-----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, N6xzxyXBl/BL3vZgMpOhPxgcfaZt6areODjsvyQSB5cnu3W8iS2pqiPQKpA2ljpi rk9mP6vqGhqsdTBIX5aDJA== /in/edgar/work/0000950135-00-005064/0000950135-00-005064.txt : 20001115 0000950135-00-005064.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950135-00-005064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLYMEDICA CORP CENTRAL INDEX KEY: 0000878748 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 043033368 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13690 FILM NUMBER: 766071 BUSINESS ADDRESS: STREET 1: 11 STATE ST CITY: WOBURN STATE: MA ZIP: 01801 BUSINESS PHONE: 6179332020 MAIL ADDRESS: STREET 1: 11 STATE STREET CITY: WOBURN STATE: MA ZIP: 01801 FORMER COMPANY: FORMER CONFORMED NAME: POLYMEDICA INDUSTRIES INC DATE OF NAME CHANGE: 19930328 10-Q 1 b37256pce10-q.txt POLYMEDICA CORPORATION 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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. 0-19842 ------- PolyMedica Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 04-3033368 - ------------------------------ ------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 11 State Street, Woburn, Massachusetts 01801 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 933-2020 -------------- 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 ___ The total number of shares of the registrant's Common Stock issued and outstanding as of November 13, 2000, was 13,270,854. 2 POLYMEDICA CORPORATION TABLE OF CONTENTS
Page ---- PART I - FINANCIAL INFORMATION Item 1 - Unaudited Financial Statements Consolidated Balance Sheets at September 30, 2000 and March 31, 2000 3 Consolidated Statements of Operations for the three and six months ended September 30, 2000 and 1999 5 Consolidated Statements of Cash Flows for the six months ended September 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 23 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 24 Item 6 - Exhibits and Reports on Form 8-K 25 Signatures 26 Exhibit Index 27
2 3 PART I - FINANCIAL INFORMATION ITEM 1. UNAUDITED FINANCIAL STATEMENTS POLYMEDICA CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
SEPTEMBER 30, 2000 MARCH 31, (UNAUDITED) 2000 ------------- --------- ASSETS Current assets: Cash and cash equivalents $ 20,262 $ 40,687 Marketable securities 20,300 -- Accounts receivable (net of allowances of $12,045 and $10,745 as of September 30 and March 31, 2000, respectively) 44,492 39,763 Inventories 7,682 8,979 Deferred tax asset 4,389 4,389 Prepaid expenses and other current assets 1,221 905 -------- -------- Total current assets 98,346 94,723 Property, plant and equipment, net 20,613 16,557 Intangible assets, net 33,862 35,000 Direct response advertising, net 35,896 28,078 Other assets 2,845 1,238 -------- -------- Total assets $191,562 $175,596 ======== ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 4 POLYMEDICA CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
SEPTEMBER 30, 2000 MARCH 31, (UNAUDITED) 2000 ------------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,349 $ 14,082 Accrued expenses 11,296 8,118 Current portion of long-term debt and capital lease obligations 616 564 --------- --------- Total current liabilities 24,261 22,764 Long-term debt and capital lease obligations 2,547 2,768 Deferred income taxes 13,914 13,914 Other long-term liabilities 1,079 -- --------- --------- Total liabilities 41,801 39,446 Commitments Shareholders' equity: Preferred stock $0.01 par value; 2,000,000 shares authorized, none issued or outstanding -- -- Common stock $.01 par value; 20,000,000 shares authorized; 13,186,935 and 13,108,667 issued as of September 30 and March 31, 2000, respectively 132 131 Treasury stock, at cost, (2,326 and 2,203 shares as of September 30 and March 31, 2000, respectively) (84) (68) Additional paid-in capital 113,626 113,488 Retained earnings 36,087 22,599 --------- --------- Total shareholders' equity 149,761 136,150 --------- --------- Total liabilities and shareholders' equity $ 191,562 $ 175,596 ========= =========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 5 POLYMEDICA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 2000 1999 2000 1999 --------- --------- --------- --------- Net revenues $ 54,469 $ 35,919 $ 105,639 $ 67,499 Cost of sales 19,602 15,137 38,338 28,852 --------- --------- --------- --------- Gross margin 34,867 20,782 67,301 38,647 Selling, general and administrative expenses 23,931 15,227 46,733 28,588 --------- --------- --------- --------- Income from operations 10,936 5,555 20,568 10,059 Other income and expense: Investment income 732 110 1,366 199 Interest expense (79) (579) (148) (1,182) Other expense (247) -- (274) -- --------- --------- --------- --------- 406 (469) 944 (983) Income before income taxes 11,342 5,086 21,512 9,076 Income tax provision 4,231 1,959 8,024 3,495 --------- --------- --------- --------- Net income $ 7,111 $ 3,127 $ 13,488 $ 5,581 ========= ========= ========= ========= Net income per weighted average share: Basic $ .54 $ .33 $ 1.03 $ .60 Diluted $ .52 $ .30 $ .99 $ .55 Weighted average shares, basic 13,182 9,397 13,157 9,275 Weighted average shares, diluted 13,622 10,487 13,619 10,188
The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 6 POLYMEDICA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED SEPT. 30, 2000 1999 -------- -------- Cash flows from operating activities: Net income $ 13,488 $ 5,581 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 2,507 1,736 Amortization of direct-response advertising 8,506 3,640 Direct-response advertising (16,324) (7,679) Provision for inventory obsolescence 1,240 125 Provision for bad debts 7,833 4,368 Provision for sales allowances 6,218 3,887 Changes in assets and liabilities: Accounts receivable (18,780) (11,275) Inventories (1,339) (666) Prepaid expenses and other assets 442 (477) Accounts payable (1,734) (887) Accrued expenses 4,511 5,660 -------- -------- Total adjustments (6,920) (1,568) -------- -------- Net cash flows from operating activities 6,568 4,013 -------- -------- Cash flows from investing activities: Purchase of marketable securities (20,300) -- Proceeds from sale of certain assets of the healthcare business 300 -- Purchase of property, plant and equipment (5,502) (3,160) -------- -------- Net cash flows from investing activities (25,502) (3,160) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 889 1,044 Repurchase of common stock (766) -- Contributions to deferred compensation plan (1,329) -- Reduction of obligations under capital leases (258) -- Proceeds from/(repayment of) senior debt and notes payable (27) 408 Proceeds from/(repayment of) line of credit -- (1,500) Repayment of officer notes receivable -- 67 -------- -------- Net cash flows from financing activities (1,491) 19 -------- -------- Net increase/(decrease) in cash and cash equivalents (20,425) 872 -------- -------- Cash and cash equivalents at beginning of period 40,687 10,191 -------- -------- Cash and cash equivalents at end of period $ 20,262 $ 11,063 ======== ======== Supplemental disclosure of cash flow information: Receipt of long-term note receivable from sale of certain assets of its thermometry and compliance business $ 1,125 -- Assets purchased under capital leases 116 --
The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 7 POLYMEDICA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The unaudited consolidated financial statements included herein have been prepared by PolyMedica Corporation ("PolyMedica" or the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The results for the interim periods presented are not necessarily indicative of results to be expected for the full fiscal year. It is suggested that these interim consolidated financial statements be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended March 31, 2000 and it's unaudited Quarterly Report on Form 10-Q for the period ended June 30, 2000. 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. 2. Included in other assets is restricted cash of $1.33 million and $0 as of September 30 and March 31, 2000, respectively, which represents amounts set aside by the Company under 401(k) Shadow and Pension Plans. The related liability is included in other long-term liabilities. 3. Inventories consist of the following: (In thousands)
Sept. 30, March 31, 2000 2000 --------- --------- Raw materials $ 370 $ 848 Work in process 374 505 Finished goods 6,938 7,626 ------ ------ $7,682 $8,979 ====== ======
4. In accordance with Statement of Position 93-7 ("SOP 93-7"), the Company incurred and capitalized direct-response advertising of $7.80 million and $4.65 million in the three months ended September 30, 2000 and 1999, respectively. The Company expenses in the period all other advertising that does not meet the requirements of SOP 93-7. A total of $4.63 million and $1.95 million in direct-response advertising was amortized and charged to selling, general and administrative expense for the three months ended September 30, 2000 and 1999, respectively. A total of $16.32 million and $7.68 million of direct-response advertising was capitalized in the six 7 8 months ended September 30, 2000 and 1999, respectively. A total of $8.51 million and $3.64 million was amortized and charged to selling, general and administrative expense for the six months ended September 30, 2000 and 1999, respectively. 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. 5. Sales allowances are recorded for estimated product returns using historical return data and are recorded as a reduction of revenue. These allowances are adjusted quarterly to reflect actual returns and trends. During the three months ended September 30, 2000 and 1999, the Company provided for sales allowances at a rate of approximately 5.8% and 5.5% of gross sales, respectively. During the six months ended September 30, 2000 and 1999, the Company provided for sales allowances at a rate of approximately 5.6% and 5.4% of gross sales, respectively. 6. Approximately $38.74 million and $21.65 million of revenues for the three months ended September 30, 2000 and 1999, respectively, were billed to Medicare on behalf of the Company's customers for products and services provided by the Company to Medicare beneficiaries. For the six months ended September 30, 2000 and 1999, respectively, $75.13 million and $40.27 million of revenues were billed to Medicare on behalf of the Company's customers for products and services provided by the Company to Medicare beneficiaries. 7. As of September 30, 2000, gross unbilled receivables included in gross accounts receivable of $56.54 million were $17.88 million as compared with $20.16 million included in gross accounts receivable of $50.51 million as of March 31, 2000. Approximately $14.27 million and $15.62 million of the total unbilled receivable balances as of September 30, 2000 and March 31, 2000, respectively, represent Medicare receivables. 8 9 8. Calculations of earnings per share are as follows:
(In thousands, except per share data) Three Months Ended Six Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2000 1999 2000 1999 --------- --------- --------- --------- Net income $ 7,111 $ 3,127 $13,488 $ 5,581 BASIC: Weighted average common stock outstanding, net of treasury stock, end of period 13,182 9,397 13,157 9,275 Net income per common share, basic $ .54 $ .33 $ 1.03 $ .60 ======= ======= ======= ======= DILUTED: Weighted average common stock outstanding, net of treasury stock, end of period 13,182 9,397 13,157 9,275 Weighted average common stock equivalents 440 1,090 462 913 ------- ------- ------- ------- Weighted average common stock and common stock equivalents outstanding, net of treasury stock, end of period 13,622 10,487 13,619 10,188 Net income per common share, diluted $ .52 $ .30 $ .99 $ .55 ======= ======= ======= =======
Options to purchase 652,500 and 77,500 shares of common stock were outstanding during the three months ended September 30, 2000 and 1999, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. During the six months ended September 30, 2000 and 1999, options to purchase 0 and 102,500 shares of common stock, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. 9. The Company's total net income and comprehensive income was $7.11 million and $3.13 million for the three months ended September 30, 2000 and 1999, respectively. For the six months ended September 30, 2000 and 1999, total net income and comprehensive income was $13.49 million and $5.58 million, respectively. 10. The Company has three reportable segments: Chronic Care - The Company sells diabetes supplies and adult nutrition supplies through its Chronic Care segment. It offers a wide array of diabetes 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 chronic disease-related upfront expenses and offers the convenience of free home delivery of supplies. Professional Products - The Company develops, manufactures, and distributes prescription urology products and sells respiratory products to Medicare-eligible seniors. 9 10 Consumer Healthcare - The Company offers the AZO line of products which includes OTC ("over-the-counter") female urinary tract discomfort products and home medical diagnostic kits; and, until September 2000, was a distributor of private-label and branded digital thermometers. In September 2000, the Company sold certain assets of its Consumer Healthcare segment. (See Note 14 for information on the sale.) Depreciation and amortization expense attributable to the Company's corporate headquarters are allocated to the operating segments according to the segment's relative percentage of total revenue. However, segment assets belonging to the Company's corporate headquarters are not allocated, as they are considered separately for management evaluation purposes. As a result of these allocations, the segment information may not be indicative of the financial position or results of operations that would have been achieved had these segments operated as unaffiliated entities. Information concerning the operations in these reportable segments is as follows:
Three months ended Six months ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, (In thousands) 2000 1999 2000 1999 --------- --------- --------- --------- NET REVENUES: Chronic Care $ 40,711 $ 29,245 $ 79,824 $ 55,610 Professional Products 10,500 2,587 19,620 4,873 Consumer Healthcare 3,258 4,087 6,195 7,016 --------- --------- --------- --------- Total $ 54,469 $ 35,919 $ 105,639 $ 67,499 --------- --------- --------- --------- DEPRECIATION AND AMORTIZATION: Chronic Care $ 3,661 $ 2,291 $ 6,987 $ 4,297 Professional Products 2,252 531 4,000 1,048 Consumer Healthcare 11 16 26 31 --------- --------- --------- --------- Total $ 5,924 $ 2,838 $ 11,013 $ 5,376 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES: Chronic Care $ 9,113 $ 4,131 $ 15,968 $ 6,988 Professional Products 3,355 240 6,382 808 Consumer Healthcare (1,126) 715 (838) 1,280 --------- --------- --------- --------- Total $ 11,342 $ 5,086 $ 21,512 $ 9,076 --------- --------- --------- ---------
Sept. 30, March 31, 2000 2000 --------- --------- SEGMENT ASSETS: Chronic Care $ 91,340 $ 81,513 Professional Products 52,017 44,384 Consumer Healthcare 3,020 6,504 Corporate Headquarters 45,185 43,195 -------- -------- Total $191,562 $175,596 -------- --------
11. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging 10 11 activities. In June 2000, the FASB issued SFAS No. 138 "Accounting for Derivative and Certain Hedging Activities, an Amendment of SFAS No. 133". This accounting standard amended the accounting and reporting standards of SFAS No. 133 for certain derivative and hedging activities. We will adopt SFAS No. 133, as amended, in 2001. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), subsequently updated by SAB 101B. SAB 101 and SAB 101B summarize certain of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company is required to adopt SAB 101 no later than the fourth quarter of fiscal year 2001. We have determined that SAB 101 will result in a deferral of revenue recognition for products shipped to new customers from whom the Company has not yet received a written Authorization of Benefits form, which is required to bill Medicare and other third-party payers. The Company will record the cumulative effect, if any, of this change in accounting principle as of April 1, 2000. PolyMedica and its independent accountants are continuing to review whether the implementation of SAB 101 will have a material effect on the Company's net financial results. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of previously fixed stock options or awards, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 does not have a material impact on the Company's financial position or results of operations. 12. As of September 30, 2000, the Company had no outstanding balance under its existing $10.0 million revolving credit facility. Under this facility, the Company is required to be in compliance with certain financial covenants. The interest rate is tied to the Company's funded debt to EBITDA ratio and was 9.50% as of September 30, 2000. 13. In June 2000, the Company's board of directors authorized the repurchase of up to 1,000,000 shares of the Company's common stock on the open market. In the three months ended September 30, 2000, 20,000 shares were repurchased under this program for $766,000. 14. In September 2000, the Company sold certain assets of its thermometry and compliance products business which were included in the Consumer Healthcare segment. Under the terms of the sale, the purchaser paid the Company $300,000 in cash and issued to the Company a promissory note in the face amount of $1.12 million at a 7% interest rate, maturing September 20, 2003. The transaction resulted in an immaterial loss which was included in Other expense on the Company's Consolidated Statements of Operations. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Business PolyMedica Corporation is a leading provider of direct-to-consumer specialty medical products and services, conducting business in the Chronic Care, Professional Products and Consumer Healthcare markets. We sell diabetes and adult nutrition supplies through our Chronic Care segment. Our AZO brand holds a leading position in the over-the-counter urinary health market. We distribute AZO female urinary discomfort and similar AZO products to food and drug retailers nationwide, through our Consumer Healthcare segment. We also market, manufacture and distribute a broad line of prescription urological and suppository products and provide direct-to-consumer prescription respiratory supplies and services to Medicare-eligible seniors suffering from chronic obstructive pulmonary disease ("COPD") through our Professional Products segment. We recognize revenues upon shipment of our products. Expense items include cost of sales and selling, general and administrative expenses. - Cost of sales consists primarily of purchased finished goods for sale in our markets and, to a lesser extent, materials and overhead costs for products that we manufacture in our facility; and - Selling, general and administrative expenses consist primarily of expenditures for personnel and benefits, as well as allowances for bad debts, rent, amortization of capitalized direct-response advertising costs and other amortization and depreciation. Chronic Care We are a national direct-mail provider of diabetes and adult nutrition supplies through our Chronic Care segment. Since acquiring Liberty Medical Supply, Inc. ("Liberty") in August 1996, we have devoted a large part of our resources to the growth of our Chronic Care segment, resulting in substantial increases in revenues and earnings generated from the segment in each of the 2000, 1999, 1998 and 1997 fiscal years. We intend to continue this emphasis in the future. We have over 500,000 customer records in our database and over 280,000 active Medicare-eligible diabetes customers, many of whom suffer from other chronic diseases, to whom we sell name-brand products. We deliver products to customers' homes and bill Medicare and private insurance directly for those supplies that are reimbursable. We meet the needs of seniors suffering from these diseases by: - providing mail order delivery of supplies direct to our customers' homes; - billing Medicare and/or private insurance directly; - providing 24-hour telephone support to customers; and 12 13 - using sophisticated software and advanced order fulfillment systems to provide products and support quickly and efficiently. In the United States, there are approximately 6.3 million seniors who have diabetes. With our database of over 280,000 active Medicare-eligible diabetes customers, we serve approximately 4.4% of the diabetes marketplace. While many of the 6.3 million seniors with diabetes are covered by managed care or reside in extended care facilities, we believe that the balance are potential customers of ours. In the quarter ended March 31, 2000, we commenced marketing studies and began shipping products in the adult nutrition market. After analyzing early experience in the adult nutrition market, we have concluded that it does not meet our business model requirements. We will stop shipping adult nutrition products in the quarter ending December 31, 2000. Professional Products We are a national direct-mail provider of prescription respiratory supplies and also market, manufacture and distribute a broad line of prescription urological and suppository products through our Professional Products segment. Similar to the service we provide in our Chronic Care segment, we deliver prescription respiratory supplies to customers' homes and bill Medicare and private insurance directly for reimbursable supplies. As a participating Medicare provider and third-party insurance biller, we provide a simple, reliable way for seniors to obtain their supplies for respiratory disease treatment. In 1998, Medicare expenditures for two key drugs for the treatment of respiratory disease, albuterol and ipratropium, were in excess of $400 million. As of September 30, 2000, we had over 20,000 active customers for our respiratory disease supplies. We also own one of the broadest lines of branded prescription urology products (excluding anti-infectives). Our urology products include 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. Our primary customers for these urology products are large drug wholesalers in the United States. Consumer Healthcare Our Consumer Healthcare products are focused on female urinary tract discomfort. Three of our products include AZO-STANDARD(R), which provides relief from urinary tract discomfort, AZO-CRANBERRY(R), a dietary supplement which helps maintain a healthy urinary tract and AZO TEST STRIPS(TM), an in-home urinary tract infection testing kit which allows patients to call their doctors with testing results. In April 1999, we began shipping two new homeopathic botanical products, AZO MENOPAUSE(TM) and AZO CONFIDENCE(TM). AZO MENOPAUSE offers relief from hot flashes and related symptoms. AZO CONFIDENCE is used for the relief of symptoms of incontinence. An additional two products, AZO YEAST(TM) and AZO PMS(TM) were introduced in the year ended March 31, 2000, which serve to provide relief from yeast infections and pre-menstrual syndrome, respectively. 13 14 In September 2000, the Company sold certain assets of its thermometry and compliance products business which were included in the Consumer Healthcare segment. Under the terms of the sale, the purchaser paid the Company $300,000 in cash and issued to the Company a promissory note in the face amount of $1.12 million at a 7% interest rate, maturing September 20, 2003. The transaction resulted in an immaterial loss which was included in Other expense on the Company's Consolidated Statements of Operations. Growth Strategy Our growth strategy includes the following elements: - continue growth in our Chronic Care and Professional Products segments by expanding our customer base; - expand non-Medicare initiatives; and - add complementary products and businesses. Other Although the use of certain of our products is somewhat seasonal in nature, we do not believe our net product sales, in the aggregate, are generally subject to material seasonal fluctuations. In accordance with Statement of Position 93-7, direct response advertising and associated costs for all periods presented are capitalized and amortized to selling, general and administrative expenses on an accelerated basis. 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. Other advertising, promotional, and 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. We operate from manufacturing or distribution facilities located in Massachusetts and Florida. Virtually all of our product sales are denominated in U.S. dollars. Period to period comparisons of changes in net revenues are not necessarily indicative of results to be expected for any future period. 14 15 RESULTS OF OPERATIONS Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Total net revenues increased by 51.6% to $54.47 million in the three months ended September 30, 2000 as compared with $35.92 million in the three months ended September 30, 1999. This increase is primarily the result of the growth in revenues from our Chronic Care and Professional Products segments which increased 39.2% and 305.9%, respectively, in the three months ended September 30, 2000 as compared with the three months ended September 30, 1999. (See Note 10 for segment information.) Net revenues in the Chronic Care segment increased by 39.2% to $40.71 million in the three months ended September 30, 2000 as compared with $29.24 million in the three months ended September 30, 1999. This growth is due to new customer sales as a result of our direct-response advertising spending, as well as recurring shipments to existing customers. We currently expect our promotional and direct-response advertising spending to continue in order to further the expansion of our Chronic Care segment. Net revenues from Professional Products increased 305.9% to $10.50 million in the three months ended September 30, 2000 as compared with $2.59 million in the three months ended September 30, 1999. This increase is mainly attributable to shipments of respiratory products in the three months ended September 30, 2000, due to new customer sales as a result of our direct-response advertising spending. Sales of respiratory products commenced in August 1999. As with our Chronic Care segment, we currently expect our promotional and direct-response advertising spending to continue in order to further the expansion of our Professional Products segment. Net revenues from Consumer Healthcare products decreased 20.3% to $3.26 million in the three months ended September 30, 2000 as compared with $4.09 million in the three months ended September 30, 1999, as a result of declining revenues in our thermometry and compliance products business which was sold in September 2000. (See Note 14 for information on the sale.) Pretax income was $11.34 million in the three months ended September 30, 2000, a 123.0% increase as compared with $5.09 million in the three months ended September 30, 1999. This increase is primarily the result of greater net revenues and improved gross margins (see below), partially offset by increased selling, general and administrative expenses incurred to further our expansion efforts. Our net income was $7.11 million, or $0.52 per diluted common share, for the three months ended September 30, 2000 as compared with $3.13 million, or $0.30 per diluted common share, in the three months ended September 30, 1999. Earnings per diluted common share increased 73.3% or $0.22 in the three months ended September 30, 2000 as compared with the three months ended September 30, 1999. As a percentage of total net revenues, overall gross margins were 64.0% in the three months ended September 30, 2000 and 57.9% in the three months ended September 30, 1999. Gross margins in the three months ended September 30, 2000 increased due to improved gross margins in 15 16 the Chronic Care and Professional Products segments, resulting from favorable product mix and period promotional pricing from suppliers. As a percentage of total net revenues, selling, general and administrative expenses were 43.9% for the three months ended September 30, 2000 as compared with 42.4% for the three months ended September 30, 1999. Selling, general and administrative expenses increased by 57.2% in the three months ended September 30, 2000 to $23.93 million as compared with $15.23 million in the three months ended September 30, 1999. This increase is primarily attributable to increased advertising expense for our Chronic Care and Professional Products segments. Investment income increased by 565.5% to $732,000 in the three months ended September 30, 2000 as compared with $110,000 in the three months ended September 30, 1999, as we earned interest on higher average cash balances primarily as a result of proceeds from our October 1999 secondary public offering. Interest expense decreased by 86.4% to $79,000 in the three months ended September 30, 2000 as compared with $579,000 in the three months ended September 30, 1999, due to the October 1999 retirement of the Guaranteed Senior Secured Notes due January 31, 2003 to the John Hancock Mutual Life Insurance Company. Six Months Ended September 30, 2000 Compared to Six Months Ended September 30, 1999 Total net revenues increased by 56.5% to $105.64 million in the six months ended September 30, 2000 as compared with $67.50 million in the six months ended September 30, 1999. This increase is primarily the result of the growth in revenues from our Chronic Care and Professional Products segments, which increased 43.5% and 302.6%, respectively, in the six months ended September 30, 2000 as compared with the six months ended September 30, 1999. (See Note 10 for segment information.) Net revenues in the Chronic Care segment increased by 43.5% to $79.82 million in the six months ended September 30, 2000 as compared with $55.61 million in the six months ended September 30, 1999. This growth is due to new customer sales as a result of our direct-response advertising spending, as well as recurring shipments to existing customers. We currently expect our promotional and direct-response advertising spending to continue in order to further the expansion of our Chronic Care segment. Net revenues from Professional Products increased 302.6% to $19.62 million in the six months ended September 30, 2000 as compared with $4.87 million in the six months ended September 30, 1999. This increase is mainly attributable to shipments of respiratory products in the six months ended September 30, 2000, due to new customer sales as a result of our direct-response advertising spending. Sales of respiratory products commenced in August 1999. As with our Chronic Care segment, we currently expect our promotional and direct-response advertising spending to continue in order to further the expansion of our Professional Products segment. Net revenues from Consumer Healthcare products decreased 11.7% to $6.19 million in the six months ended September 30, 2000 as compared with $7.02 million in the six months ended September 30, 1999, as a result of declining revenues in our thermometry and compliance products business which was sold in September 2000. (See Note 14 for information on the sale.) 16 17 Pretax income was $21.51 million in the six months ended September 30, 2000, a 137.0% increase as compared with $9.08 million in the six months ended September 30, 1999. This increase is primarily the result of greater net revenues and improved gross margins (see below), partially offset by increased selling, general and administrative expenses incurred to further our expansion efforts. Our net income was $13.49 million, or $0.99 per diluted common share, for the six months ended September 30, 2000 as compared with $5.58 million, or $.55 per diluted common share, in the six months ended September 30, 1999. Earnings per diluted common share increased 80% or $.44 in the six months ended September 30, 2000 as compared with the six months ended September 30, 1999. As a percentage of total net revenues, overall gross margins were 63.7% in the six months ended September 30, 2000 and 57.3% in the six months ended September 30, 1999. Gross margins in the six months ended September 30, 2000 increased due to improved gross margins in the Chronic Care and Professional Products segments, resulting from favorable product mix and period promotional pricing from suppliers, partially offset by reduced gross margins in our Consumer Healthcare segment