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 March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ____________
Commission File Number 0-18849
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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 - 12,478,248 shares outstanding as of May 10, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
------ ------
<PAGE>
FORM 10-QSB
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION AND
ANALYSIS:
Cautionary Statement Regarding Forward Looking Statements . . 3
Unaudited Condensed Consolidated Balance Sheet -
March 31, 2000. . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and March 31, 1999. . . . 5
Unaudited Condensed Consolidated Statements of Operations -
Six Months Ended March 31, 2000 and March 31, 1999. . . . . 6
Unaudited Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2000 and March 31, 1999. . . . . 7
Notes to Unaudited Condensed Consolidated
Financial Statements. . . . . . . . . . . . . . . . . . . . 8
Management's Discussion and Analysis. . . . . . . . . . . . . 14
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 24
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
2
<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; the ultimate level of consumer demand for the female condom;
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; 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; 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; and 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.
3
<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
2000
-------------
<S> <C>
ASSETS
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 461,746
Accounts receivable, net. . . . . . . . . . . . . . . . . . 1,303,333
Inventories, net. . . . . . . . . . . . . . . . . . . . . . 1,252,018
Prepaid expenses and other current assets . . . . . . . . . 272,953
-------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . 3,290,050
-------------
Intellectual property rights, net. . . . . . . . . . . . . . . 700,615
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 156,249
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . . . . . . . 3,936,350
Less accumulated depreciation and amortization . . . . . . . . (2,206,432)
-------------
Net Property, plant, and equipment . . . . . . . . . . . . . 1,729,918
-------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,876,832
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, related parties, net of unamortized discount 1,115,200
Convertible debenture, net of unamortized discount. . . . . 1,329,839
Accounts payable. . . . . . . . . . . . . . . . . . . . . . 1,319,146
Accrued expenses and other current liabilities. . . . . . . 318,619
Preferred dividends payable . . . . . . . . . . . . . . . . 67,133
-------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . 4,149,937
-------------
Deferred gain on lease of facility . . . . . . . . . . . . . . 1,528,930
Other long-term liabilities. . . . . . . . . . . . . . . . . . 57,778
-------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 5,736,645
STOCKHOLDERS' EQUITY:
Convertible preferred stock. . . . . . . . . . . . . . . . . . 6,600
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 124,794
Additional paid-in-capital . . . . . . . . . . . . . . . . . . 47,424,792
Unearned consulting compensation . . . . . . . . . . . . . . . (25,106)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (47,539,519)
Accumulated other comprehensive income . . . . . . . . . . . . 180,702
Treasury Stock, at cost. . . . . . . . . . . . . . . . . . . . (32,076)
-------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 140,187
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . $ 5,876,832
=============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
------------ ------------
<S> <C> <C>
Net revenues. . . . . . . . . . . . . . . . . . $ 1,349,718 $ 1,093,722
Cost of products sold . . . . . . . . . . . . . 1,126,073 1,340,781
------------ ------------
Gross profit (loss) . . . . . . . . . . . . . . 223,645 (247,059)
------------ ------------
Advertising and promotion . . . . . . . . . . . 75,832 82,380
Selling, general and administrative . . . . . . 820,488 710,401
------------ ------------
Total operating expenses. . . . . . . . . . . . 896,320 792,781
------------ ------------
Operating (loss). . . . . . . . . . . . . . . . (672,675) (1,039,840)
Interest, net and other expense . . . . . . . . 313,734 59,881
------------ ------------
Pretax (loss) . . . . . . . . . . . . . . . . . (986,409) (1,099,721)
Provision for income taxes. . . . . . . . . . . - -
------------ ------------
Net (loss). . . . . . . . . . . . . . . . . . . $ (986,409) $(1,099,721)
Preferred dividends, Series 1 . . . . . . . . . 32,740 33,195
------------ ------------
Net (loss) attributable to common stockholders. $(1,019,149) $(1,132,916)
============ ============
Net (loss) per common share outstanding . . . . $ (0.08) $ (0.11)
Weighted average of common shares outstanding . 12,452,115 10,624,937
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------
2000 1999
------------ ------------
<S> <C> <C>
Net revenues. . . . . . . . . . . . . . . . . . $ 2,197,013 $ 1,797,720
Cost of products sold . . . . . . . . . . . . . 2,042,966 2,202,232
------------ ------------
Gross profit (loss) . . . . . . . . . . . . . . 154,047 (404,512)
Advertising and promotion . . . . . . . . . . . 114,642 174,843
Selling, general and administrative . . . . . . 1,663,769 1,316,034
------------ ------------
Total operating expenses. . . . . . . . . . . . 1,778,461 1,490,877
------------ ------------
Operating (loss). . . . . . . . . . . . . . . . (1,624,364) (1,895,389)
Interest, net and other expense . . . . . . . . 668,872 130,817
------------ ------------
Pretax (loss) . . . . . . . . . . . . . . . . . (2,293,236) (2,026,206)
Provision for income taxes. . . . . . . . . . . - -
------------ ------------
Net (loss). . . . . . . . . . . . . . . . . . . $(2,293,236) $(2,026,206)
Preferred dividends, Series 1 . . . . . . . . . 66,181 68,750
------------ ------------
Net (loss) attributable to common stockholders. $(2,359,417) $(2,094,956)
============ ============
Net (loss) per common share outstanding . . . . $ (0.19) $ (0.20)
Weighted average of common shares outstanding . 12,371,846 10,532,073
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months ended
March 31,
------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATIONS:
Net (loss) . . . . . . . . . . . . . . . . . . . $(2,293,236) $(2,026,206)
Adjusted for noncash items:
Depreciation and amortization . . . . . . . . . 419,152 275,918
Amortization of discounts on notes payable and
convertible debentures. . . . . . . . . . . . 634,350 136,873
Provision for(recovery of) doubtful
accounts, returns and discounts . . . . . . . (676) 482
Changes in operating assets and liabilities . . 816,175 (189,343)
------------ ------------
Net cash (used in) operating activities. . . . . (424,235) (1,802,276)
INVESTING ACTIVITIES:
Capital expenditures, Net cash (used in)
provided by investing activities. . . . . . . (12,113) (22,933)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from related party notes issued . . . . 1,300,000 1,300,000
Payments on notes payable, related party . . . . (1,300,000) (1,000,000)
Dividends paid on preferred stock. . . . . . . . (39,002) (116,255)
Purchase of Common Stock held in Treasury. . . . - (12,746)
Proceeds from the issuance of common stock upon
exercise of options and warrants. . . . . . . - 202,925
Proceeds from issuance of common stock . . . . . 372,500 407,255
------------ ------------
Net cash provided by financing activities. . . . 333,498 781,179
------------ ------------
Effect of exchange rate changes on cash. . . . . (6,113) (3,345)
------------ ------------
INCREASE (DECREASE) IN CASH. . . . . . . . . . . (108,963) (1,047,375)
Cash at beginning of period. . . . . . . . . . . 570,709 1,480,287
------------ ------------
CASH AT END OF PERIOD. . . . . . . . . . . . . . $ 461,746 $ 432,912
============ ============
Schedule of noncash financing and investing
activities:
Common stock issued for payment of preferred
stock dividends and convertible debenture
interest. . . . . . . . . . . . . . . . . . . $ 43,723 $ 29,973
Issuance of warrants on notes payable. . . . . . 193,289 253,515
Preferred dividends declared, Series 1 . . . . . 66,181 68,750
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 rules and regulations of the Securities and Exchange
Commission. 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 and six months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2000. 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, 1999.
Principles of consolidation and nature of operations:
- ----------------------------------------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, The Female Health Company - UK and The Female
Health Company - UK, plc. All significant intercompany transactions and accounts
have been eliminated in consolidation. The Female Health Company ("FHC" or the
"Company") is currently engaged in the marketing, manufacture and distribution
of a consumer health care product known as the Reality female condom, "Reality,"
in the U.S. and "femidom" or "femy" outside the U.S. The Female Health Company -
UK, is the holding company of The Female Health Company - UK, plc, which
operates a 40,000 sq. ft. leased manufacturing facility located in London,
England.
NOTE 2 - Earnings Per Share
--------------------
Earnings per share (EPS): The Company has adopted the provisions of Statement of
Financial Accounting Standards (FAS) No. 128, Earnings Per Share. FAS No. 128
requires the presentation of "basic" and "diluted" EPS. Basic EPS is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS is computed
giving effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of the incremental
common shares issuable upon conversion of convertible preferred or convertible
debt and the exercise of stock options and warrants for all periods. Fully
diluted (loss) per share is not presented since the effect would be
anti-dilutive.
8
<PAGE>
NOTE 3 - Comprehensive Income
---------------------
Total Comprehensive Loss was $(1,023,047) and $(2,368,562) for the three and six
months ended March 31, 2000 and $(1,263,840) and $(2,276,829) for the three and
six months ended March 31, 1999.
NOTE 4 - Inventories
-----------
The components of inventory consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------
<S> <C>
Raw material and work in process $ 395,030
Finished goods . . . . . . . . . 877,303
----------------
Inventory, gross . . . . . . . . 1,272,333
Less: inventory reserves . . . . (20,315)
----------------
Inventory, net . . . . . . . . . $ 1,252,018
================
</TABLE>
NOTE 5 - Sale of Convertible Preferred Stock
---------------------------------------
The Company has outstanding 660,000 shares of 8% cumulative Convertible
Preferred Stock - Series 1. 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 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 $2.4 million for the six months ended March 31, 2000 and
as of March 31, 2000 had an accumulated deficit of $47.5 million. At March 31,
2000, the Company had working capital of $(0.9) million and stockholders' equity
of $0.1 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 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.
9
<PAGE>
NOTE 6 - Financial Condition - (Continued)
--------------------------------------
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 future efforts to raise
additional capital and to secure additional agreements 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 financial advisory services to healthcare and life-science
companies. Pursuant to this agreement, as extended, Vector has acted as the
Company's exclusive financial advisor through March 31, 2000 for the purposes of
identifying and evaluating opportunities available to the Company for increasing
stockholder value. The Company and Vector are discussing extending these
arrangements. 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. 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. Management is currently determining whether the Company should
seek to extend this arrangement.
On May 19, 1999 and June 3, 1999 the Company issued an aggregate $1.5 million of
convertible debentures and warrants to purchase 1,875,000 shares of the
Company's common stock to five accredited investors. See Note 7 of the Notes to
Unaudited Condensed Consolidated Financial Statements for additional detail.
On November 19, 1998, the Company executed an agreement with a private investor
(the "Equity Line Agreement"). This agreement provides for the Company, at its
sole discretion, subject to certain restrictions, 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 on February 12, 2001 and, among other things, provides for
minimum and maximum puts ranging from $100,000 to $1,000,000 depending on the
Company's stock price and trading volume. Puts cannot occur more frequently
than every 20 trading days. Upon a proper put under this agreement, the investor
purchases Common Stock at a discount of (a) 12% from the then current average
market price of the Company's Common Stock, as determined under the Equity Line
Agreement, if such average market price is at least $2 or (b) 18% from the then
current average market price if such average market price is less than $2. In
addition, the Company is required to pay its placement agent sales commissions
in Common Stock or cash, at the placement agent's discretion, equal to 7% of the
funds raised under the Equity Line Agreement and issue warrants to the placement
agent to purchase shares of Common Stock, at an exercise price of $2.17 per
share, equal to 10% of the shares sold by the Company under the Equity Line
Agreement. Pursuant to the Equity Line Agreement, the Company issued the
investor a Warrant to purchase 200,000 shares of Common Stock at $2.17 per
share.
10
<PAGE>
NOTE 6 - Financial Condition - (Continued)
--------------------------------------
The Company is required to draw down a minimum of $1 million during the term of
the Equity Line Agreement. 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 term of the Equity Line
Agreement. As of March 31, 2000, the Company has placed three puts for the
combined cash proceeds of $485,000 providing the investor with a total of
482,964 shares of the Company's Common Stock. Each put was executed while the
Company's stock price was below $2.00 per share and therefore, the common stock
was sold at the 18% discount. The timing and amount of the stock sales under
the Equity Line Agreement are totally at the Company's discretion, subject to
the Company's compliance with each of the following conditions at the time the
Company requests a stock sale under the Equity Line Agreement:
- the registration statement the Company filed with the SEC for sales
of stock under the Equity Line Agreement must remain in effect;
- all of the Company's representations and warranties in the Equity
Line Agreement must be accurate and the Company must have complied
with all of the Company's obligations in the Equity Line Agreement;
- there may not be any injunction, legal proceeding or law prohibiting
the Company's sale of the stock to the investor;
- the Company's counsel must issue a legal opinion to the investor;
- the sale must not cause the investor's ownership of the Company's
common stock to exceed 9.9% of the outstanding shares of the
Company's common stock;
- the trading price of the Company's common stock over a five trading
day period preceding the date of the sale must equal or exceed $1.00
per share; and
- the average daily trading volume of the Company's common stock for a
20 trading day period preceding the date of the sale must equal or
exceed 17,000 shares.
While the Company believes that its existing capital resources will be adequate
to fund its currently anticipated capital needs, if they are not, 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
of the funds available to it under the Equity Line Agreement.
11
<PAGE>
NOTE 6 - Financial Condition - (Continued)
--------------------------------------
Further, there can be no assurances, 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 commercialize the Female Condom and to curtail
certain other of its operations or, ultimately, cease operations.
NOTE 7 - Sale of Convertible Debentures
---------------------------------
On May 19 and June 3, 1999, the Company issued an aggregate of $1.5 million of
convertible debentures and warrants to purchase 1,875,000 shares of the
Company's common stock to five accredited investors. Interest on the convertible
debentures is payable quarterly at a rate of 8% annually in cash or, at the
investors' option, common stock at its then current fair market value. From
December 2, 1999 until February 11, 2000, interest on the convertible debentures
was at the rate of 10% annually, and then returned to 8% annually. Repayment of
the convertible debentures is secured by a first security interest in all of the
Company's assets. The original principal balance plus any accrued but unpaid
interest of the convertible debentures may be convertible into the Company's
common stock at the investor's election at any time after one year based on a
per share price equal to the lesser of (a) 70% of the market price of the
Company's Common Stock at the time of conversion or (b) $1.00. The convertible
debentures are payable one year after issuance or, if the Company elects, two
years after issuance. If the term is extended for the extra one year, the
Company must issue to the investors at the time of extension, additional
warrants to purchase an aggregate of 375,000 shares of Common Stock on the same
term as the other warrants. Additionally, warrants to purchase 337,500 shares of
Common Stock were issued to the Company's placement agent in this offering. The
warrants have a term of five years and are exercisable at an exercise price
equal to the lesser of 70% of the market price of the Common Stock at the time
of the exercise or $1.00.
The convertible debentures beneficial conversion feature is valued at $336,400
and the warrants to purchase 1,875,000 shares of common stock are valued at
$715,100. In accordance with SEC reporting requirements for such transactions,
the Company recorded the value of the beneficial conversion feature and warrants
(a total of $1,051,500) as additional paid in capital.
The corresponding amount of $1,051,500 was recorded as a discount on convertible
debentures and is amortized over 1 year using the interest rate method.
12
<PAGE>
NOTE 8 - Industry Segments And Financial Information About Foreign and Domestic
-----------------------------------------------------------------------
Operations
- ----------
The Company currently operates primarily in one industry segment which includes
the development, manufacture and marketing of consumer health care products.
The Company operates in foreign and domestic regions. Information about the
Company's operations in different geographic areas (determined by the location
of the operating unit) is as follows:
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------
(Amounts in thousands) 2000 1999
-------- --------
<S> <C> <C>
Net revenues:
United States . . . . . . $ 1,034 $ 1,073
International . . . . . . 1,163 725
Operating profit (loss):
United States . . . . . . $(2,414) $(1,674)
International . . . . . . 55 (421)
Identifiable assets:
United States . . . . . . $ 1,823 $ 1,103
International . . . . . . 4,054 4,798
</TABLE>
On occasion, the Company's U.S. unit sells product directly to customers located
outside the U.S. Were such transactions reported by geographic destination of
the sale rather than the geographic location of the unit, U.S. revenues would be
decreased and International revenues increased by $22,000 and $4,500 as of March
31, 2000 and 1999, respectively. Additionally, U.S. operating loss reflects
$1,359,234 and $467,555 of worldwide corporate overhead for the six months ended
March 31, 2000 and 1999, respectively.
