U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from __________ to ____________
Commission File Number 0-18849
THE FEMALE HEALTH COMPANY
(Exact Name of Small Business Issuer as Specified in Its Charter)
Wisconsin 39-1144397
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
875 N. Michigan Avenue, Suite 3660, Chicago, IL 60611
(Address of Principal Executive Offices) (Zip Code)
(312) 280-1119
(Issuer's Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, If
Changed Since Last Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date:
Common Stock, $.01 Par Value - 10,446,227 shares outstanding as of February 8,
1999
Transitional Small Business Disclosure Format (check one):
Yes _________ No X
-------------<PAGE>
FORM 10-QSB
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page
Cautionary Statement Regarding Forward Looking
Statements . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Condensed Consolidated Balance Sheet -
December 31, 1998 . . . . . . . . . . . . . . . . . 4
Unaudited Condensed Consolidated
Statements of Operations -
Three Months Ended December 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . 5
Unaudited Condensed Consolidated
Statements of Cash Flows -
Three Months Ended December 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . 6
Notes to Unaudited Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis or Plan of
Operation . . . . . . . . . . . . . . . . . . . . . 13
Part II. Other Information
Exhibits and Reports on Form 8-K . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS
Certain statements included in this Quarterly Report on Form 10-QSB which are
not statements of historical fact are intended to be, and are hereby identified
as, "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company cautions readers that
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievement expressed or implied by such forward-looking statements. Such
factors include, among others, the following: the Company's inability to secure
adequate capital to fund operating losses, working capital requirements,
advertising and promotional expenditures and principal and interest payments on
debt obligations; factors related to increased competition from existing and
new competitors including new product introduction, price reduction and
increased spending on marketing; limitations on the Company's opportunities to
enter into and/or renew agreements with international partners; the failure of
the Company or its partners to successfully market, sell, and deliver its
product in international markets, and risks inherent in doing business on an
international level, such as laws governing medical devices that differ from
those in the U.S., unexpected changes in the regulatory requirements, political
risks, export restrictions, tariffs, and other trade barriers, and fluctuations
in currency exchange rates; the disruption of production at the Company's
manufacturing facility due to raw material shortages, labor shortages, and/or
physical damage to the Company's facilities; the Company's inability to manage
its growth and to adapt its administrative, operational and financial control
systems to the needs of the expanded entity; and the failure of management to
anticipate, respond to and manage changing business conditions; the loss of the
services of executive officers and other key employees and the Company's
continued ability to attract and retain highly-skilled and qualified personnel;
the costs and other effects of litigation, governmental investigations, legal
and administrative cases and proceedings, settlements and investigations, and
developments or assertions by or against the Company relating to intellectual
property rights.<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
December 31,
1998
------------
ASSETS
Current Assets:
Cash and equivalents $ 504,540
Accounts receivable, net 461,770
Inventories, net 1,519,961
Prepaid expenses and other current assets 253,683
-----------
TOTAL CURRENT ASSETS 2,739,954
Intellectual property rights, net 872,900
Other assets 162,006
Property, Plant and Equipment 4,031,216
Less accumulated depreciation and amortization (1,688,850)
-----------
Net property, plant, and equipment 2,342,366
-----------
TOTAL ASSETS $ 6,117,226
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, net of unamortized discount $ 915,888
Trade accounts payable 351,865
Accrued expenses and other current liabilities 951,949
Debt due within one year 79,000
Preferred dividends payable 35,183
-----------
TOTAL CURRENT LIABILITIES 2,333,885
Deferred gain on lease of facility (see Note 3) 1,703,557
Other long-term liabilities 134,792
-----------
TOTAL LIABILITIES 4,172,234
===========
STOCKHOLDERS' EQUITY:
Convertible preferred stock 6,700
Common stock 104,558
Additional Paid-in-capital 43,863,517
Accumulated deficit (42,257,916)
Translation gain 254,031
Treasury Stock, at cost (25,898)
-----------
Total Stockholders' Equity 1,944,992
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,117,226
===========
See notes to unaudited condensed consolidated financial statements.<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
December 31,
------------------------
1998 1997
---------- -----------
Net revenues $703,998 $1,305,804
Cost of products sold 861,451 1,580,653
----------- -----------
Gross margin (loss) (157,453) (274,849)
Advertising & Promotion 92,463 168,921
Selling, general and administrative 605,634 569,755
----------- -----------
Total Operating Expenses 698,097 738,676
----------- -----------
Operating loss (855,550) (1,013,525)
Interest, net and other expense 70,935 45,631
----------- -----------
Pretax loss (926,485) (1,059,156)
Provision for income taxes ---- ----
----------- -----------
Net loss (926,485) (1,059,156)
Preferred dividends, Series 1 35,555 34,279
----------- -----------
Net loss attributable to Common stockholders (962,040) (1,093,435)
========== ===========
Basic and diluted net loss per common
share outstanding $(0.09) $(0.11)
Weighted average number of common shares
outstanding 10,441,227 9,544,403
See notes to unaudited condensed consolidated financial statements.<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
----------------------
1998 1997
----------- -----------
OPERATIONS:
Net (loss) $(962,040) $(1,093,435)
Adjusted for noncash and nonoperating items:
Depreciation and amortization 140,091 146,921
Noncash interest expense 73,975 93,525
Changes in operating assets and liabilities (244,677) (59,629)
----------- -----------
Net cash provided (used) in operating activities (992,651) (912,618)
INVESTING ACTIVITIES:
Capital expenditures ---- (2,112)
----------- -----------
Net cash provided in investing activities ---- (2,112)
FINANCING ACTIVITIES:
Debt repayments ---- (10,374)
Purchase of Common Stock held in Treasury (6,568) ----
Proceeds from the issuance of common stock 29,974 1,959,784
----------- -----------
Net cash provided (used) by financing activities 23,406 1,949,410
Effect of exchange rate change on cash and
equivalents (6,502) 7,845
----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (975,747) 1,042,525
Cash and equivalents at beginning of period 1,480,287 1,633,467
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $504,540 $2,675,992
========== ==========
See notes to unaudited condensed consolidated financial statements.<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 1998
NOTE 1 - Basis of Presentation
The accompanying financial statements are unaudited but in the opinion of
management contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial position
and the results of operations and cash flow for the periods presented in
conformity with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
Operating results for the three months ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the fiscal year ended September 30, 1998.
NOTE 2 - Earnings Per Share
Basic and diluted net (loss) per Common share outstanding is based on the
weighted average of shares of Common Stock outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement No. 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully dilutive
earnings per share. All earnings per share in the accompanying financial
statements have been presented to conform to Statement No. 128 requirements.
The Company has "in the money" options and warrants outstanding of -0- and
762,885 as of December 31, 1998 and 1997, respectively. As of December 31, 1998
and 1997 the Company also has 670,000 shares and 680,000 shares, respectively,
of preferred stock outstanding which is convertible into an equal number of
shares of common stock (see Note 5). The inclusion of the options, warrants and
convertible preferred stock in the computation of diluted earnings per share
would have resulted in a reduction of the loss per share (antidilutive) and
therefore both basic and diluted earnings per share amounts were the same for
each of the periods presented in the accompanying financial statements.
NOTE 3 - Lease of Manufacturing Facility
On December 10, 1996, the Company entered into what is in essence a sale and
leaseback agreement with respect to its 40,000 square foot manufacturing
facility located in London, England. The Company received 1,950,000 (Pounds)
representing approximately $3,365,000 for leasing the facility to a third party
for a nominal annual rental charge and for providing the third party an option
to purchase the facility for one pound during the period December 2006 to
December 2027.<PAGE>
As part of the same transaction, the Company entered into an agreement to lease
the facility back from the third party for base rents per year payable
quarterly until 2016 of 195,000 (Pounds) representing approximately $336,000.
The lease is renewable through 2027. The Company was also required to make a
security deposit of 195,000 (Pounds) representing approximately $336,000 to be
reduced in subsequent years. The facility had a net book value of 810,845
(Pounds) representing approximately $1,398,819 on the date of the transaction.
The 1,139,155 (Pounds) representing approximately $1,966,181 gain which
resulted from this transaction will be recognized ratably over the initial term
of the lease.
Concurrent with this transaction, the Company repaid the mortgage loan on this
property of 1,062,500 (Pounds) representing approximately $1,834,000.
NOTE 4 - Inventories
The components of inventory consist of the following:
December 31, 1998
------------
Raw Material and work in process $ 718,586
Finished Goods 841,200
-----------
Inventory, Gross 1,559,786
Less: Inventory reserves (39,825)
-----------
Inventory, net $ 1,519,961
===========
NOTE 5 - Sale of Convertible Preferred Stock
On December 31, 1997, the Company completed a private placement of 729,927
shares of Class A Convertible Preferred Stock - Series 2 (the "Series 2
Preferred Stock") and Warrants to purchase 240,000 shares of Common Stock. The
Series 2 Preferred Stock was sold at a per share price of $2.74, resulting in
net proceeds to the Company of $1.82 million, after commissions and expenses.
The Series 2 Preferred Stock automatically converted into Common Stock on a
one-for-one basis, on April 3, 1998, the date in which the registration
statement registering the resale of the Common Stock was declared effective by
the SEC. The investors received four-year Warrants to purchase 240,000 shares
of Common Stock exercisable at a price per share equal to the lesser of $3.425
or the average of the three closing bid prices per share of Common Stock for
any three consecutive trading days chosen by the investor during the 30 trading
day period ending on the trading day immediately prior to the exercise of the
Warrants. Individuals providing services to the Company's placement agent for
the above convertible Preferred Stock received Warrants to purchase 4,000
shares of Common Stock exercisable at any time prior to December 31, 2001, at
$4.11 per share.
In September 1997, the Company raised approximately $1.6 million net proceeds,
after issuance costs of $96,252, in a private placement of 680,000 shares of 8%
cumulative convertible Preferred Stock - Series 1. In addition, warrants to
purchase 52,000 shares of Common Stock were issued to the placement agents.
Each share of Preferred Stock is convertible into one share of the Company's
Common Stock on or after August 1, 1998. Annual Preferred Stock dividends will
be paid if and as declared by the Company's Board of Directors. No dividends
or other distributions will be payable on the Company's Common Stock unless<PAGE>
dividends are paid in full on the Preferred Stock. The shares may be redeemed
at the option of the Company, in whole or in part, on or after August 1, 2000,
subject to certain conditions, at $2.50 per share plus accrued and unpaid
dividends. In the event of a liquidation or dissolution of the Company, the
Preferred Stock - Series 1 would have priority over the Company's Common Stock.
NOTE 6 - Financial Condition
The Company's consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company
incurred a net loss of $3.4 million for the year ended September 30, 1998, a
loss of $1.0 million for the three months ended December 31, 1998 and as of
December 31, 1998 had an accumulated deficit of $42.3 million.
At December 31, 1998, the Company had working capital of $0.4 million and
stockholders' equity of $1.9 million. In the near term, the Company expects
operating and capital costs to continue to exceed funds generated from
operations due principally to the Company's fixed manufacturing costs relative
to current production volumes and the ongoing need to commercialize the female
condom around the world. As a result, operations in the near future are
expected to continue to use working capital. Management recognizes that the
Company's continued operations depend on its ability to raise additional
capital through a combination of equity or debt financing, strategic alliances
and increased sales volumes.
