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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File No. 1-13690
POLYMEDICA CORPORATION
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3033368
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
11 STATE STREET, WOBURN, MASSACHUSETTS 01801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 933-2020
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Securities registered pursuant to Section 12(b) of the Act: None
COMMON STOCK, $.01 PAR VALUE PER SHARE
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(Title of class)
PREFERRED STOCK PURCHASE RIGHTS
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
The aggregate market value of voting Common Stock held by nonaffiliates
of the registrant was $80,161,000 based on the closing price of the Common Stock
as reported by the American Stock Exchange on June 26, 1998.
The number of shares issued of the registrant's class of Common Stock
as of June 26, 1998 was 8,913,476 which includes 120,620 shares held in
treasury.
Documents incorporated by reference: Proxy Statement for the 1998
Annual Meeting of Shareholders--Part III.
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PART I
ITEM 1. BUSINESS
THE COMPANY
General
PolyMedica Corporation ("the Company") is a leading provider of
targeted medical products and services primarily focused in the diabetes
supplies and consumer healthcare markets. The Company holds a leading position
in several expanding markets. The Company's products and services are grouped
within the following businesses: Diabetes Supplies; Consumer Healthcare, which
includes OTC ("over-the-counter") Medical Devices and Urinary Discomfort
Products; and Professional Products, which include Prescription Urologicals.
I. Diabetes Supplies
The Company entered the Diabetes Supplies business with its August 1996
acquisition of Liberty Medical Supply, Inc. ("Liberty Medical"). Liberty Medical
has grown to be the leading direct mail distributor of diabetes testing supplies
for senior citizens covered by Medicare. Liberty Medical's patient-focused
services serve more than 80,000 active customers throughout the United States.
Liberty Medical is headquartered in Palm City, Florida and was founded
in 1989. Liberty Medical is a participating Medicare provider which directly
bills and is paid by Medicare and/or the patient's medi-gap insurer, rather than
the patient. This procedure benefits the patient by assuring automatic and
timely delivery of supplies, while avoiding the need for the patient to prepare
paperwork and pay the cost of the supplies while awaiting subsequent
reimbursement.
Liberty Medical pioneered the development of sophisticated media
advertising to reach an untapped portion of the Medicare-eligible diabetes
patient market. Approximately $13 million has been spent primarily to accumulate
over 80,000 active customers and on building the Liberty Medical trade name
through a wide variety of media, principally television, but also including
print, direct mail, and radio.
Approximately 16 million people, or roughly 6% of the total United
States population, are afflicted with diabetes, with about half of them having
actually been diagnosed. Approximately 1.2 million of these patients fall within
Liberty Medical's target market of senior citizens using insulin and eligible
for Medicare. This patient population is growing rapidly, with more than 650,000
new cases diagnosed each year in the entire population. Diabetes is a chronic
disease in which the body's metabolism of glucose is ineffective due to
inadequate production of insulin. Frequent monitoring of blood glucose has been
documented as an important part of managing diabetes to help avoid serious
medical complications, such as coronary artery disease, glaucoma, and
circulatory problems which can lead to limb amputation. The cost to manage
diabetes is high; the average person with diabetes spends $1,200 per year on
supplies to test and control the disease.
Medicare currently reimburses up to 80% of the cost of testing supplies
for eligible diabetics, but does not reimburse for insulin or syringes and does
not reimburse non-insulin using diabetics. The 1997 Balanced Budget Act expands
Medicare coverage to include diabetics who do not use insulin. As a result, on
July 1, 1998, the market for Liberty Medical's services will grow by
approximately 2 million patients. According to statistics from the American
Diabetes Association (ADA), this change to cover non-insulin using patients will
increase the number of Medicare-eligible seniors with diabetes to approximately
3.2 million.
II. Consumer Healthcare
The Consumer Healthcare Group operating out of the Company's
subsidiary, PolyMedica Healthcare, Inc. or "PMH", focuses on female urinary
discomfort products, digital thermometry, medication compliance products, and
home health aid products. PMH holds the number one private label market position
in digital thermometry and the number two overall market position. These
products are sold through an extensive network to major retailers, including
most of the largest drug store chains and mass merchandisers. Sales of the
Company's digital thermometry products continue to grow through customer
expansion and new product introduction. The Company's urinary Discomfort
Products for women include AZO STANDARD(R), which is currently the number one
selling product in a growing market segment; AZO CRANBERRY(R), a dietary
supplement which helps maintain a healthy urinary tract; and the new AZO TEST
STRIPS(TM), a home diagnostic test kit for urinary tract infections.
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III. Professional Products
PolyMedica's Professional Products Group operating out of the Company's
subsidiary, PolyMedica Pharmaceuticals (U.S.A.), Inc. or "PMP", represents one
of the broadest lines of prescription urology products available (excluding
anti-infectives), including urinary analgesics, antispasmodics, topical
anesthetics and suppositories. The Company's URISED(R), ANESTACON(R),
CYSTOSPAZ(R) and CYSTOSPAZ-M(R) analgesics and antispasmodics provide effective
symptomatic relief for urinary pain, burning and spasms. B&O(R) and
AQUACHLORAL(R) suppositories are used by patients unable to tolerate oral
dosages of systemic analgesics and sedatives.
Sale of Wound Care Business
In July 1997, the Company sold certain assets of its U.S. and U.K.
wound care operations. Under the terms of the sale, the purchaser, Innovative
Technologies Group Plc ("IT"), paid the Company $9.00 million in cash and issued
to the Company an unsecured promissory note in the face amount of $4.00 million.
The Company could realize an additional $4.50 million if IT achieves certain
milestones, based on the performance of IT's stock and the performance of the
acquired business. The Company will recognize additional proceeds in excess of
the $9.00 million cash received only when and to the extent realized. The
Company's fiscal year ended March 31, 1998 statement of operations includes a
$4.13 million pretax gain on the sale of the wound care business.
Business Strategies
The Company's overall strategy is to transition from a
technology-driven company to a market-driven company. The May 1996 spinoff of
CardioTech, the August 1996 acquisition and subsequent expansion of Liberty
Medical, and the July 1997 sale of the wound care business were key components
of this strategy. The Company's strategy includes:
Expand leadership position in providing diabetes supplies to senior
citizens. Since the August 1996 acquisition of Liberty Medical, the Company
invested in an ongoing program of television advertising to reach a much larger
portion of the Medicare-eligible diabetes patient market. This campaign has
resulted in a significant increase in sales as Liberty Medical has increased its
active customers from 17,000 to more than 80,000. The Company continues to seek
opportunities to deliver new products to a broader customer base by leveraging
its efficient, mail-order distribution system and software for billing and
customer monitoring. To manage its growth effectively, Liberty Medical continues
to expand, upgrade and develop its operations and information systems to
continue its high level of customer service.
The July 1, 1998 expansion of Medicare reimbursement includes, for the
first time, non-insulin using patients; these patients represent a major
opportunity for the Company to leverage its current leading position in
direct-mail distribution to insulin using seniors. In addition, the Company has
begun re-contacting its existing database of more than 40,000 non-insulin using
seniors with diabetes in order to generate more repeat business and has produced
and is market-testing new television advertising which is targeted to both
insulin and non-insulin using customers.
The Company is also exploring other expansion opportunities such as the
trend in managed care towards outsourcing diabetes care services to other payors
and providers.
Grow the consumer healthcare business. Fueled by the growth in demand
for the Company's urinary discomfort products, as well as by the strength of
sales of the Company's digital thermometers, the consumer healthcare group
achieved a record level of sales in fiscal 1998. Continued growth in the
consumer healthcare market is a strategic objective as the Company seeks to
leverage leading positions in its core markets of urinary discomfort, digital
thermometry and medication compliance products.
Acquire complementary businesses. In order to take advantage of
economies of scale in production and marketing, the Company continues to
evaluate opportunities for the acquisition of businesses and products which
complement the Company's existing product lines. In selecting and evaluating
acquisition candidates, the Company examines the potential market opportunities
for products that can be distributed through the Company's existing marketing
infrastructure by utilizing its strengths in sales, marketing and distribution.
Existing Products
Diabetes Supplies. Liberty Medical ships to more than 80,000 customers
in the U.S., making it the largest direct-mail provider of diabetes testing
products in the country to Medicare-eligible seniors. Liberty Medical sells more
than 200 name-brand products supplied by Lifescan, Boehringer Mannheim, Bayer,
and others. These products include glucose test strips and monitors,
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lancets, insulin, syringes, and other products. Sales of glucose test strips
represented 51.9% of the Company's consolidated revenues for the fiscal year
ended March 31, 1998.
Consumer Healthcare Products. PMH focuses on female urinary tract
discomfort, digital thermometry, and medication compliance products.
The Company's three principal non-prescription pharmaceutical products
are AZO STANDARD(R), which provides relief from urinary tract discomfort; AZO
CRANBERRY(R), a dietary supplement which helps maintain a healthy urinary tract;
and the new AZO TEST STRIP(TM), a home diagnostic test kit for urinary tract
infections. As of March 31, 1998, the AZO line of products held the dominant
share of the OTC female urinary tract discomfort market (over 46%), despite a
new competitive entry with a large promotional budget.
The Company markets a line of thermometers which includes products with
traditional mercury and digital displays. Sales of the Company's glass and
digital thermometers, both branded and private label represented 14.9% and 12.2%
of the Company's consolidated revenues for the fiscal years ended March 31, 1996
and 1997, respectively. The Company has the number one private-label market
thermometer position and number two overall market position. The Company custom
manufactures and/or distributes its other consumer healthcare products under the
brand names of BASIS(R), MEDI-AID(R), PolyMedica and PeeDee Dose(TM).
Items in the Company's consumer healthcare product line are either
manufactured by the Company or by others to the Company's specifications or are
purchased by the Company for resale. In addition, the Company provides private
label products for many national retailers. The Company's major customers in the
United States include most of the top pharmacy chains, major supermarkets and
mass merchandisers, including CVS, Eckerd, Rite-Aid and Walgreen Co. as well as
the four largest drug wholesalers. The Company's consumer products are sold in
retail pharmacies in the beauty aid, cough and cold, baby and incontinence skin
care sections.
Professional Products. PMP continues to generate significant cash flow.
The Company is able to achieve significant margins on its prescription
pharmaceutical products without extensive advertising and promotion. Net product
sales of URISED(R), the leading prescription pharmaceutical product, more than
doubled for the year ended March 31, 1998, as compared to the year ended March
31, 1997. The Company believes this increase is a result of a reduction in the
supply of generic products in the marketplace. Professional products represents
one of the broadest lines of prescription urology products available (excluding
anti-infectives), including urinary analgesics, antispasmodics, topical
anesthetics and suppositories. URISED(R), CYSTOSPAZ(R) and CYSTOSPAZ-M(R)
analgesics and antispasmodics provide effective symptomatic relief for urinary
pain, burning and spasms.
Products Under Development
The Company is currently developing new thermometry products and is
considering new urinary discomfort products in its AZO family.
Major Customers
For the fiscal year ended March 31, 1996, total revenues from Mylan
Laboratories, Inc., McKesson Drug Company, Bergen Brunswig Drug Company and
Bristol-Myers Squibb were 12.9%, 11.7%, 10.8%, and 11.2%, respectively, of total
consolidated revenues. For the fiscal years ended March 31, 1998 and 1997, no
customer represented more than 10% of the Company's consolidated revenues.
Patents and Trade Secrets
The Company has proprietary manufacturing processes and trade secrets
related to its in-house pharmaceutical production. The Company owns one patent
for the Flexible Tip Digital Thermometer with Fever Alarm(TM).
Manufacturing
The Company's pharmaceutical products are currently manufactured
in-house and by others on its behalf. The Company purchases a majority of its
consumer healthcare products from other manufacturers.
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By April 1997, all of the steps to validate, manufacture and sell
pharmaceutical products made at the Company's Woburn facility were completed.
With receipt of an FDA Establishment Registration Number, in-house manufacturing
is now underway for several established products, including AQUACHLORAL(R),
B&O(R) and URISED(R). The Company's state-of-the-art automated suppository
machine forms, fills and seals automatically and the computer-controlled,
hands-off equipment provides improved manufacturing efficiency.
Government Regulation
Political, economic and regulatory influences are resulting in
fundamental changes in the healthcare industry in the United States. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methods. Sales of a
large portion of the Company's products depend to a significant extent on the
availability of reimbursement to the Company's customers by government and
private insurance plans.
Any further reduction in the reimbursement provisions currently in
effect for the Company's diabetes supplies products which are reimbursable under
Medicare would reduce the Company's revenues and earnings.
The production and marketing of the Company's products and its ongoing
research and development activities are subject to regulation by numerous
governmental authorities in the United States.The Company cannot predict the
extent to which government regulations or changes thereto might have an adverse
effect on the production and marketing of the Company's existing or future
products. Products that the Company may develop in the future may require
clearance by the Food and Drug Administration ("FDA") in the United States.
Although the Company believes each of these products, if successfully developed,
will obtain FDA clearance, no assurance can be made that each will obtain such
clearance, or that the process of clearance will be without undue delay or
expense.
The Company is subject to numerous federal, state and local laws
relating to such matters as controlled drug substances, safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. For example, the Drug
Enforcement Administration ("DEA") regulates controlled drug substances, such as
narcotics, under the Controlled Substances Act and the Controlled Substances
Import and Export Act. Manufacturers, distributors and dispensers of controlled
substances must be registered and inspected by the DEA, and are subject to
inspection, labeling and packaging, export, import, security, production quota
and record keeping, and reporting requirements. The Company currently markets
two prescription drug products containing controlled drug subjects, and
therefore is subject to the DEA regulatory requirements. In addition, labeling
and promotional activities relating to medical devices and drugs are, in certain
instances, subject to regulations by the Federal Trade Commission. There can be
no assurance that the Company will not be required to incur significant costs to
comply with such laws and regulations in the future or that such laws or
regulations will not have a material adverse effect upon the Company's ability
to do business.
Competition
The Company is engaged in rapidly evolving and highly competitive
fields. Many major pharmaceutical, medical product and personal care companies
in the United States and abroad seek to develop competitive products.
Competition from medical device manufacturers, pharmaceutical companies and
others is intense and expected to increase. Many of these companies have
substantially greater capital resources, research and development staffs and
facilities and experience in obtaining regulatory approvals, as well as in the
marketing and distribution of products, than the Company.
In the diabetes supply market, Universal Self Care, Inc. and Transworld
Home Healthcare, Inc., are publicly-held companies which compete with Liberty
Medical in the direct-mail supply business. There are several smaller
privately-held companies which also compete in this market.
In the consumer healthcare products market, the Company competes with
various other suppliers for retail shelf space and consumer purchase. While
there are numerous companies that manufacture and market consumer healthcare
products, the Company believes that no single company is readily identifiable by
consumers as a maker of products which attempt to detect or monitor medical
problems in the home. The Company believes that it offers consumers practical,
easy-to-use products at reasonable prices. In the urinary discomfort category,
the Company's AZO STANDARD(R) urinary analgesic is one of the category leaders.
Competitors include Numark Laboratories, Inc. (Cystex(TM)), Breckenridge
Pharmaceutical, Inc. (Prodium(TM)) and Johnson & Johnson (Uristat(TM)).
In the professional market, numerous pharmaceutical companies develop
and market prescription products which compete with the Company's products on a
branded and generic basis. The Company's principal branded competitors include:
Astra USA, Inc.
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(Xylocaine(R) vs. ANESTACON(R)); G & W Labs, Inc. (chloral hydrate vs.
AQUACHLORAL(R)); Parke-Davis, a division of Warner-Lambert., (Pyridium(R) vs.
URISED(R)); Schwarz-Pharma (Levsin(TM) line vs. CYSTOSPAZ(R) line); and
Wyeth-Ayerst Laboratories, a division of American Home Products Corp.
(belladonna and opium vs. B&O(R) SUPPRETTES(R)).
Employees
As of March 31, 1998, the Company had 349 full-time employees. The
Company expects to employ additional personnel as it expands its operations. The
Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's facilities are located in Woburn, Massachusetts; Palm
City and Stuart, Florida and Golden, Colorado. The Company's corporate
headquarters are located in Woburn in a 60,000 square foot facility which the
Company owns. The Company also leases approximately 50,000 square feet at its
facilities in Palm City and Stuart, Florida and approximately 30,000 square feet
at its Golden, Colorado facility.
The Company believes that its current facilities will be adequate for
its current and anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through solicitations of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Steven J. Lee.......................... 51 Chairman and Chief Executive Officer
Arthur A. Siciliano, Ph.D.............. 55 President; President, PolyMedica Pharmaceuticals
(U.S.A.), Inc.
Eric G. Walters........................ 46 Chief Financial Officer, Treasurer and Clerk
Randy M. Sloan......................... 41 Vice President of Marketing; Group Executive,
PolyMedica Healthcare, Inc.
Mark A. Libratore...................... 47 Vice President; President, Liberty Medical Supply, Inc.
Robert J. Zappa . . . . . ............. 54 Vice President; President, PolyMedica Healthcare, Inc.
</TABLE>
Mr. Lee has been Chairman of the Company since June 1996 and Chief
Executive Officer and a director of the Company since May 1990. Mr. Lee served
as President of the Company from May 1990 through June 1996. From March 1990 to
May 1990, Mr. Lee was a Manager in the Mergers and Acquisitions practice at
Coopers & Lybrand. From November 1987 to March 1990, Mr. Lee was President and a
director of Shawmut National Ventures, the venture capital division of Shawmut
Bank, N.A. From 1984 to 1986, he was President, Chief Executive Officer and a
director of RepliGen Corporation, a biotechnology company. Mr. Lee also spent
eleven years in venture capital as President of Venture Management Advisors and
at Bankers Trust Company. Mr. Lee currently serves as a director of Commonwealth
BioVentures, Inc. and Fibersense Technology Company.
Dr. Siciliano has been President of the Company since June 1996,
Executive Vice President since July 1994, Senior Vice President since January
1993, Vice President, Pharmaceutics of the Company since July 1991 and served as
Vice President, Manufacturing from June 1990 to July 1991. From the Company's
inception until June 1990, he served as Chief Operating Officer. From 1984 to
1986, Dr. Siciliano served as President of Microfluidics Corporation, a high
technology equipment manufacturer and a subsidiary of the Biotechnology
Development Corporation and then helped found a subsidiary, MediControl
Corporation, and served as its President from 1986 to 1989. He served as
President of the Heico Chemicals Division of the Whittaker Corporation from 1982
to 1984, as General Manager of Reheis Chemicals (Ireland), Ltd. during 1981 and
as Technical Director for Reheis Chemical Co., a division of Revlon Inc., from
1975 to 1982. Dr. Siciliano also served as Director of Corporate Research for
Kolmar Laboratories, Inc. from 1973 to 1975 and as Senior Scientist for The
Gillette Company from 1969 to 1973.
Mr. Walters joined the Company in August 1990 as Chief Financial
Officer and Treasurer. From 1987 to 1990, Mr. Walters served in various
positions at John Hancock Capital Growth Management, Inc., most recently as
Assistant Treasurer. From 1983 to 1987, Mr. Walters served as Controller of
Venture Founders Corporation and from 1979 to 1983, he was employed at Coopers &
Lybrand, most recently as an Audit Supervisor. Mr. Walters is a Certified Public
Accountant.
Mr. Sloan has served as Vice President of Marketing of the Company
since October 1996 and Group Executive since March 1997. From 1984 to 1996, Mr.
Sloan served in various positions at Ciba Self-Medication, Inc., a division of
Ciba-Geigy, most recently as Vice President of Marketing. From 1980 to 1984, Mr.
Sloan was employed at Colgate Palmolive Company, most recently as a Product
Manager in their Household Products Group. Mr. Sloan holds an M.B.A. from the
University of Chicago and a B.S. in Finance and Accounting from the University
of Pennsylvania.
Mr. Libratore has served as President of Liberty Medical Supply, Inc.
since 1989. He has managed this business from its inception. Mr. Libratore has
23 years of medical experience and has been a respected member of the medical
community for many years. Mr. Libratore is a graduate of the Hartford Hospital
School of Respiratory Therapy of the University of Connecticut.
Mr. Zappa has been a Vice President of the Company since June 1996 and
was named President of PolyMedica Healthcare, Inc. in September 1992. He has
over 25 years of experience in all aspects of sales and distribution. Mr. Zappa
served as President, Chief Operating Officer and Director of American CDI, Inc.
from June 1991 to September 1992. From 1981 until April 1990, he was President
and Chief Executive Officer of R. J. Zappa Distributing, Inc. ("RJZ Dist."), a
distributor of home appliances, personal care products and electronics. Mr.
Zappa sold all of the shares of RJZ Dist. to JRE Holdings Co. ("JRE") in
November 1988. Prior to 1982, Mr. Zappa was Vice President and Partner in a
privately held distribution company from 1975 to 1982.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
SELECTED FINANCIAL DATA
At March 31, 1998, the Company's Common Stock was held by 514 holders
of record. The Company believes that the actual number of beneficial owners of
the Company's Common Stock is substantially greater than the stated number of
holders of record because a substantial portion of the Common Stock outstanding
is held in "street name."
The following table sets forth the high and low sales price per share
of Common Stock on the American Stock Exchange:
FISCAL YEAR 1997
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HIGH LOW
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1st Quarter 9 3/4 5
2nd Quarter 5 7/8 4 5/8
3rd Quarter 5 5/8 3 3/8
4th Quarter 6 3/8 3 5/8
FISCAL YEAR 1998
----------------
HIGH LOW
---- ---
1st Quarter 8 7/8 4 1/4
2nd Quarter 14 1/4 7 3/4
3rd Quarter 14 15/16 9 1/16
4th Quarter 13 1/2 9 3/4
The Company has never declared or paid any cash dividends on its common
stock. For the foreseeable future, the Company expects to retain its earnings to
finance the growth of its business.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Total revenues $73,825 $30,453 $24,763 $26,609 $22,194
Income from continuing operations 7,619 2,322 3,075 2,394 275
Net income (loss) 7,619 2,322 274 1,789 (415)
Income (loss) per common share, diluted .79 .27 .04 .26 (.06)
Weighted average number of common
shares outstanding, diluted 9,691 8,618 7,492 6,790 6,866
Balance Sheet Data
Cash and cash equivalents $6,440 $11,028 $23,302 $14,006 $10,305
Total assets 92,401 75,233 72,573 65,753 64,532
Total liabilities 39,473 31,861 29,293 29,027 29,188
Total debt 22,906 25,476 24,400 24,433 24,360
Shareholders= equity 52,928 43,372 43,280 36,726 35,344
</TABLE>
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In connection with the distribution of CardioTech International, Inc.
shares to PolyMedica shareholders in June 1996, CardioTech's operations are
accounted for as discontinued operations in the Company's 1996 and prior
statements of operations.
In 1997, the Company determined that it is more likely than not that
certain deferred tax assets will be realized and accordingly eliminated the
related valuation allowance. Realization of the net deferred tax assets is
dependent on generating sufficient taxable income prior to the expiration of
loss carryforwards. Although realization is not assured, management believes
that it is more likely than not that such net deferred tax assets will be
realized. As a result, the Company recorded a tax benefit in 1997.
In 1998, net income included $2.74 million, or $0.29 per common share,
diluted, related to the gain on the July 1997 sale of the Company's wound care
business.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FUTURE OPERATING RESULTS
This Annual Report contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated or suggested by such forward-looking
statements. These factors include, without limitation, those set forth below in
the section titled, "Factors Affecting Future Operating Results" in this Annual
Report.
OVERVIEW
Business
PolyMedica is a leading provider of targeted medical products and
services primarily focused in the diabetes supplies and consumer healthcare
markets. PolyMedica sells diabetes supplies through its wholly-owned subsidiary
Liberty Medical Supply, Inc. Liberty Medical is a leading patient-focused,
direct-mail distributor of more than 200 name-brand diabetes products to
insulin-using, Medicare-eligible seniors with diabetes. PolyMedica also holds a
leading position in the over-the-counter urinary health market and distributes a
broad range of other medical products, including digital thermometers and
compliance products, primarily to food and drug retailers and mass merchandisers
nationwide. The Company also markets, manufactures and distributes a line of
prescription urological and suppository products.
In September 1997, the Company changed its name from PolyMedica
Industries, Inc. to PolyMedica Corporation.
Diabetes Supplies
Liberty Medical is the leading mail-order distributor of diabetes
testing supplies to patients who use insulin and have Medicare or private
insurance coverage. Liberty Medical provides a simple, reliable way for seniors
to obtain their diabetes testing supplies and the Medicare and insurance
benefits to which they are entitled. Liberty Medical offers a wide array of
products from a full range of name-brand manufacturers, contacts the patient's
doctor to obtain the required prescription information and written
documentation, files the appropriate insurance forms and bills Medicare and
private insurers directly. This service frees the patient from paying for his or
her diabetes-related upfront expenses, and offers the convenience of free home
delivery of supplies.
Consumer Healthcare
The Company's consumer healthcare products are focused on three areas:
female urinary tract discomfort, digital thermometers and medication compliance
products. In the urinary tract discomfort area, the Company's two products are
AZO-STANDARD(R), which provides relief from urinary tract discomfort, and
AZO-CRANBERRY(R), a dietary supplement which helps maintain a healthy urinary
tract. During the three months ended March 31, 1998, the Company introduced AZO
TEST STRIPS(TM), an in-home urinary tract infection testing kit which allows
patients to call their doctors with testing results.
The Company's consumer healthcare products also include digital,
digital flexible tip, basal and glass thermometers, as well as approximately 40
other home-use diagnostic and compliance products. PolyMedica has patented and
introduced a new flexible tip thermometer that became available for the
1997-1998 cough and cold season. The Company custom manufacturers and/or
distributes its other consumer healthcare products under private label and under
the brand names of BASIS(R), MEDI-AID(R), PolyMedica and PeeDee Dose(TM).
Professional Products
PolyMedica's professional products represent one of the broadest lines
of prescription urology products excluding anti-infectives, available, including
urinary analgesics, anti-spasmodics, local anesthetics and suppositories.
URISED(R), CYSTOSPAZ(R) and CYSTOSPAZ-M(R) analgesics and anti-spasmodics
provide effective symptomatic relief for urinary pain, burning and spasms. Many
urology offices, as well as hospitals, purchase the local anesthetic
ANESTACON(R) for use in diagnostic procedures and the catheterization process.
B&O(R) and AQUACHLORAL(R) suppositories are used by patients unable to tolerate
oral dosages of systemic analgesics and sedatives.
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<PAGE> 11
Recent Transactions
In May 1996, the Company's board of directors declared a stock dividend
for the purpose of making a distribution (the "Distribution") to the Company's
shareholders of all its shares of CardioTech International, Inc. ("CardioTech").
CardioTech's operations are accounted for as discontinued operations in the
Company's 1996 statements of operations, and accordingly, its operations are
segregated in the accompanying consolidated statements of operations for the
1996 and prior periods presented. Net sales, operating costs and expenses, and
other income and expense have been reclassified for amounts associated with
CardioTech's discontinued operations.
In August 1996, the Company acquired all of the outstanding stock of
Liberty Medical in a transaction accounted for under the purchase method of
accounting. Accordingly, the net assets and operations of Liberty Medical have
been included in the Company's financial statements since the date of
acquisition.
In July 1997, the Company sold certain assets of its U.S. and U.K.
wound care operations. Under the terms of the sale, the purchaser, Innovative
Technologies Group Plc ("IT"), paid the Company $9.00 million in cash and issued
to the Company an unsecured promissory note in the face amount of $4.00 million.
