<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
REGISTRATION STATEMENT
ON FORM S-1
UNDER THE SECURITIES ACT OF 1933
AND POST-EFFECTIVE AMENDMENT NO.1
TO REGISTRATION STATEMENT ON
FORM S-1 (REGISTRATION NO. 33-97960)
UNDER THE SECURITIES ACT OF 1933
---------------------
ULTRAFEM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 3841 33-0435037
<S> <C> <C>
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification no.)
</TABLE>
---------------------
500 FIFTH AVENUE, SUITE 3620
NEW YORK, NEW YORK 10110
(212) 575-5740
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
JOHN W. ANDERSEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ULTRAFEM, INC.
500 FIFTH AVENUE, SUITE 3620
NEW YORK, NEW YORK 10110
(212) 575-5740
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
GERALD ADLER, ESQ. PAUL JACOBS, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP FULBRIGHT & JAWORSKI
919 THIRD AVENUE L.L.P.
NEW YORK, NEW YORK 10022 666 FIFTH AVENUE
(212) 758-9500 NEW YORK, NEW YORK 10103
(212) 318-3206
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /X/ (Registration No. 33-97960)
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT AND TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value......... 3,690,000(2) $23.25 $85,792,500 $29,583.62
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended, on the basis of
the average of the high and low prices of the Common Stock as reported on
the Nasdaq National Market on September 9, 1996.
(2) Includes 450,000 shares of Common Stock which the Underwriters have an
option to purchase to cover over-allotments, and 240,000 additional shares
which are being registered in the Concurrent Offering.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of the offer and sale by
Ultrafem, Inc. (the "Company") of up to 3,000,000 shares of Common Stock of the
Company (the "Offering") (3,450,000 shares of Common Stock if the over-allotment
option is exercised in full). This Registration Statement is also Post-Effective
Amendment No. 1 to Registration Statement on Form S-1 (Reg. No. 33-97960)
registering the offer and sale by certain selling stockholders (the "Selling
Stockholders") of 4,301,303 shares of Common Stock of the Company (the
"Concurrent Offering"). The complete Prospectus relating to the Offering follows
immediately after this Explanatory Note. Following such Prospectus is the
complete Prospectus relating to the Concurrent Offering.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
3,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
ALL OF THE 3,000,000 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY (THE "OFFERING"), ARE BEING SOLD BY ULTRAFEM,
INC. ("ULTRAFEM" OR THE "COMPANY"). THE COMMON STOCK IS QUOTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "UFEM." ON SEPTEMBER 12, 1996, THE LAST SALE
PRICE OF THE COMMON STOCK AS REPORTED BY THE NASDAQ NATIONAL MARKET WAS $24.00
PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total (3).............................. $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the several underwriters identified
elsewhere herein (the "Underwriters") against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE UNDERWRITERS, SUBJECT TO PRIOR
SALE, WHEN, AS AND IF ISSUED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT DELIVERY OF THE COMMON STOCK WILL BE MADE AGAINST PAYMENT THEREFOR
ON OR ABOUT , 1996, IN NEW YORK, NEW YORK.
------------------------
JEFFERIES & COMPANY, INC.
HAMPSHIRE SECURITIES CORPORATION
, 1996
<PAGE>
[inside front cover]
[PHOTO OF PRINT ADVERTISEMENT]
THIS IS A SAMPLE PRINT ADVERTISEMENT
INTRODUCING INSTEAD A MULTI-MEDIA MARKETING CAMPAIGN AS EXCITING AS THE
PRODUCT ITSELF.
[PHOTO OF MAGAZINES]
PRINT ADVERTISEMENTS -- AN EXCITING PRINT CAMPAIGN IS NOW APPEARING IN MAJOR
WOMEN'S MAGAZINES SHOWING AUDREY CONTENTE, THE INVENTOR OF INSTEAD, ENJOYING HER
ACTIVE LIFESTYLE.
[PHOTO OF PRODUCT PACKAGING]
1-800-INSTEAD -- THE EASY-TO-REMEMBER NUMBER CUSTOMERS CAN CALL, AND IF THEY
WISH, SPEAK TO REGISTERED NURSES. THESE NURSES WILL HAVE PERSONALLY USED THE
PRODUCT AND CAN GUIDE USERS THROUGH ANY CONCERNS THEY MAY HAVE.
INSTEAD COMES IN DISTINCTIVE, INVITINGLY DESIGNED BOXES OF 6 COUNT, 16 COUNT
AND 24 COUNT PACKAGES.
[PHOTO OF DIRECT MAIL LITERATURE]
DIRECT MAIL -- THOUSANDS OF HEALTH CARE PROFESSIONALS AND CONSUMERS WILL
RECEIVE FREE SAMPLE KITS OR DISCOUNT COUPONS. THE OUTSIDE OF THE SAMPLE KIT
BOXES AND ENVELOPES CAPITALIZE ON THE EXCITEMENT AND APPROPRIATENESS OF A WOMAN
INVENTOR IN THIS CATEGORY. THEY READ: "A MAN COULDN'T HAVE INVENTED WHAT'S
INSIDE."
[PHOTO OF INFORMERCIAL]
How MUCH do you KNOW about your BODY?
EDU-MERCIAL -- A THIRTY MINUTE EDU-MERCIAL HAS BEEN CREATED TO LAUNCH
INSTEAD. FOCUSING ON WOMEN'S HEALTH, IT FEATURES A FEMALE HEALTH QUIZ, FOOTAGE
OF PAST ATTITUDES TOWARDS MENSTRUATION, CANDID TESTIMONIALS FROM ENTHUSIASTIC
CONSUMERS AND ENDORSEMENTS FROM TWO OB-GYN DOCTORS AND A NURSE WHO THINK INSTEAD
IS A MAJOR BREAK-THROUGH FOR WOMEN.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
(I) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II)
GIVES EFFECT TO THE ONE-FOR-FOUR REVERSE STOCK SPLIT EFFECTED ON JULY 28, 1995
AND (III) IS BASED ON THE NUMBER OF SHARES OF COMMON STOCK AND OTHER SECURITIES
OUTSTANDING AS OF AUGUST 31, 1996. EACH PROSPECTIVE INVESTOR IS URGED TO READ
THIS PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
Ultrafem-Registered Trademark-, Inc. ("Ultrafem" or the "Company"), a
development stage company, was formed to design, develop and manufacture
products based upon its proprietary and patented SoftCup-Registered Trademark-
Technology to address women's health care needs. The SoftCup Technology is a
physical barrier-type vaginal device designed to enhance the comfort,
functionality and effectiveness of products designed for women in the areas of
feminine protection, contraception, the prevention of sexually transmitted
diseases ("STDs") and the treatment of vaginal infections. The commercial
products which will employ the SoftCup Technology will be disposable, single
use, universal size and made from a soft, inert, thermoplastic material which
becomes more pliable at body temperature and molds to fit the individual user's
anatomy.
The Company's business strategy is to develop and market proprietary
products based on its patented SoftCup Technology directed at high potential,
underserved segments of the women's health care market. The key elements of this
strategy are to (i) commence the launch of the Company's feminine protection
product, INSTEAD-TM-, in the United States, (ii) expand the Company's
manufacturing capabilities, (iii) develop and submit for Food and Drug
Administration ("FDA") clearance or pre-market approval products based upon the
SoftCup Technology for the medical product arena and (iv) pursue strategic
alliances with multi-national consumer product and pharmaceutical companies for
marketing, sales and distribution.
FEMININE PROTECTION PRODUCT -- INSTEAD-TM-
Management of the Company believes that INSTEAD-TM- represents one of the
most significant technological developments for feminine protection since the
introduction of the first commercial disposable tampon in 1933. INSTEAD-TM-
differs from other forms of feminine protection currently on the market in that
it collects, rather than absorbs, menstrual fluid. The Company believes that the
unique design of INSTEAD-TM- provides several distinct benefits over currently
available forms of feminine protection, including increased comfort, improved
performance, reduced health concerns and freedom to engage in most physical
(including sexual) activities during menstruation. The Company has obtained FDA
clearance to market INSTEAD-TM- in the United States. INSTEAD-TM- may also be
marketed in each of Belgium, Canada, Denmark, Finland, France, the Netherlands,
Spain, Sweden, Switzerland and the United Kingdom subject to compliance with
applicable international labeling laws and United States export requirements.
The Company plans to initiate the launch of INSTEAD-TM- in the Pacific
Northwest, a region which the Company estimates represents approximately 8% of
United States households and includes the major markets of San Francisco,
Seattle and Portland, by the Fall of 1996. The Company intends to introduce
INSTEAD-TM- in stages into additional significant geographic regions with full
national distribution anticipated to be achieved over a three year period, which
may be accelerated or delayed depending upon various factors including market
acceptance by retailers and consumers, and the availability of additional
financing. The Company has conducted market research and consumer use testing
which indicate significant consumer interest in INSTEAD-TM-. The Company intends
to distribute INSTEAD-TM- principally through supermarkets and drug stores. See
"Risk Factors -- Inherent Limitation of Market Research and Consumer Use
Testing," "-- Need for Additional Financing for Unforeseen Risks," "Business --
Product Testing," and "-- Strategy and Plan of Operations."
3
<PAGE>
Management estimates that the domestic and international feminine protection
markets in developed countries are in excess of $9 billion annually. The United
States market for feminine protection products such as tampons and pads
generates approximately $1.8 billion in annual revenues (based on a 1995 report
by A.C. Nielsen). Approximately 58 million women between the ages of 18 and 54
use feminine protection products in the United States. Approximately 63% of
menstruating women in the United States use tampons exclusively or in
combination with pads (based on 1996 Simmons Market Research Bureau). The
European market for feminine protection products generates approximately $2.9
billion in annual revenues (based on a 1995 report by A.C. Nielsen) with an
estimated 105 million women between the ages of 18 and 54 using feminine
protection products. Other developed markets, including Canada, Latin America,
Mexico and Asia (other than China and India) represent a combined population in
excess of 200 million potential users.
MEDICAL PRODUCT APPLICATIONS
Ultrafem intends to develop additional applications of the SoftCup
Technology for vaginal delivery of agents for use in contraception, the
prevention of STDs, and the treatment of vaginal infections. The Company's
initial medical product under development is a contraceptive product which
combines the SoftCup Technology with the BufferGel Technology, which is licensed
by the Company for vaginal use on a worldwide basis. The BufferGel Technology,
which has the ability to maintain the normal vaginal pH balance while killing
sperm and most STD pathogens, was invented by scientists associated with The
Johns Hopkins University ("Johns Hopkins") with whom the Company has previously
conducted research. The Company has entered into a research and development
agreement with ReProtect, LLC ("ReProtect"), a company founded by these
scientists which will continue the investigation and development of medical
applications of the SoftCup Technology.
The United States market for contraceptive products such as condoms, oral
contraceptives, diaphragms and implantable contraceptives generates
approximately $2 billion in annual revenues (based on Theta Corporation, 1994).
Based on the population of women between the ages of 18 and 54, estimated to be
in excess of 300 million women in Europe and other developed markets, and
assuming that the frequency of use of contraceptive products is less than that
in the United States, management estimates the international markets for
contraceptives to be approximately $6 billion annually outside the United
States. Additionally, at least 330 million new cases of STDs occur each year
throughout the world (World Health Organization, 1995), indicating a significant
market for a STD prevention product.
RECENT DEVELOPMENTS
- - PRODUCT LAUNCH. The Company anticipates that INSTEAD-TM- will be available
for sale by retailers in the Pacific Northwest in the Fall of 1996, including
the major markets of San Francisco, Seattle, and Portland. In order to achieve
this timetable, the Company began shipment of INSTEAD-TM- in August 1996.
Marketing and sales programs, such as print and TV advertising, sampling,
consumer promotion, direct mail, public and professional relations, and in-store
merchandising have been developed and will be utilized to generate consumer
awareness and trial.
- - PRODUCT DISTRIBUTION. The Company intends to distribute INSTEAD-TM-
primarily through supermarkets and drug stores. The Company has retained
Meridian Consulting Group ("Meridian") to provide sales management services,
including supervision of a broker network, development of trade promotion plans
and introductory sales presentations for the initial introduction of INSTEAD-TM-
into the United States market. Ultrafem has hired Morgan & Sampson Pacific, a
leading Health and Beauty Aid broker in the Northwest, as the broker for
INSTEAD-TM- in the Pacific Northwest. Sales calls in the Pacific Northwest to
date have resulted in commitments from retailers which account for more than 75%
of ACV (all commodity volume) in the food and drug classes of trade. These
include commitments for in-store merchandising and displays, on shelf dates, and
desired shelf space.
4
<PAGE>
- - COMMERCIAL PRODUCTION COMMENCED. Subsequent to the Company's initial public
offering ("IPO") in February 1996, the Company entered into a lease for
manufacturing and office space in Missoula, Montana and remodeled the
manufacturing space principally to create the controlled environment module that
secures the manufacturing equipment. The special thermoforming line which
produces INSTEAD-TM- completed high volume testing and, in June 1996, commenced
manufacturing commercial quantities of INSTEAD-TM- for the Fall 1996 launch. The
Company placed an order for a second semi-automated line scheduled to be
installed in the Fall of 1996 and an order for a fully automated line scheduled
to be installed in the Spring of 1997. The Company believes that its
manufacturing capacity will be sufficient to meet consumer demand. There can be
no assurance, however, that any of the foregoing goals or timetables can be met.
- - BUFFERGEL TECHNOLOGY RECEIVES HIVNET GRANT; PHASE I TRIALS SCHEDULED TO
BEGIN. The National Institute of Health ("NIH") has granted $2 million in
contracts to ReProtect and Johns Hopkins for the research and development of the
BufferGel Technology for contraception and the prevention of AIDS and other
STDs. Subsequent to the IPO, ReProtect was selected by HIVNET, a unit of the
NIH, to test the use of the BufferGel Technology as a vaginal microbicide for
the prevention of AIDS and other STDs. The FDA allowed an Investigational New
Drug ("IND") application permitting the BufferGel Technology to enter Phase I
clinical trials which are currently scheduled to begin in the Fall of 1996. The
Company plans to begin clinical trials of its contraceptive product upon
completion of the Phase I clinical trials of the BufferGel Technology. A portion
of these clinical trials may be funded by the net proceeds of the Offering. In
order to achieve this timetable, the Company will need to complete the
development of the contraceptive product by combining the SoftCup Technology and
the BufferGel Technology. The Company plans to simultaneously develop additional
applications of such technologies for treatment of vaginal infections and
topical and systemic therapies. There can be no assurance, however, that any of
the clinical trials will demonstrate the necessary degree of safety and
effectiveness required for FDA pre-market approval, that ReProtect will receive
the benefit of the entire $2 million under the NIH contracts or that any of the
foregoing goals or timetables can be met. See "Risk Factors -- Dependence on
Single Product" and "-- Risks Associated with Research and Development for Other
Applications of the SoftCup Technology."
The Company was incorporated under the laws of the State of Delaware on
March 22, 1990 by Audrey Contente, the founder of the Company and inventor of
the SoftCup Technology, and its principal executive office is located at 500
Fifth Avenue, Suite 3620, New York, New York 10110. The Company's telephone
number is (212) 575-5740.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock offered by the
Company..................................... 3,000,000 shares
Shares of Common Stock to be outstanding
after the Offering.......................... 8,889,501 shares (1)
Use of proceeds.............................. For expenses relating to the launch of
INSTEAD-TM-, including marketing and sales
activities and capital expenditures, for
research to accelerate the development of
medical products and funding certain clinical
trials of such products, to repay certain
indebtedness, and for general corporate and
working capital purposes. See "Use of
Proceeds."
Risk Factors................................. The shares of Common Stock offered hereby
involve a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
Nasdaq National Market symbol................ UFEM
</TABLE>
- ------------------------
(1) Excludes 5,047,753 shares of Common Stock issuable upon the conversion or
exercise of certain currently outstanding securities of the Company, of
which 3,227,853 shares are being offered in the Concurrent Offering. See
"Concurrent Sales by Selling Stockholders."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information for the five years ended June 30, 1996 are
derived from the audited financial statements of the Company. The financial
statements as of June 30, 1996 and for the three years then ended have been
audited by Deloitte & Touche LLP, independent auditors. The summary financial
information below should be read in conjunction with the Financial Statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
STATEMENT OF OPERATIONS DATA:
Total Revenue..................... -- -- -- -- --
General and Administrative
Expense.......................... $ 2,141,249 $ 1,139,339 $ 1,387,784 $ 1,568,442 $ 7,501,538
Operating Income (Loss)........... (3,827,114) (2,020,786) (1,967,208) (1,916,450) (9,643,978)
Net Income (Loss)................. (3,831,536) (2,091,903) (2,303,940) (2,381,065) (9,819,980)
Net Income (Loss) Per Share:
Primary........................... $ (1.61) $ (0.79) $ (0.87) $ (0.87) $ (2.74)
Fully Diluted..................... $ (1.61) $ (0.79) $ (0.87) $ (0.87) $ (2.74)
Weighted Average Common Shares and
Equivalents(1)................... 2,386,847 2,640,387 2,658,214 2,698,152 3,529,494
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(2)
-------------- --------------
BALANCE SHEET DATA:
Working Capital(3)............................................................... $ 17,962,533 $ 80,962,533
Total Assets..................................................................... 29,407,936 92,407,936
Long-term Debt................................................................... 700,000 700,000
Stockholders' Equity............................................................. 21,283,944 84,283,944
</TABLE>
- ------------------------
(1) The weighted average number of common shares outstanding during the first
half of fiscal year 1996, and during fiscal years 1995, 1994, 1993 and 1992
includes incremental shares for the Common Stock, warrants and other
potentially dilutive securities issued and options granted to purchase
Common Stock which were issued within one year prior to the effective date
of the IPO (the "Incremental Shares"). Such Incremental Shares were
determined utilizing the treasury stock method. The effect of the assumed
exercise of stock options which were issued one year prior to the effective
date of the IPO and the effect of the assumed conversion of the convertible
preferred stock are not included because their effect is antidilutive.
(2) Adjusted to reflect the sale of 3,000,000 shares of Common Stock by the
Company at an assumed offering price of $23.00 per share and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
(3) Includes current portion of long-term debt.
7
<PAGE>
CONCURRENT SALES BY SELLING STOCKHOLDERS
The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering (the "Concurrent Offering") by
certain existing stockholders of the Company of an aggregate of up to 4,301,303
shares of Common Stock which includes certain shares which are issuable upon
conversion and/or exercise of certain outstanding securities. The Company will
not receive any proceeds from the sale of shares of Common Stock in the
Concurrent Offering. All of the shares offered in the Concurrent Offering may be
sold in the open market, in privately negotiated transactions or otherwise by
the holders thereof. The Company has, subject to certain exceptions, agreed not
to offer, issue or sell any shares of Common Stock or securities exercisable for
or convertible into shares of Common Stock for a 180 day period after the date
of this Prospectus without the prior written consent of Jefferies & Company,
Inc. ("Jefferies"). In addition, certain holders of Common Stock, including the
officers and directors of the Company, are subject to a contractual restriction
prohibiting the offer and/or sale of their shares of Common Stock or other
securities of the Company, prior to August 22, 1997, without the prior written
consent of Hampshire Securities Corporation ("Hampshire"). Hampshire has agreed
with Jefferies not to release any of such stockholders from the contractual
restriction without the prior written consent of Jefferies. See "Underwriting."
Sales of such securities by the selling stockholders or the potential of such
sales may have an adverse effect on the market price of the shares of Common
Stock offered hereby.
8
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS IN THIS PROSPECTUS THAT
ARE NOT DESCRIPTIONS OF HISTORICAL FACTS MAY BE FORWARD-LOOKING STATEMENTS,
INCLUDING, BUT NOT LIMITED TO, STATEMENTS CONTAINED IN "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
SUCH STATEMENTS ARE BASED ON MANY ASSUMPTIONS AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
IN THE FORWARD LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE IDENTIFIED BELOW AS WELL AS THOSE SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
DEVELOPMENT STAGE COMPANY; HISTORY OF LOSSES
From the Company's inception in March 1990 through the date of this
Prospectus, the Company has not generated any revenue. The Company has expended
more than $21.0 million for, among other things, marketing, research and
development activities, engineering and design of fully automated manufacturing
systems, clinical testing, meeting domestic and international regulatory
requirements, domestic and international applications for patent protection,
applications for domestic trademark protection, and market research. The Company
may encounter difficulties experienced by development stage companies, many of
which may be beyond the Company's control, such as unanticipated problems and
costs related to marketing INSTEAD-TM-. Management expects to continue incurring
operating losses for the foreseeable future, until such time as the Company
derives significant revenues from the sale of INSTEAD-TM-. It is currently
anticipated that sales of INSTEAD-TM- will commence in the Fall of 1996. The
Company believes that the financial resources available to it, together with the
net proceeds of the Offering, will satisfy the Company's working capital needs
for at least 12 months. In addition, the Company may require additional
financing if unforeseen risks are encountered. See "-- Need for Additional
Financing for Unforeseen Risks" and "Business -- Strategy and Plan of
Operations." The Company has only limited experience in producing INSTEAD-TM-
and has not yet manufactured INSTEAD-TM- on a cost-efficient basis; in the
future the Company will need to reduce manufacturing costs and related marketing
expenses, as well as expand its ability to produce INSTEAD-TM- in the quantities
necessary to achieve significant commercial sales. There can be no assurance
that reliable manufacturing operations can be achieved at a reasonable cost and
without delays. If the Company encounters production difficulties, including
problems involving production yield, quality control and assurance, or supplies
or components, there could be a material adverse effect on the Company's
business, financial condition and results of operations. There can also be no
assurance that the Company will ever generate revenue or, if revenues are
generated, that the Company will be profitable.
DEPENDENCE ON SINGLE PRODUCT
The Company's future profitability initially depends primarily on the
successful commercialization of INSTEAD-TM- as an alternative to currently
available feminine protection products. Should the introduction of INSTEAD-TM-
be unsuccessful for any reason, there would be a material adverse effect on the
Company's business, financial condition and results of operation. See "-- Risks
Associated with Research and Development for Other Applications of the SoftCup
Technology" and "Business -- Other Potential Applications of the SoftCup
Technology."
NEED FOR ADDITIONAL FINANCING FOR UNFORESEEN RISKS
The Company believes that the level of financial resources available to it
is an important factor in its ability to achieve the marketing and distribution
of INSTEAD-TM- and in its ability to develop and eventually bring medical
products to market. Management believes that the financial resources available
to it, together with the net proceeds of the Offering, will satisfy the
Company's working capital needs for at least 12 months. However, the Company may
require additional financing if unforeseen risks are encountered. If the Company
is unable to raise additional capital or arrange satisfactory working capital or
additional equity financing, the Company may be unable to complete
9
<PAGE>
the distribution of INSTEAD-TM- into the full United States market. Additional
financings may require the issuance of new equity securities, and there can be
no assurance that the Company will be able to obtain working capital or
additional financing at a favorable rate, if at all. See "-- Risks Associated
with Research and Development for Other Applications of the SoftCup Technology."
LACK OF MANUFACTURING EXPERIENCE, NEED TO ACHIEVE ECONOMIES OF SCALE AND LIMITED
MANUFACTURING RESOURCES
The Company has limited experience in manufacturing quantities of
INSTEAD-TM- for the commercial market. There can be no assurance that the
Company will be able to manufacture quantities of INSTEAD-TM- for the commercial
market on a cost efficient basis, if at all. In the future, the Company will be
required to increase the number of units it can produce, reduce per-unit
manufacturing costs and achieve high quality standards in order to successfully
market INSTEAD-TM- on a commercial scale throughout the full United States
market. These criteria will only be satisfied if the Company is able to either
enhance significantly its existing production capabilities or enter into
arrangements with third parties capable of manufacturing INSTEAD-TM- on a
cost-efficient basis. If the Company experiences manufacturing problems or
delays, there would be a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Development Stage
Company; History of Losses" and "Business -- Manufacturing."
MARKETING RISKS; UNCERTAINTY OF CONSUMER ACCEPTANCE
The Company expects to incur substantial marketing expense in launching
INSTEAD-TM- into the United States market. The marketing risks that the Company
may encounter are compounded by the unique nature of INSTEAD-TM-. Because
INSTEAD-TM- is fundamentally different from nearly all commercially available
forms of feminine protection, successful introduction of INSTEAD-TM- will face
several obstacles, including a change in established personal hygiene regimen
and educating potential consumers on how to use INSTEAD-TM-. Furthermore, the
Company will be competing with other products which are already familiar to the
target audience, and the Company will be required to incur substantial marketing
expense in order to introduce INSTEAD-TM- to consumers. There can be no
assurance that the Company will develop an effective marketing or advertising
campaign to overcome these obstacles. See "-- Risks Associated with Potential
Competitive Response" and "Business -- Marketing and Sales."
NECESSITY OF REGULATORY CLEARANCES TO MARKET
The production and distribution of INSTEAD-TM- are subject to regulation in
the United States and other countries in which INSTEAD-TM- may be sold. In 1993,
the FDA cleared the Company's pre-market notification submission under Section
510(k) of the Federal Food, Drug, and Cosmetic Act of 1938, as amended (the
"FDCA"). The FDA's clearance of this notification enables the Company to market
INSTEAD-TM- in the United States and to export it overseas subject to the
general controls provisions of the FDCA. Subsequent to FDA clearance of this
notification submission, certain modifications, which the Company believes are
minor, were made in the materials used in INSTEAD-TM- to improve the
manufacturing process. An applicable FDA regulation requires the filing of a new
510(k) notification when, among other things, there is a major change or
modification in the intended use of the device, or a change or modification in
material, chemical composition or manufacturing process, that could
significantly affect the device's safety or effectiveness. A device manufacturer
is responsible for making the initial determination as to whether a proposed
change to a cleared device or its intended use necessitates the filing of a new
510(k) notification. The Company has conducted testing subsequent to the
changes, which the Company believes are minor, in materials. The Company has
been advised by its regulatory counsel that no additional 510(k) notification is
required for these changes, although there can be no assurance that the FDA will
not require such a 510(k) notification. In April 1994, the FDA informally
proposed a guidance document pursuant to the above-described regulation (which
was revised in August 1995 and which is expected to be re-published in September
1996) that would require submission of a new 510(k) notification when certain
changes are made in medical devices such as INSTEAD-TM-, including changes in
materials and labeling. If a new 510(k) notification were to be required by the
FDA for the changes in materials of INSTEAD-TM-, there can be
10
<PAGE>
no assurance that the FDA would clear a new 510(k) notification submitted by the
Company, or that the FDA would not prohibit the Company from selling INSTEAD-TM-
until the 510(k) notification was cleared. The FDA review time for 510(k)
notifications could be lengthy. The failure to obtain a new 510(k) clearance, if
required, on a timely basis, if at all, would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has also decided to label INSTEAD-TM- with a 12 hour maximum
wear time. The labeling for INSTEAD-TM-, as cleared by the FDA in the original
510(k) notification, included an 8 hour maximum wear time. The Company conducted
a clinical study to support the safety of the 12 hour wear time. See "Business
- -- Product Testing." The Company does not believe a new 510(k) notification is
necessary to increase the maximum wear time to 12 hours. The results of these
studies were discussed during a meeting with the FDA on June 19, 1996. At that
meeting, the FDA requested that the Company submit these results of its clinical
testing, which the Company provided on July 17, 1996. The FDA has not responded
to that submission. Since the Company's clinical studies have demonstrated that
the change in the maximum wear time does not affect the safety and effectiveness
of the product, the Company and its regulatory counsel do not believe a new
510(k) notification is necessary under existing regulations. However, if a new
510(k) notification were to be required by the FDA for the labeling change
regarding maximum wear time under the above-described regulation and/or guidance
document, there can be no assurance that the FDA would clear a new 510(k)
notification submitted by the Company, or that the FDA would not require the
Company to use the original labeling stating a shorter maximum wear time until
the 510(k) notification was cleared.
Any product with a 510(k) notification cleared by the FDA and its
manufacturer are subject to continuing regulatory review and the FDA has the
authority to, among other things, order or request restrictions on the
distribution of products or the withdrawal of products from market even after
clearance of a 510(k) submission is obtained.
The Company's manufacturing facility in Missoula, Montana is subject to the
Good Manufacturing Practices ("GMP") regulations which are promulgated by the
FDA, international quality standards and other regulatory requirements. The
failure by the Company to comply with the foregoing could adversely affect the
Company's production and financial condition. See also "Business -- Government
Regulation" and "-- Regulatory Status."
In order to distribute INSTEAD-TM- in foreign countries, the Company must
comply with all regulatory requirements of the countries in which the Company
intends to sell INSTEAD-TM-, including regulations with respect to labeling and
importing into such countries and FDA requirements for export thereto. There can
be no assurance that the Company will be able to comply with such requirements.
See "Business -- Regulatory Status." The Company will require FDA clearance or
pre-market approval to market other applications of the SoftCup Technology in
the United States.
PRODUCT LIABILITY; POSSIBILITY OF INSUFFICIENT INSURANCE COVERAGE
Testing, manufacturing and marketing of INSTEAD-TM- entail an inherent risk
of product liability, and such risk may be increased because INSTEAD-TM- is used
internally. The Company presently maintains what it believes to be a sufficient
level of product liability insurance. Such insurance is expensive and, in the
future, may not continue to be available on acceptable terms, if at all. The
Company's business, financial condition and results of operations may be
materially adversely affected by a successful product liability claim, or series
of such claims, in excess of any insurance coverage. There can be no assurance
that product liability claims will not be successfully asserted against the
Company. See "Business -- Product Testing."
COMPETITION
The market for feminine protection and medical products is presently
dominated by large, long-established and well-financed companies which have
substantially greater resources than the Company. There can be no assurance that
other companies will not develop new or enhanced feminine protection products
that are either more effective than INSTEAD-TM-, or would render INSTEAD-TM-
11
<PAGE>
obsolete or non-competitive. In addition, there can be no assurance that
existing competitive companies will not increase their level of advertising and
marketing expenditures in response to the introduction of INSTEAD-TM-. See "--
Risks Associated with Potential Competitive Response" and "Business --
Competition."
RISKS ASSOCIATED WITH POTENTIAL COMPETITIVE RESPONSE
Subsequent to the IPO, the Company identified its target geography for the
initial launch of INSTEAD-TM-, established a broker network, and established
certain key trade accounts. The initial indications from the early stages of the
launch reflect higher costs related to trade, distribution and marketing
spending levels than previously anticipated. The Company believes that this is
due to the response to the launch of INSTEAD-TM- by companies with competitive
products. There can be no assurance that the Company's competitors will not
significantly increase their spending on promotional activities as a reaction to
the introduction of INSTEAD-TM-. See "-- Marketing Risks; Uncertainty of
Consumer Acceptance."
INHERENT LIMITATION OF MARKET RESEARCH AND CONSUMER USE TESTING
The Company conducted test studies for the purposes of evaluating potential
consumer interest in INSTEAD-TM- and developing a market strategy for
INSTEAD-TM-. Due to the inherent limitations of market research and consumer
testing to accurately indicate consumer preferences, the results of such
research and tests may not accurately reflect INSTEAD-TM-'s actual market
potential. See "Business -- Marketing and Sales."
RISKS INHERENT IN OBTAINING AND PROTECTING PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its ability to obtain and
protect patents and trade secrets, and operate without infringing the
proprietary rights of other companies and individuals in the United States and
abroad. A continuation patent application based on, and including the subject
matter of, a patent application for the SoftCup Technology (for use for feminine
protection during menstruation either with or without vaginal drug delivery)
originally filed by Ms. Audrey Contente, the founder of the Company, was allowed
by the United States Patent and Trademark Office (the "Patent and Trademark
Office") on December 11, 1992. The United States patent was issued on March 22,
1994 and expires on March 22, 2011. Additional patent applications are pending
in the United States on other aspects and applications of the SoftCup Technology
and certain manufacturing processes related to such technology. The Company has
also filed international patent applications with respect to the SoftCup
Technology (for use for feminine protection during menstruation either with or
without vaginal drug delivery). There can be no assurance that any additional
patents will issue or that any issued patents will provide the Company with
competitive advantages or will not be challenged by other companies or
individuals. There can be no assurance that other companies and individuals will
not independently develop similar products, duplicate the SoftCup Technology or
design around the Company's patent. In addition, the Company could incur
substantial costs in defending suits brought against it on such intellectual
property rights or in prosecuting suits that the Company brings against other
parties to protect its intellectual property rights. The Company also relies on
trade secrets and other unpatented proprietary technology. The Company seeks to
protect its trade secrets and proprietary know-how in part with confidentiality
agreements with employees and consultants. There can be no assurance that the
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or independently developed by competitors or that others will not
independently develop substantially equivalent proprietary products and
processes or otherwise gain access to the Company's proprietary technology. See
"Business -- Patent Status and Patent Applications; Proprietary Technology."
RISKS ASSOCIATED WITH RESEARCH AND DEVELOPMENT FOR OTHER APPLICATIONS OF THE
SOFTCUP TECHNOLOGY
Although the Company is currently focusing its primary efforts and capital
resources on introducing INSTEAD-TM- into the United States and international
markets, the Company intends to apply a portion of the net proceeds of the
Offering to pursue research on potential medical and health care
12
<PAGE>
applications of the SoftCup Technology. If such research leads to the
development of new products, the Company would require further additional
capital and/or a strategic partner to market and distribute such products. There
can be no assurance that such research or development will be successful, that
these additional potential applications of the SoftCup Technology will result in
the Company's introduction of other products or that any additional financing
will be available or, if available, will be on terms acceptable to the Company.
See "Business -- Other Potential Applications of the SoftCup Technology."
The Company's focus on research and development of medical applications of
the SoftCup Technology is contingent on many factors which are generally
difficult to identify and quantify. They are dependent on a number of factors
which are not in the Company's control, including the results of clinical trials
and other scientific findings, and the regulatory requirements of clinical
testing and market approvals. See "-- Necessity of Regulatory Clearances to
Market" and "Business -- Government Regulation." Accordingly, there can be no
assurance that any of the goals or timetables described in this Prospectus
relating to other potential applications of the SoftCup Technology can be met.
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent, in large part, on the continued service
of its key management, certain scientific and technical advisors and its ability
to attract and retain qualified employees. Competition for such employees is
intense. The Company has obtained key-person life insurance in the amount of $1
million for the life of John W. Andersen, the President, Chief Executive Officer
and Chairman of the Board of the Company. In addition, the Company is in the
process of obtaining a key-person life insurance policy on Audrey Contente, an
officer and founder of the Company who invented the SoftCup Technology. There
can be no assurance that any such key-person life insurance will continue to be
available in the future to the Company at a satisfactory premium. See
"Management."
DILUTION
Purchasers of shares in the Offering will suffer immediate and substantial
dilution of $13.41 per share in net tangible book value per share as of June 30,
1996 (assuming an offering price of $23.00 per share). See "Dilution" and
"Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and Amended and Restated By-Laws could have the effect of discouraging a third
party from pursuing a non-negotiated takeover of the Company and preventing
certain changes in control. The Restated Certificate of Incorporation provides
that the Board of Directors is divided into three classes. One class of
directors is elected at each annual meeting of stockholders for a three-year
term. The Restated Certificate of Incorporation restricts certain business
combinations with an interested stockholder (typically a beneficial owner of 15%
or more of the outstanding voting shares of the Company's capital stock,
excluding certain persons). In addition, the Amended and Restated By-Laws and
the Restated Certificate of Incorporation require advance notice to the Board of
Directors of stockholder proposals or stockholder nominees for directors to be
considered at the next annual meeting of stockholders and restrict the ability
of stockholders to call meetings. The Restated Certificate of Incorporation and
Amended and Restated By-Laws also limit the ability of stockholders to remove
directors, call stockholders meetings and act by written consent and provide
that vacancies in the Board of Directors may only be filled by a majority of the
remaining directors. In addition, the Company's Restated Certificate of
Incorporation authorizes the issuance of 5,000,000 shares of preferred stock
with such designation, rights and preferences as may be determined from time to
time by the Board of Directors. The Board of Directors may, without stockholder
approval, issue preferred stock with dividend, liquidation, conversion, voting
or other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. There can be no assurance that the Company will
not issue additional shares of preferred stock in the future. These provisions
could discourage a third party from pursuing
13
<PAGE>
a takeover of the Company at a price considered attractive by many stockholders,
since such provisions could have the effect of delaying an acquiring party from
gaining control of the Company and its Board of Directors. See "Description of
Capital Stock -- Preferred Stock" and "-- Certain Provisions of the Company's
Certificate of Incorporation and By-Laws."
LIMITED TRADING HISTORY; VOLATILITY OF PRICE
Prior to the IPO, there had been no public trading market for the Common
Stock, and there can be no assurance that a regular trading market for the
Common Stock will continue after the Offering or that the market price for the
Common Stock will not fall below the offering price. In addition, market prices
of securities of many development stage companies have experienced wide
fluctuations not necessarily related to the operating performance of such
companies. The Company believes that factors such as legislative, regulatory and
technological developments and quarterly variations in financial results could
cause the market price of the Common Stock to fluctuate substantially. These
market fluctuations may adversely affect the price of and market for the Common
Stock. See "Price Range of Common Stock."
SUBSTANTIAL AMOUNT OF SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE OF COMMON STOCK
Upon consummation of the Offering, the Company will have 8,889,501 shares of
Common Stock outstanding (9,339,501 shares if the Underwriters' over-allotment
option is exercised in full). In addition, as of August 31, 1996, there has been
reserved 5,047,753 shares of Common Stock for issuance upon the conversion or
exercise of outstanding securities. The 3,000,000 shares of Common Stock to be
sold in the Offering (3,450,000 shares if the Underwriters' over-allotment
option is exercised in full), other than shares which may be purchased by
"affiliates" of the Company, will be freely tradeable without restriction or
further registration under the Securities Act. The 3,910,000 shares of Common
Stock sold in the IPO, other than shares which were purchased by affiliates of
the Company, are also freely tradable without restriction under the Securities
Act. In addition, an aggregate of 1,073,450 shares of Common Stock which are
outstanding and 3,227,853 shares of Common Stock which are issuable upon the
conversion or exercise of outstanding securities are registered in the
Concurrent Offering. The Company intends to file a Registration Statement on
Form S-8 with respect to up to 1,805,963 shares of Common Stock issuable
pursuant to its stock option plans and certain options and warrants which have
been granted to employees and consultants of the Company as soon as practicable
after the date of this Prospectus; such Registration Statement would include
1,344,157 shares of Common Stock issuable upon conversion or exercise of
outstanding securities of the Company. Approximately 1,381,794 of the remaining
shares of Common Stock outstanding and issuable upon conversion or exercise of
outstanding securities would be "restricted securities," as that term is defined
under Rule 144 promulgated under the Securities Act ("Rule 144"), and may only
be sold pursuant to a registration statement under the Securities Act or an
applicable exemption from the registration requirements of the Securities Act,
including Rule 144. See "Concurrent Sales by Selling Stockholders" and "Shares
Eligible for Future Sale."
All officers, directors and certain security holders agreed with Hampshire
in connection with the IPO not to, directly or indirectly, offer, sell, contract
to sell or otherwise dispose of their shares of Common Stock, or other
securities convertible into or exercisable for shares of Common Stock, without
the prior written consent of Hampshire, prior to August 22, 1997. An aggregate
of 4,831,305 shares of Common Stock outstanding and issuable upon conversion or
exercise of outstanding securities are subject to these lock-up arrangements.
Hampshire has agreed with Jefferies not to release any of such security holders
from the contractual restriction without the prior written consent of Jefferies.
The Company has, subject to certain exceptions, agreed not to offer, issue or
sell any shares of Common Stock or securities exercisable for or convertible
into shares of Common Stock for a 180 day period after the date of this
Prospectus without the prior written consent of Jefferies. No predictions can be
made as to the effect, if any, that market sales of shares of existing
stockholders or the availability of such shares for future sale will have on the
market price of shares of Common Stock prevailing from time to time. The
prevailing market price of the Common Stock after the Offering
14
<PAGE>
could be adversely affected by future sales of substantial amounts of Common
Stock by existing stockholders. See "Certain Relationships and Related Party
Transactions," "Principal Stockholders," "Shares Eligible for Future Sale" and
"Underwriting."
LACK OF DIVIDENDS
The Company has not yet generated revenues and does not expect to pay cash
dividends for the foreseeable future.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$63.0 million (approximately $72.0 million if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
estimated offering expenses payable by the Company, based upon an assumed
offering price of $23.00 per share. The Company intends to use approximately
$3,430,812 of the net proceeds to repay the outstanding indebtedness described
below. The Company intends to use the balance of the net proceeds to provide
continued support for the launch of INSTEAD-TM- in the initial market and to
support expansion into additional geography, including increased marketing
spending and the advanced purchase of manufacturing equipment, for increased
investment in research and development of medical and health care products and
for general corporate purposes. See "Risk Factors -- Need for Additional
Financing for Unforeseen Risks" and "Business -- Other Potential Applications of
the SoftCup Technology." Pending such applications, the net proceeds will be
invested in certificates of deposit, government debt investments and other
short-term instruments.
The $3,430,812 of outstanding indebtedness which the Company intends to
repay with the net proceeds of the Offering includes approximately $2,875,000 of
principal and $484,015 of interest due on convertible notes due April 1997 which
bear interest at a rate of 10% per annum, and approximately $59,797 of principal
and $12,000 of interest in non-convertible notes due March 1997 bearing interest
at 10% per annum. The net proceeds from the issuance of the convertible notes,
which were issued in July and September 1995, were used for general corporate
purposes, including the payment of accrued interest on other outstanding
indebtedness which has since been retired, partial repayment of debt to Johns
Hopkins, the repayment of certain demand notes and expenses due to former
officers and repayment of a note to the Company's former law firm. The
non-convertible notes are due to individuals associated with ReProtect, one of
whom is a director of the Company.
The Company may change the specific use or allocation of the net proceeds
from the Offering, except that in all events the Company will use at least
$3,430,812 of the net proceeds to repay the indebtedness described above to the
extent the holders thereof do not convert such indebtedness into Common Stock,
and the balance of the proceeds to support the launch of INSTEAD-TM- and to
develop and commercialize medical and health care products. Any change in the
allocation of the proceeds will depend upon, among other things, changes in the
Company's business plans, the results of research and development programs, the
terms of collaborative arrangements, and/or marketing plans, regulations
applicable to the Company, conditions in the industry, general economic
conditions, and the Company's future revenue and expenses.
16
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock was initially offered to the public on February 22, 1996 at
a price of $10.00 per share and is quoted on the Nasdaq National Market. The
following table sets forth the range of high and low sale prices for the Common
Stock for the periods indicated as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal year 1996:
Third quarter (since February 22nd)....................................... 16 11 1/8
Fourth quarter............................................................ 36 11 3/4
Fiscal year 1997:
First quarter (through September 12th).................................... 25 3/4 14
</TABLE>
On September 12, 1996, the last sale price of the Common Stock was $24.00 as
reported on the Nasdaq National Market. At August 31, 1996, there were 183
stockholders of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock to date. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition. It is the present intention of the Board
of Directors to retain all earnings, if any, for use in the Company's business
operations and, accordingly, the Board of Directors does not expect to declare
or pay any cash dividends in the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term debt and
the capitalization of the Company at June 30, 1996 and as adjusted to give
effect to the sale of the 3,000,000 shares of Common Stock offered hereby, at an
assumed public offering price of $23.00 per share, and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds." This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Results of Operations" and the Company's financial statements and
notes thereto.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
AS
ACTUAL ADJUSTED(1)
----------- -------------
<S> <C> <C>
Current Maturities of Long-term Debt:
Unsecured Convertible Notes................................. $ 2,875,000 $ --
Unsecured Notes to Former Officers.......................... 221,033 221,033(2)
Unsecured Notes to Trade and Other Creditors................ 63,548 3,751(2)
Subordinated Convertible Debentures......................... 282,432 282,432(2)
----------- -------------
Total Current Maturities of Long-term Debt................ 3,442,013 507,216(2)
Long-term Debt:
Convertible Debentures...................................... 700,000 700,000
Stockholders' Equity:
Preferred Stock, $.001 par value -- authorized 5,000,000
shares, $8 cumulative Convertible Series A: issued and
outstanding 1,121.25 shares stated at liquidation
preference of $112,125..................................... 112,125 --
Common Stock, $.001 par value -- authorized 20,000,000
shares: issued and outstanding 5,737,241 and 8,759,666
shares as adjusted (3)..................................... 9,905 12,927
Additional Paid-In-Capital.................................. 42,207,697 105,316,800
Deficit..................................................... (21,045,783) (21,045,783)
----------- -------------
Total Stockholders' Equity................................ 21,283,944 84,283,944
----------- -------------
Total Capitalization...................................... $25,425,957 $ 85,491,160
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(1) Gives effect to the conversion of all 1,121.25 outstanding shares of Series
A Convertible Preferred Stock, par value $.001 per share, of the Company
(the "Series A Preferred Stock") into Common Stock after June 30, 1996.
(2) This debt which becomes due on various dates between September and December
1996 will be repaid with a portion of the proceeds from the IPO.
(3) Does not include (i) 5,169,988 shares of Common Stock issuable upon the
exercise of options, warrants and other securities outstanding as of June
30, 1996 (including 22,425 shares of Common Stock issuable upon the
conversion of the Series A Preferred Stock), (ii) 461,806 shares reserved
for issuance pursuant to options under the Company's stock option plans, and
(iii) 30,000 shares of Common Stock issuable upon the exercise of warrants
issued subsequent to June 30, 1996. See "Prior Financings."
18
<PAGE>
DILUTION
The net tangible book value of the Common Stock at June 30, 1996 was
$20,905,867 or $3.64 per share. "Net tangible book value per share" is
determined by dividing the net tangible book value of the Company (total assets
less debt issuance costs, net accumulated amortization, preferred stock, and
total liabilities) by the number of shares of Common Stock outstanding. Without
taking into account any changes in net tangible book value after June 30, 1996,
other than to give effect to the sale of the shares of Common Stock offered
hereby (at an assumed public offering price of $23.00 per share), the conversion
of the Series A Preferred Stock into 22,425 shares of Common Stock, and after
deducting the underwriting discount and estimated offering expenses payable by
the Company, the pro forma net tangible book value of the Company at June 30,
1996 would have been $84,017,992, or $9.59 per share. This represents an
immediate increase in net tangible book value of $5.95 per share to existing
stockholders and an immediate dilution of net tangible book value of $13.41 per
share to new investors purchasing shares of Common Stock in the Offering. The
following table illustrates this dilution per share.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................................... $ 23.00
Net tangible book value per share as of June 30, 1996..................... $ 3.64
Increase in net tangible book value per share attributable to the
Offering................................................................. 5.95
---------
Pro forma net tangible book value per share after the Offering.............. 9.59
---------
Dilution per share to new investors......................................... $ 13.41
---------
---------
</TABLE>
The following table sets forth as of June 30, 1996 for existing stockholders
and for new investors the number and percentage of total outstanding shares of
Common Stock purchased from the Company, the total consideration (assuming a
public offering price of $23.00 per share) and percentage of total consideration
paid to the Company, and the average price per share paid, before deducting the
underwriting discount and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------------
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............. 5,737,241 65.50% $ 46,731,990 40.34% $ 8.15
New Investors..................... 3,000,000 34.24% 69,000,000 59.56% $ 23.00
Conversion of Series A Preferred
Stock............................ 22,425 .26% 112,125 .10% $ 5.00
--------- --------- ------------- ---------
Total......................... 8,759,666 100.00% $ 115,844,115 100.00%
--------- --------- ------------- ---------
--------- --------- ------------- ---------
</TABLE>
The foregoing table assumes no exercise or conversion of currently
outstanding securities which are convertible into or exercisable for Common
Stock, other than the Series A Preferred Stock. At June 30, 1996, there were
outstanding securities which are convertible into or exercisable for 5,169,988
shares of Common Stock (including 22,425 shares of Common Stock issuable upon
conversion of the Series A Preferred Stock), at a weighted average
conversion/exercise price of $7.90 per share. Since June 30, 1996, the Company
has issued 13,000 shares of Common Stock upon the conversion of $130,000 of
convertible debt, 116,810 shares of Common Stock upon the exercise of options
and warrants for an aggregate exercise price of $4.95 per share, 22,425 shares
of Common Stock upon conversion of 1,121.25 shares of Series A Preferred Stock,
and warrants to purchase 30,000 shares of Common Stock at an exercise price of
$10.00 per share. See "Risk Factors -- Substantial Amount of Shares Eligible for
Future Sale; Potential Adverse Effect on Market Price of Common Stock,"
"Capitalization" and Note 5 of Notes to Financial Statements.
19
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the five years ended June 30, 1996 are
derived from the audited financial statements of the Company. The financial
statements as of June 30, 1996 and for the three years then ended have been
audited by Deloitte & Touche LLP, independent auditors. The selected financial
data below should be read in conjunction with the Financial Statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenue.............. -- -- -- -- --
General and Administrative
Expense................... $ 2,141,249 $ 1,139,339 $ 1,387,784 $ 1,568,442 $ 7,501,538
Research & Development
Expense................... 1,668,752 830,761 452,552 181,475 1,403,557
Interest Expense........... 4,422 71,117 336,732 464,615 665,381
Interest Income............ -- -- -- -- (489,379)
Depreciation and
Amortization.............. 17,113 50,686 126,872 166,533 738,883
----------- ----------- ----------- ----------- -----------
Net Income (Loss).......... $(3,831,536) $(2,091,903) $(2,303,940) $(2,381,065) $(9,819,980)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) Per
Share..................... $ (1.61) $ (0.79) $ (0.87) $ (0.87) $ (2.74)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted Average of Common
Shares and Equivalents
(1)....................... 2,386,847 2,640,387 2,658,214 2,698,152 3,529,494
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (2)...... $ (901,394) $(2,386,815) $(2,438,701) $(2,662,142) $17,962,533
Total Assets............. 489,340 670,147 603,424 766,959 29,407,936
Long-term Debt........... 350,000 787,358 2,880,075 4,032,493 700,000
Stockholders'
(Deficiency) Equity..... (960,666) (2,573,795) (4,733,714) (6,011,780) 21,283,944
</TABLE>
- ------------------------
(1) The weighted average number of common shares outstanding during the first
half of fiscal year 1996, and during fiscal years 1995, 1994, 1993 and 1992
includes the Incremental Shares. Such Incremental Shares were determined
utilizing the treasury stock method. The effect of the assumed exercise of
stock options which were issued one year prior to the effective date of the
IPO and the effect of the assumed conversion of the convertible preferred
stock are not included because their effect is antidilutive.
(2) Includes current portion of long-term debt.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's activities during the year ended June 30, 1996 were focused on
the launch of INSTEAD-TM-, currently scheduled to commence in the Fall of 1996.
The lead market for the initial rollout is in the Pacific Northwest, a region
which the Company estimates represents approximately 8% of U.S. households, and
includes the major markets of San Francisco, Seattle and Portland. In May, the
Company finalized the lead market distribution network by contracting with
Morgan & Sampson Pacific, a retail broker with expertise in the Health and
Beauty Aid business as well as the feminine protection market segment.
Manufacturing activities to support the launch of INSTEAD-TM- progressed
during the second half of fiscal year 1996. Manufacturing space was leased and
remodeling began. The Company placed equipment orders to complete the first
manufacturing line. The special thermoforming equipment required to manufacture
INSTEAD-TM- completed high volume testing and in June 1996 commenced
manufacturing INSTEAD-TM- for the Fall 1996 launch.
In addition to INSTEAD-TM- launch activities, research and development
activities on new products continued in the fourth quarter of fiscal year 1996.
The BufferGel Technology developed by the Company's research and development
partner, ReProtect, was selected by HIVNET for funding of clinical trials to
test its use for the prevention of AIDS and other STDs. The Phase I clinical
trials are currently scheduled to begin in the Fall of 1996.
The following table sets forth, for the periods indicated, the percentage
increases or decreases of certain items included in the Company's statement of
operations.
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR
PERIOD
------------------------------
<S> <C> <C>
JUNE 30, 1995 JUNE 30, 1996
COMPARED WITH COMPARED WITH
JUNE 30, 1994 JUNE 30, 1995
--------------- -------------
General and Administrative Expense.............................. 13.0% 378.3%
Research and Development Expense................................ (59.9) 673.4
Interest Expense................................................ 38.0 43.2
Depreciation and Amortization................................... 31.3 343.7
Net Loss........................................................ 3.3 312.4
</TABLE>
GENERAL AND ADMINISTRATIVE
General and administrative expense increased 378.3% to $7,501,538 during the
year ended June 30, 1996 from $1,568,442 for the year ended June 30, 1995. The
increase was primarily due to expenses related to the launch of INSTEAD-TM-,
including market research, development of trade promotion plans and package
design, as well as non-cash charges resulting from the issuance of options to
purchase Common Stock to officers and a director of the Company.
Plans for the lead market geography were developed and the Company has
retained Morgan & Sampson Pacific to gain widespread distribution and
merchandising support of INSTEAD-TM- to retailers in the lead market. Staffing
additions to facilitate product launch and operations included a Vice President
of Operations at the Montana facility, Senior Marketing Product Manager and a
Corporate Controller.
General and administrative expense increased 13.0% to $1,568,442 in 1995
from $1,387,784 in 1994. The increase for the year ended June 30, 1995 compared
to June 30, 1994 was primarily due to increases in salaries and signing bonuses
attributable to newly hired officers of the Company, who are
21
<PAGE>
principally engaged in the development of the Company's business plan and equity
financing activities, marketing expenses related to INSTEAD-TM-, and related
travel expenses offset in part by reduced legal expenses.
RESEARCH AND DEVELOPMENT
Research and development expense increased 673.4% to $1,403,557 during the
year ended June 30, 1996 from $181,475 for the year ended June 30, 1995. The
increase was primarily attributable to research expenses paid to ReProtect under
the terms of the Company's research and development agreement, research and
testing expenses related to INSTEAD-TM-, increased travel expenses and raw
material costs in connection with production startup expenses, as well as legal
expenses.
Production startup expenses included procurement of a manufacturing facility
as well as completion of line testing. A lease was entered into for
manufacturing and office space. Remodeling began on the manufacturing space
principally to create the controlled environment module that secures the
manufacturing equipment. Equipment orders were placed for INSTEAD-TM-'s first
manufacturing line. The first piece of special equipment to manufacture the
product, which is called the thermoforming line, completed testing at Remmele
Engineering, Inc. in St. Paul, Minnesota and has been installed at Ultrafem's
Montana facility and is producing product for the Fall 1996 launch of
INSTEAD-TM-. In June 1996 the Company commenced manufacturing quantities of
INSTEAD-TM- for the commercial market, and estimates that it has produced an
aggregate of approximately 2.2 million units of INSTEAD-TM- through August 14,
1996.
The BufferGel Technology developed by the Company's research and development
partner, ReProtect, has been selected by HIVNET for funding of clinical trials
to test its use as a vaginal microbicide for the prevention of AIDS and other
STDs. Furthermore, the FDA has permitted the BufferGel Technology to enter Phase
I clinical trials, which are currently scheduled to begin in the Fall of 1996.
The BufferGel Technology is the first non-detergent AIDS prevention technology
to be selected by HIVNET to proceed to clinical trials. See "Business -- Other
Potential Applications of the SoftCup Technology."
Research and development expense decreased 59.9% to $181,475 in 1995 from
$452,552 in 1994. The decrease for the year ended June 30, 1995 compared to June
30, 1994 was primarily attributable to reduced expenditures incurred by the
Company with independent contract research groups and lower manufacturing
facility costs associated with the Company's decision to move to smaller
manufacturing facilities.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was $738,883 for the year ended June 30, 1996
and $166,533 for the year ended June 30, 1995. The 343.7% increase for the year
ended June 30, 1996 compared to the year ended June 30, 1995 was attributable to
increases in the amortization of deferred debt issuance costs.
Depreciation and amortization was $166,533 in 1995 and $126,872 in 1994. The
31.3% increase in 1995 compared to 1994 was primarily attributable to increases
in the amortization of deferred offering costs.
INTEREST EXPENSE
Interest expense was $665,381 for the year ended June 30, 1996 and $464,615
for the year ended June 30, 1995. The 43.2% increase for the year ended June 30,
1996 compared to the year ended June 30, 1995 was attributable to the increase
in debt incurred by the Company in the year ended June 30, 1996. At June 30,
1996 the Company repaid approximately $4.9 million of debt. See " -- Liquidity
and Capital Resources."
Interest expense was $464,615 in 1995 and $336,732 in 1994. The 38.0%
increase in 1995 compared to 1994 was attributable to increases in debt incurred
by the Company in each of the respective comparable periods.
22
<PAGE>
INTEREST INCOME
Interest income was $489,379 for the year ended June 30, 1996 compared to
$-0- for the year ended June 30, 1995. The increase for the year ended June 30,
1996 compared to the year ended June 30, 1995 was attributable to the money
received by the Company in February 1996 from its IPO which was invested in cash
equivalents during the period ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for funds has increased from period to period as it has
incurred expenses for, among other things, research and development activities,
engineering and design of fully automated manufacturing systems, clinical
testing, meeting domestic and international regulatory requirements,
applications for domestic and international patent protection, applications for
domestic trademark protection and market research. Since its inception, the
Company has funded these needs through private placements of its equity and debt
securities. The Company has received net proceeds in excess of approximately
$12,300,000 through private sales of these securities from inception through
June 30, 1996. See "Prior Financings."
In February 1996, the Company received proceeds of $34,085,611, net of
related expenses of $5,014,389, in connection with the sale of 3,910,000 shares
of Common Stock in the IPO. As of June 30, 1996, the Company's cash position
increased by $24.4 million, principally reflecting the net proceeds from the IPO
and $6.1 million in net proceeds from the sale of convertible and nonconvertible
promissory notes and exercise of stock options and warrants. This increase was
offset by repayment of debt and payment of debt issuance costs of $5.6 million,
$7.6 million used in operating activities and $2.6 million used for construction
in progress in the manufacturing plant and purchase of property and equipment.
The Company's working capital and capital requirements will depend on
numerous factors, including the progress of the staged market introduction of
INSTEAD-TM-, the Company's research and development activities, the level of
resources that the Company devotes to the developmental, clinical, regulatory
and marketing aspects of its products and the extent to which strategic
alliances with multi-national pharmaceutical or consumer product companies are
formed. At June 30, 1996 the Company had capital commitments in the amount of
approximately $5,374,005, of which $4,377,957 was unpaid, for the purchase of
manufacturing equipment and improvements to the manufacturing facility to
support startup production and leasehold improvements to the new New York office
space. In addition, in February 1996 the Company and ReProtect entered into a
License, Research and Product Development Agreement under which the Company is
obligated to pay ReProtect a minimum of $1 million per year for research and
development.
The Company's stockholders' equity increased by $27.3 million from June 30,
1995 to June 30, 1996 reflecting the net proceeds from the IPO of $34.1 million,
proceeds from the exercise of stock options and warrants of $1.9 million,
conversion of accounts payable to warrants, issuance of below market value stock
options and warrants in connection with professional services and licensing
agreements and conversion of convertible debt to common stock of $1.1 million,
offset by the Company's net loss for the year ended June 30, 1996 of $9.8
million.
The Company believes that the financial resources available to it, together
with the net proceeds from the Offering, will satisfy the Company's working
capital needs for at least 12 months. See "Risk Factors -- Need for Additional
Financing for Unforeseen Risks."
23
<PAGE>
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The standard encourages, but
does not require, companies to recognize compensation expense of grants for
stock, stock options and other equity instruments to employees based on fair
value accounting rules. SFAS No. 123 requires companies that choose not to adopt
the new fair value accounting rules to disclose pro forma net income and
earnings per share under the new method. The standard is effective for fiscal
years beginning after December 15, 1995. The Company has not yet determined if
it will adopt the accounting provisions of SFAS No. 123 or only the disclosure
provision. The Company has not determined the effect, if any, that adoption of
SFAS No. 123 will have on its results of operations.
24
<PAGE>
BUSINESS
GENERAL
Ultrafem, Inc., a development stage company, was formed to design, develop
and manufacture products based upon its proprietary and patented SoftCup
Technology to address women's health care needs. The SoftCup Technology is a
physical barrier-type vaginal device designed to enhance the comfort,
functionality and effectiveness of products designed for women in the areas of
feminine protection, contraception, the prevention of STDs and the treatment of
vaginal infections. The commercial products which will employ the SoftCup
Technology will be disposable, single use, universal size and made from a soft,
inert, thermoplastic material which becomes more pliable at body temperature and
molds to fit the individual user's anatomy.
FEMININE PROTECTION PRODUCT -- INSTEAD-TM-
Management believes that INSTEAD-TM- represents one of the most significant
technological developments for feminine protection since the introduction of the
first commercial disposable tampon in 1933. INSTEAD-TM- differs from other forms
of feminine protection currently on the market in that it collects, rather than
absorbs, menstrual fluid. The Company believes that the unique design of
INSTEAD-TM- provides several distinct benefits over currently available forms of
feminine protection, including increased comfort, improved performance, reduced
health concerns and freedom to engage in most physical (including sexual)
activities during menstruation. The Company has obtained FDA clearance to market
INSTEAD-TM- in the United States. INSTEAD-TM- may also be marketed in each of
Belgium, Canada, Denmark, Finland, France, the Netherlands, Spain, Sweden,
Switzerland and the United Kingdom subject to compliance with applicable
international labeling laws and United States export requirements.
The Company plans to initiate the launch of INSTEAD-TM- in the Pacific
Northwest, a region which the Company estimates represents approximately 8% of
United States households and includes the major markets of San Francisco,
Seattle and Portland, by the Fall of 1996. The Company intends to introduce
INSTEAD-TM- in stages into additional significant geographic regions with full
national distribution anticipated to be achieved over a three year period, which
may be accelerated or delayed depending upon various factors including market
acceptance by retailers and consumers, and the availability of additional
financing. The Company has conducted market research and consumer use testing
which indicate significant consumer interest in INSTEAD-TM-. The Company intends
to distribute INSTEAD-TM- principally through supermarkets and drug stores. See
"Risk Factors -- Inherent Limitation of Market Research and Consumer Use
Testing," "-- Need for Additional Financing for Unforeseen Risks," "Business --
Product Testing" and "-- Strategy and Plan of Operations."
Management estimates that the domestic and international feminine protection
markets in developed countries are in excess of $9 billion annually. The United
States market for feminine protection products such as tampons and pads
generates approximately $1.8 billion in annual revenues (based on a 1995 report
by A.C. Nielsen). Approximately 58 million women between the ages of 18 and 54
use feminine protection products in the United States. Approximately 63% of
menstruating women in the United States use tampons exclusively or in
combination with pads (based on 1996 Simmons Market Research Bureau). The
European market for feminine protection products generates approximately $2.9
billion in annual revenues (based on a 1995 report by A.C. Nielsen) with an
estimated 105 million women between the ages of 18 and 54 using feminine
protection products. Other developed markets, including Canada, Latin America,
Mexico and Asia (other than India and China) represent a combined population in
excess of 200 million potential users.
MEDICAL PRODUCT APPLICATIONS
Ultrafem intends to develop additional applications of the SoftCup
Technology, for vaginal delivery of agents for use in contraception, the
prevention of STDs, and the treatment of vaginal infections. The Company's
initial product under development is a contraceptive which combines the SoftCup
Technology with the BufferGel Technology, which is licensed by the Company for
vaginal use on a worldwide basis. The BufferGel Technology was invented by
scientists associated with Johns Hopkins
25
<PAGE>
with whom the Company has previously conducted research. The Company has entered
into a research and development agreement with ReProtect, a company founded by
these scientists which will continue the investigation and development of
medical applications of the SoftCup Technology.
Subsequent to the IPO, the FDA allowed an IND application permitting the
BufferGel Technology to enter Phase I clinical trials to test its use as a
vaginal microbicide for the prevention of AIDS and other STDs. These Phase I
clinical trials are currently scheduled to commence in the Fall of 1996 and are
being funded by HIVNET, a unit of the NIH. The Company plans to begin clinical
trials of its contraceptive product upon completion of the Phase I clinical
trials of the BufferGel Technology. A portion of these clinical trials may be
funded by the net proceeds of the Offering. In order to achieve this timetable,
the Company will need to complete the development of the contraceptive product
by combining the SoftCup Technology and the BufferGel Technology. There can be
no assurance, however, that any of the foregoing goals or timetables can be met,
or that any of the clinical trials will demonstrate the necessary degree of
safety and effectiveness required for FDA pre-market approval. See "Risk Factors
- -- Dependence on Single Product," "-- Risks Associated with Research and
Development for Other Applications of the SoftCup Technology" and "Business --
Other Potential Applications of the SoftCup Technology."
The United States market for contraceptive products such as condoms, oral
contraceptives, diaphragms and implantable contraceptives generates
approximately $2 billion in annual revenues (based on Theta Corporation, 1994).
Based on the population of women between the ages of 18 and 54, estimated to be
in excess of 300 million women in Europe and other developed markets, and
assuming that the frequency of use of contraceptive products is less than that
in the United States, management estimates the international markets for
contraceptives to be approximately $6 billion annually outside the United
States. Additionally, at least 330 million new cases of STDs occur each year
throughout the world (World Health Organization, 1995), indicating a significant
market for a STD prevention product.
STRATEGY AND PLAN OF OPERATIONS
The Company's business strategy is to develop and market proprietary
products based on its patented SoftCup Technology directed at high potential,
underserved segments of the women's health care market. The key elements of this
strategy are to (i) commence the launch of INSTEAD-TM- in the United States,
(ii) expand the Company's manufacturing capabilities, (iii) develop and submit
for FDA clearance or pre-market approval products based upon the SoftCup
Technology for the medical product arena and (iv) pursue strategic alliances
with multi-national consumer product and pharmaceutical companies for marketing,
sales and distribution.
The Company intends to market INSTEAD-TM- as an innovative alternative to
tampons and sanitary napkins. The Company intends to introduce INSTEAD-TM- in
stages into significant geographic regions with full national distribution
anticipated to be achieved over a three year period, which may be accelerated or
delayed depending upon various factors including market acceptance by retailers
and consumers, and the availability of additional financing. Management expects
to commence initial regional distribution of INSTEAD-TM- in the United States by
the Fall of 1996; this initial introduction will begin in the Pacific Northwest,
including the major markets of San Francisco, Seattle and Portland. The Company
believes that the financial resources available to it, together with the net
proceeds of the Offering, will satisfy the Company's working capital needs for
at least 12 months. Distribution in foreign markets could occur simultaneously,
provided an appropriate strategic partner is identified. No assurance can be
given that the foregoing goals or timetables can be met. See "Risk Factors --
Need for Additional Financing for Unforeseen Risks."
The Company intends to develop a contraceptive product and to simultaneously
develop additional applications of the combination of the SoftCup Technology
with the BufferGel Technology for treatment of vaginal infections and topical
and systemic therapies. The Company plans to begin clinical trials of a
contraceptive product upon completion of the Phase I clinical trials relating to
use of the BufferGel Technology as a vaginal microbicide for the prevention of
AIDS and other STDs. These
26
<PAGE>
Phase I clinical trials, which are currently scheduled to begin in the Fall of
1996, are being funded by HIVNET. Any introduction of new products would be
dependent on individual product development, obtaining regulatory clearances,
the confirmation of the commercial viability of any such product and the
development of strategic partnerships to support international market
penetration. See "Risk Factors -- Risks Associated with Research and Development
of Other Applications of the SoftCup Technology" and "Business -- Other
Potential Applications of the SoftCup Technology."
MARKETING AND SALES
The Company will market INSTEAD-TM- as an innovative alternative to existing
feminine protection products, including tampons and sanitary napkins. The
marketing campaign will be directed specifically at the Company's target
consumer audience of approximately 58 million women. See " -- Feminine
Protection Market -- Domestic Market." The Company, in conjunction with Bozell
Worldwide, Inc., a leading multi-national advertising and marketing
communications company, has developed detailed plans integrating consumer
advertising, professional advertising, consumer research, professional and
consumer public relations, and direct marketing. See "Certain Relationships and
Related Party Transactions."
The Company intends to implement marketing programs directed at the consumer
target audience, the professional target audience and the retail trade. Plans
for the consumer target audience include a multimedia consumer advertising
campaign comprised of television, print and the Internet. Product sampling and
couponing via mail, advertising, public relations and print will also be
utilized.
The professional target audience is defined as Obstetrician/Gynecologists,
Obstetrician/Gynecologist Nurses and Pharmacists. Plans for a professional
campaign have been formulated and include presentations at scientific meetings,
education for health and fitness organizations, by-lined articles in
professional journals, brochures for distribution through physicians' offices as
well as advertising in professional journals and through direct mail. The first
by-lined article ("Latest Developments in Menstrual Protection") appeared April
15, 1996 in CONTEMPORARY OB/GYN and was authored by Richard M. Soderstrom, M.D.,
a member of the Company's Scientific Advisory Board.
The Company intends to distribute INSTEAD-TM- principally through
supermarkets and drug stores. See " -- Strategy and Plan of Operations."
Management believes that this marketing approach should enable it to compete
effectively for sales and shelf space with its larger, better capitalized
competitors. The Company has retained Meridian to formulate selling strategies
and implement sales plans by trade channel and key accounts. Meridian will
provide the sales management organization which will supervise a broker network
and which will develop trade promotion plans and introductory sales
presentations for the initial introduction of INSTEAD-TM- into the United States
market. Ultrafem has hired Morgan & Sampson Pacific, a leading Health and Beauty
Aid broker in the Northwest, as the broker for INSTEAD-TM- in the Pacific
Northwest. Management believes that Morgan & Sampson Pacific is capable of being
the broker representing Ultrafem in as much as 25% of the United States market.
Sales calls in the Pacific Northwest to date have resulted in commitments from
retailers which account for more than 75% of ACV (all commodity volume) in the
food and drug classes of trade. These include commitments for in-store
merchandising and displays, on shelf dates, and desired shelf positioning.
There can be no assurance that the Company's marketing plans and strategies
will be successfully implemented. See "Risk Factors -- Marketing Risks;
Uncertainty of Consumer Acceptance" and " -- Risks Associated with Potential
Competitive Response."
The Company works with an array of outside marketing and sales professionals
who are supporting the launch of INSTEAD-TM-. The Company's in-house marketing
and sales professionals both supervise and coordinate the Company's use of
outside professionals. The Company currently plans to continue to outsource a
significant portion of its marketing and sales activities, since outside
professionals contribute significant and diverse skills, knowledge of trade, and
marketing and sales experience to the Company, at a cost which the Company could
not currently provide in-house.
27
<PAGE>
FEMININE PROTECTION MARKET
BACKGROUND
The menstrual cycle normally begins between the ages of 12 and 13 and
continues to menopause, which generally occurs between the ages of 46 and 54.
The cycle averages 28 days, with the normal period lasting from five to six
days. The period begins with one to three days of heavy flow and then tapers to
a daily light flow over several more days.
Some women use either tampons or sanitary napkins on an exclusive basis.
Many women use both tampons and sanitary napkins because there is a general
dissatisfaction associated with the use of any single product. Management
believes that INSTEAD-TM- provides women with significant advantages over the
currently available feminine protection products and expects to attract women
that use both sanitary napkins and tampons.
INSTEAD-TM- is a new product and women will need to become accustomed to
using it. Some women may find digital insertion unappealing. INSTEAD-TM-, like
certain other vaginal products, is not recommended for women who have had toxic
shock syndrome ("TSS"), use an IUD, or have anatomical abnormalities.
INSTEAD-TM- also should not be used immediately after childbirth. INSTEAD-TM- is
neither flushable nor biodegradable.
DOMESTIC MARKET
The United States feminine protection product market has grown approximately
11% from 1992 to 1995, with annual revenues increasing from approximately $1.6
billion in 1992 to approximately $1.8 billion in 1995. In 1995, the market was
divided between sanitary napkins, with a market share measured in dollars of
62%, and tampons, with a market share measured in dollars of 38%.
<TABLE>
<CAPTION>
($MILLION) % OF ($MILLION) % OF
PRODUCT TYPE 1992 MARKET SHARE 1995 MARKET SHARE
- ------------------------------------------------------------ ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Sanitary Napkins............................................ $ 941 59 $ 1,084 62
Tampons..................................................... 643 41 677 38
----------- --- ----------- ---
Total................................................... $ 1,584 100 $ 1,761 100
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
- ------------------------
Source: A.C. Nielsen
Management believes approximately 58 million women between the ages 18 and
54 use feminine protection products and represent the Company's target user
group in the United States domestic market. Based on the Company's market
research, management expects to ultimately generate trial of INSTEAD-TM- by
approximately 15-17 million women in this target audience. There can be no
assurance that INSTEAD-TM- will be tried by such number of women, or that such
women will remain as users of INSTEAD-TM-.
EUROPEAN AND OTHER DEVELOPED MARKETS
The European market for feminine protection products generated approximately
$2.9 billion in revenues in 1995, which represents a 7.5% increase over the
prior two years (based on 1995 Nielsen). According to such report, pantyliners
and pads had a 76% market share and tampons had a 24% share.
<TABLE>
<CAPTION>
($MILLION) % OF ($MILLION) % OF
PRODUCT TYPE 1993 MARKET SHARE 1995 MARKET SHARE
- ------------------------------------------------------------ ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Pantyliner.................................................. $ 424 16 $ 483 17
Towels (Pads)............................................... 1,638 60 1,739 59
Tampons..................................................... 643 24 688 24
----------- --- ----------- ---
Total................................................... $ 2,705 100 $ 2,910 100
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
- ------------------------
Source: A.C. Nielsen
28
<PAGE>
Management believes approximately 105 million women between the ages of 18
and 54 use feminine protection products in Europe and represent the Company's
target user group in this market.
Other developed markets, including Canada, Latin America, Mexico and Asia
(other than India and China) present a combined population in excess of 200
million potential users.
MANUFACTURING
The Company has developed a patent pending process for manufacturing
INSTEAD-TM-. Custom-designed, state-of-the-art process equipment is essential to
the Company's manufacturing strategy. Management has collaborated with several
equipment manufacturers to engineer the necessary equipment to fully automate
the manufacturing process. In October 1995, the Company retained Remmele
Engineering, Inc. to design, build and install equipment for the first
semi-automated line capable of producing approximately 4 million units per month
on a three shift basis to support startup production. The Company has ordered a
second semi-automated line and a fully automated line. The Company believes that
its manufacturing capacity will be sufficient to meet consumer demand. To
commercialize INSTEAD-TM- successfully, the Company will have to increase the
number of units it can produce, reduce per-unit manufacturing costs and achieve
the high-quality standards required. See "Risk Factors -- Lack of Manufacturing
Experience, Need to Achieve Economies of Scale and Limited Manufacturing
Resources" and "-- Development Stage Company; History of Losses."
Subsequent to the IPO, the Company entered into a lease for manufacturing
and office space and remodeled the manufacturing space principally to create the
controlled environment module which will secure the manufacturing equipment. The
piece of special equipment to manufacture the product, which is called the
thermoforming line, completed high volume testing at Remmele Engineering, Inc.
in St. Paul, Minnesota and has been installed at the Ultrafem Montana facility
and is producing product for the Fall 1996 launch of INSTEAD-TM-. The flow
wrapper machine that will put INSTEAD-TM- into individual "intimate wraps" and
the cartoning machine that will put INSTEAD-TM- into 6, 16, and 24 count cartons
are also in place. In June 1996 the Company commenced manufacturing quantities
of INSTEAD-TM- for the commercial market, and estimates that it has produced an
aggregate of approximately 2.2 million units of INSTEAD-TM- through August 14,
1996.
The Company has developed thermoplastic formulations which are proprietary
to the Company. They are permeable to many commercially established drugs and
are easily welded to each other and to other delivery components. Management
believes the performance of these formulations in combination with the
manufacturing process is an important component of developing a practical, low
cost production process. See "-- Patent Status and Patent Applications;
Proprietary Technology."
OTHER POTENTIAL APPLICATIONS OF THE SOFTCUP TECHNOLOGY
The SoftCup Technology has significant potential medical and health care
applications. Management plans to develop commercial applications of the SoftCup
Technology to be used as a vaginal drug delivery system because, by virtue of
direct contact with vaginal mucous membranes, the SoftCup Technology can provide
an easy and direct method for topical and systemic vaginal drug treatments. The
Company believes that these products have significant commercial applications
for contraception, prevention of STDs, treatments of vaginal infections and
topical and systemic therapies.
Under a research agreement, which expired by its terms on June 30, 1993,
Johns Hopkins investigated using the SoftCup Technology as a delivery system for
monoclonal antibodies and other agents as protection against pregnancy and STDs.
Dr. Richard A. Cone and Dr. Kevin J. Whaley, who are affiliated with Johns
Hopkins, and along with Dr. Thomas Moench, previously conducted research for the
Company in connection with the research agreement with Johns Hopkins. These
individuals formed ReProtect which will continue the investigation of using the
SoftCup Technology as a vaginal drug delivery system of agents for
contraception, prevention of STDs, treatments of vaginal infections and for
topical and systemic therapies. Dr. Richard A. Cone is a member of the Company's
Board of Directors. See "Management -- Directors and Executive Officers." Dr.
Thomas R. Moench, formerly
29
<PAGE>
an Assistant Professor of Medicine at Johns Hopkins, is an expert in virology,
molecular biology and monoclonal antibody production. From 1984 through 1993, he
served on the faculty of Johns Hopkins as a consultant physician in Infectious
Diseases. He developed an animal model for studying the vaginal and rectal
(transmucosal) transmission of an AIDS-like disease in cats caused by feline
immunodeficiency virus. Dr. Kevin J. Whaley, an Associate Research Scientist in
Biophysics and an Adjunct Faculty member, Population Dynamics/Reproductive
Biology, Johns Hopkins, is an expert on monoclonal antibodies and vaccines that
protect against both pregnancy and disease and on vaginal drug delivery.
Two of the scientists who formed ReProtect invented the BufferGel
Technology, which ReProtect has licensed to the Company. The Company believes
that this BufferGel Technology, when combined with the patented SoftCup
Technology, will provide enhanced protection against pregnancy and STDs as well
as enhanced treatments for vaginal infections. The BufferGel Technology has the
ability to maintain the normal vaginal pH balance while killing sperm and most
STD pathogens. The mechanical barrier action of the SoftCup Technology combined
with the BufferGel Technology may fill the needs for an effective woman
controlled prophylactic contraceptive as well as vaginal anti-infective. The NIH
has granted $2 million in contracts for the research and development of the
BufferGel Technology for contraception and the prevention of AIDS and other
STDs. There can be no assurance, however, that ReProtect will receive the
benefit of the entire $2 million under the NIH contracts.
