and
expenses of the prevailing Party (including all expert witness fees and
expenses), the fees and expenses of a court reporter, and any expenses for a
hearing room, shall be paid as follows: If the arbitrators rule in favor of one
Party on all disputed issues in the arbitration, the losing Party shall pay 100%
of such fees and expenses; if the arbitrators rule in favor of one Party on some
issues and the other Party on other issues, the arbitrators shall issue with the
rulings a written determination as to how such fees and expenses shall be
allocated between the Parties. The arbitrators shall allocate fees and expenses
in a way that bears a reasonable relationship to the outcome of the arbitration,
with the Party prevailing on more issues, or on issues of greater value or
gravity, recovering a relatively
27
<PAGE> 28
larger share of its legal fees and expenses. The decision of the arbitrators
shall be final and may be entered, sued on or enforced by the Party in whose
favor it runs in any court of competent jurisdiction at the option of such
Party. Whether a claim, dispute or other matter in question would be barred by
the applicable statute of limitations, which statute of limitations also shall
apply to any claim or disputes subject to arbitration under this Section, shall
be determined by binding arbitration pursuant to this Section.
(iii) Notwithstanding anything to the contrary in
this section 20(c), either Party may seek immediate injunctive or other interim
relief or other equitable remedies without resort to arbitration from any court
of competent jurisdiction as necessary to enforce and prevent infringement of
the patent rights, copyright rights, trademarks, trade secrets, or other
intellectual property rights owned or controlled by a Party or its Affiliates or
to prevent breach of any of sections 3(e,) 15 or 19 hereof.
(d) Entirety of Agreement. This Agreement contains the
entire understanding of the parties with respect to the subject matter hereof
and thereof and supersedes all previous and contemporaneous verbal and written
agreements, representations and warranties with respect to such subject matter.
This Agreement (or any provision or term hereof) may be released, waived,
changed or supplemented only by a written agreement signed by an officer or
other authorized representative of the party against whom enforcement of any
release, waiver, change or supplement is sought. This Agreement shall not be
strictly construed against either party hereto.
(e) Public Announcements. The form and content of any
public announcement to be made by one party regarding this Agreement, or the
subject matter contained herein, shall be subject to the prior written consent
of the other party (which consent may not be unreasonably withheld), except as
may be required by applicable law (including, without limitation, disclosure
requirements of the SEC, NASDAQ, or any other stock exchange) in which event the
other party shall endeavor to give the other party reasonable advance notice and
review of any such disclosure.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
regard to its conflicts of law principles.
(g) Relationship of the Parties. In making and performing
this Agreement, the parties are acting, and intend to be treated, as independent
entities and nothing contained in this Agreement shall be construed or implied
to create an agency, partnership, joint venture, or employer and employee
relationship between BMS and WFHC. Except as otherwise provided herein, neither
party may make any representation, warranty or commitment, whether express or
implied, on behalf of or incur any charges or expenses for or in the name of the
other party. No party shall be liable for the act of any other party unless such
act is expressly authorized in writing by both parties hereto.
(h) Counterparts. This Agreement shall become binding when
any one or more counterparts hereof, individually or taken together, shall bear
the signatures of each of the parties hereto. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original as against
the party whose signature appears thereon, but all of which taken together shall
constitute but one and the same instrument.
(i) Force Majeure. Neither party shall be liable to the
other party for any failure to perform as required by this Agreement if the
failure to perform is due to circumstances reasonably
28
<PAGE> 29
beyond such party's control, including, without limitation, acts of God, civil
disorders or commotions, acts of aggression, fire, explosions, floods, drought,
war, sabotage, embargo, unexpected safety or efficacy results obtained with the
Product, utility failures, supplier failures, material shortages, labor
disturbances, a national health emergency, or appropriations of property. A
party whose performance is affected by a force majeure event shall take prompt
action using its reasonable best efforts to remedy the effects of the force
majeure event.
(j) No Implied Rights. Nothing in this Agreement is
intended to create or imply any right or license in the other Party under any
patent rights, copyrights, trademarks or other intellectual property rights
owned or controlled by a Party, except as expressly set forth herein.
*********************************
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
in multiple counterparts through their duly authorized representatives.
BRISTOL-MYERS SQUIBB U.S. WOMEN FIRST HEALTHCARE, INC.
PHARMACEUTICALS GROUP
By: /s/ Richard J. Lane By: /s/ David F. Hale
---------------------------------- ----------------------------------
Name: Richard J. Lane Name: David F. Hale
Title: President Title: President and Chief
Executive Officer
29
<PAGE> 30
EXHIBIT A
INITIAL EDUCATIONAL PROGRAM
The Initial Educational Program shall be developed by WFHC and shall
consist of the following elements and timelines:
CARDIOVASCULAR PROGRAM WITH OB/GYNS
TIME AND EVENT SCHEDULE
<TABLE>
<CAPTION>
Event Timing Comment
----- ------ -------
<S> <C> <C>
Distinguished Professors' Conference Jan 8-10,1999 Attended by 125 of the leadership of
Program: Gateway to Midlife Health - A OB/GYNs. Segment from Dr. Chris Cassel
Better Way. was included on use of statins to lower
cholesterol with pravastatin as choice
based on event reduction.
