-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWFItHzMVOpVVwnulZsYgtTBpqpvFgcX/tHlV6nrBQ10niEy5fSg6nVMttZPApxL JjGyg+9LFY5oyCqAIcDmlw== 0000897101-97-000496.txt : 19970506 0000897101-97-000496.hdr.sgml : 19970506 ACCESSION NUMBER: 0000897101-97-000496 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970505 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCHESTER MEDICAL CORPORATION CENTRAL INDEX KEY: 0000868368 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411613227 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18933 FILM NUMBER: 97595471 BUSINESS ADDRESS: STREET 1: 1500 SECOND AVE N W CITY: STEWARTVILLE STATE: MN ZIP: 55976 BUSINESS PHONE: 5075334203 MAIL ADDRESS: STREET 1: 1500 SECOND AVE NW CITY: STEWARTVILLE STATE: MN ZIP: 55976 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1997 Commission file number: 0-18933 Rochester Medical Corporation (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) Minnesota 41-1613227 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) One Rochester Medical Drive, Stewartville, MN 55976 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (507) 533-9600 ISSUER'S TELEPHONE NUMBER Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 4,133,500 Common Shares as of May 1, 1997. Total Number of Pages: 20 Index to Exhibits on Page: 11 Table Of Contents ROCHESTER MEDICAL CORPORATION Report on Form 10-QSB for quarter ended March 31, 1997 PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets -- March 31, 1997 and 3 September 30, 1996 Statements of Operations -- Three months ended 4 March 31, 1997 and 1996; Six months ended March 31, 1997 and 1996 Statements of Cash Flows -- Six months ended 5 March 31, 1997 and 1996 Notes to the Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION 10 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION BALANCE SHEETS March 31, September 30, 1997 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 2,835,612 $ 8,394,607 Marketable Securities 10,401,888 9,013,522 Accounts Receivable 1,381,660 1,513,577 Inventories 1,359,364 1,191,283 Prepaid Expenses And Other Assets 79,675 84,194 ------------ ------------ TOTAL CURRENT ASSETS 16,058,199 20,197,183 PROPERTY AND EQUIPMENT Land and Buildings 3,654,392 815,075 Equipment and Fixtures 4,490,482 3,929,507 ------------ ------------ 8,144,874 4,744,582 Less: Accumulated Depreciation (1,643,757) (1,432,257) ------------ ------------ TOTAL PROPERTY AND EQUIPMENT 6,501,117 3,312,325 INTANGIBLE ASSETS Patents, Less Accumulated Amortization 367,804 378,232 ------------ ------------ TOTAL ASSETS $ 22,927,120 $ 23,887,740 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 476,913 $ 957,951 Accrued Compensation 178,121 74,499 Accrued Expenses 440,937 303,314 ------------ ------------ TOTAL CURRENT LIABILITIES 1,095,971 1,335,764 LONG-TERM DEBT 3,463,125 3,320,625 SHAREHOLDERS' EQUITY Common Stock, no par value: Authorized--20,000,000 Issued and Outstanding Shares--4,133,500 --Mar, 1997 and 4,127,500--Sep, 1996 24,717,413 24,648,913 Accumulated Deficit (6,349,389) (5,417,562) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 18,368,024 19,231,351 ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 22,927,120 $ 23,887,740 ============ ============
Note - The Balance Sheet at September 30, 1996 was derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Notes to Financial Statements
ROCHESTER MEDICAL CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended March 31, March 31, --------------------------- --------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- NET SALES $ 1,743,537 $ 1,084,653 $ 3,471,377 $ 2,042,651 Cost Of Sales 1,097,518 788,736 2,184,334 1,480,038 ----------- ----------- ----------- ----------- GROSS PROFIT 646,019 295,917 1,287,043 562,613 COSTS AND EXPENSE: Marketing and Selling 449,596 271,768 972,612 552,263 Research and Development 385,341 268,171 797,266 396,573 General and Administrative 343,743 290,547 687,488 401,973 ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 1,178,680 830,486 2,457,366 1,350,809 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (532,661) (534,569) (1,170,323) (788,196) OTHER INCOME (EXPENSE): Interest Income 176,531 229,131 380,908 359,641 Interest Expense (71,162) (71,390) (142,412) (142,666) ----------- ----------- ----------- ----------- TOTAL OTHER INCOME (EXP) 105,369 157,741 238,496 216,975 ----------- ----------- ----------- ----------- NET LOSS $ (427,292) $ (376,828) $ (931,827) $ (571,221) =========== =========== =========== =========== NET LOSS PER COMMON SHARE $ (0.10) $ (0.09) $ (0.23) $ (0.16) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,131,100 4,047,500 4,129,600 3,656,300 =========== =========== =========== ===========
See Notes to Financial Statements
ROCHESTER MEDICAL CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended March 31, ----------------------------- 1997 1996 ------------ ------------ OPERATING ACTIVITIES Net Loss $ (931,827) $ (571,221) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 266,701 200,600 Changes in operating assets and liabilities: Accounts Receivable 131,917 (99,694) Inventories (168,081) (114,102) Other Current Assets 4,519 246,018 Accounts Payable (481,038) (10,601) Other Current Liabilities 241,245 (468) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (936,564) (349,468) INVESTING ACTIVITIES Capital expenditures (3,400,292) (247,462) Patents (44,773) (55,866) Purchase of Marketable Securities (1,388,366) (4,449,816) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (4,833,431) (4,753,144) FINANCING ACTIVITIES Interest Expense Added To Note Payable 142,500 142,500 Proceeds from Sale of Common Stock 68,500 16,217,393 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 211,000 16,359,893 ------------ ------------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,558,995) 11,257,281 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,394,607 551,142 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,835,612 $ 11,808,423 ============ ============