resulting from additional provisions for inventory obsolescence. As a percentage of total net revenues, selling, general and administrative expenses were 44.2% for the six months ended September 30, 2000 as compared with 42.4% for the six months ended September 30, 1999. Selling, general and administrative expenses increased by 63.5% in the six months ended September 30, 2000 to $46.73 million as compared with $28.59 million in the six months ended September 30, 1999. This increase is primarily attributable to increased advertising expense for our Chronic Care and Professional Products segments. Investment income increased by 587.5% to $1.37 million in the six months ended September 30, 2000 as compared with $199,000 in the six months ended September 30, 1999 as we earned interest on higher average cash balances primarily as a result of proceeds from our October 1999 secondary public offering. Interest expense decreased by 87.5% to $148,000 in the six months ended September 30, 2000 as compared with $1.18 million in the six months ended September 30, 1999, due to the October 1999 retirement of the Guaranteed Senior Secured Notes due January 31, 2003 to the John Hancock Mutual Life Insurance Company. Liquidity and Capital Resources Since our inception, we have raised $109.34 million in gross equity capital through public offerings, including $55.88 million from the October 1999 sale of 2,629,599 shares of common stock. As of September 30, 2000, we had working capital of $74.09 million, including cash and cash equivalents and marketable securities of $40.56 million, which compares with working capital of $71.96 million, including cash and cash equivalents of $40.69 million, as of March 31, 2000. Net accounts receivable were $44.49 million and $39.76 million as of September 30 and March 31, 2000, respectively. The increase in net accounts receivable is primarily the result of record shipments in our Chronic Care and Professional Products segments. As of September 30, 2000, gross unbilled receivables included in overall gross accounts receivable of $56.54 million, 17 18 were $17.88 million as compared with $20.16 million included in gross accounts receivable of $50.51 million as of March 31, 2000. We incurred and capitalized direct-response advertising of $7.80 million and $4.65 million in the three months ended September 30, 2000 and 1999, respectively. We expense in the period all other advertising that does not meet the requirements of SOP 93-7. A total of $4.63 million and $1.95 million in direct-response advertising was amortized and charged to selling, general and administrative expense for the three months ended September 30, 2000 and 1999, respectively. A total of $16.32 million and $7.68 million of direct-response advertising was capitalized in the six months ended September 30, 2000 and 1999, respectively. A total of $8.51 million and $3.64 million was amortized and charged to selling, general and administrative expense for the six months ended September 30, 2000 and 1999, respectively. 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. As of September 30 and March 31, 2000, accumulated amortization was $25.47 million and $16.96 million, which resulted in a net capitalized direct-response advertising asset of $35.90 million and $28.08 million, respectively. In June 2000, the Company's board of directors authorized the repurchase of up to 1,000,000 shares of the Company's common stock on the open market. In the three months ended September 30, 2000, 20,000 shares were repurchased under this program for $766,000. We expect that our current working capital, revolving credit facility and funds generated from future operations will be adequate to meet our liquidity and capital requirements for current operations. In the event that we undertake to make acquisitions of complementary businesses, products or technologies, we may require substantial additional funding beyond currently available working capital and funds generated from operations. We are conducting an active search for the strategic acquisition of complementary businesses, products or technologies which leverage our marketing, sales and distribution infrastructure. We currently have no commitments or agreements with respect to any such acquisition. 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 our expectations, hopes, intentions or strategies regarding the future. Forward-looking statements include, among others: statements regarding future benefits from our advertising and promotional expenditures; statements regarding future net 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 us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could differ materially from those in such forward-looking statements. 18 19 Our future operating results remain difficult to predict. We continue to face many risks and uncertainties which could affect our operating results, including without limitation, those described below. We could experience significantly reduced profits if Medicare changes, delays or denies reimbursement Sales of a significant portion of our Chronic Care and Professional Products supplies will depend on the continued availability of reimbursement of our customers by government and private insurance plans. Any reduction in Medicare reimbursement currently available for our products would reduce our revenues. Without a corresponding reduction in the cost of such products, the result would be a reduction in our overall profit margin. Similarly, any increase in the cost of such products would reduce our overall profit margin unless there was a corresponding increase in Medicare reimbursement. Our profits could also be affected by the imposition of more stringent regulatory requirements for Medicare reimbursement. Any failure to comply with required Medicare reimbursement procedures could result in delays or loss of reimbursement and other sanctions, including fines and loss of Medicare provider status. We plan to continue our rapid expansion; if we do not manage our growth successfully; our growth and profitability may slow or stop We have expanded our operations rapidly and plan to continue to expand. This expansion has created significant demand on our administrative, operational and financial personnel and other resources. Additional expansion in existing or new markets could strain these resources and increase our need for capital. Our personnel, systems, procedures, controls and existing space may not be adequate to support further expansion. The profitability of our Chronic Care and Professional Products segments will decrease if we do not receive recurring orders from customers We generally incur losses and negative cash flow with respect to the first order for Chronic Care and respiratory products, included in our Professional Products segment, from a customer, due primarily to the marketing and regulatory compliance costs associated with initial customer qualification. Accordingly, the profitability of these segments depends in large part, on recurring and sustained reorders. Reorder rates are inherently uncertain due to several factors, many of which are outside our control, including changing customer preferences, competitive price pressures, customer transition to extended care facilities, customer mortality and general economic conditions. We could experience significantly reduced profits from our Chronic Care segment if improved technologies that eliminate the need for consumable testing supplies are developed for glucose monitoring The majority of our Chronic Care net revenues are from consumable testing supplies, used to draw and test small quantities of blood for the purpose of measuring and monitoring glucose levels. Numerous research efforts are underway to develop more convenient and less intrusive glucose measurement techniques. The commercialization and widespread acceptance 19 20 of new technologies that eliminate or reduce the need for consumable testing supplies could negatively affect our Chronic Care business. We could be liable for harm caused by products that we sell The sale of medical products entails the risk that users will make product liability claims. A product liability claim could be expensive. Our insurance may not provide adequate coverage against these claims. We could lose customers and revenues to new or existing competitors who have greater financial or operating resources Competition from other sellers of products offered through our Chronic Care, Professional Products and Consumer Healthcare segments, manufacturers of healthcare products, pharmaceutical companies and other competitors is intense and expected to increase. Many of our competitors and potential competitors are large companies with well-known names and substantial resources. These companies may develop products and services that are more effective or less expensive than any that we are developing or selling. They may also promote and market these products more successfully than we promote and market our products. Loss of use of manufacturing or data storage facilities would significantly reduce revenues and profits from our Consumer Healthcare and Professional Products businesses We manufacture some of our Professional Products and many of our AZO products at our facility in Woburn, Massachusetts. In addition, we process and store most of our customer data in our facility in Port St. Lucie, Florida. If we cannot use any of these facilities as a result of the FDA, Occupational Safety and Health Administration or other regulatory action, fire, natural disaster or other event, our revenues and profits will decrease significantly. We might also incur significant expense in remedying the problem or securing an alternative manufacturing or data storage source. If we or our suppliers do not comply with applicable government regulations, we may be prohibited from selling our products Many of our products that we sell are regulated by the FDA and other regulatory agencies. If any of these agencies mandate a suspension of production or sales of our products or mandate a recall, we may lose sales and incur expense until we are in compliance with the regulations or change to another acceptable supplier. We could have difficulty selling our Consumer Healthcare and Professional Products if we cannot maintain and expand our sales to distributors We rely on third party distributors to market and sell our Consumer Healthcare and some of our Professional Products. Our sales of Consumer Healthcare and Professional Products will therefore depend in part on our maintaining and expanding marketing and distribution relationships with pharmaceutical, medical device, personal care and other distributors and on the success of those distributors in marketing and selling our products. 20 21 Shortening or eliminating amortization of our direct-response advertising costs could adversely affect our operating results Any accounting or business change that shortens or eliminates the amortization period of our direct-response advertising costs could result in accelerated charges against our earnings. Our quarterly revenues or operating results could vary, which may cause the market price of our securities to decline We have experienced fluctuations in our quarterly operating results and anticipate that such fluctuations could continue. Results may vary significantly depending on a number of factors, including: - changes in reimbursement guidelines and amounts; - changes in regulations affecting the healthcare industry; - changes in the mix or cost of our products; - the timing of customer orders; - the timing and cost of our advertising campaigns; and - the timing of the introduction or acceptance of new products and services offered by us or our competitors. We may make acquisitions that will strain our financial and operational resources We regularly review potential acquisitions of businesses and products. Acquisitions involve a number of risks that might adversely affect our financial and operational resources, including: - diversion of the attention of senior management from important business matters; - amortization of substantial goodwill; - difficulty in retaining key personnel of an acquired business; - failure to assimilate operations of an acquired business; - failure to retain the customers of an acquired business; - possible operating losses and expenses of an acquired business; - exposure to legal claims for activities of an acquired business prior to acquisition; and - incurrence of debt and related interest expense. Our stock price could be volatile, which could result in substantial losses for investors The trading price of our common stock has been volatile and is likely to continue to be volatile. The stock market in general, and the market for healthcare-related companies in particular, has experienced extreme volatility. This volatility has often been unrelated to the operating performance of particular companies. Investors may not be able to sell their common stock at or above the price at which they purchased the stock. Prices for the common stock will be determined in the marketplace and may be influenced by many factors, including variations in our financial results, changes in earnings estimates by industry research analysts, investors' perceptions of us and general economic, industry and market conditions. We may issue preferred stock with rights senior to the common stock 21 22 Our articles of organization authorize the issuance of up to 2,000,000 shares of preferred stock without stockholder approval. The shares may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of the common stock. The rights and preferences of any such class or series of preferred stock would be established by our board of directors in its sole discretion. 22 23 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not believe that we have any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item. 23 24 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held on September 14, 2000, the following proposals were considered:
Proposal - -------- For Against Abstain --- ------- ------- Election of Directors: Daniel S. Bernstein, M.D 12,085,347 225,362(1) Peter K. Hoffman 9,152,833 3,157,876(1) To approve an amendment to the Articles of Organization increasing the number of authorized shares of common stock and preferred stock 4,919,840 5,639,859 25,471 To approve the adoption of the Company's 2000 Stock Incentive Plan, authorizing the issuance of up to 1,200,000 shares of common stock 8,510,007 2,038,852 36,311 Ratification of PricewaterhouseCoopers LLP as the Company's independent public accountants 12,270,425 31,584 8,700
- ---------------------- (1) Represents votes "withheld" from each respective director. 24 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index immediately following this report and incorporated herein by reference. (b) There were no reports on Form 8-K filed during the three months ended September 30, 2000. 25 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POLYMEDICA CORPORATION ------------------------------------ (registrant) /s/ Steven J. Lee ------------------------------------ Steven J. Lee Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Eric G. Walters ------------------------------------ Eric G. Walters Chief Financial Officer and Clerk (Principal Financial and Accounting Officer) Dated: November 14, 2000 26 27 EXHIBIT INDEX
Exhibit Description - ------- ----------- 10.66 - Employment Agreement by and between the Registrant and Steven J. Lee dated September 1, 2000. 10.67 - Employment Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated September 1, 2000. 10.68 - Employment Agreement by and between the Registrant and Eric G. Walters dated September 1, 2000. 10.69 - Employment Agreement by and between the Registrant and Warren K. Trowbridge dated September 1, 2000. 10.70 - Retention Agreement by and between the Registrant and Steven J. Lee dated September 1, 2000. 10.71 - Retention Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated September 1, 2000. 10.72 - Retention Agreement by and between the Registrant and Eric G. Walters dated September 1, 2000. 10.73 - Retention Agreement by and between the Registrant and Warren K. Trowbridge dated September 1, 2000. 27.1 - Financial Data Schedule - Six Months Ended September 30, 2000.