13
<PAGE>
THE FEMALE HEALTH COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Female Health Company ("FHC" or the "Company") manufactures, markets and
sells the female condom around the world. It is the only product under a
woman's control which can prevent unintended pregnancy and sexually transmitted
diseases ("STDs"), including HIV/AIDS.
The female condom has undergone extensive testing for efficacy, safety and
acceptability, not only in the United States but also in over 40 additional
countries. Certain of these studies show that having the female condom
available increases protected sex acts and decreases the incidence of STDs.
The product is currently sold or available in various venues including
commercial (private sector) and public sector clinics in 75 countries. It is
commercially marketed directly by the Company in the United States and the
United Kingdom and through marketing partners in 15 countries, including Canada,
France and Japan. The Company's partner in Japan, Taiho Pharmaceutical Co., Ltd.
("Taiho"), received regulatory approval from Koseisho, the Japanese regulatory
agency in November 1999. Taiho launched the female condom as My Femy in April
of this year. The Company is currently in discussions with potential
distributors for certain European countries, India, The People's Republic of
China and other countries.
As noted above, the female condom is sold to the global public sector. In the
U.S., the product is marketed to city and state public health clinics as well as
not-for-profit organizations such as Planned Parenthood. Following several years
of testing the efficacy and acceptability of the female condom, the Company
entered into a three-year agreement with the Joint United Nations Programme on
AIDS (UNAIDS) which has subsequently been extended. In the agreement, UNAIDS
facilitates the availability and distribution of the female condom in the
developing world and the Company will sell the product to developing countries
at a reduced price based on the Company's cost of production. The current price
per unit is approximately 0.38 Pounds ($0.61). Pursuant to this agreement, the
product is currently available in 51 countries including Zambia, Zimbabwe,
Tanzania, Brazil, Uganda, South Africa, and Haiti. The Company anticipates
multiple launches will occur during the next two years under this agreement,
including launches in Kenya, Nigeria, Ghana, Cambodia, Bangladesh, Columbia and
Central American countries.
Product
The female condom is made of polyurethane, a thin but strong material that is
resistant to rips and tears during use. The female condom consists of a soft,
loose fitting sheath and two flexible O rings. One of the rings is used to
insert the device and helps to hold it in place. The other ring remains outside
the vagina after insertion. The female condom lines the vagina, preventing skin
from touching skin during intercourse. The female condom is prelubricated and
disposable and is intended for use during only one sex act.
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Global Market Potential
The World Health Organization (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 15,000 people per day who are newly
infected. In the United States, the Center for Disease Control 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 coming year.
The United Nations recently established a goal to reduce the incidence of
HIV/Aids in young people in developing countries by 25% by 2005.
Currently there are only two products that prevent the transmission of HIV/AIDS
through sexual intercourse--the latex male condom and the female condom.
The Company is currently in discussion with WHO and UNAIDS regarding the role
the Female Condom can play in achieving the UN goal.
MALE CONDOM MARKET: It is estimated the global annual market for male condoms is
5.4 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.
Advantages vs. the Male Condom
The female condom is currently the only available barrier contraceptive method
controlled by women which allows them to protect themselves from unintended
pregnancy and STDs, including HIV/AIDS. The most important advantage is that a
woman can control whether or not she is protected as many men do not like to
wear male condoms and may refuse to do so.
The polyurethane material that is used for the female condom 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 4% to 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 date 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 sexual intimacy than
the male condom which requires sexual arousal for application.
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<PAGE>
Cost Effectiveness
Over the past two years several studies have been completed which show that
providing the female condom in public clinics in both the United States and
countries in the developing world, is at a minimum cost effective and usually
cost saving. This is important information for governments to have in
determining where their public health dollars are allocated. These studies have
been or are about to be published and also presented at various scientific
meetings around the world.
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
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, Japan, Russia, Australia, South Korea and Taiwan.
The Company believes that, in addition to its patent coverage, the female
condom's PMA approval and FDA classification as a Class III Medical Device
create a significant barrier to entry in the US. 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.
Strategy
The Company's strategy is to act as a manufacturer, selling the female condom to
the global public sector, United States public sector and commercial partners
for country-specific marketing. The public sector and commercial partners
assume the cost of shipping and marketing the product. As a result, as volume
increases, the Company's operating expenses will not increase significantly.
Commercial Markets
The Company markets the product directly in the United States and United
Kingdom. The Company has commercial partners who have launched the product in
15 countries including Canada, Japan, and France. The most recent launch was in
Japan in April 2000.
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Japanese Market
In Japan, the market for male condoms exceeds 600 million units. Oral
contraceptives have only recently been approved in Japan and, as a result, 96%
of Japanese contracepting couples use condoms. FHC's partner in Japan, Taiho
Pharmaceuticals, a $1 billion Japanese health care company, launched the female
condom under the tradename, MyFemy in April 2000. Taiho is using its 600 person
sales force as well as its specialty medical sales force to promote MyFemy.
Taiho has initiated a strong advertising, promotion and education campaign. The
Company and Taiho are enthusiastic about the market potential of MyFemy in
Japan.
Relationships and Agreements with Public Sector Organizations
Currently, it is estimated more than 1.5 billion male condoms are distributed
worldwide by the public sector each year. The female condom is seen as an
important addition to prevention strategies by the public sector because studies
show that making the female condom available decreases the amount of unprotected
sex by as much as one-third over offering only a male condom.
The Company has a multi-year agreement with UNAIDS to supply the female condom
to developing countries at a reduced price which is negotiated each year based
on the Company's cost of production. The current price per unit is approximately
0.38 Pounds ($.61). The female condom is available under this arrangement in 51
countries including 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, Ghana,
Cambodia, Bangladesh, Columbia and Central American countries.
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.
State-of-the-Art Manufacturing Facility
The Company manufactures the female condom in a 40,000 square-foot leased
facility in London, England. The facility is currently capable of producing 60
million units per year. With additional equipment, this capacity can be
significantly increased.
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Government Regulation
In the U.S., the U.S. Food and Drug Administration ("FDA") regulate the female
condom. Pursuant to section 515(a)(3) of the Safe Medical Amendments Act of 1990
(the "SMA Act"), the FDA may temporarily suspend approval and initiate
withdrawal of the Pre-Market Approval ("PMA") if the FDA finds that the female
condom is unsafe or ineffective, or on the basis of new information with respect
to the device, which, when evaluated together with information available at the
time of approval, indicates a lack of reasonable assurance that the device is
safe or effective under the conditions of use prescribed, recommended, or
suggested in the labeling. Failure to comply with the conditions of FDA
approval invalidates the approval order. Commercial distribution of a device
that is not in compliance with these conditions is a violation of the SMA Act.
Competition
The Company's female condom participates in the same market as male condoms but
is not seen as competing - rather additive in terms of prevention and choice.
However, it should be noted that latex male condoms cost less and have brand
names that are more widely recognized than the female condom. In addition, male
condoms are generally manufactured and marketed by companies with significantly
greater financial resources than the Company. It is also possible that other
parties may develop a female condom. These competing products could be
manufactured, marketed and sold by companies with significantly greater
financial resources than those of the Company.
Patents and Trademarks
The Company currently holds product and technology patents in the United States,
Japan, the United Kingdom, France, Italy, Germany, Spain, the European Patent
Convention, Canada, The People's Republic of China, New Zealand, Singapore, Hong
Kong and Australia. Additional product and technology patents are pending in
Brazil, South Korea, Germany, Japan and several other countries. The patents
cover the key aspects of the female condom, including its overall design and
manufacturing process. The Company licenses the trademark "Reality" in the
United States and has trademarks on the names "femidom" and "femy" in certain
foreign countries. The Company has also secured, or applied for, 27 trademarks
in 14 countries to protect the various names and symbols used in marketing the
product around the world. In addition, the experience that has been gained
through years of manufacturing the female condom has allowed the Company to
develop trade secrets and know-how, including certain proprietary production
technologies that further secure its competitive position.
18
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RESULTS OF OPERATIONS
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Sales increased $255,996 in the current quarter, or 23%, compared with the same
period last year. The higher sales occurred because of increased unit sales
shipped to international customers. The Company expects significant quarter to
quarter variation due to the timing of receipt of large orders, subsequent
production scheduling, and shipping of products as various countries launch the
product. The Company believes this variation between quarters will continue for
several quarters to come until reorders form an increasing portion of total
sales.
The Company had revenues of $1,349,718 and a net loss of $1,019,149 for the
three months ended March 31, 2000 compared to revenues of $1,093,722 and a net
loss of $1,132,916 for the three months ended March 31, 1999. As discussed more
fully below, the decrease in the Company's net loss was result of an increase in
gross profit offset by increases in selling, general and administrative expenses
and non-operating interest expenses.
Cost of goods sold decreased $214,708 to $1,126,073 in the current quarter from
$1,340,781 for the same period last year. The decline is a result of a larger
portion of the Company's total sales being comprised of international and global
public sector business (69%) than during the same period in the prior year
(45%). The costs of goods sold per unit for such customers' business is less
expensive because of the efficiencies related to the production of the bulk
sized product sold.
Advertising and promotional expenditures decreased $6,548 to $75,832 in the
current quarter from $82,380 for the same period in the prior year.
Selling, general and administrative expenses increased $110,087, or 15%, to
$820,488 in the current quarter from $710,401 for the same period last year.
The increase reflects an increase in selling, accounting and financing costs.
The increase in selling expenses is a result of an expansion of sales staff
utilized for public sector sales compared to that which was in existence during
the prior period. As a result of the need to obtain additional financing the
Company incurred accounting costs and non-cash expenses related to warrants
issued for investment service personnel at a cost substantially greater than
incurred in the prior fiscal year's first quarter.
The Company's operating loss for the three months ended March 3, 2000 was
$672,675 compared to $1,039,840 for the same period last year, for a decrease of
35%.
Net interest and non-operating expenses increased $253,853 to $313,734 for the
current period from $59,881 for the same period last year. The increase exists
because the Company had a higher level of debt outstanding than the same period
last year, as a result of the issuance of convertible debentures. The result is
a larger amount of non-cash expenses incurred from the amortization of discounts
on notes payable and convertible debentures than the first quarter of the prior
year.
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<PAGE>
Non-cash expense for the three months ended March 31, 2000 totaled $456,000
compared to $122,000 during the same period in the prior year. The non-cash
expenses related to warrants issued during the respective periods.
SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999
The Female Health Company had net revenues of $2,197,013 and a net loss of
$2,359,417 for the six months ended March 31, 2000 compared to revenues of
$1,797,720 and a net loss of $2,094,956 for the six months ended March 31, 1999.
As discussed in more detail in the following paragraphs, the increase in the
Company's net loss was due to an increase in selling, general and administrative
expenses and non-operating interest expenses offset by gross profit
improvements.
For the six months ended March 31, 2000, sales increased $399,293, or 22%,
compared with the same period last year. The higher sales occurred because of
increased unit sales shipped to international customers.
Units shipped and orders in-house totaled 6.6 million units at March 31, 2000
compared to 4.0 million at March 31, 1999 for an increase of 65%. The Company
expects significant quarter to quarter variation due to the timing of receipt of
large orders, subsequent production scheduling, and shipping of products as
various countries launch the product. The Company believes this variation
between quarters will continue for several quarters to come until reorders form
an increasing portion of total sales.
Cost of goods sold decreased $159,266, or 7%, to $2,042,966 for the six months
ended March 31, 2000 from $2,202,232 for the same period last year. The decrease
occurred as a result of a larger portion of the Company's total sales being
comprised of international and global public sector business (53%) than during
the same period in the prior year (40%). The costs of goods sold per unit for
such customers' business is less expensive because of the efficiencies related
to the production of the bulk sized product sold.
Advertising and promotional expenditures decreased $60,201, or 34%, to $114,642
for the six months ended March 31, 2000 from $174,843 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 due to the Company's size, it doesn't possess the resources to
conduct a significant marketing program. Accordingly, the Company is in
discussions with potential partners for the U.S. that have the resources to
conduct such a marketing program.
Selling, general and administrative expenses increased $347,735, or 26%, to
$1,663,769 in the current period from $1,316,034 for the same period last year.
The increase reflects an increase in selling, accounting and financing costs.
The increase in selling expenses is a result of an expansion of sales staff
utilized for global and public sector sales compared to that which was in
existence during the same period during the prior year. As a result of the
Company's need to obtain additional financing the Company incurred accounting
costs and non-cash expenses related to warrants issued for investment service
personnel at a cost substantially greater than incurred in the prior year's
first six months.
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Net interest and non-operating expenses increased $538,055 to $668,872 for the
current period from $130,817 for the same period the prior year. The increase
exists because the Company had a higher level of debt outstanding during the
current fiscal year than the same period last year as a result of the issuance
of convertible debentures. The result is a larger amount of non-cash expenses
incurred from the amortization of discounts on notes payable and convertible
debentures than the first half of the prior year.
Non-cash expense for the six months ended March 31, 2000 totaled $884,000
compared to $211,000 during the same period in the prior year. The non-cash
expenses related to warrants issued during the respective periods.
Factors That May Affect Operating Results and Financial Condition
The Company's future operating results and financial condition are dependent on
the Company's ability to increase demand for and to cost-effectively manufacture
sufficient quantities of the female condom. Inherent in this process is a
number of factors that the Company must successfully manage in order to achieve
favorable future results and improve its financial condition.
Reliance on a Single Product
The Company expects to derive the vast majority, if not all, of its future
revenues from the female condom, its sole current product. While management
believes the global potential for the female condom is significant, the product
is in the early stages of commercialization and, as a result, the ultimate level
of consumer demand around the world is not yet known. To date, sales of the
female condom have not been sufficient to cover the Company's operating costs.
Distribution Network
The Company's strategy is to act as a manufacturer and to develop a global
distribution network for the product by completing partnership arrangements with
companies with the necessary marketing and financial resources and local market
expertise. To date, this strategy has resulted in numerous in-country
distributions in the public sector, particularly in Africa and Latin America.
Several partnership agreements have been completed for the commercialization of
the female condom in private sector markets around the world. However, the
Company is dependent on country governments as well as city and state public
health departments within the United States to continue their commitment to
prevention of STDs, including AIDS, by including female condoms in their
programs. The Company is also dependent on finding appropriate partners for the
private sector markets around the world. Once an agreement is completed, the
Company is reliant on the effectiveness of its partners to market and distribute
the product. Failure by the Company's partners to successfully market and
distribute the female condom or failure of country governments to implement
prevention programs which include distribution of barrier methods against the
AIDS crisis, or an inability of the Company to secure additional agreements for
AIDS crisis, or an inability of the Company to secure additional agreements for
new markets either in the public or private sectors could adversely affect the
Company's financial condition and results of operations.
Inventory and Supply
All of the key components for the manufacture of the female condom are
essentially available from either multiple sources or multiple locations within
a source.
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Global Market and Foreign Currency Risks
The Company manufactures the female condom in a leased facility located in
London, England. Further, a material portion of the Company's sales are 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. To date, the Company's
management has not deemed it necessary to utilize currency hedging strategies to
manage its currency risks. On an ongoing basis, management continues to
evaluate its commercial transactions and is prepared to employ currency hedging
strategies when it believes such strategies are appropriate. 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.
Government Regulation
The female condom is subject to regulation by the FDA, pursuant to the federal
Food, Drug and Cosmetic Act (the "FDA Act"), and by other state and foreign
regulatory agencies. Under the FDA Act, medical devices must receive FDA
clearance before they can be sold. FDA regulations also require the Company to
adhere to certain "Good Manufacturing Practices," which include testing, quality
control and documentation procedures. The Company's compliance with applicable
regulatory requirements is monitored through periodic inspections by the FDA.