Distinguished Professor Lecture Series Feb - yr. End 1999 Slide series and script will include
Program: Women First HealthCare - A section on the importance of lowering
Better Way. cholesterol using statins. A minimum of
50 of these lectures will be held with
OB/GYNs across the country. WFHC will
consult with BMS as to the selection of
the venues and lecturers.
Establishment of a Health Advisory Board Feb - April 1999 Health Advisory Board would include
for cardiovascular risk management in women. OB/GYNs and cardiologists who have a
Program: Managing Cardiovascular Risk - focus on cardiovascular disease in
A Better Way. women. WFHC will consult with BMS as to
the selection of the Board members.
Health Advisory Board Meeting April - June 1999 Development of guidelines for managing
Program: Managing Cardiovascular Risk - cardiovascular risk in women.
A Better Way.
Publication of monograph and videotape from April 1999 Monograph and videotape would mailed to
Distinguished Professors' Conference. 25,000 OB/GYNs. Would include section on
Program: Women First HealthCare - A importance of lowering cholesterol using
Better Way. statins from Distinguished Professors'
Conference.
</TABLE>
30
<PAGE> 31
CARDIOVASCULAR PROGRAM WITH OB/GYNS
TIME AND EVENT SCHEDULE (CON'T)
<TABLE>
<CAPTION>
Event Timing Comment
----- ------ -------
<S> <C> <C>
Development of pre-test on managing April 1999 Mailed to approximately 25,000 OB/GYNs.
cardiovascular risk in women. Would include detailed answers with
Program: Managing Cardiovascular Risk - references.
A Better Way.
Publication of Consensus Report from Health June-July 1999 Would include guidelines for the OB/GYNs in
Advisory Board. managing cardiovascular disease.
Program: :Managing Cardiovascular Risk -
A Better Way.
Development of Lecture Series Kit which June - July 1999 Designed to be used to present guidelines in
includes slides, monograph and Consensus Report to OB/GYNs across the
implementation elements. Program: country.
Managing Cardiovascular Risk -
A Better Way.
20 physician meetings July - Dec 1999 Use of Lecture Series materials with
Program: Managing Cardiovascular Risk - OB/GYNs. WFHC will consult with BMS as
A Better Way. to venues, timing, and speakers.
Case & Comment Newsletter on cardiovascular Q3 or Q4 1999 Will be mailed to 25,000 OB/GYNs.
disease in midlife women. Program: Gateway
to Midlife Health - A Better Way.
Women-to-Women Meetings Throughout 1999 Meetings will include information on
Program: Gateway to Midlife Health - cardiovascular risk in women at midlife.
A Better Way.
Support through WFHC Throughout 1999 Our Call Center nurses will support the doctor
Midlife HealthLine(TM) and patient regarding the use of statins to lower
Program: Gateway to Midlife Health - cholesterol.
A Better Way.
</TABLE>
31
<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.
12
<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]
13
<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 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 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of October 21, 1998 by and between MenoMorphosis, LLC, a California limited
liability company (the "Company"), and Julie G. Martin ("Employee").
WITNESSETH:
WHEREAS, Employee desires to be employed by the Company under the
terms and conditions of this Agreement, which is being entered into in
connection with the consummation of the sale of all the outstanding membership
interests in the Company by the holders thereof, including Employee, pursuant to
the Purchase Agreement dated as of October 21, 1998 (the "Purchase Agreement");
and
WHEREAS, immediately following the closing of the acquisition of
the membership interests of the Company, the Company will be merged with As We
Change, LLC, a Delaware limited liability company; and
WHEREAS, the Company (and As We Change, LLC, as assignee of the
Company) wish to secure the employment of Employee, and Employee wishes to
accept such employment, for the period and on the terms and subject to the
conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs Employee as the Vice President of
the Company, and Employee hereby accepts such employment, on the terms and
subject to the conditions hereinafter set forth. Before the date of this
Employment Agreement, Employee was one of the three managers of the Company,
having substantial responsibility for the business affairs of the Company.
Subject to the Operating Considerations set forth in Annex IV of the Purchase
Agreement, Employee shall continue to have similar responsibilities and
authority, under the general supervision of the President and Chief Executive
Officer of Women First HealthCare, Inc., a Delaware corporation (the "Parent"),
the beneficial owner of all the outstanding membership interests in the Company,
and such other duties, responsibilities and authority as may be specified from
time to time by the Chief Executive Officer of Parent. One of Employee's
significant responsibilities shall be to continue to work with the other
officers of the Company to achieve the Performance Goals (as defined in the
Purchase Agreement). Employee shall discharge her duties and responsibilities in
a diligent and professional manner. Employee shall be a member of the Company's
Board of Directors, as re-constituted following the acquisition of all of the
membership interests of the Company by Parent and from time to time thereafter.