At various points during the developmental stage of the product, the Company
was able to secure resources, in large part through the sale of equity and debt
securities, to satisfy its funding requirements. As a result, the Company was
able to obtain FDA approval, worldwide rights, manufacturing facilities and
equipment and to commercially launch the female condom. Management believes
that recent developments, including the Company's agreement with the UNAIDS, a
joint United Nations program on HIV/AIDS, provide an indication of the
Company's early success in broadening awareness and distribution of the female
condom and may benefit efforts to raise additional capital and to secure
additional agreement to promote and distribute the female condom throughout
other parts of the world.
On September 29, 1997, the Company entered into an agreement with Vector
Securities International, Inc. (Vector), an investment banking firm
specializing in providing advice to healthcare and life-science companies.
Pursuant to this agreement, for a one-year period, Vector will act as the
Company's exclusive financial advisor for the purposes of identifying and
evaluating opportunities available to the Company for increasing shareholder
value. These opportunities may include selling all or a portion of the
business, assets or stock of the Company or entering into one or more
distribution arrangements relating to the Company's product. This agreement
has been extended for an additional six months. There can be no assurance that
any such opportunities will be available to the Company or, if so available,
that the Company will ultimately elect or be able to consummate any such
transaction.
To provide a potential ready source of capital for the Company, which the
Company would use for general working capital purposes, effective November 19,
1998, the Company entered into a private Equity Line of Credit Agreement (the
"Equity Line Agreement") with Kingsbridge Capital Limited, a private investor
(the "Selling Stockholder"). Under the Equity Line Agreement, the Company has<PAGE>
the right, subject to various conditions, to issue and sell to the Selling
Stockholder, from time to time, shares of its Common Stock for cash
consideration up to an aggregate of $6 million.
The Equity Line Agreement gives the Company, in its sole discretion and subject
to certain restrictions, the right to sell ("put") to the investor up to $6.0
million of the Company's Common Stock, subject to a minimum put of $1.0 million
over the duration of the agreement. The Equity Line Agreement expires 24
months after the effective date of the registration statement filed to register
the Selling Stockholder's public resale of any stock it purchases under the
agreement. The Equity Line Agreement provides for, among other things, minimum
and maximum puts ranging from $100,000 to $1,000,000 depending on the Company's
stock price and trading volume. The timing and amount of drawdowns on this
line of credit are totally at the Company's discretion, subject to certain
conditions. The Company is required to draw down a minimum of $1 million
during the two-year period. If the Company does not draw down the minimum, the
Company is required to pay the investor a 12% fee on that portion of the $1
million minimum not drawn down at the end of the two-year period.
While the Company believes that its existing capital resources (including
expected proceeds from sales of Common Stock pursuant to the Equity Line
Agreement) will be adequate to fund its currently anticipated capital needs, if
they are not or the Company does not receive shareholder approval to amend its
Articles of Incorporation to NOTE 6 - Financial Condition - Continued
increase its authorized Common Stock, enabling the Company to sell sufficient
Shares under the Equity Line Agreement, the Company may need to raise
additional capital until its sales increase sufficiently to cover operating
expenses. In addition, there can be no assurance that the Company will satisfy
the conditions required for it to exercise puts under the Equity Line
Agreement. Accordingly, the Company may not be able to realize all or any of
the funds available to it under the Equity Line Agreement.
Further, there can be no assurance, assuming the Company successfully raises
additional funds or enters into business agreements with third parties, that
the Company will achieve profitability or positive cash flow. If the Company
is unable to obtain adequate financing, management will be required to sharply
curtail the Company's efforts to promote the female condom and to curtail
certain other of its operations or, ultimately, cease operations.
Note 7 - Preferred Dividends, Series 2
The Company's $2.0 million private placement of convertible Preferred Stock -
Series 2 on December 31, 1997 included a beneficial conversion feature valued
at $500,000 and four-year warrants to purchase additional shares of common
stock valued at $317,000. In accordance with new SEC reporting requirements
for such transactions, the Company recorded the value of the beneficial
conversion feature and warrants, a total of $817,000 as additional paid-in
capital. The corresponding discount of $817,000, associated with the issuance
of the convertible preferred stock was a one-time, non-recurring charge that
was fully amortized and reflected as preferred dividends accreted in the
consolidated statements of operations for the quarter and six months ended
March 31, 1998. The dividend accretion had no impact on the Company's cashflow
from operations.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
GENERAL
The Female Health Company ("FHC" or the "Company") manufactures, markets and
sells The Female Condom(, the only FDA-approved product under a woman's control
which can prevent unintended pregnancy and sexually transmitted diseases
("STDs"), including HIV/AIDS.
Safety and Efficacy
Based on use of the product in clinical trials and five years of worldwide
marketing, the female condom has been proven to be safe and effective. The
following information reflects the results of various trials:
Reduction in STDs(1) 34% (Results when
female condom was
available as an
option vs. when
only the male
condom was
available.)
Reduction in Acts of Unprotected Sex(1) 25%
Effectiveness in Preventing Pregnancy(2) 95%(3) (When used
properly with
every sex act)
(1) Supported by UNAIDS
(2) Supported by The U.S. Agency for International Development (USAID)
and conducted by Family Health International (FHI)
(3) Recent studies completed in Japan evaluating the female condom's
effectiveness in preventing pregnancy, which were submitted to the
Japanese regulatory authorities in connection with their review of
the product, showed the female condom to be approximately 98%
effective when used consistently and correctly.
Cost Effectiveness
At the 1998 World AIDS Conference held in Geneva, Switzerland, UNAIDS presented
the results from its cost-effectiveness study which indicated that making the
female condom available is highly cost effective in reducing public health
costs in developing countries.
Endorsements
Currently, The Female Condom is endorsed for use by the World Health
Organization (WHO), the United Nations Joint Programme on AIDS (UNAIDS), the
U.S. Agency for International Development (USAID), many NGO's (non-government
organizations) around the world, and a number of city and state public health
departments in the United States.<PAGE>
At the June 1998 World AIDS Conference in Geneva, Switzerland, The Female
Condom appeared in over 50 studies, speeches and exhibition booths.
Global Market
WHO estimates there are more than 300 million new cases of STDs worldwide each
year, excluding HIV, and most of those diseases are more easily transmitted to
women than to men. UNAIDS estimates that there are currently approximately 33
million people worldwide who are infected with HIV/AIDS and there are
approximately 16,000 people per day who are newly infected. In the United
States, the Center for Disease Control and Prevention noted that in 1995, five
of the ten most frequently reported diseases were STDs. The Center also has
noted that one in five Americans over the age of 12 has Herpes and 1 in every 3
sexually active people will get an STD by age 24. Women are currently the
fastest growing group infected with HIV and are expected to comprise the
majority of the new cases by the year 2000. The following highlights the
substantial and growing market for protection against STDs.
Worldwide:
Number of people with HIV/AIDS(*) 34 million
Number of new cases of HIV/AIDS daily(*) 16,000
Number of children expected to be orphaned by AIDS
by 2010 (at current rate)(*) 40 million
Examples of decreases in life expectancy due to HIV/AIDS(*)
Zimbabwe 22 years
Cote d'Ivoire 11 years
Number of Sub-Saharan African countries where more
than 10% of population is HIV positive(*) 13
(*) Source: UNAIDS
United States: Number of top ten most frequently reported diseases
in the United States in 1995 that were STDs(1) 5
Ratio of individuals over 12 years of age with Herpes(1) 1 in 5
Annual expenditures to treat STDs(2) $17 billion
Dollars spent on STD treatment for every $1.00 spent
on prevention(2) $43
The United States has one of the highest rates of teenage pregnancy in Western
nations--Each year one in nine teenage women (ages 15-19) becomes pregnant(3)
(1) Source: Center for Disease Control and Prevention
(2) Source: National Academy of Sciences
(3) Source: Alan Guttmacher Institute
At the 1998 World AIDS Conference in Geneva, Switzerland, the following points
were emphasized:
- - New drugs help some AIDS patients in Western nations. However, they are
of little value in developing countries due to their cost and the
complexity of their administration.
- - Simple, inexpensive treatments for HIV/AIDS --or a vaccine to prevent
infection from HIV --are unlikely in the near term.<PAGE>
- - Prevention is essential.
Currently, there are only two products that prevent the transmission of
HIV/AIDS through sexual intercourse --the latex male condom and the female
condom.
MALE CONDOM MARKET: It is estimated the global annual market for male condoms
is 4.7 billion units. However, the majority of all acts of sexual intercourse,
excluding those intended to result in pregnancy, are completed without
protection. As a result, it is estimated the potential market for barrier
contraceptives is much larger than the identified male condom market.
The market potential for The Female Condom is large and growing as highlighted
by the following:
- - New cases of STDs each year: 300 million
- - Estimated Annual Male Condom Market: 4.7 billion units
Advantages vs. the Male Condom
The Female Condom is currently the only available barrier method controlled by
women which allows them to protect themselves from unintended pregnancy and
STDs, including HIV/AIDS. This is an important advantage as many men do not
like to wear male condoms and may refuse to do so.
The material that is used for The Female Condom, polyurethane, offers a number
of benefits over latex, the material that is most commonly used in male
condoms. Polyurethane is 40% stronger than latex, reducing the probability
that The Female Condom sheath will tear during use. Clinical studies and
everyday use have shown that latex male condoms can tear as much as 8% of the
times they are used. Unlike latex, polyurethane quickly transfers heat, so The
Female Condom immediately warms to body temperature when it is inserted, which
may result in increased pleasure and sensation during use. The Product offers
an additional benefit to the 7% to 20% of the population that is allergic to
latex and who, as a result, may be irritated by latex male condoms. To the
Company's knowledge, there is no reported allergy to polyurethane. The Female
Condom is also more convenient, providing the option of insertion hours before
sexual arousal and as a result is less disruptive during sex than the male
condom which requires sexual arousal for application.
Strategy/Goals
The Company's strategy is to act as a manufacturer selling The Female Condom to
the global public sector, the U.S. public sector and commercial partners for
country specific marketing. The public sector customers and partners assume
the cost of shipping and marketing. As a result, as volume increases, expenses
other than manufacturing costs will not increase appreciably.
Commercial Markets
The Company markets the product directly in the United States and United
Kingdom. The Company has commercial partners which have recently launched the
product in Canada, Brazil, Venezuela, Taiwan, South Korea and Holland. The
Company has signed agreements with partners in Japan and Bangladesh where
launches are expected during the coming year.<PAGE>
Japanese Market
In Japan, the market for male condoms exceeds 600 million units. Oral
contraceptives have never been approved in Japan and, as a result, 85% of
Japanese couples seeking protection use condoms. The Female Health Company's
partner in Japan is Taiho Pharmaceuticals, a $1 billion Japanese health care
company. The agreement between the Company and Taiho requires Taiho to perform
clinical testing of the product in Japan and obtain the necessary regulatory
approvals to market the product. After approval, expected during the Company's
1999 fiscal year, the Company will manufacture the product and supply it to
Taiho, which will have responsibility for marketing and distributing The Female
Condom in Japan. Taiho plans to market The Female Condom under the name
"Mylura Femy."
Relationships and Agreements with Public Sector Organizations
Currently, it is estimated more than 1.5 billion male condoms are distributed
worldwide by the public sector each year. The female condom is seen as an
important addition to prevention strategies by the public sector because
studies show that the availability of the female condom decreases the amount of
unprotected sex by as much as 25% over the rate when only male condoms are
available.