The failure to comply with applicable regulations may result in fines, delays or
suspensions of clearances, seizures or recalls of products, operating
restrictions, withdrawal of FDA approval and criminal prosecutions. The
Company's operating results and financial condition could be materially
adversely affected in the event of a withdrawal of approval from the FDA.
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
six months of fiscal 2000, cash used in operations totaled $0.4 million. The
Company used net proceeds from the issuance of the Company's common stock in
order to fund cash used in operations; thereby avoiding a reduction of its cash
position.
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, the Company will 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.
See Note 6 to the Unaudited Condensed Consolidated Financial Statements for
additional information regarding the Company's liquidity and capital resources.
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At March 31, 2000, the Company had current liabilities of $4.1 million including
a $1.0 million note payable due March 25, 2001 and a $250,000 note payable due
February 12, 2001 both to Mr. Dearholt, a Director of the Company. As of March
31, 2000, Mr. Dearholt beneficially owns 2,046,720 shares of the Company's
Common Stock.
The Company also secured a $50,000 note payable due February 18, 2001 from Mr.
Parrish, the Chairman of the Board and Chief Executive Officer of the Company.
As of March 31, 2000, Mr. Parrish beneficially owns 484,001 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
$0.1 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.
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.
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PART II - OTHER INFORMATION
---------------------------
ITEMS 1-5. NOT APPLICABLE EXCEPT AS PROVIDED BELOW
- --------------------------------------------------------
Item 2(c)
The Company sold 100,000 shares of common stock to one investor in January
2000. The Company received cash proceeds of $75,000 from this sale. The
Company believes it has satisfied the exemption from the securities registration
requirement provided by section 4(2) of the Securities Act and Regulation D
promulgated thereunder in this offering since the securities were sold in a
private placement to a sophisticated, accredited investor, who provided
representations which the Company deemed necessary to satisfy itself that he was
an accredited investor and was purchasing for investment and not with a view to
resale in connection with a public offering.
The Company sold 80,001 shares of common stock to three investors in
February 2000. The Company received cash proceeds of $60,000 from these sales.
The Company believes it has satisfied the exemption from the securities
registration requirement provided by section 4(2) of the Securities Act and
Regulation D promulgated thereunder in this offering since the securities were
sold in a private placement to sophisticated, accredited investors, who provided
representations which the Company deemed necessary to satisfy itself that they
were accredited investors and were purchasing for investment and not with a view
to resale in connection with a public offering.
On February 18, 2000, the Company issued warrants to purchase 12,500 shares
of common stock to O.B. Parrish, the Company's Chairman and Chief Executive
Officer, in connection with the extension of the due date of a $50,000 loan from
Mr. Parrish to February 18, 2001. The warrants have an exercise price of $0.72
per share. The warrants expire upon the earlier of their exercise or ten years
after the date of their issuance. The Company believes that it has satisfied
the exemption from the securities registration requirement provided by section
4(2) of the Securities Act in connection with this issuance.
On February 12, 2000, the Company issued warrants to purchase 62,500 shares
of common stock to Stephen M. Dearholt in connection with the extension of the
due date of a $250,000 loan from Mr. Dearholt to February 12, 2001. On March
25, 2000, the Company issued warrants to purchase 250,000 shares of common stock
to Stephen M. Dearholt in connection with the extension of the due date of a
$1,000,000 loan from Mr. Dearholt to March 25, 2001. The Company believes that
it has satisfied the exemption from the securities registration requirement
provided by section 4(2) of the Securities Act in connection with these
issuances.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------------------------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------------------------------------------------------
<C> <S>
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 Amended and Restated Articles of Incorporation.
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10.1 Company Promissory Note to Stephen M. Dearholt for $250,000
dated February 12, 2000 and related Warrants.
10.2 Company Promissory Note to O.B. Parrish for $50,000 dated
February 18, 2000 and related Warrants.
10.3 Company Promissory Note to Stephen M. Dearholt for $1
million dated March 25, 2000 and related Warrants.
27 Financial Data Schedule
</TABLE>
_____________________________
(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.
(b) Report on Form 8-K - No reports on Form 8-K were filed during the
quarter ended March 31, 2000.
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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: May 15, 2000 /s/ O.B. Parrish
----------------------------------
O. B. Parrish, Chairman and
Chief Executive Officer
/s/o/Robert R. Zic
----------------------------------
Robert R. Zic, Director of Finance
(Principal Accounting Officer)
26
AMENDED AND RESTATED
--------------------
PROMISSORY NOTE
---------------
$250,000.00 February 12, 2000
FOR VALUE RECEIVED, THE FEMALE HEALTH COMPANY, a Wisconsin
corporation, promises to pay to the order of Stephen M. Dearholt, at his office
in the City of Milwaukee, Wisconsin, the principal sum of Two Hundred Fifty
Thousand Dollars ($250,000.00), payable in full on February 12, 2001.
The unpaid principal balance hereof shall bear interest, payable
monthly on the last day of each calendar month during the term of this note, and
at maturity (whether stated maturity or upon acceleration), computed at a rate
equal to 12% per annum. Principal amounts unpaid at the maturity thereof
(whether by fixed maturity or acceleration) shall bear interest from and after
maturity until paid computed at a rate equal to 18% per annum. Principal of and
interest on this Note shall be payable in lawful money of the United States.
All interest payable on this note shall be computed for the actual
number of days elapsed using a daily rate determined by dividing the annual rate
by 365. Whenever any payment to be made hereunder shall be stated to be due on
a Saturday, Sunday or public holiday under the laws of the State of Wisconsin,
such payment may be made on the next succeeding business day, and such extension
of time shall be included in the computation of interest on this note.
This note is issued in replacement of the original Note issued under a
Note Purchase and Warrant Agreement dated as of February 12, 1999 between the
undersigned and Stephen M. Dearholt to which Agreement reference is hereby made
for a statement of the terms and conditions on which the loan evidenced hereby
was made and for a description of the terms and conditions upon which this Note
may be prepaid, in whole or in part, or its maturity accelerated.
THE FEMALE HEALTH COMPANY
By:
------------------------------------------
Chairman and Chief Executive Officer
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW. THIS WARRANT AND ANY
INTEREST HEREIN MAY BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF ONLY
IF REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE, AND ONLY IN STRICT COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS AND REGULATIONS.
- --------------------------------------------------------------------------------
================================================================================
WARRANT
FOR THE PURCHASE OF
COMMON STOCK
OF
THE FEMALE HEALTH COMPANY
Warrant Number 8
================================================================================
================================================================================
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Stephen M. Dearholt, or
assigns, is entitled to subscribe for and purchase from The Female Health
Company, a Wisconsin corporation (the Company"), 62,500 shares of the fully paid
and non-assessable shares of Common Stock, $.01 par value per share, of the
Company, at the Purchase Price (as hereinafter defined) per share.
This Warrant and all warrants issued in substitution or exchange for
all or part hereof are herein individually called a "Warrant" and collectively
the "Warrants".
1. Definitions. When used in this Warrant, the following terms
-----------
shall have the meanings specified:
(a) "Affiliate" shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with
another Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to
<PAGE>
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
(b) "Common Shares" shall mean and include the Company's
presently authorized shares of Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares purchasable pursuant to this Warrant shall
include shares designated as Common Stock of the Company on the date of original
issue of this Warrant or, in case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in Section 5(a)
hereof.
(c) "Common Stock" shall mean the common stock, $.01 par
value per share, of the Company.
(d) "Expiration Date" shall mean the earliest to occur of the
following: (i) the exercise of all of the rights to purchase Common Stock
represented by this Warrant; or (ii) February 12, 2010.
(e) "Holder" shall mean Stephen M. Dearholt and any permitted
transferee or assignee of all or part of this Warrant and the rights hereunder;
provided that, as used in Section 12 hereof such term shall also include any
holder or holders of Common Stock (or Other Securities) issued on the exercise
of this Warrant other than Persons who received such Common Stock (or Other
Securities) in a public offering or pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended.
(f) "Holder Group" shall have the meaning assigned thereto in
Section 10 hereof.
(g) "Purchase Price" shall mean the per share purchase price
of $0.77 (subject to adjustment under Section 5) to be paid for shares of Common
Stock purchased pursuant to the exercise of this Warrant.
(h) "Other Securities", as used in Section 12 hereof, shall
mean any stock (other than Common Stock) and other securities of the Company or
any other Person (corporate or otherwise) which the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on the exercise
of this Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 5 hereof or otherwise.
(i) "Person shall mean and include an individual,
partnership, corporation, trust, joint venture, incorporated organization and a
government or any department or agency thereof.
2
<PAGE>
2. Exercise: Issuance of Certificates: Payment for Shares. This
--------------------------------------------------------
Warrant may be exercised by the Holder, in whole or in part, at any time and
from time to time on or after February 12, 2000, until 5:00 p.m. central time on
the Expiration Date, by the surrender of this Warrant (properly endorsed if
required), and payment by the Holder to the Company of the Purchase Price for
each share of Common Stock purchased with respect to such exercise by wire
transfer or certified or cashiers check. Upon such surrender and payment, the
Holder shall be entitled to receive a certificate or certificates representing
the shares of Common Stock so purchased, which certificate(s) may contain a
standard legend indicating that such shares have not been registered under the
Securities Act and prohibiting resale thereof without registration or an opinion
of counsel that an exemption from registration is available. The Company agrees
that the shares so purchased shall be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares as
aforesaid. Subject to the Company's Amended and Restated Articles of
Incorporation, certificates for the shares of Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten days, after
the rights represented by this Warrant shall have been so exercised. If the
rights of the Holder of this Warrant are exercised in part, the number of shares
of Common Stock which thereafter may be purchased pursuant to this Warrant shall
be reduced accordingly and the Company shall reissue a Warrant or Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock as so reduced.
3. Affirmative Covenants.
----------------------
(a) The Company covenants and agrees that the shares of
Common Stock issuable upon exercise of the rights represented by this Warrant
will, upon such exercise and issuance in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable (except as set forth in
Section 180.0622(2)(b), Wis. Stats., as amended and interpreted) and free from
all taxes, liens and charges with respect to the issue. The Company further
covenants and agrees that, until the Expiration Date, the Company will at all
times have authorized, and reserved for the purpose of issue upon total or
partial exercise of the rights represented by this Warrant, a sufficient number
of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
(b) The Company further covenants and agrees that, until the
Expiration Date, the Company will deliver to the Holder copies of all reports
and information filed by the Company with the Securities and Exchange Commission
("SEC") pursuant to the Securities Exchange Act of 1934, as amended, within 10
days after receiving a written request from the Holder.
4. Issuance of Preferred Stock. So long as this Warrant remains
-----------------------------
outstanding, the Company will not issue any capital stock of any class preferred
as to dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in the distribution of such assets.
3
<PAGE>
5. Anti-Dilution Provisions. The above provisions are, however,
-------------------------
subject to the following:
(a) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Holder hereof shall hereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the Holder
of this Warrant to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof, together with such
adjustment in the Purchase Price as may be applicable with respect thereto so
that the aggregate price to be paid for shares issued pursuant to this Warrant
shall be neither increased nor decreased. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the Holder hereof at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
(b) In case any time:
(1) the Company shall declare any cash dividend on its
Common Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock
upon its Common Stock, make any distribution (other than regular cash dividends)
to the holders of its Common Stock or redeem any shares of its Common Stock;
(3) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization,
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to
another corporation; or
4
<PAGE>
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder of this Warrant at
the address of such Holder as shown on the books of the Company, of the date on
which (aa) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (bb) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given at least 15 days prior to the action in question and not less than 15 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereto.
6. Certain Events. If any event occurs as to which the provisions
--------------
of this Warrant are not strictly applicable or, if strictly applicable would not
fairly protect the rights of the Holder in accordance with the essential intent
and principles of such provisions, then the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect the Holder's rights
as aforesaid.
7. Term of Warrant. This Warrant shall remain outstanding and
-----------------
exercisable until the Expiration Date. To the extent not previously exercised,
the rights to purchase Common Stock represented by this Warrant shall thereupon
terminate.
8. Issue Tax. The issuance of certificates for shares of Common
----------
Stock upon the total or partial exercise of this Warrant shall be made without
charge to the Holder for any issuance tax in respect thereof.
9. Closing of Books. The Company will at no time close its
------------------
transfer books against the transfer of this Warrant or act in any manner which
interferes with the timely exercise of the rights represented by this Warrant.
10. Transfer of Warrant. Subject to any registration or
---------------------
qualification requirements under the Securities Act and applicable state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the Holder, by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant to the Company properly
endorsed; provided that the Company may require in connection with such transfer
an opinion of counsel to the effect that such transfer qualifies for an
exemption from the registration requirements of the Securities Act. If this
Warrant is transferred in part in accordance with the terms hereof, the Company
shall reissue a Warrant or Warrants of like tenor representing in the aggregate
the right to purchase the number of shares of Common Stock represented by this
Warrant immediately prior to such transfer and thereafter the Holder and all
transferees and assignees shall constitute the "Holder Group" for purposes of
Section 12 hereof.
5
<PAGE>
11. No Voting Rights. This Warrant shall not entitle the Holder
------------------
to any voting rights as a shareholder of the Company.
12. Registration Rights. All references in this Section 12 to
--------------------
Common Stock shall be deemed to include Other Securities as applicable.
12.1 Demand Registration. At any time (whether before or after
---------------------
the Expiration Date) following the exercise of the right to purchase Common
Stock pursuant to this Warrant, a Holder may demand registration under the
Securities Act of 1933, as amended (the "Securities Act") of the resale of all
or part of the Common Stock issuable or which has been issued upon exercise of
this Warrant, on Form S-1, Form SB-2 or any similar long-form registration or,
in the Company's sole discretion, on Form S-2 or S-3 or any similar short-form
registration, if available under applicable rules of the SEC. If such request
is made by less than all Holders, the Company shall send written notice of such
registration request to the remaining Holders within 15 days of receipt of the
initial registration request. Unless a remaining Holder shall deliver to the
Company, within 20 days after such notice is sent by the Company, a written
request for inclusion in the registration demanded by the initial request of all
or part of the Common Stock issuable or which has been issued upon exercise of
the Warrant held by such remaining Holder, all rights of such remaining Holder
under this Section 12.1 shall be terminated. The written request to be
delivered by a Holder to the Company pursuant to this Section 12.1 shall (i)
specify the number of shares intended to be offered and sold by the Holder, (ii)
express the present intent of the Holder to offer such shares for distribution,
and (iii) describe the nature and method of the proposed offer and sale thereof.
The registration requested pursuant to this Section 12.1 is referred to herein
as "Demand Registration", which term shall also include any Demand Registration
as defined in any of the Dearholt Stock Documents referenced in Section 12.1(a)
hereof.