(b) Employee shall be required to devote substantially all of her
business time, attention and efforts to the Company's business and affairs.
Notwithstanding the foregoing, this shall not preclude Employee from serving on
community and civic boards, participating in industry associations, or otherwise
engaging in other activities which do not unreasonably interfere with her duties
to the Company. Employee may have occasion to directly or indirectly promote the
Company, the Parent or mid-life women's health in a variety of ways, including
but not limited to, authoring books or articles,
<PAGE> 2
giving speeches or lectures, hosting television, radio or Internet programs, or
making other public appearances, which in each case do not unreasonably
interfere with her duties to the Company. Employee shall not, without the prior
written consent of Parent, engage in any activity adverse to the interests of
the Company.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date hereof, and shall
expire on the third anniversary of the date hereof, unless sooner terminated as
provided herein (the "Term").
3. Compensation.
(a) Throughout the Term, the Company shall pay to Employee a
"Base Salary," payable in accordance with the Company's usual pay practices (and
in any event no less frequently than monthly), as follows: (i) from the date
hereof until December 31, 1998, $100,000 per annum; (ii) from January 1, 1999
until December 31, 1999, $125,000 per annum; and (iii) from January 1, 2000
until the expiration of this Agreement, $140,000 per annum, which shall be
subject to increase after January 1, 2001 upon review at the sole discretion of
the Chief Executive Officer of Parent.
(b) Employee shall be entitled to be reimbursed for all
reasonable business-related expenses incurred by her in accordance with policies
adopted from time to time by the Company.
(c) Employee shall receive employment benefits comparable to
those provided to employees of the Parent of similar rank and position,
including but not limited to, health insurance, vacation benefits, sick leave,
stock options (subject to the discretion of the Compensation Committee of the
Parent's Board of Directors) and retirement plan opportunities.
(d) Employee shall receive a grant of employee stock options to
purchase 35,000 shares of Parent's common stock, at a purchase price of $0.51
per share, with such grant being subject to the approval of the Compensation
Committee of the Board of Directors of Parent and to the terms of Parent's Long
Term Incentive Plan. The stock options will vest over four (4) years, with
one-fourth of such options becoming exercisable on the first anniversary of the
date of this Agreement and the balance of such options vesting ratably over the
next three years on a daily basis.
4. Termination.
(a) Until this Agreement concludes at the expiration of the Term,
Employee's employment under this Agreement and the Term shall be terminated
immediately on the death of Employee, and may be terminated earlier by the
Company:
(i) at any time after the Permanent Disability of Employee;
(ii) at any time for "Cause" (as defined below) by action
of Parent; or
(iii) at any time for any reason other than Employee's
death, Permanent Disability or for Cause.
For purposes hereof, Cause shall mean (1) repeated and habitual
failure to perform her duties or obligations hereunder, (2) engaging in any act
that has a substantial and adverse effect on the Company's or Parent's
interests, (3) personal dishonesty, willful misconduct or breach of fiduciary
duty involving personal benefit, (4) the failure in any material respect to
perform her designated duties and responsibilities, as determined by the Chief
Executive Officer and Board of Directors of Parent, (5)
2
<PAGE> 3
willful violation of any law, rule or regulation which materially adversely
affects her ability to discharge her duties or has a substantial and adverse
effect on the Company's or Parent's interests, (6) any material breach of this
Agreement, or (7) conduct authorizing termination under California Labor Code
Section 2924.
For purposes hereof, Employee's "Permanent Disability" shall be
deemed to have occurred one day after one hundred twenty (120) days in the
aggregate during any consecutive twelve (12) month period or one day after
ninety (90) consecutive days, during which period Employee, by reason of her
physical or mental disability or illness, shall have been unable to discharge
fully her duties under this Agreement.
(b) Termination by Death. If Employee's employment is terminated
by death, Employee's estate shall be entitled to receive salary and other
benefits accrued by her hereunder up to and including the date of Employee's
death, payable within thirty (30) days after the date of death.
(c) Termination for Cause or Permanent Disability. If Employee's
employment is terminated by the Company for Cause or for Permanent Disability,
the Company shall not have any other or further obligations to Employee under
this Agreement (except as to that portion of any unpaid Base Salary and other
benefits accrued and earned under this Agreement through the date of such
termination).
(d) Termination without Cause. If Employee's employment is
terminated by the Company at any time for any reason other than Employee's
death, Permanent Disability or for Cause, Employee shall be entitled to receive
that portion of any unpaid Base Salary and other benefits accrued and earned
under this Agreement through the date of such termination, together with
severance compensation equal to Employee's Base Salary under Section 3(a),
payable at such times as her Base Salary would have been paid if her employment
had not been terminated for the remainder of the Term.