The Company has a multi-year agreement with UNAIDS to supply the female condom
to developing countries at a reduced price which is negotiated each year based
on volume. The current price per unit is approximately $0.64 (pounds) 0.38.
During the last year, the female condom has been launched in the countries of
Zimbabwe, Tanzania, Bolivia, Haiti, South Africa and Zambia. It is anticipated
that multiple product launches will occur in several countries during the next
two years, including in the countries of Kenya, Nigeria, Uganda, Ghana,
Cambodia, Bangladesh, Columbia and Central American countries. Population
Services International (PSI), an organization that performs social marketing of
various products in developing countries, launched the female condom in
Zimbabwe under the UNAIDS agreement. Based on its success in Zimbabwe, PSI, in
collaboration with UNAIDS, is now marketing the female condom in seven
countries. In PSI's current annual report, PSI indicated that, in
collaboration with UNAIDS, it plans to launch the female condom worldwide. PSI
also notes in its report that in 1997 it distributed 539 million male condoms.
In a meeting on January 15, 1999, UNAIDS advised the Company that based on
results to date in countries where the Female Condom has been launched they
plan to include it in all male condom distribution programs. It is estimated
that approximately 1.7 billion male condoms are used in such programs.
In the United States, the product is marketed to city and state public health
clinics, as well as not-for-profit organizations such as Planned Parenthood.
Currently 10 major cities and 15 state governments, including the states of
New York, Pennsylvania, Florida, Connecticut, Hawaii, Louisiana, Maryland, New
Jersey, South Carolina and Illinois and the cities of Chicago, Philadelphia,
New York and Houston have purchased the product for distribution with a number
of others expressing interest. All major cities and states have reordered
product after their initial shipments.
Worldwide Regulatory Approvals
The female condom received PMA approval as a Class III Medical Device from the
FDA in 1993. The extensive clinical testing and scientific data required for<PAGE>
FDA approval laid the foundation for approvals throughout the rest of the
world, including receipt of a CE Mark in 1997 which allows the Company to
market the female condom throughout the EU. In addition to the United States
and the EU, several other countries have approved the female condom for sale,
including Canada, Russia, Australia, South Korea and Taiwan. The Company
expects the female condom to receive approval in Japan in 1999.
The Company believes that the female condom's PMA approval and FDA
classification as a Class III Medical Device create a significant barrier to
entry. The Company estimates that it would take a minimum of four to six years
to implement, execute and receive FDA approval of a PMA to market another type
of female condom.
The Company believes there are no material issues or material costs associated
with the Company's compliance with environmental laws related to the
manufacture and distribution of the female condom.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1998 Compared to Three Months Ended December
31, 1997
The Female Health Company had revenues of $703,998 and a net loss of $962,040
($0.09 per common share) for the three months ended December 31, 1998 compared
to revenues of $1,305,804 and a net loss of $1,093,435 ($0.11 per common share)
for the three months ended December 31, 1997. As discussed more fully below,
the decrease in the Company's net loss was principally related to improved
gross margins and reductions in operating expenses.
For the current quarter, net sales decreased $601,806, or 46%, to $703,998 from
$1,305,804 for the same period last year. Net sales for the prior year were
significantly higher because of product launches by new country specific
partners associated with the United Nations Joint Programme on AIDS (UNAIDS).
The Company expects significant quarter to quarter variation due to the timing
of large single orders as various countries launch the product. It believes
this will even out as reorders form an increasing portion of total sales. Net
sales for the current quarter did not include any product launches by new
country specific partners resulting in the decrease in net sales.
Cost of goods sold decreased $719,202, or 46%, to $861,451 in the current
quarter from $1,580,653 for the same period last year reflecting reduced
manufacturing costs. Cost of goods sold for the prior year included a $250,000
reduction resulting from an adjustment of the Company's reserve for inventory
obsolescence. There were no inventory reserve adjustments for the current
quarter. Decreases in costs of goods sold related to the lower sales volume
and improved manufacturing efficiencies. The Company reduced the gross margin
loss for the current quarter by $117,396, or 43%, to $(157,453) in the current
quarter from $(274,849) for the same period last year.
Advertising and promotional expenditures decreased $76,458 to $92,463 in the
current quarter from $168,921 for the same period in the prior year.
Advertising and promotion relates almost exclusively to the U.S. consumer
market, and includes the costs of print advertising, trade and consumer
promotions, product samples and other marketing costs. Through expenditures to
date, the Company has established that the Female Condom is responsive to
promotion; but as a small company, it doesn't possess the resources to conduct<PAGE>
a U.S. consumer program and is in discussions with potential partners for the
U.S. that have the resources to penetrate the consumer market.
Selling, general and administrative expenses ("SG&A") increased $35,879 to
$605,634 in the current quarter from $569,755 for the same period last year.
The increase reflected higher legal and professional fees related to the
Company's efforts to raise capital and communicate with the investor community.
Net interest and non-operating expenses increased $25,304 to $70,935 for the
current period compared with $45,631 for the same period the prior year.
Interest income, an offset to interest expense, was less in the current year as
a result of significantly lower average cash balances invested in interest
earning accounts during the current period compared with the same period in the
prior year.
LIQUIDITY AND SOURCES OF CAPITAL
Historically, the Company has incurred cash operating losses relating to
expenses incurred to develop and promote The Female Condom. During the first
three months of fiscal 1999, cash used in operations totaled $1.0 million. The
Company used existing cash balances in order to fund the cash used in
operations; thereby reducing its cash position by $1.0 million. To provide a
potential ready source of capital for the Company, which the Company would use
for general working purposes, effective November 19, 1998, the Company entered
into a private equity line of credit agreement (the "Equity Line Agreement")
with Kingsbridge Capital Ltd., a private investor (the "Selling Stockholder").
Under the Equity Line Agreement, the Company has the right, subject to various
conditions, to issue and sell to the Selling Stockholder shares of the
Company's Common Stock for cash consideration up to an aggregate of $6 million.
Any stock sold by the Company to the Selling Stockholder under the Equity Line
Agreement will be sold at a discount to the stock's market price as determined
pursuant to the agreement. The discount is 12% if the market price of a share
of the Company's Common Stock at the time of the sale is $2.00 or more and 18%
if the market price is less than $2.00. The Equity Line Agreement gives the
Company, in its sole discretion and subject to certain restrictions, the right
to sell ("Put") to the Selling Stockholder up to $6 million of the Company's
Common Stock subject to a minimum Put of $1 million over the duration of the
Agreement.
The Equity Line Agreement expires 24 months after the effective date of the
registration statement filed to register the Selling Stockholder's public
resale of any stock purchases under the Agreement. The Equity Line Agreement
provides for, among other things, minimum and maximum Puts ranging from
$100,000 to $1,000,000 depending on the Company's stock price and trading
volume. The timing and amount of the stock sales under this line of credit are
totally at the Company's discretion, subject to certain conditions. The Company
is required to drawdown a minimum of $1 million during the two-year period. If
the Company does not drawdown the minimum, the Company is required to pay the
Selling Stockholder a 12% fee on the portion of the $1 million minimum not
drawn down at the end of a two-year period.
While the Company believes that its existing capital resources (including
expected proceeds from sales of Common Stock pursuant to the Equity Line
Agreement) will be adequate to fund its currently anticipated capital needs, if
they are not or the Company does not receive shareholder approval to amend its
Articles of Incorporation to increase its authorized Common Stock, enabling the
Company to sell sufficient shares under the Equity Line Agreement (since the<PAGE>
Company presently has only approximately one million shares authorized but
unissued and unreserved), the Company may need to raise additional capital
until its sales increase sufficiently to cover operating expenses. Until
internally generated funds are sufficient to meet cash requirements, the
Company will remain dependent upon its ability to generate sufficient capital
from outside sources.
At December 31, 1998, the Company had current liabilities of $2.3 million
including a $1.0 million note payable due March 25, 1999, to Mr. Dearholt, a
Director of the Company. Mr. Dearholt has agreed to extend this note one year
to March 2000 on the same terms and conditions if the Company requests such
extension. As of December 31, 1998, Mr. Dearholt beneficially owns 1,264,673
shares of the Company's Common Stock.
In the near term, the Company's management expects operating and capital costs
to continue to exceed funds generated from operations, due principally to the
Company's fixed manufacturing costs relative to current production volumes and
the ongoing need to commercialize The Female Condom around the world. It is
estimated that the Company's cash burn rate, without revenues, is approximately
$0.4 million per month.
While management believes that revenue from sales of The Female Condom will
eventually exceed operating costs, and that, ultimately, operations will
generate sufficient funds to meet capital requirements, there can be no
assurance that such level of operations ultimately will be achieved, or be
achieved in the near term. Likewise, there can be no assurance that the
Company will be able to source all or any portion of its required capital
through the sale of debt or equity or, if raised, the amount will be sufficient
to operate the Company until sales of The Female Condom generate sufficient
revenues to fund operations. In addition, any funds raised may be costly to
the Company and/or dilutive to stockholders.
If the Company is not able to source the required funds or any future capital
which becomes required, the Company may be forced to sell certain of its assets
or rights or cease operations. Further, if the Company is not able to source
additional capital, the lack of funds to promote the Female Condom may
significantly limit the Company's ability to realize value from the sale of
such assets or rights or otherwise capitalize on the investments made in The
Female Condom.
DELISTING ON THE AMERICAN STOCK EXCHANGE
On February 5, 1999, the Company's Common Stock was delisted from the American
Stock Exchange since it did not meet all of the criteria for continued listing.
Commencing on or about February 9, 1999, the Common Stock has been quoted on
the OTC Bulletin Board under the symbol "FHCO". Although the Company believes
the OTC Bulletin Board will provide an efficient market for the purchase and
sale of the Company's Common Stock, investors may find it more difficult to
obtain accurate quotations of the price of the Company's Common Stock and to
sell the Common Stock on the open market than was the case when the stock was
listed on the American Stock Exchange. In addition, companies whose stock is
listed on the American Stock Exchange must adhere to the rules of such
exchange. These rules include various corporate government procedures which,
among other items, require the company to obtain shareholder approval prior to
completing certain transactions such as, among others, issuances of common
stock equal to 20% or more of the company's then outstanding common stock for
less than the greater of broker market value or the issuance of certain stock<PAGE>
options. Companies whose stock is quoted on the OTC Bulletin Board are not
subject to these or any comparable rules.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of
inflation, the Company has experienced increased costs of product, supplies,
salaries and benefits, and increased selling, general and administrative
expenses. Historically, the Company has absorbed increased costs and expenses
without increasing selling prices.
FOREIGN CURRENCY AND MARKET RISK
The Company manufactures The Female Condom in a leased facility located in
London, England. Further, a material portion of the Company's future sales are
likely to be in foreign markets. Manufacturing costs and sales to foreign
markets are subject to normal currency risks associated with changes in the
exchange rate of foreign currencies relative to the United States Dollar. In
addition, some of the Company's future international sales may be in developing
nations where dramatic political or economic changes are possible. Such factors
may adversely affect the Company's results of operations and financial
condition.