(a) Number of Registrations. Notwithstanding any contrary
-------------------------
provision contained in this document, the Note Purchase and Warrant Agreement
between the Company and Stephen M. Dearholt dated as of February 12, 1999, the
Stock Issuance Agreement between such parties dated as of February 12, 1999, the
Warrant issued by the Company to Stephen M. Dearholt dated as of February 12,
1999, the Note Purchase and Warrant Agreement between the Company and Stephen M
Dearholt dated as of March 25, 1998, the Warrant issued by the Company to
Stephen M. Dearholt dated as of March 25, 1998, the Stock Issuance Agreement
between the Company and Stephen M. Dearholt dated March 25, 1998, the Note
Purchase and Warrant Agreement between the Company and Stephen M Dearholt dated
as of March 25, 1997, the Warrant issued by the Company to Stephen M. Dearholt
dated as of March 25, 1997, the Note Purchase and Warrant Agreement by and among
the Company and Stephen M. Dearholt dated as of March 25, 1996, the Warrant
issued by the Company to Stephen M. Dearholt dated as of March 26, 1996, and the
Warrant issued by the Company to Stephen M. Dearholt dated as of November 21,
1995 (collectively, the "Dearholt Stock Documents"), the Holder Group shall be
entitled to an unlimited number of Demand Registrations under all such Dearholt
Stock Documents, and shall be entitled to include all or part of the stock
received under any or all of such Dearholt Stock Documents in any Demand
Registration, as the Holder Group shall request from time to time; provided,
however, that, except for Demand Registrations requested pursuant to the last
sentence of this Section 12.1(a), any such Demand Registration shall include at
least
6
<PAGE>
two hundred thousand (200,000) shares of Common Stock (subject to adjustment
pursuant to Section 5(a)). A registration initiated as a Demand Registration
may be withdrawn at any time at the request of the Holders of a majority of the
shares of the Common Stock requested to be included in such Demand Registration
(the "Required Percentage"); provided that in the event a registration initiated
as a Demand Registration is so withdrawn, all expenses in connection with such
withdrawn registration (including, without limitation, reasonable fees of
counsel and accountants for the Company) shall be paid by the participating
Holders, pro rata. In the event Stephen M. Dearholt shall pledge or assign his
rights and interests to all or part of the Common Stock issued to him upon
exercise of this Warrant, or upon exercise of his rights under any of the
Dearholt Stock Documents, as collateral pursuant to a borrowing, the rights to
Demand Registrations hereunder may be assigned and transferred to said lender
(and only one lender at any given time) in connection therewith, and said lender
shall be entitled to request such Demand Registrations at any time, without
regard to the two hundred thousand (200,000) share minimum under the first
sentence of this Section 12.1(a), and notwithstanding the provisions of the
first sentence of Section 12.1(c) below.
(b) Priority on Demand Registrations. The Company will not
----------------------------------
include in the Demand Registration any securities which are not Common Stock
owned by a Holder, without the written consent of the Required Percentage of
Holders. If the Demand Registration is an underwritten offering, and the
managing underwriters advise the Company in writing that in their opinion the
number of shares of Common Stock requested to be included exceeds the number of
shares of Common Stock which can be sold in such offering without adversely
affecting the market price of the Company's Common Stock, the Company will
include in such registration (pro rata from shares of Common Stock requested to
be included by each participating Holder), prior to the inclusion of any
securities which are not shares of Common Stock owned by a Holder, the number of
shares of Common Stock owned by the Holders requested to be included which in
the opinion of such underwriters can be sold without such adverse affect; and
the balance of the shares of Common Stock which Holder requested to be included
in such offering shall be withheld from sale for a period of time requested by
the underwritten, but not to exceed one hundred twenty (120) days.
(c) Restrictions on Demand Registration. Subject to the next
------------------------------------
following sentence and the last sentence of Section 12.1(a) above, the Company
will not be obligated to effect a Demand Registration within one hundred twenty
(120) days after the effective date of a registration in which the Holder was
given an opportunity to participate in a registered offering pursuant to Section
12.2 hereof. In the event that a Holder requests to participate in a
registration under Section 12.2 hereof and satisfies the conditions of Section
12.3, and for whatever reason all of the shares of Common Stock which such
Holder so requests to be registered are not registered or are not permitted to
be offered for sale and sold prior to shares of Common Stock or other equity
securities being registered and offered by the Company in such registration,
then the provisions of the first sentence of this Section 12.1(c) shall not
apply, and the Company shall be obligated to effect a Demand Registration
requested by such Holder as soon as practicable in accordance with the terms
hereof. The Company may postpone for up to ninety (90) days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company and the Required Percentage of Holders reasonably and in good faith
agree that
7
<PAGE>
such Demand Registration might have an adverse effect on any proposal or plan by
the Company to engage in any financing, acquisition of assets (other than in the
ordinary course of business) or any corporate reorganization, merger,
consolidation, tender offer or similar transaction.
(d) Selection of Underwriters. If the Demand Registration
---------------------------
involves an underwritten public offering, the Company will have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the approval of the Required Percentage of Holders (which will not be
unreasonably withheld) of such investment banker(s) and managers(s).
12.2 Participation in Registered Offerings. If the Company at any
-------------------------------------
time or times proposes or is required to register any of its Common Stock or
other equity securities for public sale in an underwritten public offering for
cash (other than in connection with any stock option, bonus or other employee
benefit plan or arrangement) under the Securities Act or any applicable state
securities law, it will each such time give written notice to each Holder of its
intention to do so. Upon the written request of a Holder given within thirty
(30) business days after receipt of any such notice (which request shall state
the intended method of disposition of such equity securities and shall state in
reasonable detail, to the extent practicable, the net consideration, after all
commissions and discounts which the prospective seller or sellers expect to
receive upon such disposition), the Company shall use all reasonable efforts to
cause all such Common Stock which the Holder so requested to be registered
(which request will not be for less than two hundred thousand (200,000) shares
of Common Stock) to be registered under the Securities Act and any applicable
state securities laws (provided, that if the managing underwriter advises that
less than all of the registered shares of equity securities should be offered
for sale so as not to materially and adversely affect the price or salability of
the offering being registered by the Company or the participating Holders for a
period not to exceed one hundred twenty (120) days, the participating Holders
will, if requested by the Company, withhold from sale for such period of time
such number of shares of Common Stock (pro rata from the shares of Common Stock
requested to be included by the participating Holders) as the underwriter may
specify; provided further that in such event a pro rata number of shares
proposed to be offered by the Company and all other shareholders of the Company
also shall be similarly withheld from sale), all to the extent requisite to
permit the sale or other disposition (in accordance with the intended method of
disposition thereof as aforesaid) by the prospective seller or sellers of the
securities so registered. In the event an underwriter is involved with a
registration initiated by the Company of the Common Stock, and a Holder requests
to participate in the registration, the Holder must commit to sell through the
underwriter. The Company may, in its sole discretion, withdraw any registration
contemplated by this Section 12.2 and abandon the proposed offering in which a
Holder had requested to participate without any further obligation to such
Holder with respect to such registration statement or offering; provided however
that such Holder shall be indemnified by the Company for any fees, costs and
expense of and incidental to such registration, excluding the fees and
disbursements of counsel acting solely on behalf of such Holder.
12.3 Obligations of the Holder. It shall be a condition precedent
-------------------------
to the obligation of the Company to register any Common Stock of a Holder
pursuant to Sections 12.1 and 12.2 hereof that such Holder shall (i) furnish to
the Company such information regarding the Common Stock held by it and the
intended method of disposition thereof and other information
8
<PAGE>
concerning such Holder as the Company shall reasonably request and as shall be
required in connection with the registration statement to be filed by the
Company; (ii) agree to abide by such additional or customary terms affecting the
proposed offering as reasonably may be requested by the managing underwriter of
such offering, including a requirement, if applicable, to withhold (on a
pro-rata basis) from the public market for a period of at least one hundred
twenty (120) days after any such offering, any shares excluded from the offering
at the instance of the underwriter as permitted under Sections 12.1 and 12.2
hereof; and (iii) agree in writing in form satisfactory to the Company to pay
the underwriting discounts and commissions applicable to the Common Stock being
sold by such Holder (subject to the maximum amounts set forth in Section 12.5
hereof).
12.4 Registration Proceedings. If and whenever the Company is
-------------------------
required by the provisions of Sections 12.1 and 12.2 hereof to effect the
registration of the Common Stock under the Securities Act, until the securities
covered by such registration statement have been sold or for six (6) months
after effectiveness, whichever is the shorter period of time, the Company shall:
(a) Promptly prepare and file with the SEC a registration
statement with respect to such Common Stock and use all reasonable efforts to
cause such registration statement to become effective as soon as practicable
after the filing thereof and to remain effective, subject to the Company's right
to withdraw any registration contemplated by Section 12.2 hereof;
(b) Prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective;
(c) Furnish to each participating Holder and to the
underwriters of the securities being registered such reasonable number of copies
of the registration statement, preliminary prospectus, final prospectus and such
other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(d) Use all reasonable efforts to register or qualify the
securities covered by such registration statement under such state securities or
"Blue Sky" laws of such jurisdictions as the participating Holders may
reasonably request within twenty (20) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, and except that the Company shall not be
required to so register or qualify in more than twenty (20) such jurisdictions
if in the good faith judgment of the managing underwriter such additional
registrations or qualifications would be unreasonably expensive or harmful to
the consummation of the proposed offering;
(e) Notify each participating Holder, promptly after the
Company shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
9
<PAGE>
(f) Notify each participating Holder promptly of any request
by the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) Prepare and file with the SEC, promptly upon the request
of a participating Holder, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Holder and
counsel for the underwriter or manager of the offering, are required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of Common Stock by such Holder;
(h) Prepare and promptly file with the SEC and promptly
notify each participating Holder of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
(i) In case a participating Holder or any underwriter for a
Holder is required to deliver a prospectus at a time when the prospectus then in
circulation is not in compliance with the Securities Act, the Company will
prepare and file such supplements or amendments to such registration statement
and such prospectus or prospectuses as may be necessary to permit compliance
with the requirements of the Securities Act;
(j) Advise each participating Holder, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
all reasonable efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(k) Not file any amendment or supplement to such registration
statement or prospectus to which a participating Holder shall reasonably have
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
two (2) business days prior to the filing thereof; and
(l) At the request of a participating Holder (i) use all
reasonable efforts to obtain and furnish on the effective date of the
registration statement or, if such registration includes an underwritten public
offering, at the closing provided for in the underwriting agreement, an opinion,
dated such date, of the counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to each
participating Holder, which shall contain such opinions as are customary in an
underwritten public offering, or, if the offering is not underwritten, shall
state that such registration statement has become effective under the Securities
Act and that (or substantially to the effect that): (a) to the best of such
counsel's
10
<PAGE>
knowledge, no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act; (b) the registration statement, related
prospectus and each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Securities Act and applicable
rules and regulations of the SEC thereunder (except that such counsel need
express no opinion as to financial statements, schedules or other financial or
statistical data contained therein); (c) such counsel has no reason to believe
that either the registration statement or the prospectus or any amendment or
supplement thereto (other than financial statements and schedules or financial
and statistical data, as to which such counsel need not comment) contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
(d) the description in the registration statement or prospectus or any amendment
or supplement thereto of all legal and governmental matters and all contracts
and other legal documents or instruments described therein are accurate in all
material respects; and (e) such counsel does not know of any legal or
governmental proceedings, pending or threatened, required to be described in the
registration statement or prospectus or any amendment or supplement thereto
which are not described as required, nor of any contracts or documents or
instruments of the character required to be described in the registration
statement or prospectus or amendment or supplement thereto or to be filed as
exhibits to the registration statement, which are not described and filed as
required; and (ii) use all reasonable efforts to obtain letters dated on such
effective date, and such closing date, if any, from the independent certified
public accountants of the Company, addressed to the underwriters, if any, and to
each participating Holder, stating that they are independent certified public
accountants within the meaning of the Securities Act and dealing with such
matters as the underwriters may request, or, if the offering is not
underwritten, stating that in the opinion of-such accountants, the financial
statements and other financial data pertaining to the Company included in the
registration statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act; such opinion of counsel shall additionally cover such legal
matters with respect to the registration and with respect to which such opinion
is being given as a participating Holder may reasonably request; such letter
from the independent certified public accountants shall additionally cover such
other financial matters, including information as to the period ending not more
than five (5) business days prior to the date of such letter, with respect to
the registration statement and prospectus as a participating Holder may
reasonably request.
12.5 Expenses. With respect to each inclusion of Common Stock of
--------
a Holder in a registration statement pursuant to Sections 12.1 and 12.2 hereof,
all registration expenses, fees, costs and expenses of and incidental to such
registration, including any public offering in connection therewith shall be
borne by the Company (excluding the fees and disbursements of advisors retained
by the Holder and counsel acting solely on behalf of the Holder); provided,
however, that the Holder shall bear the Holder's pro rata share of the
underwriting discount and commissions (up to a maximum aggregate amount equal to
8% of the offering price of the Holder's shares so offered). The fees, costs
and expenses of registration to be borne by the Company shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company (including the cost of
any special audit requested in order to effect such registration), fees and
disbursements of
11
<PAGE>
counsel for the underwriter or underwriters of such securities (if the Company
and/or selling security holders are required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of complying
with state securities or Blue Sky laws of any jurisdiction in which the
securities to be offered are to be registered or qualified.
12.6 Indemnification of Holders. Subject to the conditions set
----------------------------
forth below, in connection with any registration of securities pursuant to
Sections 12.1 or 12.2 hereof, the Company agrees to indemnify and hold harmless
each Holder and each person, if any, who controls the Holder (and the respective
officers, directors and agents of Holders), within the meaning of Section 15 of
the Securities Act, as follows:
(a) Against any and all loss, claim, damage and expense
whatsoever arising out or based upon (including, but not limited to, any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
any litigation, commenced or threatened, or any claim whatsoever based upon) any
untrue or alleged untrue statement of a material fact contained in any
preliminary prospectus (if used prior to the effective date of the registration
statement), the registration statement or the final prospectus (as from time to
time amended and supplemented if the Company shall have filed with the SEC any
amendment thereof or amendment thereto) if used within the period during which
the Company is required to keep the registration statement or prospectus
current, or in any application or other document executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Company's securities under the securities
laws thereof; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; or any
other violation of applicable federal or state statutory or regulatory
requirements or limitations relating to action or inaction by the Company in the
course of preparing, filing, or implementing such registered offering; provided,
however, that the indemnity agreement contained in this Section 12.6(a) shall
not apply to any loss, claim, damage, liability or action arising out of or
based upon any untrue or alleged untrue statement or omission made in reliance
upon and in conformity with any information furnished in writing to the Company
by or on behalf of the Holder expressly for use in connection therewith;
(b) Subject to the proviso contained in the last sentence of
Section 12.6(a) above, against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in settlement of
any litigation, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission or any such alleged untrue statement or
omission (including, but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against any such
litigation or claim) if such settlement is effected with the written consent of
the Company and no indemnity shall inure to the benefit of the Holder or any
controlling person thereof if the person asserting the claim failed to receive a
copy of the final prospectus at or prior to the written confirmation of the sale
of shares of Common Stock to such person if the untrue statement or omission had
been corrected in such final prospectus and the failure to receive such final
prospectus is not a necessary element of such person's claim;
12
<PAGE>
(c) In no case shall the Company be liable under this
indemnity agreement with respect to any claim made against the Holder or any
such controlling person (or its respective officers, directors and agents)
unless the Company shall be notified, by letter or by telegram confirmed by
letter, of any claim made or action commenced against such persons, reasonably
promptly (but in any event within twenty (20) days of receipt of such claim or,
in the event that any summons or other service of process requires a responsive
pleading within thirty (30) days or less time, within ten (10) days after
receipt of such summons or other process) after such person shall have received
notice of such claim or been served with the summons or other legal process
giving information as to the nature and basis of the claim, but failure to so
notify the Company shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement. The Company shall be
entitled to participate at its own expense in the defense of any suit brought to
enforce any such claim, but if the Company elects to assume the defense, such
defense shall be conducted by counsel chosen by it, provided that such counsel
is reasonably satisfactory to the Holder. In the event the Company elects to
assume the defense of any such suit and retain such counsel, the Holder shall,
after the date the Holder is notified of such election, bear the fees and
expenses of any counsel thereafter retained by the Holder as well as any other
expenses thereafter incurred by the Holder in connection with the defense
thereof; provided, however, that the Company shall bear the fees and expenses of
any such separate counsel retained by the Holder if the counsel representing the
Company has a conflict of interest (which is not waived) with the Holder which
would prohibit such counsel from representing the Holder.
12.7 Indemnification of Company. Each Holder participating in any
--------------------------
registered offering pursuant to Section 12.1 or 12.2 above agrees to indemnify
and hold harmless the Company and each of the officers and directors and agents
of it and each other person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act against any and all such losses,
liabilities, claims, damages and expenses as are indemnified against by the
Company under Section 12.6 hereof; provided, however, that such indemnification
shall be limited to statements or omissions, if any, made (or in settlement of
any litigation effected with the written consent of the Holder alleged to have
been made) in any preliminary prospectus, the registration statement or
prospectus or any amendment or supplement thereof or any application or other
document in reliance upon, and in conformity with, written information furnished
in respect of the Holder, by or on behalf of the Holder expressly for use in any
preliminary prospectus, the registration statement or prospectus or any
amendment or supplement thereof or in any such application or other document.