The FDA has allowed an IND application permitting the BufferGel Technology
to enter Phase I clinical trials which are currently scheduled to begin in the
Fall of 1996. These Phase I clinical trials are being funded by HIVNET, a unit
of the NIH, to test the use of the BufferGel Technology as a vaginal microbicide
for the prevention of AIDS and other STDs. The Company plans to begin clinical
trials of a contraceptive product upon completion of the Phase I clinical
trials. In order to achieve this timetable, the Company will need to complete
development of the contraceptive product by combining the SoftCup Technology and
the BufferGel Technology. The Company will simultaneously develop additional
applications of the combination of the SoftCup Technology and the BufferGel
Technology, for treatment of vaginal infections and topical and systemic
therapies with a view towards seeking FDA approval to enter clinical trials for
such applications. The Company also intends to develop other vaginal drug
delivery products including for the prevention of STDs. There can be no
assurance, however, that any of the foregoing goals or timetables can be met, or
that any of the clinical trials will demonstrate the necessary degree of safety
and effectiveness required for FDA pre-market approval. See "Risk Factors --
Dependence on Single Product" and "-- Risks Associated with Research and
Development for Other Applications of the SoftCup Technology."
ReProtect expects to conduct research at Johns Hopkins in accordance with a
ten year License, Research and Development Agreement between the Company and
ReProtect (the "ReProtect Agreement") under which the Company will provide
ReProtect at least $1 million annually for research. The ReProtect Agreement
provides the Company with an exclusive, worldwide license for the use of the
BufferGel Technology coupled with the SoftCup Technology, for which ReProtect
received a one time payment of $100,000, a royalty of $.01 per unit of the
product sold and ten and one-half year options to purchase 125,000 shares of
Common Stock at an exercise price of $8.00 per share and 100,000 shares of
Common Stock at an exercise price of $6.00 per share, exercisable upon the
attainment of certain milestones. In addition, ReProtect has granted the Company
a worldwide license for vaginal use of the BufferGel Technology without the
SoftCup Technology, for which ReProtect received a one time payment of $100,000,
options to purchase 175,000 shares of Common Stock at an exercise price of $8.00
per share, exercisable upon the attainment of certain milestones, and a royalty
of either 5% or 3% (depending on whether a patent has been issued) of net sales
of the BufferGel Technology (without the SoftCup Technology). The ReProtect
Agreement contains the parties' agreement to negotiate in good faith to extend
the term, as well as other customary provisions in agreements of this type,
including provisions relating to noncompetition, confidentiality and early
termination of the agreement and the licenses therein under certain
circumstances.
30
<PAGE>
The Company plans to continue pursuing other potential applications of the
SoftCup Technology. Beyond the potential applications discussed above, the
ongoing longer-range research and development with the ReProtect research team
will focus on the development of vaginal delivery of monoclonal antibodies
against sperm and STD pathogens. Management believes that these natural
protective agents will facilitate a new generation of products for vaginal
protection and therapy. The Company will require FDA clearance or pre-market
approval to market different applications of the SoftCup Technology in the
United States. See "Risk Factors -- Necessity of Regulatory Clearances to
Market."
In order to facilitate the development of other applications of the SoftCup
Technology, the Company currently plans to hire a Senior Vice President and
General Manager of Medical Products, to coordinate and advance medical product
development. The Company is conducting a search for such executive and has
identified several candidates. The Company is currently discussing a potential
employment agreement with one such candidate.
STRATEGIC ALLIANCES
The Company is seeking domestic and international strategic alliances with
multinational pharmaceutical and/or consumer product companies to support the
launch of INSTEAD-TM- into international markets and to support the development
of other commercial applications of the SoftCup Technology. In addition,
following the successful introduction of INSTEAD-TM- into the United States
market, the Company will consider entering into an alliance with a strategic
partner who could potentially act as an ongoing distribution partner for the
full United States market. The Company believes that forming strategic alliances
with multinational pharmaceutical and/or consumer product companies will enhance
both its ability to successfully bring INSTEAD-TM- to international markets and
its capability to develop new applications for the SoftCup Technology, such as
contraception and vaginal drug delivery applications. See "Risk Factors -- Risks
Associated with Research and Development of Other Applications of the SoftCup
Technology."
The Company has retained a number of consultants specializing in health care
and business strategy to assist it in formulating and implementing the strategic
alliance strategy. The Company and its consultants have contacted a selected
list of target companies as potential strategic partners and are currently
engaged in preliminary discussions regarding formation of strategic alliances
with companies in both the United States and in Europe.
PRODUCT TESTING
The Company has completed extensive laboratory testing of INSTEAD-TM- for
the purpose of satisfying the FDA's safety requirements. The Company has
conducted biocompatibility, toxicity and microbiological testing both IN VITRO
(outside a living organism) and IN VIVO (inside a living organism). Management
believes, based on the non-absorbent nature of INSTEAD-TM- and the results of
tests performed by two independent laboratories on the materials of which
INSTEAD-TM- is made and human clinical trials, that INSTEAD-TM- is safe. For a
discussion of potential product liability issues, see "Risk Factors -- Product
Liability; Possibility of Insufficient Insurance Coverage."
The tests for toxicity and biocompatibility were conducted by the Company
through independent laboratories in compliance with good laboratory practice
("GLP") regulations. Management believes the results of these tests demonstrate
INSTEAD-TM-'s safety. Arent Fox Kintner Plotkin & Kahn, FDA regulatory counsel
to the Company, has advised the Company that such results, which have been
submitted to the FDA, satisfy current FDA safety testing requirements for this
type of product.
The microbiological testing that was conducted demonstrated that INSTEAD-TM-
did not alter the growth of bacteria normally present in the vaginal micro flora
and did not cause the production of Toxic Shock Syndrome Toxin-l. All studies
were conducted by an independent laboratory in accordance with GLP regulations.
All test results described herein were submitted to the FDA in connection with
the 510(k) notification relating to INSTEAD-TM-. See "-- Regulatory Status."
31
<PAGE>
Subsequent to the IPO, the Company completed human clinical test studies to
determine the safety of longer wear times of INSTEAD-TM-. While the Company did
not believe it necessary to conduct clinical testing to increase the maximum
wear time of INSTEAD-TM- since the devices to which it was found substantially
equivalent by the FDA either do not have a maximum wear time or can be worn for
at least 12 to 14 hours, if not longer, the Company conducted a clinical study
to support the safety of the 12 hour wear time. The study was conducted by The
Crucible Group of Atlanta, Georgia, following review by an Institutional Review
Board, and was analyzed by MTC-BRI International, Inc. ("MTC-BRI") of Rockville,
Maryland. The study evaluated the effect of use of INSTEAD-TM- on the vaginal
micro flora in approximately 100 women for 8, 12, and 24 hours. The
investigators concluded that increasing the wear time to 12 or even 24 hours
does not result in increased colonization by the etiologic agent of TSS, does
not lead to increased colonization by pathogens that cause bacterial vaginosis,
does not lead to increased colonization by E. COLI, the most common agent
causing urinary tract infections, and does preserve the normal
LACTOBACILLUS-predominant vaginal flora. In response to the results of such
testing the Company increased the recommended wear time from 8 to 12 hours. See
"Risk Factors -- Necessity of Regulatory Clearances to Market."
COMPANY-SPONSORED RESEARCH
QUANTITATIVE CONCEPT AND ATTITUDE RESEARCH
In September 1991, the Company engaged CLT Research Associates, a market
research firm, to conduct a feminine protection product survey to help the
Company evaluate the commercial viability of INSTEAD-TM-. Such survey was
conducted in October/November 1991 in 20 metropolitan markets among a total of
750 women aged 18-45 (all of whom used feminine protection products). The major
findings of this study indicated that:
CONSUMER NEED -- Approximately half of all women surveyed were
dissatisfied with existing feminine protection products due in part to
problems of comfort, performance and safety. The Company believes that
these problems are addressed by INSTEAD-TM-.
POSITIONING -- INSTEAD-TM-'s perceived benefits matched the features
women desired in a feminine protection product. This finding validates
the Company's plans to position INSTEAD-TM- as the innovative
alternative in feminine protection based on improved comfort and
performance.
TRIAL -- One out of three women indicated they would purchase
INSTEAD-TM- based on exposure to a concept statement and seeing the
actual product. Almost half (48%) of the women indicated that they would
expect INSTEAD-TM- to cost more than what they now spend per period for
feminine protection, and 42% of the women would expect INSTEAD-TM- to
cost the same as what they now spend.
CONCEPT POSITIONING RESEARCH
In March 1994, The Heller Research Group, a market research firm engaged by
the Company, conducted three concept positioning tests in 10 metropolitan areas
among a combined total of 300 women aged 21-49 (all of whom used feminine
protection products currently on the market). The results indicated that there
is considerable interest in INSTEAD-TM-, with over one-third of the women
indicating willingness to try INSTEAD-TM- after reviewing the concept statement
and seeing the actual product. The research indicated that it is possible that
INSTEAD-TM- can be priced at a premium vis-a-vis tampons. On average,
respondents indicated a willingness to purchase INSTEAD-TM- at a price which
represents a 16% premium to tampons.
CONSUMER USE TESTING
During the nine-month period of November 1991 through July 1992, INSTEAD-TM-
was use tested among a total of 300 women, ages 18-55, at seven different
geographical locations in the United States. Respondents were users of sanitary
napkins and tampons. Each woman used INSTEAD-TM- on a trial basis through three
consecutive menstrual cycles and, in total, over 13,000 units were used.
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<PAGE>
The research concluded that approximately 80% of the women were interested
in continuing to use INSTEAD-TM-, with approximately 54% of the women indicating
they would be likely to use INSTEAD-TM- as their primary method of feminine
protection in the future. The Company believes based on this research that the
remaining 26% of these women would be likely to use INSTEAD-TM- for occasional
use. Pricing was not a factor which was considered in this usage test.
The Company is not aware of any other consumer research regarding the
satisfaction of consumers with currently available feminine protection products.
CONSUMER COMMUNICATION QUALITATIVE TESTING
Commencing August 1995, consumer focus groups, consisting of 600 women
across the United States, were conducted to finalize consumer communication with
respect to advertising, packaging and user instructions. As a result of these
focus groups, the Company determined to include the twelve hour wear time usage
claim in its advertising, public relations and packaging.
PATENT STATUS AND PATENT APPLICATIONS; PROPRIETARY TECHNOLOGY
A United States patent with respect to the SoftCup Technology (for use for
feminine protection during menstruation either with or without vaginal drug
delivery) was issued on March 22, 1994. Foreign patent applications
corresponding thereto were filed by the Company in Australia, Belgium, Brazil,
Canada, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden,
Switzerland and the United Kingdom.
The Company has in the past and will continue to pursue in the future patent
protection for its technology and products that are patentable. The Company's
original patent application was filed by Ms. Contente and subsequently assigned
to the Company. The patent contains claims covering the use of the SoftCup
Technology for menstruation either with or without vaginal drug delivery. The
Company has filed a United States continuation application with additional
claims on other aspects of the SoftCup Technology. In addition, the Company has
filed provisional patent applications in the United States on the method of
manufacturing the SoftCup Technology. To further protect its technology, the
Company intends to file additional patent applications on inventions relating to
processing technology, specific vaginal drug delivery systems and other new
product applications.
The Company relies on trade secrets, unpatented proprietary know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company requires its employees and consultants and other advisors
to execute confidentiality agreements. There can be no assurance that these
agreements will provide meaningful protection for the Company's trade secrets in
the event of unauthorized use or disclosure of such information or that others
will not independently develop substantially equivalent proprietary information
and manufacturing techniques or otherwise gain access to the Company's trade
secrets.
TRADEMARKS
The Company registered trademarks with the United States Patent and
Trademark Office for "SoftCup" and "Ultrafem" in 1992 and 1993, respectively.
The Company has also filed an application to register the trademark
"INSTEAD-TM-" in the United States, Argentina, Australia, Brazil, Canada, Chile,
India, Korea, Mexico, Pakistan, Panama, Paraguay, Philippines, Uruguay, Russia,
Switzerland, Taiwan, Venezuela, and the European Community. The INSTEAD-TM- mark
was published for opposition in the United States on April 16, 1996; no
oppositions were filed during the 30 day opposition period. The Company believes
the INSTEAD-TM- mark will be registered in the United States in September 1996
or shortly thereafter. In addition, the Company is pursuing a trademark
application in Turkey.
REGULATORY STATUS
Government regulation, both domestic and foreign, will be a significant
factor in manufacturing and marketing INSTEAD-TM-. The lengthy process of
seeking FDA and foreign government clearance and the ongoing process of
complying with applicable federal statutes and regulations require expending
substantial resources.
33
<PAGE>
In 1993, the FDA cleared the Company's pre-market notification submission
under Section 510(k) of the FDCA. The FDA's clearance of this notification
enables the Company to market INSTEAD-TM- in the United States and to export it
overseas subject to the general controls provisions of the FDCA. Subsequent to
FDA clearance of this notification submission, modifications, which the Company
believes to be minor, were made to the formulation of certain materials used in
INSTEAD-TM- to improve the manufacturing process. An applicable FDA regulation
requires the filing of a new 510(k) notification when, among other things, there
is a major change or modification in the intended use of the device, or a change
or modification in material, chemical composition or manufacturing process, that
could significantly affect the device's safety or effectiveness. A device
manufacturer is responsible for making the initial determination as to whether a
proposed change to a cleared device or its intended use necessitates the filing
of a new 510(k) notification. The Company conducted a full range of
toxicological testing subsequent to the changes in materials, including
laboratory tests to determine the effect on the vaginal micro flora and on the
production of the toxin which causes TSS. The results of the studies confirmed
that these changes did not affect the safety of the product. As a result, the
Company, and its regulatory counsel, do not believe a new 510(k) notification
was necessary to make this change. The Company's rationale and support for the
change are in records as required by FDA Good Manufacturing Practice regulations
and are available for inspection by the FDA.
In April 1994, the FDA informally proposed a guidance document pursuant to
the above-described regulation (which was revised in August 1995 and which is
expected to be re-published in September 1996) that would require submission of
a new 510(k) notification when certain changes are made in medical devices such
as INSTEAD-TM-, including changes in materials and labeling. If this proposal
becomes effective in its current proposed form, a resubmission of the 510(k)
notification of INSTEAD-TM- may be required. In addition, any product with a
510(k) notification cleared by the FDA and its manufacturer are subject to
continuing regulatory review and the FDA has the authority to, among other
things, order or request restrictions on the distribution of products or the
withdrawal of products from market even after clearance of a 510(k) submission
is obtained. See "Risk Factors -- Necessity of Regulatory Clearances to Market."
The Company has also decided to label INSTEAD-TM- with a 12 hour maximum
wear time. The labeling for INSTEAD-TM-, as cleared by the FDA in the original
510(k) notification, included an 8 hour maximum wear time. While the Company did
not believe it necessary to conduct clinical testing to increase the maximum
wear time since the devices to which INSTEAD-TM- was found substantially
equivalent by the FDA either do not have a maximum wear time or can be worn for
at least 12 to 14 hours, if not longer, the Company conducted a clinical study
to support the safety of the 12 hour wear time. See " --Product Testing." The
study was conducted by The Crucible Group of Atlanta, Georgia. The investigators
concluded that increasing the wear time of INSTEAD-TM- to 12 or even 24 hours
does not result in increased colonization by the etiologic agent of TSS, does
not lead to increased colonization by pathogens that cause bacterial vaginosis,
does not lead to increased colonization by E. COLI, the most common agent
causing urinary tract infections, and does preserve the normal LACTOBACILLUS-
predominant vaginal flora. Since there has not been a change in the intended use
of the product, and the Company's clinical studies have demonstrated that the 12
hour maximum wear time is safe, and since the wear time is similar to that for
devices to which the product was found "substantially equivalent" by the FDA,
the Company does not believe a new 510(k) notification is necessary to increase
the maximum wear time to 12 hours. The results of these studies were discussed
during a meeting with FDA on June 19, 1996. At that meeting, the FDA requested
that the Company submit these results of its clinical testing, which the Company
provided on July 17, 1996. The FDA has not responded to that submission. The
Company and its regulatory counsel do not believe a new 510(k) notification is
necessary under existing regulations. See "Risk Factors -- Necessity of
Regulatory Clearances to Market."
34
<PAGE>
The Company's manufacturing facility in Missoula, Montana is subject to GMP
regulations which are promulgated by the FDA, international quality standards
and other regulatory requirements. The failure by the Company to comply with the
foregoing could adversely affect the Company's production and financial
condition.
The Company has obtained Canadian government acceptance to market
INSTEAD-TM- in Canada. INSTEAD-TM- may be marketed in each of Belgium, Denmark,
Finland, France, the Netherlands, Spain, Sweden, Switzerland and the United
Kingdom subject to compliance with applicable labeling laws and FDA requirements
concerning exports. Regulatory approvals or clearances are being pursued in
Argentina, Australia, Brazil, Germany, India, Italy, Mexico, Pakistan, Russia,
Saudi Arabia, Turkey, and the United Arab Emirates; however, there can be no
assurance that the Company will be able to comply with any such requirements.
The potential health care applications of the SoftCup Technology will
require FDA clearance or pre-market approval in accordance with the FDCA
applicable regulations. Although most of the potential uses do not incorporate
new chemical compounds, the Company will be required to submit applications for
each such use involving an already marketed drug, as a new form of delivery is
involved. Obtaining such approval or clearance can entail a lengthy process and
significant expense, including potential costs of clinical trials to demonstrate
safety and efficacy. See "Risk Factors -- Necessity of Regulatory Clearances to
Market."
In conjunction with developing other applications of the SoftCup Technology,
the Company has formulated a comprehensive regulatory strategy and has retained
MTC-BRI, an international contract research organization which specializes in
managing regulated health care products. MTC-BRI assists in determining that
potential products will meet applicable FDA requirements. Within MTC-BRI, the
project team for the Company is headed by Dr. David L. West who previously was
FDA Deputy Director, Office of Device Evaluation, Center for Devices and
Radiological Health.
GOVERNMENT REGULATION
Medical devices are regulated in the United States under the 1976 Medical
Device Amendments ("MDA") to the FDCA, and under pertinent implementing
regulations issued by the FDA. Every medical device in United States commercial
distribution is classified by the FDA as a Class I, II or III device. All three
classes require compliance with the general device controls of the MDA
(provisions governing establishment registration; product listing; adulteration;
misbranding; pre-market notification; notification of unreasonable risk; repair,
replacement or refund; recalls; device records and reports; and GMP
regulations). A Class II device must comply with such MDA general controls and
any applicable performance standard or other special controls promulgated by the
FDA. A Class III device must be clinically tested for safety and effectiveness
for its intended use(s) and obtain FDA's approval of a pre-market approval
application ("PMA") containing the results of such tests before it can be
marketed. Thereafter, such a device must comply with the conditions of approval
of the PMA and with the MDA general controls.
Each new medical device product never before commercially distributed in the
United States is automatically deemed a Class III device requiring pre-market
approval, unless it can be demonstrated that it is substantially equivalent in
intended use, design, materials and/or technological characteristics to one or
more predicate medical devices that were on the market before the MDA enactment
date of May 28, 1976, thereby establishing that the new device is as safe and
effective as the predicate device. Such substantial equivalence is demonstrated
by a manufacturer in a 510(k) pre-market notification submission, which must be
filed with the FDA at least 90 days before the product's targeted date of first
commercial distribution. Marketing of the device is not allowed until the FDA
clears the 510(k) notification submission.
FDA clearance of a supplemental 510(k) submission is required before any
significant change can be made to an already-marketed device in design,
materials, chemical composition, energy source or manufacturing process that
could affect the product's safety or effectiveness. Where a 510(k) notification
submission is based on a predicate device that has been classified by the FDA in
Class III, the
35
<PAGE>
510(k) submission must also include a certification that the submitter has
conducted a reasonable search for all data and information relevant to the
predicate device and the device for which 510(k) clearance is sought, as well as
a summary of all safety and effectiveness data for both devices. A device
cleared through the 510(k) process that is substantially equivalent to a
predicate Class III device for which the FDA ultimately establishes a PMA
requirement will eventually have to receive approval of its own PMA to remain on
the market, unless it is the fifth or subsequent device of its kind that has
been commercially distributed in the United States, in which case no PMA is
required.
Menstrual cups such as INSTEAD-TM- are classified as Class II medical
devices by the FDA pursuant to applicable FDA regulations. Submission and
clearance of a 510(k) notification, through a finding of "substantial
equivalence" is required under the FDCA to market a Class II medical device in
the United States. The FDA cleared the 510(k) notification for INSTEAD-TM- on
October 5, 1993.
The FDA has promulgated regulations establishing stringent GMP requirements
for all medical devices. The FDA conducts periodic inspections of manufacturing
plants to ensure compliance with these regulations. Failure of compliance can
result in regulatory action of the kinds stated below.
The FDA has statutory authority to institute civil administrative
proceedings or court enforcement actions against medical device manufacturers or
distributors for violations of applicable requirements of the MDA and FDA
implementing regulations. A finding of liability in an administrative proceeding
can result in the imposition of civil monetary penalties. Court enforcement
actions, involving seizure of products, injunction against continued
distribution of products or criminal prosecution, can result, respectively, in
destruction of products, orders against further distribution of products or
criminal fines if the FDA prevails. The FDA can also require the recall of an
already-marketed medical device when the agency believes that the product would
cause serious adverse health consequences or deaths if marketing were allowed to
continue.
Exports of medical devices manufactured in the United States are allowed if
the devices have satisfied applicable pre-market requirements and are not
adulterated or misbranded. Exports of medical devices manufactured in the United
States are allowed without prior FDA export approval if the product has
satisfied applicable pre-market approval or notification requirements and is not
adulterated or misbranded. An unapproved medical device manufactured in the
United States can also be exported to 23 "Tier 1" countries without prior FDA
export approval, if the device has valid marketing authorization in a "Tier 1"
country and the device complies with the laws of the importing country, subject
to notification to the FDA at the time of export. Exports of medical devices not
approved in the United States to non- "Tier 1" countries require prior FDA
approval. In addition, exports of unapproved medical devices manufactured in the
United States for export for clinical investigations in "Tier 1" countries or
where marketing authorization is imminent in a "Tier 1" country may be made
without prior FDA approval, provided that a notice is submitted to the FDA at
the time of export.
COMPETITION
The market for feminine protection products is presently dominated by large
and well-financed companies which have substantially greater resources than the
Company. The Company believes that certain of such competitors have increased
their marketing efforts in response to the anticipated launch of INSTEAD-TM-.
Management believes INSTEAD-TM- has significant distinct benefits when compared
to other feminine protection products currently available and that, upon
introducing INSTEAD-TM-, the Company believes it will be the sole provider of
this type of feminine protection. For a discussion of certain risks related to
competition, see "Risk Factors -- Competition," "-- Risks Associated with
Potential Competitive Response," "-- Marketing Risks; Uncertainty of Consumer
Acceptance" and "-- Risks Inherent in Obtaining and Protecting Patents and
Proprietary Technology." In addition, the market for contraceptives and other
medical products is presently dominated by large and well-financed companies
which have substantially greater resources than the Company, and the ability of
the Company to compete in this area is dependent to a large extent on its
ability to
36
<PAGE>
successfully develop products, have such products cleared for market, and the
ability to manufacture any such products on a cost-efficient basis. See "Risk
Factors -- Risks Associated with Research and Development for Other Applications
of the SoftCup Technology."
RAW MATERIALS
INSTEAD-TM- is manufactured from a thermoplastic elastomer which is
available from a wide variety of domestic and international sources and is
currently supplied by Shell Chemical Company. Management believes the production
of thermoplastic elastomers to the tolerances required for manufacturing
INSTEAD-TM- to be a key technology developed by the Company. Management has
identified several sources of supply of raw materials.
PROPERTIES
The Company currently leases office space at 500 Fifth Avenue, Suite 3620,
New York, New York 10110 for its principal executive offices for a monthly base
rent of $5,610, and additional office space on a month to month basis for
approximately $2,000 per month. The lease expires in November 1997. The Company
has entered into a ten year lease for office space at 805 Third Avenue, New
York, New York for its principal office which provides for monthly base rent of
approximately $31,500 for the first two years, which increases to a maximum of
approximately $36,000 per month by the end of the term. Since May 1996, the
Company has entered into leases on a minimum twelve month basis for modular
office space in Missoula, Montana, with rental payments of $1,230 per month and
$1,350 per month, respectively. The Company has also entered into three year
leases beginning in April 1996 and February 1996 for its administrative office
and manufacturing facility in Missoula, Montana at a monthly rent of $2,345 and
$6,500, respectively.
EMPLOYEES
As of August 31, 1996, the Company had 42 full-time employees. The Company
believes its relations with its employees are satisfactory. None of the
Company's employees are covered by a collective bargaining agreement or
represented by a collective bargaining unit.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company. The executive officers of the
Company are elected for a term of one year or until their successors are duly
elected and qualify; however, certain of the executive officers have employment
agreements which provide for longer terms of office. See "-- Employment
Agreements and Certain Agreements with Management."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John W. Andersen..................................... 59 President; Chief Executive Officer; Director and
Chairman of the Board of Directors
Audrey Contente...................................... 53 Executive Vice President and Founder; Director
Dori M. Reap......................................... 44 Senior Vice President of Finance and Administration;
Chief Financial Officer and Secretary
Tonya G. Hinch....................................... 33 Senior Vice President, Marketing and Sales
Gary Nordmann........................................ 54 Vice President, Operations
Wendell Guthrie...................................... 46 Director of Manufacturing
Richard A. Cone...................................... 60 Director
Joy Vida Jones....................................... 46 Director
Martin Nussbaum...................................... 49 Director
Charles D. Peebler, Jr............................... 60 Director
Barrie Zesiger....................................... 51 Director
</TABLE>
EXECUTIVE OFFICERS AND KEY PERSONNEL
JOHN W. ANDERSEN has been the Chairman of the Board, Chief Executive Officer
and President of the Company since July 1994. He has an extensive background in
consumer product management, including food, beverage and personal products. He
has been the Chief Executive Officer of five consumer companies over the past 20
years and has substantial experience in Japan and western Europe. From June 1993
until July 1994, Mr. Andersen was self-employed. For the period of 1990 to 1993,
Mr. Andersen was President and Chief Executive Officer of Johanna Dairies, a
subsidiary of John Labatt Limited with annual sales of approximately $1 billion.
From 1983 to 1989, he was President, Chief Executive Officer and Director of
Whitbread North America, Inc., a beverage subsidiary of Whitbread PLC with
annual sales of approximately $450 million. Prior to 1983, Mr. Andersen served
as Executive Vice President of Marriott Corporation, President and Chief
Executive Officer of Sonoma Vineyards, and Vice President of Norton Simon, Inc.
AUDREY CONTENTE is the Executive Vice President and a Director of the
Company, as well as the Founder of the Company and inventor of the SoftCup
Technology. Ms. Contente is responsible for manufacturing and product
development. Ms. Contente has served as a Director of the Company since its
formation in March 1990; as an Executive Vice President since July 1996; as a
Senior Vice President from July 1993 to June 1996; and as Senior Vice President
of Manufacturing and Product Development from November 1995 to June 1996. Ms.
Contente also served as Chairman of the Board of the Company from March 1990 to
July 1993, and Chief Executive Officer of the Company from May 1992 to July
1993. She has experience in marketing and sales, business development and
biomedical instrumentation. As a result of years of research in feminine hygiene
technology which led to the
38
<PAGE>
ultimate design of the SoftCup Technology, Ms. Contente applied for a United
States patent and subsequently founded the Company. She began her career in
sales in 1976 with J.T. Baker Chemical Co. where she was responsible for selling
biomedical instrumentation and supplies. From 1980 to 1990 she was the principal
of Audrey Contente & Associates, a management consulting firm specializing in
strategic planning and market development projects. During this 10-year period,
she devoted substantial and continuous effort in researching, designing and
developing the SoftCup Technology and INSTEAD-TM-.
DORI M. REAP has been the Senior Vice President of Finance and
Administration and Chief Financial Officer of the Company since August 1, 1995.
She became Secretary of the Corporation in June 1996. She has been in senior
financial positions over the past 18 years in major consumer products companies
and has significant experience in finance, business planning and analysis,
restructuring and information systems. Ms. Reap was Chief Financial Officer of
The Franklin Mint in 1994. For the period of 1990 to 1993, Ms. Reap was Vice
President and Chief Financial Officer of Johanna Dairies, a subsidiary of John
Labatt Limited, with annual sales of approximately $1 billion. From 1978 to
1989, Ms. Reap worked for Frito Lay, Inc., a subsidiary of PepsiCo, Inc., in
successively senior positions and as Finance Director from 1985 to 1989.
TONYA G. HINCH joined the Company in November 1995 as the Senior Vice
President, Marketing and Sales of the Company. She has ten years of experience
marketing women's personal care and broad-based consumer products. Ms. Hinch
worked at Neutrogena from 1991 to 1995, last serving as General Manager of
Neutrogena Haircare. From 1987 to 1991, Ms. Hinch worked at Clairol,
specializing in new product development and last serving as Senior Marketing
Manager in New Products. From 1985 to 1987, Ms. Hinch was employed at Procter &
Gamble, last serving as an Assistant Brand Manager.
GARY NORDMANN joined the Company full-time in April 1996 as the Vice
President, Operations. He also served as a consultant to the Company from May
1994 to March 1996. He has had over 20 years experience in senior management
positions in consumer product companies with manufacturing operations. Mr.
Nordmann worked at Johanna Dairies, a subsidiary of John Labatt Limited, from
1991 to 1994 as Vice President, Finance and Administration, and at Whitbread
North America, Inc., a subsidiary of Whitbread PLC, as Executive Vice President,
Finance and Administration from 1983 to 1990. Mr. Nordmann worked for Marriott
Corporation, Inc., from 1981 to 1983, Mattel, Inc. from 1977 to 1981, PepsiCo
from 1972 to 1977, and S.C. Johnson & Son, Inc. from 1970 to 1972.
WENDELL GUTHRIE has been the Director of Manufacturing since March 1996 and
prior to that served as Vice President of Manufacturing for the Company since
July 1991. He has over 20 years of experience in all phases of manufacturing and
quality assurance with medical products, from design through manufacturing
engineering. From 1968 to 1991 he worked for American Dental Manufacturing
Company ("ADM"), an FDA registered manufacturer and distributor of dental
instruments and related products, as Quality Assurance Manager and later as Vice
President and Chief Operating Officer. During that time he also developed the
products for, and served as Vice President and Chief Executive Officer of, two
subsidiaries of ADM, Omnitech and DMD, manufacturers and distributors of
chemical disinfectants and direct mail professional dental products.
DIRECTORS
RICHARD A. CONE, a Director of the Company since 1994, has been a Professor
of Biophysics and Biology at Johns Hopkins since 1973. Dr. Cone trained in
Physics at the Massachusetts Institute of Technology and at the University of
Chicago (Ph.D. 1963). In 1979 he jointly received the Cole Award from the
Biophysical Society for discovering the fluid-like nature of cell membranes.
Since 1979 he has been pursuing research to develop improved methods for
protecting against STDs and unwanted pregnancy. He is an expert on the
protective properties of mucus secretions and the mechanisms by which antibodies
protect mucus epithelia against pathogens. He is Managing Director of ReProtect,
a research and development company he co-founded in 1993 with Thomas R. Moench
and Kevin J. Whaley to develop products that protect reproductive health.
39
<PAGE>
JOY VIDA JONES, a Director of the Company since 1992, has practiced law for
the last nineteen years, having received a J.D. from New York University School
of Law (1976). She was a partner at Rogers & Wells when she left the firm in
1993 after 10 years of practice there. She has served since 1990 as a Trustee of
the Calvert Social Investment Fund, which made an investment in the Company.
Since June 1993, Ms. Jones has acted as a personal manager to musicians. She is
a Trustee of her alma mater, Sarah Lawrence College (B.A. 1971), as well as
several funds and societies.
MARTIN NUSSBAUM, a Director of the Company since 1996, has been a partner of
the law firm of Shereff, Friedman, Hoffman & Goodman, LLP since 1976. The
Company has retained Shereff, Friedman, Hoffman & Goodman, LLP in the past and
during the fiscal year. See "Certain Relationships and Related Party
Transactions" and "Legal Matters."
CHARLES D. PEEBLER, JR., a Director of the Company since 1995, is President
and Chief Executive Officer, as well as director, of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. ("BJK&E"), the 14th largest marketing communications company in
the world. He also serves as Chief Executive Officer of Bozell Worldwide, Inc.,
BJK&E's major advertising agency division. Mr. Peebler joined Bozell Worldwide,
Inc. in 1958 and became President in 1965. The Company has retained Bozell
Worldwide and certain of its affiliates in the past and during the current
fiscal year. See "Certain Relationships and Related Party Transactions." Mr.
Peebler, in addition to serving on the boards of a number of non-profit
organizations, is a member of the Board of Directors of American Radio Systems.
BARRIE ZESIGER, a Director of the Company since 1993, is a Managing Director
in charge of operations for Zesiger Capital Group LLC, a New York City money
management firm. She worked as a security analyst for the Madison Fund from 1968
to 1970 and in the private practice of law from 1974 to 1984, having received
her J.D. degree from the Stanford University Law School. Having formerly served
on a number of non-profit cultural boards, she currently serves as the Vice
Chair of the Asphalt Green, Inc., an innovative non-profit sports and fitness
center in New York City with programs that promote self-improvement, personal
achievement, and lifetime health. Ms. Zesiger is also a private investor in the
Company.
SCIENTIFIC ADVISORY BOARD
The Company established a Scientific Advisory Board (the "SAB") to advise
the Company on selected scientific, technical and regulatory matters. The SAB
members have been involved since 1990 as advisors to the Company in the areas of
research and development, clinical safety testing, and have served on a
continual basis as consultants to the Company for specific scientific and
technical meetings. The SAB has provided related assistance for the SoftCup
Technology and INSTEAD-TM-. Members of the SAB have been granted stock options
and one member, Ted Cohen, M.D., has invested in the Company. See "-- Options
Granted in Last Fiscal Year." From time to time the Company also requests that
certain members of the SAB participate in specific projects for which the
Company has in the past and will in the future compensate SAB members on a per
diem basis. Sharon Hillier, Ph.D. declined to accept the stock options which are
granted to SAB members from time to time due to the guidelines of the university
with which she is affiliated; consequently, in May 1996, the Company entered
into a Consulting Agreement with Dr. Hillier which provides for a one-year term,
an automatic renewal option, an initial one time payment of $10,000 and an
annual consulting fee of $10,000 per year, in addition to per diem compensation
for certain additional consulting services which Dr. Hillier may provide in the
future and reimbursement of out of pocket expenses. The current five members of
the SAB are as follows:
TED COHEN, M.D., Chairman of the SAB, has been in private practice in
obstetrics, gynecology and infertility since 1978, and is associated with St.
Barnabas Medical Center located in New Jersey, which is one of the largest
Obstetrics and Gynecology centers on the East Coast. He is President of Suburban
OB/GYN Associates in New Jersey, a private obstetric and gynecology medical
practice and is now associated with Suburban Woman's Physicians, a large private
practice in obstetrics and gynecology.
40
<PAGE>
In addition to being a member of the American College of Obstetricians and
Gynecologists, he is also active in other medical societies. Dr. Cohen has
published articles in various medical journals over the past few years.
ELIZABETH B. CONNELL, M.D. has served as a Professor of Obstetrics &
Gynecology at Emory University School of Medicine, located in Atlanta, Georgia
since 1981. She has served as the Chairman of the FDA's Obstetric and Gynecology
Device Advisory Panel from 1988 to 1992; as a member of the FDA Panel on Review
of Obstetrical and Gynecological Devices from 1976 to 1979; and as a member of
the FDA Obstetrics and Gynecology Advisory Committee from 1970 to 1978.
SHARON HILLIER, PH.D., an expert in genital tract infections, is an
Associate Professor of Obstetrics & Gynecology at the University of Pittsburgh,
and Director, Reproductive Infectious Disease Research, Magee-Women's Hospital
located in Pittsburgh, Pennsylvania since 1995. Since obtaining her doctoral
degree in 1984, Dr. Hillier has been awarded eight major grants for research
studies dealing with gynecological health and diseases of the female
reproductive tract. She has published over 80 scientific papers on various
aspects of gynecological bacteriology and microbiology.
W. MARK SALTZMAN, PH.D., an expert in controlled release of substances from
polymers, with a specialty in intravaginal delivery, is currently Professor of
Chemical Engineering at Cornell University in Ithaca, New York. He received his
doctorate in Medical Engineering from Massachusetts Institute of
Technology/Harvard Medical School and was a Post-Doctoral Associate at
Massachusetts Institute of Technology. Dr. Saltzman has received numerous honors
in medical engineering, including the Allan C. Davis Medal as Maryland's
Outstanding Young Engineer, has been awarded over 15 grants for research studies
dealing with controlled release polymers and cellular interactions and has
published over 70 scientific papers on various aspects of polymer controlled
release mechanisms.
RICHARD SODERSTROM, M.D., Clinical Professor of Obstetrics & Gynecology at
University of Washington Medical School since 1974, located in the State of
Washington, is a gynecologist specializing in reproductive health. He has
received numerous distinguished service awards for his work in the field, and
has published more than 100 clinical papers on various aspects of reproductive
health. Dr. Soderstrom is active in several medical societies and currently
serves as an advisor to the FDA on devices in Obstetrics and Gynecology.
41
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for the fiscal years ended
June 30, 1996 and 1995 to the Company's President and Chief Executive Officer
and the four other most highly compensated executive officers of the Company
whose annual compensation exceeds $100,000. See also "-- Employment Agreements
and Certain Agreements with Management."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------
LONG TERM
COMPENSATION AWARDS
-------------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS (#)
- ------------------------------------------ ----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
John W. Andersen.......................... 1996 $ 250,000 $ 195,000(1) $ 56,627(2) --
President and Chief 1995 $ 20,833 -- -- 574,862
Executive Officer,
Chairman of the Board
Audrey Contente........................... 1996 $ 570,164(3) -- -- --
Executive Vice 1995 $ 74,286 -- -- --
President, Founder and Director
Dori M. Reap.............................. 1996 $ 150,000 $ 75,000 $ 25,401(4) 150,000
Senior Vice President, Finance 1995 -- -- --
and Administration, Chief
Financial Officer and Secretary
Tonya G. Hinch............................ 1996 $ 97,917 $ 30,000 $ 28,997(5) 100,000
Senior Vice President, 1995 -- -- --
Marketing and Sales
Gary Nordmann............................. 1996 $ 32,308 -- $ 37,775(6) 30,000
Vice President, Operations 1995 -- -- $ 33,897(6) --
</TABLE>
- ------------------------
(1) Mr. Andersen became entitled to a signing bonus of $195,000 upon the
execution of his employment agreement in July 1994. A portion of the signing
bonus was paid out of the proceeds of the IPO. See "Management -- Employment
Agreements and Certain Agreements with Management."
(2) Includes payment of $24,818 premium on a universal life insurance policy.
(3) Includes Ms. Contente's base salary for fiscal year 1996 of $175,000 and
$395,164 of accrued salary for fiscal years 1992, 1993 and 1994, a portion
of which was paid out of the proceeds of the IPO.
(4) Includes relocation allowance of $20,580.
(5) Includes relocation allowance of $28,791.
(6) Consists of consulting fees paid to Mr. Nordmann, who served as a consultant
to the Company prior to becoming the Vice President, Operations in March
1996.
STOCK OPTION PLAN
In October 1990, the Board of Directors approved a stock option plan (the
"1990 Stock Option Plan"), which was subsequently approved by the stockholders
of the Company. The 1990 Stock Option Plan authorized the grant of options for
up to 250,000 shares of Common Stock to employees, officers, directors,
consultants and advisors. In May 1993, the Board of Directors approved the
number of
42
<PAGE>
shares authorized to be granted under the 1990 Stock Option Plan to increase to
900,000 which was subsequently approved by the stockholders of the Company. The
1990 Stock Option Plan is designed to provide an incentive to the officers and
certain other key employees of and consultants to the Company by making
available to them an opportunity to acquire a proprietary interest in the
Company or to increase their proprietary interest in the Company.
The Compensation Committee of the Board of Directors administers the 1990
Stock Option Plan. The Compensation Committee has the full power and authority,
subject to the provisions of the 1990 Stock Option Plan, to designate
participants, grant options and determine the terms of all options. The
Compensation Committee has the right to make adjustments with respect to options
granted under the 1990 Stock Option Plan in order to prevent dilution of the
rights of any holder. Members of the Compensation Committee are not eligible to
receive options under the 1990 Stock Plan.
The terms of specific options are determined by the Compensation Committee.
Options granted may be non-qualified or incentive stock options. The exercise
price per share for a non-qualified option is subject to the determination of
the Compensation Committee. Incentive stock options may not be granted at less
than 100% of the fair market value at the date of grant. Each option will be
exercisable after the period or periods specified in the option agreement.
The 1990 Stock Option Plan meets the requirements of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which exempts
the acquisition of certain options under the 1990 Stock Option Plan from the
operation of Section 16(b) under the Exchange Act.
Upon the exercise of an option, the option holder shall pay to the Company
the exercise price plus the amount of the required Federal and state withholding
taxes, if any. Options may be exercised and the withholding obligation may be
paid for with cash or shares of Common Stock. Shares surrendered on exercise
will be valued at the market price for the Common Stock, generally based on
average closing prices of the Common Stock over a 30-day period prior to
exercise, less the option exercise price. The period after termination of
employment during which an option may be exercised is as determined by the
Compensation Committee.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
year ended June 30, 1996 to each of the executives named in the Summary
Compensation Table above who received options during such year:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
PERCENTAGE OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE --------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% 10%
- ------------------------- --------- ------------- ----------- ---------------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dori M. Reap............. 50,000 17.5% 6.00 August 1, 2005 $ 188,500 $ 478,000
100,000 35.1% 8.00 August 1, 2005 $ 503,000 $ 1,275,000
Tonya G. Hinch........... 100,000 35.1% 8.00 November 6, 2005 $ 503,000 $ 1,275,000
Gary Nordmann............ 30,000 10.5% 10.50 March 8, 2006 $ 198,000 $ 502,500
</TABLE>
During September 1995, each member of the SAB (other than Sharon Hillier,
Ph.D.) was granted an option under the 1990 Stock Option Plan to purchase 5,000
shares of Common Stock at an exercise price of $8.00 per share. Each option is
exercisable immediately with respect to 2,000 shares, with the balance of the
option becoming exercisable in equal increments on the first, second and third
anniversary of the date of issuance (provided the holder is still serving on the
SAB). The holder of such an option may exercise the option with respect to the
vested portion, in accordance with its terms, for a period of one year after
ceasing to be a member of the SAB for any reason. Sharon Hillier, Ph.D. declined
to accept the stock options which are granted to SAB members from time to time
due to the guidelines of the university with which she is affiliated. See
"Management -- Scientific Advisory Board."
43
<PAGE>
CLASSIFIED BOARD OF DIRECTORS
The Board of Directors presently consists of seven persons. The Company's
Board of Directors is divided into three classes. Directors of each class will
be elected at the annual meeting of stockholders held in the year in which the
term for such class expires and will serve thereafter for three years. John W.
Andersen and Charles D. Peebler, Jr. serve as Class 1 Directors with their terms
expiring at the 1996 Annual Meeting of Stockholders, Audrey Contente and Joy
Vida Jones serve as Class 2 Directors with their terms expiring at the 1997
Annual Meeting of Stockholders and Richard A. Cone, Barrie Zesiger and Martin
Nussbaum serve as Class 3 Directors with their terms expiring at the 1998 Annual
Meeting of Stockholders. For further information on the effect of the classified
Board, see "Description of Capital Stock -- Certain Provisions of the
Certificate of Incorporation and By-Laws."
COMMITTEES OF THE BOARD
The Board of Directors has established a Compensation Committee, consisting
of Charles D. Peebler, Jr., Barrie Zesiger and Martin Nussbaum. The Compensation
Committee is responsible for approving (or, at the election of the Compensation
Committee, recommending to the Board) compensation arrangements for officers and
directors of the Company, reviewing benefit plans and administering the 1990
Stock Option Plan.
The Board of Directors has established an Audit Committee, consisting of
Barrie Zesiger, Charles D. Peebler, Jr. and Joy Vida Jones. The Audit Committee
is responsible for selecting (or, at the election of the Audit Committee,
recommending to the Board) the independent auditors of the Company, evaluating
the independent auditors, reviewing the scope of the annual audit with
management and the independent auditors, consulting with management and the
independent auditors as to the systems of internal accounting controls and
reviewing the non-audit services performed by the independent auditors.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1995 Stock Option Plan for Non-Employee Directors (the "1995 Stock
Option Plan"), which was approved by the Company's stockholders, provides that
upon becoming a director (and persons who were non-employee directors on the
date of adoption of the 1995 Stock Option Plan, upon the adoption date) receive
a one-time grant of a ten-year option to purchase 15,000 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock on the
date immediately preceding the date of grant. Of the aggregate number of shares
issuable under such option, 5,000 shares vest immediately and the remaining
10,000 shares vest in equal installments of 2,500 shares on each of the first
four anniversaries of the date of grant, provided that the holder is then still
serving as a director of the Company. The holder of such an option may exercise
the option with respect to the vested portion of the option, in accordance with
its terms, for a period of one year after ceasing to be a member of the Board of
Directors due to death or permanent disability. There are an aggregate of
250,000 shares reserved for issuance under the 1995 Stock Option Plan.
EMPLOYMENT AGREEMENTS AND CERTAIN AGREEMENTS WITH MANAGEMENT
Mr. Andersen is the Chairman of the Board, Chief Executive Officer and
President of the Company. Mr. Andersen entered into a five year employment
agreement with the Company, dated July 29, 1994, which, as amended, provides for
a base salary of $250,000 per annum. The base salary increases to $350,000 upon
the earlier to occur of (i) the formation of a strategic alliance or (ii) the
introduction of INSTEAD-TM- to at least five percent of the United States or
European market. His base salary will increase to $500,000 when the later of
such conditions is achieved. Mr. Andersen will receive royalties of $.005 for
each unit of INSTEAD-TM- sold and $.01 for each unit of product based on the
SoftCup Technology sold for medical purposes. Upon the execution of his
employment agreement, Mr. Andersen received an option exercisable to purchase
10% of the number of shares of Common Stock outstanding on a fully-diluted basis
(as defined) immediately before the IPO at an aggregate exercise price of $2.5
million. Such option is exercisable with respect to 20% of the shares subject
thereto upon the date of grant (subject to forfeiture in limited cases) and the
balance of the option vesting in equal installments upon the Company's
attainment of each of the following goals: (w) raising development
44
<PAGE>
financing of approximately $5-$10 million, (x) closing of an initial public
offering, (y) distributing the INSTEAD-TM- to the public in one half or more of
the United States or Europe and (z) achieving annual revenues of $100 million;
provided, however, that in any event the full amount shall vest upon the
following: termination of the agreement by the Company for reasons other than
for cause; change of control; termination by Mr. Andersen for good reason; or
six months prior to the expiration of the agreement. Upon the execution of the
agreement Mr. Andersen became entitled to a signing bonus of $195,000, a portion
of which was paid out of the proceeds of the IPO.
Ms. Contente is the Executive Vice President and Founder of the Company, as
well as a Director of the Company. Ms. Contente entered into a five year
employment agreement with the Company, dated July 1, 1996, which provides for a
base salary of $230,000 per annum. This base salary increases to $300,000 upon
the earlier to occur of (i) the formation of a strategic alliance or (ii) the
introduction of INSTEAD-TM- to at least five percent of the United States or
European market. Her base salary will increase to $350,000 when the later of
such conditions is achieved. Ms. Contente will receive royalties of $.005 for
each unit of product based on the SoftCup Technology sold. Under the employment
agreement, Ms. Contente is entitled to medical, life and disability insurance
coverage. In mid-1990, as part of the organization of the Company, Ms. Contente
received 526,250 shares of Common Stock in exchange for assigning to the Company
all pending patent applications, trademarks, copyrights, technology and similar
rights associated with products relating to or evolving from the patent
application filed by Ms. Contente and relating to the SoftCup Technology. In
mid-1992, Ms. Contente received options to purchase 75,000 shares of Common
Stock, which vests over a five-year period at an exercise price of $8.00 per
share; such option will vest immediately upon a change of control of the Company
(as defined therein). Upon the execution of the agreement Ms. Contente became
entitled to a signing bonus of $75,000. In connection with the execution of her
employment agreement, Ms. Contente entered into a Name, Likeness, and Voice
Release and Agreement (the "Release"). The Release provides that Ms. Contente
will serve as a spokesperson for INSTEAD-TM- in both television and print/ media
campaigns for which Ms. Contente will receive $12,500 for the television
campaign, $12,500 for the print/media campaign. Ms. Contente is entitled to
receive an additional $12,500 for the television campaign and $12,500 for the
print/media campaign if such campaign is actively used by the Company to support
the rollout of INSTEAD-TM- into certain additional geographic areas. If the
Company decides to produce a new television campaign or print/media campaign
then Ms. Contente will receive an additional $25,000. After the employment
agreement is terminated, Ms. Contente will no longer be required to provide
further services under the Release; however, the Company will have the ability
to use her name and likeness in the campaigns for up to a year after
termination, and in connection with INSTEAD-TM- in perpetuity.
Ms. Reap is Senior Vice President of Finance and Administration and Chief
Financial Officer of the Company. Ms. Reap entered into a five year employment
agreement dated August 1, 1995, which provides for a base salary of $150,000 per
annum. This base salary increases to $175,000 upon the earlier to occur of (i)
the formation of a strategic alliance or (ii) the introduction of INSTEAD-TM- to
at least five percent of the United States or European market. Her base salary
will increase to $200,000 when the later of such conditions is achieved. Ms.
Reap received options to purchase 150,000 shares of the Common Stock (100,000 at
an exercise price of $8.00 per share and 50,000 at an exercise price of $6.00
per share), exercisable upon the occurrence of certain events. Such options will
vest regardless of the achievement of such milestones no later than six months
prior to the expiration of the term of her employment agreement. In addition,
such options will vest immediately upon a change of control of the Company (as
defined therein). Upon the execution of her agreement Ms. Reap was entitled to a
signing bonus of $75,000, a portion of which was paid out of the proceeds of the
IPO.
Ms. Hinch is Senior Vice President, Marketing and Sales of the Company. Ms.
Hinch entered into a five year employment agreement dated November 6, 1995,
which provides for a base salary of $150,000 per annum. This base salary
increases to $175,000 upon the earlier to occur of (i) the formation of a
strategic alliance or (ii) the introduction of INSTEAD-TM- to at least five
percent of the United States or European market. Her base salary will increase
to $200,000 when the later of such
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conditions is achieved. Ms. Hinch received an option to purchase 100,000 shares
of the Common Stock at an exercise price of $8.00 per share, exercisable upon
the occurrence of certain events. Such option will vest regardless of the
achievement of such milestones no later than six months prior to the expiration
of the term of her employment agreement. In addition, such option will vest
immediately upon a change of control of the Company (as defined therein). Upon
the execution of her agreement Ms. Hinch was entitled to a signing bonus of
$30,000, a portion of which was paid out of the proceeds of the IPO.
Mr. Nordmann is Vice President, Operations of the Company. Mr. Nordmann
entered into a three year employment agreement dated April 1, 1996, which
provides for a base salary of $140,000 per annum. Mr. Nordmann received an
option to purchase 30,000 shares of the Common Stock at an exercise price of
$10.50 per share, exercisable upon the occurrence of certain events. Such option
will vest regardless of the achievement of such milestones no later than six
months prior to the expiration of the term of his employment agreement. In
addition, such option may vest immediately at the discretion of the Board of
Directors upon a change of control of the Company (as defined therein).
Each of the employment agreements listed above (i) contains certain
non-competition provisions, (ii) provides that the executive may participate in
incentive bonus plans once the Company has begun selling its products to the
general public, and (iii) with respect to Ms. Reap, Ms. Hinch and Mr. Nordmann,
provides for the reimbursement of certain relocation expenses. The employment
agreement for each of Mr. Andersen, Ms. Contente, Ms. Reap, Ms. Hinch and Mr.
Nordmann provides that if the agreement is terminated by the Company (which in
the case of Mr. Andersen would include a failure on its part to renew the
agreement at the end of its term) without "Due Cause" (as defined) or by the
executive (other than Mr. Nordmann) for Good Reason (as defined) or during the
first year following a Change of Control (as defined), the agreement provides
for severance payments equal to the annual salary in effect at the time of
termination payable monthly for a period of twenty-four months with respect to
Mr. Andersen and Ms. Contente, twelve months with respect to Ms. Reap and Ms.
Hinch, and six months with respect to Mr. Nordmann, or in a lump sum, and in
certain cases, fringe and other benefits. Ms. Contente's employment agreement
also provides for severance payments equal to the base salary in effect at the
time of termination for a six month period upon the non-renewal of her
employment agreement.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of August 31, 1996
(except as otherwise noted) and as adjusted to reflect the sale by the Company
of the shares of Common Stock offered hereby with respect to the beneficial
ownership of the Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
each director of the Company, (iii) each named officer of the Company listed in
the Summary Compensation Table above, and (iv) all officers and directors of the
Company as a group. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them. Each person in the
following chart is deemed to be the beneficial owner of any shares of Common
Stock that can be acquired by such person within 60 days from August 31, 1996
upon the conversion of convertible securities or the exercise of warrants or
options.
COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING(1)
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
NAME NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------- ----------- --------------- ----------- ---------------
Audrey Contente (2)(3)(4)................................ 591,250 9.9% 591,250 6.6%
Barrie Zesiger (3)(5).................................... 994,414 14.8% 994,414 10.2%
Richard A. Cone (3)(6)................................... 20,000 * 20,000 *
Joy V. Jones (3)(7)...................................... 7,500 * 7,500 *
Martin Nussbaum (3)(8)................................... 10,925 * 10,925 *
Charles D. Peebler, Jr. (3).............................. 14,750 * 14,750 *
John Andersen (2)(3)(9).................................. 347,167 5.6% 347,167 3.8%
Albert L. Zesiger (10)................................... 994,414 14.8% 994,414 10.2%
Directors and executive officers as a group
(consists of 10 persons) (5)............................ 2,132,756 29.2% 2,132,756 20.7%
</TABLE>
- ------------------------
* Less than 1%
(1) Each beneficial owner's percentage ownership is determined by assuming that
convertible securities, options or warrants that are held by such person
(but not those held by any other person) and which are exercisable within 60
days of August 31, 1996 have been exercised.
(2) Officer.
(3) Director.
(4) Ms. Contente has granted an option to each of Jeffrey Simon and Frank Cole
to purchase 106,250 shares of Common Stock, and an option to Arthur Appleman
to purchase 12,500 shares of Common Stock, each such option at an exercise
price of $2.00 per share ("Optioned Shares") and with an expiration date of
December 1, 1998. The Optioned Shares are subject to a voting trust, to be
voted by a majority of Ms. Contente, Ms. Zesiger and Mr. Andersen, as voting
trustees. The voting trust will terminate on the earliest of (i) the
transfer of the Optioned Shares to Messrs. Cole, Simon and Appleman, (ii)
August 22, 1997, or (iii) upon the breach of certain representations
contained in the agreement.
(5) Includes 933,643 shares of Common Stock beneficially owned by Albert L.
Zesiger, Ms. Zesiger's husband, as to which Ms. Zesiger disclaims beneficial
ownership. See also footnote 10. In January of 1995, Ms. Zesiger acquired
2,250 shares of Common Stock by converting a short-term loan. See "Prior
Financings." Does not include the Optioned Shares which are subject to a
voting trust of which Ms. Zesiger is a voting trustee. See footnote 4.
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(6) Does not include 400,000 shares of Common Stock issuable upon exercise of
options granted to ReProtect in the ReProtect Agreement.
(7) Includes options to purchase 7,500 shares of Common Stock which are
exercisable within 60 days of August 31, 1996; however, exercise of Ms.
Jones' options is subject to certain restrictions. Does not include 150,000
shares of Common Stock beneficially owned by the Calvert Social Investment
Fund, of which Ms. Jones is a trustee. Ms. Jones disclaims beneficial
ownership of such shares of Common Stock, except to the extent of her
beneficial ownership in the Calvert Social Investment Fund.
(8) Includes option to purchase 5,000 shares of Common Stock and warrants to
purchase 3,940 shares of Common Stock which are exercisable within 60 days
of August 31 1996. See "Certain Relationships and Related Party
Transactions" and "Legal Matters."
(9) Includes options to purchase 344,917 shares of Common Stock and warrants to
purchase 375 shares of Common Stock which are exercisable within 60 days of
August 31, 1996 and 1,875 shares of Common Stock. Does not include
additional options to purchase 229,945 shares of Common Stock upon the
attainment of certain milestones. Does not include the Optioned Shares which
are subject to a voting trust of which Mr. Andersen is a voting trustee. See
footnote 4.
(10) Includes 60,771 shares of Common Stock beneficially owned by Barrie
Zesiger, Mr. Zesiger's wife, as to which shares Mr. Zesiger disclaims
beneficial ownership. As long as Ms. Zesiger is a member of the Board of
Directors, Mr. Zesiger has agreed not to vote 95,833 shares of Common Stock
over which he otherwise has a power of attorney and as to which he disclaims
beneficial ownership. Includes convertible securities currently exercisable
into 363,000 shares of Common Stock held in managed accounts for which Mr.
Zesiger has dispositive power as a Managing Director for Zesiger Capital
Group LLC, an investment advisor.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Effective October 1, 1990, the Company entered into a Termination Benefits
Agreement (the "Termination Benefits Agreement") with Ms. Contente. Both the
Termination Benefits Agreement and Ms. Contente's employment agreement provide
for payment of various severance and other benefits if Ms. Contente's employment
is terminated. Ms. Contente is also entitled to an immediate vesting of stock
options for 75,000 shares of Common Stock if her employment is terminated by
reason of a change in control of the Company resulting from certain shareholder
derivative litigation.
The Company also entered into various indemnity agreements with Ms.
Contente, dated as of October 1, 1990 as amended on April 23, 1992, and
indemnity agreements with certain former officers and directors. The indemnity
agreements provide Ms. Contente and these former officers and directors with
certain indemnities for claims against the Company and Ms. Contente and the
former officers and directors, respectively.
On May 12, 1992, each of Jeffrey Simon and Frank Cole, who were Directors of
the Company, loaned $50,000 to the Company. On June 12, 1992, the principal
balance of these loans and accrued but unpaid interest were converted into
shares of Common Stock at a conversion price of $8.00 per share. Mr. Cole
simultaneously purchased an additional 6,250 shares at $8.00 per share. Messrs.
Simon and Cole made additional loans to the Company in 1992 and 1993 totaling
$226,010 (Mr. Simon -- $85,000 and Mr. Cole -- $141,010). The Company repaid
each lender $10,000 in 1993. The $206,010 remaining balance bore interest at 6%
per annum and was repaid from the proceeds of a private placement in 1995.
In 1993, the Company and Ms. Contente and a former officer and director
settled a derivative action brought by certain stockholders. The settlement
agreement, dated May 19, 1993 ("Settlement Agreement"), imposed certain
limitations on the composition and size of the Board of Directors until the 1995
Annual Meeting of Stockholders. As part of the Settlement Agreement, Ms.
Contente resigned as Chief Executive Officer and Chairman of the Board and
agreed, for a two-year period commencing the date of the Settlement Agreement,
not to serve in such capacities or be responsible for overseeing the Company's
daily management or operation.
In December 1993, January 1994 and September 1994, the Company issued
promissory notes aggregating $476,679 to certain former officers for accrued but
unpaid salaries. The notes are for terms of two to three years and bear interest
at 6% and 10% per annum. Certain of these notes in the principal amount of
$255,646 were repaid upon completion of the IPO. In January 1995, the Company
issued two promissory notes to Audrey Contente, each with a principal amount of
$156,771.56 and a maturity date of September 30, 1996. Both notes were repaid
upon the consummation of the IPO.
On April 14, 1994, a majority of the stockholders, acting by written consent
in lieu of a meeting, removed certain of the directors (including Mr. Broms),
but not Ms. Contente and Barrie Zesiger, from the Board of Directors and
appointed six members of the Board to serve until April 14, 1995 or when their
successors were elected.
During 1994, the Company borrowed a total of $135,000 from nine individuals,
including four current Directors. The loans require payment of 10% interest per
annum until maturity. Each lender was granted (i) the option of receiving, in
lieu of the repayment of interest and principal, 1,875 shares of Common Stock at
a price of $8.00 per share and (ii) warrants to purchase 375 shares of Common
Stock at an exercise price of $10.00 per share for a five-year period expiring
on June 30, 1999. As of June 30, 1995, all of the nine individuals had converted
their loans into shares of Common Stock.
Charles D. Peebler, Jr., a member of the Board of Directors of the Company,
is the President and Chief Executive Officer, as well as a Director, of BJK&E, a
worldwide marketing and communications company. The Company has retained Bozell
Worldwide, Inc. ("Bozell"), a wholly-owned subsidiary of BJK&E, to assist in
marketing, advertising creative work and media planning for the Company. In
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<PAGE>
March 1996, the Company issued a five year warrant to purchase 50,000 shares of
Common Stock to Bozell. The warrant has an exercise price of $10.00 per share
and was issued in consideration of certain services provided in connection with
the launch of INSTEAD-TM-.
The Company has retained Bozell Sawyer Miller ("BSM"), a communications
management concern and a wholly-owned subsidiary of Bozell, to act as a
consultant for the Company's corporate communications and financial public
relations work, for which the Company will pay hourly fees and out-of-pocket
expenses. KRC Research and Consulting, a division of BSM, has performed consumer
research on INSTEAD-TM-. The Company believes that transactions entered into
with Bozell and its subsidiaries and divisions are on terms which are at least
as favorable as those which the Company could have obtained from an unrelated
third party.
One of the Company's directors is a partner of Shereff, Friedman, Hoffman &
Goodman, LLP, a law firm which the Company has retained since fiscal year 1995.
The total amount of fees paid to such firm by the Company in fiscal year 1996
was $647,000 and in fiscal year 1995 was $29,888. SFH&G Investors, a partnership
comprised of the partners of Shereff, Friedman, Hoffman & Goodman, LLP, holds a
warrant to purchase an aggregate of 35,000 shares of Common Stock. See "Legal
Matters."
PRIOR FINANCINGS
In January 1996, the Company raised $100,000 through a private placement to
a single investor of a $100,000 non-convertible promissory note due the earlier
of January 26, 1997 or the closing of the IPO, bearing interest at a rate of 10%
per annum and a Class C Warrant to purchase 20,000 shares of Common Stock at an
exercise price of $8.00 per share. The Class C Warrant is not exercisable until
the first anniversary of the date of issuance and has a term of five years. The
non-convertible note was repaid upon completion of the IPO.
In a 1995 private placement (the "1995 Unit Private Placement"), the Company
raised $5,950,000 through the sale of Units. Each "Unit" consisted of one
$50,000 non-convertible promissory note bearing interest of 10% per annum, one
$50,000 convertible promissory note bearing interest of 10% per annum, one Class
A Warrant to purchase 10,000 shares of Common Stock at a purchase price equal to
$5.00 per share and one Class B Warrant to purchase 10,000 shares of Common
Stock at a purchase price equal to $12.50 per share. Certain investors in a
previous private placement consummated in 1993 (the "Existing Investors") agreed
to amend and restate their promissory notes and invest the principal amount of
such notes in the amount of $1,650,000 in the 1995 Unit Private Placement. Other
Existing Investors were paid principal and interest aggregating $222,577 from
the proceeds of the 1995 Unit Private Placement. The non-convertible notes were
repaid upon the completion of the IPO, and the convertible notes mature in April
1997. On December 31, 1995 certain Existing Investors were issued warrants to
purchase an additional aggregate of 165,000 shares of Common Stock because the
secured notes which they held were not paid; such warrants contain the same
terms as the Class A Warrants.
In early calendar year 1995, the Company raised $670,000 through a private
placement sale of units (the "1995 Preferred Stock Private Placement"). Each
unit consisted of (i) 1,950 shares of Series A Preferred Stock, for an allocated
purchase price of $195,000, with each such share (a) being convertible, at any
time at the option of the holder, into Common Stock of the Company at a
conversion rate of 12.5 shares of Common Stock for each such share, subject to
adjustment for certain dilutive events, (b) being entitled to cumulative annual
dividends of $8.00, (c) participating with the Common Stock in any dividend
after payment of said $8.00, (d) having a liquidation preference of $100.00 and
(e) being entitled to the number of votes equal to the number of shares of
Common Stock into which such share can be converted, and (ii) a warrant,
exercisable for a five year period, to purchase 21,250 shares of Common Stock at
an exercise price of $10.00 per share, subject to adjustment for certain
dilutive events for an allocated purchase price of $5,000. The Company sold 2.25
units to a group of investors represented by a common advisor for $450,000 on
the same terms and conditions as the 1995 Preferred Stock Private Placement,
except for certain registration rights.
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In March 1995, the Company issued to certain trade creditors notes in the
total principal amount of $444,237. The notes bear interest at 10% per annum and
mature in September 1996, December 1996 and February 1997. Notes in the
principal amount of $37,500 were repaid with accrued interest from the proceeds
of the 1995 Unit Private Placement, and notes in the principal amount of $42,000
were repaid upon the completion of the IPO. Subsequent to the IPO, the Company
repaid the principal amount of $364,737 and interest of $9,118 of such notes.
In 1994, the Company borrowed a total of $135,000 from nine individuals,
including four current directors. The loans bear interest at the rate of 10%
interest per annum and were to mature upon the earlier to occur of (i) the date
the Company receives $600,000 of financing or (ii) 180 days from the date of
issuance of the loan. Each lender was granted (i) the option of receiving, in
lieu of the repayment of interest and principal, 1,875 shares of Common Stock at
a conversion price of $8.00 per share and (ii) warrants to purchase 375 shares
of Common Stock at an exercise price of $10.00 per share exercisable for a five
year period expiring on June 30, 1999. As of June 30, 1995, all of the nine
individuals had converted their loans to Common Stock.
In a 1994 private placement, the Company raised $450,000 through the sale of
units, composed in the aggregate of (i) $225,000 in subordinated convertible
debentures, (ii) five year warrants to purchase 47,813 shares of Common Stock at
an exercise price of $10.00 per share, and (iii) 28,125 shares of Common Stock
at $8.00 per share. Each debenture had a face amount of $100,000 and was sold
for an allocated purchase price of $95,000. The debentures accrue interest at
the rate of 10% per annum (compounded annually), and mature on the earlier to
occur of (i) August 31, 1996, or (ii) at the option of the holder, the date the
Company successfully effects any single financing in excess of $10 million. Each
debenture is convertible into shares of Common Stock at a conversion price of
$10.00 per share, subject to adjustment upon the occurrence of certain events
such as stock dividends, stock splits and recapitalizations. Holders of shares
of Common Stock acquired upon conversion of these debentures have certain
registration rights.
In October and November 1994, the Company issued to certain trade creditors
subordinated convertible debentures for an aggregate principal amount of
$172,432. Such debentures have a two year term, bear interest at 10% per annum
and are convertible into Common Stock at a conversion price of $10.00 per share.
In a 1993 private placement, the Company issued (i) $1.85 million of secured
promissory notes and (ii) warrants to purchase 370,000 shares of Common Stock at
an initial exercise price equal to $9.00 per share. These secured promissory
notes were reinvested by certain Existing Investors in the 1995 Unit Private
Placement described above.
Between December 1991 and October 1992, the Company borrowed an aggregate of
$700,000 from the Montana Board of Science and Technology Development ("MBSTD")
evidenced by convertible debentures which bear interest at the rate of 10.5% per
annum (compounded annually), of which $350,000 was borrowed to fund expenditures
relating to the Company's manufacturing facility in Montana (the foregoing loans
are collectively referred to as the "MBSTD Loans"). The MBSTD Loans are
convertible into shares of Common Stock at a conversion price of $5.00 per
share, with accrued interest being waived upon conversion. The conversion price
is subject to adjustment if the Company issues shares of Common Stock or
convertible securities at a price less than $5.00 per share. MBSTD was also
granted certain "piggy-back" registration rights. Principal amounts on the MBSTD
Loans are due as follows: $250,000 on December 20, 1998; $100,000 on April 10,
1999; and $350,000 on October 19, 1999, along with related accrued interest.
In late 1991 the Company sold an aggregate of 200,000 shares of Common Stock
for an aggregate purchase price of $1,200,000. During 1991, the Company sold an
additional 318,500 shares of Common Stock for an aggregate purchase price of
$2,548,000. In 1990 the Company issued 132,500 shares of Common Stock to certain
investors for an aggregate purchase price of $530,000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred
Stock, par value $.001 per share.
COMMON STOCK
As of August 31, 1996, there were 5,889,501 shares of Common Stock
outstanding held of record by 183 persons.
Holders of shares of Common Stock are entitled to one vote per share,
without cumulative voting, on all matters to be voted on by stockholders.
Therefore, the holders of more than 50% of the shares voting for the election of
directors can elect all the Directors. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a liquidation
or dissolution of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding preferred stock. Holders of shares of Common
Stock, as such, have no conversion, preemptive or other subscription rights, and
there are no redemption provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby, when issued against the consideration set forth in this Prospectus, will
be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of the Preferred Stock,
none of which shares are outstanding as of August 31, 1996. The Board of
Directors of the Company has the authority at any time and from time to time to
establish and designate one or more series of preferred stock, to fix the number
of shares of any series (which number may vary between series) and to fix the
dividend rights and preferences, the redemption price (if any) and terms,
liquidation rights, sinking fund provisions (if any), conversion provisions (if
any) and the voting powers (if any). The Board of Directors, without stockholder
approval, could issue preferred stock with voting and conversion rights that
could adversely affect the voting power of holders of the Common Stock. Certain
companies have used the issuance of preferred stock as an anti-takeover device,
and the Board of Directors of the Company could, without stockholder approval,
issue preferred stock with certain voting, conversion and/or redemption rights
that could discourage any attempt to obtain control of the Company in a
transaction not approved by the Board of Directors. The Board of Directors has
authorized the issuance of 48,750 shares of Series A Preferred Stock and
previously issued 6,532.5 shares of Series A Preferred Stock. As of August 31,
1996 all issued and outstanding shares of Series A Preferred Stock had been
converted into Common Stock. The rights, preferences, privileges, restrictions
and other matters relating to such shares as follows:
DIVIDENDS. Each share of Series A Preferred Stock is entitled to receive
cumulative dividends at an annual rate of $8.00 per share. Upon conversion into
Common Stock, all cumulative dividends in arrears will be forfeited. Holders of
Series A Preferred Stock are entitled to receive such cumulative annual
dividends prior to the payment of any dividend in respect of the Common Stock
(the "Series A Preferred Stock Dividend Preference"). If the Series A Preferred
Stock Dividend Preference is not either fully paid or declared, then no
distribution shall be made on any Common Stock (although the arrearage shall
accumulate) and the Company will not redeem or purchase any Common Stock or make
monies available for a sinking fund for the redemption or purchase of any Common
Stock. Holders of Series A Preferred Stock are entitled to share in any dividend
after payment of the Series A Preferred Stock Dividend Preference in the
proportion that the number of Series A Preferred Stock outstanding bears to the
total number of all shares outstanding (whether preferred stock or Common
Stock), treating such holders as if they had converted such Series A Preferred
Stock into Common Stock.
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LIQUIDATION PREFERENCE. Upon reducing the Company's capital (which results
in a distribution of assets) or upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company (collectively, a "Liquidating Event"),
the holders of the Series A Preferred Stock shall be entitled to receive, before
any distribution of assets to the holders of the Common Stock, a liquidation
preference (the "Series A Preferred Stock Liquidation Preference"). For each
outstanding share of Series A Preferred Stock, the Series A Preferred Stock
Liquidation Preference shall be equal to the sum of (i) One Hundred Dollars
($100.00) and (ii) any unpaid Series A Preferred Stock Dividend Preference. The
Series A Preferred Stock Dividend Preference shall be paid after the Series A
Preferred Stock Liquidation Preference, and the Series A Preferred Stock
Liquidation Preference shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the number of shares owned by each
holder of such stock. After payment of the Series A Preferred Stock Liquidation
Preference, the Company's assets available for distribution shall be distributed
among the holders of Series A Preferred Stock and Common Stock PRO RATA, based
on the number of shares of stock held by each, treating such holders of Series A
Preferred Stock as if they had converted such stock into Common Stock
immediately before such distribution. If, upon any Liquidating Event, the
amounts payable with respect to the Series A Preferred Stock and any other stock
of the Company ranking as to any such distribution on a parity with the Series A
Preferred Stock are not paid in full, the holders of the Series A Preferred
Stock and such parity stock shall share ratably in any such distribution of
assets of the Company in proportion to the full preferential amounts to which
they are entitled.
VOTING. In general, the holder of each share of the Series A Preferred
Stock shall (i) be entitled to the number of votes equal to the number of shares
of Common Stock into which such share of Series A Preferred Stock could be
converted on the record date for the vote or the date of the solicitation of any
written consent of stockholders, (ii) have voting rights and powers equal to the
voting rights and powers of the Common Stock and (iii) be entitled to notice of
any stockholders' meeting in accordance with the By-Laws of the Company.
Fractional votes shall not, however, be permitted.
RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at any time at the option of the holder, into shares of Common
Stock at a conversion rate equal to the quotient obtained by dividing One
Hundred Dollars ($100.00) by a conversion price, initially equal to $8.00 per
share (the "Conversion Price"). The Conversion Price shall be adjusted from time
to time to protect against dilution. No fractional share shall be issued upon
the conversion of any share or shares of Series A Preferred Stock. See "--
Anti-Dilution" below.
ANTI-DILUTION. If the Company issues any shares of Common Stock or
convertible preferred stock, or rights to purchase Common Stock, warrants,
options, other rights or other securities (to the extent such other rights or
securities are convertible into or exchangeable or exercisable for shares of
Common Stock) for consideration per share less than the prevailing Conversion
Price, then the Conversion Price in effect immediately before such issuance
shall be adjusted to a price equal to the consideration per share received by
the Company. If the number of shares of Common Stock outstanding is increased by
a Common Stock dividend or by subdivision or split-up of Common Stock, then the
Conversion Price shall be appropriately decreased in proportion to such increase
in outstanding shares. If the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock, then the
Conversion Price shall be appropriately increased in proportion to such decrease
in outstanding shares.
If there is any reorganization, reclassification, consolidation or merger
(including a merger in which the Company is the surviving entity) of the
Company, then each share of Series A Preferred Stock shall (in lieu of being
exercisable for shares of Common Stock), after such reorganization,
reclassification, consolidation or merger, be exercisable into the kind and
number of shares of stock or other securities or property (including cash) of
the Company or of the corporation resulting from such consolidation or surviving
such merger to which the holder of the number of shares of Common Stock
deliverable (immediately before the time of such reorganization,
reclassification, consolidation or merger) upon conversion of such Series A
Preferred Stock would have been entitled upon such reorganization,
reclassification, consolidation or merger.
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AUTOMATIC CONVERSION. Each share of Series A Preferred Stock shall
automatically convert into shares of Common Stock immediately upon (i) the
closing of the sale of the Common Stock in a firm commitment, underwritten
public offering registered under the Securities Act (other than a registration
relating solely to a transaction under Rule 145 thereunder or to an employee
benefit plan), at a public offering price equal to or exceeding $20.00 per share
of Common Stock (appropriately adjusted for any recapitalization) and the
aggregate net proceeds to the Company (before deduction for underwriters'
commissions and expenses relating to the issuance, including without limitation
fees of the Company's counsel) of which equal or exceed $15.0 million or (ii)
receipt by the Company of the affirmative vote, at a duly noticed stockholders'
meeting or pursuant to a duly solicited written consent of approval of the
holders of at least a majority of the outstanding shares of the Series A
Preferred Stock voting together as a single class, in favor of converting all of
the Series A Preferred Stock into Common Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). Section 203 provides, with certain exceptions,
that a Delaware corporation may not engage in certain business combinations with
a person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless: (i) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the business combination, is
approved by the Board of Directors of the Company before the person becomes an
interested stockholder; (ii) the interested stockholder acquires 85% or more of
the outstanding voting stock of the Company in the same transaction which makes
it an interested stockholder (excluding certain employee stock option plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the Company's board of directors and by the
holders of at least 66 2/3% of the Company's outstanding voting stock at an
annual or special meeting, excluding shares owned by the interested stockholder.
An "interested stockholder" is defined as any person that is (x) the owner of
15% or more of the outstanding voting stock of the Company or (y) an affiliate
or associate of the Company and was the owner of 15% or more of the outstanding
voting stock of the Company at any time within the three year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder.
DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation contains provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty (other than breaches of the duty
of loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL, for any transaction from which the director derived an improper personal
benefit or any act or omission occurring prior to the date when the provision
became effective) and (ii) indemnify its directors and officers to the fullest
extent permitted by Section 145 of the DGCL, including circumstances in which
indemnification is otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
The Company's Restated Certificate of Incorporation and Amended and Restated
By-Laws contain several provisions that may be deemed to have the effect of
making more difficult the acquisition of control of the Company by means of a
hostile tender offer, open market purchases, a proxy contest or otherwise. The
provisions of the Restated Certificate of Incorporation and the Amended and
Restated By-Laws discussed below are designed to help to ensure that holders of
Common Stock are treated fairly and equally in a multistep acquisition. In
addition, they are intended to encourage persons seeking to acquire control of
the Company to initiate such an acquisition through arm's-length negotiations
with the Company's Board of Directors.
CLASSIFIED BOARD OF DIRECTORS. The Company's Restated Certificate of
Incorporation provides that the Board of Directors shall be divided into three
classes of directors serving staggered terms.
54
<PAGE>
One class of directors will be elected at each annual meeting of stockholders
for a three-year term. See "Management -- Classified Board of Directors." Thus,
at least two annual meetings of stockholders, instead of one, generally will be
required to change the majority of the Company's Board of Directors. This may
have the effect of making it more difficult to acquire control of the Company by
means of a hostile tender offer, open market purchases, a proxy contest or
otherwise.
STOCKHOLDER MEETINGS. Subject only to the rights of holders of preferred
stock, only a majority of the Company's Board of Directors, the Chairman, the
President or Chief Executive Officer will be able to call an annual meeting of
stockholders and only a majority of the Company's Board of Directors, by
majority vote, or the Chairman, the President or the Chief Executive Officer,
will be able to call a special meeting of stockholders. In addition, subject
only to the rights of holders of preferred stock, stockholders may not take any
action by written consent.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The Company's Restated
Certificate of Incorporation provides that certain business combinations such as
mergers and stock and assets sales, with an interested stockholder (typically a
beneficial owner of more than 15% of the outstanding voting shares of the
Company's capital stock, excluding certain persons), be approved by (a) the
holders of 75% of the voting power of the then outstanding voting shares, voting
together as a single class, and (b) at least a majority of the voting power of
the then outstanding voting shares, voting as a single class, which are not
owned beneficially, directly or indirectly, by the interested stockholder,
unless the transaction is approved by a majority of certain directors or meets
certain fair price provisions.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. The Company's Restated Certificate of Incorporation establishes
advance notice procedures with regard to stockholder nominations, other than by
or at the direction of the Board of Directors, of candidates for election as
directors. The Amended and Restated By-Laws establishes advance notice
procedures with regard to stockholder proposals other than by or at the
direction of the Board of Directors of business to be brought before a meeting.