YEAR 2000 ISSUES
The Company's State of Readiness. The Company's main financial and
manufacturing hardware and software systems have been tested and are either now
Year 2000 compliant or are expected to be by December 31, 1999. This was
accomplished primarily through systems upgrades and maintenance done over the
last few years. The Company is in the process of surveying major customers and
suppliers regarding their Year 2000 readiness and, to date, the Company is not
aware of any significant Year 2000 issues at these entities that would
materially affect the Company's business. The Company believes that if a Year
2000 problem develops at any of the Company's vendors whereby the vendor
becomes unable to address the Company's needs, alternative vendors are readily
available that could furnish the Company with the same or similar supplies or
services without material undue delay or expense.
Costs to Address the Company's Year 2000 Issues. The majority of the Company's
Year 2000 issues were corrected either through systems upgrades or normal
maintenance contracts. The cost of these improvements to date has been
approximately $20,000.
Risks to the Company for Year 2000 Issues. With regard to systems under the
Company's control, the Company knows of no significant exposure that the
Company has to the Year 2000 issue since, if necessary, the Company's systems
are capable of accepting manually entered data. The Company believes the worst
case scenario is that the Company would have to revert back to certain manual
systems. The Company believes that its customers and vendors are at various
stages of compliance but the Company has not been made aware of significant
Year 2000 issues that would materially affect its business with them. The
Company will continue to monitor Year 2000 compliance with its customers and
vendors throughout 1999 but it will not be able to achieve the same degree of
certainty that it can with its own internal systems.
The Company's Contingency Plan. To the extent that the Company discovers minor
internal systems that are not Year 2000 compliant by mid-1999, it will have<PAGE>
time to implement manual systems by year-end 1999 which the Company believes
will significantly reduce the financial risk to the Company.<PAGE>
Part II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 Amended and Restated By-Laws. (2)
4.1 Amended and Restated Articles of Incorporation. (1)
4.2 Articles II, VII, and XI of the Amended and Restated
By-Laws (included in Exhibit 3.2). (2)
4.3 Private Equity Line of Credit Agreement between the Company and
Kingsbridge Capital Limited dated November 19, 1998. (3)
4.4 Registration Rights Agreement between the Company and
Kingsbridge Capital Limited dated as of November 19, 1998. (3)
4.5 Warrant to purchase up to 200,000 shares of Common Stock of the
Company issued to Kingsbridge Capital Limited as of November 19,
1998. (3)
4.6 Agreement between Kingsbridge Capital Limited and the Company
effective as of November 19, 1998. (3)
4.7 Agreement between Kingsbridge Capital Limited and the Company
dated February 12, 1999.
4.8 Consulting Agreement between the Company and Kingsbridge Capital
Limited dated February 12, 1999.
4.9 Registration Rights Agreement between Kingsbridge Capital
Limited and the Company dated February 12, 1999.
4.10 Warrant for 100,000 shares of the Company's Common Stock issued
to Kingsbridge Capital Limited as of February 12, 1999.
27 Financial Data Schedule
_____________________________
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-3, filed with the Securities and Exchange
Commission on February 13, 1998.
(2) Incorporated herein by reference to the Company's 1995 Form
10-KSB.
(3) Incorporated herein by reference to the Company's Registration
Statement on Form SB-2 initially filed December 8, 1998.<PAGE>
(b) Report on Form 8-K - No reports on Form 8-K were filed during the quarter
ended December 31, 1998. <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FEMALE HEALTH COMPANY
DATE: February 13, 1999 /s/O.B. Parrish _
---------------------------
O. B. Parrish, Chairman and
Chief Executive Officer and
Acting Principal Accounting Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 504,540
<SECURITIES> 0
<RECEIVABLES> 461,770
<ALLOWANCES> (98,322)
<INVENTORY> 1,519,961
<CURRENT-ASSETS> 2,739,954
<PP&E> 4,031,216
<DEPRECIATION> (1,688,850)
<TOTAL-ASSETS> 6,117,226
<CURRENT-LIABILITIES> 2,333,885
<BONDS> 0
0
6,800
<COMMON> 104,558
<OTHER-SE> 1,833,634
<TOTAL-LIABILITY-AND-EQUITY> 6,117,227
<SALES> 703,998
<TOTAL-REVENUES> 703,998
<CGS> 861,451
<TOTAL-COSTS> 698,096
<OTHER-EXPENSES> (38,645)
<LOSS-PROVISION> 9,367
<INTEREST-EXPENSE> 109,581
<INCOME-PRETAX> (926,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> (926,485)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (926,485)
<EPS-PRIMARY> $(0.09)
<EPS-DILUTED> $(0.09)
</TABLE>
EXHIBIT 4.7
AGREEMENT
THIS AGREEMENT, by and between KINGSBRIDGE CAPITAL LIMITED and THE FEMALE
HEALTH COMPANY, is effective as of November 19, 1998.
RECITALS
A. The parties hereto are parties to a certain Private Equity Line
Agreement dated as of November 19, 1998 (the "Equity Line Agreement") and
certain related documents.
B. The parties wish to clarify certain provisions of the Equity
Line Agreement and those related documents.
AGREEMENTS
In consideration of the recitals and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties agree as follows:
The parties understand that The Female Health Company stock will now
be listed on the OTC Bulletin Board and the parties hereby amend the Equity
Line Agreement to include the OTC Bulletin Board within the definition of
"Principal Market" in the Equity Line Agreement.
Executed as of _______, 1999 to be effective as of November 19, 1998.
KINGSBRIDGE CAPITAL LIMITED
BY______________________________ Its___________________________
THE FEMALE HEALTH COMPANY
BY______________________________ O.B. Parrish, Chairman and Chief Executive
Officer
MW2\66891DRK:PN 01/27/99 1
MW2\66891DRK:PN 01/27/99<PAGE>
EXHIBIT 4.8
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is dated as of February 12, 1999 by and between
THE FEMALE HEALTH COMPANY, a Wisconsin corporation (the "Company"), and
KINGSBRIDGE CAPITAL LIMITED, an entity organized and existing under the laws of
the British Virgin Islands ("Kingsbridge").
AGREEMENTS
In consideration of the mutual promises set forth in this Agreement,
the parties agree as follows:
1. Consulting Services. During the Consulting Period (as defined
in paragraph 2 below), Kingsbridge shall be available on a standby basis, at
reasonable times, to act as a consultant to the Company with respect to all
aspects of the Company's business, including, but not limited to, reviewing the
business and operations of the Company, evaluating such information and
recommending strategic alternatives which may be appropriate for the Company to
achieve its objectives; introducing officers of the Company to potential
business and/or joint venture partners for the Company in Europe; and assisting
the Company in its efforts to promote its product and business in Europe.
2. Term. Kingsbridge shall provide the consulting and advisory
services to the Company hereunder for a period of 15 months from the date
hereof (the "Consulting Period").
3. Compensation. In consideration of its services hereunder, the
Company shall pay Kingsbridge a consulting fee of $10,000 per month by wire
transfer of immediately available funds to an account designated by Kingsbridge
during the Consulting Period. In addition, as of the date of this Agreement,
the Company shall issue to Kingsbridge a warrant to purchase 100,000 shares of
the Company's common stock at the exercise price set forth on the warrant. The
warrant will have a term of four years and will have such other terms and
conditions as are mutually agreed between the parties.
4. Miscellaneous. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated other than by a written instrument
signed by both parties hereto; provided, however, that if either party breaches
any other written agreement between the parties hereto, the parties shall be
permitted to consider such breach a breach of this Agreement giving rise to the
right of the nonbreaching party to terminate this Agreement. This Agreement
constitutes the entire agreement and understanding of the parties relating to
the subject matter hereof and supersedes all prior agreements, negotiations and
understandings between the parties with respect to such subject matter. This
Agreement may be executed in counterparts, each of which shall constitute an
original, but all of which together shall constitute one and the same
agreement. This Agreement shall be construed and enforced in accordance with
the internal laws of the State of Wisconsin.
Dated as of the date first above written.
THE FEMALE HEALTH COMPANY
BY______________________________ Its____________________________
KINGSBRIDGE CAPITAL LIMITED<PAGE>
BY______________________________ Its____________________________
MW2\68176DRK:BPB 02/11/99 2
MW2\68176DRK:BPB 02/11/99<PAGE>
EXHIBIT 4.9
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
February 12, 1999, is made and entered into by and between The Female Health
Company, a Wisconsin corporation (the "Company"), and KINGSBRIDGE CAPITAL
LIMITED (the "Investor").
WHEREAS, the Company and the Investor have entered into that certain
Consulting Agreement, dated as of the date hereof (the "Consulting Agreement"),
pursuant to which the Investor will provide certain consulting services to the
Company;
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor entering into the Consulting Agreement, the Company has issued to the
Investor a warrant dated as of the date hereof, exercisable from time to time
within four (4) years following the six-month anniversary of the date of
issuance (the "Warrant") for the purchase of an aggregate of up to 100,000
shares of the Company's common stock, par value $.01 per share (the "Common
Stock") at a price specified in such Warrant;
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Consulting Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the Common Stock issuable upon exercise of the Warrant (the "Warrant Shares");
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, in the Warrant, and in
the Consulting Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be
legally bound hereby, the parties hereto agree as follows (capitalized terms
used but not otherwise defined herein shall have their respective meanings set
forth in the Warrant):
ARTICLE I
REGISTRATION RIGHTS
Section 1.1. REGISTRATION STATEMENTS.
(a) Filing of Registration Statement. Subject to the terms and conditions
of this Agreement, the Company shall file with the SEC within one hundred
eighty (180) days following the Subscription Date a registration statement on
Form SB-2 or other appropriate form under the Securities Act (the "Registration
Statement") for the registration of the resale by the Investor of the Warrant
Shares.
(b) Effectiveness of the Registration Statement. The Company shall use
its reasonable best efforts to have the Registration Statement declared
effective by the SEC by no later than two hundred forty (240) days after
Subscription Date and to insure that the Registration Statement remains in
effect for a period of two (2) years, subject to the terms and conditions of
this Agreement.
(c) Failure to Obtain Effectiveness of Registration Statement. In the
event the Company fails for any reason to obtain the effectiveness of a
Registration Statement within the time period set forth in Section 1.1(b), the
Company shall pay to the Investor, within three (3) Trading Days of the date by<PAGE>
which such Registration Statement was required to have been declared effective,
$10,000 in immediately available funds into an account designated by the
Investor; provided, however, that such amount shall not be payable with respect
to the postponement of the effectiveness of a Registration Statement (or use of
the underlying prospectus) pursuant to Section 1.1(e). Any such payment shall
be made by wire transfer of immediately available funds to an account
designated by the Investor.
(d) Failure to Maintain Effectiveness of Registration Statement. In the
event the Company fails to maintain the effectiveness of a Registration
Statement (or the underlying prospectus) throughout the period set forth in
Section 4.2, other than temporary suspensions as set forth in Section 1.1(e),
and the Investor holds any Warrant Shares at any time during the period of such
ineffectiveness (an "Ineffective Period"), the Company shall pay to the
Investor in immediately available funds into an account designated by the
Investor an amount equal to one percent (1%) of the aggregate Exercise Price of
all of the Warrant Shares then held by the Investor for each full calendar
month (or pro rata portion thereof for any partial month) of an Ineffective
Period. Such amounts shall not be payable with respect to suspensions of the
effectiveness of a Registration Statement (or use of the underlying
prospectus), in accordance with Section 1.1(e). Such payments shall be made on
the first Trading Day after the earliest to occur of (i) the expiration of the
Commitment Period, (ii) the expiration of an Ineffective Period, (iii) the
expiration of the first month of an Ineffective Period and (iv) the expiration
of each additional month during an Ineffective Period.