In case any action shall be brought against the Company, or any other person so
indemnified based on any preliminary prospectus, the registration statement or
prospectus or any amendment or supplement thereof or any such application or
other documents, in respect of which indemnity may be sought against a Holder,
it shall have the rights and duties given to the Company, and each other person
so indemnified shall have the rights and dudes given to a Holder, by the
provisions of Section 12.6(c) hereof. The Company agrees to notify the Holder
promptly after the assertion of any claim against the Company in connection with
the sale of securities covered by this Warrant.
12.8 Future Registration Rights. The Company may agree with its
----------------------------
shareholders other than the Holders to allow their participation in any
registered offering which may be requested pursuant to Section 12.1 hereof,
provided all such rights of participation by
13
<PAGE>
shareholders other than the Holders shall be subordinated to the rights of the
participating Holders herein, in a manner reasonably satisfactory to the
Required Percentage of such Holders and their counsel.
13. Descriptive Headings. The descriptive headings of the several
--------------------
sections of this Warrant are inserted for convenience only and do not constitute
a part of this Warrant.
14. Notices. Any notice or other communication pursuant to this
-------
Warrant shall be in writing and shall be deemed sufficiently given upon receipt,
if personally delivered or telecopied (with receipt acknowledged), or if mailed,
upon deposit with the United States Postal Service by first class, certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
(a) If to the Company, to The Female Health Company, 875
North Michigan Street, Suite 3660, Chicago, Illinois 60611, Attention:
Secretary, or such other address as the Company has designated in writing to the
Holder.
(b) If to the Holder, to Stephen M. Dearholt, Insurance
Processing Center, 741 North Milwaukee Street, Milwaukee, Wisconsin 53202 or to
such other address as the Holder has designated in writing to the Company.
15. Replacement of Warrant. Upon receipt of evidence satisfactory
----------------------
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and upon receipt of written indemnification of the Company by the Holder in form
and substance reasonably satisfactory to the Company, the Company shall execute
and deliver to the Holder a new Warrant of like date, tenor and denomination.
16. Governing Law. This Warrant shall be construed and
--------------
interpreted in accordance with the internal laws of the State of Wisconsin.
17. Successors and Assigns. The provisions of this Warrant shall
-----------------------
be binding upon and inure to the benefit of the Company and the Holder and their
respective successors, assigns and transferees.
18. Further Assurances. The Company agrees that it will execute
-------------------
and record such documents as the Holder shall reasonably request to secure for
the Holder any of the rights represented by this Warrant.
19. Amendment and Modifications. This Warrant may be amended,
-----------------------------
modified or supplemented only by written agreement of the Company and the
Holder.
14
<PAGE>
IN WITNESS WHEREOF, The Female Health Company has caused this Warrant
to be signed by its duly authorized officer and this Warrant to be dated as of
February 12, 2000.
THE FEMALE HEALTH COMPANY
By:
-----------------------------------------
Chairman and Chief Executive Officer
15
AMENDED AND RESTATED
--------------------
PROMISSORY NOTE
---------------
$50,000.00 February 18, 2000
FOR VALUE RECEIVED, THE FEMALE HEALTH COMPANY, a Wisconsin
corporation, promises to pay to the order of O.B. Parrish, at his office in the
City of Chicago, Illinois, the principal sum of Fifty Thousand Dollars
($50,000.00), payable in full on February 18, 2001.
The unpaid principal balance hereof shall bear interest, payable
monthly on the last day of each calendar month during the term of this note, and
at maturity (whether stated maturity or upon acceleration), computed at a rate
equal to 12% per annum. Principal amounts unpaid at the maturity thereof
(whether by fixed maturity or acceleration) shall bear interest from and after
maturity until paid computed at a rate equal to 18% per annum. Principal of and
interest on this Note shall be payable in lawful money of the United States.
All interest payable on this note shall be computed for the actual
number of days elapsed using a daily rate determined by dividing the annual rate
by 365. Whenever any payment to be made hereunder shall be stated to be due on
a Saturday, Sunday or public holiday under the laws of the State of Wisconsin,
such payment may be made on the next succeeding business day, and such extension
of time shall be included in the computation of interest on this note.
This note is issued in replacement of the original Note issued under a
Note Purchase and Warrant Agreement dated as of February 18, 1999 between the
undersigned and O.B. Parrish to which Agreement reference is hereby made for a
statement of the terms and conditions on which the loan evidenced hereby was
made and for a description of the terms and conditions upon which this Note may
be prepaid, in whole or in part, or its maturity accelerated.
THE FEMALE HEALTH COMPANY
By:
--------------------------------
President
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW. THIS WARRANT AND ANY
INTEREST HEREIN MAY BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF ONLY
IF REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE, AND ONLY IN STRICT COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS AND REGULATIONS.
- --------------------------------------------------------------------------------
================================================================================
WARRANT
FOR THE PURCHASE OF
COMMON STOCK
OF
THE FEMALE HEALTH COMPANY
Warrant Number OBP2
================================================================================
================================================================================
THIS CERTIFIES THAT, FOR VALUE RECEIVED, O.B. Parrish, or assigns, is
entitled to subscribe for and purchase from The Female Health Company, a
Wisconsin corporation (the Company"), 12,500 shares of the fully paid and
non-assessable shares of Common Stock, $.01 par value per share, of the Company,
at the Purchase Price (as hereinafter defined) per share.
This Warrant and all warrants issued in substitution or exchange for
all or part hereof are herein individually called a "Warrant" and collectively
the "Warrants".
1. Definitions. When used in this Warrant, the following terms
-----------
shall have the meanings specified:
(a) "Affiliate" shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with
another Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
<PAGE>
(b) "Common Shares" shall mean and include the Company's
presently authorized shares of Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares purchasable pursuant to this Warrant shall
include shares designated as Common Stock of the Company on the date of original
issue of this Warrant or, in case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in Section 5(a)
hereof.
(c) "Common Stock" shall mean the common stock, $.01 par
value per share, of the Company.
(d) "Expiration Date" shall mean the earliest to occur of the
following: (i) the exercise of all of the rights to purchase Common Stock
represented by this Warrant; or (ii) February 18, 2010.
(e) "Holder" shall mean O.B. Parrish and any permitted
transferee or assignee of all or part of this Warrant and the rights hereunder;
provided that, as used in Section 12 hereof such term shall also include any
holder or holders of Common Stock (or Other Securities) issued on the exercise
of this Warrant other than Persons who received such Common Stock (or Other
Securities) in a public offering or pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended.
(f) "Holder Group" shall have the meaning assigned thereto in
Section 10 hereof.
(g) "Purchase Price" shall mean the per share purchase price
of $0.72 (subject to adjustment under Section 5) to be paid for shares of Common
Stock purchased pursuant to the exercise of this Warrant.
(h) "Other Securities", as used in Section 12 hereof, shall
mean any stock (other than Common Stock) and other securities of the Company or
any other Person (corporate or otherwise) which the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on the exercise
of this Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 5 hereof or otherwise.
(i) "Person shall mean and include an individual,
partnership, corporation, trust, joint venture, incorporated organization and a
government or any department or agency thereof.
2. Exercise: Issuance of Certificates: Payment for Shares. This
--------------------------------------------------------
Warrant may be exercised by the Holder, in whole or in part, at any time and
from time to time on or after February 18, 2000, until 5:00 p.m. Central time on
the Expiration Date by the surrender of this Warrant (properly endorsed if
required), and payment by the Holder to the Company of the Purchase Price for
each share of Common Stock purchased with respect to such exercise by wire
transfer or certified or cashiers check. Upon such surrender and payment, the
Holder shall be entitled to receive a certificate or certificates
2
<PAGE>
representing the shares of Common Stock so purchased, which certificate(s) may
contain a standard legend indicating that such shares have not been registered
under the Securities Act and prohibiting resale thereof without registration or
an opinion of counsel that an exemption from registration is available. The
Company agrees that the shares so purchased shall be deemed to be issued to the
Holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. Subject to the Company's Amended and Restated Articles of
Incorporation, certificates for the shares of Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten days, after
the rights represented by this Warrant shall have been so exercised. If the
rights of the Holder of this Warrant are exercised in part, the number of shares
of Common Stock which thereafter may be purchased pursuant to this Warrant shall
be reduced accordingly and the Company shall reissue a Warrant or Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock as so reduced.
3. Affirmative Covenants.
----------------------
(a) The Company covenants and agrees that the shares of
Common Stock issuable upon exercise of the rights represented by this Warrant
will, upon such exercise and issuance in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable (except as set forth in
Section 180.0622(2)(b), Wis. Stats., as amended and interpreted) and free from
all taxes, liens and charges with respect to the issue. The Company further
covenants and agrees that, until the Expiration Date, the Company will at all
times have authorized, and reserved for the purpose of issue upon total or
partial exercise of the rights represented by this Warrant, a sufficient number
of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
(b) The Company further covenants and agrees that, until the
Expiration Date, the Company will deliver to the Holder copies of all reports
and information filed by the Company with the Securities and Exchange Commission
("SEC") pursuant to the Securities Exchange Act of 1934, as amended, within 10
days after receiving a written request from the Holder.
4. Issuance of Preferred Stock. So long as this Warrant remains
-----------------------------
outstanding, the Company will not issue any capital stock of any class preferred
as to dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in the distribution of such assets.
5. Anti-Dilution Provisions. The above provisions are, however,
-------------------------
subject to the following:
(a) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Holder hereof shall hereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant and in
3
<PAGE>
lieu of the shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof, together with such adjustment in the Purchase Price as
may be applicable with respect thereto so that the aggregate price to be paid
for shares issued pursuant to this Warrant shall be neither increased nor
decreased. The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed to
the Holder hereof at the last address of such Holder appearing on the books of
the Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
(b) In case any time:
(1) the Company shall declare any cash dividend on its
Common Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock
upon its Common Stock, make any distribution (other than regular cash dividends)
to the holders of its Common Stock or redeem any shares of its Common Stock;
(3) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization,
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to
another corporation; or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder of this Warrant at
the address of such Holder as shown on the books of the Company, of the date on
which (aa) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (bb) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
4
<PAGE>
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given at least 15 days prior to the action in question and not less than 15 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereto.
6. Certain Events. If any event occurs as to which the provisions
--------------
of this Warrant are not strictly applicable or, if strictly applicable would not
fairly protect the rights of the Holder in accordance with the essential intent
and principles of such provisions, then the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect the Holder's rights
as aforesaid.
7. Term of Warrant. This Warrant shall remain outstanding and
-----------------
exercisable until the Expiration Date. To the extent not previously exercised,
the rights to purchase Common Stock represented by this Warrant shall thereupon
terminate.
8. Issue Tax. The issuance of certificates for shares of Common
----------
Stock upon the total or partial exercise of this Warrant shall be made without
charge to the Holder for any issuance tax in respect thereof.
9. Closing of Books. The Company will at no time close its
------------------
transfer books against the transfer of this Warrant or act in any manner which
interferes with the timely exercise of the rights represented by this Warrant.
10. Transfer of Warrant. Subject to any registration or
---------------------
qualification requirements under the Securities Act and applicable state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the Holder, by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant to the Company properly
endorsed; provided that the Company may require in connection with such transfer
an opinion of counsel to the effect that such transfer qualifies for an
exemption from the registration requirements of the Securities Act. If this
Warrant is transferred in part in accordance with the terms hereof, the Company
shall reissue a Warrant or Warrants of like tenor representing in the aggregate
the right to purchase the number of shares of Common Stock represented by this
Warrant immediately prior to such transfer and thereafter the Holder and all
transferees and assignees shall constitute the "Holder Group" for purposes of
Section 12 hereof.
11. No Voting Rights. This Warrant shall not entitle the Holder
------------------
to any voting rights as a shareholder of the Company.
12. Registration Rights. All references in this Section 12 to
--------------------
Common Stock shall be deemed to include Other Securities as applicable.
12.1 Demand Registration. At any time (whether before or after
---------------------
the Expiration Date) following the exercise of the right to purchase Common
Stock pursuant to this Warrant, a Holder may demand registration under the
Securities Act of 1933, as amended (the "Securities Act") of the resale of all
or part of the Common Stock issuable or which has been issued upon exercise of
this Warrant, on Form S-1, Form SB-2 or any similar long-form registration or,
in the Company's sole discretion, on Form
5
<PAGE>
S-2 or S-3 or any similar short-form registration, if available under applicable
rules of the SEC. If such request is made by less than all Holders, the Company
shall send written notice of such registration request to the remaining Holders
within 15 days of receipt of the initial registration request. Unless a
remaining Holder shall deliver to the Company, within 20 days after such notice
is sent by the Company, a written request for inclusion in the registration
demanded by the initial request of all or part of the Common Stock issuable or
which has been issued upon exercise of the Warrant held by such remaining
Holder, all rights of such remaining Holder under this Section 12.1 shall be
terminated. The written request to be delivered by a Holder to the Company
pursuant to this Section 12.1 shall (i) specify the number of shares intended to
be offered and sold by the Holder, (ii) express the present intent of the Holder
to offer such shares for distribution, and (iii) describe the nature and method
of the proposed offer and sale thereof. The registration requested pursuant to
this Section 12.1 is referred to herein as "Demand Registration", which term
shall also include any Demand Registration as defined in any of the Parrish
Stock Documents referenced in Section 12.1(a) hereof.
(a) Number of Registrations. Notwithstanding any contrary
-------------------------
provision contained in this document, the Note Purchase and Warrant Agreement
between the Company and O.B. Parrish dated February 18, 1999, the Stock Issuance
Agreement between such parties dated February 18, 1999, and the Warrant issued
by the Company to O.B. Parrish dated as of February 18, 1999 (collectively, the
"Parrish Stock Documents"), the Holder Group shall be entitled to an unlimited
number of Demand Registrations under all such Parrish Stock Documents, and shall
be entitled to include all or part of the stock received under any or all of
such Parrish Stock Documents in any Demand Registration, as the Holder Group
shall request from time to time; provided, however, that, except for Demand
Registrations requested pursuant to the last sentence of this Section 12.1(a),
any such Demand Registration shall include at least ten thousand (10,000) shares
of Common Stock (subject to adjustment pursuant to Section 5(a)). A
registration initiated as a Demand Registration may be withdrawn at any time at
the request of the Holders of a majority of the shares of the Common Stock
requested to be included in such Demand Registration (the "Required
Percentage"); provided that in the event a registration initiated as a Demand
Registration is so withdrawn, all expenses in connection with such withdrawn
registration (including, without limitation, reasonable fees of counsel and
accountants for the Company) shall be paid by the participating Holders, pro
rata. In the event O.B. Parrish shall pledge or assign his rights and interests
to all or part of the Common Stock issued to him upon exercise of this Warrant,
or upon exercise of his rights under any of the Parrish Stock Documents, as
collateral pursuant to a borrowing, the rights to Demand Registrations hereunder
may be assigned and transferred to said lender (and only one lender at any given
time) in connection therewith, and said lender shall be entitled to request such
Demand Registrations at any time, without regard to the ten thousand (10,000)
share minimum under the first sentence of this Section 12.1(a), and
notwithstanding the provisions of the first sentence of Section 12.1(c) below.
(b) Priority on Demand Registrations. The Company will not
----------------------------------
include in the Demand Registration any securities which are not Common Stock
owned by a Holder, without the written consent of the Required Percentage of
Holders. If the Demand Registration is an underwritten offering, and the
managing underwriters advise the Company in writing that in their opinion the
number of shares of Common Stock requested to be included exceeds the number of
shares of Common Stock which can be sold in such offering without adversely
affecting the market price of the Company's Common Stock, the Company will
include in such registration (pro rata from shares of Common Stock
6
<PAGE>
requested to be included by each participating Holder), prior to the inclusion
of any securities which are not shares of Common Stock owned by a Holder, the
number of shares of Common Stock owned by the Holders requested to be included
which in the opinion of such underwriters can be sold without such adverse
affect; and the balance of the shares of Common Stock which Holder requested to
be included in such offering shall be withheld from sale for a period of time
requested by the underwritten, but not to exceed one hundred twenty (120) days.
