10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2003

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
(State or other jurisdiction of
incorporation or organization) 04-3033368 (I.R.S. Employer
Identification No.)

11 State Street, Woburn, Massachusetts (Address of principal executive offices) 01801 (Zip Code)

Registrant’s telephone number, including area code (781) 933-2020

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value per share
(Title of class)

Preferred Stock Purchase Rights (Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). [X]

     The aggregate market value of voting Common Stock held by nonaffiliates of the registrant was $271,693,000 based on the closing price of the Common Stock as reported by The Nasdaq Stock Market on September 30, 2002.

     As of June 27, 2003, there were 12,350,632 shares of the registrant’s Common Stock outstanding and an additional 964,350 held in treasury.

     Documents incorporated by reference: The Registrant intends to file a definitive proxy statement pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934, as amended, to be used in connection with the Registrant’s Annual Meeting of Stockholders to be held on September 5, 2003. The information required in response to Items 10 – 13 of Part III of this Form 10-K is hereby incorporated by reference to such proxy statement.

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
	ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. CONTROLS AND PROCEDURES
PART IV
	ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
Exhibit Index
Ex-3.2 Restated By-Laws of the Company
Ex-10.04 2000 Stock Incentive Plan, as amended
Ex-10.62 Letter Agreement
Ex-10.63 Restricted Stock Agreement
Ex-10.64 Termination of Employment Agreement
Ex-21.1 Subsidiaries of the Registrant
Ex-23.1 Consent of PricewaterhouseCoopers LLP
Ex-99.1 Certifications

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PART I

ITEM 1. BUSINESS

General

     PolyMedica is a leading provider of direct-to-consumer medical products, conducting business through its Liberty Diabetes, Liberty Respiratory and Pharmaceuticals segments. Through our Liberty Diabetes segment we provide direct-to-consumer diabetes testing supplies and related products primarily to Medicare-eligible customers suffering from diabetes and related chronic diseases. Through our Liberty Respiratory segment we provide direct-to-consumer prescription respiratory medications and supplies primarily to Medicare-eligible customers suffering from chronic obstructive pulmonary disease (“COPD”). Through our Pharmaceuticals segment we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits.

Liberty Diabetes

     As of March 31, 2003, we had approximately 545,000 active diabetes customers, as compared to approximately 440,000 as of March 31, 2002. Many of these customers also suffer from other chronic diseases. We define a person as an active customer if that person has placed an order and we have shipped supplies to that person in the past twelve months. We deliver products to customers’ homes and bill Medicare and private insurance companies (if applicable) directly for those supplies that are reimbursable. We meet the needs of customers suffering from diabetes by:

- providing mail order delivery of supplies directly to our customers’ homes;

- billing Medicare and/or private insurance companies directly for those supplies that are reimbursable;

- providing 24-hour telephone support to customers; and

- using sophisticated software and advanced order fulfillment systems to provide products.

     In the United States, there are approximately seventeen million people with diabetes, including at least seven million seniors. Of the seventeen million people with diabetes, it is estimated that approximately eleven million are diagnosed, with the remaining six million unaware that they have the disease. While a portion of the seven 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.

Liberty Respiratory

     Our Liberty Respiratory segment operates similarly to our Liberty Diabetes segment, as we deliver products to customers’ homes and bill Medicare and private insurance companies (if applicable) directly for those prescription respiratory medications and supplies that are reimbursable. As a participating Medicare provider and third-party insurance biller, we provide a simple, reliable way for customers to obtain their supplies for respiratory disease treatment. As of March 31, 2003, we had approximately 63,000 active customers for our prescription respiratory medications and supplies, compared to approximately 46,000 as of March 31, 2002. We define a person as an active customer if that person has placed an order and we have shipped supplies to that person in the past twelve months. In the United States, there are approximately sixteen million people with COPD, including approximately four million seniors.

Pharmaceuticals

     Through our Pharmaceuticals segment we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits. We sell our female urinary discomfort products and home medical diagnostic kits under our AZO brand name through a network of large drug store chains, major supermarkets, mass merchandisers and drug wholesalers in the United States. Our line of prescription urology products includes urinary analgesics, antispasmodics, local anesthetics and analgesic suppositories. Our primary customers for these urology products are large drug wholesalers in the United States.

Business Strategies

     Our principal strategy is to leverage our operating platform and compliance management protocol to expand our business.

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This strategy includes the following elements:

     Continue growth in our direct to consumer businesses by expanding our customer base. Since the August 1996 acquisition of Liberty Medical Supply, Inc. (“Liberty”), we have invested in an ongoing program of direct-response television advertising to reach a larger portion of the Medicare-eligible patient market. This campaign has resulted in a significant increase in sales as we have expanded our active Medicare-eligible diabetes customers from approximately 17,000 at the time of Liberty’s acquisition to approximately 545,000 customers. In addition, we now have approximately 63,000 active customers for our prescription respiratory medications and supplies. We also use radio and print advertising to further broaden our customer base. We continue to seek opportunities to deliver new products to a broader customer base by leveraging our mail-order distribution system and software for billing and customer monitoring. To manage our growth effectively, we are continually improving our operations, information systems, and regulatory compliance activities.

     As a result of the expansion of our customer base, and emerging ability to leverage the value of our customer base by marketing a range of products to our customers, including those that are newly acquired, we are considering a number of new marketing initiatives. These initiatives may include the use of broad-based advertising that may not qualify as direct-response advertising and therefore, would be expensed as incurred. We are also considering expanding our customer base by purchasing businesses that provide products to consumers that are complementary to our existing products.

     Continue growth in our non-Medicare initiatives. During fiscal year 2003, we continued the growth of Liberty Medical Supply Pharmacy (“Liberty Pharmacy”), which is part of our Pharmaceuticals segment, and which offers prescription oral medications not covered by Medicare directly to consumers. We expect to continue to grow Liberty Pharmacy during fiscal year 2004.

     Continue adding complementary products and businesses. New business initiatives, in various stages of development, include a new clinical laboratory that offers a glycohemoglobin (“HbA1c”) test, the results of which tell the patient or physician what the patient’s blood glucose level has averaged over the previous two or three months, and a medical office building pharmacy, to open in fiscal year 2004, which will provide retail pharmacy services within office buildings occupied by physician groups and other medical professionals. We expect to open additional pharmacies in fiscal year 2004. In order to take advantage of economies of scale in production and marketing, we continue to evaluate opportunities for the acquisition of businesses and products to complement our existing product lines and new business initiatives. In selecting and evaluating acquisition candidates, we examine the market potential for products that can be distributed through our existing marketing infrastructure and which utilize our strengths in sales, marketing and distribution. We also continue to consider adding businesses, manufacturing capabilities and new products that capitalize upon our established brand franchise.

Status of Chief Executive Officer Search

     On August 4, 2002, Steven J. Lee, Chief Executive Officer, Chairman and a director of PolyMedica, retired as Chief Executive Officer, effective as of that date. Mr. Lee continued to serve as Chairman and a director through December 31, 2002. In connection with Mr. Lee’s termination of employment agreement, we incurred a one-time selling, general and administrative expense of approximately $1.30 million in the fiscal year ended March 31, 2003. Pursuant to this agreement, these amounts will generally be paid in cash over a twenty-four month period. We continue to work with the executive recruitment firm of Heidrick & Struggles, which is assisting our Board in its search for a new chief executive officer.

     Samuel L. Shanaman, Lead Director, is performing the functions of the chief executive officer on an interim basis until a successor is named. As compensation for his services as Interim Chief Executive Officer, we pay Mr. Shanaman a nominal salary in cash in addition to his vesting in a fixed number of shares (currently 67 shares) of restricted common stock for every day Mr. Shanaman works. The fair value of the shares ($29.69 per share on the restricted stock date of grant under his current agreement dated March 14, 2003) and the cash, is recorded as a selling, general and administrative expense in our consolidated statements of operations, as the income is earned by Mr. Shanaman. Mr. Shanaman became fully vested in the 8,345 restricted shares awarded under his first agreement entered into in October 2002, during the quarter ended March 31, 2003. We then entered into the March 14, 2003 agreement, which awarded an additional 3,600 restricted shares to be earned going forward.

Major Customers

     For the fiscal years ended March 31, 2003, 2002, and 2001, no customer represented more than 10% of our consolidated revenues. As of March 31, 2003 and 2002, the amounts included in billed accounts receivable due from Medicare were $28.15 million and $19.40 million, respectively.

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Major Products

     For the fiscal years ended March 31, 2003, 2002, and 2001, sales of diabetes test strips and related products represented more than 10% of our consolidated net revenues, amounting to $234.55 million, $201.01 million, and $165.50 million, respectively, or 65.8%, 71.9%, and 75.2%, respectively, of our consolidated net revenues.

Trade Secrets

     We have proprietary manufacturing processes and trade secrets related to our in-house pharmaceutical production.

Trademarks

     URISED and AZO STANDARD, referenced in this Annual Report on Form 10-K are registered trademarks of PolyMedica Corporation.

Manufacturing

     We use state-of-the-art automated machinery to manufacture and package in-house many of our over-the-counter and prescription urology products included in our Pharmaceuticals segment. Sales of these products represented 4.6%, 5.1% and 8.1% of our consolidated net revenues for the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

Government Regulation

     Medicare

     Medicare is a federally funded program that provides health insurance coverage for qualified persons age 65 or older and for some disabled persons. The majority of the products that we provide are reimbursed by Medicare, and are therefore subject to extensive regulation. Medicare reimbursement payments are sometimes lower than the reimbursement payments of other third-party payers, such as traditional indemnity insurance companies. Current Medicare reimbursement guidelines stipulate, among other things, that quarterly orders of diabetes supplies to existing customers be verified with the customers before shipment and that all doctor’s orders for supplies be re-validated every twelve months prior to billing.

     We accept assignment of Medicare claims, as well as claims with respect to other third-party payers, on behalf of our customers. We process claims, accept payments and assume the risks of delay or nonpayment. We also employ the administrative personnel necessary to transmit claims for product reimbursement directly to Medicare and private health insurance carriers. Medicare reimburses at 80% of the government-determined reimbursement prices for reimbursable supplies, and we bill the remaining balance to either third-party payers or directly to customers.

     Our compliance with Medicare regulations may be reviewed by federal or state agencies, including the United States Department of Health and Human Services, the Department of Justice (“DOJ”), and the Food and Drug Administration (“FDA”). The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the Federal Bureau of Investigation (“FBI”) and Department of Health & Human Services’ Office of Inspector General (“OIG”), is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy Corporation (“Liberty Home Pharmacy”). Both civil and criminal investigations are being conducted. We are cooperating with the investigations.

     If any of the investigations or legal proceedings referred to above results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. An adverse determination could have a material effect on our financial position and results of operations. At this time, we cannot accurately predict the outcome of these proceedings, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

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Compliance and Regulatory Affairs

     We have a Compliance and Regulatory Affairs Department that is comprised of five groups: monitoring, investigations and special projects, internal reviews, contracts and licensing, and external communications. Although each group is distinct, the Senior Vice President of Regulatory Affairs and Chief Compliance Officer coordinate activities within the department in order to promote the common goal of ensuring compliance with all federal, state and local laws and regulations applicable to our businesses. We have continued to expand the size and capabilities of our compliance and regulatory affairs department.

     Our compliance program is designed to prevent violations of applicable fraud and abuse laws and, if such violations occur, to promote early and accurate detection and prompt resolution. These objectives are achieved through education, monitoring, disciplinary action and other appropriate remedial measures. As a condition of employment, all personnel are required to attend corporate compliance certification classes annually. In addition, each employee receives a compliance manual that has been developed to communicate standards of conduct and compliance policies and procedures.

     The monitoring group performs oversight functions to ensure compliance with policies and procedures and applicable laws. These functions include telephonic monitoring of contacts between employees and customers, healthcare professionals, payers and other outside contacts.

     The investigations and special projects and internal reviews groups are responsible for conducting a variety of internal reviews of operations to ensure compliance with healthcare program requirements and applicable laws.

     The contracts and licensing group monitors compliance with provider contracting and licensing requirements, which includes random, internal onsite inspections. As appropriate, we also use external audit resources to supplement our internal auditing and monitoring activities.

     The external communications group monitors communications with third parties to ensure timely responses to requests for documents and other requests and oversees the receipt and timely dissemination of supplier bulletin information.

Corporate Governance

     In August 2001, our Board established an Oversight Committee, a special Board committee now consisting of three outside directors, to oversee our response to the investigations and the related litigation described in Item 3 of Part I, Legal Proceedings of this Annual Report on Form 10-K. The Oversight Committee is advised on legal matters by our legal counsel and other appropriate independent advisors. The Oversight Committee will continue to play an active role as these investigations proceed. Its authority includes monitoring the Compliance and Regulatory Affairs Department and that department’s compliance program to ensure compliance with Medicare and internal Company policies.

     Over the past eighteen months, we have expanded and strengthened our Board through the addition of four new directors. We have also established the position of Lead Director, to be elected annually by our outside directors. Samuel Shanaman, Interim Chief Executive Officer, currently holds this position. The role of the Lead Director is to chair regular meetings of the outside directors, providing a strong focal point for both the Board and our shareholders.

     During the past several months, the Corporate Governance Committee has drafted a set of documents intended to codify our corporate governance principles and practices and to aid in our compliance with the Sarbanes-Oxley Act of 2002 (the “Act”) and regulations promulgated by the Securities and Exchange Commission (the “SEC”) pursuant to the Act. In November 2002, the Corporate Governance Committee presented drafts of these documents to the full Board for review. In January 2003, the Board approved the following documents:

- Board Guidelines on Significant Corporate Governance Issues;

- Charters for the Compensation, Corporate Governance and Executive Committees;

- a revised Charter for the Audit Committee;

- an Insider Trading Policy applicable to all employees, officers and directors of PolyMedica and its subsidiaries; and

- a Code of Conduct and Ethics, applicable to all employees, officers and directors of PolyMedica and its subsidiaries.

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Pharmacy Licensing

     In general, our pharmacy operations are regulated by the State of Florida Board of Pharmacy and the statutes of the State of Florida where we are licensed to do business as a pharmacy. Many of the states into which we deliver prescription pharmaceuticals have laws and regulations governing our activities, although they generally permit our pharmaceutical activities so long as they are permitted under the laws and regulations of Florida. Nevertheless, as of June 2, 2003 we had applied for and been granted licenses in forty-three states. An additional seven states do not require non-resident pharmacy licenses. We believe that we are in material compliance with the laws and regulations governing pharmaceutical activities in states in which we deliver prescription pharmaceuticals.

General

     Numerous federal, state and local laws relating to controlled drug substances, safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances apply to portions of our operations. For example, the Drug Enforcement Administration (“DEA”) regulates controlled drug substances, such as narcotics, under the Controlled Substances Act and the Controlled Substances Import and Export Act. Manufacturers, distributors and dispensers of controlled substances must be registered and inspected by the DEA, and are subject to inspection, labeling and packaging, export, import, security, production quota, record keeping and reporting requirements. In addition, labeling and promotional activities relating to medical devices and drugs are, in certain instances, subject to regulation by the Federal Trade Commission. To the extent we engage in new activities or expand current activities into new states, the cost of compliance with applicable regulations and licensing requirements could be significant. In addition, our manufacturing facility is subject to the Good Manufacturing Practices regulations of the FDA. The FDA enforces these regulations through its plant inspection program. In addition, our drug products are subject to the requirements of the Food, Drug and Cosmetics Act and related regulations.

Competition

     The markets we participate in are highly competitive. Many of our competitors and potential competitors have substantially greater capital resources, purchasing power and advertising budgets, as well as more experience in marketing and distributing products. Our competitors include:

- retail pharmacies;

- healthcare product distributors;

- disease management companies; and

- pharmacy benefit management companies.

     We believe that the principal competitive factors in the Liberty Diabetes, Liberty Respiratory and Pharmaceuticals markets include attracting new customers, identifying and responding to customer needs, the quality and breadth of product offerings, and expertise with respect to the reimbursement process. We believe that we compete effectively in all of these areas because of:

- Liberty’s brand recognition, supported by a national television advertising campaign;

- Our expertise in the Medicare reimbursement and compliance process; and

- Our significant investment in employee training, computer systems and order processing systems to assure high quality customer service, cost-effective order processing, and regulatory compliance.

     In the urinary discomfort category, our AZO STANDARD® urinary analgesic, available over-the-counter, holds a leading position. Competitors include a number of major pharmaceutical companies. In the prescription urology and suppository market, URISED®, a prescription urinary analgesic and anti-spasmodic, is our leading seller. Numerous pharmaceutical companies develop and market prescription products that compete with URISED® and our other prescription urology and suppository products on a branded and generic basis.

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Employees

     As of March 31, 2003, we had 1,679 full-time employees. We expect to employ additional personnel as we expand our operations. We believe that employee relations are good.

Available Information

     Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are made available free of charge on or through our website at www.polymedica.com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. None of the information posted on our website is incorporated by reference into this Annual Report.

ITEM 2. PROPERTIES

     Our facilities are located in Woburn, Massachusetts and Port St. Lucie, Palm City and Stuart, Florida. Our corporate headquarters are located in Woburn in a 60,000 square foot facility, which we own. We also own three buildings located in Port St. Lucie, Florida, a 72,000 square foot diabetes supplies facility, a 59,000 square foot distribution center and a 64,000 square foot respiratory supplies facility. On January 28, 2003, we purchased a 120,000 square foot building also located in Port St. Lucie, Florida for a purchase price, excluding legal fees and associated acquisition costs, of $3.26 million, for the purpose of supporting the growth in our Florida businesses. We commenced renovation of this facility in February 2003. These facilities place all of our Florida-based businesses in close proximity.

     We believe that our existing facilities and those either currently under construction or lease are adequate for our current needs.

ITEM 3. LEGAL PROCEEDINGS

U.S. Attorney’s Office

     The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. We cannot accurately predict the outcome of these proceedings at this time, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

Class Action Lawsuit

     On November 27, 2000, Richard Bowe SEP-IRA filed a purported class action lawsuit in the United States District Court for the District of Massachusetts against PolyMedica and Steven J. Lee, PolyMedica’s former Chief Executive Officer and Chairman of the Board, on behalf of himself and purchasers of common stock. The lawsuit seeks an unspecified amount of damages, attorneys’ fees and costs and claims violations of Sections 10(b), 10b-5, and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), alleging various statements were misleading with respect to our revenue and earnings based on an alleged scheme to produce fictitious sales. At least one virtually identical lawsuit was subsequently filed in the United States District Court for the District of Massachusetts against PolyMedica. On July 30, 2001, the Court granted the plaintiffs’ motion to consolidate the complaints under the caption In re: PolyMedica Corp. Securities Litigation, Civ. Action No. 00-12426-REK.

     Plaintiffs filed a consolidated amended complaint on October 9, 2001. The consolidated amended complaint extended the class period to October 26, 1998 through August 21, 2001, and named as defendants PolyMedica, Liberty, Steven J. Lee, former Chief Executive Officer and Chairman of the Board, Eric G. Walters, an Executive Vice President and Clerk of PolyMedica, and Keith Trowbridge, President of Liberty and a Senior Vice President of PolyMedica. Defendants moved to dismiss the consolidated amended complaint on December 10, 2001. Plaintiffs filed their opposition to this motion on February 11, 2002, and defendants filed a reply memorandum on March 11, 2002. The Court denied the motion without a hearing on May 10, 2002. On June 20, 2002, defendants filed answers to the consolidated amended complaint. The case is currently in discovery.

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     We believe that we have meritorious defenses to the claims made in the consolidated amended complaint and intend to contest the claims vigorously. We are unable to express an opinion as to the likely outcome of this litigation.

Derivative Complaint

     On August 9, 2001, Roberta Casden filed a purported derivative action in Massachusetts Superior Court for Middlesex County against our Board. At least three virtually identical derivative actions were subsequently filed in Massachusetts Superior Court. On October 11, 2001, the Court granted plaintiffs’ motion to consolidate the derivative actions under the caption In re: PolyMedica Corp. Shareholder Derivative Litigation, Civ. Action No. 01-3446.