(e) Termination for Good Reason. Until this Agreement concludes
at the expiration of the Term, Employee's employment with the Company may be
terminated earlier by the Employee for "Good Reason," upon fifteen (15) days'
prior written notice. If Employee's employment is terminated by Employee for
Good Reason, the Company shall not have any other or further obligations to
Employee under this Agreement (except as to that portion of any unpaid Base
Salary and other benefits accrued and earned under this Agreement through the
date of such termination). For purposes hereof, Employee shall be deemed to have
"Good Reason" if (i) Employee is required by the Company to relocate outside of
San Diego County in connection with her continued employment by the Company, or
(ii) if there occurs a significant diminution in the duties and responsibilities
of Employee.
5. Miscellaneous.
(a) The provisions of this Agreement are severable and if any one
or more provisions may be determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions and any partially unenforceable
provision to the extent enforceable in any jurisdiction nevertheless shall be
binding and enforceable.
(b) The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding on, the Company
and its successors and assigns, including without limitation, As We Change, LLC,
and the rights and obligations (other than obligations to perform services) of
Employee under this Agreement shall inure to the benefit of, and shall be
binding upon, Employee and her heirs, personal representatives and assigns.
Employee hereby consents to the assignment of this Agreement to As We Change,
LLC in connection with the merger of the Company with As We Change, LLC. After
such assignment, all of the Company's rights and obligations under this
3
<PAGE> 4
Agreement shall be the responsibility of and accrue to the benefit of As We
Change, LLC, and all references in this Agreement to the Company shall be deemed
to refer to As We Change, LLC.
(c) All notices and other communications required or permitted
under this Agreement shall be in writing, and shall be deemed properly given if
delivered personally, mailed by registered or certified mail in the United
States mail, postage prepaid, return receipt requested, sent by facsimile, or
sent by Express Mail, Federal Express or other nationally recognized express
delivery service, as follows:
If to the Company:
Women First HealthCare, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Attn: Chief Executive Officer
If to Employee:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
Notice given by hand, certified or registered mail, or by Express Mail,
Federal Express or other such express delivery service, shall be effective upon
actual receipt. Notice given by facsimile transmission shall be effective upon
actual receipt if received during the recipient's normal business hours, or at
the beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All notices by facsimile
transmission shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to which
notice is to be given to it by giving notice as provided above of such change of
address.
(d) The failure of either party to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions as to any future violations thereof, nor
prevent that party thereafter from enforcing each and every other provision of
this Agreement. The rights granted the parties herein are cumulative and the
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
(e) This Agreement supersedes all prior or contemporaneous
agreements and understandings between the parties and may not be modified or
terminated orally. No modification or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
(f) This Agreement shall be governed by, and construed in
accordance with the provisions of, the law of the State of California, without
regard to the conflicts of laws principles thereof.
(g) All payments required to be made by the Company hereunder to
Employee shall be subject to the withholding of such amounts relating to taxes
and other government assessments as the Company may reasonably determine it
should withhold pursuant to any applicable law, rule or regulation.
4
<PAGE> 5
(h) Concurrently with the execution of this Agreement, Employee
will execute and deliver to the Company the Proprietary Information and
Inventions Agreement in the standard form used by Parent with its employees.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first set forth above.
MENOMORPHOSIS, LLC
By: /s/ DAVID F. HALE
--------------------------------
Name: David F. Hale
-------------------------------
Title: President
------------------------------
EMPLOYEE
By: /s/ JULIE G. MARTIN
--------------------------------
Name: Julie G. Martin
-------------------------------
6
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of October 21, 1998 by and between MenoMorphosis, LLC, a California limited
liability company (the "Company"), and Dale F. Steele ("Employee").
WITNESSETH:
WHEREAS, Employee desires to be employed by the Company under the
terms and conditions of this Agreement, which is being entered into in
connection with the consummation of the sale of all the outstanding membership
interests in the Company by the holders thereof, including Employee, pursuant to
the Purchase Agreement dated as of October 21, 1998 (the "Purchase Agreement");
and
WHEREAS, immediately following the closing of the acquisition of
the membership interests of the Company, the Company will be merged with As We
Change, LLC, a Delaware limited liability company; and
WHEREAS, the Company (and As We Change, LLC, as assignee of the
Company) wish to secure the employment of Employee, and Employee wishes to
accept such employment, for the period and on the terms and subject to the
conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs Employee as the Vice President of
the Company, and Employee hereby accepts such employment, on the terms and
subject to the conditions hereinafter set forth. Before the date of this
Employment Agreement, Employee was one of the three managers of the Company,
having substantial responsibility for the business affairs of the Company.
Subject to the Operating Considerations set forth in Annex IV of the Purchase
Agreement, Employee shall continue to have similar responsibilities and
authority, under the general supervision of the President and Chief Executive
Officer of Women First HealthCare, Inc., a Delaware corporation (the "Parent"),
the beneficial owner of all the outstanding membership interests in the Company,
and such other duties, responsibilities and authority as may be specified from
time to time by the Chief Executive Officer of Parent. One of Employee's
significant responsibilities shall be to continue to work with the other
officers of the Company to achieve the Performance Goals (as defined in the
Purchase Agreement). Employee shall discharge her duties and responsibilities in
a diligent and professional manner. Employee shall be a member of the Company's
Board of Directors, as re-constituted following the acquisition of all of the
membership interests of the Company by Parent and from time to time thereafter.
