Current Report on Form 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 6, 1998
INAMED CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 1-9741 59-0920629
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3800 Howard Hughes Parkway, Suite 900
Las Vegas, Nevada 89109
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Address of principal executive offices
Registrant's telephone number, including area code: 702/791-3388
N/A
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(Former name or former address, if changed since last report.)
This amended Form 8-K is being filed on March 27, 1998 with
respect to the Form 8-K filed on March 16, 1998 for a reportable
event which occurred on March 6, 1998; namely, the resignation of
Coopers & Lybrand L.L.P. ("C&L" or the "former independent
accountant").
INAMED Corporation (the "Company" or "INAMED") is filing
this report on Form 8-K in connection with the resignation of
Coopers & Lybrand L.L.P. as the Company's independent accountant.
The issues of concern expressed by the former independent
accountant, as noted below in Item 4, relate to matters arising
prior to major changes in senior management which began in
December 1997. The new senior management, the audit committee
and the board of directors hereby express their commitment to
ensuring that these types of issues do not arise again.
Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
In the discussions between the Company and C&L prior to the
original filing of this Form 8-K, the Company privately explained
its rationale for not including C&L's comment regarding
management's inability to sign customary representation letters.
Subsequently, C&L chose to include that comment as item (1) in
its letter to the S.E.C. dated March 25, 1998 and included herein
as Exhibit 16.2. Accordingly, in response, the Company
reiterates that (a) the current Chief Executive Officer is
prepared to sign a customary representation letter, a fact which
C&L was advised of during the period after their resignation on
March 6, 1998 and before the original filing of this Form 8-K;
and (b) the Company believes that the viewpoint of the former
Chief Financial Officer on this issue is not relevant since he
had been terminated for cause for a variety of reasons, including
his demand for substantial additional compensation in return for
his willingness to provide C&L with a representation letter. As
noted above, the Company felt it had a valid basis for not
including this comment in the original Form 8-K which was filed
on March 17, 1998; however, given the fact that C&L has since
presented this issue in its letter to the S.E.C., the Company is
compelled to now explain its views in this amended Form 8-K.
(i) As of March 6, 1998 Coopers & Lybrand L.L.P., the
Company's independent accountant, has resigned.
(ii) The prior reports of the former independent accountant
contained explanatory language discussing the Company's
ability to continue as a going concern and the
uncertainty related to the outcome of the breast
implant class action litigation. In addition, the
Company had been subject to a default judgment of $10
million in 1995 (arising from a case in Missouri in
which its products were not used), for which no
conclusion had been reached as to the appropriate
accounting; accordingly, once proper accounting
treatment is resolved, it may affect prior accounting
periods and previously issued financial statements.
Since the original filing of this Form 8-K, the
Company's motion to set aside the default judgment was
granted, which moots the issue of accounting treatment
noted above.
(iii)Neither the Company's board of directors nor its
audit committee had recommended the decision by the
former independent accountant to resign.
(iv) The former independent accountant advised the Company
that there had been a disagreement, which was
satisfactorily resolved, as to the method for
determining the Company's reserves for product returns
and the adequacy of such reserves. The Company had
reduced its reserves for returns in the third quarter
of 1996 by approximately $1.9 million; as a result of
the resolution of this issue, the Company plans to
file an amended Form 10-Q to increase such reserves.
(v) I. The former independent accountant advised the
Company that the quality and oversight of the Company's
systems of internal controls and management controls
were not being properly administered, resulting in
matters such as the following:
. In early and mid-1997, the Company filed registration
statements on Forms S-1 and S-3 containing historical
financial statements for 1995 and 1996 without the prior
knowledge or consent of the former independent accountant.
. The former independent accountant has been informed that the
1996 and 1997 financial statements will have large fourth
quarter adjustments. No conclusion has been reached as to
the appropriate quarter(s) in which such adjustments should
be recorded; however, the Company believes it will be
necessary to restate and refile its Form 10-Qs for 1996 and
1997.