(c) Restrictions on Demand Registration. Subject to the next
------------------------------------
following sentence and the last sentence of Section 12.1(a) above, the Company
will not be obligated to effect a Demand Registration within one hundred twenty
(120) days after the effective date of a registration in which the Holder was
given an opportunity to participate in a registered offering pursuant to Section
12.2 hereof. In the event that a Holder requests to participate in a
registration under Section 12.2 hereof and satisfies the conditions of Section
12.3, and for whatever reason all of the shares of Common Stock which such
Holder so requests to be registered are not registered or are not permitted to
be offered for sale and sold prior to shares of Common Stock or other equity
securities being registered and offered by the Company in such registration,
then the provisions of the first sentence of this Section 12.1(c) shall not
apply, and the Company shall be obligated to effect a Demand Registration
requested by such Holder as soon as practicable in accordance with the terms
hereof. The Company may postpone for up to ninety (90) days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company and the Required Percentage of Holders reasonably and in good faith
agree that such Demand Registration might have an adverse effect on any proposal
or plan by the Company to engage in any financing, acquisition of assets (other
than in the ordinary course of business) or any corporate reorganization,
merger, consolidation, tender offer or similar transaction.
(d) Selection of Underwriters. If the Demand Registration
---------------------------
involves an underwritten public offering, the Company will have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the approval of the Required Percentage of Holders (which will not be
unreasonably withheld) of such investment banker(s) and managers(s).
12.2 Participation in Registered Offerings. If the Company at any
-------------------------------------
time or times proposes or is required to register any of its Common Stock or
other equity securities for public sale in an underwritten public offering for
cash (other than in connection with any stock option, bonus or other employee
benefit plan or arrangement) under the Securities Act or any applicable state
securities law, it will each such time give written notice to each Holder of its
intention to do so. Upon the written request of a Holder given within thirty
(30) business days after receipt of any such notice (which request shall state
the intended method of disposition of such equity securities and shall state in
reasonable detail, to the extent practicable, the net consideration, after all
commissions and discounts which the prospective seller or sellers expect to
receive upon such disposition), the Company shall use all reasonable efforts to
cause all such Common Stock which the Holder so requested to be registered
(which request will not be for less than ten thousand (10,000) shares of Common
Stock) to be registered under the Securities Act and any applicable state
securities laws (provided, that if the managing underwriter advises that less
than all of the registered shares of equity securities should be offered for
sale so as not to materially and adversely affect the price or salability of the
offering being registered by the Company or the participating Holders for a
period not to exceed one hundred twenty (120) days, the participating Holders
will, if requested by the Company, withhold from sale for such period of time
such number of shares of Common
7
<PAGE>
Stock (pro rata from the shares of Common Stock requested to be included by the
participating Holders) as the underwriter may specify; provided further that in
such event a pro rata number of shares proposed to be offered by the Company and
all other shareholders of the Company also shall be similarly withheld from
sale), all to the extent requisite to permit the sale or other disposition (in
accordance with the intended method of disposition thereof as aforesaid) by the
prospective seller or sellers of the securities so registered. In the event an
underwriter is involved with a registration initiated by the Company of the
Common Stock, and a Holder requests to participate in the registration, the
Holder must commit to sell through the underwriter. The Company may, in its
sole discretion, withdraw any registration contemplated by this Section 12.2 and
abandon the proposed offering in which a Holder had requested to participate
without any further obligation to such Holder with respect to such registration
statement or offering; provided however that such Holder shall be indemnified by
the Company for any fees, costs and expense of and incidental to such
registration, excluding the fees and disbursements of counsel acting solely on
behalf of such Holder.
12.3 Obligations of the Holder. It shall be a condition precedent
-------------------------
to the obligation of the Company to register any Common Stock of a Holder
pursuant to Sections 12.1 and 12.2 hereof that such Holder shall (i) furnish to
the Company such information regarding the Common Stock held by it and the
intended method of disposition thereof and other information concerning such
Holder as the Company shall reasonably request and as shall be required in
connection with the registration statement to be filed by the Company; (ii)
agree to abide by such additional or customary terms affecting the proposed
offering as reasonably may be requested by the managing underwriter of such
offering, including a requirement, if applicable, to withhold (on a pro-rata
basis) from the public market for a period of at least one hundred twenty (120)
days after any such offering, any shares excluded from the offering at the
instance of the underwriter as permitted under Sections 12.1 and 12.2 hereof;
and (iii) agree in writing in form satisfactory to the Company to pay the
underwriting discounts and commissions applicable to the Common Stock being sold
by such Holder (subject to the maximum amounts set forth in Section 12.5
hereof).
12.4 Registration Proceedings. If and whenever the Company is
-------------------------
required by the provisions of Sections 12.1 and 12.2 hereof to effect the
registration of the Common Stock under the Securities Act, until the securities
covered by such registration statement have been sold or for six (6) months
after effectiveness, whichever is the shorter period of time, the Company shall:
(a) Promptly prepare and file with the SEC a registration
statement with respect to such Common Stock and use all reasonable efforts to
cause such registration statement to become effective as soon as practicable
after the filing thereof and to remain effective, subject to the Company's right
to withdraw any registration contemplated by Section 12.2 hereof;
(b) Prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective;
(c) Furnish to each participating Holder and to the
underwriters of the securities being registered such reasonable number of copies
of the registration statement, preliminary
8
<PAGE>
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(d) Use all reasonable efforts to register or qualify the
securities covered by such registration statement under such state securities or
"Blue Sky" laws of such jurisdictions as the participating Holders may
reasonably request within twenty (20) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, and except that the Company shall not be
required to so register or qualify in more than twenty (20) such jurisdictions
if in the good faith judgment of the managing underwriter such additional
registrations or qualifications would be unreasonably expensive or harmful to
the consummation of the proposed offering;
(e) Notify each participating Holder, promptly after the
Company shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
(f) Notify each participating Holder promptly of any request
by the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) Prepare and file with the SEC, promptly upon the request
of a participating Holder, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Holder and
counsel for the underwriter or manager of the offering, are required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of Common Stock by such Holder;
(h) Prepare and promptly file with the SEC and promptly
notify each participating Holder of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
(i) In case a participating Holder or any underwriter for a
Holder is required to deliver a prospectus at a time when the prospectus then in
circulation is not in compliance with the Securities Act, the Company will
prepare and file such supplements or amendments to such registration statement
and such prospectus or prospectuses as may be necessary to permit compliance
with the requirements of the Securities Act;
(j) Advise each participating Holder, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
all reasonable efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
9
<PAGE>
(k) Not file any amendment or supplement to such registration
statement or prospectus to which a participating Holder shall reasonably have
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
two (2) business days prior to the filing thereof; and
(l) At the request of a participating Holder (i) use all
reasonable efforts to obtain and furnish on the effective date of the
registration statement or, if such registration includes an underwritten public
offering, at the closing provided for in the underwriting agreement, an opinion,
dated such date, of the counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to each
participating Holder, which shall contain such opinions as are customary in an
underwritten public offering, or, if the offering is not underwritten, shall
state that such registration statement has become effective under the Securities
Act and that (or substantially to the effect that): (a) to the best of such
counsel's knowledge, no stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been instituted or are pending
or contemplated under the Securities Act; (b) the registration statement,
related prospectus and each amendment or supplement thereto comply as to form in
all material respects with the requirements of the Securities Act and applicable
rules and regulations of the SEC thereunder (except that such counsel need
express no opinion as to financial statements, schedules or other financial or
statistical data contained therein); (c) such counsel has no reason to believe
that either the registration statement or the prospectus or any amendment or
supplement thereto (other than financial statements and schedules or financial
and statistical data, as to which such counsel need not comment) contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
(d) the description in the registration statement or prospectus or any amendment
or supplement thereto of all legal and governmental matters and all contracts
and other legal documents or instruments described therein are accurate in all
material respects; and (e) such counsel does not know of any legal or
governmental proceedings, pending or threatened, required to be described in the
registration statement or prospectus or any amendment or supplement thereto
which are not described as required, nor of any contracts or documents or
instruments of the character required to be described in the registration
statement or prospectus or amendment or supplement thereto or to be filed as
exhibits to the registration statement, which are not described and filed as
required; and (ii) use all reasonable efforts to obtain letters dated on such
effective date, and such closing date, if any, from the independent certified
public accountants of the Company, addressed to the underwriters, if any, and to
each participating Holder, stating that they are independent certified public
accountants within the meaning of the Securities Act and dealing with such
matters as the underwriters may request, or, if the offering is not
underwritten, stating that in the opinion of-such accountants, the financial
statements and other financial data pertaining to the Company included in the
registration statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act; such opinion of counsel shall additionally cover such legal
matters with respect to the registration and with respect to which such opinion
is being given as a participating Holder may reasonably request; such letter
from the independent certified public accountants shall additionally cover such
other financial matters, including information as to the period ending not more
than five (5) business days prior to the date of such letter, with respect to
the registration statement and prospectus as a participating Holder may
reasonably request.
10
<PAGE>
12.5 Expenses. With respect to each inclusion of Common Stock of
--------
a Holder in a registration statement pursuant to Sections 12.1 and 12.2 hereof,
all registration expenses, fees, costs and expenses of and incidental to such
registration, including any public offering in connection therewith shall be
borne by the Company (excluding the fees and disbursements of advisors retained
by the Holder and counsel acting solely on behalf of the Holder); provided,
however, that the Holder shall bear the Holder's pro rata share of the
underwriting discount and commissions (up to a maximum aggregate amount equal to
8% of the offering price of the Holder's shares so offered). The fees, costs
and expenses of registration to be borne by the Company shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company (including the cost of
any special audit requested in order to effect such registration), fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company and/or selling security holders are required to bear such fees
and disbursements), all legal fees and disbursements and other expenses of
complying with state securities or Blue Sky laws of any jurisdiction in which
the securities to be offered are to be registered or qualified.
12.6 Indemnification of Holders. Subject to the conditions set
----------------------------
forth below, in connection with any registration of securities pursuant to
Sections 12.1 or 12.2 hereof, the Company agrees to indemnify and hold harmless
each Holder and each person, if any, who controls the Holder (and the respective
officers, directors and agents of Holders), within the meaning of Section 15 of
the Securities Act, as follows:
(a) Against any and all loss, claim, damage and expense
whatsoever arising out or based upon (including, but not limited to, any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
any litigation, commenced or threatened, or any claim whatsoever based upon) any
untrue or alleged untrue statement of a material fact contained in any
preliminary prospectus (if used prior to the effective date of the registration
statement), the registration statement or the final prospectus (as from time to
time amended and supplemented if the Company shall have filed with the SEC any
amendment thereof or amendment thereto) if used within the period during which
the Company is required to keep the registration statement or prospectus
current, or in any application or other document executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Company's securities under the securities
laws thereof; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; or any
other violation of applicable federal or state statutory or regulatory
requirements or limitations relating to action or inaction by the Company in the
course of preparing, filing, or implementing such registered offering; provided,
however, that the indemnity agreement contained in this Section 12.6(a) shall
not apply to any loss, claim, damage, liability or action arising out of or
based upon any untrue or alleged untrue statement or omission made in reliance
upon and in conformity with any information furnished in writing to the Company
by or on behalf of the Holder expressly for use in connection therewith;
(b) Subject to the proviso contained in the last sentence of
Section 12.6(a) above, against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in settlement of
any litigation, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission or any such alleged untrue statement or
11
<PAGE>
omission (including, but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against any such
litigation or claim) if such settlement is effected with the written consent of
the Company and no indemnity shall inure to the benefit of the Holder or any
controlling person thereof if the person asserting the claim failed to receive a
copy of the final prospectus at or prior to the written confirmation of the sale
of shares of Common Stock to such person if the untrue statement or omission had
been corrected in such final prospectus and the failure to receive such final
prospectus is not a necessary element of such person's claim;
(c) In no case shall the Company be liable under this
indemnity agreement with respect to any claim made against the Holder or any
such controlling person (or its respective officers, directors and agents)
unless the Company shall be notified, by letter or by telegram confirmed by
letter, of any claim made or action commenced against such persons, reasonably
promptly (but in any event within twenty (20) days of receipt of such claim or,
in the event that any summons or other service of process requires a responsive
pleading within thirty (30) days or less time, within ten (10) days after
receipt of such summons or other process) after such person shall have received
notice of such claim or been served with the summons or other legal process
giving information as to the nature and basis of the claim, but failure to so
notify the Company shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement. The Company shall be
entitled to participate at its own expense in the defense of any suit brought to
enforce any such claim, but if the Company elects to assume the defense, such
defense shall be conducted by counsel chosen by it, provided that such counsel
is reasonably satisfactory to the Holder. In the event the Company elects to
assume the defense of any such suit and retain such counsel, the Holder shall,
after the date the Holder is notified of such election, bear the fees and
expenses of any counsel thereafter retained by the Holder as well as any other
expenses thereafter incurred by the Holder in connection with the defense
thereof; provided, however, that the Company shall bear the fees and expenses of
any such separate counsel retained by the Holder if the counsel representing the
Company has a conflict of interest (which is not waived) with the Holder which
would prohibit such counsel from representing the Holder.
12.7 Indemnification of Company. Each Holder participating in any
--------------------------
registered offering pursuant to Section 12.1 or 12.2 above agrees to indemnify
and hold harmless the Company and each of the officers and directors and agents
of it and each other person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act against any and all such losses,
liabilities, claims, damages and expenses as are indemnified against by the
Company under Section 12.6 hereof; provided, however, that such indemnification
shall be limited to statements or omissions, if any, made (or in settlement of
any litigation effected with the written consent of the Holder alleged to have
been made) in any preliminary prospectus, the registration statement or
prospectus or any amendment or supplement thereof or any application or other
document in reliance upon, and in conformity with, written information furnished
in respect of the Holder, by or on behalf of the Holder expressly for use in any
preliminary prospectus, the registration statement or prospectus or any
amendment or supplement thereof or in any such application or other document.
In case any action shall be brought against the Company, or any other person so
indemnified based on any preliminary prospectus, the registration statement or
prospectus or any amendment or supplement thereof or any such application or
other documents, in respect of which indemnity may be sought against a Holder,
it shall have the rights and duties given to the Company, and each other person
so indemnified shall have the rights and dudes given to a Holder, by the
provisions of
12
<PAGE>
Section 12.6(c) hereof. The Company agrees to notify the Holder promptly after
the assertion of any claim against the Company in connection with the sale of
securities covered by this Warrant.
12.8 Future Registration Rights. The Company may agree with its
----------------------------
shareholders other than the Holders to allow their participation in any
registered offering which may be requested pursuant to Section 12.1 hereof,
provided all such rights of participation by shareholders other than the Holders
shall be subordinated to the rights of the participating Holders herein, in a
manner reasonably satisfactory to the Required Percentage of such Holders and
their counsel.
13. Descriptive Headings. The descriptive headings of the several
--------------------
sections of this Warrant are inserted for convenience only and do not constitute
a part of this Warrant.
14. Notices. Any notice or other communication pursuant to this
-------
Warrant shall be in writing and shall be deemed sufficiently given upon receipt,
if personally delivered or telecopied (with receipt acknowledged), or if mailed,
upon deposit with the United States Postal Service by first class, certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
(a) If to the Company, to The Female Health Company, 875
North Michigan Street, Suite 3660, Chicago, Illinois 60611, Attention:
Secretary, or such other address as the Company has designated in writing to the
Holder.
(b) If to the Holder, to O.B. Parrish, c/o The Female Health
Company, Suite 3660, 875 North Michigan Avenue, Chicago, Illinois 60611 or to
such other address as the Holder has designated in writing to the Company.
15. Replacement of Warrant. Upon receipt of evidence satisfactory
----------------------
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and upon receipt of written indemnification of the Company by the Holder in form
and substance reasonably satisfactory to the Company, the Company shall execute
and deliver to the Holder a new Warrant of like date, tenor and denomination.