See Notes to Financial Statements ROCHESTER MEDICAL CORPORATION Notes to Financial Statements (Unaudited) March 31, 1997 NOTE A - - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the financial statements and related notes included in the Company's 1996 Form 10-KSB. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending September 30, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company designs, develops, manufactures and markets disposable latex-free continence care and other urological devices. The Company markets its products under its own ROCHESTER MEDICAL(R) brand and through private label arrangements, including its strategic marketing alliance with ConvaTec, a division of the Bristol-Myers Squibb Company. During the quarter ended March 31, 1997, the Company increased sales and marketing activities over the prior year for its currently marketed product lines, began marketing its intermittent PERSONAL(TM) catheter, and continued preparations to begin marketing additional products already having FDA marketing approval. The Company has also revised and extended its private label supply agreements with Allegiance Euromedical. The Company commenced a multi-site clinical study of its FEMSOFT(TM) female continence insert, filed a 510(k) Notification relating to its Antibacterial Foley catheter, and continued preparations for introducing those devices to market. The Company's manufacturing facility and quality control procedures were audited for compliance with ISO 9001 standards, and the Company was advised that it would be recommended for certification. The Company occupied its new office and FEMSOFT manufacturing facility, and continued installation of its FEMSOFT production line and construction of an expansion to increase manufacturing capacity for its currently marketed product lines. RESULTS OF OPERATIONS The following table sets forth, for the fiscal periods indicated, certain items from the statements of operations of the Company expressed as a percentage of net sales.
Three Months Six Months Ended Ended March 31 March 31 ------------- ------------ 1997 1996 1997 1996 ---- ---- ---- ---- Net Sales Private Label.......................... 73% 82% 80% 77% ROCHESTER MEDICAL Brand................ 27% 18% 20% 23% ---- --- ---- ---- Total Net Sales............................. 100% 100% 100% 100% Cost of Sales............................... 63% 73% 63% 72% ---- ---- ---- ---- Gross Margin................................ 37% 27% 37% 28% Operating Expenses Marketing and Selling.................. 26% 25% 28% 27% Research and Development............... 22% 25% 23% 19% General and Administrative............. 20% 27% 20% 21% ---- ---- ---- ---- Total Operating Expenses.................... 68% 77% 71% 67% Loss From Operations........................ (31%) (50%) (34%) (39%) Interest Income (Expense) Net............... 6% 15% 7% 11% ---- ---- ---- ---- Net Loss.................................... (25%) (35%) (27%) (28%) ==== ==== ==== ====
THREE MONTH AND SIX MONTH PERIODS ENDED MARCH 31, 1997 AND MARCH 31, 1996 NET SALES. Net Sales increased 61% to $1,743,537 for the second quarter of fiscal 1997 from $1,084,653 for the second quarter of fiscal 1996, due to growth in both private label and Company branded sales. Private label sales showed an overall increase of 44%, with collective sales volumes to ConvaTec, Mentor and Hollister nearly double the sales in the comparable quarter of the prior year. This collective increase was partially offset by relatively low sales to Allegiance during the contract renewal process involving a significant change in product and packaging specifications from bulk product to packaged and sterilized product. Sales of ROCHESTER MEDICAL brand products increased 135% over the comparable quarter of the prior year due primarily to a renewed focus on domestic field sales and stocking orders from international distributors. Net Sales increased 70% to $3,471,377 for the six months ended March 31, 1997, from $2,042,651 for the comparable six months of the prior year. Private label and ROCHESTER MEDICAL brand sales showed overall growth rates of 75% and 28%, respectively, over the comparable six months of the prior year. Factors affecting growth during the six months are consistent with those discussed above for the second quarter, with the growth rate for ROCHESTER MEDICAL brand products being slowed during the first quarter while the domestic field sales force was being restructured and repositioned to address fundamental changes in the purchasing and distribution practices within the domestic health care industry. GROSS MARGIN. The Company's gross margin as a percentage of net sales was 37% for the second quarter of fiscal 1997 compared with 27% for comparable quarter of the prior year. The Company's gross margin during the current quarter is in line with recent trend and shows marked improvement over the comparable prior year's quarter primarily due to efficiencies gained through higher production volumes. The Company's gross margin as a percentage of net sales was 37% for the six months ended March 31, 1997 compared with 28% for comparable period last year. Factors affecting margins and margin development during the current six months are consistent with those described above for the current quarter. MARKETING AND SELLING. Marketing and selling expense increased 65% to $449,596 for the second quarter of fiscal 1997 from $271,768 for the comparable quarter last year. The increased expense is primarily related to additional marketing and selling personnel to develop ROCHESTER MEDICAL brand sales and to develop programs for introduction of the Company's advanced products. Additional personnel include a National Sales Director, a Director of Marketing, and personnel in field sales, marketing support and customer service. The Company also continues to progressively increase its promotional activities, including direct marketing, attendance at trade shows, product samples and related programs. Marketing and selling expense increased 76% to $972,612 for the six months ended March 31, 1997 from $552,263 for comparable period last year. Factors affecting overall growth in expenses for the current six month period