     On December 17, 2001, plaintiffs filed a consolidated derivative complaint. The consolidated complaint named as defendants PolyMedica, Steven J. Lee, former Chief Executive Officer and Chairman of the Board, Arthur A. Siciliano, President, Eric G. Walters, Executive Vice President and Clerk, and five of our directors: Herbert A. Denton, Thomas S. Soltys, Frank LoGerfo, Marcia J. Hooper, and Daniel S. Bernstein. The Complaint alleges that the defendants breached their fiduciary duties by, among other things, failing to exercise reasonable care in the oversight of corporate affairs and management with respect to the operations of Liberty and by acquiescing in alleged misconduct by Liberty. The Complaint seeks unspecified damages, the return of compensation, and other relief, including injunctive relief. Defendants filed a motion to dismiss the consolidated complaint on January 31, 2002. Plaintiffs filed an opposition to the motion on March 22, 2002 and defendants filed a reply memorandum on April 19, 2002. The Court heard argument on the motion to dismiss on April 30, 2002. On July 16, 2002, the Court entered an order denying the motion to dismiss.

     On August 8, 2002, defendants filed a motion for reconsideration of the order denying defendants’ motion to dismiss, or, in the alternative, to report the case to the Appeals Court and stay the proceeding. After hearing oral argument, the Court issued an order, on September 16, 2002, in which it refused to reconsider its decision, but reported the case to the Appeals Court and granted defendants’ motion to stay the action. On September 25, 2002, plaintiffs filed a motion for reconsideration of the order staying the proceedings, which they subsequently withdrew on December 26, 2002. On January 23, 2003, the Appeals Court docketed the case under the caption Roberta Casden v. Daniel S. Bernstein and others, No. 2003-P-0107.

     On January 29, 2003, defendants, with plaintiffs’ assent, filed a motion requesting the Appeals Court to grant leave to allow the trial court to correct the docket by adding omitted parties and requesting a stay of appellate proceedings. On January 30, 2003, the Appeals Court granted leave and stayed appellate proceedings until March 3, 2003. On February 3, 2003, defendants and plaintiffs filed a joint motion in the Massachusetts Superior Court for Middlesex County requesting correction of the docket. On February 4, 2003, the Superior Court granted the joint motion to correct the docket. By joint motions of all parties, filed on April 2, 2003 and May 16, 2003, the Appeals Court stayed all appellate proceedings until June 19, 2003.

     The defendants believe they have meritorious defenses to the claims made in the consolidated complaint and intend to contest the claims vigorously. We are unable to express an opinion as to the likely outcome of this litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of our security holders during the last quarter of the fiscal year ended March 31, 2003.

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EXECUTIVE OFFICERS OF THE REGISTRANT

     Our current executive officers are as follows:

Name	Age		Position
Samuel L. Shanaman		62	Lead Director and Interim Chief Executive Officer
John K.P. Stone, III		70	Director, Vice Chairman, General Counsel, and Senior Vice President
Arthur A. Siciliano, Ph.D.		60	President; President, PolyMedica Pharmaceuticals (U.S.A.), Inc.
Eric G. Walters		51	Executive Vice President and Clerk
Warren K. Trowbridge		51	Senior Vice President; President, Liberty Medical Supply, Inc.
Stephen C. Farrell		38	Senior Vice President and Chief Financial Officer

     Mr. Shanaman has been Lead Director and Interim Chief Executive Officer of PolyMedica since August 2002 and has served as a director since November 2001. As well as serving on PolyMedica’s Board, Mr. Shanaman is Managing Director of Logan Enterprises, a private investment venture, and also serves on the Board of Directors of The J. Jill Group, Inc. Mr. Shanaman held a number of positions with The J. Jill Group and its predecessor, DM Management, including President and Chief Executive Officer. Previously Mr. Shanaman was Vice President of Marketing and Field Operations and Chief Financial Officer of Infinet, Inc., a manufacturer and marketer of data communications products and systems utilized in large online networks. Earlier in his career, he was Chief Financial Officer of Nixdorf Computer Corporation and a member of the staff at Arthur Andersen & Company.

     Mr. Stone joined PolyMedica in March 2002 and was appointed a Director, Vice Chairman, General Counsel, and Senior Vice President of PolyMedica in June 2002. Prior to joining PolyMedica, Mr. Stone was a senior partner at Hale and Dorr LLP, a leading Boston based law firm. His corporate law practice focused on emerging companies primarily in the high technology and medical fields and the private and public financing, mergers, acquisitions and strategic relationships of such companies. In his practice, he also assisted companies in structuring, establishing and financing their operations. Mr. Stone has lectured and written on numerous tax, corporate, and international subjects, and is a member of the American and Massachusetts Bar Associations. In addition to serving on PolyMedica’s Board, he currently serves on the Board of Directors of FlexiInternational Software, Inc.

     Dr. Siciliano has been President of PolyMedica since June 1996. Formerly, he served as Executive Vice President from July 1994 to June 1996, as Senior Vice President from January 1993 to July 1994, as Vice President, Pharmaceuticals from July 1991 to January 1993, and as Vice President, Manufacturing from June 1990 to July 1991. From PolyMedica’s inception until June 1990, he served as Chief Operating Officer. From 1984 to 1986, Dr. Siciliano served as President of Microfluidics Corporation, a high technology equipment manufacturer and a subsidiary of the Biotechnology Development Corporation and then helped found a subsidiary, MediControl Corporation, and served as its President from 1986 to 1989. He served as President of the Heico Chemicals Division of the Whittaker Corporation from 1982 to 1984, as General Manager of Reheis Chemicals (Ireland), Ltd. during 1981 and as Technical Director for Reheis Chemical Co., a division of Revlon Inc., from 1975 to 1982. Dr. Siciliano also served as Director of Corporate Research for Kolmar Laboratories, Inc. from 1973 to 1975 and as Senior Scientist for The Gillette Company from 1969 to 1973.

     Mr. Walters who currently serves as Executive Vice President and Clerk and who formerly served as Chief Financial Officer, has announced his intention to resign from PolyMedica effective August 15, 2003.

     Mr. Trowbridge joined PolyMedica in February 1999 as Chief Operating Officer of Liberty. On May 1, 1999, he was appointed President of Liberty and was also elected Vice President of PolyMedica. Effective May 15, 2002, he was promoted to Senior Vice President of PolyMedica. From December 1997 to February 1999, he served as President, and from November 1994 to December 1997 he served as Executive Vice President of U.S. Operations, for Transworld Healthcare, Inc. an international healthcare company, where he was responsible for three domestic operating units including MK Diabetes Support Services. From August 1991 to October 1994, Mr. Trowbridge served as Chairman and Chief Executive Officer of Medical Associates of America, a national integrated network of physician owned pharmacies. Mr. Trowbridge also served as Executive Vice President of T2 Medical from January 1988 to August 1991.

     Mr. Farrell is PolyMedica’s Chief Financial Officer and Senior Vice President, having joined PolyMedica as Treasurer in August 1999. From 1994 to 1999, Mr. Farrell served in various positions at PricewaterhouseCoopers, LLP, most recently as a Senior Manager of the high technology team. Mr. Farrell is a Certified Public Accountant.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     As of March 31, 2003, our Common Stock was held by 927 holders of record. We believe that the actual number of beneficial owners of our Common Stock is significantly greater than the stated number of holders of record because a substantial portion of the Common Stock outstanding is held in “street name”. Our Common Stock is traded on the Nasdaq National Market under the symbol “PLMD”.

     The following table sets forth the high and low closing sales price per share of Common Stock on the Nasdaq National Market:

	Fiscal Year 2003
	High		Low
4th Quarter	$	32.00	$	26.65
3rd Quarter		34.00		26.09
2nd Quarter		32.72		23.13
1st Quarter		42.35		23.70

	Fiscal Year 2002
	High		Low
4th Quarter	$	25.95	$	17.16
3rd Quarter		24.36		14.81
2nd Quarter		48.43		11.25
1st Quarter		40.80		23.31

     On February 13, 2003, we paid a $0.25 per share cash dividend on 12,353,120 common shares outstanding for a total payment of $3.09 million to our common shareholders of record as of the close of business on February 3, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in conjunction with the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report on Form 10-K. The balance sheet data as of March 31, 2003 and 2002 and the statements of operations data for the three years ended March 31, 2003 have been derived from the audited consolidated financial statements for such years, included elsewhere in this Annual Report on Form 10-K. The balance sheet data as of March 31, 2001, 2000, and 1999 and the statements of operations data for the two years ended March 31, 2000 have been derived from the audited consolidated financial statements for such years, not included in this Annual Report on Form 10-K.

		(In thousands, except per share data)
Year Ended March 31,		2003		2002		2001		2000		1999
Statements of Operations Data:
	Net revenues	$	356,185	$	279,661	$	220,046	$	156,920	$	104,825
	Net income		25,632		30,411		22,734		15,119		7,644
	Net income per weighted average share, basic		2.09		2.43		1.73		1.37		.86
	Net income per weighted average share, diluted	$	2.04	$	2.38	$	1.67	$	1.27	$	.78
	Weighted average shares, basic		12,241		12,506		13,176		11,049		8,898
	Weighted average shares, diluted		12,546		12,780		13,596		11,876		9,786

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Year Ended March 31,		2003		2002		2001		2000		1999
Pro forma amounts assuming retroactive application of SAB 101(before cumulative effect of changes in accounting principle):
	Income before cumulative effect of change in accounting principle	$	40,247	$	30,411	$	29,660	$	13,371	$	6,185
	Income before cumulative effect of change in accounting principle per weighted average share, basic		3.29		2.43		2.26		1.21		.70
	Income before cumulative effect of change in accounting principle per weighted average share, diluted		3.21		2.38		2.18		1.13		.63
	Cash dividend per share	$	0.25	$	—	$	—	$	—	$	—
Balance Sheet Data:
	Cash and cash equivalents	$	27,162	$	27,884	$	39,571	$	40,687	$	10,191
	Total assets		250,969		224,392		201,564		175,596		112,939
	Total liabilities and minority interest		54,294		50,809		42,914		39,446		49,894
	Total debt and obligations		4,187		2,227		3,164		3,332		24,666
	Shareholders’ equity	$	196,675	$	173,583	$	158,650	$	136,150	$	63,045

     During the third quarter of fiscal 2003, we implemented Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), retroactive to April 1, 2002. Effective April 1, 2002, we recorded a goodwill impairment charge of $14.62 million, net of related taxes, or $1.17 per diluted weighted average share, as a cumulative effect of change in accounting principle for the adoption of SFAS No. 142. Net income for the fiscal year ended March 31, 2003 included this charge. See Note F to the consolidated financial statements.

     During the fourth quarter of fiscal year 2001, we implemented Staff Accounting Bulletin 101 (“SAB 101”), “Revenue Recognition in Financial Statements”, retroactive to April 1, 2000. Effective April 1, 2000, we recorded a cumulative effect of change in accounting principle of $6.93 million, net of related taxes, or $0.51 per diluted weighted average share, for the adoption of SAB 101. Net income for the fiscal year ended March 31, 2001 included this charge. See Note C to the consolidated financial statements.

     In the fiscal year ended March 31, 2000, net income included a $1.34 million loss, net of related taxes, or $0.12 per diluted weighted average share, related to the loss on retirement of debt.

     On February 13, 2003, we paid a $0.25 per share cash dividend on 12,353,120 common shares outstanding for a total payment of $3.09 million to our common shareholders of record as of the close of business on February 3, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Future Operating Results

     This Annual Report on Form 10-K contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects”, and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our actual results to differ materially from those indicated or suggested by such forward-looking statements. These factors include, without limitation, those set forth below in the section titled “Factors Affecting Future Operating Results” in this Annual Report on Form 10-K.

Overview

Business

     PolyMedica is a leading provider of direct-to-consumer medical products, conducting business through its Liberty Diabetes, Liberty Respiratory and Pharmaceuticals segments. Through our Liberty Diabetes segment we provide diabetes testing supplies and related products primarily to Medicare-eligible customers suffering from diabetes and related chronic diseases. Through our Liberty Respiratory segment we provide direct-to-consumer prescription respiratory medications and supplies primarily to Medicare-eligible customers suffering from chronic obstructive pulmonary disease (“COPD”). Through our Pharmaceuticals segment we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits.

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Critical Accounting Policies

     Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

     PolyMedica’s significant accounting policies are presented within Note B to our consolidated financial statements, and the following summaries should be read in conjunction with our consolidated financial statements and the related notes included in this Annual Report on Form 10-K. While all of our accounting policies impact the consolidated financial statements, certain policies may be viewed to be critical. Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and that require management’s most subjective or complex judgments and estimates. Management believes the policies that fall within this category are the policies on revenue recognition and sales allowances, accounts receivable and the allowance for doubtful accounts, inventories, goodwill, advertising, accruals for Medicare adjustments, and uncertainties.

     Revenue Recognition

     We recognize revenue related to product sales to customers who have placed orders, upon shipment, provided that risk of loss has passed to the customer and we have received and verified the required written forms, if applicable, to bill Medicare, other third-party payers, and customers. We record revenue at the amounts expected to be collected from Medicare, other third-party payers, and directly from customers. We analyze various factors in determining revenue recognition, including a review of specific transactions, current Medicare regulations and reimbursement rates, historical experience, and the credit-worthiness of customers. The determination of appropriate Medicare rates for billing and revenue recognition is complex and sometimes subjective and therefore may require management’s interpretation. Sales allowances are recorded for estimated product returns as a reduction of revenue. We analyze sales allowances using historical data adjusted for significant changes in volume, customer demographics, and business conditions. These allowances are adjusted to reflect actual returns. Changes in these factors could affect the timing and amount of revenue and costs recognized.

     Accounts Receivable and Allowance for Doubtful Accounts

     The valuation of accounts receivable is based upon the credit-worthiness of customers and third-party payers as well as our historical collection experience. Allowances for doubtful accounts are recorded as a selling, general and administrative expense for estimated amounts expected to be uncollectible from third-party payers and customers. We base our estimates on our historical collection and write-off experience, current trends, credit policy, and on our analysis of accounts receivable by aging category. Changes in judgment regarding these factors could affect the timing and amount of costs recognized.

     Inventories

     Inventories are carried at the lower of cost or market value. Market value or the net realizable value to PolyMedica is impacted by the types and levels of inventory held, forecasted demand, and pricing. Due to the medical nature of the products we provide, customers sometimes request supplies before we have received the required written forms, if applicable, to bill Medicare, other third-party payers, and customers. As a result, included in inventories are items shipped to customers for which we have received an order but have not yet received the required written documents and therefore have not recognized revenue. The carrying value of inventory shipped to customers of $2.57 million and $3.77 million as of March 31, 2003 and 2002, respectively, is based upon historical experience of collection of documents required to bill Medicare, other third-party payers, and customers. Changes in judgment regarding the recoverability of inventories, including the carrying value of inventory shipped to customers, could result in the recording of additional income or expense.

     Goodwill

     Subsequent to the transitional impairment test, as prescribed under SFAS No. 142, we are required to perform impairment tests annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable. Step one of the impairment test is performed to determine whether an impairment exists, step two of the impairment test is performed to

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determine the amount of the charge to be recorded as a result of the impairment. See Note F to the consolidated financial statements. In performing impairment tests, we are required to make certain estimates and assumptions relating to the allocation of certain assets and liabilities to our reporting units, estimates of the fair values of our reporting units, and the related fair value of certain of their assets and liabilities. Changes in the estimates and assumptions used could affect the determination of whether an impairment exists as well as the quantification of the impairment value, should one exist.

     Advertising

     In accordance with Statement of Position 93-7(“SOP 93-7”) we capitalize and amortize direct-response advertising and related costs when we can demonstrate that customers have directly responded to our advertisements, among other things. We assess 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 cash flows expected to result directly from such advertising. Management’s judgments include determining the period over which such net cash flows are estimated to be realized, currently four years for our diabetes supplies and two years for our respiratory supplies. A business change, including a change in reimbursement rates, that reduces expected net cash flows or that shortens the period over which such net cash flows are estimated to be realized could result in accelerated charges against our earnings. For recent developments regarding the application of SOP 93-7, please see Note U to the consolidated financial statements.

     Non-direct response advertising, promotional and marketing costs are charged to earnings in the period in which they are incurred.

     Accruals for Medicare Adjustments

     The government’s Medicare regulations are complex and sometimes subjective and therefore may require management’s interpretation. Accruals for Medicare adjustments occur in the normal course of business and are recorded when, based upon our assessment of the facts and circumstance, we believe that the amounts due are probable and estimable.

     Uncertainties

     Our compliance with Medicare regulations may be reviewed by federal or state agencies, including the Department of Health and Human Services, the DOJ, and the FDA. The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. Since July 1, 2001 we have spent approximately $9.82 million on legal and accounting fees primarily preparing for and responding to the investigations and the two lawsuits described below. This work has been conducted under the direction of legal counsel who report to the Oversight Committee, a special Board committee comprised of three outside directors, which was established to oversee our response to the investigations and the related litigation.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

     Polymedica and three individuals who are or were officers of PolyMedica are defendants in a lawsuit alleging violations of certain sections and rules of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, there is a derivative action against certain directors and two individuals who are or were officers in Massachusetts state court alleging certain breaches of fiduciary duty. PolyMedica believes it has meritorious defenses to the claims made against it in the actions in which it is a defendant and intends to contest the claims vigorously. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations. Please see Item 3 of Part I, Legal Proceedings, for a more complete description of these claims.

     If any of the investigations or legal proceedings referred to above results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations.

     In addition to those described above, we have certain contingent liabilities, including but not limited to, litigation that arises in the ordinary course of business. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

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Recent Transactions

     On February 28, 2003, we repurchased 100,000 shares of common stock for $2.90 million or an average price of $29.04 per share. Of the 2,000,000 shares originally authorized by the Board, 629,000 shares remained authorized for repurchase as of March 31, 2003.

     On February 13, 2003, we paid a $0.25 per share cash dividend on 12,353,120 common shares outstanding for a total payment of $3.09 million to our common shareholders of record as of the close of business on February 3, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

     On January 28, 2003, we purchased a 120,000 square foot building located in Port St. Lucie, Florida for a purchase price, excluding legal fees and associated acquisition costs, of $3.26 million, for the purpose of supporting the growth in our Florida businesses. We commenced renovation of the facility in February 2003.

Other

     Advertising rates may fluctuate during the year, which may affect our acquisition of new customers. We may purchase less advertising when rates are higher, which generally occurs in November and December. As a result, our acquisition of new customers during this period is generally reduced and our net revenues may fluctuate accordingly.

     We operate from manufacturing and distribution facilities located in Massachusetts and Florida, respectively. Virtually all of our product sales are denominated in U.S. dollars.

     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, direct labor, and overhead costs for products that we manufacture in our facility and shipping and handling fees.

- Selling, general and administrative expenses consist primarily of expenditures for personnel and benefits, as well as legal and related expenses, allowances for bad debts, rent, amortization of capitalized direct-response advertising costs and other amortization and depreciation.

     Period to period comparisons of changes in net revenues are not necessarily indicative of results to be expected for any future period.

Results of Operations

Year Ended March 31, 2003 Compared to Year Ended March 31, 2002

     The following table presents consolidated statements of operations expressed as a percentage of net revenues:

			2003			2002
Net revenues:
	Liberty Diabetes			68.7	%		74.1	%
	Liberty Respiratory			21.1			18.7
	Pharmaceuticals			10.2			7.2
		Total net revenues		100.0			100.0
Cost of sales				35.6			34.9
Gross margin				64.4			65.1
Selling, general and administrative expenses				46.0			47.8
Income from operations				18.4	%		17.3	%

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     Total net revenues increased 27.4% to $356.19 million in the fiscal year ended March 31, 2003, as compared with $279.66 million in the fiscal year ended March 31, 2002. This increase was primarily the result of the growth in revenues from our Liberty Diabetes and Liberty Respiratory segments which increased 18.1% and 43.5%, respectively, in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002.

     Net revenues in the Liberty Diabetes segment increased to $244.68 million in the fiscal year ended March 31, 2003, as compared with $207.26 million in the fiscal year ended March 31, 2002. This growth was due primarily to the growth in our customer base, which grew 23.9% to approximately 545,000 active customers as of March 31, 2003, from approximately 440,000 as of March 31, 2002, primarily as a result of our direct-response advertising spending. Fluctuations in the order volume, order frequency and mix of product for new and existing customers, including those with Type II diabetes, also contributed to the change in net revenues from fiscal 2002 to fiscal 2003.