27 EX-10.66 2 b37256pcex10-66.txt EMPLOYMENT AGREEMENT BY AND BETWEEN STEVEN J. LEE 1 EXHIBIT 10.66 EXECUTIVE EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of the 1st day of September, 2000, is entered into by and between PolyMedica Corporation, a Massachusetts corporation having its principal place of business at 11 State Street, Woburn, Massachusetts 01801 or any of its subsidiaries or affiliates (collectively, the "Company") and Steven J. Lee, an individual with an address at 112 Farm Road, Sherborn, Massachusetts 01770 (the "Executive"). TERMS OF AGREEMENT In consideration of this Agreement and the employment and/or continued employment of the Executive by the Company, the parties agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive, on a full-time basis, to act as an executive of the Company and to perform such acts and duties and furnish such services to the Company as the Company's Chief Executive Officer or Board of Directors (the "Board") shall from time to time reasonably direct. Executive hereby accepts said employment. Executive shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties in a highly competent manner; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Executive shall report directly to the Chief Executive Officer of the Company or such officer of the Company as may be designated by the Chief Executive Officer or the Board. Nothing contained herein shall preclude Executive from devoting incidental and insubstantial amounts of time to activities other than the business of the Company and which are not inconsistent with the best interests of the Company. 2. TERMS OF EMPLOYMENT. The Company agrees to employ the Executive for a twelve (12) month period commencing on the date hereof (the "Employment Period"). Notwithstanding the foregoing, both Executive and the Company shall have the right to terminate the Executive's employment under this Agreement upon thirty (30) days' written notice to the other party, subject to the Company's obligation to pay severance benefits under certain circumstances as provided in Section 3.6. If Executive shall remain in the employ of the Company beyond the Employment Period, in the absence of any other express agreement between the parties, this Agreement shall be deemed to continue on a month-to-month basis (the "Extended Employment Period"). 2 3. COMPENSATION AND BENEFITS; DISABILITY. 3.1. SALARY. During Executive's employment, the Company shall pay Executive an annualized base salary of $400,000 ("Base Salary") payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and state and federal withholdings. Executive's Base Salary may be adjusted from time to time in the sole discretion of the Board or the Compensation Committee of the Board (the "Compensation Committee") and shall be reviewed annually by the Compensation Committee. 3.2. BONUS PAYMENT. During the Employment Period, Executive may receive, in the sole discretion of the Compensation Committee, an annual bonus payment in an amount, if any, to be determined by the Compensation Committee. 3.3. EXECUTIVE BENEFITS. During the Employment Period, Executive shall be entitled to participate in all benefit programs that the Company establishes and makes available to its other executives and employees, if any, in accordance with the relevant plan documents and requirements, including but not limited to the following benefits: (a) HEALTH INSURANCE. Health and dental insurance; and (b) LIFE INSURANCE. Life insurance on the life of Executive with an Executive-directed beneficiary in the amount of 150% of Executive's Base Salary. (c) STOCK BASED COMPENSATION. Executives will be eligible to participate in the Company's Employee Stock Purchase Plan and to be considered by the Compensation Committee for grants or awards of stock options or other stock-based compensation under the Company's Stock Incentive Plan or similar plans from time to time in effect. All such grants or awards shall be governed by the governing Plan and shall be evidenced by the Company's then standard form of stock option, restricted stock or other applicable agreement. 3.4. VACATION. Executive may take six weeks of paid vacation during each year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for executives and other employees. 3.5. DISABILITY. If during the Employment Period Executive shall become ill, disabled or otherwise incapacitated so as to be unable to perform the essential functions of his position with or without reasonable accommodation, as may be required by state law, (a) for a period in excess of ninety (90) consecutive days or (b) for more than one hundred twenty (120) days in any twelve (12) month period, then the Company shall have the right to terminate this Agreement, in accordance with applicable laws, on thirty (30) days' notice to Executive. A determination of disability shall be made by a physician satisfactory to both the Executive and the Company, PROVIDED THAT if the Executive and the Company do not agree on a physician, the Executive and the Company shall each select a physician and these two together shall select a third physician, whose determination shall be binding on all parties. 3.6. SEVERANCE PAY. In the event that prior to any "Change of Control" 3 as defined in the Executive Retention Agreement dated September 1, 2000, the Company terminates this Agreement without cause (i.e., other than pursuant to Section 3.5 or Section 4 hereof) at any time (including during the Extended Employment Period), and subject to the Executive's execution and non-revocation of a severance agreement and release drafted by and satisfactory to counsel for the Company, the Company shall continue to pay Executive at his then current Base Salary for the remainder of the Employment Period or for one year, whichever is longer (the "Severance Period"). Neither party shall be entitled to any compensation or claim for good will or other loss suffered by reason of termination of this Agreement. 3.7 BENEFITS DURING SEVERANCE PERIOD. Except as otherwise required by law, the Executive shall not be entitled to any employee benefits provided under Section 3.3 after termination of Executive's employment whether or not severance pay is being provided, except that (i) the Company shall continue in full force and effect, at its expense, the life insurance provided for in Section 3.3(b) for a period of (1) year after termination of Executive's employment hereunder or until Executive becomes employed, whichever first occurs, and (ii) during the Severance Period, the Company shall offer continued health and dental insurance as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or other law. If Executive elects not to maintain health insurance pursuant to COBRA or other law, the Company is under no obligation to reimburse Executive for his otherwise elected coverage. Executive shall be obligated to give the Company prompt notice of his subsequent employment. 4. DISCHARGE FOR CAUSE. The Company may discharge Executive and terminate his employment under this Agreement for cause without further liability to the Company. As used in this Section 4, "cause" shall mean any or all of the following: (a) a good faith finding by the Company of failure of the Executive to perform his assigned duties for the Company, including but not limited to dishonesty, gross negligence, misconduct, theft or embezzlement from the Company, the intentional provision of services to competitors of the Company, or improper disclosure of proprietary information. (b) indictment, conviction (or the entry of a pleading of guilty or nolo contendere by Executive) of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during Executive's employment; (c) Executive's breach of any of the agreements executed in connection herewith as enumerated in Section 10.1. In the event the Company exercises its right to terminate Executive's employment under this Section 4, Executive shall not be entitled to receive any severance pay or other termination benefits. 5. TERMINATION WITHOUT CAUSE. The Company may terminate this Agreement without cause without further liability to the Company except as set forth in Section 3.6 and 3.7. 6. EXPENSES. Pursuant to the Company's customary policies in force at the time of payment, Executive shall be promptly reimbursed. 4 7. AGREEMENT NOT TO COMPETE. Executive acknowledges and confirms his Agreement Not to Compete and his Confidentiality and Proprietary Information Agreement, each dated May 16, 1990, (or under any similar later agreements) with the Company (the "Additional Agreements"), which shall survive the termination of this Agreement. 8. ARBITRATION. The Employee agrees that any dispute or controversy arising out of or relating in any way to the Employee's employment with and/or termination from the Company (including, but not limited to, all claims, demands or actions under any federal, state or local statute or regulation regarding employment discrimination, and/or all claims, demands or actions concerning the interpretation, construction, performance or breach of this Employment Agreement) shall be settled by arbitration held in Boston, Massachusetts in accordance with the Rules of the American Arbitration Association, before an arbitrator who shall have experience in the area of the matter in dispute. (Each party shall bear its own costs and attorneys' fees in connection with any arbitration pursuant to this paragraph.) Provided, however, that this paragraph shall not apply to any dispute or controversy arising out of or relating in any way to the interpretation, construction, performance or breach of the Non-Solicitation and Non-Competition Agreement contained at Paragraph 4 herein or the Confidential Information and Non-Disclosure Agreement attached hereto as Exhibit A, and no such dispute or controversy shall be deemed to be arbitrable in the absence of the Corporation's written agreement. 9. NOTICES. Any notice or communication given by any party hereto to the other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the others, another address to which notices to such person shall thereafter be sent. 10. MISCELLANEOUS. 10.1. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided that nothing in this Agreement shall affect Executive's or the Company's obligations under the Additional Agreements. 10.2 AMENDMENT; WAIVER. This Agreement may not be amended, supplemented, cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 10.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company's business and properties. Executive's rights or obligations under this Agreement may not be assigned by Executive; except that Executive's right to compensation to the earlier of date of death or termination of actual employment shall pass to Executive's executor or administrator. 5 10.4. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 10.5. APPLICABLE LAW. This Agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. Executive hereby irrevocably submits and acknowledges and recognizes the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this Agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this letter agreement or the subject matter hereof. 10.6 OTHER AGREEMENTS. Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company, or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or trust prior to his employment with the Company. 10.7. FURTHER ASSURANCES. Each of the parties agrees to execute, acknowledge, deliver and perform, or cause to be executed, acknowledged, delivered or performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 10.8. SEVERABILITY. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting or reducing it so as to be enforceable to the extent compatible with then applicable law. 6 EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it becomes binding in accordance with its terms. POLYMEDICA CORPORATION /s/ Arthur A. Siciliano -------------------------- By: Arthur A. Siciliano Title: President AGREED TO AND ACCEPTED: /s/ Steven J. Lee - -------------------------------- Steven J. Lee EX-10.67 3 b37256pcex10-67.txt EMPLOYMENT AGREEMENT BY AND BETWEEN DR. SICILIANO 1 EXHIBIT 10.67 EXECUTIVE EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of the 1st day of September, 2000, is entered into by and between PolyMedica Corporation, a Massachusetts corporation having its principal place of business at 11 State Street, Woburn, Massachusetts 01801 or any of its subsidiaries or affiliates (collectively, the "Company") and Arthur A. Siciliano, an individual with an address at 13 Salt Marsh Lane, Gloucester, Massachusetts 01930 (the "Executive"). TERMS OF AGREEMENT In consideration of this Agreement and the employment and/or continued employment of the Executive by the Company, the parties agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive, on a full-time basis, to act as an executive of the Company and to perform such acts and duties and furnish such services to the Company as the Company's Chief Executive Officer or Board of Directors (the "Board") shall from time to time reasonably direct. Executive hereby accepts said employment. Executive shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties in a highly competent manner; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Executive shall report directly to the Chief Executive Officer of the Company or such officer of the Company as may be designated by the Chief Executive Officer or the Board. Nothing contained herein shall preclude Executive from devoting incidental and insubstantial amounts of time to activities other than the business of the Company and which are not inconsistent with the best interests of the Company. 2. TERMS OF EMPLOYMENT. The Company agrees to employ the Executive for a twelve (12) month period commencing on the date hereof (the "Employment Period"). Notwithstanding the foregoing, both Executive and the Company shall have the right to terminate the Executive's employment under this Agreement upon thirty (30) days' written notice to the other party, subject to the Company's obligation to pay severance benefits under certain circumstances as provided in Section 3.6. If Executive shall remain in the employ of the Company beyond the Employment Period, in the absence of any other express agreement between the parties, this Agreement shall be deemed to continue on a month-to-month basis (the "Extended Employment Period"). 2 3. COMPENSATION AND BENEFITS; DISABILITY. 3.1. SALARY. During Executive's employment, the Company shall pay Executive an annualized base salary of $330,000 ("Base Salary") payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and state and federal withholdings. Executive's Base Salary may be adjusted from time to time in the sole discretion of the Board or the Compensation Committee of the Board (the "Compensation Committee") and shall be reviewed annually by the Compensation Committee. 3.2. BONUS PAYMENT. During the Employment Period, Executive may receive, in the sole discretion of the Compensation Committee, an annual bonus payment in an amount, if any, to be determined by the Compensation Committee. 3.3. EXECUTIVE BENEFITS. During the Employment Period, Executive shall be entitled to participate in all benefit programs that the Company establishes and makes available to its other executives and employees, if any, in accordance with the relevant plan documents and requirements, including but not limited to the following benefits: (a) HEALTH INSURANCE. Health and dental insurance; and (b) LIFE INSURANCE. Life insurance on the life of Executive with an Executive-directed beneficiary in the amount of 150% of Executive's Base Salary. (c) STOCK BASED COMPENSATION. Executives will be eligible to participate in the Company's Employee Stock Purchase Plan and to be considered by the Compensation Committee for grants or awards of stock options or other stock-based compensation under the Company's Stock Incentive Plan or similar plans from time to time in effect. All such grants or awards shall be governed by the governing Plan and shall be evidenced by the Company's then standard form of stock option, restricted stock or other applicable agreement. 3.4. VACATION. Executive may take five weeks of paid vacation during each year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for executives and other employees. 3.5. DISABILITY. If during the Employment Period Executive shall become ill, disabled or otherwise incapacitated so as to be unable to perform the essential functions of his position with or without reasonable accommodation, as may be required by state law, (a) for a period in excess of ninety (90) consecutive days or (b) for more than one hundred twenty (120) days in any twelve (12) month period, then the Company shall have the right to terminate this Agreement, in accordance with applicable laws, on thirty (30) days' notice to Executive. A determination of disability shall be made by a physician satisfactory to both the Executive and the Company, PROVIDED THAT if the Executive and the Company do not agree on a physician, the Executive and the Company shall each select a physician and these two together shall select a third physician, whose determination shall be binding on all parties. 3 3.6. SEVERANCE PAY. In the event that prior to any "Change of Control" as defined in the Executive Retention Agreement dated September 1, 2000, the Company terminates this Agreement without cause (i.e., other than pursuant to Section 3.5 or Section 4 hereof) at any time (including during the Extended Employment Period), and subject to the Executive's execution and non-revocation of a severance agreement and release drafted by and satisfactory to counsel for the Company, the Company shall continue to pay Executive at his then current Base Salary for the remainder of the Employment Period or for one year, whichever is longer (the "Severance Period"). Neither party shall be entitled to any compensation or claim for good will or other loss suffered by reason of termination of this Agreement. 3.7 BENEFITS DURING SEVERANCE PERIOD. Except as otherwise required by law, the Executive shall not be entitled to any employee benefits provided under Section 3.3 after termination of Executive's employment whether or not severance pay is being provided, except that (i) the Company shall continue in full force and effect, at its expense, the life insurance provided for in Section 3.3(b) for a period of (1) year after termination of Executive's employment hereunder or until Executive becomes employed, whichever first occurs, and (ii) during the Severance Period, the Company shall offer continued health and dental insurance as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or other law. If Executive elects not to maintain health insurance pursuant to COBRA or other law, the Company is under no obligation to reimburse Executive for his otherwise elected coverage. Executive shall be obligated to give the Company prompt notice of his subsequent employment. 4. DISCHARGE FOR CAUSE. The Company may discharge Executive and terminate his employment under this Agreement for cause without further liability to the Company. As used in this Section 4, "cause" shall mean any or all of the following: (a) a good faith finding by the Company of failure of the Executive to perform his assigned duties for the Company, including but not limited to dishonesty, gross negligence, misconduct, theft or embezzlement from the Company, the intentional provision of services to competitors of the Company, or improper disclosure of proprietary information. (b) indictment, conviction (or the entry of a pleading of guilty or nolo contendere by Executive) of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during Executive's employment; (c) Executive's breach of any of the agreements executed in connection herewith as enumerated in Section 10.1. In the event the Company exercises its right to terminate Executive's employment under this Section 4, Executive shall not be entitled to receive any severance pay or other termination benefits. 