are consistent with those described above for the current quarter. The rate of increase during the current six months also reflects comparatively higher promotional costs in the first quarter related to trade shows and direct marketing activities. RESEARCH AND DEVELOPMENT. Research and development expense increased 44% to $385,341 for the second quarter of fiscal 1997 from $268,171 for the comparable quarter last year, due to increased clinical testing activities, primarily for the FEMSOFT female continence insert. A portion of the increase also relates to preparation of the Company's 510(K) Notification for its Antibacterial Foley catheter following completion of clinical testing during the first quarter of fiscal 1997. Research and development expense increased 101% to $797,266 for the six months ended March 31, 1997 from $396,573 for the comparable six month period last year. Factors affecting overall growth rate for the current six month period are consistent with those described above for the current quarter. The comparatively higher rate of increase for the current six month period reflects the addition of a Director of Clinical and Regulatory Affairs in the second fiscal quarter of fiscal 1996. GENERAL AND ADMINISTRATIVE. General and administrative expense increased 18% to $343,743 for the second quarter of fiscal 1997 from $290,547 for the comparable quarter of the prior year. The increase is due primarily to project costs for implementation of new business systems, ISO certification process costs, and additional personnel costs associated with general business development. General and administrative expense increased 71% to $687,488 for the six months ended March 31, 1997 from $401,973 for the comparable six month period last year. Factors affecting overall growth in expenses for the current six month period are consistent with those described above for the current quarter. The comparatively higher rate of increase for the six current month period reflects the addition of a Chief Financial Officer in the second quarter of fiscal 1996. INTEREST INCOME (EXPENSE). Interest income decreased 33% to $176,531 for the second quarter of fiscal 1997 from $229,131 for the comparable quarter of last year. The decrease is a result of the reduction of the Company's cash and investment balances from funding operating requirements and capital expenditures for construction of new and expanded facilities. Interest expense remained constant at $71,162 for the second quarter of fiscal 1997 compared with $71,390 for the same period last year, consisting of interest on the $3 million principal balance on the convertible note payable to ConvaTec. Interest income increased 6% to $380,908 for the six months ended March 31, 1997, from $359,641 for the comparable six month period last year. The increase in interest income relates to comparatively higher cash and investment balances during the current six month period versus the prior year. Cash and investment balances have been impacted significantly during these periods by the December 1995 receipt of $16.2 million in net proceeds from the Company's public offering and the timing of capital outlays in the current fiscal year for facilities construction and expansion projects. Interest expense remained constant at $142,412 for the six months ended March 31, 1997 compared with $142,666 for the same period last year, consisting of interest on the $3 million principal balance on the convertible note payable to ConvaTec. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and marketable securities were $13,237,500 at March 31, 1997 compared to $17,408,129 at September 30, 1996, a decrease of $4,170,629. The Company used $936,564 of cash to finance operating activities during the first six months of 1997, compared to $349,468 in the comparable six month period last year, an increase of $587,096 of cash used. Increased expense levels during the six month period are well within management's expectations, and reflect the Company's continuing commitment to the investments required to bring its advanced technologies to market. Trade receivable balances are down from year end levels as a result of collection initiatives, while inventories increased moderately in preparation for future sales. Increases in accounts payable and accrued expenses are related to business growth and also reflect certain payments on new plant construction. Capital expenditures were $3,400,292 for the six months ended March 31, 1997, compared with $247,462 in the comparable period last year. The capital expenditure rate has increased sharply during the current six month period, almost exclusively related to construction activities on the new manufacturing and office facility and expansion of the current manufacturing facility. The Company believes that its capital resources on hand at March 31, 1997, together with revenues from sales, will be sufficient to satisfy its working capital requirements for the foreseeable future as described in the Liquidity and Capital Resources portion of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-KSB (Part II, Item 6) for the fiscal year ended September 30, 1996. BUSINESS OUTLOOK The following discussion contains forward looking statements that involve risks and uncertainties, including the timing of purchases by customers, manufacturing capacities for both current products and new products, the timing of clinical preference testing and product introductions, FDA review and response times, the timing and ultimate outcome of clinical tests, the scope and effect of patent opinions, results of final ISO certification review, as well as other risk factors listed from time to time in the Company's SEC reports, including, without limitation, the sections entitled "Business Outlook" and "Risk Factors" in the Company's Annual Report on Form 10-KSB (Part II, Item 6) for the year ended September 30, 1996. The Company anticipates continued growth in both private label and branded product sales during the last half of the current fiscal and into fiscal 1998. Slower sales to Allegiance during the first half of