The Company could realize an additional $4.50 million if IT achieves certain
milestones, based on the performance of IT's stock and the performance of the
acquired business. The Company will recognize additional proceeds in excess of
the $9.00 million cash received only when and to the extent realized. The
Company's fiscal year ended March 31, 1998 statement of operations includes a
$4.13 million pretax gain on the sale of the wound care business.
Other
Advertising, promotional, and other marketing costs are charged to
earnings in the period in which they are incurred. Promotional and sample costs
whose benefit is expected to assist future sales are expensed as the related
materials are used. In accordance with Statement of Position 93-7,
direct-response advertising and related costs for all periods presented are
capitalized and amortized to selling, general and administrative expense on an
accelerated basis during the first two years of a four-year period. The
amortization rate is such that 55% of such costs are expensed after two years
from the date they are incurred, and the remaining 45% is expensed on a straight
line basis over the next two years. Revenues generated from new customers as a
result of direct-response advertising have historically resulted in a revenue
stream lasting seven years. Management has selected a more conservative
four-year amortization period, in consideration of the "Factors Affecting Future
Operating Results" described herein. Management assesses the realizability of
the amounts of direct-response advertising costs reported as assets at each
balance sheet date by comparing the carrying amounts of such assets to the
probable remaining future net benefits expected to result directly from such
advertising.
Although the use of certain of the Company's products is somewhat
seasonal in nature, the Company does not believe its net product sales, in the
aggregate, are generally subject to material seasonal fluctuations.
The Company operates from manufacturing, distribution and research and
development facilities located in Massachusetts, Florida and Colorado. Virtually
all of the Company's product sales are denominated in U.S. dollars. The
Company's research and development activities are funded from ongoing operations
and relate to the manufacture of pharmaceutical products.
Period to period comparisons of changes in net product sales are not
necessarily indicative of results to be expected for any future period.
RESULTS OF OPERATIONS
Year Ended March 31, 1998 Compared to Year Ended March 31, 1997
Total revenues increased by 142.5% to $73.83 million in the fiscal year
ended March 31, 1998 as compared with $30.45 million in the fiscal year ended
March 31, 1997. This increase is primarily the result of the growth in Liberty
Medical revenues which were generated for the twelve months during the fiscal
year ended March 31, 1998.
Net product sales of diabetes supplies were $48.71 million in the
fiscal year ended March 31, 1998. This performance compares with $8.65 million
in the fiscal year ended March 31, 1997 for the seven month period beginning
with the August 1996 acquisition of Liberty Medical by the Company. This growth
is largely a result of the Company's increased direct-response advertising
spending, including its initiation of television advertising at the end of the
fiscal year ended March 31, 1997. The Company currently expects its promotional
and direct-response advertising spending to continue in order to further the
expansion of Liberty Medical's customer base.
11
<PAGE> 12
Net product sales of consumer healthcare products increased by 8.3% to
$11.15 million in the fiscal year ended March 31, 1998 as compared with $10.30
million in the fiscal year ended March 31, 1997. Sales of advanced thermometry
products increased during the fiscal year ended March 31, 1998, offset by a
decline in sales of AZO STANDARD(R). The Company has added to its product line
by introducing its Flexible-Tip Digital Thermometer with Fever Alarm(TM) which
began shipping in August 1997. The Company believes that the decline in sales of
AZO STANDARD(R) experienced during the first nine months of the year ended March
31, 1998 was due to an inventory oversupply at the distribution level. As shown
by strong sales of AZO STANDARD(R) in the fourth quarter of the year ended March
31, 1998, the Company believes that the inventory oversupply has ended. In
addition, the Company introduced AZO TEST STRIPS(TM), an in-home urinary tract
infection testing kit which allows patients to call their doctors with testing
results. Shipments of AZO TEST STRIPS(TM) began during the three months ended
March 31, 1998.
Net product sales of the Company's professional products increased by
21.4% to $13.97 million in the fiscal year ended March 31, 1998 as compared with
$11.51 million in the fiscal year ended March 31, 1997. Professional products
include a full year of wound care product sales in the fiscal year ended March
31, 1997. The 21.4% increase in professional products sales is primarily due to
additional shipments of URISED(R) in the fiscal year ended March 31, 1998, which
the Company believes is the result of a reduction in the supply of generic
products in the marketplace, partially offset by a lower level of wound care
related sales in the fiscal year ended March 31, 1998 due to the sale of certain
assets of the wound care division in July 1997.
As a percentage of net product sales, overall gross margins were 51.8%
in the fiscal year ended March 31, 1998 and 54.5% in the fiscal year ended March
31, 1997. Gross margins in the fiscal year ended March 31, 1998 decreased due to
the inclusion of significant sales of diabetes-related products, whose gross
margins are lower than the Company average for products sold in the fiscal year
ended March 31, 1997, partially offset by improving margins and higher revenues
of professional products.
As a percentage of total revenues, selling, general and administration
expenses ("SG&A expenses") were 38.7% for the fiscal year ended March 31, 1998
as compared with 40.4% for the fiscal year ended March 31, 1997. SG&A expenses
increased by 131.8% in the fiscal year ended March 31, 1998 to $28.55 million as
compared with $12.32 million in the fiscal year ended March 31, 1997. This
increase is primarily attributable to SG&A expenses related to the expansion of
Liberty Medical, and marketing and advertising costs related to its consumer
healthcare products.
Research and development expenses were $280,000 in the fiscal year
ended March 31, 1998 as compared with $670,000 in the fiscal year ended March
31, 1997. This decrease in research and development costs is a result of the
Company's July 1997 sale of certain assets related to its wound care business.
Investment income decreased by 27.2% to $629,000 in the fiscal year
ended March 31, 1998 as compared with $864,000 in the fiscal year ended March
31, 1997 as the Company earned interest on lower average cash balances in the
fiscal year ended March 31, 1998 due to cash paid for the purchase of Liberty
Medical in August 1996 and investments in direct-response advertising. This use
of cash was partially offset by cash received in July 1997 in connection with
the sale of certain assets related to the Company's wound care business.
Interest expense was $2.69 million in the fiscal year ended March 31, 1998 as
compared with $2.77 million in the fiscal year ended March 31, 1997, as the
Company accrued interest expense in both periods on Guaranteed Senior Secured
Notes due January 31, 2003 (the "Hancock Notes") to the John Hancock Mutual Life
Insurance Company ("Hancock").
Pretax income was $11.49 million in the fiscal year ended March 31,
1998. Excluding the $4.13 million pretax gain described above, pretax income was
$7.36 million as compared with $1.96 million in the fiscal year ended March 31,
1997. The Company's net income was $7.62 million, or $0.79 per diluted common
share, in the fiscal year ended March 31, 1998. Excluding the $2.74 million
after tax gain from the sale of the wound care business, or $0.29 per diluted
common share, income was $4.88 million, or $0.50 per diluted common share. This
performance compares to net income of $2.32 million, or $0.27 per diluted common
share, in the fiscal year ended March 31, 1997.
Year Ended March 31, 1997 Compared to Year Ended March 31, 1996
Total revenues increased by 23% to $30.45 million in the fiscal year
ended March 31, 1997 as compared with $24.76 million in the fiscal year ended
March 31, 1996.
Net product sales of diabetic supplies were $8.65 million in the fiscal
year ended March 31, 1997, for the seven month period beginning with the August
1996 acquisition of Liberty Medical by the Company.
Net product sales of consumer healthcare products increased by 16.7% to
$10.30 million in the fiscal year ended March 31, 1997 as compared with $8.82
million in the fiscal year ended March 31, 1996. Most of the increase in net
product sales in the fiscal year ended March 31, 1997 was due to increased
shipments of thermometry products and AZO STANDARD(R).
12
<PAGE> 13
Net product sales of professional products decreased by 29.5% to $10.93
million in the fiscal year ended March 31, 1997 as compared with $15.50 million
in the fiscal year ended March 31, 1996. Net product sales of prescription
urologicals, which comprised approximately two-thirds of professional product
sales, declined by 10.4% in the fiscal year ended March 31, 1997 as compared to
the fiscal year ended March 31, 1996. Net product sales of wound dressings
declined by 53.9% in the fiscal year ended March 31, 1997 as compared with the
fiscal year ended March 31, 1996. Net product sales of wound dressings
represented 10.5% of Company-wide net product sales as in the fiscal year ended
March 31, 1997 as compared with 28.0% in the fiscal year ended March 31, 1996.
This decline was primarily due to changes in Medicare reimbursement and resulted
in the early termination of the Company's MITRAFLEX(R) supply contract with
Bristol-Myers Squibb.
Royalty, exclusivity, development and license fees increased by 31.7%
to $573,000 in the fiscal year ended March 31, 1997 as compared with $435,000 in
the fiscal year ended March 31, 1996. This increase is primarily due to the
inclusion in the fiscal year ended March 31, 1997 of a fee from Perstorp AB in
connection with the establishment of Perstorp as the exclusive pan-European
distributor of SPYROSORB(R), offset by a decline in royalties earned from
shipments of MITRAFLEX(R) by Bristol-Myers Squibb.
As a percentage of net product sales, overall gross margins were 54.5%
in the fiscal year ended March 31, 1997 and 58.0% in the fiscal year ended March
31, 1996. Gross margins in the fiscal year ended March 31, 1997 decreased
primarily due to the inclusion of significant sales of diabetes related
products, whose gross margins are lower than the Company average for other
products in the fiscal year ended March 31, 1996.
As a percentage of total revenues, SG&A expenses were 40.4% for the
fiscal year ended March 31, 1997 as compared with 36.3% for the fiscal year
ended March 31, 1996. SG&A expenses increased by 37.0% in the fiscal year ended
March 31, 1997 to $12.32 million as compared with $8.99 million in the fiscal
year ended March 31, 1996. This increase is primarily attributable to SG&A
expenses related to the expansion of Liberty Medical, and marketing and
advertising costs related to its consumer healthcare products.
Research and development expenses increased by 3.2% to $670,000 in the
fiscal year ended March 31, 1997 as compared with $649,000 in the fiscal year
ended March 31, 1996.
Investment income decreased by 3.1% to $864,000 in fiscal 1997 as
compared with $892,000 in the fiscal year ended March 31, 1996, as the Company
earned interest on lower average cash balances, in part due to the spinoff of
CardioTech and the purchase of Liberty Medical. Interest expense was $2.77
million in the fiscal year ended March 31, 1997, as compared with $2.68 million
in the fiscal year ended March 31, 1996, as the Company accrued and paid
interest expense in both periods on the Hancock Notes.
The Company's net income increased to $2.32 million, or $0.27 per
diluted common share, in fiscal year ended March 31, 1997. This performance
compares to net income of $274,000, or $0.04 per diluted common share, reported
in the fiscal year ended March 31, 1996. Before taking into account the effect
of discontinued operations, income from continuing operations was $3.07 million,
or $0.41 per diluted common share in the fiscal year ended March 31, 1996. There
were no discontinued operations reported in the fiscal year ended March 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has raised $53.46 million in gross
equity capital, of which $7.16 million was from venture capital financing before
the Company's initial public offering, $39.00 million from its March 1992
initial public offering, $4.55 million from a November 1995 public offering of
common stock and $2.75 million from a March 1996 private placement of common
stock. In January 1993, the Company sold to Hancock $25.00 million of Hancock
Notes.
As of March 31, 1998, the Company had working capital of $21.07
million, including cash and cash equivalents of $6.44 million, which compares
with working capital of $14.63 million as of March 31, 1997. The primary reason
for the increase in working capital as of March 31, 1998, when compared to March
31, 1997, was the receipt by the Company in July 1997 of $9.00 million in cash
in connection with the sale of certain assets related to its wound care
business, and increased sales of diabetes supplies.
Accounts receivable -- trade were $21.2 million and $6.2 million as of
March 31, 1998 and 1997, respectively. The increase is primarily a result of the
overall growth of Liberty Medical's sales in the fiscal year ended March 31,
1998, record shipments to new customers by Liberty Medical in December 1997
which required time to process, and delayed billing in the first six weeks of
calendar 1998. During the fiscal year ending March 31, 1999, the Company expects
days sales outstanding to decrease from the March 31, 1998 balance.
The Company expects that its current working capital and funds
generated from future operations will be adequate to meet its liquidity and
capital requirements for current operations. In the event that the Company
undertakes to make acquisitions of
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<PAGE> 14
complementary businesses, products or technologies, the Company may require
substantial additional funding beyond currently available working capital and
funds generated from operations. The Company is conducting an active search for
the strategic acquisition of complementary businesses, products or technologies
which leverage its marketing, sales and distribution infrastructure. The Company
currently has no commitments or agreements with respect to any such acquisition.
YEAR 2000 COMPLIANCE
The Company has conducted a review of its computer systems to identify
the systems that are affected by the year 2000. The year 2000 problem is the
result of computer programs being written using two digits rather than four to
define the applicable year. The Company intends to upgrade its systems over the
next 12-18 months in an effort to make more detailed data available on a system
wide basis in a timely manner. Such costs will be capitalized and amortized over
the useful life of the new software. The Company believes that with
modifications to existing software and conversions, the year 2000 issue will not
pose significant operational problems for the Company's computer systems. The
Company will continue to address any further year 2000 issues and believes that
any costs relating to such issues will not be material to the Company's
financial condition or results of operations.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The statements contained in this Report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, but not limited to, statements regarding the Company's expectations,
hopes, intentions or strategies regarding the future. Forward-looking statements
include, among others: statements regarding possible future expansion of
diabetes coverage under Medicare; statements regarding future benefits from the
Company's advertising and promotional expenditures; statements regarding future
product revenue levels; statements regarding product development, introduction
and marketing; and statements regarding future acquisitions. All forward-looking
statements included in this Report are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward-looking statements. It is important to note that the Company's
actual results could differ materially from those in such forward-looking
statements.
The future operating results of the Company remain difficult to
predict. The Company continues to face many risks and uncertainties which could
affect its operating results, including without limitation, those described
below.
Healthcare Reimbursement
Political, economic and regulatory influences are resulting in
fundamental changes in the healthcare industry in the United States. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methods. Sales of a
large portion of the Company's products depend to a significant extent on the
availability of reimbursement to the Company's customers by government and
private insurance plans.
Any further reduction in the reimbursement provisions currently in
effect for the Company's diabetes supplies products which are reimbursable under
Medicare would reduce the Company's revenues and earnings.
The processing of third-party reimbursements is a labor-intensive
effort, and delays in processing claims for reimbursement may increase working
capital requirements. Final determination of reimbursements are subject to audit
by Medicare. Medicare audits of the Company to date have not resulted in any
significant adjustments. Future audits may, however, result in retroactive
adjustments for past charges for products and services, and such adjustments
could affect the future operations and earnings of the Company. The Balanced
Budget Act of 1997 expands Medicare coverage to seniors with diabetes who do not
use insulin. Any delay in the expected July 1998 implementation of this
legislation would correspondingly delay the anticipated expansion of Liberty
Medical's market.
Ability to Manage Growth
The Company has expanded its operations rapidly, which has created
significant demands on the Company's systems, its administrative, operational,
development and financial personnel and its other resources. Additional
expansion by the Company may further strain the Company's management, financial
and other resources, including its working capital resources, as a result of
delays in processing claims for third-party reimbursement. Although the Company
has recently upgraded its systems and other steps have been taken to address
these issues, there can be no assurance that such steps will be effective.
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<PAGE> 15
Direct-Response Advertising
In accordance with Statement of Position 93-7, direct-response
advertising and related costs for all periods presented are capitalized and
amortized to selling, general and administrative expense on an accelerated basis
during the first two years of a four-year period. The amortization rate is such
that 55% of such costs are expensed after two years from the date they are
incurred. Revenues generated from new customers as a result of direct-response
advertising have historically resulted in a revenue stream lasting seven years.
Management has selected a more conservative four-year amortization period.
Management assesses the realizability of the amounts of direct-response
advertising costs reported as assets at each balance sheet date by comparing the
carrying amounts of such assets to the probable remaining future net benefits
expected to result directly from such advertising. The Company can expect
fluctuations in its advertising costs to attract and retain new customers. The
Company expects that it will continue to incur substantial direct-response
advertising and related costs in connection with the further expansion of its
diabetes supplies business.
Competition
The Company is engaged in rapidly evolving and highly competitive
fields. Competition from other sellers of diabetes supplies, manufacturers of
healthcare products, pharmaceutical companies and other competitors is intense
and expected to increase. Many of these companies have substantially greater
capital resources, research and development staffs, facilities and experience in
marketing and distribution of products than does the Company. There can be no
assurance that the Company's competitors will not succeed in developing products
and services that are more effective than any that are being developed or sold
by the Company.
The Company believes that the principal competitive factors in the
healthcare products industry include the ability to identify and respond to
customer needs, quality and breadth of service and product offerings, price and
technical expertise. The Company believes that its ability to compete also
depends in part on a number of competitive factors outside its control,
including the ability to hire and retain employees, the development by others of
products and services that are competitive with the Company's products and
services, the price at which others offer comparable products and services and
the extent of its competitors' responsiveness to customer needs.
Dependence on Reorders - Change in Demand for Diabetes Supplies
The Company generally incurs negative cash flow with respect to the
first order for its diabetes supplies from a customer due primarily to customer
acquisition costs, including advertising and Medicare and secondary insurance
compliance costs. Accordingly, the profitability of the Company's diabetes
supplies business depends on recurring orders. Reorder rates are inherently
uncertain and are subject to several factors, many of which are outside of the
Company's control, including customer shifts to nursing homes or other forms of
managed care, customer mortality, changing customer preferences, general
economic conditions and customer satisfaction. Furthermore, efforts are underway
to improve treatment of, and to seek a cure for, diabetes. Significant
developments in either area could substantially reduce or eliminate the demand
for the diabetes supplies sold by the Company.
Dependence on Suppliers
The Company purchases several of its consumer healthcare products,
including its thermometers, from suppliers based in the People's Republic of
China, usually using molds and tooling owned by or committed exclusively to the
Company. To date, the Company has not experienced difficulties in obtaining
timely delivery from these suppliers. Although the Company believes there are
alternate sources available for these products, there can be no assurance that
the Company would be able to acquire products from other sources on a timely or
cost-effective basis in the event current foreign suppliers were unable to
supply these products on a timely basis.
Although the Company has three long-term purchase contracts with
respect to its diabetes supplies business, it operates principally on a
purchase-order basis. Each of the Company's over-the-counter products for
urinary tract discomfort and urinary tract health is manufactured by a single
supplier. Some of the Company's professional products also are manufactured by
single suppliers. PolyMedica is currently taking steps to provide alternate
sources of supply for both of these lines of products, but such efforts are not
yet complete.
Dependence on Single Manufacturing Facility for Professional Products
A majority of the Company's professional products is manufactured at
its headquarters facility in Woburn, Massachusetts. While the Company maintains
business interruption insurance, any prolonged inability to utilize this
facility as a result of fire, natural disaster or other event would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company complies with Good Manufacturing Practices
("GMP") regulations, prescribed by the Food and Drug Administration ("FDA"), in
its internal manufacturing facilities. The FDA enforces the GMP regulations
through its plant inspection program. If the
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<PAGE> 16
Company fails to comply with GMP regulations, the Company could be required to
make material expenditures and could experience manufacturing delays to return
to compliance.
Product Liability
The testing, manufacturing, marketing and sale of medical and consumer
products entail an inherent risk that product liability claims will be asserted
against the Company or its third-party distributors. Certain manufacturers of
healthcare products have been subjected to significant claims for damages
allegedly resulting from their products. The Company currently maintains product
liability insurance coverage which it believes to be adequate for its present
purposes, but there can be no assurance that in the future the Company will be
able to maintain such coverage on acceptable terms or that current insurance or
insurance subsequently obtained will provide adequate coverage against any or
all potential claims.
Reliance on Distributors for Consumer Healthcare and Professional
Products; Limited Direct Marketing Experience
The Company has a limited direct marketing and sales organization, and
relies on its current distributors, for the sale of consumer healthcare and
professional products. The Company's ability to sell its consumer healthcare and
professional products will depend in part on its ability to enter into marketing
and distribution agreements with pharmaceutical, medical device, personal care
and other distributors in the United States and other countries. If the Company
enters into any such agreements, there can be no assurance that the Company's
third-party distributors will be able to market the Company's products
effectively.
Integration of Other Businesses, Products and Technologies
As part of its growth strategy, the Company currently intends to expand
through the acquisition of other businesses, products and technologies. The
Company regularly reviews such potential acquisitions, some of which may be
material. There can be no assurance that the Company will successfully acquire
any businesses, products or technologies, or that any such acquired businesses,
products or technologies will be profitable. The Company does not currently have
any commitments or agreements with respect to any such acquisition.
Government Regulation
Political, economic and regulatory influences are resulting in
fundamental changes in the healthcare industry in the United States. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methods. Sales of a
large portion of the Company's products depend to a significant extent on the
availability of reimbursement to the Company's customers by government and
private insurance plans.
Any further reduction in the reimbursement provisions currently in
effect for the Company's diabetes supplies products which are reimbursable under
Medicare would reduce the Company's revenues and earnings.
The processing of third-party reimbursements is a labor-intensive
effort, and delays in processing claims for reimbursement may increase working
capital requirements. Final determination of reimbursements are subject to audit
by Medicare. Medicare audits of the Company to date have not resulted in any
significant adjustments. Future audits may, however, result in retroactive
adjustments for past charges for products and services, and such adjustments
could affect the future operations and earnings of the Company. The Balanced
Budget Act of 1997 expands Medicare coverage to seniors with diabetes who do not
use insulin. Any delay in the expected July 1998 implementation of this
legislation would correspondingly delay the anticipated expansion of Liberty
Medical's market.
Certain aspects of the Company's business are subject to federal and
state regulation. Federal regulation covers, among other things, reimbursement
for diabetes testing supplies and the manufacturing, distribution and sale of
the Company's drugs and medical devices. The Company believes that its
operations comply with applicable federal and state laws and regulations in all
material respects. However, changes in the law or new interpretations of
existing laws could have a material adverse effect on the market for the
Company's products and services on permissible activities of the Company, and
the relative costs associated with doing business.
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<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following documents are filed as part of this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
<S> <C>
1. INDEX TO FINANCIAL STATEMENTS PAGE
----
Report of Independent Accountants 18
Consolidated Balance Sheets as of March 31, 1998 and 1997 19
Consolidated Statements of Operations for the years ended
March 31, 1998, 1997, and 1996 20
Consolidated Statements of Shareholders' Equity for the
years ended March 31, 1998, 1997, and 1996 21
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997, and 1996 22
Notes to Consolidated Financial Statements 23
2. All schedules are omitted because the required information
is either inapplicable or is presented in the consolidated
financial statements or related notes thereto.
3. The Exhibit Index immediately preceding the Exhibits
filed as part of this Annual Report on Form 10-K is
incorporated herein by reference.