(b) Employee shall be required to devote substantially all of her
business time, attention and efforts to the Company's business and affairs.
Notwithstanding the foregoing, this shall not preclude Employee from serving on
community and civic boards, participating in industry associations, or otherwise
engaging in other activities which do not unreasonably interfere with her duties
to the Company. Employee may have occasion to directly or indirectly promote the
Company, the Parent or mid-life women's health in a variety of ways, including
but not limited to, authoring books or articles,
<PAGE> 2
giving speeches or lectures, hosting television, radio or Internet programs, or
making other public appearances, which in each case do not unreasonably
interfere with her duties to the Company. Employee shall not, without the prior
written consent of Parent, engage in any activity adverse to the interests of
the Company.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date hereof, and shall
expire on the third anniversary of the date hereof, unless sooner terminated as
provided herein (the "Term").
3. Compensation.
(a) Throughout the Term, the Company shall pay to Employee a
"Base Salary," payable in accordance with the Company's usual pay practices (and
in any event no less frequently than monthly), as follows: (i) from the date
hereof until December 31, 1998, $100,000 per annum; (ii) from January 1, 1999
until December 31, 1999, $125,000 per annum; and (iii) from January 1, 2000
until the expiration of this Agreement, $140,000 per annum, which shall be
subject to increase after January 1, 2001 upon review at the sole discretion of
the Chief Executive Officer of Parent.
(b) Employee shall be entitled to be reimbursed for all
reasonable business-related expenses incurred by her in accordance with policies
adopted from time to time by the Company.
(c) Employee shall receive employment benefits comparable to
those provided to employees of the Parent of similar rank and position,
including but not limited to, health insurance, vacation benefits, sick leave,
stock options (subject to the discretion of the Compensation Committee of the
Parent's Board of Directors) and retirement plan opportunities.
(d) Employee shall receive a grant of employee stock options to
purchase 35,000 shares of Parent's common stock, at a purchase price of $0.51
per share, with such grant being subject to the approval of the Compensation
Committee of the Board of Directors of Parent and to the terms of Parent's Long
Term Incentive Plan. The stock options will vest over four (4) years, with
one-fourth of such options becoming exercisable on the first anniversary of the
date of this Agreement and the balance of such options vesting ratably over the
next three years on a daily basis.
4. Termination.
(a) Until this Agreement concludes at the expiration of the Term,
Employee's employment under this Agreement and the Term shall be terminated
immediately on the death of Employee, and may be terminated earlier by the
Company:
(i) at any time after the Permanent Disability of Employee;
(ii) at any time for "Cause" (as defined below) by action
of Parent; or
(iii) at any time for any reason other than Employee's
death, Permanent Disability or for Cause.
For purposes hereof, Cause shall mean (1) repeated and habitual
failure to perform her duties or obligations hereunder, (2) engaging in any act
that has a substantial and adverse effect on the Company's or Parent's
interests, (3) personal dishonesty, willful misconduct or breach of fiduciary
duty involving personal benefit, (4) the failure in any material respect to
perform her designated duties and responsibilities, as determined by the Chief
Executive Officer and Board of Directors of Parent, (5)
2
<PAGE> 3
willful violation of any law, rule or regulation which materially adversely
affects her ability to discharge her duties or has a substantial and adverse
effect on the Company's or Parent's interests, (6) any material breach of this
Agreement, or (7) conduct authorizing termination under California Labor Code
Section 2924.
For purposes hereof, Employee's "Permanent Disability" shall be
deemed to have occurred one day after one hundred twenty (120) days in the
aggregate during any consecutive twelve (12) month period or one day after
ninety (90) consecutive days, during which period Employee, by reason of her
physical or mental disability or illness, shall have been unable to discharge
fully her duties under this Agreement.
(b) Termination by Death. If Employee's employment is terminated
by death, Employee's estate shall be entitled to receive salary and other
benefits accrued by her hereunder up to and including the date of Employee's
death, payable within thirty (30) days after the date of death.
(c) Termination for Cause or Permanent Disability. If Employee's
employment is terminated by the Company for Cause or for Permanent Disability,
the Company shall not have any other or further obligations to Employee under
this Agreement (except as to that portion of any unpaid Base Salary and other
benefits accrued and earned under this Agreement through the date of such
termination).
(d) Termination without Cause. If Employee's employment is
terminated by the Company at any time for any reason other than Employee's
death, Permanent Disability or for Cause, Employee shall be entitled to receive
that portion of any unpaid Base Salary and other benefits accrued and earned
under this Agreement through the date of such termination, together with
severance compensation equal to Employee's Base Salary under Section 3(a),
payable at such times as her Base Salary would have been paid if her employment
had not been terminated for the remainder of the Term.