. There have been numerous related party transactions which
were not supported by adequate documentation or independent
approval and authorization, such as:
(i) Use of chartered airplane;
(ii) Wire transfers in 1997 totaling
approximately $240,000 to a corporate
officer/director;
(iii)Advance payments in 1996 totaling
approximately $330,000 to a management
company owned by a corporate
officer/director; and
(iv) The Company's personnel and other
resources had been used to assist in the
development of a business opportunity
related to ultrasonic liposuction for
the benefit of a company controlled by
INAMED's former chairman and CEO.
With respect to item (ii) above, $180,000 of those
monies were properly payable to that person
pursuant to a pre-existing consulting agreement.
When the difference of $60,000 was brought to the
attention of senior management, that person
promptly repaid those funds (plus interest) to the
Company.
With respect to item (iii) above, in 1997 the
Company received invoices to support part of that
payment and the balance was repaid to the Company
(plus interest).
With respect to item (iv) above, to date the
Company has not been reimbursed for the use of its
personnel and resources, although it believes that
the amounts in question aggregate approximately
$150,000.
The Company plans to take adequate reserves for
these transactions and to seek appropriate
documentation and support. The new senior
management has instituted new policies and
procedures to appropriately deal with all related
party transactions and to ensure that any payments
to related parties do not impede the Company's
other obligations (such as remittance of payroll
taxes when due).
. During 1996 and early 1997, the Company repurchased an
aggregate of approximately $56,000 of outstanding common stock
from former employees and others, which appears to be a
violation of certain debt covenants. These transactions were
rescinded in 1998 once they were brought to the attention of
senior management; no conclusion has been reached as to whether
these actions may give rise to the need for waivers of covenants
in the Company's indenture for its senior debt.
. The Company has not responded in writing to a comment letter
from the Securities and Exchange Commission ("S.E.C.") dated
February 14, 1997. However, the Company has held verbal
discussions with the S.E.C. and has reflected many of the
comments in subsequent filings. In connection with the filing
of its 1997 Form 10-K, the Company plans to respond in writing
to the S.E.C. comment letter.
II. The former independent accountant has advised the
Company that there were illegal acts in 1996 and 1997,
which were appropriately corrected by the Company once
they were brought to the attention of the audit
committee. See item (a) below. In addition, there are
currently a number of other matters which the former
independent accountant has advised the Company may
constitute illegal acts. See item (b) below.
(a) During 1997, the former independent accountant
advised the Company that it was an illegal act for
the Company to not promptly pay an aggregate of
approximately $4.6 million of payroll taxes when
due in late 1996 and early 1997 to state and
federal tax agencies. This issue was
appropriately corrected by the Company once it was
brought to the attention of the audit committee
and the board of directors.
(b) After the changes in senior management began in
December 1997, other potential violations of law
arising earlier in the year were identified by the
former independent accountant; these issues were
promptly addressed once they were brought to the
attention of new senior management. These include
the failure to garnish approximately $4,000 of a
former corporate officer's salary, and the
question of whether the Company's Brazilian
subsidiary (which accounts for less than 1% of the
Company's sales) had properly paid certain taxes,
had proper authority to conduct its business, and
whether it was maintaining proper books of
account. These matters are being reviewed by
legal counsel. No conclusion has been reached as
to whether any of these activities might give rise
to the need for waivers of covenants in the
Company's indenture for its senior debt.
Item 5. OTHER EVENTS.
On March 11, 1998, the Company issued a news release
disclosing that Coopers & Lybrand L.L.P. had resigned as the
Company's independent accountant and that Thomas R. Pilholski is
no longer an employee of the Company. The full text of that
announcement is attached as an exhibit.
On March 25, 1998 the Company announced that Thomas K.
Larson will soon be joining the Company as its new Chief
Financial Officer. The full text of that announcement is
attached as an exhibit.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(c) EXHIBITS
16.1 Letter from Coopers & Lybrand L.L.P. dated
March 6, 1998
16.2 Letter from Coopers & Lybrand L.L.P. dated
March 25, 1998
99.1 News Release dated March 11, 1998
99.2 News Release dated March 25, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
INAMED CORPORATION
Dated: March 27, 1998 By: /s/ Richard G. Babbitt
Name: Richard G. Babbitt
Title: Chairman and Chief
Executive Officer
EXHIBIT INDEX
16.1 Letter from Coopers & Lybrand L.L.P. dated March
6, 1998
16.2 Letter from Coopers & Lybrand L.L.P. dated March
25, 1998
99.1 News Release dated March 11, 1998
99.2 News Release dated March 25, 1998
[Exhibit 16.1]
Coopers & Lybrand L.L.P.