</TABLE>
17
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF POLYMEDICA CORPORATION:
We have audited the accompanying consolidated balance sheets of
PolyMedica Corporation as of March 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
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, based on our audit, the financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of PolyMedica Corporation as of March 31, 1998 and 1997, and
consolidated results of its operations and its cash flows for each of the three
years in the period ended March 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
---------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 6, 1998
<PAGE> 19
POLYMEDICA CORPORATION
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
MARCH 31, MARCH 31,
1998 1997
ASSETS ---------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,440 $ 11,028
Accounts receivable -- trade (net of allowances
of $3,914 and $1,061 in 1998 and 1997, respectively) 21,207 6,202
Inventories 4,857 5,481
Deferred tax asset 2,075 --
Prepaid expenses and other current assets 845 958
------- --------
Total current assets 35,424 23,669
Property, plant, and equipment, net 6,285 6,271
Intangible assets, net 39,555 42,024
Direct response advertising, net 10,899 1,620
Deferred tax asset -- 1,133
Other assets, net 238 516
------- --------
Total assets $92,401 $ 75,233
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade $ 8,221 $ 2,982
Accrued expenses 3,805 3,403
Senior debt and notes payable 2,329 2,658
------- --------
Total current liabilities 14,355 9,043
Senior debt and notes payable, net 20,577 22,818
Deferred income taxes 4,541 --
------- --------
Total liabilities 39,473 31,861
------- --------
Commitments (Note L)
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued or outstanding -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 8,909,718 and 8,583,001 shares
issued in 1998 and 1997, respectively 89 86
Treasury stock, at cost (129,560 and 172,559 shares
in 1998 and 1997, respectively) (706) (1,115)
Additional paid-in capital 54,498 53,338
Accumulated deficit (164) (7,783)
Notes receivable from officers (789) (929)
Currency translation adjustment -- (225)
------- --------
Total shareholders' equity 52,928 43,372
------- --------
Total liabilities and shareholders' equity $92,401 $ 75,233
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
19
<PAGE> 20
POLYMEDICA CORPORATION
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net product sales $ 73,825 $ 29,880 $ 24,328
Royalties, exclusivity, development
and license fees -- 573 435
--------- --------- ---------
Total revenues 73,825 30,453 24,763
Cost of product sales 35,575 13,603 10,210
--------- --------- ---------
Total revenues, less cost of product sales 38,250 16,850 14,553
Operating expenses:
Selling, general and administrative 28,546 12,315 8,988
Research and development 280 670 649
--------- --------- ---------
28,826 12,985 9,637
--------- --------- ---------
Income from operations 9,424 3,865 4,916
Other income and expense:
Gain on sale of wound care business 4,126 -- --
Investment income 629 864 892
Interest expense (2,688) (2,774) (2,678)
--------- --------- ---------
2,067 (1,910) (1,786)
Income from continuing operations
before income taxes 11,491 1,955 3,130
Income tax provision (benefit) 3,872 (367) 55
--------- --------- ---------
Income from continuing operations 7,619 2,322 3,075
Discontinued operations:
Loss from operations -- -- (923)
Loss on disposal -- -- (1,878)
--------- --------- ---------
-- -- (2,801)
--------- --------- ---------
Net income $ 7,619 $ 2,322 $ 274
========= ========= =========
Income (loss) per weighted average share, basic:
Income from continuing operations $ .88 $ .28 $ .43
Discontinued operations -- -- (.39)
--------- --------- ---------
Net income per weighted average share, basic $ .88 $ .28 $ .04
========= ========= =========
Income (loss) per weighted average share, diluted:
Income from continuing operations $ .79 $ .27 $ .41
Discontinued operations -- -- (.37)
--------- --------- ---------
Net income per weighted average share, diluted: $ .79 $ .27 $ .04
========= ========= =========
Weighted average shares, basic 8,652 8,259 7,096
Weighted average shares, diluted 9,691 8,618 7,492
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
20
<PAGE> 21
POLYMEDICA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1997, AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------------------------- ------------------------- -------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 6,967,292 $69 (143,965) $ (935) $48,555
Exercise of stock options 13,406 1 63
Issuance of common stock 1,131,937 11 6,272
Purchase of common stock (34,700) (270)
Issuance of treasury stock under the
1992 Employee Stock Purchase Plan 18,760 169 (83)
Amendment to warrant issued in
connection with Hancock Notes 110
Currency translation adjustment
Net Income
--------- -- ------- ------ ------
Balance at March 31, 1996 8,112,635 $81 (159,905) $(1,036) $54,917
Exercise of stock options 245,966 3 (11,880) (110) 924
Issuance of common stock 224,400 2 1,115
Purchase of common stock (8,900) (38)
Officer notes receivable
Payment of officer note receivable (9,832) (93)
Issuance of treasury stock under the
1992 Employee Stock Purchase Plan 17,958 162 (70)
Distribution of CardioTech stock to
PolyMedica Shareholders (3,548)
Currency translation adjustment
Net Income
--------- -- ------- ------ ------
Balance at March 31, 1997 8,583,001 86 (172,559) (1,115) 53,338
Exercise of stock options 326,717 3 1,450
Issuance of common stock 11,471 125 (125)
Payment of officer notes receivable (3,282) (30)
Issuance of treasury stock under the
1992 Employee Stock Purchase Plan 34,810 314 (165)
Currency translation adjustment
Net Income
Balance at March 31, 1998 8,909,718 $89 (129,560) $ (706) $54,498
========= == ========= ====== ======
</TABLE>
<TABLE>
<CAPTION>
NOTES CURRENCY TOTAL
ACCUMULATED RECEIVABLE TRANSLATION SHAREHOLDER'S
DEFICIT FROM OFFICERS ADJUSTMENT EQUITY
------- ------------- ---------- ------
<S> <C> <C> <C> <C>
Balance at March 31, 1995 $(10,379) $(415) $(169) $36,726
Exercise of stock options 64
Issuance of common stock 6,283
Purchase of common stock (270)
Issuance of treasury stock under the
1992 Employee Stock Purchase Plan 86
Amendment to warrant issued in
connection with Hancock Notes 110
Currency translation adjustment 7 7
Net Income 274 274
------- --- --- ------
Balance at March 31, 1996 $(10,105) $(415) $(162) $43,280
Exercise of stock options 817
Issuance of common stock 1,117
Purchase of common stock (38)
Officer notes receivable (607) (607)
Payment of officer note receivable 93
Issuance of treasury stock under the
1992 Employee Stock Purchase Plan 92
Distribution of CardioTech stock to
PolyMedica shareholders (3,548)
Currency translation adjustment (63) (63)
Net Income 2,322 2,322
------- --- --- ------
Balance at March 31, 1997 (7,783) (929) (225) 43,372
Exercise of stock options 1,453
Issuance of common stock
Payment of officer notes receivable 140 110
Issuance of treasury stock under the
1992 Employee Stock Purchase Plan 149
Currency translation adjustment 225 225
Net Income 7,619 7,619
------- --- --- ------
Balance at March 31, 1998 $ (164) $(789) $ 0 $52,928
======= === === ======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
21
<PAGE> 22
<TABLE>
<CAPTION>
POLYMEDICA CORPORATION
(In Thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1998 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from continuing operating activities:
Net income $ 7,619 $ 2,322 $ 274
Loss from discontinued operations -- -- 2,801
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 3,243 3,045 2,708
Amortization of direct-response advertising 2,423 120 --
Direct-response advertising (11,702) (1,740) --
Deferred income taxes 3,604 (1,138) --
Write-off of intangible assets -- -- 142
Loss (gain) on disposal of fixed assets (60) 4 (6)
Provision for bad debts 3,138 237 37
Provision for sales allowances 4,846 1,369 915
Provision for inventory obsolescence 12 71 288
Gain on sale of wound care business (4,126) -- --
Changes in assets and liabilities:
Accounts receivable -- trade (22,988) (3,650) (861)
Inventories (1,390) (1,051) 628
Prepaid expenses and other assets 141 (389) 144
Accounts payable -- trade 5,240 589 (143)
Accrued expenses 125 459 465
------ ------ ------
Total adjustments (17,494) (2,074) 4,317
------ ------ ------
Net cash flows from continuing operations (9,875) 248 7,392
Net cash flows used for discontinued operations -- (389) (2,581)
------ ------ ------
Net cash flows from operating activities (9,875) (141) 4,811
------ ------ ------
Cash flows from investing activities:
Proceeds from sale of wound care business 8,428 -- --
Spinoff of CardioTech International, Inc. -- (3,830) --
Acquisition, net of cash acquired -- (7,375) --
Purchase of property, plant, and equipment (2,303) (913) (1,782)
Proceeds from sale of equipment 100 -- 123
------ ------ -------
Net cash flows from investing activities 6,225 (12,118) (1,659)
------ ------ -------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,606 905 6,432
Purchase of common stock -- (38) (270)
Repayment (issuance) of officer notes receivable 110 (607) --
Repayment of senior debt and notes payable (2,658) (312) --
------ ------ ------
Net cash flows from financing activities (942) (52) 6,162
------ ------ ------
Net (decrease) increase in cash and cash equivalents (4,592) (12,311) 9,314
------ ------ ------
Effect of exchange rate changes on cash 4 37 (18)
Cash and cash equivalents at beginning of period 11,028 23,302 14,006
------ ------ ------
Cash and cash equivalents at end of period $ 6,440 $11,028 $23,302
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,728 $ 2,769 $ 2,667
Income taxes paid 25 10 5
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
22
<PAGE> 23
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
PolyMedica Corporation (the "Company") was incorporated as Emerging
Sciences, Inc. in Massachusetts on November 16, 1988, and commenced commercial
operations in October 1989. In July 1990, the Company changed its name to
PolyMedica Industries, Inc. In June 1996, the Company distributed to its
shareholders all of its shares of CardioTech International, Inc. ("CardioTech")
in a transaction that qualified as a tax free spinoff. In August 1996, the
Company purchased Liberty Medical Supply, Inc., a diabetes supply company. In
July 1997, the Company sold certain assets of its U.S. and U.K. professional
wound care operations. In September 1997, the Company changed its name to
PolyMedica Corporation. The Company and its subsidiaries operate from
manufacturing, distribution, and laboratory facilities located in Massachusetts,
Florida, and Colorado.
The Company generates sales from Diabetic Supplies; Consumer
Healthcare, which includes OTC medical devices and urinary discomfort products;
and Professional Products, which include prescription urologicals.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-and majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The operations of CardioTech are accounted for as discontinued
operations in 1996, and accordingly, its operations are segregated in the
accompanying consolidated statements of operations for the 1996 period
presented. Net revenues, operating costs and expenses, and other income and
expense have been reclassified for amounts associated with CardioTech's
discontinued operations. See Note E.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
EARNINGS PER COMMON SHARE
In its fiscal quarter ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share", which
modifies the calculation of earnings per share ("EPS"). The Standard replaced
the previous presentation of primary and fully diluted EPS to basic and diluted
EPS. Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS includes the dilution of common stock equivalents,
and is computed similarly to fully diluted EPS pursuant to APB Opinion 15. All
prior periods presented have been restated to reflect this adoption. See Note M.
UNCERTAINTIES
The Company is subject to risks common to companies in the healthcare
industry, including but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, receipt of third party health care
reimbursement, and compliance with FDA government regulations.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments
purchased with an initial maturity of three months or less to be cash
equivalents. The Company places its cash and cash equivalents with high credit
quality financial institutions.
23
<PAGE> 24
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS
In 1998 and 1997, the Company invested primarily in commercial paper
with initial maturities of 90 days or less and classifies all investments as
held-to-maturity. All investments held as of March 31, 1998 and 1997 have been
classified as cash equivalents and are carried at amortized cost which
approximates market value.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
INTANGIBLE ASSETS
The Company capitalizes and includes in intangible assets the costs of
acquiring patents on its products, a customer list, a covenant-not-to-compete,
and goodwill, which is the cost in excess of the fair value of the net assets of
acquired companies and product lines. All amortization is computed on the
straight-line basis over the shorter of the economic life of the asset or the
term of the underlying agreement. Patents, a customer list, a
covenant-not-to-compete, and goodwill are amortized over seventeen, seven, ten,
and seven to thirty years, respectively.
LONG-LIVED ASSETS
Management's policy is to evaluate the recoverability of its long-lived
assets when the facts and circumstances suggest that these assets may be
impaired. The test of such recoverability is a comparison of the book value of
the asset to expected cumulative (undiscounted) operating cash flows resulting
from the underlying asset over its remaining life. If the book value of the
long-lived asset exceeds undiscounted cumulative operating cash flows, the
write-down is computed as the excess of the asset over the present value of the
operating cash flow discounted at the Company's weighted average cost of capital
over the remaining amortization period.
MARKETING AND PROMOTIONAL COSTS
Advertising, promotional, and other marketing costs are charged to
earnings in the period in which they are incurred. Promotional and sample costs
whose benefit is expected to assist future sales are expensed as the related
materials are used.
DIRECT-RESPONSE ADVERTISING
In accordance with Statement of Position 93-7, direct-response
advertising and related costs for all periods presented are capitalized and
amortized to selling, general and administrative expense on an accelerated basis
during the first two years of a four-year period. The amortization rate is such
that 55% of such costs are expensed after two years from the date they are
incurred, and the remaining 45% is expensed on a straight line basis over the
next two years. Revenues generated from new customers as a result of
direct-response advertising have historically resulted in a revenue stream
lasting seven years. Management has selected a more conservative four-year
amortization period, in consideration of the "Factors Affecting Future Operating
Results" in Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this Annual Report. Management assesses the
realizability of the amounts of direct-response advertising costs reported as
assets at each balance sheet date by comparing the carrying amounts of such
assets to the probable remaining future net benefits expected to result directly
from such advertising.
The Company capitalized direct-response advertising of $11.70 million
and $1.74 million in 1998 and 1997, respectively. As of March 31, 1998 and 1997,
accumulated amortization was $2.54 million and $120,000, which resulted in a net
capitalized direct-response advertising asset of $10.90 million and $1.62
million, respectively. A total of $2.42 million and $120,000 in direct-response
advertising was amortized and charged to selling, general and administrative
expense in 1998 and 1997, respectively.
24
<PAGE> 25
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER ASSETS
Other assets consist principally of senior debt issuance costs and
deposits for equipment yet to be placed in service. Senior debt issuance costs
are being amortized over ten years.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", assets and liabilities of the Company's foreign
subsidiaries are translated into U.S. dollars using current exchange rates at
the balance sheet date, and revenues and expenses are translated at average
exchange rates prevailing during the period. The resulting translation
adjustments are recorded in a separate component of Shareholders' Equity. As
result of the inactivity of foreign subsidiaries caused by the sale of the U.S.
and U.K. wound care business in July 1997, all foreign currency translation
adjustments were expensed.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation is
computed using the straight-line method based on the estimated useful lives of
the various assets which range from five to twelve years. Amortization of
leasehold improvements is computed using the straight-line method based on
estimated useful lives or terms of the lease, whichever is shorter. Upon
retirement or disposal of fixed assets, the costs and accumulated depreciation
are removed from the accounts, and any gain or loss is reflected in income.
Expenditures for repairs and maintenance are charged to expense as incurred.
Construction in progress is not depreciated until placed in service.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on
temporary differences between the financial statements and tax basis of assets
and liabilities using enacted tax rates expected to be in effect when they are
realized.
REVENUE RECOGNITION
For product sales, the Company recognizes revenue upon shipment.
Contracted development fees from corporate partners are recognized upon
completion of service or the attainment of technical benchmarks, as appropriate.
Royalty revenue from product sales is recognized based upon the terms of the
royalty agreement, principally upon sale by the Company's distributors to end
users.
Included as reductions to gross accounts receivable -- trade are a
sales allowance for returned goods and an allowance for bad debts. The Company
recorded sales returns and bad debt write-offs of $5.13 million and $1.01
million in the fiscal years ended March 31, 1998 and 1997, respectively.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires the classification
of items of comprehensive income by their nature in a financial statement and
the accumulated balance of other comprehensive income separately from retained
earnings, additional paid-in capital and the equity section of the balance
sheet. Management has not yet evaluated the effects of this change on its
reporting of income. The Company will adopt SFAS No. 130 for its fiscal year
ending March 31, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which supercedes FASB Statement No.
14, "Financial Reporting for Segments of a Business Enterprise" and changes the
way public companies report information about operating segments. SFAS No. 131,
which is based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services, major customers and the
material countries in which the entity holds assets and reports revenue.
Management is currently evaluating the effects of this change on its reporting
of segment information. The Company will adopt SFAS No. 131 for its fiscal year
ending March 31, 1999.
25
<PAGE> 26
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain amounts in the prior financial statements have been
reclassified to conform with the current year presentation.
C. SALE OF WOUND CARE BUSINESS:
In July 1997, the Company sold certain assets of its U.S. and U.K.
wound care operations. Under the terms of the sale, the purchaser, Innovative
Technologies Group Plc ("IT"), paid the Company $9 million in cash and issued to
the Company an unsecured promissory note in the face amount of $4 million. The
Company could realize an additional $4.5 million if IT achieves certain
milestones, based on the performance of IT's stock and the performance of the
acquired business. The Company will recognize as income additional proceeds in
excess of the $9 million cash received only when and to the extent realized. The
net book value of assets sold and pretax gain as a result of this transaction
were $4.9 million and $4.1 million, respectively. Gain on the sale for the year
ended March 31, 1998 was as follows:
Gain on sale of wound care business $4,126
Provision for income taxes related to gain 1,390
-----
Gain on sale, net of income taxes $2,736
=====
Income per common share, diluted $ .29
=====
D. PURCHASE OF LIBERTY MEDICAL SUPPLY, INC.:
On August 30, 1996, the Company acquired all of the outstanding stock
of Liberty Medical Supply, Inc. in a transaction accounted for under the
purchase method of accounting. Accordingly, the net assets and operations of
Liberty Medical have been included in the Company's financial statements since
the date of acquisition. The acquisition agreement, as amended on March 26,
1997, for an aggregate purchase price of $10.26 million (including $490,000 of
related expenses), which was comprised of (i) $7.35 million in cash, (ii)
two-year 7% subordinated promissory notes in the aggregate amount of $1.30
million and (iii) 224,400 shares of the Company's common stock.
The purchase price was allocated to net assets acquired based on their
fair value at the date of acquisition, and the excess of the purchase price over
the fair value of the assets acquired was recorded as attributable to a customer
list ($1.82 million, to be amortized over seven years) and goodwill ($6.82
million, to be amortized over twenty years).
If the acquisition had taken place at the beginning of the year ending
March 31, 1997, giving effect to adjustments for amortization of intangible
assets, interest income and interest expense for twelve months, the Company's
pro forma (unaudited) revenues, net income and net income per share for the
twelve months ended March 31, 1997 would have been $35.63 million, $2.50 million
and $.29, respectively. If the acquisition had taken place at the beginning of
the year ended March 31, 1996, the Company's pro forma revenues, net loss and
net loss per share for the twelve months ended March 31, 1996 would have been
$35.1 million, $228,000, and $.03, respectively.
E. DISCONTINUED OPERATIONS:
On March 1, 1996, the Company announced its strategic decision to
distribute to its shareholders all of its shares of CardioTech under a plan
which was approved by the Company's board of directors. In May 1996, the
Company's board of directors declared a stock dividend for the purpose of making
a distribution (the "Distribution") to the Company's shareholders of all of the
outstanding shares it owned in CardioTech. The Company believes that the
distribution of CardioTech Common Stock in the Distribution qualified as a
"tax-free" spinoff under Section 355 of the Internal Revenue Code of 1986, as
amended. CardioTech develops, manufactures and markets its polymer technologies
with particular emphasis on the development of implantable synthetic grafts for
a broad variety of applications, including vascular access grafts, peripheral
grafts and coronary artery bypass grafts.
Discontinued operations as shown on the consolidated statement of
operations for the year ended March 31, 1996 reflect two components. Loss from
discontinued operations, or $923,000, includes all CardioTech operating losses
from April 1, 1995 through February 20, 1996, the date the Company's board of
directors voted to proceed with the spinoff. Loss on disposal of CardioTech, or
$1,878,000, principally includes operating losses from February 1996 through the
June 1996 spinoff date and outside professional fees and other costs related to
the spinoff.
26
<PAGE> 27
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues and net loss for the fiscal year ended March 31, 1996 relating
to discoutinued operations, excluding loss on disposal, were $166,000 and
$983,000, respectively. Since CardioTech's inception, all facilities and support
services, including research and administrative support, have been provided by
the Company. In connection with the Distribution, CardioTech has entered into
the following agreements with the Company:
DISTRIBUTION AGREEMENT
This agreement allocates the costs related to the implementation of the
Distribution between the Company and CardioTech and provides that each company
will share equally any liabilities under the federal and any state securities
laws incurred as a result of the Distribution to shareholders of the Information
Statement.
LICENSE AGREEMENT
The Company has granted to CardioTech an exclusive, perpetual,
world-wide, royalty-free license for CardioTech to use all of the necessary
patent and other intellectual property owned by the Company in the implantable
devices and materials field (collectively, the "Licensed Technology"). The
Company, at its own expense, will file patent or other applications for the
protection of all new inventions formulated, made or conceived by the Company
during the term of the license that related to the Licensed Technology and all
such inventions will be part of the technology licensed to CardioTech.
CardioTech, at its own expense, will file patent or other applications for the
protection of all new inventions formulated, made, or conceived by CardioTech
during the term of the license that related to the Licensed Technology and all
such inventions shall be exclusively licensed to the Company for use by the
Company in fields other than the implantable devices and materials field.
F. ACCOUNTS RECEIVABLE -- TRADE:
As of March 31, 1998, Liberty Medical's gross unbilled receivables
included in accounts receivable -- trade were $10.82 million. The increase in
the unbilled receivables balance as of March 31, 1998 is primarily a result of
the overall growth of Liberty Medical's sales in the fiscal year ended March 31,
1998, record shipments to new customers by Liberty Medical in December 1997
which required time to process, and delayed billing in the first six weeks of
calendar 1998.
G. INVENTORIES:
(In thousands)
Inventories consist of the following:
March 31, March 31,
1998 1997
--------- ---------
Raw materials $1,058 $2,168
Work in process 296 845
Finished goods 3,503 2,468
----- -----
$4,857 $5,481
===== =====
27
<PAGE> 28
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H. PROPERTY, PLANT, AND EQUIPMENT:
(In thousands)
Property, plant, and equipment consist of the following:
March 31, March 31,
1998 1997
--------- ---------
Manufacturing equipment $1,841 $3,273
Laboratory equipment 188 766
Land 663 663
Building 2,345 2,207
Leasehold improvements 343 585
Furniture, fixtures, and office 2,638 1,448
equipment
Construction in progress -- 1,818
----- -----
8,018 10,760
Less accumulated depreciation and (1,733) (4,489)
amortization ----- -----
$6,285 $6,271
===== =====
Depreciation and amortization expense from continuing operations for
property, plant, and equipment for the years ended March 31, 1998, 1997, and
1996, was approximately $838,000, $899,000, and $800,000, respectively.
I. INTANGIBLE ASSETS:
(In thousands)
Intangible assets consist of the following:
March 31, March 31,
1998 1997
--------- ---------
Goodwill $42,816 $43,460
Covenant-not-to-Compete 6,800 6,800
Customer list 1,816 1,816
Patents -- 258
------ ------
51,432 52,334
Less accumulated
amortization (11,877) (10,310)
------ ------
$39,555 $42,024
====== ======
28
<PAGE> 29
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization expense from continuing operations associated with
intangible assets for the years ended March 31, 1998, 1997, and 1996, was
$2,279,000, $2,117,000, and $1,811,000, respectively.
J. ACCRUED EXPENSES:
As of March 31, 1997, accrued expenses included $460,000 of accrued
interest. As of March 31, 1998 and 1997, accrued expenses included $1.04 million
and $771,000 respectively, of accrued taxes.
K. SENIOR DEBT:
In connection with the purchase of the WEBCON product line, in January
1993, the Company and its wholly-owned subsidiary, PolyMedica Pharmaceuticals
(U.S.A.), Inc. ("PMP USA") sold to the John Hancock Mutual Life Insurance
Company ("Hancock"), $25 million 10.65% Guaranteed Senior Secured Notes due
January 31, 2003, and a warrant for the purchase of up to 500,000 shares of
common stock of the Company at $13.50 each (the "Hancock Notes"). The effective
interest rate of the Hancock Notes was 10.97%. Interest is payable
semi-annually. At that time, the warrant was valued at $725,000 and was recorded
as a discount to the Hancock Notes, to be amortized to expense over the life of
the Hancock Notes. The warrant was exercisable beginning in January 1994. The
Company recorded $89,000 of amortization expense each for the years ended March
31, 1998 and 1997. As of March 31, 1998 and 1997, there was $423,000 and
$511,000, respectively, of unamortized discount, netted against senior debt.
Commencing on April 1, 1993, the Company and PMP USA are required to
maintain certain covenants, including certain financial ratios as described in
the loan documents. In addition, there are certain restrictions on the payment
of dividends by PMP USA to PolyMedica Corporation. Fees incurred in connection
with the Hancock Notes were $211,000, are classified as other assets, and are
being amortized over the ten year life of the Hancock Notes.
In January 1996, the Company and Hancock signed an amendment to the
Hancock Notes. Under the terms of the amendment, scheduled semi-annual
repayments of principal commence at $1.00 million each in fiscal 1998, increase
to $2.08 million each beginning in January 2000 and are completed with a $7.50
million payment at January 31, 2003. Pursuant to the amendment, the exercise
price for the Hancock warrant, exercisable for 536,993 shares of common stock of
the Company, was reduced from $8.38 to $7.00 per share and the interest rate of
the Hancock Notes was increased from 10.65% to 10.9%. In addition, the Company
obtained less restrictive dividend terms and revised financial covenants. This
amendment resulted in a revaluation of the warrant to $623,000, which compared
with a $513,000 unamortized value on January 1, 1996. The difference of $110,000
was recorded to additional paid-in capital.
As a result of a private placement of the Company's Common Stock in
March 1996 and the acquisition of Liberty Medical in August 1996, the exercise
price of the Hancock warrant was adjusted to $5.18 per share of common stock for
a total of 543,464 shares exercisable under the warrant.
Under the terms of the Hancock Notes, Hancock has a security interest
in all of the assets of PMP USA and its subsidiary PolyMedica Pharmaceuticals
(Puerto Rico), Inc. ("PMP PR").
The Hancock Notes are collateralized by all of the assets of PMP USA
and PMP PR, which amounted to approximately $44.9 million as of March 31, 1998.
Interest expense recorded for the Hancock Notes was $2,634,000,
$2,725,000, and $2,678,000 in the years ended March 31, 1998, 1997, and 1996,
respectively.
29
<PAGE> 30
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. COMMITMENTS:
The Company leases its facilities and certain equipment under operating
leases expiring through 2003. The annual future minimum lease and rental
commitments as of March 31, 1998, under all the Company's leases are:
(In thousands)
1999 $ 756
2000 620
2001 355
2002 166
2003 52
------
Total minimum lease payments $1,949
======
Rental expense from continuing operations under these leases amounted
to approximately $537,000, $368,000, and $330,000 for the years ended March 31,
1998, 1997, and 1996, respectively.
The Company had purchase commitments for equipment and building
improvements of $0 and $130,000 as of March 31, 1998 and 1997, respectively.
M. EARNINGS PER SHARE:
(In thousands, except per share amounts)
Calculation of per share earnings is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $7,619 $2,322 $274
BASIC:
Weighted average common stock outstanding, net of
treasury stock, end of period 8,652 8,259 7,096
Net income per common share, basic $0.88 $0.28 $0.04
===== ===== =====
DILUTED:
Weighted average common stock outstanding, net of treasury
stock, end of period 8,652 8,259 7,096
Weighted average common stock equivalents 1,039 359 396
Weighted average common stock outstanding, net of treasury
stock, end of period 9,691 8,618 7,492
Net income per common share, diluted $0.79 $0.27 $0.04
===== ===== =====
</TABLE>
N. SHAREHOLDERS' EQUITY:
In March 1992, the Company completed an initial public offering,
selling 3 million newly issued shares of its common stock, resulting in net
proceeds of $35.3 million. In November 1995, the Company completed a public
offering of its common stock, selling 700,000 shares, resulting in net proceeds
of $3.75 million. In March 1996, the Company sold 431,937 shares of its common
stock for net proceeds of $2.55 million, pursuant to Regulation S of the
Securities Act of 1933.
30
<PAGE> 31
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each holder of outstanding common stock has a preferred stock purchase
right (a "Right") for each share of common stock. Each Right entitles the holder
to purchase from the Company one one-hundredth of a share of Series A junior
participating preferred stock at a cash exercise price to be determined by the
board of directors. Initially, the Rights will be attached to all common stock
certificates and will not be exercisable. The Rights will become exercisable
upon the earlier of certain events, including an acquisition by a person or
group of 15% or more of the outstanding common stock (an "Acquiring Person"), or
the commencement of a tender offer or exchange offer that would result in an
Acquiring Person beneficially owning 15% or more of the outstanding common
stock.
The Company will generally be entitled to redeem the Rights at $.01 per
share at any time until the tenth day following public announcement that a 15%
stock position has been acquired. The Rights will expire on January 23, 2002,
unless earlier redeemed or exchanged.
Between June 1992 and May 1994, the Company's board of directors
authorized the purchase of up to an aggregate of 1,750,000 shares of the
Company's common stock on the open market, with any shares to be held in
treasury. As of March 31, 1998, cumulative purchases of common stock totalled
239,193 for an aggregate of $1.69 million. The purpose of this purchase program
is, in part, to provide shares of common stock for issuance pursuant to the 1992
Stock Purchase Plan and upon the exercise of the warrant issued to Hancock.
In October 1994, the board of directors declared a 5% stock dividend
paid on October 28, 1994, to holders of record as of October 14, 1994. Earnings
per share for all periods presented have been restated to reflect the stock
dividend.
O. INCOME TAXES:
Income (loss) before income taxes was generated as follows in the years
ended March 31:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States $10,291 $1,994 $820
Foreign 1,200 (39) (491)
------ ----- ---
$11,491 $1,955 $329
====== ===== ===
</TABLE>
Income taxes related to discontinued operations are immaterial. The
provision (benefit) for income taxes consists of the following for the years
ended March 31:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal - current $ 216 $(275) $ 55
- deferred 2,495 -- --
----- ---- ----
- total $2,711 $(275) $ 55
----- ---- ----
State - current 52 65 --
- deferred 1,109 (157) --
----- ---- ----
- total $1,161 $ (92) --
----- ---- ----
Total Federal and State $3,872 $(367) $ 55
===== ==== ====
</TABLE>
31
<PAGE> 32
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the Company's effective tax rate for operations and the
U.S. statutory rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 34.0% 34.0% 34.0%
Change in valuation allowance (5.5%) (60.5%) (33.2%)
State income taxes, net of U.S. Federal 6.6% 6.5% --
Income Tax effect
Other (1.9%) 1.2% 1.0%
----- ----- ----
Effective tax rate 33.2% (18.8%) 1.8%
----- ----- ----
</TABLE>
During fiscal 1998, the Company determined that it is more likely than
not, that tax assets remaining on March 31, 1998 will be realized. Realization
of the net deferred tax assets is dependent on generating sufficient taxable
income prior to the expiration of loss carryforwards. Although realization is
not assured, management believes that it is more likely than not that such net
deferred tax assets will be realized. The following is a summary of the
significant components of the Company's deferred tax assets and liabilities as
of March 31, 1998 and 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1998 1997
---- ----
Deferred tax assets (liabilities) - current:
Reserves $ 2,075 --
======= ======
Deferred tax assets (liabilities) - long term:
Federal and state net operating loss
carryforwards $ 1,558 $ 2,304
Foreign net operating loss carryforwards -- 643
Other assets -- 2,339
Intangible assets (1,291) (841)
Property, plant and equipment (419) (2,012)
Direct-response advertising (4,389) (657)
-------- ------
(4,541) 1,776
Valuation allowance -- (643)
Net deferred tax asset (liability) - long term $ (4,541) $1,133
======== ======
</TABLE>
As of March 31, 1998, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $5.0 million available to
offset future taxable income, expiring at various dates beginning in the year
2003 through 2013.