VOTE REQUIRED TO AMEND OR REPEAL CERTAIN PROVISIONS OF THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS. The
Company's Restated Certificate of Incorporation establishes certain super
majority voting requirements to amend or repeal certain provisions of the
Company's Restated Certificate of Incorporation and Amended and Restated
By-Laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 8,889,501 shares of
Common Stock outstanding (9,339,501 shares if the Underwriters' over-allotment
option is exercised in full). In addition, as of August 31, 1996, there has been
reserved 5,047,753 shares of Common Stock for issuance upon the conversion or
exercise of outstanding securities. The 3,000,000 shares of Common Stock to be
sold in the Offering (3,450,000 shares if the Underwriters' over-allotment
option is exercised in full), other than shares which may be purchased by
"affiliates" of the Company, will be freely tradeable without restriction or
further registration under the Securities Act. The 3,910,000 shares of Common
Stock sold in the IPO, other than shares which were purchased by affiliates of
the Company, are also freely tradable without restriction under the Securities
Act. In addition, an aggregate of 1,073,450 shares of Common Stock which are
outstanding and 3,227,853 shares of Common Stock which are issuable upon the
conversion or exercise of outstanding securities are registered in the
Concurrent Offering. The Company intends to file a Registration Statement on
Form S-8 with respect to up to 1,805,963 shares of Common Stock issuable
pursuant to its stock option plans and certain options and warrants which have
been granted to employees and consultants of the Company as soon as practicable
after the date of this Prospectus; such Registration Statement would include
1,344,157 shares of Common Stock issuable upon conversion or exercise of
outstanding securities of the Company. Approximately 1,381,794 of the remaining
shares of Common Stock outstanding and issuable upon conversion or exercise of
outstanding securities would be "restricted securities," as that term is defined
under Rule 144, and may only be sold pursuant to a registration statement under
the Securities Act or an applicable exemption from the registration requirements
of the Securities Act, including Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least two years from the later of the date such
restricted shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (88,895 shares based on the number of shares
to be outstanding immediately after the Offering or 121,174 shares assuming all
of the shares offered in the Concurrent Offering are issued), or the average
weekly trading volume in the public market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission (the "Commission"). Sales under Rule 144 are also subject to
certain requirements as to the manner and notice of sale and the availability of
public information concerning the Company.
Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two year holding period. Restricted shares held by affiliates of the
Company eligible for sale in the public market under Rule 144 are subject to the
foregoing volume limitations and other restrictions. Further, under Rule 144(k),
if a period of at least three years has elapsed between the later of the date
restricted shares were acquired from the Company and the date they were acquired
from an affiliate of the Company, and the person was not an affiliate for at
least three months prior to the sale, such person would be entitled to sell the
shares immediately without regard to volume limitations and the other conditions
described above. The Commission has proposed to amend the holding period of
restricted securities being sold in reliance on Rule 144 to (i) a one year
holding period rather than a two year holding period for resales of restricted
securities by affiliates or non-affiliates which comply with the volume
limitations and the other conditions described above, and (ii) a two year
holding period rather than a three year holding period for resales by
non-affiliates which, in reliance on Rule 144(k), do not comply with the volume
limitations and the other conditions described above.
In addition, as of August 31, 1996 the Company had outstanding securities
which are exercisable for or convertible into an aggregate of 5,047,753 shares
of Common Stock at a weighted average exercise/conversion price of $7.99. Of
such shares, 4,194,425 are subject to lock-up agreements.
56
<PAGE>
All officers, directors and certain security holders, agreed with Hampshire
in connection with the IPO not to, directly or indirectly, offer, sell, contract
to sell or otherwise dispose of their shares of Common Stock or other securities
of the Company, without the prior written consent of Hampshire prior to August
22, 1997. Hampshire has agreed with Jefferies not to release any of such
security holders from the contractual restriction without the prior written
consent of Jefferies. The Company has, subject to certain exceptions, agreed not
to offer, issue or sell any shares of Common Stock or securities exercisable for
or convertible into shares of Common Stock for a 180 day period after the date
of this Prospectus without the prior written consent of Jefferies. No
predictions can be made as to the effect, if any, that market sales of shares of
existing stockholders or the availability of such shares for future sale will
have on the market price of shares of Common Stock prevailing from time to time.
The prevailing market price of Common Stock after the Offering could be
adversely affected by future sales of substantial amounts of Common Stock by
existing stockholders.
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell an aggregate of 3,000,000 shares of Common Stock
to the Underwriters named below (the "Underwriters"), for whom Jefferies &
Company, Inc. and Hampshire Securities Corporation are acting as the
representatives (the "Representatives"), and the Underwriters have severally
agreed to purchase, the number of shares of Common Stock set forth opposite
their respective names in the table below at the price set forth on the cover
page of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Jefferies & Company, Inc...................................................
Hampshire Securities Corporation...........................................
-----------------
Total.................................................................. 3,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriters
to purchase the shares of Common Stock is subject to certain conditions. The
Underwriters are committed to purchase all of the shares of the Common Stock
(other than those covered by the over-allotment option described below), if any
are purchased.
The Underwriters propose to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share to certain other dealers. After the
Offering, the public offering price, the concession to selected dealers and the
reallowance to other dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 450,000 additional
shares of Common Stock at the public offering price less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase additional shares of
Common Stock proportionate to such Underwriter's initial commitment as indicated
in the preceding table. The Underwriters may exercise such right of purchase
only for the purpose of covering over-allotments, if any, made in connection
with the sale of the shares of Common Stock.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company has agreed with the Underwriters not to offer, issue or sell any
shares of Common Stock or securities exercisable for or convertible into shares
of Common Stock for a period of 180 days from the date of this Prospectus,
subject to certain limited exceptions, without the prior written consent of
Jefferies. In connection with the IPO, certain holders of Common Stock owning an
aggregate of 4,831,305 shares, including all of the officers and directors of
the Company, agreed not to publicly sell or otherwise dispose of their shares of
Common Stock, securities of the Company convertible into, or exercisable or
exchangeable for, shares of Common Stock, or shares of Common Stock received
upon conversion, exercise, or exchange of such securities, without the prior
consent of Hampshire until August 22, 1997. Hampshire has agreed with Jefferies
not to release any of such security holders from the contractual restriction
without the prior written consent of Jefferies. See "Risk Factors -- Substantial
Amount of Shares Eligible For Future Sale; Potential Adverse Effect on Market
Price of Common Stock."
Certain of the Underwriters and selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock on the Nasdaq Stock Market in accordance with Rule 10b-6A under the
Exchange Act. Rule 10b-6A permits, upon the
58
<PAGE>
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also market makers in the security
being distributed to engage in limited market making transactions during the
period when Rule 10b-6 under the Exchange Act would otherwise prohibit such
activity. Rule 10b-6A prohibits underwriters and selling group members engaged
in passive market making generally from entering a bid or effecting a purchase
at a price that exceeds the highest bid for those securities on the Nasdaq Stock
Market by a market maker that is not participating in the distribution. Under
Rule 10b-6A each underwriter or selling group member engaged in passive market
making is subject to a daily net purchase limitation equal to 30% of such
entity's average daily trading volume during the two full consecutive calendar
months immediately preceding the date of the filing of the registration
statement under the Securities Act pertaining to the security to be distributed.
OTHER MATTERS RELATING TO HAMPSHIRE
Hampshire acted as the placement agent in connection with the 1995 Unit
Private Placement and received a $539,482 commission and reimbursement of
certain expenses in connection with such offering. As of August 31, 1996,
persons associated with Hampshire or related thereto own an aggregate of
$175,000 principal amount of the notes and warrants to purchase up to 105,000
shares of Common Stock.
Hampshire acted as representative of the underwriters in connection with the
IPO and received commissions of approximately $3,128,000 and reimbursement of
certain expenses in connection with the offering, as well as a 2%
non-accountable expense allowance and warrants to purchase an aggregate of
327,500 shares of Common Stock at an exercise price of $16.50 per share.
In connection with the IPO, the Company agreed that, for the three year
period commencing on February 22, 1996, Hampshire has the right to appoint a
designee as an observer at all meetings of the Company's Board of Directors.
This designee has the right to attend all meetings of the Board of Directors and
shall be entitled to receive reimbursement for all out-of-pocket expenses of
attendance at such meetings. In addition, such designee shall be indemnified and
insured to the same extent as the Company's directors. The shares of Common
Stock issuable upon exercise of the warrant which Hampshire received in
connection with the IPO are registered in the Concurrent Offering.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Shereff,
Friedman, Hoffman & Goodman, LLP, New York, New York, and for the Underwriters
by Fulbright & Jaworski L.L.P., New York, New York. Mr. Nussbaum, a Director of
the Company, is a member of Shereff, Friedman, Hoffman & Goodman, LLP, New York,
New York. See "Principal Stockholders" and "Certain Relationships and Related
Party Transactions."
EXPERTS
The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
59
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza Building, 450 Fifth Street,
N.W., Washington, DC 20549, or at the Commission's regional offices:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York 19948.
The Common Stock is traded on the Nasdaq National Market and reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is made
to such Registration Statement and exhibits. A copy of the Registration
Statement on file with the Commission may be obtained from the Commission's
principal office in Washington, D.C., upon payment of the fees prescribed by the
Commission.
Copies of the Registration Statement may be obtained from the Commission at
its principal office upon payment of prescribed fees. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, where the contract or other document has been filed as
an exhibit to the Registration Statement, each such statement is qualified in
all respects by reference to the applicable document filed with the Commission.
The Registration Statement of which this Prospectus forms a part has been filed
electronically through the Commission's Electronic Data Gathering Analysis and
Retrieval System and may be obtained through the Commission's website on the
Internet (http://www.sec.gov).
60
<PAGE>
ULTRAFEM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' (Deficiency) Equity............................................................ F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of
Ultrafem, Inc.:
We have audited the accompanying balance sheets of Ultrafem, Inc. (A
Development Stage Company) (the "Company") as of June 30, 1996 and 1995, and the
related statements of operations, stockholders' (deficiency) equity, and cash
flows for each of the three years in the period ended June 30, 1996 and for the
period March 22, 1990 (Date of Formation) through June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended June 30, 1996 and for the period March 22, 1990 (Date of
Formation) through June 30, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
August 12, 1996 (August 27, 1996 as to Note 12)
F-2
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
<S> <C> <C>
1995 1996
--------------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 73,390 $ 24,510,071
Inventory.................................................................... -- 266,951
Prepaid expenses and other current assets.................................... 10,714 609,503
--------------- ---------------
Total Current Assets..................................................... 84,104 25,386,525
Property and equipment -- net.................................................. 302,719 2,875,153
Other assets -- net............................................................ 380,136 1,146,258
--------------- ---------------
Total Assets............................................................. $ 766,959 $ 29,407,936
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current Liabilities:
Short-term debt.............................................................. $ 530,549 $ --
Current portion -- long-term debt............................................ 293,389 3,442,013
Accounts payable............................................................. 327,881 893,548
Accrued interest............................................................. 638,315 724,932
Accrued salaries............................................................. 391,534 1,426,093
Other accrued liabilities.................................................... 564,578 937,406
--------------- ---------------
Total Current Liabilities................................................ 2,746,246 7,423,992
Long-term debt................................................................. 4,032,493 700,000
--------------- ---------------
Total Liabilities........................................................ 6,778,739 8,123,992
--------------- ---------------
Stockholders' (Deficiency) Equity:
Preferred stock, $.001 par value -- authorized, 5,000,000 shares $8
cumulative Convertible Series A: issued and outstanding 6,532.5 and 1,121.25
shares stated at liquidation preference of $653,250 and $112,125............ 653,250 112,125
Common Stock, $.001 par value -- authorized 20,000,000 shares; outstanding
1,389,412, and 5,737,241 shares, respectively............................... 5,558 9,905
Additional paid-in capital................................................... 4,555,215 42,207,697
Deficit accumulated during development stage................................. (11,225,803) (21,045,783)
--------------- ---------------
Total Stockholders' (Deficiency) Equity.................................. (6,011,780) 21,283,944
--------------- ---------------
Total Liabilities and Stockholders' (Deficiency) Equity.................. $ 766,959 $ 29,407,936
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD MARCH 22,
YEAR ENDED JUNE 30, 1990 (DATE OF
------------------------------------------- FORMATION) THROUGH
1994 1995 1996 JUNE 30, 1996
------------- ------------- ------------- --------------------
<S> <C> <C> <C> <C>
General and administrative expense............ $ 1,387,784 $ 1,568,442 $ 7,501,538 $ 14,187,693
Research and development...................... 452,552 181,475 1,403,557 4,703,885
Interest expense.............................. 336,732 464,615 665,381 1,542,267
Interest income............................... -- -- (489,379) (489,379)
Depreciation and amortization................. 126,872 166,533 738,883 1,101,317
------------- ------------- ------------- --------------------
Net loss...................................... $ 2,303,940 $ 2,381,065 $ 9,819,980 $ 21,045,783
------------- ------------- ------------- --------------------
------------- ------------- ------------- --------------------
Net loss per share............................ $ 0.87 $ 0.87 $ 2.74 --
------------- ------------- ------------- --------------------
------------- ------------- ------------- --------------------
Weighted average number of common shares and
equivalents outstanding 2,658,214 2,698,152 3,529,494 --
------------- ------------- ------------- --------------------
------------- ------------- ------------- --------------------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
DEFICIT
PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DURING THE
CONVERTIBLE ----------------------- PAID-IN DEVELOPMENT
SERIES A SHARES AMOUNT CAPITAL STAGE TOTAL
----------- ------------ --------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Original Capitalization:
Initial issuance of stock ($0.228 to
$1.776 per share)...................... 98,750 $ 395 $ 39,605 $ -- $ 40,000
Issuance of stock for technology (valued
at $0.00).............................. 526,250 2,105 (2,105) -- --
Sales of stock (from $3.00 to $4.00 per
share)................................. 142,500 570 559,430 -- 560,000
Net loss from date of formation (March
22, 1990) to June 30, 1991............. -- -- -- (617,359) (617,359)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1991.................... 767,500 3,070 596,930 (617,359) (17,359)
Stock warrants exercised ($.004 per
share)................................. 18,750 75 -- -- 75
Sales of stock (from $3.00 to $8.00 per
share) net of costs of $416,346........ 462,562 1,850 2,882,304 -- 2,884,154
Issuances of stock for consulting
services (valued at $4.00 per share)... 500 2 3,998 -- 4,000
Net loss................................ -- -- -- (3,831,536) (3,831,536)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1992.................... 1,249,312 4,997 3,483,232 (4,448,895) (960,666)
Sales of stock ($8.00 per share) net of
costs of $29,226....................... 56,000 224 418,550 -- 418,774
Issuance of stock for consulting
services (valued at $8.00 per share)... 7,500 30 59,970 -- 60,000
Net loss................................ -- -- -- (2,091,903) (2,091,903)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1993.................... 1,312,812 5,251 3,961,752 (6,540,798) (2,573,795)
Issuance of stock for consulting
services (valued at $8.00 per share)... 1,500 6 11,994 -- 12,000
Issuance of options and warrants (valued
at $.23529 per option and warrant)..... -- -- 132,021 -- 132,021
Net loss................................ -- -- -- (2,303,940) (2,303,940)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1994.................... 1,314,312 5,257 4,105,767 (8,844,738) (4,733,714)
Sales of stock ($8.00 per share) net of
costs of $74,720....................... 28,125 113 150,167 -- 150,280
Issuance of stock warrants ($.23529 per
warrant)............................... -- -- 28,000 -- 28,000
Issuance of stock for consulting and
other services (valued at $8.00 to
$15.66 per share)...................... 30,100 120 221,660 -- 221,780
Conversion of convertible debt.......... 16,875 68 134,932 -- 135,000
Sales of Series A Preferred Stock ($100
per share) net of costs of $100,505.... $ 653,250 -- -- (100,505) -- 552,745
Issuance of options and warrants (valued
at $.23529 per option and warrant)..... -- -- -- 15,194 -- 15,194
Net loss................................ -- -- -- -- (2,381,065) (2,381,065)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1995.................... 653,250 1,389,412 5,558 4,555,215 (11,225,803) (6,011,780)
Sales of stock ($10.00 per share) net of
costs of $5,014,389.................... -- 3,910,000 3,910 34,081,701 -- 34,085,611
Exercise of stock options and
warrants............................... -- 298,104 298 1,869,224 -- 1,869,522
Sale of warrants........................ -- -- -- 527 -- 527
Issuance of options and warrants........ -- -- -- 945,044 -- 945,044
Conversion of preferred stock to common
stock ($5.00 per share)................ (541,125) 108,225 108 541,017 -- --
Conversion of convertible debt ($5 to
$10 per share)......................... 31,500 31 214,969 215,000
Net loss................................ -- -- -- -- (9,819,980) (9,819,980)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1996.................... $ 112,125 5,737,241 $ 9,905 $ 42,207,697 $ (21,045,783) $ 21,283,944
----------- ------------ --------- ------------- -------------- -------------
----------- ------------ --------- ------------- -------------- -------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD MARCH 22,
1990
YEAR ENDED JUNE 30, (DATE OF FORMATION)
------------------------------------------ THROUGH
1994 1995 1996 JUNE 30, 1996
------------ ------------ -------------- --------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (2,303,940) $ (2,381,065) $ (9,819,980) $ (21,045,783)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................... 61,542 62,996 79,184 272,751
Amortization principally of debt issuance costs
and patent costs.............................. 65,320 103,535 659,699 828,554
Amortization of debt discount.................. 43,578 43,480 -- 87,058
Loss on disposal of equipment.................. -- -- -- 5,598
Non-cash officers compensation................. -- -- 1,411,871 1,411,871
Non-employee stock based compensation.......... 12,000 221,780 385,044 682,824
Other non-cash items........................... 44,964 15,194 -- 60,158
Changes in operating assets and liabilities.... 311,993 1,103,808 (291,271) 3,176,577
------------ ------------ -------------- --------------------
Net Cash Used in Operating Activities........ (1,764,543) (830,272) (7,575,453) (14,520,392)
------------ ------------ -------------- --------------------
Cash flows from investing activities:
Purchase of and deposits on manufacturing equipment
and leasehold improvements........................ (23,667) (3,028) (2,651,618) (3,155,602)
Proceeds from sale of equipment.................... -- -- -- 2,100
------------ ------------ -------------- --------------------
Net Cash Used in Investing Activities........ (23,667) (3,028) (2,651,618) (3,153,502)
------------ ------------ -------------- --------------------
Cash flows from financing activities:
Proceeds from secured notes........................ 1,850,000 -- -- 1,850,000
Proceeds from issuance of subordinated convertible
debentures........................................ -- 225,000 -- 225,000
Proceeds from sale of convertible debentures....... -- -- 2,125,000 2,825,000
Proceeds from notes payable........................ -- 135,000 2,227,870 2,598,880
Proceeds from sale of preferred stock (net of
related expenses)................................. -- 552,745 -- 552,745
Proceeds from sale of common stock (net of related
expenses)......................................... -- 150,280 34,085,611 38,138,894
Proceeds from sale of options and warrants......... -- 28,000 527 28,527
Proceeds from exercise of stock options and
warrants.......................................... -- -- 1,794,054 1,794,054
Repayment of borrowings............................ (30,000) (84,800) (4,852,287) (4,967,087)
Debt Issue Costs................................... (31,500) (110,025) (717,023) (862,048)
------------ ------------ -------------- --------------------
Net Cash Provided by Financing Activities.... 1,788,500 896,200 34,663,752 42,183,965
------------ ------------ -------------- --------------------
Net Increase in Cash............................... 290 62,900 24,436,681 24,510,071
------------ ------------ -------------- --------------------
Cash and cash equivalents, beginning of period..... 10,200 10,490 73,390 --
------------ ------------ -------------- --------------------
Cash and cash equivalents, end of period........... $ 10,490 $ 73,390 $ 24,510,071 $ 24,510,071
------------ ------------ -------------- --------------------
------------ ------------ -------------- --------------------
</TABLE>
(Continued on next page)
See notes to financial statements.
F-6
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
PERIOD MARCH 22,
1990
YEAR ENDED JUNE 30, (DATE OF FORMATION)
------------------------------------------ THROUGH
1994 1995 1996 JUNE 30, 1996
------------ ------------ -------------- --------------------
<S> <C> <C> <C> <C>
Changes in operating assets and liabilities consist
of:
(Increase) decrease in prepaid expenses.. $ 51,696 $ (2,841) $ (523,322) $ (542,011)
Increase in inventory.................... -- -- (266,951) (266,951)
Increase in other assets................. (56,379) (151,272) (233,798) (629,790)
Increase in accounts payable............. 97,388 937,594 650,667 3,114,111
Increase in accrued liabilities.......... 219,288 320,327 82,133 1,501,218
------------ ------------ ------------- ------------------
$ 311,993 $ 1,103,808 $ (291,271) $ 3,176,577
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Supplementary Information:
Cash paid during the year for:
Interest............................... $ 178,170 $ 955 $ 578,764 $ 757,889
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Taxes.................................. $ 1,348 $ 1,271 $ 4,094 $ 9,383
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Non-cash financing activities:
Conversion of accounts payable and
accrued liabilities to long-term debt... $ 373,555 $ 1,586,666 $ -- $ 1,960,221
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of notes payable to common
stock................................... $ -- $ 135,000 $ -- $ 135,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Issuance of warrants in connection with
debt offering........................... $ 87,057 $ -- $ -- $ 87,057
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of secured notes and notes
payable to convertible debentures....... $ -- $ -- $ 850,000 $ 850,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of secured notes to notes
payable................................. $ -- $ -- $ 850,000 $ 850,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of convertible debt to common
stock................................... $ -- $ -- $ 215,000 $ 215,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of accounts payable to
warrants................................ $ -- $ -- $ 85,000 $ 85,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Issuance of below market value options
and warrants in connection with
professional services, licensing and
consulting agreements................... $ -- $ -- $ 860,044 $ 860,044
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of preferred stock to common
stock................................... $ -- $ -- $ 541,125 $ 541,125
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Amounts receivable from the issuance of
common stock............................ $ -- $ -- $ 75,467 $ 75,467
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Ultrafem, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on March 22, 1990 and will be engaged in the
manufacturing and sale of its proprietary feminine protection product. At June
30, 1996, principal operations had commenced, however, no revenue has been
derived therefrom; accordingly, the Company is considered a development stage
enterprise. There is no assurance that commercially successful products will be
developed nor that the Company will achieve a profitable level of operations.
USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -- Cash equivalents include short-term investments
principally in commercial paper with an original maturity of three months or
less when purchased.
CONCENTRATION OF CREDIT RISK -- The Company places its temporary cash
investments and investments with high credit quality financial institutions and
by policy, limits the amount of credit exposure with any one financial
institution.
INVENTORY -- Inventories are stated at the lower of cost (first-in,
first-out) or market and consists principally of raw materials and work in
process.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost less
accumulated depreciation. Depreciation is recorded using the straight-line
method over the estimated useful lives of the assets which are between 3 and 10
years.
LICENSING COSTS -- Licensing costs are amortized over the life of the
license, ten years, using the straight-line method.
DEBT ISSUANCE COSTS -- Debt issuance costs in connection with various debt
agreements are amortized over the lives of the promissory notes issued in
connection with such agreements.
DEBT DISCOUNT -- Debt discount in connection with the issuance of debt with
stock purchase warrants are amortized over the life of the related obligation
and is included in interest expense in the accompanying statements of
operations.
PATENT COSTS -- Patent costs are stated at cost less accumulated
amortization. Patent costs are amortized using the straight-line method over the
17-year life of the patent when obtained, or expensed if not obtained. The
carrying value of intangible assets are periodically reviewed by the Company to
ensure that impairments are recognized when the future operating cash flows
expected to be derived from such intangible assets are less than their carrying
value.
STOCK OFFERING COSTS -- Costs incurred in connection with the sale of the
Company's equity securities are recorded as a reduction of the proceeds when
received. Costs incurred prior to the receipt of proceeds from the sale of the
Company's equity securities are capitalized until the proceeds are received or
expensed if such sale is not consummated.
RESEARCH AND DEVELOPMENT COSTS -- Research and development costs are
expensed as incurred.
F-8
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVERSE STOCK SPLIT -- Effective July 28, 1995, the stockholders of the
Company approved a one-for-four reverse split of its common stock. All
references in the accompanying financial statements to the number of shares and
per share amounts have been retroactively restated to reflect this transaction.
LONG-LIVED ASSETS -- The Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," which is effective for fiscal years
beginning after December 15, 1995. The Company does not expect the effect on its
financial condition and results of operations from the adoption of this
statement to be material.
RECENTLY ISSUED ACCOUNTING STANDARD -- In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The standard encourages, but does not require, companies to
recognize compensation expense of grants for stock, stock options and other
equity instruments to employees based on fair value accounting rules. SFAS No.
123 requires companies that choose not to adopt the new fair value accounting
rules to disclose pro forma net income and earnings per share under the new
method. The standard is effective for fiscal years beginning after December 15,
1995. The Company has not yet determined if it will adopt the accounting
provisions of SFAS No. 123 or only the disclosure provision. The Company has not
determined the effect, if any, that adoption of SFAS No. 123 will have on its
results of operations. Stock-based compensation which has been issued to
non-employees has been reflected at fair value.
LOSS PER COMMON AND COMMON EQUIVALENT SHARE -- Loss per common and common
equivalent share for the years ended June 30, 1996, 1995 and 1994 was computed
using the weighted average number of common shares outstanding during each year.
The weighted average number of common shares outstanding during the first half
of fiscal year 1996, and during fiscal years 1995 and 1994 includes incremental
shares for the common stock, warrants and other potentially dilutive securities
issued and options granted to purchase common stock which were issued within one
year prior to the effective date of the Company's initial public offering (the
"Incremental Shares"). Such Incremental Shares were determined utilizing the
treasury stock method. The effect of the assumed exercise of stock options which
were issued in periods prior to the one-year period previously mentioned and the
effect of the assumed conversion of the convertible preferred stock are not
included for 1995 and 1994 because their effect is antidilutive. Loss per common
share assuming full dilution is not presented because such calculation is
antidilutive.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior year
balances in order to conform with the current year presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1996, the fair values of cash, cash equivalents, non-convertible
short-term debt and current portion of long-term debt, accounts payable, accrued
interest, accrued salaries and other accrued liabilities approximated their
carrying values because of the short-term nature of these instruments. The
estimated fair values of the convertible debt subject to fair value disclosures
was
F-9
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
determined by reference to the quoted market price of the Company's Common Stock
at June 30, 1996, multiplied by the number of common shares the debt is
convertible into, and the related carrying amounts at June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
------------- --------------
<S> <C> <C>
Convertible Debt............................................... $ 3,857,432 $ 14,679,049
------------- --------------
------------- --------------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
Machinery and equipment........................... $ 392,049 $ 1,480,205
Office furniture and equipment.................... 52,082 105,096
Laboratory equipment.............................. 49,766 49,766
Leasehold improvements............................ 762 439,172
Computer equipment................................ -- 267,970
Construction in progress.......................... -- 804,068
---------- -----------
494,659 3,146,277
Less accumulated depreciation and amortization.... (191,940) (271,124)
---------- -----------
$ 302,719 $ 2,875,153
---------- -----------
---------- -----------
</TABLE>
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
Patent and trademark costs........................ $ 164,632 $ 222,493
Debt issuance costs............................... 232,817 971,490
Deferred debt and warrant offering costs.......... 137,273 --
Deferred second offering costs.................... -- 70,000
Consulting agreement.............................. -- 275,000
Licensing agreements.............................. -- 400,000
Security deposits................................. 14,270 35,830
---------- -----------
548,992 1,974,813
Less accumulated amortization..................... (168,856) (828,555)
---------- -----------
$ 380,136 $ 1,146,258
---------- -----------
---------- -----------
</TABLE>
F-10
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Unsecured demand notes to former officers, interest
at 6% per year (b)................................ $ 206,010 $ --
Unsecured note to Johns Hopkins University, due
March, 1995, interest at 7.5% per year (c)........ 324,539 --
---------- ----------
$ 530,549 $ --
---------- ----------
---------- ----------
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Unsecured notes, due June, 1995, interest at 10% per year (a)... $ 1,850,000 $ --
Unsecured convertible notes, due April, 1997 interest at 10% per
year (a)....................................................... -- 2,875,000
Convertible debentures, due December, 1998 to October, 1999,
interest compounded annually at 10.5% per year (f)............. 700,000 700,000
Unsecured notes to former officers, due December, 1995 to
January, 1997, interest at 6% or 10% per year (b).............. 476,680 221,033
Unsecured notes to officer/shareholder, due September, 1996,
interest at 10% per year (b)................................... 313,543 --
Unsecured notes to trade and other creditors, due October, 1996
to March, 1997, interest at 9% or 10% per year (d)............. 588,227 63,548
Subordinated convertible debentures, due on demand or due
August, 1996 to November, 1996, interest at 10% per year (e)... 397,432 282,432
------------- -------------
4,325,882 4,142,013
Less current maturities......................................... (293,389) (3,442,013)
------------- -------------
$ 4,032,493 $ 700,000
------------- -------------
------------- -------------
</TABLE>
F-11
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT (CONTINUED)
Annual maturities on long-term debt as of June 30, 1996 during the next five
years are:
<TABLE>
<CAPTION>
PERIOD
ENDED
JUNE 30,
-------------
<S> <C>
1997........................................................................... $ 3,442,013
1998........................................................................... --
1999........................................................................... 350,000
2000........................................................................... 350,000
2001........................................................................... --
-------------
$ 4,142,013
-------------
-------------
</TABLE>
- ------------------------
(a) During June, 1995, the Company entered into an Agreement with an investment
banking firm, Hampshire Securities Corporation ("Hampshire") for the private
placement of securities, which closed during July, 1995 and September, 1995
(the "1995 Unit Private Placement"), in which the Company raised $5,950,000
through the sale of Units. Each "Unit" consisted of one $50,000 non-
convertible promissory note bearing interest at 10% per annum (the
"Non-Convertible Notes"), one $50,000 convertible promissory note bearing
interest at 10% per annum and which is convertible into shares of Common
Stock at a conversion price per share equal to $5.00 (the "Convertible
Notes"), one Class A Warrant to purchase 10,000 shares of Common Stock at a
purchase price per share equal to $5.00 and one Class B Warrant to purchase
10,000 shares of Common Stock at a purchase price per share equal to $12.50.
Both Class A and Class B Warrants expire five years from the date of
issuance. In June, 1996 a Convertible Note in the principal amount of
$100,000 was converted into 20,000 shares of Common Stock. Certain holders
of the Secured Notes which were issued in a 1993 private placement agreed to
amend and restate their promissory notes and invest the principal amount of
such notes in the amount of $1,650,000 in the 1995 Unit Private Placement.
On July 28, 1995, the other Existing Investors were paid their principal and
interest of $200,000 and $22,557, respectively, from the proceeds of the
1995 Unit Private Placement. In addition, through June 30, 1996, interest of
$186,281 was paid related to the $1,650,000 Secured Notes. The
Non-Convertible Notes in the amount of $2,975,000 plus interest in the
amount of $162,319 was paid on February 27, 1996.
Under the terms of the 1995 Unit Private Placement, because the holders of
the $1,650,000 Secured Notes were not paid by December 31, 1995, they were
issued additional warrants to purchase a maximum of 165,000 shares of Common
Stock at an exercise price per share equal to $5.00. Holders of 350,000
existing warrants issued under the 1993 private placement, which are
exercisable at an exercise price equal to $9 per share were extended for
three years, as the holders of the warrants agreed not to dispose of the
warrants or the underlying Common Stock prior to August 22, 1997. Hampshire
was paid $539,482 in connection with the 1995 Unit Private Placement through
September 25, 1995.
(b) Unsecured notes to former officers and an officer/stockholder of the Company
represent loans made to the Company and accrued salaries which were
converted to promissory notes. Of such unsecured notes, principal in the
amount of $725,199 plus interest in the amount of $116,039 was paid through
June 30, 1996.
F-12
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT (CONTINUED)
(c) As of June 30, 1995, the unsecured note was owed to The Johns Hopkins
University ("Johns Hopkins") by the Company under the terms of a research
and development agreement which expired June 30, 1993. $200,000 was paid on
September 7, 1995 and $124,539 plus interest of $58,999 was paid on April
19, 1996.
(d) During October, 1994 and March, 1995, the Company issued to certain trade
and other creditors unsecured notes in the principal amount of $588,227. Of
such unsecured notes, principal in the amount of $524,679 plus interest in
the amount of $24,260 was paid through June 30, 1996. As of June 30, 1996
and 1995 the Company owed a member of the Board of Directors and a principal
of ReProtect, LLC ("ReProtect") $15,099 and $30,198, respectively. During
1996, $15,099 of principal and $1,415 of interest was paid to this director.
Additionally, two other principals of ReProtect were owed $44,698 and
$89,396 at June 30, 1996 and 1995. During 1996, $44,698 of principal and
$4,188 of interest was paid to these two individuals.
(e) During October, 1994, the Company raised $450,000 through a private
placement of units composed in the aggregate of (i) $225,000 in subordinated
convertible debentures which accrues interest at 10% annually, maturing on
August 31, 1996 and convertible into 22,500 shares of Common Stock at $10.00
per share, (ii) warrants, exercisable for a five-year period, to purchase
47,813 shares of Common Stock at $10.00 per share, and (iii) 28,125 shares
of Common Stock at $8.00 per share. These shares of Common Stock, including
those issuable upon the conversion of the debentures or the exercise of the
warrants, were registered in a concurrent offering with the initial public
offering. During June, 1996 subordinated convertible debentures in the
principal amount of $95,000 were converted into 9,500 shares of Common
Stock.
In October and November, 1994, the Company issued to certain trade creditors
subordinated convertible debentures for a total principal amount of
$172,432. Each such debenture has a two-year term, bears interest at 10% per
annum and is convertible into Common Stock at $10.00 per share. During June,
1996, $20,000 was converted into 2,000 shares of Common Stock.
During 1994, the Company borrowed a total of $135,000 from nine individuals,
including four current Directors. The loans required payment of 10% interest
per annum until maturity. Each lender was granted (i) the option of
receiving, in lieu of the repayment of interest and principal, 1,875 shares
of Common Stock at a price of $8.00 per share and (ii) warrants to purchase
375 shares of Common Stock at $10.00 per share for a five-year period
expiring on June 30, 1999. As of June 30, 1995, all of the nine individuals
have converted their loans into Common Stock.
(f) Between December, 1991 and October, 1992, the Company borrowed an aggregate
of $700,000 from the Montana Board of Science and Technology Development
evidenced by convertible debentures, of which $350,000 was borrowed to fund
expenditures relating to the Company's facility in Montana. The convertible
debentures are convertible into shares of Common Stock at $5.00 per share,
with accrued interest being waived upon conversion.
In January, 1996, the Company raised an additional $100,000 through a private
placement to a single investor of a $100,000 non-convertible promissory note
due the earlier of January 26, 1997 or the closing of the initial public
offering, bearing interest at a rate of 10% per annum and a Class C Warrant
to purchase 20,000 shares of Common Stock at an exercise price of $8.00 per
share.
F-13
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT (CONTINUED)
The Class C Warrant is not exercisable until the first anniversary of the
date of issuance and has a term of five years. The Company paid the entire
principal amount of $100,000 plus interest of $877 on February 27, 1996.
6. STOCK OPTIONS AND WARRANTS
In October, 1990, the Board of Directors authorized the 1990 Stock Option
Plan (the "1990 Plan") under which options to purchase up to 250,000 shares of
the Common Stock may be granted to employees, officers, directors, consultants
and advisors. In May, 1993, the number of shares covered was increased to
900,000 shares by resolution of the Board of Directors. The Board of Directors
is authorized to set the exercise period, the number of shares subject to each
option, the grantees receiving the options, and the exercise price at their best
determination of fair market value.
Options granted generally become exercisable over five years and expire ten
years from the date of grant. The Plan also provides for the granting of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1954, as amended.
On September 28, 1995, the Company adopted the 1995 Stock Option Plan for
Non-Employee Directors, a non-qualified stock option plan (the "1995 Plan"). The
1995 Plan reserves for the issuance of up to 250,000 shares of the Common Stock
pursuant to stock options to be granted to the Company's non-employee directors.
Over a period of six months, each of the five non-employee directors was granted
an option to purchase 15,000 shares of the Common Stock at fair market value
($8.00 and $14.50 per share). Such options become immediately exercisable with
respect to one-third of the shares of Common Stock (5,000 shares), the remaining
10,000 shares of Common Stock vest in equal annual installments over the next
four years following the anniversary date of the initial grant. The options
expire ten years from date of grant.
The following summarizes the stock option transactions under the 1990 Plan
for the years ended June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES OPTION PRICE
---------- ------------------
<S> <C> <C>
Outstanding at June 30, 1993................................. 432,000 $4.00 -- $ 8.00
Granted.................................................... 4,500 $8.00
Canceled................................................... (107,500) $8.00
Outstanding at June 30, 1994................................. 329,000 $4.00 -- $ 8.00
Granted.................................................... 3,750 $4.00
Canceled................................................... (24,556) $8.00
Outstanding at June 30, 1995................................. 308,194 $4.00 -- $ 8.00
Granted.................................................... 310,000 $6.00 -- $10.50
Canceled................................................... (5,000) $8.00
Exercised.................................................. (8,591) $8.00
Outstanding at June 30, 1996................................. 604,603 $4.00 -- $10.50
Available for future grant June 30, 1996..................... 286,806
Exercisable at June 30, 1996................................. 367,145 $4.00 -- $10.50
</TABLE>
A director and officers of the Company were issued options to purchase
624,862 shares of the Common Stock at $4.35 and $6 per share, resulting in
compensation expenses of approximately $3,348,000 which are amortized over the
remaining lives of their contracts. The expense for the year
F-14
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
6. STOCK OPTIONS AND WARRANTS (CONTINUED)
ended June 30, 1996 and for the period March 22, 1990 (Date of Formation)
through June 30, 1996 was $1,411,871; accrued salaries as at June 30, 1996
includes $1,411,871. Of these options, options to purchase 574,862 shares of
Common Stock are not pursuant to either the 1990 Plan or the 1995 Plan. As of
June 30, 1996, options to purchase 344,917 shares of Common Stock are
exercisable by the officer/director of the Company.
As of June 30, 1996, the Board of Directors authorized and granted options
to purchase 479,125 shares of Common Stock at exercise prices of $4.00 to $8.00
per share, which vest over ten years. These options are not included in the 1990
Plan or the 1995 Plan. As of June 30, 1996, options to purchase 76,625 shares of
Common Stock have been exercised. Of these options, options to purchase 100,000
shares of Common Stock were issued at $6.00 per share resulting in capitalized
licensing costs of $200,000 which will be amortized over the life of the
research agreement which is ten years.
The Company has warrants outstanding to purchase 2,747,355 shares of the
Common Stock at exercise prices varying from $.004 per share to $16.50 per share
which generally vest over a three to five year period. Through June 30, 1996,
warrants to purchase 231,638 shares of Common Stock with exercise prices ranging
from $.004 to $10.00 per share were exercised. On August 1, 1995, warrants to
purchase 26,625 shares of Common Stock at exercise prices of $4.00 and $6.00 per
share were exchanged for stock options. In April, 1996, the Company issued a
five-year warrant to purchase 200,000 shares of Common Stock at an exercise
price of $11.00 per share (which was below fair market value) in connection with
the execution of a consulting agreement. This resulted in an additional $275,000
consulting expense which will be amortized over the three year term of the
agreement. In June, 1996, the Company issued five year warrants to purchase
20,000 shares of Common Stock at an exercise price of $10.00 (which was below
fair market value) in connection with legal services provided to the Company.
This resulted in an additional $235,000 legal expense during the year ended June
30, 1996. The expenses referred to above were calculated as the excess of fair
market value over the grant price.
7. INCOME TAXES
The Company has a net operating loss ("NOL") carryforward of approximately
$21,046,000 for financial reporting purposes and approximately $6,200,000 for
tax purposes with research and development credit carryforward of approximately
$116,000 expiring in the years 2006 through 2009. The Company has not reflected
any benefit of such net operating loss carryforward in the accompanying
financial statements in accordance with Financial Accounting Standards Board
Statement No. 109 as the realization of this deferred tax benefit is not more
than likely. The NOL carryforward for tax purposes expires in the years 2006
through 2010. The difference between financial reporting and tax purposes
results from the temporary difference caused by the capitalization of start-up
expenditures for tax purposes as required by Internal Revenue Code Section 195.
The Tax Reform Act of 1986 provided for a limitation on the use of NOL
carryforwards, following certain ownership changes. As a result of transactions
in the Company's stock during 1993 through 1996, a change of ownership of
greater than 50%, as defined, may have occurred. Under such circumstances, the
potential benefits from utilization of tax carryforward may be substantially
limited or reduced on an annual basis.
F-15
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
8. OTHER RELATED PARTY TRANSACTIONS AND AGREEMENTS
During 1990, as part of the organization of the Company, the founder of the
Company and a Senior Vice-President and Director received 526,250 shares of the
Common Stock in exchange for assigning to the Company all pending patent
applications, trademarks, copyrights, technology and similar rights associated
with products relating to or evolving from the patent application filed by the
Senior Vice-President and Director. In addition, under the terms of an
employment agreement dated May 15, 1992, a royalty of $.005 for each device
sold, as defined, will be paid. To date, there have been no payments made under
this agreement.
On July 29, 1994 and as amended August 1, 1995, the Company entered into an
employment agreement with the President and Chief Executive Officer of the
Company. Among other matters he will receive a royalty of $.005 for each unit of
feminine protection product sold and $.01 for each unit sold for medical
purposes.
A director and stockholder of the Company is the Chairman of the Executive
Committee of an advertising agency used by the Company which was paid
approximately $1,077,000 during the year ended June 30, 1996 and for the period
March 22, 1990 (Date of Formation) through June 30, 1996. In addition, $560,000
and $121,875 owed to such agency are included in accrued expenses and accounts
payable at June 30, 1996 and 1995, respectively. In March, 1996, the Company
issued a five year warrant to purchase 50,000 shares of Common Stock at an
exercise price of $10.00 per share in repayment of $50,000 of fees owed to such
agency, which were incurred in connection with the launch of INSTEAD-TM-. This
resulted in an additional advertising expense of $118,500.
In March, 1996, the Company issued a five year warrant to purchase 35,000
shares of Common Stock to an entity formed by the partners of Shereff, Friedman,
Hoffman & Goodman, LLP, a law firm which provided legal services in connection
with the Company's initial public offering. The warrant has an exercise price of
$10 per share and was issued in repayment of $35,000 of legal fees which were
incurred in connection with the initial public offering. This resulted in an
additional legal expense of approximately $27,000 and a charge to additional
paid-in capital of $56,000. A partner of the law firm was appointed to the
Company's Board of Directors in April, 1996 and was issued five-year warrants to
purchase 15,000 shares of Common Stock at $14.50 per share. The total amount of
fees paid by the Company to such law firm was approximately $647,000, $30,000
and $677,000 for the years ended June 30, 1996, 1995 and for the period March
22, 1990 (Date of Formation) through June 30, 1996, respectively. In addition,
$95,000 and $50,000 owed to the law firm is included in accrued expenses at June
30, 1996 and 1995, respectively.
The Company entered into a Research Agreement with Johns Hopkins commencing
July 1, 1991, which expired June 30, 1993. The Company reached an agreement (the
"ReProtect Agreement") with a company, ReProtect, formed by scientists
(including a current director) who previously conducted research for the Company
under this expired Research Agreement, to conduct research for the Company. The
ReProtect Agreement is for a ten year term and provides that the Company will
provide ReProtect $1 million annually for research after the IPO. The ReProtect
Agreement provides the Company with an exclusive license for the use of the
BufferGel Technology coupled with the SoftCup Technology, for which ReProtect
received a one time payment of $100,000, a ten year option to purchase 225,000
shares of Common Stock, exercisable upon the attainment of certain milestones
and will receive a royalty of $.01 per unit of the product sold. In addition,
ReProtect granted the Company a ten year license for vaginal use of the
BufferGel Technology without the SoftCup Technology, for which ReProtect
received a one time payment of $100,000, options to purchase 175,000 shares of
F-16
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
8. OTHER RELATED PARTY TRANSACTIONS AND AGREEMENTS (CONTINUED)
Common Stock, exercisable upon the attainment of certain milestones, and a
royalty of either 5% or 3% (depending on whether a patent has been issued) of
net sales of the BufferGel Technology (without the SoftCup Technology). The
ReProtect Agreement contains the parties' agreement to negotiate in good faith
to extend the term, as well as other customary provisions in agreements of this
type, including provisions relating to early termination of the agreement under
certain circumstances. Research and development expenditures pursuant to the
above agreements amounted to approximately $626,500, $60,230 and $356,000 for
each of the years ended June 30, 1996, 1995 and 1994, respectively, and
approximately $1,330,500 for the period March 22, 1990 (Date of Formation)
through June 30, 1996.
9. PREFERRED STOCK
In 1995, the Company raised $670,000 through a private placement sale of
units. Each unit consisted of (1) 1,950 shares of Series A Preferred Stock, for
an allocated purchase price of $195,000, and (2) a warrant, exercisable for a
five-year period, to purchase 21,250 shares of Common Stock at $10.00 per share,
subject to adjustment for certain dilutive events for an allocated purchase
price of $5,000.
Each share of Series A Preferred Stock is initially (a) convertible, at any
time at the option of the Holder, into Common Stock at a conversion rate of 12.5
shares of Common Stock for each such share, subject to adjustment for certain
dilutive events, (b) entitled to cumulative annual dividends of $8.00, (c)
participating with the Common Stock in any dividend after payment of said $8.00,
(d) has a liquidation preference of $100.00 and (e) entitled to the number of
votes equal to the number of shares of Common Stock into which such share can be
converted.
During the year ended June 30, 1996, 5,411.25 shares of Series A Preferred
Stock were converted into 108,225 shares of Common Stock.
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LEASES
The Company leases office and manufacturing facilities. Certain of these
leases require the Company to pay certain executory costs (such as insurance and
maintenance). In July, 1996, the Company signed a ten year lease for new office
space in New York, New York. The Company obtained a one year renewable standby
letter of credit, expiring in July, 1997, in the amount of $325,000 as rent
security for the above premises collateralized by certain marketable securities.
Future minimum lease payments for operating leases, including the new office
lease, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------------------------------------------------------------------
<S> <C>
1997........................................................................... $ 337,027
1998........................................................................... 362,743
1999........................................................................... 451,571
2000........................................................................... 386,438
2001........................................................................... 386,438
Thereafter..................................................................... 2,244,198
-------------
$ 4,168,415
-------------
-------------
</TABLE>
F-17
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
Rental expense was approximately $123,000, $108,000, $223,000, and $622,000
and for the years ended June 30, 1996, 1995, 1994, and from March 20, 1990 (Date
of Formation) through June 30, 1996, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment contracts with four officers, two of
whom are directors of the Company.
The agreements all provide for the following: base salaries increasing upon
achievement of certain conditions, incentive bonus plans, severance benefits and
non-compete agreements. Certain of the agreements also include a five-year term,
signing bonuses, stock options upon attainment of specified goals, and royalties
on sales of the product.
MANUFACTURING EQUIPMENT AND IMPROVEMENTS
The Company has commitments in the amount of $5,374,005 of which $4,377,957
was unpaid, for the purchase of manufacturing equipment, improvements to the
manufacturing facility to support startup production and leasehold improvements
to the new New York office space. Included in accounts payable and accrued
expenses at June 30, 1996 was $62,307. The total commitments include
approximately $693,800 of estimated costs to be incurred for improvements to the
New York office space.
11. INITIAL PUBLIC OFFERING
On February 27, 1996, the Company successfully completed its initial public
offering of Common Stock. The initial public offering was consummated with the
sale of 3,910,000 shares of its Common Stock at $10.00 per share with proceeds
of $34,085,611, net of related expenses of $5,014,389.
12. SUBSEQUENT EVENTS
On August 27, 1996 the Company settled a claim with certain individuals
pursuant to which the Company issued five year warrants to purchase an aggregate
of 30,000 shares of Common Stock at an exercise price of $10.00 per share. This
will result in an additional expense of approximately $340,000 for the first
quarter of fiscal year 1997.
F-18
<PAGE>
[inside back cover]
[PHOTO OF MANUFACTURING PLANT]
INSTEAD IS MANUFACTURED ON CUSTOM-DESIGNED, STATE-OF-THE-ART EQUIPMENT AT
THE ULTRAFEM MONTANA FACILITY.
[PHOTO OF PRODUCT]
INSTEAD IS A DISPOSABLE, PATENTED PRODUCT THAT COLLECTS RATHER THAN ABSORBS
MENSTRUAL FLUID. ITS FLEXIBILITY MAKES IT EASY TO INSERT AND REMOVE.
A CUP-LIKE DEVICE THAT IS INSERTED INTO THE UPPER VAGINAL CANAL UNDER A
WOMAN'S CERVIX, INSTEAD GIVES UP TO TWELVE HOURS OF SAFE, COMFORTABLE
PROTECTION.
THE SOFT, INERT MATERIAL CONFORMS TO A WOMAN'S ANATOMY TO HELP FIT
COMFORTABLY AND SECURELY.
[PHOTO OF PRODUCT DISPLAY]
SALES CALLS IN THE PACIFIC NORTHWEST TO DATE HAVE RESULTED IN COMMITMENTS
FROM RETAILERS WHICH ACCOUNT FOR MORE THAN 75% OF ACV (ALL COMMODITY VOLUME) IN
THE FOOD AND DRUG CLASSES OF TRADE.
ULTRAFEM HAS OBTAINED FDA CLEARANCE TO MARKET INSTEAD IN THE UNITED STATES
AND FDA CLEARANCE FOR EXPORT OVERSEAS.
CONSUMERS OUTSIDE THE ORIGINAL LEAD MARKET CAN PURCHASE INSTEAD BY MAIL
THROUGH A SPECIAL TOLL FREE (888-367-9636) NUMBER.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Concurrent Sales by Selling Stockholders....... 8
Risk Factors................................... 9
Use of Proceeds................................ 16
Price Range of Common Stock.................... 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 19
Selected Financial Data........................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 21
Business....................................... 25
Management..................................... 38
Principal Stockholders......................... 47
Certain Relationships and Related Party
Transactions.................................. 49
Prior Financings............................... 50
Description of Capital Stock................... 52
Shares Eligible for Future Sale................ 56
Underwriting................................... 58
Legal Matters.................................. 59
Experts........................................ 59
Available Information.......................... 60
Index to Financial Statements.................. F-1
</TABLE>
3,000,000 SHARES
[LOGO]
COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.
HAMPSHIRE SECURITIES CORPORATION
, 1996
<PAGE>
PROSPECTUS
4,301,303 SHARES
[LOGO]
COMMON STOCK
This Prospectus relates to the offer and sale by the holders thereof (the
"Selling Stockholders"), of 4,301,303 shares of common stock, par value $.001
per share (the "Common Stock"), of Ultrafem, Inc. ("Ultrafem" or the "Company")
including 3,227,853 shares issuable upon conversion or exercise of certain
outstanding securities convertible into or exercisable for shares of Common
Stock. (The shares of Common Stock offered hereby are sometimes referred to
herein as the "Securities.") The Company's Common Stock is quoted on the Nasdaq
National Market under the trading symbol "UFEM." On September 12, 1996, the last
reported sales price for the Common Stock on the Nasdaq National Market was
$24.00 per share. See "Price Range of Common Stock."
Subject to certain agreed upon lock-up periods more fully described below,
the Securities may be sold from time to time by the Selling Stockholders
directly, or through agents designated from time to time or through dealers or
underwriters also to be designated, on terms to be determined at the time of
sale. To the extent required, the specific Securities to be sold, the names of
the Selling Stockholders, the purchase price, the public offering price, the
names of any such agents, dealers or underwriters and any applicable commission
or discount with respect to a particular offer will be se,t forth in an
accompanying Prospectus supplement (or, if required, a post-effective amendment
to the Registration Statement of ,which this Prospectus forms a part). The
distribution of the Securities may be effected in one or more transactions that
may take place on the Nasdaq National Market or the over-the-counter market,
including ordinary broker's transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees, commissions or discounts may be paid by
the Selling Stockholders in connection with such sales. Certain Selling
Stockholders have agreed to effect such sales through Hampshire Securities
Corporation ("Hampshire"), one of the Representatives of the several
underwriters (the "Underwriters"), for a concurrent offering of Common Stock by
the Company. See "Concurrent Public Offering" and "Plan of Distribution."
The Selling Stockholders and intermediaries through whom the Securities are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities, and any
profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act.
The Company will not receive any of the proceeds from the sale of Securities
offered hereby. Expenses of this Offering, estimated at $ , are payable
by the Company. The aggregate proceeds to the Selling Stockholders from the sale
of the Securities will be the purchase price of the Securities sold, less the
aggregate underwriting fees, discounts and commissions, if any. See "Selling
Stockholders."
A registration statement under the Securities Act with respect to an
underwritten public offering of shares of Common Stock by the Company has been
filed with the Securities and Exchange Commission (the "Commission"). The
Company will receive approximately $ in net proceeds from the concurrent
public offering (assuming no exercise of the Underwriters' over-allotment
option) after payment of underwriting discounts and commissions and estimated
expenses of such public offering. See "Concurrent Public Offering."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A SUBSTANTIAL
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET
FORTH UNDER "RISK FACTORS" ON PAGE 9.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1996.
<PAGE>
[inside front cover]
[PHOTO OF PRINT ADVERTISEMENT]
THIS IS A SAMPLE PRINT ADVERTISEMENT.
INTRODUCING INSTEAD A MULTI-MEDIA MARKETING CAMPAIGN AS EXCITING AS THE
PRODUCT ITSELF.
[PHOTO OF MAGAZINES]
PRINT ADVERTISEMENTS -- AN EXCITING PRINT CAMPAIGN IS NOW APPEARING IN MAJOR
WOMEN'S MAGAZINES SHOWING AUDREY CONTENTE, THE INVENTOR OF INSTEAD, ENJOYING HER
ACTIVE LIFESTYLE.
[PHOTO OF PRODUCT PACKAGING]
1-800-INSTEAD -- THE EASY-TO-REMEMBER NUMBER CUSTOMERS CAN CALL, AND IF THEY
WISH, SPEAK TO REGISTERED NURSES. THESE NURSES WILL HAVE PERSONALLY USED THE
PRODUCT AND CAN GUIDE USERS THROUGH ANY CONCERNS THEY MAY HAVE.
INSTEAD COMES IN DISTINCTIVE, INVITINGLY DESIGNED BOXES OF 6 COUNT, 16 COUNT
AND 24 COUNT PACKAGES.
[PHOTO OF DIRECT MAIL LITERATURE]
DIRECT MAIL -- THOUSANDS OF HEALTH CARE PROFESSIONALS AND CONSUMERS WILL
RECEIVE FREE SAMPLE KITS OR DISCOUNT COUPONS. THE OUTSIDE OF THE SAMPLE KIT
BOXES AND ENVELOPES CAPITALIZE ON THE EXCITEMENT AND APPROPRIATENESS OF A WOMAN
INVENTOR IN THIS CATEGORY. THEY READ: "A MAN COULDN'T HAVE INVENTED WHAT'S
INSIDE."
[PHOTO OF INFORMERCIAL]
How MUCH do you KNOW about your BODY?
EDU-MERCIAL -- A THIRTY MINUTE EDU-MERCIAL HAS BEEN CREATED TO LAUNCH
INSTEAD. FOCUSING ON WOMEN'S HEALTH, IT FEATURES A FEMALE HEALTH QUIZ, FOOTAGE
OF PAST ATTITUDES TOWARDS MENSTRUATION, CANDID TESTIMONIALS FROM ENTHUSIASTIC
CONSUMERS AND ENDORSEMENTS FROM TWO OB-GYN DOCTORS AND A NURSE WHO THINK INSTEAD
IS A MAJOR BREAK-THROUGH FOR WOMEN.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
(I) GIVES EFFECT TO THE ONE-FOR-FOUR REVERSE STOCK SPLIT EFFECTED ON JULY 28,
1995, (II) GIVES EFFECT TO THE SALE BY THE COMPANY OF 3,000,000 SHARES OF COMMON
STOCK IN THE CONCURRENT OFFERING (ASSUMING THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION IS NOT EXERCISED) AND (III) IS BASED ON THE NUMBER OF SHARES OF COMMON
STOCK AND OTHER SECURITIES OUTSTANDING AS OF AUGUST 31, 1996. EACH PROSPECTIVE
INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
Ultrafem-Registered Trademark-, Inc. ("Ultrafem" or the "Company"), a
development stage company, was formed to design, develop and manufacture
products based upon its proprietary and patented SoftCup-Registered Trademark-
Technology to address women's health care needs. The SoftCup Technology is a
physical barrier-type vaginal device designed to enhance the comfort,
functionality and effectiveness of products designed for women in the areas of
feminine protection, contraception, the prevention of sexually transmitted
diseases ("STDs") and the treatment of vaginal infections. The commercial
products which will employ the SoftCup Technology will be disposable, single
use, universal size and made from a soft, inert, thermoplastic material which
becomes more pliable at body temperature and molds to fit the individual user's
anatomy.
The Company's business strategy is to develop and market proprietary
products based on its patented SoftCup Technology directed at high potential,
underserved segments of the women's health care market. The key elements of this
strategy are to (i) commence the launch of the Company's feminine protection
product, INSTEAD-TM-, in the United States, (ii) expand the Company's
manufacturing capabilities, (iii) develop and submit for Food and Drug
Administration ("FDA") clearance or pre-market approval products based upon the
SoftCup Technology for the medical product arena and (iv) pursue strategic
alliances with multi-national consumer product and pharmaceutical companies for
marketing, sales and distribution.
FEMININE PROTECTION PRODUCT -- INSTEAD-TM-
Management of the Company believes that INSTEAD-TM- represents one of the
most significant technological developments for feminine protection since the
introduction of the first commercial disposable tampon in 1933. INSTEAD-TM-
differs from other forms of feminine protection currently on the market in that
it collects, rather than absorbs, menstrual fluid. The Company believes that the
unique design of INSTEAD-TM- provides several distinct benefits over currently
available forms of feminine protection, including increased comfort, improved
performance, reduced health concerns and freedom to engage in most physical
(including sexual) activities during menstruation. The Company has obtained FDA
clearance to market INSTEAD-TM- in the United States. INSTEAD-TM- may also be
marketed in each of Belgium, Canada, Denmark, Finland, France, the Netherlands,
Spain, Sweden, Switzerland and the United Kingdom subject to compliance with
applicable international labeling laws and United States export requirements.
The Company plans to initiate the launch of INSTEAD-TM- in the Pacific
Northwest, a region which the Company estimates represents approximately 8% of
United States households and includes the major markets of San Francisco,
Seattle and Portland, by the Fall of 1996. The Company intends to introduce
INSTEAD-TM- in stages into additional significant geographic regions with full
national distribution anticipated to be achieved over a three year period, which
may be accelerated or delayed depending upon various factors including market
acceptance by retailers and consumers, and the availability of additional
financing. The Company has conducted market research and consumer use
3
<PAGE>
testing which indicate significant consumer interest in INSTEAD-TM-. The Company
intends to distribute INSTEAD-TM- principally through supermarkets and drug
stores. See "Risk Factors -- Inherent Limitation of Market Research and Consumer
Use Testing," "-- Need for Additional Financing for Unforeseen Risks," "Business
- -- Product Testing," and "-- Strategy and Plan of Operations."
Management estimates that the domestic and international feminine protection
markets in developed countries are in excess of $9 billion annually. The United
States market for feminine protection products such as tampons and pads
generates approximately $1.8 billion in annual revenues (based on a 1995 report
by A.C. Nielsen). Approximately 58 million women between the ages of 18 and 54
use feminine protection products in the United States. Approximately 63% of
menstruating women in the United States use tampons exclusively or in
combination with pads (based on 1996 Simmons Market Research Bureau). The
European market for feminine protection products generates approximately $2.9
billion in annual revenues (based on a 1995 report by A.C. Nielsen) with an
estimated 105 million women between the ages of 18 and 54 using feminine
protection products. Other developed markets, including Canada, Latin America,
Mexico and Asia (other than China and India) represent a combined population in
excess of 200 million potential users.
MEDICAL PRODUCT APPLICATIONS
Ultrafem intends to develop additional applications of the SoftCup
Technology for vaginal delivery of agents for use in contraception, the
prevention of STDs, and the treatment of vaginal infections. The Company's
initial medical product under development is a contraceptive product which
combines the SoftCup Technology with the BufferGel Technology, which is licensed
by the Company for vaginal use on a worldwide basis. The BufferGel Technology,
which has the ability to maintain the normal vaginal pH balance while killing
sperm and most STD pathogens, was invented by scientists associated with The
Johns Hopkins University ("Johns Hopkins") with whom the Company has previously
conducted research. The Company has entered into a research and development
agreement with ReProtect, LLC ("ReProtect"), a company founded by these
scientists which will continue the investigation and development of medical
applications of the SoftCup Technology.
The United States market for contraceptive products such as condoms, oral
contraceptives, diaphragms and implantable contraceptives generates
approximately $2 billion in annual revenues (based on Theta Corporation, 1994).
Based on the population of women between the ages of 18 and 54, estimated to be
in excess of 300 million women in Europe and other developed markets, and
assuming that the frequency of use of contraceptive products is less than that
in the United States, management estimates the international markets for
contraceptives to be approximately $6 billion annually outside the United
States. Additionally, at least 330 million new cases of STDs occur each year
throughout the world (World Health Organization, 1995), indicating a significant
market for a STD prevention product.
RECENT DEVELOPMENTS
- - PRODUCT LAUNCH. The Company anticipates that INSTEAD-TM- will be available
for sale by retailers in the Pacific Northwest in the Fall of 1996, including
the major markets of San Francisco, Seattle, and Portland. In order to achieve
this timetable, the Company began shipment of INSTEAD-TM- in
August 1996. Marketing and sales programs, such as print and TV advertising,
sampling, consumer promotion, direct mail, public and professional relations,
and in-store merchandising have been developed and will be utilized to generate
consumer awareness and trial.
- - PRODUCT DISTRIBUTION. The Company intends to distribute INSTEAD-TM-
primarily through supermarkets and drug stores. The Company has retained
Meridian Consulting Group ("Meridian") to provide sales management services,
including supervision of a broker network, development of trade promotion plans
and introductory sales presentations for the initial introduction of INSTEAD-TM-
into the United States market. Ultrafem has hired Morgan & Sampson Pacific, a
leading Health and Beauty Aid broker in the Northwest, as the broker for
INSTEAD-TM- in the Pacific Northwest. Sales
4
<PAGE>
calls in the Pacific Northwest to date have resulted in commitments from
retailers which account for more than 75% of ACV (all commodity volume) in the
food and drug classes of trade. These include commitments for in-store
merchandising and displays, on shelf dates, and desired shelf space.
- - COMMERCIAL PRODUCTION COMMENCED. Subsequent to the Company's initial public
offering ("IPO") in February 1996, the Company entered into a lease for
manufacturing and office space in Missoula, Montana and remodeled the
manufacturing space principally to create the controlled environment module that
secures the manufacturing equipment. The special thermoforming line which
produces INSTEAD-TM- completed high volume testing and, in June 1996, commenced
manufacturing commercial quantities of INSTEAD-TM- for the Fall 1996 launch. The
Company placed an order for a second semi-automated line scheduled to be
installed in the Fall of 1996 and an order for a fully automated line scheduled
to be installed in the Spring of 1997. The Company believes that its
manufacturing capacity will be sufficient to meet consumer demand. There can be
no assurance, however, that any of the foregoing goals or timetables can be met.
- - BUFFERGEL TECHNOLOGY RECEIVES HIVNET GRANT; PHASE I TRIALS SCHEDULED TO
BEGIN. The National Institute of Health ("NIH") has granted $2 million in
contracts to ReProtect and Johns Hopkins for the research and development of the
BufferGel Technology for contraception and the prevention of AIDS and other
STDs. Subsequent to the IPO, ReProtect was selected by HIVNET, a unit of the
NIH, to test the use of the BufferGel Technology as a vaginal microbicide for
the prevention of AIDS and other STDs. The FDA allowed an Investigational New
Drug ("IND") application permitting the BufferGel Technology to enter Phase I
clinical trials which are currently scheduled to begin in the Fall of 1996. The
Company plans to begin clinical trials of its contraceptive product upon
completion of the Phase I clinical trials of the BufferGel Technology. A portion
of these clinical trials may be funded by the net proceeds of the Concurrent
Offering. In order to achieve this timetable, the Company will need to complete
the development of the contraceptive product by combining the SoftCup Technology
and the BufferGel Technology. The Company plans to simultaneously develop
additional applications of such technologies for treatment of vaginal infections
and topical and systemic therapies. There can be no assurance, however, that any
of the clinical trials will demonstrate the necessary degree of safety and
effectiveness required for FDA pre-market approval, that ReProtect will receive
the benefit of the entire $2 million under the NIH contracts or that any of the
foregoing goals or timetables can be met. See "Risk Factors -- Dependence on
Single Product" and "-- Risks Associated with Research and Development for Other
Applications of the SoftCup Technology."
The Company was incorporated under the laws of the State of Delaware on
March 22, 1990 by Audrey Contente, the founder of the Company and inventor of
the SoftCup Technology, and its principal executive office is located at 500
Fifth Avenue, Suite 3620, New York, New York 10110. The Company's telephone
number is (212) 575-5740.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock offered by Selling
Stockholders (1)............................ 4,301,303 shares
Shares of Common Stock outstanding prior to
this Offering (2)........................... 5,889,501 shares
Shares of Common Stock to be outstanding
after Offering (3).......................... 12,117,354 shares
Use of proceeds.............................. The Company will not receive any of the
proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
Risk Factors................................. The Securities offered hereby involve a high
degree of risk and immediate substantial
dilution. See "Risk Factors" and "Dilution."
Nasdaq National Market symbol................ UFEM
</TABLE>
- ------------------------
(1) Includes 1,073,450 shares of Common Stock held by the Selling Stockholders
and offered hereby and 3,227,853 shares of Common Stock issuable upon
conversion or exercise of securities convertible into or exercisable for
Common Stock held by the Selling Stockholders and offered hereby.
(2) Includes 1,073,450 shares of Common Stock held by the Selling Stockholders
and offered hereby. Excludes 5,047,753 shares of Common Stock issuable upon
the conversion or exercise of securities which are convertible into or
exercisable for Common Stock, of which 3,227,853 are held by the Selling
Stockholders and offered hereby, and 3,000,000 shares of Common Stock
issuable in connection with the Concurrent Offering.
(3) Includes 1,073,450 shares of Common Stock held by the Selling Stockholders
and offered hereby, 3,227,853 shares of Common Stock issuable upon
conversion or exercise of securities which are convertible into or
exerciseable for Common Stock held by the Selling Stockholders and offered
hereby and 3,000,000 shares of Common Stock issuable in connection with the
Concurrent Offering. Excludes 1,819,900 shares of Common Stock issuable upon
the conversion or exercise of securities which are convertible into or
exercisable for Common Stock which are not offered hereby.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information for the five years ended June 30, 1996 are
derived from the audited financial statements of the Company. The financial
statements as of June 30, 1996 and for the three years then ended have been
audited by Deloitte & Touche LLP, independent auditors. The summary financial
information below should be read in conjunction with the Financial Statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA:
Total Revenue......................... -- -- -- -- --
General and Administrative Expense.... $ 2,141,249 $ 1,139,339 $ 1,387,784 $ 1,568,442 $ 7,501,538
Operating Income (Loss)............... (3,827,114) (2,020,786) (1,967,208) (1,916,450) (9,643,978)
Net Income (Loss)..................... (3,831,536) (2,091,903) (2,303,940) (2,381,065) (9,819,980)
Net Income (Loss) Per Share:
Primary............................. $ (1.61) $ (0.79) $ (0.87) $ (0.87) $ (2.74)
Fully Diluted....................... $ (1.61) $ (0.79) $ (0.87) $ (0.87) $ (2.74)
Weighted Average Common Shares and
Equivalents (1)...................... 2,386,847 2,640,387 2,658,214 2,698,152 3,529,494
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
<S> <C> <C>
AS ADJUSTED
ACTUAL (2)
-------------- --------------
BALANCE SHEET DATA:
Working Capital (3).............................................................. $ 17,962,533 $ 80,962,533
Total Assets..................................................................... 29,407,936 92,407,936
Long-term Debt................................................................... 700,000 700,000
Stockholders' Equity............................................................. 21,283,944 84,283,944
</TABLE>
- ------------------------
(1) The weighted average number of common shares outstanding during the first
half of fiscal year 1996, and during fiscal years 1995, 1994, 1993 and 1992
includes incremental shares for the Common Stock, warrants and other
potentially dilutive securities issued and options granted to purchase
Common Stock which were issued within one year prior to the effective date
of the IPO (the "Incremental Shares"). Such Incremental Shares were
determined utilizing the treasury stock method. The effect of the assumed
exercise of stock options which were issued one year prior to the effective
date of the IPO and the effect of the assumed conversion of the convertible
preferred stock are not included because their effect is antidilutive.
(2) Adjusted to reflect the sale of 3,000,000 shares of Common Stock by the
Company in the Concurrent Offering at an assumed offering price of $23.00
per share and the application of the estimated net proceeds therefrom. See
"Capitalization."
(3) Includes current portion of long-term debt.
7
<PAGE>
CONCURRENT PUBLIC OFFERING
The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an underwritten public offering (the
"Concurrent Offering") of 3,000,000 shares of Common Stock (3,450,000 shares,
assuming the Underwriters' over-allotment option is exercised in full). The
Company will receive approximately $ in net proceeds from the Concurrent
Offering (assuming no exercise of the Underwriters' over-allotment option) after
payment of underwriting discounts and commissions and estimated expenses of the
Concurrent Offering. The offer and sale of Common Stock by the Selling
Stockholders hereby is referred to in this Prospectus as the "Offering."
8
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS IN THIS PROSPECTUS THAT
ARE NOT DESCRIPTIONS OF HISTORICAL FACTS MAY BE FORWARD-LOOKING STATEMENTS,
INCLUDING, BUT NOT LIMITED TO, STATEMENTS CONTAINED IN "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
SUCH STATEMENTS ARE BASED ON MANY ASSUMPTIONS AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE IDENTIFIED BELOW AS WELL AS THOSE SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
DEVELOPMENT STAGE COMPANY; HISTORY OF LOSSES
From the Company's inception in March 1990 through the date of this
Prospectus, the Company has not generated any revenue. The Company has expended
more than $21.0 million for, among other things, marketing, research and
development activities, engineering and design of fully automated manufacturing
systems, clinical testing, meeting domestic and international regulatory
requirements, domestic and international applications for patent protection,
applications for domestic trademark protection, and market research. The Company
may encounter difficulties experienced by development stage companies, many of
which may be beyond the Company's control, such as unanticipated problems and
costs related to marketing INSTEAD-TM-. Management expects to continue incurring
operating losses for the foreseeable future, until such time as the Company
derives significant revenues from the sale of INSTEAD-TM-. It is currently
anticipated that sales of INSTEAD-TM- will commence in the Fall of 1996. The
Company believes that the financial resources available to it, together with the
net proceeds of the Concurrent Offering, will satisfy the Company's working
capital needs for at least 12 months. In addition, the Company may require
additional financing if unforeseen risks are encountered. See "-- Need for
Additional Financing for Unforeseen Risks" and "Business -- Strategy and Plan of
Operations." The Company has only limited experience in producing INSTEAD-TM-
and has not yet manufactured INSTEAD-TM- on a cost-efficient basis; in the
future the Company will need to reduce manufacturing costs and related marketing
expenses, as well as expand its ability to produce INSTEAD-TM- in the quantities
necessary to achieve significant commercial sales. There can be no assurance
that reliable manufacturing operations can be achieved at a reasonable cost and
without delays. If the Company encounters production difficulties, including
problems involving production yield, quality control and assurance, or supplies
or components, there could be a material adverse effect on the Company's
business, financial condition and results of operations. There can also be no
assurance that the Company will ever generate revenue or, if revenues are
generated, that the Company will be profitable.
DEPENDENCE ON SINGLE PRODUCT
The Company's future profitability initially depends primarily on the
successful commercialization of INSTEAD-TM- as an alternative to currently
available feminine protection products. Should the introduction of INSTEAD-TM-
be unsuccessful for any reason, there would be a material adverse effect on the
Company's business, financial condition and results of operation. See "-- Risks
Associated with Research and Development for Other Applications of the SoftCup
Technology" and "Business -- Other Potential Applications of the SoftCup
Technology."
NEED FOR ADDITIONAL FINANCING FOR UNFORESEEN RISKS
The Company believes that the level of financial resources available to it
is an important factor in its ability to achieve the marketing and distribution
of INSTEAD-TM- and in its ability to develop and eventually bring medical
products to market. Management believes that the financial resources available
to it, together with the net proceeds of the Concurrent Offering, will satisfy
the Company's working capital needs for at least 12 months. However, the Company
may require additional financing if unforeseen risks are encountered. If the
Company is unable to raise additional capital or arrange satisfactory working
capital or additional equity financing, the Company may be unable to complete
9
<PAGE>
the distribution of INSTEAD-TM- into the full United States market. Additional
financings may require the issuance of new equity securities, and there can be
no assurance that the Company will be able to obtain working capital or
additional financing at a favorable rate, if at all. See "-- Risks Associated
with Research and Development for Other Applications of the SoftCup Technology."
LACK OF MANUFACTURING EXPERIENCE, NEED TO ACHIEVE ECONOMIES OF SCALE AND LIMITED
MANUFACTURING RESOURCES
The Company has limited experience in manufacturing quantities of
INSTEAD-TM- for the commercial market. There can be no assurance that the
Company will be able to manufacture quantities of INSTEAD-TM- for the commercial
market on a cost-efficient basis, if at all. In the future, the Company will be
required to increase the number of units it can produce, reduce per-unit
manufacturing costs and achieve high quality standards in order to successfully
market INSTEAD-TM- on a commercial scale throughout the full United States
market. These criteria will only be satisfied if the Company is able to either
enhance significantly its existing production capabilities or enter into
arrangements with third parties capable of manufacturing INSTEAD-TM- on a
cost-efficient basis. If the Company experiences manufacturing problems or
delays, there would be a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Development Stage
Company; History of Losses" and "Business -- Manufacturing."
MARKETING RISKS; UNCERTAINTY OF CONSUMER ACCEPTANCE
The Company expects to incur substantial marketing expense in launching
INSTEAD-TM- into the United States market. The marketing risks that the Company
may encounter are compounded by the unique nature of INSTEAD-TM-. Because
INSTEAD-TM- is fundamentally different from nearly all commercially available
forms of feminine protection, successful introduction of INSTEAD-TM- will face
several obstacles, including a change in established personal hygiene regimen
and educating potential consumers on how to use INSTEAD-TM-. Furthermore, the
Company will be competing with other products which are already familiar to the
target audience, and the Company will be required to incur substantial marketing
expense in order to introduce INSTEAD-TM- to consumers. There can be no
assurance that the Company will develop an effective marketing or advertising
campaign to overcome these obstacles. See "-- Risks Associated with Potential
Competitive Response" and "Business -- Marketing and Sales."
NECESSITY OF REGULATORY CLEARANCES TO MARKET
The production and distribution of INSTEAD-TM- are subject to regulation in
the United States and other countries in which INSTEAD-TM- may be sold. In 1993,
the FDA cleared the Company's pre-market notification submission under Section
510(k) of the Federal Food, Drug, and Cosmetic Act of 1938, as amended (the
"FDCA"). The FDA's clearance of this notification enables the Company to market
INSTEAD-TM- in the United States and to export it overseas subject to the
general controls provisions of the FDCA. Subsequent to FDA clearance of this
notification submission, certain modifications, which the Company believes are
minor, were made in the materials used in INSTEAD-TM- to improve the
manufacturing process. An applicable FDA regulation requires the filing of a new
510(k) notification when, among other things, there is a major change or
modification in the intended use of the device, or a change or modification in
materials, chemical composition or manufacturing process, that could
significantly affect the device's safety or effectiveness. A device manufacturer
is responsible for making the initial determination as to whether a proposed
change to a cleared device or its intended use necessitates the filing of a new
510(k) notification. The Company has conducted testing subsequent to the
changes, which the Company believes are minor, in materials. The Company has
been advised by its regulatory counsel that no additional 510(k) notification is
required for these changes, although there can be no assurance that the FDA will
not require such a 510(k) notification. In April 1994, the FDA informally
proposed a guidance document pursuant to the above-described regulation (which
was revised in August 1995 and which is expected to be re-published in September
1996) that would require submission of a new 510(k) notification when certain
changes are made in medical devices such as INSTEAD-TM-, including changes in
material and labeling. If a new 510(k) notification were to be required by the
FDA for the changes in materials of INSTEAD-TM-, there can be
10
<PAGE>
no assurance that the FDA would clear a new 510(k) notification submitted by the
Company, or that the FDA would not prohibit the Company from selling INSTEAD-TM-
until the 510(k) notification was cleared. The FDA review time for 510(k)
notifications could be lengthy. The failure to obtain a new 510(k) clearance, if
required, on a timely basis, if at all, would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has also decided to label INSTEAD-TM- with a 12 hour maximum
wear time. The labeling for INSTEAD-TM-, as cleared by the FDA in the original
510(k) notification, included an 8 hour maximum wear time. The Company conducted
a clinical study to support the safety of the 12 hour wear time. See "Business
- -- Product Testing." The Company does not believe a new 510(k) notification is
necessary to increase the maximum wear time to 12 hours. The results of these
studies were discussed during a meeting with the FDA on June 19, 1996. At that
meeting, the FDA requested that the Company submit these results of its clinical
testing, which the Company provided on July 17, 1996. The FDA has not responded
to that submission. Since the Company's clinical studies have demonstrated that
the change in the maximum wear time does not affect the safety and effectiveness
of the product, the Company and its regulatory counsel do not believe a new
510(k) notification is necessary under existing regulations. However, if a new
510(k) notification were to be required by the FDA for the labeling change
regarding maximum wear time under the above-described regulation and/or guidance
document, there can be no assurance that the FDA would clear a new 510(k)
notification submitted by the Company, or that the FDA would not require the
Company to use the original labeling stating a shorter maximum wear time until
the 510(k) notification was cleared.
Any product with a 510(k) notification cleared by the FDA and its
manufacturer are subject to continuing regulatory review and the FDA has the
authority to, among other things, order or request restrictions on the
distribution of products or the withdrawal of products from market even after
clearance of a 510(k) submission is obtained.