(e) Termination for Good Reason. Until this Agreement concludes
at the expiration of the Term, Employee's employment with the Company may be
terminated earlier by the Employee for "Good Reason," upon fifteen (15) days'
prior written notice. If Employee's employment is terminated by Employee for
Good Reason, the Company shall not have any other or further obligations to
Employee under this Agreement (except as to that portion of any unpaid Base
Salary and other benefits accrued and earned under this Agreement through the
date of such termination). For purposes hereof, Employee shall be deemed to have
"Good Reason" if (i) Employee is required by the Company to relocate outside of
San Diego County in connection with her continued employment by the Company, or
(ii) if there occurs a significant diminution in the duties and responsibilities
of Employee.
5. Miscellaneous.
(a) The provisions of this Agreement are severable and if any one
or more provisions may be determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions and any partially unenforceable
provision to the extent enforceable in any jurisdiction nevertheless shall be
binding and enforceable.
(b) The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding on, the Company
and its successors and assigns, including without limitation, As We Change, LLC,
and the rights and obligations (other than obligations to perform services) of
Employee under this Agreement shall inure to the benefit of, and shall be
binding upon, Employee and her heirs, personal representatives and assigns.
Employee hereby consents to the assignment of this Agreement to As We Change,
LLC in connection with the merger of the Company with As We Change, LLC. After
such assignment, all of the Company's rights and obligations under this
3
<PAGE> 4
Agreement shall be the responsibility of and accrue to the benefit of As We
Change, LLC, and all references in this Agreement to the Company shall be deemed
to refer to As We Change, LLC.
(c) All notices and other communications required or permitted
under this Agreement shall be in writing, and shall be deemed properly given if
delivered personally, mailed by registered or certified mail in the United
States mail, postage prepaid, return receipt requested, sent by facsimile, or
sent by Express Mail, Federal Express or other nationally recognized express
delivery service, as follows:
If to the Company:
Women First HealthCare, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Attn: Chief Executive Officer
If to Employee:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
Notice given by hand, certified or registered mail, or by Express Mail,
Federal Express or other such express delivery service, shall be effective upon
actual receipt. Notice given by facsimile transmission shall be effective upon
actual receipt if received during the recipient's normal business hours, or at
the beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All notices by facsimile
transmission shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to which
notice is to be given to it by giving notice as provided above of such change of
address.
(d) The failure of either party to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions as to any future violations thereof, nor
prevent that party thereafter from enforcing each and every other provision of
this Agreement. The rights granted the parties herein are cumulative and the
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
(e) This Agreement supersedes all prior or contemporaneous
agreements and understandings between the parties and may not be modified or
terminated orally. No modification or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
(f) This Agreement shall be governed by, and construed in
accordance with the provisions of, the law of the State of California, without
regard to the conflicts of laws principles thereof.
(g) All payments required to be made by the Company hereunder to
Employee shall be subject to the withholding of such amounts relating to taxes
and other government assessments as the Company may reasonably determine it
should withhold pursuant to any applicable law, rule or regulation.
4
<PAGE> 5
(h) Concurrently with the execution of this Agreement, Employee
will execute and deliver to the Company the Proprietary Information and
Inventions Agreement in the standard form used by Parent with its employees.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first set forth above.
MENOMORPHOSIS, LLC
By: /s/ DAVID F. HALE
--------------------------------
Name: David F. Hale
-------------------------------
Title: President
------------------------------
EMPLOYEE
By: /s/ DALE F. STEELE
--------------------------------
Name: Dale F. Steele
-------------------------------
6
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of October 21, 1998 by and between MenoMorphosis, LLC, a California limited
liability company (the "Company"), and Nancy J. Casey ("Employee").
WITNESSETH:
WHEREAS, Employee desires to be employed by the Company under the
terms and conditions of this Agreement, which is being entered into in
connection with the consummation of the sale of all the outstanding membership
interests in the Company by the holders thereof, including Employee, pursuant to
the Purchase Agreement dated as of October 21, 1998 (the "Purchase Agreement");
and
WHEREAS, immediately following the closing of the acquisition of
the membership interests of the Company, the Company will be merged with As We
Change, LLC, a Delaware limited liability company; and
WHEREAS, the Company (and As We Change, LLC, as assignee of the
Company) wish to secure the employment of Employee, and Employee wishes to
accept such employment, for the period and on the terms and subject to the
conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs Employee as the Vice President of
the Company, and Employee hereby accepts such employment, on the terms and
subject to the conditions hereinafter set forth. Before the date of this
Employment Agreement, Employee was one of the three managers of the Company,
having substantial responsibility for the business affairs of the Company.
Subject to the Operating Considerations set forth in Annex IV of the Purchase
Agreement, Employee shall continue to have similar responsibilities and
authority, under the general supervision of the President and Chief Executive
Officer of Women First HealthCare, Inc., a Delaware corporation (the "Parent"),
the beneficial owner of all the outstanding membership interests in the Company,
and such other duties, responsibilities and authority as may be specified from
time to time by the Chief Executive Officer of Parent. One of Employee's
significant responsibilities shall be to continue to work with the other
officers of the Company to achieve the Performance Goals (as defined in the
Purchase Agreement). Employee shall discharge her duties and responsibilities in
a diligent and professional manner. Employee shall be a member of the Company's
Board of Directors, as re-constituted following the acquisition of all of the
membership interests of the Company by Parent and from time to time thereafter.