32
<PAGE> 33
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. MAJOR CUSTOMERS:
Customers comprising more than 10% of the Company's: (1) net product
sales, or (2) royalties, exclusivity, development and license fees, for the
years ended March 31 are shown below as follows:
<TABLE>
<CAPTION>
NET PRODUCT SALES FEES
----------------- --------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
Customer A -- 10% 17% 58%
Customer B -- 12% -- --
Customer C -- 11% -- --
Customer D -- 13% -- 23%
Customer E -- -- -- 13%
Customer F -- -- 55% --
Customer G -- -- 23% --
</TABLE>
Amounts due from Customer A were $13,000 as of March 31, 1997. As of
March 31, 1998 and 1997, the amounts due from Health Care Financing
Administration of the United States government related to Liberty Medical
revenues was $4.64 million and $1.08 million, respectively. For the fiscal years
ended March 31, 1998 and 1997, no customer represented more than 10% of the
Company's consolidated revenues.
Q. STOCK OPTIONS:
The Company issues stock options under two plans: the 1990 Stock Option
Plan (the "1990 Plan") and the 1992 Directors Stock Option Plan (the "Directors
Plan"). In addition, in connection with the acquisition of American CDI, Inc.,
the Company assumed American CDI, Inc.'s 1991 Stock Option Plan (the "CDI Plan")
(collectively, the "Plans").
The 1990 Plan and the Directors Plan provide for the grant to certain
individuals of stock options to purchase up to 2,400,000 and 200,000,
respectively, of the Company's common stock. The CDI Plan, as assumed by the
Company, provided for the grant of 61,905 shares of the Company's common stock.
All share numbers for the Plans have been adjusted to reflect the 5% stock
dividend declared and paid in October 1994.
Generally, when shares acquired pursuant to the exercise of incentive
stock options are sold within one year of exercise or within two years from the
date of grant, the Company derives a tax deduction measured by the amount that
the fair market value exceeds the option price at the date the options are
exercised. When non-qualified stock options are exercised, the Company derives a
tax deduction measured by the amount that the fair market value exceeds the
option price at the date the options are exercised.
33
<PAGE> 34
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Option activity under the Plans is as follows:
Option Option
SHARES PRICES
------ ------
<S> <C> <C> <C>
Outstanding, March 31, 1995 1,483,895 $ .95 - $13.33
Granted 238,425 5.75 - 9.19
Exercised (13,406) 2.86 - 5.48
Cancelled (34,355) 5.48 - 12.38
--------- --------------------
Outstanding, March 31, 1996 1,674,559 $ .95 - $13.33
Granted 1,983,212 .71 - 6.38
Exercised (245,966) 2.06 - 7.86
Cancelled (1,435,197) .95 - 13.33
--------- --------------------
Outstanding, March 31, 1997 1,976,608 $ .71 - $ 6.38
---------
Granted 271,360 4.87 - 13.75
Exercised (326,717) .71 - 5.38
Cancelled (46,736) 4.31 - 5.38
--------- --------------------
Outstanding, March 31, 1998 1,874,515 $ .71 - $13.75
=========
</TABLE>
At March 31, 1998, 1,543,830 shares were exercisable and 330,685 shares
will vest principally over three years under the Plans. There were 14,293,
85,615 and -0- shares remaining that are authorized for future option grants
under the 1990 Plan, Directors Plan, and CDI Plan, respectively. The weighted
average exercise price of shares exercisable as of March 31, 1998 was $4.64.
At March 31, 1997, 1,635,615 shares were exercisable and 340,993 shares
will vest principally under the Plans. There were 199,157, 125,375, and -0-
shares remaining that are authorized for future option grants under the 1990
Plan, Directors Plan, and CDI Plan, respectively. The weighted average exercise
price of shares exercisable as of March 31, 1997 was $4.22.
In October 1996, the board of directors approved the cancellation of
prior grants of 1,172,355 options whose exercise prices ranged from $.95 to
$13.33 per common share. A total of 1,172,355 new options were granted whose
exercise prices ranged from $.71 to $5.38 per common share.
Supplemental Disclosures for Stock-Based Compensation
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the Plans. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") issued in 1995, defined
a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. The Company elected to
continue to apply the accounting provisions of APB Opinion No. 25 for stock
options. The required disclosures under SFAS 123 as if the Company had applied
the new method of accounting are made below.
34
<PAGE> 35
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized information about stock options outstanding as of March 31,
1998, is as follows:
<TABLE>
<CAPTION>
Number of
Number of Weighted Avg. Options Weighted-Avg.
Range of Exercise Options Remaining Weighted Avg. Outstanding- Exercise-Price
Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable
- ----------------- ----------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ .71 - 1.05 10,500 2.76 $ 0.71 10,500 $ 0.71
$ 2.10 - 3.15 99,075 3.32 $ 2.14 99,075 $ 2.14
$ 3.30 - 4.95 1,080,744 7.75 $ 4.02 973,333 $ 4.01
$ 5.25 - 7.88 422,096 5.15 $ 5.43 386,822 $ 5.41
$ 10.00 - 13.75 262,100 9.47 $ 12.12 74,100 $ 12.71
</TABLE>
The fair value of each option granted during 1998 and 1997 is estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions:
1998 1997
---- ----
Dividend yield....................................... none none
Expected volatility.................................. 55.0% 55.0%
Risk-free interest rate.............................. 6.18% 6.05%
Expected life........................................ 4 4
Weighted average fair value of options granted at fair
value during:
1998 $5.80
1997 $2.13
Employee Stock Purchase Plan
In January 1992, the board of directors adopted the 1992 Employee Stock
Purchase Plan (the "1992 Plan"). Under the 1992 Plan, eligible employees of the
Company may purchase shares of common stock, through payroll deductions, at the
lower of 85% of fair market value of the stock at the beginning or the end of
the offering period. Shares are issued to participants twice a year after each
six-month offering period, which ends April 30 and October 31. The company
issued 34,810 and 17,958 in the years ended March 31, 1998 and 1997
respectively. The weighted average fair values of shares issued under the 1992
Plan during the years ended March 31, 1997 and 1996 were $2.06 and $1.79,
repectively.
Had compensation cost for the Company's 1998 and 1997 stock option
grants been determined consistent with SFAS 123, the Company's net income and
net income per share would approximate the pro forma amounts below:
Net Income Per
Net Income Fully Diluted Share
---------- -------------------
As reported:
1998 $7,619,000 $ .79
1997 $2,322,000 $ .27
Pro forma:
1998 $7,003,000 $ .72
1997 $1,134,000 $ .13
The effect of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards made prior to
1995. Additional awards in future years are anticipated.
36
<PAGE> 36
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R. 401(k) PLAN:
The PolyMedica Corporation 401(k) Plan and Trust (the "401(k) Plan") is
a voluntary savings plan for all eligible employees which is intended to qualify
under Section 401(k) of the Internal Revenue Code. Each eligible employee may
elect to contribute to the 401(k) Plan, through payroll deductions, up to 15% of
his or her salary, subject to statutory limitations. The Company may make
matching contributions on behalf of participating employees of half of the
dollar amount of each participating employee's contribution, up to a maximum of
3% of an employee's total cash compensation, subject to certain limitations.
For the years ended March 31, 1998, 1997, and 1996, the Company paid
and accrued matching contributions of $108,000, $69,000, and $57,000,
respectively, for the 401(k) Plan participants.
S. INTERIM INFORMATION (UNAUDITED):
The following consolidated interim financial information is unaudited.
Such information reflects all adjustments, consisting solely of normal recurring
adjustments, which are in the opinion of management necessary for a fair
presentation.
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR ENDED MARCH 31, 1998
----------------------------------------------------
QTR. 1 QTR. 2* QTR. 3 QTR. 4
------ ------- ------ ------
<S> <C> <C> <C> <C>
Total revenue $13,958 $17,643 $20,668 $21,556
Total revenues less cost of product sales 7,230 9,664 10,448 10,908
Net income 831 3,915 1,383 1,490
Net income per weighted average share, basic $ 0.10 $ 0.45 $ 0.16 $ 0.17
Net income per weighted average share, diluted $ 0.09 $ 0.39 $ 0.14 $ 0.15
*includes net income of $2.74 million or $0.29 per diluted
share related to the gain on the sale of the wound care
business
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
----------------------------------------------------
QTR. 1 QTR. 2 QTR. 3 QTR. 4
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total revenues $4,993 $7,103 $9,011 $9,346
Total revenues less cost of product sales 3,166 4,412 4,683 4,589
Net income 486 613 411 812
Net income per weighed average share, basic: $ 0.06 $ 0.07 $ 0.05 $ 0.10
Net income per weighted average share, diluted $ 0.06 $ 0.07 $ 0.05 $ 0.09
</TABLE>
T. RELATED PARTY TRANSACTIONS:
In December 1994 and January 1997, certain executive officers of the
Company purchased in the aggregate 100,000 and 100,000 shares, respectively, of
the Company's common stock on the open market. The purchases, valued at $415,000
and $607,000, respectively, were funded by a note issued by the Company to each
officer. The terms of the notes provide for each executive to repay the Company
with Company shares within five years from the date of the note at a market
value equal to the original principal of the note. The principal balance due is
shown as notes receivable from officers in Shareholders' Equity on the
Consolidated Balance Sheet.
36
<PAGE> 37
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1998, a total of $234,000 has been repaid, of which
$110,000 was repaid in cash and $123,000 was repaid in shares of the Company's
common stock, leaving a $789,000 balance.
U. SUBSEQUENT EVENT:
On April 30, 1998, the Company entered into a $7.5 million
collateralized revolving credit facility with BankBoston, N.A., with a maturity
date of March 31, 2001. The facility is collateralized by certain assets of the
Company. Under the new facility, the Company is obligated to maintain certain
financial covenants.
(b) There were no Current Reports on Form 8-K filed by the Company during
the last quarter of the period covered by this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
matters.
37
<PAGE> 38
PART III
ITEMS 10-13.
The information required for Part III in the Annual Report on Form 10-K
is incorporated by reference from the Company's definitive proxy statement for
the Company's 1998 Annual Meeting of Shareholders. Such information will be
contained in the sections of such proxy statement captioned "Election of
Directors," "Board and Committee Meetings," "Compensation of Executive
Officers," "Directors' Compensation," "Report of the Compensation Committee,"
"Compensation Committee Interlocks and Insider Participation," "Comparative
Stock Performance," "SEC Reporting," "Security Ownership and Certain Beneficial
Owners and Management," and "Certain Transactions." Information regarding
executive officers of the Company is also furnished in Part I of this Annual
Report on Form 10-K under the heading "Executive Officers of the Registrant."
38
<PAGE> 39
The following trademarks are used in this Annual Report on Form 10-K:
ChronoSphere, BASIS, PeeDee Dose, MEDI-AID, URISED, CYSTOSPAZ, ANESTACON,
CYSTOSPAZ-M, AZO STANDARD, AZO CRANBERRY, B&O, SUPPRETTES, and AQUACHLORAL are
registered trademarks of PolyMedica Corporation. AZO TEST STRIPS and Fever Alarm
are trademarks of PolyMedica Corporation. MITRAFLEX and SPYROSORB are registered
trademarks of Innovative Technologies, Ltd. Uristat is a trademark of Ortho
Pharmaceutical Corp., a division of Johnson & Johnson. Xylocaine is a registered
trademark of Astra USA, Inc. Pyridium is a registered trademark of Parke-Davis,
a division of Warner-Lambert Co. Levsin is a trademark of Schwarz-Pharma, Inc.
Cystex is a trademark of Numark Laboratories, Inc. Prodium is a trademark of
Breckenridge Pharmaceutical, Inc.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 25, 1998 PolyMedica Corporation
By: /s/ STEVEN J. LEE
----------------------------------------------
Steven J. Lee
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: June 25, 1998 /s/ STEVEN J. LEE
-----------------------------------------------
Steven J. Lee
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
Dated: June 25, 1998 /s/ ERIC G. WALTERS
-----------------------------------------------
Eric G. Walters
Chief Financial Officer, Treasurer and Clerk
(Principal Financial and Accounting Officer)
Dated: June 25, 1998 /s/ FRANK W. LOGERFO
-----------------------------------------------
Frank W. LoGerfo
Director
Dated: June 25, 1998 /s/ DANIEL S. BERNSTEIN
-----------------------------------------------
Daniel S. Bernstein
Director
Dated: June 25, 1998 /s/ MARCIA J. HOOPER
-----------------------------------------------
Marcia J. Hooper
Director
Dated: June 25, 1998 /s/ THOMAS S. SOLTYS
-----------------------------------------------
Thomas S. Soltys
Director
Dated: June 25, 1998 /s/ PETER K. HOFFMAN
---------------------------------------------------
Peter K. Hoffman
Director
40
<PAGE> 41
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
------
<S> <C>
2.1 - Stock Purchase Agreement, dated as of August 30, 1996, among the Registrant, Liberty Medical Supply, Inc., and
the Shareholders of Liberty Medical Supply, Inc. (19)
2.2 - Amendments dated March 26, 1997, to the Stock Purchase Agreement dated as of August 30, 1996, among the
Registrant, Liberty Medical Supply, Inc. and the Shareholders' of Liberty Medical Supply, Inc.(22)
2.3 - Asset Purchase Agreement dated as of June 23, 1997 by and among the Registrant, PolyMedica Industries UK,
Ltd., Innovative Technologies Limited, Innovative Technologies (US) Inc., and Innovative Technologies Group
Plc.(22)
3.1 - Restated Articles of Organization of the Company. (1)
3.2 - Amended and Restated By-Laws of the Company. (14)
4.1 - Specimen certificate for shares of Common Stock, $.01 par value, of the Company. (1)
4.2 - Note and Warrant Agreement dated January 26, 1993 and $25,000,000 10.65% Guaranteed Senior Secured Notes due
January 31, 2003 of PolyMedica Pharmaceuticals (U.S.A.), Inc. and PolyMedica Pharmaceuticals (Puerto Rico),
Inc. and Warrant for 500,000 (subject to adjustment) shares of Common Stock, $0.01 per value, of the
Registrant. (6)
4.3 - Letter Agreement, Note Guarantee and Security Agreement, all dated April 27, 1993, by and among the
Registrant, PolyMedica Pharmaceuticals (U.S.A.), Inc., PolyMedica Pharmaceuticals (Puerto Rico), Inc.,
PolyMedica Securities, Inc., PolyMedica Pharmaceuticals Securities, Inc. and the John Hancock Mutual Life
Insurance Company. (9)
4.4 - Letter Agreement amending the Note and Warrant Agreement, dated June 15, 1993. (9)
4.5 - Letter Agreement amending the Note and Warrant Agreement dated March 29, 1994. (10)
4.6 - Letter Agreement amending the Note and Warrant Agreement dated June 17, 1994. (10)
4.7 - Letter Agreement amending the Note and Warrant Agreement dated June 30, 1994. (11)
4.8 - Letter Agreement amending the Note and Warrant Agreement dated October 27, 1994. (12)
4.9 - Letter Agreement amending the Note and Warrant Agreement dated June 27, 1995. (14)
4.10 - Letter Agreement amending the Note and Warrant Agreement dated October 18, 1995 (15)
4.11 - Letter Agreement amending the Note and Warrant Agreement dated June 19, 1996. (18)
4.12 - Letter Agreement amending the Note and Warrant Agreement dated August 2, 1996. (20)
4.13 - Letter Agreement amending the Note and Warrant Agreement dated October 30, 1996 (20)
4.14 - Letter Agreement amending the Note and Warrant Agreement dated January 23, 1997 (21)
10.01 - 1990 Stock Option Plan, as amended. (14)
10.02 - 1992 Employee Stock Purchase Plan, as amended. (14)
10.03 - 1992 Directors' Stock Option Plan, as amended. (10)
10.04 - Rights Agreement dated as of January 23, 1992 by and between the Company and the First National Bank of
Boston. (3)
10.05 - Secured Promissory Note, dated June 11, 1991, executed by the Company and delivered to the Flagship Bank and
Trust Company. (1)
10.06 - Employment Agreement by and between the Registrant and Steven J. Lee dated May 16, 1990, as amended by letter
agreements dated June 1, 1991 and December 5, 1991. (1)(26)
10.07 - Letter agreement amendment by and between the Registrant and Steven J. Lee dated April 3, 1996. (17)(26)
10.08 - Letter agreement amendment by and between the Registrant and Dr. Andrew M. Reed dated April 3, 1996. (17)(26)
10.09 - Employment Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated September 1, 1990, as
amended by letter agreements dated June 1, 1991 and December 5, 1991. (1)(26)
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.10 - Employee Stock Purchase Agreement by and between the Registrant and Steven J. Lee dated May 16, 1990, as
amended. (1)(26)
10.11 - Letter agreement amendment by and between the Registrant and Dr. Arthur A. Siciliano dated April 3, 1996.
(17)(26)
10.12 - Letter agreement amendment by and between the Registrant and Robert J. Zappa dated April 3, 1996. (17)(26)
10.13 - Stock Restriction Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated September 1, 1990,
as amended. (1)
10.14 - Sublease dated February 10, 1992 by and between Ampex Corporation and the Registrant.(1)
10.15 - Supply Agreement, dated as of May 27, 1992, by and between Medtronic, Inc. and the Company. (2)(22)
10.16 - Employment Agreement by and between the Registrant and Eric G. Walters dated June 1, 1991 as amended by letter
agreement dated December 5, 1991. (9)(26)
10.17 - Letter agreement amendment by and between the Registrant and Steven J. Lee dated March 18, 1993. (9)(26)
10.18 - Letter agreement amendment by and between the Registrant and Eric G. Walters dated April 3, 1996. (17)(26)
10.19 - Letter agreement amendment by and between the Registrant and Dr. Arthur A. Siciliano dated March 18, 1993.
(9)(26)
10.20 - Letter agreement amendment by and between the Registrant and Dr. Andrew M. Reed dated March 18, 1993. (9)(26)
10.21 - Letter agreement amendment by and between the Registrant and Eric G. Walters dated March 18, 1993. (9)(26)
10.22 - Letter Agreement dated July 15, 1993 between Alcon Laboratories Inc. and the Registrant. (7)
10.23 - Purchase and Sale Agreement between Allstate Life Insurance Company as Seller and PolyMedica Corporation as
Buyer as of August 13, 1993. (8)
10.24 - Letter agreement amendment by and between the Registrant and Steven J. Lee dated March 31, 1994. (10)(26)
10.25 - Letter agreement amendment by and between the Registrant and Dr. Arthur A. Siciliano dated March 31,
1994.(10)(26)
10.26 - Letter agreement amendment by and between the Registrant and Dr. Andrew M. Reed dated March 31, 1994. (10)(26)
10.27 - Letter agreement amendment by and between the Registrant and Eric G. Walters dated March 31, 1994. (10)(26)
10.28 - Employment Agreement between the Registrant and Robert J. Zappa dated August 23, 1992, as amended by letter
agreement dated March 18, 1993, and further amended by letter agreement dated March 31, 1994. (10)(26)
10.29 - Mortgage, Assignment of Leases and Rents and Security Agreement between PolyMedica Pharmaceuticals (U.S.A.),
Inc. and John Hancock Mutual Life Insurance Company dated May 31, 1994. (10)
10.30 - Processing Agreement dated December 11, 1992, by and between the Registrant and Alcon
(Puerto Rico) Inc. (10)(22)
10.31 - Processing Agreement dated December 11, 1992, by and between the Registrant and Alcon Laboratories, Inc.
(10)(22)
10.32 - Letter Agreement dated March 25, 1994 between Alcon (Puerto Rico) Inc. and the Registrant. (10)
10.33 - Letter Agreement amendment by and between the Registrant and Steven J. Lee dated April 11, 1995. (14) (26)
10.34 - Amended and Restated License Agreement between the Registrant and CardioTech dated May 13, 1996. (17)
10.35 - Letter Agreement amendment by and between the Registrant and Dr. Arthur A. Siciliano dated April 11, 1995.
(14) (26)
10.36 - Letter Agreement amendment by and between the Registrant and Eric G. Walters dated April 11, 1995. (14) (26)
</TABLE>
42
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
------
<S> <C>
10.37 - Letter Agreement amendment by and between the Registrant and Robert J. Zappa dated April 11, 1995. (14) (26)
10.38 - Letter Agreement to the Lease Agreement, dated February 16, 1995, by and between Robert W. Murray, Trustee of
Constitution Park Trust Three and the Registrant for offices and laboratory space in Woburn, Massachusetts.
(14)
10.39 - Letter Agreement dated February 2, 1995, amending the Processing Agreement dated December 11, 1992, by and
between the Registrant and Alcon (Puerto Rico), Inc. (14) (22)
10.40 - Letter Agreement dated May 3, 1995, amending the Processing Agreement dated December 11, 1992, by and between
the Registrant and Alcon (Puerto Rico), Inc. (14) (22)
10.41 - Construction Agreements dated March 1, 1994, June 15, 1994, and September 28, 1994, by and between the
Registrant and Execuspace Construction Corp. (14)
10.42 - Construction Agreements dated June 6, 1994, and October 13, 1994, by and between the Registrant and Commercial
Air Control, Inc. (14)
10.43 - Letter Agreement, dated March 20, 1995, by and between the Registrant and Alcon Laboratories, Inc. (15)
10.44 - Form of Warrant issued by the Registrant to the John Hancock Mutual Life Insurance Company (17)
10.45 - Form of Promissory Note, dated December 13, 1994, executed by certain officers and delivered to the Registrant
(15)
10.46 - Form of Jefferies & Company, Inc. and Rodman & Renshaw, Inc. Warrant (15)
10.47 - Form of Promissory Note made in favor of the Company by certain officers of the Company (21)
10.48 - Employment Agreement between the Registrant and Randy M. Sloan dated October 1, 1996 (26)
10.49 - 1998 Executive Incentive Compensation Plan (23)(25)(26)
10.50 - Employment Agreement between the Registrant and Mark A. Libratore dated August 30, 1996, incorporated by
reference as Exhibit D1 to the Stock Purchase Agreement dated August 30, 1996 among the Registrant, Liberty
Medical Supply, Inc., and the Shareholders of Liberty Medical Supply, Inc. (19)
10.51 - Amendment No. 1 to the Employment Agreement between the Registrant and Mark A. Libratore dated March 26, 1997,
incorporated by reference into Amendments dated as of August 30, 1996, among the Registrant, Liberty Medical
Supply, Inc. and the Shareholders of Liberty Medical Supply, Inc. (22)
10.52 - Letter Agreement amendment by and between the Registrant and Steven J. Lee dated July 1, 1997. (23)(26)
10.53 - Letter Agreement amendment by and between the Registrant and Dr. Arthur A. Siciliano dated July 1, 1997.
(23)(26)
10.54 - Letter Agreement amendment by and between the Registrant and Eric G. Walters dated July 1, 1997. (23)(26)
10.55 - Letter Agreement amendment by and between the Registrant and Randy M. Sloan dated July 1, 1997. (23)(26)
10.56 - Letter Agreement amendment by and between the Registrant and Robert J. Zappa dated July 1, 1997. (23)(26)
10.57 - Letter Agreement amendment by and between the Registrant and Randy M. Sloan dated September 16, 1997.(24)(26)
10.58 - Letter Agreement amendment by and between the Registrant and Mark A. Libratore dated January 19, 1998.(26)
10.59 - Agented Loan and Security Agreement dated April 30, 1998 by and between the Registrant and BankBoston, N.A.
10.60 - Master Note dated April 30, 1998 by and between the Registrant and BankBoston, N.A.
21 - Subsidiaries of the Registrant
23.1 - Consent of Coopers & Lybrand L.L.P.
27.1 - Financial Data Schedule - Fiscal Year Ended March 31, 1998.
27.2 - Financial Data Schedule - Restated Fiscal Year Ended March 31, 1997.
</TABLE>
43
<PAGE> 44
- --------------
<TABLE>
<CAPTION>
<S> <C>
1 Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-45425).
2 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1992
filed June 26, 1992.
3 Incorporated herein by reference to the Company's Current Report on Form 8-K filed March 13, 1992.
4 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1992 filed August 13, 1992
5 Incorporated herein by reference to the Company's Current Report on Form 8-K filed December 26, 1992, as
amended by Amendment No. 1 on Form 8 filed February 24, 1993.
6 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1992 filed February 13, 1993.
7 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993, filed August 13, 1993.
8 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, filed November 9, 1993
9 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended March 31,
1993, filed June 25, 1993.
10 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended March 31,
1994, filed June, 29, 1994.
11 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994, filed August 12, 1994.
12 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, filed October 31, 1994.
13 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1994, filed February 2, 1995.
14 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1995, filed June 29, 1995.
15 Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-97872).
16 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995, filed February 9, 1996.
17 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1996, filed June 26, 1996.
18 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, filed August 14, 1996.
19 Incorporated herein by reference to the Company's Current Report on Form 8-K filed September 13, 1996.
20 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, filed November 13, 1996.
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
<S> <C>
21 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996, filed February 13, 1997.
22 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1997, filed June 26, 1997.
23 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed July 31, 1997.
24 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, filed October 31, 1997.
25 Confidential treatment granted as to certain portions.
26 Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item
14(c) of Form 10-K.
</TABLE>
45
<PAGE> 1
EXHIBIT 10.58
-------------
January 19, 1998
Mark Libratore, President
LIBERTY MEDICAL SUPPLY, INC.
3595 S.W. Corporate Parkway
Martin Downs Business Park
Palm City, FL 34990
Re: Amendment of Employment Agreement
---------------------------------
Dear Mark,
This letter agreement serves to further amend the employment agreement dated as
of August 30, 1996, by and between you and PolyMedica Corporation (the
"Company"), as amended by certain Amendment No. 1 to Employment Agreement dated
as of March 26, 1997 (together, the "Employment Agreement").
1. SALARY. The Base Salary, as defined in Section 3.1. of the Employment
Agreement, shall be increased to $225,000 effective April 1, 1998.
2. BONUS. Bonus Payments, as defined in Section 3.2 of the Employment
Agreement, shall be as follows: (a) PolyMedica will pay to you in early
April, 1998, a bonus of $18,750. (b) You shall be entitled to a bonus
of 1.5% of Liberty's fiscal year 1999 pretax earnings (before bonus) in
excess of $3 million.
If the foregoing is acceptable to you, please indicate your agreement by signing
a copy of this letter agreement and returning it to the undersigned.
Very truly yours,
/s/ Steven J. Lee
------------------------------------
Steven J. Lee
Chairman and Chief Executive Officer
ACCEPTED AND AGREED TO:
/s/ Mark A. Libratore
- ---------------------------
Mark A. Libratore
<PAGE> 1
EXHIBIT 10.59
-------------
- --------------------------------------------------------------------------------
AGENTED LOAN AND SECURITY AGREEMENT BANKBOSTON, N.A.
- ----------------------------------- ----------------
- --------------------------------------------------------------------------------
April 30, 1998
THIS AGREEMENT is made by and between
BANKBOSTON, N.A. (hereinafter, the "LENDER"), a national
banking association with offices at 100 Federal Street, Boston,
Massachusetts 02110 and,
PolyMedica Corporation (hereinafter, "PolyMedica"), a
Massachusetts corporation with its principal executive offices at 11
State Street, Woburn, Massachusetts and,
LIBERTY MEDICAL SUPPLY, INC. (hereinafter, "Liberty"), a
Florida corporation with its principal executive offices at 3595 S.W.