(e) Deferral or Suspension During a Blackout Period. Sections 1.1 (c) and
(d) notwithstanding, if the Company shall furnish to the Investor notice signed
by the Chairman and Chief Executive Officer of the Company stating that the
Board of Directors of the Company has, by duly authorized resolution,
determined in good faith that it would be seriously detrimental to the Company
and its shareholders for the Registration Statement to be filed (or remain in
effect) and it is therefore essential to defer the filing of such Registration
Statement (or temporarily suspend the effectiveness of such Registration
Statement or use of the related prospectus) (a "Blackout Notice"), the Company
shall have the right (i) immediately to defer such filing for a period of not
more than thirty (30) days beyond the date by which such Registration Statement
was otherwise required hereunder to be filed or (ii) suspend such effectiveness
for a period of not more than thirty (30) (any such deferral or suspension
period of up to thirty days, a "Blackout Period"). The Investor acknowledges
that it would be seriously detrimental to the Company and its shareholders for
such Registration Statement to be filed (or remain in effect) during a Blackout
Period and therefore essential to defer such filing (or suspend such
effectiveness) during such Blackout Period and agrees to cease any disposition
of the Warrant Shares during such Blackout Period. The Company may not utilize
any of its rights under this Section 1.1(e) to defer the filing of a
Registration Statement (or suspend its effectiveness) more than twice in any
twelve (12) month period.
(f) Liquidated Damages. The Company and the Investor hereto acknowledge
and agree that the sums payable under subsections 1(c) or 1(d) above shall
constitute liquidated damages and not penalties. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (ii) the amounts specified in
such subsections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred in connection with
any failure by the Company to obtain or maintain the effectiveness of a<PAGE>
Registration Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the uncertainty and cost
of litigation regarding the question of actual damages, and (iv) the Company
and the Investor are sophisticated business parties and have been represented
by sophisticated and able legal and financial counsel and negotiated this
Agreement at arm's length.
ARTICLE II
REGISTRATION PROCEDURES
Section 2.1. FILINGS; INFORMATION. The Company will effect the registration
of the Warrant Shares in accordance with the intended methods of disposition
thereof. Without limiting the foregoing, the Company in each such case will do
the following as expeditiously as possible, but in no event later than the
deadline, if any, prescribed therefor in this Agreement:
(a) The Company shall (i) prepare and file with the SEC a Registration
Statement on Form SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies, that counsel for the Company
shall deem appropriate and which form shall be available for the sale of the
Warrant Shares to be registered thereunder in accordance with the provisions of
this Agreement and in accordance with the intended method of distribution of
such Warrant Shares); (ii) use reasonable best efforts to cause such filed
Registration Statement to become and remain effective (pursuant to Rule 415
under the Securities Act or otherwise) for a period of two years; (iii) prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection therewith as may be necessary
to keep such Registration Statement effective for the time period prescribed by
Section 1.1(b); and (iv) comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the Investor set forth in such Registration Statement.
(b) The Company shall file all necessary amendments to the Registration
Statement in order to effectuate the purpose of this Agreement and the Warrant.
(c) Five (5) Trading Days prior to filing the Registration Statement or
prospectus, or any amendment or supplement thereto (excluding amendments deemed
to result from the filing of documents incorporated by reference therein), the
Company shall deliver to the Investor and one firm of counsel representing the
Investor, in accordance with the notice provisions of Section 4.8, copies of
the Registration Statement as proposed to be filed, together with exhibits
thereto, which documents will be subject to review by the Investor and such
counsel, and thereafter deliver to the Investor and such counsel, in accordance
with the notice provisions of Section 4.8, such number of copies of the
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in the Registration
Statement (including each preliminary prospectus) and such other documents or
information as the Investor or counsel may reasonably request in order to
facilitate the disposition of the Warrant Shares.
(f) The Company shall deliver, in accordance with the notice provisions
of Section 4.8, to each seller of Warrant Shares covered by the Registration
Statement such number of conformed copies of the Registration Statement and of
each amendment and supplement thereto (in each case including all exhibits and
documents incorporated by reference), such number of copies of the prospectus<PAGE>
contained in the Registration Statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424
promulgated under the Securities Act relating to such seller's Warrant Shares,
and such other documents, as such seller may reasonably request to facilitate
the disposition of its Warrant Shares.
(g) After the filing of the Registration Statement, the Company shall
promptly notify the Investor of any stop order issued or threatened by the SEC
in connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(h) The Company shall use its reasonable best efforts to (i) register or
qualify the Warrant Shares under such other securities or blue sky laws of such
jurisdictions in the United States as the Investor may reasonably (in light of
its intended plan of distribution) request, and (ii) cause the Warrant Shares
to be registered with or approved by such other governmental agencies or
authorities in the United States as may be necessary by virtue of the business
and operations of the Company and do any and all other acts and things that may
be reasonably necessary or advisable to enable the Investor to consummate the
disposition of the Warrant Shares ; provided, however, that the Company will
not be required to qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this paragraph (h),
subject itself to taxation in any such jurisdiction, or consent or subject
itself to general service of process in any such jurisdiction.
(i) The Company shall immediately notify the Investor upon the occurrence
of any of the following events in respect of the Registration Statement or
related prospectus in respect of an offering of Warrant Shares: (i) receipt of
any request by the SEC or any other federal or state governmental authority for
additional information, amendments or supplements to the Registration Statement
or related prospectus; (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose; (iii) receipt of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Warrant Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; (iv) the happening of any event that makes any statement made
in the Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in the Registration
Statement, related prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate, and the Company will promptly make available to the
Investor any such supplement or amendment to the related prospectus.
(j) The Company shall enter into customary agreements and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Warrant Shares (whereupon the Investor may, at its option,
require that any or all of the representations, warranties and covenants of the
Company also be made to and for the benefit of the Investor). <PAGE>
(k) The Company shall make available to the Investor (and will deliver to
Investor's counsel), subject to restrictions imposed by the United States
federal government or any agency or instrumentality thereof, copies of all
correspondence between the SEC and the Company, its counsel or its auditors
concerning the Registration Statement and will also make available for
inspection by the Investor and any attorney, accountant or other professional
retained by the Investor (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, and cause the Company's
officers and employees to supply all information reasonably requested by any
Inspectors in connection with the Registration Statement. Records that the
Company determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the Registration Statement or (ii) the disclosure or release of
such Records is requested or required pursuant to oral questions,
interrogatories, requests for information or documents or a subpoena or other
order from a court of competent jurisdiction or other process; provided,
however, that prior to any disclosure or release pursuant to clause (ii), the
Inspectors shall provide the Company with prompt notice of any such request or
requirement so that the Company may seek an appropriate protective order or
waive such Inspectors' obligation not to disclose such Records; and, provided,
further, that if failing the entry of a protective order or the waiver by the
Company permitting the disclosure or release of such Records, the Inspectors,
upon advice of counsel, are compelled to disclose such Records, the Inspectors
may disclose that portion of the Records that counsel has advised the
Inspectors that the Inspectors are compelled to disclose. The Investor agrees
that information obtained by it solely as a result of such inspections (not
including any information obtained from a third party who, insofar as is known
to the Investor after reasonable inquiry, is not prohibited from providing such
information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its affiliates unless
and until such information is made generally available to the public. The
Investor further agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of the Records deemed confidential.
(l) The Company shall otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(m) The Company shall appoint a transfer agent and registrar for all of
the Warrant Shares covered by such Registration Statement not later than the
effective date of such Registration Statement.
(n) The Company may require the Investor to promptly furnish in writing
to the Company such information as may be legally required in connection with
such registration including, without limitation, all such information as may be
requested by the SEC or the National Association of Securities Dealers. The
Investor agrees to provide such information requested in connection with such
registration promptly and in any event within ten (10) business days after
receiving such written request and the Company shall not be responsible for any<PAGE>
delays in obtaining or maintaining the effectiveness of the Registration
Statement caused by the Investor's failure to timely provide such information.
Section 2.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"),
including, without limitation: (i) all registration, filing, securities
exchange listing and fees required by the National Association of Securities
Dealers, (ii) all registration, filing, qualification and other fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Warrant Shares), (iii) all word processing, duplicating, printing,
messenger and delivery expenses, (iv) the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred by the Company in connection with any listing of the Warrant Shares,
(vi) reasonable fees and disbursements of counsel for the Company and customary
fees and expenses for independent certified public accountants retained by the
Company, (vii) the fees and expenses of any special experts retained by the
Company in connection with such registration and (viii) all reasonable fees and
expenses of one firm of counsel for the Investor retained as the Investor's
counsel with respect to such Registration Statement up to an amount of $5,000.
The underwriting fees, discounts, transfer taxes or commissions, if any,
attributable to the sale of Warrant Shares, which shall be payable by each
holder of Warrant Shares pro rata on the basis of the number of Warrant Shares
of each such holder that are included in a registration under this Agreement.
ARTICLE III
INDEMNIFICATION AND CONTRIBUTION
Section 3.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Investor, its partners, affiliates, officers, directors,
employees and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the partners, affiliates,
officers, directors, employees and duly authorized agents of such controlling
person or entity (collectively, the "Controlling Persons"), from and against
any loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and costs and expenses
of investigating and defending any such claim) (collectively, "Damages"), joint
or several, and any action or proceeding in respect thereof to which the
Investor, its partners, affiliates, officers, directors, employees and duly
authorized agents, and any Controlling Person, may become subject under the
Securities Act or otherwise, as incurred, insofar as such Damages (or actions
or proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, or in any preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement relating to the Warrant Shares or
arises out of, or are based upon, any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse the Investor, its
partners, affiliates, officers, directors, employees and duly authorized
agents, and each such Controlling Person, for any legal and other expenses
reasonably incurred by the Investor, its partners, affiliates, officers,
directors, employees and duly authorized agents, or any such Controlling
Person, as incurred, in investigating or defending or preparing to defend
against any such Damages or actions or proceedings; provided, however, that the
Company shall not be liable to the extent that any such Damages arise out of<PAGE>
the Investor's failure to send or give a copy of the final prospectus or
supplement to the persons asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Warrant Shares to such person if such statement or
omission was corrected in such final prospectus or supplement; provided,
further, that the Company shall not be liable to the extent that any such
Damages arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
or any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Investor or any other person who
participates as an underwriter in the offering or sale of such securities, in
either case, specifically stating that it is for use in the preparation
thereof; provided, further, that the Company shall not be liable to the extent
that any such Damages arise out of or are based upon the gross negligence or
willful misconduct of the Investor.
Section 3.2. INDEMNIFICATION BY THE INVESTOR. The Investor agrees to
indemnify and hold harmless the Company and each of its Controlling Persons
from and against any Damages suffered by the Company and/or each of its
Controlling Persons insofar as such Damages arise directly from the gross
negligence or willful misconduct of the Investor or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in a
Registration Statement, or any preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by the Investor or any other
person who participates as an underwriter in the offering or sale of such
securities, in either case, specifically stating that it is for use in the
preparation thereof.