     Net revenues from our Liberty Respiratory segment increased to $75.13 million in the fiscal year ended March 31, 2003, as compared with $52.36 million in the fiscal year ended March 31, 2002. This increase was due primarily to the growth in our customer base, which grew 37.0% to approximately 63,000 active customers as of March 31, 2003, from approximately 46,000 as of March 31, 2002, as a result of our direct-response advertising spending. Fluctuations in the order volume, order frequency and mix of product for new and existing customers also contributed to the change in net revenues from fiscal 2002 to fiscal 2003.

     Net revenues from our Pharmaceuticals segment increased to $36.38 million in the fiscal year ended March 31, 2003, as compared with $20.04 million in the fiscal year ended March 31, 2002, due primarily to the growth in Liberty Pharmacy sales of prescription oral medications not covered by Medicare. Sales of these products represented 55.3% and 29.1% of total Pharmaceuticals segment net revenues in the fiscal years ended March 31, 2003 and 2002, respectively. We expect this trend of increasing sales from Liberty Pharmacy to continue. The current customer base for these products consists primarily of existing Liberty Diabetes and Liberty Respiratory customers, and their spouses.

     As a percentage of total net revenues, overall gross margins were 64.4% in the fiscal year ended March 31, 2003 and 65.1% in the fiscal year ended March 31, 2002. Gross margins in the fiscal year ended March 31, 2003 decreased primarily as a result of the increase in net revenues generated from lower-margin prescription oral medication sales. Liberty Pharmacy, although profitable, has significantly lower gross and operating margins than our historical businesses. As a result, future consolidated earnings growth is projected to be less than future consolidated revenue growth.

     As a percentage of total net revenues, selling, general and administrative expenses were 46.0% in the fiscal year ended March 31, 2003, as compared with 47.8% in the fiscal year ended March 31, 2002. Selling, general and administrative expenses increased by 22.6% in the fiscal year ended March 31, 2003 to $163.77 million, as compared with $133.61 million in the fiscal year ended March 31, 2002. This decrease in selling, general and administrative expense as a percentage of net revenues was primarily attributable to an additional $5.03 million of selling, general and administrative expenses in the fiscal year ended March 31, 2002 in the Liberty Respiratory segment related to the establishment of a reserve for Medicare overpayments, coupled with a $2.32 million decrease in selling, general and administrative expenses in the fiscal year ended March 31, 2003 in the Liberty Respiratory segment related to a reduction in this reserve based upon a favorable determination by one of the four Medicare carriers that our original method of billing for albuterol and ipratropium combinations was proper. Other factors that contributed to the change in selling, general and administrative expenses as a percentage of net revenues included approximately $1.17 million more of consolidated legal and related expenses, $1.96 million for termination of employment charges related to the termination of certain executive officers, and $6.15 million more of direct-response advertising amortization in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002. These increases were offset by $1.54 million of goodwill amortization recorded in the fiscal year ended March 31, 2002, that was not recorded in the fiscal year ended March 31, 2003.

     Investment income decreased 77.6% to $247,000 in the fiscal year ended March 31, 2003, as compared with $1.11 million in the fiscal year ended March 31, 2002, due to a lower average cash balance and lower interest rates. Interest expense decreased 12.0% to $146,000 in the fiscal year ended March 31, 2003, as compared with $166,000 in the fiscal year ended March 31, 2002.

     The provision for income taxes was $25.30 million and $18.48 million in the fiscal years ended March 31, 2003 and 2002, respectively, which resulted in an effective tax rate of 38.6% and 37.8% in fiscal years 2003 and 2002, respectively. The effective tax rates in fiscal years 2003 and 2002 were higher than the Federal U.S. statutory rates due primarily to state taxes and other permanent differences. We anticipate that the effective tax rate for fiscal year 2004 will be at or near the fiscal 2003 effective tax rate. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to federal or state tax

16

laws, future expansion into areas with varying country, state, or local income tax rates, and the deductibility of certain costs and expenses by jurisdiction.

Year Ended March 31, 2002 Compared to Year Ended March 31, 2001

     The following table presents consolidated statements of operations expressed as a percentage of net revenues:

			2002			2001
Net revenues:
	Liberty Diabetes			74.1	%		75.8	%
	Liberty Respiratory			18.7			16.1
	Pharmaceuticals			7.2			8.1
		Total net revenues		100.0			100.0
Cost of sales				34.9			35.0
Gross margin				65.1			65.0
Selling, general and administrative expenses				47.8			44.3
Income from operations				17.3	%		20.7	%

     Total net revenues increased by 27.1% to $279.66 million in the fiscal year ended March 31, 2002, as compared with $220.05 million in the fiscal year ended March 31, 2001. This increase was primarily the result of the growth in revenues from our Liberty Diabetes and Liberty Respiratory segments which increased 24.3% and 47.4%, respectively, in the fiscal year ended March 31, 2002, as compared with the fiscal year ended March 31, 2001.

     Net revenues in the Liberty Diabetes segment increased by 24.3% to $207.26 million in the fiscal year ended March 31, 2002, as compared with $166.77 million in the fiscal year ended March 31, 2001. This growth was due primarily to the growth in our customer base as a result of our direct-response advertising spending. Revenue growth was aided by a cost of living adjustment implemented by the government for certain durable medical equipment products, including diabetes test strips, under the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000, which added 3.7% to the revenue of many of our Liberty Diabetes segment products beginning July 1, 2001. In addition, due to the late implementation by the government of the January 1, 2001 cost of living adjustment, which went into effect July 1, 2001, an incremental 3.28% cost of living adjustment was recorded from July 1, 2001 to December 31, 2001. This incremental 3.28% cost of living adjustment ended on December 31, 2001.

     Net revenues from our Liberty Respiratory segment increased 47.4% to $52.36 million in the fiscal year ended March 31, 2002, as compared with $35.52 million in the fiscal year ended March 31, 2001. This increase was due primarily to the growth in our customer base as a result of our direct-response advertising spending.

     Net revenues from our Pharmaceuticals segment increased 12.9% to $20.04 million in the fiscal year ended March 31, 2002, as compared with $17.76 million in the fiscal year ended March 31, 2001, due primarily to the launch of Liberty’s non-Medicare operation, Liberty Pharmacy. Liberty Pharmacy sales represented 29.1% of Pharmaceutical segment net revenues in the fiscal year ended March 31, 2002. This increase in net revenues generated from Liberty Pharmacy was offset by a reduction in net revenues due to the sale of certain assets of our thermometry business in September 2000.

     As a percentage of total net revenues, overall gross margins were 65.1% in the fiscal year ended March 31, 2002 and 65.0% in the fiscal year ended March 31, 2001. Gross margins in the fiscal year ended March 31, 2002 increased slightly due primarily to a cost of living adjustment described above, and increased sales in our higher margin Liberty Respiratory segment, partially offset by a change

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in the interpretation of the reimbursement formula for albuterol and ipratropium combinations (see Note G to the consolidated financial statements for more details), increasing sales from new business initiatives that have lower margins than our average and a change in the product mix for our Liberty Diabetes and Liberty Respiratory segments.

     As a percentage of total net revenues, selling, general and administrative expenses were 47.8% for the fiscal year ended March 31, 2002, as compared with 44.3% for the fiscal year ended March 31, 2001. Selling, general and administrative expenses increased by 37.0% in the fiscal year ended March 31, 2002 to $133.61 million, as compared with $97.55 million in the fiscal year ended March 31, 2001. This increase in selling, general and administrative expenses as a percentage of net revenues was primarily attributable to legal and related expenses of $5.06 million pertaining to the previously reported investigations of Liberty and Liberty Home Pharmacy, and a charge of $5.03 million for the establishment of a reserve for Medicare overpayments related to a change in interpretation of the reimbursement formula for albuterol and ipratropium combinations used in our Liberty Respiratory segment, in the fiscal year ended March 31, 2002. See Note G to the consolidated financial statements for more information. Selling, general and administrative expenses further increased due to an increase in direct-response advertising amortization of $10.70 million to $30.31 million in the fiscal year ended March 31, 2002, from $19.60 million in the fiscal year ended March 31, 2001. Amortization increased as a result of the growth in the direct-response advertising asset value. See Note B to the consolidated financial statements for more information.

     Investment income decreased 61.5% to $1.11 million in the fiscal year ended March 31, 2002, as compared with $2.87 million in the fiscal year ended March 31, 2001, due to a lower average cash balance and lower interest rates. Interest expense decreased 41.3% to $166,000 in the fiscal year ended March 31, 2002, as compared with $282,000 in the fiscal year ended March 31, 2001, due primarily to the elimination of interest expense on Liberty’s Port St. Lucie facility mortgage as a result of the $1.36 million repayment in December 2000.

     The provision for income taxes was $18.48 million and $17.65 million in the fiscal years ended March 31, 2002 and 2001, respectively, which resulted in an effective tax rate of 37.8% and 37.3% in fiscal years 2002 and 2001, respectively. The effective tax rates in fiscal years 2002 and 2001 were higher than the Federal U.S. statutory rates due primarily to state taxes and other permanent differences. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to federal or state tax laws, future expansion into areas with varying country, state, or local income tax rates, and the deductibility of certain costs and expenses by jurisdiction.

Liquidity and Capital Resources

     Our business and its sustained growth is currently funded through cash flow from operations. Our cash and cash equivalents balance decreased $722,000 to $27.16 million as of March 31, 2003, due primarily to cash flows generated from operations less cash outflows such as the purchase of property, plant and equipment and investments, the repurchase of our common stock and the payment of cash dividends. Cash flows from operations of $29.45 million for the fiscal year ended March 31, 2003, were generated by income before the cumulative effect of a change in accounting principle of $40.25 million, offset by cash used to fund certain areas of our operations, including an increase in spending for direct-response advertising of $5.93 million to $48.41 million in the fiscal year ended March 31, 2003, as compared with $42.48 million in the fiscal year ended March 31, 2002, to further expand our customer base. An increase in our net accounts receivable balance of $17.11 million to $61.17 million as of March 31, 2003, as compared with $44.06 million as of March 31, 2002, also offset cash flows generated by income before the cumulative effect of a change in accounting principle.

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     In the fiscal years ended March 31, 2003 and 2002, we used $23.52 million and $15.23 million of cash for investing activities, respectively. The $8.29 million increase in total cash used for investing activities in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002, was primarily due to the purchase of $1.44 million of investments and a $6.82 million increase in property, plant and equipment purchases related to the construction of two new facilities and the purchase of a building in Port St. Lucie, Florida.

     In the fiscal years ended March 31, 2003 and 2002, we used $6.65 million and $19.36 million of cash for financing activities, respectively. The $12.71 million decrease in total cash used for financing activities in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002, was primarily due to fewer share repurchases. In the fiscal year ended March 31, 2003, we used $3.56 million to repurchase 125,000 shares of our common stock at an average repurchase price of $28.50 per share, as compared with $18.00 million used to repurchase 1,009,000 shares of our common stock at an average repurchase price of $17.84 per share in the fiscal year ended March 31, 2002. This decrease was offset primarily by $3.09 million of cash dividends paid to shareholders of record as of February 3, 2003, in the fiscal year ended March 31, 2003. The current intention of our Board is to pay a cash dividend to shareholders of record on a quarterly basis for the foreseeable future. We expect the quarterly cash dividend payment to average approximately $3.00 million. As of March 31, 2003, 629,000 shares remained authorized for repurchase under the August 2001 authorized share repurchase program. Other financing activities included the payment of capital lease and note payable obligations, amounts set aside for executive deferred compensation plans and proceeds from the issuance of common stock.

     We believe that our cash and cash equivalents balance as of March 31, 2003 of $27.16 million, and cash flows generated from operations, will be sufficient to meet working capital, capital expenditure and financing needs, including the payment of dividends to shareholders, for future business operations for the foreseeable future. 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. Other factors which could negatively affect our liquidity include a reduction in the demand for our products, an unfavorable outcome of pending litigation and investigations, or a reduction in Medicare reimbursement for our products.

     We have various contractual obligations that affect our liquidity. The following represents our contractual obligations for future annual minimum lease, note payable and rental commitments as of March 31, 2003, under all of our leases, capital and operating and our note payable:

	Capital		Operating		Note
(In thousands)	Leases		Leases		Payable
2004	$	513	$	1,141	$	1,893
2005		298		753		—
2006		202		334		—
2007		165		164		—
2008 and thereafter		54		72		—
Total minimum payments	$	1,232	$	2,464	$	1,893

Advertising

     We have committed to purchasing approximately $5.50 and $4.21 million in the fiscal years ending March 31, 2004 and 2005, respectively, in advertising spots from various television networks. We entered into these purchase commitments to obtain favorable advertising rates to more efficiently acquire new customers.

Accounting Pronouncements

     In May 2003, the FASB issued SFAS No. 150, “Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period

19

beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As provided for in SFAS No. 123, we have elected to apply Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock-based compensation plans. APB No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value, provided other criteria are met. We have complied with the disclosure requirements of SFAS No. 148.

     In December 2002, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). In general, a variable interest entity is a corporation, partnership, trust or other legal structure used for business purposes that either (a) does not have equity investors with characteristics of a controlling financial interest or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. Additionally, companies with significant investments in variable interest entities, even if not required to consolidate the variable interest entity, have enhanced disclosure requirements. We do not expect the adoption of FIN 46 to have a material impact on our financial position or results of operations.

     In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are applicable for financial statements of interim or annual periods ending after December 15, 2002. We adopted FIN No. 45 in the quarter ended December 31, 2002 and have complied with the new disclosure requirements.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement has not had a material impact on our financial position or results of operations.

     In August 2001, the FASB issued SFAS No. 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets.” The provisions of SFAS No. 143 apply to all entities that incur obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and thus will be adopted, as required, on April 1, 2003. We do not expect adoption of this statement to have a material impact on our financial position or results of operations.

Factors Affecting Future Operating Results

     All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. 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 Liberty Diabetes and Liberty Respiratory medications and supplies 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

20

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 or adjustments to previously reimbursed amounts.

     Federal governmental authorities are continually considering changes to laws and regulations applicable to us as they relate to billing requirements and reimbursement levels of our products. Legislation and regulations are pending relating to:

     Medicare reform proposals

     The United States House of Representatives (“House”) and Senate (“Senate”) are considering Medicare reform and coverage of outpatient prescription drug legislation that include proposals to freeze durable medical equipment (“DME”) payments through 2010, reduce payments for covered outpatient drugs to 85 percent of the average wholesale price (“AWP”) of such drugs, require certain DME to be competitively bid, and implement a competitive acquisition program for outpatient drugs and biologics. If this legislation is enacted, it will likely include one or more of these changes.

     If enacted, these proposals could apply to us. If competitive bidding for DME is enacted, we would begin the process of understanding the bidding requirements and working with the appropriate officials in preparing bids for products that are covered. The other proposals could result in payment reductions for certain products. This legislation is also likely to authorize certain regulatory relief in the administrative process of the Medicare claims and payment rules. It is uncertain at this time whether such legislation will be enacted and become law.

     Inherent reasonableness

     Final regulations have been implemented by the Centers for Medicare and Medicaid Services (“CMS”) that develop a process for identifying whether a payment may be reduced or increased for a category of items or services if it is determined that such payment is grossly deficient or excessive. The process set forth in these regulations could affect the payment for the items that we provide.

Litigation may materially adversely affect us

     PolyMedica and three individuals who are or were officers of PolyMedica are defendants in a lawsuit alleging violations of certain sections and rules of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, there is a derivative action against certain directors and two individuals who are or were officers in Massachusetts state court alleging certain breaches of fiduciary duty. PolyMedica believes it has meritorious defenses to the claims made against it in the actions in which it is a defendant and intends to contest the claims vigorously. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations. Please see Item 3 of Part I, Legal Proceedings, for a more complete description of these claims.

We could experience significantly reduced profits as the result of an unfavorable outcome to current governmental investigations

     The regulations that govern Medicare reimbursement are complex and our compliance with those regulations may be reviewed by federal agencies, including the Department of Health and Human Services, the DOJ, and the FDA. The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. We cannot accurately predict the outcome of these proceedings at this time, and have therefore not recorded any charges relating to their outcome.

     If any of these investigations results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. An adverse determination could have a material effect on our financial position and results of operations. At this time, we cannot accurately predict the outcome of these proceedings, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

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Geopolitical events may reduce our ability to obtain favorable advertising rates for our direct-response advertising efforts, which may adversely affect our operating results

     The effectiveness of our direct-response advertising is subject to the risks arising from geopolitical events. For example, around the clock news coverage on the war in Iraq and the war on terrorism affected our ability to obtain favorable rates for our product advertisements and thus affected our ability to obtain new customers. Such geopolitical events may continue in the foreseeable future and may have a negative impact on our results of operations.

Shortening or eliminating amortization of our direct-response advertising costs could adversely affect our operating results

     Any change in existing accounting rules or a business change that impacts expected net cash flows or that shortens the period over which such net cash flows are estimated to be realized, currently four years for our diabetes products and two years for our respiratory supplies, could result in accelerated charges against our earnings. For recent developments regarding the accounting treatment of our advertising costs, please see Note U to our consolidated financial statements. In addition, new or different marketing initiatives that may not qualify for direct-response advertising could result in accelerated charges against our earnings.

Our stock price could be volatile

     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 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 Liberty Diabetes and Liberty Respiratory 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 from a new customer for Liberty Diabetes and Liberty Respiratory supplies, 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 Liberty Diabetes segment if improved technologies that eliminate the need for consumable testing supplies are developed for glucose monitoring

     The majority of our Liberty Diabetes 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 of new technologies that eliminate or reduce the need for consumable testing supplies could negatively affect our Liberty Diabetes segment.

22

We could experience a charge to earnings as a result of an impairment of our goodwill

     We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable. The valuation of our goodwill is based upon the results of these impairment tests. Changes in assumptions used and forecasted results of operations of the reporting unit carrying goodwill, could affect the quantification of an impairment value, should one exist.

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. While management believes that our insurance provides adequate coverage, no assurance can be made that adequate coverage will exist for these claims.

We could lose customers and revenues to new or existing competitors

     Competition from other sellers of products offered through our Liberty Diabetes, Liberty Respiratory and Pharmaceuticals 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 businesses

     We manufacture substantially all of our prescription urology and suppository products and many of our AZO brand name 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 would decrease significantly. We might also incur significant expense in remedying the problem or securing alternative manufacturing or data storage sources.

If we or our suppliers do not comply with applicable government regulations, we may be prohibited from selling our products

     The majority of the 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 expenses until we are in compliance with the regulations or change to another acceptable supplier.

We could have difficulty selling our pharmaceuticals products if we cannot maintain and expand our sales to distributors

     We rely on third party distributors to market and sell our over-the-counter female urinary discomfort products and prescription urology and suppository products. Future sales of these products 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.

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;

23

- the timing of customer orders;

- the timing and cost of our advertising campaigns;

- the timing of the introduction or acceptance of new products offered by us or our competitors; and

- changes in the mix and costs of our products.

- Product mix and costs are significantly influenced by the product brand chosen by the customers of our mail-order diabetes supply business. We provide a wide range of product brand choices to our customers, purchased at varying costs from suppliers. Our ability to sustain current gross margin levels is dependent both on our ability to continue securing favorable pricing from suppliers and on the brand choices of our customers.

A reduction in working capital or another business change could prevent us from paying dividends to shareholders

     A significant decline in our cash balances or another business change could cause us to reduce, suspend, or eliminate the quarterly payment of dividends to shareholders.

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 intangible assets;

- 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.

We may issue preferred stock with rights senior to the common stock

     Our articles of organization authorize the issuance of up to 2,000,000 shares of preferred stock without shareholder 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 in its sole discretion.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We own certain money market funds, commercial bonds and mutual funds that are sensitive to market risks as part of our investment portfolio. The investment portfolio is used to preserve our capital until it is required to fund operations. None of these market-risk sensitive instruments are held for trading purposes. We do, however, hold some market-risk sensitive instruments in our executive deferred compensation plans, for trading purposes. These investments are accounted for under SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” The investments are recorded at fair value, and changes in fair value are recorded as compensation expense and investment income for the period. We do not own derivative financial instruments in our investment portfolio. We do not believe that the exposure to market risks in our investment portfolio is material.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a) The following documents are filed as part of this Annual Report on Form 10-K.