Corporate Parkway, Martin Downs Business Park, Palm City, Florida and,
PolyMedica Healthcare, Inc. (hereinafter, "Healthcare"), a
Delaware corporation with its principal executive offices at 581
Conference Place, Golden, Colorado and,
PolyMedica Securities, Inc. (hereinafter, "Securities"), a
Massachusetts corporation with its principal executive offices at 11
State Street, Woburn, Massachusetts and,
(hereinafter, PolyMedica, Liberty, Healthcare, and Securities are referred to
collectively as the "PRINCIPAL BORROWERS" and each individually as a "PRINCIPAL
BORROWER" and PolyMedica is also referred to in the capacity of the "AGENT
BORROWER")
with all representations, covenants, warranties, defaults, rights, remedies,
powers, privileges, and discretions applicable to each Principal Borrower.
WHEREAS, each Principal Borrower has requested that the Lender
establish the loan arrangement (hereinafter, the "LOAN ARRANGEMENT") as set
forth in Article 2 herein, to be cross-guaranteed by each of the Principal
Borrowers;
WHEREAS, each Principal Borrower acknowledges and agrees that the Loan
Arrangement is in the best interest and financial well-being of each Principal
Borrower and that they shall each be liable for any and all loans made under the
Loan Arrangement (whether or not the proceeds of any such loan are received by
that Principal Borrower) both as a Principal Borrower and as a Guarantor
1
<PAGE> 2
and that the Lender is relying on this representation as a material inducement
to establish the Loan Arrangement;
WHEREAS, each Principal Borrower requests that as a convenience to the
Principal Borrowers, such loans as may be made under the Loan Arrangement be
directed to the Agent Borrower which will, in turn, distribute the proceeds
thereof to the respective Principal Borrowers;
NOW THEREFORE, as an additional inducement for the Lender to establish
the Loan Arrangement and to direct such loans as may be made hereunder to the
Agent Borrower, as described above, each Principal Borrower covenants and agrees
as follows, and that all loans and advances made under the Revolving Credit
(defined below) are payable as provided herein.
WITNESSETH:
ARTICLE 1 - AGENTED BORROWINGS
1-1. DESIGNATION OF AGENT BORROWER. Each Principal Borrower hereby
designates the Agent Borrower as the agent of that Principal Borrower to
discharge the duties and responsibilities of the Agent Borrower as provided
herein.
1-2. OPERATION OF LOAN ARRANGEMENT. (a) Except as otherwise
provided in this Article, loans and advances under the Loan Arrangement shall be
requested solely by the Agent Borrower as agent for each Principal Borrower.
(b) To the extent permitted by law, confirmatory assignments
of accounts and accounts receivable and remittances on accounts and accounts
receivable of the respective Principal Borrowers shall be provided to the Lender
or otherwise directed in accordance with the Lender's instructions given from
time to time to the Agent Borrower.
(c) Any advance which may be made by the Lender under the Loan
Arrangement and which is directed to the Agent Borrower is received by the Agent
Borrower in trust for that or those of the Principal Borrowers who are intended
to receive such advance; shall be held by the Agent Borrower in an account
separate from all other funds of the Agent Borrower; and shall not be commingled
with any other funds of the Agent Borrower. The Agent Borrower shall distribute
the proceeds of any such advances solely to the Principal Borrowers. Each
Principal Borrower shall be directly indebted to the Lender for each advance
distributed to that Principal Borrower by the Agent Borrower, together with all
accrued interest thereon, as if that amount had been advanced directly
2
<PAGE> 3
by the Lender to that Principal Borrower (whether or not the subject advance was
based upon the accounts and/or inventory or other assets of the Principal
Borrower which actually received such distribution), in addition to which each
Principal Borrower shall be obligated to the Lender in that amount on account of
that Principal Borrower's respectively having guaranteed the Obligations.
(d) The Lender shall have no responsibility to inquire as to
the distribution of loans and advances made by the Lender through the Agent
Borrower as described herein.
1-3. CONTINUATION OF AUTHORITY OF AGENT BORROWER. The authority of
the Agent Borrower to request loans on behalf of, and to bind, the Principal
Borrowers, shall continue unless and until the Lender actually receives
(a) written notice of: (i) the termination of such authority,
and (ii) the subsequent appointment of a successor Agent Borrower,
which notice is signed by the respective Presidents of each Principal
Borrower (other than the President of the Agent Borrower being
replaced) then eligible for borrowing under the within Agreement; and
(b) written notice from such successive Agent Borrower (i)
accepting such appointment; (ii) acknowledging that such removal and
appointment has been effected by the respective Presidents of such
Principal Borrowers eligible for borrowing under the within Agreement;
and (iii) acknowledging that from and after the date of such
appointment, the newly appointed Agent Borrower shall be bound by the
terms hereof, and that as used herein, the term "Agent Borrower" shall
mean and include the newly appointed Agent Borrower.
1-4. INDEMNIFICATION. The Agent Borrower and each Principal
Borrower respectively hereby indemnify, defend, and save and hold the Lender
harmless from and against any liabilities, claims, demands, expenses, or losses
made against or suffered by the Lender on account of, or arising out of, the
Loan Arrangement, the Lender's reliance upon loan requests made by the Agent
Borrower, or any other action taken by the Lender hereunder or under any of the
Lender's various agreements with the Agent Borrower and/or any Principal
Borrower and/or any other person arising under the loan arrangement contemplated
herein except for any liability, claim, demand, expense, or loss as to which a
final judicial determination is made and from which no appeal is available (in a
3
<PAGE> 4
proceeding in which the Lender has had an opportunity to be heard) that the
Lender had acted in a grossly negligent manner or with willful misconduct.
ARTICLE 2 - THE REVOLVING CREDIT.
2-1. ESTABLISHMENT OF REVOLVING CREDIT. (a) The Lender hereby
establishes a revolving line of credit (hereinafter, the "REVOLVING CREDIT") in
the Principal Borrowers' respective favor pursuant to which the Lender, subject
to, and in accordance with, the within Agreement, shall make loans and advances
and otherwise provide financial accommodations to and for the account of the
Principal Borrowers as provided herein. The amount available for any new loan or
advance requested hereunder shall be determined by the Lender by reference to
Availability (as defined below), as determined by the Lender from time to time
hereafter. All loans made by the Lender under this Agreement, and all of the
Principal Borrowers' other Obligations (as defined below) to the Lender under or
pursuant to this Agreement, are payable as set forth herein.
(b) As used herein, the term "AVAILABILITY" refers at any
time to the lesser of (i) or (ii), below:
(i) Up to the result of the following:
(A) Seven Million Five Hundred Thousand
Dollars and No Cents
($7,500,000.00).
MINUS
(B) The then unpaid principal balance
of the Loan Account.
MINUS
(C) The aggregate principal amounts
then undrawn on all outstanding
L/C's issued or incurred, or caused
to be issued or incurred, by the
Lender for the account and/or the
benefit of any Principal Borrower.
(ii) Up to the result of the following:
(A) 75% of the face amount of each of
the Principal Borrower's Acceptable
Accounts (as defined below).
4
<PAGE> 5
PLUS
(B) 50% of the value of the Acceptable
Inventory of each Principal Borrower, as defined
below (Acceptable Inventory being valued at the lower
of cost or market after deducting all transportation,
processing, handling charges, and all "soft" costs
and expenses, subject to such inventory reserves as
the Lender may establish from time to time ).
MINUS
(C) The then unpaid principal balance
of the Loan Account.
MINUS
(D) The aggregate principal amounts
then undrawn on all outstanding
L/C's issued or incurred, or caused
to be issued or incurred, by the
Lender for the account and/or the
benefit of any Principal Borrower.
(c) Availability shall be based upon Borrowing Base
Certificates furnished as provided in Section 2-3(a), below.
(d) The proceeds of borrowings under the Revolving Credit
shall be used solely for working capital purposes of the Principal Borrowers and
for such other purposes as may be permitted by the Lender. The Principal
Borrowers acknowledge and agree that each of them shall remain liable to the
Lender for the payment and performance of all Obligations under all
circumstances, which payment and performance shall continue to be secured by all
collateral security granted by the Principal Borrowers to the Lender.
2-2. ADVANCES IN EXCESS OF MAXIMUM LOAN EXPOSURE/RISKS OF VALUE.
(a) The Lender does not have any obligation to make any loan or advance, or
otherwise to provide any credit for the benefit of any of the Principal
Borrowers such that the outstanding principal balance of the Loan Account
(defined below) and the aggregate Stated Amount would exceed Maximum Loan
Exposure. The making of loans, advances, and credits and the providing of
financial accommodations by the Lender in excess of Maximum Loan Exposure is for
the benefit of the Principal Borrowers and does not affect the obligations of
the Principal Borrowers hereunder; such loans constitute Obligations.
5
<PAGE> 6
The making of any such loans, advances, and credits and the providing of
financial accommodations in excess of Maximum Loan Exposure on any one occasion
shall not obligate the Lender to make any such loans, credits, or advances or to
provide any financial accommodation on any other occasion nor to permit such
loans, credits, or advances to remain outstanding.
(b) The Lender's reference to a given asset for
monitoring concerning the Lender's making of loans, credits, and advances and
the providing of financial accommodations under the Revolving Credit shall not
be deemed a determination by the Lender relative to the actual value of the
asset in question. All risks of the creditworthiness of all Accounts and
Accounts Receivable are and remain upon the Principal Borrowers. Reference by
the Lender to a particular Account owed by a particular Account Debtor for
guidance and/or monitoring shall not obligate the Lender to rely upon any other
Account owed by the same Account Debtor to be acceptable for lending or to
continue to rely upon that account. All risks of the saleability of any of the
Principal Borrower's Inventory are and remain upon the Principal Borrowers. All
Collateral (defined below) secures the prompt, punctual, and faithful
performance of the Obligations whether or not relied upon by the Lender in
connection with the making of loans, credits, and advances and the providing of
financial accommodations under the Revolving Credit.
2-3. PROCEDURES UNDER REVOLVING CREDIT.(a) The Agent Borrower may
request loans and advances under the Revolving Credit from time to time, in each
instance in accordance with such procedures as may from time to time be
acceptable to the Lender, each of which request will be accompanied by a
Borrowing Base Certificate furnished to the Lender setting forth the
Availability with particularity acceptable to the Lender in its reasonable
discretion.
(b) The Lender, subject to the terms and conditions of
the within Agreement, will provide the Agent Borrower with the loan so
requested, as follows:
(i) With respect to a Domestic Rate Loan
(defined below), if such request is received by 1:00 PM on a Business
Day (defined below), by the end of business on that Business Day. If
such request is received after 1:00 PM on a Business Day, by the end of
the then next Business Day. The Lender may revise the above schedule by
which loans shall be made from time to time.
6
<PAGE> 7
(ii) With respect to a Libor Rate Loan (defined
below), if such request is received on any Business Day, by the end of
second Business Day thereafter. The Lender may revise the above
schedule by which loans shall be made, from time to time.
(iii) Provided that there is sufficient
Availability to support the same, (but subject, however, to Subsection 2-3(e),
below (which deals with the effect of a Suspension Event)), a loan or advance
under the Revolving Credit so requested by the Agent Borrower shall be made by
the transfer of the proceeds of such loan or advance to an account maintained by
the Agent Borrower with the Lender or as otherwise instructed by the Agent
Borrower.
(iv) A loan or advance shall be deemed to have
been made under the Revolving Credit upon the charging of the amount of such
loan to the Loan Account and the distribution of the proceeds thereof in
accordance with ss.2.3(b)(iii).
(v) There shall not be any recourse to, nor
liability of, the Lender (except due to its own gross negligence or willful
misconduct) on account of any of the following:
(A) Any reasonable delay in the Lender's
making of any loan or advance requested under the Revolving Credit.
(B) Any reasonable delay in the proceeds
of any such loan or advance constituting collected funds.
(C) Any reasonable delay in the receipt,
and/or any loss, of funds which constitute a loan or advance under the
Revolving Credit, the wire transfer of which was properly initiated by
the Lender in accordance with wire instructions provided to the Lender
by the Agent Borrower.
(vi) The Lender may rely on any request for a
loan or advance or financial accommodation which the Lender, in good faith,
believes to have been made by a person duly authorized to act on behalf of the
Agent Borrower and may decline to make any such requested loan or advance or to
provide any such financial accommodation pending the Lender's being furnished
with such documentation concerning that person's authority to act as may be
satisfactory to the Lender.
7
<PAGE> 8
(c) A request by the Agent Borrower for any financial
accommodation under the Revolving Credit or of the issuance of an L/C shall be
irrevocable and shall constitute certification by the Borrower that as of the
date of such request, each of the following is true and correct:
(i) There has been no material adverse
change in any Principal Borrowers' financial condition from the most
recent financial information furnished the Lender pursuant to this
Agreement (except as permitted hereunder).
(ii) Each Principal Borrower is in
compliance with, and has not breached any of, its covenants contained
in this Agreement.
(iii) Each representation which is made
herein or in any of the Loan Documents (defined below) is then true and
complete as of and as if made on the date of such request (except those
made as of a specific date or which are inaccurate due to transactions
permitted hereunder).
(iv) No Suspension Event (defined herein)
is then extant.
(d) All Principal Borrowers shall immediately become
indebted to the Lender for the amount of all loans under or pursuant to this
Agreement when such loan is deemed to have been made.
(e) Upon the occurrence from time to time of any
Suspension Event, the Lender may suspend the Revolving Credit immediately and
shall not be obligated, during such suspension, to make any loans or to provide
any financial accommodation hereunder.
(f) (i) The Agent Borrower may request that the
Lender issue L/C's for the account of a Principal Borrower. Each such request
shall be in such manner as may from time to time be acceptable to the Lender,
and which may include, without limitation, (A) telephone notice to such person
as may be designated by the Lender or (B) written notice.
(ii) The Lender will issue any L/C so requested
by the Agent Borrower, provided that the aggregate Stated Amount, following the
requested issuance thereof, would not exceed the Availability and provided that
the L/C (if so issued) is in form satisfactory to the Lender.
(iii) The Agent Borrower and Principal Borrower
shall execute such documentation to apply for and support the issuance of an L/C
as may be required by the Lender
8
<PAGE> 9
provided that, notwithstanding any integration clauses in such L/C
documentation, the terms of this Agreement shall govern any conflict with such
L/C documentation.
(g) After notice to the Agent Borrower, the Lender,
without the request of the Agent Borrower, may advance under the Revolving
Credit any amount which any Principal Borrower is obligated to pay to the Lender
or for which any Principal Borrower or the Lender becomes obligated on account
of, or in respect to, any L/C. Such advance shall be made whether or not a
Suspension Event is then extant and even if such advance would result in the
Availability being exceeded. Such action on the part of the Lender shall not
constitute a waiver of the Lender's rights under Section 2-6(b), below.
2-4. THE LOAN ACCOUNT. (a) An account (hereinafter, the "LOAN
ACCOUNT") shall be opened on the books of the Lender, in which Loan Account a
record shall be kept of all loans made by the Lender to the Agent Borrower or
any Principal Borrower under or pursuant to this Agreement and of all payments
thereon.
(b) The Lender shall also keep a record (either in the
Loan Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed the
Lender on account of the Obligations and of all credits against such amounts so
owed.
(c) All credits against the Obligations shall be
conditional upon final payment to the Lender of the items giving rise to such
credits. The amount of any item credited against the Obligations which is
charged back against the Lender for any reason or is not so paid shall be a
Obligation and shall be added to the Loan Account, whether or not the item so
charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees,
service charges, costs, and expenses for which any Principal Borrower is
obligated hereunder are payable on demand.
(e) The Lender, without the request of the Agent Borrower
but after notice, may advance under the Revolving Credit any interest, fee,
service charge, or other payment to which the Lender is entitled from any
Principal Borrower pursuant hereto which is not paid when due or within any
grace period and may charge the same to the Loan Account notwithstanding that
such amount
9
<PAGE> 10
so advanced may result in Availability's being exceeded. Such action on the part
of the Lender shall not constitute a waiver of the Lender's rights under Section
2-6(b), below. Any amount which is added to the principal balance of the Loan
Account as provided in this Subsection shall bear interest at the interest rate
applicable from time to time to the unpaid principal balance of the Loan
Account.
(f) Any written statement rendered by the Lender to the
Agent Borrower concerning the Obligations shall be presumed correct and shall be
presumptively binding upon each of them unless the Agent Borrower provides the
Lender with written objection thereto within sixty (60) days from the receipt by
Agent Borrower of such statement, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender's
books and records concerning the loan arrangement contemplated herein and the
Principal Borrowers' Obligations shall be prima facie evidence and proof of the
items described therein.
2-5. THE MASTER NOTE. The obligation to repay loans and advances
under the Revolving Credit, with interest as provided herein, shall be evidenced
by a note (hereinafter, the "MASTER NOTE") in the form of EXHIBIT 2-5, annexed
hereto, executed by the Agent Borrower and Principal Borrowers. Neither the
original nor a copy of the Master Note shall be required, however, to establish
or prove any Obligation. In the event that the Master Note is ever lost,
mutilated, or destroyed, the Agent Borrower and each Principal Borrower shall
upon written request certifying that the Master Note was lost, mutilated or
destroyed execute a replacement thereof and deliver such replacement to the
Lender.
2-6. PAYMENT OF LOAN ACCOUNT. (a) The Principal Borrowers may repay
all or any portion of the principal balance of the Loan Account from time to
time until the sooner of termination of the Revolving Credit (as to which, see
Article 13, below) or demand.
(b) The Principal Borrowers, without notice or demand
from the Lender, shall pay the Lender that amount, from time to time, which is
necessary so that the principal balance of the Loan Account does not exceed
Availability. The Lender shall furnish the Agent Borrower with three (3)
Business Days notice of any such payment which may be required resulting from
the Lender's
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calculation of "Acceptable Accounts" based upon the exclusion set forth in
Section b(ii) of the definition of "Acceptable Accounts" contained in Article 4.
(c) The Principal Borrowers shall repay the then entire
unpaid balance of the Loan Account upon the Termination Date.
2-7. INTEREST. (a) The unpaid principal balance of the Loan Account
shall bear interest, and shall be repaid, as set forth in Exhibit 2-7 annexed
hereto.
(b) The Agent Borrower shall have such rights as are set
forth in EXHIBIT 2-7 to select and, as applicable, Convert Loans from one Type
of Loan to another Type of Loan.
(c) (i) Upon the occurrence of an Event of Default,
at the Lender's option, the Revolving Credit and all other amounts payable
hereunder or under any of the other Loan Documents shall bear interest payable
on demand at a rate per annum equal to four percent (4%) above the then
applicable highest rate of interest hereunder until such amount shall be paid in
full (after as well as before judgment) (the "Default Rate").
(ii) In addition to other charges described in
the Loan Documents, and without derogating from the right of the Lender to
accelerate the Obligations upon the occurrence of an Event of Default, the
Principal Borrowers shall pay to the Lender a late charge equal to three (3%)
percent of any payment due under the Note which is not paid within ten (10) days
of the due date thereof.
2-8. CLOSING AND ADMINISTRATIVE FEES. (a) As compensation for the
Lender's commitment included herein to make loans and advances hereunder and as
compensation for the Lender's maintenance of sufficient funds available for such
purpose, the Lender shall have earned a CLOSING FEE (so referred to herein) of
$18,750.00, which fee shall be paid with the proceeds of the first advance made
under the Revolving Credit.
(b) As additional compensation for the Lender's
commitment included herein to make loans and advances hereunder and as
compensation for the Lender's maintenance of sufficient funds available for such
purpose, the Principal Borrowers shall pay to Lender on the first (1st) Business
Day of each fiscal quarter of the Agent Borrower for the prior fiscal quarter
commencing April 1,
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1998, a nonrefundable fee of three eighths percent (.375%) per annum
(hereinafter, the "Unused Line Fee") of the amount, if any, by which the average
daily Commitment for the quarterly period (or, in the case of the first such
payment, the period from the closing date such payment is due, and in the case
of the last such payment, the period from the last date such payment was due to
the Termination Date) then existing exceeds the average daily outstanding
principal balances of the aggregate of the Loan Account plus the Stated Amount
of L/C's over the quarterly period then ending.
(c) The Principal Borrowers shall not be entitled to any
credit, rebate or repayment of any Closing Fee or Unused Line Fee previously
earned by the Lender pursuant to this Section notwithstanding any termination of
the within Agreement or suspension or termination of the Lender's obligation to
make loans and advances hereunder.
2-9. LENDER'S DISCRETION. Each reference in the Loan Documents to
the Lender's exercise of discretion or the like shall be to the Lender's
exercise of its judgment, in good faith (which shall be presumed).
2-10. FEES FOR L/C'S. (a) Prior to the issuance of any L/C, the
Principal Borrowers shall pay to the Lender a fee on account of such L/C based
upon the Lender's then current fee schedule for like L/C's.
(b) In addition to the fee to be paid as provided in
Subsection (a), above, the Principal Borrowers shall pay to the Lender, on
demand, all issuance, processing, negotiation, amendment, and administrative
fees and other amounts on account of, or in respect to, each L/C, customarily
charged by the Lender.
2-11. CONCERNING L/C'S. (a) No L/C shall have an expiry which is
later than the Termination Date, without the prior written consent of the
Lender.
(b) None of the Lender, the Lender's correspondents, or
any advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) the performance by any beneficiary under any
L/C of that beneficiary's obligations to any Principal Borrower; or
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(ii) the form, sufficiency, correctness,
genuineness, authority of any person signing; falsification; or the
legal effect of; any documents called for under any L/C if (with
respect to the foregoing) such documents on their face and in Lender's
good faith and reasonable belief appear to be in order.
(c) The Lender may honor, as complying with the terms of
any L/C and of any drawing thereunder, any drafts or other documents otherwise
in order, but signed or issued and in Lender's good faith, reasonable belief by
an administrator, executor, conservator, trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, liquidator, receiver, or
other legal representative of the party authorized under such L/C to draw or
issue such drafts or other documents.
(d) Unless otherwise agreed to, in the particular
instance, each of the Principal Borrowers hereby authorize any Lender to (i)
select an advising bank, if any; (ii) select a paying bank, if any; and (iii)
select a negotiating bank.
(e) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Principal Borrowers. The Lender shall
have discharged the Lender's obligations under any L/C which, or the drawing
under which, includes payment instructions, by the initiation of the method of
payment called for in, and in accordance with, such instructions (or by any
other commercially reasonable and comparable method). The Lender shall not have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation, except due to its own gross negligence or willful misconduct.
(f) The Lender's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(g) Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Lender and any of the Principal
Borrowers, the L/C will be governed by the Uniform Customs and Practice for
Documentary Credits, International Chamber of Commerce, Publication No. 500, and
any subsequent revisions thereof.
(h) If after the date hereof any change in any law,
executive order or regulation, or any directive of any administrative or
governmental authority (whether or not having the force of
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law), or in the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, shall either:
(i) impose, modify or deem applicable any
reserve, special deposit or similar requirements against letters of
credit heretofore or hereafter issued by the Lender or with respect to
which the Lender has an obligation to lend to fund drawings under any
L/C; or
(ii) impose on the Lender any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Subsection (i) or (ii), above, shall
be to increase the cost to the Lender of issuing or maintaining any L/C (which
increase in cost shall be the result of the Lender's reasonable allocation among
the Lender's letter of credit customers of the aggregate of such cost increases
resulting from such events), then, upon demand by the Lender and delivery by the
Lender to a Principal Borrower of a certificate of an officer of the subject
Lender describing such change in law, executive order, regulation, directive, or
interpretation thereof, its effect on the Lender, and the basis for determining
such increased costs and their allocation, the Principal Borrowers shall
immediately pay to the Lender, from time to time as specified by the Lender,
such amounts as shall be sufficient to compensate such Lender for such increased
cost. Any determination by the Lender of costs incurred under Subsection (i) or
(ii) above, and the allocation, if any, of such costs among the Principal
Borrowers and other letter of credit customers of the Lender, if done in good
faith and made on an equitable basis and in accordance with the officer's
certificate, shall be conclusive and binding on the Principal Borrowers subject
to manifest error.
(i) The obligations of the Principal Borrowers under the
within Agreement with respect to L/C's are absolute, unconditional, and
irrevocable and shall be performed in accordance with the terms hereof under all
circumstances, whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of the within
Agreement, any L/C, or any other agreement or instrument relating
thereto.
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(ii) Any amendment or waiver of, or consent to
the departure from, any L/C.
(iii) The existence of any claim, set-off,
defense, or other right which the Borrower may have at any time against
the beneficiary of any L/C.
(iv) Any honoring of a drawing under any L/C,
which drawing possibly could have been dishonored based upon a strict
construction of the terms of the L/C.
2-12. CHARGING OF THE PRINCIPAL BORROWERS' ACCOUNTS. In addition to
the Lender's rights set forth in Section 2-4, above, and the Lender's right of
set off set forth in Section 14-14, below, each Principal Borrower authorizes
the Lender, after notice (except after Event of Default when no such notice is
required), to charge any account which any Principal Borrower maintains with the
Lender for any payments due from the Principal Borrowers to the Lender on
account of the Obligations.
2-13. ADDITIONAL COSTS, ETC. If any change after the date hereof of
any present or adoption of any future applicable law, which expression, as used
herein, includes statutes, rules and regulations thereunder and interpretations
thereof by any competent court or by any governmental or other regulatory body
or official charged with the administration or the interpretation thereof and
requests, directives, instructions and notices at any time or from time to time
hereafter made upon or otherwise issued to the Lender by any central bank or
other fiscal, monetary or other authority (whether or not having the force of
law), shall:
(a) subject the Lender to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to
this Agreement, the other Loan Documents, or the Loans (other than
taxes based upon or measured by the income or profits of the Lender),
or
(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to the Lender of the
principal of or the interest on any Loans or any other amounts payable
to the Lender under this Agreement or the other Loan Documents, or
(c) impose or increase or render applicable (other than
to the extent specifically provided for elsewhere in this Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy
or other similar requirements (whether or not having the force of law)
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against assets held by, or deposits in or for the account of, or loans
by, or commitments of an office of the Lender, or
(d) impose on the Lender any other conditions or
requirements with respect to this Agreement, the other Loan Documents,
the Loan, or any class of loans or commitments of which any Loan forms
a part;
and the result of any of the foregoing is
(i) to increase the cost to the Lender of making,
funding, issuing, renewing, extending or maintaining any of the Loans, or
(ii) to reduce the amount of principal, interest or other
amount payable to the Lender hereunder on account of any of the Loans, or
(iii) to require the Lender to make any payment or to
forego any interest or other sum payable hereunder, the amount of which
payment or foregone interest or other sum is calculated by reference to
the gross amount of any sum receivable or deemed received by the Lender
from the Principal Borrowers hereunder,
then, and in each such case, the Principal Borrowers will, upon demand made by
the Lender at any time and from time to time and as often as the occasion
therefor may arise, pay to the Lender such additional amounts as will be
sufficient to compensate the Lender for such additional cost, reduction, payment
or foregone interest or other sum incurred by Lender with respect to this
Agreement.
2-14. CAPITAL ADEQUACY. If the Lender shall have determined that the
adoption after the date hereof of any applicable law, rule, regulation,
guideline, directive or request (whether or not having force of law) regarding
capital requirements, or the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender with any
of the foregoing imposes or increases a requirement by the Lender to allocate
capital resources to the Loans made, or to be made, hereunder, which has or
would have the effect of reducing the return on the Lender's capital to a level
below that which the Lender could have achieved (taking into consideration the
Lender's then existing policies with respect to capital adequacy and assuming
full utilization of the Lender's capital) but for such adoption, change or
compliance, by any amount deemed by the Lender to be
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<PAGE> 17
material: (i) the Lender shall promptly after its determination of such
occurrence give notice thereof to the Agent Borrower; and (ii) the Principal
Borrowers shall pay to the Lender as an additional fee from time-to-time on
demand such amount as the Lender certifies to be the amount that will compensate
it for such reduction absent manifest error. In determining such amounts, the
Lender may use any reasonable averaging and attribution methods.