the current year are expected to return during this period to more normal levels following the revision and extension of the Allegiance private label agreement and as Allegiance consumes previously acquired inventory stocks. Through December of 1996, the Company furnished Allegiance with its requirements of silicone Foley catheters in bulk for packaging and sterilization by Allegiance for sale in exclusive territories. Under the revised agreement, extending through November 30, 1999, the Company will furnish Allegiance with its requirements of silicone Foley catheters, packaged and sterile for resale on a non-exclusive basis. The Company anticipates continued growth in branded product sales in both domestic and overseas markets as a result of renewed sales and marketing focus, increased sales efforts, and the recent successful introduction of the Company's WIDEBAND(TM) male external catheter. In addition, the Company's PERSONAL(TM) intermittent catheter was introduced last month to augment its currently marketed product lines, and the Company has begun to develop marketing plans for introduction of its FEMSOFT continuous drain catheter, already having FDA marketing approval, as a replacement for Foley catheters for female patients. The Company has also filed a 510(K) Premarket Notification seeking FDA marketing approval for the Company's Antibacterial Foley catheter. The filing is based on the recently concluded clinical tests conducted at the University of Wisconsin which show a three-fold reduction in catheter induced bacterial urinary tract infections as compared to a control catheter in a large, prospective, randomized, double-blinded study. In addition to a lower rate of bacterial infections, the patient group using the Antibacterial catheter had a lower number of infections from bacterial strains likely to be resistant to antibiotics. The Company expects FDA review of the filing will proceed in due course. The Company has also retained a consultant to assist the Company in the process of obtaining CE mark certification necessary for sale of the Antibacterial Foley catheter in the European Common Market. The Company's clinical tests of its FEMSOFT female continence insert began at the first clinical site in January with the enrollment of patients in an initial six week screening protocol, and with patients first receiving a FEMSOFT insert for use in February. Enrollment and screening is currently in process at eight clinical sites, with patients receiving the FEMSOFT insert for use as they complete the screening process. The Company is also developing the data necessary for CE mark certification, and expects to submit its CE mark application concurrently with its PMA (Premarket Approval) submission to the FDA. The Company has received an opinion from its patent counsel to the effect that the FEMSOFT female continence insert does not infringe certain patents of which the Company is aware. The Company's manufacturing facility and quality control procedures for its currently marketed products were audited for compliance with ISO 9001 standards and CE Mark eligibility, and the Company was advised that it would be recommended for certification. The Company expects to receive certification following final review. The Company occupied new administrative and manufacturing facility in April, and began installing FEMSOFT manufacturing equipment in the new facility. The Company expects the equipment to be substantially installed by July, when the Company intends to begin testing and validating manufacturing processes necessary to move from laboratory to manufacturing scale production. The Company is also expanding its manufacturing capacity for male external catheters with a plant expansion and installation of a second production line. The new manufacturing line is expected to become operational later this year. The Company continues to explore the prospect of additional financing to expand future marketing activities which may be necessary to properly bring its Antibacterial Foley catheter and FEMSOFT female continence insert to market, if and as those products receive FDA marketing approval, as well as for research and development activities necessary to bring other of its products in development to market. Part II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held its annual meeting on January 16, 1997, in Minneapolis Minnesota. The Company solicited proxies and filed its definitive proxy statement with the Commission pursuant to Regulation 14A. The matters voted upon at the meeting and the votes cast were as follows: (a) ELECTION OF DIRECTORS For Withhold Authority --- ------------------ Darnell L. Boehm 3,674,489 1,150 Anthony J. Conway 3,672,789 2,850 Peter R. Conway 3,674,489 1,150 Philip J. Conway 3,674,489 1,150 Richard D. Fryar 3,674,489 1,150 Roger W. Schnobrich 3,674,489 1,150 (b) APPROVAL OF AMENDMENT TO STOCK OPTION PLAN For: 2,380,461 Against: 129,240 Abstain: 15,075 (c) APPROVAL OF ERNST & YOUNG AS ACCOUNTANTS For: 3,674,164 Against: 1,000 Abstain: 475 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.12 Amended and Restated Supply and Distribution Agreement dated March 19, 1997, between the Company and Euromedical Industries Sdn Bhd (a subsidiary of Allegiance Health Care Corporation) 27 Financial Data Schedule (b) Reports on Form 8-K: None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Rochester Medical Corporation Date: May 5, 1997 By: /s/ Anthony J. Conway ------------------------- Anthony J. Conway Chief Executive Officer, Date: May 5, 1997 By: /s/ Brian J. Wierzbinski ------------------------- Brian J. Wierzbinski Chief Financial Officer Exhibits Page 10.12 Amended and Restated Supply and Distribution Agreement dated March 19, 1997, between the Company and Euromedical Industries Sdn Bhd (a subsidiary of Allegiance Health Care Corporation) 27 Financial Data Schedule EX-10.12 2 AMENDED AND RESTATED SUPPLY AND DISTRIBUTION AGRMT AMENDED AND RESTATED SUPPLY AND DISTRIBUTION AGREEMENT This Amended and Restated Supply and Distribution Agreement ("Restated Agreement") is made with effect from December 1,1996, between