		Page
1.	INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
	Report of Independent Accountants	26
	Consolidated Balance Sheets as of March 31, 2003 and 2002	27
	Consolidated Statements of Operations for the years ended March 31, 2003, 2002, and 2001	28
	Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2003, 2002, and 2001	29
	Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2002, and 2001	30
	Notes to Consolidated Financial Statements	31
2.	CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
	The following consolidated financial statement schedule is included in Item 16(d):
	Schedule II – Valuation and Qualifying Accounts

25

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of PolyMedica Corporation:

     In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 8(a)(1) present fairly, in all material respects, the financial position of PolyMedica Corporation and its subsidiaries at March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 8(a)(2) presents fairly, in all material respects, the information set forth therein read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     As discussed in Note F to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” on April 1, 2002. As discussed in Note C to the consolidated financial statements, during the year ended March 31, 2001 the Company changed its method of recognizing revenue.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
May 21, 2003, except for Note U as to
which the date is June 20, 2003

26

PolyMedica Corporation
(In thousands, except share and per share amounts)

Consolidated Balance Sheets

			March 31,			March 31,
			2003			2002
ASSETS
Current assets:
	Cash and cash equivalents		$	27,162		$	27,884
	Investments			1,442			—
	Accounts receivable (net of allowances of $22,556 and $15,539 as of March 31, 2003 and 2002, respectively)			61,168			44,059
	Inventories			18,850			21,663
	Deferred income taxes (Note N)			13,960			10,622
	Prepaid expenses and other current assets			3,438			1,727
		Total current assets		126,020			105,955
Property, plant, and equipment, net				53,304			34,603
Goodwill (Note F)				5,946			29,748
Intangible assets, net				108			698
Direct response advertising, net				64,061			52,112
Other assets				1,530			1,276
		Total assets	$	250,969		$	224,392
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	12,576		$	10,270
	Accrued expenses (Note G)			17,003			17,788
	Current portion, capital lease obligations and note payable (Note I)			2,310			742
		Total current liabilities		31,889			28,800
Long-term note payable, capital lease and other obligations (Note I)				1,877			1,485
Deferred income taxes (Note N)				20,528			20,524
		Total liabilities		54,294			50,809
Commitments and contingencies (Note I)
Shareholders’ equity (Note M):
	Preferred stock, $.01 par value; 2,000,000 shares authorized, none issued or outstanding			—			—
	Common stock, $.01 par value; 50,000,000 shares authorized; 13,314,982 and 13,300,477 shares issued as of March 31, 2003 and 2002, respectively			133			133
	Treasury stock, at cost (1,029,393 and 1,143,158 shares as of March 31, 2003 and 2002, respectively)			(21,067	)		(22,185	)
	Deferred compensation			(54	)		—
	Additional paid-in capital			119,375			119,891
	Retained earnings			98,288			75,744
		Total shareholders’ equity		196,675			173,583
		Total liabilities and shareholders’ equity	$	250,969		$	224,392

The accompanying notes are an integral part of the consolidated financial statements.

27

PolyMedica Corporation
(In thousands, except per share amounts)

Consolidated Statements of Operations

Year Ended March 31,			2003			2002			2001
Net revenues			$	356,185		$	279,661		$	220,046
Cost of sales				126,844			97,519			76,973
Gross margin				229,341			182,142			143,073
Selling, general and administrative expenses				163,768			133,609			97,554
Income from operations				65,573			48,533			45,519
Other income and expense:
	Investment income			247			1,105			2,867
	Interest and other expense			(272	)		(180	)		(348	)
	Minority interest			—			(564	)		(733	)
				(25	)		361			1,786
Income before income taxes				65,548			48,894			47,305
Income tax provision				25,301			18,483			17,645
Income before cumulative effect of change in accounting principle				40,247			30,411			29,660
Cumulative effect of change in accounting principle, net of taxes of $9,187 and $4,121				(14,615	)		—			(6,926	)
Net income			$	25,632		$	30,411		$	22,734
Income per weighted average share before cumulative effect of change in accounting principle:
		Basic	$	3.29		$	2.43		$	2.26
		Diluted	$	3.21		$	2.38		$	2.18
Cumulative effect of change in accounting principle:
		Basic	$	(1.20	)	$	—		$	(.53	)
		Diluted	$	(1.17	)	$	—		$	(.51	)
Net income per weighted average share:
		Basic	$	2.09		$	2.43		$	1.73
		Diluted	$	2.04		$	2.38		$	1.67
Weighted average shares, basic				12,241			12,506			13,176
Weighted average shares, diluted				12,546			12,780			13,596

The accompanying notes are an integral part of the consolidated financial statements.

28

PolyMedica Corporation
Consolidated Statements of Shareholders’ Equity
for the years ended March 31, 2001, 2002, and 2003
(Dollars in thousands)

	Common stock				Treasury stock
	Number of				Number of
	shares		Amount		shares			Amount
Balance at March 31, 2000		13,108,667	$	131		(2,203	)	$	(68	)
Exercise of stock options		155,476		2		33,878			1,183
Repurchase of common stock						(237,000	)		(6,641	)
Tax benefit from stock options exercised
Issuance of common stock under the 1992 Employee Stock Purchase Plan		11,850
Net income
Balance at March 31, 2001		13,275,993		133		(205,325	)		(5,526	)
Exercise of stock options, net of receipt of 19,242 shares for exercises						71,167			1,343
Repurchase of common stock						(1,009,000	)		(18,002	)
Tax benefit from stock options exercised
Issuance of common stock under the 1992 Employee Stock Purchase Plan		24,484
Contribution of minority interests
Net income
Balance at March 31, 2002		13,300,477		133		(1,143,158	)		(22,185	)
Exercise of stock options						217,640			4,266
Repurchase of common stock						(125,000	)		(3,563	)
Tax benefit from stock options exercised
Issuance of common stock under the 1992 Employee Stock Purchase Plan		14,505				11,005			215
Issuance of restricted stock to the Interim Chief Executive Officer under the 2000 Stock Incentive Plan						10,120			200
Dividends declared and paid out on common stock (Note M)
Net income
Balance at March 31, 2003		13,314,982	$	133		(1,029,393	)	$	(21,067	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Additional									Total
	paid - in			Deferred			Retained			shareholders’
	capital			compensation			earnings			equity
Balance at March 31, 2000	$	113,488					$	22,599			136,150
Exercise of stock options		808									1,993
Repurchase of common stock											(6,641	)
Tax benefit from stock options exercised		4,087									4,087
Issuance of common stock under the 1992 Employee Stock Purchase Plan		327									327
Net income								22,734			22,734
Balance at March 31, 2001		118,710						45,333			158,650
Exercise of stock options, net of receipt of 19,242 shares for exercises		(1,231	)								112
Repurchase of common stock											(18,002	)
Tax benefit from stock options exercised		620									620
Issuance of common stock under the 1992 Employee Stock Purchase Plan		423									423
Contribution of minority interests		1,369									1,369
Net income								30,411			30,411
Balance at March 31, 2002		119,891						75,744			173,583
Exercise of stock options		(2,452	)								1,814
Repurchase of common stock											(3,563	)
Tax benefit from stock options exercised		1,562									1,562
Issuance of common stock under the 1992 Employee Stock Purchase Plan		253									468
Issuance of restricted stock to the Interim Chief Executive Officer under the 2000 Stock Incentive Plan		121			(54	)					267
Dividends declared and paid out on common stock (Note M)								(3,088	)		(3,088	)
Net income								25,632			25,632
Balance at March 31, 2003	$	119,375		$	(54	)	$	98,288		$	196,675

The accompanying notes are an integral part of the consolidated financial statements.

29

PolyMedica Corporation
(In thousands)

Consolidated Statements of Cash Flows

Year Ended March 31,					2003			2002			2001
Cash flows from operating activities:
	Net income				$	25,632		$	30,411		$	22,734
	Adjustments to reconcile net income to net cash flows:
		Impairment of goodwill, net				14,615			—			—
		Depreciation and amortization				6,250			5,733			5,214
		Amortization of direct-response advertising				36,460			30,306			19,604
		Direct-response advertising expenditures				(48,409	)		(42,478	)		(31,467	)
		Minority interest				—			564			662
		Deferred income taxes				5,853			1,909			(1,533	)
		Tax benefit from stock options exercised				1,562			620			4,087
		Provision for bad debts				25,901			21,000			15,530
		Provision for sales allowances/returns				16,775			12,525			11,899
		Stock-based compensation				267			—			—
		Other				126			32			674
		Changes in assets and liabilities:
			Accounts receivable			(59,785	)		(45,615	)		(19,635	)
			Inventories			2,813			1,128			(15,209	)
			Prepaid expenses and other assets			(1,553	)		(997	)		604
			Accounts payable			2,306			(2,848	)		(969	)
			Accrued expenses and other liabilities			636			10,609			2,429
			Total adjustments			3,817			(7,512	)		(8,110	)
				Net cash flows from operating activities		29,449			22,899			14,624
Cash flows from investing activities:
	Purchase of investments					(1,442	)		(5,499	)		(20,300	)
	Proceeds from the sale of investments					—			5,499			20,300
	Proceeds from sale of certain assets					—			—			1,300
	Investment in other assets					—			—			(200	)
	Purchase of property, plant, and equipment					(22,076	)		(15,251	)		(8,912	)
	Proceeds from sale of equipment					1			22			72
				Net cash flows from investing activities		(23,517	)		(15,229	)		(7,740	)
Cash flows from financing activities:
	Proceeds from issuance of common stock					2,282			532			2,320
	Repurchase of common stock					(3,563	)		(18,002	)		(6,641	)
	Contributions to deferred compensation plans					(1,384	)		(1,125	)		(1,768	)
	Payment of dividends declared on common stock					(3,088	)		—			—
	Payment of obligations under capital leases and note payable					(901	)		(762	)		(1,911	)
				Net cash flows from financing activities		(6,654	)		(19,357	)		(8,000	)
				Net decrease in cash and cash equivalents		(722	)		(11,687	)		(1,116	)
Cash and cash equivalents at beginning of year						27,884			39,571			40,687
Cash and cash equivalents at end of year					$	27,162		$	27,884		$	39,571
Supplemental disclosure of cash flow information:
				Cash paid during the year for interest	$	146		$	166		$	293
				Income taxes paid		19,763			17,677			9,617
				Assets purchased under capital lease or note payable		2,452			642			116
				Disposal of equipment		346			135			523

The accompanying notes are an integral part of the consolidated financial statements.

30

PolyMedica Corporation
Notes to Consolidated Financial Statements

A.          Nature of Business:

     PolyMedica Corporation (“PolyMedica”) was incorporated as Emerging Sciences, Inc. in Massachusetts on November 16, 1988, and commenced commercial operations in October 1989. In July 1990, PolyMedica changed its name to PolyMedica Industries, Inc. and in August 1996, purchased Liberty, a diabetes supply company. In July 1997, PolyMedica sold certain assets of its U.S. and U.K. professional wound care operations and in September 1997, changed its name to PolyMedica Corporation. PolyMedica and its subsidiaries operate from manufacturing, distribution, and laboratory facilities located in Massachusetts and Florida.

     Through our Liberty Diabetes segment we provide direct-to-consumer diabetes testing supplies and related products primarily to Medicare-eligible customers suffering from diabetes and related chronic diseases. Through our Liberty Respiratory segment we provide direct-to-consumer prescription respiratory medications and supplies primarily to Medicare-eligible customers suffering from chronic obstructive pulmonary disease (“COPD”). Through our Pharmaceuticals segment we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits.

B.          Summary of Significant Accounting Policies:

Basis of Consolidation

     The consolidated financial statements include the accounts of PolyMedica and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. As of March 31, 2003, all of PolyMedica’s subsidiaries were wholly owned.

Use of Estimates

     The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Estimates and judgments are used for, including, but not limited to, determination of appropriate Medicare reimbursement rates, the allowance for doubtful accounts and sales returns, valuation of inventory, goodwill, direct-response advertising, accrued expenses, accruals for Medicare adjustments, uncertainties that management determines are estimable and probable, and depreciation and amortization. Actual results could differ from those estimates.

Uncertainties

     Our compliance with Medicare regulations may be reviewed by federal or state agencies, including the Department of Health and Human Services, the DOJ, and the FDA. The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. Since July 1, 2001 we have spent approximately $9.82 million on legal and accounting fees primarily preparing for and responding to the investigations and the two lawsuits described below. This work has been conducted under the direction of legal counsel who report to the Oversight Committee, a special Board committee comprised of three outside directors, which was established to oversee our response to the investigations and the related litigation.

     Polymedica and three individuals who are or were officers of PolyMedica are defendants in a lawsuit alleging violations of certain sections and rules of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, there is a derivative action against certain directors and two individuals who are or were officers in Massachusetts state court alleging certain breaches of fiduciary duty. PolyMedica believes it has meritorious defenses to the claims made against it in the actions in which it is a defendant and intends to contest the claims vigorously. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations.

     If any of the investigations or legal proceedings referred to above results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. An adverse

31

PolyMedica Corporation
Notes to Consolidated Financial Statements

determination could have a material effect on our financial position and results of operations. At this time, we cannot accurately predict the outcome of these proceedings, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

     In addition to those described above, we have certain contingent liabilities, including but not limited to, litigation that arises in the ordinary course of business. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

Cash and Cash Equivalents and Investments

     Under the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (“SFAS No. 115”), we have classified short-term investments as available for sale, with any difference between amortized cost and fair value, net of tax effect, shown as a separate component of shareholders’ equity. We consider all highly liquid short-term investments purchased with an initial maturity of three months or less to be cash equivalents. We place our cash and cash equivalents and investments with high-credit-quality financial institutions. We invested primarily in commercial paper and bonds with initial maturities of less than 90 days and one year, respectively. All investments held as of March 31, 2003 and 2002, excluding investments held in our executive deferred compensation plans (“the Plans”), have been classified as cash equivalents or investments and are reported at amortized cost, which approximates fair value. Realized and unrealized gains on investments were not material for any period presented. The investments held in the Plans, which are accounted for pursuant to SFAS No. 115 have been classified as trading, are included in long-term other assets and are recorded at fair value. As of March 31, 2003 the fair value of these investments was not materially different from cost.

Accounts Receivable and Allowance for Doubtful Accounts

     The valuation of accounts receivable is based upon the credit-worthiness of customers and third-party payers and our historical collection experience. Allowances are recorded as a selling, general and administrative expense for estimated amounts expected to be uncollectible from third-party payers and customers. Estimates are based on historical collection and write-off experience, current trends, credit policy, and on our analysis of accounts receivable by aging category.

Inventories

     The gross value of inventories is based on the lower of cost (first-in, first-out method) or market. The carrying value of inventories is based on the types and levels of inventory held, forecasted demand, and pricing. Due to the medical nature of the products we provide, customers sometimes request supplies before we have received the required written forms, if applicable, to bill Medicare, other third-party payers, and customers. As a result, included in inventories are items shipped to customers for which we have received an order but have not yet received the required written documents and therefore have not recognized revenue. The carrying value of inventory shipped to customers is based upon historical experience of collection of documents required to bill Medicare, other third-party payers, and customers.

Other Assets

     Included in other assets are restricted investments of $1.28 million and $868,000 as of March 31, 2003 and 2002, respectively, which represent amounts set aside by PolyMedica under executive deferred compensation plans (the “Plans”). The related liability is included in long-term liabilities (“long-term note payable, capital lease and other obligations” as captioned on the balance sheet). Changes in the fair value of investments held in the Plans are recorded as investment income or loss (“investment income” as captioned on the statements of operations) with a corresponding adjustment to compensation expense and to other assets and long-term liabilities (“long-term note payable, capital lease and other obligations” as captioned on the balance sheet). As of March 31, 2003, the fair value of these investments was not materially different from cost. In the fiscal years ended March 31, 2003 and 2002, $854,000 and $1.88 million, respectively, was paid directly to certain beneficiaries from the Plans. Amounts set aside for the Plans in the fiscal years ended March 31, 2003 and 2002 totaled $1.38 million and $1.13 million, respectively.

     The investments held in the Plans, which are accounted for pursuant to SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” have been classified as trading, are included in other assets, and are recorded at fair value.

Property, Plant, and Equipment

     Property, plant, and equipment are recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the various assets which is 30 years for buildings and ranges from five to twelve years for office equipment,

32

PolyMedica Corporation
Notes to Consolidated Financial Statements

furniture and fixtures, computer equipment and software, laboratory equipment, commercial vehicles, and manufacturing equipment. Amortization of leasehold improvements is computed using the straight-line method based on estimated useful lives or terms of the lease, whichever is shorter. Upon retirement or disposal of fixed assets, the costs and accumulated depreciation are removed from the accounts, and any gain or loss is reflected in income. Expenditures for repairs and maintenance are charged to expense as incurred. Construction in progress is not depreciated until placed in service.

Direct-Response Advertising

     In accordance with Statement of Position 93-7 (“SOP 93-7”), direct-response advertising and associated costs for our diabetes supplies and related products, included in the Liberty Diabetes segment, for all periods presented are capitalized and amortized to selling, general and administrative expenses on an accelerated basis during the first two years of a four-year period. The amortization rate is such that 55% of such costs are expensed after two years from the date they are incurred, and the remaining 45% is expensed on a straight-line basis over the next two years. 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 cash flows expected to result directly from such advertising. We expense in the period advertising that does not meet the capitalization requirements of SOP 93-7.

     Direct-response advertising and related costs for our respiratory supplies, included in the Liberty Respiratory segment, for all periods presented are capitalized and amortized to selling, general and administrative expenses on a straight-line basis over a two-year period.

     In accordance with SOP 93-7, we recorded the following activity related to our direct-response advertising asset for the periods presented (in thousands):

	Fiscal Year Ended
	March 31,		March 31,		March 31,
	2003		2002		2001
Capitalized direct-response advertising	$	48,409	$	42,478	$	31,466
Direct-response advertising amortization		36,460		30,306		19,604
Increase in direct-response advertising asset, net	$	11,949	$	12,172	$	11,862
Beginning direct-response advertising asset, net		52,112		39,940		28,078
Ending direct-response advertising asset, net	$	64,061	$	52,112	$	39,940

Intangible Assets

     We capitalize and include in intangible assets the costs of acquiring patents on our products, customer lists, covenants-not-to-compete, and goodwill, which is the cost in excess of the fair value of the net assets of acquired companies and product lines. All amortization is computed on a straight-line basis over the shorter of the economic life of the asset or the term of the underlying agreement. Customer lists and covenants-not-to-compete are amortized over seven and ten years, respectively. Effective April 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Ratable amortization of goodwill was replaced with tests of the goodwill’s impairment at various periods, specifically upon adoption of SFAS No. 142, annually, and as a result of a specific event or activity. Intangible assets other than goodwill are amortized over their useful lives.

Long-lived Assets

     Management’s policy is to evaluate the recoverability of its long-lived assets, including intangible assets, when the facts and circumstances suggest that these assets may be impaired. The test of such recoverability is a comparison of the book

33

PolyMedica Corporation
Notes to Consolidated Financial Statements

value of the asset to expected cumulative (undiscounted) operating cash flows resulting from the underlying asset over its remaining life. If the book value of the long-lived asset exceeds undiscounted cumulative operating cash flows, the write-down is computed as the excess of the asset over the present value of the operating cash flow discounted at our weighted average cost of capital over the remaining amortization period.

Revenue Recognition

          We recognize revenue related to product sales to customers who have placed orders, upon shipment, provided that risk of loss has passed to the customer and we have received and verified the required written forms, if applicable, to bill Medicare, other third-party payers, and customers. We record revenue at the amounts expected to be collected from Medicare, other third-party payers, and directly from customers. Revenue recognition is delayed for product shipments for which we have not yet received the required written forms, until the period in which those documents are collected and verified.

          Revenue for Medicare reimbursement is calculated based on government-determined reimbursement prices for Medicare-covered items. We exclude from revenue amounts billed in excess of the government-determined reimbursement prices. As a result, our contractual allowances are immaterial. The reimbursements that Medicare pays us are subject to review by appropriate government regulators. Medicare reimburses at 80% of the government-determined reimbursement prices for reimbursable supplies and we bill the remaining balance to either third-party payers or directly to customers.