5. TERMINATION WITHOUT CAUSE. The Company may terminate this Agreement without cause without further liability to the Company except as set forth in Section 3.6 and 3.7. 4 6. EXPENSES. Pursuant to the Company's customary policies in force at the time of payment, Executive shall be promptly reimbursed. 7. AGREEMENT NOT TO COMPETE. Executive acknowledges and confirms his Agreement Not to Compete dated September 1, 1990 and his Confidentiality and Proprietary Information Agreement dated October 3, 1990, (or under any similar later agreements) with the Company (the "Additional Agreements"), which shall survive the termination of this Agreement. 8. ARBITRATION. The Employee agrees that any dispute or controversy arising out of or relating in any way to the Employee's employment with and/or termination from the Company (including, but not limited to, all claims, demands or actions under any federal, state or local statute or regulation regarding employment discrimination, and/or all claims, demands or actions concerning the interpretation, construction, performance or breach of this Employment Agreement) shall be settled by arbitration held in Boston, Massachusetts in accordance with the Rules of the American Arbitration Association, before an arbitrator who shall have experience in the area of the matter in dispute. (Each party shall bear its own costs and attorneys' fees in connection with any arbitration pursuant to this paragraph.) Provided, however, that this paragraph shall not apply to any dispute or controversy arising out of or relating in any way to the interpretation, construction, performance or breach of the Non-Solicitation and Non-Competition Agreement contained at Paragraph 4 herein or the Confidential Information and Non-Disclosure Agreement attached hereto as Exhibit A, and no such dispute or controversy shall be deemed to be arbitrable in the absence of the Corporation's written agreement. 9. NOTICES. Any notice or communication given by any party hereto to the other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the others, another address to which notices to such person shall thereafter be sent. 10. MISCELLANEOUS. 10.1. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided that nothing in this Agreement shall affect Executive's or the Company's obligations under the Additional Agreements. 10.2 AMENDMENT; WAIVER. This Agreement may not be amended, supplemented, cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 10.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or 5 consolidation, or any assignee of all or substantially all of the Company's business and properties. Executive's rights or obligations under this Agreement may not be assigned by Executive; except that Executive's right to compensation to the earlier of date of death or termination of actual employment shall pass to Executive's executor or administrator. 10.4. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 10.5. APPLICABLE LAW. This Agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. Executive hereby irrevocably submits and acknowledges and recognizes the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this Agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this letter agreement or the subject matter hereof. 10.6 OTHER AGREEMENTS. Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company, or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or trust prior to his employment with the Company. 10.7. FURTHER ASSURANCES. Each of the parties agrees to execute, acknowledge, deliver and perform, or cause to be executed, acknowledged, delivered or performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 10.8. SEVERABILITY. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting or reducing it so as to be enforceable to the extent compatible with then applicable law. 6 EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it becomes binding in accordance with its terms. POLYMEDICA CORPORATION /s/ Steven J. Lee ------------------------------------- By: Steven J. Lee Title: Chairman and Chief Executive Officer AGREED TO AND ACCEPTED: /s/ Arthur A. Siciliano - --------------------------- Arthur A. Siciliano EX-10.68 4 b37256pcex10-68.txt EMPLOYMENT AGREEMENT BY AND BETWEEN ERIC G.WALTERS 1 EXHIBIT 10.68 EXECUTIVE EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of the 1st day of September, 2000, is entered into by and between PolyMedica Corporation, a Massachusetts corporation having its principal place of business at 11 State Street, Woburn, Massachusetts 01801 or any of its subsidiaries or affiliates (collectively, the "Company") and Eric G. Walters, an individual with an address at 167 Monument Street, Concord, Massachusetts 01742 (the "Executive"). TERMS OF AGREEMENT In consideration of this Agreement and the employment and/or continued employment of the Executive by the Company, the parties agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive, on a full-time basis, to act as an executive of the Company and to perform such acts and duties and furnish such services to the Company as the Company's Chief Executive Officer or Board of Directors (the "Board") shall from time to time reasonably direct. Executive hereby accepts said employment. Executive shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties in a highly competent manner; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Executive shall report directly to the Chief Executive Officer of the Company or such officer of the Company as may be designated by the Chief Executive Officer or the Board. Nothing contained herein shall preclude Executive from devoting incidental and insubstantial amounts of time to activities other than the business of the Company and which are not inconsistent with the best interests of the Company. 2. TERMS OF EMPLOYMENT. The Company agrees to employ the Executive for a twelve (12) month period commencing on the date hereof (the "Employment Period"). Notwithstanding the foregoing, both Executive and the Company shall have the right to terminate the Executive's employment under this Agreement upon thirty (30) days' written notice to the other party, subject to the Company's obligation to pay severance benefits under certain circumstances as provided in Section 3.6. If Executive shall remain in the employ of the Company beyond the Employment Period, in the absence of any other express agreement between the parties, this Agreement shall be deemed to continue on a month-to-month basis (the "Extended Employment Period"). 2 3. COMPENSATION AND BENEFITS; DISABILITY. 3.1. SALARY. During Executive's employment, the Company shall pay Executive an annualized base salary of $210,000 ("Base Salary") payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and state and federal withholdings. Executive's Base Salary may be adjusted from time to time in the sole discretion of the Board or the Compensation Committee of the Board (the "Compensation Committee") and shall be reviewed annually by the Compensation Committee. 3.2. BONUS PAYMENT. During the Employment Period, Executive may receive, in the sole discretion of the Compensation Committee, an annual bonus payment in an amount, if any, to be determined by the Compensation Committee. 3.3. EXECUTIVE BENEFITS. During the Employment Period, Executive shall be entitled to participate in all benefit programs that the Company establishes and makes available to its other executives and employees, if any, in accordance with the relevant plan documents and requirements, including but not limited to the following benefits: (a) HEALTH INSURANCE. Health and dental insurance; and (b) LIFE INSURANCE. Life insurance on the life of Executive with an Executive-directed beneficiary in the amount of 150% of Executive's Base Salary. (c) STOCK BASED COMPENSATION. Executives will be eligible to participate in the Company's Employee Stock Purchase Plan and to be considered by the Compensation Committee for grants or awards of stock options or other stock-based compensation under the Company's Stock Incentive Plan or similar plans from time to time in effect. All such grants or awards shall be governed by the governing Plan and shall be evidenced by the Company's then standard form of stock option, restricted stock or other applicable agreement. 3.4. VACATION. Executive may take four weeks of paid vacation during each year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for executives and other employees. 3.5. DISABILITY. If during the Employment Period Executive shall become ill, disabled or otherwise incapacitated so as to be unable to perform the essential functions of his position with or without reasonable accommodation, as may be required by state law, (a) for a period in excess of ninety (90) consecutive days or (b) for more than one hundred-twenty (120) days in any twelve (12) month period, then the Company shall have the right to terminate this Agreement, in accordance with applicable laws, on thirty (30) days' notice to Executive. A determination of disability shall be made by a physician satisfactory to both the Executive and the Company, PROVIDED THAT if the Executive and the Company do not agree on a physician, the Executive and the Company shall each select a physician and these two together shall select a third physician, whose determination shall be binding on all parties. 3 3.6. SEVERANCE PAY. In the event that prior to any "Change of Control" as defined in the Executive Retention Agreement dated September 1, 2000, the Company terminates this Agreement without cause (i.e., other than pursuant to Section 3.5 or Section 4 hereof) at any time (including during the Extended Employment Period), and subject to the Executive's execution and non-revocation of a severance agreement and release drafted by and satisfactory to counsel for the Company, the Company shall continue to pay Executive at his then current Base Salary for the remainder of the Employment Period or for one year, whichever is longer (the "Severance Period"). Neither party shall be entitled to any compensation or claim for good will or other loss suffered by reason of termination of this Agreement. 3.7 BENEFITS DURING SEVERANCE PERIOD. Except as otherwise required by law, the Executive shall not be entitled to any employee benefits provided under Section 3.3 after termination of Executive's employment whether or not severance pay is being provided, except that (i) the Company shall continue in full force and effect, at its expense, the life insurance provided for in Section 3.3(b) for a period of (1) year after termination of Executive's employment hereunder or until Executive becomes employed, whichever first occurs, and (ii) during the Severance Period, the Company shall offer continued health and dental insurance as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or other law. If Executive elects not to maintain health insurance pursuant to COBRA or other law, the Company is under no obligation to reimburse Executive for his otherwise elected coverage. Executive shall be obligated to give the Company prompt notice of his subsequent employment. 4. DISCHARGE FOR CAUSE. The Company may discharge Executive and terminate his employment under this Agreement for cause without further liability to the Company. As used in this Section 4, "cause" shall mean any or all of the following: (a) a good faith finding by the Company of failure of the Executive to perform his assigned duties for the Company, including but not limited to dishonesty, gross negligence, misconduct, theft or embezzlement from the Company, the intentional provision of services to competitors of the Company, or improper disclosure of proprietary information. (b) indictment, conviction (or the entry of a pleading of guilty or nolo contendere by Executive) of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during Executive's employment; (c) Executive's breach of any of the agreements executed in connection herewith as enumerated in Section 10.1. In the event the Company exercises its right to terminate Executive's employment under this Section 4, Executive shall not be entitled to receive any severance pay or other termination benefits. 5. TERMINATION WITHOUT CAUSE. The Company may terminate this Agreement without cause without further liability to the Company except as set forth in Section 3.6 and 3.7. 4 6. EXPENSES. Pursuant to the Company's customary policies in force at the time of payment, Executive shall be promptly reimbursed. 7. AGREEMENT NOT TO COMPETE. Executive acknowledges and confirms his Agreement Not to Compete dated June 1, 1991 and his Confidentiality and Proprietary Information Agreement dated August 3, 1990, (or under any similar later agreements) with the Company (the "Additional Agreements"), which shall survive the termination of this Agreement. 8. ARBITRATION. The Employee agrees that any dispute or controversy arising out of or relating in any way to the Employee's employment with and/or termination from the Company (including, but not limited to, all claims, demands or actions under any federal, state or local statute or regulation regarding employment discrimination, and/or all claims, demands or actions concerning the interpretation, construction, performance or breach of this Employment Agreement) shall be settled by arbitration held in Boston, Massachusetts in accordance with the Rules of the American Arbitration Association, before an arbitrator who shall have experience in the area of the matter in dispute. (Each party shall bear its own costs and attorneys' fees in connection with any arbitration pursuant to this paragraph.) Provided, however, that this paragraph shall not apply to any dispute or controversy arising out of or relating in any way to the interpretation, construction, performance or breach of the Non-Solicitation and Non-Competition Agreement contained at Paragraph 4 herein or the Confidential Information and Non-Disclosure Agreement attached hereto as Exhibit A, and no such dispute or controversy shall be deemed to be arbitrable in the absence of the Corporation's written agreement. 9. NOTICES. Any notice or communication given by any party hereto to the other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the others, another address to which notices to such person shall thereafter be sent. 10. MISCELLANEOUS. 10.1. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided that nothing in this Agreement shall affect Executive's or the Company's obligations under the Additional Agreements. 10.2 AMENDMENT; WAIVER. This Agreement may not be amended, supplemented, cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 10.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or 5 consolidation, or any assignee of all or substantially all of the Company's business and properties. Executive's rights or obligations under this Agreement may not be assigned by Executive; except that Executive's right to compensation to the earlier of date of death or termination of actual employment shall pass to Executive's executor or administrator. 10.4. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 10.5. APPLICABLE LAW. This Agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. Executive hereby irrevocably submits and acknowledges and recognizes the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this Agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this letter agreement or the subject matter hereof. 10.6 OTHER AGREEMENTS. Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company, or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or trust prior to his employment with the Company. 10.7. FURTHER ASSURANCES. Each of the parties agrees to execute, acknowledge, deliver and perform, or cause to be executed, acknowledged, delivered or performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 10.8. SEVERABILITY. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting or reducing it so as to be enforceable to the extent compatible with then applicable law. 6 EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it becomes binding in accordance with its terms. POLYMEDICA CORPORATION /s/ Steven J. Lee ------------------------------------------- By: Steven J. Lee Title: Chairman and Chief Executive Officer AGREED TO AND ACCEPTED: /s/ Eric G. Walters - -------------------------------- Eric G. Walters EX-10.69 5 b37256pcex10-69.txt EMPLOYMENT AGREEMENT BY AND BETWEEN MR. TROWBRIDGE 1 EXHIBIT 10.69 EXECUTIVE EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of the 1st day of September, 2000, is entered into by and between PolyMedica Corporation, a Massachusetts corporation having its principal place of business at 11 State Street, Woburn, Massachusetts 01801 or any of its subsidiaries or affiliates (collectively, the "Company") and Warren K. Trowbridge, an individual with an address at 6900 S.E. South Marina Way, Stuart, Florida 34996-1908 (the "Executive"). TERMS OF AGREEMENT In consideration of this Agreement and the employment and/or continued employment of the Executive by the Company, the parties agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive, on a full-time basis, to act as an executive of the Company and to perform such acts and duties and furnish such services to the Company as the Company's Chief Executive Officer or Board of Directors (the "Board") shall from time to time reasonably direct. Executive hereby accepts said employment. Executive shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties in a highly competent manner; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Executive shall report directly to the Chief Executive Officer of the Company or such officer of the Company as may be designated by the Chief Executive Officer or the Board. Nothing contained herein shall preclude Executive from devoting incidental and insubstantial amounts of time to activities other than the business of the Company and which are not inconsistent with the best interests of the Company. 2. TERMS OF EMPLOYMENT. The Company agrees to employ the Executive for a twelve (12) month period commencing on the date hereof (the "Employment Period"). Notwithstanding the foregoing, both Executive and the Company shall have the right to terminate the Executive's employment under this Agreement upon thirty (30) days' written notice to the other party, subject to the Company's obligation to pay severance benefits under certain circumstances as provided in Section 3.6. If Executive shall remain in the employ of the Company beyond the Employment Period, in the absence of any other express agreement between the parties, this Agreement shall be deemed to continue on a month-to-month basis (the "Extended Employment Period"). 2 3. COMPENSATION AND BENEFITS; DISABILITY. 3.1. SALARY. During Executive's employment, the Company shall pay Executive an annualized base salary of $250,000 ("Base Salary") payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and state and federal withholdings. Executive's Base Salary may be adjusted from time to time in the sole discretion of the Board or the Compensation Committee of the Board (the "Compensation Committee") and shall be reviewed annually by the Compensation Committee. 3.2. BONUS PAYMENT. During the Employment Period, Executive may receive, in the sole discretion of the Compensation Committee, an annual bonus payment in an amount, if any, to be determined by the Compensation Committee. 3.3. EXECUTIVE BENEFITS. During the Employment Period, Executive shall be entitled to participate in all benefit programs that the Company establishes and makes available to its other executives and employees, if any, in accordance with the relevant plan documents and requirements, including but not limited to the following benefits: (a) HEALTH INSURANCE. Health and dental insurance; and (b) LIFE INSURANCE. Life insurance on the life of Executive with an Executive-directed beneficiary in the amount of 150% of Executive's Base Salary. (c) STOCK BASED COMPENSATION. Executives will be eligible to participate in the Company's Employee Stock Purchase Plan and to be considered by the Compensation Committee for grants or awards of stock options or other stock-based compensation under the Company's Stock Incentive Plan or similar plans from time to time in effect. All such grants or awards shall be governed by the governing Plan and shall be evidenced by the Company's then standard form of stock option, restricted stock or other applicable agreement. 