Section 3.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt
by any person or entity in respect of which indemnity may be sought pursuant to
Section 3.1 (an "Indemnified Party") of notice of any claim or the commencement
of any action, the Indemnified Party shall, if a claim in respect thereof is to
be made against the person or entity against whom such indemnity may be sought
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
claim or the commencement of such action. In the event an Indemnified Party
shall fail to give such notice as provided in this Section 3.2 and the
Indemnifying Party to whom notice was not given was unaware of the proceeding
to which such notice would have related and was materially prejudiced by the
failure to give such notice, the indemnification provided for in Section 3.1
shall be reduced to the extent of any actual prejudice resulting from such
failure to so notify the Indemnifying Party; provided, however, that the
failure to notify the Indemnifying Party shall not relieve the Indemnifying
Party from any liability that it may have to an Indemnified Party otherwise
than under Section 3.1. If any such claim or action shall be brought against
an Indemnified Party, and it shall notify the Indemnifying Party thereof, the
Indemnifying Party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified Indemnifying Party,
to assume the defense thereof with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Indemnifying Party to the Indemnified
Party of its election to assume the defense of such claim or action, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal
or other expenses subsequently incurred by the Indemnified Party in connection
with the defense thereof other than reasonable costs of investigation;
provided, however, that the Indemnified Party shall have the right to employ
separate counsel to represent the Indemnified Party and its Controlling Persons<PAGE>
who may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party, unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in
the reasonable judgment of the Company and such Indemnified Party,
representation of both parties by the same counsel would be inappropriate due
to actual or potential conflicts of interest between them, it being understood,
however, that the Indemnifying Party shall not, in connection with any one such
claim or action or separate but substantially similar or related claims or
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
Indemnified Parties, or for fees and expenses that are not reasonable. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any claim or pending or threatened proceeding
in respect of which the Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability arising out of such claim or proceeding. Whether or not the
defense of any claim or action is assumed by the Indemnifying Party, such
Indemnifying Party will not be subject to any liability for any settlement made
without its consent, which consent will not be unreasonably withheld.
Section 3.4. OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Article 3 (with appropriate
modifications) shall be given by the Company and the Investor with respect to
any required registration or other qualification of securities under any
federal or state law or regulation of any governmental authority other than the
Securities Act. The provisions of this Article III shall be in addition to any
other rights to indemnification, contribution or other remedies which an
Indemnified Party may have pursuant to law, equity, contract or otherwise.
Section 3.5. CONTRIBUTION. If the indemnification and reimbursement
obligations provided for in any section of this Article III is unavailable or
insufficient to hold harmless the Indemnified Parties in respect of any Damages
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the Company on the one
hand and the Investor on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Investor in connection
with such statements or omissions, as well as other equitable considerations.
The relative fault of the Company on the one hand and of the Investor on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Investor agree that it would not be just and equitable if contribution
pursuant to this Section 3.4 were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the Damages referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this<PAGE>
Section 3.4, the Investor shall in no event be required to contribute any
amount in excess of the amount by which the total price at which the Warrant
Shares of the Investor were sold to the public (less underwriting discounts and
commissions) exceeds the amount of any damages which the Investor has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE IV
MISCELLANEOUS
Section 4.1. NO OUTSTANDING REGISTRATION RIGHTS. The Company represents and
warrants to the Investor that, except as disclosed in public documents filed
with the SEC, there is not in effect on the date hereof any agreement by the
Company pursuant to which any holders of securities of the Company have a right
to cause the Company to register or qualify such securities under the
Securities Act or any securities or blue sky laws of any jurisdiction.
Section 4.2. TERM. The registration rights provided to the holders of
Warrant Shares hereunder shall terminate on the earlier of (i) the fourth
anniversary hereof, (ii) the date on which all of the Warrant Shares have been
issued and resold by the Warrant Holders under the Registration Statement or
pursuant to a valid exemption from registration under the Securities Act and
(iii) the date on which the Warrant is automatically terminated pursuant to
Section 14 thereof. Notwithstanding the foregoing, paragraphs (c) and (d) of
Section 1.1, Article III, Section 4.8, and Section 4.9 shall survive the
termination of this Agreement.
Section 4.3. RULE 144. The Company will file in a timely manner,
information, documents and reports in compliance with the Securities Act and
the Exchange Act and will, at its expense, promptly take such further action as
holders of Warrant Shares may reasonably request to enable such holders of
Warrant Shares to sell Warrant Shares without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act ("Rule 144"), as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. If at any
time the Company is not required to file such reports, it will, at its expense,
forthwith upon the written request of any holder of Warrant Shares, make
available adequate current public information with respect to the Company
within the meaning of paragraph (c)(2) of Rule 144 or such other information as
necessary to permit sales pursuant to Rule 144. Upon the request of the
Investor, the Company will deliver to the Investor a written statement, signed
by the Company's principal financial officer, as to whether it has complied
with such requirements.
Section 4.4. CERTIFICATE. The Company will, at its expense, forthwith upon
the request of any holder of Warrant Shares, deliver to such holder a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of each class of Stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the<PAGE>
date of such certificate and in addition has filed the most recent annual
report required to be filed thereunder.
Section 4.5. AMENDMENT AND MODIFICATION. Any provision of this Agreement may
be waived, provided that such waiver is set forth in a writing executed by both
parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a
majority of the then outstanding Warrant Shares. Notwithstanding the foregoing,
the waiver of any provision hereof with respect to a matter that relates
exclusively to the rights of holders of Warrant Shares whose securities are
being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other holders of Warrant Shares may be given by
holders of at least a majority of the Warrant Shares being sold by such
holders; provided that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence. No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.
Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Investor
may assign its rights under this Agreement to any subsequent holder the Warrant
Shares, provided that the Company shall have the right to require any holder of
Warrant Shares to execute a counterpart of this Agreement as a condition to
such holder's claim to any rights hereunder, provided further that such holder
is an "accredited investor" as defined in Rule 501 of Regulation D. This
Agreement, together with the Investment Agreement and the Warrant(s) sets forth
the entire agreement and understanding between the parties as to the subject
matter hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
Section 4.7. SEPARABILITY. In the event that any provision of this Agreement
or the application of any provision hereof is declared to be illegal, invalid
or otherwise unenforceable by a court of competent jurisdiction, the remainder
of this Agreement shall not be affected except to the extent necessary to
delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 4.8. NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and shall be (i) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (ii) delivered by reputable air courier service
with charges prepaid, or (iii) transmitted by hand delivery, telegram or
facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day<PAGE>
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
The Female Health Company
919 North Michigan Avenue
Suite 2208
Attention: O.B. Parrish
Chairman and Chief Executive Officer
Chicago, Illinois 60611
Telephone: (312) 280-2281
Facsimile: (312) 280-9360
with a copy (which shall not constitute notice) to:
Reinhart, Boerner, Van Deuren, Norris & Rieselbach
1000 North Water Street
Suite 2100
Milwaukee, Wisconsin 53202
Attention: David Krosner, Esq.
Telephone: (414) 298-1000
Facsimile:
if to the Investor:
Kingsbridge Capital Limited
c/o Kingsbridge Corporate Services Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Attention: Adam Gurney
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Keith M. Andruschak, Esq.
Telephone: (212) 878-8570
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 4.8 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 4.9. GOVERNING LAW. This Agreement shall be construed under the
laws of the State of Wisconsin.
Section 4.10. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this
Agreement, nor shall they affect their meaning, construction or effect. <PAGE>
Section 4.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and
all of which together shall constitute one and the same instrument.
Section 4.12. FURTHER ASSURANCES. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 4.13. ABSENCE OF PRESUMPTION. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be
drafted.
Section 4.14. REMEDIES. In the event of a breach or a threatened breach
by any party to this Agreement of its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement
and granted by law. The parties agree that the provisions of this Agreement
shall be specifically enforceable, it being agreed by the parties that the
remedy at law, including monetary damages, for breach of any such provision
will be inadequate compensation for any loss and that any defense or objection
in any action for specific performance or injunctive relief that a remedy at
law would be adequate is waived.
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
THE FEMALE HEALTH COMPANY
By:________________________
O.B. Parrish
Chairman and Chief Executive Officer
KINGSBRIDGE CAPITAL LIMITED
By:_________________________________
Valentine O'Donoghue Director<PAGE>
EXHIBIT 4.10
WARRANT
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT.
FEBRUARY 12, 1999
Warrant to Purchase up to 100,000 Shares of Common Stock of The Female
Health Company.
The Female Health Company, a Wisconsin corporation (the "Company"), hereby
agrees that Kingsbridge Capital Limited (the "Investor") or any other Warrant
Holder is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time during the Exercise Period up to 100,000 fully
paid and nonassessable (other than pursuant to Wisconsin Statutes Section
180.0622(2)(b), as interpreted) shares of Common Stock, par value $.01 per
share, of the Company (the "Common Stock"), as the same may be adjusted from
time to time pursuant to Section 6 hereof, at the Exercise Price (hereinafter
defined), as the same may be adjusted pursuant to Section 6 hereof. The resale
of the shares of Common Stock or other securities issuable upon exercise or
exchange of this Warrant is subject to the provisions of the Registration
Rights Agreement (as defined below).
Section 1. Definitions.
"Bid Price" shall mean the closing bid price (as reported by Bloomberg
L.P.) of the Common Stock.
"Capital Shares" shall mean the Common Stock and any shares of any other
class of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
"Date of Exercise" shall mean the date that the advance copy of the
Exercise Form is sent by facsimile to the Company, provided that the original
Warrant and Exercise Form are received by the Company within reasonable time
thereafter. If the Warrant Holder has not sent advance notice by facsimile,
the Date of Exercise shall be the date the original Exercise Form is received
by the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exercise Period" shall mean that period beginning on the 181st day after
the Subscription Date and continuing until the expiration of the four-year
period thereafter; provided that such period shall be extended one day for each
day after such 181st day after the Subscription Date, that a Registration
Statement is not effective during the period such Registration Statement is
required to be effective pursuant to the Registration Rights Agreement.
"Exercise Price" as of the date hereof shall mean one hundred ten percent
(110%) of the average of the lowest intra-day trade prices per share of the
Common Stock for the three Trading Days including the two (2) Trading Days<PAGE>
before the Subscription Date and the Subscription Date and shall hereafter be
subject to the adjustments provided for in Section 6 of this Warrant.
"Per Share Warrant Value" shall mean the difference resulting from
subtracting the Exercise Price from the Bid Price of one share of Common Stock
on the Trading Day next preceding the Date of Exercise.
"Principal Market" shall mean the OTC Bulletin Board, the American Stock
Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
"Registration Rights Agreement" shall mean the registration rights
agreement, dated the date hereof between the Company and the Investor.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subscription Date" shall mean the date on which the Registration Rights
Agreement and this Warrant are executed and delivered by the parties hereto.
"Trading Day" shall mean any day that the New York Stock Exchange is open
for trading.
"Warrant Holder" shall mean the Investor or any assignee or transferee of
all or any portion of this Warrant; and
Section 2. Exercise; Cashless Exercise.
(a) Method of Exercise. This Warrant may be exercised in whole or in
part (but not as to a fractional share of Common Stock), at any time and from
time to time during the Exercise Period, by the Warrant Holder by (i) surrender
of this Warrant, with the form of exercise attached hereto as Exhibit A duly
executed by the Warrant Holder (the "Exercise Notice"), to the Company at the
address set forth in Section 13 hereof, accompanied by payment of the Exercise
Price multiplied by the number of shares of Common Stock for which this Warrant
is being exercised (the "Aggregate Exercise Price") or (ii) telecopying an
executed and completed Exercise Notice to the Company and delivering to the
Company within three business days thereafter the original Exercise Notice,
this Warrant and the Aggregate Exercise Price. Each date on which an Exercise
Notice is received by the Company in accordance with clause (i) and each date
on which the Exercise Notice is telecopied to the Company in accordance with
clause (ii) above shall be deemed an "Exercise Date".