Rochester Medical Corporation, 1500 2nd Avenue Northwest, Stewartville, MN 55976 ("Rochester") and Euromedical Industries Sdn Bhd, with offices at P.0, Box 515 11900 Bayan Lepas, Penang, Malaysia ("EI"). Rochester and EI are parties to a Supply and Distribution Agreement dated as effective April 14, 1994 (the "Original Agreement"); and Rochester and EI desire to amend and restate their Original Agreement in order, INTER ALIA, to eliminate EI's minimum purchase obligations, to eliminate and phase out EI's exclusive distribution rights, to provide for Rochester furnishing EI with packaged product for distribution by EI and customers supplied by EI, to restrict Rochester from dealing directly with EI's customers identified by this Restated Agreement, and for other purposes; 1. SUPPLY AND DISTRIBUTION OF PRODUCTS 1.1 Rochester agrees to supply EI and EI agrees to distribute the Standard 100% Silicone Foley Catheters described on Exhibit A (the "Products"). As used herein, "Products" expressly excludes Rochester's Antibacterial Foley Catheter, its Comfort Sleeve(R) Foley Catheter, its Hand Actuated Retention Catheter in both continuous drain and valved configurations, and any other of its products not specifically identified on Exhibit A. 1.2 The Products and their packaging ("Packaging") shall exactly conform to the specifications agreed between EI and Rochester (the "Specifications"). Any change to the Specifications shall be subject to the written approval of both parties; provided, however, that Rochester may include applicable patent numbers on the Packaging upon issuance to Rochester of patents covering the Products. 1.3 The Products shall be supplied in finished sterile form and packaged in Packaging in accordance with the Specifications; provided, however, that the parties acknowledge that EI may at its options, from time to time, purchase unsterilized Products packaged only in a clear inner liner, or may purchase the Products in bulk, non-sterile, with or without a valve, upon such terms and conditions as the parties may reasonably agree in the future. 1.4 EI and Rochester expressly intend that Rochester shall furnish EI with Product that is packaged for resale by EI under EI's own brand and marks and shall also furnish EI with Product that is packaged for resale by EI's customers under brands and marks owned by such customers of EI, respectively. All such packaging shall be in accordance with the Specifications. 1.5 From time to time during the term of this Restated Agreement, EI may identify customers in addition to those presently supplied by EI, and Rochester will supply Products for EI's additional customers appropriately packaged in accordance with the Specifications as reasonably agreed and amended from time to time by EI and Rochester. 1.6 For each Contract Year (as subsequently defined) of this Agreement. EI shall purchase from Rochester all of EI's requirements of Products and shall give Rochester the first right to manufacture any other silicone Foley catheters; provided, however, that EI may purchase Products or other silicone Foley catheters from a third party to the extent that (i) Rochester is unable to fulfill all of EI's forecast requirements of Products or silicone Foley catheters within the period covered by any forecast because of insufficient manufacturing capacity, insufficient technical capability, or inability to meet required quality standards, or (ii) Rochester is unable to supply Products or silicone Foley catheters meeting the specifications of new customers identified by EI pursuant to Section 1.5. EI shall have no obligation to purchase any minimum amount of Product from Rochester during the term of this Restated Agreement. 2. TERRITORY; EXCLUSIVITY AND NON-COMPETITION 2.1 EI shall be Rochester's non-exclusive, worldwide distributor for the Products in all countries. 2.2 Rochester shall not, for the term of this Restated Agreement, either (i) directly supply Product or (ii) directly solicit sales of Product to any customer of EI for whom Rochester packages any Product. For purposes hereof, "directly" includes any action taken by Rochester on its own behalf and excludes any action taken by any distributor of Rochester's products that is not owned or controlled by Rochester or under common ownership or control with Rochester. For purposes hereof, "any customer of EI" excludes former customers of EI who have discontinued purchasing any Product for at least six (6) continuous months. 3. PRICES, SHIPMENT AND PAYMENT TERMS 3.1 EI shall purchase the Products at the prices the parties shall agree upon by separate writing. The prices so agreed shall remain fixed through December 31, 1997. During the last calendar quarter of 1997, and during the last calendar quarter of 1998, the parties shall undertake good faith negotiations, in light of then prevailing market conditions, regarding pricing to be effective from January 1 until December 31 next following. If the parties are unable to reach agreement by the last day of December of any such calendar quarter, this Restated Agreement shall terminate on the last day of June next following. 3.2 Payment for Products purchased by EI shall be made by bank transfer in US Dollars net, 60 days from the date of invoice. 3.3 All prices are quoted FOB Rochester's facility, Minnesota. EI shall take title to and assume the Risk of loss of the Products once they are loaded onto EI's nominated carrier at such facility, 3.4 EI shall pay all normal freight charges, provided, however, that Rochester shall ship Products by air freight when necessary to meet its obligations under Section 4.2, or to replace Products pursuant to Section 9 of this Restated Agreement and in such cases shall bear pay the excess cost of air freight over normal shipping charges. 3.5 The terms of this Restated Agreement shall have precedence over any conflicting terms included in either party's standard terms and conditions which may be attached to orders placed or accepted under this Restated Agreement. 