16. Governing Law. This Warrant shall be construed and
--------------
interpreted in accordance with the internal laws of the State of Wisconsin.
17. Successors and Assigns. The provisions of this Warrant shall
-----------------------
be binding upon and inure to the benefit of the Company and the Holder and their
respective successors, assigns and transferees.
18. Further Assurances. The Company agrees that it will execute
-------------------
and record such documents as the Holder shall reasonably request to secure for
the Holder any of the rights represented by this Warrant.
19. Amendment and Modifications. This Warrant may be amended,
-----------------------------
modified or supplemented only by written agreement of the Company and the
Holder.
13
<PAGE>
IN WITNESS WHEREOF, The Female Health Company has caused this Warrant
to be signed by its duly authorized officer and this Warrant to be dated as of
February 18, 2000.
THE FEMALE HEALTH COMPANY
By:
-----------------------------------------
President
14
PROMISSORY NOTE
---------------
$1,000,000.00 March 25, 2000
FOR VALUE RECEIVED, THE FEMALE HEALTH COMPANY, a Wisconsin
corporation, promises to pay to the order of Stephen M. Dearholt, at his office
in the City of Milwaukee, Wisconsin, the principal sum of One Million Dollars
($1,000,000.00), payable in full on March 25, 2001.
The unpaid principal balance hereof shall bear interest, payable
monthly on the last day of each calendar month commencing March 31, 1999, and at
maturity (whether stated maturity or upon acceleration), computed at a rate
equal to 12% per annum. Principal amounts unpaid at the maturity thereof
(whether by fixed maturity or acceleration) shall bear interest from and after
maturity until paid computed at a rate equal to 18% per annum. Principal of and
interest on this Note shall be payable in lawful money of the United States.
All interest payable on this note shall be computed for the actual
number of days elapsed using a daily rate determined by dividing the annual rate
by 365. Whenever any payment to be made hereunder shall be stated to be due on
a Saturday, Sunday or public holiday under the laws of the State of Wisconsin,
such payment may be made on the next succeeding business day, and such extension
of time shall be included in the computation of interest on this note.
This note is issued in replacement of the Note issued under a Note
Purchase and Warrant Agreement dated as of March 25, 1999 between the
undersigned and Stephen M. Dearholt to which Agreement reference is hereby made
for a statement of the terms and conditions on which the loan evidenced hereby
was made and for a description of the terms and conditions upon which this Note
may be prepaid, in whole or in part, or its maturity accelerated.
THE FEMALE HEALTH COMPANY
By:
-----------------------------------------
O.B. Parrish
Chairman of the Board
and Chief Executive Officer
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW. THIS WARRANT AND ANY
INTEREST HEREIN MAY BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF ONLY
IF REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE, AND ONLY IN STRICT COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS AND REGULATIONS.
- --------------------------------------------------------------------------------
================================================================================
WARRANT
FOR THE PURCHASE OF
COMMON STOCK
OF
THE FEMALE HEALTH COMPANY
Warrant Number 9
================================================================================
================================================================================
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Stephen M. Dearholt, or
assigns, is entitled to subscribe for and purchase from The Female Health
Company, a Wisconsin corporation (the Company"), 250,000 shares of the fully
paid and non-assessable shares of Common Stock, $.01 par value per share, of the
Company, at the Purchase Price (as hereinafter defined) per share.
This Warrant and all warrants issued in substitution or exchange for
all or part hereof are herein individually called a "Warrant" and collectively
the "Warrants".
1. Definitions. When used in this Warrant, the following terms
-----------
shall have the meanings specified:
(a) "Affiliate" shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with
another Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
<PAGE>
(b) "Common Shares" shall mean and include the Company's
presently authorized shares of Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares purchasable pursuant to this Warrant shall
include shares designated as Common Stock of the Company on the date of original
issue of this Warrant or, in case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in Section 5(a)
hereof.
(c) "Common Stock" shall mean the common stock, $.01 par
value per share, of the Company.
(d) "Expiration Date" shall mean the earliest to occur of the
following: (i) the exercise of all of the rights to purchase Common Stock
represented by this Warrant; or (ii) March 25, 2010.
(e) "Holder" shall mean Stephen M. Dearholt and any permitted
transferee or assignee of all or part of this Warrant and the rights hereunder;
provided that, as used in Section 12 hereof such term shall also include any
holder or holders of Common Stock (or Other Securities) issued on the exercise
of this Warrant other than Persons who received such Common Stock (or Other
Securities) in a public offering or pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended.
(f) "Holder Group" shall have the meaning assigned thereto in
Section 10 hereof.
(g) "Purchase Price" shall mean the per share purchase price
of $0.71 (subject to adjustment under Section 5) to be paid for shares of Common
Stock purchased pursuant to the exercise of this Warrant.
(h) "Other Securities", as used in Section 12 hereof, shall
mean any stock (other than Common Stock) and other securities of the Company or
any other Person (corporate or otherwise) which the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on the exercise
of this Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 5 hereof or otherwise.
(i) "Person shall mean and include an individual,
partnership, corporation, trust, joint venture, incorporated organization and a
government or any department or agency thereof.
2. Exercise: Issuance of Certificates: Payment for Shares. This
--------------------------------------------------------
Warrant may be exercised by the Holder, in whole or in part, at any time and
from time to time on or after March 25, 2000, and prior to 5:00 p.m. (Central
Time) on the Expiration Date, by the surrender
2
<PAGE>
of this Warrant (properly endorsed if required), and payment by the Holder to
the Company of the Purchase Price for each share of Common Stock purchased with
respect to such exercise by wire transfer or certified or cashiers check. Upon
such surrender and payment, the Holder shall be entitled to receive a
certificate or certificates representing the shares of Common Stock so
purchased, which certificate(s) may contain a standard legend indicating that
such shares have not been registered under the Securities Act and prohibiting
resale thereof without registration or an opinion of counsel that an exemption
from registration is available. The Company agrees that the shares so purchased
shall be deemed to be issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. Subject to the
Company's Amended and Restated Articles of Incorporation, certificates for the
shares of Common Stock so purchased shall be delivered to the Holder within a
reasonable time, not exceeding ten days, after the rights represented by this
Warrant shall have been so exercised. If the rights of the Holder of this
Warrant are exercised in part, the number of shares of Common Stock which
thereafter may be purchased pursuant to this Warrant shall be reduced
accordingly and the Company shall reissue a Warrant or Warrants of like tenor
representing in the aggregate the right to purchase the number of shares of
Common Stock as so reduced.
3. Affirmative Covenants.
----------------------
(a) The Company covenants and agrees that the shares of
Common Stock issuable upon exercise of the rights represented by this Warrant
will, upon such exercise and issuance in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable (except as set forth in
Section 180.0622(2)(b), Wis. Stats., as amended and interpreted) and free from
all taxes, liens and charges with respect to the issue. The Company further
covenants and agrees that, until the Expiration Date, the Company will at all
times have authorized, and reserved for the purpose of issue upon total or
partial exercise of the rights represented by this Warrant, a sufficient number
of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
(b) The Company further covenants and agrees that, until the
Expiration Date, the Company will deliver to the Holder copies of all reports
and information filed by the Company with the Securities and Exchange Commission
("SEC") pursuant to the Securities Exchange Act of 1934, as amended, within 10
days after receiving a written request from the Holder.
4. Issuance of Preferred Stock. So long as this Warrant remains
-----------------------------
outstanding, the Company will not issue any capital stock of any class preferred
as to dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in the distribution of such assets.
3
<PAGE>
5. Anti-Dilution Provisions. The above provisions are, however,
-------------------------
subject to the following:
(a) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Holder hereof shall hereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the Holder
of this Warrant to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof, together with such
adjustment in the Purchase Price as may be applicable with respect thereto so
that the aggregate price to be paid for shares issued pursuant to this Warrant
shall be neither increased nor decreased. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the Holder hereof at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
(b) In case any time:
(1) the Company shall declare any cash dividend on its
Common Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock
upon its Common Stock, make any distribution (other than regular cash dividends)
to the holders of its Common Stock or redeem any shares of its Common Stock;
(3) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization,
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to
another corporation; or
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(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder of this Warrant at
the address of such Holder as shown on the books of the Company, of the date on
which (aa) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (bb) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given at least 15 days prior to the action in question and not less than 15 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereto.
6. Certain Events. If any event occurs as to which the provisions
--------------
of this Warrant are not strictly applicable or, if strictly applicable would not
fairly protect the rights of the Holder in accordance with the essential intent
and principles of such provisions, then the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect the Holder's rights
as aforesaid.
7. Term of Warrant. This Warrant shall remain outstanding and
-----------------
exercisable until the Expiration Date. To the extent not previously exercised,
the rights to purchase Common Stock represented by this Warrant shall thereupon
terminate.
8. Issue Tax. The issuance of certificates for shares of Common
----------
Stock upon the total or partial exercise of this Warrant shall be made without
charge to the Holder for any issuance tax in respect thereof.
9. Closing of Books. The Company will at no time close its
------------------
transfer books against the transfer of this Warrant or act in any manner which
interferes with the timely exercise of the rights represented by this Warrant.
10. Transfer of Warrant. Subject to any registration or
---------------------
qualification requirements under the Securities Act and applicable state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the Holder, by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant to the Company properly
endorsed; provided that the Company may require in connection with such transfer
an opinion of counsel to the effect that such transfer qualifies for an
exemption from the registration requirements of the Securities Act. If this
Warrant is transferred in part in accordance with the terms hereof, the Company
shall reissue a Warrant or Warrants of like tenor representing in the aggregate
the right to purchase the number of shares of Common Stock represented by this
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<PAGE>
Warrant immediately prior to such transfer and thereafter the Holder and all
transferees and assignees shall constitute the "Holder Group" for purposes of
Section 12 hereof.
11. No Voting Rights. This Warrant shall not entitle the Holder
------------------
to any voting rights as a shareholder of the Company.
12. Registration Rights. All references in this Section 12 to
--------------------
Common Stock shall be deemed to include Other Securities as applicable.
12.1 Demand Registration. At any time (whether before or after
---------------------
the Expiration Date) following the exercise of the right to purchase Common
Stock pursuant to this Warrant, a Holder may demand registration under the
Securities Act of 1933, as amended (the "Securities Act") of the resale of all
or part of the Common Stock issuable or which has been issued upon exercise of
this Warrant, on Form S-1 or any similar long-form registration or, in the
Company's sole discretion, on Form S-2 or S-3 or any similar short-form
registration, if available under applicable rules of the SEC. If such request
is made by less than all Holders, the Company shall send written notice of such
registration request to the remaining Holders within 15 days of receipt of the
initial registration request. Unless a remaining Holder shall deliver to the
Company, within 20 days after such notice is sent by the Company, a written
request for inclusion in the registration demanded by the initial request of all
or part of the Common Stock issuable or which has been issued upon exercise of
the Warrant held by such remaining Holder, all rights of such remaining Holder
under this Section 12.1 shall be terminated. The written request to be
delivered by a Holder to the Company pursuant to this Section 12.1 shall (i)
specify the number of shares intended to be offered and sold by the Holder, (ii)
express the present intent of the Holder to offer such shares for distribution,
and (iii) describe the nature and method of the proposed offer and sale thereof.
The registration requested pursuant to this Section 12.1 is referred to herein
as "Demand Registration", which term shall also include any Demand Registration
as defined in any of the Dearholt Stock Documents referenced in Section 12.1(a)
hereof.
(a) Number of Registrations. Notwithstanding any contrary
-------------------------
provision contained in this document, the Note Purchase and Warrant Agreement
between the Company and Stephen M. Dearholt dated March 25, 1999, the Stock
Issuance Agreement between such parties dated March 25, 1999(the "1999 Stock
Issuance Agreement"), and such other documents, agreements and warrants that the
Holder may demand registration under the Securities Act (collectively, the
"Dearholt Stock Documents"), the Holder Group shall be entitled to an unlimited
number of Demand Registrations under all such Dearholt Stock Documents, and
shall be entitled to include all or part of the stock received under any or all
of such Dearholt Stock Documents in any Demand Registration, as the Holder Group
shall request from time to time; provided, however, that, except for Demand
Registrations requested pursuant to the last sentence of this Section 12.1(a),
any such Demand Registration shall include at least two hundred thousand
(200,000) shares of Common Stock (subject to adjustment pursuant to Section
5(a)). A registration initiated as a Demand Registration may be withdrawn at
any time at the request of the Holders of a majority of the shares of the Common
Stock requested to be included in such Demand Registration (the "Required
Percentage"); provided that in the event a registration initiated as a Demand
Registration is so withdrawn, all expenses in connection with such
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<PAGE>
withdrawn registration (including, without limitation, reasonable fees of
counsel and accountants for the Company) shall be paid by the participating
Holders, pro rata. In the event Stephen M. Dearholt shall pledge or assign his
rights and interests to all or part of the Common Stock issued to him upon
exercise of this Warrant, or upon exercise of his rights under any of the
Dearholt Stock Documents, as collateral pursuant to a borrowing, the rights to
Demand Registrations hereunder may be assigned and transferred to said lender
(and only one lender at any given time) in connection therewith, and said lender
shall be entitled to request such Demand Registrations at any time, without
regard to the two hundred thousand (200,000) share minimum under the first
sentence of this Section 12.1(a), and notwithstanding the provisions of the
first sentence of Section 12.1(c) below.
(b) Priority on Demand Registrations. The Company will not
----------------------------------
include in the Demand Registration any securities which are not Common Stock
owned by a Holder, without the written consent of the Required Percentage of
Holders. If the Demand Registration is an underwritten offering, and the
managing underwriters advise the Company in writing that in their opinion the
number of shares of Common Stock requested to be included exceeds the number of
shares of Common Stock which can be sold in such offering without adversely
affecting the market price of the Company's Common Stock, the Company will
include in such registration (pro rata from shares of Common Stock requested to
be included by each participating Holder), prior to the inclusion of any
securities which are not shares of Common Stock owned by a Holder, the number of
shares of Common Stock owned by the Holders requested to be included which in
the opinion of such underwriters can be sold without such adverse affect; and
the balance of the shares of Common Stock which Holder requested to be included
in such offering shall be withheld from sale for a period of time requested by
the underwritten, but not to exceed one hundred twenty (120) days.
(c) Restrictions on Demand Registration. Subject to the next
------------------------------------
following sentence and the last sentence of Section 12.1(a) above, the Company
will not be obligated to effect a Demand Registration within one hundred twenty
(120) days after the effective date of a registration in which the Holder was
given an opportunity to participate in a registered offering pursuant to Section
12.2 hereof. In the event that a Holder requests to participate in a
registration under Section 12.2 hereof and satisfies the conditions of Section
12.3, and for whatever reason all of the shares of Common Stock which such
Holder so requests to be registered are not registered or are not permitted to
be offered for sale and sold prior to shares of Common Stock or other equity
securities being registered and offered by the Company in such registration,
then the provisions of the first sentence of this Section 12.1(c) shall not
apply, and the Company shall be obligated to effect a Demand Registration
requested by such Holder as soon as practicable in accordance with the terms
hereof. The Company may postpone for up to ninety (90) days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company and the Required Percentage of Holders reasonably and in good faith
agree that such Demand Registration might have an adverse effect on any proposal
or plan by the Company to engage in any financing, acquisition of assets (other
than in the ordinary course of business) or any corporate reorganization,
merger, consolidation, tender offer or similar transaction.
7
<PAGE>
(d) Selection of Underwriters. If the Demand Registration
---------------------------
involves an underwritten public offering, the Company will have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the approval of the Required Percentage of Holders (which will not be
unreasonably withheld) of such investment banker(s) and managers(s).