The Company's manufacturing facility in Missoula, Montana is subject to the
Good Manufacturing Practices ("GMP") regulations which are promulgated by the
FDA, international quality standards and other regulatory requirements. The
failure by the Company to comply with the foregoing could adversely affect the
Company's production and financial condition. See also "Business -- Government
Regulation" and "-- Regulatory Status."
In order to distribute INSTEAD-TM- in foreign countries, the Company must
comply with all regulatory requirements of the countries in which the Company
intends to sell INSTEAD-TM-, including regulations with respect to labeling and
importing into such countries and FDA requirements for export thereto. There can
be no assurance that the Company will be able to comply with such requirements.
See "Business -- Regulatory Status." The Company will require FDA clearance or
pre-market approval to market other applications of the SoftCup Technology in
the United States.
PRODUCT LIABILITY; POSSIBILITY OF INSUFFICIENT INSURANCE COVERAGE
Testing, manufacturing and marketing of INSTEAD-TM- entail an inherent risk
of product liability, and such risk may be increased because INSTEAD-TM- is used
internally. The Company presently maintains what it believes to be a sufficient
level of product liability insurance. Such insurance is expensive and, in the
future, may not continue to be available on acceptable terms, if at all. The
Company's business, financial condition and results of operations may be
materially adversely affected by a successful product liability claim, or series
of such claims, in excess of any insurance coverage. There can be no assurance
that product liability claims will not be successfully asserted against the
Company. See "Business -- Product Testing."
COMPETITION
The market for feminine protection and medical products is presently
dominated by large, long-established and well-financed companies which have
substantially greater resources than the Company. There can be no assurance that
other companies will not develop new or enhanced feminine protection products
that are either more effective than INSTEAD-TM-, or would render INSTEAD-TM-
11
<PAGE>
obsolete or non-competitive. In addition, there can be no assurance that
existing competitive companies will not increase their level of advertising and
marketing expenditures in response to the introduction of INSTEAD-TM-. See "--
Risks Associated with Potential Competitive Response" and "Business --
Competition."
RISKS ASSOCIATED WITH POTENTIAL COMPETITIVE RESPONSE
Subsequent to the IPO, the Company identified its target geography for the
initial launch of INSTEAD-TM-, established a broker network, and established
certain key trade accounts. The initial indications from the early stages of the
launch reflect higher costs related to trade, distribution and marketing
spending levels than previously anticipated. The Company believes that this is
due to the response to the launch of INSTEAD-TM- by companies with competitive
products. There can be no assurance that the Company's competitors will not
significantly increase their spending on promotional activities as a reaction to
the introduction of INSTEAD-TM-. See "-- Marketing Risks; Uncertainty of
Consumer Acceptance."
INHERENT LIMITATION OF MARKET RESEARCH AND CONSUMER USE TESTING
The Company conducted test studies for the purposes of evaluating potential
consumer interest in INSTEAD-TM- and developing a market strategy for
INSTEAD-TM-. Due to the inherent limitations of market research and consumer
testing to accurately indicate consumer preferences, the results of such
research and tests may not accurately reflect INSTEAD-TM-'s actual market
potential. See "Business -- Marketing and Sales."
RISKS INHERENT IN OBTAINING AND PROTECTING PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its ability to obtain and
protect patents and trade secrets, and operate without infringing the
proprietary rights of other companies and individuals in the United States and
abroad. A continuation patent application based on, and including the subject
matter of, a patent application for the SoftCup Technology (for use for feminine
protection during menstruation either with or without vaginal drug delivery)
originally filed by Ms. Audrey Contente, the founder of the Company, was allowed
by the United States Patent and Trademark Office (the "Patent and Trademark
Office") on December 11, 1992. The United States patent was issued on March 22,
1994 and expires on March 22, 2011. Additional patent applications are pending
in the United States on other aspects and applications of the SoftCup Technology
and certain manufacturing processes related to such technology. The Company has
also filed international patent applications with respect to the SoftCup
Technology (for use for feminine protection during menstruation either with or
without vaginal drug delivery). There can be no assurance that any additional
patents will issue or that any issued patents will provide the Company with
competitive advantages or will not be challenged by other companies or
individuals. There can be no assurance that other companies and individuals will
not independently develop similar products, duplicate the SoftCup Technology or
design around the Company's patent. In addition, the Company could incur
substantial costs in defending suits brought against it on such intellectual
property rights or in prosecuting suits that the Company brings against other
parties to protect its intellectual property rights. The Company also relies on
trade secrets and other unpatented proprietary technology. The Company seeks to
protect its trade secrets and proprietary know-how in part with confidentiality
agreements with employees and consultants. There can be no assurance that the
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or independently developed by competitors or that others will not
independently develop substantially equivalent proprietary products and
processes or otherwise gain access to the Company's proprietary technology. See
"Business -- Patent Status and Patent Applications; Proprietary Technology."
RISKS ASSOCIATED WITH RESEARCH AND DEVELOPMENT FOR OTHER APPLICATIONS OF THE
SOFTCUP TECHNOLOGY
Although the Company is currently focusing its primary efforts and capital
resources on introducing INSTEAD-TM- into the United States and international
markets, the Company intends to apply a portion of the net proceeds of the
Concurrent Offering to pursue research on potential medical and
12
<PAGE>
health care applications of the SoftCup Technology. If such research leads to
the development of new products, the Company would require further additional
capital and/or a strategic partner to market and distribute such products. There
can be no assurance that such research or development will be successful, that
these additional potential applications of the SoftCup Technology will result in
the Company's introduction of other products or that any additional financing
will be available or, if available, will be on terms acceptable to the Company.
See "Business -- Other Potential Applications of the SoftCup Technology."
The Company's focus on research and development of medical applications of
the SoftCup Technology is contingent on many factors which are generally
difficult to identify and quantify. They are dependent on a number of factors
which are not in the Company's control, including the results of clinical trials
and other scientific findings, and the regulatory requirements of clinical
testing and market approvals. See "-- Necessity of Regulatory Clearances to
Market" and "Business -- Government Regulation." Accordingly, there can be no
assurance that any of the goals or timetables described in this Prospectus
relating to other potential applications of the SoftCup Technology can be met.
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent, in large part, on the continued service
of its key management, certain scientific and technical advisors and its ability
to attract and retain qualified employees. Competition for such employees is
intense. The Company has obtained key-person life insurance in the amount of $1
million for the life of John W. Andersen, the President, Chief Executive Officer
and Chairman of the Board of the Company. In addition, the Company is in the
process of obtaining a key-person life insurance policy on Audrey Contente, an
officer and founder of the Company who invented the SoftCup Technology. There
can be no assurance that any such key-person life insurance will continue to be
available in the future to the Company at a satisfactory premium. See
"Management."
DILUTION
Purchasers of shares in the Concurrent Offering will suffer immediate and
substantial dilution of $13.41 per share in net tangible book value per share as
of June 30, 1996 (assuming an offering price of $23.00 per share). See
"Dilution."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and Amended and Restated By-Laws could have the effect of discouraging a third
party from pursuing a non-negotiated takeover of the Company and preventing
certain changes in control. The Restated Certificate of Incorporation provides
that the Board of Directors is divided into three classes. One class of
directors is elected at each annual meeting of stockholders for a three-year
term. The Restated Certificate of Incorporation restricts certain business
combinations with an interested stockholder (typically a beneficial owner of 15%
or more of the outstanding voting shares of the Company's capital stock,
excluding certain persons). In addition, the Amended and Restated By-Laws and
the Restated Certificate of Incorporation require advance notice to the Board of
Directors of stockholder proposals or stockholder nominees for directors to be
considered at the next annual meeting of stockholders and restrict the ability
of stockholders to call meetings. The Restated Certificate of Incorporation and
Amended and Restated By-Laws also limit the ability of stockholders to remove
directors, call stockholders meetings and act by written consent and provide
that vacancies in the Board of Directors may only be filled by a majority of the
remaining directors. In addition, the Company's Restated Certificate of
Incorporation authorizes the issuance of 5,000,000 shares of preferred stock
with such designation, rights and preferences as may be determined from time to
time by the Board of Directors. The Board of Directors may, without stockholder
approval, issue preferred stock with dividend, liquidation, conversion, voting
or other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. There can be no assurance that the Company will
not issue additional shares of preferred stock in the future. These provisions
could discourage a third party from pursuing
13
<PAGE>
a takeover of the Company at a price considered attractive by many stockholders,
since such provisions could have the effect of delaying an acquiring party from
gaining control of the Company and its Board of Directors. See "Description of
Capital Stock -- Preferred Stock" and "-- Certain Provisions of the Company's
Certificate of Incorporation and By-Laws."
LIMITED TRADING HISTORY; VOLATILITY OF PRICE
Prior to the IPO, there had been no public trading market for the Common
Stock, and there can be no assurance that a regular trading market for the
Common Stock will continue or that the market price for the Common Stock will
not fall below the offering price. In addition, market prices of securities of
many development stage companies have experienced wide fluctuations not
necessarily related to the operating performance of such companies. The Company
believes that factors such as legislative, regulatory and technological
developments and quarterly variations in financial results could cause the
market price of the Common Stock to fluctuate substantially. These market
fluctuations may adversely affect the price of and market for the Common Stock.
See "Price Range of Common Stock."
SUBSTANTIAL AMOUNT OF SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE OF COMMON STOCK
Upon consummation of the Concurrent Offering, the Company will have
8,889,501 shares of Common Stock outstanding (9,339,501 shares if the
Underwriters' over-allotment option is exercised in full). In addition, as of
August 31, 1996, there has been reserved 5,047,753 shares of Common Stock for
issuance upon the conversion or exercise of outstanding securities. The
3,000,000 shares of Common Stock to be sold in the Concurrent Offering
(3,450,000 shares if the Underwriters' over-allotment option is exercised in
full), other than shares which may be purchased by "affiliates" of the Company,
will be freely tradeable without restriction or further registration under the
Securities Act. The 3,910,000 shares of Common Stock sold in the IPO, other than
shares which were purchased by affiliates of the Company, are also freely
tradable without restriction under the Securities Act. In addition, an aggregate
of 1,073,450 shares of Common Stock which are outstanding and 3,227,853 shares
of Common Stock which are issuable upon the conversion or exercise of
outstanding securities are registered in the Offering. The Company intends to
file a Registration Statement on Form S-8 with respect to up to 1,805,963 shares
of Common Stock issuable pursuant to its stock option plans and certain options
and warrants which have been granted to employees and consultants of the Company
as soon as practicable after the date of this Prospectus; such Registration
Statement would include 1,344,157 shares of Common Stock issuable upon
conversion or exercise of outstanding securities of the Company. Approximately
1,381,794 of the remaining shares of Common Stock outstanding and issuable upon
conversion or exercise of outstanding securities would be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act ("Rule 144"), and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144. See
"Concurrent Public Offering" and "Shares Eligible for Future Sale."
All officers, directors and certain security holders agreed with Hampshire
in connection with the IPO not to, directly or indirectly, offer, sell, contract
to sell or otherwise dispose of their shares of Common Stock, or other
securities convertible into or exercisable for shares of Common Stock, without
the prior written consent of Hampshire, prior to August 22, 1997. An aggregate
of 4,831,305 shares of Common Stock outstanding and issuable upon conversion or
exercise of outstanding securities are subject to these lock-up arrangements.
Hampshire has agreed with Jefferies not to release any of such security holders
from the contractual restriction without the prior written consent of Jefferies.
The Company has, subject to certain exceptions, agreed not to offer, issue or
sell any shares of Common Stock or securities exercisable for or convertible
into shares of Common Stock for a 180 day period after the date of this
Prospectus without the prior written consent of Jefferies. No predictions can be
made as to the effect, if any, that market sales of shares of existing
stockholders or the availability of such shares for future sale will have on the
market price of shares of Common Stock prevailing from time to time. The
prevailing market price of the Common Stock after the Concurrent
14
<PAGE>
Offering could be adversely affected by future sales of substantial amounts of
Common Stock by existing stockholders. See "Certain Relationships and Related
Party Transactions," "Principal Stockholders" and "Shares Eligible for Future
Sale."
LACK OF DIVIDENDS
The Company has not yet generated revenues and does not expect to pay cash
dividends for the foreseeable future.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Securities by the
Selling Stockholders.
PRICE RANGE OF COMMON STOCK
The Common Stock was initially offered to the public on February 22, 1996 at
a price of $10.00 per share and is quoted on the Nasdaq National Market. The
following table sets forth the range of high and low sale prices for the Common
Stock for the periods indicated as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- ---------
<S> <C> <C>
Fiscal year 1996:
Third quarter (since February 22nd)............................................................... 16 11 1/8
Fourth quarter.................................................................................... 36 11 3/4
Fiscal year 1997:
First quarter (through September 12th)............................................................ 25 3/4 14
</TABLE>
On September 12, 1996, the last sale price of the Common Stock was $24.00 as
reported on the Nasdaq National Market. At August 31, 1996, there were 183
stockholders of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock to date. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition. It is the present intention of the Board
of Directors to retain all earnings, if any, for use in the Company's business
operations and, accordingly, the Board of Directors does not expect to declare
or pay any cash dividends in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term debt and
the capitalization of the Company at June 30, 1996 and as adjusted to give
effect to the sale of the 3,000,000 shares of Common Stock offered in the
Concurrent Offering, at an assumed public offering price of $ per share,
and the application of the estimated net proceeds therefrom. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Results of Operations" and the Company's financial statements and notes thereto.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
AS
ACTUAL ADJUSTED(1)
----------- ------------
<S> <C> <C>
Current Maturities of Long-term Debt:
Unsecured Convertible Notes................................... $ 2,875,000 $ --
Unsecured Notes to Former Officers............................ 221,033 221,033(2)
Unsecured Notes to Trade and Other Creditors.................. 63,548 3,751(2)
Subordinated Convertible Debentures........................... 282,432 282,432(2)
----------- ------------
Total Current Maturities of Long-term Debt.................. 3,442,013 507,216(2)
Long-term Debt:
Convertible Debentures........................................ 700,000 700,000
Stockholders' Equity :
Preferred Stock, $.001 par value -- authorized 5,000,000
shares, $8 cumulative Convertible Series A: issued and
outstanding 1,121.25 shares stated at liquidation preference
of $112,125.................................................. 112,125 --
Common Stock, $.001 par value -- authorized 20,000,000 shares:
issued and outstanding 5,737,241 and 8,759,666 shares as
adjusted (3)................................................. 9,905 12,927
Additional Paid-In-Capital.................................... 42,207,697 105,316,800
Deficit....................................................... (21,045,783) (21,045,783)
----------- ------------
Total Stockholders' Equity.................................. 21,283,944 84,283,944
Total Capitalization.......................................... $25,425,957 $ 85,491,160
----------- ------------
----------- ------------
</TABLE>
- ------------------------
(1) Gives effect to the conversion of all 1,121.25 outstanding shares of Series
A Convertible Preferred Stock, par value $.001 per share, of the Company
(the "Series A Preferred Stock") into Common Stock after June 30, 1996.
(2) This debt which becomes due on various dates between September and December
1996 will be repaid with a portion of the proceeds from the IPO.
(3) Does not include (i) 5,169,988 shares of Common Stock (including 22,425
shares of Common Stock issuable upon the conversion of the Series A
Preferred Stock), issuable upon the exercise of options, warrants and other
securities outstanding as of June 30, 1996 (ii) 461,806 shares reserved for
issuance pursuant to options under the Company's stock option plans, and
(iii) 30,000 shares of Common Stock issuable upon warrants issued subsequent
to June 30, 1996. See "Prior Financings."
16
<PAGE>
DILUTION
The net tangible book value of the Common Stock at June 30, 1996 was
$20,905,867 or $3.64 per share. "Net tangible book value per share" is
determined by dividing the net tangible book value of the Company (total assets
less debt issuance costs, net accumulated amortization, preferred stock, and
total liabilities) by the number of shares of Common Stock outstanding. Without
taking into account any changes in net tangible book value after June 30, 1996,
other than to give effect to the sale of the shares of Common Stock offered in
the Concurrent Offering (at an assumed public offering price of $23.00 per
share), the conversion of the Series A Preferred Stock into 22,425 shares of
Common Stock, and after deducting the underwriting discount and estimated
offering expenses payable by the Company, the pro forma net tangible book value
of the Company at June 30, 1996 would have been $84,017,992, or $9.59 per share.
This represents an immediate increase in net tangible book value of $5.95 per
share to existing stockholders and an immediate dilution of net tangible book
value of $13.41 per share to new investors purchasing shares of Common Stock in
the Concurrent Offering. The following table illustrates this dilution per
share.
<TABLE>
<S> <C> <C>
Assumed public offering price per share.................................... $ 23.00
Net tangible book value per share as of June 30, 1996.................... $ 3.64
Increase in net tangible book value per share attributable to the
Concurrent Offering..................................................... 5.95
---------
Pro forma net tangible book value per share after the Concurrent
Offering.................................................................. 9.59
---------
Dilution per share to new investors........................................ $ 13.41
---------
---------
</TABLE>
The following table sets forth as of June 30, 1996 for existing stockholders
and for new investors the number and percentage of total outstanding shares of
Common Stock purchased from the Company, the total consideration (assuming a
public offering price of $23.00 per share) and percentage of total consideration
paid to the Company, and the average price per share paid, before deducting the
underwriting discount and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ---------------- --------- -------------
Existing Stockholders.......................... 5,737,241 65.50% $ 46,731,990 40.34% $ 8.15
New Investors.................................. 3,000,000 34.24% 69,000,000 59.56% $ 23.00
Conversion of Series A Preferred Stock......... 22,425 .26% 112,125 .10% $ 5.00
----------- --------- ---------------- ---------
Total...................................... 8,759,666 100.00% $ 115,844,115 100.00%
----------- --------- ---------------- ---------
----------- --------- ---------------- ---------
</TABLE>
The foregoing table assumes no exercise or conversion of currently
outstanding securities which are convertible into or exercisable for Common
Stock, other than the Series A Preferred Stock. At June 30, 1996, there were
outstanding securities which are convertible into or exercisable for 5,169,988
shares of Common Stock (including 22,425 shares of Common Stock issuable upon
conversion of the Series A Preferred Stock), at a weighted average
conversion/exercise price of $7.90 per share. Since June 30, 1996, the Company
has issued 13,000 shares of Common Stock upon the conversion of $130,000 of
convertible debt, 116,810 shares of Common Stock upon the exercise of options
and warrants for an aggregate exercise price of $4.95 per share, 22,425 shares
of Common Stock upon conversion of 1,121.25 shares of Series A Preferred Stock,
and warrants to purchase 30,000 shares of Common Stock at an exercise price of
$10.00 per share. See "Risk Factors -- Substantial Amount of Shares Eligible for
Future Sale; Potential Adverse Effect on Market Price of Common Stock,"
"Capitalization" and Note 5 of Notes to Financial Statements.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the five years ended June 30, 1996 are
derived from the audited financial statements of the Company, The financial
statements as of June 30, 1996 and for the three years then ended have been
audited by Deloitte & Touche LLP, independent auditors. The selected financial
data below should be read in conjunction with the Financial Statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
Total Revenue.................... -- -- -- -- --
General and Administrative
Expense........................ $ 2,141,249 $ 1,139,339 $ 1,387,784 $ 1,568,442 $ 7,501,538
Research & Development Expense... 1,668,752 830,761 452,552 181,475 1,403,557
Interest Expense................. 4,422 71,117 336,732 464,615 665,381
Interest Income.................. -- -- -- -- (489,379)
Depreciation and Amortization.... 17,113 50,686 126,872 166,533 738,883
Net Income (Loss)................ $ (3,831,536) $ (2,091,903) $ (2,303,940) $ (2,381,065) $ (9,819,980)
Net Income (Loss) Per Share...... $(1.61) $(0.79) $(0.87) $(0.87) $(2.74)
Weighted Average of Common Shares
and Equivalents (1)............ 2,386,847 2,640,387 2,658,214 2,698,152 3,529,494
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (2)............ $ (901,394) $ (2,386,815) $ (2,438,701) $ (2,662,142) $ 17,962,533
Total Assets................... 489,340 670,147 603,424 766,959 29,407,936
Long-term Debt................. 350,000 787,358 2,880,075 4,032,493 700,000
Stockholders' (Deficiency)
Equity........................ (960,666) (2,573,795) (4,733,714) (6,011,780) 21,283,944
</TABLE>
- ------------------------
(1) The weighted average number of common shares outstanding during the first
half of fiscal year 1996, and during fiscal years 1995, 1994, 1993 and 1992
includes the Incremental Shares. Such Incremental Shares were determined
utilizing the treasury stock method. The effect of the assumed exercise of
stock options which were issued one year prior to the effective date of the
IPO and the effect of the assumed conversion of the convertible preferred
stock are not included because their effect is antidilutive.
(2) Includes current portion of long-term debt.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's activities during the year ended June 30, 1996 were focused on
the launch of INSTEAD-TM-, currently scheduled to commence in the Fall of 1996.
The lead market for the initial rollout is in the Pacific Northwest, a region
which the Company estimates represents approximately 8% of U.S. households, and
includes the major markets of San Francisco, Seattle and Portland. In May, the
Company finalized the lead market distribution network by contracting with
Morgan & Sampson Pacific, a retail broker with expertise in the Health and
Beauty Aid business as well as the feminine protection market segment.
Manufacturing activities to support the launch of INSTEAD-TM- progressed
during the second half of fiscal year 1996. Manufacturing space was leased and
remodeling began. The Company placed equipment orders to complete the first
manufacturing line. The special thermoforming equipment required to manufacture
INSTEAD-TM- completed high volume testing and in June 1996 commenced
manufacturing INSTEAD-TM- for the Fall 1996 launch.
In addition to INSTEAD-TM- launch activities, research and development
activities on new products continued in the fourth quarter of fiscal year 1996.
The BufferGel Technology developed by the Company's research and development
partner, ReProtect, was selected by HIVNET for funding of clinical trials to
test its use for the prevention of AIDS and other STDs. The Phase I clinical
trials are currently scheduled to begin in the Fall of 1996.
The following table sets forth, for the periods indicated, the percentage
increases or decreases of certain items included in the Company's statement of
operations.
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM PRIOR
PERIOD
------------------------------
<S> <C> <C>
JUNE 30, 1995 JUNE 30, 1996
COMPARED WITH COMPARED WITH
JUNE 30, 1994 JUNE 30, 1995
--------------- -------------
General and Administrative Expense.............................. 13.0% 378.3%
Research and Development Expense................................ (59.9) 673.4
Interest Expense................................................ 38.0 43.2
Depreciation and Amortization................................... 31.3 343.7
Net Loss........................................................ 3.3 312.4
</TABLE>
GENERAL AND ADMINISTRATIVE
General and administrative expense increased 378.3% to $7,501,538 during the
year ended June 30, 1996 from $1,568,442 for the year ended June 30, 1995. The
increase was primarily due to expenses related to the launch of INSTEAD-TM-,
including market research, development of trade promotion plans and package
design, as well as non-cash charges resulting from the issuance of options to
purchase Common Stock to officers and a director of the Company.
Plans for the lead market geography were developed and the Company has
retained Morgan & Sampson Pacific to gain widespread distribution and
merchandising support of INSTEAD-TM- to retailers in the lead market. Staffing
additions to facilitate product launch and operations included a Vice President
of Operations at the Montana facility, Senior Marketing Product Manager and a
Corporate Controller.
General and administrative expense increased 13.0% to $1,568,442 in 1995
from $1,387,784 in 1994. The increase for the year ended June 30, 1995 compared
to June 30, 1994 was primarily due to increases in salaries and signing bonuses
attributable to newly hired officers of the Company, who are principally engaged
in the development of the Company's business plan and equity financing
activities, marketing expenses related to INSTEAD-TM-, and related travel
expenses offset in part by reduced legal expenses.
19
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expense increased 673.4% to $1,403,557 during the
year ended June 30, 1996 from $181,475 for the year ended June 30, 1995. The
increase was primarily attributable to research expenses paid to ReProtect under
the terms of the Company's research and development agreement, research and
testing expenses related to INSTEAD-TM-, increased travel expenses and raw
material costs in connection with production startup expenses, as well as legal
expenses.
Production startup expenses included procurement of a manufacturing facility
as well as completion of line testing. A lease was entered into for
manufacturing and office space. Remodeling began on the manufacturing space
principally to create the controlled environment module that secures the
manufacturing equipment. Equipment orders were placed for INSTEAD-TM-'s first
manufacturing line. The first piece of special equipment to manufacture the
product, which is called the thermoforming line, completed testing at Remmele
Engineering, Inc. in St. Paul, Minnesota and has been installed at Ultrafem's
Montana facility and is producing product for the Fall 1996 launch of
INSTEAD-TM-. In June 1996 the Company commenced manufacturing quantities of
INSTEAD-TM- for the commercial market, and estimates that it has produced an
aggregate of approximately 2.2 million units of INSTEAD-TM- through August 14,
1996.
The BufferGel Technology developed by the Company's research and development
partner, ReProtect, has been selected by HIVNET for funding of clinical trials
to test its use as a vaginal microbicide for the prevention of AIDS and other
STDs. Furthermore, the FDA has permitted the BufferGel Technology to enter Phase
I clinical trials, which are currently scheduled to begin in the Fall of 1996.
The BufferGel Technology is the first non-detergent AIDS prevention technology
to be selected by HIVNET to proceed to clinical trials. See "Business -- Other
Potential Applications of the SoftCup Technology."
Research and development expense decreased 59.9% to $181,475 in 1995 from
$452,552 in 1994. The decrease for the year ended June 30, 1995 compared to June
30, 1994 was primarily attributable to reduced expenditures incurred by the
Company with independent contract research groups and lower manufacturing
facility costs associated with the Company's decision to move to smaller
manufacturing facilities.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was $738,883 for the year ended June 30, 1996
and $166,533 for the year ended June 30, 1995. The 343.7% increase for the year
ended June 30, 1996 compared to the year ended June 30, 1995 was attributable to
increases in the amortization of deferred debt issuance costs.
Depreciation and amortization was $166,533 in 1995 and $126,872 in 1994. The
31.3% increase in 1995 compared to 1994 was primarily attributable to increases
in the amortization of deferred offering costs.
INTEREST EXPENSE
Interest expense was $665,381 for the year ended June 30, 1996 and $464,615
for the year ended June 30, 1995. The 43.2% increase for the year ended June 30,
1996 compared to the year ended June 30, 1995 was attributable to the increase
in debt incurred by the Company in the year ended June 30, 1996. At June 30,
1996 the Company repaid approximately $4.9 million of debt. See "-- Liquidity
and Capital Resources."
Interest expense was $464,615 in 1995 and $336,732 in 1994. The 38.0%
increase in 1995 compared to 1994 was attributable to increases in debt incurred
by the Company in each of the respective comparable periods.
INTEREST INCOME
Interest income was $489,379 for the year ended June 30, 1996 compared to
$-0- for the year ended June 30, 1995. The increase for the year ended June 30,
1996 compared to the year ended June 30, 1995 was attributable to the money
received by the Company in February 1996 from its IPO which was invested in cash
equivalents during the period ended June 30, 1996.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for funds has increased from period to period as it has
incurred expenses for, among other things, research and development activities,
engineering and design of fully automated manufacturing systems, clinical
testing, meeting domestic and international regulatory requirements,
applications for domestic and international patent protection, applications for
domestic trademark protection and market research. Since its inception, the
Company has funded these needs through private placements of its equity and debt
securities. The Company has received net proceeds in excess of approximately
$12,300,000 through private sales of these securities from inception through
June 30, 1996. See "Prior Financings."
In February 1996, the Company received proceeds of $34,085,611, net of
related expenses of $5,014,389, in connection with the sale of 3,910,000 shares
of Common Stock in the IPO. As of June 30, 1996, the Company's cash position
increased by $24.4 million, principally reflecting the net proceeds from the IPO
and $6.1 million in net proceeds from the sale of convertible and nonconvertible
promissory notes and exercise of stock options and warrants. This increase was
offset by repayment of debt and payment of debt issuance costs of $5.6 million,
$7.6 million used in operating activities and $2.6 million used for construction
in progress in the manufacturing plant and purchase of property and equipment.
The Company's working capital and capital requirements will depend on
numerous factors, including the progress of the staged market introduction of
INSTEAD-TM-, the Company's research and development activities, the level of
resources that the Company devotes to the developmental, clinical, regulatory
and marketing aspects of its products and the extent to which strategic
alliances with multi-national pharmaceutical or consumer product companies are
formed. At June 30, 1996 the Company had capital commitments in the amount of
approximately $5,374,005, of which $4,377,957 was unpaid, for the purchase of
manufacturing equipment and improvements to the manufacturing facility to
support startup production and leasehold improvements to the new New York office
space. In addition, in February 1996 the Company and ReProtect entered into a
License, Research and Product Development Agreement under which the Company is
obligated to pay ReProtect a minimum of $1 million per year for research and
development.
The Company's stockholders' equity increased by $27.3 million from June 30,
1995 to June 30, 1996 reflecting the net proceeds from the IPO of $34.1 million,
proceeds from the exercise of stock options and warrants of $1.9 million,
conversion of accounts payable to warrants, issuance of below market value stock
options and warrants in connection with professional services and licensing
agreements and conversion of convertible debt to common stock of $1.1 million,
offset by the Company's net loss for the year ended June 30, 1996 of $9.8
million.
The Company believes that the financial resources available to it, together
with the net proceeds from the Concurrent Offering, will satisfy the Company's
working capital needs for at least 12 months. See "Risk Factors -- Need for
Additional Financing for Unforeseen Risks."
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The standard encourages, but
does not require, companies to recognize compensation expense of grants for
stock, stock options and other equity instruments to employees based on fair
value accounting rules. SFAS No. 123 requires companies that choose not to adopt
the new fair value accounting rules to disclose pro forma net income and
earnings per share under the new method. The standard is effective for fiscal
years beginning after December 15, 1995. The Company has not yet determined if
it will adopt the accounting provisions of SFAS No. 123 or only the disclosure
provision. The Company has not determined the effect, if any, that adoption of
SFAS No. 123 will have on its results of operations.
21
<PAGE>
BUSINESS
GENERAL
Ultrafem, Inc., a development stage company, was formed to design, develop
and manufacture products based upon its proprietary and patented SoftCup
Technology to address women's health care needs. The SoftCup Technology is a
physical barrier-type vaginal device designed to enhance the comfort,
functionality and effectiveness of products designed for women in the areas of
feminine protection, contraception, the prevention of STDs and the treatment of
vaginal infections. The commercial products which will employ the SoftCup
Technology will be disposable, single use, universal size and made from a soft,
inert, thermoplastic material which becomes more pliable at body temperature and
molds to fit the individual user's anatomy.
FEMININE PROTECTION PRODUCT -- INSTEAD-TM-
Management believes that INSTEAD-TM- represents one of the most significant
technological developments for feminine protection since the introduction of the
first commercial disposable tampon in 1933. INSTEAD-TM- differs from other forms
of feminine protection currently on the market in that it collects, rather than
absorbs, menstrual fluid. The Company believes that the unique design of
INSTEAD-TM- provides several distinct benefits over currently available forms of
feminine protection, including increased comfort, improved performance, reduced
health concerns and freedom to engage in most physical (including sexual)
activities during menstruation. The Company has obtained FDA clearance to market
INSTEAD-TM- in the United States. INSTEAD-TM- may also be marketed in each of
Belgium, Canada, Denmark, Finland, France, the Netherlands, Spain, Sweden,
Switzerland and the United Kingdom subject to compliance with applicable
international labeling laws and United States export requirements.
The Company plans to initiate the launch of INSTEAD-TM- in the Pacific
Northwest, a region which the Company estimates represents approximately 8% of
United States households and includes the major markets of San Francisco,
Seattle and Portland, by the Fall of 1996. The Company intends to introduce
INSTEAD-TM- in stages into additional significant geographic regions with full
national distribution anticipated to be achieved over a three year period, which
may be accelerated or delayed depending upon various factors including market
acceptance by retailers and consumers, and the availability of additional
financing. The Company has conducted market research and consumer use testing
which indicate significant consumer interest in INSTEAD-TM-. The Company intends
to distribute INSTEAD-TM- principally through supermarkets and drug stores. See
"Risk Factors -- Inherent Limitation of Market Research and Consumer Use
Testing," "-- Need for Additional Financing for Unforeseen Risks," "Business --
Product Testing" and "-- Strategy and Plan of Operations."
Management estimates that the domestic and international feminine protection
markets in developed countries are in excess of $9 billion annually. The United
States market for feminine protection products such as tampons and pads
generates approximately $1.8 billion in annual revenues (based on a 1995 report
by A.C. Nielsen). Approximately 58 million women between the ages of 18 and 54
use feminine protection products in the United States. Approximately 63% of
menstruating women in the United States use tampons exclusively or in
combination with pads (based on 1996 Simmons Market Research Bureau). The
European market for feminine protection products generates approximately $2.9
billion in annual revenues (based on a 1995 report by A.C. Nielsen) with an
estimated 105 million women between the ages of 18 and 54 using feminine
protection products. Other developed markets, including Canada, Latin America,
Mexico and Asia (other than India and China) represent a combined population in
excess of 200 million potential users.
MEDICAL PRODUCT APPLICATIONS
Ultrafem intends to develop additional applications of the SoftCup
Technology, for vaginal delivery of agents for use in contraception, the
prevention of STDs, and the treatment of vaginal infections. The Company's
initial product under development is a contraceptive which combines the SoftCup
Technology with the BufferGel Technology, which is licensed by the Company for
vaginal use on a
22
<PAGE>
worldwide basis. The BufferGel Technology was invented by scientists associated
with Johns Hopkins with whom the Company has previously conducted research. The
Company has entered into a research and development agreement with ReProtect, a
company founded by these scientists which will continue the investigation and
development of medical applications of the SoftCup Technology.
Subsequent to the IPO, the FDA allowed an IND application permitting the
BufferGel Technology to enter Phase I clinical trials to test its use as a
vaginal microbicide for the prevention of AIDS and other STDs. These Phase I
clinical trials are currently scheduled to commence in the Fall of 1996 and are
being funded by HIVNET, a unit of the NIH. The Company plans to begin clinical
trials of its contraceptive product upon completion of the Phase I clinical
trials of the BufferGel Technology. A portion of these clinical trials may be
funded by the net proceeds of the Concurrent Offering. In order to achieve this
timetable, the Company will need to complete the development of the
contraceptive product by combining the SoftCup Technology and the BufferGel
Technology. There can be no assurance, however, that any of the foregoing goals
or timetables can be met, or that any of the clinical trials will demonstrate
the necessary degree of safety and effectiveness required for FDA pre-market
approval. See "Risk Factors -- Dependence on Single Product," "-- Risks
Associated with Research and Development for Other Applications of the SoftCup
Technology," and "Business -- Other Potential Applications of the SoftCup
Technology."
The United States market for contraceptive products such as condoms, oral
contraceptives, diaphragms and implantable contraceptives generates
approximately $2 billion in annual revenues (based on Theta Corporation, 1994).
Based on the population of women between the ages of 18 and 54, estimated to be
in excess of 300 million women in Europe and other developed markets, and
assuming that the frequency of use of contraceptive products is less than that
in the United States, management estimates the international markets for
contraceptives to be approximately $6 billion annually outside the United
States. Additionally, at least 330 million new cases of STDs occur each year
throughout the world (World Health Organization, 1995), indicating a significant
market for a STD prevention product.
STRATEGY AND PLAN OF OPERATIONS
The Company's business strategy is to develop and market proprietary
products based on its patented SoftCup Technology directed at high potential,
underserved segments of the women's health care market. The key elements of this
strategy are to (i) commence the launch of INSTEAD-TM- in the United States,
(ii) expand the Company's manufacturing capabilities, (iii) develop and submit
for FDA clearance or pre-market approval products based upon the SoftCup
Technology for the medical product arena and (iv) pursue strategic alliances
with multi-national consumer product and pharmaceutical companies for marketing,
sales and distribution.
The Company intends to market INSTEAD-TM- as an innovative alternative to
tampons and sanitary napkins. The Company intends to introduce INSTEAD-TM- in
stages into significant geographic regions with full national distribution
anticipated to be achieved over a three year period, which may be accelerated or
delayed depending upon various factors including market acceptance by retailers
and consumers, and the availability of additional financing. Management expects
to commence initial regional distribution of INSTEAD-TM- in the United States by
the Fall of 1996; this initial introduction will begin in the Pacific Northwest,
including the major markets of San Francisco, Seattle and Portland. The Company
believes that the financial resources available to it, together with the net
proceeds of the Concurrent Offering, will satisfy the Company's working capital
needs for at least 12 months. Distribution in foreign markets could occur
simultaneously, provided an appropriate strategic partner is identified. No
assurance can be given that the foregoing goals or timetables can be met. See
"Risk Factors -- Need for Additional Financing for Unforeseen Risks."
The Company intends to develop a contraceptive product and to simultaneously
develop additional applications of the combination of the SoftCup Technology
with the BufferGel Technology for treatment of vaginal infections and topical
and systemic therapies. The Company plans to begin clinical trials of a
contraceptive product upon completion of the Phase I clinical trials relating to
use of
23
<PAGE>
the BufferGel Technology as a vaginal microbicide for the prevention of AIDS and
other STDs. These Phase I clinical trials, which are currently scheduled to
begin in the Fall of 1996, are being funded by HIVNET. Any introduction of new
products would be dependent on individual product development, obtaining
regulatory clearances, the confirmation of the commercial viability of any such
product and the development of strategic partnerships to support international
market penetration. See "Risk Factors -- Risks Associated with Research and
Development of Other Applications of the SoftCup Technology" and "Business --
Other Potential Applications of the SoftCup Technology."
MARKETING AND SALES
The Company will market INSTEAD-TM- as an innovative alternative to existing
feminine protection products, including tampons and sanitary napkins. The
marketing campaign will be directed specifically at the Company's target
consumer audience of approximately 58 million women. See
"-- Feminine Protection Market -- Domestic Market." The Company, in conjunction
with Bozell Worldwide, Inc., a leading multi-national advertising and marketing
communications company, has developed detailed plans integrating consumer
advertising, professional advertising, consumer research, professional and
consumer public relations, and direct marketing. See "Certain Relationships and
Related Party Transactions."
The Company intends to implement marketing programs directed at the consumer
target audience, the professional target audience and the retail trade. Plans
for the consumer target audience include a multimedia consumer advertising
campaign comprised of television, print and the Internet. Product sampling and
couponing via mail, advertising, public relations and print will also be
utilized.
The professional target audience is defined as Obstetrician/Gynecologists,
Obstetrician/Gynecologist Nurses and Pharmacists. Plans for a professional
campaign have been formulated and include presentations at scientific meetings,
education for health and fitness organizations, by-lined articles in
professional journals, brochures for distribution through physicians' offices as
well as advertising in professional journals and through direct mail. The first
by-lined article ("Latest Developments in Menstrual Protection") appeared April
15, 1996 in CONTEMPORARY OB/GYN and was authored by Richard M. Soderstrom, M.D.,
a member of the Company's Scientific Advisory Board.
The Company intends to distribute INSTEAD-TM- principally through
supermarkets and drug stores. See "-- Strategy and Plan of Operations."
Management believes that this marketing approach should enable it to compete
effectively for sales and shelf space with its larger, better capitalized
competitors. The Company has retained Meridian to formulate selling strategies
and implement sales plans by trade channel and key accounts. Meridian will
provide the sales management organization which will supervise a broker network
and which will develop trade promotion plans and introductory sales
presentations for the initial introduction of INSTEAD-TM- into the United States
market. Ultrafem has hired Morgan & Sampson Pacific, a leading Health and Beauty
Aid broker in the Northwest, as the broker for INSTEAD-TM- in the Pacific
Northwest. Management believes that Morgan & Sampson Pacific is capable of being
the broker representing Ultrafem in as much as 25% of the United States market.
Sales calls in the Pacific Northwest to date have resulted in commitments from
retailers which account for more than 75% of ACV (all commodity volume) in the
food and drug classes of trade. These include commitments for in-store
merchandising and displays, on shelf dates, and desired shelf positioning.
There can be no assurance that the Company's marketing plans and strategies
will be successfully implemented. See "Risk Factors -- Marketing Risks;
Uncertainty of Consumer Acceptance" and "-- Risks Associated with Potential
Competitive Response."
The Company works with an array of outside marketing and sales professionals
who are supporting the launch of INSTEAD-TM-. The Company's in-house marketing
and sales professionals both supervise and coordinate the Company's use of
outside professionals. The Company currently plans to continue to outsource a
significant portion of its marketing and sales activities, since outside
professionals contribute significant and diverse skills, knowledge of trade, and
marketing and sales experience to the Company, at a cost which the Company could
not currently provide in-house.
24
<PAGE>
FEMININE PROTECTION MARKET
BACKGROUND
The menstrual cycle normally begins between the ages of 12 and 13 and
continues to menopause, which generally occurs between the ages of 46 and 54.
The cycle averages 28 days, with the normal period lasting from five to six
days. The period begins with one to three days of heavy flow and then tapers to
a daily light flow over several more days.
Some women use either tampons or sanitary napkins on an exclusive basis.
Many women use both tampons and sanitary napkins because there is a general
dissatisfaction associated with the use of any single product. Management
believes that INSTEAD-TM- provides women with significant advantages over the
currently available feminine protection products and expects to attract women
that use both sanitary napkins and tampons.
INSTEAD-TM- is a new product and women will need to become accustomed to
using it. Some women may find digital insertion unappealing. INSTEAD-TM-, like
certain other vaginal products, is not recommended for women who have had toxic
shock syndrome ("TSS"), use an IUD, or have anatomical abnormalities.
INSTEAD-TM- also should not be used immediately after childbirth. INSTEAD-TM- is
neither flushable nor biodegradable.
DOMESTIC MARKET
The United States feminine protection product market has grown approximately
11% from 1992 to 1995, with annual revenues increasing from approximately $1.6
billion in 1992 to approximately $1.8 billion in 1995. In 1995, the market was
divided between sanitary napkins, with a market share measured in dollars of
62%, and tampons, with a market share measured in dollars of 38%.
<TABLE>
<CAPTION>
($MILLION) % OF ($MILLION) % OF
PRODUCT TYPE 1992 MARKET SHARE 1995 MARKET SHARE
- ------------------------------------------------------------ ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Sanitary Napkins............................................ $ 941 59 $ 1,084 62
Tampons..................................................... 643 41 677 38
----------- --- ----------- ---
Total................................................... $ 1,584 100 $ 1,761 100
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
- ------------------------
Source: A.C. Nielsen
Management believes approximately 58 million women between the ages 18 and
54 use feminine protection products and represent the Company's target user
group in the United States domestic market. Based on the Company's market
research, management expects to ultimately generate trial of INSTEAD-TM- by
approximately 15-17 million women in this target audience. There can be no
assurance that INSTEAD-TM- will be tried by such number of women, or that such
women will remain as users of INSTEAD-TM-.
EUROPEAN AND OTHER DEVELOPED MARKETS
The European market for feminine protection products generated approximately
$2.9 billion in revenues in 1995, which represents a 7.5% increase over the
prior two years (based on 1995 Nielsen). According to such report, pantyliners
and pads had a 76% market share and tampons had a 24% share.
<TABLE>
<CAPTION>
($MILLION) % OF ($MILLION) % OF
PRODUCT TYPE 1993 MARKET SHARE 1995 MARKET SHARE
- ------------------------------------------------------------ ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Pantyliner.................................................. $ 424 16 $ 483 17
Towels (Pads)............................................... 1,638 60 1,739 59
Tampons..................................................... 643 24 688 24
----------- --- ----------- ---
Total................................................... $ 2,705 100 $ 2,910 100
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
- ------------------------
Source: A.C. Nielsen
25
<PAGE>
Management believes approximately 105 million women between the ages of 18
and 54 use feminine protection products in Europe and represent the Company's
target user group in this market.
Other developed markets, including Canada, Latin America, Mexico and Asia
(other than India and China) present a combined population in excess of 200
million potential users.
MANUFACTURING
The Company has developed a patent pending process for manufacturing
INSTEAD-TM-. Custom-designed, state-of-the-art process equipment is essential to
the Company's manufacturing strategy. Management has collaborated with several
equipment manufacturers to engineer the necessary equipment to fully automate
the manufacturing process. In October 1995, the Company retained Remmele
Engineering, Inc. to design, build and install equipment for the first
semi-automated line capable of producing approximately 4 million units per month
on a three shift basis to support startup production. The Company has ordered
for a second semi-automated line and a fully automated line. The Company
believes that its manufacturing capacity will be sufficient to meet consumer
demand. To commercialize INSTEAD-TM- successfully, the Company will have to
increase the number of units it can produce, reduce per-unit manufacturing costs
and achieve the high-quality standards required. See "Risk Factors -- Lack of
Manufacturing Experience, Need to Achieve Economies of Scale and Limited
Manufacturing Resources" and "-- Development Stage Company; History of Losses."
Subsequent to the IPO, the Company entered into a lease for manufacturing
and office space and remodeled the manufacturing space principally to create the
controlled environment module which will secure the manufacturing equipment. The
piece of special equipment to manufacture the product, which is called the
thermoforming line, completed high volume testing at Remmele Engineering, Inc.
in St. Paul, Minnesota and has been installed at the Ultrafem Montana facility
and is producing product for the Fall 1996 launch of INSTEAD-TM-. The flow
wrapper machine that will put INSTEAD-TM- into individual "intimate wraps" and
the cartoning machine that will put INSTEAD-TM- into 6, 16, and 24 count cartons
are also in place. In June 1996 the Company commenced manufacturing quantities
of INSTEAD-TM- for the commercial market, and estimates that it has produced an
aggregate of approximately 2.2 million units of INSTEAD-TM- through August 14,
1996.
The Company has developed thermoplastic formulations which are proprietary
to the Company. They are permeable to many commercially established drugs and
are easily welded to each other and to other delivery components. Management
believes the performance of these formulations in combination with the
manufacturing process is an important component of developing a practical, low
cost production process. See "-- Patent Status and Patent Applications;
Proprietary Technology."
OTHER POTENTIAL APPLICATIONS OF THE SOFTCUP TECHNOLOGY
The SoftCup Technology has significant potential medical and health care
applications. Management plans to develop commercial applications of the SoftCup
Technology to be used as a vaginal drug delivery system because, by virtue of
direct contact with vaginal mucous membranes, the SoftCup Technology can provide
an easy and direct method for topical and systemic vaginal drug treatments. The
Company believes that these products have significant commercial applications
for contraception, prevention of STDs, treatments of vaginal infections and
topical and systemic therapies.
Under a research agreement, which expired by its terms on June 30, 1993,
Johns Hopkins investigated using the SoftCup Technology as a delivery system for
monoclonal antibodies and other agents as protection against pregnancy and STDs.
Dr. Richard A. Cone and Dr. Kevin J. Whaley, who are affiliated with Johns
Hopkins, and along with Dr. Thomas Moench, previously conducted research for the
Company in connection with the research agreement with Johns Hopkins. These
individuals formed ReProtect which will continue the investigation of using the
SoftCup Technology as a vaginal drug delivery system of agents for
contraception, prevention of STDs, treatments of vaginal infections and for
topical and systemic therapies. Dr. Richard A. Cone is a member of the Company's
Board of Directors. See "Management Directors and Executive Officers." Dr.
Thomas R. Moench, formerly an
26
<PAGE>
Assistant Professor of Medicine at Johns Hopkins, is an expert in virology,
molecular biology and monoclonal antibody production. From 1984 through 1993, he
served on the faculty of Johns Hopkins
as a consultant physician in Infectious Diseases. He developed an animal model
for studying the vaginal and rectal (transmucosal) transmission of an AIDS-like
disease in cats caused by feline immunodeficiency virus. Dr. Kevin J. Whaley, an
Associate Research Scientist in Biophysics and an Adjunct Faculty member,
Population Dynamics/Reproductive Biology, Johns Hopkins, is an expert on
monoclonal antibodies and vaccines that protect against both pregnancy and
disease and on vaginal drug delivery.
Two of the scientists who formed ReProtect invented the BufferGel
Technology, which ReProtect has licensed to the Company. The Company believes
that this BufferGel Technology, when combined with the patented SoftCup
Technology, will provide enhanced protection against pregnancy and STDs as well
as enhanced treatments for vaginal infections. The BufferGel Technology has the
ability to maintain the normal vaginal pH balance while killing sperm and most
STD pathogens. The mechanical barrier action of the SoftCup Technology combined
with the BufferGel Technology may fill the needs for an effective woman
controlled prophylactic contraceptive as well as vaginal anti-infective. The NIH
has granted $2 million in contracts for the research and development of the
BufferGel Technology for contraception and the prevention of AIDS and other
STDs. There can be no assurance, however, that ReProtect will receive the
benefit of the entire $2 million under the NIH contracts.
The FDA has allowed an IND application permitting the BufferGel Technology
to enter Phase I clinical trials which are currently scheduled to begin in the
Fall of 1996. These Phase I clinical trials are being funded by HIVNET, a unit
of the NIH, to test the use of the BufferGel Technology as a vaginal microbicide
for the prevention of AIDS and other STDs. The Company plans to begin clinical
trials of a contraceptive product upon completion of the Phase I clinical
trials. In order to achieve this timetable, the Company will need to complete
development of the contraceptive product by combining the SoftCup Technology and
the BufferGel Technology. The Company will simultaneously develop additional
applications of the combination of the SoftCup Technology and the BufferGel
Technology, for treatment of vaginal infections and topical and systemic
therapies with a view towards seeking FDA approval to enter clinical trials for
such applications. The Company also intends to develop other vaginal drug
delivery products including for the prevention of STDs. There can be no
assurance, however, that any of the foregoing goals or timetables can be met, or
that any of the clinical trials will demonstrate the necessary degree of safety
and effectiveness required for FDA pre-market approval. See "Risk Factors --
Dependence on Single Product" and "-- Risks Associated with Research and
Development for Other Applications of the SoftCup Technology."
ReProtect expects to conduct research at Johns Hopkins in accordance with a
ten year License, Research and Development Agreement between the Company and
ReProtect (the "ReProtect Agreement") under which the Company will provide
ReProtect at least $1 million annually for research. The ReProtect Agreement
provides the Company with an exclusive, worldwide license for the use of the
BufferGel Technology coupled with the SoftCup Technology, for which ReProtect
received a one time payment of $100,000, a royalty of $.01 per unit of the
product sold and ten and one-half year options to purchase 125,000 shares of
Common Stock at an exercise price of $8.00 per share and 100,000 shares of
Common Stock at an exercise price of $6.00 per share, exercisable upon the
attainment of certain milestones. In addition, ReProtect has granted the Company
a worldwide license for vaginal use of the BufferGel Technology without the
SoftCup Technology, for which ReProtect received a one time payment of $100,000,
options to purchase 175,000 shares of Common Stock at an exercise price of $8.00
per share, exercisable upon the attainment of certain milestones, and a royalty
of either 5% or 3% (depending on whether a patent has been issued) of net sales
of the BufferGel Technology (without the SoftCup Technology). The ReProtect
Agreement contains the parties' agreement to negotiate in good faith to extend
the term, as well as other customary provisions in agreements of this type,
including provisions relating to noncompetition, confidentiality and early
termination of the agreement and the licenses therein under certain
circumstances.
27
<PAGE>
The Company plans to continue pursuing other potential applications of the
SoftCup Technology. Beyond the potential applications discussed above, the
ongoing longer-range research and development with the ReProtect research team
will focus on the development of vaginal delivery of monoclonal antibodies
against sperm and STD pathogens. Management believes that these natural
protective agents will facilitate a new generation of products for vaginal
protection and therapy. The Company will require FDA clearance or pre-market
approval to market different applications of the SoftCup Technology in the
United States. See "Risk Factors -- Necessity of Regulatory Clearances to
Market."
In order to facilitate the development of other applications of the SoftCup
Technology, the Company currently plans to hire a Senior Vice President and
General Manager of Medical Products, to coordinate and advance medical product
development. The Company is conducting a search for such executive and has
identified several candidates. The Company is currently discussing a potential
employment agreement with one such candidate.
STRATEGIC ALLIANCES
The Company is seeking domestic and international strategic alliances with
multinational pharmaceutical and/or consumer product companies to support the
launch of INSTEAD-TM- into international markets and to support the development
of other commercial applications of the SoftCup Technology. In addition,
following the successful introduction of INSTEAD-TM- into the United States
market, the Company will consider entering into an alliance with a strategic
partner who could potentially act as an ongoing distribution partner for the
full United States market. The Company believes that forming strategic alliances
with multinational pharmaceutical and/or consumer product companies will enhance
both its ability to successfully bring INSTEAD-TM- to international markets and
its capability to develop new applications for the SoftCup Technology, such as
contraception and vaginal drug delivery applications. See "Risk Factors -- Risks
Associated with Research and Development of Other Applications of the SoftCup
Technology."
The Company has retained a number of consultants specializing in health care
and business strategy to assist it in formulating and implementing the strategic
alliance strategy. The Company and its consultants have contacted a selected
list of target companies as potential strategic partners and are currently
engaged in preliminary discussions regarding formation of strategic alliances
with companies in both the United States and in Europe.
PRODUCT TESTING
The Company has completed extensive laboratory testing of INSTEAD-TM- for
the purpose of satisfying the FDA's safety requirements. The Company has
conducted biocompatibility, toxicity and microbiological testing both IN VITRO
(outside a living organism) and IN VIVO (inside a living organism). Management
believes, based on the non-absorbent nature of INSTEAD-TM- and the results of
tests performed by two independent laboratories on the materials of which
INSTEAD-TM- is made and human clinical trials, that INSTEAD-TM- is safe. For a
discussion of potential product liability issues, see "Risk Factors -- Product
Liability; Possibility of Insufficient Insurance Coverage."
The tests for toxicity and biocompatibility were conducted by the Company
through independent laboratories in compliance with good laboratory practice
("GLP") regulations. Management believes the results of these tests demonstrate
INSTEAD-TM-'s safety. Arent Fox Kintner Plotkin & Kahn, FDA regulatory counsel
to the Company, has advised the Company that such results, which have been
submitted to the FDA, satisfy current FDA safety testing requirements for this
type of product.
The microbiological testing that was conducted demonstrated that INSTEAD-TM-
did not alter the growth of bacteria normally present in the vaginal micro flora
and did not cause the production of Toxic Shock Syndrome Toxin-l. All studies
were conducted by an independent laboratory in accordance with GLP regulations.
All test results described herein were submitted to the FDA in connection with
the 510(k) notification relating to INSTEAD-TM- See "-- Regulatory Status."
28
<PAGE>
Subsequent to the IPO, the Company completed human clinical test studies to
determine the safety of longer wear times of INSTEAD-TM- . While the Company did
not believe it necessary to conduct clinical testing to increase the maximum
wear time of INSTEAD-TM- since the devices to which it was found substantially
equivalent by the FDA either do not have a maximum wear time or can be worn for
at least 12 to 14 hours, if not longer, the Company conducted a clinical study
to support the safety of the 12 hour wear time. The study was conducted by The
Crucible Group of Atlanta, Georgia, following review by an Institutional Review
Board, and was analyzed by MTC-BRI International, Inc. ("MTC-BRI") of Rockville,
Maryland. The study evaluated the effect of use of INSTEAD-TM- on the vaginal
micro flora in approximately 100 women for 8, 12, and 24 hours. The
investigators concluded that increasing the wear time to 12 or even 24 hours
does not result in increased colonization by the etiologic agent of TSS, does
not lead to increased colonization by pathogens that cause bacterial vaginosis,
does not lead to increased colonization by E. COLI, the most common agent
causing urinary tract infections, and does preserve the normal
LACTOBACILLUS-predominant vaginal flora. In response to the results of such
testing the Company increased the recommended wear time from 8 to 12 hours. See
"Risk Factors -- Necessity of Regulatory Clearances to Market."
COMPANY-SPONSORED RESEARCH
QUANTITATIVE CONCEPT AND ATTITUDE RESEARCH
In September 1991, the Company engaged CLT Research Associates, a market
research firm, to conduct a feminine protection product survey to help the
Company evaluate the commercial viability of INSTEAD-TM-. Such survey was
conducted in October/November 1991 in 20 metropolitan markets among a total of
750 women aged 18-45 (all of whom used feminine protection products). The major
findings of this study indicated that:
CONSUMER NEED -- Approximately half of all women surveyed were dissatisfied
with existing feminine protection products due in part to problems of comfort,
performance and safety. The Company believes that these problems are addressed
by INSTEAD-TM-.
POSITIONING -- INSTEAD-TM-'s perceived benefits matched the features women
desired in a feminine protection product. This finding validates the Company's
plans to position INSTEAD-TM- as the innovative alternative in feminine
protection based on improved comfort and performance.
TRIAL -- One out of three women indicated they would purchase INSTEAD-TM-
based on exposure to a concept statement and seeing the actual product. Almost
half (48%) of the women indicated that they would expect INSTEAD-TM- to cost
more than what they now spend per period for feminine protection, and 42% of the
women would expect INSTEAD-TM- to cost the same as what they now spend.
CONCEPT POSITIONING RESEARCH
In March 1994, The Heller Research Group, a market research firm engaged by
the Company, conducted three concept positioning tests in 10 metropolitan areas
among a combined total of 300 women aged 21-49 (all of whom used feminine
protection products currently on the market). The results indicated that there
is considerable interest in INSTEAD-TM-, with over one-third of the women
indicating willingness to try INSTEAD-TM- after reviewing the concept statement
and seeing the actual product. The research indicated that it is possible that
INSTEAD-TM- can be priced at a premium vis-a-vis tampons. On average,
respondents indicated a willingness to purchase INSTEAD-TM- at a price which
represents a 16% premium to tampons.
CONSUMER USE TESTING
During the nine-month period of November 1991 through July 1992, INSTEAD-TM-
was use tested among a total of 300 women, ages 18-55, at seven different
geographical locations in the United States. Respondents were users of sanitary
napkins and tampons. Each woman used INSTEAD-TM- on a trial basis through three
consecutive menstrual cycles and, in total, over 13,000 units were used.
29
<PAGE>
The research concluded that approximately 80% of the women were interested
in continuing to use INSTEAD-TM-, with approximately 54% of the women indicating
they would be likely to use INSTEAD-TM- as their primary method of feminine
protection in the future. The Company believes based on this research that the
remaining 26% of these women would be likely to use INSTEAD-TM- for occasional
use. Pricing was not a factor which was considered in this usage test.
The Company is not aware of any other consumer research regarding the
satisfaction of consumers with currently available feminine protection products.
CONSUMER COMMUNICATION QUALITATIVE TESTING
Commencing August 1995, consumer focus groups, consisting of 600 women
across the United States, were conducted to finalize consumer communication with
respect to advertising, packaging and user instructions. As a result of these
focus groups, the Company determined to include the twelve hour wear time usage
claim in its advertising, public relations and packaging.
PATENT STATUS AND PATENT APPLICATIONS; PROPRIETARY TECHNOLOGY
A United States patent with respect to the SoftCup Technology (for use for
feminine protection during menstruation either with or without vaginal drug
delivery) was issued on March 22, 1994. Foreign patent applications
corresponding thereto were filed by the Company in Australia, Belgium, Brazil,
Canada, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden,
Switzerland and the United Kingdom.
The Company has in the past and will continue to pursue in the future patent
protection for its technology and products that are patentable. The Company's
original patent application was filed by Ms. Contente and subsequently assigned
to the Company. The patent contains claims covering the use of the SoftCup
Technology for menstruation either with or without vaginal drug delivery. The
Company has filed a United States continuation application with additional
claims on other aspects of the SoftCup Technology. In addition, the Company has
filed provisional patent applications in the United States on the method of
manufacturing the SoftCup Technology. To further protect its technology, the
Company intends to file additional patent applications on inventions relating to
processing technology, specific vaginal drug delivery systems and other new
product applications.
The Company relies on trade secrets, unpatented proprietary know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company requires its employees and consultants and other advisors
to execute confidentiality agreements. There can be no assurance that these
agreements will provide meaningful protection for the Company's trade secrets in
the event of unauthorized use or disclosure of such information or that others
will not independently develop substantially equivalent proprietary information
and manufacturing techniques or otherwise gain access to the Company's trade
secrets.
TRADEMARKS
The Company registered trademarks with the United States Patent and
Trademark Office for "SoftCup" and "Ultrafem" in 1992 and 1993, respectively.
The Company has also filed an application to register the trademark
"INSTEAD-TM-" in the United States, Argentina, Australia, Brazil, Canada, Chile,
India, Korea, Mexico, Pakistan, Panama, Paraguay, Philippines, Uruguay, Russia,
Switzerland, Taiwan, Venezuela and the European Community. The INSTEAD-TM- mark
was published for opposition in the United States on April 16, 1996; no
oppositions were filed during the 30 day opposition period. The Company believes
the INSTEAD-TM- mark will be registered in the United States in September 1996
or shortly thereafter. In addition, the Company is pursuing a trademark
application in Turkey.
REGULATORY STATUS
Government regulation, both domestic and foreign, will be a significant
factor in manufacturing and marketing INSTEAD-TM-. The lengthy process of
seeking FDA and foreign government clearance and the ongoing process of
complying with applicable federal statutes and regulations require expending
substantial resources.
30
<PAGE>
In 1993, the FDA cleared the Company's pre-market notification submission
under Section 510(k) of the FDCA. The FDA's clearance of this notification
enables the Company to market INSTEAD-TM- in the United States and to export it
overseas subject to the general controls provisions of the FDCA. Subsequent to
FDA clearance of this notification submission, modifications, which the Company
believes are minor, were made to the formulation of certain materials used in
INSTEAD-TM- to improve the manufacturing process. An applicable FDA regulation
requires the filing of a new 510(k) notification when, among other things, there
is a major change or modification in the intended use of the device, or a change
or modification in material, chemical composition or manufacturing process, that
could significantly affect the device's safety or effectiveness. A device
manufacturer is responsible for making the initial determination as to whether a
proposed change to a cleared device or its intended use necessitates the filing
of a new 510(k) notification. The Company conducted a full range of
toxicological testing subsequent to the changes in materials, including
laboratory tests to determine the effect on the vaginal micro flora and on the
production of the toxin which causes TSS. The results of the studies confirmed
that these changes did not affect the safety of the product. As a result, the
Company, and its regulatory counsel, do not believe a new 510(k) notification
was necessary to make this change. The Company's rationale and support for the
change are in records as required by FDA Good Manufacturing Practice regulations
and are available for inspection by the FDA.
In April 1994, the FDA informally proposed a guidance document pursuant to
the above-described regulation (which was revised in August 1995 and which is
expected to be re-published in September 1996) that would require submission of
a new 510(k) notification when certain changes are made in medical devices such
as INSTEAD-TM-, including changes in materials and labeling. If this proposal
becomes effective in its current proposed form, a resubmission of the 510(k)
notification of INSTEAD-TM- may be required. In addition, any product with a
510(k) notification cleared by the FDA and its manufacturer are subject to
continuing regulatory review and the FDA has the authority to, among other
things, order or request restrictions on the distribution of products or the
withdrawal of products from market even after clearance of a 510(k) submission
is obtained. See "Risk Factors -- Necessity of Regulatory Clearances to Market."
The Company has also decided to label INSTEAD-TM- with a 12 hour maximum
wear time. The labeling for INSTEAD-TM-, as cleared by the FDA in the original
510(k) notification, included an 8 hour maximum wear time. While the Company did
not believe it necessary to conduct clinical testing to increase the maximum
wear time since the devices to which INSTEAD-TM- was found substantially
equivalent by the FDA either do not have a maximum wear time or can be worn for
at least 12 to 14 hours, if not longer, the Company conducted a clinical study
to support the safety of the 12 hour wear time. See "-- Product Testing." The
study was conducted by The Crucible Group of Atlanta, Georgia. The investigators
concluded that increasing the wear time of INSTEAD-TM- to 12 or even 24 hours
does not result in increased colonization by the etiologic agent of TSS, does
not lead to increased colonization by pathogens that cause bacterial vaginosis,
does not lead to increased colonization by E. COLI, the most common agent
causing urinary tract infections, and does preserve the normal LACTOBACILLUS-
predominant vaginal flora. Since there has not been a change in the intended use
of the product, and the Company's clinical studies have demonstrated that the 12
hour maximum wear time is safe, and since the wear time is similar to that for
devices to which the product was found "substantially equivalent" by the FDA,
the Company does not believe a new 510(k) notification is necessary to increase
the maximum wear time to 12 hours. The results of these studies were discussed
during a meeting with the FDA on June 19, 1996. At that meeting, the FDA
requested that the Company submit these results of its clinical testing, which
the Company provided on July 17, 1996. The FDA has not responded to that
submission. The Company and its regulatory counsel do not believe a new 510(k)
notification is necessary under existing regulations. See "Risk Factors --
Necessity of Regulatory Clearances to Market."
31
<PAGE>
The Company's manufacturing facility in Missoula, Montana is subject to GMP
regulations which are promulgated by the FDA, international quality standards
and other regulatory requirements. The failure by the Company to comply with the
foregoing could adversely affect the Company's production and financial
condition.
The Company has obtained Canadian government acceptance to market
INSTEAD-TM- in Canada. INSTEAD-TM- may be marketed in each of Belgium, Denmark,
Finland, France, the Netherlands, Spain, Sweden, Switzerland and the United
Kingdom subject to compliance with applicable labeling laws and FDA requirements
concerning exports. Regulatory approvals or clearances are being pursued in
Argentina, Australia, Brazil, Germany, India, Italy, Mexico, Pakistan, Russia,
Saudi Arabia, Turkey, and the United Arab Emirates; however, there can be no
assurance that the Company will be able to comply with any such requirements.
The potential health care applications of the SoftCup Technology will
require FDA clearance or pre-market approval in accordance with the FDCA
applicable regulations. Although most of the potential uses do not incorporate
new chemical compounds, the Company will be required to submit applications for
each such use involving an already marketed drug, as a new form of delivery is
involved. Obtaining such approval or clearance can entail a lengthy process and
significant expense, including potential costs of clinical trials to demonstrate
safety and efficacy. See "Risk Factors -- Necessity of Regulatory Clearances to
Market."
In conjunction with developing other applications of the SoftCup Technology,
the Company has formulated a comprehensive regulatory strategy and has retained
MTC-BRI, an international contract research organization which specializes in
managing regulated health care products. MTC-BRI assists in determining that
potential products will meet applicable FDA requirements. Within MTC-BRI, the
project team for the Company is headed by Dr. David L. West who previously was
FDA Deputy Director, Office of Device Evaluation, Center for Devices and
Radiological Health.
GOVERNMENT REGULATION
Medical devices are regulated in the United States under the 1976 Medical
Device Amendments ("MDA") to the FDCA, and under pertinent implementing
regulations issued by the FDA. Every medical device in United States commercial
distribution is classified by the FDA as a Class I, II or III device. All three
classes require compliance with the general device controls of the MDA
(provisions governing establishment registration; product listing; adulteration;
misbranding; pre-market notification; notification of unreasonable risk; repair,
replacement or refund; recalls; device records and reports; and GMP
regulations). A Class II device must comply with such MDA general controls and
any applicable performance standard or other special controls promulgated by the
FDA. A Class III device must be clinically tested for safety and effectiveness
for its intended use(s) and obtain the FDA's approval of a pre-market approval
application ("PMA") containing the results of such tests before it can be
marketed. Thereafter, such a device must comply with the conditions of approval
of the PMA and with the MDA general controls.
Each new medical device product never before commercially distributed in the
United States is automatically deemed a Class III device requiring pre-market
approval, unless it can be demonstrated that it is substantially equivalent in
intended use, design, materials and/or technological characteristics to one or
more predicate medical devices that were on the market before the MDA enactment
date of May 28, 1976, thereby establishing that the new device is as safe and
effective as the predicate device. Such substantial equivalence is demonstrated
by a manufacturer in a 510(k) pre-market notification submission, which must be
filed with the FDA at least 90 days before the product's targeted date of first
commercial distribution. Marketing of the device is not allowed until the FDA
clears the 510(k) notification submission.
FDA clearance of a supplemental 510(k) submission is required before any
significant change can be made to an already-marketed device in design,
materials, chemical composition, energy source or manufacturing process that
could affect the product's safety or effectiveness. Where a 510(k) notification
submission is based on a predicate device that has been classified by the FDA in
Class III, the
32
<PAGE>
510(k) submission must also include a certification that the submitter has
conducted a reasonable search for all data and information relevant to the
predicate device and the device for which 510(k) clearance is sought, as well as
a summary of all safety and effectiveness data for both devices. A device
cleared through the 510(k) process that is substantially equivalent to a
predicate Class III device for which the FDA ultimately establishes a PMA
requirement will eventually have to receive approval of its own PMA to remain on
the market, unless it is the fifth or subsequent device of its kind that has
been commercially distributed in the United States, in which case no PMA is
required.
Menstrual cups such as INSTEAD-TM- are classified as Class II medical
devices by the FDA pursuant to applicable FDA regulations. Submission and
clearance of a 510(k) notification, through a finding of "substantial
equivalence" is required under the FDCA to market a Class II medical device in
the United States. The FDA cleared the 510(k) notification for INSTEAD-TM- on
October 5, 1993.
The FDA has promulgated regulations establishing stringent GMP requirements
for all medical devices. The FDA conducts periodic inspections of manufacturing
plants to ensure compliance with these regulations. Failure of compliance can
result in regulatory action of the kinds stated below.
The FDA has statutory authority to institute civil administrative
proceedings or court enforcement actions against medical device manufacturers or
distributors for violations of applicable requirements of the MDA and the FDA
implementing regulations. A finding of liability in an administrative proceeding
can result in the imposition of civil monetary penalties. Court enforcement
actions, involving seizure of products, injunction against continued
distribution of products or criminal prosecution, can result, respectively, in
destruction of products, orders against further distribution of products or
criminal fines if the FDA prevails. The FDA can also require the recall of an
already-marketed medical device when the agency believes that the product would
cause serious adverse health consequences or deaths if marketing were allowed to
continue.
Exports of medical devices manufactured in the United States are allowed if
the devices have satisfied applicable pre-market requirements and are not
adulterated or misbranded. Exports of medical devices manufactured in the United
States are allowed without prior FDA export approval if the product has
satisfied applicable pre-market approval or notification requirements and is not
adulterated or misbranded. An unapproved medical device manufactured in the
United States can also be exported to 23 "Tier 1" countries without prior FDA
export approval, if the device has valid marketing authorization in a "Tier 1"
country and the device complies with the laws of the importing country, subject
to notification to the FDA at the time of export. Exports of medical devices not
approved in the United States to non- "Tier 1" countries require prior FDA
approval. In addition, exports of unapproved medical devices manufactured in the
United States for export for clinical investigations in "Tier 1" countries or
where marketing authorization is imminent in a "Tier 1" country may be made
without prior FDA approval, provided that a notice is submitted to the FDA at
the time of export.
COMPETITION
The market for feminine protection products is presently dominated by large
and well-financed companies which have substantially greater resources than the
Company. The Company believes that certain of such competitors have increased
their marketing efforts in response to the anticipated launch of INSTEAD-TM-.
Management believes INSTEAD-TM- has significant distinct benefits when compared
to other feminine protection products currently available and that, upon
introducing INSTEAD-TM-, the Company believes it will be the sole provider of
this type of feminine protection. For a discussion of certain risks related to
competition, see "Risk Factors -- Competition," "-- Risks Associated with
Potential Competitive Response," "-- Marketing Risks; Uncertainty of Consumer
Acceptance," and "-- Risks Inherent in Obtaining and Protecting Patents and
Proprietary Technology." In addition, the market for contraceptives and other
medical products is presently dominated by large and well-financed companies
which have substantially greater resources than the Company, and the ability of
the Company to compete in this area is dependent to a large extent on its
ability to
33
<PAGE>
successfully develop products, have such products cleared for market, and the
ability to manufacture any such products on a cost-efficient basis. See "Risk
Factors -- Risks Associated with Research and Development for Other Applications
of the SoftCup Technology."
RAW MATERIALS
INSTEAD-TM- is manufactured from a thermoplastic elastomer which is
available from a wide variety of domestic and international sources and is
currently supplied by Shell Chemical Company. Management believes the production
of thermoplastic elastomers to the tolerances required for manufacturing
INSTEAD-TM- to be a key technology developed by the Company. Management has
identified several sources of supply of raw materials.
PROPERTIES
The Company currently leases office space at 500 Fifth Avenue, Suite 3620,
New York, New York 10110 for its principal executive offices for a monthly base
rent of $5,610, and additional office space on a month to month basis for
approximately $2,000 per month. The lease expires in November 1997. The Company
has entered into a ten year lease for office space at 805 Third Avenue, New
York, New York for its principal office which provides for monthly base rent of
approximately $31,500 for the first two years, which increases to a maximum of
approximately $36,000 per month by the end of the term. Since May 1996, the
Company has entered into leases on a minimum twelve month basis for modular
office space in Missoula, Montana, with rental payments of $1,230 per month and
$1,350 per month, respectively. The Company has also entered into three year
leases beginning in April 1996 and February 1996 for its administrative office
and manufacturing facility in Missoula, Montana at a monthly rent of $2,345 and
$6,500, respectively.
EMPLOYEES
As of August 31, 1996, the Company had 42 full-time employees. The Company
believes its relations with its employees are satisfactory. None of the
Company's employees are covered by a collective bargaining agreement or
represented by a collective bargaining unit.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company. The executive officers of the
Company are elected for a term of one year or until their successors are duly
elected and qualify; however, certain of the executive officers have employment
agreements which provide for longer terms of office. See " Employment Agreements
and Certain Agreements with Management."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John W. Andersen 59 President; Chief Executive Officer; Director and
Chairman of the Board of Directors
Audrey Contente 53 Executive Vice President and Founder; Director
Dori M. Reap 44 Senior Vice President of Finance and Administration;
Chief Financial Officer and Secretary
Tonya G. Hinch 33 Senior Vice President, Marketing and Sales
Gary Nordmann 54 Vice President, Operations
Wendell Guthrie 46 Director of Manufacturing
Richard A. Cone 60 Director
Joy Vida Jones 46 Director
Martin Nussbaum 49 Director
Charles D. Peebler, Jr. 60 Director
Barrie Zesiger 51 Director
</TABLE>
EXECUTIVE OFFICERS AND KEY PERSONNEL
JOHN W. ANDERSEN has been the Chairman of the Board, Chief Executive Officer
and President of the Company since July 1994. He has an extensive background in
consumer product management, including food, beverage and personal products. He
has been the Chief Executive Officer of five consumer companies over the past 20
years and has substantial experience in Japan and western Europe. From June 1993
until July 1994, Mr. Andersen was self-employed. For the period of 1990 to 1993,
Mr. Andersen was President and Chief Executive Officer of Johanna Dairies, a
subsidiary of John Labatt Limited with annual sales of approximately $1 billion.
From 1983 to 1989, he was President, Chief Executive Officer and Director of
Whitbread North America, Inc., a beverage subsidiary of Whitbread PLC with
annual sales of approximately $450 million. Prior to 1983, Mr. Andersen served
as Executive Vice President of Marriott Corporation, President and Chief
Executive Officer of Sonoma Vineyards, and Vice President of Norton Simon, Inc.
AUDREY CONTENTE is the Executive Vice President and a Director of the
Company, as well as the Founder of the Company and inventor of the SoftCup
Technology. Ms. Contente is responsible for manufacturing and product
development. Ms. Contente has served as a Director of the Company since its
formation in March 1990; as an Executive Vice President since July 1996; as a
Senior Vice President from July 1993 to June 1996; and as Senior Vice President
of Manufacturing and Product Development from November 1995 to June 1996. Ms.
Contente also served as Chairman of the Board of the Company from March 1990 to
July 1993, and Chief Executive Officer of the Company from May 1992 to July
1993. She has experience in marketing and sales, business development and
biomedical instrumentation. As a result of years of research in feminine hygiene
technology which led
35
<PAGE>
to the ultimate design of the SoftCup Technology, Ms. Contente applied for a
United States patent and subsequently founded the Company. She began her career
in sales in 1976 with J.T. Baker Chemical Co. where she was responsible for
selling biomedical instrumentation and supplies. From 1980 to 1990 she was the
principal of Audrey Contente & Associates, a management consulting firm
specializing in strategic planning and market development projects. During this
10-year period, she devoted substantial and continuous effort in researching,
designing and developing the SoftCup Technology and INSTEAD-TM-.
DORI M. REAP has been the Senior Vice President of Finance and
Administration and Chief Financial Officer of the Company since August 1, 1995.
She became Secretary of the Corporation in June 1996. She has been in senior
financial positions over the past 18 years in major consumer products companies
and has significant experience in finance, business planning and analysis,
restructuring and information systems. Ms. Reap was Chief Financial Officer of
The Franklin Mint in 1994. For the period of 1990 to 1993, Ms. Reap was Vice
President and Chief Financial Officer of Johanna Dairies, a subsidiary of John
Labatt Limited, with annual sales of approximately $1 billion. From 1978 to
1989, Ms. Reap worked for Frito Lay, Inc., a subsidiary of PepsiCo, Inc., in
successively senior positions and as Finance Director from 1985 to 1989.
TONYA G. HINCH joined the Company in November 1995 as the Senior Vice
President, Marketing and Sales of the Company. She has ten years of experience
marketing women's personal care and broad-based consumer products. Ms. Hinch
worked at Neutrogena from 1991 to 1995, last serving as General Manager of
Neutrogena Haircare. From 1987 to 1991, Ms. Hinch worked at Clairol,
specializing in new product development and last serving as Senior Marketing
Manager in New Products. From 1985 to 1987, Ms. Hinch was employed at Procter &
Gamble, last serving as an Assistant Brand Manager.
GARY NORDMANN joined the Company full-time in April 1996 as the Vice
President, Operations. He also served as a consultant to the Company from May
1994 to March 1996. He has had over 20 years experience in senior management
positions in consumer product companies with manufacturing operations. Mr.
Nordmann worked at Johanna Dairies, a subsidiary of John Labatt Limited, from
1991 to 1994 as Vice President, Finance and Administration, and at Whitbread
North America, Inc., a subsidiary of Whitbread PLC, as Executive Vice President,
Finance and Administration from 1983 to 1990. Mr. Nordmann worked for Marriott
Corporation, Inc., from 1981 to 1983, Mattel, Inc. from 1977 to 1981, PepsiCo
from 1972 to 1977, and S.C. Johnson & Son, Inc. from 1970 to 1972.
WENDELL GUTHRIE has been the Director of Manufacturing since March 1996 and
prior to that served as Vice President of Manufacturing for the Company since
July 1991. He has over 20 years of experience in all phases of manufacturing and
quality assurance with medical products, from design through manufacturing
engineering. From 1968 to 1991 he worked for American Dental Manufacturing
Company ("ADM"), an FDA registered manufacturer and distributor of dental
instruments and related products, as Quality Assurance Manager and later as Vice
President and Chief Operating Officer. During that time he also developed the
products for, and served as Vice President and Chief Executive Officer of, two
subsidiaries of ADM, Omnitech and DMD, manufacturers and distributors of
chemical disinfectants and direct mail professional dental products.