21650 Oxnard Street
Suite 1900
Woodland Hills, CA 93167-4901
March 6, 1998
Mr. Richard Babbitt
Chairman and Chief Executive Officer
INAMED Corporation
3800 Howard Hughes Parkway
Suite 900
Las Vegas, Nevada 89109
By Fax and Express Mail
Dear Mr. Babbitt:
This is to confirm that the client-auditor relationship between
INAMED Corporation and Coopers & Lybrand L.L.P. has ceased.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
cc: Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 11-3
450 Fifth Street, N.W.
Washington, D.C. 20549
Mr. Richard Talley
Chairman, Audit Committee
INAMED Corporation
[Exhibit 16.2]
Coopers & Lybrand L.L.P.
21650 Oxnard Street
Suite 1900
Woodland Hills, CA 93167-4901
March 25, 1998
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by INAMED Corporation (the
"Company"), which we understand have been filed with the
Securities and Exchange Commission (the "SEC"), pursuant to Item
4 of Form 8-K, as part of the Company's Form 8-K dated March 6,
1998 (the "Form 8-K") (copy attached). We agree with the matters
concerning our Firm reported by the Company in the Form 8-K,
however, we are unable to agree, disagree or comment with respect
to certain of the matters included in Form 8-K as described in
items (2) through (11) below; we believe that item (1) below
should have been included in the Form 8-K:
(1) In describing matters resulting from the quality and
oversight of the Company's systems of internal controls and
management controls under Item 304(a)(1)(v) of Regulation S-
K (identified by the Company as Item 4(v)I of Form 8-K), the
Company did not report that prior to our resignation as the
Company's independent accountants, the Company's current
Chief Executive Officer and former Chief Financial Officer
had indicated that at that time they were unable to sign
management's representations letter as required under
Statements of Auditing Standards issued by the American
Institute of Certified Public Accountants.
(2) The Company's preamble to item 4 in Form 8-K refers to
matters "arising prior to changes in Senior Management which
began in December 1997." We would like to point out that
the changes relate only to the following:
. Appointment of Richard Babbitt as Chairman and CEO;
. Appointment of Don McGhan as Chairman Emeritus and Mr.
McGhan's resignation as Chairman and CEO;
. Appointment of Ilan Reich as Executive Vice President;
. Appointment of Tom Pilholski as Chief Financial Officer, and
his subsequent resignation.
(3) In describing matters resulting from the quality and
oversight of the Company's systems of internal controls and
management controls under Item 304(a)(1)(v) of Regulation S-
K (identified by the Company as Item 4(v)I first bullet
point of Form 8-K), the Company did not complete the
information in the first bullet point. We believe the
complete description is as follows: "In early and mid-1997,
the Company filed registration statements on Forms S-1 and S-
3 containing historical financial statements for 1995 and
1996 without the prior knowledge or consent of the former
independent accountants."
(4) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(ii) of Form 8-K),
with respect to statements concerning the default judgment
of $10 million, we are unable to agree, disagree or comment
as to whether the product used was from the Company.
(5) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(v)I third bullet
point of Form 8-K), with respect to related party
transaction, we are unable to agree, disagree or comment as
to the amount of wire transfers made to a corporate officer
and repayments made by the corporate officer.
(6) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(v)I third bullet
point of Form 8-K), with respect to related party
transaction, we are unable to agree, disagree or comment as
to the amount of advances made to a management company owned
by a corporate officer/director, the adequacy of invoices to
support part of the payment and any balance repaid.
(7) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(v)I third bullet
point of Form 8-K), with respect to related party
transaction, we are unable to agree, disagree or comment as
to the aggregate amount of expenses reimbursable for the use
of the Company's personnel and other resources used to
assist in the development of a business opportunity related
to ultrasonic liposuction for the benefit of a company
controlled by INAMED's former chairman and CEO.
(8) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(v)I third bullet
point of Form 8-K), with respect to related party
transaction, we are unable to agree, disagree or comment as
to the appropriateness of any new policies and procedures
instituted by new management to ensure that any payments to
related parties will not impede the Company's other
obligations.