(b) Payment of Aggregate Exercise Price. Subject to paragraph (c) below,
payment of the Aggregate Exercise Price shall be made by check or bank draft
payable to the order of the Company or by wire transfer to an account
designated by the Company. If the amount of the payment received by the
Company is less than the Aggregate Exercise Price, the Warrant Holder will be
notified of the deficiency and shall make payment in that amount within five
(5) business days. In the event the payment exceeds the Aggregate Exercise
Price, the Company will refund the excess to the Warrant Holder within three
(3) business days of receipt.
(c) Cashless Exercise. As an alternative to payment of the Aggregate
Exercise Price in accordance with paragraph (b) above, the Warrant Holder may
elect to effect a cashless exercise by so indicating on the Exercise Notice and<PAGE>
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, the Warrant Holder shall surrender this
Warrant for that number of shares of Common Stock determined by (i) multiplying
the number of Warrant Shares for which this Warrant is being exercised by the
Per Share Warrant Value and (ii) dividing the product by the Bid Price of one
share of the Common Stock on the Trading Day next preceding the Date of
Exercise.
(d) Replacement Warrant. In the event that the Warrant is not exercised
in full, the number of Warrant Shares shall be reduced by the number of such
Warrant Shares for which this Warrant is exercised, and the Company, at its
expense, shall forthwith issue and deliver to or upon the order of the Warrant
Holder a new Warrant of like tenor in the name of the Warrant Holder or as the
Warrant Holder may request, reflecting such adjusted number of Warrant Shares.
Section 3. Ten Percent Limitation. The Warrant Holder may not
exercise this Warrant such that the number of Warrant Shares to be received
pursuant to such exercise aggregated with all other shares of Common Stock then
owned by the Warrant Holder beneficially or deemed beneficially owned by the
Warrant Holder would result in the Warrant Holder owning more than 9.9% of all
of such Common Stock as would be outstanding on such Closing Date, as
determined in accordance with Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder. As of any date prior to the Date of
Exercise, the aggregate number of shares of Common Stock into which this
Warrant is exercisable, together with all other shares of Common Stock then
beneficially owned (as such term is defined in Rule 16a-1 under the Exchange
Act) by such Warrant Holder and its affiliates, shall not exceed 9.9% of the
total outstanding shares of Common Stock as of such date.
Section 4. Delivery of Stock Certificates.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) Trading Days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the Warrant
Holder, or as the Warrant Holder may lawfully direct, a certificate or
certificates for the number of validly issued, fully paid and non-assessable
(other than pursuant to Wisconsin Statutes Section 180.0622(2)(b), as
interpreted) Warrant Shares to which the Warrant Holder shall be entitled on
such exercise, together with any other stock or other securities or property
(including cash, where applicable) to which the Warrant Holder is entitled upon
such exercise in accordance with the provisions hereof; provided, however, that
any such delivery to a location outside of the United States shall be made
within five (5) Trading Days after the exercise of this Warrant in full or in
part.
(b) This Warrant may not be exercised as to fractional shares of Common
Stock. In the event that the exercise of this Warrant, in full or in part,
would result in the issuance of any fractional share of Common Stock, then in
such event the Warrant Holder shall receive in cash an amount equal to the Bid
Price of such fractional share within three (3) Trading Days.
Section 5. Representations, Warranties and Covenants of the Company. <PAGE>
(a) The Company shall take all necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation for the legal and
valid issuance of this Warrant and the Warrant Shares to the Warrant Holder.
(b) From the date hereof through the last date on which this Warrant is
exercisable, the Company shall take all reasonable steps it deems reasonably
necessary and within its reasonable control to insure that the Common Stock
remains listed or quoted on the Principal Market.
(c) The Warrant Shares, when issued in accordance with the terms hereof,
will be duly authorized and, when paid for or issued in accordance with the
terms hereof, shall be validly issued, fully paid and non-assessable (other
than pursuant to Wisconsin Statutes Section 180.0822(2)(b), as interpreted).
(d) The Company has authorized and reserved for issuance to the Warrant
Holder the requisite number of shares of Common Stock to be issued pursuant to
this Warrant. The Company shall at all times reserve and keep available, solely
for issuance and delivery as Warrant Shares hereunder, such shares of Common
Stock as shall from time to time be issuable as Warrant Shares.
Section 6. Adjustment of the Exercise Price. The Exercise Price and,
accordingly, the number of Warrant Shares issuable upon exercise of the
Warrant, shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share Exchange.
If the Company, at any time while this Warrant is unexpired and not exercised
in full, (i) reclassifies or changes its Outstanding Capital Shares (other than
a change in par value, or from par value to no par value per share, or from no
par value per share to par value or as a result of a subdivision or combination
of outstanding securities issuable upon exercise of the Warrant) or (ii)
consolidates, merges or effects a mandatory share exchange with or into another
corporation (other than a merger or mandatory share exchange with another
corporation in which the Company is a continuing corporation and that does not
result in any reclassification or change, other than a change in par value, or
from par value to no par value per share, or from no par value per share to par
value, or as a result of a subdivision or combination of Outstanding Capital
Shares issuable upon exercise of the Warrant) at any time while this Warrant is
unexpired and not exercised in full, then in any such event the Company, or
such successor or purchasing corporation, as the case may be, shall, without
payment of any additional consideration therefore, amend this Warrant or issue
a new Warrant providing that the Warrant Holder shall have rights not less
favorable to the holder than those then applicable to this Warrant and to
receive upon exercise under such amendment of this Warrant or new Warrant, in
lieu of each share of Common Stock theretofore issuable upon exercise of the
Warrant hereunder, the kind and amount of shares of stock, other securities,
money or property receivable upon such reclassification, change, consolidation,
merger, mandatory share exchange, sale or transfer by the holder of one share
of Common Stock issuable upon exercise of the Warrant had the Warrant been
exercised immediately prior to such reclassification, change, consolidation,
merger, mandatory share exchange or sale or transfer. Such amended Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6.1. The
provisions of this subsection (a) shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers. <PAGE>
(b) Subdivision or Combination of Shares. If the Company, at any time
while this Warrant is unexpired and not exercised in full, shall subdivide its
Common Stock, the Exercise Price shall be proportionately reduced as of the
effective date of such subdivision, or, if the Company shall take a record of
holders of its Common Stock for the purpose of so subdividing, as of such
record date, whichever is earlier. If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall combine its Common Stock,
the Exercise Price shall be proportionately increased as of the effective date
of such combination, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so combining, as of such record date, whichever
is earlier.
(c) Stock Dividends. If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall pay a dividend in its Capital
Shares, or make any other distribution of its Capital Shares, then the Exercise
Price shall be adjusted, as of the date the Company shall take a record of the
holders of its Capital Shares for the purpose of receiving such dividend or
other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other
distribution by a fraction:
1. the numerator of which shall be the total number of Outstanding
Capital Shares immediately prior to such dividend or distribution, and
2. the denominator of which shall be the total number of Outstanding
Capital Shares immediately after such dividend or distribution. The provisions
of this subsection (c) shall not apply under any of the circumstances for which
an adjustment is provided in subsections (a) or (b).
(d) Issuance of Additional Capital Shares. If the Company, at any time
while this Warrant is unexpired and not exercised in full, shall issue any
additional Capital Shares other than additional Capital Shares issued to
Kingsbridge ("Additional Capital Shares") at a price per share less, or for
other consideration lower, than the Bid Price in effect immediately prior to
such issuance, or without consideration, then upon such issuance the Exercise
Price shall be reduced to that price determined by multiplying the Exercise
Price in effect immediately prior to such event by a fraction:
1. the numerator of which shall be the number of Outstanding Capital
Shares immediately prior to the issuance of the Additional Capital Shares plus
the number of Capital Shares that the aggregate consideration for the total
number of such Additional Capital Shares so issued would purchase at the then
effective Bid Price, and
2. the denominator of which shall be the number of Outstanding Capital
Shares immediately after the issuance of the Additional Capital Shares. The
provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or
(c).
The provisions of this subsection (d) shall not apply to the issuance of
any Additional Capital Shares that are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible or
exchangeable securities. <PAGE>
(e) Issuance of Warrants, Options or Other Rights. If the Company, at
any time while this Warrant is unexpired and not exercised in full, shall issue
any warrants, options or other rights to subscribe for or purchase any
Additional Capital Shares
and the price per share for which Additional Capital Shares may at any
time thereafter be issuable pursuant to such warrants, options or other rights
shall be less than the Bid Price in effect immediately prior to such issuance,
then, upon the issuance of such warrants, options or other rights, the Exercise
Price shall be adjusted as provided in subsection (d) hereof on the basis that:
1. the maximum number of Additional Capital Shares issuable on the date
of determination (subject to adjustment on the date(s) of exercise) pursuant to
all such warrants, options or other rights shall be deemed to have been issued
as of the date of actual issuance of such warrants, options or other rights,
and
2. the aggregate consideration for such maximum number of Additional
Capital Shares issuable pursuant to such warrants, options or other rights,
shall be deemed to be the consideration received by the Company for the
issuance of such warrants, options, or other rights plus the minimum
consideration to be received by the Company for the issuance of Additional
Capital Shares pursuant to such warrants, options, or other rights.
(f) Issuance of Convertible or Exchangeable Securities. If the Company,
at any time while this Warrant is unexpired and not exercised in full, shall
issue any securities convertible into or exchangeable for Capital Shares and
the consideration per share for which Additional Capital Shares may at any time
thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance, then, upon the issuance of such convertible or
exchangeable securities, the Exercise Price shall be adjusted as provided in
subsection (d) hereof on the basis that:
1. the maximum number of Additional Capital Shares necessary on the date
of determination (subject to adjustment on the date(s) of conversion or
exchange) to effect the conversion or exchange of all such convertible or
exchangeable securities shall be deemed to have been issued as of the date of
issuance of such convertible or exchangeable securities, and
2. the aggregate consideration for such maximum number of Additional
Capital Shares shall be deemed to be the consideration received by the Company
for the issuance of such convertible or exchangeable securities plus the
minimum consideration received by the Company for the issuance of such
Additional Capital Shares pursuant to the terms of such convertible or
exchangeable securities.
No adjustment of the Exercise Price shall be made under this subsection
(f) upon the issuance of any convertible or exchangeable securities that are
issued pursuant to the exercise of any warrants, options or other subscription
or purchase rights therefor, if the issuance of such warrants, options or other
rights was subject to subsection (e) hereof.
(g) Adjustment of Number of Shares. Upon each adjustment of the Exercise
Price pursuant to any provisions of this Section 6.1, the number of Warrant
Shares issuable hereunder at the option of the Warrant Holder shall be<PAGE>
calculated, to the nearest one hundredth of a whole share, multiplying the
number of Warrant Shares issuable prior to an adjustment by a fraction:
1. the numerator of which shall be the Exercise Price before any
adjustment pursuant to this Section 6.1; and
2. the denominator of which shall be the Exercise Price after such
adjustment.