          Approximately $246.21 million, $196.80 million and $151.42 million of net revenues for the fiscal years ended March 31, 2003, 2002 and 2001, respectively, were reimbursable by Medicare for products provided to Medicare beneficiaries.

          Sales allowances are recorded for estimated product returns as a reduction of revenue. We analyze sales allowances using historical data adjusted for significant changes in volume, customer demographics, and business conditions. These allowances are adjusted to reflect actual returns. During the fiscal years ended March 31, 2003, 2002 and 2001, we provided for sales allowances at a rate of approximately 4.5%, 4.3% and 5.4% of gross revenues, respectively.

Cost of Sales

          Cost of sales consists primarily of purchased finished goods for sale in our markets and, to a lesser extent, materials, direct labor, and overhead costs for products that we manufacture in our facility and shipping and handling fees.

Marketing and Promotional Costs

          Advertising (other than direct-response), promotional, and other marketing costs are charged to earnings in the period in which they are incurred, which amounted to $2.41 million, $2.16 million and $2.21 million in the fiscal years ended March 31, 2003, 2002 and 2001, respectively. Promotional and sample costs whose benefit is expected to assist future sales are expensed as the related materials are used.

Income Taxes

          We recognize deferred tax assets and liabilities based on temporary differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates expected to be in effect when they are realized.

Earnings per Weighted Average Share

          Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect of outstanding stock options using the “treasury stock” method. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

34

PolyMedica Corporation
Notes to Consolidated Financial Statements

Accounting for Stock-Based Compensation

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As provided for in SFAS No. 123, we have elected to apply Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock-based compensation plans. SFAS No. 123 defines a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. APB No. 25 does not require employee options to be expensed when granted with an exercise price equal to fair market value, provided other criteria are met.

     The following is a reconciliation of net income per weighted average share had we adopted SFAS No. 123 (table in thousands, except per share amounts):

	Year Ended			Year Ended			Year Ended
	March 31, 2003			March 31, 2002			March 31, 2001
Net income	$	25,632		$	30,411		$	22,734
Add back: Stock compensation costs, net of tax, on options granted below fair market value		158			—			—
Less: Stock compensation costs, net of tax, had all employee options been recorded at fair value		(5,079	)		(6,110	)		(5,407	)
Adjusted net income	$	20,711		$	24,301		$	17,327
Weighted average shares, basic		12,241			12,506			13,176
Weighted average shares, diluted		12,546			12,780			13,596
Net income per weighted average share, basic, as reported	$	2.09		$	2.43		$	1.73
Net income per weighted average share, diluted, as reported	$	2.04		$	2.38		$	1.67
Adjusted net income per weighted average share, basic	$	1.69		$	1.94		$	1.32
Adjusted net income per weighted average share, diluted	$	1.65		$	1.90		$	1.27

     The fair value of each option granted during fiscal years 2003, 2002, and 2001 is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	2003			2002			2001
Dividend yield		2.91	%	None			None
Expected volatility		89.73	%		85.00	%		85.00	%
Risk-free interest rate		2.17	%		4.30	%		5.90	%
Expected life		4.0			3.6			4.0

35

PolyMedica Corporation
Notes to Consolidated Financial Statements

Weighted-average fair value of options granted at fair value during:

2003	$	15.39
2002		14.05
2001		26.86

Recently Issued Accounting Pronouncements

     In May 2003, the FASB issued SFAS No. 150, “Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As provided for in SFAS No. 123, we have elected to apply Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock-based compensation plans. APB No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value. We have complied with the disclosure requirements of SFAS No. 148.

     In December 2002, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). In general, a variable interest entity is a corporation, partnership, trust or other legal structure used for business purposes that either (a) does not have equity investors with characteristics of a controlling financial interest or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. Additionally, companies with significant investments in variable interest entities, even if not required to consolidate the variable interest entity, have enhanced disclosure requirements. We do not expect the adoption of FIN 46 to have a material impact on our financial position or results of operations.

     In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are applicable for financial statements of interim or annual periods ending after December 15, 2002. We adopted FIN No. 45 in the quarter ended December 31, 2002 and have complied with the new disclosure requirements.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement has not had a material impact on our financial position or results of operations.

     In August 2001, the FASB issued SFAS No. 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets.” The provisions of SFAS No. 143 apply to all entities that incur obligations associated with the retirement of tangible long-

36

PolyMedica Corporation
Notes to Consolidated Financial Statements

lived assets. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and thus will be adopted, as required, on April 1, 2003. We do not expect adoption of this statement to have a material impact on our financial position or results of operations.

Reclassifications

     Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current year presentation.

C.          Adoption of SAB 101:

     In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, subsequently updated by SAB 101A and SAB 101B (“SAB 101”). SAB 101 summarizes certain areas of the SEC’s views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. Historically, we recognized revenue upon receipt of a customer order and shipment of the related product, provided that the required verbal authorizations had been received. Under the new accounting method adopted retroactive to April 1, 2000, revenue related to product shipments to customers who have placed orders is recognized upon shipment, provided that risk of loss has passed to the customer and we have received and verified the required written forms, if applicable, to bill Medicare, other third-party payers, and customers.

     We delay revenue recognition for product shipments for which we have not yet received the required written forms until the period in which those documents are collected and verified. During the fourth quarter ended March 31, 2001, we implemented the SEC’s SAB 101 guidelines, retroactive to the beginning of the fiscal year. The cumulative effect of the change in accounting principle on prior years resulted in a charge to income of $6.93 million (net of income taxes of $4.12 million), or $0.51 per diluted weighted average share, which was applied retroactively as of April 1, 2000 and is included in income for the fiscal year ended March 31, 2001.

D.          Inventories:

     (In thousands)

     Inventories consist of the following:

	March 31,		March 31,
	2003		2002
Raw materials	$	1,453	$	616
Work in process		480		832
Finished goods		16,917		20,215
	$	18,850	$	21,663

     Due to the medical nature of the products we provide, customers sometimes request supplies before we have received the required written documents, if applicable, to bill Medicare, other third-party payers, and customers. Because we do not recognize revenue until we have received and verified such documents, included in inventories as of March 31, 2003 and 2002 is $2.57 million and $3.77 million, respectively, of inventory shipped to customers for which we have received an order but have not yet received the required written documents, if applicable, to bill Medicare, other third-party payers, and customers and recognize revenue.

37

PolyMedica Corporation
Notes to Consolidated Financial Statements

E.          Property, Plant, and Equipment:

     (In thousands)

     Property, plant, and equipment consists of the following:

	March 31,			March 31,
	2003			2002
Furniture, fixtures, and office equipment	$	7,690		$	3,933
Computer equipment and software		21,826			14,192
Buildings		21,201			9,330
Land		6,120			3,588
Manufacturing equipment		2,025			1,871
Leasehold improvements		1,876			1,426
Laboratory equipment		573			331
Commercial vehicles		60			55
Construction in process		7,140			9,603
		68,511			44,329
Less accumulated depreciation and amortization		(15,207	)		(9,726	)
	$	53,304		$	34,603

     Depreciation and amortization expense for property, plant, and equipment for the fiscal years ended March 31, 2003, 2002 and 2001 was approximately $5.66 million, $3.46 million, and $2.94 million, respectively. In the fiscal year ended March 31, 2003, we completed construction of a new distribution center and respiratory supplies facility and purchased a building in Port St. Lucie, Florida for the purpose of supporting the growth in our Florida businesses. In the fiscal years ended March 31, 2003 and 2002, $2.45 million and $642,000, respectively, of assets classified in computer equipment and software, furniture, fixtures and office equipment and laboratory equipment were acquired through capital lease obligations or a note payable.

F.          Goodwill and Other Intangible Assets:

     In July 2001, FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic impairment tests of the goodwill and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus was adopted by PolyMedica on April 1, 2002.

     Effective April 1, 2002, in accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill. Under SFAS No. 142, goodwill is no longer amortized but is tested for impairment under a two-step process. Under the first step, an entity’s net assets are broken down into reporting units and compared to their fair value. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss. The second step compares the carrying amount of the goodwill to the implied residual value of the goodwill. The implied residual value of goodwill is determined by allocating the estimated fair value of a reporting unit to the estimated fair value of the reporting unit’s assets and liabilities, including identifiable intangible assets, with the residual amount being the implied fair value of goodwill. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Additionally, new criteria have been established that determine whether an acquired intangible asset should be recognized separately from goodwill.

38

PolyMedica Corporation
Notes to Consolidated Financial Statements

     Upon adoption of SFAS No. 142, we were required to perform a transitional impairment test as of April 1, 2002. We were required to complete step one of the transitional impairment test by September 30, 2002 and complete step two of the transitional impairment test by March 31, 2003. Any impairment as a result of the transitional impairment test shall be recorded as a cumulative effect of a change in accounting principle. Thereafter, at a minimum, annual tests of impairment are required for which any impairment identified shall be recorded as a cost of continuing operations.

     The first step of the transitional impairment test was completed in the quarter ended September 30, 2002, which resulted in the determination that the carrying value of the net assets related to our PolyMedica Pharmaceuticals (U.S.A.), Inc. and PolyMedica Healthcare, Inc. reporting units, included in our Pharmaceuticals segment, exceeded their fair value. As a result, we performed the second step of the transitional impairment test in the quarter ended December 31, 2002, to measure the amount of the impairment loss, in which we compared the implied fair value of the goodwill in these two reporting units with the carrying amount of the goodwill. We determined that the carrying value of the goodwill for these reporting units exceeded the implied fair value of that goodwill by $23.80 million. We have recorded a $23.80 million ($14.62 million net of taxes) impairment loss related to these reporting units as a cumulative effect of a change in accounting principle retroactive to April 1, 2002.

     Goodwill included in the PolyMedica Pharmaceuticals (U.S.A.), Inc. and PolyMedica Healthcare, Inc. reporting units is a result of PolyMedica’s acquisition of an Alcon urological product line, including over-the-counter and prescription urology products, in December 1992. Net of the impairment loss, the remaining goodwill related to these reporting units as of December 31, 2002 was $1.00 million. Including the amount of goodwill recorded in our Liberty Diabetes segment, which was not considered to be impaired under our transitional impairment test, PolyMedica’s total goodwill as of March 31, 2003 was $5.95 million.

     In performing the transitional impairment test, we made certain estimates and assumptions which included the allocation of certain assets and liabilities to our reporting units, estimates of our reporting units’ fair values and the related fair value of certain reporting units’ assets and liabilities. We estimated the fair value of our reporting units and certain intangible assets calculating the present value of expected future cash flows using a discount rate of approximately 15%.

     As a result of adopting SFAS No. 142 effective April 1, 2002, approximately $1.54 million of goodwill amortization was not recognized in the fiscal year ended March 31, 2003, where $1.54 million and $1.54 million were recognized in the fiscal years ended March 31, 2002 and 2001, respectively.

     Subsequent to the transitional impairment test, we are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable.

39

PolyMedica Corporation
Notes to Consolidated Financial Statements

     The following is a reconciliation of reported income before cumulative effect of change in accounting principle to adjusted income before cumulative effect of change in accounting principle and reported income per weighted average share before cumulative effect of change in accounting principle to adjusted income per weighted average share before cumulative effect of change in accounting principle had SFAS No. 142 been in effect for the fiscal years ended March 31, 2002 and 2001, respectively:

	Year Ended		Year Ended
(in thousands except per share amounts)	March 31, 2002		March 31, 2001
Income before cumulative effect of change in accounting principle	$	30,411	$	29,660
Add back: Impact of goodwill amortization, net of tax benefit of $583 and $575 for the fiscal years ended March 31, 2002 and 2001, respectively		959		967
Adjusted net income	$	31,370	$	30,627
Income before cumulative effect of change in accounting principle per share, basic	$	2.43	$	2.26
Add back: Impact of goodwill amortization, net of taxes		0.08		0.07
Adjusted income before cumulative effect of change in accounting principle per share, basic	$	2.51	$	2.33
Income before cumulative effect of change in accounting principle per share, diluted	$	2.38	$	2.18
Add back: Impact of goodwill amortization, net of taxes		0.08		0.07
Adjusted income before cumulative effect of change in accounting principle per share, diluted	$	2.46	$	2.25

     We have three reporting units with goodwill: Liberty Medical Supply, Inc. (“Liberty”), included in the Liberty Diabetes reporting segment, and PolyMedica Pharmaceuticals (U.S.A.), Inc. and PolyMedica Healthcare, Inc., both included in the Pharmaceuticals reporting segment. The carrying amounts of goodwill and intangible assets as of March 31, 2003 and 2002, by reportable segment, were as follows:

	March 31,			March 31,
(in thousands)	2003			2002
Liberty Diabetes:
Goodwill	$	4,951		$	4,951
Customer list	$	1,816		$	1,816
Accumulated amortization		(1,708	)		(1,448	)
	$	108		$	368
Pharmaceuticals:
Goodwill	$	995		$	24,797
Covenant not to compete	$	6,800		$	6,800
Accumulated amortization		(6,800	)		(6,470	)
	$	—		$	330
Total consolidated goodwill	$	5,946		$	29,748
Total amortizable intangible assets	$	8,616		$	8,616
Total accumulated amortization		(8,508	)		(7,918	)
	$	108		$	698

40

PolyMedica Corporation
Notes to Consolidated Financial Statements

     Amortization expense for intangible assets was approximately $590,000, $736,000 and $736,000 for the fiscal years ended March 31, 2003, 2002 and 2001, respectively. As of March 31, 2003, amortization expense on existing intangibles for the next five fiscal years is expected to be as follows (table in thousands):

Fiscal year 2004	$	108
Fiscal year 2005		—
Fiscal year 2006		—
Fiscal year 2007		—
Fiscal year 2008		—
	$	108

G.          Accrued Expenses:
     (In thousands)

     Accrued expenses consist of the following:

	March 31,		March 31,
	2003		2002
Salaries and benefits	$	8,641	$	7,224
Inventory receipts		125		1,745
Property, plant and equipment purchases		185		1,539
Amounts reserved for overpayments by Medicare and others		4,941		4,798
Other		3,111		2,482
	$	17,003	$	17,788

     Amounts reserved for overpayments by Medicare and others represent amounts due to Medicare and related amounts due to insurers and Medicare beneficiaries that arise in the normal course of business as well as those related to a change in interpretation of the reimbursement formula for albuterol and ipratropium combinations used in our Liberty Respiratory segment. When we established the reserve in the fiscal year ended March 31, 2002, $5.03 million was charged to selling, general and administrative expenses for billing adjustments prior to July 1, 2001 and $823,000 represented billing adjustments related to the quarter ended September 30, 2001. In the fiscal year ended March 31, 2003, we recorded a benefit of $2.32 million related to a reduction in this reserve following a favorable determination by one of the four Medicare carriers that our original method of billing for albuterol and ipratropium combinations was proper.

H.          Long-Term Debt:

     Mortgage

     To support the growth of Liberty, in May 1999 we purchased a 72,000 square foot building in Port St. Lucie, Florida for $2.0 million, financed by a $1.4 million mortgage. In December 2000, we repaid all amounts owed under the mortgage, consisting of $1.34 million of principal and $15,000 of interest including the settlement of an interest rate swap.

I.          Commitments and Contingencies:

     Operating leases

     We lease our facilities and certain equipment under operating leases expiring through fiscal year 2008. Rental expense under these leases amounted to approximately $1.35 million, $1.40 million, and $1.41 million for the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

     Capital leases

     We have various capital lease agreements for computer equipment and software, furniture, fixtures and office equipment and laboratory equipment. These obligations extend through fiscal

41

PolyMedica Corporation
Notes to Consolidated Financial Statements

year 2008. Most leases contain renewal options or options to purchase at fair market value and 18 contain bargain purchase options. No leases contain restrictions on our activities concerning dividends, additional debt or further leasing. Property, plant, and equipment as included in the consolidated balance sheets include the following amounts for capitalized leases:

	March 31,			March 31,
(in thousands)	2003			2002
Computer equipment and software	$	2,104		$	2,143
Furniture, fixtures, and office equipment		1,137			757
Laboratory equipment		109			109
		3,350			3,009
Less accumulated depreciation		(1,932	)		(1,370	)
Net assets	$	1,418		$	1,639

     Future annual minimum lease and rental commitments as of March 31, 2003, under all of our leases, capital and operating, are:

	Capital			Operating
(In thousands)	Leases			Leases
2004	$	513		$	1,141
2005		298			753
2006		202			334
2007		165			164
2008 and thereafter		54			72
Total minimum payments		1,232		$	2,464
Less amounts representing interest		(217	)
Present value of net payments		1,015
Less current portion capital lease obligation		(417	)
Long-term capital lease obligation	$	598

     Note payable

     We have a $1.89 million note payable as of March 31, 2003 related to the purchase of $2.00 million of computer equipment and software. We are scheduled to repay this obligation in three quarterly installments of $631,000 in the first three quarters of fiscal 2004.

     Advertising

     We have committed to purchasing approximately $5.50 and $4.21 million in the fiscal years ending March 31, 2004 and 2005, respectively, in advertising spots from various television networks. We entered into these purchase commitments to obtain favorable advertising rates to more efficiently acquire new customers.

     Contingencies

     Our compliance with Medicare regulations may be reviewed by federal or state agencies, including the Department of Health and Human Services, the DOJ, and the FDA. The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. Since July 1, 2001 we have spent approximately $9.82 million on legal and accounting fees primarily preparing for and responding to the investigations and the two lawsuits described below. This work has been conducted under the direction of legal counsel who report to the Oversight Committee, a special Board committee comprised of three outside directors, which was established to oversee our response to the investigations and the related litigation.

     Polymedica and three individuals who are or were officers of PolyMedica are defendants in a lawsuit alleging violations of certain sections and rules of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, there is a derivative action against certain directors and two individuals who are or were officers in Massachusetts state court alleging certain breaches of fiduciary duty. PolyMedica believes it has meritorious defenses to the claims made against it in the

42

PolyMedica Corporation
Notes to Consolidated Financial Statements

actions in which it is a defendant and intends to contest the claims vigorously. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations.

     If any of the investigations or legal proceedings referred to above results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. An adverse determination could have a material effect on our financial position and results of operations. At this time, we cannot accurately predict the outcome of these proceedings, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

     In addition to those described above, we have certain contingent liabilities, including but not limited to, litigation that arises in the ordinary course of business. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

J.          Minority Interest:

     Minority interest in the consolidated balance sheets of $805,000 as of March 31, 2001, represented the ownership interests in certain subsidiaries of PolyMedica purchased and held by certain Company executives. The minority interest amounts in the consolidated statements of operations of $564,000 and $733,000 for the fiscal years ended March 31, 2002 and 2001, respectively, represented the percentage of these subsidiaries’ results allocated to these minority interests. All outstanding minority interests in PolyMedica’s subsidiaries previously held by certain Company executives, having a recorded book value of $1.37 million as of February 12, 2002, were reacquired by the respective subsidiaries at no cost on February 12, 2002 and were classified as additional paid in capital in the shareholders’ equity section of our consolidated balance sheets as of March 31, 2003 and 2002. As a result of these transactions, there were no outstanding minority interests in any of PolyMedica’s subsidiaries as of March 31, 2003 and 2002.

K.          Comprehensive Income:

     Our total net income and comprehensive income were $25.63 million, $30.41 million and $22.73 million for the fiscal years ended March 31, 2003, 2002, and 2001, respectively.

L.          Income before Cumulative Effect of Change in Accounting Principle per Share:

     Calculations of income before cumulative effect of change in accounting principle per weighted average share are as follows:

	Fiscal Year Ended March 31,
(In thousands except per share data)	2003		2002		2001
Income before cumulative effect of change in accounting principle	$	40,247	$	30,411	$	29,660
BASIC:
Weighted average common stock outstanding, net of treasury stock, end of period		12,241		12,506		13,176
Income before cumulative effect of change in accounting principle per weighted average share, basic	$	3.29	$	2.43	$	2.26

43

PolyMedica Corporation
Notes to Consolidated Financial Statements

	Fiscal Year Ended March 31,
(In thousands except per share data)	2003		2002		2001
DILUTED:
Weighted average common stock outstanding, net of treasury stock, end of period		12,241		12,506		13,176
Weighted average dilutive common stock equivalents		305		274		420
Weighted average common stock and dilutive common stock equivalents outstanding, net of treasury stock, end of period		12,546		12,780		13,596
Income before cumulative effect of change in accounting principle per weighted average share, diluted	$	3.21	$	2.38	$	2.18

     Options to purchase 727,927, 1,055,207, and 649,255 shares of common stock were outstanding as of March 31, 2003, 2002, and 2001, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.