DIRECTORS
RICHARD A. CONE, a Director of the Company since 1994, has been a Professor
of Biophysics and Biology at Johns Hopkins since 1973. Dr. Cone trained in
Physics at the Massachusetts Institute of Technology and at the University of
Chicago (Ph.D. 1963). In 1979 he jointly received the Cole Award from the
Biophysical Society for discovering the fluid-like nature of cell membranes.
Since 1979 he has been pursuing research to develop improved methods for
protecting against STDs and unwanted pregnancy. He is an expert on the
protective properties of mucus secretions and the mechanisms by which antibodies
protect mucus epithelia against pathogens. He is Managing Director of ReProtect,
a research and development company he co-founded in 1993 with Thomas R. Moench
and Kevin J. Whaley to develop products that protect reproductive health.
36
<PAGE>
JOY VIDA JONES, a Director of the Company since 1992, has practiced law for
the last nineteen years, having received a J.D. from New York University School
of Law (1976). She was a partner at Rogers & Wells when she left the firm in
1993 after 10 years of practice there. She has served since 1990 as a Trustee of
the Calvert Social Investment Fund, which made an investment in the Company.
Since June 1993, Ms. Jones has acted as a personal manager to musicians. She is
a Trustee of her alma mater, Sarah Lawrence College (B.A. 1971), as well as
several funds and societies.
MARTIN NUSSBAUM, a Director of the Company since 1996, has been a partner of
the law firm of Shereff, Friedman, Hoffman & Goodman, LLP since 1976. The
Company has retained Shereff, Friedman, Hoffman & Goodman, LLP in the past and
during the fiscal year. See "Certain Relationships and Related Party
Transactions" and "Legal Matters."
CHARLES D. PEEBLER, JR., a Director of the Company since 1995, is President
and Chief Executive Officer, as well as director, of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. ("BJK&E"), the 14th largest marketing communications company in
the world. He also serves as Chief Executive Officer of Bozell Worldwide, Inc.,
BJK&E's major advertising agency division. Mr. Peebler joined Bozell Worldwide,
Inc. in 1958 and became President in 1965. The Company has retained Bozell
Worldwide and certain of its affiliates in the past and during the current
fiscal year. See "Certain Relationships and Related Party Transactions." Mr.
Peebler, in addition to serving on the boards of a number of non-profit
organizations, is a member of the Board of Directors of American Radio Systems.
BARRIE ZESIGER, a Director of the Company since 1993, is a Managing Director
in charge of operations for Zesiger Capital Group LLC, a New York City money
management firm. She worked as a security analyst for the Madison Fund from 1968
to 1970 and in the private practice of law from 1974 to 1984, having received
her J.D. degree from the Stanford University Law School. Having formerly served
on a number of non-profit cultural boards, she currently serves as the Vice
Chair of the Asphalt Green, Inc., an innovative non-profit sports and fitness
center in New York City with programs that promote self-improvement, personal
achievement, and lifetime health. Ms. Zesiger is also a private investor in the
Company.
SCIENTIFIC ADVISORY BOARD
The Company established a Scientific Advisory Board (the "SAB") to advise
the Company on selected scientific, technical and regulatory matters. The SAB
members have been involved since 1990 as advisors to the Company in the areas of
research and development, clinical safety testing, and have served on a
continual basis as consultants to the Company for specific scientific and
technical meetings. The SAB has provided related assistance for the SoftCup
Technology and INSTEAD-TM-. Members of the SAB have been granted stock options
and one member, Ted Cohen, M.D., has invested in the Company. See " Options
Granted in Last Fiscal Year." From time to time the Company also requests that
certain members of the SAB participate in specific projects for which the
Company has in the past and will in the future compensate SAB members on a per
diem basis. Sharon Hillier, Ph.D. declined to accept the stock options which are
granted to SAB members from time to time due to the guidelines of the university
with which she is affiliated; consequently, in May 1996, the Company entered
into a Consulting Agreement with Dr. Hillier which provides for a one-year term,
an automatic renewal option, an initial one time payment of $10,000 and an
annual consulting fee of $10,000 per year, in addition to per diem compensation
for certain additional consulting services which Dr. Hillier may provide in the
future and reimbursement of out of pocket expenses. The current five members of
the SAB are as follows:
TED COHEN, M.D., Chairman of the SAB, has been in private practice in
obstetrics, gynecology and infertility since 1978, and is associated with St.
Barnabas Medical Center located in New Jersey, which is one of the largest
Obstetrics and Gynecology centers on the East Coast. He is President of Suburban
OB/GYN Associates in New Jersey, a private obstetric and gynecology medical
practice and is now associated with Suburban Woman's Physicians, a large private
practice in obstetrics and gynecology.
37
<PAGE>
In addition to being a member of the American College of Obstetricians and
Gynecologists, he is also active in other medical societies. Dr. Cohen has
published articles in various medical journals over the past few years.
ELIZABETH B. CONNELL, M.D. has served as a Professor of Obstetrics &
Gynecology at Emory University School of Medicine, located in Atlanta, Georgia
since 1981. She has served as the Chairman of the FDA's Obstetric and Gynecology
Device Advisory Panel from 1988 to 1992; as a member of the FDA Panel on Review
of Obstetrical and Gynecological Devices from 1976 to 1979; and as a member of
the FDA Obstetrics and Gynecology Advisory Committee from 1970 to 1978.
SHARON HILLIER, PH.D., an expert in genital tract infections, is an
Associate Professor of Obstetrics & Gynecology at the University of Pittsburgh,
and Director, Reproductive Infectious Disease Research, Magee-Women's Hospital
located in Pittsburgh, Pennsylvania since 1995. Since obtaining her doctoral
degree in 1984, Dr. Hillier has been awarded eight major grants for research
studies dealing with gynecological health and diseases of the female
reproductive tract. She has published over 80 scientific papers on various
aspects of gynecological bacteriology and microbiology.
W. MARK SALTZMAN, PH.D., an expert in controlled release of substances from
polymers, with a specialty in intravaginal delivery, is currently Professor of
Chemical Engineering at Cornell University in Ithaca, New York. He received his
doctorate in Medical Engineering from Massachusetts Institute of
Technology/Harvard Medical School and was a Post-Doctoral Associate at
Massachusetts Institute of Technology. Dr. Saltzman has received numerous honors
in medical engineering, including the Allan C. Davis Medal as Maryland's
Outstanding Young Engineer, has been awarded over 15 grants for research studies
dealing with controlled release polymers and cellular interactions and has
published over 70 scientific papers on various aspects of polymer controlled
release mechanisms.
RICHARD SODERSTROM, M.D., Clinical Professor of Obstetrics & Gynecology at
University of Washington Medical School since 1974, located in the State of
Washington, is a gynecologist specializing in reproductive health. He has
received numerous distinguished service awards for his work in the field, and
has published more than 100 clinical papers on various aspects of reproductive
health. Dr. Soderstrom is active in several medical societies and currently
serves as an advisor to the FDA on devices in Obstetrics and Gynecology.
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for the fiscal years ended
June 30, 1996 and 1995 to the Company's President and Chief Executive Officer
and the four other most highly compensated executive officers of the Company
whose annual compensation exceeds $100,000. See also "-- Employment Agreements
and Certain Agreements with Management."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------
LONG TERM
COMPENSATION AWARDS
-------------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS (#)
- ----------------------------------------------- ----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
John W. Andersen
President and Chief Executive Officer, 1996 $ 250,000 $ 195,000(1) $ 56,627(2) --
Chairman of the Board 1995 $ 20,833 -- -- 574,862
Audrey Contente 1996 $ 570,164(3) -- -- --
Executive Vice President, Founder and Director 1995 $ 74,286 -- -- --
Dori M. Reap
Senior Vice President, Finance and
Administration, Chief Financial Officer and 1996 $ 150,000 $ 75,000 $ 25,401 (4) 150,000
Secretary 1995 -- -- -- --
Tonya G. Hinch 1996 $ 97,917 $ 30,000 $ 28,997 (5) 100,000
Senior Vice President, Marketing and Sales 1995 -- -- -- --
Gary Nordmann 1996 $ 32,308 -- $ 37,775 (6) 30,000
Vice President, Operations 1995 -- -- $ 33,897 (6) --
</TABLE>
- ------------------------
(1) Mr. Andersen became entitled to a signing bonus of $195,000 upon the
execution of his employment agreement in July 1994. A portion of the signing
bonus was paid out of the proceeds of the IPO. See "Management -- Employment
Agreements and Certain Agreements with Management."
(2) Includes payment of $24,818 premium on a universal life insurance policy.
(3) Includes Ms. Contente's base salary for fiscal year 1996 of $175,000 and
$395,164 of accrued salary for fiscal years 1992, 1993 and 1994, a portion
of which was paid out of the proceeds of the IPO.
(4) Includes relocation allowance of $20,580.
(5) Includes relocation allowance of $28,791.
(6) Consists of consulting fees paid to Mr. Nordmann, who served as a consultant
to the Company prior to becoming the Vice President, Operations in March
1996.
STOCK OPTION PLAN
In October 1990, the Board of Directors approved a stock option plan (the
"1990 Stock Option Plan"), which was subsequently approved by the stockholders
of the Company. The 1990 Stock Option Plan authorized the grant of options for
up to 250,000 shares of Common Stock to employees, officers,
39
<PAGE>
directors, consultants and advisors. In May 1993, the Board of Directors
approved the number of shares authorized to be granted under the 1990 Stock
Option Plan to increase to 900,000 which was subsequently approved by the
stockholders of the Company. The 1990 Stock Option Plan is designed to provide
an incentive to the officers and certain other key employees of and consultants
to the Company by making available to them an opportunity to acquire a
proprietary interest in the Company or to increase their proprietary interest in
the Company.
The Compensation Committee of the Board of Directors administers the 1990
Stock Option Plan. The Compensation Committee has the full power and authority,
subject to the provisions of the 1990 Stock Option Plan, to designate
participants, grant options and determine the terms of all options. The
Compensation Committee has the right to make adjustments with respect to options
granted under the 1990 Stock Option Plan in order to prevent dilution of the
rights of any holder. Members of the Compensation Committee are not eligible to
receive options under the 1990 Stock Plan.
The terms of specific options are determined by the Compensation Committee.
Options granted may be non-qualified or incentive stock options. The exercise
price per share for a non-qualified option is subject to the determination of
the Compensation Committee. Incentive stock options may not be granted at less
than 100% of the fair market value at the date of grant. Each option will be
exercisable after the period or periods specified in the option agreement.
The 1990 Stock Option Plan meets the requirements of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which exempts
the acquisition of certain options under the 1990 Stock Option Plan from the
operation of Section 16(b) under the Exchange Act.
Upon the exercise of an option, the option holder shall pay to the Company
the exercise price plus the amount of the required Federal and state withholding
taxes, if any. Options may be exercised and the withholding obligation may be
paid for with cash or shares of Common Stock. Shares surrendered on exercise
will be valued at the market price for the Common Stock, generally based on
average closing prices of the Common Stock over a 30-day period prior to
exercise, less the option exercise price. The period after termination of
employment during which an option may be exercised is as determined by the
Compensation Committee.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
year ended June 30, 1996 to each of the executives named in the Summary
Compensation Table above who received options during such year:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
OF
PERCENTAGE OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE ---------------------
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% 10%
- ---------------------------------- --------- ----------------- ------------- ----------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dori M. Reap...................... 50,000 17.5% 6.00 August 1, 2005 $ 188,500 $ 478,000
100,000 35.1% 8.00 August 1, 2005 $ 503,000 $1,275,000
Tonya G. Hinch.................... 100,000 35.1% 8.00 November 6, 2005 $ 503,000 $1,275,000
Gary Nordmann..................... 30,000 10.5% 10.50 March 8, 2006 $ 198,000 $ 502,000
</TABLE>
During September 1995, each member of the SAB (other than Sharon Hillier,
Ph.D.) was granted an option under the 1990 Stock Option Plan to purchase 5,000
shares of Common Stock at an exercise price of $8.00 per share. Each option is
exercisable immediately with respect to 2,000 shares, with the balance of the
option becoming exercisable in equal increments on the first, second and third
anniversary of the date of issuance (provided the holder is still serving on the
SAB). The holder of such an option may exercise the option with respect to the
vested portion, in accordance with its terms, for a period of one year after
ceasing to be a member of the SAB for any reason. Sharon Hillier, Ph.D.
40
<PAGE>
declined to accept the stock options which are granted to SAB members from time
to time due to the guidelines of the university with which she is affiliated.
See "Management -- Scientific Advisory Board."
CLASSIFIED BOARD OF DIRECTORS
The Board of Directors presently consists of seven persons. The Company's
Board of Directors is divided into three classes. Directors of each class will
be elected at the annual meeting of stockholders held in the year in which the
term for such class expires and will serve thereafter for three years. John W.
Andersen and Charles D. Peebler, Jr. serve as Class 1 Directors with their terms
expiring at the 1996 Annual Meeting of Stockholders, Audrey Contente and Joy
Vida Jones serve as Class 2 Directors with their terms expiring at the 1997
Annual Meeting of Stockholders and Richard A. Cone, Barrie Zesiger and Martin
Nussbaum serve as Class 3 Directors with their terms expiring at the 1998 Annual
Meeting of Stockholders. For further information on the effect of the classified
Board, see "Description of Capital Stock -- Certain Provisions of the
Certificate of Incorporation and By-Laws."
COMMITTEES OF THE BOARD
The Board of Directors has established a Compensation Committee, consisting
of Charles D. Peebler, Jr., Barrie Zesiger and Martin Nussbaum. The Compensation
Committee is responsible for approving (or, at the election of the Compensation
Committee, recommending to the Board) compensation arrangements for officers and
directors of the Company, reviewing benefit plans and administering the 1990
Stock Option Plan.
The Board of Directors has established an Audit Committee, consisting of
Barrie Zesiger, Charles D. Peebler, Jr. and Joy Vida Jones. The Audit Committee
is responsible for selecting (or, at the election of the Audit Committee,
recommending to the Board) the independent auditors of the Company, evaluating
the independent auditors, reviewing the scope of the annual audit with
management and the independent auditors, consulting with management and the
independent auditors as to the systems of internal accounting controls and
reviewing the non-audit services performed by the independent auditors.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1995 Stock Option Plan for Non-Employee Directors (the "1995 Stock
Option Plan"), which was approved by the Company's stockholders, provides that
upon becoming a director (and persons who were non-employee directors on the
date of adoption of the 1995 Stock Option Plan, upon the adoption date) receive
a one-time grant of a ten-year option to purchase 15,000 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock on the
date immediately preceding the date of grant. Of the aggregate number of shares
issuable under such option, 5,000 shares vest immediately and the remaining
10,000 shares vest in equal installments of 2,500 shares on each of the first
four anniversaries of the date of grant, provided that the holder is then still
serving as a director of the Company. The holder of such an option may exercise
the option with respect to the vested portion of the option, in accordance with
its terms, for a period of one year after ceasing to be a member of the Board of
Directors due to death or permanent disability. There are an aggregate of
250,000 shares reserved for issuance under the 1995 Stock Option Plan.
EMPLOYMENT AGREEMENTS AND CERTAIN AGREEMENTS WITH MANAGEMENT
Mr. Andersen is the Chairman of the Board, Chief Executive Officer and
President of the Company. Mr. Andersen entered into a five year employment
agreement with the Company, dated July 29, 1994, which, as amended, provides for
a base salary of $250,000 per annum. The base salary increases to $350,000 upon
the earlier to occur of (i) the formation of a strategic alliance or (ii) the
introduction of INSTEAD-TM- to at least five percent of the United States or
European market. His base salary will increase to $500,000 when the later of
such conditions is achieved. Mr. Andersen will receive royalties of $.005 for
each unit of INSTEAD-TM- sold and $.01 for each unit of product based on the
SoftCup Technology sold for medical purposes. Upon the execution of his
employment agreement, Mr. Andersen received an option exercisable to purchase
10% of the number of shares of Common
41
<PAGE>
Stock outstanding on a fully-diluted basis (as defined) immediately before the
IPO at an aggregate exercise price of $2.5 million. Such option is exercisable
with respect to 20% of the shares subject thereto upon the date of grant
(subject to forfeiture in limited cases) and the balance of the option vesting
in equal installments upon the Company's attainment of each of the following
goals: (w) raising development financing of approximately $5-$10 million, (x)
closing of an initial public offering, (y) distributing the INSTEAD-TM- to the
public in one half or more of the United States or Europe and (z) achieving
annual revenues of $100 million; provided, however, that in any event the full
amount shall vest upon the following: termination of the agreement by the
Company for reasons other than for cause; change of control; termination by Mr.
Andersen for good reason; or six months prior to the expiration of the
agreement. Upon the execution of the agreement Mr. Andersen became entitled to a
signing bonus of $195,000, a portion of which was paid out of the proceeds of
the IPO.
Ms. Contente is the Executive Vice President and Founder of the Company, as
well as a Director of the Company. Ms. Contente entered into a five year
employment agreement with the Company, dated July 1, 1996, which provides for a
base salary of $230,000 per annum. This base salary increases to $300,000 upon
the earlier to occur of (i) the formation of a strategic alliance or (ii) the
introduction of INSTEAD-TM- to at least five percent of the United States or
European market. Her base salary will increase to $350,000 when the later of
such conditions is achieved. Ms. Contente will receive royalties of $.005 for
each unit of product based on the SoftCup Technology sold. Under the employment
agreement, Ms. Contente is entitled to medical, life and disability insurance
coverage. In mid-1990, as part of the organization of the Company, Ms. Contente
received 526,250 shares of Common Stock in exchange for assigning to the Company
all pending patent applications, trademarks, copyrights, technology and similar
rights associated with products relating to or evolving from the patent
application filed by Ms. Contente and relating to the SoftCup Technology. In
mid-1992, Ms. Contente received options to purchase 75,000 shares of Common
Stock, which vests over a five-year period at an exercise price of $8.00 per
share; such option will vest immediately upon a change of control of the Company
(as defined therein). Upon the execution of the agreement Ms. Contente became
entitled to a signing bonus of $75,000. In connection with the execution of her
employment agreement, Ms. Contente entered into a Name, Likeness, and Voice
Release and Agreement (the "Release"). The Release provides that Ms. Contente
will serve as a spokesperson for INSTEAD-TM- in both television and print/ media
campaigns for which Ms. Contente will receive $12,500 for the television
campaign, $12,500 for the print/media campaign. Ms. Contente is entitled to
receive an additional $12,500 for the television campaign and $12,500 for the
print/media campaign if such campaign is actively used by the Company to support
the rollout of INSTEAD-TM- into certain additional geographic areas. If the
Company decides to produce a new television campaign or print/media campaign
using Ms. Contente as spokesperson then Ms. Contente will receive an additional
$25,000. After the employment agreement is terminated, Ms. Contente will no
longer be required to provide further services under the Release; however, the
Company will have the ability to use her name and likeness in the campaigns for
up to a year after termination, and in connection with INSTEAD-TM- in
perpetuity.
Ms. Reap is Senior Vice President of Finance and Administration and Chief
Financial Officer of the Company. Ms. Reap entered into a five year employment
agreement dated August 1, 1995, which provides for a base salary of $150,000 per
annum. This base salary increases to $175,000 upon the earlier to occur of (i)
the formation of a strategic alliance or (ii) the introduction of INSTEAD-TM- to
at least five percent of the United States or European market. Her base salary
will increase to $200,000 when the later of such conditions is achieved. Ms.
Reap received options to purchase 150,000 shares of the Common Stock (100,000 at
an exercise price of $8.00 per share and 50,000 at an exercise price of $6.00
per share), exercisable upon the occurrence of certain events. Such options will
vest regardless of the achievement of such milestones no later than six months
prior to the expiration of the term of her employment agreement. In addition,
such options will vest immediately upon a change of control of the Company (as
defined therein). Upon the execution of her agreement Ms. Reap was entitled to a
signing bonus of $75,000, a portion of which was paid out of the proceeds of the
IPO.
42
<PAGE>
Ms. Hinch is Senior Vice President, Marketing and Sales of the Company. Ms.
Hinch entered into a five year employment agreement dated November 6, 1995,
which provides for a base salary of $150,000 per annum. This base salary
increases to $175,000 upon the earlier to occur of (i) the formation of a
strategic alliance or (ii) the introduction of INSTEAD-TM- to at least five
percent of the United States or European market. Her base salary will increase
to $200,000 when the later of such conditions is achieved. Ms. Hinch received an
option to purchase 100,000 shares of the Common Stock at an exercise price of
$8.00 per share, exercisable upon the occurrence of certain events. Such option
will vest regardless of the achievement of such milestones no later than six
months prior to the expiration of the term of her employment agreement. In
addition, such option will vest immediately upon a change of control of the
Company (as defined therein). Upon the execution of her agreement Ms. Hinch was
entitled to a signing bonus of $30,000 a portion of which was paid out of the
proceeds of the IPO.
Mr. Nordmann is Vice President, Operations of the Company. Mr. Nordmann
entered into a three year employment agreement dated April 1, 1996, which
provides for a base salary of $140,000 per annum. Mr. Nordmann received an
option to purchase 30,000 shares of the Common Stock at an exercise price of
$10.50 per share, exercisable upon the occurrence of certain events. Such option
will vest regardless of the achievement of such milestones no later than six
months prior to the expiration of the term of his employment agreement. In
addition, such option may vest immediately at the discretion of the Board of
Directors upon a change of control of the Company (as defined therein).
Each of the employment agreements listed above (i) contains certain
non-competition provisions, (ii) provides that the executive may participate in
incentive bonus plans once the Company has begun selling its products to the
general public, and (iii) with respect to Ms. Reap, Ms. Hinch and Mr. Nordmann,
provides for the reimbursement of certain relocation expenses. The employment
agreement for each of Mr. Andersen, Ms. Contente, Ms. Reap, Ms. Hinch and Mr.
Nordmann provides that if the agreement is terminated by the Company (which in
the case of Mr. Andersen would include a failure on its part to renew the
agreement at the end of its term) without "Due Cause" (as defined) or by the
executive (other than Mr. Nordmann) for Good Reason (as defined) or during the
first year following a Change of Control (as defined), the agreement provides
for severance payments equal to the annual salary in effect at the time of
termination payable monthly for a period of twenty-four months with respect to
Mr. Andersen and Ms. Contente, twelve months with respect to Ms. Reap and Ms.
Hinch, and six months with respect to Mr. Nordmann, or in a lump sum, and in
certain cases, fringe and other benefits. Ms. Contente's employment agreement
also provides for severance payments equal to the base salary in effect at the
time of termination for a six month period upon the non-renewal of her
employment agreement.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of August 31, 1996
(except as otherwise noted) and as adjusted to reflect the sale by the Company
of 3,000,000 shares of Common Stock offered in the Concurrent Offering with
respect to the beneficial ownership of the Common Stock by (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each named
officer of the Company listed in the Summary Compensation Table above, and (iv)
all officers and directors of the Company as a group. Unless otherwise noted,
the Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially owned
by them. Each person in the following chart is deemed to be the beneficial owner
of any shares of Common Stock that can be acquired by such person within 60 days
from August 31, 1996 upon the conversion of convertible securities or the
exercise of warrants or options.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENENFICAL OWNERSHIP
PRIOR TO OFFERING (1) AFTER THE OFFERING (1)
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
NAME NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------- ----------- --------------------- ----------- ---------------------
Audrey Contente (2)(3)(4)..................... 591,250 9.9% 591,250 6.6%
Barrie Zesiger (3)(5)......................... 994,414 14.8% 994,414 10.2%
Richard A. Cone (3)(6)........................ 20,000 * 20,000 *
Joy V. Jones (3)(7)........................... 7,500 * 7,500 *
Martin Nussbaum (3)(8)........................ 10,925 * 10,925 *
Charles D. Peebler, Jr. (3)................... 14,750 * 14,750 *
John Andersen (2)(3)(9)....................... 347,167 5.6% 347,167 3.8%
Albert L. Zesiger (10)........................ 994,414 14.8% 994,414 10.2%
Directors and executive officers as a group
(consists of 10 persons) (5)................. 2,132,756 29.2% 2,132,756 20.7%
</TABLE>
- ------------------------
* Less than 1%.
(1) Each beneficial owner's percentage ownership is determined by assuming that
convertible securities, options or warrants that are held by such person
(but not those held by any other person) and which are exercisable within 60
days of August 31, 1996 have been exercised.
(2) Officer.
(3) Director.
(4) Ms. Contente has granted an option to each of Jeffrey Simon and Frank Cole
to purchase 106,250 shares of Common Stock, and an option to Arthur Appleman
to purchase 12,500 shares of Common Stock, each such option at an exercise
price of $2.00 per share ("Optioned Shares") and with an expiration date of
December 1, 1998. The Optioned Shares are subject to a voting trust, to be
voted by a majority of Ms. Contente, Ms. Zesiger and Mr. Andersen, as voting
trustees. The voting trust will terminate on the earliest of (i) the
transfer of the Optioned Shares to Messrs. Cole, Simon and Appleman, (ii)
August 22, 1997, or (iii) upon the breach of certain representations
contained in the agreement.
(5) Includes 933,643 shares of Common Stock beneficially owned by Albert L.
Zesiger, Ms. Zesiger's husband, as to which Ms. Zesiger disclaims beneficial
ownership. See also footnote 10. In January of 1995, Ms. Zesiger acquired
2,250 shares of Common Stock by converting a short-term loan. See "Prior
Financings." Does not include the Optioned Shares which are subject to a
voting trust of which Ms. Zesiger is a voting trustee. See footnote 4.
(6) Does not include 400,000 shares of Common Stock issuable upon exercise of
options granted to ReProtect in the ReProtect Agreement.
44
<PAGE>
(7) Includes options to purchase 7,500 shares of Common Stock which are
exercisable within 60 days of August 31, 1996; however, exercise of Ms.
Jones' options is subject to certain restrictions. Does not include 150,000
shares of Common Stock beneficially owned by the Calvert Social Investment
Fund, of which Ms. Jones is a trustee. Ms. Jones disclaims beneficial
ownership of such shares of Common Stock, except to the extent of her
beneficial ownership in the Calvert Social Investment Fund.
(8) Includes option to purchase 5,000 shares of Common Stock and warrants to
purchase 3,940 shares of Common Stock which are exercisable within 60 days
of August 31, 1996. See "Certain Relationships and Related Party
Transactions" and "Legal Matters."
(9) Includes options to purchase 344,917 shares of Common Stock and warrants to
purchase 375 shares of Common Stock which are exercisable within 60 days of
August 31, 1996 and 1,875 shares of Common Stock. Does not include
additional options to purchase 229,945 shares of Common Stock upon the
attainment of certain milestones. Does not include the Optioned Shares which
are subject to a voting trust of which Mr. Andersen is a voting trustee. See
footnote 4.
(10) Includes 60,771 shares of Common Stock beneficially owned by Barrie
Zesiger, Mr. Zesiger's wife, as to which shares Mr. Zesiger disclaims
beneficial ownership. As long as Ms. Zesiger is a member of the Board of
Directors, Mr. Zesiger has agreed not to vote 95,833 shares of Common Stock
over which he otherwise has a power of attorney and as to which he disclaims
beneficial ownership. Includes convertible securities currently exercisable
into 363,000 shares of Common Stock held in managed accounts for which Mr.
Zesiger has dispositive power as a Managing Director for Zesiger Capital
Group LLC, an investment advisor.
45
<PAGE>
SELLING STOCKHOLDERS
This Prospectus covers the sale of the 1,073,450 shares of Common Stock held
by the Selling Stockholders and of an additional 3,227,853 shares of Common
Stock issuable upon conversion or exercise of certain outstanding securities
convertible into or exercisable for shares of Common Stock. All of the shares
offered by the Selling Shareholders may be sold in the open market, in privately
negotiated transactions or otherwise by the holders thereof. Certain holders of
such securities are subject to a contractual restriction prohibiting the offer
and/or sale of such shares of Common Stock for a period of eighteen (18) months
from the effective date of the Company's initial public offering (the "Effective
Date").
The Company has agreed to register the Common Stock held and issuable upon
the conversion and/or exercise of such securities by the Selling Stockholders
and to pay all expenses in connection therewith (other than brokerage
commissions and fees and expenses of their respective counsel).
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- --------------------------
<S> <C> <C> <C> <C>
NAME NUMBER PERCENT (1) NUMBER (2) PERCENT (3)
- ---------------------------------------------------------------- --------- ----------- ----------- -------------
Barrie Zesiger (4).............................................. 994,414 10.2% 273,009 2.8%
Albert L. Zesiger (5)........................................... 994,414 10.2% 273,009 2.8%
BEA Associates, Inc. (6)........................................ 113,666 1.3% 0 0%
Dean Witter Foundation (7)...................................... 16,666 * 0 0%
Andrew Heiskell (7)............................................. 16,666 * 0 0%
Alfred E. Heller (7)............................................ 12,500 * 0 0%
Elizabeth Heller Mandell Trust (7).............................. 12,500 * 0 0%
Domenic J. Mizio (7)............................................ 8,333 * 0 0%
Warren Otologic Profit Sharing Trust (7)........................ 8,333 * 0 0%
Jeffrey E. Schuss............................................... 833 * 0 0%
Alice M. Moore (8).............................................. 5,833 * 0 0%
Betty Jane Schuss Trust......................................... 2,041 * 1,875 *
Deborah Doolittle Trust......................................... 1,000 * 0 0%
Jeffrey Schuss Trust............................................ 1,000 * 0 0%
Jonathan Schuss Trust........................................... 1,000 * 0 0%
Karen Sawyer Trust.............................................. 1,000 * 0 0%
Robert A. & Constantine McCabe.................................. 8,333 * 0 0%
Robert & Ellen P. Moore (8)..................................... 5,833 * 0 0%
Robert H. Bauerle............................................... 16,900 * 0 0%
Jerry J. King................................................... 8,750 * 0 0%
David Theisen................................................... 21,875 * 0 0%
P. David Edgell................................................. 17,500 * 0 0%
Charles W. Daniel............................................... 17,500 * 0 0%
Jerry D. Leitman................................................ 10,937 * 0 0%
Aubrey Dale Glasscock........................................... 8,750 * 0 0%
John Banks Robertson, Jr........................................ 4,375 * 0 0%
Kraver & Levy (9)............................................... 3,161 * 0 0%
Wien, Malkin & Bettex (10)...................................... 35,526 * 0 0%
Chapin School-Endowment Fund (7)................................ 20,375 * 0 0%
Van Lobel Sels Charitable Foundation (7)........................ 30,562 * 0 0%
Planned Parenthood of New York, Inc. (7)........................ 10,187 * 0 0%
Meehan Investment Partnership I, L.P. (7)....................... 20,375 * 0 0%
Morgan Trust Company of the Bahamas Ltd. (7).................... 20,375 * 0 0%
Wells Family, LLC (7)........................................... 31,020 * 0 0%
Mary Van Schuyler Raiser (7).................................... 10,187 * 0 0%
Mary M. Raiser (7).............................................. 20,375 * 0 0%
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- --------------------------
NAME NUMBER PERCENT (1) NUMBER (2) PERCENT (3)
- ---------------------------------------------------------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Helen L. Hunt (7)............................................... 10,187 * 0 0%
James and Jennifer Kuehn, Jt Ten WROS........................... 20,375 * 0 0%
Stephen L. Rutherford........................................... 18,337 * 0 0%
Danny Rue....................................................... 12,225 * 0 0%
Herbert F. Boeckmann, II........................................ 120,000 1.3% 0 0%
Michael Butler.................................................. 60,000 * 0 0%
James Murtha.................................................... 90,000 1.0% 0 0%
Richard Hines................................................... 30,000 * 0 0%
Bernard Gurtman................................................. 60,000 * 0 0%
John Purcell.................................................... 120,000 1.3% 0 0%
Brian Shapiro................................................... 60,000 * 0 0%
David H. Berman, MD............................................. 60,000 * 0 0%
Howard Kaplan................................................... 60,000 * 0 0%
Edward Berman................................................... 60,000 * 0 0%
Alan Finkelstein................................................ 30,000 * 0 0%
J. Kenneth Tate................................................. 10,000 * 0 0%
James D. Tate................................................... 10,000 * 0 0%
Scott Maybaum................................................... 30,000 * 0 0%
Rodan Payroll Services.......................................... 60,000 * 0 0%
Patrick J. Guarino.............................................. 10,000 * 0 0%
Calvert Social Investment Fund (11)............................. 150,000 1.7% 0 0%
Tony Bernard.................................................... 30,000 * 0 0%
Ted Lipman, MD.................................................. 30,000 * 0 0%
Brian Shea...................................................... 30,000 * 0 0%
Shlomo Marglit.................................................. 30,000 * 0 0%
Mark Nordlicht.................................................. 60,000 * 0 0%
Noam Lotan...................................................... 30,000 * 0 0%
Dr. Aharon David................................................ 30,000 * 0 0%
Rebecca Kraitenberg............................................. 15,000 * 0 0%
Joseph Hartman.................................................. 15,000 * 0 0%
Mikel Majore.................................................... 15,000 * 0 0%
Trinet International............................................ 30,000 * 0 0%
Dr. Michael Fuchs............................................... 15,000 * 0 0%
Gong Fu Lee..................................................... 15,000 * 0 0%
Temple Inland Master Trust (8).................................. 102,000 1.1% 0 0%
Arthur D. Little Employees Investment Plan (7).................. 90,000 1.0% 0 0%
Jeffrey V. Simon (12)........................................... 157,531 1.7% 36,281 *
Jay-San Associates.............................................. 30,000 * 0 0%
Walter Stump.................................................... 30,000 * 0 0%
Harvey B. Adams................................................. 60,000 * 0 0%
Guarantee & Trust Co. TTEE FBO Jay Weissbluth PSP............... 15,000 * 0 0%
Tradewind Fund I, LP............................................ 60,000 * 0 0%
Ryco and Co..................................................... 60,000 * 0 0%
David Burr...................................................... 22,500 * 0 0%
Edward and Ruth Kronick......................................... 15,000 * 0 0%
Jenifer Altman Foundation (7)................................... 15,000 * 0 0%
City of Milford Pension and Retirement Plan (7)................. 22,500 * 0 0%
Tab Products Co. Pension Plan (8)............................... 30,000 * 0 0%
American Medical International Pension Plan (7)................. 90,000 1.0% 0 0%
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- --------------------------
NAME NUMBER PERCENT (1) NUMBER (2) PERCENT (3)
- ---------------------------------------------------------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Alza Corporation Retirement Plan (7)............................ 22,500 * 0 0%
NFIB Employee Pension Plan (7).................................. 22,500 * 0 0%
Roanoke College (8)............................................. 30,000 * 0 0%
Brearley School General Endowment Fund (8)...................... 15,000 * 0 0%
City of Norwalk Pension and Retirement Plan (7)................. 15,000 * 0 0%
Dr. William Lippy (7)........................................... 7,500 * 0 0%
Psychology Associates (7)....................................... 3,000 * 0 0%
Crescent Capital Company, L.L.C................................. 15,000 * 0 0%
Alliance Capital Investment Corp................................ 15,000 * 0 0%
Ronald J. Adams................................................. 30,000 * 0 0%
Lauren Katz..................................................... 30,000 * 0 0%
American Stock Transfer Company................................. 30,000 * 0 0%
Irene Chang..................................................... 15,000 * 0 0%
Mathers Associates.............................................. 15,000 * 0 0%
Skippack Partners............................................... 7,500 * 0 0%
Nelson Broms (13)............................................... 150,000 1.7% 0 0%
Emanuel & Company (14).......................................... 25,000 * 0 0%
Montana Board of Science and Technology Development (15)........ 140,000 1.6% 0 0%
Audrey Contente (16)............................................ 591,250 6.6% 55,000 *
Frank Cole (17)................................................. 143,781 1.6% 18,750 *
Arthur Appleman................................................. 12,500 * 0 0%
Hampshire Securities Corporation (18)........................... 327,500 3.6% 0 0%
Andy Yurowitz (19).............................................. 17,500 * 0 0%
Orchard Close Ltd............................................... 200,000 2.2% 0 0%
Demvest Equities................................................ 20,000 * 0 0%
Arthur N. Abbey................................................. 20,000 * 0 0%
</TABLE>
- ------------------------
* Less than one percent.
(1) Assumes 3,000,000 shares of Common Stock being offered in the Concurrent
Offering are issued and outstanding.
(2) Assumes the sale by such Selling Stockholder of all shares of Common Stock
offered hereby.
(3) Assumes, with respect to any given Selling Stockholder, the conversion
and/or exercise of all securities convertible or exercisable for the Common
Stock being offered hereby and held by such Selling Stockholder; and the
subsequent sale by such Selling Stockholder of such shares of Common Stock
being offered hereby. Each percentage reflected in this column assumes that
with respect to any given Selling Stockholder, only such Selling Stockholder
has converted and or exercised his, her or its securities convertible or
exercisable for shares of Common Stock, and that no other Selling
Stockholder has done so.
(4) Includes 933,643 shares of Common Stock beneficially owned by Albert L.
Zesiger, Ms. Zesiger's husband, as to which Ms. Zesiger disclaims beneficial
ownership. See also footnote 5.
(5) Includes 60,771 shares of Common Stock beneficially owned by Barrie
Zesiger, Mr. Zesiger's wife, as to which shares Mr. Zesiger disclaims
beneficial ownership. As long as Ms. Zesiger is a member of the Board of
Directors, Mr. Zesiger has agreed not to vote 95,833 shares of Common Stock
over which he otherwise has a power of attorney and as to which he disclaims
beneficial ownership. There is no agreement as to the power to vote the
3,656.2 shares of Series A Preferred Stock (convertible into 73,123 shares
of Common Stock) and related warrants for 79,685 shares of
48
<PAGE>
Common Stock (as adjusted for certain dilutive events) over which Mr.
Zesiger otherwise has a power of attorney and as to which he disclaims
beneficial ownership. Includes convertible securities currently exercisable
into 363,000 shares of Common Stock held in managed accounts for which Mr.
Zesiger has dispositive power as a Managing Director for Zesiger Capital
Group LLC, an investment advisor.
(6) Includes Common Stock and convertible securities currently exercisable into
102,000 shares of Common Stock in managed account for which BEA Associates,
Inc., an investment advisor, has dispositive power.
(7) Zesiger Capital Group LLC, an investment advisor to such Selling
Stockholders, has dispositive power with respect to such securities.
(8) BEA Associates, Inc., an investment advisor to such Selling Stockholder,
has dispositive power with respect to such securities.
(9) These shares of Common Stock were issued in lieu of certain amounts due
Kraver & Levy by the Company in consideration of legal services provided to
a director of the Company.
(10) These shares of Common Stock were issued in lieu of certain amounts due
Wien, Malkin & Bettex by the Company for legal services provided to the
Company.
(11) See footnote 7 of "Principal Stockholders."
(12) Mr. Simon, a former officer and director of the Company, resigned from such
positions in December 1993. Includes 106,250 shares of Common Stock which
Mr. Simon has an option to purchase from Ms. Contente. See footnote 16
below.
(13) Mr. Broms, a former officer and director of the Company, resigned in
February 1994.
(14) These shares of Common Stock are issuable upon the exercise of certain
warrants issued in connection with a 1992 private placement for which
Emanuel & Company acted as broker-dealer.
(15) Includes 140,000 shares of Common Stock issuable upon the conversion of
certain convertible debentures.
(16) Ms. Contente has granted an option to each of Jeffrey Simon and Frank Cole
to purchase 106,250 shares of Common Stock, and an option to Arthur Appleman
to purchase 12,500 shares of Common Stock, each such option at an exercise
price of $2.00 per share and with an expiration date of December 1, 1998.
The Optioned Shares are subject to a voting trust, to be voted by a majority
of Ms. Contente, Ms. Zesiger and Mr. Andersen, as voting trustees. The
voting trust will terminate on the earliest of (i) the transfer of the
Optioned Shares to Messrs. Cole, Simon and Appleman, (ii) August 22, 1997 or
(iii) upon the breach of certain representations contained in the agreement.
(17) Includes 18,781 shares of Common Stock beneficially owned by Sandra Alice
Cole, Mr. Cole's daughter, as to which shares Mr. Cole disclaims beneficial
ownership. See footnote 16.
(18) Includes 327,500 shares of Common Stock issuable upon the exercise of the
Representative's Warrants. The Representative's Warrants are not exercisable
for a period of one year from the Effective Date.
(19) Includes 12,500 shares of Common Stock issuable pursuant to a warrant which
the Company has issued to Mr. Yurowitz. The warrant was issued upon Mr.
Yurowitz's surrender for cancellation of the Class A and Class B Warrants to
purchase an aggregate of 10,000 shares of Common Stock, which warrants were
issued to him in the 1995 Unit Private Placement.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Effective October 1, 1990, the Company entered into a Termination Benefits
Agreement (the "Termination Benefits Agreement") with Ms. Contente. Both the
Termination Benefits Agreement and Ms. Contente's employment agreement provide
for payment of various severance and other benefits if Ms. Contente's employment
is terminated. Ms. Contente is also entitled to an immediate vesting of stock
options for 75,000 shares of Common Stock if her employment is terminated by
reason of a change in control of the Company resulting from certain shareholder
derivative litigation.
The Company also entered into various indemnity agreements with Ms.
Contente, dated as of October 1, 1990 as amended on April 23, 1992, and
indemnity agreements with certain former officers and directors. The indemnity
agreements provide Ms. Contente and these former officers and directors with
certain indemnities for claims against the Company and Ms. Contente and the
former officers and directors, respectively.
On May 12, 1992, each of Jeffrey Simon and Frank Cole, who were Directors of
the Company, loaned $50,000 to the Company. On June 12, 1992, the principal
balance of these loans and accrued but unpaid interest were converted into
shares of Common Stock at a conversion price of $8.00 per share. Mr. Cole
simultaneously purchased an additional 6,250 shares at $8.00 per share. Messrs.
Simon and Cole made additional loans to the Company in 1992 and 1993 totaling
$226,010 (Mr. Simon -- $85,000 and Mr. Cole -- $141,010). The Company repaid
each lender $10,000 in 1993. The $206,010 remaining balance bore interest at 6%
per annum and was repaid from the proceeds of a private placement in 1995.
In 1993, the Company and Ms. Contente and a former officer and director
settled a derivative action brought by certain stockholders. The settlement
agreement, dated May 19, 1993 ("Settlement Agreement"), imposed certain
limitations on the composition and size of the Board of Directors until the 1995
Annual Meeting of Stockholders. As part of the Settlement Agreement, Ms.
Contente resigned as Chief Executive Officer and Chairman of the Board and
agreed, for a two-year period commencing the date of the Settlement Agreement,
not to serve in such capacities or be responsible for overseeing the Company's
daily management or operation.
In December 1993, January 1994 and September 1994, the Company issued
promissory notes aggregating $476,679 to certain former officers for accrued but
unpaid salaries. The notes are for terms of two to three years and bear interest
at 6% and 10% per annum. Certain of these notes in the principal amount of
$255,646 were repaid upon completion of the IPO. In January 1995, the Company
issued two promissory notes to Audrey Contente, each with a principal amount of
$156,771.56 and a maturity date of September 30, 1996. Both notes were repaid
upon the consummation of the IPO.
On April 14, 1994, a majority of the stockholders, acting by written consent
in lieu of a meeting, removed certain of the directors (including Mr. Broms),
but not Ms. Contente and Barrie Zesiger, from the Board of Directors and
appointed six members of the Board to serve until April 14, 1995 or when their
successors were elected.
During 1994, the Company borrowed a total of $135,000 from nine individuals,
including four current Directors. The loans require payment of 10% interest per
annum until maturity. Each lender was granted (i) the option of receiving, in
lieu of the repayment of interest and principal, 1,875 shares of Common Stock at
a price of $8.00 per share and (ii) warrants to purchase 375 shares of Common
Stock at an exercise price of $10.00 per share for a five-year period expiring
on June 30, 1999. As of June 30, 1995, all of the nine individuals had converted
their loans into shares of Common Stock.
Charles D. Peebler, Jr., a member of the Board of Directors of the Company,
is the President and Chief Executive Officer, as well as a Director, of BJK&E, a
worldwide marketing and communications company. The Company has retained Bozell
Worldwide, Inc. ("Bozell"), a wholly-owned subsidiary of BJK&E, to assist in
marketing, advertising creative work and media planning for the Company.
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In March 1996, the Company issued a five year warrant to purchase 50,000
shares of Common Stock to Bozell. The warrant has an exercise price of $10.00
per share and was issued in consideration of certain services provided in
connection with the launch of INSTEAD-TM-.
The Company has retained Bozell Sawyer Miller ("BSM"), a communications
management concern and a wholly-owned subsidiary of Bozell, to act as a
consultant for the Company's corporate communications and financial public
relations work, for which the Company will pay hourly fees and out-of-pocket
expenses. KRC Research and Consulting, a division of BSM, has performed consumer
research on INSTEAD-TM-. The Company believes that transactions entered into
with Bozell and its subsidiaries and divisions are on terms which are at least
as favorable as those which the Company could have obtained from an unrelated
third party.
One of the Company's directors is a partner of Shereff, Friedman, Hoffman &
Goodman, LLP, a law firm which the Company has retained since fiscal year 1995.
The total amount of fees paid to such firm by the Company in fiscal year 1996
was $647,000 and in fiscal year 1995 was $29,888. SFH&G Investors, a partnership
comprised of the partners of Shereff, Friedman, Hoffman & Goodman, LLP, holds a
warrant to purchase an aggregate of 35,000 shares of Common Stock. See "Legal
Matters."
PRIOR FINANCINGS
In January 1996, the Company raised $100,000 through a private placement to
a single investor of a $100,000 non-convertible promissory note due the earlier
of January 26, 1997 or the closing of the IPO, bearing interest at a rate of 10%
per annum and a Class C Warrant to purchase 20,000 shares of Common Stock at an
exercise price of $8.00 per share. The Class C Warrant is not exercisable until
the first anniversary of the date of issuance and has a term of five years. The
non-convertible note was repaid upon completion of the IPO.
In a 1995 private placement (the "1995 Unit Private Placement"), the Company
raised $5,950,000 through the sale of Units. Each "Unit" consisted of one
$50,000 non-convertible promissory note bearing interest of 10% per annum, one
$50,000 convertible promissory note bearing interest of 10% per annum, one Class
A Warrant to purchase 10,000 shares of Common Stock at a purchase price equal to
$5.00 per share and one Class B Warrant to purchase 10,000 shares of Common
Stock at a purchase price equal to $12.50 per share. Certain investors in a
previous private placement consummated in 1993 (the "Existing Investors") agreed
to amend and restate their promissory notes and invest the principal amount of
such notes in the amount of $1,650,000 in the 1995 Unit Private Placement. Other
Existing Investors were paid principal and interest aggregating $222,577 from
the proceeds of the 1995 Unit Private Placement. The non-convertible notes were
repaid upon the completion of the IPO, and the convertible notes mature in April
1997. On December 31, 1995 certain Existing Investors were issued warrants to
purchase an additional aggregate of 165,000 shares of Common Stock because the
secured notes which they held were not paid; such warrants contain the same
terms as the Class A Warrants.
In early calendar year 1995, the Company raised $670,000 through a private
placement sale of units (the "1995 Preferred Stock Private Placement"). Each
unit consisted of (i) 1,950 shares of Series A Preferred Stock, for an allocated
purchase price of $195,000, with each such share (a) being convertible, at any
time at the option of the holder, into Common Stock of the Company at a
conversion rate of 12.5 shares of Common Stock for each such share, subject to
adjustment for certain dilutive events, (b) being entitled to cumulative annual
dividends of $8.00, (c) participating with the Common Stock in any dividend
after payment of said $8.00, (d) having a liquidation preference of $100.00 and
(e) being entitled to the number of votes equal to the number of shares of
Common Stock into which such share can be converted, and (ii) a warrant,
exercisable for a five year period, to purchase 21,250 shares of Common Stock at
an exercise price of $10.00 per share, subject to adjustment for certain
dilutive events for an allocated purchase price of $5,000. The Company sold 2.25
units to a group of investors represented by a common advisor for $450,000 on
the same terms and conditions as the 1995 Preferred Stock Private Placement,
except for certain registration rights.
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In March 1995, the Company issued to certain trade creditors notes in the
total principal amount of $444,237. The notes bear interest at 10% per annum and
mature in September 1996, December 1996 and February 1997. Notes in the
principal amount of $37,500 were repaid with accrued interest from the proceeds
of the 1995 Unit Private Placement, and notes in the principal amount of $42,000
were repaid upon the completion of the IPO. Subsequent to the IPO, the Company
repaid the principal amount of $364,737 and interest of $9,118 of such notes.
In 1994, the Company borrowed a total of $135,000 from nine individuals,
including four current directors. The loans bear interest at the rate of 10%
interest per annum and were to mature upon the earlier to occur of (i) the date
the Company receives $600,000 of financing or (ii) 180 days from the date of
issuance of the loan. Each lender was granted (i) the option of receiving, in
lieu of the repayment of interest and principal, 1,875 shares of Common Stock at
a conversion price of $8.00 per share and (ii) warrants to purchase 375 shares
of Common Stock at an exercise price of $10.00 per share exercisable for a five
year period expiring on June 30, 1999. As of June 30, 1995, all of the nine
individuals had converted their loans to Common Stock.
In a 1994 private placement, the Company raised $450,000 through the sale of
units, composed in the aggregate of (i) $225,000 in subordinated convertible
debentures, (ii) five year warrants to purchase 47,813 shares of Common Stock at
an exercise price of $10.00 per share, and (iii) 28,125 shares of Common Stock
at $8.00 per share. Each debenture had a face amount of $100,000 and was sold
for an allocated purchase price of $95,000. The debentures accrue interest at
the rate of 10% per annum (compounded annually), and mature on the earlier to
occur of (i) August 31, 1996, or (ii) at the option of the holder, the date the
Company successfully effects any single financing in excess of $10 million. Each
debenture is convertible into shares of Common Stock at a conversion price of
$10.00 per share, subject to adjustment upon the occurrence of certain events
such as stock dividends, stock splits and recapitalizations. Holders of shares
of Common Stock acquired upon conversion of these debentures have certain
registration rights.
In October and November 1994, the Company issued to certain trade creditors
subordinated convertible debentures for an aggregate principal amount of
$172,432. Such debentures have a two year term, bear interest at 10% per annum
and are convertible into Common Stock at a conversion price of $10.00 per share.
In a 1993 private placement, the Company issued (i) $1.85 million of secured
promissory notes and (ii) warrants to purchase 370,000 shares of Common Stock at
an initial exercise price equal to $9.00 per share. These secured promissory
notes were reinvested by certain Existing Investors in the 1995 Unit Private
Placement described above.
Between December 1991 and October 1992, the Company borrowed an aggregate of
$700,000 from the Montana Board of Science and Technology Development ("MBSTD")
evidenced by convertible debentures which bear interest at the rate of 10.5% per
annum (compounded annually), of which $350,000 was borrowed to fund expenditures
relating to the Company's manufacturing facility in Montana (the foregoing loans
are collectively referred to as the "MBSTD Loans"). The MBSTD Loans are
convertible into shares of Common Stock at a conversion price of $5.00 per
share, with accrued interest being waived upon conversion. The conversion price
is subject to adjustment if the Company issues shares of Common Stock or
convertible securities at a price less than $5.00 per share. MBSTD was also
granted certain "piggy-back" registration rights. Principal amounts on the MBSTD
Loans are due as follows: $250,000 on December 20, 1998; $100,000 on April 10,
1999; and $350,000 on October 19, 1999, along with related accrued interest.
In late 1991 the Company sold an aggregate of 200,000 shares of Common Stock
for an aggregate purchase price of $1,200,000. During 1991, the Company sold an
additional 318,500 shares of Common Stock for an aggregate purchase price of
$2,548,000. In 1990 the Company issued 132,500 shares of Common Stock to certain
investors for an aggregate purchase price of $530,000.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred
Stock, par value $.001 per share.
COMMON STOCK
As of August 31, 1996, there were 5,889,501 shares of Common Stock
outstanding held of record by 183 persons.
Holders of shares of Common Stock are entitled to one vote per share,
without cumulative voting, on all matters to be voted on by stockholders.
Therefore, the holders of more than 50% of the shares voting for the election of
directors can elect all the Directors. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a liquidation
or dissolution of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding preferred stock. Holders of shares of Common
Stock, as such, have no conversion, preemptive or other subscription rights, and
there are no redemption provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are fully paid and nonassessable. All of the
shares of Common Stock offered hereby, when issued in accordance with the proper
exercise or conversion of the outstanding securities pursuant to which they are
issuable, will be fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of the Preferred Stock,
none of which shares are outstanding as of August 31, 1996. The Board of
Directors of the Company has the authority at any time and from time to time to
establish and designate one or more series of preferred stock, to fix the number
of shares of any series (which number may vary between series) and to fix the
dividend rights and preferences, the redemption price (if any) and terms,
liquidation rights, sinking fund provisions (if any), conversion provisions (if
any) and the voting powers (if any). The Board of Directors, without stockholder
approval, could issue preferred stock with voting and conversion rights that
could adversely affect the voting power of holders of the Common Stock. Certain
companies have used the issuance of preferred stock as an anti-takeover device,
and the Board of Directors of the Company could, without stockholder approval,
issue preferred stock with certain voting, conversion and/or redemption rights
that could discourage any attempt to obtain control of the Company in a
transaction not approved by the Board of Directors. The Board of Directors has
authorized the issuance of 48,750 shares of Series A Preferred Stock and
previously issued 6,532.5 shares of Series A Preferred Stock. As of August 31,
1996 all issued and outstanding shares of Series A Preferred Stock had been
converted into Common Stock. The rights, preferences, privileges, restrictions
and other matters relating to such shares as follows:
DIVIDENDS. Each share of Series A Preferred Stock is entitled to receive
cumulative dividends at an annual rate of $8.00 per share. Upon conversion into
Common Stock, all cumulative dividends in arrears will be forfeited. Holders of
Series A Preferred Stock are entitled to receive such cumulative annual
dividends prior to the payment of any dividend in respect of the Common Stock
(the "Series A Preferred Stock Dividend Preference"). If the Series A Preferred
Stock Dividend Preference is not either fully paid or declared, then no
distribution shall be made on any Common Stock (although the arrearage shall
accumulate) and the Company will not redeem or purchase any Common Stock or make
monies available for a sinking fund for the redemption or purchase of any Common
Stock. Holders of Series A Preferred Stock are entitled to share in any dividend
after payment of the Series A Preferred Stock Dividend Preference in the
proportion that the number of Series A Preferred Stock outstanding bears to the
total number of all shares outstanding (whether preferred stock or Common
Stock), treating such holders as if they had converted such Series A Preferred
Stock into Common Stock.
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LIQUIDATION PREFERENCE. Upon reducing the Company's capital (which results
in a distribution of assets) or upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company (collectively, a "Liquidating Event"),
the holders of the Series A Preferred Stock shall be entitled to receive, before
any distribution of assets to the holders of the Common Stock, a liquidation
preference (the "Series A Preferred Stock Liquidation Preference"). For each
outstanding share of Series A Preferred Stock, the Series A Preferred Stock
Liquidation Preference shall be equal to the sum of (i) One Hundred Dollars
($100.00) and (ii) any unpaid Series A Preferred Stock Dividend Preference. The
Series A Preferred Stock Dividend Preference shall be paid after the Series A
Preferred Stock Liquidation Preference, and the Series A Preferred Stock
Liquidation Preference shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the number of shares owned by each
holder of such stock. After payment of the Series A Preferred Stock Liquidation
Preference, the Company's assets available for distribution shall be distributed
among the holders of Series A Preferred Stock and Common Stock PRO RATA, based
on the number of shares of stock held by each, treating such holders of Series A
Preferred Stock as if they had converted such stock into Common Stock
immediately before such distribution. If, upon any Liquidating Event, the
amounts payable with respect to the Series A Preferred Stock and any other stock
of the Company ranking as to any such distribution on a parity with the Series A
Preferred Stock are not paid in full, the holders of the Series A Preferred
Stock and such parity stock shall share ratably in any such distribution of
assets of the Company in proportion to the full preferential amounts to which
they are entitled.
VOTING. In general, the holder of each share of the Series A Preferred
Stock shall (i) be entitled to the number of votes equal to the number of shares
of Common Stock into which such share of Series A Preferred Stock could be
converted on the record date for the vote or the date of the solicitation of any
written consent of stockholders, (ii) have voting rights and powers equal to the
voting rights and powers of the Common Stock and (iii) be entitled to notice of
any stockholders' meeting in accordance with the By-Laws of the Company.
Fractional votes shall not, however, be permitted.
RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at any time at the option of the holder, into shares of Common
Stock at a conversion rate equal to the quotient obtained by dividing One
Hundred Dollars ($100.00) by a conversion price, initially equal to $8.00 per
share (the "Conversion Price"). The Conversion Price shall be adjusted from time
to time to protect against dilution. No fractional share shall be issued upon
the conversion of any share or shares of Series A Preferred Stock. See "--
Anti-Dilution" below.
ANTI-DILUTION. If the Company issues any shares of Common Stock or
convertible preferred stock, or rights to purchase Common Stock, warrants,
options, other rights or other securities (to the extent such other rights or
securities are convertible into or exchangeable or exercisable for shares of
Common Stock) for consideration per share less than the prevailing Conversion
Price, then the Conversion Price in effect immediately before such issuance
shall be adjusted to a price equal to the consideration per share received by
the Company. If the number of shares of Common Stock outstanding is increased by
a Common Stock dividend or by subdivision or split-up of Common Stock, then the
Conversion Price shall be appropriately decreased in proportion to such increase
in outstanding shares. If the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock, then the
Conversion Price shall be appropriately increased in proportion to such decrease
in outstanding shares.
If there is any reorganization, reclassification, consolidation or merger
(including a merger in which the Company is the surviving entity) of the
Company, then each share of Series A Preferred Stock shall (in lieu of being
exercisable for shares of Common Stock), after such reorganization,
reclassification, consolidation or merger, be exercisable into the kind and
number of shares of stock or other securities or property (including cash) of
the Company or of the corporation resulting from such consolidation or surviving
such merger to which the holder of the number of shares of Common Stock
deliverable (immediately before the time of such reorganization,
reclassification, consolidation or merger) upon conversion of such Series A
Preferred Stock would have been entitled upon such reorganization,
reclassification, consolidation or merger.
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AUTOMATIC CONVERSION. Each share of Series A Preferred Stock shall
automatically convert into shares of Common Stock immediately upon (i) the
closing of the sale of the Common Stock in a firm commitment, underwritten
public offering registered under the Securities Act (other than a registration
relating solely to a transaction under Rule 145 thereunder or to an employee
benefit plan), at a public offering price equal to or exceeding $20.00 per share
of Common Stock (appropriately adjusted for any recapitalization) and the
aggregate net proceeds to the Company (before deduction for underwriters'
commissions and expenses relating to the issuance, including without limitation
fees of the Company's counsel) of which equal or exceed $15.0 million or (ii)
receipt by the Company of the affirmative vote, at a duly noticed stockholders'
meeting or pursuant to a duly solicited written consent of approval of the
holders of at least a majority of the outstanding shares of the Series A
Preferred Stock voting together as a single class, in favor of converting all of
the Series A Preferred Stock into Common Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). Section 203 provides, with certain exceptions,
that a Delaware corporation may not engage in certain business combinations with
a person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless: (i) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the business combination, is
approved by the Board of Directors of the Company before the person becomes an
interested stockholder; (ii) the interested stockholder acquires 85% or more of
the outstanding voting stock of the Company in the same transaction which makes
it an interested stockholder (excluding certain employee stock option plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the Company's board of directors and by the
holders of at least 66 2/3% of the Company's outstanding voting stock at an
annual or special meeting, excluding shares owned by the interested stockholder.
An "interested stockholder" is defined as any person that is (x) the owner of
15% or more of the outstanding voting stock of the Company or (y) an affiliate
or associate of the Company and was the owner of 15% or more of the outstanding
voting stock of the Company at any time within the three year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder.
DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation contains provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty (other than breaches of the duty
of loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL, for any transaction from which the director derived an improper personal
benefit or any act or omission occurring prior to the date when the provision
became effective) and (ii) indemnify its directors and officers to the fullest
extent permitted by Section 145 of the DGCL, including circumstances in which
indemnification is otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
The Company's Restated Certificate of Incorporation and Amended and Restated
By-Laws contain several provisions that may be deemed to have the effect of
making more difficult the acquisition of control of the Company by means of a
hostile tender offer, open market purchases, a proxy contest or otherwise. The
provisions of the Restated Certificate of Incorporation and the Amended and
Restated By-Laws discussed below are designed to help to ensure that holders of
Common Stock are treated fairly and equally in a multistep acquisition. In
addition, they are intended to encourage persons seeking to acquire control of
the Company to initiate such an acquisition through arm's-length negotiations
with the Company's Board of Directors.
CLASSIFIED BOARD OF DIRECTORS. The Company's Restated Certificate of
Incorporation provides that the Board of Directors shall be divided into three
classes of directors serving staggered terms.
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One class of directors will be elected at each annual meeting of stockholders
for a three-year term. See "Management -- Classified Board of Directors." Thus,
at least two annual meetings of stockholders, instead of one, generally will be
required to change the majority of the Company's Board of Directors. This may
have the effect of making it more difficult to acquire control of the Company by
means of a hostile tender offer, open market purchases, a proxy contest or
otherwise.
STOCKHOLDER MEETINGS. Subject only to the rights of holders of preferred
stock, only a majority of the Company's Board of Directors, the Chairman, the
President or Chief Executive Officer will be able to call an annual meeting of
stockholders and only a majority of the Company's Board of Directors, by
majority vote, or the Chairman, the President or the Chief Executive Officer,
will be able to call a special meeting of stockholders. In addition, subject
only to the rights of holders of preferred stock, stockholders may not take any
action by written consent.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The Company's Restated
Certificate of Incorporation provides that certain business combinations such as
mergers and stock and assets sales, with an interested stockholder (typically a
beneficial owner of more than 15% of the outstanding voting shares of the
Company's capital stock, excluding certain persons), be approved by (a) the
holders of 75% of the voting power of the then outstanding voting shares, voting
together as a single class, and (b) at least a majority of the voting power of
the then outstanding voting shares, voting as a single class, which are not
owned beneficially, directly or indirectly, by the interested stockholder,
unless the transaction is approved by a majority of certain directors or meets
certain fair price provisions.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. The Company's Restated Certificate of Incorporation establishes
advance notice procedures with regard to stockholder nominations, other than by
or at the direction of the Board of Directors, of candidates for election as
directors. The Amended and Restated By-Laws establishes advance notice
procedures with regard to stockholder proposals other than by or at the
direction of the Board of Directors of business to be brought before a meeting.
VOTE REQUIRED TO AMEND OR REPEAL CERTAIN PROVISIONS OF THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS. The
Company's Restated Certificate of Incorporation establishes certain super
majority voting requirements to amend or repeal certain provisions of the
Company's Restated Certificate of Incorporation and Amended and Restated
By-Laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Concurrent Offering, the Company will have
8,889,501 shares of Common Stock outstanding (9,339,501 shares if the
Underwriters' over-allotment option is exercised in full). In addition, as of
August 31, 1996, there has been reserved 5,047,753 shares of Common Stock for
issuance upon the conversion or exercise of outstanding securities. The
3,000,000 shares of Common Stock to be sold in the Concurrent Offering
(3,450,000 shares if the Underwriters' over-allotment option is exercised in
full), other than shares which may be purchased by "affiliates" of the Company,
will be freely tradeable without restriction or further registration under the
Securities Act. In addition, the 3,910,000 shares of Common Stock sold in the
IPO, other than shares which were purchased by affiliates of the Company, are
also freely tradable without restriction under the Securities Act. In addition,
an aggregate of 1,073,450 shares of Common Stock which are outstanding and
3,227,853 shares of Common Stock which are issuable upon the conversion or
exercise of outstanding securities are registered in the Offering. The Company
intends to file a Registration Statement on Form S-8 with respect to up to
1,805,963 shares of Common Stock issuable pursuant to its stock option plans and
certain options and warrants which have been granted to employees and
consultants of the Company as soon as practicable after the date of this
Prospectus; such Registration Statement would include 1,344,157 shares of Common
Stock issuable upon conversion or exercise of outstanding securities of the
Company. Approximately 1,381,794 of the remaining shares of Common Stock
outstanding and issuable upon conversion or exercise of outstanding securities
would be "restricted securities," as that term is defined under Rule 144, and
may only be sold pursuant to a registration statement under the Securities Act
or an applicable exemption from the registration requirements of the Securities
Act, including Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least two years from the later of the date such
restricted shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (121,174 shares based on the number of shares
to be outstanding immediately after the Offering, assuming all of the shares
offered hereby are issued), or the average weekly trading volume in the public
market during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission (the "Commission").
Sales under Rule 144 are also subject to certain requirements as to the manner
and notice of sale and the availability of public information concerning the
Company.
Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two year holding period. Restricted shares held by affiliates of the
Company eligible for sale in the public market under Rule 144 are subject to the
foregoing volume limitations and other restrictions. Further, under Rule 144(k),
if a period of at least three years has elapsed between the later of the date
restricted shares were acquired from the Company and the date they were acquired
from an affiliate of the Company, and the person was not an affiliate for at
least three months prior to the sale, such person would be entitled to sell the
shares immediately without regard to volume limitations and the other conditions
described above. The Commission has proposed to amend the holding period of
restricted securities being sold in reliance on Rule 144 to (i) a one year
holding period rather than a two year holding period for resales of restricted
securities by affiliates or non-affiliates which comply with the volume
limitations and the other conditions described above, and (ii) a two year
holding period rather than a three year holding period for resales by
non-affiliates which , in reliance on Rule 144(k), do not comply with the volume
limitations and the other conditions described above.
In addition, as of August 31, 1996 the Company had outstanding securities
which are exercisable for or convertible into an aggregate of 5,047,753 shares
of Common Stock at a weighted average exercise/conversion price of $7.99. Of
such shares, 4,194,425 are subject to lock-up agreements.
57
<PAGE>
All officers, directors and certain security holders, agreed with Hampshire
in connection with the IPO not to, directly or indirectly, offer, sell, contract
to sell or otherwise dispose of their shares of Common Stock or other securities
of the Company, without the prior written consent of Hampshire prior to August
22, 1997. Hampshire has agreed with Jefferies not to release any of such
securityholders from the contractual restriction without the prior written
consent of Jefferies. The Company has, subject to certain exceptions, agreed not
to offer, issue or sell any shares of Common Stock or securities exercisable for
or convertible into shares of Common Stock for a 180 day period after the date
of this Prospectus without the prior written consent of Jefferies. No
predictions can be made as to the effect, if any, that market sales of shares of
existing stockholders or the availability of such shares for future sale will
have on the market price of shares of Common Stock prevailing from time to time.
The prevailing market price of Common Stock after the Concurrent Offering could
be adversely affected by future sales of substantial amounts of Common Stock by
existing stockholders.
PLAN OF DISTRIBUTION
Any or all of the Securities may be sold from time to time to purchasers
directly by the Selling Stockholders. Alternatively, the Selling Stockholders
may from time to time offer the Securities through underwriters, dealers or
agents who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the Securities for whom they may act as agents. The Selling Stockholders and
any such underwriters, dealers or agents that participate in the distribution of
the Securities may be deemed to be underwriters under the Securities Act, and
any profit on the sale of the Securities by them and any discounts, commissions
or concessions received by them may be deemed to be underwriting discounts and
commissions under the Securities Act. The Securities may be sold from time to
time in one or more transactions at a fixed offering price, which may be
changed, or at varying prices determined at the time of sale or at negotiated
prices. The distribution of the Securities by the Selling Stockholders may be
effected in one or more transactions that may take place on Nasdaq National
Market, including ordinary brokers' transactions, privately-negotiated
transactions or through sales to one or more broker-dealers for resale of such
shares as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees, discounts and commissions
may be paid by the Selling Stockholders in connection with such sales of
securities.
At the time a particular offer of the Securities is made, to the extent
required, a supplement to this Prospectus will be distributed (or, if required,
a post-effective amendment to the Registration Statement of which this
Prospectus is a part will be filed) which will identify the specific Securities
being offered and set forth the aggregate amount of Securities being offered,
the purchase price and the terms of the offering, including the name or names of
the Selling Stockholders and of any underwriters, dealers or agents, the
purchase price paid by any underwriter for Securities purchased from the Selling
Stockholder, any discounts, commissions and other items constituting
compensation from the Selling Stockholders and/or the Company and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, including
the proposed selling price to the public. In addition, an underwritten offering
will require clearance by the National Association of Securities Dealers, Inc.
of the underwriter's compensation arrangements. The Company will not receive any
of the proceeds from the sale by the Selling Stockholders of the Securities
offered hereby. All of the filing fees and other expenses of this Registration
Statement will be borne in full by the Company, other than any underwriting
fees, discounts and commissions relating to this offering.
Pursuant to certain agreements granting registration rights to certain
Selling Stockholders, which were executed in connection with the 1995 Unit
Private Placement, the Company will use its best efforts to keep the
Registration Statement, of which this Prospectus forms a part, effective under
the Securities Act for a period of five and one half years after the Effective
Date and the Company will pay substantially all of the expenses incident to the
offering and sale of the Securities to the public, other than underwriting fees,
discounts and commissions. Most of the agreements which provide for
58
<PAGE>
registration rights to the Selling Stockholders provide for
cross-indemnification of the Selling Stockholders and the Company, to the extent
permitted by law, for losses, claims, damages, liabilities and expenses arising,
under certain circumstances, out of any registration of the Securities. The
registration rights agreements also provide that in connection with an
underwritten offering, the Company will indemnify the underwriters thereof,
their officers and directors and each person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided with
respect to the indemnification of the Selling Stockholders signatory to such
agreement, except with respect to information provided by such underwriters
specifically for inclusion within the appropriate registration statement.
In order to comply with certain states securities laws, if applicable, the
Securities will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Securities may not be sold
unless the Securities have been registered or qualified for sale in such state,
or unless an exemption from registration or qualification is available and is
obtained.
The Class A and Class B Warrants and the convertible notes originally issued
by the Company in the 1995 Unit Private Placement contained legends as to their
restricted transferability. In addition, the certificates for Common Stock
issuable upon conversion of the convertible notes and upon exercise of the
Warrants would contain legends as to their restricted transferability. Upon the
effectiveness of the Registration Statement of which this Prospectus forms a
part and the transfer of the Securities pursuant thereto, these legends will no
longer be necessary, and accordingly, new certificates representing such shares
of Common Stock will be issued to the transferee without any such legends unless
otherwise required by law.
In addition to sales pursuant to the Registration Statement of which this
Prospectus forms a part, the Securities may be sold in accordance with Rule 144.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Shereff,
Friedman, Hoffman & Goodman, LLP, New York, New York. Mr. Nussbaum, a Director
of the Company, is a member of Shereff, Friedman, Hoffman & Goodman, LLP, New
York, New York. See "Principal Stockholders" and "Certain Relationships and
Related Party Transactions."
EXPERTS
The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza Building, 450 Fifth Street,
N.W., Washington, DC 20549, or at the Commission's regional offices:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York 19948.
The Common Stock is traded on the Nasdaq National Market and reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is made
to such
59
<PAGE>
Registration Statement and exhibits. A copy of the Registration Statement on
file with the Commission may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission.
Copies of the Registration Statement may be obtained from the Commission at
its principal office upon payment of prescribed fees. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, where the contract or other document has been filed as
an exhibit to the Registration Statement, each such statement is qualified in
all respects by reference to the applicable document filed with the Commission.
The Registration Statement of which this Prospectus forms a part has been filed
electronically through the Commission's Electronic Data Gathering Analysis and
Retrieval System and may be obtained through the Commission's website on the
Internet (http://www.sec.gov).
60
<PAGE>
ULTRAFEM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' (Deficiency) Equity............................................................ F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of
Ultrafem, Inc.:
We have audited the accompanying balance sheets of Ultrafem, Inc. (A
Development Stage Company) (the "Company") as of June 30, 1996 and 1995, and the
related statements of operations, stockholders' (deficiency) equity, and cash
flows for each of the three years in the period ended June 30, 1996 and for the
period March 22, 1990 (Date of Formation) through June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended June 30, 1996 and for the period March 22, 1990 (Date of
Formation) through June 30, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
August 12, 1996 (August 27, 1996 as to Note 12)
F-2
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
<S> <C> <C>
1995 1996
--------------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 73,390 $ 24,510,071
Inventory.................................................................... -- 266,951
Prepaid expenses and other current assets.................................... 10,714 609,503
--------------- ---------------
Total Current Assets..................................................... 84,104 25,386,525
Property and equipment -- net.................................................. 302,719 2,875,153
Other assets -- net............................................................ 380,136 1,146,258
--------------- ---------------
Total Assets............................................................. $ 766,959 $ 29,407,936
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current Liabilities:
Short-term debt.............................................................. $ 530,549 $ --
Current portion -- long-term debt............................................ 293,389 3,442,013
Accounts payable............................................................. 327,881 893,548
Accrued interest............................................................. 638,315 724,932
Accrued salaries............................................................. 391,534 1,426,093
Other accrued liabilities.................................................... 564,578 937,406
--------------- ---------------
Total Current Liabilities................................................ 2,746,246 7,423,992
Long-term debt................................................................. 4,032,493 700,000
--------------- ---------------
Total Liabilities........................................................ 6,778,739 8,123,992
--------------- ---------------
Stockholders' (Deficiency) Equity:
Preferred stock, $.001 par value -- authorized, 5,000,000 shares $8
cumulative Convertible Series A: issued and outstanding 6,532.5 and 1,121.25
shares stated at liquidation preference of $653,250 and $112,125............ 653,250 112,125
Common Stock, $.001 par value -- authorized 20,000,000 shares; outstanding
1,389,412, and 5,737,241 shares, respectively............................... 5,558 9,905
Additional paid-in capital................................................... 4,555,215 42,207,697
Deficit accumulated during development stage................................. (11,225,803) (21,045,783)
--------------- ---------------
Total Stockholders' (Deficiency) Equity.................................. (6,011,780) 21,283,944
--------------- ---------------
Total Liabilities and Stockholders' (Deficiency) Equity.................. $ 766,959 $ 29,407,936
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD MARCH 22,
YEAR ENDED JUNE 30, 1990 (DATE OF
------------------------------------------- FORMATION) THROUGH
1994 1995 1996 JUNE 30, 1996
------------- ------------- ------------- --------------------
<S> <C> <C> <C> <C>
General and administrative expense............ $ 1,387,784 $ 1,568,442 $ 7,501,538 $ 14,187,693
Research and development...................... 452,552 181,475 1,403,557 4,703,885
Interest expense.............................. 336,732 464,615 665,381 1,542,267
Interest income............................... -- -- (489,379) (489,379)
Depreciation and amortization................. 126,872 166,533 738,883 1,101,317
------------- ------------- ------------- --------------------
Net loss...................................... $ 2,303,940 $ 2,381,065 $ 9,819,980 $ 21,045,783
------------- ------------- ------------- --------------------
------------- ------------- ------------- --------------------
Net loss per share............................ $ 0.87 $ 0.87 $ 2.74 --
------------- ------------- ------------- --------------------
------------- ------------- ------------- --------------------
Weighted average number of common shares and
equivalents outstanding 2,658,214 2,698,152 3,529,494 --
------------- ------------- ------------- --------------------
------------- ------------- ------------- --------------------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
DEFICIT
PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DURING THE
CONVERTIBLE ----------------------- PAID-IN DEVELOPMENT
SERIES A SHARES AMOUNT CAPITAL STAGE TOTAL
----------- ------------ --------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Original Capitalization:
Initial issuance of stock ($0.228 to
$1.776 per share)...................... 98,750 $ 395 $ 39,605 $ -- $ 40,000
Issuance of stock for technology (valued
at $0.00).............................. 526,250 2,105 (2,105) -- --
Sales of stock (from $3.00 to $4.00 per
share)................................. 142,500 570 559,430 -- 560,000
Net loss from date of formation (March
22, 1990) to June 30, 1991............. -- -- -- (617,359) (617,359)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1991.................... 767,500 3,070 596,930 (617,359) (17,359)
Stock warrants exercised ($.004 per
share)................................. 18,750 75 -- -- 75
Sales of stock (from $3.00 to $8.00 per
share) net of costs of $416,346........ 462,562 1,850 2,882,304 -- 2,884,154
Issuances of stock for consulting
services (valued at $4.00 per share)... 500 2 3,998 -- 4,000
Net loss................................ -- -- -- (3,831,536) (3,831,536)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1992.................... 1,249,312 4,997 3,483,232 (4,448,895) (960,666)
Sales of stock ($8.00 per share) net of
costs of $29,226....................... 56,000 224 418,550 -- 418,774
Issuance of stock for consulting
services (valued at $8.00 per share)... 7,500 30 59,970 -- 60,000
Net loss................................ -- -- -- (2,091,903) (2,091,903)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1993.................... 1,312,812 5,251 3,961,752 (6,540,798) (2,573,795)
Issuance of stock for consulting
services (valued at $8.00 per share)... 1,500 6 11,994 -- 12,000
Issuance of options and warrants (valued
at $.23529 per option and warrant)..... -- -- 132,021 -- 132,021
Net loss................................ -- -- -- (2,303,940) (2,303,940)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1994.................... 1,314,312 5,257 4,105,767 (8,844,738) (4,733,714)
Sales of stock ($8.00 per share) net of
costs of $74,720....................... 28,125 113 150,167 -- 150,280
Issuance of stock warrants ($.23529 per
warrant)............................... -- -- 28,000 -- 28,000
Issuance of stock for consulting and
other services (valued at $8.00 to
$15.66 per share)...................... 30,100 120 221,660 -- 221,780
Conversion of convertible debt.......... 16,875 68 134,932 -- 135,000
Sales of Series A Preferred Stock ($100
per share) net of costs of $100,505.... $ 653,250 -- -- (100,505) -- 552,745
Issuance of options and warrants (valued
at $.23529 per option and warrant)..... -- -- -- 15,194 -- 15,194
Net loss................................ -- -- -- -- (2,381,065) (2,381,065)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1995.................... 653,250 1,389,412 5,558 4,555,215 (11,225,803) (6,011,780)
Sales of stock ($10.00 per share) net of
costs of $5,014,389.................... -- 3,910,000 3,910 34,081,701 -- 34,085,611
Exercise of stock options and
warrants............................... -- 298,104 298 1,869,224 -- 1,869,522
Sale of warrants........................ -- -- -- 527 -- 527
Issuance of options and warrants........ -- -- -- 945,044 -- 945,044
Conversion of preferred stock to common
stock ($5.00 per share)................ (541,125) 108,225 108 541,017 -- --
Conversion of convertible debt ($5 to
$10 per share)......................... 31,500 31 214,969 215,000
Net loss................................ -- -- -- -- (9,819,980) (9,819,980)
----------- ------------ --------- ------------- -------------- -------------
BALANCE, JUNE 30, 1996.................... $ 112,125 5,737,241 $ 9,905 $ 42,207,697 $ (21,045,783) $ 21,283,944
----------- ------------ --------- ------------- -------------- -------------
----------- ------------ --------- ------------- -------------- -------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD MARCH 22,
1990
YEAR ENDED JUNE 30, (DATE OF FORMATION)
-------------------------------------------- THROUGH
1994 1995 1996 JUNE 30, 1996
------------- ------------- -------------- --------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (2,303,940) $ (2,381,065) $ (9,819,980) $ (21,045,783)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 61,542 62,996 79,184 272,751
Amortization principally of debt issuance
costs and patent costs...................... 65,320 103,535 659,699 828,554
Amortization of debt discount................ 43,578 43,480 -- 87,058
Loss on disposal of equipment................ -- -- -- 5,598
Non-cash officers compensation............... -- -- 1,411,871 1,411,871
Non-employee stock based compensation........ 12,000 221,780 385,044 682,824
Other non-cash items......................... 44,964 15,194 -- 60,158
Changes in operating assets and
liabilities................................. 311,993 1,103,808 (291,271) 3,176,577
------------- ------------- -------------- --------------------
Net Cash Used in Operating Activities...... (1,764,543) (830,272) (7,575,453) (14,520,392)
------------- ------------- -------------- --------------------
Cash flows from investing activities:
Purchase of and deposits on manufacturing
equipment and leasehold improvements............ (23,667) (3,028) (2,651,618) (3,155,602)
Proceeds from sale of equipment.................. -- -- -- 2,100
------------- ------------- -------------- --------------------
Net Cash Used in Investing Activities...... (23,667) (3,028) (2,651,618) (3,153,502)
------------- ------------- -------------- --------------------
Cash flows from financing activities:
Proceeds from secured notes...................... 1,850,000 -- -- 1,850,000
Proceeds from issuance of subordinated
convertible debentures.......................... -- 225,000 -- 225,000
Proceeds from sale of convertible debentures..... -- -- 2,125,000 2,825,000
Proceeds from notes payable...................... -- 135,000 2,227,870 2,598,880
Proceeds from sale of preferred stock (net of
related expenses)............................... -- 552,745 -- 552,745
Proceeds from sale of common stock (net of
related expenses)............................... -- 150,280 34,085,611 38,138,894
Proceeds from sale of options and warrants....... -- 28,000 527 28,527
Proceeds from exercise of stock options and
warrants........................................ -- -- 1,794,054 1,794,054
Repayment of borrowings.......................... (30,000) (84,800) (4,852,287) (4,967,087)
Debt Issue Costs................................. (31,500) (110,025) (717,023) (862,048)
------------- ------------- -------------- --------------------
Net Cash Provided by Financing
Activities................................ 1,788,500 896,200 34,663,752 42,183,965
------------- ------------- -------------- --------------------
Net Increase in Cash............................. 290 62,900 24,436,681 24,510,071
------------- ------------- -------------- --------------------
Cash and cash equivalents, beginning of period... 10,200 10,490 73,390 --
------------- ------------- -------------- --------------------
Cash and cash equivalents, end of period......... $ 10,490 $ 73,390 $ 24,510,071 $ 24,510,071
------------- ------------- -------------- --------------------
------------- ------------- -------------- --------------------
</TABLE>
(Continued on next page)
See notes to financial statements.