(b) Employee shall be required to devote substantially all of her
business time, attention and efforts to the Company's business and affairs.
Notwithstanding the foregoing, this shall not preclude Employee from serving on
community and civic boards, participating in industry associations, or otherwise
engaging in other activities which do not unreasonably interfere with her duties
to the Company. Employee may have occasion to directly or indirectly promote the
Company, the Parent or mid-life women's health in a variety of ways, including
but not limited to, authoring books or articles,
<PAGE> 2
giving speeches or lectures, hosting television, radio or Internet programs, or
making other public appearances, which in each case do not unreasonably
interfere with her duties to the Company. Employee shall not, without the prior
written consent of Parent, engage in any activity adverse to the interests of
the Company.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date hereof, and shall
expire on the third anniversary of the date hereof, unless sooner terminated as
provided herein (the "Term").
3. Compensation.
(a) Throughout the Term, the Company shall pay to Employee a
"Base Salary," payable in accordance with the Company's usual pay practices (and
in any event no less frequently than monthly), as follows: (i) from the date
hereof until December 31, 1998, $100,000 per annum; (ii) from January 1, 1999
until December 31, 1999, $125,000 per annum; and (iii) from January 1, 2000
until the expiration of this Agreement, $140,000 per annum, which shall be
subject to increase after January 1, 2001 upon review at the sole discretion of
the Chief Executive Officer of Parent.
(b) Employee shall be entitled to be reimbursed for all
reasonable business-related expenses incurred by her in accordance with policies
adopted from time to time by the Company.
(c) Employee shall receive employment benefits comparable to
those provided to employees of the Parent of similar rank and position,
including but not limited to, health insurance, vacation benefits, sick leave,
stock options (subject to the discretion of the Compensation Committee of the
Parent's Board of Directors) and retirement plan opportunities.
(d) Employee shall receive a grant of employee stock options to
purchase 35,000 shares of Parent's common stock, at a purchase price of $0.51
per share, with such grant being subject to the approval of the Compensation
Committee of the Board of Directors of Parent and to the terms of Parent's Long
Term Incentive Plan. The stock options will vest over four (4) years, with
one-fourth of such options becoming exercisable on the first anniversary of the
date of this Agreement and the balance of such options vesting ratably over the
next three years on a daily basis.
4. Termination.
(a) Until this Agreement concludes at the expiration of the Term,
Employee's employment under this Agreement and the Term shall be terminated
immediately on the death of Employee, and may be terminated earlier by the
Company:
(i) at any time after the Permanent Disability of Employee;
(ii) at any time for "Cause" (as defined below) by action
of Parent; or
(iii) at any time for any reason other than Employee's
death, Permanent Disability or for Cause.
For purposes hereof, Cause shall mean (1) repeated and habitual
failure to perform her duties or obligations hereunder, (2) engaging in any act
that has a substantial and adverse effect on the Company's or Parent's
interests, (3) personal dishonesty, willful misconduct or breach of fiduciary
duty involving personal benefit, (4) the failure in any material respect to
perform her designated duties and responsibilities, as determined by the Chief
Executive Officer and Board of Directors of Parent, (5)
2
<PAGE> 3
willful violation of any law, rule or regulation which materially adversely
affects her ability to discharge her duties or has a substantial and adverse
effect on the Company's or Parent's interests, (6) any material breach of this
Agreement, or (7) conduct authorizing termination under California Labor Code
Section 2924.
For purposes hereof, Employee's "Permanent Disability" shall be
deemed to have occurred one day after one hundred twenty (120) days in the
aggregate during any consecutive twelve (12) month period or one day after
ninety (90) consecutive days, during which period Employee, by reason of her
physical or mental disability or illness, shall have been unable to discharge
fully her duties under this Agreement.
(b) Termination by Death. If Employee's employment is terminated
by death, Employee's estate shall be entitled to receive salary and other
benefits accrued by her hereunder up to and including the date of Employee's
death, payable within thirty (30) days after the date of death.
(c) Termination for Cause or Permanent Disability. If Employee's
employment is terminated by the Company for Cause or for Permanent Disability,
the Company shall not have any other or further obligations to Employee under
this Agreement (except as to that portion of any unpaid Base Salary and other
benefits accrued and earned under this Agreement through the date of such
termination).
(d) Termination without Cause. If Employee's employment is
terminated by the Company at any time for any reason other than Employee's
death, Permanent Disability or for Cause, Employee shall be entitled to receive
that portion of any unpaid Base Salary and other benefits accrued and earned
under this Agreement through the date of such termination, together with
severance compensation equal to Employee's Base Salary under Section 3(a),
payable at such times as her Base Salary would have been paid if her employment
had not been terminated for the remainder of the Term.