M.          Shareholders’ Equity:

     On September 12, 2002, the Board adopted a shareholder rights plan (“the Plan”) declaring a dividend of one Right for each outstanding share of our common stock to stockholders of record at the close of business on September 24, 2002. The Plan provides our shareholders with the opportunity to vote to either remove the Plan or keep it in place at the first annual meeting following resolution of the current ongoing investigations discussed in Note I. The Plan is intended to protect and maximize the value of shareholders’ interests in the event of an unsolicited offer.

     In June 2000, our Board authorized the repurchase of up to 1,000,000 shares of our common stock on the open market, with any shares repurchased to be held in treasury. In August 2001, the Board authorized the repurchase of an additional 1,000,000 shares. In the fiscal years ended March 31, 2003, 2002, and 2001, 125,000 shares, 1,009,000 shares and 237,000 shares, respectively, were repurchased under this program for $3.56 million, $18.00 million and $6.64 million, respectively. The average price per share for these repurchases was $28.50, $17.84 and $28.02 for the fiscal years ended March 31, 2003, 2002, and 2001, respectively. The purpose of this repurchase program is, in part, to provide shares of common stock for issuance pursuant to the 1992 and 2001 Employee Stock Purchase Plans.

     On February 13, 2003, we paid a $0.25 per share cash dividend on 12,353,120 common shares outstanding for a total payment of $3.09 million to our common shareholders of record as of the close of business on February 3, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

N.          Income Taxes:

     Income before income taxes was generated as follows in the fiscal years ended March 31:

(In thousands)	2003		2002		2001
United States	$	65,548	$	48,894	$	47,313
Foreign		—		—		(8	)
	$	65,548	$	48,894	$	47,305

44

PolyMedica Corporation
Notes to Consolidated Financial Statements

     The provision for income taxes consists of the following for the fiscal years ended March 31:

(In thousands)		2003		2002		2001
Federal - current		$	16,932	$	13,639	$	16,753
	- deferred		5,167		3,246		(1,056	)
			22,099		16,885		15,697
State - current			2,171		1,552		2,425
	- deferred		1,031		46		(477	)
			3,202		1,598		1,948
Total Federal and State		$	25,301	$	18,483	$	17,645

     A reconciliation between our effective tax rate for operations and the U.S. statutory rate is as follows:

	2003			2002			2001
U. S. statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of U.S Federal Income Tax effect		3.22			2.1			2.7
Other		.38			.7			(.4	)
Effective tax rate		38.6	%		37.8	%		37.3	%

     The following is a summary of the significant components of our deferred tax assets and liabilities as of March 31, 2003 and 2002:

(In thousands)	2003			2002
Deferred tax assets (liabilities) – current:
Allowance for doubtful accounts	$	6,842		$	4,685
Inventory shipped to customers		3,031			4,132
Sales return reserve		1,455			1,317
Accrued expenses		1,262			293
Inventory reserves		728			384
Other		642			(189	)
Net deferred tax asset – current	$	13,960		$	10,622
Deferred tax assets (liabilities) – long term:
Goodwill and intangible assets, net	$	5,035		$	(2,938	)
Property, plant and equipment, net		(2,222	)		(1,079	)
Direct-response advertising, net		(23,658	)		(19,245	)
Accrued expenses		—			1,772
Other		317			966
Net deferred tax liability – long term	$	(20,528	)	$	(20,524	)

45

PolyMedica Corporation
Notes to Consolidated Financial Statements

O.          Major Customers:

     For the fiscal years ended March 31, 2003, 2002, and 2001, no customer represented more than 10% of our consolidated revenues. As of March 31, 2003 and 2002, the amounts included in billed accounts receivable due from Medicare were $28.15 million and $19.40 million, respectively.

P.          Stock Options:

     Effective September 2000, PolyMedica’s shareholders approved the 2000 Stock Incentive Plan (the “2000 Plan”), which replaced the 1998 Stock Incentive Plan (the “1998 Plan”) (collectively, the “Plans”). The 2000 Plan provides for the grant to certain individuals of stock options to purchase up to 2,300,000 shares of our common stock. At the Annual Meeting of Stockholders held on September 12, 2002, an amendment was approved to increase the number of authorized shares of common stock available under the 2000 Plan to 2,300,000 shares from 1,800,000.

     Generally, when shares acquired pursuant to the exercise of incentive stock options are sold within one year of exercise or within two years from the date of grant, we derive a tax deduction measured by the amount that the fair market value exceeds the option price at the date the options are exercised. When non-qualified stock options are exercised, we derive a tax deduction measured by the amount that the fair market value exceeds the option price at the date the options are exercised. The tax benefit from these deductions is recognized as additional paid-in capital. Options are typically granted with ten-year lives subject to Board approval and vest over periods ranging from one to four years.

     Option activity under the Plans is as follows:

					Weighted Average
		Option Shares			Option Price
Outstanding, March 31, 2000			948,451		$	11.29
	Granted		667,700			41.38
	Exercised		(189,354	)		10.54
	Cancelled		(15,484	)		14.83
Outstanding, March 31, 2001			1,411,313		$	25.59
	Granted		620,750			23.54
	Exercised		(90,409	)		6.10
	Cancelled		(10,903	)		17.13
Outstanding, March 31, 2002			1,930,751		$	25.89
	Granted		428,489			26.98
	Exercised		(227,760	)		7.96
	Cancelled		(23,249	)		34.45
Outstanding, March 31, 2003			2,108,231		$	27.96

46

PolyMedica Corporation
Notes to Consolidated Financial Statements

     As of March 31, 2003, 1,582,183 shares were exercisable and 526,048 will vest principally over three years under the Plans. There were 613,261 shares remaining as of March 31, 2003 that were authorized for future option grants under the 2000 Plan. The weighted-average price of exercisable shares as of March 31, 2003 was $28.03.

     As of March 31, 2002 and 2001, 1,416,609 and 936,168 shares, respectively, were exercisable under the Plans.

     Summarized information about stock options outstanding as of March 31, 2003, is as follows:

		Number of		Weighted Avg.				Number of Options		Weighted Avg.
Range of Exercise		Options		Remaining		Weighted Avg.		Outstanding -		Exercise - Price
Prices		Outstanding		Contractual Life		Exercise Price		Exercisable		Exercisable
$	3.88–4.64		17,267		3.65	$	4.26		17,267	$	4.26
$	5.38–7.75		106,587		5.43	$	7.41		106,587	$	7.41
$	8.63–11.88		120,690		4.65	$	11.38		120,690	$	11.38
$	13.50–20.06		294,801		3.51	$	18.21		219,237	$	17.60
$	21.13–30.45		917,140		8.54	$	26.59		501,453	$	25.41
$	35.00–41.50		651,746		7.48	$	41.34		616,949	$	41.36
			2,108,231						1,582,183

     Employee Stock Purchase Plan

     Under PolyMedica’s 1992 and 2001 Employee Stock Purchase Plans (the “ESPP Plans”), an aggregate of 281,972 shares of common stock were made available for purchase by employees upon exercise of options granted semi-annually. Those who have been employed by PolyMedica for six months prior to the beginning of an option period are eligible to enroll in the ESPP Plans. The options are exercisable immediately after grant, at the lower of 85% of the fair market value of the common stock at the beginning or the end of the six-month accumulation period. Amounts are accumulated through payroll deductions ranging from 1% to 10% of each participating employee’s compensation, as defined in the ESPP Plans, but in no event more than $12,500 during any six-month option period.

Q.          401(k) Plan:

     The PolyMedica Corporation 401(k) Plan and Trust (the “401(k) Plan”) is a voluntary savings plan for all eligible employees which is intended to qualify under Section 401(k) of the Internal Revenue Code. Each eligible employee may elect to contribute to the 401(k) Plan, through payroll deductions, up to 60% of his or her salary, subject to statutory limitations. We may make matching contributions on behalf of participating employees of half of the dollar amount of each participating employee’s contribution, up to a maximum of 3% of an employee’s total cash compensation, subject to certain limitations.

     For the fiscal years ended March 31, 2003, 2002 and 2001, we accrued and paid matching contributions of $732,000, $502,000 and $394,000, respectively, for the 401(k) Plan participants.

R.          Segment Information:

     Our reportable segments are strategic business units or divisions that offer different products. These units have separate financial information that is evaluated by senior management. Effective for the quarter ended September 30, 2002, we changed the way we segment our business for reporting purposes, in order to reflect how management currently views operations. The new segments are as follows:

47

PolyMedica Corporation
Notes to Consolidated Financial Statements

     Liberty Diabetes - Through our Liberty Diabetes segment, we provide diabetes testing supplies and related products to customers suffering from diabetes and related chronic diseases. We offer a wide array of diabetes supplies from a broad range of manufacturers.

     Liberty Respiratory - Through our Liberty Respiratory segment, we provide prescription respiratory medications and supplies to customers suffering from chronic obstructive pulmonary disease (“COPD”).

     Pharmaceuticals - Through our Pharmaceuticals segment, we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits.

     Selling, general and administrative expenses attributable to PolyMedica’s corporate headquarters are allocated to the operating segments according to the segment’s relative percentage of total revenue. Other expenses incurred by Liberty Diabetes that were incurred on behalf of all Florida businesses for shared services, were allocated to the operating segments primarily in accordance with the segment’s relative percentage of total employees. However, segment assets belonging to PolyMedica’s corporate headquarters, which included $17.40 million and $14.99 million of cash, cash equivalents and investments as of March 31, 2003 and 2002, respectively, are not allocated as they are considered separately for management evaluation purposes. As a result of these allocations and the start-up nature of some of the businesses included in our Liberty Diabetes and Pharmaceuticals segments, 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. The depreciation and amortization amounts below include amortization of direct-response advertising. We do not organize our units geographically, as our products are sold throughout the United States only. There are no intersegment sales for the periods presented. Information concerning the operations in these reportable segments is as follows:

	Fiscal Year Ended March 31,
(In thousands)	2003		2002		2001
Net Revenues:
Liberty Diabetes	$	244,683	$	207,262	$	166,769
Liberty Respiratory		75,128		52,355		35,519
Pharmaceuticals		36,374		20,044		17,758
Total	$	356,185	$	279,661	$	220,046
Depreciation and Amortization Expense:
Liberty Diabetes	$	24,460	$	19,167	$	14,897
Liberty Respiratory		17,295		14,845		7,909
Pharmaceuticals		955		2,027		2,012
Total	$	42,710	$	36,039	$	24,818
Income before Income Taxes:
Liberty Diabetes	$	37,246	$	37,897	$	35,168
Liberty Respiratory		21,807		5,233		7,830
Pharmaceuticals		6,495		5,764		4,307
Total	$	65,548	$	48,894	$	47,305

48

PolyMedica Corporation
Notes to Consolidated Financial Statements

	March 31, 2003		March 31, 2002
Segment Assets:
Liberty Diabetes	$	152,457	$	133,009
Liberty Respiratory		46,928		31,241
Pharmaceuticals		17,961		33,206
Corporate Headquarters		33,623		26,936
Total	$	250,969	$	224,392

S.          Interim Information (unaudited):

     The following consolidated interim financial information is unaudited. Such information reflects all adjustments, consisting solely of normal recurring adjustments, which are in the opinion of management necessary for a fair presentation.

	Year Ended March 31, 2003
(In thousands, except per share data)	Qtr. 1			Qtr. 2		Qtr. 3		Qtr. 4
Net revenues	$	81,601		$	88,012	$	89,917	$	96,655
Gross margin		52,744			56,804		58,222		61,571
Income before cumulative effect of change in accounting principle		9,151			9,816		10,403		10,877
Net income / (loss)*		(5,464	)		9,816		10,403		10,877
Income before cumulative effect of change in accounting principle per weighted average share, basic	$	0.75		$	0.81	$	0.85	$	0.88
Net income / (loss) per weighted average share, basic	($	0.45	)	$	0.81	$	0.85	$	0.88
Income before cumulative effect of change in accounting principle per weighted average share, diluted	$	0.73		$	0.79	$	0.83	$	0.86
Net income / (loss) per weighted average share, diluted*	($	0.45	)	$	0.79	$	0.83	$	0.86

*     Includes $14,615,000 after-tax loss for a cumulative effect of a change in accounting principle ($1.17 per diluted share), recorded retroactive to April 1, 2002, in the quarter ended June 30, 2002 (Note F).

	Year Ended March 31, 2002
(In thousands, except per share data)	Qtr. 1		Qtr. 2		Qtr. 3		Qtr. 4
Net revenues	$	63,021	$	68,851	$	72,696	$	75,093
Gross margin		41,756		45,296		47,189		47,901
Net income		8,645		4,682		8,525		8,559
Net income per weighted average share, basic	$	0.67	$	0.37	$	0.69	$	0.71
Net income per weighted average share, diluted	$	0.65	$	0.36	$	0.68	$	0.69

49

PolyMedica Corporation
Notes to Consolidated Financial Statements

T.          Related Party Transactions:

     On February 12, 2002, all outstanding minority interests in our subsidiaries previously held by certain PolyMedica executives, having a recorded book value of $1.37 million as of February 12, 2002, were reacquired by the respective subsidiaries at no cost and are classified as additional paid in capital in the shareholders’ equity section of our consolidated balance sheets as of March 31, 2003. As a result of these transactions, there were no outstanding minority interests in PolyMedica or any of its subsidiaries as of March 31, 2003 and 2002.

U.          Subsequent Events:

     On May 15, 2003, we paid a $0.25 per share cash dividend on 12,289,718 common shares outstanding for a total payment of $3.07 million, to our common shareholders of record as of the close of business on May 5, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

     On June 12, 2003, Eric G. Walters, Executive Vice President and Clerk of PolyMedica, announced his intention to resign from PolyMedica effective August 15, 2003.

     As discussed in Note B, since acquiring Liberty in August 1996, we have capitalized direct-response advertising costs in accordance with SOP 93-7. For several months, we have been discussing the appropriateness of this practice with the SEC. On June 20, 2003, the SEC informed us that it believes that our advertising costs do not qualify for capitalization under the direct-response advertising exception in SOP 93-7. We believe that our historical advertising is appropriate and that our advertising qualifies for capitalization. We are currently developing a response to the SEC that will be the basis for further discussion. If we are required to restate our financial statements, historical expensing of previously capitalized advertising costs would result in the following adjusted consolidated financial statement results:

	Fiscal Year Ended March 31,
	As Reported 2003		If Adjusted 2003		As Reported 2002		If Adjusted 2002		As Reported 2001		If Adjusted 2001
Income before income taxes		$65,548		$53,599		$48,894		$36,722		$47,305		$35,443
Income before cumulative effect of change in accounting principle		40,247		32,711		30,411		22,519		29,660		22,227
Net income		$25,632		$18,096		$30,411		$22,519		$22,734		$15,301
Income per weighted average share before cumulative effect of change in accounting principle:
Basic		$3.29		$2.68		$2.43		$1.80		$2.26		$1.69
Diluted		$3.21		$2.61		$2.38		$1.76		$2.18		$1.63
Net income per weighted average share:
Basic		$2.09		$1.48		$2.43		$1.80		$1.73		$1.16
Diluted		$2.04		$1.44		$2.38		$1.76		$1.67		$1.12

	March 31,
	As Reported 2003		If Adjusted 2003		As Reported 2002		If Adjusted 2002
Total assets		$250,969		$190,038		$224,392		$172,280
Long-term deferred tax liability		20,528		–		20,524		1,279
Retained earnings		98,288		57,885		75,744		42,877
Total liabilities and shareholders' equity		$250,969		$190,038		$224,392		$172,280

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

50

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     We will furnish to the SEC a definitive Proxy Statement not later than 120 days after the close of the fiscal year ended March 31, 2003. Certain information required by this item is incorporated herein by reference to the Proxy Statement. Also see “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by reference to the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                  AND RELATED SHAREHOLDER MATTERS

     The information required by this item is incorporated herein by reference to the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by reference to the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

     (a)     Evaluation of disclosure controls and procedures. Based on their evaluation of PolyMedica’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, PolyMedica’s Principal Executive Officer and Principal Financial Officer have concluded that PolyMedica’s disclosure controls and procedures are (a) designed to ensure that information required to be disclosed by PolyMedica in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) operating in an effective manner.

     (b)     Changes in internal controls. There were no significant changes in PolyMedica’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

51

PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)	1.	CONSOLIDATED FINANCIAL STATEMENTS
		The consolidated financial statements listed in the index to consolidated financial statements on page 25 are filed as part of this report.
	2.	CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
		The following consolidated financial statement schedule is included in Item 16(d):
		Schedule II – Valuation and Qualifying Accounts
		Schedules other than those listed above have been omitted since they are either not required or information is otherwise included.
	3.	LISTING OF EXHIBITS
		The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index on page 58 of this report.
		REPORTS ON FORM 8-K
		PolyMedica filed a Current Report on Item 9 of Form 8-K, dated February 18, 2003, reporting the entrance by Dr. Siciliano and Mr. Walters into stock trading plans in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, and the sale of stock pursuant to those plans.

52

ITEM 16(d). FINANCIAL STATEMENT SCHEDULE

POLYMEDICA CORPORATION

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

			ADDITIONS
	BALANCE		CHARGED
	AT		TO COST		CHARGED					BALANCE
	BEGINNING		AND		TO OTHER					AT END OF
DESCRIPTION	OF PERIOD		EXPENSES		EXPENSES		DEDUCTIONS			PERIOD
Valuation reserve deducted in the balance sheet from asset to which it applies:
Accounts receivable:
2003 Allowances for doubtful accounts and sales returns	$	15,539	$	42,676	$	—		($35,659	)	$	22,556
2002 Allowances for doubtful accounts and sales returns	$	13,729	$	33,525	$	—		($31,715	)	$	15,539
2001 Allowances for doubtful accounts and sales returns	$	10,745	$	27,429	$	—		($24,445	)	$	13,729

53

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: June 30, 2003	PolyMedica Corporation
	By:	/s/ Samuel L. Shanaman
		Samuel L. Shanaman Lead Director and Interim Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: June 30, 2003	/s/ Samuel L. Shanaman
	Samuel L. Shanaman Lead Director and Interim Chief Executive Officer (Principal Executive Officer)
Dated: June 30, 2003	/s/ John K.P. Stone, III
	John K.P. Stone, III Director, Vice Chairman, General Counsel and Senior V.P.
Dated: June 30, 2003	/s/ Stephen C. Farrell
	Stephen C. Farrell Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Dated: June 30, 2003	/s/ Frank W. LoGerfo
	Frank W. LoGerfo Director
Dated: June 30, 2003	/s/ Daniel S. Bernstein
	Daniel S. Bernstein Director
Dated: June 30, 2003	/s/ Marcia J. Hooper
	Marcia J. Hooper Director
Dated: June 30, 2003	/s/ Thomas S. Soltys
	Thomas S. Soltys Director
Dated: June 30, 2003	/s/ Herbert A. Denton
	Herbert A. Denton Director
Dated: June 30, 2003	/s/ Edward A. Burkhardt
	Edward A. Burkhardt Director

54

Dated: June 30, 2003	/s/ Walter R. Maupay, Jr.
	Walter R. Maupay, Jr. Director

55

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

I, Samuel L. Shanaman, certify that:

1.	I have reviewed this Annual Report on Form 10-K of PolyMedica Corporation;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ Samuel L. Shanaman

Dated: June 30, 2003
Samuel L. Shanaman
Lead Director and Interim Chief
Executive Officer

56

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

I, Stephen C. Farrell, certify that:

1.	I have reviewed this Annual Report on Form 10-K of PolyMedica Corporation;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ Stephen C. Farrell

Dated: June 30, 2003
Stephen C. Farrell
Senior Vice President and Chief Financial Officer

57

Exhibit Index

The following exhibits are filed as part of this Annual Report on Form 10-K.