ARTICLE 3 - GRANT OF SECURITY INTEREST
3-1. GRANT OF SECURITY INTEREST. To secure the respective prompt,
punctual, and faithful performance of all and each of the Obligations of each
Principal Borrower, each Principal Borrower hereby grants to the Lender a
continuing security interest in and to, and assigns to the Lender, the
following, and each item thereof, whether now owned or now due, or in which that
Principal Borrower has an interest, or hereafter acquired, arising, or to become
due, or in which that Principal Borrower obtains an interest, and all products,
Proceeds, substitutions, and accessions of or to any of the following (all of
which, together with any other property in which the Lender may in the future be
granted a security interest, is referred to herein as the "COLLATERAL"):
(a) All Accounts and Accounts Receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the
Collateral and/or to the operation of each of the
Principal Borrowers' business, and all rights of
access to such books, records, and information, and
all property in which such books, records, and
information are stored, recorded, and maintained.
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(i) All Instruments, Documents of Title, Documents,
policies and certificates of insurance, Securities,
deposits, deposit accounts, impressed accounts,
compensating balances, money, cash, or other
property;
(j) All federal, state, and local tax refunds and/or
abatements to which any of the Principal Borrowers
are, or become entitled, no matter how or when
arising, including, but not limited to any loss
carryback tax refunds;
(k) All trade secrets, computer programs, customer lists,
assignments of patents and patents pending,
developmental ideas and concepts, and all papers,
drawings, blueprints, sketches, and documents
relating to all of the foregoing and/or relating to
the operation of any of the Principal Borrowers'
business and/or the Collateral;
(l) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and
credit insurance, whether any of such proceeds,
refunds, and premium rebates arise out of any of the
foregoing or otherwise.
(m) All liens, guaranties, rights, remedies, and
privileges pertaining to any of the foregoing
including the right of stoppage in transit.
3-2. EXTENT AND DURATION OF SECURITY INTEREST. The within grant of
a security interest is in addition to, and supplemental of, any security
interest granted by the Principal Borrowers to the Lender and shall continue in
full force and effect applicable to all Obligations until all Obligations have
been paid and/or satisfied in full.
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ARTICLE 4 - DEFINITIONS.
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCEPTABLE ACCOUNTS": (a) Such of the Principal Borrowers' Accounts
and Accounts Receivable (as defined below) as arise in the
ordinary course of the Principal Borrowers' business for goods
sold and/or services rendered by the Principal Borrowers,
which Accounts and Accounts Receivable have been determined by
the Lender to be satisfactory and have been earned by
performance and are owed to a Principal Borrower by such of
the Principal Borrowers' trade customers as the Lender
determines to be satisfactory, in the Lender's reasonable
discretion in each instance, and are subject to a perfected
security interest in favor of the Lender which is prior and
superior to all security interests, claims and Encumbrances.
(b) The following is a partial listing of those types
of accounts or accounts receivable which are not Acceptable
Accounts:
(i) Any which is more than ninety (90) days old as shown
on the agings of the Principal Borrowers' accounts receivable
furnished the Lender from time to time (each of which agings
shall be prepared in accordance with generally accepted
auditing standards).
(ii) Any which is owed by any Account Debtor (as defined
herein) liable on any account described in Subsection (b)(i),
above unless the Lender is furnished with satisfactory
evidence evidencing the creditworthiness of the Account Debtor
and the collectibility of such Account (the Lender will not
require the Principal Borrowers to provide the Lender with a
specific itemization to address this subsection).
(iii) Any which, when aggregated with all of the accounts
of that Account Debtor, exceeds twenty (20%) percent of the
then aggregate of Acceptable Accounts.
(iv) Any which arises out of the sale by a Principal
Borrower of goods consigned or delivered to the Principal
Borrower or to the Account Debtor on sale or return
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terms (whether or not compliance has been made with Section
2-326 of the Uniform Commercial Code).
(v) Any which arises out of any sale made on a basis
other than upon terms usual to that Principal Borrower and its
customers.
(vi) Any which arises out of any sale made on a "bill and
hold," dating, or delayed shipping basis.
(vii) Any which is owed by any Account Debtor whose
principal place of business is not within the continental
United States or the District of Columbia.
(viii) Any which is owed by any Related Entity.
(ix) Any as to which the Account Debtor holds or is
entitled to any claim, counterclaim, set off, or chargeback
(but only to the extent of such claim, counterclaim, setoff or
chargeback).
(x) Any which is evidenced by a promissory note.
(xi) Any which is owed by any person employed by, or a
salesperson of, the Borrower.
(xii) Any which is unbilled.
(xiii) Any which the Lender in its reasonable discretion
considers unacceptable and so notifies the Agent Borrower.
"ACCEPTABLE INVENTORY": such of the Principal Borrowers' Inventory, at
such locations, and of such types, character, qualities and
quantities, (net of inventory reserves) as the Lender in its
reasonable discretion from time to time determines to be
acceptable for borrowing, as to which Inventory, the Lender
has a perfected security interest which is prior and superior
to all security interests, claims, and Encumbrances.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts,
accounts receivable, credit card receivables, notes, drafts,
acceptances, and other forms of obligations and receivables
and rights to payment for credit extended and for goods sold
or leased, or services rendered,
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whether or not yet earned by performance; all "contract
rights" as formerly defined in the UCC; all Inventory which
gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all
reclaimed, returned, rejected or repossessed Inventory (if
any) the sale of which gave rise to any Account.
"ACCOUNT DEBTOR": has the meaning given that term in the UCC.
"AFFILIATE": means, with respect to any two Persons, a relationship in
which (a) one holds, directly or indirectly, not less than
Twenty Five Percent (25%) of the capital stock, beneficial
interests, partnership interests, or other equity interests of
the other; or (b) one has, directly or indirectly, Control of
the other; or (c) not less than Twenty Five Percent (25%) of
their respective ownership is directly or indirectly held by
the same third Person.
"AVAILABILITY": is defined in Section 2-1(b).
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BORROWING BASE CERTIFICATE": See Section 9-3.
"BUSINESS DAY": any day other than (a) a Saturday, Sunday; (b) a day on
which the Lender is not open to the general public to conduct
business; or (c) a day on which banks in Woburn, Massachusetts
generally are not open to the general public for the purpose
of conducting commercial banking business.
"CAPITAL LEASE": any lease which may be capitalized in accordance with
GAAP.
"CHATTEL PAPER": has the meaning given that term in the UCC.
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"CLOSING FEE": is defined in Section 2-8(a).
"COLLATERAL": is defined in Section 3-1.
"CONTROL": Person(s) shall be deemed to Control another Person if such
Person(s) directly or indirectly possess the power to direct
or cause the direction of the management and policies of such
other Person, whether through ownership of voting securities,
by contract, or otherwise.
"COSTS OF COLLECTION" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred
by the Lender's attorneys, and all reasonable costs incurred
by the Lender in the administration of the Obligations and/or
the Loan Documents, including, without limitation, reasonable
costs and expenses associated with travel on behalf of the
Lender, which costs and expenses are directly or indirectly
related to or in respect of the Lender's: administration and
management of the Obligations; negotiation, documentation, and
amendment of any Loan Document; or reasonable efforts to
preserve, protect, collect, or enforce the Collateral, the
Obligations, and/or the Lender's Rights and Remedies and/or
any of the Lender's rights and remedies against or in respect
of any guarantor or other person liable in respect of the
Obligations (whether or not suit is instituted in connection
with such efforts). The Costs of Collection are Obligations,
and at the Lender's option may bear interest at the highest
rate which the Lender may charge any Principal Borrower
hereunder as if such had been lent, advanced, and credited by
the Lender to, or for the benefit of, any Principal Borrower.
"DEBT SERVICE": shall mean, for any period of testing, the aggregate of
all interest and principal payments required to be made.
"DOCUMENTS": has the meaning given that term in the UCC.
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"DOCUMENTS OF TITLE": has the meaning given that term in the UCC.
"DOMESTIC RATE LOAN": is defined in Exhibit 2-7.
"EBITDA": earnings from continuing operations, before interest, taxes,
depreciation, and amortization, each as determined in
accordance with GAAP.
"EMPLOYEE BENEFIT PLAN": as defined in ERISA.
"ENCUMBRANCE": each of the following:
(a) security interest, mortgage, pledge,
hypothecation, lien, attachment, or charge of any kind
(including any agreement to give any of the foregoing); the
interest of a lessor under a Capital Lease; conditional sale
or other title retention agreement; sale of accounts
receivable or chattel paper; or other arrangement pursuant to
which any Person is entitled to any preference or priority
with respect to the property or assets of another Person or
the income or profits of such other Person or which
constitutes an interest in property to secure an obligation;
each of the foregoing whether consensual or non-consensual and
whether arising by way of agreement, operation of law, legal
process or otherwise.
(b) The filing of any financing statement under the
UCC or comparable law of any jurisdiction.
"ENVIRONMENTAL LAWS": (a) any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or requirements which regulates or
relates to, or imposes any standard of conduct or liability on
account of or in respect to environmental protection matters,
including, without limitation, Hazardous Materials, as is now
or hereafter in effect; and (b) the common law relating to
damage to Persons or property from Hazardous Materials.
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"EQUIPMENT" includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, dies, molds, store
fixtures, furniture, and other goods, property, and assets
which are used and/or were purchased for use in the operation
or furtherance of the Borrower's business, and any and all
accessions, additions thereto, and substitutions therefor.
"ERISA": the Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which would be
treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": is defined in Article 10.
"FIXTURES": has the meaning given that term in the UCC.
"FUNDED DEBT: means all interest bearing Indebtedness of any Person.
"GAAP": principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is
being made.
"GENERAL INTANGIBLES" includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to any
Principal Borrower; credit memoranda in favor of any Principal
Borrower; warranty claims; tax refunds and abatements;
insurance refunds and premium rebates; all means and vehicles
of investment or hedging, including, without
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limitation, options, warrants, and futures contracts; records;
customer lists; telephone numbers; goodwill; causes of action;
judgments; payments under any settlement or other agreement;
literary rights; rights to performance; royalties; license
and/or franchise fees; rights of admission; licenses;
franchises; license agreements, including all rights of any
Principal Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents
pending, and other intellectual property; developmental ideas
and concepts; proprietary processes; blueprints, drawings,
designs, diagrams, plans, reports, and charts; catalogs;
manuals; technical data; computer software programs (including
the source and object codes therefor), computer records,
computer software, rights of access to computer record service
bureaus, service bureau computer contracts, and computer data;
tapes, disks, semi-conductors chips and printouts; trade
secrets rights, copyrights, mask work rights and interests,
and derivative works and interests; user, technical reference,
and other manuals and materials; trade names, trademarks,
service marks, and all good will relating thereto;
applications for registration of the foregoing; and all other
general intangible property of any Principal Borrower in the
nature of intellectual property; proposals; cost estimates,
and reproductions on paper, or otherwise, of any and all
concepts or ideas, and any matter related to, or connected
with, the design, development, manufacture, sale, marketing,
leasing, or use of any or all property produced, sold, or
leased, by any Principal Borrower or credit extended or
services performed, by any Principal Borrower, whether
intended for an individual customer or the general business of
any Principal Borrower, or used or useful in connection with
research by any Principal Borrower.
"GOODS": has the meaning given that term in the UCC.
"GUARANTY": shall mean any instrument of guaranty executed by a
Guarantor.
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"GUARANTORS" shall mean, individually and collectively, PolyMedica
Corporation, Liberty Medical Supply, Inc., PolyMedica
Healthcare, Inc., PolyMedica Securities, Inc.
"HAZARDOUS MATERIALS:" any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as
to any of the foregoing) are defined or regulated as a
hazardous material in or under any Environmental Law and (b)
oil in any physical state.
"INDEBTEDNESS": all indebtedness and obligations of or assumed by any
Person: (i) in respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such
Person but which is secured by an Encumbrance on any asset of
such Person) or evidenced by a promissory note, bond,
debenture or other written obligation to pay money; (ii) for
the payment, deferred for more than thirty (30) days, of the
purchase price of goods or services (other than current trade
liabilities of such Person incurred in the ordinary course of
business and payable in accordance with customary practices);
(iii) in connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of
all letters of credit and acceptances issued for the account
of such Person or reimbursement on account of which such
Person would be obligated); (iv) in connection with the sale
or discount of accounts receivable or chattel paper; (v) on
account of deposits or advances; and (vi) as lessee under
Capital Leases. "Indebtedness" of any Person shall also
include: (x) Indebtedness of others secured by an Encumbrance
on any asset of such Person, whether or not such Indebtedness
is assumed by such Person; (y) Any guaranty, endorsement,
suretyship or other undertaking pursuant to which that Person
may be liable on account of any obligation of any third party;
and (z) the Indebtedness of a partnership or joint venture in
which such Person is a general partner or joint venturer.
"INDEMNIFIED PERSON": is defined in Section 14-11.
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"INSTRUMENTS": has the meaning given that term in the UCC.
"INVENTORY" includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping
materials related to any of the foregoing, and all names or
marks affixed or to be affixed thereto for identifying or
selling the same; Goods held for sale or lease or furnished or
to be furnished under a contract or contracts of sale or
service by any Principal Borrower, or used or consumed or to
be used or consumed in any Principal Borrowers' business;
Goods of said description in transit: returned, repossessed
and rejected Goods of said description; and all documents
(whether or not negotiable) which represent any of the
foregoing.
"L/C": any letter of credit, the issuance of which is procured by the
Lender for the account of any Principal Borrower and any
acceptance made on account of such letter of credit.
"LEASE": any lease or other agreement, no matter how styled or
structured, pursuant to which any Principal Borrower is
entitled to the use or occupancy of any space.
"LENDER": is defined in Preamble.
"LENDER'S RIGHTS AND REMEDIES": is defined in Section 11-6.
"LIBOR RATE LOAN": is defined in Exhibit 2-7.
"LOAN ACCOUNT": is defined in Section 2-4.
"LOAN DOCUMENTS": the within Agreement, each instrument and document
executed and/or delivered as contemplated by Article 5, below,
and each other instrument or
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document from time to time executed and/or delivered in
connection with the arrangements contemplated hereby, as each
may be amended from time to time.
"MASTER NOTE": is defined in Section 2-6.
"MAXIMUM LOAN EXPOSURE": the lesser, on any day, of the following, in
each instance determined net of the unpaid principal balance of the Loan Account
on that day: (a) the amount determined in accordance with Section 2-1(b)(i) or
(b) the amount determined in accordance with Section 2-1(b)(ii), above.
"OBLIGATIONS": any amounts owed by any Principal Borrower under or
pursuant to any Loan Document.
"OPERATING CASH FLOW": means, for any fiscal period, an amount equal to
the sum of (a) EBITDA, MINUS (b) (i) cash income taxes, (ii)
capital expenditures, and (iii) capitalized direct response
advertising expenditures.
"PERSON": any natural person, and any corporation, trust, partnership,
joint venture, or other enterprise or entity.
"PROCEEDS": include, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in
Sections 3-1, above.
"RECEIVABLES COLLATERAL": refers to that portion of the Collateral
which consists of any Principal Borrower's Accounts, Accounts
Receivable, contract rights, General Intangibles, Chattel
Paper, Instruments, Documents of Title, Documents, Securities,
letters of credit for the benefit of any Principal Borrower,
and bankers' acceptances held by any Principal Borrower, and
any rights to payment.
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"RELATED ENTITY": refers to any corporation, trust, partnership, joint
venture, or other enterprise which: is a parent,
brother-sister, subsidiary, or affiliate, of any Principal
Borrower; could have such enterprise's tax returns or
financial statements consolidated with any Principal
Borrowers'; could be a member of the same controlled group of
corporations (within the meaning of Section 1563(a)(1), (2)
and (3) of the Internal Revenue Code of 1986, as amended from
time to time) of which any Principal Borrower is a member;
Controls or is Controlled by any Principal Borrower.
"REQUIREMENT OF LAW": as to any Person: (a)(i) all statutes, rules,
regulations, orders, or other requirements having the force of
law and (ii) all court orders and injunctions, arbitrator's
decisions, and/or similar rulings, in each instance ((i) and
(ii)) of or by any federal, state, municipal, and other
governmental authority, or court, tribunal, panel, or other
body which has or claims jurisdiction over such Person, or any
property of such Person, or of any other Person for whose
conduct such Person would be responsible; (b) that Person's
charter, certificate of incorporation, articles of
organization, and/or other organizational documents, as
applicable; and (c) that Person's by-laws and/or other
instruments which deal with corporate or similar governance,
as applicable.
"REVOLVING CREDIT": is defined in Section 2-1.
"SECURITIES": has the meaning given that term in the UCC.
"STATED AMOUNT": the maximum undrawn amount for which an L/C may be
honored.
"SUSPENSION EVENT": any occurrence, circumstance, or state of facts
which is continuing and (a) is an Event of Default; or (b)
would become an Event of Default if any requisite notice were
given and/or any requisite period of time were to run and such
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occurrence, circumstance, or state of facts were not
absolutely cured within any applicable grace period.
"TERMINATION DATE": The earliest of (a) February 28, 2001 or (b) the
occurrence of any Event of Default.
"TOTAL DEBT SERVICE": means, for any period of testing, the aggregate
of (a) interest expense plus (b) any payments of long term
Indebtedness paid or scheduled to be paid during the testing
period, as determined in accordance with GAAP.
"UCC": the Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"UNUSED LINE FEE": is defined in Section 2-8(b).
ARTICLE 5 - CONDITIONS PRECEDENT.
Precedent to the effectiveness of this Agreement, the establishment of
the financing arrangements contemplated hereby, and the making of the first loan
under the Revolving Credit, the documents respectively described in Sections 5-1
through and including 5-7, each in form and substance reasonably satisfactory to
the Lender shall have been delivered to the Lender, and the conditions
respectively described in Sections 5-8 through and including 5-10, shall have
been satisfied:
5-1. CORPORATE DUE DILIGENCE. (a) A Certificate of corporate good
standing issued by the Secretary(s) of State at each State of incorporation with
respect to each of the Principal Borrowers.
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(b) Certificates of due qualification and good standing,
issued by the Secretary(s) of State of each State in which the nature of each
Principal Borrowers' business conducted or assets owned could require such
qualification.
(c) Certificate of each of the Principal Borrowers' Secretary
of the due adoption, continued effectiveness, and setting forth the texts of,
each corporate resolution adopted in connection with the establishment of the
loan arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
5-2. OPINION. An opinion of counsel to each of the Principal
Borrowers in form and substance satisfactory to the Lender.
5-3. LANDLORD'S WAIVERS. Waivers (each in form reasonably
satisfactory to the Lender) by each of the Principal Borrowers' landlords,
unless otherwise consented to by the Lender in writing.
5-4. GUARANTIES. Instruments of Unconditional Guaranty executed by
each of the Guarantors.
5-5. ADDITIONAL DOCUMENTS. Such additional instruments and
documents as the Lender or its counsel reasonably may require or request.
5-6. OFFICER'S CERTIFICATES. Certificates executed by the
Presidents and the Treasurers of the Principal Borrowers and stating that the
representations and warranties made by the Principal Borrowers to the Lender in
the Loan Documents are true and complete as of the date of such Certificate, and
that no event has occurred which is or which, solely with the giving of notice
or passage of time (or both) would be an Event of Default.
5-7. COMPLIANCE CERTIFICATE. A Compliance Certificate in form and
substance satisfactory to the Lender.
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5-8. REPRESENTATIONS AND WARRANTIES. Each of the representations
made by or on behalf of the Principal Borrowers in this Agreement or in any of
the other Loan Documents or in any other report, statement, document, or paper
provided by any or on behalf of each of the Principal Borrowers shall be true
and complete as of the date as of which such representation or warranty was
made.
5-9. NO EVENT OF DEFAULT. No event shall have occurred, or failed
to occur, which occurrence or which failure constitutes, or which, solely with
the passage of time or the giving of notice (or both) could constitute, an Event
of Default.
5-10. NO ADVERSE CHANGE. No event shall have occurred or failed to
occur, which occurrence or failure is or could have a materially adverse effect
upon any of the Principal Borrowers' financial condition, operating results, or
cash flows from the Principal Borrowers' financial condition set forth in the
most recent financial statements delivered to the Lender.
ARTICLE 6 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
.
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon ) the Principal Borrowers, in addition to all other
representations, warranties, and covenants made by the Principal Borrowers in
any other Loan Document, make those representations, warranties, and covenants
included in the within Agreement.
6-1. PAYMENT AND PERFORMANCE OF OBLIGATIONS. The Principal
Borrowers shall pay each Obligation when due (or when demanded if payable on
demand) and shall promptly, punctually, and faithfully perform each other
Obligation.
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6-2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS. (a)
Each Principal Borrower presently is and shall hereafter remain in good standing
in their respective state of incorporation and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Principal Borrowers' assets or operation of the
Principal Borrowers' business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 6-2, annexed
hereto. Each Related Entity is and shall hereafter remain in good standing in
the State in which incorporated and is and shall hereafter remain duly qualified
in which other State in which, by reason of that entity's assets or the
operation of such entity's business, such qualification may be necessary. The
Agent Borrower shall provide the Lender with prior written notice of any
entity's becoming or ceasing to be a Related Entity.
(c) The Principal Borrowers have all requisite corporate
power and authority to execute and deliver to the Lender each of the Loan
Documents to which the Principal Borrowers are a party and have and will
hereafter retain all requisite corporate power to perform all and singular the
Obligations.
(d) The execution and delivery by the Principal Borrowers
of each Loan Document to which they are a party; the Principal Borrowers'
consummation of the transactions contemplated by such Loan Documents (including,
without limitation, the creation of security and mortgage interests by the
Principal Borrowers as contemplated hereby) ; and the Principal Borrowers'
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary
corporate action.
(ii) Do not, and will not, contravene in any
material respect any provision of any Requirement of Law or obligation
of any Principal Borrower.
(iii) Will not result in the creation or
imposition of, or the obligation to create or impose, any Encumbrance
upon any assets of any Principal Borrower pursuant to any Requirement
of Law or obligation, except pursuant to the Loan Documents.
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(e) The Loan Documents have been duly executed and
delivered by the Principal Borrowers and are the legal, valid and binding
obligations of each Principal Borrower, enforceable against each Principal
Borrower in accordance with their respective terms.
6-3. MAINTAIN ACCOUNTS. To permit the Lender to monitor the
Principal Borrowers' financial performance and condition, the Principal
Borrowers shall maintain depository accounts with the Lender.
6-4. TRADE NAMES. (a) EXHIBIT 6-4, annexed hereto, is a listing of:
(i) All names under which the Principal Borrowers ever
conducted business.
(ii) All entities and/or persons with whom the Principal
Borrowers ever consolidated or merged, or from whom the Principal
Borrowers ever acquired in a single transaction or in a series of
related transactions substantially all of such entity's or person's
assets.
(b) Except (i) upon not less than twenty-one (21) days
prior written notice given the Lender, and (ii) in compliance with all other
provisions of the within Agreement, the Principal Borrowers will not undertake
or commit to undertake any action such that the results of that action, if
undertaken prior to the date of this Agreement, would have been reflected on
EXHIBIT 6-4.
(c) To the best of their knowledge, the conduct by the
Principal Borrowers of the Principal Borrowers' business does not infringe on
the patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, or other intellectual or proprietary property of any third Person.
(d) The Principal Borrowers own and possess, or have the
right to use all patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, and other intellectual or proprietary property of any
third Person necessary for the Principal Borrowers' conduct of the Principal
Borrowers' business as is of the date hereof.
6-5. LOCATIONS. The Collateral, and the books, records, and papers
of each Principal Borrower pertaining thereto, are kept and maintained solely at
the chief executive offices of the
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Principal Borrowers stated in the Preamble of this Agreement, and at those
locations which are listed on EXHIBIT 6-5, annexed hereto, which EXHIBIT
includes the names and addresses of each of the Principal Borrowers' landlords.
Except (i) to accomplish sales of Inventory in the ordinary course of business
or (ii) to utilize such of the Collateral as is removed from such locations in
the ordinary course of business (such as motor vehicles), the Principal
Borrowers shall not remove any Collateral from said chief executive offices or
those locations listed on EXHIBIT 6-5.
6-6. TITLE TO ASSETS. Each Principal Borrower is, and shall
hereafter remain, the owner of the all of its present and future assets free and
clear of all Encumbrances except for the following:
(a) The security interest created herein.
(b) Those Encumbrances (if any) listed on
EXHIBIT 6-6, annexed hereto.
(c) Purchase money security interests in
Equipment to secure Indebtedness otherwise permitted hereby.
No Principal Borrower has and shall not have possession of any property
on consignment to that Principal Borrower.
6-7. INDEBTEDNESS. No Principal Borrower has and shall not
hereafter have any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 6-7,
annexed hereto.
(c) Ordinary trade indebtedness incurred in the normal
course of that Principal Borrower's business.
(d) Indebtedness otherwise associated with the
acquisition of Equipment.
(e) Other Indebtedness not to exceed $500,000.00 in the
aggregate outstanding at any one time.
6-8. INSURANCE POLICIES. (a) EXHIBIT 6-8, annexed hereto, is a
schedule of all insurance policies owned by the Principal Borrowers or under
which the Principal Borrowers are the named
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insured. Each of such policies is in full force and effect. Neither the issuer
of any such policy nor any Principal Borrower is in default or violation of any
such policy.
(b) Each Principal Borrower shall have and maintain at
all times insurance covering such risks, in such amounts, containing such terms,
in such form, for such periods, and written by such companies as may be
satisfactory to the Lender. All insurance carried by the Principal Borrowers
shall provide for a minimum of thirty (30) days' written notice of cancellation
to the Lender and all such insurance which covers the Collateral shall include
an endorsement in favor of the Lender, which endorsement shall include a
standard "New York" lender's loss payable endorsement. In the event of the
failure by any Principal Borrower to maintain insurance as required herein, the
Lender, at its option, may obtain such insurance, provided, however, the
Lender's obtaining of such insurance shall not constitute a cure or waiver of
any Event of Default occasioned by that Principal Borrower's failure to have
maintained such insurance. Each Principal Borrower shall furnish to the Lender
certificates or other evidence satisfactory to the Lender regarding compliance
by Principal Borrower with the foregoing insurance provisions.
(c) The Agent Borrower shall advise the Lender of each
claim made by any Principal Borrower under any policy of insurance in excess of
$100,000.00 which covers the Collateral and will permit the Lender, at the
Lender's option in each instance, to the exclusion of the Principal Borrower, to
conduct the adjustment of each such claim (and of all claims following the
occurrence of any Suspension Event). Each Principal Borrower hereby appoints the
Lender as that Principal Borrower's attorney in fact to obtain, adjust, settle,
and cancel any insurance described in this subsection and to endorse in favor of
the Lender any and all drafts and other instruments with respect to such
insurance. The within appointment, being coupled with an interest, is
irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Lender. The Lender shall not be liable on
account of any exercise pursuant to said power except for any exercise in actual
willful misconduct and bad faith. The Lender may apply any proceeds of such
insurance against the Obligations, whether or not such have matured, in such
order of application as the Lender may determine.
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6-9. LICENSES. EXHIBIT 6-9, annexed hereto, is a schedule of all
material license agreements issued to, or to which any Principal Borrower is a
party. Each of such agreements is in full force and effect. No Principal
Borrower, and to the knowledge of the Principal Borrowers, no other party to any
such agreement, is in default or violation of any such agreement and no Borrower
has received any notice or threat of cancellation of any such agreement.