(e) Termination for Good Reason. Until this Agreement concludes
at the expiration of the Term, Employee's employment with the Company may be
terminated earlier by the Employee for "Good Reason," upon fifteen (15) days'
prior written notice. If Employee's employment is terminated by Employee for
Good Reason, the Company shall not have any other or further obligations to
Employee under this Agreement (except as to that portion of any unpaid Base
Salary and other benefits accrued and earned under this Agreement through the
date of such termination). For purposes hereof, Employee shall be deemed to have
"Good Reason" if (i) Employee is required by the Company to relocate outside of
San Diego County in connection with her continued employment by the Company, or
(ii) if there occurs a significant diminution in the duties and responsibilities
of Employee.
5. Miscellaneous.
(a) The provisions of this Agreement are severable and if any one
or more provisions may be determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions and any partially unenforceable
provision to the extent enforceable in any jurisdiction nevertheless shall be
binding and enforceable.
(b) The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding on, the Company
and its successors and assigns, including without limitation, As We Change, LLC,
and the rights and obligations (other than obligations to perform services) of
Employee under this Agreement shall inure to the benefit of, and shall be
binding upon, Employee and her heirs, personal representatives and assigns.
Employee hereby consents to the assignment of this Agreement to As We Change,
LLC in connection with the merger of the Company with As We Change, LLC. After
such assignment, all of the Company's rights and obligations under this
3
<PAGE> 4
Agreement shall be the responsibility of and accrue to the benefit of As We
Change, LLC, and all references in this Agreement to the Company shall be deemed
to refer to As We Change, LLC.
(c) All notices and other communications required or permitted
under this Agreement shall be in writing, and shall be deemed properly given if
delivered personally, mailed by registered or certified mail in the United
States mail, postage prepaid, return receipt requested, sent by facsimile, or
sent by Express Mail, Federal Express or other nationally recognized express
delivery service, as follows:
If to the Company:
Women First HealthCare, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Attn: Chief Executive Officer
If to Employee:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
Notice given by hand, certified or registered mail, or by Express Mail,
Federal Express or other such express delivery service, shall be effective upon
actual receipt. Notice given by facsimile transmission shall be effective upon
actual receipt if received during the recipient's normal business hours, or at
the beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All notices by facsimile
transmission shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to which
notice is to be given to it by giving notice as provided above of such change of
address.
(d) The failure of either party to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions as to any future violations thereof, nor
prevent that party thereafter from enforcing each and every other provision of
this Agreement. The rights granted the parties herein are cumulative and the
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
(e) This Agreement supersedes all prior or contemporaneous
agreements and understandings between the parties and may not be modified or
terminated orally. No modification or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
(f) This Agreement shall be governed by, and construed in
accordance with the provisions of, the law of the State of California, without
regard to the conflicts of laws principles thereof.
(g) All payments required to be made by the Company hereunder to
Employee shall be subject to the withholding of such amounts relating to taxes
and other government assessments as the Company may reasonably determine it
should withhold pursuant to any applicable law, rule or regulation.
4
<PAGE> 5
(h) Concurrently with the execution of this Agreement, Employee
will execute and deliver to the Company the Proprietary Information and
Inventions Agreement in the standard form used by Parent with its employees.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first set forth above.
MENOMORPHOSIS, LLC
By: /s/ DAVID F. HALE
--------------------------------
Name: David F. Hale
-------------------------------
Title: President
------------------------------
EMPLOYEE
By: /s/ NANCY J. CASEY
--------------------------------
Name: Nancy J. Casey
-------------------------------
6
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
State of Incorporation
Name or Organization Does Business As
- ---- ---------------------- -------------------
<S> <C> <C>
Women First Pharmacy Delaware Women First
Services, Inc. Pharmacy Services
As We Change, LLC Delaware As We Change
</TABLE>
<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 statement of
Women First HealthCare Inc. and our report dated August 31, 1998, with respect
to the financial statements of As We Change, both included in the Registration
Statement on Form S-1 and related Prospectus of Women First HealthCare, Inc. for
the registration of its Common Stock.
/s/ Ernst & Young LLP
- ---------------------------------------
San Diego, California
March 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,438,445
<SECURITIES> 0
<RECEIVABLES> 1,114,283
<ALLOWANCES> 0
<INVENTORY> 1,205,597
<CURRENT-ASSETS> 7,431,894
<PP&E> 911,493
<DEPRECIATION> 220,581
<TOTAL-ASSETS> 12,503,663
<CURRENT-LIABILITIES> 4,068,153
<BONDS> 0
0
22,440
<COMMON> 76,860
<OTHER-SE> 7,848,617
<TOTAL-LIABILITY-AND-EQUITY> 12,503,663
<SALES> 4,834,196
<TOTAL-REVENUES> 4,834,196
<CGS> 3,135,707
<TOTAL-COSTS> 3,135,707
<OTHER-EXPENSES> 11,962,810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,869,976)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,869,976)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,869,976)
<EPS-PRIMARY> (1.28)<F1>
<EPS-DILUTED> (1.28)
<FN>
<F1>For Purposes of This Exhibit, Primary Means Basic.
</FN>
</TABLE>