4. FORECASTING ORDERING AND MINIMUMS 4.1 On or before March 31, 1997 for the initial year, EI shall prepare a non-binding forecast of EI's orders for Products to be ordered through November 30, 1997; for each subsequent year, EI shall prepare on or before October 31 of each year a non-binding forecast of EI's orders for Products during the twelve month period beginning December 1 through November 30 of the following year. The first nine-month period and each subsequent twelve-month period shall be referred to as a "Contract Year". This forecast shall be updated at least once every ninety (90) days. 4.2 EI will place orders with Rochester from time to time in amounts which are reasonably consistent with its forecast. Rochester will acknowledge orders from EI within two working days. Sterilized Products will be ready for pick up not more than 60 days following receipt of order, and unsterilized Products will be available for pick up not more than 45 days following receipt of order. Rochester will advise EI immediately of any back orders. 5. STOCK RECALLS 5.1 EI will maintain a sufficient stock of packaged Products to meet anticipated market demand, including the requirements of EI's customers who resell the Products under their own marks and brands. 5.2 Rochester will repurchase from EI at the price paid by EI to Rochester any Products which become obsolete, outdated or unsaleable through any fault of Rochester. "Fault" does not include new products which Rochester has or may develop; provided, however, that Rochester shall have given EI reasonable notice of Rochester's intention to market new products that might compete with any of the Products. EI expressly acknowledges having received notice of Rochester's Antibacterial Foley Catheter, its Comfort Sleeve(R) Foley Catheter, and its Hand Actuated Retention Catheter in both continuous drain and valved configurations. 5.3 In the event that Rochester or EI recalls any Products or Products incorporating the Products sold or distributed by EI solely because the Products are believed to be defective or to violate any provision of applicable law, then (i) if the defect or violation is due to any act or omission of Rochester, then Rochester shall bear all costs and expenses of such recall, including the cost of notifying customers and costs associated with the shipment of recalled Product from customers to Rochester or EI, or (ii) if the defect or violation is due to any act or omission of EI, then EI shall bear all costs and expenses of such recall, including the cost of notifying customers and costs associated with the shipment of recalled Product from customers to Rochester or EI, 6. REGULATORY RESPONSIBILITY Rochester represents and warrants that it has obtained all necessary approvals from the FDA or equivalent regulatory authority to sell the Products in the USA and all other countries where Rochester has existing business, including but not limited to compliance with the requirements of the European Community Medical Device Directive. If EI needs to obtain regulatory approval for itself to sell the Products in any country, then Rochester shall cooperate with EI in obtaining such approval. 7. MANUFACTURE AND QUALITY CONTROL 7.1 All Products shall meet the Specifications, shall be manufactured in accordance with Good Manufacturing Practice ("GMP") for Medical Devices established by the United States Food and Drug Administration as provided under 21 U.S.C. 3600)(f), and shall be subjected to quality control inspection by Rochester in accordance with quality control standards including without limitation process controls, as established by Rochester and approved by EI. 7.2 EI shall have the right to review and approve Rochester's production and quality control procedures, including without limitation Rochester's internal assembly procedures and procedures for testing subassemblies at different stages of assembly, and Rochester's engineering, assembly and testing documentation for the Products, and to visit Rochester's facilities at reasonable times with a representative of Rochester present in order to assure satisfaction of the requirements of this Restated Agreement. EI shall be deemed to approve Rochester's production and quality control procedures complying with ISO 9001 and CM 4601. 7.3 Rochester will notify EI immediately of any inspection of its facilities by a federal, state or local regulatory agency that results in advice of noncompliance with GMP, CE Mark, or similar regulatory requirements; will furnish EI with the results of such inspection; and will furnish EI with advice of corrective actions, and the results thereof, taken by Rochester to achieve such compliance. 8. GUARANTY Rochester guarantees that all Products sold to EI are, as of the date of shipment or delivery, not adulterated or misbranded within the meaning of the United States Federal Food, Drug and Cosmetics Act or amendments thereto, and any similar federal, state or local laws or regulations, and are not articles which may not, under the provisions of such laws, be introduced into interstate commerce. 9. WARRANTIES, DEFECTS 9.1 Rochester warrants that the Products comply with the Specifications. 9.2 Rochester warrants that the Products and their parts and their Packaging are fit for their intended purpose and free from defects due to design, materials or workmanship and that each Product is identifiable to a particular hatch number. 9.3 Any Product that EI or a customer of EI finds to be non-conforming or defective due to any fault of Rochester may be returned to Rochester with a statement of the defect, and Rochester shall repair or replace the Product free of charge to EI. In addition, Rochester shall reimburse EI for labor or travel costs that EI has incurred following authorization from Rochester, which shall not be unreasonably withheld, to investigate a claim of non-conformance or defect. Nothing in this clause shall operate to exclude or restrict the liability of Rochester for negligence causing death or personal injury. 