6-10. LEASES. EXHIBIT 6-10, annexed hereto, is a schedule of all
presently effective Leases and Capital Leases. Each of such Leases and Capital
Leases is in full force and effect. No Principal Borrower, and to the knowledge
of the Principal Borrowers, no other party to any such Lease, or Capital Lease,
is in default or violation of any such Lease or Capital Lease and no Principal
Borrower has received any notice or threat of cancellation of any such Lease or
Capital Lease. The Principal Borrowers hereby authorize upon prior written
notice for the Lender at any time and from time to time to contact any of the
Principal Borrowers' landlords in order to confirm the Principal Borrowers'
continued compliance with the terms and conditions of the Lease(s) between any
Principal Borrower and that landlord and to discuss such issues, concerning the
Borrower's occupancy under such Lease(s), as the Lender may reasonably
determine.
6-11. REQUIREMENTS OF LAW. Each Principal Borrower is in compliance
with, and shall hereafter comply with and use its assets in material compliance
with, all Requirements of Law. No Principal Borrower has received any notice of
any violation of any Requirement of Law (whether or not such violation is
material), which violation has not been cured or otherwise remedied.
6-12. MAINTAIN PROPERTIES. Each Principal Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) In the ordinary course of business.
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(ii) The disposal of Equipment which is obsolete, worn
out, or damaged beyond repair.
6-13. PAY TAXES. (a)(i) The federal income tax returns of each
Principal Borrower have been filed with the Internal Revenue Service (or closed
by applicable statutes) for all fiscal years through and including each
Principal Borrower's taxable year 1996 and no Principal Borrower has received
notice of any deficiencies, assessments, and other amounts due. No agreement is
extant which waives or extends any statute of limitations applicable to the
right of the Internal Revenue Service to assert a deficiency or make any other
claim for or in respect to federal income taxes. No issue has been raised in any
such examination which, by application of similar principles, reasonably could
be expected to result in the assertion of a deficiency for any fiscal year open
for examination, assessment, or claim by the Internal Revenue Service.
(ii) All returns of each Principal Borrower for
state and local income, excise, sales, and other taxes have been filed for all
fiscal years through and including each Principal Borrower's taxable year 1996
and any deficiencies, assessments, and other amounts asserted in connection with
any examinations have been fully paid or settled. No agreement is extant which
waives or extends any statute of limitations applicable to the right of any
state taxing authority to assert a deficiency or make any other claim for or in
respect to any such state taxes. No issue has been raised in any such
examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(iii) There are no examinations of or with respect
to any Principal Borrower presently being conducted by the Internal Revenue
Service or any state taxing authority.
(b) Each Principal Borrower has, and hereafter shall:
pay, as they become due and payable, all taxes and unemployment contributions
and other charges of any kind or nature levied, assessed or claimed against any
Principal Borrower or the Collateral by any person or entity whose claim would
result in an Encumbrance upon any asset of any Principal Borrower or by any
governmental authority, unless being contested in good faith by that Principal
Borrower and adequate reserves having been made therefor; properly exercise any
trust responsibilities imposed upon each
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Principal Borrower by reason of withholding from employees' pay; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by any Principal Borrower; and timely
file all tax and other returns and other reports with each governmental
authority to whom each Principal Borrower is obligated to so file.
(c) At its option, the Lender may, after the occurrence
of and during continuance of an Event of Default, but shall not be obligated to,
pay any taxes, unemployment contributions, and any and all other charges levied
or assessed upon any Principal Borrower or the Collateral by any person or
entity or governmental authority, and make any contributions or other payments
on account of any Principal Borrower's Employee Benefit Plan as the Lender, in
the Lender's discretion, may deem necessary or desirable, to protect, maintain,
preserve, collect, or realize upon any or all of the Collateral or the value
thereof or any right or remedy pertaining thereto, provided, however, the
Lender's making of any such payment shall not constitute a cure or waiver of any
Event of Default occasioned by any Principal Borrower's failure to have made
such payment.
6-14. NO MARGIN STOCK. No Principal Borrower is engaged in the
business of extending credit for the purpose of purchasing or carrying any
margin stock (within the meaning of Regulations G, U, T, and X. of the Board
of Governors of the Federal Reserve System of the United States). No part of
the proceeds of any borrowing from the Lender will be used at any time to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock.
6-15. ERISA. Neither any Principal Borrower nor to the best of its
knowledge any ERISA Affiliate ever has or hereafter shall have any of the
following occur which would have a material adverse effect on the assets or
financial conditions of the Principal Borrowers:
(a) Violate or fail to be in full compliance with the
Borrower's Employee Benefit Plan.
(b) Fail timely to file all reports and filings required
by ERISA to be filed by the Borrower.
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(c) Engage in any "prohibited transactions" or
"reportable events" (respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or
penalty could be imposed upon the Borrower on account thereof pursuant
to ERISA.
(e) Accumulate any material funding deficiency within the
meaning of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien
could be asserted against any assets of any Principal Borrower on
account thereof pursuant to ERISA.
(g) Be a member of, contribute to, or have any obligation
under any Employee Benefit Plan which is a multiemployer plan within
the meaning of Section 4001(a) of ERISA.
6-16. HAZARDOUS MATERIALS. (a) No Principal Borrower has ever:
(i) been determined by a court to be legally responsible for any release or
threat of release of any Hazardous Material or (ii) received notification of any
release or threat of release of any Hazardous Material from any site or vessel
occupied or operated by any Principal Borrower and/or of the incurrence of any
expense or loss in connection with the assessment, containment, or removal of
any release or threat of release of any Hazardous Material from any such site or
vessel.
(b) Each Principal Borrower shall: (i) dispose of any
Hazardous Material only in compliance with all Environmental Laws and (ii) not
store on any site or vessel occupied or operated by any Principal Borrower and
not transport or arrange for the transport of any Hazardous Material, except if
such storage or transport is in the ordinary course of the Borrower's business
and is in compliance with all Environmental Laws.
(c) Each Principal Borrower shall provide the Lender with
written notice upon any Principal Borrower's obtaining knowledge of any
incurrence of any material expense or loss by any governmental authority or
other Person in connection with the assessment, containment, or removal of any
Hazardous Material, for which expense or loss any Principal Borrower may be
liable.
6-17. LITIGATION. There is not presently pending or threatened by or
against any Principal Borrower any suit, action, proceeding, or investigation
which, if determined adversely to any
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Principal Borrower, would have a material adverse effect upon the financial
condition or ability to conduct its business of any Principal Borrower party
thereto, as such business is presently conducted.
6-18. DIVIDENDS OR INVESTMENTS. No Principal Borrower shall without
consent of Lender, which consent shall not be unreasonably withheld
(a) Pay any cash dividend or make any cash other
distribution in respect of any class of that Principal Borrower's capital stock
without the prior written consent of the Lender.
(b) Own, redeem, retire, purchase, or acquire any of that
Principal Borrower's capital stock.
(c) Invest in or purchase any stock or securities or
rights to purchase any such stock or securities, of any corporation or
other entity.
(d) Merge or consolidate or be merged or consolidated
with or into any other corporation or other entity.
(e) Consolidate any of that Principal Borrower's
operations with those of any other corporation or other entity except
any Affiliate, provided such surviving entity shall be liable under the
Loan Documents as a Principal Borrower and shall execute all documents
as the Lender may reasonably require to confirm same.
(f) Organize or create any Related Entity which will not
be obligated hereunder.
(g) Subordinate any debts or obligations owed to that
Principal Borrower by any third party to any other debts owed by such
third party to any other Person.
6-19. LOANS. No Principal Borrower shall make any loans or advances
to, nor acquire the Indebtedness of, any Person, provided, however, the
foregoing does not prohibit any of the following:
(a) Advance payments made to that Principal Borrower's
suppliers in the ordinary course.
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(b) Advances to that Principal Borrower's officers,
employees, and salespersons with respect to reasonable expenses to be
incurred by such officers, employees, and salespersons for the benefit
of that Principal Borrower, which expenses are properly substantiated
by the person seeking such advance and properly reimbursable by that
Principal Borrower.
(c) Loans to any other Principal Borrower with the prior
written consent of the Lender or which may be otherwise permitted under
Section 6-22.
6-20. PROTECTION OF ASSETS. The Lender, at the Lender's discretion,
and from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that Lender had acted in actual bad faith or in a grossly
negligent manner. Each Principal Borrower shall pay to the Lender, on demand, or
the Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section. The obligation of each
Principal Borrower to pay such amounts is an Obligation.
6-21. LINE OF BUSINESS. No Principal Borrower shall engage in any
business other than the business in which it is currently engaged or a business
reasonably related thereto.
6-22. AFFILIATE TRANSACTIONS. No Principal Borrower shall make any
payment, nor give any value to any Related Entity except as permitted hereunder,
or for goods and services actually purchased by that Principal Borrower from, or
sold by that Principal Borrower to, such Related Entity for a price which shall
(a) be competitive and fully deductible as an "ordinary
and necessary business expense" and/or fully depreciable under the
Internal Revenue Code of 1986 and the Treasury Regulations, each as
amended; or
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(b) not differ from that which would have been charged in
an arms length transaction.
6-23. ADDITIONAL ASSURANCES. (a) No Principal Borrower is the owner
of, nor has it any interest in, any property or asset which, immediately upon
the satisfaction of the conditions precedent to the effectiveness of the loan
arrangement contemplated hereby (Article 5), will be not be subject to a
perfected security interest in favor of the Lender (subject only to those
Encumbrances (if any) described on EXHIBIT 6-6, annexed hereto or to the extent
prohibited by law) to secure the Obligations and will not hereafter acquire any
asset or any interest in property which is not, immediately upon such
acquisition, subject to such a perfected security interest in favor of the
Lender to secure the Obligations (subject only to Encumbrances (if any)
permitted pursuant to Section 6-6, above).
(b) Each Principal Borrower shall execute and deliver to
the Lender such instruments, documents, and papers, and shall do all such things
from time to time hereafter as the Lender may reasonably request to carry into
effect the provisions and intent of this Agreement; to protect and perfect the
Lender's security interest in the Collateral; and to comply with all applicable
statutes and laws. Each Principal Borrower shall execute all such instruments as
may be required by the Lender with respect to the recordation and/or perfection
of the security interests created herein. A carbon, photographic, or other
reproduction of this Agreement or of any financing statement or other instrument
executed pursuant to this Section shall be sufficient for filing to perfect the
security interests granted herein.
6-24. ADEQUACY OF DISCLOSURE. (a) All financial statements furnished
to the Lender by any Principal Borrower have been prepared in accordance with
GAAP consistently applied and present fairly the condition of that Principal
Borrower at the date(s) thereof and the results of operations and cash flows for
the period(s) covered subject to footnotes and year end adjustments. There has
been no change in the financial condition, results of operations, or cash flows
of the Principal Borrower since the date(s) of such financial statements, other
than changes in the ordinary course of business, which changes have not been
materially adverse, either singularly or in the aggregate.
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(b) No Principal Borrower has any contingent obligations
or obligation under any Lease or Capital Lease which is not noted in that
Principal Borrower's financial statements furnished to the Lender prior to the
execution of the within Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of any Principal Borrower or any guarantor of
the Obligations in connection with the Lender's execution of the within
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements therein not misleading. There is no fact known to any Principal
Borrower which has, or which, in the foreseeable future could have, a material
adverse effect on the financial condition of any Principal Borrower or any such
guarantor which has not been disclosed in writing to the Lender or in
PolyMedica's periodic reports filed pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, which have been provided to Lender.
6-25. OTHER COVENANTS. No Principal Borrower shall indirectly do or
cause to be done any act which, if done directly by any of the Principal
Borrowers, would breach any covenant contained in this Agreement.
ARTICLE 7 - USE AND COLLECTION OF COLLATERAL.
7-1. ADJUSTMENTS AND ALLOWANCES. Each Principal Borrower may grant
such allowances or other adjustments to that Principal Borrower's Account
Debtors as that Principal Borrower may reasonably deem to accord with sound
business practice, provided, however the authority granted each Principal
Borrower pursuant to this Section may be limited or terminated by the Lender at
any time in the Lender's discretion while an Event of Default is continuing.
7-2. VALIDITY OF ACCOUNTS. (a) To the best knowledge of the
Principal Borrowers, the amount of each Account shown on the books, records, and
invoices of a Principal Borrower represented as owing by each Account Debtor is
and will be the correct amount actually owing by such Account Debtor and shall
have been fully earned by performance by that Principal Borrower.
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(b) The Lender, from time to time (at the expense of the
Principal Borrowers in each instance), may upon prior written or telephonic or
facsimile notice to the Agent Borrower (with no notice required if Event of
Default has occurred and is continuing) verify the validity, amount, and all
other matters with respect to the Receivables Collateral directly with Account
Debtors (including without limitation, by forwarding balance verification
requests to each Principal Borrower's Account Debtors), and with each Principal
Borrower's accountants, collection agents, and computer service bureaus (each of
which is hereby authorized and directed to cooperate in full with the Lender and
to provide the Lender with such information and materials as the Lender may
request.
(c) No Principal Borrower has knowledge of any impairment
of the validity or collectibility of any of the Accounts and shall notify the
Lender of any such fact immediately after any Principal Borrower becomes aware
of any such impairment.
(d) No Principal Borrower shall, other than in the
ordinary course of business, post any bond to secure that Principal Borrower's
performance under any agreement to which that Principal Borrower is a party nor
cause any surety, guarantor, or other third party obligee to become liable to
perform any obligation of that Principal Borrower (other than to the Lender) in
the event of that Principal Borrower's failure so to perform.
7-3. NOTIFICATION TO ACCOUNT DEBTORS. The Lender shall have the
right at any time after an Event of Default has occurred to notify any of the
Principal Borrowers' Account Debtors to make payment directly to the Lender and
to collect all amounts due on account of the Collateral.
7-4. INVENTORY QUALITY. All Inventory now owned or hereafter
acquired by any Principal Borrower is and will be of good and merchantable
quality and free from defects (other than defects within customary trade
tolerances). No tangible personal property of any Principal Borrower is or will
be stored or entrusted with a bailee or other third party.
7-5. USE OF INVENTORY COLLATERAL. (a) No Principal Borrower shall
engage in any sale of the Inventory other than for fair consideration in the
conduct of that Principal Borrower's business in the ordinary course and shall
not engage in sales or other dispositions to creditors; sales or other
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dispositions in bulk; and any use of any of the Inventory in breach of any
provision of this Agreement.
(b) No sale of Inventory shall be on
consignment, approval, or under any other circumstances such that, such
Inventory may be returned to the Principal Borrowers without the consent of the
Lender.
7-6. RETURNED INVENTORY. (a) Each Principal Borrower will provide
the Lender with written notice promptly upon the occurrence of any event
described in Subsection 7-6(b), below.
(b) Subsection (a) of this Section relates to any of the following
Inventory to the extent the value of such Inventory exceeds $100,00.00 for any
single transaction:
(i) Any which is returned by any Account Debtor to a
Principal Borrower (whether or not such return has been agreed to by
that Principal Borrower) and is not in turn returned by that Principal
Borrower to such Account Debtor.
(ii) Any which is repossessed by any Principal Borrower.
(iii) Any which is downgraded in quality or has its
marketability otherwise affected.
(iv) Any which is detained from, or refused entry into, or
required to be removed from the United States by the appropriate
governmental authorities.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT.
8-1. APPOINTMENT AS ATTORNEY-IN-FACT. Following and during the
continuance of an Event of Default, each Borrower hereby irrevocably constitutes
and appoints the Lender as that Principal Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Principal Borrowers, but for the sole benefit of
the Lender. The rights and powers granted the Lender by the within appointment
include but are not limited to the right and power to:
(a) prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) sign change of address forms to change the address to
which any Principal Borrowers' mail is to be sent to such address as
the Lender shall designate; receive and open
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the mail of any Principal Borrower; remove any Receivables Collateral
and Proceeds of Collateral therefrom and turn over the balance of such
mail either to the Agent Borrower or to any trustee in bankruptcy,
receiver, assignee for the benefit of creditors of any Principal
Borrower, or other legal representative of any Principal Borrower whom
the Lender determines to be the appropriate person to whom to so turn
over such mail.
(c) endorse the name of any Principal Borrower in favor
of the Lender upon any and all checks, drafts, notes, acceptances, or
other items or instruments; sign and endorse the name of any Principal
Borrower on, and receive as secured party, any of the Collateral, any
invoices, schedules of Collateral, freight or express receipts, or
bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) sign the name of any Principal Borrower on any notice
to any Principal Borrowers' Account Debtors or verification of the
Receivables Collateral; sign any Principal Borrowers' name on any Proof
of Claim in Bankruptcy against Account Debtors, and on notices of lien,
claims of mechanic's liens, or assignments or releases of mechanic's
liens securing the Accounts.
(e) take all such action as may be necessary to obtain
the payment of any letter of credit and/or banker's acceptance of which
any Principal Borrower is a beneficiary.
(f) repair, manufacture, assemble, complete, package,
deliver, alter or supply goods, if any, necessary to fulfill in whole
or in part the purchase order of any customer of any Principal
Borrower.
(g) use, license or transfer any or all General
Intangibles of any Principal Borrower.
(h) Sign and file or record any financing or other
statements in order to perfect or protect the Lender's security
interest in the Collateral.
8-2. NO OBLIGATION TO ACT. The Lender shall not be obligated to do
any of the acts or to exercise any of the powers authorized by Section 8-1
herein, but if the Lender elects to do any such act or to exercise any of such
powers, it shall not be accountable for more than it actually receives
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as a result of such exercise of power, and shall not be responsible to the Agent
Borrower or any Principal Borrower for any act or omission to act except for any
act or omission to act as to which there is a final determination made in a
judicial proceeding (in which proceeding the Lender has had an opportunity to be
heard) which determination includes a specific finding that the subject act or
omission to act had been grossly negligent or in actual bad faith.
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS.
9-1. MAINTAIN RECORDS. Each Principal Borrower shall at all times,
consistent with current practices,
(a) Keep proper books of account, in which full, true,
and accurate entries shall be made of all of that Principal Borrower's
transactions, all in accordance with GAAP applied consistently with
prior periods to fairly reflect the financial condition of that
Principal Borrower at the close of, and its results of operations for,
the periods in question.
(b) Keep accurate current records of the Collateral.
(c) Retain independent certified public accountants who
are reasonably satisfactory to the Lender and
instruct such accountants to fully cooperate with, and be available to,
the Lender to discuss that Principal Borrower's financial performance,
financial condition, operating results, controls, and such other
matters, within the scope of the retention of such accountants, as may
be raised by the Lender.
(d) Not change any Principal Borrower's fiscal year.
(e) Not change any Principal Borrower's taxpayer
identification number.
9-2. ACCESS TO RECORDS. (a) Upon prior notice and at times so as
not to interfere with Principal Borrower's business, each Principal Borrower
shall accord the Lender and the Lender's representatives with access from time
to time as the Lender and such representatives may require to all properties
owned by or over which that Principal Borrower has control. The Lender, and the
Lender's representatives, shall have the right, and each Principal Borrower will
permit the Lender and such representatives from time to time as the Lender and
such representatives may request, to
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examine, inspect, copy, and make extracts from any and all of that Principal
Borrower's books, records, electronically stored data, papers, and files. Each
Principal Borrower shall make all of that Principal Borrower's copying
facilities available to the Lender.
(b) Each Principal Borrower hereby authorizes the Lender
and the Lender's representatives to upon prior notice to Principal Borrowers and
at such times in accordance with ss.9- 2(a):
(i) Inspect, copy, duplicate, review, cause to
be reduced to hard copy, run off, draw off, and otherwise use any and
all computer or electronically stored information or data which relates
to that Principal Borrower, which information or data is in the
possession of that Principal Borrower or any service bureau,
contractor, accountant, or other person, and directs any such service
bureau, contractor, accountant, or other person fully to cooperate with
the Lender and the Lender's representatives with respect thereto.
(ii) Verify at any time the Collateral or any
portion thereof, including verification with Account Debtors, and/or
with any Principal Borrower's computer billing companies, collection
agencies, and accountants and to sign the name of any Principal
Borrower on any notice to the Account Debtors or verification of the
Collateral.
9-3. BORROWING BASE CERTIFICATE. At such intervals as the Lender
may from time to time specify (monthly, and in accordance with Section 2-3(a),
unless notice to the contrary is so given), the Agent Borrower shall provide the
Lender with a Borrowing Base Certificate (in the form of EXHIBIT 9-3, annexed
hereto and in such form as the Lender may hereafter specify from time to time),
which Certificate shall include a Schedule of all Receivables Collateral and
Inventory which has come into existence since the date of such Schedule then
most recently provided to the Lender.
9-4. QUARTERLY REPORTS. Quarterly, within forty five (45) days
following the end of each of the Agent Borrower's first three (3) fiscal
quarters, the Agent Borrower shall provide the Lender with an unaudited
financial statement of each of the Principal Borrowers and Related Entities on a
consolidated and consolidating basis for the period from the beginning of the
Agent Borrower's then current fiscal year through the end of the subject
quarter, with comparative information for the same
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period of the previous fiscal year, which statement shall include, at a minimum,
a balance sheet, income statement, and cash flows and comparisons for the
corresponding quarter of the then immediately previous year, as well as to any
projections provided to the Lender.
9-5. ANNUAL REPORTS. (a) Annually, within ninety (90) days
following the end of the Agent Borrowers' fiscal year, the Agent Borrower shall
furnish the Lender with a copy of each Principal Borrower's annual financial
statement on a consolidated and consolidating basis, which statement shall have
been prepared by, and bearing the unqualified opinion of, each Principal
Borrower's and Related Entity's independent certified public accountants (i.e.
said statement shall be "certified" by such accountants). Such annual statement
shall include, at a minimum (with comparative information for the then prior
fiscal year) a balance sheet, income statement, statement of changes in
shareholders' equity and cash flows for each Principal Borrower with comparative
information for the prior corresponding period.
(b) Annually, no later than thirty (30) days prior to the
end of the Agent Borrower's fiscal year, the Agent Borrower shall furnish the
Lender with financial projections for the Principal Borrowers and Related
Entities for the next succeeding fiscal year, including, at a minimum, a
projected balance sheet, income statement and statement of cash flows.
(c) Each annual statement shall be accompanied by such
accountant's Certificate indicating that to the best knowledge of such
accountant, no event has occurred which is or which, solely with the passage of
time or the giving of notice (or both) would be, an Event of Default.
9-6. OFFICER'S CERTIFICATES. Each of the Principal Borrowers shall
cause that Principal Borrower's Presidents and Treasurers respectively to
provide such Person's Certificate with those quarterly, and annual statements to
be furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied, and presents fairly the
financial condition of the Borrower at the close of, and the results of
that Principal Borrower's operations and cash flows for, the period(s)
covered, subject, however (with the exception of the Certificate which
accompanies such annual statement) to usual year end adjustments and
footnotes.
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(b) Indicate either that (i) no Suspension Event has
occurred or (ii) if such an event has occurred, its nature (in
reasonable detail) and the steps (if any) being taken or contemplated
by that Principal Borrower to be taken on account thereof.
(c) Include calculations concerning that Principal
Borrower's compliance (or failure to comply) at the date of the subject
statement with each of the financial performance covenants included in
Section 9-8, below.
9-7. ADDITIONAL FINANCIAL INFORMATION. In addition to the
foregoing, the Agent Borrower promptly shall provide the Lender, with such other
and additional information concerning the Principal Borrower, the Collateral,
the operation of each Principal Borrower's business, and each Principal
Borrower's and Related Entity's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request.
9-8. FINANCIAL PERFORMANCE COVENANTS. The Principal Borrowers shall
observe and comply with those financial performance covenants set forth on
EXHIBIT 9-8, annexed hereto.
9-9. AUDITS AND APPRAISALS. (a) The Lender may from time to time
conduct commercial finance audits of any Principal Borrower's books and records
(in each event, at the expense of the Principal Borrowers) in accordance with
the Bank's customary practices.
(b) (i) The Lender, at the expense of the Principal
Borrowers, may participate in and/or observe each physical count and/or
inventory of so much of the Collateral as consists of Inventory which is
undertaken on behalf of any Principal Borrower.
(ii) Upon the Lender's request from time to time,
each Principal Borrower shall obtain, or shall permit the Lender to obtain (in
all events, at the Principal Borrowers' expense) physical counts and/or
inventories of the Collateral in form and substance and by such inventory takers
as are satisfactory to the Lender, each of which physical counts/inventories
shall be observed by any Principal Borrowers' accountants.
(iii) Upon the Lender's request from time to time,
each Principal Borrower shall permit the Lender to obtain appraisals of any
Principal Borrower's assets in accordance with
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the Bank's customary practices (in all events, at the Principal Borrowers'
expense) conducted by such appraisers as are satisfactory to the Lender.
ARTICLE 10 - EVENTS OF DEFAULT.
Nothing contained in this Article 10 or elsewhere in the within
Agreement or in any Loan Document shall affect the demand nature of such
Obligations that are payable on Demand (it being noted that the payment of any
principal or interest under the Revolving Credit prior to occurrence of Event of
Default are not demand obligations). The occurrence of an Event of Default is
not a prerequisite to the Lender's making of demand on such Obligations.
The occurrence of any event described in this Article 10 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 10-10, any and all Obligations shall become due
and payable without any further act on the part of the Lender. Upon the Lender's
demand (after giving of any required notice and expiration of any applicable
grace periods) under the Revolving Credit and/or the occurrence of any other
Event of Default, any and all Obligations of the Principal Borrowers to the
Lender shall become immediately due and payable, at the option of the Lender and
without any further notice or demand. The occurrence of any Event of Default
shall also constitute, without notice or demand, a default under all other Loan
Documents between the Lender and each Principal Borrower and instruments and
papers given the Lender by any Principal Borrower, whether such agreements,
instruments, or papers now exist or hereafter arise, in connection herewith.
10-1. FAILURE TO PAY REVOLVING CREDIT. The failure by the Agent
Borrower or any Principal Borrower to pay any amount when due under the
Revolving Credit.
10-2. FAILURE TO MAKE OTHER PAYMENTS. The failure by the Agent
Borrower or any Principal Borrower to pay to Lender when due (or upon demand, if
payable on demand) any payment obligation other than under the Revolving Credit.
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10-3. FAILURE TO PERFORM COVENANT OR OBLIGATION . The failure by the
Agent Borrower or any Principal Borrower to promptly, punctually, faithfully and
timely perform or discharge, or to comply with, any covenant to or with the
Lender or any Obligation hereunder or in connection herewith.
10-4. MISREPRESENTATION. The determination by the Lender that any
representation or warranty at any time made by the Agent Borrower or any
Principal Borrower to the Lender under any Loan Document, was not true or
complete in any material respect (except due to transactions permitted
hereunder) when given.
10-5. ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of
any event such that any material Indebtedness of any Principal Borrower to any
creditor other than the Lender could be accelerated or any material Lease could
be terminated (whether or not the subject creditor or lessor takes any action on
account of such occurrence) and which is not waived or cured.
10-6. CASUALTY LOSS. The occurrence of any uninsured loss, theft,
damage, or destruction of or to any material portion of the Collateral.
10-7. JUDGMENT. RESTRAINT OF BUSINESS. (a) The service of process
upon the Lender or any Participant seeking to attach, by trustee, mesne, or
other process, any funds of any Principal Borrower on deposit with, or assets of
any Principal Borrower in the possession of, the Lender.
(b) The entry of any judgment against any Principal
Borrower, which judgment is not satisfied (if a money judgment) or appealed from
(with execution or similar process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by any Principal Borrower of its business in the
ordinary course not stayed or discharged within thirty (30) days.