Exhibit
Number			Description
	3.1	- -	Restated Articles of Organization of the Company, as amended. (13)
	3.2	- -	Restated By-Laws of the Company. (*)
	4.1	- -	Specimen certificate for shares of Common Stock, $.01 par value, of the Company. (1)
	4.2	- -	Rights Agreement, between PolyMedica Corporation and Equiserve Trust Company, dated September 13, 2002. (19)
	10.01	- -	1990 Stock Option Plan, as amended. (2)
	10.03	- -	1992 Directors’ Stock Option Plan, as amended. (3)
	10.04	- -	2000 Stock Incentive Plan, as amended. (*)
	10.18	- -	Prepayment Agreement between Innovative Technologies Group plc and the Registrant dated June 30, 1998. (8)
	10.20	- -	Employment Agreement by and between the Registrant and Steven J. Lee dated September 1, 2000. (10) (11)
	10.21	- -	Employment Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated September 1, 2000. (10) (11)
	10.22	- -	Employment Agreement by and between the Registrant and Eric G. Walters dated September 1, 2000. (10) (11)
	10.23	- -	Employment Agreement by and between the Registrant and Warren K. Trowbridge dated September 14, 2000. (10) (11)
	10.24	- -	Retention Agreement by and between the Registrant and Steven J. Lee dated September 1, 2000. (10) (11)
	10.25	- -	Retention Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated September 1, 2000. (10) (11)
	10.26	- -	Retention Agreement by and between the Registrant and Eric G. Walters dated September 1, 2000. (10) (11)
	10.27	- -	Retention Agreement by and between the Registrant and Warren K. Trowbridge dated September 1, 2000. (10) (11)
	10.28	- -	Amended Employment Agreement by and between the Registrant and Steven J. Lee dated April 1, 2001. (10) (12)
	10.29	- -	Amended Employment Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated April 1, 2001. (10) (12)
	10.30	- -	Amended Employment Agreement by and between the Registrant and Eric G. Walters dated April 1, 2001. (10) (12)
	10.31	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Warren K. Trowbridge dated December 14, 2000. (10) (12)
	10.32	- -	Employment Agreement by and between the Registrant and Stephen C. Farrell dated September 1, 2000. (10) (12)
	10.33	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Stephen C. Farrell dated April 16, 2001. (10) (12)
	10.34	-	Letter Agreement amendment to Employment Agreement by and between the Registrant and Steven J. Lee dated April 2, 2001. (10) (12)
	10.35	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Arthur A. Siciliano dated April 2, 2001. (10) (12)
	10.36	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Eric G. Walters dated April 2, 2001. (10) (12)
	10.37	- -	2000 Stock Incentive Plan. (12)
	10.38	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Warren K. Trowbridge dated September 24, 2001. (10) (13)
	10.39	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Stephen C. Farrell dated September 24, 2001. (10) (13)

58

Exhibit
Number		Description
10.40	- -	Amendment to Employment Agreement by and between the Registrant and Steven J. Lee dated September 25, 2001. (10) (13)
10.41	- -	Amendment to Employment Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated September 25, 2001. (10) (13)
10.42	- -	Amendment to Employment Agreement by and between the Registrant and Eric G. Walters dated September 25, 2001. (10) (13)
10.43	- -	Amendment to Employment Agreement by and between the Registrant and Warren K. Trowbridge dated October 4, 2001. (10) (13)
10.44	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Stephen C. Farrell dated October 12, 2001. (10) (13)
10.45	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Warren K. Trowbridge dated January 31, 2002. (10) (14)
10.46	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Mr. Steven J. Lee dated May 31, 2002. (10) (15)
10.47	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Dr. Arthur A. Siciliano dated May 31, 2002. (10) (15)
10.48	- -	Employment Agreement by and between the Registrant and John K.P. Stone, III dated March 27, 2002. (10) (15)
10.49	- -	Retention Agreement by and between the Registrant and John K.P. Stone, III dated March 28, 2002. (10) (15)
10.50	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Mr. Eric G. Walters dated May 31, 2002. (10) (15)
10.51	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Mr. Warren K. Trowbridge dated May 31, 2002. (10) (15)
10.52	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Mr. Stephen C. Farrell dated May 31, 2002. (10) (15)
10.53	- -	Retention Agreement by and between the Registrant and Stephen C. Farrell dated March 7, 2002. (10) (16)
10.54	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Arthur A. Siciliano dated July 15, 2002. (10) (16)
10.55	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Eric G. Walters dated July 15, 2002. (10) (16)
10.56	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Warren K. Trowbridge dated July 15, 2002. (10) (16)
10.57	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Stephen C. Farrell dated July 15, 2002. (10) (16)
10.58	- -	Termination of Employment Agreement by and between the Registrant and Steven J. Lee dated August 4, 2002. (10) (16)
10.59	- -	Employment Agreement by and between the Registrant and Samuel L. Shanaman dated October 7, 2002. (10) (17)
10.60	- -	Restricted Stock Agreement by and between the Registrant and Samuel L. Shanaman dated October 7, 2002. (10) (17)
10.61	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and Stephen C. Farrell dated February 5, 2003. (10) (18)
10.62	- -	Letter Agreement amendment to Employment Agreement by and between the Registrant and John K.P. Stone, III dated March 27, 2003. (10) *
10.63	- -	Restricted Stock Agreement by and between the Registrant and Samuel L. Shanaman dated March 14, 2003. (10)*
10.64	- -	Termination of Employment Agreement by and between the Registrant and Eric G. Walters dated June 6, 2003. (10) *

59

Exhibit
Number		Description
21.1	- -	Subsidiaries of the Registrant.*
23.1	- -	Consent of PricewaterhouseCoopers LLP. *
99.1	- -	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

*	Filed herewith.
1	Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 33-45425).
2	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1995, filed June 29, 1995 (Commission File No. 0-19842).
3	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended March 31, 1994, filed June 29, 1994.
4	Incorporated herein by reference to the Company’s Current Report on Form 8-K, filed March 13, 1992.
5	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1996, filed June 26, 1996.
6	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997, filed June 27, 1997.
7	Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 33-97872).
8	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed July 20, 1998.
9	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, filed February 14, 2000.
10	Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
11	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed November 14, 2000.
12	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001, filed June 25, 2001.
13	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, filed November 14, 2001.
14	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2001, filed February 14, 2002.
15	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002, filed June 28, 2002.
16	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed August 14, 2002.
17	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, filed November 14, 2002.
18	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002, filed February 14, 2003.
19	Incorporated herein by reference to the Company’s Current Report on Form 8-K, dated as of September 13, 2002.