9.4 ROCHESTER is generally knowledgeable with respect to the patent rights of third parties relating to Foley catheters, and has conducted such inquiry and investigation, consisting of a review of prior American and European art for purposes of determining patentability, as it deemed reasonably necessary for the purpose of determining whether the present or presently intended manufacture, sale and/or use of the Products infringes any patent or technology of any third party. ROCHESTER has not been advised of any infringement upon any patent or other intellectual property rights belonging to any other person or entity caused by the present or presently intended manufacture, sale and/or use of the Products. To the best of Rochester's knowledge, based upon such inquiry and investigation, the present or presently intended manufacture, sale and/or use of the Products does not infringe any patent or technology of any third party. 9.5 Rochester agrees to indemnify and hold EI harmless against any losses, claims, damages or liabilities to third parties to which EI may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise or are based upon a claim that EI's sale and/or use of the Products infringe the patent rights of any third party. Promptly after EI's receipt of notice of the commencement of any action of or the intent to commence any action, EI will, if a claim in respect thereof is to be made against Rochester, notify Rochester in writing of the commencement thereof or of the intent to commence an action, as the case may be, and omission so to notify Rochester will relieve Rochester from any liability hereunder as to the particular item for which indemnification is then being sought. In case any such action is brought against EI, and it notifies Rochester of the commencement thereof, Rochester will be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel who shall be to the reasonable satisfaction of EI, and after notice from Rochester to EI of Rochester's election so to assume the defense thereof, Rochester will not be liable to EI party under this Statement of Indemnification Rights for any legal or other expenses subsequently incurred by EI in connection with the defense thereof. Rochester shall not be liable to EI on account of any settlement of any claim or action effected without the consent of Rochester. Rochester shall not be liable to EI for any lost opportunity or consequential damages due to EI's inability to sell the Products in any jurisdiction in which EI's sale of the Products would infringe any patent or intellectual property owned by any third party; provided, however, that EI shall be entitled to return to Rochester all inventory rendered unsalable as a result of such patent or intellectual property infringement claim, or Rochester will issue EI a credit for this inventory. 10. CONFIDENTIALITY All technical and commercial information, data regarding processes and know-how ("Confidential Information") disclosed by either EI or Rochester to the other shall remain the property of the disclosing party. The party receiving the Confidential Information shall keep all Confidential Information as confidential and shall not use it for any purpose other than as may be expressly permitted under this Restated Agreement. Such receiving party shall not disclose such Confidential Information except to such person who both (i) needs to know the Confidential Information for a proper purpose under this Restated Agreement and (ii) acknowledges in writing that the Confidential Information may not be used or disclosed except in conformance with the requirements of this Restated Agreement. 11. TRADEMARKS-PACKAGING 11.l Rochester shall package the Products in the Packaging in accordance with the Specifications for sale by EI and EI's customers, who shall have the right to sell the Products under their own trademarks, brands and labels. 11.2 Rochester shall acquire no right or interest by reason of this Restated Agreement in any trademarks or trade names used by EI or by its customers in connection with the marketing or sale of the Products; and shall be deemed by reason of this Restated Agreement to have only such rights respecting such trademarks and trade names as may be necessary to produce the Packaging as set forth in the Specifications. 12. LIABILITY: INSURANCE 12.1 Rochester shall indemnify and hold EI harmless from any and all damage or expense, including reasonable attorney's fees and disbursements arising from acts and/or omissions of Rochester or its agents including, but not limited to , any and all claims arising from third parties in connection with alleged negligence in the design or manufacture of the Products or their parts or their Packaging, or in connection with a breach of any of the warranties contained in Section 9, Section 10, or Section 18.2 of this Restated Agreement. 12.2 EI shall hold Rochester harmless from any and all claims arising from acts and/or omissions of EI including, without limitation, any and all claims arising from third parties in connection with alleged negligence in the distribution or sale of the Products. 12.3 Rochester and EI warrant, respectively, that they each carry product liability insurance for the Products being sold under the Restated Agreement. 12.4 Neither party shall be liable to the other for any incidental or consequential damages under this Restated Agreement. 13. TERM This Restated Agreement shall remain in effect for an initial term which shall end on November 30, 1999 (the "Initial Term") and thereafter may be renewed on such terms as the parties may in good faith agree. 14. TERMINATION This Restated Agreement may be terminated at any time: (a) by written notice from either party to the other in the event of a breach by the other party of any of the terms of this Restated Agreement, which breach shall not be remedied within forty five (45) days from receipt of a written notice to that effect, or (b) by written notice from either party to the other in the event of the insolvency of either party or its inability to pay its debts in the ordinary course of business or the judicial appointment of a liquidator, receiver or administrator. (c) Upon prior written notice ("Termination Notice") given by either party to the other no sooner that January 1, 1998, which shall specify a date ("Termination Date") at least six (6) months following the date such Termination Notice was given, in which event this Restated Agreement shall terminate on the Termination Date specified in the Termination Notice. 