(9) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(v)I fourth bullet
point of Form 8-K), with respect to the repurchase of
outstanding common stock from former employees and others,
we are unable to agree, disagree or comment as to the
aggregate amount of such repurchases and reversal of such
transactions.
(10) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(v)I fifth bullet
point of Form 8-K), with respect to the comment letter dated
February 14, 1997 received from the SEC, we are unable to
agree, disagree or comment on any verbal discussions with
the SEC and whether the Company has reflected such comments
in subsequent filings and any future plans to respond in
writing.
(11) In describing matters under Item 304(a)(1)(v) of Regulation
S-K (identified by the Company as Item 4(v)II(b) of Form 8-
K), with respect to other violations of law, we are unable
to agree, disagree or comment on the amount of garnishment
levied upon the former corporate officer's salary nor the
amount of the Brazilian subsidiary's sales as a percentage
of the Company's sales.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P
[Exhibit 99.1]
INAMED "Innovation and Medicine" INAMED CORPORATION
3800 Howard Hughes Parkway
Suite 900
Las Vegas, NV 89109
(702) 791-3388
Fax: (702) 791-1922
NEWS RELEASE
FOR IMMEDIATE RELEASE
Company Contact: Richard G. Babbitt
(702) 791-3388
Ilan K. Reich
(702) 791-3388
INAMED CORPORATION ANNOUNCES
RESIGNATION OF COOPERS & LYBRAND
LAS VEGAS, NEVADA - March 11, 1998 - INAMED Corporation (OTC
Bulletin Board: IMDC), a global surgical and medical device
company, announced today that Coopers & Lybrand has resigned as
the Company's outside auditor. The reasons for the resignation
will be set forth in a Form 8-K, to be filed shortly. The
Company also announced that Thomas R. Pilholski, who had been
hired as Chief Financial Officer in December 1997, is no longer
an employee. The Company expects to hire a new Chief Financial
Officer and retain a new outside auditor in the near future.
INAMED Corporation has 26 operating subsidiaries in the United
States, Europe, Mexico, Latin America and Asia. The subsidiaries
are engaged in the development, manufacturing and marketing of
medical devices for the plastic and reconstructive, bariatric and
general surgery markets. INAMED is headquartered in Las Vegas,
Nevada.
[Exhibit 99.2]
INAMED "Innovation and Medicine" INAMED CORPORATION
3800 Howard Hughes Parkway
Suite 900
Las Vegas, NV 89109
(702) 791-3388
Fax: (702) 791-1922
NEWS RELEASE
FOR IMMEDIATE RELEASE
Company Contact: Richard G. Babbitt
(702) 791-3388
Ilan K. Reich
(702) 791-3388
INAMED CORPORATION ANNOUNCES
NEW CHIEF FINANCIAL OFFICER
LAS VEGAS, NEVADA - March 25, 1998 - INAMED Corporation (OTC
Bulletin Board: IMDC), a global surgical and medical device
company, announced today that Mr. Thomas K. Larson, Jr. will join
the company as Chief Financial Officer effective April 1, 1998.
Mr. Larson has broad experience in financial and operating
management in a wide range of industries. He is a 26-year
veteran of Xerox Corporation, with financial and administrative
roles in their telecommunications business, research laboratories
and special products division, which included aerospace and
medical diagnostic products. He has also been the CFO of Revell
Corporation, a maker of scale model kits, and for the past eight
years was the CFO of a privately held specialty bed manufacturer.
Mr. Larson has a B.A. degree from Allegheny College, and he has
attended graduate programs at the University of Pittsburgh and
Harvard Business School.
Commenting on these new developments, Richard G. Babbitt,
Chairman and Chief Executive Officer of INAMED, noted: "We are
pleased to have a senior executive with Tom's vast experience and
background join our new management team. We think he has the
right combination of financial, operational and people skills to
help us to continue to grow our Company."
INAMED Corporation has 26 operating subsidiaries in the United
States, Europe, Mexico, Latin America and Asia. The subsidiaries
are engaged in the development, manufacturing and marketing of
medical devices for the plastic and reconstructive, bariatric and
general surgery markets. INAMED is headquartered in Las Vegas,
Nevada.