3.4. VACATION. Executive may take four weeks of paid vacation during each year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for executives and other employees. 3.5. DISABILITY. If during the Employment Period Executive shall become ill, disabled or otherwise incapacitated so as to be unable to perform the essential functions of his position with or without reasonable accommodation, as may be required by state law, (a) for a period in excess of ninety (90) consecutive days or (b) for more than one hundred-twenty (120) days in any twelve (12) month period, then the Company shall have the right to terminate this Agreement, in accordance with applicable laws, on thirty (30) days' notice to Executive. A determination of disability shall be made by a physician satisfactory to both the Executive and the Company, PROVIDED THAT if the Executive and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination shall be binding on all parties. 3 3.6. SEVERANCE PAY. In the event that prior to any "Change of Control" as defined in the Executive Retention Agreement dated September 1, 2000, the Company terminates this Agreement without cause (i.e., other than pursuant to Section 3.5 or Section 4 hereof) at any time (including during the Extended Employment Period), and subject to the Executive's execution and non-revocation of a severance agreement and release drafted by and satisfactory to counsel for the Company, the Company shall continue to pay Executive at his then current Base Salary for the remainder of the Employment Period or for one year, whichever is longer (the "Severance Period"). Neither party shall be entitled to any compensation or claim for good will or other loss suffered by reason of termination of this Agreement. 3.7 BENEFITS DURING SEVERANCE PERIOD. Except as otherwise required by law, the Executive shall not be entitled to any employee benefits provided under Section 3.3 after termination of Executive's employment whether or not severance pay is being provided, except that (i) the Company shall continue in full force and effect, at its expense, the life insurance provided for in Section 3.3(b) for a period of (1) year after termination of Executive's employment hereunder or until Executive becomes employed, whichever first occurs, and (ii) during the Severance Period, the Company shall offer continued health and dental insurance as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or other law. If Executive elects not to maintain health insurance pursuant to COBRA or other law, the Company is under no obligation to reimburse Executive for his otherwise elected coverage. Executive shall be obligated to give the Company prompt notice of his subsequent employment. 4. DISCHARGE FOR CAUSE. The Company may discharge Executive and terminate his employment under this Agreement for cause without further liability to the Company. As used in this Section 4, "cause" shall mean any or all of the following: (a) a good faith finding by the Company of failure of the Executive to perform his assigned duties for the Company, including but not limited to dishonesty, gross negligence, misconduct, theft or embezzlement from the Company, the intentional provision of services to competitors of the Company, or improper disclosure of proprietary information. (b) indictment, conviction (or the entry of a pleading of guilty or nolo contendere by Executive) of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during Executive's employment; (c) Executive's breach of any of the agreements executed in connection herewith as enumerated in Section 10.1. In the event the Company exercises its right to terminate Executive's employment under this Section 4, Executive shall not be entitled to receive any severance pay or other termination benefits. 5. TERMINATION WITHOUT CAUSE. The Company may terminate this Agreement without cause without further liability to the Company except as set forth in Section 3.6 and 3.7. 4 6. EXPENSES. Pursuant to the Company's customary policies in force at the time of payment, Executive shall be promptly reimbursed. 7. AGREEMENT NOT TO COMPETE. Executive acknowledges and confirms his Agreement Not to Compete and his Confidentiality and Proprietary Information Agreement, each dated February 1, 1999, (or under any similar later agreements) with the Company (the "Additional Agreements"), which shall survive the termination of this Agreement. 8. ARBITRATION. The Employee agrees that any dispute or controversy arising out of or relating in any way to the Employee's employment with and/or termination from the Company (including, but not limited to, all claims, demands or actions under any federal, state or local statute or regulation regarding employment discrimination, and/or all claims, demands or actions concerning the interpretation, construction, performance or breach of this Employment Agreement) shall be settled by arbitration held in Boston, Massachusetts in accordance with the Rules of the American Arbitration Association, before an arbitrator who shall have experience in the area of the matter in dispute. (Each party shall bear its own costs and attorneys' fees in connection with any arbitration pursuant to this paragraph.) Provided, however, that this paragraph shall not apply to any dispute or controversy arising out of or relating in any way to the interpretation, construction, performance or breach of the Non-Solicitation and Non-Competition Agreement contained at Paragraph 4 herein or the Confidential Information and Non-Disclosure Agreement attached hereto as Exhibit A, and no such dispute or controversy shall be deemed to be arbitrable in the absence of the Corporation's written agreement. 9. NOTICES. Any notice or communication given by any party hereto to the other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the others, another address to which notices to such person shall thereafter be sent. 10. MISCELLANEOUS. 10.1. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided that nothing in this Agreement shall affect Executive's or the Company's obligations under the Additional Agreements. 10.2 AMENDMENT; WAIVER. This Agreement may not be amended, supplemented, cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 10.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or 5 consolidation, or any assignee of all or substantially all of the Company's business and properties. Executive's rights or obligations under this Agreement may not be assigned by Executive; except that Executive's right to compensation to the earlier of date of death or termination of actual employment shall pass to Executive's executor or administrator. 10.4. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 10.5. APPLICABLE LAW. This Agreement shall be interpreted ad construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. Executive hereby irrevocably submits and acknowledges and recognizes the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this Agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this letter agreement or the subject matter hereof. 10.6 OTHER AGREEMENTS. Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company, or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or trust prior to his employment with the Company. 10.7. FURTHER ASSURANCES. Each of the parties agrees to execute, acknowledge, deliver and perform, or cause to be executed, acknowledged, delivered or performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 10.8. SEVERABILITY. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting or reducing it so as to be enforceable to the extent compatible with then applicable law. 6 EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it becomes binding in accordance with its terms. POLYMEDICA CORPORATION /s/ Steven J. Lee --------------------------------------------- By: Steven J. Lee Title: Chairman and Chief Executive Officer AGREED TO AND ACCEPTED: /s/ Warren K. Trowbridge - -------------------------------- Warren K. Trowbridge EX-10.70 6 b37256pcex10-70.txt RETENTION AGREEMENT BY AND BETWEEN STEVEN J. LEE 1 EXHIBIT 10.70 SUMMARY OF TERMS OF EXECUTIVE RETENTION AGREEMENT FOR STEVEN J. LEE 1. NATURE OF AGREEMENT. This Agreement is not an employment contract and does not specify any terms or conditions of employment. It provides for certain severance benefits to the Executive in the event his employment is terminated under specified circumstances following a Change in Control of the Company. 2. TERM OF AGREEMENT. This Agreement takes effect upon execution and expires on December 31, 2003; provided that (i) it is subject to automatic one-year extensions unless prior notice of termination is given by the Company and (ii) the Executive is entitled to the severance benefits provided therein if a Change in Control occurs during the term of this Agreement and the Executive's employment is terminated under specified circumstances within 24 months after such Change in Control. 3. KEY DEFINITIONS. a. CHANGE IN CONTROL means, in summary: (i) the acquisition by a party or a group of 20 % or more of the outstanding stock of the Company; (ii) a change, without Board of Directors approval, of a majority of the Board of Directors; (iii) the acquisition of the Company by means of a reorganization, merger, consolidation or asset sale; or (iv) the approval of a liquidation or dissolution of the Company. b. CAUSE means, in summary: (i) the Executive's willful and continued failure to substantially perform his/her reasonable assigned duties (which failure continues after a 30-day cure period); or (ii) the Executive's willful engagement in illegal conduct or gross misconduct injurious to the Company. c. GOOD REASON means, in summary: (i) a diminution in the Executive's position, authority or responsibilities; (ii) a reduction in his/her salary or benefits; (iii) a relocation of the Executive; or (iv) a breach of an employment contract with the Executive. In addition, a resignation by the Executive, for any reason, during the 30-day period immediately following the one-year anniversary of the Change in Control shall be deemed to be a termination for Good Reason. 4. SEVERANCE BENEFITS. a. STOCK OPTION ACCELERATION. Upon a Change in Control, all outstanding stock options of the Executive shall become exercisable in full. This benefit accrues to the Executive irrespective of whether an employment termination occurs. b. TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason within 24 months following a Change in Control, the Executive shall receive (i) accrued compensation (including a pro rata bonus payment) through the date of termination; (ii) a lump sum payment equal to three times the sum of the Executive's highest base salary and highest bonus during the three-year period prior to the Change in Control; (iii) a continuation of 2 all employee benefits during the 12-month period following employment termination; and (iv) any other post-termination benefits which the Executive is eligible to receive under any plan or program of the Company. c. OTHER EMPLOYMENT TERMINATIONS. In general, if the Executive's employment terminates for any other reason following a Change in Control, the Executive shall receive only the benefits described in clauses (i) and (iv) of the preceding paragraph (provided that the pro rata bonus payment shall not be made in the event of a termination by the Company for Cause). d. TAX TREATMENT. The Internal Revenue Code imposes certain tax penalties on both the Company and the Executive if the amount of severance payments to the Executive following a Change in Control exceeds certain limits (generally three times the average of the Executive's compensation over the previous five years). The Retention Agreement provides that the Company shall make a "gross up" payment to the Executive such that his net after-tax severance benefits are equal to what he would have received absent the penalty tax. e. NO MITIGATION. The severance benefits payable to the Executive are not reduced by payments received by the Executive from a subsequent employer. 5. EXPENSES. The Company must pay, as incurred, all expenses which the Executive reasonably incurs as a result of any dispute relating to this Agreement (regardless of the outcome of such dispute). 3 POLYMEDICA CORPORATION EXECUTIVE RETENTION AGREEMENT THIS EXECUTIVE RETENTION AGREEMENT by and between PolyMedica Corporation, a Massachusetts corporation (the "Company"), and Steven J. Lee (the "Executive") is made as of September 1, 2000 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person 4 exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20 % or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 5 1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "CAUSE" means: (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties as an officer of the Company (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "GOOD REASON" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date"), or any other action or omission by the Company which results in a material diminution in such position, authority or responsibilities; 6 (b) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (d) a change by the Company in the location at which the Executive performs his principal duties for the Company to a new location that is both (i) outside a radius of 35 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 20 miles from the location at which the Executive performed his principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (f) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (g) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. In addition, the termination of employment by the Executive for any reason or no reason during the 30-day period beginning on the first anniversary of the Change in Control Date shall be deemed to be termination for Good Reason for all purposes under this Agreement. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. 1.5 "DISABILITY" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 7 2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the date 24 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 24 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2003; PROVIDED, however, that commencing on January 1, 2001 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL. 3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 TERMINATION OF EMPLOYMENT. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 24 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 8 (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by an affirmative vote of two-thirds of the members of the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. BENEFITS TO EXECUTIVE. 4.1 STOCK ACCELERATION. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date, (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (b) each outstanding restricted stock award shall be deemed to be fully vested and will no longer be subject to a right of repurchase by the Company. 4.2 COMPENSATION. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 24 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death) or by the Executive for Good Reason within 24 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and 9 (2) the amount equal to (A) three multiplied by (B) the sum of (x) the Executive's highest annual base salary during the three-year period prior to the Change in Control Date and (y) the Executive's highest annual bonus during the three-year period prior to the Change in Control Date. (ii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; PROVIDED, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (iv) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR DISABILITY. If the Executive voluntarily terminates his employment with the Company within 24 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) TERMINATION FOR CAUSE. If the Company terminates the Executive's employment with the Company for Cause within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 10 4.3 TAXES. (a) In the event that the Company undergoes a "Change in Ownership or Control" (as defined below) the Company shall, within 30 days after each date on which the Executive becomes entitled to receive (whether or not then due) a Contingent Compensation Payment (as defined below) relating to such Change in Ownership or Control, determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which of the payments or benefits due to the Executive (under this Agreement or otherwise) following such Change in Ownership or Control constitute Contingent Compensation Payments, (ii) the amount, if any, of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), by the Executive with respect to such Contingent Compensation Payment and (iii) the amount of the Gross-Up Payment (as defined below) due to the Executive with respect to such Contingent Compensation Payment. Within 30 days after delivery of such notice to the Executive, the Executive shall deliver a response to the Company (the "Executive Response") stating either (A) that he agrees with the Company's determination pursuant to the preceding sentence or (B) that he disagrees with such determination, in which case he shall indicate which payment and/or benefits should be characterized as a Contingent Compensation Payment, the amount of the Excise Tax with respect to such Contingent Compensation Payment and the amount of the Gross-Up Payment due to the Executive with respect to such Contingent Compensation Payment. If the Executive states in the Executive Response that he disagrees with the Company's determination, then, for a period of 60 days following delivery of the Executive Response, the Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such dispute shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to the Executive those Gross-up Payments as to which there is no dispute between the Company and the Executive regarding whether they should be made. The balance of the Gross-up Payments shall be made within three business days following the resolution of such dispute. The amount of any payments to be made to the Executive following the resolution of such dispute shall be increased by amount of the accrued interest thereon computed at the prime rate published from time to time by the Wall Street Journal, compounded monthly from the date that such payments originally were due. (b) For purposes of this Section 4.3, the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. 11 (iii) "Gross-Up Payment" shall mean an amount equal to the sum of (i) the amount of the Excise Tax payable with respect to a Contingent Compensation Payment and (ii) the amount necessary to pay all additional taxes imposed on (or economically borne by) the Executive (including the Excise Taxes, state and federal income taxes and all applicable withholding taxes) attributable to the receipt of such Gross-Up Payment. For purposes of the preceding sentence, all taxes attributable to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rates provided by law. (f) The provisions of this Section 4.3 are intended to apply to any and all payments or benefits available to the Executive under this Agreement or any other agreement or plan of the Company under which the Executive receives Contingent Compensation Payments. 4.4 MITIGATION. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 4.5 OUTPLACEMENT SERVICES. In the event the Executive is terminated by the Company (other than for Cause, Disability or Death), or the Executive terminates employment for Good Reason, within 24 months following the Change in Control Date, the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate amount to be negotiated by the Executive and the Company, with such services to extend until the earlier of (i) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. 5. DISPUTES. 5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 EXPENSES. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this 12 Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. SUCCESSORS. 6.1 SUCCESSOR TO COMPANY. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. NOTICE. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 11 State St., Woburn, MA 01801, and to the Executive at 112 Farm Road, Sherborn, MA 01770 (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. MISCELLANEOUS. 8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 13 8.2 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 WAIVERS. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, the effectiveness of the Employment Agreement, dated as of May 16, 1990, between the Company and the Executive (the "Prior Agreement") shall be suspended during the 24 months following the Change in Control Date (the "Protected Period"), except as specifically set forth herein; provided that if the Executive's employment is not terminated on or before the last day of the Protected Period, then the Prior Agreement shall be effective during the period, if any, from the end of the Protected Period through the end of the Employment Period (as defined in the Prior Agreement). 8.9 AMENDMENTS. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. PolyMedica Corporation By: /s/ Steven J. Lee ------------------------------------------- Title: Chairman and Chief Executive Officer EX-10.71 7 b37256pcex10-71.txt RETENTION AGREEMENT BY AND BETWEEN MR. SICILIANO 1 EXHIBIT 10.71 SUMMARY OF TERMS OF EXECUTIVE RETENTION AGREEMENT FOR ARTHUR A. SICILIANO 1. NATURE OF AGREEMENT. This Agreement is not an employment contract and does not specify any terms or conditions of employment. It provides for certain severance benefits to the Executive in the event his employment is terminated under specified circumstances following a Change in Control of the Company. 2. TERM OF AGREEMENT. This Agreement takes effect upon execution and expires on December 31, 2003; provided that (i) it is subject to automatic one-year extensions unless prior notice of termination is given by the Company and (ii) the Executive is entitled to the severance benefits provided therein if a Change in Control occurs during the term of this Agreement and the Executive's employment is terminated under specified circumstances within 24 months after such Change in Control. 3. KEY DEFINITIONS. a. CHANGE IN CONTROL means, in summary: (i) the acquisition by a party or a group of 20 % or more of the outstanding stock of the Company; (ii) a change, without Board of Directors approval, of a majority of the Board of Directors; (iii) the acquisition of the Company by means of a reorganization, merger, consolidation or asset sale; or (iv) the approval of a liquidation or dissolution of the Company. b. CAUSE means, in summary: (i) the Executive's willful and continued failure to substantially perform his/her reasonable assigned duties (which failure continues after a 30-day cure period); or (ii) the Executive's willful engagement in illegal conduct or gross misconduct injurious to the Company. c. GOOD REASON means, in summary: (i) a diminution in the Executive's position, authority or responsibilities; (ii) a reduction in his/her salary or benefits; (iii) a relocation of the Executive; or (iv) a breach of an employment contract with the Executive. In addition, a resignation by the Executive, for any reason, during the 30-day period immediately following the one-year anniversary of the Change in Control shall be deemed to be a termination for Good Reason. 4. SEVERANCE BENEFITS. a. STOCK OPTION ACCELERATION. Upon a Change in Control, all outstanding stock options of the Executive shall become exercisable in full. This benefit accrues to the Executive irrespective of whether an employment termination occurs. b. TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason within 24 months following a Change in Control, the Executive shall receive (i) accrued compensation (including a pro rata bonus payment) through the date of termination; (ii) a lump sum payment equal to two times the sum of the Executive's highest base salary and 2 highest bonus during the three-year period prior to the Change in Control; (iii) a continuation of all employee benefits during the 12-month period following employment termination; and (iv) any other post-termination benefits which the Executive is eligible to receive under any plan or program of the Company. c. OTHER EMPLOYMENT TERMINATIONS. In general, if the Executive's employment terminates for any other reason following a Change in Control, the Executive shall receive only the benefits described in clauses (i) and (iv) of the preceding paragraph (provided that the pro rata bonus payment shall not be made in the event of a termination by the Company for Cause). d. TAX TREATMENT. The Internal Revenue Code imposes certain tax penalties on both the Company and the Executive if the amount of severance payments to the Executive following a Change in Control exceeds certain limits (generally three times the average of the Executive's compensation over the previous five years). The Retention Agreement provides that the Company shall make a "gross up" payment to the Executive such that his net after-tax severance benefits are equal to what he would have received absent the penalty tax. e. NO MITIGATION. The severance benefits payable to the Executive are not reduced by payments received by the Executive from a subsequent employer. 5. EXPENSES. The Company must pay, as incurred, all expenses which the Executive reasonably incurs as a result of any dispute relating to this Agreement (regardless of the outcome of such dispute). 3 POLYMEDICA CORPORATION EXECUTIVE RETENTION AGREEMENT THIS EXECUTIVE RETENTION AGREEMENT by and between PolyMedica Corporation, a Massachusetts corporation (the "Company"), and Arthur Siciliano (the "Executive") is made as of September 1, 2000 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person 4 exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20 % or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 5 1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "CAUSE" means: (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties as an officer of the Company (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "GOOD REASON" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date"), or any other action or omission by the Company which results in a material diminution in such position, authority or responsibilities; 6 (b) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (d) a change by the Company in the location at which the Executive performs his principal duties for the Company to a new location that is both (i) outside a radius of 35 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 20 miles from the location at which the Executive performed his principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (f) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (g) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. In addition, the termination of employment by the Executive for any reason or no reason during the 30-day period beginning on the first anniversary of the Change in Control Date shall be deemed to be termination for Good Reason for all purposes under this Agreement. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. 1.5 "DISABILITY" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 7 2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the date 24 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 24 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2003; PROVIDED, however, that commencing on January 1, 2001 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL. 3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 TERMINATION OF EMPLOYMENT. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 24 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 8 (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by an affirmative vote of two-thirds of the members of the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. BENEFITS TO EXECUTIVE. 4.1 STOCK ACCELERATION. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date, (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (b) each outstanding restricted stock award shall be deemed to be fully vested and will no longer be subject to a right of repurchase by the Company. 4.2 COMPENSATION. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 24 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death) or by the Executive for Good Reason within 24 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and 9 (2) the amount equal to (A) two multiplied by (B) the sum of (x) the Executive's highest annual base salary during the three-year period prior to the Change in Control Date and (y) the Executive's highest annual bonus during the three-year period prior to the Change in Control Date. (ii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; PROVIDED, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (iv) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR DISABILITY. If the Executive voluntarily terminates his employment with the Company within 24 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) TERMINATION FOR CAUSE. If the Company terminates the Executive's employment with the Company for Cause within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 10 4.3 TAXES. (a) In the event that the Company undergoes a "Change in Ownership or Control" (as defined below) the Company shall, within 30 days after each date on which the Executive becomes entitled to receive (whether or not then due) a Contingent Compensation Payment (as defined below) relating to such Change in Ownership or Control, determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which of the payments or benefits due to the Executive (under this Agreement or otherwise) following such Change in Ownership or Control constitute Contingent Compensation Payments, (ii) the amount, if any, of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), by the Executive with respect to such Contingent Compensation Payment and (iii) the amount of the Gross-Up Payment (as defined below) due to the Executive with respect to such Contingent Compensation Payment. Within 30 days after delivery of such notice to the Executive, the Executive shall deliver a response to the Company (the "Executive Response") stating either (A) that he agrees with the Company's determination pursuant to the preceding sentence or (B) that he disagrees with such determination, in which case he shall indicate which payment and/or benefits should be characterized as a Contingent Compensation Payment, the amount of the Excise Tax with respect to such Contingent Compensation Payment and the amount of the Gross-Up Payment due to the Executive with respect to such Contingent Compensation Payment. If the Executive states in the Executive Response that he disagrees with the Company's determination, then, for a period of 60 days following delivery of the Executive Response, the Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such dispute shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to the Executive those Gross-up Payments as to which there is no dispute between the Company and the Executive regarding whether they should be made. The balance of the Gross-up Payments shall be made within three business days following the resolution of such dispute. The amount of any payments to be made to the Executive following the resolution of such dispute shall be increased by amount of the accrued interest thereon computed at the prime rate published from time to time by the Wall Street Journal, compounded monthly from the date that such payments originally were due. (b) For purposes of this Section 4.3, the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. 11 (iii) "Gross-Up Payment" shall mean an amount equal to the sum of (i) the amount of the Excise Tax payable with respect to a Contingent Compensation Payment and (ii) the amount necessary to pay all additional taxes imposed on (or economically borne by) the Executive (including the Excise Taxes, state and federal income taxes and all applicable withholding taxes) attributable to the receipt of such Gross-Up Payment. For purposes of the preceding sentence, all taxes attributable to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rates provided by law. (f) The provisions of this Section 4.3 are intended to apply to any and all payments or benefits available to the Executive under this Agreement or any other agreement or plan of the Company under which the Executive receives Contingent Compensation Payments. 4.4 MITIGATION. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 4.5 OUTPLACEMENT SERVICES. In the event the Executive is terminated by the Company (other than for Cause, Disability or Death), or the Executive terminates employment for Good Reason, within 24 months following the Change in Control Date, the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate amount to be negotiated by the Executive and the Company, with such services to extend until the earlier of (i) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. 5. DISPUTES. 5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 EXPENSES. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this 12 Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. SUCCESSORS. 6.1 SUCCESSOR TO COMPANY. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. NOTICE. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 11 State St., Woburn, MA 01801, and to the Executive at 13 Salt Marsh Lane, Gloucester, MA 01930 (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. MISCELLANEOUS. 8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 13 8.2 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 WAIVERS. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, the effectiveness of the Employment Agreement, dated as of September 1, 1990, between the Company and the Executive (the "Prior Agreement") shall be suspended during the 24 months following the Change in Control Date (the "Protected Period"), except as specifically set forth herein; provided that if the Executive's employment is not terminated on or before the last day of the Protected Period, then the Prior Agreement shall be effective during the period, if any, from the end of the Protected Period through the end of the Employment Period (as defined in the Prior Agreement). 8.9 AMENDMENTS. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. PolyMedica Corporation By: /s/ Arthur A. Siciliano --------------------------- Title: President EX-10.72 8 b37256pcex10-72.txt RETENTION AGRREMENT BY AND BETWEEN ERIC G. WALTERS 1 EXHIBIT 10.72 SUMMARY OF TERMS OF EXECUTIVE RETENTION AGREEMENT FOR ERIC G. WALTERS 1. NATURE OF AGREEMENT. This Agreement is not an employment contract and does not specify any terms or conditions of employment. It provides for certain severance benefits to the Executive in the event his employment is terminated under specified circumstances following a Change in Control of the Company. 2. TERM OF AGREEMENT. This Agreement takes effect upon execution and expires on December 31, 2003; provided that (i) it is subject to automatic one-year extensions unless prior notice of termination is given by the Company and (ii) the Executive is entitled to the severance benefits provided therein if a Change in Control occurs during the term of this Agreement and the Executive's employment is terminated under specified circumstances within 24 months after such Change in Control. 3. KEY DEFINITIONS. a. CHANGE IN CONTROL means, in summary: (i) the acquisition by a party or a group of 20 % or more of the outstanding stock of the Company; (ii) a change, without Board of Directors approval, of a majority of the Board of Directors; (iii) the acquisition of the Company by means of a reorganization, merger, consolidation or asset sale; or (iv) the approval of a liquidation or dissolution of the Company. b. CAUSE means, in summary: (i) the Executive's willful and continued failure to substantially perform his/her reasonable assigned duties (which failure continues after a 30-day cure period); or (ii) the Executive's willful engagement in illegal conduct or gross misconduct injurious to the Company. c. GOOD REASON means, in summary: (i) a diminution in the Executive's position, authority or responsibilities; (ii) a reduction in his/her salary or benefits; (iii) a relocation of the Executive; or (iv) a breach of an employment contract with the Executive. 4. SEVERANCE BENEFITS. a. STOCK OPTION ACCELERATION. Upon a Change in Control, all outstanding stock options of the Executive shall become exercisable in full. This benefit accrues to the Executive irrespective of whether an employment termination occurs. b. TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason within 24 months following a Change in Control, the Executive shall receive (i) accrued compensation (including a pro rata bonus payment) through the date of termination; (ii) a lump sum payment equal to one and one-half times the sum of the Executive's highest base salary and highest bonus during the three-year period prior to the Change in Control; (iii) a continuation of all employee benefits during the 12-month period following employment termination; and (iv) any other post-termination benefits which the Executive is eligible to receive under any plan or program of the Company. 2 c. OTHER EMPLOYMENT TERMINATIONS. In general, if the Executive's employment terminates for any other reason following a Change in Control, the Executive shall receive only the benefits described in clauses (i) and (iv) of the preceding paragraph (provided that the pro rata bonus payment shall not be made in the event of a termination by the Company for Cause). d. TAX TREATMENT. The Internal Revenue Code imposes certain tax penalties on both the Company and the Executive if the amount of severance payments to the Executive following a Change in Control exceeds certain limits (generally three times the average of the Executive's compensation over the previous five years). The Retention Agreement provides that the amount of severance benefits payable to the Executive shall be reduced by an amount necessary to avoid triggering the penalty taxes. e. NO MITIGATION. The severance benefits payable to the Executive are not reduced by payments received by the Executive from a subsequent employer. 5. EXPENSES. The Company must pay, as incurred, all expenses which the Executive reasonably incurs as a result of any dispute relating to this Agreement (regardless of the outcome of such dispute). 3 POLYMEDICA CORPORATION EXECUTIVE RETENTION AGREEMENT THIS EXECUTIVE RETENTION AGREEMENT by and between PolyMedica Corporation, a Massachusetts corporation (the "Company"), and Eric G. Walters (the "Executive") is made as of September 1, 2000 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person 4 exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20 % or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 5 1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "CAUSE" means: (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties as an officer of the Company (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "GOOD REASON" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date"), or any other action or omission by the Company which results in a material diminution in such position, authority or responsibilities; 6 (b) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (d) a change by the Company in the location at which the Executive performs his principal duties for the Company to a new location that is both (i) outside a radius of 35 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 20 miles from the location at which the Executive performed his principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (f) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (g) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. 