10-8. BUSINESS FAILURE. Any act by, against, or relating to any
Principal Borrower, or its property or assets, which act constitutes the
application for, consent to, or sufferance of the
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appointment of a receiver, trustee, or other person, pursuant to court action or
otherwise, over all, or any part of any Principal Borrower's property; the
granting of any trust mortgage or execution of an assignment for the benefit of
the creditors of any Principal Borrower, or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for any
Principal Borrower; or the offering by or entering into by any Principal
Borrower of any composition, extension, or any other arrangement seeking relief
from or extension of the debts of any Principal Borrower, or the initiation of
any other judicial or non-judicial proceeding or agreement by, against, or
including any Principal Borrower which seeks or intends to accomplish a
reorganization or arrangement with creditors provided any involuntary proceeding
commenced against any Principal Borrower is not stayed or dismissed within sixty
(60) days.
10-9. BANKRUPTCY. The failure by any Principal Borrower to generally
pay the debts of that Principal Borrower as they mature; adjudication of
bankruptcy or insolvency relative to any Principal Borrower; the entry of an
order for relief or similar order with respect to any Principal Borrower in any
proceeding pursuant to The Bankruptcy Code or any other federal bankruptcy law;
the filing of any complaint, application, or petition by or against any
Principal Borrower initiating any matter in which any Principal Borrower is or
may be granted any relief from the debts of any Principal Borrower pursuant to
the Bankruptcy Code or any other insolvency statute or procedure provided any
involuntary proceeding commenced against any Principal Borrower is not stayed or
dismissed within sixty (60) days.
10-10. INDICTMENT - FORFEITURE. The indictment of, or institution of
any legal process or proceeding against, any Principal Borrower, under any
federal, state, municipal, and other civil or criminal statute, rule,
regulation, order, or other requirement having the force of law where the
relief, penalties, or remedies sought include the forfeiture of any material
property of any Principal Borrower and/or the imposition of any stay or other
order, the effect of which could be to restrain in any material way the conduct
by any Principal Borrower of its business in the ordinary course.
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10-11. DEFAULT BY GUARANTOR. The occurrence of any of the foregoing
Events of Default with respect to any Guarantor, or the occurrence of any of the
foregoing Events of Default with respect to any parent, subsidiary, or Related
Entity, as if such Guarantor, parent, or Related Entity were the "Borrower"
described therein.
10-12. TERMINATION OF GUARANTY. The termination or attempted
termination of any Guaranty by any Guarantor of the Obligations except by its
terms or with the express written consent of Lender.
10-13. CHALLENGE TO LOAN DOCUMENTS. (a) Any challenge by or on behalf
of any Principal Borrower to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial
or government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-14. EXECUTIVE MANAGEMENT. A change in the identity of two (2) or
more of the Chief Executive Officer, President, and chief financial officer of
PolyMedica or the president of Liberty from that existing as of the date of the
execution of the within Agreement, without the prior written consent of the
Lender which consent shall not be unreasonably withheld.
10-15. CHANGE IN CONTROL. Any change in the ownership of the capital
stock of any Principal Borrower such that those Persons who, at the execution of
the within Agreement, Control any Principal Borrower, no longer so Control that
Principal Borrower.
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ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter.
11-1. RIGHTS OF ENFORCEMENT. The Lender shall have all of the rights
and remedies of a secured party upon default under the UCC, in addition to which
the Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without
the taking of possession of any of the Collateral.
(b) To apply the Receivables Collateral or the proceeds
of the Collateral towards (but not necessarily in
complete satisfaction of) the Obligations.
(c) To take possession of all or any portion of the
Collateral.
(d) To sell, lease, or otherwise dispose of any or all of
the Collateral, in its then condition or following
such preparation or processing as the Lender deems
advisable and with or without the taking of
possession of any of the Collateral.
(e) To exercise all or any of the rights, remedies,
powers, privileges, and discretions under all or any
of the Loan Documents.
11-2. SALE OF COLLATERAL. (a) Any sale or other disposition of the
Collateral may be at public or private sale upon such terms and in such manner
as the Lender deems advisable, having due regard to compliance with any statute
or regulation which might affect, limit, or apply to the Lender's disposition of
the Collateral.
(b) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Lender shall provide the Agent Borrower with such
notice as may be practicable under the circumstances), the Lender shall give the
Agent Borrower at least ten (10) days prior written notice of the date, time,
and place of any proposed public sale, and of the date after which any private
sale or other disposition of the
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<PAGE> 57
Collateral may be made. The Agent Borrower and Principal Borrowers agree that
such written notice shall satisfy all requirements for notice to the Agent
Borrower and Principal Borrowers which are imposed under the UCC or other
applicable law with respect to the Lender's exercise of the Lender's rights and
remedies upon default.
(c) The Lender may purchase the Collateral, or any
portion of it at any sale held under this Article.
(d) The Lender shall apply the proceeds of any exercise
of the Lender's Rights and Remedies under this Article 11 towards the
Obligations in such manner, and with such frequency, as the Lender determines.
11-3. OCCUPATION OF BUSINESS LOCATION. In connection with the
Lender's exercise of the Lender's rights under this Article, the Lender may
enter upon, occupy, and use any premises owned or occupied by any Principal
Borrower, and may exclude each Principal Borrower from such premises or portion
thereof as may have been so entered upon, occupied, or used by the Lender. The
Lender shall not be required to remove any of the Collateral from any such
premises upon the Lender's taking possession thereof, and may render any
Collateral unusable to each Principal Borrower. In no event shall the Lender be
liable to any Principal Borrower for use or occupancy by the Lender of any
premises pursuant to this Article, nor for any charge (such as wages for any
Principal Borrower's employees and utilities) incurred in connection with the
Lender's exercise of the Lender's Rights and Remedies.
11-4. GRANT OF NONEXCLUSIVE LICENSE. Each Principal Borrower hereby
grants to the Lender upon and during the continuance of an Event of Default, a
royalty free nonexclusive irrevocable license to use, apply, and affix any
trademark, tradename, logo, or the like in which that Principal Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
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<PAGE> 58
11-5. ASSEMBLY OF COLLATERAL. The Lender may require each Principal
Borrower to assemble the Collateral and make it available to the Lender at the
sole risk and expense of the Principal Borrowers at a place or places which are
reasonably convenient to both the Lender and the subject Principal Borrower.
11-6. RIGHTS AND REMEDIES. The rights, remedies, powers, privileges,
and discretions of the Lender hereunder (herein, the "LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default or
of any default under any other agreement shall operate as a waiver of any other
default hereunder or under any other agreement. No single or partial exercise of
any of the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be deemed a waiver on any subsequent occasion, nor
shall it be deemed a continuing waiver. All of the Lender's Rights and Remedies
and all of the Lender's rights, remedies, powers, privileges, and discretions
under any other agreement or transaction are cumulative, and not alternative or
exclusive, and may be exercised by the Lender at such time or times and in such
order of preference as the Lender in its sole discretion may determine. The
Lender's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Obligations.
ARTICLE 12 - NOTICES.
12-1. NOTICE ADDRESSES. All notices, demands, and other
communications made in respect of this Agreement (other than a request for a
loan or advance or other financial accommodation under the Revolving Credit)
shall be made to the following addresses, each of which may be changed upon
seven (7) days written notice to all others given by certified mail, return
receipt requested:
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<PAGE> 59
If to the Lender: BankBoston, N.A.
100 Federal Street
Mail Stop No. 01-07-05
Boston, Massachusetts 02110
Attention: Mr. Jeffrey G. Millman
Vice President
AND
Division Executive
Fax: 617-434-8102
With a copy to: Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attention: Charles W. Stavros, Esquire
Fax: 617 723-6831
If to the Agent Borrower
OR Principal Borrowers: PolyMedica Corporation
11 State Street
Woburn, Massachusetts 01801
Attention: Mr. Eric G. Walters, Chief
Financial Officer and Treasurer
Fax: 781-938-6950
With a copy to: Hale and Dorr, LLP
60 State Street
Boston, Massachusetts 02108
Attention: John K. Stone, III, Esquire
Fax: 617-526-6000
12-2. NOTICE GIVEN. (a) Notices shall be deemed given at the sooner
of when actually received or (i) if by mail: Three (3) days following deposit in
the United States mail, postage prepaid; (ii) By overnight express delivery: the
Business Day following the day when sent; (iii) By hand: If delivered on a
Business Day after 9:00 AM and no later than Three (3) hours prior to the close
of customary business hours of the recipient, when delivered (otherwise, at the
opening of the then next Business Day); and (iv) By Facsimile transmission: If
sent on a Business Day after 9:00 AM and no later than Three (3) hours prior to
the close of customary business hours of the recipient, one (1) hour after being
sent (otherwise, at the opening of the then next Business Day).
59
<PAGE> 60
(b) Rejection or refusal to accept delivery and inability
to deliver because of a changed address or Facsimile Number for which no due
notice was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM OF AGREEMENT.
13-1. TERMINATION OF REVOLVING CREDIT AND AGREEMENT. The Revolving
Credit shall be terminated upon the sooner of
(a) the occurrence of an Event of Default;
(b) upon payment in full of all Obligations and five (5)
Business Days written notice from the Agent Borrower and Principal
Borrowers received by the Lender of their determination to terminate
the Revolving Credit and the within Agreement;
(c) March 31, 2001.
The within Agreement shall continue in full force and effect applicable to all
Obligations until all Obligations have been paid and/or satisfied in full and
the within Agreement is specifically terminated in writing by a duly authorized
officer of the Lender.
ARTICLE 14 - GENERAL.
14-1. PROTECTION OF COLLATERAL. The Lender shall have no duty as to
the collection or protection of the Collateral beyond the safe custody of such
of the Collateral as may come into the possession of the Lender and shall have
no duty as to the preservation of rights against prior parties or any other
rights pertaining thereto.
14-2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Agent Borrower, each Principal Borrower and their respective
representatives, successors, and assigns and shall enure to the benefit of the
Lender and the Lender's successors and assigns provided, however, no trustee or
other fiduciary appointed with respect to any Principal Borrower shall have any
rights hereunder. In the event that the Lender assigns or transfers its rights
under this Agreement, the assignee shall thereupon succeed to and become vested
with all rights, powers, privileges, and duties of the Lender
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<PAGE> 61
hereunder and the Lender shall thereupon be discharged and relieved from its
duties and obligations hereunder.
14-3. SEVERABILITY. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
14-4. AMENDMENTS. COURSE OF DEALING. (a) This Agreement and the
other Loan Documents incorporate all discussions and negotiations between the
Agent Borrower, each Principal Borrower and the Lender, either express or
implied, concerning the matters included herein and in such other instruments,
any custom, usage, or course of dealings to the contrary notwithstanding. No
such discussions, negotiations, custom, usage, or course of dealings shall
limit, modify, or otherwise affect the provisions thereof. No failure by the
Lender to give notice to the Agent Borrower or Principal Borrower or either of
them having failed to observe and comply with any warranty or covenant included
in any Loan Document shall constitute a waiver of such warranty or covenant or
the amendment of the subject Loan Document.
(b) No consent, modification, amendment, or waiver of any
provision of any Loan Document shall be effective unless executed in writing by
or on behalf of the party to be charged with such modification, amendment, or
waiver (and if such party is the Lender, then by a duly authorized officer
thereof). Any modification, amendment, or waiver provided by the Lender shall be
in reliance upon all representations and warranties theretofore made to the
Lender by or on behalf of the Principal Borrowers (and any guarantor, endorser,
or surety of the Obligations) and consequently may be rescinded by the Lender in
the event that any of such representations or warranties was not true and
complete in all material respects when given.
14-5. POWER OF ATTORNEY. Upon and during continuance of an Event of
Default, in connection with all powers of attorney included in this Agreement,
each Principal Borrower hereby grants unto the Lender full power to do any and
all things necessary or appropriate in connection
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<PAGE> 62
with the exercise of such powers as fully and effectually as that Principal
Borrower might or could do, hereby ratifying all that said attorney shall do or
cause to be done by virtue of this Agreement. No power of attorney set forth in
this Agreement shall be affected by any disability or incapacity suffered by any
Principal Borrower and each shall survive the same. All powers conferred upon
the Lender by this Agreement, being coupled with an interest, shall be
irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Lender.
14-6. APPLICATION OF PROCEEDS. The proceeds of any collection, sale,
or disposition of the Collateral, or of any other payments received hereunder,
shall be applied toward the Obligations in such order and manner as the Lender
determines in its sole discretion. Each Principal Borrower shall remain liable
to the Lender for any deficiency remaining following such application.
14-7. LENDER'S COSTS AND EXPENSES. Each Principal Borrower shall pay
on demand all Costs of Collection and all reasonable expenses of the Lender in
connection with the preparation, execution, and delivery of this Agreement and
of any other Loan Documents, whether now existing or hereafter arising, and all
other reasonable expenses which may be incurred by the Lender in preparing or
amending this Agreement and all other agreements, instruments, and documents
related thereto, or otherwise incurred with respect to the Obligations. Upon
prior notice to the Principal Borrowers, each Principal Borrower specifically
authorizes the Lender to pay all such fees and expenses and in the Lender's
discretion, to add such fees and expenses to the Loan Account.
14-8. COPIES AND FACSIMILES. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such
62
<PAGE> 63
transmission was initiated and likewise shall be so admissible in evidence as if
the original of such facsimile had been delivered to the party which or on whose
behalf such transmission was received.
14-9. MASSACHUSETTS LAW. This Agreement and all rights and
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the laws of The Commonwealth of Massachusetts
(except with respect to its conflicts of laws).
14-10. CONSENT TO JURISDICTION. (a) The Agent Borrower and each of
the Principal Borrowers agree that any legal action, proceeding, case, or
controversy against the Agent Borrower or any Principal Borrower with respect to
any Loan Document may be brought in the Superior Court of Suffolk County
Massachusetts or in the United States District Court, District of Massachusetts,
sitting in Boston, Massachusetts, as the Lender may elect in the Lender's sole
discretion. By execution and delivery of this Agreement, the Agent Borrower and
each Principal Borrower, for itself and in respect of its property, accepts,
submits, and consents generally and unconditionally, to the jurisdiction of the
aforesaid courts.
(b) The Agent Borrower and each of the Principal
Borrowers WAIVES personal service of any and all process upon them, and
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
certified mail, postage prepaid, to the Agent Borrower or any Principal Borrower
at the address for notices as specified herein, such service to become effective
five (5) Business Days after such mailing.
(c) The Agent Borrower and each of the Principal
Borrowers WAIVES, at the option of Lender, any objection based on FORUM NON
CONVENIENS and any objection to venue of any action or proceeding instituted
under any of the Loan Documents and consents to the granting of such legal or
equitable remedy as is deemed appropriate by the Court.
(d) Nothing herein shall affect the right of the Lender
to bring legal actions or proceedings in any other competent jurisdiction.
(e) The Agent Borrower and each of the Principal
Borrowers agrees that any action commenced by the Agent Borrower and any
Principal Borrower asserting any claim or
63
<PAGE> 64
counterclaim arising under or in connection with this Agreement or any other
Loan Document shall be brought in the Superior Court of Suffolk County
Massachusetts or in the United States District Court, District of Massachusetts,
sitting in Boston, Massachusetts, and that such Courts shall have exclusive
jurisdiction with respect to any such action.
14-11. INDEMNIFICATION. The Principal Borrowers hereby indemnify,
defend, and hold the Lender and any employee, officer, or agent of the Lender
(each, an "INDEMNIFIED PERSON") harmless of and from any claim brought or
threatened against any Indemnified Person by any Person (as well as from
attorneys' reasonable fees and expenses in connection therewith) on account of
the Lender's relationship with the Agent Borrower, any Principal Borrower or any
other guarantor or endorser of the Obligations (each of which may be defended,
compromised, settled, or pursued by the Indemnified Person with counsel of the
Lender's selection, but at the expense of each Principal Borrower) other than
any claim as to which a final determination is made in a judicial proceeding (in
which the Lender and any other Indemnified Person has had an opportunity to be
heard), which determination includes a specific finding that the Indemnified
Person seeking indemnification had (i) acted in a grossly negligent manner or
(ii) acted with willful misconduct or (iii) been due to Lender's breach
hereunder resulting from the Lender's gross negligence or willful misconduct.
The within indemnification shall survive payment of the Obligations and/or any
termination, release, or discharge executed by the Lender in favor of the Agent
Borrower and any Principal Borrower.
14-12. RULES OF CONSTRUCTION. (a) The following rules of construction
shall be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(i) Words in the singular include the plural and
words in the plural include the singular.
(ii) Headings (indicated by being UNDERLINED) and
the Table of Contents are solely for convenience of reference and do
not constitute a part of the instrument in which included and do not
affect such instrument's meaning, construction, or effect.
(iii) The words "includes" and "including" are not
limiting.
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<PAGE> 65
(iv) The words "may not" are prohibitive and not
permissive.
(v) The word "or" is not exclusive.
(vi) Terms which are defined in one section of an
instrument are used with such definition throughout the instrument in
which so defined.
(vii) The symbol "$" refers to United States
Dollars.
(viii) References to "herein", "hereof", and
"within" are to this entire Loan Agreement and not merely the provision
in which such reference is included.
(ix) Except as otherwise specifically provided,
all references to time are to Boston time.
(x) In the determination of any notice, grace,
or other period of time prescribed or allowed hereunder, unless
otherwise provided (A) the day of the act, event, or default from which
the designated period of time begins to run shall not be included and
the last day of the period so computed shall be included unless such
last day is not a Business Day, in which event the last day of the
relevant period shall be the then next Business Day and (B) the period
so computed shall end at 5:00 PM on the relevant Business Day. (b) The
Loan Documents shall be construed and interpreted in a harmonious
manner,
provided, however, in the event of any inconsistency between the provisions of
the within Agreement and any other Loan Document, the provisions of the within
Agreement shall govern and control.
14-13. INTENT. It is intended that
(a) This Agreement take effect as a sealed instrument.
(b) The security interests created by this Agreement
secure all Obligations, now existing or hereafter arising;
(c) All reasonable costs and expenses incurred by the
Lender in connection with the Lender's relationship(s) with the Agent
Borrower and each Principal Borrower shall be borne by each of the
Principal Borrowers.
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<PAGE> 66
(d) The Lender's consent to any action of the Agent
Borrower or any Principal Borrower which is prohibited unless such
consent is given may be given or refused by the Lender in its sole
discretion.
14-14. RIGHT OF SET-OFF. Following and during the continuance of an
Event of Default any and all deposits or other sums at any time credited by or
due to any Principal Borrower from the Lender and any cash, securities,
instruments or other property of the undersigned in the possession of the
Lender, whether for safekeeping or otherwise (regardless of the reason the
Lender or the Participant had received the same) shall at all times constitute
security for all Obligations and for any and all obligations of the undersigned
to the Lender, and may be applied or set off against the Obligations and against
the obligations of the undersigned to the Lender including, without limitation,
those arising hereunder, at any time while an Event of Default is then existing,
whether or not such are then due and whether or not other collateral is then
available to the Lender.
14-15. MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Obligation, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on an Obligation would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Obligations as if such excess were "Collateral."
14-16. FEDERAL RESERVE BANK PLEDGE. The Lender may at any time pledge
or assign all or any portion of the Lender's rights under this Agreement and the
other Loan Documents to a Federal Reserve Bank; provided, however, that no such
pledge or assignment shall release the Lender from the Lender's obligations
hereunder or under any other Loan Document.
14-17. WAIVERS. (a) The Agent Borrower and each of the Principal
Borrowers (and all guarantors, endorsers, and sureties of the Obligations) make
each of the waivers included in Subsection (b), below, knowingly, voluntarily,
and intentionally, and understands that the Lender,
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<PAGE> 67
in entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of any and each
of the Principal Borrowers as provided herein, whether not or in the future, is
relying on such waivers.
(b) THE AGENT BORROWER, THE PRINCIPAL BORROWERS, AND EACH
SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required
hereby, notice of non-payment, demand, presentment, protest and all
forms of demand and notice, both with respect to the Obligations and
the Collateral (except as provided in any Loan Document).
(ii) Except as otherwise specifically required by
any Loan Document, the right to notice and/or hearing prior to the
Lender's exercising of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE
OR CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH
CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH
THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY
ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN
THE AGENT BORROWER, ANY PRINCIPAL BORROWER OR ANY OTHER PERSON AND THE
LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any defense, counterclaim, set-off,
recoupment, or other basis on which the amount of any Obligation, as
stated on the books and records of the Lender, could be reduced or
claimed to be paid otherwise than in accordance with the tenor of and
written terms of such Obligation except this does not limit any right
of any Principal Borrower or the Agent Borrower to obtain any
affirmative recovery from Lender.
(v) Any claim to consequential, special, or
punitive damages.
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<PAGE> 68
"PRINCIPAL BORROWERS"
POLYMEDICA CORPORATION POLYMEDICA HEALTHCARE, INC.
By: /s/ Eric G. Walters By: /s/ Robert Zappa
------------------------------- ---------------------------------
Title: CFO and Treasurer Title: President
---------------------------- ------------------------------
POLYMEDICA SECURITIES, INC. LIBERTY MEDICAL SUPPLY, INC.
By: /s/ Eric G. Walters By: /s/ Mark Libratore
------------------------------- ---------------------------------
Title: Treasurer Title: President
---------------------------- ------------------------------
"AGENT BORROWER"
POLYMEDICA CORPORATION
By: /s/ Eric G. Walters
------------------------
Title: CFO AND TREASURER
---------------------
"LENDER"
BANKBOSTON, N.A.
By: /s/ Jeffrey G. Millman
------------------------
Title: VICE PRESIDENT
---------------------
68
<PAGE> 69
Exhibits
Exhibit 2-5 Master Note
Exhibit 2-7 Interest Provisions
Exhibit 6-2 Related Entity
Exhibit 6-4 Trade Names
Exhibit 6-5 Locations
Exhibit 6-6 Encumbrances
Exhibit 6-7 Indebtedness
Exhibit 6-8 Insurance Policies
Exhibit 6-9 Licenses
Exhibit 6-10 Leases
Exhibit 9-3 Borrowing Base Certificate
Exhibit 9-8 Performance Covenants
69
<PAGE> 1
EXHIBIT 10.60
-------------
MASTER NOTE BANKBOSTON, N.A.
$7,500,000.00
- -----------------------------------------------------------------
Boston, Massachusetts April 30, 1998
FOR VALUE RECEIVED, the undersigned, (individually and collectively,
jointly and severally, the "BORROWERS") promise to pay to the order of
BankBoston, N.A. a national banking association with offices at 100 Federal
Street, Boston, Massachusetts 02110 (with any subsequent holder, the "LENDER")
the aggregate unpaid principal balance of loans and advances made by the Lender
to the Borrowers pursuant to the Revolving Credit established pursuant to the
Agented Loan and Security Agreement of even date (as such may be amended
hereafter, the "LOAN AGREEMENT") between the Lender and the Borrowers, with
interest, at the rate and payable in the manner, stated therein.
This is the "Master Note" to which reference is made in the Loan
Agreement, and is subject to all terms and provisions thereof. The principal of,
and interest on, this Note shall be payable as provided in the Loan Agreement
and shall be subject to acceleration as provided therein.
The Lender's books and records concerning the Lender's loans and
advances pursuant to the Revolving Credit, the accrual of interest thereon, and
the repayment of such loans and advances, shall be prima facie evidence of the
indebtedness to the Lender hereunder.
No delay or omission by the Lender in exercising or enforcing any of
the Lender's powers, rights, privileges, remedies, or discretions hereunder
shall operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
Each of the Borrowers, and each endorser and guarantor of this Note,
respectively waives presentment, demand, notice, and protest, and also waives
any delay on the part of the holder hereof except as provided in the Loan
Agreement or any guaranty. Each assents to any extension or other indulgence
(including, without limitation, the release or substitution of collateral)
permitted by the Lender with respect to this Note and/or any collateral given to
secure this Note or any extension or other indulgence with respect to any other
liability or any collateral given to secure any other liability of any of the
Borrowers or any other person
1
<PAGE> 2
obligated on account of this note.
This Note shall be binding upon each of the Borrowers, and each
endorser and guarantor hereof, and upon their respective heirs, successors,
assigns, and representatives, and shall inure to the benefit of the Lender and
its successors, endorsees, and assigns.
The liabilities of the Borrowers, and of any endorser or guarantor of
this Note, are joint and several; provided, however, the release by the Lender
of or any one or more such person, endorser or guarantor shall not release any
other person obligated on account of this Note. Each reference in this Note to
the Borrowers, any endorser, and any guarantor, is to such person individually
and also to all such persons jointly. No person obligated on account of this
Note may seek contribution from any other person also obligated unless and until
all liabilities, obligations and indebtedness to the Lender of the person from
whom contribution is sought have been satisfied in full.
Each of the Borrowers and each endorser and guarantor hereof each
authorizes the Lender to complete this Note if delivered incomplete in any
respect.
This Note shall be governed by the laws of The Commonwealth of
Massachusetts and shall take effect as a sealed instrument.
"PRINCIPAL BORROWERS"
POLYMEDICA CORPORATION POLYMEDICA HEALTHCARE, INC.
By: /s/ Eric G. Walters By: /s/ Robert J. Zappa
-------------------------------- -----------------------------------
Title: CFO and Treasurer Title: President
----------------------------- --------------------------------
POLYMEDICA SECURITIES, INC. LIBERTY MEDICAL SUPPLY, INC.
By: /s/ Eric G. Walters By: /s/ Mark Libratore
-------------------------------- -----------------------------------
Title: Treasurer Title: President
----------------------------- --------------------------------
2
<PAGE> 3
"AGENT BORROWER"
POLYMEDICA CORPORATION
By: /s/ Eric G. Walters
--------------------------
Title: CFO and Treasurer
-----------------------
3
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
POLYMEDICA CORPORATION
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
---- ------------------------------
PolyMedica Pharmaceuticals
(U.S.A.), Inc. Massachusetts
PolyMedica Healthcare, Inc. Delaware
Liberty Medical Supply, Inc. Florida
PolyMedica Securities, Inc. Massachusetts
PolyMedica Holdings, Inc. Delaware
PolyMedica Industries UK, Ltd. England and Wales
SUBSIDIARIES OF
POLYMEDICA PHARMACEUTICALS (U.S.A.), INC.
PolyMedica Pharmaceuticals
(Puerto Rico), Inc. Delaware
PolyMedica Pharmaceuticals
Securities, Inc. Massachusetts
46
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the previously filed
Registration Statements on Form S-8 (File no. 333-17415, 333-17387, 33-48130,
33-48132, 33-48134, 33-59202, 33-70626 and 33-86836) of PolyMedica Corporation
of our report dated May 6, 1998 on our audits of the consolidated financial
statements of PolyMedica Corporation as of March 31, 1998 and 1997, and for each
of the three years in the period ended March 31, 1998, which report is included
in the Company's 1998 Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 26, 1998
47
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 6,440
<SECURITIES> 0
<RECEIVABLES> 21,492
<ALLOWANCES> 2,718
<INVENTORY> 4,857
<CURRENT-ASSETS> 35,424
<PP&E> 8,018
<DEPRECIATION> (1,733)
<TOTAL-ASSETS> 92,401
<CURRENT-LIABILITIES> 14,355
<BONDS> 20,577
0
0
<COMMON> 89
<OTHER-SE> 52,839
<TOTAL-LIABILITY-AND-EQUITY> 92,401
<SALES> 73,825
<TOTAL-REVENUES> 73,825
<CGS> 35,575
<TOTAL-COSTS> 35,575
<OTHER-EXPENSES> 28,826
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