(h) Liquidating Dividends, Etc. If the Company, at any while this
Warrant is unexpired and not exercised in full, makes a distribution of its
assets or evidences of indebtedness to the holders of its Capital Shares as a
dividend in liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available for dividends
under applicable law or any distribution to such holders made in respect of the
sale of all or substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (g)) while
an exercise is pending, then the Warrant Holder shall be entitled to receive
upon such exercise of the Warrant in addition to the Warrant Shares receivable
in connection therewith, and without payment of any consideration other than
the Exercise Price, an amount in cash equal to the value of such distribution
per Capital Share multiplied by the number of Warrant Shares that, on the
record date for such distribution, are issuable upon such exercise of the
Warrant (with no further adjustment being made following any event which causes
a subsequent adjustment in the number of Warrant Shares issuable), and an
appropriate provision therefor shall be made a part of any such distribution.
The value of a distribution that is paid in other than cash shall be determined
in good faith by the Board of Directors of the Company.
(i) Other Provisions Applicable to Adjustments Under this Section. The
following provisions will be applicable to the making of adjustments in any
Exercise Price hereinabove provided in this Section 6.1:
1. Computation of Consideration. To the extent that any Additional
Capital Shares or any convertible or exchangeable securities or any warrants,
options or other rights to subscribe for or purchase any Additional Capital
Shares or any convertible or exchangeable securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Capital Shares or convertible or exchangeable securities are
offered by the Company for subscription, the subscription price, or, if such
Additional Capital Shares or convertible or exchangeable securities are sold to
or through underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding any
amounts paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with the issue thereof. To the extent that such
issuance shall be for a consideration other than cash, then, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined in good faith by the Company's Board of
Directors. The consideration for any Additional Capital Shares issuable
pursuant to any warrants, options or other rights to subscribe for or purchase
the same shall be the consideration received by the Company for issuing such
warrants, options or other rights, plus the additional consideration payable to
the Company upon the exercise of such warrants, options or other rights. The
consideration for any Additional Capital Shares issuable pursuant to the terms
of any convertible or exchangeable securities shall be the consideration paid
or payable to the Company in respect of the subscription for or purchase of<PAGE>
such convertible or exchangeable securities, plus the additional consideration,
if any, payable to the Company upon the exercise of the right of conversion or
exchange in such convertible or exchangeable securities. In case of the
issuance at any time of any Additional Capital Shares or convertible or
exchangeable securities in payment or satisfaction of any dividend upon any
class of stock preferred as to dividends in a fixed amount, the Company shall
be deemed to have received for such Additional Capital Shares or convertible or
exchangeable securities a consideration equal to the amount of such dividend so
paid or satisfied.
2. Readjustment of Exercise Price. Upon the expiration of the right to
convert or exchange any convertible or exchangeable securities, or upon the
expiration of any rights, options or warrants, the issuance of which
convertible or exchangeable securities, rights, options or warrants effected an
adjustment in Exercise Price, if any such convertible or exchangeable
securities shall not have been converted or exchanged, or if any such rights,
options or warrants shall not have been exercised, the number of Capital Shares
deemed to be issued and Outstanding by reason of the fact that they were
issuable upon conversion or exchange of any such convertible or exchangeable
securities or upon exercise of any such rights, options, or warrants shall no
longer be computed as set forth above, and such Exercise Price shall forthwith
be readjusted and thereafter be the price that it would have been (but
reflecting any other adjustments in the Exercise Price made pursuant to the
provisions of this Section 6.1 after the issuance of such convertible or
exchangeable securities, rights, options or warrants) had the adjustment of the
Exercise Price made upon the issuance or sale of such convertible or
exchangeable securities or issuance of rights, options or warrants been made on
the basis of the issuance only of the number of Additional Capital Shares
actually issued upon conversion or exchange of such convertible or exchangeable
securities, or upon the exercise of such rights, options or warrants, and
thereupon only the number of Additional Capital Shares actually so issued, if
any, shall be deemed to have been issued and only the consideration actually
received by the Company (computed as set forth in sub-subsection (1. hereof)
shall be deemed to have been received by the Company. If the purchase price
provided for in any rights, options or warrants, or the additional
consideration (if any) payable upon the conversion or exchange of any
convertible or exchangeable securities, or the rate at which any convertible or
exchangeable securities are convertible into or exchangeable for Capital Shares
changes at any time (other than under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect at the time of the
change shall be adjusted to the Exercise Price that would have been in effect
at such time had such rights, options, warrants or convertible or exchangeable
securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold.
3. Other Action Affecting Capital Shares. In case after the date hereof
the Company shall take any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing subsections (a)
through (h) hereof, inclusive, which in the opinion of the Company's Board of
Directors would have a materially adverse effect upon the rights of the Warrant
Holder at the time of exercise of the Warrant, the Exercise Price shall be
adjusted in such manner and at such time as the Board or Directors on the
advice of the Company's independent public accountants may in good faith
determine to be equitable in the circumstances. <PAGE>
(j) In the event the Company shall, at a time while the Warrant is
unexpired and outstanding, take any action which pursuant to subsections (a)
through (h) of this Section 6.1 may result in an adjustment of the Exercise
Price, the Company shall give to the Warrant Holder at its last address known
to the Company written notice of such action ten (10) days in advance of its
effective date in order to afford to the Warrant Holder an opportunity to
exercise the Warrant prior to such action becoming effective.
Section 6.1 Notice of Adjustments. Whenever the Exercise Price or
number of Warrant Shares shall be adjusted pursuant to Section 6.1 hereof, the
Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Exercise Price
and number of Warrant Shares purchasable at that Exercise Price after giving
effect to such adjustment, and shall promptly cause copies of such certificate
to be mailed (by first class and postage prepaid) to the Holder of the Warrant.
In the event the Company shall, at a time while the Warrant is unexpired and
not exercised in full, take any action that pursuant to subsections (a) through
(g) of Section 6.1 may result in an adjustment of the Exercise Price, the
Company shall give to the Holder of the Warrant at its last address known to
the Company written notice of such action ten (10) days in advance of its
effective date in order to afford to the Holder of the Warrant an opportunity
to exercise the Warrant prior to such action becoming effective.
Section 7. No Impairment. The Company will not, by amendment of its
Articles of Incorporation or By-Laws or through any reorganization, 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 of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Warrant
Holder against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action as
may be reasonably necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable (other than pursuant to
Wisconsin Statutes Section 180.0822(2)(b), as interpreted) Warrant Shares on
the exercise of this Warrant.
Section 8. Rights As Stockholder. Prior to exercise of this Warrant,
the Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation) the
right to vote such shares, receive dividends or other distributions thereon or
be notified of stockholder meetings. However, in the event of any taking by
the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the Company
shall mail to each Warrant Holder, at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right. <PAGE>
Section 9. Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant and, in the case of any such loss, theft or
destruction of the Warrant, upon delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of such Warrant, the Company
at its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
Section 10. Choice of Law. This Warrant shall be construed under the
laws of the State of Wisconsin.
Section 11. Entire Agreement; Amendments. This Warrant, the
Registration Rights Agreement, and the Agreement contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby. No provision of this Warrant may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 12. Restricted Securities.
(a) Registration or Exemption Required. This Warrant has been issued in a
transaction exempt from the registration requirements of the Securities Act in
reliance upon the provisions of Section 4(2) promulgated by the SEC under the
Securities Act. This Warrant and the Warrant Shares issuable upon exercise of
this Warrant may not be resold except pursuant to an effective registration
statement or an exemption to the registration requirements of the Securities
Act and applicable state laws.
(b) Legend. Any replacement Warrants issued pursuant to Section 2 hereof
and any Warrant Shares issued upon exercise hereof, shall bear the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT."
Removal of such legend shall be in accordance with the legend removal
provisions in the Agreement.
(c) No Other Legend or Stock Transfer Restrictions. No legend other than
the one specified in Section 12(b) has been or shall be placed on the share
certificates representing the Warrant Shares and no instructions or "stop
transfer orders," so called, "stock transfer restrictions" or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Section 12.
(d) Assignment. Assuming the conditions of Section 12(a) above regarding
registration or exemption have been satisfied, the Warrant Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in
part to any Person that is an "accredited investor" as defined in Rule 501 of
Regulation D. The Warrant Holder shall deliver a written notice to Company,<PAGE>
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company
shall effect the assignment within ten (10) days, and shall deliver to the
assignee(s) designated by the Warrant Holder a Warrant or Warrants of like
tenor and terms for the appropriate number of shares.
(e) Investor's Compliance. Nothing in this Section 12 shall affect in any
way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
Section 13. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand delivery or delivery
by facsimile (with accurate confirmation generated by the transmitting
facsimile machine) at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received),
or the first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company:
The Female Health Company
919 North Michigan Avenue
Suite 2208
Attention: O.B. Parrish
Chairman and Chief Executive Officer
Chicago, Illinois 60611
Telephone: (312) 280-2281
Facsimile:
with a copy (which shall not constitute notice) to:
Reinhart, Boerner, Van Deuren, Norris & Rieselbach
1000 North Water Street
Suite 2100
Milwaukee, Wisconsin 53202
Attention: David Krosner, Esq.
Telephone: (414) 298-1000
Facsimile:
if to the Investor:
Kingsbridge Capital Limited
c/o Kingsbridge Corporate Services Limited
Main Street
Kilcullen, County Kildare <PAGE>
Republic of Ireland
Attention: Adam Gurney
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Keith M. Andruschak, Esq.
Telephone: (212) 878-8570
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 13 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms
hereof. The invalidity or unenforceability of any provision hereof shall in no
way affect the validity or enforceability of any other provision. This Warrant
shall expire and automatically terminate in the event that the Investor shall
be in material breach of any other agreement between the Investor and the
Company.<PAGE>
IN WITNESS WHEREOF, this Warrant was duly executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
THE FEMALE HEALTH COMPANY
By:
O.B. Parrish
Chairman and Chief Executive Officer
Attested:
By:
Name:
Title: Secretary<PAGE>
EXHIBIT A TO THE WARRANT
EXERCISE FORM
THE FEMALE HEALTH COMPANY
The undersigned hereby irrevocably exercises the right to purchase
__________________ shares of Common Stock of The Female Health Company, a
Wisconsin corporation, evidenced by the attached Warrant, and herewith makes
payment of the Exercise Price with respect to such shares in full in the form
of [cash or certified check in the amount of $________], [______] Warrant
Shares, which represent the amount of Warrant Shares as provided in the
attached Warrant to be canceled in connection with such exercise], all in
accordance with the conditions and provisions of said Warrant.
The undersigned requests that stock certificates for such Warrant Shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to this Warrant in the name of the registered Holder and delivered to
the undersigned at the address set forth below.
Dated:_______________________________________
_____________________________________________
Signature of Registered Holder
Name of Registered Holder (Print)
_____________________________________________
Address<PAGE>
NOTICE
The signature to the foregoing Exercise Form must correspond to the name
as written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.<PAGE>
EXHIBIT B TO THE WARRANT
ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to transfer the
Warrant)
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
Warrant hereby sells, assigns and transfers unto the persons below named the
right to purchase ______________ shares of the Common Stock of The Female
Health Company evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint ______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated:
______________________________
Signature<PAGE>
Fill in for new Registration of Warrant:
_________________________________________
Name
_________________________________________
Address
_________________________________________
Please print name and address of assignee
(including zip code number)<PAGE>
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.<PAGE>