F-6
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
PERIOD MARCH 22,
1990
YEAR ENDED JUNE 30, (DATE OF FORMATION)
-------------------------------------------- THROUGH
1994 1995 1996 JUNE 30, 1996
------------- ------------- -------------- --------------------
<S> <C> <C> <C> <C>
Changes in operating assets and liabilities
consist of:
(Increase) decrease in prepaid expenses.. $ 51,696 $ (2,841) $ (523,322) $ (542,011)
Increase in inventory.................... -- -- (266,951) (266,951)
Increase in other assets................. (56,379) (151,272) (233,798) (629,790)
Increase in accounts payable............. 97,388 937,594 650,667 3,114,111
Increase in accrued liabilities.......... 219,288 320,327 82,133 1,501,218
------------ ------------ ------------- ------------------
$ 311,993 $ 1,103,808 $ (291,271) $ 3,176,577
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Supplementary Information:
Cash paid during the year for:
Interest............................... $ 178,170 $ 955 $ 578,764 $ 757,889
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Taxes.................................. $ 1,348 $ 1,271 $ 4,094 $ 9,383
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Non-cash financing activities:
Conversion of accounts payable and
accrued liabilities to long-term debt... $ 373,555 $ 1,586,666 $ -- $ 1,960,221
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of notes payable to common
stock................................... $ -- $ 135,000 $ -- $ 135,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Issuance of warrants in connection with
debt offering........................... $ 87,057 $ -- $ -- $ 87,057
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of secured notes and notes
payable to convertible debentures....... $ -- $ -- $ 850,000 $ 850,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of secured notes to notes
payable................................. $ -- $ -- $ 850,000 $ 850,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of convertible debt to common
stock................................... $ -- $ -- $ 215,000 $ 215,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of accounts payable to
warrants................................ $ -- $ -- $ 85,000 $ 85,000
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Issuance of below market value options
and warrants in connection with
professional services, licensing and
consulting agreements................... $ -- $ -- $ 860,044 $ 860,044
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Conversion of preferred stock to common
stock................................... $ -- $ -- $ 541,125 $ 541,125
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
Amounts receivable from the issuance of
common stock............................ $ -- $ -- $ 75,467 $ 75,467
------------ ------------ ------------- ------------------
------------ ------------ ------------- ------------------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Ultrafem, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on March 22, 1990 and will be engaged in the
manufacturing and sale of its proprietary feminine protection product. At June
30, 1996, principal operations had commenced, however, no revenue has been
derived therefrom; accordingly, the Company is considered a development stage
enterprise. There is no assurance that commercially successful products will be
developed nor that the Company will achieve a profitable level of operations.
USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -- Cash equivalents include short-term investments
principally in commercial paper with an original maturity of three months or
less when purchased.
CONCENTRATION OF CREDIT RISK -- The Company places its temporary cash
investments and investments with high credit quality financial institutions and
by policy, limits the amount of credit exposure with any one financial
institution.
INVENTORY -- Inventories are stated at the lower of cost (first-in,
first-out) or market and consists principally of raw materials and work in
process.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost less
accumulated depreciation. Depreciation is recorded using the straight-line
method over the estimated useful lives of the assets which are between 3 and 10
years.
LICENSING COSTS -- Licensing costs are amortized over the life of the
license, ten years, using the straight-line method.
DEBT ISSUANCE COSTS -- Debt issuance costs in connection with various debt
agreements are amortized over the lives of the promissory notes issued in
connection with such agreements.
DEBT DISCOUNT -- Debt discount in connection with the issuance of debt with
stock purchase warrants are amortized over the life of the related obligation
and is included in interest expense in the accompanying statements of
operations.
PATENT COSTS -- Patent costs are stated at cost less accumulated
amortization. Patent costs are amortized using the straight-line method over the
17-year life of the patent when obtained, or expensed if not obtained. The
carrying value of intangible assets are periodically reviewed by the Company to
ensure that impairments are recognized when the future operating cash flows
expected to be derived from such intangible assets are less than their carrying
value.
STOCK OFFERING COSTS -- Costs incurred in connection with the sale of the
Company's equity securities are recorded as a reduction of the proceeds when
received. Costs incurred prior to the receipt of proceeds from the sale of the
Company's equity securities are capitalized until the proceeds are received or
expensed if such sale is not consummated.
RESEARCH AND DEVELOPMENT COSTS -- Research and development costs are
expensed as incurred.
F-8
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVERSE STOCK SPLIT -- Effective July 28, 1995, the stockholders of the
Company approved a one-for-four reverse split of its common stock. All
references in the accompanying financial statements to the number of shares and
per share amounts have been retroactively restated to reflect this transaction.
LONG-LIVED ASSETS -- The Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," which is effective for fiscal years
beginning after December 15, 1995. The Company does not expect the effect on its
financial condition and results of operations from the adoption of this
statement to be material.
RECENTLY ISSUED ACCOUNTING STANDARD -- In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The standard encourages, but does not require, companies to
recognize compensation expense of grants for stock, stock options and other
equity instruments to employees based on fair value accounting rules. SFAS No.
123 requires companies that choose not to adopt the new fair value accounting
rules to disclose pro forma net income and earnings per share under the new
method. The standard is effective for fiscal years beginning after December 15,
1995. The Company has not yet determined if it will adopt the accounting
provisions of SFAS No. 123 or only the disclosure provision. The Company has not
determined the effect, if any, that adoption of SFAS No. 123 will have on its
results of operations. Stock-based compensation which has been issued to
non-employees has been reflected at fair value.
LOSS PER COMMON AND COMMON EQUIVALENT SHARE -- Loss per common and common
equivalent share for the years ended June 30, 1996, 1995 and 1994 was computed
using the weighted average number of common shares outstanding during each year.
The weighted average number of common shares outstanding during the first half
of fiscal year 1996, and during fiscal years 1995 and 1994 includes incremental
shares for the common stock, warrants and other potentially dilutive securities
issued and options granted to purchase common stock which were issued within one
year prior to the effective date of the Company's initial public offering (the
"Incremental Shares"). Such Incremental Shares were determined utilizing the
treasury stock method. The effect of the assumed exercise of
stock options which were issued in periods prior to the one-year period
previously mentioned and the effect of the assumed conversion of the convertible
preferred stock are not included for 1995 and 1994 because their effect is
antidilutive. Loss per common share assuming full dilution is not presented
because such calculation is antidilutive.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior year
balances in order to conform with the current year presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1996, the fair values of cash, cash equivalents, non-convertible
short-term debt and current portion of long-term debt, accounts payable, accrued
interest, accrued salaries and other accrued liabilities approximated their
carrying values because of the short-term nature of these instruments. The
estimated fair values of the convertible debt subject to fair value disclosures
was
F-9
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
determined by reference to the quoted market price of the Company's Common Stock
at June 30, 1996, multiplied by the number of common shares the debt is
convertible into, and the related carrying amounts at June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
------------- --------------
<S> <C> <C>
Convertible Debt............................................... $ 3,857,432 $ 14,679,049
------------- --------------
------------- --------------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
Machinery and equipment........................... $ 392,049 $ 1,480,205
Office furniture and equipment.................... 52,082 105,096
Laboratory equipment.............................. 49,766 49,766
Leasehold improvements............................ 762 439,172
Computer equipment................................ -- 267,970
Construction in progress.......................... -- 804,068
---------- -----------
494,659 3,146,277
Less accumulated depreciation and amortization.... (191,940) (271,124)
---------- -----------
$ 302,719 $ 2,875,153
---------- -----------
---------- -----------
</TABLE>
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
Patent and trademark costs........................ $ 164,632 $ 222,493
Debt issuance costs............................... 232,817 971,490
Deferred debt and warrant offering costs.......... 137,273 --
Deferred second offering costs.................... -- 70,000
Consulting agreement.............................. -- 275,000
Licensing agreements.............................. -- 400,000
Security deposits................................. 14,270 35,830
---------- -----------
548,992 1,974,813
Less accumulated amortization..................... (168,856) (828,555)
---------- -----------
$ 380,136 $ 1,146,258
---------- -----------
---------- -----------
</TABLE>
F-10
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Unsecured demand notes to former officers, interest
at 6% per year (b)................................ $ 206,010 $ --
Unsecured note to Johns Hopkins University, due
March, 1995, interest at 7.5% per year (c)........ 324,539 --
---------- ----------
$ 530,549 $ --
---------- ----------
---------- ----------
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Unsecured notes, due June, 1995, interest at 10% per year (a)... $ 1,850,000 $ --
Unsecured convertible notes, due April, 1997 interest at 10% per
year (a)....................................................... -- 2,875,000
Convertible debentures, due December, 1998 to October, 1999,
interest compounded annually at 10.5% per year (f)............. 700,000 700,000
Unsecured notes to former officers, due December, 1995 to
January, 1997, interest at 6% or 10% per year (b).............. 476,680 221,033
Unsecured notes to officer/shareholder, due September, 1996,
interest at 10% per year (b)................................... 313,543 --
Unsecured notes to trade and other creditors, due October, 1996
to March, 1997, interest at 9% or 10% per year (d)............. 588,227 63,548
Subordinated convertible debentures, due on demand or due
August, 1996 to November, 1996, interest at 10% per year (e)... 397,432 282,432
------------- -------------
4,325,882 4,142,013
Less current maturities......................................... (293,389) (3,442,013)
------------- -------------
$ 4,032,493 $ 700,000
------------- -------------
------------- -------------
</TABLE>
F-11
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT (CONTINUED)
Annual maturities on long-term debt as of June 30, 1996 during the next five
years are:
<TABLE>
<CAPTION>
PERIOD
ENDED
JUNE 30,
-------------
<S> <C>
1997........................................................................... $ 3,442,013
1998........................................................................... --
1999........................................................................... 350,000
2000........................................................................... 350,000
2001........................................................................... --
-------------
$ 4,142,013
-------------
-------------
</TABLE>
- ------------------------
(a) During June, 1995, the Company entered into an Agreement with an investment
banking firm, Hampshire Securities Corporation ("Hampshire") for the private
placement of securities, which closed during July, 1995 and September, 1995
(the "1995 Unit Private Placement"), in which the Company raised $5,950,000
through the sale of Units. Each "Unit" consisted of one $50,000 non-
convertible promissory note bearing interest at 10% per annum (the
"Non-Convertible Notes"), one $50,000 convertible promissory note bearing
interest at 10% per annum and which is convertible into shares of Common
Stock at a conversion price per share equal to $5.00 (the "Convertible
Notes"), one Class A Warrant to purchase 10,000 shares of Common Stock at a
purchase price per share equal to $5.00 and one Class B Warrant to purchase
10,000 shares of Common Stock at a purchase price per share equal to $12.50.
Both Class A and Class B Warrants expire five years from the date of
issuance. In June, 1996 a Convertible Note in the principal amount of
$100,000 was converted into 20,000 shares of Common Stock. Certain holders
of the Secured Notes which were issued in a 1993 private placement agreed to
amend and restate their promissory notes and invest the principal amount of
such notes in the amount of $1,650,000 in the 1995 Unit Private Placement.
On July 28, 1995, the other Existing Investors were paid their principal and
interest of $200,000 and $22,557, respectively, from the proceeds of the
1995 Unit Private Placement. In addition, through June 30, 1996, interest of
$186,281 was paid related to the $1,650,000 Secured Notes. The
Non-Convertible Notes in the amount of $2,975,000 plus interest in the
amount of $162,319 was paid on February 27, 1996.
Under the terms of the 1995 Unit Private Placement, because the holders of
the $1,650,000 Secured Notes were not paid by December 31, 1995, they were
issued additional warrants to purchase a maximum of 165,000 shares of Common
Stock at an exercise price per share equal to $5.00. Holders of 350,000
existing warrants issued under the 1993 private placement, which are
exercisable at an exercise price equal to $9 per share were extended for
three years, as the holders of the warrants agreed not to dispose of the
warrants or the underlying Common Stock prior to August 22, 1997. Hampshire
was paid $539,482 in connection with the 1995 Unit Private Placement through
September 25, 1995.
(b) Unsecured notes to former officers and an officer/stockholder of the Company
represent loans made to the Company and accrued salaries which were
converted to promissory notes. Of such unsecured notes, principal in the
amount of $725,199 plus interest in the amount of $116,039 was paid through
June 30, 1996.
F-12
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT (CONTINUED)
(c) As of June 30, 1995, the unsecured note was owed to The Johns Hopkins
University ("Johns Hopkins") by the Company under the terms of a research
and development agreement which expired June 30, 1993. $200,000 was paid on
September 7, 1995 and $124,539 plus interest of $58,999 was paid on April
19, 1996.
(d) During October, 1994 and March, 1995, the Company issued to certain trade
and other creditors unsecured notes in the principal amount of $588,227. Of
such unsecured notes, principal in the amount of $524,679 plus interest in
the amount of $24,260 was paid through June 30, 1996. As of June 30, 1996
and 1995 the Company owed a member of the Board of Directors and a principal
of ReProtect, LLC ("ReProtect") $15,099 and $30,198, respectively. During
1996, $15,099 of principal and $1,415 of interest was paid to this director.
Additionally, two other principals of ReProtect were owed $44,698 and
$89,396 at June 30, 1996 and 1995. During 1996, $44,698 of principal and
$4,188 of interest was paid to these two individuals.
(e) During October, 1994, the Company raised $450,000 through a private
placement of units composed in the aggregate of (i) $225,000 in subordinated
convertible debentures which accrues interest at 10% annually, maturing on
August 31, 1996 and convertible into 22,500 shares of Common Stock at $10.00
per share, (ii) warrants, exercisable for a five-year period, to purchase
47,813 shares of Common Stock at $10.00 per share, and (iii) 28,125 shares
of Common Stock at $8.00 per share. These shares of Common Stock, including
those issuable upon the conversion of the debentures or the exercise of the
warrants, were registered in a concurrent offering with the initial public
offering. During June, 1996 subordinated convertible debentures in the
principal amount of $95,000 were converted into 9,500 shares of Common
Stock.
In October and November, 1994, the Company issued to certain trade creditors
subordinated convertible debentures for a total principal amount of
$172,432. Each such debenture has a two-year term, bears interest at 10% per
annum and is convertible into Common Stock at $10.00 per share. During June,
1996, $20,000 was converted into 2,000 shares of Common Stock.
During 1994, the Company borrowed a total of $135,000 from nine individuals,
including four current Directors. The loans required payment of 10% interest
per annum until maturity. Each lender was granted (i) the option of
receiving, in lieu of the repayment of interest and principal, 1,875 shares
of Common Stock at a price of $8.00 per share and (ii) warrants to purchase
375 shares of Common Stock at $10.00 per share for a five-year period
expiring on June 30, 1999. As of June 30, 1995, all of the nine individuals
have converted their loans into Common Stock.
(f) Between December, 1991 and October, 1992, the Company borrowed an aggregate
of $700,000 from the Montana Board of Science and Technology Development
evidenced by convertible debentures, of which $350,000 was borrowed to fund
expenditures relating to the Company's facility in Montana. The convertible
debentures are convertible into shares of Common Stock at $5.00 per share,
with accrued interest being waived upon conversion.
In January, 1996, the Company raised an additional $100,000 through a private
placement to a single investor of a $100,000 non-convertible promissory note
due the earlier of January 26, 1997 or the closing of the initial public
offering, bearing interest at a rate of 10% per annum and a Class C Warrant
to purchase 20,000 shares of Common Stock at an exercise price of $8.00 per
share.
F-13
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
5. DEBT (CONTINUED)
The Class C Warrant is not exercisable until the first anniversary of the
date of issuance and has a term of five years. The Company paid the entire
principal amount of $100,000 plus interest of $877 on February 27, 1996.
6. STOCK OPTIONS AND WARRANTS
In October, 1990, the Board of Directors authorized the 1990 Stock Option
Plan (the "1990 Plan") under which options to purchase up to 250,000 shares of
the Common Stock may be granted to employees, officers, directors, consultants
and advisors. In May, 1993, the number of shares covered was increased to
900,000 shares by resolution of the Board of Directors. The Board of Directors
is authorized to set the exercise period, the number of shares subject to each
option, the grantees receiving the options, and the exercise price at their best
determination of fair market value.
Options granted generally become exercisable over five years and expire ten
years from the date of grant. The Plan also provides for the granting of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1954, as amended.
On September 28, 1995, the Company adopted the 1995 Stock Option Plan for
Non-Employee Directors, a non-qualified stock option plan (the "1995 Plan"). The
1995 Plan reserves for the issuance of up to 250,000 shares of the Common Stock
pursuant to stock options to be granted to the Company's non-employee directors.
Over a period of six months, each of the five non-employee directors was granted
an option to purchase 15,000 shares of the Common Stock at fair market value
($8.00 and $14.50 per share). Such options become immediately exercisable with
respect to one-third of the shares of Common Stock (5,000 shares), the remaining
10,000 shares of Common Stock vest in equal annual installments over the next
four years following the anniversary date of the initial grant. The options
expire ten years from date of grant.
The following summarizes the stock option transactions under the 1990 Plan
for the years ended June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES OPTION PRICE
---------- ------------------
<S> <C> <C>
Outstanding at June 30, 1993................................. 432,000 $4.00 -- $ 8.00
Granted.................................................... 4,500 $8.00
Canceled................................................... (107,500) $8.00
Outstanding at June 30, 1994................................. 329,000 $4.00 -- $ 8.00
Granted.................................................... 3,750 $4.00
Canceled................................................... (24,556) $8.00
Outstanding at June 30, 1995................................. 308,194 $4.00 -- $ 8.00
Granted.................................................... 310,000 $6.00 -- $10.50
Canceled................................................... (5,000) $8.00
Exercised.................................................. (8,591) $8.00
Outstanding at June 30, 1996................................. 604,603 $4.00 -- $10.50
Available for future grant June 30, 1996..................... 286,806
Exercisable at June 30, 1996................................. 367,145 $4.00 -- $10.50
</TABLE>
A director and officers of the Company were issued options to purchase
624,862 shares of the Common Stock at $4.35 and $6 per share, resulting in
compensation expenses of approximately $3,348,000 which are amortized over the
remaining lives of their contracts. The expense for the year
F-14
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
6. STOCK OPTIONS AND WARRANTS (CONTINUED)
ended June 30, 1996 and for the period March 22, 1990 (Date of Formation)
through June 30, 1996 was $1,411,871; accrued salaries as at June 30, 1996
includes $1,411,871. Of these options, options to purchase 574,862 shares of
Common Stock are not pursuant to either the 1990 Plan or the 1995 Plan. As of
June 30, 1996, options to purchase 344,917 shares of Common Stock are
exercisable by the officer/director of the Company.
As of June 30, 1996, the Board of Directors authorized and granted options
to purchase 479,125 shares of Common Stock at exercise prices of $4.00 to $8.00
per share, which vest over ten years. These options are not included in the 1990
Plan or the 1995 Plan. As of June 30, 1996, options to purchase 76,625 shares of
Common Stock have been exercised. Of these options, options to purchase 100,000
shares of Common Stock were issued at $6.00 per share resulting in capitalized
licensing costs of $200,000 which will be amortized over the life of the
research agreement which is ten years.
The Company has warrants outstanding to purchase 2,747,355 shares of the
Common Stock at exercise prices varying from $.004 per share to $16.50 per share
which generally vest over a three to five year period. Through June 30, 1996,
warrants to purchase 231,638 shares of Common Stock with exercise prices ranging
from $.004 to $10.00 per share were exercised. On August 1, 1995, warrants to
purchase 26,625 shares of Common Stock at exercise prices of $4.00 and $6.00 per
share were exchanged for stock options. In April, 1996, the Company issued a
five-year warrant to purchase 200,000 shares of Common Stock at an exercise
price of $11.00 per share (which was below fair market value) in connection with
the execution of a consulting agreement. This resulted in an additional $275,000
consulting expense which will be amortized over the three year term of the
agreement. In June, 1996, the Company issued five year warrants to purchase
20,000 shares of Common Stock at an exercise price of $10.00 (which was below
fair market value) in connection with legal services provided to the Company.
This resulted in an additional $235,000 legal expense during the year ended June
30, 1996. The expenses referred to above were calculated as the excess of fair
market value over the grant price.
7. INCOME TAXES
The Company has a net operating loss ("NOL") carryforward of approximately
$21,046,000 for financial reporting purposes and approximately $6,200,000 for
tax purposes with research and development credit carryforward of approximately
$116,000 expiring in the years 2006 through 2009. The Company has not reflected
any benefit of such net operating loss carryforward in the accompanying
financial statements in accordance with Financial Accounting Standards Board
Statement No. 109 as the realization of this deferred tax benefit is not more
than likely. The NOL carryforward for tax purposes expires in the years 2006
through 2010. The difference between financial reporting and tax purposes
results from the temporary difference caused by the capitalization of start-up
expenditures for tax purposes as required by Internal Revenue Code Section 195.
The Tax Reform Act of 1986 provided for a limitation on the use of NOL
carryforwards, following certain ownership changes. As a result of transactions
in the Company's stock during 1993 through 1996, a change of ownership of
greater than 50%, as defined, may have occurred. Under such circumstances, the
potential benefits from utilization of tax carryforward may be substantially
limited or reduced on an annual basis.
F-15
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
8. OTHER RELATED PARTY TRANSACTIONS AND AGREEMENTS
During 1990, as part of the organization of the Company, the founder of the
Company and a Senior Vice-President and Director received 526,250 shares of the
Common Stock in exchange for assigning to the Company all pending patent
applications, trademarks, copyrights, technology and similar rights associated
with products relating to or evolving from the patent application filed by the
Senior Vice-President and Director. In addition, under the terms of an
employment agreement dated May 15, 1992, a royalty of $.005 for each device
sold, as defined, will be paid. To date, there have been no payments made under
this agreement.
On July 29, 1994 and as amended August 1, 1995, the Company entered into an
employment agreement with the President and Chief Executive Officer of the
Company. Among other matters he will receive a royalty of $.005 for each unit of
feminine protection product sold and $.01 for each unit sold for medical
purposes.
A director and stockholder of the Company is the Chairman of the Executive
Committee of an advertising agency used by the Company which was paid
approximately $1,077,000 during the year ended June 30, 1996 and for the period
March 22, 1990 (Date of Formation) through June 30, 1996. In addition, $560,000
and $121,875 owed to such agency are included in accrued expenses and accounts
payable at June 30, 1996 and 1995, respectively. In March, 1996, the Company
issued a five year warrant to purchase 50,000 shares of Common Stock at an
exercise price of $10.00 per share in repayment of $50,000 of fees owed to such
agency, which were incurred in connection with the launch of INSTEAD-TM-. This
resulted in an additional advertising expense of $118,500.
In March, 1996, the Company issued a five year warrant to purchase 35,000
shares of Common Stock to an entity formed by the partners of Shereff, Friedman,
Hoffman & Goodman, LLP, a law firm which provided legal services in connection
with the Company's initial public offering. The warrant has an exercise price of
$10 per share and was issued in repayment of $35,000 of legal fees which were
incurred in connection with the initial public offering. This resulted in an
additional legal expense of approximately $27,000 and a charge to additional
paid-in capital of $56,000. A partner of the law firm was appointed to the
Company's Board of Directors in April, 1996 and was issued five-year warrants to
purchase 15,000 shares of Common Stock at $14.50 per share. The total amount of
fees paid by the Company to such law firm was approximately $647,000, $30,000
and $677,000 for the years ended June 30, 1996, 1995 and for the period March
22, 1990 (Date of Formation) through June 30, 1996, respectively. In addition,
$95,000 and $50,000 owed to the law firm is included in accrued expenses at June
30, 1996 and 1995, respectively.
The Company entered into a Research Agreement with Johns Hopkins commencing
July 1, 1991, which expired June 30, 1993. The Company reached an agreement (the
"ReProtect Agreement") with a company, ReProtect, formed by scientists
(including a current director) who previously conducted research for the Company
under this expired Research Agreement, to conduct research for the Company. The
ReProtect Agreement is for a ten year term and provides that the Company will
provide ReProtect $1 million annually for research after the IPO. The ReProtect
Agreement provides the Company with an exclusive license for the use of the
BufferGel Technology coupled with the SoftCup Technology, for which ReProtect
received a one time payment of $100,000, a ten year option to purchase 225,000
shares of Common Stock, exercisable upon the attainment of certain milestones
and will receive a royalty of $.01 per unit of the product sold. In addition,
ReProtect granted the Company a ten year license for vaginal use of the
BufferGel Technology without the SoftCup Technology, for which ReProtect
received a one time payment of $100,000, options to purchase 175,000 shares of
F-16
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
8. OTHER RELATED PARTY TRANSACTIONS AND AGREEMENTS (CONTINUED)
Common Stock, exercisable upon the attainment of certain milestones, and a
royalty of either 5% or 3% (depending on whether a patent has been issued) of
net sales of the BufferGel Technology (without the SoftCup Technology). The
ReProtect Agreement contains the parties' agreement to negotiate in good faith
to extend the term, as well as other customary provisions in agreements of this
type, including provisions relating to early termination of the agreement under
certain circumstances. Research and development expenditures pursuant to the
above agreements amounted to approximately $626,500, $60,230 and $356,000 for
each of the years ended June 30, 1996, 1995 and 1994, respectively, and
approximately $1,330,500 for the period March 22, 1990 (Date of Formation)
through June 30, 1996.
9. PREFERRED STOCK
In 1995, the Company raised $670,000 through a private placement sale of
units. Each unit consisted of (1) 1,950 shares of Series A Preferred Stock, for
an allocated purchase price of $195,000, and (2) a warrant, exercisable for a
five-year period, to purchase 21,250 shares of Common Stock at $10.00 per share,
subject to adjustment for certain dilutive events for an allocated purchase
price of $5,000.
Each share of Series A Preferred Stock is initially (a) convertible, at any
time at the option of the Holder, into Common Stock at a conversion rate of 12.5
shares of Common Stock for each such share, subject to adjustment for certain
dilutive events, (b) entitled to cumulative annual dividends of $8.00, (c)
participating with the Common Stock in any dividend after payment of said $8.00,
(d) has a liquidation preference of $100.00 and (e) entitled to the number of
votes equal to the number of shares of Common Stock into which such share can be
converted.
During the year ended June 30, 1996, 5,411.25 shares of Series A Preferred
Stock were converted into 108,225 shares of Common Stock.
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LEASES
The Company leases office and manufacturing facilities. Certain of these
leases require the Company to pay certain executory costs (such as insurance and
maintenance). In July, 1996, the Company signed a ten year lease for new office
space in New York, New York. The Company obtained a one year renewable standby
letter of credit, expiring in July, 1997, in the amount of $325,000 as rent
security for the above premises collateralized by certain marketable securities.
Future minimum lease payments for operating leases, including the new office
lease, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------------------------------------------------------------------
<S> <C>
1997........................................................................... $ 337,027
1998........................................................................... 362,743
1999........................................................................... 451,571
2000........................................................................... 386,438
2001........................................................................... 386,438
Thereafter..................................................................... 2,244,198
-------------
$ 4,168,415
-------------
-------------
</TABLE>
F-17
<PAGE>
ULTRAFEM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1995, 1994, AND PERIOD MARCH 22, 1990
(DATE OF FORMATION) THROUGH JUNE 30, 1996
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
Rental expense was approximately $123,000, $108,000, $223,000, and $622,000
and for the years ended June 30, 1996, 1995, 1994, and from March 20, 1990 (Date
of Formation) through June 30, 1996, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment contracts with four officers, two of
whom are directors of the Company.
The agreements all provide for the following: base salaries increasing upon
achievement of certain conditions, incentive bonus plans, severance benefits and
non-compete agreements. Certain of the agreements also include a five-year term,
signing bonuses, stock options upon attainment of specified goals, and royalties
on sales of the product.
MANUFACTURING EQUIPMENT AND IMPROVEMENTS
The Company has commitments in the amount of $5,374,005 of which $4,377,957
was unpaid, for the purchase of manufacturing equipment, improvements to the
manufacturing facility to support startup production and leasehold improvements
to the new New York office space. Included in accounts payable and accrued
expenses at June 30, 1996 was $62,307. The total commitments include
approximately $693,800 of estimated costs to be incurred for improvements to the
New York office space.
11. INITIAL PUBLIC OFFERING
On February 27, 1996, the Company successfully completed its initial public
offering of Common Stock. The initial public offering was consummated with the
sale of 3,910,000 shares of its Common Stock at $10.00 per share with proceeds
of $34,085,611, net of related expenses of $5,014,389.
12. SUBSEQUENT EVENTS
On August 27, 1996 the Company settled a claim with certain individuals
pursuant to which the Company issued five year warrants to purchase an aggregate
of 30,000 shares of Common Stock at an exercise price of $10.00 per share. This
will result in an additional expense of approximately $340,000 for the first
quarter of fiscal year 1997.
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<PAGE>
[inside back cover]
[PHOTO OF MANUFACTURING PLANT]
INSTEAD IS MANUFACTURED ON CUSTOM-DESIGNED, STATE-OF-THE-ART EQUIPMENT AT
THE ULTRAFEM MONTANA FACILITY.
[PHOTO OF PRODUCT]
INSTEAD IS A DISPOSABLE, PATENTED PRODUCT THAT COLLECTS RATHER THAN ABSORBS
MENSTRUAL FLUID. ITS FLEXIBILITY MAKES IT EASY TO INSERT AND REMOVE.
A CUP-LIKE DEVICE THAT IS INSERTED INTO THE UPPER VAGINAL CANAL UNDER A
WOMAN'S CERVIX, INSTEAD GIVES UP TO TWELVE HOURS OF SAFE, COMFORTABLE
PROTECTION.
THE SOFT, INERT MATERIAL CONFORMS TO A WOMAN'S ANATOMY TO HELP FIT
COMFORTABLY AND SECURELY.
[PHOTO OF PRODUCT DISPLAY]
SALES CALLS IN THE PACIFIC NORTHWEST TO DATE HAVE RESULTED IN COMMITMENTS
FROM RETAILERS WHICH ACCOUNT FOR MORE THAN 75% OF ACV (ALL COMMODITY VOLUME) IN
THE FOOD AND DRUG CLASSES OF TRADE.
ULTRAFEM HAS OBTAINED FDA CLEARANCE TO MARKET INSTEAD IN THE UNITED STATES
AND FDA CLEARANCE FOR EXPORT OVERSEAS.
CONSUMERS OUTSIDE THE ORIGINAL LEAD MARKET CAN PURCHASE INSTEAD BY MAIL
THROUGH A SPECIAL TOLL FREE (888-367-9636) NUMBER.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary............................. 3
Concurrent Public Offering..................... 8
Risk Factors................................... 9
Use of Proceeds................................ 15
Price Range of Common Stock.................... 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Historical Financial Data............. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business....................................... 22
Management..................................... 35
Principal Stockholders......................... 44
Selling Stockholders........................... 46
Certain Relationships and Related Party
Transactions.................................. 50
Description of Capital Stock................... 53
Shares Eligible for Future Sale................ 56
Plan of Distribution........................... 58
Legal Matters.................................. 59
Experts........................................ 59
Available Information.......................... 59
Index to Financial Statements.................. F-1
</TABLE>
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4,301,303 SHARES
[LOGO]
COMMON STOCK
PROSPECTUS
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses incurred by the Company in connection with the Offering are:
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SEC Registration fee.......................................... $ 29,583.62
NASD fee...................................................... 9,079.25
Nasdaq National Market listing fee............................
Accounting fees and expenses*.................................
Legal fees and expenses*......................................
Printing costs*...............................................
Blue sky fees and expenses*...................................
Miscellaneous*................................................
Total.........................................................
</TABLE>
- ------------------------
* Estimated
The Company will pay all expenses of the Company relating to the Offering.
The Company will pay all expenses of the Company and the Selling
Stockholders relating to the Concurrent Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The indemnification of officers and directors of the Company is governed by
Section 145 of the General Corporation Law of the State of Delaware (the "DGCL")
and the Restated Certificate of Incorporation. Among other things, the DGCL
permits indemnification of a director, officer, employee or agent in civil,
criminal, administrative or investigative actions, suits or proceedings (other
than an action by or in the right of the corporation) to which such person is a
party or is threatened to be made a party by reason of the fact of such
relationship with the corporation or the fact that such person is or was serving
in a similar capacity with another entity at the request of the corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
No indemnification may be made in any such suit to any person adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which the action was brought determines that,
despite the adjudication of liability, such person is under all circumstances,
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper. Under the DGCL, to the extent that a director, officer,
employee or agent is successful, on the merits or otherwise, in the defense of
any action, suit or proceeding or any claim, issue or matter therein (whether or
not the suit is brought by or in the right of the corporation), he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him. In all cases in which indemnification is permitted (unless
ordered by a court), it may be made by the corporation only as authorized in the
specific case upon a determination that the applicable standard of conduct has
been met by the party to be indemnified. The determination must be made by a
majority vote of the directors who were not parties to the action, even though
less than a quorum, or, if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or by the
stockholders. The statute authorizes the corporation to pay expenses incurred by
an officer or director in advance of a final disposition of a proceeding upon
receipt of an undertaking by or on behalf of the person to whom the advance will
be made, to repay the advances if it shall ultimately be determined that he was
not entitled to indemnification. The DGCL provides that indemnification and
advances of expenses permitted thereunder are not to be exclusive of any rights
to which those seeking indemnification or
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<PAGE>
advancement of expenses may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors, or otherwise. The DGCL also authorizes
the corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have the statutory power to indemnify such persons against the liabilities
insured.
The Restated Certificate of Incorporation of the Company (the "Certificate")
provides that no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for paying a dividend or approving a stock repurchase in violation of
Section 174 of the DGCL, (iv) for any transaction from which the director
derived an improper personal benefit or (v) for any act or omission occurring
prior to the date when the provision became effective.
The Certificate provides that directors, officers and others shall be
indemnified to the fullest extent authorized by the DGCL, as in effect (or, to
the extent indemnification is broadened, as it may be amended), against any and
all judgments, fines and amounts paid in settling or otherwise disposing of
threatened, pending or completed actions, suits or proceedings, whether civil,
criminal, administrative or investigative and expenses incurred by such person
in connection therewith. The Certificate further provides that, to the extent
permitted by law, expenses so incurred by any such person in defending a civil
or criminal action or proceeding shall, at his request, be paid by the Company
in advance of the final disposition of such action or proceeding.
The Certificate provides that the right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition shall not be exclusive of any other right which any person may have
or acquire under any statute, provision of the Certificate or Amended and
Restated By-Laws of the Company (the "By-Laws") or otherwise.
Pursuant to employment agreements with certain of its executive officers,
the Company has agreed to indemnify such executive officers (including their
respective heirs, executors and administrators) to the fullest extent permitted
by the DGCL against all expenses and liabilities reasonably incurred in
connection with or arising out of any action, suit or proceeding in which such
executive officer may be involved by reason of having been a director or officer
of the Company or any subsidiary thereof.
The Company has obtained directors and officers liability and company
reimbursement insurance which, among other things, (i) provides for payment on
behalf of its officers and directors against loss as defined in the policy
stemming from acts committed by directors and officers as such and (ii) provides
for reimbursement to the Company for such loss but only when the Company shall
be required or permitted to indemnify directors or officers for loss pursuant to
statutory or common law or pursuant to duly effective certificate of
incorporation or By-Law provisions. Coverage is afforded to the directors and
officers, the Company for reimbursement of the directors and officers and the
Company directly for securities related claims.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Between December 1991 and October 1992, the Company borrowed an aggregate of
$700,000 from the Montana Board of Science and Technology Development ("MBSTD")
evidenced by convertible debentures which bear interest at the rate of 10.5% per
annum (compounded annually), of which $350,000 was borrowed to fund expenditures
relating to the Company's manufacturing facility in Montana (the foregoing loans
are collectively referred to as the "MBSTD Loans"). The MBSTD Loans are
convertible into shares of Common Stock at a conversion price of $5.00 per
share, with accrued interest being waived upon conversion. The conversion price
is subject to adjustment if the Company issues shares of Common Stock or
convertible securities at a price less than $5.00 per share. MBSTD was also
granted certain "piggy-back" registration rights. Under certain circumstances,
the MBSTD
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<PAGE>
and its affiliates were entitled to receive additional warrants, and a ten-year
warrant for 6,250 shares of Common Stock at an exercise price of $32.00 per
share was subsequently issued and expired on February 22, 1996. Principal
amounts on the MBSTD loans are due as follows: $250,000 on December 20, 1998;
$100,000 on April 10, 1999; and $350,000 on October 19, 1999, along with related
accrued interest.
Between September 10, 1992 and September 10, 1995, the Company issued 71,225
shares of Common Stock to a number of investors (37,375), a consultant (3,750),
a prior marketing firm for services (7,750) and to other providers of services
(22,350), all at a purchase price of $8.00 per share.
Since January 1993, the Company issued options to purchase an aggregate of
350,250 shares of Common Stock pursuant to the 1990 Stock Option Plan of which
5,250 shares were canceled and 286,806 shares are reserved for future grants.
Such options were issued to employees, officers, directors, consultants and
advisors at exercise prices ranging between $4.00 and $10.50 per share.
In 1993, the Company issued warrants to purchase 25,000 shares of Common
Stock at an exercise price of $8.00 per share to two individuals as part of a
settlement.
In a 1993 private placement to accredited investors, the Company issued (i)
$1.85 million of secured promissory notes and (ii) warrants to purchase 370,000
shares of Common Stock at an initial exercise price equal to $9.00 per share.
The aggregate purchase price for such securities was $1.85 million. Warrants to
purchase 150,000 shares of Common Stock were also authorized for issuance to a
former officer of the Company to serve as Chairman of the Board.
In a 1994 private placement to accredited investors, the Company raised
$450,000 through the sale of units, composed in the aggregate of (i) $225,000 in
subordinated convertible debentures which accrue interest at 10% annually,
mature on the earlier to occur of (x) August 31, 1996, or (y) at the option of
the holder, the date the Company successfully effects any single financing in
excess of $10 million, and are convertible into 22,500 shares of Common Stock,
(ii) five-year warrants to purchase 47,813 shares of Common Stock at an exercise
price of $10.00 per share, and (iii) 28,125 shares of Common Stock at $8.00 per
share. Warrants to purchase 6,469 shares of Common Stock were also issued to a
placement agent in connection with the 1994 private placement.
In 1994, the Company borrowed a total of $135,000 from nine individuals,
including four current Directors. The loans bear interest at the rate of 10%
interest per annum and were to mature upon the earlier to occur of (i) the date
the Company receives $600,000 of financing and (ii) 180 days from the date of
issuance of the loan. Each lender was granted (i) the option of receiving, in
lieu of the repayment of interest and principal, 1,875 shares of Common Stock at
a conversion price of $8.00 per share and (ii) warrants to purchase 375 shares
of Common Stock at an exercise price of $10.00 per share exercisable for a
five-year period expiring on June 30, 1999. As of June 30, 1995, all of the nine
individuals had converted their loans to Common Stock.
In October and November 1994, the Company issued to certain trade creditors
subordinated convertible debentures for a total principal amount of $172,432.
Such debentures have a two-year term, bear interest at 10% per annum and are
convertible into Common Stock at a conversion price of $10.00 per share.
In 1994, the Company issued options to purchase 574,862 shares of Common
Stock (subject to adjustment prior to the Company's initial public offering
("IPO") and certain dilutive events) to John Andersen for an aggregate purchase
price of $2.5 million as part of his employment agreement.
In early calendar year 1995, the Company raised $670,000 through a private
placement of units (the "1995 Preferred Stock Private Placement") to accredited
investors of units. Each unit consisted of (i) 1,950 shares of Series A
Preferred Stock, for an allocated purchase price of $195,000, with each such
share (a) being convertible, at any time at the option of the holder, into
Common Stock of the Company at a conversion rate of 12.5 shares of Common Stock
for each such share, subject to adjustment for certain dilutive events, (b)
being entitled to cumulative annual dividends of $8.00,
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<PAGE>
(c) participating with the Common Stock in any dividend after payment of said
$8.00, (d) having a liquidation preference of $100.00 and (e) being entitled to
the number of votes equal to the number of shares of Common Stock into which
such share can be converted, and (ii) a warrant, exercisable for a five-year
period, to purchase 21,250 shares of Common Stock at an exercise price of $10.00
per share, subject to adjustment for certain dilutive events for an allocated
purchase price of $5,000. In February 1995, the Company sold 2.25 units to a
group of accredited investors represented by a common advisor for $450,000 on
the same terms and conditions as the 1995 Preferred Stock Private Placement,
except for certain registration rights. Warrants to purchase 1,078 shares of
Common Stock were also issued to a placement agent in connection with the 1995
Preferred Stock Private Placement.
In 1995, warrants to purchase 39,950 shares of Common Stock at an exercise
price of $10.00 per share and 16,552 shares of Common Stock (subject to
adjustment for certain dilutive events) at an exercise price of $10.00 per share
were issued to two law firms for services provided.
In 1995, the Company issued options to purchase 76,625 shares of Common
Stock to C. Austin Burrell, in settlement of certain outstanding claims against
the Company at exercise prices ranging from $4.00 to $8.00 per share.
In a second 1995 private placement (the "1995 Unit Private Placement"), the
Company raised $5,950,000 through the sale of Units. Each "Unit" consisted of
one $50,000 non-convertible promissory note bearing interest of 10% per annum,
one $50,000 convertible promissory note bearing interest of 10% per annum, one
Class A Warrant to purchase 10,000 shares of Common Stock at a purchase price
per share equal to $5.00 and one Class B Warrant to purchase 10,000 shares of
Common Stock at a purchase price per share equal to $12.50. The Notes are
secured with the Company's patent and patent applications pursuant to an Amended
and Restated Patent Assignment and Security Agreement dated July 28, 1995.
Certain investors in a previous private placement (the "Existing Investors")
agreed to amend and restate their promissory notes and invest the principal
amount of such notes in the amount of $1,650,000 in this private placement.
Other Existing Investors were paid their principal and interest in the amount
aggregating $222,557 from the proceeds of the 1995 Unit Private Placement. The
non-convertible promissory notes were paid upon completion of the IPO and the
patents were released; the convertible notes mature in April 1997. On December
31, 1995 certain holders of Non-Convertible Notes were issued warrants to
purchase an additional aggregate of 165,000 shares of Common Stock; such
warrants contain the same terms as the Class A Warrants.
In September 1995, the Company adopted the 1995 Ultrafem, Inc. Stock Option
Plan for Non-Employee Directors, under which options to purchase 75,000 shares
of Common Stock at exercise prices ranging from $8.00 to $14.50 have since been
granted.
In January 1996, the Company raised $100,000 through a private placement to
a single investor of a $100,000 non-convertible promissory note due the earlier
of January 26, 1997 or the closing of the IPO, bearing interest at a rate of 10%
per annum and a warrant to purchase 20,000 shares of Common Stock at an exercise
price of $8.00 per share. The Class C Warrant is not exercisable until the first
anniversary of the date of issuance and has a term of five years.
The Company has an agreement with ReProtect, which has been formed by the
scientists previously affiliated with the research project at Johns Hopkins for
investigating the uses of the SoftCup Technology. ReProtect expects to conduct
research at Johns Hopkins in accordance with an agreement between the Company
and ReProtect (the "ReProtect Agreement"). The ReProtect Agreement is for a ten
year term and under the agreement the Company will provide $1 million annually
to ReProtect for research. The ReProtect Agreement will provide the Company with
an exclusive license for the use of the BufferGel Technology, developed by two
of the scientists who formed ReProtect, coupled with the SoftCup Technology, for
which ReProtect will receive a one time payment of $100,000, a royalty of $.01
per unit of the product sold, and ten and one-half year options to purchase
225,000 shares of Common Stock, exercisable upon the attainment of certain
milestones. In addition, ReProtect will grant the Company a ten year license for
vaginal use of the BufferGel Technology without the SoftCup Technology, for
which ReProtect will receive a one time payment of $100,000, a
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ten and one-half year option to purchase 175,000 shares of Common Stock,
exercisable upon the attainment of certain milestones, and a royalty of either
5% or 3% (depending on whether a patent has been issued) of net sales of the
BufferGel Technology (without the SoftCup Technology).
In February 1996, the Company issued warrants to purchase 327,500 shares of
Common Stock to Hampshire Securities Corporation at an exercise price of $16.50
per share in connection with its IPO.
In March 1996, the Company issued a five year warrant to purchase 35,000
shares of Common Stock to an entity formed by the partners of Shereff Friedman
Hoffman & Goodman LLP, a law firm which provided legal services in connection
with the IPO. The warrant has an exercise price of $10.00 per share and was
issued in consideration of certain legal services.
In March 1996, the Company issued a five year warrant to purchase 50,000
shares of Common Stock to Bozell Worldwide, Inc., an advertising concern which
provided services in connection with the launch of INSTEAD-TM-. The warrant has
an exercise price of $10.00 per share and was issued in consideration of certain
services.
In March 1996, the Company issued a five year warrant to purchase 20,000
shares of Common Stock at an exercise price of $10.00 per share in settlement of
certain claims, and in connection therewith executed a Settlement Agreement and
General Release.
In April 1996, the Company entered into a three year consulting agreement
for certain services related to investor relations in Europe with Orchard Close,
Ltd. In consideration for such consulting services the Company issued a four
year warrant to purchase 200,000 shares of Common Stock at an exercise price of
$11.00 per share.
In June 1996, the Board of Directors approved the issuance of one share of
Common Stock to the employees of various service providers of the Company, up to
an aggregate of 115 shares of Common Stock, in recognition of such employees
past service to the Corporation.
In August 1996, the Company settled a claim with certain individuals
pursuant to which the Company issued five year warrants to purchase an aggregate
of 30,000 shares of Common Stock at an exercise price of $10.00 per share.
The transactions listed above were made in reliance upon the exemption from
the registration provisions under the Securities Act of 1933, as amended,
contained in Section 4(2) thereof, or Rule 701 promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
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1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on October 10, 1995).
3.2 By-Laws (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on October 10, 1995).
3.3 Form of Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to Amendment No.
1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on November 17, 1995).
3.4 Amended and Restated By-Laws (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November
17, 1995).
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4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission
on January 16, 1996).
5.1 * Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
9.1 Voting Trust Agreement, dated as of August 8, 1994 among Audrey Contente, John Andersen, Barrie Zesiger
and Ultrafem, Inc. (incorporated by reference to Exhibit 9.1 to Registration Statement on Form S-1 (File
No. 33-97960) filed with the Securities and Exchange Commission on October 10, 1995).
9.2 Amendment, dated August 8, 1994 to Voting Trust Agreement, dated as of August 8, 1994 among Audrey
Contente, John Andersen, Barrie Zesiger and Ultrafem, Inc. (incorporated by reference to Exhibit 9.2 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission
on October 10, 1995).
9.3 Amendment to Voting Trust Agreement, dated as of August 8, 1995 among Audrey Contente, John Andersen and
Barrie Zesiger.
10.1 Form of Ultrafem, Inc. Secured Convertible Promissory Note (1995 Unit Private Placement) (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.2 Form of Ultrafem, Inc. Secured Non-Convertible Promissory Note (1995 Unit Private Placement)
(incorporated by reference to Exhibit 10.2 to Amendment No. 1 to Registration Statement on Form S-1 (File
No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.3 Form of Ultrafem, Inc. Class A Warrant to purchase Common Stock (1995 Unit Private Placement)
(incorporated by reference to Exhibit 10.3 to Amendment No. 1 to Registration Statement on Form S-1 (File
No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.4 Form of Ultrafem, Inc. Class B Warrant to purchase Common Stock (1995 Unit Private Placement)
(incorporated by reference to Exhibit 10.4 to Amendment No. 1 to Registration Statement on Form S-1 (File
No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.5 Form of Ultrafem, Inc. Registration Rights Agreement relating to Class A Warrant to purchase Common
Stock, Class B Warrant to purchase Common Stock, and Secured Convertible Promissory Note (incorporated by
reference to Exhibit 10.5 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.6 Settlement Agreement and Mutual General Release, dated August 1, 1995, between Ultrafem, Inc. and C.
Austin Burrell (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registration Statement on
Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.7 Letter Agreement, dated August 10, 1995 between Meridian Consulting Group and Ultrafem, Inc.
(incorporated by reference to Exhibit 10.7 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on October 10, 1995).
10.8 Letter Agreement, dated July 12, 1995, between Ultrafem, Inc. and The Elliot Company (incorporated by
reference to Exhibit 10.8 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
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10.9 Agreement of Lease, made as of October 15, 1991, between Broadway Management Co., Inc. and Ultrafem, Inc.
(incorporated by reference to Exhibit 10.9 to Amendment No. 1 to Registration Statement on Form S-1 (File
No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.10 Substitution of Space Agreement, dated June 23, 1992 by and between Broadway Management Co., Inc., as
Agent for 500 Fifth Avenue Associates, and Ultrafem, Inc. (incorporated by reference to Exhibit 10.10 to
Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and
Exchange Commission on November 17, 1995).
10.11 Employment Agreement, dated as of July 1, 1996 by and between Ultrafem, Inc. and Audrey Contente.
10.12 Name, Likeness, and Voice Release and Agreement, dated as of July 1, 1996 by and between Ultrafem, Inc.
and Audrey Contente.
10.13 Termination Benefits Agreement, dated as of October 1, 1990 by and between Ultrafem, Inc. and Audrey
Contente.
10.14 Restated Modification Agreement, dated July 29, 1993 by and between Ultrafem, Inc. and Audrey Contente
(incorporated by reference to Exhibit 10.12 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.15 Amendment to Employment Agreement, dated August 1, 1995, between the Company and Audrey Contente
(incorporated by reference to Exhibit 10.13 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.16 Employment Agreement, dated July 29, 1994 between Ultrafem, Inc. and John W. Andersen (incorporated by
reference to Exhibit 10.14 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.17 Amendment to Employment Agreement, dated August 1, 1995 between Ultrafem, Inc. and John Andersen
(incorporated by reference to Exhibit 10.15 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.18 Employment Agreement, dated August 1, 1995 between Ultrafem, Inc. and Dori M. Reap (incorporated by
reference to Exhibit 10.16 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.19 Letter Agreement, dated July 13, 1995 between Ultrafem, Inc. and The Sage Group (incorporated by
reference to Exhibit 10.17 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.20 Employment Agreement, dated November 6, 1995 between Ultrafem, Inc. and Tonya G. Hinch (incorporated by
reference to Exhibit 10.18 to Amendment No. 2 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on January 16, 1996).
10.21 Agreement, dated June, 1995, by and between Audrey Contente, Jeffrey Simon, Frank Cole, Arthur Appleman
and Ultrafem, Inc. (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November
17, 1995).
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S>
10.22 Indemnity Agreement dated as of October 1, 1990 between Ultrafem, Inc. and Audrey Contente (incorporated
by reference to Exhibit 10.20 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.23 Amendment to Indemnity Agreement dated April 23, 1992 between Ultrafem, Inc. and Audrey Contente
(incorporated by reference to Exhibit 10.21 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.24 Amended and Restated Patent Assignment and Security Agreement dated as of July 28, 1995 between Ultrafem,
Inc. and Edward M. Berman, as Agent (incorporated by reference to Exhibit 10.22 to Amendment No. 1 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission
on November 17, 1995).
10.25 United States Patent No. 5,295,984, issued March 22, 1994 (incorporated by reference to Exhibit 10.23 to
Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and
Exchange Commission on November 17, 1995).
10.26 Settlement Agreement, dated as of May 19, 1993 by and between Ultrafem, Inc., Audrey Contente, Frank
Martin, Albert L. Zesiger, and John S. Stafford (incorporated by reference to Exhibit 10.24 to Amendment
No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on November 17, 1995).
10.27 Form of Ultrafem, Inc. Convertible Debenture issued to the Montana Board of Science and Technology
(incorporated by reference to Exhibit 10.25 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.28 Form of Common Stock purchase Warrant issued to the Montana Board of Science and Technology (incorporated
by reference to Exhibit 10.26 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.29 Memorandum Agreement, dated September 15, 1992, relating to registration rights of Ultrafem, Inc.
(incorporated by reference to Exhibit 10.27 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995). Convertible
Debenture issued to the Montana Board of Science and Technology.
10.30 Letter Agreement dated June 23, 1995 between Ultrafem, Inc. and Pro-Active International, as amended
(incorporated by reference to Exhibit 10.28 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.31 Letter Agreement dated July 24, 1995 between Ultrafem, Inc. and Bozell Worldwide, Inc. (incorporated by
reference to Exhibit 10.29 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.32 Letter Agreement dated October 9, 1995 between Ultrafem, Inc. and Robinson Lerer Sawyer Miller
(incorporated by reference to Exhibit 10.30 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
</TABLE>
II-8
<PAGE>
<TABLE>
<C> <S>
10.33 Agreement effective July 17, 1990 between Ultrafem, Inc. and Audrey Contente (incorporated by reference
to Exhibit 10.31 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with
the Securities and Exchange Commission on November 17, 1995).
10.34 Restated Technology Transfer Agreement, dated as of May 17, 1993 by and between Ultrafem, Inc. and Audrey
Contente.
10.35 Amendment to Restated Technology Transfer Agreement dated August 1, 1995 between Ultrafem, Inc. and
Audrey Contente (incorporated by reference to Exhibit 10.32 to Amendment No. 1 to Registration Statement
on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
10.36 1990 Stock Option Plan of Ultrafem, Inc. (incorporated by reference to Exhibit 10.33 to Amendment No. 1
to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on November 17, 1995).
10.37 1995 Ultrafem, Inc. Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit
10.34 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995).
10.38 Form of Option Certificate and Agreement for 1990 Stock Option Plan of Ultrafem, Inc. (incorporated by
reference to Exhibit 10.35 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.39 Form of Option Certificate and Agreement for 1995 Ultrafem, Inc. Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.36 to Amendment No. 2 to Registration Statement on
Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996).
10.40 Form of Ultrafem, Inc. Option Certificate and agreement to C. Austin Burrell (incorporated by reference
to Exhibit 10.37 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with
the Securities and Exchange Commission on November 17, 1995).
10.41 Option Certificate and Agreement, dated November 6, 1995, Re: 100,000 shares to Tonya G. Hinch
(incorporated by reference to Exhibit 10.38 to Amendment No. 2 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996).
10.42 Option Certificate and Agreement, dated August 1, 1995, Re: 100,000 shares to Dori M. Reap (incorporated
by reference to Exhibit 10.39 to Amendment No. 2 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on January 16, 1996).
10.43 Amendment No. 1 to Option Certificate and Agreement, dated August 1, 1995, Re: 100,000 shares to Dori M.
Reap (incorporated by reference to Exhibit 10.40 to Amendment No. 2 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996).
10.44 Option Certificate and Agreement, dated August 1, 1995, Re: 50,000 shares to Dori M. Reap (incorporated
by reference to Exhibit 10.41 to Amendment No. 2 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on January 16, 1996).
</TABLE>
II-9
<PAGE>
<TABLE>
<C> <S>
10.45 Amendment No. 1 to Option Certificate and Agreement, dated August 1, 1995, Re: 50,000 shares to Dori M.
Reap (incorporated by reference to Exhibit 10.42 to Amendment No. 2 to Registration Statement on Form S-1
(File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996).
10.46 Amended and Restated Option Certificate and Agreement, dated August 1, 1995, Re: 105,970 shares (or 2% of
shares) to John W. Andersen (incorporated by reference to Exhibit 10.43 to Amendment No. 1 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission
on November 17, 1995).
10.47 Amended and Restated Option Certificate and Agreement, dated August 1, 1995, Re: 423,879 shares (or 8% of
shares) to John W. Andersen (incorporated by reference to Exhibit 10.44 to Amendment No. 1 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission
on November 17, 1995).
10.48 Option Agreement and Certificate, dated June 1, 1992, to Audrey Contente (incorporated by reference to
Exhibit 10.45 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995).
10.49 Option Agreement and Certificate, dated August 9, 1991, to Wendell Guthrie (incorporated by reference to
Exhibit 10.46 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995).
10.50 Form of Warrant to purchase Common Stock (1993 Private Placement) (incorporated by reference to Exhibit
10.48 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995).
10.51 Form of Warrant to purchase Common Stock (1995 Preferred Stock Private Placement) (incorporated by
reference to Exhibit 10.49 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960)
filed with the Securities and Exchange Commission on November 17, 1995).
10.52 Form of Warrant to purchase Common Stock (1994 Private Placement) (incorporated by reference to Exhibit
10.50 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995).
10.53 Form of Convertible Debentures (1994 Private Placement) (incorporated by reference to Exhibit 10.51 to
Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and
Exchange Commission on November 17, 1995).
10.54 Form of Representative's Warrant (incorporated by reference to Exhibit 10.52 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission
on January 16, 1996).
10.55 Form of Non-Convertible Promissory Note issued January 1996 (incorporated by reference to Exhibit 10.53
to Amendment No. 3 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities
and Exchange Commission on February 16, 1996).
10.56 Form of Class C Warrant issued January 1996 (incorporated by reference to Exhibit 10.54 to Amendment No.
3 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on February 16, 1996).
</TABLE>
II-10
<PAGE>
<TABLE>
<C> <S>
10.57 License, Research and Product Development Agreement by and between Ultrafem, Inc. and ReProtect, LLC as
of February 8, 1996 (incorporated by reference to Exhibit 10.55 to Amendment No. 4 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on February
22, 1996).
10.58 Equipment Agreement, dated October 17, 1995 between Ultrafem, Inc. and Remmele Engineering (incorporated
by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File
No. 0-27576) filed May 15, 1996)
10.59 Sales Contract, dated January 1, 1996 between Ultrafem, Inc. and Shell Chemical Company (incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File No.
0-27576) filed May 15, 1996)
10.60 Lease Agreement dated January 28, 1996 between Ultrafem, Inc. and Dennis R. Washington d/b/a Western
Trade Center (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the period
ended March 31, 1996 (File No. 0-27576) filed May 15, 1996)
10.61 Letter Agreement, dated March 14, 1996, between Ultrafem, Inc. and The Elliot Company (incorporated by
reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File No.
0-27576) filed May 15, 1996)
10.62 Letter Agreement, dated April 11, 1996, between Ultrafem, Inc. and Meridian Consulting Group
(incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the period ended March
31, 1996 (File No. 0-27576) filed May 15, 1996)
10.63 Employment Agreement, dated April 1, 1996, between Ultrafem, Inc. and Gary Nordmann (incorporated by
reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File No.
0-27576) filed May 15, 1996)
10.64 Option Agreement, dated March 8, 1996, between Ultrafem, Inc. and Gary Nordmann (incorporated by
reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File No.
0-27576) filed May 15, 1996)
10.65 Broker Representation Agreement, dated April 29, 1996, between Ultrafem, Inc. and Morgan & Sampson
Pacific.
10.66 Distribution Service Agreement, dated June 1, 1996, between Ultrafem, Inc. and Morgan & Sampson Pacific.
11 Computation of Earnings Per Share.
23.1 Consent of Deloitte & Touche LLP.
23.2 * Consent of Shereff, Friedman, Hoffman & Goodman, LLP (contained in Exhibit 5.1).
23.3 Consent of Arent Fox Kintner Plotkin & Kahn.
24.1+ Power of Attorney (contained in the signature page hereto).
27 Financial Data Schedule.
</TABLE>
(b) Financial Statement Schedules.
None.
- ------------------------
* To be filed by amendment.
+ Included in the signature page to this Registration Statement.
ITEM 17. UNDERTAKINGS.
(a) Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
(the "Commission") such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification
II-11
<PAGE>
against liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A under the Securities Act and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on this 13th day of
September, 1996.
ULTRAFEM, INC.
By: /s/ JOHN W. ANDERSEN
-----------------------------------
John W. Andersen
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose signature
appears below constitutes and appoints John W. Andersen and Dori M. Reap, and
each of them (with full power of each of them to act alone), his true and lawful
attorneys-in-fact, with full power of substitution and resubstitution for him or
her and on his or her behalf, and in his or her name, place and stead, in any
all capacities to execute and sign any and all amendments or post-effective
amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection with them, including any
registration statement pursuant to Rule 462 under the Securities Act of 1933,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or any of them or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof and the
Registrant hereby confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLES DATE
- ------------------------------------------ -------------------------------------------- -----------------------
/s/ JOHN W. ANDERSEN
- --------------------------------- President, Chief Executive Officer and September 13, 1996
John W. Andersen Director (Principal Executive Officer)
Senior Vice President, Finance and
/s/ DORI M. REAP Administration, Secretary and Chief
- --------------------------------- Financial Officer (Principal Financial & September 13, 1996
Dori M. Reap Accounting Officer)
/s/ AUDREY CONTENTE
- --------------------------------- Executive Vice President, Founder and September 13, 1996
Audrey Contente Director
/s/ RICHARD CONE
- --------------------------------- Director September 13, 1996
Richard Cone
/s/ JOY VIDA JONES
- --------------------------------- Director September 13, 1996
Joy Vida Jones
/s/ MARTIN NUSSBAUM
- --------------------------------- Director September 13, 1996
Martin Nussbaum
/s/ CHARLES D. PEEBLER, JR.
- --------------------------------- Director September 13, 1996
Charles D. Peebler, Jr.
/s/ BARRIE ZESIGER
- --------------------------------- Director September 13, 1996
Barrie Zesiger
</TABLE>
II-13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement....................................................................
3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement
on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on October 10,
1995).............................................................................................
3.2 By-Laws (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on October 10, 1995)..................
3.3 Form of Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to
Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995)..........................................
3.4 Amended and Restated By-Laws (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on November 17, 1995)..................................................................
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on January 16, 1996)...................................................................
5.1 * Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
9.1 Voting Trust Agreement, dated as of August 8, 1994 among Audrey Contente, John Andersen, Barrie
Zesiger and Ultrafem, Inc. (incorporated by reference to Exhibit 9.1 to Registration Statement on
Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on October 10,
1995).............................................................................................
9.2 Amendment, dated August 8, 1994 to Voting Trust Agreement, dated as of August 8, 1994 among Audrey
Contente, John Andersen, Barrie Zesiger and Ultrafem, Inc. (incorporated by reference to Exhibit
9.2 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and
Exchange Commission on October 10, 1995)..........................................................
9.3 Amendment to Voting Trust Agreement, dated as of August 8, 1995 among Audrey Contente, John
Andersen and Barrie Zesiger.......................................................................
10.1 Form of Ultrafem, Inc. Secured Convertible Promissory Note (1995 Unit Private Placement)
(incorporated by reference to Exhibit 10.1 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.2 Form of Ultrafem, Inc. Secured Non-Convertible Promissory Note (1995 Unit Private Placement)
(incorporated by reference to Exhibit 10.2 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.3 Form of Ultrafem, Inc. Class A Warrant to purchase Common Stock (1995 Unit Private Placement)
(incorporated by reference to Exhibit 10.3 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.4 Form of Ultrafem, Inc. Class B Warrant to purchase Common Stock (1995 Unit Private Placement)
(incorporated by reference to Exhibit 10.4 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.5 Form of Ultrafem, Inc. Registration Rights Agreement relating to Class A Warrant to purchase
Common Stock, Class B Warrant to purchase Common Stock, and Secured Convertible Promissory Note
(incorporated by reference to Exhibit 10.5 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.6 Settlement Agreement and Mutual General Release, dated August 1, 1995, between Ultrafem, Inc. and
C. Austin Burrell (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on
November 17, 1995)................................................................................
10.7 Letter Agreement, dated August 10, 1995 between Meridian Consulting Group and Ultrafem, Inc.
(incorporated by reference to Exhibit 10.7 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on October 10, 1995)..................
10.8 Letter Agreement, dated July 12, 1995, between Ultrafem, Inc. and The Elliot Company (incorporated
by reference to Exhibit 10.8 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
10.9 Agreement of Lease, made as of October 15, 1991, between Broadway Management Co., Inc. and
Ultrafem, Inc. (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on
November 17, 1995)................................................................................
10.10 Substitution of Space Agreement, dated June 23, 1992 by and between Broadway Management Co., Inc.,
as Agent for 500 Fifth Avenue Associates, and Ultrafem, Inc. (incorporated by reference to Exhibit
10.10 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995)..........................................
10.11 Employment Agreement, dated as of July 1, 1996 by and between Ultrafem, Inc. and Audrey
Contente..........................................................................................
10.12 Name, Likeness, and Voice Release and Agreement, dated as of July 1, 1996 by and between Ultrafem,
Inc. and Audrey Contente..........................................................................
10.13 Termination Benefits Agreement, dated as of October 1, 1990 by and between Ultrafem, Inc. and
Audrey Contente...................................................................................
10.14 Restated Modification Agreement, dated July 29, 1993 by and between Ultrafem, Inc. and Audrey
Contente (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to Registration Statement
on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.15 Amendment to Employment Agreement, dated August 1, 1995, between the Company and Audrey Contente
(incorporated by reference to Exhibit 10.13 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.16 Employment Agreement, dated July 29, 1994 between Ultrafem, Inc. and John W. Andersen
(incorporated by reference to Exhibit 10.14 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.17 Amendment to Employment Agreement, dated August 1, 1995 between Ultrafem, Inc. and John Andersen
(incorporated by reference to Exhibit 10.15 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.18 Employment Agreement, dated August 1, 1995 between Ultrafem, Inc. and Dori M. Reap (incorporated
by reference to Exhibit 10.16 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
10.19 Letter Agreement, dated July 13, 1995 between Ultrafem, Inc. and The Sage Group (incorporated by
reference to Exhibit 10.17 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
10.20 Employment Agreement, dated November 6, 1995 between Ultrafem, Inc. and Tonya G. Hinch
(incorporated by reference to Exhibit 10.18 to Amendment No. 2 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996)....
10.21 Agreement, dated June, 1995, by and between Audrey Contente, Jeffrey Simon, Frank Cole, Arthur
Appleman and Ultrafem, Inc. (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on November 17, 1995)..................................................................
10.22 Indemnity Agreement dated as of October 1, 1990 between Ultrafem, Inc. and Audrey Contente
(incorporated by reference to Exhibit 10.20 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.23 Amendment to Indemnity Agreement dated April 23, 1992 between Ultrafem, Inc. and Audrey Contente
(incorporated by reference to Exhibit 10.21 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.24 Amended and Restated Patent Assignment and Security Agreement dated as of July 28, 1995 between
Ultrafem, Inc. and Edward M. Berman, as Agent (incorporated by reference to Exhibit 10.22 to
Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995)..........................................
10.25 United States Patent No. 5,295,984, issued March 22, 1994 (incorporated by reference to Exhibit
10.23 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995)..........................................
10.26 Settlement Agreement, dated as of May 19, 1993 by and between Ultrafem, Inc., Audrey Contente,
Frank Martin, Albert L. Zesiger, and John S. Stafford (incorporated by reference to Exhibit 10.24
to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995)..........................................
</TABLE>
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<TABLE>
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NO. DESCRIPTION PAGE
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10.27 Form of Ultrafem, Inc. Convertible Debenture issued to the Montana Board of Science and Technology
(incorporated by reference to Exhibit 10.25 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.28 Form of Common Stock purchase Warrant issued to the Montana Board of Science and Technology
(incorporated by reference to Exhibit 10.26 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.29 Memorandum Agreement, dated September 15, 1992, relating to registration rights of Ultrafem, Inc.
(incorporated by reference to Exhibit 10.27 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17, 1995).
Convertible Debenture issued to the Montana Board of Science and Technology.......................
10.30 Letter Agreement dated June 23, 1995 between Ultrafem, Inc. and Pro-Active International, as
amended (incorporated by reference to Exhibit 10.28 to Amendment No. 1 to Registration Statement
on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.31 Letter Agreement dated July 24, 1995 between Ultrafem, Inc. and Bozell Worldwide, Inc.
(incorporated by reference to Exhibit 10.29 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.32 Letter Agreement dated October 9, 1995 between Ultrafem, Inc. and Robinson Lerer Sawyer Miller
(incorporated by reference to Exhibit 10.30 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
10.33 Agreement effective July 17, 1990 between Ultrafem, Inc. and Audrey Contente (incorporated by
reference to Exhibit 10.31 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
10.34 Restated Technology Transfer Agreement, dated as of May 17, 1993 by and between Ultrafem, Inc. and
Audrey Contente...................................................................................
10.35 Amendment to Restated Technology Transfer Agreement dated August 1, 1995 between Ultrafem, Inc.
and Audrey Contente (incorporated by reference to Exhibit 10.32 to Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on
November 17, 1995)................................................................................
10.36 1990 Stock Option Plan of Ultrafem, Inc. (incorporated by reference to Exhibit 10.33 to Amendment
No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and
Exchange Commission on November 17, 1995).........................................................
10.37 1995 Ultrafem, Inc. Stock Option Plan for Non-Employee Directors (incorporated by reference to
Exhibit 10.34 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed
with the Securities and Exchange Commission on November 17, 1995).................................
10.38 Form of Option Certificate and Agreement for 1990 Stock Option Plan of Ultrafem, Inc.
(incorporated by reference to Exhibit 10.35 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on November 17,
1995).............................................................................................
</TABLE>
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<TABLE>
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NO. DESCRIPTION PAGE
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10.39 Form of Option Certificate and Agreement for 1995 Ultrafem, Inc. Stock Option Plan for
Non-Employee Directors (incorporated by reference to Exhibit 10.36 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on January 16, 1996)...................................................................
10.40 Form of Ultrafem, Inc. Option Certificate and agreement to C. Austin Burrell (incorporated by
reference to Exhibit 10.37 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
10.41 Option Certificate and Agreement, dated November 6, 1995, Re: 100,000 shares to Tonya G. Hinch
(incorporated by reference to Exhibit 10.38 to Amendment No. 2 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996)....
10.42 Option Certificate and Agreement, dated August 1, 1995, Re: 100,000 shares to Dori M. Reap
(incorporated by reference to Exhibit 10.39 to Amendment No. 2 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996)....
10.43 Amendment No. 1 to Option Certificate and Agreement, dated August 1, 1995, Re: 100,000 shares to
Dori M. Reap (incorporated by reference to Exhibit 10.40 to Amendment No. 2 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on
January 16, 1996).................................................................................
10.44 Option Certificate and Agreement, dated August 1, 1995, Re: 50,000 shares to Dori M. Reap
(incorporated by reference to Exhibit 10.41 to Amendment No. 2 to Registration Statement on Form
S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on January 16, 1996)....
10.45 Amendment No. 1 to Option Certificate and Agreement, dated August 1, 1995, Re: 50,000 shares to
Dori M. Reap (incorporated by reference to Exhibit 10.42 to Amendment No. 2 to Registration
Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange Commission on
January 16, 1996).................................................................................
10.46 Amended and Restated Option Certificate and Agreement, dated August 1, 1995, Re: 105,970 shares
(or 2% of shares) to John W. Andersen (incorporated by reference to Exhibit 10.43 to Amendment No.
1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on November 17, 1995)..................................................................
10.47 Amended and Restated Option Certificate and Agreement, dated August 1, 1995, Re: 423,879 shares
(or 8% of shares) to John W. Andersen (incorporated by reference to Exhibit 10.44 to Amendment No.
1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on November 17, 1995)..................................................................
10.48 Option Agreement and Certificate, dated June 1, 1992, to Audrey Contente (incorporated by
reference to Exhibit 10.45 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
10.49 Option Agreement and Certificate, dated August 9, 1991, to Wendell Guthrie (incorporated by
reference to Exhibit 10.46 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
</TABLE>
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<TABLE>
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NO. DESCRIPTION PAGE
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10.50 Form of Warrant to purchase Common Stock (1993 Private Placement) (incorporated by reference to
Exhibit 10.48 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed
with the Securities and Exchange Commission on November 17, 1995).................................
10.51 Form of Warrant to purchase Common Stock (1995 Preferred Stock Private Placement) (incorporated by
reference to Exhibit 10.49 to Amendment No. 1 to Registration Statement on Form S-1 (File No.
33-97960) filed with the Securities and Exchange Commission on November 17, 1995).................
10.52 Form of Warrant to purchase Common Stock (1994 Private Placement) (incorporated by reference to
Exhibit 10.50 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed
with the Securities and Exchange Commission on November 17, 1995).................................
10.53 Form of Convertible Debentures (1994 Private Placement) (incorporated by reference to Exhibit
10.51 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on November 17, 1995)..........................................
10.54 Form of Representative's Warrant (incorporated by reference to Exhibit 10.52 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on January 16, 1996)...................................................................
10.55 Form of Non-Convertible Promissory Note issued January 1996 (incorporated by reference to Exhibit
10.53 to Amendment No. 3 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on February 16, 1996)..........................................
10.56 Form of Class C Warrant issued January 1996 (incorporated by reference to Exhibit 10.54 to
Amendment No. 3 to Registration Statement on Form S-1 (File No. 33-97960) filed with the
Securities and Exchange Commission on February 16, 1996)..........................................
10.57 License, Research and Product Development Agreement by and between Ultrafem, Inc. and ReProtect,
LLC as of February 8, 1996 (incorporated by reference to Exhibit 10.55 to Amendment No. 4 to
Registration Statement on Form S-1 (File No. 33-97960) filed with the Securities and Exchange
Commission on February 22, 1996)..................................................................
10.58 Equipment Agreement, dated October 17, 1995 between Ultrafem, Inc. and Remmele Engineering
(incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (File No. 0-27576) filed May 15, 1996).............................................
10.59 Sales Contract, dated January 1, 1996 between Ultrafem, Inc. and Shell Chemical Company
(incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (File No. 0-27576) filed May 15, 1996).............................................
10.60 Lease Agreement dated January 28, 1996 between Ultrafem, Inc. and Dennis R. Washington d/b/a
Western Trade Center (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
for the period ended March 31, 1996 (File No. 0-27576) filed May 15, 1996)........................
10.61 Letter Agreement, dated March 14, 1996, between Ultrafem, Inc. and The Elliot Company
(incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (File No. 0-27576) filed May 15, 1996).............................................
</TABLE>
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10.62 Letter Agreement, dated April 11, 1996, between Ultrafem, Inc. and Meridian Consulting Group
(incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (File No. 0-27576) filed May 15, 1996).............................................
10.63 Employment Agreement, dated April 1, 1996, between Ultrafem, Inc. and Gary Nordmann (incorporated
by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the period ended March 31, 1996
(File No. 0-27576) filed May 15, 1996)............................................................
10.64 Option Agreement, dated March 8, 1996, between Ultrafem, Inc. and Gary Nordmann (incorporated by
reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the period ended March 31, 1996
(File No. 0-27576) filed May 15, 1996)............................................................
10.65 Broker Representation Agreement, dated April 29, 1996, between Ultrafem, Inc. and Morgan & Sampson
Pacific...........................................................................................
10.66 Distribution Service Agreement, dated June 1, 1996, between Ultrafem, Inc. and Morgan & Sampson
Pacific...........................................................................................
11 Computation of Earnings Per Share.................................................................
23.1 Consent of Deloitte & Touche LLP..................................................................
23.2 * Consent of Shereff, Friedman, Hoffman & Goodman, LLP (contained in Exhibit 5.1).
23.3 Consent of Arent Fox Kintner Plotkin & Kahn.......................................................
24.1+ Power of Attorney (contained in the signature page hereto).
27 Financial Data Schedule...........................................................................
</TABLE>
(b) Financial Statement Schedules.
None.
- ------------------------
* To be filed by amendment.
+ Included in the signature page to this Registration Statement.
<PAGE>
ULTRAFEM, INC.
3,000,000 Shares*
Common Stock
UNDERWRITING AGREEMENT
__________________, 1996
JEFFERIES & COMPANY, INC.
HAMPSHIRE SECURITIES CORPORATION
As Representatives of the Several Underwriters
c/o Jefferies & Company, Inc.