12.2 Participation in Registered Offerings. If the Company at any
-------------------------------------
time or times proposes or is required to register any of its Common Stock or
other equity securities for public sale in an underwritten public offering for
cash (other than in connection with any stock option, bonus or other employee
benefit plan or arrangement) under the Securities Act or any applicable state
securities law, it will each such time give written notice to each Holder of its
intention to do so. Upon the written request of a Holder given within thirty
(30) business days after receipt of any such notice (which request shall state
the intended method of disposition of such equity securities and shall state in
reasonable detail, to the extent practicable, the net consideration, after all
commissions and discounts which the prospective seller or sellers expect to
receive upon such disposition), the Company shall use all reasonable efforts to
cause all such Common Stock which the Holder so requested to be registered
(which request will not be for less than two hundred thousand (200,000) shares
of Common Stock) to be registered under the Securities Act and any applicable
state securities laws (provided, that if the managing underwriter advises that
less than all of the registered shares of equity securities should be offered
for sale so as not to materially and adversely affect the price or salability of
the offering being registered by the Company or the participating Holders for a
period not to exceed one hundred twenty (120) days, the participating Holders
will, if requested by the Company, withhold from sale for such period of time
such number of shares of Common Stock (pro rata from the shares of Common Stock
requested to be included by the participating Holders) as the underwriter may
specify; provided further that in such event a pro rata number of shares
proposed to be offered by the Company and all other shareholders of the Company
also shall be similarly withheld from sale), all to the extent requisite to
permit the sale or other disposition (in accordance with the intended method of
disposition thereof as aforesaid) by the prospective seller or sellers of the
securities so registered. In the event an underwriter is involved with a
registration initiated by the Company of the Common Stock, and a Holder requests
to participate in the registration, the Holder must commit to sell through the
underwriter. The Company may, in its sole discretion, withdraw any registration
contemplated by this Section 12.2 and abandon the proposed offering in which a
Holder had requested to participate without any further obligation to such
Holder with respect to such registration statement or offering; provided however
that such Holder shall be indemnified by the Company for any fees, costs and
expense of and incidental to such registration, excluding the fees and
disbursements of counsel acting solely on behalf of such Holder.
12.3 Obligations of the Holder. It shall be a condition precedent
-------------------------
to the obligation of the Company to register any Common Stock of a Holder
pursuant to Sections 12.1 and 12.2 hereof that such Holder shall (i) furnish to
the Company such information regarding the Common Stock held by it and the
intended method of disposition thereof and other information concerning such
Holder as the Company shall reasonably request and as shall be required in
connection with the registration statement to be filed by the Company; (ii)
agree to abide by such additional or customary terms affecting the proposed
offering as reasonably may be requested by the managing underwriter of such
offering, including a requirement, if applicable, to withhold (on
8
<PAGE>
a pro-rata basis) from the public market for a period of at least one hundred
twenty (120) days after any such offering, any shares excluded from the offering
at the instance of the underwriter as permitted under Sections 12.1 and 12.2
hereof; and (iii) agree in writing in form satisfactory to the Company to pay
the underwriting discounts and commissions applicable to the Common Stock being
sold by such Holder (subject to the maximum amounts set forth in Section 12.5
hereof).
12.4 Registration Proceedings. If and whenever the Company is
-------------------------
required by the provisions of Sections 12.1 and 12.2 hereof to effect the
registration of the Common Stock under the Securities Act, until the securities
covered by such registration statement have been sold or for six (6) months
after effectiveness, whichever is the shorter period of time, the Company shall:
(a) Promptly prepare and file with the SEC a registration
statement with respect to such Common Stock and use all reasonable efforts to
cause such registration statement to become effective as soon as practicable
after the filing thereof and to remain effective, subject to the Company's right
to withdraw any registration contemplated by Section 12.2 hereof;
(b) Prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective;
(c) Furnish to each participating Holder and to the
underwriters of the securities being registered such reasonable number of copies
of the registration statement, preliminary prospectus, final prospectus and such
other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(d) Use all reasonable efforts to register or qualify the
securities covered by such registration statement under such state securities or
"Blue Sky" laws of such jurisdictions as the participating Holders may
reasonably request within twenty (20) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, and except that the Company shall not be
required to so register or qualify in more than twenty (20) such jurisdictions
if in the good faith judgment of the managing underwriter such additional
registrations or qualifications would be unreasonably expensive or harmful to
the consummation of the proposed offering;
(e) Notify each participating Holder, promptly after the
Company shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
(f) Notify each participating Holder promptly of any request
by the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
9
<PAGE>
(g) Prepare and file with the SEC, promptly upon the request
of a participating Holder, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Holder and
counsel for the underwriter or manager of the offering, are required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of Common Stock by such Holder;
(h) Prepare and promptly file with the SEC and promptly
notify each participating Holder of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
(i) In case a participating Holder or any underwriter for a
Holder is required to deliver a prospectus at a time when the prospectus then in
circulation is not in compliance with the Securities Act, the Company will
prepare and file such supplements or amendments to such registration statement
and such prospectus or prospectuses as may be necessary to permit compliance
with the requirements of the Securities Act;
(j) Advise each participating Holder, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
all reasonable efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(k) Not file any amendment or supplement to such registration
statement or prospectus to which a participating Holder shall reasonably have
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
two (2) business days prior to the filing thereof; and
(l) At the request of a participating Holder (i) use all
reasonable efforts to obtain and furnish on the effective date of the
registration statement or, if such registration includes an underwritten public
offering, at the closing provided for in the underwriting agreement, an opinion,
dated such date, of the counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to each
participating Holder, which shall contain such opinions as are customary in an
underwritten public offering, or, if the offering is not underwritten, shall
state that such registration statement has become effective under the Securities
Act and that (or substantially to the effect that): (a) to the best of such
counsel's knowledge, no stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been instituted or are pending
or contemplated under the Securities Act; (b) the registration statement,
related prospectus and each amendment or supplement thereto comply as to form in
all material respects with the requirements of the
10
<PAGE>
Securities Act and applicable rules and regulations of the SEC thereunder
(except that such counsel need express no opinion as to financial statements,
schedules or other financial or statistical data contained therein); (c) such
counsel has no reason to believe that either the registration statement or the
prospectus or any amendment or supplement thereto (other than financial
statements and schedules or financial and statistical data, as to which such
counsel need not comment) contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; (d) the description in the
registration statement or prospectus or any amendment or supplement thereto of
all legal and governmental matters and all contracts and other legal documents
or instruments described therein are accurate in all material respects; and (e)
such counsel does not know of any legal or governmental proceedings, pending or
threatened, required to be described in the registration statement or prospectus
or any amendment or supplement thereto which are not described as required, nor
of any contracts or documents or instruments of the character required to be
described in the registration statement or prospectus or amendment or supplement
thereto or to be filed as exhibits to the registration statement, which are not
described and filed as required; and (ii) use all reasonable efforts to obtain
letters dated on such effective date, and such closing date, if any, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to each participating Holder, stating that they are
independent certified public accountants within the meaning of the Securities
Act and dealing with such matters as the underwriters may request, or, if the
offering is not underwritten, stating that in the opinion of-such accountants,
the financial statements and other financial data pertaining to the Company
included in the registration statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the applicable
accounting requirements of the Securities Act; such opinion of counsel shall
additionally cover such legal matters with respect to the registration and with
respect to which such opinion is being given as a participating Holder may
reasonably request; such letter from the independent certified public
accountants shall additionally cover such other financial matters, including
information as to the period ending not more than five (5) business days prior
to the date of such letter, with respect to the registration statement and
prospectus as a participating Holder may reasonably request.
12.5 Expenses. With respect to each inclusion of Common Stock of
--------
a Holder in a registration statement pursuant to Sections 12.1 and 12.2 hereof,
all registration expenses, fees, costs and expenses of and incidental to such
registration, including any public offering in connection therewith shall be
borne by the Company (excluding the fees and disbursements of advisors retained
by the Holder and counsel acting solely on behalf of the Holder); provided,
however, that the Holder shall bear the Holder's pro rata share of the
underwriting discount and commissions (up to a maximum aggregate amount equal to
8% of the offering price of the Holder's shares so offered). The fees, costs
and expenses of registration to be borne by the Company shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company (including the cost of
any special audit requested in order to effect such registration), fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company and/or selling security holders are required to bear such fees
and disbursements), all legal fees and disbursements and other expenses of
complying with state securities or blue Sky laws of any jurisdiction in which
the securities to be offered are to be registered or qualified.
11
<PAGE>
12.6 Indemnification of Holders. Subject to the conditions set
----------------------------
forth below, in connection with any registration of securities pursuant to
Sections 12.1 or 12.2 hereof, the Company agrees to indemnify and hold harmless
each Holder and each person, if any, who controls the Holder (and the respective
officers, directors and agents of Holders), within the meaning of Section 15 of
the Securities Act, as follows:
(a) Against any and all loss, claim, damage and expense
whatsoever arising out or based upon (including, but not limited to, any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
any litigation, commenced or threatened, or any claim whatsoever based upon) any
untrue or alleged untrue statement of a material fact contained in any
preliminary prospectus (if used prior to the effective date of the registration
statement), the registration statement or the final prospectus (as from time to
time amended and supplemented if the Company shall have filed with the SEC any
amendment thereof or amendment thereto) if used within the period during which
the Company is required to keep the registration statement or prospectus
current, or in any application or other document executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Company's securities under the securities
laws thereof; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; or any
other violation of applicable federal or state statutory or regulatory
requirements or limitations relating to action or inaction by the Company in the
course of preparing, filing, or implementing such registered offering; provided,
however, that the indemnity agreement contained in this Section 12.6(a) shall
not apply to any loss, claim, damage, liability or action arising out of or
based upon any untrue or alleged untrue statement or omission made in reliance
upon and in conformity with any information furnished in writing to the Company
by or on behalf of the Holder expressly for use in connection therewith;
(b) Subject to the proviso contained in the last sentence of
Section 12.6(a) above, against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in settlement of
any litigation, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission or any such alleged untrue statement or
omission (including, but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against any such
litigation or claim) if such settlement is effected with the written consent of
the Company and no indemnity shall inure to the benefit of the Holder or any
controlling person thereof if the person asserting the claim failed to receive a
copy of the final prospectus at or prior to the written confirmation of the sale
of shares of Common Stock to such person if the untrue statement or omission had
been corrected in such final prospectus and the failure to receive such final
prospectus is not a necessary element of such person's claim;
(c) In no case shall the Company be liable under this
indemnity agreement with respect to any claim made against the Holder or any
such controlling person (or its respective officers, directors and agents)
unless the Company shall be notified, by letter or by telegram confirmed by
letter, of any claim made or action commenced against such persons, reasonably
promptly (but in any event within twenty (20) days of receipt of such claim or,
in the
12
<PAGE>
event that any summons or other service of process requires a responsive
pleading within thirty (30) days or less time, within ten (10) days after
receipt of such summons or other process) after such person shall have received
notice of such claim or been served with the summons or other legal process
giving information as to the nature and basis of the claim, but failure to so
notify the Company shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement. The Company shall be
entitled to participate at its own expense in the defense of any suit brought to
enforce any such claim, but if the Company elects to assume the defense, such
defense shall be conducted by counsel chosen by it, provided that such counsel
is reasonably satisfactory to the Holder. In the event the Company elects to
assume the defense of any such suit and retain such counsel, the Holder shall,
after the date the Holder is notified of such election, bear the fees and
expenses of any counsel thereafter retained by the Holder as well as any other
expenses thereafter incurred by the Holder in connection with the defense
thereof; provided, however, that the Company shall bear the fees and expenses of
any such separate counsel retained by the Holder if the counsel representing the
Company has a conflict of interest (which is not waived) with the Holder which
would prohibit such counsel from representing the Holder.
12.7 Indemnification of Company. Each Holder participating in any
--------------------------
registered offering pursuant to Section 12.1 or 12.2 above agrees to indemnify
and hold harmless the Company and each of the officers and directors and agents
of it and each other person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act against any and all such losses,
liabilities, claims, damages and expenses as are indemnified against by the
Company under Section 12.6 hereof; provided, however, that such indemnification
shall be limited to statements or omissions, if any, made (or in settlement of
any litigation effected with the written consent of the Holder alleged to have
been made) in any preliminary prospectus, the registration statement or
prospectus or any amendment or supplement thereof or any application or other
document in reliance upon, and in conformity with, written information furnished
in respect of the Holder, by or on behalf of the Holder expressly for use in any
preliminary prospectus, the registration statement or prospectus or any
amendment or supplement thereof or in any such application or other document.
In case any action shall be brought against the Company, or any other person so
indemnified based on any preliminary prospectus, the registration statement or
prospectus or any amendment or supplement thereof or any such application or
other documents, in respect of which indemnity may be sought against a Holder,
it shall have the rights and duties given to the Company, and each other person
so indemnified shall have the rights and dudes given to a Holder, by the
provisions of Section 12.6(c) hereof. The Company agrees to notify the Holder
promptly after the assertion of any claim against the Company in connection with
the sale of securities covered by this Warrant.
12.8 Future Registration Rights. The Company may agree with its
----------------------------
shareholders other than the Holders to allow their participation in any
registered offering which may be requested pursuant to Section 12.1 hereof,
provided all such rights of participation by shareholders other than the Holders
shall be subordinated to the rights of the participating Holders herein, in a
manner reasonably satisfactory to the Required Percentage of such Holders and
their counsel.
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13. Descriptive Headings. The descriptive headings of the several
--------------------
sections of this Warrant are inserted for convenience only and do not constitute
a part of this Warrant.
14. Notices. Any notice or other communication pursuant to this
-------
Warrant shall be in writing and shall be deemed sufficiently given upon receipt,
if personally delivered or telecopied (with receipt acknowledged), or if mailed,
upon deposit with the United States Postal Service by first class, certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
(a) If to the Company, to The Female Health Company, 875
North Michigan Street, Suite 3660, Chicago, Illinois 60611, Attention:
Secretary, or such other address as the Company has designated in writing to the
Holder.
(b) If to the Holder, to Stephen M. Dearholt, Insurance
Processing Center, 741 North Milwaukee Street, Milwaukee, Wisconsin 53202 or to
such other address as the Holder has designated in writing to the Company.
15. Replacement of Warrant. Upon receipt of evidence satisfactory
----------------------
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and upon receipt of written indemnification of the Company by the Holder in form
and substance reasonably satisfactory to the Company, the Company shall execute
and deliver to the Holder a new Warrant of like date, tenor and denomination.
16. Governing Law. This Warrant shall be construed and
--------------
interpreted in accordance with the internal laws of the State of Wisconsin.
17. Successors and Assigns. The provisions of this Warrant shall
-----------------------
be binding upon and inure to the benefit of the Company and the Holder and their
respective successors, assigns and transferees.
18. Further Assurances. The Company agrees that it will execute
-------------------
and record such documents as the Holder shall reasonably request to secure for
the Holder any of the rights represented by this Warrant.
19. Amendment and Modifications. This Warrant may be amended,
-----------------------------
modified or supplemented only by written agreement of the Company and the
Holder.
14
<PAGE>
IN WITNESS WHEREOF, The Female Health Company has caused this Warrant
to be signed by its duly authorized officer and this Warrant to be dated as of
March 25, 2000.
THE FEMALE HEALTH COMPANY
By:
------------------------------------
O.B. Parrish
Chairman of the Board
and Chief Executive Officer
15
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 461,746
<SECURITIES> 0
<RECEIVABLES> 1,303,333
<ALLOWANCES> (135,080)
<INVENTORY> 1,252,018
<CURRENT-ASSETS> 3,290,050
<PP&E> 3,936,350
<DEPRECIATION> (2,206,432)
<TOTAL-ASSETS> 5,876,832
<CURRENT-LIABILITIES> 4,149,937
<BONDS> 0
0
0
<COMMON> 124,794
<OTHER-SE> 15,393
<TOTAL-LIABILITY-AND-EQUITY> 5,876,832
<SALES> 1,349,718
<TOTAL-REVENUES> 1,349,718
<CGS> 1,126,073
<TOTAL-COSTS> 896,320
<OTHER-EXPENSES> (37,261)
<LOSS-PROVISION> 6,013
<INTEREST-EXPENSE> 350,995
<INCOME-PRETAX> (986,409)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,019,149)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,019,149)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