1.5 "DISABILITY" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the 7 Term, (b) the date 24 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 24 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2003; PROVIDED, however, that commencing on January 1, 2001 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL. 3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 TERMINATION OF EMPLOYMENT. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 24 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) 8 Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by an affirmative vote of two-thirds of the members of the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the events(s) or circumstance(s) which constitute(s) Good Reason. 4. BENEFITS TO EXECUTIVE. 4.1 STOCK ACCELERATION. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date, (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (b) each outstanding restricted stock award shall be deemed to be fully vested and will no longer be subject to a right of repurchase by the Company. 4.2 COMPENSATION. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 24 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death) or by the Executive for Good Reason within 24 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) one and one-half multiplied by (B) the sum of (x) the Executive's highest annual base salary during the three-year 9 period prior to the Change in Control Date and (y) the Executive's highest annual bonus during the three-year period prior to the Change in Control Date. (ii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; PROVIDED, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (iv) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR DISABILITY. If the Executive voluntarily terminates his employment with the Company within 24 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within months following the Change in Control Date, then the Company shall (i) pay the Executive (or his estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) TERMINATION FOR CAUSE. If the Company terminates the Executive's employment with the Company for Cause within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 10 4.3 TAXES. (a) Notwithstanding any other provision of this Agreement, in the event that the Company undergoes a Change in Ownership or Control (as defined below), the Company shall not be obligated to provide to the Executive a portion of any "Contingent Compensation Payments" (as defined below) that the Executive would otherwise be entitled to receive to the extent necessary to eliminate any "excess parachute payments" (as defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code")) for the Executive. For purposes of this Section 4.3, the Contingent Compensation Payments so eliminated shall be referred to as the "Eliminated Payments" and the aggregate amount (determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the Contingent Compensation Payments so eliminated shall be referred to as the "Eliminated Amount." (b) For purposes of this Section 4.3, the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. (c) Any payments or other benefits otherwise due to the Executive following a Change in Ownership or Control that could reasonably be characterized (as determined by the Company) as Contingent Compensation Payments shall not be made until the determination, pursuant to this Section 4.3(c), of which Contingent Compensation Payments shall be treated as Eliminated Payments. Within 30 days after each date on which the Executive first becomes entitled to receive (whether or not then due) a Contingent Compensation Payment relating to such Change in Ownership or Control, the Company shall determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which of such payments and benefits constitute Contingent Compensation Payments and (ii) the Eliminated Amount. Within 30 days after delivery of such notice to the Executive, the Executive shall notify the Company which Contingent Compensation Payments, or portions thereof (the aggregate amount of which, determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision, shall be equal to the Eliminated Amount), shall be treated as Eliminated Payments. In the event that the Executive fails to notify the Company pursuant to the preceding sentence on or before the required date, the Contingent Compensation Payments (or portions thereof) that shall be treated as Eliminated Payments shall be determined by the Company in its absolute discretion. In no event shall the Company be liable to the Executive as a result of any factual or legal determination made by it pursuant to this subsection (c) or for any information supplied by it to the Executive or his advisors. 11 (d) The provisions of this Section 4.3 are intended to apply to any and all payments or benefits available to the Executive under this Agreement or any other agreement or plan of the Company under which the Executive receives Contingent Compensation Payments. 4.4 MITIGATION. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 4.5 OUTPLACEMENT SERVICES. In the event the Executive is terminated by the Company (other than for Cause, Disability or Death), or the Executive terminates employment for Good Reason, within 24 months following the Change in Control Date, the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate amount to be negotiated by the Executive and the Company, with such services to extend until the earlier of (i) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. 5. DISPUTES. 5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 EXPENSES. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. SUCCESSORS. 6.1 SUCCESSOR TO COMPANY. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to 12 perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. NOTICE. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 11 State St., Woburn, MA 01801, and to the Executive at 167 Monument Street, Concord, MA 01742 (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. MISCELLANEOUS. 8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 13 8.4 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 WAIVERS. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, the effectiveness of the Employment Agreement, dated as of June 1, 1991, between the Company and the Executive (the "Prior Agreement") shall be suspended during the 24 months following the Change in Control Date (the "Protected Period"), except as specifically set forth herein; provided that if the Executive's employment is not terminated on or before the last day of the Protected Period, then the Prior Agreement shall be effective during the period, if any, from the end of the Protected Period through the end of the Employment Period (as defined in the Prior Agreement). 8.9 AMENDMENTS. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. PolyMedica Corporation By: /s/ Eric G. Walters ---------------------------- Title: Chief Financial Officer EX-10.73 9 b37256pcex10-73.txt RETENTION AGREEMENT BY AND BETWEEN MR. TROWBRIDGE 1 EXHIBIT 10.73 SUMMARY OF TERMS OF EXECUTIVE RETENTION AGREEMENT FOR WARREN K. TROWBRIDGE 1. NATURE OF AGREEMENT. This Agreement is not an employment contract and does not specify any terms or conditions of employment. It provides for certain severance benefits to the Executive in the event his employment is terminated under specified circumstances following a Change in Control of the Company. 2. TERM OF AGREEMENT. This Agreement takes effect upon execution and expires on December 31, 2003; provided that (i) it is subject to automatic one-year extensions unless prior notice of termination is given by the Company and (ii) the Executive is entitled to the severance benefits provided therein if a Change in Control occurs during the term of this Agreement and the Executive's employment is terminated under specified circumstances within 24 months after such Change in Control. 3. KEY DEFINITIONS. a. CHANGE IN CONTROL means, in summary: (i) the acquisition by a party or a group of 20 % or more of the outstanding stock of the Company; (ii) a change, without Board of Directors approval, of a majority of the Board of Directors; (iii) the acquisition of the Company by means of a reorganization, merger, consolidation or asset sale; or (iv) the approval of a liquidation or dissolution of the Company. b. CAUSE means, in summary: (i) the Executive's willful and continued failure to substantially perform his/her reasonable assigned duties (which failure continues after a 30-day cure period); or (ii) the Executive's willful engagement in illegal conduct or gross misconduct injurious to the Company. c. GOOD REASON means, in summary: (i) a diminution in the Executive's position, authority or responsibilities; (ii) a reduction in his/her salary or benefits; (iii) a relocation of the Executive; or (iv) a breach of an employment contract with the Executive. 4. SEVERANCE BENEFITS. a. STOCK OPTION ACCELERATION. Upon a Change in Control, all outstanding stock options of the Executive shall become exercisable in full. This benefit accrues to the Executive irrespective of whether an employment termination occurs. b. TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason within 24 months following a Change in Control, the Executive shall receive (i) accrued compensation (including a pro rata bonus payment) through the date of termination; (ii) a lump sum payment equal to one times the sum of the Executive's highest base salary and highest bonus during the three-year period prior to the Change in Control; (iii) a continuation of all employee benefits during the 9-month period following employment termination; and (iv) any other post-termination benefits which the Executive is eligible to receive under any plan or program of the Company. 2 c. OTHER EMPLOYMENT TERMINATIONS. In general, if the Executive's employment terminates for any other reason following a Change in Control, the Executive shall receive only the benefits described in clauses (i) and (iv) of the preceding paragraph (provided that the pro rata bonus payment shall not be made in the event of a termination by the Company for Cause). d. TAX TREATMENT. The Internal Revenue Code imposes certain tax penalties on both the Company and the Executive if the amount of severance payments to the Executive following a Change in Control exceeds certain limits (generally three times the average of the Executive's compensation over the previous five years). The Retention Agreement provides that the amount of severance benefits payable to the Executive shall be reduced by an amount necessary to avoid triggering the penalty taxes. e. NO MITIGATION. The severance benefits payable to the Executive are not reduced by payments received by the Executive from a subsequent employer. 5. EXPENSES. The Company must pay, as incurred, all expenses which the Executive reasonably incurs as a result of any dispute relating to this Agreement (regardless of the outcome of such dispute). 3 POLYMEDICA CORPORATION EXECUTIVE RETENTION AGREEMENT THIS EXECUTIVE RETENTION AGREEMENT by and between PolyMedica Corporation, a Massachusetts corporation (the "Company"), and Warren K. Trowbridge (the "Executive") is made as of September 1, 2000 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person 4 exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20 % or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 5 1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "CAUSE" means: (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties as an officer of the Company (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "GOOD REASON" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date"), or any other action or omission by the Company which results in a material diminution in such position, authority or responsibilities; 6 (b) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (d) a change by the Company in the location at which the Executive performs his principal duties for the Company to a new location that is both (i) outside a radius of 35 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 20 miles from the location at which the Executive performed his principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (f) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (g) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. 1.5 "DISABILITY" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the 7 Term, (b) the date 24 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 24 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2003; PROVIDED, however, that commencing on January 1, 2001 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL. 3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 TERMINATION OF EMPLOYMENT. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 24 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) 8 Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by an affirmative vote of two-thirds of the members of the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the events(s) or circumstance(s) which constitute(s) Good Reason. 4. BENEFITS TO EXECUTIVE. 4.1 STOCK ACCELERATION. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date, (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (b) each outstanding restricted stock award shall be deemed to be fully vested and will no longer be subject to a right of repurchase by the Company. 4.2 COMPENSATION. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 24 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death) or by the Executive for Good Reason within 24 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) one multiplied by (B) the sum of (x) the Executive's highest annual base salary during the three-year period prior to the 9 Change in Control Date and (y) the Executive's highest annual bonus during the three-year period prior to the Change in Control Date. (ii) for 9 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; PROVIDED, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (iv) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR DISABILITY. If the Executive voluntarily terminates his employment with the Company within 24 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within months following the Change in Control Date, then the Company shall (i) pay the Executive (or his estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) TERMINATION FOR CAUSE. If the Company terminates the Executive's employment with the Company for Cause within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 10 4.3 TAXES. (a) Notwithstanding any other provision of this Agreement, in the event that the Company undergoes a Change in Ownership or Control (as defined below), the Company shall not be obligated to provide to the Executive a portion of any "Contingent Compensation Payments" (as defined below) that the Executive would otherwise be entitled to receive to the extent necessary to eliminate any "excess parachute payments" (as defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code")) for the Executive. For purposes of this Section 4.3, the Contingent Compensation Payments so eliminated shall be referred to as the "Eliminated Payments" and the aggregate amount (determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the Contingent Compensation Payments so eliminated shall be referred to as the "Eliminated Amount." (b) For purposes of this Section 4.3, the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. (c) Any payments or other benefits otherwise due to the Executive following a Change in Ownership or Control that could reasonably be characterized (as determined by the Company) as Contingent Compensation Payments shall not be made until the determination, pursuant to this Section 4.3(c), of which Contingent Compensation Payments shall be treated as Eliminated Payments. Within 30 days after each date on which the Executive first becomes entitled to receive (whether or not then due) a Contingent Compensation Payment relating to such Change in Ownership or Control, the Company shall determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which of such payments and benefits constitute Contingent Compensation Payments and (ii) the Eliminated Amount. Within 30 days after delivery of such notice to the Executive, the Executive shall notify the Company which Contingent Compensation Payments, or portions thereof (the aggregate amount of which, determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision, shall be equal to the Eliminated Amount), shall be treated as Eliminated Payments. In the event that the Executive fails to notify the Company pursuant to the preceding sentence on or before the required date, the Contingent Compensation Payments (or portions thereof) that shall be treated as Eliminated Payments shall be determined by the Company in its absolute discretion. In no event shall the Company be liable to the Executive as a result of any factual or legal determination made by it pursuant to this subsection (c) or for any information supplied by it to the Executive or his advisors. 11 (d) The provisions of this Section 4.3 are intended to apply to any and all payments or benefits available to the Executive under this Agreement or any other agreement or plan of the Company under which the Executive receives Contingent Compensation Payments. 4.4 MITIGATION. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 4.5 OUTPLACEMENT SERVICES. In the event the Executive is terminated by the Company (other than for Cause, Disability or Death), or the Executive terminates employment for Good Reason, within 24 months following the Change in Control Date, the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate amount to be negotiated by the Executive and the Company, with such services to extend until the earlier of (i) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. 5. DISPUTES. 5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 EXPENSES. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. SUCCESSORS. 6.1 SUCCESSOR TO COMPANY. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to 12 perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. NOTICE. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 11 State St., Woburn, MA 01801, and to the Executive at 6900 S.E. South Marina Way, Stuart, FL 34996 (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. MISCELLANEOUS. 8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 13 8.4 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 WAIVERS. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, the effectiveness of the Employment Agreement, dated as of September 1, 2000, between the Company and the Executive (the "Prior Agreement") shall be suspended during the 24 months following the Change in Control Date (the "Protected Period"), except as specifically set forth herein; provided that if the Executive's employment is not terminated on or before the last day of the Protected Period, then the Prior Agreement shall be effective during the period, if any, from the end of the Protected Period through the end of the Employment Period (as defined in the Prior Agreement). 8.9 AMENDMENTS. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. PolyMedica Corporation By: /s/ Warren K. Trowbridge Title: Vice President EX-27.1 10 b37256pcex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS MAR-31-2001 APR-01-2000 SEP-30-2000 1 20,262 20,300 44,492 12,045 7,682 98,346 25,583 4,970 191,562 24,261 2,547 0 0 132 149,629 191,562 105,639 105,639 38,338 38,338 46,733 7,833 148 21,512 8,024 13,488 0 0 0 13,488 1.03 .99
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