650 Fifth Avenue, 4th Floor
New York, New York 10019
Dear Sirs:
Ultrafem, Inc., a Delaware corporation (the "Company"), hereby confirms its
agreement with the underwriters named in Schedule I hereto (the "Underwriters"),
for which you are acting as representatives (the "Representatives"), with
respect to the sale by the Company and the purchase by the Underwriters of
3,000,000 shares (the "Firm Shares") of the Company's Common Stock, $0.001 par
value (the "Common Stock"). In addition, the Company hereby confirms its
agreement with the Underwriters to grant to the Underwriters an option to
purchase up to an aggregate of 450,000 shares (the "Additional Shares") of
Common Stock to cover over-allotments, if any. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares."
You have advised us that, subject to the terms and conditions herein
contained, you desire to purchase the Firm Shares and that you propose to make a
public offering of the Firm Shares as soon as you deem advisable after the
Registration Statement referred to below becomes effective.
The terms that follow, when used in this Agreement, shall have the meanings
indicated. "Preliminary Prospectus" shall mean each prospectus subject to
completion included in the Company's registration statement on Form S-1 referred
to in
_________________________
* Plus an option to purchase from the Company up to 450,000 Additional Shares
to cover over-allotments.
<PAGE>
Section 1(a)(i) below or any amendment or post-effective amendment thereto
(including the prospectus subject to completion included in the Registration
Statement (as defined below) on the date that the Registration Statement becomes
effective (the "Effective Date") that omits Rule 430A Information (as defined
below)). "Registration Statement" shall mean the registration statement
referred to in Section 1(a)(i) below, including all financial statement
schedules and exhibits, as amended at the Representation Date (as defined in
Section 1(a) hereof) (or, if not effective at the Representation Date, in the
form in which it shall become effective) and, if any post-effective amendment
thereto becomes effective prior to the Closing Date (as defined in Section 2
hereof), shall also mean such registration statement as so amended. The term
"Registration Statement" shall include Rule 430A Information deemed to be
included therein at the Effective Date as provided by Rule 430A (as defined
below). "Prospectus" shall mean (x) if the Company relies on Rule 434 under the
Securities Act of 1933, as amended (the "Act"), the Term Sheet (as defined
below) relating to the Shares that is first filed pursuant to Rule 424(b)(7)
under the Act, together with the Preliminary Prospectus identified therein that
the Term Sheet supplements, or (y) if the Company does not rely on Rule 434
under the Act, the prospectus first filed with the Securities and Exchange
Commission (the "Commission") pursuant to Rule 424(b) under the Act, or, if no
prospectus is required to be filed pursuant to Rule 424(b) under the Act, the
prospectus included in the Registration Statement. "Term Sheet" shall mean any
term sheet that satisfies the requirements of Rule 434 under the Act. "Rule
158," "Rule 424," "Rule 434" and "Rule 430A" refer to such rules under the Act
(the rules and regulations under the Act, the "Act Regulations"). "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A. For purposes of the representations and
warranties contained herein, to the extent reference is made to the Prospectus
and at the relevant time the Prospectus is not yet in existence, such reference
shall be deemed to be to the most recent Preliminary Prospectus. For purposes
of this Agreement, all references to the Registration Statement, Prospectus,
Preliminary Prospectus or Term Sheet or to any amendment or supplement to any of
the foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering Analysis and Retrieval system
("EDGAR"). For purposes of this Agreement, the terms "Registration Statement,"
"prospectus" and "Prospectus" shall be deemed to exclude the prospectus related
to the offer and sale of 4,301,303 shares of Common Stock being offered by
certain selling stockholders of the Company (the "Concurrent Offering").
1. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, each of
the Underwriters as of the date hereof (such date being referred to as the
"Representation Date") as follows:
(i) The Company has filed with the Commission a registration
statement (Registration No. 333-_____) on Form S-1, including a prospectus
subject to completion, for the registration under the Act of the offering and
sale of the Shares.
-2-
<PAGE>
The Company may have filed one or more amendments thereto, including the related
prospectus subject to completion, each of which has previously been furnished to
the Representatives. After the execution of this Agreement, the Company will
file with the Commission either (A) prior to effectiveness of such registration
statement, a further amendment to such registration statement (including a form
of prospectus), a copy of which amendment has been furnished to and approved by
the Representatives prior to the execution of this Agreement, or (B) after
effectiveness of such registration statement, either (1) if the Company relies
on Rule 434 under the Act, a Term Sheet relating to the Shares that shall
identify the Preliminary Prospectus that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (2) if the Company does not rely on Rule 434 under the Act, a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no amendment shall have been filed, in such registration
statement) in accordance with Rules 430A and 424(b) of the Act Regulations and
as have been provided to and approved by the Representatives prior to execution
of this Agreement.
(ii) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction in which the Shares have been offered has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto. When any Preliminary
Prospectus was filed with the Commission it (A) complied in all material
respects with the applicable requirements of the Act and the Act Regulations and
(B) did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. On the Effective Date, the Representation Date and each
Closing Date, the Registration Statement did and will, and when the Prospectus
or any Term Sheet that is a part thereof is first filed (if required) in
accordance with Rule 424(b) and on the Representation Date and each Closing
Date, the Prospectus will, comply in all material respects with the applicable
requirements of the Act and the Act Regulations; on the Effective Date, the
Representation Date and each Closing Date, the Registration Statement did not
and will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading; on the Effective Date, the Representation
Date and each Closing Date, and on the date of any filing pursuant to Rule
424(b), the Prospectus or any Term Sheet that is a part thereof did not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and each Preliminary
Prospectus and the Prospectus delivered to the Underwriters for use in
connection with the offering of the Shares will, at the time of such delivery,
be identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T
under the Act; PROVIDED, that the Company makes no representations or warranties
as to the information provided in writing to the Company by or on behalf of the
Underwriters through the Representatives expressly for use in any Preliminary
Prospectus, the
-3-
<PAGE>
Registration Statement or the Prospectus, and the Company agrees that the only
information provided in writing by or on behalf of Underwriters to the Company
expressly for use in any Preliminary Prospectus, the Registration Statement or
the Prospectus is that information contained in the last paragraph on the cover
page of the Prospectus, the stabilization legend on the inside front cover page
of the Prospectus, the "Underwriting" section of the Prospectus and the amounts
of the selling concession and reallowance set forth in the Prospectus.
(iii) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, with all
requisite corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus, and is duly qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature or location of its
properties (owned or leased) or the conduct of its business requires such
qualification, except where the failure so to qualify would not have an adverse
effect on the condition (financial or other), business, properties, prospects,
net worth or results of operations of the Company that is or would be, singly or
in the aggregate, material to the Company, whether or not occurring in the
ordinary course of business (a "Material Adverse Effect").
(iv) The Company has no subsidiaries (as defined in the Act
Regulations).
(v) The Company possesses all authorizations, clearances,
approvals, orders, licenses, certificates, franchises and permits of and from,
and has made all requisite declarations and filings with, all regulatory or
governmental officials, bodies and tribunals, including without limitation, the
Food and Drug Administration (the "FDA") (collectively, the "Permits") necessary
to own, lease or operate its properties and to conduct its business in the
manner described in the Registration Statement and the Prospectus, except where
the failure to have obtained or made the same would not have a Material Adverse
Effect, and the Company has not received any notice of proceedings relating to
the revocation or modification of any such Permits. Except as described in the
Registration Statement and Prospectus, the Company has fulfilled and performed
all its current material obligations with respect to such Permits, and no event
has occurred that allows, or after notice or lapse of time, or both, would
allow, revocation or termination thereof or result in any other material
impairment of the rights of the holder of any such Permit and such Permits
contain no restrictions that are materially burdensome to the Company, and the
Company is in compliance with all applicable laws, rules, regulations, orders
and consents, the violation of which would have a Material Adverse Effect. The
property and business of the Company conform in all material respects to the
descriptions thereof contained in the Registration Statement and the Prospectus.
(vi) All of the Company's issued and outstanding capital stock
has been duly authorized, validly issued and is fully paid and nonassessable,
and the Common Stock and the capitalization of the Company conform to the
descriptions
-4-
<PAGE>
thereof and the statements made with respect thereto in the Registration
Statement and the Prospectus as of the date set forth therein. Except as
previously disclosed to the Representatives by letter dated ____, 1996 (the
"Disclosure Letter"), none of the issued shares of Common Stock have been issued
in violation of any preemptive or other rights to subscribe for or purchase
shares of capital stock of the Company. There are no outstanding securities
convertible into or exchangeable for, and no outstanding options, warrants or
other rights to purchase, any shares of the capital stock of the Company, nor
any agreements or commitments to issue any of the same, except as described in
the Registration Statement and the Prospectus, and there are no preemptive or
other rights to subscribe for or to purchase, and no restrictions upon the
voting or transfer of, any capital stock of the Company pursuant to the
Company's certificate of incorporation or by-laws or any agreement or other
instrument to which the Company is a party. All offers and sales of the
Company's capital stock by the Company prior to the date hereof were at all
relevant times duly registered or exempt from the registration requirements of
the Act and were duly registered or the subject of an available exemption from
the registration requirements of the applicable state securities or blue sky
laws.
(vii) The Company has good and marketable title to, and is
possessed of, each property, right, interest or estate constituting the
properties and assets described in the Registration Statement and the Prospectus
as owned by it, free and clear of all liens, charges, encumbrances and
restrictions, except such as are described in the Registration Statement and the
Prospectus or such as are not burdensome and do not interfere with the use or
proposed use of the property or the conduct of the business of the Company in a
manner that is or would be material to the business of the Company. The Company
has valid, subsisting and enforceable leases for the properties described in the
Registration Statement and the Prospectus as leased by it, and no event has
occurred which, with the passage of time or the giving of notice or both, would
cause a material breach of, or default under, any such lease.
(viii) The Company has all requisite power, authority,
authorizations, approvals, orders, licenses, certificates and permits to enter
into this Agreement and to carry out the provisions and conditions hereof,
including the issuance and delivery of the Shares to the Underwriters as
provided herein. This Agreement has been duly and validly authorized by the
Company, and this Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding agreement of the Company, enforceable
against it in accordance with its terms, except to the extent the enforceability
of rights to indemnity or contribution hereunder may be limited by Federal or
state securities laws or public policy underlying such laws and except to the
extent the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally, by equitable principles, or judicial limitations on
the right of specific performance.
(ix) Except as described in the Registration Statement and the
Prospectus, the Company owns, or possesses adequate rights to use, free and
clear of
-5-
<PAGE>
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions of any kind whatsoever, all patents, trademarks, service
marks, trade names, trade secrets, copyrights, proprietary technology and
licenses, and rights with respect to the foregoing, used in the conduct of its
business as described in the Registration Statement and the Prospectus and as
now conducted. Except as described in the Registration Statement and the
Prospectus, to the Company's knowledge, none of the patents, patent
applications, trademarks, service marks, trade names, trade secrets, copyrights,
proprietary technology and licenses, and rights to the foregoing presently owned
or held by the Company, conflict with the right of any other person or entity or
are in dispute. Except as described in the Registration Statement and the
Prospectus, to the Company's knowledge, the Company (i) owns, or possesses
adequate rights to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions of any
kind whatsoever, all patents, trademarks, service marks, trade names, trade
secrets, copyrights, proprietary technology and licenses, and rights with
respect to the foregoing, used in the conduct of its business as described in
the Registration Statement and the Prospectus and as now conducted or proposed
to be conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing, (ii) is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright, know-how, technology or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise, and (iii) has not received a notice, or knows of any basis, of any
conflict with the asserted rights of others in any such respect that could have
a Material Adverse Effect, except as described in the Registration Statement and
the Prospectus.
(x) The Company owns and has the right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information that are material to its business, properties and operations.
(xi) The Shares to be sold by the Company have been duly and
validly authorized for issuance by the Company, and the Company has the
corporate power and authority to issue, sell and deliver the Shares; and, when
the Shares are issued and delivered against payment therefor as provided by this
Agreement, the Shares will have been validly issued, fully paid and
nonassessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights. All corporate action required to be taken by the
stockholders or the Board of Directors of the Company for the authorization,
issuance and sale of the Shares has been duly and validly taken.
(xii) Deloitte & Touche LLP, whose reports are filed with the
Commission as part of the Registration Statement, are, and during the periods
covered by their report(s) included in the Registration Statement and the
Prospectus were,
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independent certified public accountants with respect to the Company, under the
meaning of and as required by the Act and the Act Regulations.
(xiii) The financial statements and related schedules and notes
included in the Registration Statement and the Prospectus present fairly the
financial position of the Company, on the basis stated in the Registration
Statement, as of the respective dates thereof and the results of operations
and cash flows of the Company, for the respective periods covered thereby,
all in conformity with generally accepted accounting principles applied on a
consistent basis throughout the entire period involved, except as otherwise
disclosed in the Registration Statement and the Prospectus, and are correct
and complete in all material respects and are in accordance with the books
and records of the Company. The selected financial information included
under the caption "Selected Financial Data" in the Prospectus presents fairly
the information shown therein and has been compiled on a basis consistent
with that of the audited financial statements of the Company included
therein. No other financial statements or schedules of the Company are
required by the Act or the Act Regulations to be included in the Registration
Statement or Prospectus.
(xiv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that: (A) transactions are
executed in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xv) The Company maintains insurance covering its properties,
operations, personnel and businesses. Such insurance insures against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which the Company is engaged. The Company has not been refused
any insurance coverage sought or applied for, and the Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect. All such insurance is outstanding and duly in force on
the date hereof.
(xvi) Except as set forth in the Registration Statement and the
Prospectus, the Company is in compliance with all Federal, state, local or
foreign laws or regulations relating to pollution or protection of human
health or the environment ("Environmental Laws"), except where the failure to
be in compliance would not have a Material Adverse Effect. Except as set
forth in the Registration Statement and the Prospectus, the Company has not
authorized or conducted, and has no knowledge of, the generation,
transportation, storage, use, treatment, disposal or release of any hazardous
substance, hazardous waste, hazardous material, hazardous constituent, toxic
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substance, pollutant, contaminant, petroleum product, natural gas, liquified gas
or synthetic gas, defined or regulated under any Environmental Law on, in or
under any property currently leased or owned or by any means controlled by the
Company (the "Real Property") in violation of any applicable law, except for any
violation which would not have a Material Adverse Effect; there is no pending
or, to the Company's knowledge, threatened claim, action, litigation or any
administrative agency proceeding involving the Company or its properties, nor
has the Company received any written notice, or any oral notice to any executive
officer of the Company or any other employee responsible for receipt of any such
notice, from any governmental entity or third party, that: (A) alleges a
violation of any Environmental Laws by the Company or any person or entity whose
liability for a violation of an Environmental Law the Company has retained or
assumed either contractually or by operation of law, which liability or
violation could be reasonably expected to have a Material Adverse Effect; (B)
alleges the Company is a liable party under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 ET SEQ., or
any state superfund law; (C) alleges possible contamination of the environment
by the Company; or (D) alleges possible contamination of the Real Property.
(xvii) The Company is not in violation or breach of any term of
its certificate of incorporation or by-laws. The Company is not, or with the
passage of time or the giving of notice or both would not be, in violation of
any law, ordinance, administrative or governmental rule or regulation
applicable to the Company, or of any judgment, order or decree of any court
or governmental agency or body or of any arbitrator having jurisdiction over
the Company which would have a Material Adverse Effect, or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any mortgage, loan agreement, note, bond, debenture, credit
agreement or any other evidence of indebtedness or in any agreement,
contract, indenture, lease or other instrument to which the Company is a
party or by which the Company is bound, or to which any of its property or
assets is subject, the effect of which violation or default in performance or
observance would have a Material Adverse Effect.
(xviii) There is no action, suit or proceeding before or by any
court, arbitrator or governmental agency or body, including without limitation,
the FDA, the United States Patent and Trademark Office and any comparable
governmental bodies in foreign countries in which the Company conducts or
proposes to conduct business pending or, to the Company's knowledge, threatened,
against the Company, or to which any of its properties or products are subject,
(A) that are required to be described in the Registration Statement or the
Prospectus but are not described as required or (B) that, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
Except as described in the Registration Statement and the Prospectus, there are
no existing material agreements, arrangements, understandings or transactions,
or proposed material agreements, arrangements, understandings or transactions,
between or among the Company, on the one hand, and any officer, director, or
stockholder of the Company, or any affiliate or associate of any such person or
entity. There is no agreement, contract, indenture, lease or other document or
instrument that is required
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<PAGE>
to be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that is not described or filed or
incorporated by reference as required. All such agreements to which the Company
is a party have been duly authorized, executed and delivered by the Company,
constitute valid and binding agreements of the Company and, to the knowledge of
the Company, the other parties thereto, and are enforceable against them in
accordance with the terms thereof, except to the extent the enforceability of
rights to indemnity or contribution hereunder may be limited by Federal or state
securities laws or public policy underlying such laws and except to the extent
the enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally, by equitable principles, or judicial limitations on the right of
specific performance.
(xix) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except
as otherwise stated or contemplated therein: (A) the Company has not (1)
issued any securities other than in connection with the exercise of any
outstanding options or warrants, (2) incurred any material liability or
obligation, direct or contingent, for borrowed money, (3) entered into any
transaction, not in the ordinary course of business, that is material to the
Company, (4) entered into any transaction with an affiliate of the Company
(as the term "affiliate" is defined in Rule 405 promulgated by the Commission
pursuant to the Act), which would otherwise be required to be disclosed in
the Registration Statement and the Prospectus, or (5) declared or paid any
dividend on its capital stock or made any other distribution to its equity
holders; (B) there has not been any material change in the capital stock or
other equity, or material increase in the short-term debt or long-term debt,
of the Company; and (C) there has been no change or development with respect
to the condition (financial or otherwise), business, properties, prospects,
net worth or results of operations of the Company that would have a Material
Adverse Effect.
(xx) Neither the execution, delivery or performance of this
Agreement, the offer, issuance, sale or delivery of the Shares, nor the
consummation of the other transactions contemplated hereby (A) requires the
consent, approval, authorization or order of any court or governmental agency or
body, except such as have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters or such as may be
required by the National Association of Securities Dealers, Inc. (the "NASD")
and such other approvals as have been obtained, (B) will conflict with, result
in a breach or violation of, or constitute a default under the terms of any
agreement, contract, indenture, lease or other instrument to which the Company
is a party or by which it or any of its properties may be bound, or the
certificate of incorporation or by-laws of the Company, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or an acceleration of indebtedness pursuant to the terms
of any agreement or instrument to which the Company is a party or by which it
may be bound or to which any of its property or assets is subject, or (C) will
conflict with or violate any law, statute or
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regulation, or any judgment, order, consent or memorandum of understanding
applicable to the Company of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Company or its
properties.
(xxi) The Company has not distributed and, prior to the
later to occur of (A) the Closing Date or (B) completion of the distribution
of the Shares, will not distribute without the prior written consent of
Jefferies & Company, Inc. ("Jefferies") any offering material in connection
with the offering and sale of the Shares other than the Registration
Statement, any Preliminary Prospectus, the Prospectus or other materials, if
any, permitted by the Act and the Act Regulations.
(xxii) Neither the Company nor, to its knowledge, any employee
or agent of the Company has made any payment of funds of the Company, or
received or retained any funds, in violation of any law, rule or regulation,
or which payment, receipt or retention of funds is of a character required to
be disclosed in the Registration Statement or the Prospectus.
(xxiii) The Company is not involved in any labor dispute, and,
to the knowledge of the Company, no such dispute is threatened.
(xxiv) The Company has filed (or has obtained extensions
thereto) all Federal, state and local tax returns that are required to be filed
(other than returns with respect to which failure to so file would not have a
Material Adverse Effect), which returns are compete and correct in all material
respects and has paid all taxes shown on such returns and all assessments
received by it with respect thereto to the extent that the same have become due,
except those taxes that are being contested or protested in good faith by the
Company and as to which any reserves required under generally accepted
accounting principles have been established; and the Company has no knowledge of
any tax deficiency which has been or might be asserted or threatened against the
Company which could have a Material Adverse Effect.
(xxv) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the
issuance by the Company of the Shares, (ii) the purchase by the Underwriters
of the Shares from the Company or (iii) the consummation by the Company of
any of its obligations under this Agreement.
(xxvi) The Company does not maintain, sponsor or contribute to
any program or arrangement (an "ERISA Plan") that is an "employee pension
benefit plan," an "employee welfare benefit plan" or a "multiemployer plan" as
such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other
than (i) if so required, as disclosed in the Registration Statement and
Prospectus and (ii) employee welfare benefit plans which are not material to the
Company and which do not provide post-retirement health, medical or life
insurance benefits. The Company does not maintain or contribute to, or have
material liability, contingent or otherwise, to, a defined benefit
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<PAGE>
plan, as defined in Section 3(35) of ERISA. The Company has no material
liability with respect to any "multiemployer plan," whether on account of any
complete or partial withdrawal from any such plan or otherwise.
(xxvii) The Company does not own any share of stock or any other
securities of any corporation or has any equity interest in any firm,
partnership, association or other entity other than as reflected in the
financial statements included in the Registration Statement and the Prospectus.
(xxviii) The Company has obtained from each of its directors,
officers and certain securityholders a written agreement (the "Lock-Up
Agreement") that, until August 22, 1997, he, she or it will not, without the
prior written consent of Hampshire Securities Corporation ("Hampshire"), offer,
sell, contract to sell, grant any option for the sale of or otherwise dispose
of, directly or indirectly, any shares of Common Stock or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock issuable pursuant to
the terms of any employee stock options; PROVIDED, HOWEVER, that such persons
may offer, sell, contract to sell, grant an option for the sale of or otherwise
dispose of all or any part of his, her or its shares of Common Stock or other
such security or instrument of the Company during such period only if such
transaction is private in nature and the transferee of such shares of Common
Stock or other securities or instruments agrees, prior to such transaction, to
be bound by all of the provisions of such agreement.
(xxix) No holder of any security of the Company has the right
(other than a right which has been waived in writing or complied with) to have
any security owned by such holder included in the Registration Statement, except
that the Company makes no representation with respect to any holder whose
securities are included in the Concurrent Offering, and, except as described in
the Registration Statement and the Prospectus, no holder of any security of the
Company has the right to demand registration of any security owned by such
holder during the period ending February 22, 1997.
(xxx) Neither the Company nor, to its knowledge, its
officers, directors, employees or agents have taken or will take, directly or
indirectly, (A) any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares, or (B) since the filing of the
Registration Statement (1) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of the Shares or (2) paid or agreed to pay
any person any compensation for soliciting another to purchase any securities of
the Company.
(xxxi) The Common Stock currently outstanding is duly
authorized for trading on the Nasdaq National Market, and the Shares have been
duly approved for quotation on the Nasdaq National Market, subject to notice of
issuance.
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<PAGE>
(xxxii) To the Company's knowledge, no officer or director of the
Company has any affiliation or association with the NASD or any member thereof.
(xxxiii) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and is not subject to
registration under such act.
(b) Any certificate signed by any officer of the Company delivered to
the Representatives or to counsel for the Underwriters pursuant to the terms of
this Agreement shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
2. SALE AND DELIVERY TO THE UNDERWRITERS; CLOSING.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell to
each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $________ per share (the
"Initial Price"), the number of Firm Shares set forth opposite such
Underwriter's name in Schedule I hereto.
(b) The Company grants to the Underwriters an option to purchase all
or any part of the Additional Shares at the Initial Price. Additional Shares
shall be purchased from the Company for the accounts of the Underwriters in
proportion to the number of Firm Shares set forth in Schedule I hereto opposite
the name of such Underwriter. Such option may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters and may be
exercised in whole or in part at any time and from time to time within 30 days
after the date of this Agreement, in each case upon written or facsimile notice,
or verbal or telephonic notice confirmed by written or telegraphic notice, by
the Underwriters to the Company no later than 12:00 noon, New York City time, on
the business day before the Firm Shares Closing Date (as hereinafter defined) or
at least two business days before the Additional Shares Closing Date (as
hereinafter defined), as the case may be, setting forth the number of Additional
Shares to be purchased and the time and date (if other than the Firm Shares
Closing Date) of such purchase.
(c) Payment of the purchase price for, and delivery of, the Firm
Shares to be purchased by the Underwriters shall be made at the offices of
Jefferies & Company, 650 Fifth Avenue, 4th Floor, Attention: Syndicate
Operations, New York, New York 10019, or at such other place as shall be agreed
upon by the Representatives and the Company at 10:00 A.M. on the third (fourth,
if the pricing occurred after 4:30 P.M. on any given day) business day after the
date of this Agreement, or such other time not later than ten business days
after such date as shall be agreed upon by the Representatives and the Company
(such time and date of payment and delivery being herein called the "Firm Shares
Closing Date"). Payment shall be made to the Company by certified or official
bank check or wire transfer and payable in immediately available
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funds to the order of the Company against delivery to the Underwriters of the
Firm Shares.
(d) Payment of the purchase price for, and delivery of, the
Additional Shares to be purchased by the Underwriters shall be made at the
office as set forth above or at such other place as shall be agreed upon by the
Representatives and the Company at the time and on the date (which may be the
same as, but in no event shall be earlier than, the Firm Shares Closing Date)
specified in the notice referred to in Section 2(b) hereof (such time and date
of delivery and payment are called the "Additional Shares Closing Date"). The
Firm Shares Closing Date and the Additional Shares Closing Date are called,
individually, a "Closing Date" and, together, the "Closing Dates". Payment
shall be made to the Company by certified or official bank check or wire
transfer and payable in immediately available funds to the order of the Company
against delivery to the Underwriters of the Additional Shares being purchased by
the Underwriters.
(e) The Shares shall be in such denominations and registered in such
names as the Representatives may request in writing at least two business days
before the Firm Shares Closing Date or, in the case of the Additional Shares, on
the day of notice of exercise of the option as described in Section 2(b) hereof.
The Shares will be made available for examination and packaging by the
Underwriters not later than 1:00 P.M. on the last business day prior to the Firm
Shares Closing Date (or the Additional Shares Closing Date in the case of the
Additional Shares) at such place as is designated by the Representatives.
3. COVENANTS.
(a) The Company covenants with each Underwriter as follows:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Representation Date, and any
amendment thereto, to become effective, as promptly as possible after the filing
thereof. The Company will not file any amendment to the Registration Statement
or amendment or supplement to the Prospectus to which the Representatives shall
reasonably object in writing after a reasonable opportunity to review such
amendment or supplement. Subject to the foregoing sentences in this clause
3(a)(i), if the Registration Statement has become or becomes effective pursuant
to Rule 430A, or filing of the Prospectus or any Term Sheet that constitutes a
part thereof or supplement to the Prospectus is otherwise required under
Rule 424(b), the Company will cause the Prospectus or any Term Sheet that
constitutes a part thereof, properly completed, or such supplement thereto, to
be filed with the Commission pursuant to Rule 434 and the applicable paragraph
of Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company will
promptly advise the Representatives (A) when the Registration Statement, if
not effective at the Representation Date, and any amendment thereto, shall have
become effective, (B) when the Prospectus or any Term Sheet that constitutes a
part thereof, and any
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<PAGE>
supplement thereto, shall have been filed (if required) with the Commission
pursuant to Rule 434 and 424(b), (C) when any amendment to the Registration
Statement shall have been filed or become effective, (D) of any request by the
Commission for any amendment of or supplement to the Registration Statement or
any Prospectus or for any additional information, (E) of the receipt by the
Company of any notification of, or if the Company otherwise has knowledge of,
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the institution or threatening of any proceeding
for that purpose and (F) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the lifting
thereof.
(ii) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Act or the Act Regulations, any
event occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein in the light
of the circumstances under which they were made not misleading, or if it
shall be necessary to amend the Registration Statement or amend or supplement
the Prospectus to comply with the Act or the Act Regulations, the Company
promptly will prepare and file with the Commission, at the Company's expense,
subject to the second sentence of Section 3(a)(i) hereof, an amendment or
supplement which will correct such statement or omission or effect such
compliance. Neither your consent to, nor your delivery of, any such
amendment or supplement shall constitute a waiver of any of the conditions
set forth in Section 5.
(iii) The Company consents to the use of the Prospectus in
accordance with the provisions of the Act and with the securities or blue sky
laws of the jurisdictions in which the Shares are offered by the Underwriters
and by all dealers to whom Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as the
Prospectus is required by the Act to be delivered in connection with the sales
by any Underwriter or dealer. The Company will comply with all requirements
imposed upon it by the Act, as now and hereafter amended, so far as necessary to
permit the continuance of sales of or dealing in the Shares in accordance with
the provisions hereof and the Prospectus.
(iv) As soon as practicable, the Company will make generally
available to its security holders and to the Underwriters an earnings statement
of the Company covering a twelve-month period beginning with the first full
calendar quarter following the Effective Date which will satisfy the provisions
of Section 11(a) of the Act and Rule 158 thereunder.
(v) The Company will, without charge, furnish (A) to the
Representatives, two signed copies of the Registration Statement (including
exhibits thereto and upon request, all documents incorporated by reference
therein), (B) to each Underwriter, a conformed copy of such Registration
Statement (without exhibits
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thereto) and (C) so long as delivery of a prospectus by an Underwriter or dealer
may be required by the Act, as many copies of the Prospectus and all amendments
and supplements thereto as the Representatives may reasonably request. The
copies of the Registration Statement, and each amendment thereto, and the copies
of the Prospectus, and any amendments or supplements thereto, furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(vi) During the period of three years hereafter, the
Company will furnish to the Representatives, as soon as practicable after the
end of each fiscal year, a copy of its annual report to stockholders for such
year; and the Company will furnish to the Representatives (i) as soon as
available, a copy of each report or definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or mailed to stockholders, and (ii) from time
to time, such other information concerning the Company as the Representatives
may reasonably request; PROVIDED, that prior to the Company's furnishing any
such other information that is nonpublic you shall enter into such agreement
respecting the confidentiality thereof as the Company may reasonably request.
(vii) The Company will apply the net proceeds from the offering
and sale of the Shares to be sold by the Company in accordance with the
description set forth in the "Use of Proceeds" section of the Prospectus.
(viii) The Company will cooperate with the Underwriters and
their counsel in connection with endeavoring to obtain and maintain the
qualification or registration, or exemption from qualification, of the Shares
for offer and sale under the applicable securities laws of such states and other
jurisdictions of the United States as the Underwriters may designate; PROVIDED,
that in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to taxation or general service of process in any jurisdiction where
it is not now so subject.
(ix) The Company will not at any time, directly or indirectly,
(A) take any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Shares, or (B) (1) sell, bid for, purchase or pay anyone
any compensation for soliciting purchases of the Shares or (2) pay or agree to
pay any person any compensation for soliciting another to purchase any other
securities of the Company.
(x) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(xi) The Company will not, directly or indirectly, for a
period of 180 days following the date of the Prospectus, without the prior
written consent of Jefferies, offer, sell, contract to sell, or grant any
option to purchase or otherwise
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dispose of any shares of Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock, or register for sale under the Act any
shares of Common Stock or any securities convertible into, or exchangeable for,
shares of Common Stock, other than (A) pursuant to any employee stock option
plan of the Company duly adopted by the Board of Directors of the Company or a
duly appointed committee thereof (B) upon exercise or conversion of securities
exercisable for or convertible into Common Stock outstanding at the
Representation Date.
(xii) The Company shall cause the Shares to be quoted on the
Nasdaq National Market and shall use its best efforts to maintain such trading
while the Shares are outstanding.
(xiii) Until the expiration of three years from the Effective
Date, the Company will not effect a change in the independent certified public
accountants for the Company unless either the Company has received Jefferies'
prior written consent or such substitute independent certified public accountant
is one of the "big six" firms.
4. PAYMENT OF EXPENSES.
(a) The Company covenants and agrees with the Underwriters that the
Company will pay (directly or by reimbursement): (i) the fees, disbursements and
expenses of counsel and accountants for the Company, and all other expenses, in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus, the Prospectus and any amendments or
supplements thereto, and the furnishing of copies thereof, including charges for
mailing, air freight and delivery and counting and packaging thereof to the
Underwriters and dealers;(ii) the cost of printing this Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreement, communications with the
Underwriters and selling group and the Preliminary and Supplemental Blue Sky
Memoranda and any other related documents in connection with the offering,
purchase, sale and delivery of the Shares;(iii) all expenses in connection with
the qualification of the Shares for offering and sale under Blue Sky securities
laws including filing and registration fees and the fees, disbursements and
expenses for counsel for the Underwriters in connection with such qualification
and in connection with Blue Sky surveys or similar advice with respect to
sales;(iv) the filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, securing any required review by
the NASD of the terms of the sale of the Shares;(v) all fees and expenses in
connection with quotation of the Shares on the Nasdaq National Market; and (vi)
all other costs and expenses incident to the performance of the obligations of
the Company under this Agreement which are not otherwise specifically provided
for in this Section 4, including the fees of the Company's transfer agent and
registrar, the cost of any stock issue or transfer taxes on sales of the Shares
to the Underwriters, the cost of the Company's personnel and other internal
costs, the cost of printing and engraving the
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certificates representing the Shares and all expenses and taxes incident to the
sale and delivery of the Shares to be sold by the Company to the Underwriters
hereunder.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 5 or 9 hereof, the Company shall
reimburse the Representatives and the other Underwriters for all of their
reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATION.
The obligation of the Underwriters to purchase the Shares hereunder is
subject to the continued accuracy of the representations and warranties of the
Company herein contained as of the date hereof and on each Closing Date, to the
accuracy of the statements of the Company made in any certificate or
certificates pursuant to the provisions hereof as of the date hereof and on each
Closing Date and to the performance by the Company of its obligations hereunder,
and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or at such later time and date as may be
approved by the Representatives and the Company and shall remain effective at
each Closing Date. No stop order suspending the effectiveness of the
Registration Statement shall have been issued under the Act or proceedings
therefor initiated or threatened by the Commission. No order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or blue sky laws of any jurisdiction shall be
in effect or proceedings therefor initiated or threatened by the Commission or
the authorities of any such jurisdiction. If the Company has elected to rely
upon Rule 430A, the price of the Shares and any price-related or other
information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) within the prescribed time period, and, prior to the
Firm Shares Closing Date, the Company shall have provided evidence satisfactory
to the Representatives of such timely filing or a post-effective amendment
providing such information shall have been promptly filed and declared effective
in accordance with the requirement of Rule 430A.
(b) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall not have occurred (i)
any change, or any development involving a prospective change, in or affecting
the business, properties, prospects, condition (financial or other) or results
of operations of the Company which, in the judgment of the Representatives,
materially affects the market for the Shares or (ii) any material loss or
interference with the business or properties of the Company from fire,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if in the judgment of the Representatives any such development makes
it
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impracticable or inadvisable to proceed with completion of the sale of and
payment for the Shares.
(c) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any Federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, or arbitrator, in which litigation
or proceeding an unfavorable ruling, decision or finding would materially and
adversely affect the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at each
Closing Date, as if made at such Closing Date, and all covenants and agreements
contained herein to be performed on the part of the Company, and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
each Closing Date shall have been duly performed, fulfilled or complied with.
(e) Shereff, Friedman, Hoffman & Goodman, LLP, counsel for the
Company, shall have furnished to the Underwriters their opinion, satisfactory in
form and substance to counsel for the Underwriters, dated the Firm Shares
Closing Date (and, if applicable, the Additional Shares Closing Date), to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to own, lease and
operate its properties and conduct its business as described in the Registration
Statement and the Prospectus.
(ii) To the knowledge of such counsel, the Company has no
subsidiaries.
(iii) Except as otherwise disclosed in the opinion, there are
no preemptive or other rights to subscribe for or to purchase shares of capital
stock of the Company pursuant to any statute, the certificate of incorporation
or by-laws of the Company or, to such counsel's knowledge, any agreement or
other instrument to which the Company is a party as to which any person can
successfully maintain an action, suit or proceeding against the Company for
violation of his or her preemptive rights with respect to the issuance of any
shares of capital stock of the Company.
(iv) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental agency,
authority or body or any arbitrator involving the Company required to be
disclosed in the Prospectus that is not disclosed in the Prospectus, and there
is no contract or other document required to be described in the Registration
Statement or the Prospectus, or to be filed as an exhibit, which is not
described or filed as required.
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<PAGE>
(v) All of the Company's issued and outstanding capital stock
has been duly authorized, validly issued, is fully paid and nonassessable, has
been issued in compliance with all applicable Federal securities laws, and the
Common Stock of the Company conforms in all material respects to the
descriptions thereof and the statements made with respect thereto in the
Registration Statement and the Prospectus under the caption "Description of
Capital Stock" (it being understood that such description is merely a summary of
terms of such Common Stock).
(vi) The Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) have been made in the manner and within the time period
required by Rule 424(b); to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued, no
proceedings for that purpose have been instituted or threatened, and the
Registration Statement and the Prospectus (other than the financial statements
and other financial and statistical information and other financial data and
schedules contained therein as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the Act and
the applicable Act Regulations.
(vii) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of contracts, agreements or other
legal documents, are accurate in all material respects and present fairly the
information required to be shown.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, is a valid and binding agreement of the Company,
enforceable in accordance with its terms (except to the extent rights to
indemnity hereunder may be limited by Federal or state securities laws or public
policy underlying such laws and except to the extent the enforcement hereof or
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally, by
equitable principles or judicial limitations on the right of specific
performance) and the Company has full corporate power and authority to enter
into this Agreement.
(ix) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated hereby, except such as have been obtained under the
Act and such as may be required under the blue sky laws of any jurisdiction
in connection with the purchase and distribution of the Shares by the
Underwriters or such as may be required by the NASD (as to which such counsel
need express no opinion) and such other approvals (specified in such opinion)
as have been obtained or if not obtained would not have a Material Adverse
Effect.
(x) Neither the execution and delivery of this Agreement, the
issuance and sale of the Shares, the consummation of any other of the
transactions herein contemplated, nor the fulfillment of the terms hereof, will
conflict with, or result
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in a breach or violation of, or constitute a default under, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon, any of
the property or assets of the Company pursuant to (a) the terms of any
agreement, contract, indenture, lease or other instrument known to such counsel
to which the Company is a party or by which the Company is bound or to which any
of its property or assets is subject (it being understood that counsel need
express no opinion with respect to the registration rights held by any holder
whose securities are included in the Concurrent Offering), (b) any law, statute,
rule or regulation, or any judgment, order, consent or memorandum of
understanding known to such counsel of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
the Company, or (c) the certificate of incorporation or by-laws of the Company.
(xi) To the knowledge of such counsel, the Company is not
now in violation or breach of, or in default with respect to, any provision
of any contract, agreement, instrument, lease, license, arrangement or
understanding known to such counsel which, individually or in the aggregate,
would have a Material Adverse Effect, and each such contract, agreement,
instrument, lease, license, arrangement or understanding is in full force and
effect, is the legal, valid, and binding obligation of the Company and is
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency and other laws affecting the enforceability of
creditors' rights generally and general principles of equity and judicial
limitations on the right of specific performance.
(xii) The Shares have been duly and validly authorized by the
Company for issuance, and the Company has full corporate power and authority to
issue, sell and deliver the Shares; and, when the Shares are issued and
delivered against payment therefor as provided by this Agreement, the Shares
will have been validly issued and will be fully paid and nonassessable, and the
issuance of such Shares will not be subject to any statutory preemptive rights
or similar statutory rights or, to such counsel's knowledge, any other
preemptive or similar rights.
(xiii) The certificates for the Shares are in due and proper
form under Delaware law and the by-laws of the Company and conform with the form
of certificate duly authorized by the Board of Directors of the Company.
(xiv) The Shares, when issued, will conform in all material
respects to the description thereof contained in the Registration Statement and
the Prospectus under the caption "Description of Capital Stock" (it being
understood that such description is merely a summary of terms of such Shares).
(xv) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or subject to
registration under such act.
(xvi) Except as set forth in the Registration Statement and
the Prospectus, to the knowledge of such counsel, no holder of any securities of
the
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Company or any other person has the right, contractual or otherwise, to cause
the Company to sell or otherwise issue to such person, or to permit such person
to underwrite the sale of, any of the Shares or the right to have any Common
Stock or other securities of the Company included in the Registration Statement
or the right, as a result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common Stock or other
securities of the Company that has not been waived or lapsed; however, such
counsel need express no opinion with respect to the registration rights held by
any holder whose securities are included in the Concurrent Offering.
In addition, such counsel shall also state that such counsel has
participated in conferences with representatives of the Underwriters, officers
and representatives of the Company and representatives of the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and the Prospectus and related matters were
discussed and that, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
set forth in Section 5(e)(vi)), on the basis of the foregoing (relying as to
materiality to a large extent upon officers and other representatives of the
Company), no facts have come to the attention of such counsel which lead such
counsel to believe that the Registration Statement at the time it became
effective or at the Representation Date and at the Firm Shares Closing Date
(and, if applicable, the Additional Shares Closing Date) contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, at the Representation Date (unless the term "Prospectus"
refers to a prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the Shares which differs from
the Prospectus on file at the Commission at the Representation Date, in which
case at the time it is first provided to the Underwriters for such use) or at
the Firm Shares Closing Date (and, if applicable, the Additional Shares Closing
Date), included or includes an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, that such counsel need not express any comment with
respect to the financial statements, supporting schedules or other financial and
statistical data contained in the Registration Statement or the Prospectus.
(f) Arent, Fox, Kintner, Plotkin & Kahn, regulatory and trademark
counsel for the Company, shall have furnished to the Underwriters their opinion,
satisfactory in form and substance to counsel for the Underwriters, dated the
Firm Shares Closing Date (and, if applicable, the Additional Shares Closing
Date), to the effect that:
(i) The statements set forth in the Registration Statement
and the Prospectus under the captions "Risk Factors - Necessity of Regulatory
Clearances to Market," "Business - Product Testing," "Business - Regulatory
Status" and "Business-
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Government Regulation" (collectively, the "FDA Portion"), insofar as such
statements purport to summarize applicable provisions of the Federal Food, Drug,
and Cosmetic Act (the "FFDCA") and the regulations promulgated thereunder, are
accurate summaries in all material respects of the provisions purported to be
summarized under such captions or of any legal matters, documents or proceedings
referred to therein and relating to the FFDCA or the regulation by the FDA of
the business or operations of the Company or the Company's compliance therewith.
(ii) The Company has received the requisite regulatory
permission to market the INSTEAD-TM- feminine protection product in the
United States. The modifications to INSTEAD-TM-'s materials and labeling
change subsequent to FDA clearance to market the INSTEAD-TM- feminine
protection product in the United States as set forth in the Registration
Statement and the Prospectus would not, under current laws and regulations,
require submission of a supplemental 510(k) notification to the FDA and
clearance of such a notification submission by that agency prior to the
marketing of the product.
(iii) To the knowledge of such counsel, the Company has filed
with the FDA for and received approval or clearance of all applications,
licenses, registrations and permits ("Regulatory Authorizations") necessary to
conduct its business and operations as described in the Registration Statement
and the Prospectus, and the Company is in compliance with all such Regulatory
Authorizations and all applicable FDA rules, regulations, guidelines and
policies, including, without limitation, applicable FDA rules, regulations,
guidelines and policies relating to the development, testing, manufacture,
labeling, storage, record keeping, reporting or marketing of the Company's
products.
(iv) To the knowledge of such counsel, there are no FDA
enforcement actions or proceedings pending or threatened against the Company.
(v) The Company is recorded in the records of the U.S. Patent
and Trademark Office and in each appropriate foreign trademark office as the
sole owner or assignee of record of each of the registered trademarks noted on
an appendix to such opinion (the "Trademarks") and of each of the trademark
applications noted on such appendix (the "Trademark Applications"). To the
knowledge of such counsel, there are no asserted or unasserted claims of any
person relating to the scope or ownership of the Trademarks or the Trademark
Applications, and there are no material defects of form in the preparation or
filing of the Trademark Applications and the applications which led to the
Trademarks. The statements set forth in the Registration Statement and the
Prospectus under the caption "Business - Trademarks" (the "Trademark Portion")
are accurate summaries in all material respects of the matters set forth
therein.
(vi) Based upon a review of the FDA Portion and the Trademark
Portion, such counsel has no reason to believe that the information contained in
the FDA Portion or the Trademark Portion of the Registration Statement and the
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Prospectus at the time it became effective and at the Representation Date
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein not misleading or that at
the Firm Shares Closing Date (and, if applicable, the Additional Shares Closing
Date) the information contained in the FDA Portion and the Trademark Portion of
the Prospectus or any amendments or supplements to the FDA Portion or Trademark
Portion of the Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of which they were made, not misleading.
(g) Dickstein, Shapiro & Morin L.L.P., patent counsel for the
Company, shall have furnished to the Underwriters their opinion, satisfactory in
form and substance to counsel for the Underwriters, dated the Firm Shares
Closing Date (and, if applicable, the Additional Shares Closing Date), to the
effect that:
(i) The Company is recorded in the records of the U.S. Patent
and Trademark Office and in each appropriate foreign patent office as the sole
owner or assignee of record of each of the issued patents noted on an appendix
to such opinion (the "Patents") and each of the patent applications noted on
such appendix (the "Patent Applications"). To the knowledge of such counsel,
there are no asserted or unasserted claims of any person relating to the scope
or ownership of the Patents or Patent Applications, and there is no material
defects of form in the preparation or filing of the Patent Applications and the
applications which led to the Patents, and unless otherwise noted on the
appendix none of the Patent Applications are finally rejected.
(ii) To the knowledge of such counsel, there is no fact or
circumstance that would form a basis for the belief that any of the Patents are
either invalid or unenforceable.
(iii) To the knowledge of such counsel, there is no charge of
infringement, or other fact or circumstance that would form a basis for belief,
that any of the Company's products infringe any patent, copyright, trade secret
or other intellectual property rights of any third party.
(iv) To the knowledge of such counsel, there is no pending or
threatened legal or governmental proceeding relating to the Company's Patents or
Patent Applications, licensing rights, Trademarks, collaborations, research,
licensing or royalty arrangements, trade secrets, know-how, proprietary rights,
technologies or manufacturing.
(v) The statements in the Registration Statement and the
Prospectus under the captions "Risk Factors - Risks Inherent in Obtaining and
Protecting Patents and Proprietary Technology" and "Business - Patent Status and
Patent Applications; Proprietary Technology" (the "Patent Portion" and "Trade
Secret Portion") are accurate statements or summaries in all material respects
and present fairly the information required to be shown in the matters set forth
therein.
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<PAGE>
(vi) Nothing has come to such counsel's attention that causes
such counsel to believe that the information contained in the Patent Portion and
Trade Secret Portion of the Registration Statement and the Prospectus at the
time it became effective and at the Representation Date contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein not misleading or that, at the Firm Shares
Closing Date (and, if applicable, the Additional Shares Closing Date), the
information contained in the Patent Portion and Trade Secret Portion of the
Prospectus contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements therein, in the light
of which they were made, not misleading.
(h) Fulbright & Jaworski L.L.P., counsel for the Underwriters, shall
have furnished to the Underwriters an opinion with respect to such matters as
may be reasonably requested by the Underwriters, dated the Firm Shares Closing
Date (and, if applicable, the Additional Shares Closing Date).
(i) The following conditions contained in clauses (A) through (C) of
this Section 5(i) shall have been satisfied on and as of each Closing Date, and
the Company shall have furnished to the Underwriters a certificate of the
Company, signed by the Chairman of the Board or the President and the principal
financial or accounting officer of the Company, dated the Firm Shares Closing
Date (and, if applicable, the Additional Shares Closing Date), to the effect
that the signers of such certificate have carefully examined the Registration
Statement, the Prospectus, any supplement or amendment to the Prospectus and
this Agreement and that:
(A) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Firm Shares Closing Date (and,
if applicable, on the Additional Shares Closing Date), with the same effect as
if made on the Firm Shares Closing Date (and, if applicable, on the Additional
Shares Closing Date); the Registration Statement, as amended as of the Firm
Shares Closing Date (and, if applicable, on the Additional Shares Closing Date),
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Shares Closing Date (and,
if applicable, on the Additional Shares Closing Date), does not include any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; and the Company has complied with all the
agreements and satisfied all the conditions under this Agreement on its part to
be performed or satisfied at or prior to the Firm Shares Closing Date (and, if
applicable, at or prior to the Additional Shares Closing Date);
(B) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or, to the knowledge of the Company, threatened; and
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(C) since the date of the most recent financial statements
included in the Prospectus, there has been no change or development involving a
prospective change, with respect to the business, properties, prospects,
financial condition or results of operations of the Company that could have a
Material Adverse Effect.
(j) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to the Underwriters' participation in such
offering.
(k) At the Effective Date, the Representation Date and at each
Closing Date, Deloitte & Touche, LLP shall have furnished to the Underwriters a
letter or letters, dated respectively as of the Effective Date, the
Representation Date and each Closing Date, in form and substance satisfactory to
the Representatives, containing statements and information of the type
customarily included in accountants' "comfort letters" to underwriters with
respect to the historical financial statements and certain financial and
statistical information pertaining to the Company contained in the Registration
Statement and the Prospectus.
(l) At each Closing Date, counsel for the Underwriters shall have
been furnished with such information, certificates and documents as they may
reasonably require for the purpose of enabling them to pass upon the issuance
and sale of the Shares as contemplated herein and related proceedings, or to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained, or otherwise in
connection with the offering contemplated hereby; and all opinions and
certificates mentioned above or elsewhere in this Agreement shall be reasonably
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters.
(m) On or prior to the Representation Date, the Company shall have
furnished to the Underwriters copies of the Lock-Up Agreements and Hampshire
shall have furnished to Jefferies a letter in which Hampshire agrees not to
release any director, officer or 5% stockholder from his, her or its obligations
under the Lock-Up Agreement without the prior written consent of Jefferies.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify, defend and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person who controls any Underwriter, within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, to the fullest extent lawful from
and against any losses, expenses, claims, damages or liabilities (including any
and all investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), which, jointly or severally, any of them may
become subject under the Act, the Exchange Act or otherwise, as such expenses
are incurred, insofar as such losses, expenses, claims, damages or liabilities
arise out of or are based upon (i) any untrue statement or alleged
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untrue statement of a material fact contained in the Registration Statement, or
in any Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or in any Blue Sky application or other document executed by
the Company specifically for that purpose or based upon information furnished by
the Company filed in any state or other jurisdiction in order to qualify any or
all of the Shares under the securities laws thereof or filed with the Commission
or any securities association or securities exchange (each, an "Application"),
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement made in Section 1(a) of this Agreement by the Company;
PROVIDED, HOWEVER, that for purposes of this subsection 6(a)(ii), the
representation and warranty contained in the second sentence of Section 1(a)(vi)
shall be deemed to have been made without any reference or qualification as to
the Disclosure Letter and the representation and warranty contained in Section
1(a)(xxix) shall be deemed to have been made without any qualification as to a
holder whose securities are included in the Concurrent Offering; PROVIDED
FURTHER, HOWEVER, that the Company will not be liable in any such case to the
extent that any such loss, expense, claim, damage or liability arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with the
written information furnished to the Company by the Representatives on behalf of
any Underwriter expressly for use in the Registration or the Prospectus; and
PROVIDED, FURTHER, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any Preliminary Prospectus, the
indemnity agreement contained in this Section 6(a) shall not inure to the
benefit of any such Underwriter, the directors, officers, employees or agents of
such Underwriter or any person controlling such Underwriter, and the Company
shall not be liable to any such Underwriter, the directors, officers, employees
or agents of such Underwriter or any persons controlling such Underwriter, from
whom the person asserting any such losses, expenses, claims, damages or
liabilities purchased the Shares concerned, to the extent that any such loss,
expense, claim, damage or liability results from the fact that there was not
sent or given to such person, at or prior to the written confirmation of the
sale of such Shares to such person, a copy of the Prospectus, as the same may be
amended or supplemented, within the time required by the Act (if required
thereby), and the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact in such
Preliminary Prospectus was corrected in such Prospectus and the Company had
previously furnished copies thereof to such Underwriter on a timely basis in
order to permit the Prospectus (as the same may be amended or supplemented) to
be sent or given. The foregoing indemnity agreement shall be in addition to any
liability that the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director of the
Company and each officer who signs the Registration Statement, to the same
extent as the foregoing indemnities from the Company to each Underwriter, the
directors, officers, employees and agents of such Underwriter and any person
controlling such
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Underwriter, but only insofar as such loss, expense, claim, damage or liability
arises out of or is based upon any untrue statement or omission or alleged
untrue statement or omission made in reliance or in conformity with information
relating to such Underwriter furnished in writing to the Company by the
Representatives on behalf of such Underwriter, expressly for use in the
Registration Statement or the Prospectus. This indemnity agreement will be in
addition to any liability that any Underwriter may otherwise have. The Company
agrees that the statements set forth in the last paragraph of the cover page
of the Prospectus, the stabilization legend on the inside front cover page of
the Prospectus, the "Underwriting" section of the Prospectus and the amounts
of the selling concession and reallowance set forth in the Prospectus
constitute the only information provided in writing by the Representatives on
behalf of any Underwriter expressly for use in the Registration Statement or
the Prospectus.
(c) If any action is brought against an indemnified party under this
Section 6, the indemnified party or parties shall promptly notify the
indemnifying party in writing of the institution of such action (provided that
the failure to give such notice shall not relieve the indemnifying party of any
liability which it may have pursuant to this Agreement, unless and to the extent
the indemnifying party did not otherwise learn of such action and such failure
has resulted in the forfeiture of substantive rights or defenses by the
indemnifying party) and the indemnifying party shall assume the defense of such
action, including the employment of counsel and payment of reasonable expenses.
The indemnified party or parties shall have the right to employ separate counsel
(including local counsel) in any such case and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying party in connection with the
defense of such action, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to take charge of the
defense of such action within a reasonable time after notice of the institution
of such action, (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them that are different
from or additional to those available to the indemnifying party or (iv) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties, in any of which events such fees
and expenses shall be borne by the indemnifying party and paid as incurred);
PROVIDED, that the indemnifying party shall only be responsible for the fees and
expenses of one counsel for the indemnified party or parties hereunder.
Anything in this paragraph to the contrary notwithstanding, the indemnifying
party shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an
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unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under subsections (a) or (b) of this
Section 6 or is insufficient to hold harmless a party indemnified thereunder, in
respect of any losses, expenses, claims, damages or liabilities referred to
therein, then each applicable indemnifying party shall contribute to the amount
paid in settlement of any action, suit or proceeding or any claims asserted, but
after deducting in the case of losses, expenses, claims, damages and liabilities
suffered by the Company, any contribution received by the Company from persons
other than the Underwriters who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, officers of the Company who signed the
Registration Statement and directors of the Company, to which the Company and
one or more of the Underwriters may be subject, in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Underwriters on the other hand, from the offering of the Shares
or, if, but only if, such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company on the one hand, and the
Underwriters on the other hand, in connection with the statements or omissions
which resulted in such losses, expenses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand, and the Underwriters on the other hand, shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts but before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company on the one hand, and the
Underwriters on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, expenses, claims and liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any claim or action. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant hereto were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 6(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discount received by it by reason of such untrue statement or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
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<PAGE>
The Underwriters' obligations in this Section 6(d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) Subject to the provision of subsection (a) of this Section 6, the
Company hereby severally agree that in addition to its other obligations under
subsection (a) of this Section 6, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission
described in subsection (a) of this Section 6, it will reimburse the
Underwriters on a monthly basis for all reasonable legal fees and other expenses
reasonably incurred in connection with investigating or defending such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
obligations under this Section 6 and the possibility that such payments might
later be held to be improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payments to the Company.
7. SURVIVAL. The respective indemnity and contribution agreements
contained in Section 6 hereof and the covenants, warranties and other
representations of the Company contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter, or any of their respective officers, employees, directors,
stockholders or person who controls the Underwriters within the meaning of
Section 15 of the Act, or by or on behalf of the Company or any of its
directors, officers, employees or any person who controls the Company within the
meaning of Section 15 of the Act, and shall survive delivery of and payment for
the Shares.
8. DEFAULT BY AN UNDERWRITER. If one or more of the Underwriters shall
fail or refuse at a Closing Date to purchase and pay for any of the Shares
agreed to be purchased by such Underwriter or Underwriters hereunder on such
date and the aggregate number of Firm Shares or Additional Shares, as the case
may be, which such defaulting Underwriter or Underwriters, as the case may be,
agreed but failed or refused to purchase is not more than one-tenth of the total
number of Shares to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters, as the
case may be, have agreed to purchase, or in such other proportion as the
Representatives may specify, to purchase the Firm Shares or Additional Shares,
as the case may be, which such defaulting Underwriter or Underwriters, as the
case may be, agreed but failed or refused to purchase on such date; PROVIDED,
that in no event shall the number of Firm Shares or Additional Shares, as the
case may be, which any Underwriter has agreed to purchase pursuant to Section 2
hereof be increased pursuant to this Section 8 by an amount in excess of one-
tenth of such number of Firm Shares or Additional Shares, as the case may be,
without the written consent of such Underwriter. If on the Firm Shares Closing
Date or on the
-29-
<PAGE>
Additional Shares Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares, or Additional Shares,
as the case may be, and the aggregate number of Firm Shares or Additional
Shares, as the case may be, with respect to which such default occurs is more
than one-tenth of the aggregate number of Shares to be purchased on such date by
all Underwriters in the event of a default by a Underwriter and arrangements
satisfactory to the Representatives and the Company for purchase of such Shares
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter and the Company.
In any such case which does not result in termination of this Agreement, either
the Representatives or the Company shall have the right to postpone the Firm
Shares Closing Date, or the Additional Shares Closing Date, as the case may be,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and the Prospectus or any other documents
or arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any default
of any such Underwriter under this Agreement.
9. TERMINATION OF AGREEMENT.
(a) The Representatives may terminate this Agreement, by written
notice to the Company prior to the Firm Shares Closing Date (or, if applicable,
the Additional Shares Closing Date) (i) if there shall occur any default or
breach by the Company hereunder or the failure to satisfy any of the conditions
contained in Section 5 hereof, (ii) if there shall have been, since the date of
this Agreement or since the respective dates as of which information is provided
in the Registration Statement and prior to the Firm Shares Closing Date (or, if
applicable, the Additional Shares Closing Date), any material adverse change, or
any development involving a prospective material adverse change (including,
without limitation, a change in the management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or results
of operations of the Company, or (iii) if, since the date of this Agreement and
prior to the Firm Shares Closing Date (or, if applicable, the Additional Shares
Closing Date), (A) there has occurred any material adverse change in the
financial markets of the United States or in political, financial or economic
conditions in the United States or any outbreak or material escalation of
hostilities or declaration by the United States of a national emergency or war
or other calamity or crisis, the effect of which on the financial securities
markets of the United States is such as to make it, in the judgment of the
Representatives, impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated by the Prospectus, or (B) trading in any of the
securities of the Company has been suspended by the Commission, or trading
generally on the New York Stock Exchange or the Nasdaq National Market has been
suspended (other than by limitation on hours or number of days of trading), or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by the New York Stock Exchange or the
Nasdaq National Market or by order of the Commission or any other governmental
authority or (C) a banking moratorium has been declared by any of the Federal or
New York authorities.
-30-
<PAGE>
(b) If this Agreement is terminated pursuant to this Section 9 or any
other provision of this Agreement, such termination shall be without liability
of any party to any other party except as provided in Sections 4 and 6.
10. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to the Underwriters shall be
directed to the Underwriters, c/o Jefferies & Company, Inc., 650 Fifth Avenue,
4th Floor, New York, New York 10019, attention of Peter Ruel, with a copy to
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103,
attention of Paul Jacobs, Esq.; notices to the Company shall be directed to 500
Fifth Avenue, Suite 3620, New York, New York 10110, attention of John W.
Andersen, with a copy to Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, New York 10022, attention of Gerald Adler, Esq.
11. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriters, the Company and their respective successors and legal
representatives. Nothing expressed or mentioned in this Agreement is intended
or shall be construed to provide any person, firm or corporation, other than the
Underwriters, the Company, their respective successors and legal
representatives, and the controlling persons and officers, employees, directors
and stockholders referred to in Sections 6 and 7 and their respective heirs and
legal representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and their respective
successors and legal representatives, and said controlling persons,
stockholders, officers and directors and their respective heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
No purchaser of Shares from the Underwriters shall be deemed to be a successor
by reason merely of such purchase.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
13. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
-31-
<PAGE>
* * * * *
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriters and the Company in accordance with its terms.
Very truly yours,
ULTRAFEM, INC.
By:__________________________________________
Name: John W. Andersen
Title: President and Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
JEFFERIES & COMPANY, INC.
HAMPSHIRE SECURITIES CORPORATION
By: JEFFERIES & COMPANY, INC.
By:_________________________________
Name:
Title:
For themselves and as Representatives of
the other Underwriters named in this Agreement
<PAGE>
SCHEDULE I
Number of Firm Shares
Underwriter To Be Purchased
- ----------- --------------
Jefferies & Company, Inc. . . . . . . . . . . . . .
Hampshire Securities Corporation . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . ___________
3,000,000
===========
-33-
<PAGE>
AMENDMENT TO VOTING TRUST AGREEMENT
This Amendment dated as of August 8 1995 (the "Amendment") to the
Voting Trust Agreement as of August 8, 1995 (the "Agreement") among Audrey
Contente, John Andersen and Barrie Zesiger (the "Voting Trustees") and Audrey
Contente (the "Stockholder"), a stockholder of UltraFem, Inc., a Delaware
corporation (the "Company").
WHEREAS, the parties hereto are parties to the Agreement (the
"Agreement") dated August 8, 1994, and desire to amend the Agreement;
NOW, THEREFORE for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. The last sentence of Article 1 of the Agreement is hereby amended to read
in full as follows:
Any action taken by the Voting Trustees (including, without
limitation, any vote of the Stock) pursuant to this Agreement must be
taken by a majority vote of the Voting Trustees (with each Voting
Trustee having one vote).
2. The first sentence of Article 8 of the Agreement is hereby amended to read
in full as follows:
This Agreement, and the rights transferred hereby, shall continue
until the earlier of (i) the transfer of the Option Shares to the
Optionees, (ii) eighteen months after the Company has consummated its
initial public offering, (iii) on August 8, 1996 if the Company's
initial public offering is not consummated on or before June 30, 1996,
or (iv) upon breach of the representation contained in Article 3
hereof, and shall then terminate.
3. Except as set forth in the Amendment, all provisions of the Agreement shall
remain in full force and be binding upon and inure to the benefit of the parties
and their respective successors and assigns.
4. Defined terms in the Amendment shall have the meanings set forth in the
Agreement unless otherwise indicated herein.
<PAGE>
5. This Amendment may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to the
Agreement to be executed as of the date first above written.
STOCKHOLDER:
By: /s/Audrey Contente
------------------------
Audrey Contente
VOTING TRUSTEES:
By: /s/Audrey Contente
--------------------------
Audrey Contente
By: /s/John Andersen
--------------------------
John Andersen
By: /s/Barrie Zesiger
--------------------------
Barrie Zesiger
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 1, 1996, by and between
ULTRAFEM, INC., a Delaware corporation (the "Company"), and AUDREY CONTENTE (the
"Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Employee and to enter into
an agreement (the "Agreement") embodying the terms of such employment; and
WHEREAS, the Employee desires to accept such employment with the
Company and to enter into the Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Company and the Employee hereby
agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ the Employee, and the Employee
hereby agrees to accept employment with the Company, for the Term (as defined in
Section 2 below), in the position and with the duties and responsibilities set
forth in Section 3 below, and upon the other terms and conditions hereinafter
stated.
2. TERM.
The term of the Agreement (the "Term") shall commence upon the date
hereof and shall end five years from such date or such shorter period as may be
provided for herein.
3. POSITION, DUTIES AND RESPONSIBILITIES.
3.1 APPOINTMENT AS FOUNDER, EXECUTIVE VICE PRESIDENT
(a) During the Term, the Employee shall serve, and the Company
shall employ the Employee, as the Founder, Executive Vice President of the
Company. The Employee shall be responsible for manufacturing and product
development, subject to the supervision of the Chief Executive Officer ("CEO")
and Board of Directors of the Company (the "Board"). The Employee shall have
such other duties and responsibilities with the Company and its subsidiaries or
divisions consistent with the above as may be assigned by the CEO or the Board.
The Employee shall report directly to the CEO of the Company.
<PAGE>
(b) During the Term, the Employee shall devote substantially all
of her working time, attention and energies exclusively to the business and
affairs of the Company. Without limiting the generality of the foregoing, the
Employee shall perform such duties and responsibilities as may be assigned to
her by the CEO or the Board consistent with the Employee's positions as Founder,
Executive Vice President of the Company. In addition, Employee agrees to serve
as a member of the Board. Nothing in the Agreement shall preclude the Employee
from engaging in charitable and community affairs, serving on the boards of
directors of a reasonable number of other corporations, trade associations or
charitable organizations or giving attention to her personal investments;
provided that such activities do not interfere with the regular performance of
her duties and responsibilities under the Agreement.
3.2 REPRESENTATION.
In order to induce the Company to enter into the Agreement on the
terms and conditions set forth herein, the Employee hereby represents and
warrants to the Company that her execution of the Agreement and the performance
of her duties and responsibilities hereunder will not violate or result in a
breach of, or in any manner be prohibited or restricted by, the terms of any
agreement, arrangement, understanding (written or otherwise), order or decree to
which she is a party or by which she is bound.
4. COMPENSATION.
4.1 SIGNING BONUS; BASE SALARY.
(a) SIGNING BONUS. In order to induce the Employee to accept
employment in accordance with the term of the Agreement, the Company hereby
agrees that on the date that the Employee returns an executed copy of the
Agreement to the Company, in consideration of the Employee's release of any of
the Company's past obligations which were not fulfilled and the Employee's past
and future contributions to the Company, the Company shall pay the Employee by
certified or bank check payable to her order, the amount of $75,000.
(b) BASE SALARY. Commencing as of the date hereof, the Employee
shall be paid a base salary (the "Base Salary") at an annual rate of $230,000,
payable in such installments and at such intervals as are the usual custom of
the Company, but in any event on at least a monthly basis. The Base Salary
shall be increased to an annual rate of $300,000 upon the earlier to occur of
(i) consummation of a Strategic Alliance, as such term is defined herein, or
(ii) introduction of INSTEAD-TM- to at least 5% of the United States or
European market; and shall be increased to $350,000 upon the later of such
events to occur. The term "Strategic Alliance" means the formation of an
alliance with one or more multinational pharmaceutical and/or consumer product
companies to facilitate developing and marketing the Company's product line.
- 2 -
<PAGE>
4.2 ANNUAL BONUS.
The Company agrees that, at such time as the INSTEAD -TM-
product becomes available for sale to the general public, it shall use its best
efforts to establish one or more incentive programs in order to award annual
bonuses to senior management of the Company based on the Company's meeting
certain financial and non-financial targets to be determined by the Board. The
Employee shall be entitled to participate in such bonus plans and any other
plans in which the senior management of the Company participate on the same
terms and conditions; provided, any annual bonus awarded to the Employee under
any such bonus plans shall not exceed 60% of the Employee's then current Base
Salary.
4.3 ROYALTIES.
(a) PAYMENT OF ROYALTIES; STATEMENTS. In addition to any other
amount payable to Employee pursuant to this Agreement, the Company shall pay to
Employee (or her assigns) royalties ("Royalties") in an amount equal to $.005
(one-half cent) for each unit of Devices (as hereinafter defined) sold by the
Company, its successors, assigns, subsidiaries, or licensees whether during the
Employment Period or at any time thereafter; provided, however, that Employee
shall be entitled to receive only one royalty payment with respect to any unit
of Device. Royalties with respect to Devices sold during each calendar quarter
shall be paid within 30 days after the end of such quarter, which payment shall
be accompanied by a statement in detail reasonably satisfactory to Employee
setting forth the number of Devices sold by the Company during such calendar
quarter and a calculation of the royalty due to Employee in respect thereof.
Such Royalties shall be due and payable during the term of this Agreement or any
time thereafter it being expressly understood that the Royalties due hereunder
shall survive the death of Employee and the termination of this Agreement
regardless of the reason for such termination. The Company itself shall, and
the Company shall cause its successors, assigns, subsidiaries, licensees or any
third parties to use reasonable best efforts to produce, manufacture, develop,
bring to market, sell and/or commercially exploit the Devices.
(b) BOOKS AND RECORDS; RIGHT OF INSPECTION. The Company shall
keep complete and accurate books of account and records covering all sales of
Devices. Employee and her duly authorized representatives shall have the right,
at her expense, during normal business hours and upon reasonable advance notice
and without interrupting the Company's business, at any time during the Term or
thereafter, to examine and copy such books of account and records and all other
materials as may be reasonably necessary or appropriate to verify the
information contained in the royalty statements submitted to Employee pursuant
hereto. In the case of any deviation of Royalties versus reported Royalties,
the Company shall pay any Royalties due within ten days, with interest thereon
from the date such Royalties were due through and including the date of payment
at and changing with the rate announced from time to time by Citibank N.A. at
its principal office in New York City as its "prime rate," plus 2%, and, if such
deviation exceeds 5%, Employer pay the reasonable costs of such examination.
All books of account and records
- 3 -
<PAGE>
relating to a particular calendar year shall be kept available for inspection as
provided herein for at least two years after the end of such year.
(c) DEFINITION OF DEVICES. For the purposes hereof, "Devices"
means any and all devices or other apparatus utilizing the Technology for any
purpose whatsoever, including without limitation, the "UltraFem Feminine
Protection Cup"; and "Technology" means the technology, ideas, inventions,
patents and other Transferred Assets (as defined in the Assignment Agreement
dated August 9, 1990 made by Employee in favor of the Company) heretofore
assigned by Employee to the Company, together with any and all other technology,
ideas or inventions (whether patented or unpatented) conceived or created by the
Employee, and any and all other technology, ideas, inventions or patents that
are derivatives or modifications of or improvements or developments to any
Technology.
(d) SURVIVAL. It is expressly understood that the provisions of
this Section 4.3 shall survive the death of Executive and the termination of the
Term for any reason whatsoever.
5. EMPLOYEE BENEFITS.
Employee shall be entitled to participate in such compensation
and incentive plans and group life, health, accident, disability and
hospitalization insurance plans, pension plans, retirement plans and other
fringe benefit plans as are provided from time to time to other executive
officers of the Company. In fulfillment of the Company's obligation to provide
life and disability insurance, the Company shall pay an amount equal to premiums
payable under term life insurance policies providing benefits of two times
Employee's then current base salary and disability insurance providing for
payment of one-half of the Employees's then current base salary, up to a maximum
of $200,000 in coverage, subject in each case to such policies being available
from insurance carriers at market rates for someone of her age and in good
health. Employee shall also receive an additional amount (the "Gross-up
Amount") to cover any payment of federal and/or state income taxes on the amount
provided to cover premiums for term life and disability insurance. The Gross-up
amount shall be calculated assuming a combined federal and state tax rate
applicable to Employee not to exceed 40%.
Employee shall be entitled to vacations (including accrued
vacation pay) consistent with the Company's current practices in respect
thereof, which vacations shall be taken at such time or times shall not
unreasonably interfere with Employee's performance of her duties under this
Agreement. Employee is entitled to a minimum of four weeks paid vacation, plus
paid sick days and holidays.
6. EXPENSE REIMBURSEMENT.
During the Term, the Company shall reimburse the Employee for all
reasonable travel and other out-of-pocket expenses incurred by her (in
accordance with the
- 4 -
<PAGE>
policies and procedures established by the Company for its senior executive
officers) in carrying out her duties and responsibilities hereunder.
7. DEATH OR DISABILITY OF THE EMPLOYEE.
7.1 DEATH.
In the event of the death of the Employee during the Term, the
Agreement automatically shall be terminated as of the date of her death and the
Employee's designated beneficiary, or, in the absence of such designation, the
estate or other legal representative of the Employee shall be paid the
Employee's unpaid Base Salary through the month in which such termination occurs
and for a period of six months thereafter and any bonuses awarded but not paid
for any fiscal year of the Company ending prior to the date of such termination.
The Employee's beneficiary or estate or legal representative, as the case may
be, shall be reimbursed for all business expenses incurred by the Employee prior
to such termination and shall be entitled to other death benefits in accordance
with the terms of the Company's benefit programs and plans.
7.2 DISABILITY.
In the event of the Disability (as hereinafter defined) of the
Employee during the Term, the Company shall be entitled to terminate the
Agreement. Upon such termination, the Employee shall be paid her unpaid Base
Salary through the month in which such termination occurs and for a period of
six months thereafter and any bonuses awarded but not paid for any fiscal year
of the Company ending prior to the date of such termination. The Employee shall
be reimbursed for all business expenses incurred by the Employee prior to such
termination and shall be entitled to other disability compensation in accordance
with the Company's benefit programs and plans. "Disability," for purposes of
the Agreement, shall mean the Employee has failed as a result of her illness,
physical or mental disability or other incapacity, for a period of six
consecutive months or 270 days during any 12-month period of the Term to render
the services provided in the Agreement, or has been adjudicated an incompetent.
Provided that the provisions of the applicable employee benefit plan permits,
the Employee shall continue to participate in all employee benefit plans in
which she was participating on the date of termination until the earliest to
occur of (a) the Employee's death, (b) the cessation of the Employee's
disability or (c) the end of the Term.
8. TERMINATION BY THE COMPANY FOR DUE CAUSE.
In addition to any other remedies available to it at law, in
equity or as set forth in this Agreement, the Company shall have the right, upon
written notice to the Employee, to immediately terminate her employment
hereunder if the Employee (a) wilfully fails or refuses in any material respect
to perform such duties as may be assigned to her from time to time by the Board
or the CEO of the Company consistent with Employee's position and
responsibilities and fails to cure such failure or refusal within thirty (30)
days after receipt of notice from the Board or
- 5 -
<PAGE>
CEO of the Company setting forth with reasonable specificity the nature of such
failure or refusal; or (b) has been convicted of a felony; or (c) has committed
any act of fraud, misappropriation of funds or embezzlement in connection with
her employment hereunder. Termination as a result of clauses (a) though (c)
shall be for "Due Cause." Upon such termination, the Employee shall continue to
receive her Base Salary only for the period ending with the date of such
termination and the obligation of the Company to make any further payments, or
to provide any benefits specified herein, to the Employee shall thereupon cease
and terminate.
9. TERMINATION OTHER THAN FOR DUE CAUSE.
9.1 TERMINATION.
The Agreement may be terminated (a) by the Company (in addition
to termination pursuant to Section 7 or 8) at any time and for any reason, (b)
by the Employee at any time and for any reason or (c) upon the expiration of the
Term.
9.2 SEVERANCE AND NON-COMPETITION PAYMENT.
If the Agreement is terminated by the Company without Due Cause,
or by the Employee for Good Reason (as hereinafter defined), or during the first
year following a Change of Control (as hereinafter defined) by the Company or by
the Employee for any reason, the Company shall pay the Employee a severance
payment equal to the Base Salary in effect at the time of termination for a 24
month period commencing on the date of termination. Such severance shall be
payable in 24 equal monthly installments (except in the case of payments made as
a result of the termination of the Agreement following a Change in Control of
the Company, which payments shall be made in a lump sum as soon as practicable,
but in any event within 10 days, after the date of termination) commencing on
the first day of the month following termination. In addition, the Company
shall pay the Employee her Base Salary through the date of termination and any
bonuses awarded but not paid for any fiscal year of the Company ending prior to
the date of such termination. The Employee shall be reimbursed for all business
expenses incurred by the Employee prior to such termination and shall be
entitled to continue to participate, subject to the terms of such plans, in all
employee benefit plans in which she was participating on the date of her
termination, including, but not limited to, the continuation of all life,
disability, accident and medical insurance benefits available to her on such
date as long as she is entitled to receive the severance payments hereunder or
until the date she receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (it being agreed that if severance payments
are paid in full, in one lump sum or otherwise, Employee shall no longer be
entitled to such participation). If the Company does not renew this Agreement
at the end of the Term, the Company shall pay the Employee a severance payment
equal to the Base Salary in effect at the time of termination for a 6 month
period commencing on the date of termination. Such severance shall be payable
in 6 equal monthly installments commencing on the first day of the month
following termination of employment of Employee. "Good Reason," for purposes of
the
- 6 -
<PAGE>
Agreement, shall mean (A) the Company shall have materially breached the
provisions of the Agreement, or (B) the assignment to the Employee by the Board
or CEO of duties materially inconsistent with the Employee's position (including
status, corporate office(s), title(s) or reporting responsibility), authority,
duties or responsibilities of the Employee as contemplated by Section 3 of the
Agreement or (C) the Company shall have moved Employee's principal base of
operations to a location outside of the New York City area.
For purposes of this Agreement, a "Change in Control" of the
Company occurs if: (a) any "person" (defined as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than Employee is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's outstanding securities then entitled
to vote for the election of directors; or (b) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors cease for any reason to constitute at least a majority
thereof; or (c) the Board of Directors shall approve the sale or transfer (to an
unaffiliated entity) of all or substantially all of the assets of the Company or
any merger, consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in clause (a) or
(b) above. Any and all payments required to be made by Employer to Executive
pursuant to this Section 9.2 shall be made without set-off or deduction, and no
defense shall be asserted against any right to or claim for such payments.
Without limiting the generality of the foregoing, except as expressly otherwise
provided herein, Executive shall not be required to mitigate the amount of any
payments or benefits provided hereunder upon termination of the Employment
Period by seeking employment with any other person, or otherwise, nor shall the
amount of any such payments or benefits be reduced by any compensation, benefit
or other amount earned by, accrued for or paid to Executive under any other
provision of this Agreement, or any plan or program of Employer or any affiliate
thereof or as a result of Executive's employment by or consultancy or other
association with any person.
10. CONFIDENTIAL INFORMATION.
(a) The Employee agrees not to use, disclose or make accessible
to any other person, firm, partnership, corporation or any other entity any
Confidential Information (as hereinafter defined) pertaining to the business of
the Company except (i) while employed by the Company, in the business of and for
the benefit of the Company or (ii) when required to do so by a court of
competent jurisdiction, by any governmental agency having supervisory authority
over the business of the Company, or by any administrative body or legislative
body (including a committee thereof) with jurisdiction to order the Company to
divulge, disclose or make accessible such information. "Confidential
Information," for purposes of the Agreement, shall mean non-public information
concerning the Company's financial data, statistical data, strategic business
plans, product development (or other proprietary product data), customer and
supplier lists, customer and supplier information, information relating to
governmental relations, discoveries, practices, processes, methods, trade
secrets, marketing plans and other non-public, proprietary and confidential
information of the Company, that, in any case, is not otherwise generally
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<PAGE>
available to the public and has not been disclosed by the Company to others not
subject to confidentiality agreements. In the event the Employee's employment
is terminated hereunder for any reason, she immediately shall return to the
Company all tangible evidence of such Confidential Information in her
possession.