15. ASSIGNMENT Any and all rights of either party under this Restated Agreement may be assigned by such party to any company owned by or under common ultimate ownership with such party upon written notification thereof to the other, or, as part of the sale, transfer or assignment to a third party of such party or of that portion of the business or assets of such party that manufactures, adds value to or distributes the Products. 16. ENTIRE AGREEMENT; AMENDMENT; SAVINGS This Restated Agreement constitutes the entire agreement between the parties and may be amended only by written agreement of the parties. This Restated Agreement supersedes the Original Agreement in its entirety; provided, that all rights, obligations, duties and liabilities of the parties, respectively, under the Original Agreement shall be preserved to the extent necessary to enforce any executory or monetary obligation of a party relating to Products sold and delivered by Rochester to EI, or by EI to its customers, prior to the effective date of this Restated Agreement 17. FORCE MAJEURE Any delay or failure in the performance of any obligation under this Restated Agreement by either party shall be excused if caused by occurrences beyond such party's reasonable control. 18. GOVERNING LAW 18.1 This Restated Agreement shall be governed by the laws of the State of Minnesota, excluding the Conflicts of Laws provisions thereof. 18.2 Rochester represents (i) that it has the requisite experience and expertise to provide the Products, parts and Packaging under this Restated Agreement, and (ii) that its sale and delivery of the Products under this Restated Agreement comply in all material respects to all applicable legal and regulatory requirements of the United States, the North American Free Trade Agreement countries, the European Common Market, the European Free Trade Association and of Japan, including but not limited to compliance with export control laws. Rochester represents that it will use its best efforts to take all necessary measures, including obtaining any required permits, licenses or approvals, including export licenses. 18.3 The Parties agree to attempt to settle any claim, controversy or dispute in connection with, arising out of or relating to this Restated Agreement or the performance, enforcement, breach, termination, application or validity hereof (herein, "Controversy") through good faith negotiations in the spirit of mutual cooperation. If those attempts fail, the Controversy will be mediated by a mutually acceptable mediator to be chosen by the parties within 45 days after written notice by the Party demanding mediation. Neither party may unreasonably withhold consent of the selection of the mediator and the parties will share the costs of mediation equally, The parties may agree to replace mediation with some form of Alternative Dispute resolution (ADR). such as neutral fact-finding or a mini-trial. Any Controversy which cannot be resolved by the parties through mediation or another form of ADR within six months of the date of the initial written demand for mediation may then, and only then, be submitted for arbitration. Any Controversy that is not settled by mediation as hereinbefor provided shall be submitted to arbitration. Such arbitration proceedings shall be held in Minneapolis, Minnesota, in accordance with the Minnesota Uniform Arbitration Act, with each party appointing one arbitrator and the two arbitrators thus chosen appointing a third, neutral arbitrator, who shall be appointed by the court upon application of either party if the two chosen arbitrators fail to agree on a third, neutral arbitrator. The arbitrators shall furnish the parties with a written decision setting forth findings of fact, conclusions of law and an order; and (ii) a stenographic record shall be made of the arbitration proceedings. In addition to any monetary award that may be given, the arbitrators may order or direct either party to do any act required of it by this Restated Agreement or to refrain from the doing of any act or practice that is contrary to this Restated Agreement. This agreement to arbitrate shall be specifically enforceable. Each party shall bear its own costs and expense in any such proceedings, but the arbitrators may, in their discretion and consistent with this Restated Agreement, award costs and attorneys' fees to either or both of the parties. 19. NOTICES All notices required under this Restated Agreement shall be delivered by hand, by courier, or by registered post to the addressee at its address mentioned above, to the attention of the President. Executed by: ROCHESTER EI By: /s/ Anthony J. Conway By: /s/ Michael Alexander --------------------------------- -------------------------------- Title: President Title: Product Manager --------- --------------- Date: March 18, 1997 Date: March 19, 1997 -------------- -------------- ATTACHMENTS Exhibits to Attach A. PRODUCTS Exhibit A Rochester Description French Size Balloon Size Part Number ----------- ----------- ------------ ----------- 2-Way Standard Pediatric 6 1.5cc 1-4206 8 3cc 1-4208 10 3cc 1-4210 2-Way Standard 12 5cc 1-4212 14 5cc 1-4214 16 5cc 1-4216 18 5cc 1-4218 20 5cc 1-4220 22 5cc 1-4222 24 5cc 1-4224 2-Way Standard 16 30cc 2-4216 18 30cc 2-4218 20 30cc 2-4220 22 30cc 2-4222 24 30cc 2-4224 26 30cc 2-4226 3-Way Standard 18 5cc 3-4518 20 5cc 3-4520 22 5cc 3-4522 24 5cc 3-4524 26 5cc 3-4526 3-Way Standard 18 30cc 3-4318 20 30cc 3-4320 22 30cc 3-4322 24 30cc 3-4324 26 30 3-4326 - --------------------- EX-27 3 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1997 JAN-01-1997 MAR-31-1997 2,835,612 10,401,888 1,437,660 56,000 1,359,364 16,058,199 8,144,874 1,643,757 22,927,120 1,095,971 0 0 0 24,717,413 0 22,927,120 3,471,377 3,471,377 2,184,334 4,641,700 0 (1,170,323) 142,412 0 0 0 0 0 0 (931,827) (0.23) (0.23)
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