(b) The Employee and the Company agree that this covenant
regarding Confidential Information is a reasonable covenant under the
circumstances, and further agree that if, in the opinion of any court of
competent jurisdiction, such covenant is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of this covenant which do not appear reasonable to such
court and to enforce the remainder of the covenant as so amended. The Employee
agrees that any breach of the covenant contained in this Section 10 would
irreparably injure the Company. Accordingly, the Employee agrees that the
Company, in addition to pursuing any other remedies it may have in law or in
equity, may obtain an injunction against the Employee from any court having
jurisdiction over the matter, restraining any further violation of this Section
10.
(c) The provisions of this Section 10 shall survive the
termination of the Agreement.
11. NON-COMPETITION; NON-SOLICITATION.
(a) The Employee agrees that, except for a termination following
a Change in Control, during the Term and for a period of one year thereafter
(herein referred to as the "Non-Competition Period"), without the prior written
consent of the Company: (i) she shall not, directly or indirectly, either as
principal, manager, agent, consultant, officer, director, greater than 10%
holder of any class or series of equity securities, partner, investor, lender or
employee or in any other capacity, carry on, be engaged in or have any financial
interest in or otherwise be connected with, any entity which is now or at the
time, engaged in any business activity competitive (directly or indirectly) with
the business of the Company and (ii) she shall not, on behalf of any such
competing entity, directly or indirectly, have any dealings or contact with any
suppliers or customers of the Company. For the purposes of this Section 11, the
business of the Company shall mean the development and commercialization of
products and services related to the feminine reproductive health and hygiene
arena. Upon any breach by the Employee of the covenants contained in this
Section 11(a), in addition to pursuing any other remedies the Company may have
in law or in equity, the Company may terminate the severance payment to the
Employee due under Section 9.
(b) During the Term and during the Non-Competition Period, the
Employee agrees that, without the prior written consent of the Company (and
other than on behalf of the Company), the Employee shall not, on her own behalf
or on behalf of any person or entity, directly or indirectly, solicit the
employment of any employee who has been employed by the Company at any time
during the one year immediately preceding such date of hiring or
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<PAGE>
solicitation and was also an employee of the Company at the time the Employee
was employed by the Company.
(c) The Employee and the Company agree that these covenants
regarding non-competition and non-solicitation are reasonable covenants under
the circumstances, and further agree that if, in the opinion of any court of
competent jurisdiction, such covenants are not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of these covenants which shall not appear reasonable to
such court and to enforce the remainder of these covenants as so amended. The
Employee agrees that any breach of the covenants contained in Section 11(b)
would irreparably injure the Company. Accordingly, the Employee agrees that the
Company, in addition to pursuing any other remedies it may have in law or in
equity, may obtain an injunction against the Employee from any court having
jurisdiction over the matter, restraining any further violation of Section
11(b).
(d) The provisions of this Section 11 shall survive the
termination of the Agreement.
12. INDEMNIFICATION.
The Company will indemnify the Employee (and her legal
representatives or other successors) to the fullest extent permitted by the laws
of the State of Delaware and the Certificate of Incorporation and By-Laws of the
Company as then in effect, and the Employee shall be entitled to the protection
of any insurance policies the Company may elect to maintain generally for the
benefit of its directors and officers, against all costs, charges, and expenses
whatsoever incurred or sustained by her or her legal representatives in
connection with any action, suit, or proceeding to which she (or her legal
representatives or other successors) may be made a party by reason of his being
or having been a director or officer of the Company or any of its subsidiaries.
13. AMENDMENT TO OPTIONS. All options to purchase the Company's
common stock from the Company currently beneficially owned by Employee (the
"Options") are hereby amended to provide that, in addition to paying the
exercise price in cash, Employee may, at her option pay the exercise price of an
option by (x) surrendering to the Company certificates duly endorsed for
transfer (with all transfer taxes paid or provided for) evidencing a number of
shares of Common Stock of the Company of which the aggregate Fair Market Value
(as defined below) on the date of exercise is equal to the aggregate Exercise
Price of the shares being purchased upon exercise of the option, or (y) a
combination of surrendering certificates and cash. The term "Fair Market Value"
shall mean (i) if the shares of Common Stock are listed on a registered
securities exchange or quoted on the National Market System, the closing price
per share of Common Stock on such date (or, if there was no trading reported on
such date, on the next preceding day on which there was trading reported); (ii)
if the shares of Common Stock are not listed on a registered securities exchange
and not quoted on the National Market System, but the bid and asked prices per
share of Common Stock are provided by NASDAQ, the National
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<PAGE>
Quotation Bureau Incorporated or any similar organization, the average of the
closing bid and asked price per share of Common Stock on such date (or, if there
was no trading in the shares of Common Stock on such date, on the next preceding
day on which there was trading) as provided by such organization; and (iii) if
the shares of Common Stock are not traded on a registered securities exchange
and not quoted on the National Market System and the bid and asked price per
share of the shares of Common Stock are not provided by NASDAQ, the National
Quotation Bureau Incorporated or any similar organization, as determined by the
Board of Directors of Ultrafem (the "Board") or a committee thereof in good
faith. The Options shall be exercisable in accordance with the terms of such
Options and the Company's 1990 Stock Option Plan, provided, however, that if the
Employee's employment hereunder is terminated for Due Cause, Employee may
exercise the Options in accordance with their terms for a period of three months
after the termination of her employment subject to the balance of this
paragraph. In the event Employee's employment hereunder is terminated for Due
Cause, then without the prior written consent of the Company, Employee shall not
sell, transfer, pledge, hypothecate or otherwise dispose of any Option shares or
any interest therein for a period of one year following such exercise. During
such one year period, if requested by the Company, Employee shall be required to
sell to the Company all such Option shares for a price equal to the aggregate
exercise price paid for such shares. The Company may exercise its right to
repurchase shares by mailing notice of exercise to Employee prior to the
expiration of such one year period. In the event the Company repurchases such
shares, the certificate or certificates evidencing such shares shall forthwith
be delivered to the Company against full payment of the sum of (i) an amount of
money in the form of cash or check equal to the amount, if any, paid by Employee
in cash or check as payment of the exercise price, and (ii) a number of shares
equal to the number of shares, if any, paid by Employee as payment of the
exercise price, without regard to the then fair market value of such Shares.
All other terms of such Options shall continue in full force and effect.
14. NEW INVENTIONS. By her signature hereto, the Employee agrees to
the terms of the Form of Confidential and Proprietary Information Agreement
annexed as Exhibit A hereto. Employee further agrees that the inventions listed
on Schedule 14A hereto, which constitute all inventions conceived by her prior
to the date hereof which are related to women's health care, are and shall be
the exclusive property of the Company. In the event of any conflict between
this Agreement and the Exhibit, the terms of this Agreement shall govern.
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<PAGE>
15. RELEASE BY EMPLOYEE. Employee hereby releases and forever
discharges the Company, its officers, directors, stockholders, employees,
affiliates, agents and counsel, past and present, and each of their respective
heirs, executors, administrators, successors and assigns, of and from all
actions and causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialities, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, executions,
claims and demands whatsoever, in law or in equity, whether known or unknown,
which Employee now has or which Employee can, shall or may have against the
Company, its officers, directors, stockholders, employees, affiliates, agents or
counsel, past or present, for, upon or by reason of any matter, cause,
transaction or event arising out or in connection with their dealings prior to
the date hereof, or any other transaction whatsoever arising out of or relating
to the foregoing, which has occurred on or prior to the date of this Agreement,
except that Employee does not release the Company from any cause of action which
she would have solely as a result of her being a stockholder of the Company.
16. NOTICES.
All notices, requests, demands or other communications required
or permitted under the Agreement shall be in writing and shall be deemed duly to
have been given when mailed by registered or certified mail, return receipt
requested, postage prepaid, sent by facsimile or personally delivered by hand or
overnight courier to the address stated below or to such changed address as the
addressee may have given by similar notice.
To the Company: Ultrafem, Inc.
500 Fifth Avenue
Suite 3620
New York, New York 10110
Attention: John W. Andersen
With a copy to: Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attention: Gerald Adler, Esq.
To the Employee: Audrey Contente
211 East 70th Street
New York, New York 10021
With a copy to: Bodian & Eames LLP
480 Lexington Avenue, Suite 3810
New York, New York 10017
Attention: Robert I. Bodian
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<PAGE>
Communications delivered by hand or overnight courier or by facsimile shall be
deemed received on the date of delivery, and communications sent by registered
or certified mail shall be deemed received three business days after the sending
thereof.
17. ENTIRE AGREEMENT.
The Agreement together with certain Name, Likeness, Voice
Agreement and Release dated as of July 1, 1996 contains the entire agreement
between the parties hereto with respect to the matters contemplated herein and
supersedes all prior agreements or understandings among the parties related to
such matters including without limitation the following: Termination Benefits
Agreement dated October 1, 1990, Employment Agreement dated May 15, 1992,
Amendment to Employment Agreement dated August 1, 1995, Restated Modification
Agreement dated July 29, 1993, Indemnity Agreement dated October 1, 1990, and
Amendment to Indemnity Agreement dated April 23, 1992.
18. BINDING EFFECT; ASSIGNMENT.
The Agreement shall be binding upon, and inure to the benefit of,
the Company and its successors and assigns and upon the Employee and her
successors and assigns. "Successors and assigns" shall mean, in the case of the
Company, any successor pursuant to a merger, consolidation, or sale or a
transfer of all or substantially all of the assets of the Company and, in the
case of the Employee, her heirs and/or legal representatives as determined by
will or by operation of law. Neither the Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by the Employee
(except by will or by operation of law). The Company may assign the Agreement
and all of its rights hereunder to any of its successors and assigns.
19. AMENDMENT OR MODIFICATION; NON-WAIVER.
No provision of the Agreement may be amended or waived unless
agreed to in writing, signed by the parties hereto. The waiver of, or failure
to take action with regard to, any breach of any term or condition of the
Agreement shall not be deemed to constitute a continuing waiver or a waiver of
any other breach of the same or any other term or condition.
20. BENEFICIARIES; REFERENCES.
The Employee shall be entitled to select (and change, to the
extent permitted under any applicable law) a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Employee's
death, and may change such election by giving the Company written notice
thereof. In the event of the Employee's death, Disability or a judicial
determination of his incompetence, reference in the Agreement to the Employee
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative.
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<PAGE>
21. KEY-PERSON INSURANCE.
Employee agrees that the Company may request Employee to apply
for and take out term life, health, accident, and/or other insurance covering
Employee either independently or together with others in an aggregate amount not
to exceed $5,000,000. The Company shall pay for such insurance and shall own
all rights in any such insurance policies and proceeds thereof and Employee
shall not have any right, title or interest therein.
22. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder
shall survive any termination of the Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section 22 are in addition to the survivorship provisions of any other section
of the Agreement.
23. GOVERNING LAW.
The validity, interpretation, construction, performance and
enforcement of the Agreement shall be governed by the laws of the State of New
York, without reference to rules relating to conflict of law.
24. SEVERABILITY.
If any provision of the Agreement shall be determined to be
invalid or unenforceable (in whole or in part) for any reason, the remaining
provisions of the Agreement shall be unaffected thereby and shall remain in full
force and effect to the fullest extent permitted by law. The provisions of this
Section 24 are in addition to the severability provisions of any other section
of the Agreement.
25. WITHHOLDING.
The Company shall withhold from any payments due to the Employee
hereunder, all taxes, FICA or other amounts required to be withheld pursuant to
any applicable law.
26. HEADINGS.
The headings contained in the Agreement are intended solely for
convenience of reference and shall not affect in any way the meaning or
interpretation of the Agreement.
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<PAGE>
27. COUNTERPARTS.
The Agreement may be executed in one or more counterparts, each
of which for all purposes shall be deemed to be an original, and all of which
when taken together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the day and year first above written.
ULTRAFEM, INC.
By:
---------------------------------------
Charles D. Peebler, Jr., Chairman of
the Compensation Committee of the
Board of Directors
-------------------------------------------
AUDREY CONTENTE
<PAGE>
Ultrafem, Inc.
CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
As an "employee" (as defined in paragraph 7) of Ultrafem, Inc., its
subsidiary or its affiliate (together, the "Company"), and in consideration of
the compensation now and hereafter paid to me, I agree to the following:
1. MAINTAINING CONFIDENTIAL INFORMATION
a. COMPANY INFORMATION. I agree at all times during the term of my
"employment" (as defined in paragraph 7), and thereafter to hold in strictest
confidence, and not to use, except for the benefit of the Company, or to
disclose to any person, firm or corporation without written authorization of the
Senior Vice President or Chief Executive Officer of the Company, any trade
secrets, confidential knowledge, data or other proprietary information relating
to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, data bases, other original works of
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of the Company or any of its clients,
consultants or licensees.
b. FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of my former or concurrent employers or companies,
if any, and that I will not bring into the premises of the Company any
unpublished document or any property belonging to my former or concurrent
employers or companies, if any, unless consented to in writing by said employers
or companies.
c. THIRD PARTY INFORMATION. I recognize that the Company has
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree that I owe the Company and such third parties, during the
term of my employment, and thereafter, a duty to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it to
any person, firm or corporation (except as necessary in carrying out my work for
the Company consistent with the Company's agreement with such third party) or to
use it for the benefit of anyone other than for the Company or such third party
(consistent with the Company's agreement with such third party) without the
express written authorization of the Senior Vice President or Chief Executive
Officer of the Company.
2. RETAINING AND ASSIGNING INVENTIONS AND ORIGINAL WORKS
a. INVENTIONS AND ORIGINAL WORKS RETAINED BY ME. I have attached
hereto, as Exhibit A, a list describing all inventions, original works of
authorship, developments, improvements, and trade secrets which were made by me
prior to my employment with the Company, which belong to me, which relate to the
Company's proposed business and products, and which are not assigned to the
Company; or, if no such list is attached, I represent that there are no such
inventions.
1
<PAGE>
b. INVENTIONS AND ORIGINAL WORK ASSIGNED TO THE COMPANY. I agree
that I will promptly make full written disclosure to the Company, will hold in
trust for the sole right and benefit of the Company, and will assign to the
Company all my right, title, and interest in and to any and all inventions,
original works of authorship, developments, improvements or trade secrets which
I may solely or jointly create, make, conceive or develop or reduce to practice,
or cause to be created, made, conceived or developed or reduced to practice,
during the period of time I am in the employ of the Company, related to the
Company's business. Reference is made to Rider 2A hereto which is incorporated
herein by reference.
I acknowledge that all original works of authorship which are made by me
(solely or jointly with others) within the scope of my employment and which are
protectable by copyright are "works made for hire," as that term is defined in
the United States Copyright Act (17 USCA, Section 101).
c. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all inventions and original works of
authorship made by me(solely or jointly with others) during the term of my
employment with the Company. The records will be in the form of notes,
sketches, drawings, and any other format that may be specified by the
Company. The records will be available to and remain the sole property of
the Company at all times.
d. OBTAINING LETTERS PATENT AND COPYRIGHT REGISTRATIONS. I agree
that my obligation to assist the Company to obtain United States or foreign
letters patent and copyright registrations covering inventions and original
works of authorship assigned hereunder to the Company shall continue beyond
the termination of my employment, but the Company shall compensate me at a
reasonable rate for time actually spent by me at the Company's request on
such assistance. If the Company is unable because of my mental or physical
incapacity or for any other reason to secure my signature to apply for or to
pursue any application for any United States or foreign letters patent or
copyright registrations covering inventions or original works of authorship
assigned to the Company as above, then I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agent
and attorney in fact, to act for and in my behalf and stead to execute and
file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by
me. The agency relationship and power of attorney granted to the Company by
me herein is coupled with an interest and irrevocable. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which
I now or may hereafter have for infringement of any patents or copyright
resulting from any such application for letters patent or copyright
registrations assigned hereunder to the Company.
e. EXCEPTION TO ASSIGNMENTS. I understand that the provisions of
this Agreement requiring assignment to the Company do not apply to any
invention, original work of authorship, development, improvement or trade
secrets made by me while in the Company's employ which does not relate to any
business or activities in which the Company is or may become engaged, except
that I am so obligated if the same relates to or is based on confidential or
proprietary information to which I shall have had access during and by virtue of
my employment or arises out of work assigned by me by the Company. Further, I
shall not be obligated to assign any invention, original work of authorship,
development, improvement or trade secrets which may be wholly conceived by me
after I leave the employ of the Company,
2
<PAGE>
except that I am so obligated if such invention shall involve the utilization of
confidential or proprietary information obtained while in the employ of the
Company. I will advise the Company promptly in writing of any inventions,
original works of authorship, developments, improvements or trade secrets that I
believe meet the criteria of this Subparagraph 2e; and I will at that time
provide to the Company in writing all evidence necessary to substantiate that
belief. I understand that the Company will keep in confidence and will not
disclose to third parties without my consent any confidential information
disclosed in writing to the Company relating to inventions that qualify fully
under the provision of this subparagraph 2e.
3. CONFLICTING EMPLOYMENT. I agree that, during the term of my
employment with the Company, I will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of my employment, nor will I engage in any other activities that conflict
with my obligations to the Company.
4. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving the
employ of the Company, I will deliver to the Company (and will not keep in my
possession or deliver to anyone else) any and all devices, records, data, notes,
reports, proposals, lists, correspondence, specifications, drawings, blueprints,
sketches, materials, equipment, other documents or property, or reproductions of
any aforementioned items belonging to the Company, its successors or assigns.
In the event of the termination of my employment, I agree to sign and deliver
the "Termination Certification" attached hereto as Exhibit B.
5. REPRESENTATIONS. I agree to execute any proper oath or verify any
proper document required to carry out the terms of this Agreement. I represent
that my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any oral or written agreement
in conflict herewith.
6. GENERAL PROVISIONS.
a. GOVERNING LAW. This Agreement will be governed by the laws of
the State of Montana.
b. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us. No modifications of or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the party to be charged Any
subsequent change or changes in my duties, salary or compensation will not
affect the validity or scope of this Agreement.
c. SEVERABILITY. If one or more of the provisions in this Agreement
are deemed void by law, then the remaining provisions will continue in full
force and effect.
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<PAGE>
d. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
7. DEFINITION.
For the purposes of this Agreement, the term "employee" means the
undersigned individual, whether (i) a regular full or part time employee, or
(ii) a temporary worker or independent contractor or consultant and thus not a
regular employee. For the purposes of this Agreement, the term "employment"
means the use of the undersigned by the Company to work on the Company's behalf
and shall not be construed to establish a temporary worker or independent
contractor as a regular employee.
Date:
---------------------------
-----------------------------------
Signature
-----------------------------------
Name of Employee (typed or printed)
- --------------------------------
Witness
4
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Identifying Number
Title Date or Brief Description
- -------------------------- --------------- -------------------------------
Name of Employee:
------------------------------------------
EXHIBIT A
Page 1 of 1
<PAGE>
EXHIBIT B
ULTRAFEM, INC.
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Ultrafem, Inc., its subsidiaries, affiliates, successors or
assigns (together, the "Company").
I further certify that I have complied with all the terms of the Company's
Confidential and Proprietary Information Agreement signed by me, including the
reporting of any inventions and original works of authorship (as defined
therein), conceived or made by me (solely or jointly with others) covered by
that agreement.
I further agree that, in compliance with the Confidential and Proprietary
Information Agreement, I will preserve as confidential all trade secrets,
confidential knowledge, data or other proprietary information relating to
products, processes, know-how, designs, formulas, developmental or experimental
work, computer programs, data bases, other original works of authorship,
customer lists, business plans, financial information or other subject matter
pertaining to any business of the Company or any of its clients, consultants or
licensees.
Dated:
------------------------
------------------------------
Employee's Signature
------------------------------
(Type/Print Employee's Name)
EXHIBIT B
Page 1 of 1
<PAGE>
Rider 2A to CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT between Ultrafem,
Inc. (the "Company") and Audrey Contente ("Contente").
A. HRT INVENTION. The Company understands that prior to that date of this
Agreement, Contente developed an invention which relates to Hormone Replacement
Therapy in women (the "HRT Invention"). The Company and Contente hereby agree
that the HRT Invention and all improvements thereon, inventions related thereto,
all trade secrets and proprietary information associated therewith (except to
the extent that any of the foregoing include, are based upon or incorporate any
Devices (as defined below)) is owned by Contente and is not transferred or
assigned in accordance with the terms of this Agreement.
B. REPRESENTATIONS AND COVENANTS. Contente hereby represents and warrants
that the HRT Invention does not incorporate any "Devices" as such term is
defined in the employment agreement (the "Employment Agreement") dated July 1,
1996, between the Company and Contente. Contente hereby agrees that within 30
days of the execution of the Employment agreement, she will deliver a letter to
the CEO of the Company which fully discloses the HRT Invention. The Company
hereby covenants that it will keep confidential the details of any such HRT
Invention.
C. RIGHT OF FIRST NEGOTIATION. Contente hereby grants the Company a right of
first negotiation with respect to any plan for further development and/or
commercialization (including without limitation the sale, license or transfer)
or the HRT Invention. If within three months of written notice from Contente of
her proposal for further development and/or commercialization of the HRT
Invention, Contente and the Company have not reached an initial agreement
regarding the further development and/or commercialization of the HRT Invention,
Content may then negotiate her proposal for the further development and/or
commercialization of the HRT Invention with other parties.
D. RIGHT OF FIRST REFUSAL. If Contente desires to further develop and/or
commercialize, sell, license or transfer the HRT Invention to a third party,
Contente shall submit a written offer to enter into a transaction to further
develop and/or commercialize, sell, license or transfer the HRT Invention to
the Company, on the same terms and conditions as she would with such third
party. The written offer shall disclose the terms and conditions of the
offer, provide sufficient information about the identity of the proposed
third party to enable the Company to evaluate the cash and non-cash terms of
the offer, and any other material facts relating to the proposed transaction
to further develop and/or commercialize, sell, license or transfer the HRT
Invention, by executing the written offer within 30 days of receipt thereof.
If the Company does not accept the written offer, then Contente may enter
into a transaction with an unaffiliated third party with respect to the HRT
Invention at any time within 270 days after the date the written offer was
made. Any such transaction to further develop and/or commercialize, sell,
license or transfer the HRT Invention to a third party shall be at not less
than the price, and upon other terms and conditions not more favorable, than
those made in the written offer to the Company. If Contente does not enter
into a transaction with a third party with respect to the HRT Invention at
any time within 270 days after the date the written offer was made, any
future proposed transaction to further develop and/or commercialize, sell,
license or transfer the HRT Invention will be subject the right of first
refusal provided for in this Paragraph D.
<PAGE>
NAME, LIKENESS, AND VOICE RELEASE AND AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this __ day
of July, 1996 by and between Ultrafem, Inc., a Delaware corporation (the
"Company"), and Audrey Contente ("Contente").
R E C I T A L S:
WHEREAS, the Company and Contente desire that Contente serve as a
spokesperson for INSTEAD-TM- in both a TV Campaign and a Print/Media Campaign
(as such terms are defined below);
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties agree as follows:
1. THE TV CAMPAIGN AND THE PRINT/MEDIA CAMPAIGN. The Company may, at its
option, develop and produce a long-form "infomercial" show, short-form
commercials, and other related television advertising (collectively, the "TV
Campaign") in which Contente shall appear and which shall promote the Company's
feminine protection product ("INSTEAD-TM-") and, from time to time, the Company
may produce print advertisements, package inserts, press releases, other media
of advertising and promotion, and other promotional materials (collectively,
"Print/Media Campaign;" the TV Campaign and the Print/Media Campaign are
collectively referred to herein as the "Campaigns").
2. SERVICES.
(a) The services to be provided by Contente hereunder shall include
(i) rehearsing, shooting and completing production of the Campaigns as the
Company shall require in order to produce "first class" Campaigns or other
appearance, (ii) discussing INSTEAD-TM- on camera or at an appearance, (iii)
representing Contente's true beliefs as to the efficacy and quality of
INSTEAD-TM-, (iv) interviewing endorsers of INSTEAD-TM-, customers and potential
customers of INSTEAD-TM- and other persons, (v) moderating panel discussions and
(vi) performing such other tasks related to the Campaigns or other appearances
as the Company reasonably shall request. Contente shall maintain reasonable
availability as necessary to fulfill her obligations hereunder.
(b) Contente shall be available for (i) preproduction to walk
through the sets and rehearse for the TV Campaign including, without limitation,
meeting or speaking with the writers preparing the script for the TV Campaign,
and with other persons who will appear in the TV Campaign;(ii) the purpose of
shooting the TV Campaign in the studio and/or in the field as directed by the
Company; and (iii) such post-production work on the TV Campaign as the Company
shall direct including, without limitation, dubbing, looping photo and video
shoots.
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(c) In the event the Campaigns or any portion thereof is damaged or
destroyed, Contente shall render services to the Company as required to reshoot
the damaged or destroyed portions of the Campaign.
(d) After the termination of the Employment Agreement dated as of
July 1, 1996 between the Company and Contente (the "Employment Agreement"),
Contente will no longer be required to provide further services under this
Section 2.
3. COMPENSATION. Contente shall receive the payments set forth in
clauses (i) and (ii) of the next sentence upon the execution of this Agreement
in consideration for the rights granted by Contente to the Company and the
obligations undertaken by Contente in connection with this Agreement. The
Company shall pay Contente (i) $12,500 for the TV Campaign to be used in the
Initial Territory (as defined), (ii) an additional $12,500 for the Print/Media
Campaign to be used in the Initial Territory, (iii) an additional $12,500 if the
TV Campaign is actively used by the Company to support the rollout of
INSTEAD-TM- into an additional geographic area representing 50% of the United
States market and (iv) an additional $12,500 if the Print/Media Campaign is
actively used by the Company to support the rollout of INSTEAD-TM- into an
additional geographic area representing 50% of the United States market.
"Initial Territory" shall mean the initial 8% of the United States geography,
represented by the states of Washington and Oregon, and Northern California into
which the Company plans to launch INSTEAD-TM-. In addition, if the Company
decides to design, develop and produce a different and distinct television
campaign or print/media campaign using Contente, Contente shall receive an
additional payment of $25,000 per campaign. If the Company determines to create
such an additional campaign, any such additional campaign shall be included in
the definition of "Campaigns" as appropriate.
4. OWNERSHIP OF CAMPAIGNS; NAME, LIKENESS AND VOICE RELEASE.
(a) The Company shall own all rights in and title to the Campaigns
and to all materials, works, writings, ideas, dialogue and sequences produced in
connection with the launch of INSTEAD-TM- (whether or not included in the
Campaigns) and all of such items shall be and remain the absolute and exclusive
property of the Company. Contente agrees that any picture, film or video of her
produced, created or held by the Company is owned by it. If Contente should
receive any print, negative or other copy thereof, Contente shall not authorize
its use by anyone else.
(b) The Company shall have the right to determine, in its sole
discretion, whether to air or use the Campaigns; nothing herein will constitute
any obligation of the Company to make any use of any of the rights set forth
herein. The Company shall have the full and exclusive right to broadcast, use,
reproduce, publish, copyright and/or exhibit in any manner, and determine the
timing and frequency of the airing or use, of the Campaigns or any portion
thereof, and any versions or revisions of either of the forgoing, throughout the
world. All rights of the Company under this Agreement are assignable by the
Company, or its agents. Contente agrees that no advertisement or other material
need be submitted to her for any further
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approval and the Company shall be without liability to her for any distortion or
illusionary effect resulting from the retouching or publication of Contente's
photograph and/or likeness. However, the Company will not use any material or
advertisement in the Campaigns which would demean Contente, or cast her in an
inappropriate or negative light.
(c) Contente hereby gives and grants from this date to the Company,
the right to use, film, videotape, photograph, record, edit, publish and/or
copyright, in any and all media of advertising and promotion, now known or here
and after created worldwide, during the Term (as defined in the Employment
Agreement) and for a period of one year thereafter, Contente's name, likeness,
voice, image, picture, photograph, endorsement and/or signature, performance on
the Campaigns, and biographical material, (i) to advertise and promote
INSTEAD-TM-, (ii) in connection with her appearance in the Campaigns, including,
without limitation, for print media, television, internet, outbound
telemarketing, package inserts, books or publications, direct sales, radio
advertising, advertising appearances, direct mail or outbound solicitation to
customer list, credit card syndication, space ads, catalogue, retail, related
collateral print and alternate channels through third parties throughout the
world, in all public relations efforts to promote the Campaigns and/or
INSTEAD-TM-, and (iii) all materials relating to INSTEAD-TM-, including but not
limited to, the card, instruction booklet, packaging and labeling materials,
promotional and advertising materials and product inserts.
(d) Contente hereby gives and grants from this date to the Company,
the right to use in any media, worldwide and in perpetuity, Contente's name,
likeness, voice, image, picture, photograph, endorsement and/or signature in
connection with the promotion of INSTEAD-TM- and on materials relating to
INSTEAD-TM-, including but not limited to, the card, instruction booklet,
packaging and labeling materials, promotional and advertising materials and
product inserts, including any likeness of any of those items, all of which
rights shall continue in perpetuity.
(e) Contente warrants and represents that the terms of this Agreement
do not in any way conflict with any existing commitment on her part and that she
has not heretofore authorized (which authority is still in effect), nor will she
authorize or permit the use of her name, voice, photograph, video and/or
likeness in connection with the advertising or promotion of any product or
service competitive to or incompatible with INSTEAD-TM-.
(f) Contente further agrees that the licensed parties will have the
right to attribute statements to Contente, which are expressions of Contente's
personal experience and belief, which are contained in the script, and/or in a
record of an interview with Contente.
5. REMEDY FOR BREACH. Contente hereby acknowledges that in the event of
any breach or threatened breach by her of any of the provisions of this
Agreement, the Company would have no adequate remedy at law and could suffer
substantial and irreparable damage. Accordingly, Contente hereby agrees that,
in such event, the Company shall be entitled, without the necessity of proving
damages or posting bond, and notwithstanding any election by the
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Company to seek other relief in law or equity, to obtain a temporary and/or
permanent injunction (without proving a breach therefor) to restrain any such
breach or threatened breach or to obtain specific performance of any such
provisions, all without prejudice to any and all other remedies which the
Company may have at law or in equity.
6. MISCELLANEOUS. This Agreement contain the entire agreement between
the parties hereto with respect to the matters contemplated herein and supersede
all prior agreements or understandings among the parties related to such
matters. The captions of the various sections and parts of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns and upon Contente. No
provision of this Agreement may be amended or waived unless such amendment or
waiver is agreed to in writing, signed by Contente and an executive officer of
the Company (other than Contente). Except as otherwise specifically provided in
this Agreement, no waiver by either party hereto of any breach by the other
party hereto of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of a similar or dissimilar provision
or condition at the same or at any prior or subsequent time. The validity,
interpretation, construction, performance and enforcement of this Agreement
shall be governed by the internal laws of the State of New York, without regard
to its conflicts of law rules. This Agreement may be executed in one or more
counterparts, which together shall constitute one agreement. Any term or
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms and provisions of this Agreement in any
other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
ULTRAFEM, INC.
By:
------------------------------------------
Name: Charles D. Peebler, Jr.
Title: Chairman of the Compensation
Committee of the Board of Directors
----------------------------------------------
AUDREY CONTENTE
211 E. 70 Street
New York, New York 10021
(212) 794-5054
Social Security #:
---------------------------
Signature:
---------------------
Witness:
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TERMINATION BENEFITS AGREEMENT
This Termination Benefits Agreement (the "Agreement") is made and entered
into as of the 1st day of October, 1990, by and between ULTRAFEM, LTD., a
Delaware corporation having its principal executive offices at (address) (the
"Company"), and AUDREY CONTENTE, whose mailing address is 1275 Market Street,
No. 1300, San Francisco, California 94103 ("Officer").
R E C I T A L S:
A. The Officer is the Chairman of the Board of the Company and has helped
guide the Company through many problems.
B. The Officer is expected to continue to make a major contribution to
the profitability, growth, and financial strength of the Company.
C. The Company considers the continued services of the Officer to be in
the best interest of the Company and its shareholders and desires to assure the
continued services of the Officer on behalf of the Company as an objective and
impartial basis and without distraction or conflict of interest in the event of
an attempt to obtain control of the Company.
D. The Officer is willing to remain in the employ of the Company upon the
understanding that the Company will provide income security upon the terms and
subject to the conditions contained herein if the Officer's employment is
terminated voluntarily for good reason or involuntarily by the Company without.
A G R E E M E N T
NOW, THEREFORE, on the basis of the foregoing facts and as a material
inducement to, and in consideration of, the Officer continuing to serve as
Chairman of the Board of the Company, the Company and the Officer agree as
follows:
1. SEVERANCE PAYMENTS UPON TERMINATION. If the Officer's status as
Chairman of the Board of the Company is terminated for any reason other than in
a situation described in Section 2 below, the Company shall pay to the Officer
the following:
(a) All accrued and unpaid salary and other compensation payable to
the Officer by Company for services rendered by Officer to Company through the
date on which the Officer's status as Chairman of the Board of the Company is
terminated (the "Termination Date"); and
<PAGE>
(b) All accrued and unused vacation pay payable to the Officer by the
Company with respect to services rendered by the Officer to Company through the
Termination Date; and
(c) Severance pay in an amount equal to one year's salary, at the
annual rate at which the Officer was being compensated for her services as
Chairman of the Board of the Company on that date which is thirty days prior to
the Terminate Date; provided however, that (i) if the Officer's status as
Chairman of the Board of the Company is terminated by reason of the death of
Officer or for Cause (as defined below) the Officer shall receive no payments
under this Paragraph 1(c), and (ii) if the Officer's status as Chairman of the
Board is terminated as a result of the Officer's Permanent Disability (as
defined below), such severance pay will be an amount equal to six months' salary
instead of one year's salary. The severance pay provided for in this paragraph
(c) shall be payable in twelve equal monthly installments (six monthly
installments if payable as a result of Permanent Disability) in the same manner
and at the same time as the Officer's salary was paid to him as Chairman of the
Board of the Company immediately prior to the Termination Date. The Company may
deduct from each installment of severance pay an amount sufficient to cover
applicable Federal, state and/or local income tax withholding, old age and
survivor's and other social security payments.
2. SEVERANCE PAYMENTS UPON TERMINATION FOLLOWING CHANGE OF CONTROL. If
the Officer's status as Chairman of the Board of the Company is terminated by
the Company other than for Cause, or the Permanent Disability of the Officer, or
if the Officer shall terminate her employment for Good Reason (as defined below)
within six months following a Change of Control (as defined below) of the
Company, then the Company shall pay to the Officer in a lump sum, in cash, on
the fifth day following the Termination Date, the following:
(a) all accrued and unpaid salary and other compensation payable to
the Officer by the Company for services rendered by the Officer to the Company
through the Termination Date; and
(b) all accrued and unused vacation pay payable to the Officer by
the Company with respect to services rendered by the Officer to the Company
through the Termination Date; and
(c) severance pay in an amount equal to one year's salary, at the
annual rate at which the Officer was being compensated for her services as
Chairman of the Board of the Company on that date which is 30 days prior to the
Termination Date.
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3. DEFINITIONS. For purposes of this Agreement, the following words
shall have the definitions set forth below:
(a) A "Change of Control" shall mean any of the following:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any acquisition
by any corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (A), (B) and (C) of subsection (iii) of this section 3
are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (A) more than 60% of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting power of
the then outstanding voting securities or such corporation entitled to vote
generally in the election of
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<PAGE>
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such reorganization, merger or consolidation and any Person beneficially
owning, immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 20% or more of the Outstanding Company Common Stock
or Outstanding Voting Securities, as the case may be) beneficially owns,
directly or indirectly 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors and (C) at least a majority of the members of the board
of directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization, merger
or consolidation; or
(iv) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition, (i)
more than 60% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then
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<PAGE>
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a majority of the
members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition of assets of the
Company.
(b) "Good Reason" shall mean any of the following (without the
Officer's express written consent):
(i) a change in status, position or responsibilities which, in
the Officer's reasonable judgment, does not represent a promotion from
existing status, position or responsibilities as in effect immediately
prior to a Change of Control; the assignment of any duties or
responsibilities which, in the Officer's reasonable judgment, are
inconsistent with such status, position or responsibilities; or any
removal from or failure to reappoint or reelect the Officer to any of
such positions, except in connection with the termination for total or
permanent disability, death or cause or by him other than for good
reason; or
(ii) a reduction by the Company in the Officer's base salary as
in effect on the date hereof or as the same may be increased from time
to time during the term of this Agreement, or the Company's failure to
increase within 12 months of the Officer's last increase in base
salary the Officer's base salary after a Change of Control in an
amount which at least equals, on a percentage basis, the average
percentage increase in base salary for all executive and senior
Officers in the Company affected in the preceding 12 months; or
(iii) the failure of the Company to continue in effect any
incentive, bonus or other compensation plan in which the Officer
participates, including but not limited to the Company's stock option
and restricted stock plans, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan), evidenced by the
Officer's written consent, has been made with respect to such plan in
connection with the Change of Control, or the failure by the Company
to continue the Officer's participation therein, or any action by the
Company which would directly or indirectly materially reduce
participation therein; or
(iv) a relocation of the Company's principal executive offices to
a location outside of Los Angeles, Orange, Riverside or San Diego
Counties, in California,
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or the Officer's relocation by the Company to any place other than the
location at which the Officer performs the Officer's duties
immediately prior to the Change of Control, except for required travel
by the Officer on the Company's business to an extent substantially
consistent with the Officer's business travel obligations immediately
prior to the Change of Control.
(v) the failure by the Company to continue to provide the
Officer with benefits substantially similar to those enjoyed or
entitled under any of the Company's pension, profit sharing, life
insurance, medical, dental, health and accident, or disability plans
at the time of a Change of Control, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits or deprive the Officer of any material fringe benefit
enjoyed or entitled to at the time of the Change of Control, or the
failure by the Company to provide the number of paid vacation and sick
leave days to which the Officer is entitled on the basis of years of
service with the Company in accordance with the Company's normal
vacation policy in effect on the date hereof; or
(vi) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and
agree to perform this Agreement; or
(vii) any purported termination of the Officer's employment which
is not effected pursuant to paragraph 4(e) hereof (and, if
applicable, paragraph 3(d) hereof); and for purposes of this
Agreement, no such purported termination shall be effective; or
(viii) any request by the Company that the Officer participate in
an unlawful act or take any action constituting a breach of the
Officer's professional standard of conduct. Notwithstanding anything
in this paragraph 3(b) to the contrary, the Officer's right to
terminate the employment pursuant to this paragraph 3(b) shall not be
affected by incapacity due to physical or mental illness.
(c) "Permanent Disability" shall mean a disability of the Officer
which either prevents the Officer from Materially performing her obligations and
duties as Chairman of the Board of the Company for a period of 180 days or which
the Board of Directors of the Company, in its reasonable and good faith
judgment, determines will prevent the Officer from materially performing her
obligations and duties as Chairman of the Board of the Company for a period of
180 days (and the Termination Date
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<PAGE>
resulting from permanent disability shall be the first to occur of the end of
such 180 day period or the date of such determination by the Board of
Directors).
(d) For "Cause" means action by the Officer involving violation of
any criminal statute constituting a felony, gross misconduct in the performance
of Officer's duties, chronic alcoholism, drug addiction or willful and continued
neglect of duties, following a minimum of thirty days' written notice from the
Company of the same during which the Officer shall not have effected or begun
diligently to effect a cure.
4. ADDITIONAL PROVISIONS
(a) ENFORCEMENT OF AGREEMENT. The Company is aware that upon the
occurrence of a Change of Control the Board of Directors or a shareholder of the
Company may then cause or attempt to cause the Company to refuse to comply with
its obligations under this Agreement, or may cause or attempt to cause the
Company to institute, or may institute litigation seeking to have this Agreement
declared unenforceable, or may take or attempt to take other action to deny the
Officer the benefits intended under this Agreement. In these circumstances, the
purpose of this Agreement could be frustrated. It is the intent of the Company
that the Officer not be required to incur the expenses associated with the
enforcement of any rights under this Agreement by litigation or other legal
action, nor be bound to negotiate any settlement of any rights hereunder,
because the cost and expense of such legal action or settlement would
substantially detract from the benefits intended to be extended to the Officer
hereunder. Accordingly, if following a Change of Control it should appear to the
Officer that the Company has failed to comply with any of its obligations under
this Agreement or in the event that the Company or any other person takes any
action to declare this Agreement void or unenforceable, or institutes any
litigation or other legal action designed to deny, diminish or to recover from
the Officer the benefits entitled to be provided to the Officer hereunder, and
that Officer has complied with all obligations under this Agreement, the Company
irrevocably authorizes the Officer from time to time to retain counsel of the
Officer's choice, at the expense of the Company as provided in this paragraph
4(a), to represent the Officer in connection with the initiation or defense of
any litigation or other legal action, whether such action is by or against the
Company or any Director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Officer entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Officer agree that a confidential relationship shall exist between the Officer
and such counsel. The reasonable
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fees and expenses of counsel selected from time to time by the Officer as
hereinabove provided shall be paid or reimbursed to the Officer by the Company
on a regular, periodic basis upon presentation by the Officer of a statement or
statements prepared by such counsel in accordance with its customary practices,
up to a maximum aggregate amount of $500,000. Any legal expenses incurred by the
Company by reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of any such
dispute, shall be the sole responsibility of the Company, and the Company shall
not take any action to seek reimbursement from the Officer for such expenses.
(b) SEVERANCE PAY; NO DUTY TO MITIGATE DAMAGES. The amounts payable
to the Officer shall not be treated as damages but as severance compensation to
which the Officer is entitled by reasons of termination of employment in the
circumstances contemplated by this Agreement. The Officer shall not be required
to mitigate damages on the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment provided for under this Agreement be reduced by any compensation earned
by the Officer as a result of employment by another employer after the
Termination Date, or any amounts which might have been earned by the Officer in
other employment had other such employment been sought.
(c) NO EFFECT ON OTHER CONTRACTUAL RIGHTS. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish the Officer's existing rights or
rights which would accrue solely as the result of the passage of time, under any
benefit plan, employment agreement or other contract, plan or arrangement.
(d) NOT AN EMPLOYMENT AGREEMENT. This Agreement is not intended to
constitute, and shall not be construed to constitute, an employment agreement
and nothing herein shall obligate the Company to continue to employ Officer as
Chairman of the Board of the Company.
(e) NOTICE OF TERMINATION. Any purported termination by the Company
or by the Officer shall be communicated by written Notice of Termination to the
other party hereto in accordance with paragraph 4(m) hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of her employment under the provision so
indicated. For purposes of this Agreement, no such purported termination shall
be effective without such Notice of Termination.
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(f) INTERNAL REVENUE CODE. Anything in this Agreement to the
contrary notwithstanding, in the event that the Company's outside accountants
(the "Auditor") determines that the payment by the Company to or for the benefit
of the Officer, whether paid or payable pursuant to the terms of this Agreement,
would be nondeductible by the Company for federal income tax purposes because of
Section 260G of the Internal Revenue Code of 1986, as amended (the "Code"), then
the amount payable to or for the benefit of the Officer pursuant to this
Agreement (the "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. For purposes of this paragraph 4(f), the "Reduced Amount"
shall be the amount which maximizes the amount payable without causing the
payment to be nondeductible by the Company because of Section 280G of the Code.
(g) ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon the Officer and the Company and their respective executors,
administrators, heirs, personal representatives, successors, and assigns, but
neither this Agreement nor any right hereunder may be assigned or transferred by
either party hereto, any beneficiary, or any other person, nor be subject to
alienation, anticipation, sale, pledge, encumbrance, execution, levy, or other
legal process of any kind against the Officer, her beneficiary or any other
person. Notwithstanding the foregoing, the Company will assign this Agreement to
any corporation or other business entity succeeding to substantially all of the
business and assets of the Company by merger, consolidation, sale of assets, or
otherwise and shall obtain the assumption of this Agreement by such successor.
(h) ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the parties with respect to the subject matter hereof. All
representations, promises, and prior or contemporaneous understandings, written
or oral, among the parties with respect to the subject matter hereof are merged
into and expressed in this Agreement, and any and all prior agreements between
the parties with respect to the subject matter hereof are hereby canceled.
(i) AMENDMENT. This Agreement shall not be amended, modified, or
supplemented without the written agreement of the parties at the time of such
amendment, modification, or supplement.
(j) GOVERNING LAW. This Agreement is made and entered into in the
State of California and the laws of said State shall govern the validity and
interpretation hereof and the performance of the parties hereto of their
respective duties and obligations hereunder.
(k) SEVERABILITY. The invalidity or unenforceability of any
particular provision of this particular Agreement shall
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<PAGE>
not affect the other provisions, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision has not been contained
herein.
(l) CAPTIONS. The captions in this Agreement are for convenience and
identification purposes only, are not an integral part of this Agreement, and
are not to be considered in the interpretation of any part hereof.
(m) NOTICES. Except as specifically set forth in this Agreement, all
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered in person or sent by registered or
certified mail, postage prepaid, addressed as set forth above, or to such other
address as shall be furnished in writing by any party to the others.
(n) WAIVERS. Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed to be a valid waiver unless such waiver is in
writing or, even if in writing, shall be deemed to be a waiver of a subsequent
breach of such condition or provision or a waiver of a similar or dissimilar
condition or provision at the same or at any prior or subsequent time.
(o) MISCELLANEOUS. The making, execution and delivery of this
Agreement by the parties hereto have been induced by no representations,
statements, warranties or other agreements other than those herein expressed.
-10-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
"COMPANY"
ULTRAFEM, LTD.
By: /s/ BRUCE F. ROSE
-------------------------------
Bruce F. Rose; President
"OFFICER"
/s/ AUDREY CONTENTE
----------------------------------
AUDREY CONTENTE
-11-
<PAGE>
RESTATED TECHNOLOGY TRANSFER AGREEMENT
--------------------------------------
This Restated Technology Transfer Agreement (the "Agreement") is
executed as of this 17th day of May, 1993 by and between Audrey Contente an
individual ("Contente") and Ultrafem, Inc., a Delaware Corporation formerly
known as Ultrafem, Ltd. ("Ultrafem"), with reference to the following facts:
R E C I T A L S
---------------
A. Effective on or about July 17, 1990 Contente executed an Assignment
Agreement wherein she granted, conveyed and sold to the Company the goods and
chattels each of which related to feminine hygiene products relating to or
evolving from the patent, represented by U.S. Patent Application No. 446553,
held by Contente and described therein (the "Assets"). On or about August 9,
1990 Contente executed a Patent Application Assignment wherein she assigned,
sold and transferred her entire right, title and interest in that U.S. Patent
Application No. 446553 (the "Patent"). In exchange for transferring the
Assets to the Company, Contente received shares of the Company's $0.001 par
value common stock.
B. The Company and Contente desire to restate the terms of the
Assignment and Patent Assignment Agreements and the terms of the royalty
provisions relating thereto.
WHEREFORE, the parties have agreed as follows:
<PAGE>
A G R E E M E N T
-----------------
1. The Company hereby acknowledges and reaffirms Contente's ownership
of all of the shares of the Company's common stock (the "Shares"), presently
standing in her name, as having been issued in exchange for Contente's
transfer of technology represented by the Assets and the Patent.
2. Contente hereby acknowledges and reaffirms that she has sold,
transferred and granted, by execution of the Assignment Agreement and Patent
Application Assignment, the technology represented by and derived from the
Assets and Patent to the Company and that Contente has relinquished all
ownership interest in the technology represented by the Assets and Patent.
3. The parties hereto, and each of them, reaffirm that Contente (or her
successors in interest) shall be paid a royalty in an amount equal to $0.005
(one-half cent) for each unit of Devices resulting and/or derived from the
technology represented by the Assets and Patent whether sold by the Company,
its successor, assignee, subsidiary, supplier, licensee or any other third
party, and it is expressly understood that the Royalty due pursuant to this
paragraph shall survive the death of Contente and the termination of
Contente's employment with the Company, for any reason whatsoever (the
"Royalty"). For the purposes hereof, "Devices" means any and all devices or
other apparatus utilizing the Assets, Patents and Technology for any purpose
-2-
<PAGE>
whatsoever, including without limitation, the "UltraFem Feminine Protection
Cup"; and "Technology" means the technology, ideas, inventions, patents and
other Transferred Assets (as defined in the Assignment Agreement) together
with any and all other technology, ideas or inventions (whether patented or
unpatented) conceived or created by Contente and relating to the Assets and
Patent and any and all other technology, ideas, inventions or patents that
are derivatives or modifications of or improvements or developments to any
Technology relating to the Assets and Patent.
4. The Company shall pay the Royalty to Contente on a quarterly basis
within thirty days after the end of each calendar quarter. Each quarterly
royalty payment shall be accompanied by a statement in detail reasonably
satisfactory to Contente setting forth the number of Devices sold during such
calendar quarter and a calculation of the Royalty due Contente hereunder.
5. The Company shall keep complete and accurate books of account and
records covering all sales of Devices. Contente and her duly authorized
representatives shall have the right, during normal business hours and upon
reasonable advance notice and without interrupting the Company's business, at
any time during Contente's employment with the Company or thereafter, to
examine and copy such books of account and records and all other materials as
may be reasonably necessary or appropriate to verify the information
contained in the royalty statements submitted to
-3-
<PAGE>
Contente pursuant hereto. In the case of any deviation of Royalties versus
reported Royalties, the Company shall pay any Royalties due within ten days,
with interest thereon from the date such Royalties were due through and
including the date of payment at and changing with the rate announced from
time to time by Citibank N.A. at its principal office in New York City as its
"prime rate," plus 2%, and, if such deviation exceeds 5%, Contente pay the
reasonable costs of such examination. All books of account and records
relating to a particular calendar year shall be kept available for inspection
as provided herein for at least two years after the end of such year.
6. To the extent a conflict exists between the terms set forth in this
Agreement and the Assignment Agreement, Patent Application Assignment and/or
other agreements between the parties arising prior hereto, the terms set
forth in this Agreement shall control.
7. This Agreement shall be deemed to be effective as of July 17, 1990,
the date of execution of the Assignment Agreement.
8. This Agreement shall be binding on and shall inure to the benefit of
the parties and their respective heirs, successors and assigns.
-4-
<PAGE>
9. In any legal proceeding arising under this Agreement, the prevailing
party shall be entitled to recover all costs including reasonable attorneys'
fees.
IN WITNESS WHEREOF the parties have executed the Agreement as of the
date first written above.
The "Company" "Contente"
Ultrafem, Inc.,
a Delaware corporation
By: /s/ ARTHUR UNGER /s/ AUDREY CONTENTE
---------------- -------------------
ARTHUR UNGER AUDREY CONTENTE
Its: President
-5-
<PAGE>
BROKER REPRESENTATION AGREEMENT
AGREEMENT made this 29th day of April by and between Morgan & Sampson Pacific,
with its principal place of business 10572 Calle Lee, Los Alamitos, CA 90720
(hereinafter referred to as the "Broker"), and Ultrafem with its principal place
of business located at 500 Fifth Avenue, Suite 3620, New York, NY (hereinafter
referred to as "Ultrafem").
IT IS NOTED THAT MERIDIAN CONSULTING GROUP (the Consultant) has been retained by
Ultrafem to establish and manage a Broker selling network for the Company, which
has been approved in advance by the Company. The Consultant is responsible for
executing the project and reporting results back to the Company.
In consideration of the mutual covenants herein contained, the parties agree as
follows:
AREA OF RESPONSIBILITY
1) BROKER is hereby appointed as a non-exclusive sales representative of
Ultrafem for the sale of INSTEAD -Registered Trademark- products
("Products") to only those customers ("Customers") listed in Exhibit A.
The products or customers may be amended from time to time by Ultrafem in
accordance with Paragraph 8 below.
COMMISSION
2) A base Brokerage commission ("Commission") will be earned by BROKER on Net
Invoice Amount issued by Ultrafem to those Customers listed in Exhibit A,
subject to adjustments as explained in Paragraph 8 below. Net Invoice
Amount ("Net Invoice Amount") shall mean the price charged by Ultrafem to
its Customers for the Products based on the invoice price less all
applicable discounts and allowances granted off invoice by Ultrafem and
less credit memos issued for returned Products. The amount of commission
will be paid as set forth in Exhibit B.
3) Quota ("Quota") shall mean that dollar amount set by Ultrafem during the
fiscal year ending June 30. The Quota for each succeeding year shall be
set by Ultrafem in its sole discretion within sixty (60) days of the start
of that year. The Quota shall be used to assist Ultrafem in calculating
bonus brokerage Commissions as specified in Exhibit B.
4) Ultrafem reserves the right to adjust the Commission paid to BROKER to
reflect a charge back of the applicable Commission rate in the event
Ultrafem accepts the Products returned for credit or refund by any
Customer.
5) BROKER shall use its best efforts to solicit orders for, obtain maximum
distribution of, and otherwise implement programs for Ultrafem in
compliance with the policies established by Ultrafem.
<PAGE>
6) Upon any changes in the Products or Customers as provided for in paragraph
8, the Commission will be paid for by Ultrafem as follows:
a) For all orders secured by BROKER and received and shipped by Ultrafem
prior to the effective date of the change, the full commission will be
paid.
b) For all orders secured by BROKER and received by Ultrafem prior to the
effective date of the change, but shipped thereafter, the full
Commission will be paid.
c) For all orders received by Ultrafem after the effective date of the
change, no Commission will be paid.
7) Subject to the provisions of Paragraph 8 hereof, Ultrafem will pay BROKER a
Commission for the Net Invoice Amount of orders secured by BROKER from
Customers and which are accepted and shipped by Ultrafem in accordance with
the schedule of Commissions set forth in Exhibit B. Ultrafem shall not be
obligated to pay any Commission for any shipment of Products refused by
Customers. In addition, Ultrafem shall not be obligated to pay Commission
to BROKER in the event that Ultrafem does not ship or deliver any order.
The Commission shall be deemed earned on or before the twenty-fifth (25th)
of each calendar month, based on orders shipped by Ultrafem during the
preceding calendar months. Ultrafem agrees to pay BROKER within five (5)
days of such payment being earned. Ultrafem reserves the right to change
from time to time the manner in which Commission is paid upon sixty (60)
days prior written notice to BROKER of such change. In such event, the
change will be in the form of a revised Exhibit B and render the replaced
Exhibit B null and void as of the effective date of the Exhibit. From time
to time, Ultrafem may conduct contests or establish incentive programs
applicable to BROKER for which BROKER may be eligible for additional
Commissions.
8) Ultrafem reserves the unilateral right to change the Products or Customer
list (Exhibit A) upon thirty (30), days' prior written notice to BROKER.
Such notice shall be in the form of a revised Exhibit A and/or Exhibit B
which shall render all prior exhibits null and void as of the effective
date shown on the revised Exhibit.
9) Ultrafem reserves the right to approve any customers solicited by BROKER.
BROKER will submit to Ultrafem such sales and market information reports as
Ultrafem may from time to time reasonably request.
TERM
10) This Agreement shall continue in full force and effect until terminated by
either party upon thirty (30) days prior written notice sent to the other
party at its principal place of business set forth above. Such termination
shall be deemed effective on the thirtieth (30th) day following the date of
mailing of the notice. In the event of bankruptcy, insolvency,
receivership or other failure of BROKER to perform its obligations
hereunder, Ultrafem may, at its opinion, immediately terminate this
Agreement without prior written notice.
<PAGE>
11) In the event of the termination of this Agreement, the Commission shall be
paid on (i) products shipped by Ultrafem through the effective termination
date and (ii) on products shipped by Ultrafem provided that the orders were
written by BROKER for such products or approved by Ultrafem prior to
effective termination date.
12) BROKER will be solely responsible for all expenses incurred in the
performance of its duties and services as a broker. The only compensation
payable to BROKER pursuant to this Agreement shall be the Commission
provided for herein.
13) Ultrafem shall furnish BROKER with up-to-date price lists, terms of sales,
advertising and promotion materials, and selling samples of the type, form,
quantity and at intervals to be determined in the sole discretion of
Ultrafem.
14) Ultrafem shall not be required to honor orders solicited by BROKER from
customers not on Exhibit A, and shall have no obligation to pay any
Commission to BROKER for orders from said customers.
15) BROKER shall only solicit orders at the prices and on the terms of sales
established by Ultrafem from time to time. All orders obtained by BROKER
are subject to acceptance by Ultrafem.
16) BROKER agrees that it will not advertise the name Ultrafem and INSTEAD, the
name of any affiliate or subsidiary or trademark of Ultrafem or otherwise
advertise or promote the Products without the prior written approval of
Ultrafem.
CONFLICTS
17) BROKER shall not solicit orders for or sell products competitive with the
Products without Ultrafem's prior written approval, which may be given in
Ultrafem's sole and absolute discretion.
CONFIDENTIALITY
18) BROKER shall, during the term of this Agreement (including following any
termination or expiration), retain in confidence and refrain from using for
(Broker Name) benefit or the benefit of any third party, any and all
proprietary information, price lists, sales, advertising, promotional
policies and plans and/or data or other confidential information (as
defined in the confidentiality agreement annexed as Exhibit 3, hereto which
agreement is hereby incorporated herein reference).
BROKER shall limit disclosure of Confidential Information received
hereunder to only those of its directors, officers and employees who are
directly involved in the sale of the products and have a need to know such
information for the proper performance of duties. BROKER shall advise its
officers, directors and employees upon disclosure to them of any
Confidential Information of the Proprietary nature thereof and the terms
and conditions of this Agreement and shall use all reasonable safeguards to
prevent unauthorized disclosure by such directors, officers and employees.
19) Upon the termination of this Agreement, BROKER will promptly return all
literature, brochures, samples and any and all other materials furnished to
BROKER by Ultrafem.
<PAGE>
MISCELLANEOUS
20) BROKER shall act hereunder as an independent contractor and shall not be,
or represent that it or its employees are agents of Ultrafem for any
purpose whatsoever. BROKER shall have no authority to enter into, modify
or terminate any agreement, price lists or terms and conditions of sale of
the Products.
21) BROKER represents and warrants that it will comply with all applicable
laws, rules and regulations in the performance of the services rendered
hereunder, and that it will be acting for the benefit of Ultrafem only and
that it will not be acting for or on behalf of any party from whom orders
for the Products are solicited or taken; that it is not and will not be
subject to the direct or indirect interest in or any direct or indirect
control over any such party; and that no part of the Commission or anything
of value to be paid to BROKER hereunder will be paid directly or indirectly
or assigned to any such party. BROKER agrees to indemnify and hold
Ultrafem harmless from and against any and all claims, losses, liabilities
or expenses, including attorney's fees, in any way caused by a breach of
BROKER representations and warranties or the obligations of BROKER
specified in this Agreement.
22) Any notices required hereunder shall be in writing and shall be sent to the
respective addresses of the party to whom the notice is given by either
telex, facsimile, cable or Federal Express. The date of the mailing or
confirmed transmission of the notice shall be deemed the date of giving
notice.
23) This Agreement shall, in all respects, be construed, interpreted and
governed by the laws of the State of New York, without regard to any New
York conflict of laws rules. The state and federal courts in New York are
the agreed upon forum for the resolution of all disputes hereunder, and
BROKER and its officers and employees hereby consent to the jurisdiction
and venue of the aforesaid courts for the purpose of resolving all such
disputes and to the service of process by registered mail, return receipt
requested or any other manner consistent with federal or New York law.
<PAGE>
24) This Agreement shall not be assigned by BROKER. This Agreement (together
with the confidentiality agreement annexed here as Exhibit C hereto)
contains the entire agreement between the parties pertaining to the subject
matter hereof, and may not be modified or altered in any manner except by
an instrument in writing signed by or on behalf of the party to be charged.
The waiver by either party of any provision of this Agreement shall not be
deemed to constitute a waiver of any other provision. The invalidity of
any provision of this Agreement shall not impair the validity of any other
provision.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first written above.
MORGAN & SAMPSON ULTRAFEM
By: /s/ DANIEL B. MORGAN By: /s/ TONYA G. HINCH
------------------------------ -----------------------------
Title: Executive Vice President Title: Sr. VP Mkg. & Sales
---------------------------- ---------------------------
Date: 5/19/96 Date: 5/17/96
---------------------------- ---------------------------
MERIDIAN CONSULTING GROUP
By: /s/ GENE J. MORIARTY
-----------------------------
Title: V.P. Sales
---------------------------
Date: 5/2/96
---------------------------
<PAGE>
ADDENDUM TO
ULTRAFEM
REPRESENTATIVE AGREEMENT
This Addendum to the Agreement made effective April 29, 1996, by and between
ULTRAFEM, (hereinafter called "ULTRAFEM") and Morgan & Sampson Pacific
(hereinafter called "REPRESENTATIVE").
1. INDEMNIFICATION: ULTRAFEM shall be solely responsible for the quality,
efficacy, safety and fitness of PRODUCTS sold pursuant to the
REPRESENTATIVE Agreement, as well as for its patents and trademarks.
ULTRAFEM shall save and hold harmless REPRESENTATIVE, its agents and
employees from and against all claims, losses and liability relating to the
quality, efficacy, safety and fitness of the PRODUCTS, as well as use of
patents and trademarks related thereto, which arise out of or are alleged
to have arisen out of the sale, distribution or use of the PRODUCTS,
provided such claim does not involve the negligent or wrongful acts or
omissions of the REPRESENTATIVE, its agents and employees for reason other
than mere participation in the chain of sale or distribution of the
PRODUCTS. Such indemnification shall include all claims, losses and
liabilities for costs, fees and reasonable attorney's expense. The
provisions of this section shall survive termination of the Agreement or
extensions thereof, unless otherwise agreed to by the parties in a writing
which makes specific reference to said sections of the Agreement.
2. INSURANCE: At all times during the term or any extension hereof,
ULTRAFEM shall maintain comprehensive general liability insurance protecting
ULTRAFEM and the REPRESENTATIVE against loss by reason of product liability
claims imposed upon REPRESENTATIVE in connection with the discharge of its
duties hereunder in an amount not less than $1,000,000 in the aggregate. So
long as REPRESENTATIVE shall act hereunder, ULTRAFEM shall provide
REPRESENTATIVE with a Certificate of Additional Insured-Vendors Endorsement (CG-
20151188) designating "Morgan & Sampson Pacific" as an additional insured-
vendor, and providing that ten (10)days' written notice shall be given to
REPRESENTATIVE prior to cancellation, modification, or expiration of any of the
terms of coverage of such policy.
DATED: 5/17/96 ULTRAFEM
----------------------------
BY: /s/ TONYA G. HINCH
-----------------------------
DATED: 5/14/96 MORGAN & SAMPSON PACIFIC
----------------------------
BY: /s/ DANIEL B. MORGAN
-----------------------------
DATED: 5/15/96 MERIDIAN CONSULTING GROUP
----------------------------
BY: /s/ JOHN FINDER
-----------------------------
<PAGE>
DISTRIBUTION SERVICE AGREEMENT
This Distribution Service Agreement (hereinafter called "Agreement") is
made this 1st day of June by and between MORGAN & SAMPSON, INC., a California
Corporation (hereinafter called "Warehouseman"), and ULTRAFEM, INC. (hereinafter
called "Manufacturer").
WHEREAS Warehouseman and Manufacturer are each desirous of entering into a
Distribution Service to be performed by Warehouseman on behalf of Manufacturer.
NOW, THEREFORE, the parties hereto in consideration of the premises and the
mutual promises herein contained, do hereby covenant, promise and agrees as
follows:
1. DEFINITIONS. For purposes of the Agreement, the following terms shall
have these meanings:
1.1 "Products" shall mean the products manufactured by the Manufacturer or
otherwise offered by it for sale to its customers and which are to be stored and
shipped by Warehouseman in accordance with this Agreement.
1.2 "Basic Service" shall mean the services rendered by the Warehouseman in the
Handling, Warehousing and Distribution of the Products of the Manufacturer as
further defined in this Agreement.
1.3 "Warehouse" shall mean the building owned or used by the Warehouseman for
storage of Products in the ordinary course of its business at 1651 South Carlos
Avenue, Ontario, California 91761, and/or such other buildings as the parties
shall agree upon.
1
<PAGE>
2. TERM OF AGREEMENT. The term of agreement shall be for a period of one
(1) year, and the Contract shall continue in effect thereafter until terminated
by either party by giving ninety (90) days written notice to the other of its
desire not to continue this agreement in force.
3. DUTIES OF WAREHOUSEMAN. During the term of this Agreement,
Warehouseman shall render to Manufacturer the Basic Services as more
particularly described hereinafter in this paragraph.
3.1 Handling shall consist exclusively of the rendering of the following
services by Warehouseman during its regular business hours with respect to
Products duly tendered for delivery pursuant to this Agreement:
(a) Receipt of Products at the warehouse loading dock during normal
working hours of Warehouse;
(b) Loading Products into the Warehouse;
(c) Rendering memoranda of the receipt of Products from Manufacturer,
indicating the quantity of the Products received and the condition of
the Products (as is readily apparent from the condition of the
containers in which such were delivered or upon Warehouseman's
unpacking of such containers). Such memoranda are to be sent to
Manufacturer within three (3) days following receipt of any shipment
of Products. Manufacturer shall furnish Warehouseman with a schedule
explaining its markings with respect to name of product, quantity and
size. Each container shall be marked consistently with such schedule
to provide Warehouseman with such information.
2
<PAGE>
(d) Keeping inventory records of Products delivered and shipped hereunder
and rendering no less than monthly summaries of the transactions made
with respect to such Products and no less than quarterly counts of the
Products physically on hand.
3.2 Warehousing shall consist of the storage of the Products of Manufacturer in
the Warehouse from the time of loading until the time of shipment in
accordance with the terms of this Agreement. It is understood that
Warehouseman has allocated 5,000 (est.) square feet of warehouse space for
the Products of the Manufacturer. Upon reasonable notice from Manufacturer
that it requires additional space and provided such additional space is
available in the Warehouse, Warehouseman will allocate additional space to
Manufacturer.
3.3 Distribution shall consist exclusively of the following services to be
rendered by the Warehouseman with respect to the Products:
(a) Acceptance of orders by telephone, fax, EDI, in writing, or computer
data link for products from the Manufacturer. A Master Customer list
will be supplied by Manufacturer. It is understood that all such
orders submitted to the Warehouseman for shipment shall be checked
against the Customer Master list for credit approval prior to
shipping.
(b) Shipping such orders on forms to be supplied by the Warehouseman to the
Manufacturer's customers by UPS/RPS or by delivery to such common
carriers as Warehouseman in its discretion shall determine, within a
reasonable time following its receipt of an order.
3
<PAGE>
(c) Warehouseman shall not be liable for any delay in packing or shipping
of Products as required hereunder if such delay is due to acts of God,
War, public enemies, seizure under legal process, strikes, lockouts,
riots and civil commotion's prolonged unavailability of carriers, or
any other occurance of similar magnitude. Products remaining in
storage as a result of such delay will continue to be subject to
regular storage charges.
(d) A copy of the pick list and the bill of lading covering each shipment
shall be sent by courier program to Manufacturer promptly following
their rendering to Manufacturer's customers.
(e) Customer service shall consist exclusively of the following services
to be rendered by the Warehouseman with respect to the products:
(1) Preparing customer orders for shipment following a credit
approval check against the Customer Master list.
(2) Updating customer orders after shipment via the inventory product
status report and confirming shipment to Manufacturer via Fax or
EDI.
(3) Tracing customer orders and obtaining P.O.D.'s upon request.
4. DUTIES AND AGREEMENTS OF MANUFACTURER. In consideration of the
undertaking of the Warehouseman to perform the Basic Services with respect to
the Products, the Manufacturer undertakes, agrees and represents as follows:
4.1 Title to the Products shall at all times remain in the Manufacturer's
possession and any taxes assessed directly on such Products shall be for
the account of and paid by the Manufacturer. The Manufacturer will have
good title to all of the Products to be delivered to Warehouseman hereunder
and has the legal right and authority to take all such acts with respect to
such Products as it may take pursuant to the provisions of this Agreement.
4
<PAGE>
4.2 The Products to be delivered hereunder will be in good condition and of
merchantable quality at the time of their delivery to Warehouseman and of
the type and in the quantities indicated by the documents rendered by
Manufacturer at the time of delivery. Manufacturer further represents that
no storage of shipment procedures are required for proper care of the
Products other than those which are rendered by Warehouseman in the
ordinary course of its business. Manufacturer understands that
Warehouseman relies upon the representations set forth herein in
determining the performance of its duties hereunder and the fulfillment of
the its standard of care reference to in Paragraph 7 hereof.
4.3 Manufacturer shall be solely responsible for the design, development,
supply, safety, and performance of the Products hereunder. Warehouseman
agrees to immediately notify Manufacturer of any and all claims, demand of
actions asserted or commenced against Warehouseman arising out of or
connected with this Agreement or the Products. If any liability, action,
claims or demands are attributable to the Products or Manufacturer,
Manufacturer shall at its own cost and expense defend the same and will
indemnify, save harmless and defend the Warehouseman of any and all claims,
losses, or liabilities, including reasonable attorney's fees, in any way
arising out of or alleged to have arisen out of the use of Manufacturer's
Products. So long as this Agreement remains in force, Manufacturer will:
(a) Maintain adequate bodily injury and property damage insurance with
respect to Products warehoused or distributed pursuant to this
Agreement;
5
<PAGE>
(b) Designate Warehouseman as a named insured with respect to such
insurance; and
(c) Provide Warehouseman with Certificates of Insurance to evidence
compliance with this Paragraph 4.3.
4.4 With respect to the shipment of Products to the Warehouseman:
(a) All Products will be shipped prepaid to the loading dock of the
Warehouseman packed in Manufacturer's regular shipping cartons for
storage and marked as to quantity and description of Products.
(b) Manufacturer shall give Warehouseman notice within two (2) business
days after the shipment of Products to Warehouse of all shipments to
be made hereunder, the name of the carrier and the contents of the
shipment. Manufacturer agrees that Warehouseman shall not be liable
for demurrage or delays in unloading inbound trucks, unless
Warehouseman has failed to exercise reasonable care and diligence
under the circumstances, which include the receiving of the notice
provided herein.
4.5 With respect to the shipment of Products by Warehouseman, Manufacturer
agrees to make all claims against carriers carrying Products to
manufacturer's customers. Warehouseman agrees to assist Manufacturer in
developing information reasonably available to Warehouseman and necessary
for such claims.
6
<PAGE>
5. COMPENSATION FOR BASIC SERVICES AND REIMBURSEMENT OF EXPENSES
5.1 The fees for Basic Services to be computed separately each calendar month
shall be as outlined in Exhibit 'A'. Should the Manufacturer give notice
pursuant to Paragraph 2 hereof, the fee for preparation and transfer of
Manufacturer's Products shall be herein specified as though such Products
had been shipped to the Manufacturer's customers.
5.2 In addition to the payment of fees for Basic Services, and in addition to
the payment for Extra Services as hereinafter provided in Paragraph 6
hereof, Manufacturer agrees to reimburse Warehouseman for all properly
documented expenses incurred or paid for the account of the Manufacturer
including freight, postage or other payments paid or incurred by
Warehouseman or any taxes levied or assessed against the Products.
Manufacturer will also reimburse Warehouseman for telephone toll charges
and fax expenses incurred on behalf of Manufacturer subject to
Manufacturer's policies with respect to such charges as are communicated to
Warehouseman in writing.
5.3 With the exception of freight and storage charges, monthly bills will be
rendered for the services performed and expenses incurred pursuant to
Paragraphs 5.1 and 5.2 hereof and such bills are payable within thirty (30)
days of their receipt. Freight charges, both UPS/RPS and common carriers
will be debited against the Freight Advance Account as such expenses are
incurred. An accounting of all charges debited to the freight advance
account along with copies of UPS/RPS charges and common carrier freight
bills will maintain a freight advance account with the Warehouseman at a
initial level described in Exhibit 'A' and replenished from time to time
upon reaching a minimum level described in Exhibit 'A'.
7
<PAGE>
6. EXTRA SERVICES. Extra Services and charges for purposes of this
Agreement are as follows:
6.1 For packing and repackaging Products for shipment in packages or containers
other than in those which such Products were delivered to Warehouseman in
accordance with Sub-Paragraph 4.4(a) above, Manufacturer shall be charged
as outlined in Exhibit 'A'.
6.2 For destroying Products, Manufacturer will be charged the cost to
Warehouseman for such service as outlined in Exhibit 'A'.
6.3 All the services enumerated Paragraph 6 may be performed and charged for
only when approved by Manufacturer.
6.4 Bills for fees charged to Extra Services will be rendered monthly and
payable within thirty (30) days of their receipt.
7. LIMITATION OF LIABILITY.
7.1 Warehouseman shall only be liable for damages for loss of or injury to the
Products caused by its failure to exercise such care in regard to them as a
reasonably careful man would exercise under like circumstances and shall
not be liable for damages which could not have been avoided by the exercise
of such care. Warehouseman shall not be held responsible for loss of
Products by leakage or through failure to detect same, for concealed
damage, or for inventory shrinkage of less than one percent (1%) based on
average monthly inventory (with inventory overages offsetting inventory
shortages) to be reviewed after six (6) months.
8
<PAGE>
7.2 Warehouseman's liability for loss or injury to Products under Paragraph 7.1
above shall be limited to and shall not exceed the lesser of: (a) the cost
to the manufacturer of producing or otherwise obtaining such Products at
the time and place of their production or obtaining of the same plus
freight or the shipping charges incurred in delivering the Products to
Warehouseman; or (b) the actual market value thereof at the time and place
at which the injury or loss occurred.
7.3 Warehouseman shall not be obligated to provide any insurance for
Manufacturer's Products. Manufacturer shall provide any insurance required
(including, but not limited to, fire insurance) by it at its sole cost and
expense to cover its Goods in transit and while in the Warehouse.
Manufacturer hereby waives and releases any and all rights of recovery,
liability or responsibility against Warehouseman, its agents or employees
for loss, injury or damage suffered by Manufacturer because of fire or
insurable extended coverage perils, however caused, even if such fire or
other casualty shall have been by the fault of negligence of Warehouseman
or any one for whom Warehouseman may be responsible. Manufacturer shall
give notice to its insurance carrier that the foregoing Waiver of
Subrogation is contained in this Agreement. Manufacturer shall supply
Warehouseman with satisfactory evidence of such insurance and Waiver of
Subrogation by means of a Certificate of Insurance from its insurer.
9
<PAGE>
7.4 Manufacturer guarantees, warrants and certifies that no product
constituting or being a part of any shipment made hereunder is misbranded
within the meaning of the Federal Hazardous Substances Labeling Act or
within the meaning of any applicable state law in which the definition of
misbranding is substantially the same as that contained in the Federal Act
or is an article which may not under the provisions of the Federal Act be
introduced into Required Commerce.
7.5 Manufacturer guarantees, warrants and certifies that no drug constituting or
being part of a shipment made hereunder will at the time of shipment or
delivery, be adulterated or misbranded within the meaning of the Federal
Food, Drug and Cosmetic Act, as said Act is constituted and effective at
the time of such shipment or delivery, or will be an article which may not
under the provisions of said Act be introduced into Interstate Commerce.
8. GOVERNING LAW. The interpretation of this Agreement shall be governed
by the laws of the State of California and the rights of parties hereunder, to
the extent not otherwise provided herein, shall be determined in accordance with
the article of the Uniform Required Code relating to documents of title as
adopted in the State of California.
9. NOTICES. Any notice or other communication required or permitted
hereunder unless otherwise specifically provided, shall be in writing, and shall
be effective upon receipt at the following addresses, unless a change is
specified in writing by a party hereto:
10
<PAGE>
TO: MORGAN & SAMPSON, INC.
Corporate Office
1651 South Carlos Ave.
Ontario, CA 91761
TO: ULTRAFEM, INC.
500 5th Avenue, Suite #3620
New York, NY 10110
10. MISCELLANEOUS. This Agreement constitutes the entire Agreement
between the parties pertaining to the subject matter hereof and supersedes
all prior and contemporaneous Agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are not
warranties, representations or other Agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar),
or shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
11. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed.
ULTRAFEM, INC. MORGAN & SAMPSON, INC.
By: /s/ Audrey Contente By: /s/ Daniel B. Morgan, Jr.
----------------------------- ----------------------------
Audrey Contente Daniel B. Morgan, Jr.
Senior Vice President Executive Vice President
Dated: 6/3/96 Dated: 5/31/96
-------------------------- -------------------------
12
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS
PER SHARE
<TABLE>
<CAPTION>
JUNE 1993 JUNE 1994 JUNE 1995 JUNE 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss................................................... 2,091,903 2,303,940 2,381,065 9,819,980
Plus: Interest attributable to convertible debt............ 27,646 131,532
----------- ----------- ----------- -----------
Adjusted Net Loss.......................................... 2,091,903 2,303,940 2,353,419 9,688,448
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted Average Shares.................................... 1,295,910 1,313,737 1,353,675 2,185,017
Plus: Incremental shares (1)............................... 1,344,477 1,344,477 1,344,477 1,344,477
----------- ----------- ----------- -----------
Weighted average common shares outstanding (2)............. 2,640,387 2,658,214 2,698,152 3,529,494
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Loss per common share...................................... .79 .87 .87 2.74
</TABLE>
- ------------------------
(1) Represents the incremental shares for options, warrants and other
potentially dilutive securities granted to purchase Common Stock at an
exercise price below the initial public offering price of $10 per share
within one year prior to the effective date of the initial public offering.
(2) The effect of the assumed exercise of stock options, warrants and other
potentially dilutive securities which were issued in periods prior to the
one-year period prior to the effective date of the initial public offering
is not included in the weighted average number of shares of Common Stock
outstanding because the effect is anti-dilutive.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Ultrafem, Inc. on
Form S-1 of our report dated August 12, 1996 (August 27, 1996 as to Note 12),
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
September 13, 1996
<PAGE>
[LETTERHEAD]
August 23, 1996
To Whom It May Concern:
We consent to the reference to Arent Fox Kintner Plotkin & Kahnin this
Registration Statement of Ultrafem, Inc., on Form S-1 in the "Risk Factors" and
"Business" sections of the prospectus of Ultrafem, Inc., which are part of this
Registration Statement.
ARENT FOX KINTNER PLOTKIN & KAHN
By: /s/ Peter S. Reichertz
---------------------------
Peter S. Reichertz
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ULTRAFEM,
INC. FINANCIAL STATEMENTS AT JUNE 30, 1996 AND THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 24,510,071
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 266,951
<CURRENT-ASSETS> 25,386,525
<PP&E> 3,146,277
<DEPRECIATION> 271,124
<TOTAL-ASSETS> 29,407,936
<CURRENT-LIABILITIES> 7,423,992
<BONDS> 0
0
112,125
<COMMON> 9,905
<OTHER-SE> 21,161,914
<TOTAL-LIABILITY-AND-EQUITY> 29,407,936
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,643,978
<OTHER-EXPENSES> (489,379)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 665,381
<INCOME-PRETAX> (9,819,980)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,819,980)
<EPS-PRIMARY> (2.74)
<EPS-DILUTED> 0
</TABLE>