60 EX-3.2 3 b46956pcexv3w2.txt EX-3.2 RESTATED BY-LAWS OF THE COMPANY EXHIBIT 3.2 RESTATED BY-LAWS OF POLYMEDICA CORPORATION (AS AMENDED THROUGH MARCH 14, 2003) TABLE OF CONTENTS ARTICLE I Meetings of Stockholders 1 Section 1. Place 1 Section 2. Annual Meeting 1 Section 3. Special Meetings 1 Section 4. Notice 1 Section 5. Quorum 2 Section 6. Adjournment 2 Section 7. Voting 2 Section 8. Action by Consent 3 Section 9. Introduction of Business at Meeting 3 Section 10. Action at Meeting 5 Section 11. Appointment of Judges of Election 5 ARTICLE II Officers and Directors 6 Section 1. Enumeration and Election of Directors 6 Section 2. Enumeration and Election of Officers 7 Section 3. Qualifications of Directors and Officers 7 Section 4. Removal of Directors and Officers 7 Section 5. Resignation of Directors and Officers 8 Section 6. Vacancies 8 Section 7. Compensation of Directors and Officers 8 ARTICLE III Meeting of Directors 8 Section 1. Regular Meetings 8 Section 2. Special Meetings 9 Section 3. Notice 9 Section 4. Quorum 9 Section 5. Action by Consent 9 ARTICLE IV Powers and Duties of Directors and Officers 10 Section 1. Directors 10 Section 2. Chairman and President 10 Section 3. Vice Presidents 10 Section 4. Treasurer 11 Section 5. Clerk 11 Section 6. Other Officers 11 ARTICLE V Employment Contracts 11 ARTICLE VI Stock and Transfer Books 11 ARTICLE VII Issue of Authorized Stock 13 ARTICLE VIII Signature of Checks 13 ARTICLE IX Seal and Fiscal Year 13 ARTICLE X Amendment of By-Laws 13 ARTICLE XI Control Share Acquisitions 14 RESTATED BY-LAWS OF POLYMEDICA CORPORATION ARTICLE I Meetings of Stockholders Section 1. Place. Meetings of the stockholders shall be held at the principal office of the corporation in Massachusetts or at such other place as may be named in the notice. Section 2. Annual Meetings. The annual meeting of the stockholders shall be held within six months after the end of the fiscal year of the corporation on such date and at such hour and place as the Board of Directors or an officer designated by the Board of Directors shall determine. In the event that no date for the annual meeting is established or such meeting has not been held on the date so determined, a special meeting in lieu of the annual meeting may be held with all of the force and effect of an annual meeting. Section 3. Special Meetings. A special meeting of the stockholders may be called at any time by the Chairman of the Board, the President, the Chief Executive Officer or a majority of the Board of Directors. Each call of the meeting shall state the place, date, hour and purposes of the meeting. Section 4. Notice. A written notice of the date, place and hour of all meetings of stockholders stating the purposes of the meeting shall be given by the Clerk or an Assistant Clerk (or by any other officer who is entitled to call such a meeting) at least ten (10) days before the meeting to each stockholder entitled to vote thereat and to each stockholder who by law, by the Restated Articles of Organization or these Restated By-Laws is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Whenever notice of a meeting is required to be given a stockholder under applicable law, the Restated Articles of Organization or these Restated By-laws, a written waiver thereof, executed before or after the meeting by such stockholder or his attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. Section 5. Quorum. A majority in interest of all stock issued, outstanding and entitled to vote at a meeting shall constitute a quorum with respect to that matter, except that if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class, a quorum shall consist of the holders of the number of shares of the stock of the class issued, outstanding and entitled to vote. Section 6. Adjournment. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these Restated By-laws by the stockholders present or represented at the meeting, although less than a quorum, or by any officer entitled to preside or to act as clerk of such meeting, if no stockholder is present. It shall not be necessary to notify any stockholder of any adjournment. Any business which could have been transacted at any meeting of the stockholders as originally called may be transacted at any adjournment of the meeting. Section 7. Voting. Stockholders entitled to vote shall have one vote for each share of stock owned by them and a proportionate vote for each fractional share; provided that the corporation shall not directly or indirectly vote any share of its own stock, and provided further that stock shall not be voted if any installment of the subscription therefor has been duly demanded and is overdue and unpaid. Stockholders may vote in person or by written proxy dated not more than six months before the meeting named in the proxy. Proxies shall be filed with the clerk of the meeting, or of any adjourned meeting, before being voted. Section 8. Action by Consent. Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders, Such consents shall be treated for all purposes as a vote at a meeting. Section 9. Introduction of Business at Meeting. Except as otherwise provided by law, at any annual or special meeting of stockholders only such business shall be conducted as shall have been properly brought before the meeting. In order to be properly brought before the meeting, such business must have been either (A) specified in the written notice of the meeting (or any supplement thereto) given to stockholders of record on the record date for such meeting by or at the direction of the Board of Directors, (B) brought before the meeting at the direction of the Board of Directors or the chairman of the meeting, or (C) specified in a written notice given by or on behalf of a stockholder of record on the record date for such meeting entitled to vote thereat or a duly authorized proxy for such stockholder, in accordance with all of the following requirements. A notice referred to in clause (C) hereof must be delivered personally to or mailed to and received at the principal executive office of the corporation, addressed to the attention of the Clerk, not more than five (5) days after the date of the initial notice referred to in clause (A) hereof, in the case of business to be brought before a special meeting of stockholders, and not less than thirty (30) days prior to the first anniversary date of the initial notice referred to in clause (A) hereof to the previous year's annual meeting, in the case of business to be brought before an annual meeting of stockholders, provided, however, that such notice shall not be required to be given more than sixty (60) days to an annual meeting of stockholders. Such notice referred to in clause (C) hereof shall set forth (i) a full description of each such item of business proposed to be brought before the meeting, (ii) the name and address of the person proposing to bring such business before the meeting, (iii) the class and number of shares held of record, held beneficially and represented by proxy by such person as of the record date for the meeting (if such date has then been made publicly available) and as of the date of such notice, (iv) if any item of such business involves a nomination for director, all information regarding each such nominee that would be required to be set forth in a definitive proxy statement filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto, and the written consent of each such nominee to served if elected, and (v) all other information that would be required to be filed with the Securities and Exchange Commission if, with respect to the business proposed to be brought before the meeting, the person proposing such business was a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto. No business shall be brought before any meeting of stockholders of the corporation otherwise than as provided in this paragraph. Notwithstanding the foregoing provisions, the Board of Directors shall not be obligated to include information as to any nominee for director in any proxy statement or other communication sent to stockholders. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any proposed item of business was not brought before the meeting in accordance with the foregoing procedure and, if he should so determine, he shall so declare to the meeting and the defective item of business shall be disregarded. Section 10. Action at Meeting. When a quorum is present at any meeting, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter), shall decide any matter to be voted on by the stockholders, except when a larger vote is required by law, the Restated Articles of Organization or these Restated By-laws. When a quorum is present at any meeting, any election by stockholders shall be determined by a plurality of the votes cast on the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. Section 11. Appointment of Judges of Election. In advance of any meeting of stockholders, the Board of Directors may appoint judges of election, who need not be stockholders, to act at such meeting or any adjournment thereof. If judges of election be not so appointed, the chairman of any such meeting may and, on the request of any stockholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three as shall be determined by the Board of Directors, except that, if appointed at the meeting on the request of one or more stockholders or proxies, the holders of a majority of the shares of the corporation present and entitled to vote shall determine whether one or three judges are to be appointed. No person who is a candidate for office shall act as a judge. ARTICLE II Officers and Directors Section 1. Enumeration and Election of Directors. The corporation shall have a Board of Directors of not less than three directors, except that whenever there shall be fewer than three stockholders, the number of directors may be less than three but in no event less than the number of stockholders. The number of directors may be decreased at any time and from time to time either by the stockholders or by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The directors of the corporation shall be divided into three classes, labelled Class I Directors, Class II Directors and Class III Directors, each class to consist of approximately an equal number of directors who shall serve for staggered three-year terms. No one class shall have more than one director more than any other class. If a fraction is contained in the quotient arrived at by dividing the designated number of directors by three, then, if such fraction is one-third, the extra director shall be a member of Class III, and if such a fraction is two-thirds, one of the extra directors shall be a member of Class III and one of the extra directors shall be a member of Class II, unless otherwise provided from time to time by resolution adopted by the Board of Directors. At each annual meeting of the stockholders, the successors to the directors of the class whose term shall expire in that year shall be elected to hold office for a term of three years from the date of their election for until their successors shall be duly elected and qualified, provided, however, the initial directors to be elected as Class I Directors, Class II Directors and Class III Directors shall be elected for one year, two years and three years, respectively. In the case of any decrease or increase in the number of directors, the increase or decrease shall be distributed among the several classes as equally as possible, as shall be determined by the affirmative vote of the whole Board of Directors may be enlarged at any time and from time to time by the stockholders or by vote of majority of the directors then in office. Each Director shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified, or until his earlier death, resignation or removal for cause. Section 2. Enumeration and Election of Officers. The officers of the corporation shall be a President, a Treasurer, a Clerk and such other officers as the directors may from time to time appoint. The directors at their annual meeting in each year shall elect a President, a Treasurer and a Clerk, and may at any time elect such other officers as they shall determine. Except as hereinafter provided, the President, the Treasurer and the Clerk shall hold office until the next annual meeting of stockholders and until their respective successors are elected and qualified. Other officers shall serve at the pleasure of the directors. Section 3. Qualifications of Directors and Officers. Directors and officers need not be stockholders. No officer need be a director. Two or more offices may be held by the same person. The Clerk shall be a resident of Massachusetts unless a resident agent shall have been appointed pursuant to the Massachusetts Business Corporation Law. Section 4. Removal of Directors and Officers. Directors may be removed from office at any time but only for cause and only by the vote of the holders of two-thirds (66 2/3%) of the shares entitled to vote in the election of directors. Officers elected or appointed by the directors may be removed from their respective offices with or without cause by vote of a majority of the directors then in office. A director or officer may be removed for cause only after a reasonable notice and opportunity to be heard before the body proposing to remove him. Section 5. Resignation of Directors and Officers. Resignations by officers or directors shall be given in writing to the President, Treasurer, Clerk or directors. Section 6. Vacancies. Unless and until filled by the stockholders, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by vote of a majority of the directors present at any meeting of directors at which a quorum is present. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is chosen and qualified or until his earlier death, resignation or removal. Vacancies in any other office may be filled by the directors. Section 7. Compensation of Directors and Officers. Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors. ARTICLE III Meeting of the Directors Section 1. Regular Meetings. Regular meetings of the directors may be held at such times and places within or without the Commonwealth of Massachusetts as the directors may fix. An annual meeting of the directors shall be held in each year immediately after and at the place of the meeting at which the Board is elected. Section 2. Special Meetings. Special meetings of the directors may be held at such times and places within or without the Commonwealth of Massachusetts as may be determined by the directors or by the President. Special meetings of the directors may be called by the President, the Chairman, the Treasurer, or by two or more directors, provided reasonable notice thereof is given to each director by the Clerk or Assistant Clerk, or by the officer or one of the directors calling the meeting. Section 3. Notice. No notice need be given for a regular or annual meeting of the directors. Forty-eight hours' notice by mail, telegraph, telephone or word of mouth shall be given for a special meeting unless shorter notice is adequate under the circumstances. A notice or waiver of notice need not specify the purpose of any special meeting. Notice of a meeting need not be given to any director, if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Section 4. Quorum. A majority of the directors then in office shall constitute a quorum, but a smaller number may adjourn finally or from time to time without further notice until a quorum is secured. If a quorum is present, a majority of the directors present may take any action on behalf of the Board except to the extent that a larger number is required by law or the Restated Articles of Organization or the Restated By-Laws. Section 5. Action by Consent. Any action required or permitted to be taken at any meeting of the directors may be taken without a meeting if all the directors consent to the action in writing and the written consents are filed with the records of the meetings of directors. Such consents shall be treated for all purposes as a vote at a meeting. ARTICLE IV Powers and Duties of Directors and Officers Section 1. Directors. The business of the corporation shall be managed by the directors, who may exercise all such powers of the corporation as are not by law, by the Restated Articles of Organization or by the Restated By-Laws required to be otherwise exercised. The directors may from time to time to the extent permitted by law delegate any of their powers to committees, officers, attorneys, or agents of the corporation, subject to such limitations as the directors may impose. Section 2. Chairman and President. The directors may appoint a Chairman of the Board who, unless otherwise determined by the directors, shall, when present, preside at all meetings of the directors and shall have such other powers and duties as customarily belong to the office of Chairman of the Board or as may be designated from time to time by the directors. The President shall be the Chief Executive Officer of the corporation unless the directors designate another officer, in which event he shall, unless the directors otherwise determine, be the Chief Operating Officer. The Chief Executive Officer shall, subject to the direction of the directors, have general supervision and control of the business of the corporation. Except as provided above regarding the Chairman and unless the directors specify otherwise, the Chief Executive Officer shall preside at all meetings of stockholders and of the directors at which he is present. The President and Chief Executive Officer shall perform such other duties and shall have such other powers as the directors may designate from time to time. Section 3. Vice Presidents. The Vice Presidents, if any, shall have such powers and duties as may be designated from time to time by the directors or by the President. Section 4. Treasurer. Except as the directors shall otherwise determine, the Treasurer shall be the Chief Financial and Accounting Officer of the corporation and shall have such other powers and duties as customarily belong to the office of Treasurer or as may be designated from time to time by the directors or by the President. Section 5. Clerk. The clerk shall record all proceedings of the stockholders and directors in a book or books to be kept therefor and shall have custody of the seal of the corporation. Section 6. Other Officers. Other officers shall have such powers as may be designated from time to time by the directors. ARTICLE V Employment Contracts The corporation may enter into employment contracts authorized by the directors extending beyond the terms of the directors. An employment contract shall be valid despite any inconsistent provision of these Restated By-laws relating to terms of officers and removal of officers with or without cause but shall not affect the authority of the directors to remove officers. Any removal or failure to reelect an officer shall be without prejudice to the officer's contract rights, if any. ARTICLE VI Stock and Transfer Books The corporation shall keep in the Commonwealth of Massachusetts at its principal office (or at an office of its transfer agent or of its Clerk or of its resident agent) stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each. The corporation for all purposes may conclusively presume that the registered holder of a stock certificate is the absolute owner of the shares represented thereby and that his record address is his proper address. The directors may fix in advance a time, which shall not be more than sixty days before the date of any meeting of stockholders or the date for the payment of any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such record date shall have such rights, notwithstanding any transfer of stock on the books of the corporation after the record date; or without fixing such record date the directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed: (1) The record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given. (2) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the the Board of Directors acts with respect thereto. ARTICLE VII Issue of Authorized Stock Any unissued capital stock from time to time authorized under the Restated Articles of Organization may be issued by vote of the directors. ARTICLE VIII Signature of Checks All checks drawn of bank accounts of the corporation may be signed on its behalf as authorized from time to time by the directors. ARTICLE IX Seal and Fiscal Year The seal shall be circular in form with the name of the corporation around the periphery and words and figures "Incorporated 1988 Massachusetts" within. The fiscal year shall commence on April 1st of each year. ARTICLE X Amendment of Restated By-laws Subject to the terms of the Restated Articles of Organization of the corporation, as amended, these Restated By-laws may be amended, altered or repealed in whole or in part, and new Restated By-laws may be adopted, by vote of the holders of a majority of the shares of each class of the capital stock outstanding and entitled to vote, except with respect to (a) the provisions of these By-laws governing (i) the staggered Board of Directors, (ii) the removal of directors and (iii) the amendment of these Restated By-laws and (b) any provision of these By-laws which by law, the Restated Articles of Organization or these Restated By-laws requires action by the stockholders, which shall require the vote of the holders of two-thirds (66-2/3%) of the shares of each class of the capital stock outstanding and entitled to vote. Subject to the terms of the Restated Articles of Organization of the corporation, as amended, the directors may also make, amend or repeal these Restated By-laws in whole or in part, except with respect to (a) the provisions of these By-laws governing (i) the staggered Board of Directors, (ii) the removal of directors and (iii) the amendment of these Restated By-laws and (b) any provision of these By-laws which by law, the Restated Articles of Organization or these Restated By-laws requires action by the stockholders. Not later than the time of giving notice of the meeting of stockholders next following the making, amending or repealing by the directors of any By-law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the Restated By-laws. Subject to the terms of the Restated Articles of Organization of the corporation, as amended, any By-law adopted by the directors may be amended or repealed by the stockholders. ARTICLE XI Control Share Acquisitions Chapter 110D of the Massachusetts General Laws, as it may be amended from time to time, shall not apply to control share acquisitions of the corporation. EX-10.04 4 b46956pcexv10w04.txt EX-10.04 2000 STOCK INCENTIVE PLAN, AS AMENDED EXHIBIT 10.04 POLYMEDICA CORPORATION 2000 STOCK INCENTIVE PLAN 1. Purpose The purpose of this 2000 Stock Incentive Plan (the "Plan") of PolyMedica Corporation, a Massachusetts corporation ("PolyMedica" or the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any of the Company's present or future subsidiary corporations as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code") and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a significant interest, as determined by the Board of Directors of the Company (the "Board"). 2. Eligibility All of the Company's employees, officers, directors, consultants and advisors (and any individuals who have accepted an offer for employment) are eligible to be granted options and restricted stock awards, (each, an "Award") under the Plan. Each person who has been granted an Award under the Plan shall be deemed a "Participant". 3. Administration, Delegation a. Administration by Board of Directors. The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith. b. Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean the Board or a Committee of the Board to the extent that the Board's powers or authority under the Plan have been delegated to such Committee. 4. Stock Available for Awards a. Number of Shares. Subject to adjustment under Section 7, Awards may be made under the Plan for up to 2,300,000 shares of common stock, $.01 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitations required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. b. Per-Participant Limit. Subject to adjustment under Section 7, the maximum number of shares of Common Stock with respect to which Awards may be granted to any Participant under the Plan shall be 150,000 per calendar year. The per-Participant limit described in this Section 4(b) shall be construed and applied consistently with Section 162(m) of the Code ("Section 162(m)"). 5. Stock Options a. General. The Board may grant options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock Option". Notwithstanding anything contained herein to the contrary, without the prior approval of the Company's shareholders, no option issued hereunder shall be repriced, replaced or regranted through cancellation, or by lowering the option exercise price of a previously granted award. b. Incentive Stock Options. An Option that the Board intends to be an "incentive stock option" as defined in Section 422 of the Code (an "Incentive Stock Option") shall only be granted to employees of PolyMedica or any of its present or future subsidiaries as defined in section 424(f) of the code, and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) which is intended to be an Incentive Stock Option is not an Incentive Stock Option. c. Exercise Price. The Board shall establish the exercise price at the time each Option is granted at not less than 100% of the fair market value of the shares of Common Stock, as determined by the Board, at such time, and shall specify that exercise price in the applicable option agreement. d. Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement, provided, however, that no Option will be granted for a term in excess of 10 years. e. Exercise of Option. Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. f. Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows: 1. in cash or by check, payable to the order of the Company; 2. except as the Board may, in its sole discretion, otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding; 3. by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board in good faith ("Fair Market Value"), provided (i) such method of payment is then permitted under applicable law and (ii) such Common Stock, if acquired directly from the Company was owned by the Participant at least six months prior to such delivery; 4. to the extent permitted by the Board, in its sole discretion by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or 5. by any combination of the above permitted forms of payment. g. Substitute Options. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Options in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Options may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Options contained in the other sections of this Section 5 or in Section 2. 6. Restricted Stock a. Grants. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a "Restricted Stock Award"). b. Terms and Conditions. The Board shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. 7. Adjustments for Changes in Common Stock and Certain Other Events a. Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, (i) the number and class of securities available under this Plan, (ii) the per-Participant limit set forth in Section 4(b), (iii) the number and class of securities and exercise price per share subject to each outstanding Option, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the terms of each other outstanding Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is necessary and appropriate. If this Section 7(a) applies and Section 7(c) also applies to any event, Section 7(c) shall be applicable to such event, and this Section 7(a) shall not be applicable. b. Liquidation or Dissolution. In the event of a proposed liquidation or dissolution of the Company, the Board shall upon written notice to the Participants provide that all then unexercised Options will (i) become exercisable in full as of a specified time at least 10 business days prior to the effective date of such liquidation or dissolution and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. The Board may specify the effect of a liquidation or dissolution on any Restricted Stock Award or other Award granted under the Plan at the time of the grant of such Award. 8. Acquisition Events a. Definition. An "Acquisition Event" shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which the Common Stock is converted into or exchanged for the right to receive cash, securities or other property or (b) any exchange of shares of the Company for cash, securities or other property pursuant to a share exchange transaction. b. Consequences of an Acquisition Event on Options. Upon the occurrence of an Acquisition Event, or the execution by the Company of any agreement with respect to an Acquisition Event, the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof). For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Acquisition Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Acquisition Event, the consideration (whether cash, securities or other property) received as a result of the Acquisition Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Acquisition Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Acquisition Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Acquisition Event. Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Participants, provide that all Options will become exercisable in full as of a specified time prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Participants before the consummation of such Acquisition Event; provided, however, that in the event of an Acquisition Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. c. Consequences of an Acquisition Event on Restricted Stock Awards. Upon the occurrence of an Acquisition Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Acquisition Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. 9. General Provisions Applicable to Awards a. Transferability of Awards. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees. b. Documentation. Each Award shall be evidenced by a written instrument in such form as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. c. Board Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly. d. Termination of Status. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant's legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award. e. Withholding. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Except as the Board may otherwise provide in an Award, when the Common Stock is registered under the Exchange Act, Participants may, to the extent then permitted under applicable law, satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided , however, that the total tax withholding where stock is being used to satisfy such tax obligation cannot exceed the Company's minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state taxes including payroll taxes that are applicable to such supplemental taxable income). The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant. f. Amendment of Award. Subject to the provisions of the last sentence of Section 5(a) hereof, the Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. g. Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations. h. Acceleration. The Board may at any time provide that any Options shall become immediately exercisable in full or in part, or that any Restricted Stock Awards shall be free of restrictions in full or in part. 10. Miscellaneous a. No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. b. No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend. c. Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board, but no Award granted to a Participant that is intended to comply with Section 162(m) shall become exercisable, vested or realizable, as applicable to such Award, unless and until the Plan has been approved by the Company's stockholders to the extent stockholder approval is required by Section 162(m) in the manner required under Section 162(m) (including the vote required under Section 162(m)). No Awards shall be granted under the Plan after the completion of ten years from the earlier of (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Company's stockholders, but Awards previously granted may extend beyond that date. d. Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that to the extent required by Section 162(m), no Award granted to a Participant that is intended to comply with Section 162(m) after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and until such amendment shall have been approved by the Company's stockholders as required by Section 162(m) (including the vote required under Section 162(m)). e. Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Massachusetts, without regard to any applicable conflicts of law. Adopted by the Board of Directors on June 8, 2000 Approved by the Shareholders on September 14, 2000 (Increase from 1,200,000 to 1,800,000 Common Stock authorized for issuance under the Plan) Amended by the Board of Directors on August 27, 2001 Approved by the Shareholders on September 13, 2001 (Increase from 1,800,000 to 2,300,000 shares of Common Stock authorized for issuance under the Plan) Amended by the Board of Directors on July 24, 2002 Approved by the Shareholders on September 12, 2002 EX-10.62 5 b46956pcexv10w62.txt EX-10.62 LETTER AGREEMENT EXHIBIT 10.62 April 1, 2003 John K. P. Stone III Frenchman's Marina 2700 Donald Ross Road Palm Beach Gardens, FL 33410 Re: Amendment to Executive Employment Agreement Dear Nick, This letter agreement serves to amend the Executive Employment Agreement dated as of March 27, 2002, by and between you and PolyMedica Corporation. (the "Company") (together, the "Executive Employment Agreement"). Term of Employment. The Employment Period, as defined in Section 2 of the Amended Executive Employment Agreement, is extended to August 31, 2003. If the foregoing is acceptable to you, please indicate your agreement by signing a copy of this letter agreement and returning it to the undersigned. Very truly yours, /s/ Arthur A. Siciliano ----------------------- Arthur A. Siciliano President ACCEPTED AND AGREED TO: /s/ John K. P. Stone III - ------------------------ John K. P. Stone III EX-10.63 6 b46956pcexv10w63.txt EX-10.63 RESTRICTED STOCK AGREEMENT EXHIBIT 10.63 AGREEMENT made this 14th day of March 2003, between PolyMedica Corporation, a Massachusetts corporation (the "Company"), and Samuel L. Shanaman (the "Participant"). For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows: 1. Purchase of Shares. The Company shall issue and sell to the Participant, and the Participant shall purchase from the Company, subject to the terms and conditions set forth in this Agreement and in the Company's 2000 Stock Incentive Plan (the "Plan"), 3,600 shares (the "Shares") of common stock, $0.01 par value, of the Company ("Common Stock"), at a purchase price of $0.01 per share. The aggregate purchase price for the Shares shall be paid by the Participant by check payable to the order of the Company or such other method as may be acceptable to the Company. Upon receipt by the Company of payment for the Shares, the Company shall issue to the Participant one or more certificates in the name of the Participant for that number of Shares purchased by the Participant. The Participant agrees that certain of the Shares shall be subject to the purchase options set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Purchase Option. Upon the termination of the employment agreement dated as of the date hereof by and between the Company and the Participant (the "Employment Agreement"), for any reason or no reason, with or without cause, prior to July 31, 2003, the Company shall have the right and option (the "Purchase Option") to purchase from the Participant, for a sum of $0.01 per share (the "Option Price"), some or all of the Unvested Shares (as defined below). "Unvested Shares" means the total number of Shares less the total number of Vested Shares (as defined herein) at the time the Purchase Option becomes exercisable by the Company. Of the Shares, 1,039 shall be "Vested Shares" on the date hereof and the remaining 2,561 Shares shall vest on the 30th day of each month that the Employment Agreement is in effect, beginning March 30, 2003, in an amount determined by multiplying 67 Shares by the number of days actually worked by the Participant during the period from the last vesting date to and including the current vesting date. The calculation of Vested Shares to be made on March 30, 2003 shall be made for the period beginning March 15, 2003. 3. Exercise of Purchase Option and Closing. a. The Company may exercise the Purchase Option by delivering or mailing to the Participant (or his estate), within 60 days after the termination of the Employment Agreement, a written notice of exercise of the Purchase Option. Such notice shall specify the number of Shares to be purchased. If and to the extent the Purchase Option is not so exercised by the giving of such a notice within such 60-day period, the Purchase Option shall automatically expire and terminate effective upon the expiration of such 60-day period. b. Within 10 days after delivery to the Participant of the Company's notice of the exercise of the Purchase Option pursuant to subsection (a) above, the Participant (or his estate) shall, pursuant to the provisions of the Joint Escrow Instructions referred to in Section 5 below, tender to the Company at its principal offices the certificate or certificates representing the Shares which the Company has elected to purchase in accordance with the terms of this Agreement, duly endorsed in blank or with duly endorsed stock powers attached thereto, all in form suitable for the transfer of such Shares to the Company. Promptly following its receipt of such certificate or certificates, the Company shall pay to the Participant the aggregate Option Price for such Shares (provided that any delay in making such payment shall not invalidate the Company's exercise of the Purchase Option with respect to such Shares). c. After the time at which any Shares are required to be delivered to the Company for transfer to the Company pursuant to subsection (b) above, the Company shall not pay any dividend to the Participant on account of such Shares or permit the Participant to exercise any of the privileges or rights of a stockholder with respect to such Shares, but shall, in so far as permitted by law, treat the Company as the owner of such Shares. d. The Option Price may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Participant to the Company or in cash (by check) or both. e. The Company shall not purchase any fraction of a Share upon exercise of the Purchase Option, and any fraction of a Share resulting from a computation made pursuant to Section 2 of this Agreement shall be rounded to the nearest whole Share (with any one-half Share being rounded upward). f. The Company may assign its Purchase Option to one or more persons or entities. 4. Restrictions on Transfer. a. The Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively "transfer") any Shares, or any interest therein, that are subject to the Purchase Option, except that the Participant may transfer such Shares (i) to or for the benefit of any spouse, children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the Board of Directors (collectively, "Approved Relatives") or to a trust established solely for the benefit of the Participant and/or Approved Relatives, provided that such Shares shall remain subject to this Agreement (including without limitation the restrictions on transfer set forth in this Section 4 and the Purchase Option) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement or (ii) as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation), provided that, in accordance with the Plan, the securities or other property received by the Participant in connection with such transaction shall remain subject to this Agreement. b. The Participant shall have the right, at any time and from time to time, to pledge or hypothecate the Shares to a commercial bank or financial institution (the "Bank") as security for a loan from such Bank. During the term of the pledge or hypothecation agreement, the Company may not exercise the Purchase Option with respect to the Shares that are subject to the pledge (the "Pledged Shares"), and if the Participant defaults on such loan, then the Bank may take possession of the Pledged Shares provided that such Pledged Shares shall remain subject to this Agreement, other than the Purchase Option which shall terminate with respect to the Pledged Shares and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the other terms and conditions of this Agreement. 5. Escrow. a. The Participant shall, upon the execution of this Agreement, execute Joint Escrow Instructions in the form attached to this Agreement as Exhibit A. The Joint Escrow Instructions shall be delivered to the Chief Financial Officer of the Company, as escrow agent thereunder. The Participant shall deliver to such escrow agent a stock assignment duly endorsed in blank, in the form attached to this Agreement as Exhibit B, and hereby instructs the Company to deliver to such escrow agent, on behalf of the Participant, the certificate(s) evidencing the Shares issued hereunder. Such materials shall be held by such escrow agent pursuant to the terms of such Joint Escrow Instructions. 6. Restrictive Legends. a. All certificates representing Shares shall have affixed thereto legends in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: "The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his predecessor in interest), and such Agreement is available for inspection without charge at the office of the Chief Financial Officer of the corporation." 7. Provisions of the Plan. a. This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this Agreement. b. As provided in the Plan, upon the occurrence of an Acquisition Event (as defined in the Plan), the repurchase and other rights of the Company hereunder shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Shares were converted into or exchanged for pursuant to such Acquisition Event in the same manner and to the same extent as they applied to the Shares under this Agreement. If, in connection with an Acquisition Event, a portion of the cash, securities and/or other property received upon the conversion or exchange of the Shares is to be placed into escrow to secure indemnification or similar obligations, the mix between the vested and unvested portion of such cash, securities and/or other property that is placed into escrow shall be the same as the mix between the vested and unvested portion of such cash, securities and/or other property that is not subject to escrow. 8. Withholding Taxes; Section 83(b) Election. a. The Participant acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Participant or the lapse of the Purchase Option. b. The Participant has reviewed with the Participant's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the Participant (and not the Company) shall be responsible for the Participant's own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. The Participant understands that it may be beneficial in many circumstances to elect to be taxed at the time the Shares are purchased rather than when and as the Company's Purchase Option expires by filing an election under Section 83(b) of the Code with the I.R.S. within 30 days from the date of purchase. THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PARTICIPANT'S BEHALF. 9. Miscellaneous. a. No Rights to Employment. The Participant acknowledges and agrees that the vesting of the Shares pursuant to Section 2 hereof is earned only by continuing service pursuant to the Employment Agreement (not through the act of being hired or purchasing shares hereunder). The Participant further acknowledges and agrees that the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued engagement as an employee or consultant for the vesting period, for any period, or at all. b. 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, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. c. Waiver. Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. d. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. e. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or five days after deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party hereto at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 9(e). f. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. g. Entire Agreement. This Agreement and the Plan constitute the entire agreement between the parties, and supersede all prior agreements and understandings, relating to the subject matter of this Agreement. h. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Participant. i. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the Commonwealth of Massachusetts without regard to any applicable conflicts of laws. j. Participant's Acknowledgments. The Participant acknowledges that he or she: (i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Participant's own choice or has voluntarily declined to seek such counsel; (iii) understands the terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement; and (v) understands that the law firm of Hale and Dorr LLP, is acting as counsel to the Company in connection with the transactions contemplated by the Agreement, and is not acting as counsel for the Participant. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. POLYMEDICA CORPORATION By: /s/ Stephen C. Farrell ---------------------- Name: Stephen C. Farrell Title: Senior Vice President and Chief Financial Officer /s/ Samuel L. Shanaman -------------------------- Name: Samuel L. Shanaman Title: Lead Director and Interim Chief Executive Officer EX-10.64 7 b46956pcexv10w64.txt EX-10.64 TERMINATION OF EMPLOYMENT AGREEMENT EXHIBIT 10.64 This Agreement (the "Agreement") is entered into and is effective as of the 6th day of June, 2003, by and between Eric G. Walters ("Executive"), PolyMedica Corporation, a Massachusetts Corporation (the "Company"), and the Board of Directors of the Company (the "Board of Directors"). BACKGROUND The Company, through its Board of Directors, has determined that a partial reorganization of operations is appropriate at this time to meet challenges and take advantage of opportunities presented by current market conditions. This reorganization includes, among other things, the elimination of the position of Executive Vice President now held by Executive. The Company has offered Executive the option to resign his employment with the Company on terms which reflect his long service and substantial contribution to the growth and success of the Company. Executive, after careful consideration of the Company's offer and his professional goals, believes that the most attractive opportunities for his personal professional development exist outside the Company, and has decided to resign his employment at the conclusion of an appropriate transitional period to facilitate the Company's reorganization plans. This important business decision is taking place at a time when the Company is the subject of government civil and criminal investigations and civil litigation, as noted in section 4.1 of this Agreement. It is of great importance to both the Board of Directors and the Executive that the resignation of the Executive not be interpreted by others as the product of a finding of impropriety as to the Executive. Such an interpretation would be inaccurate. The Company has neither resolved, nor is it determined to attempt to resolve some or all of the proceedings in which it is currently involved by offering to provide information to third parties concerning the Executive. The existence of the proceedings was not the basis for the decision by the Board to implement a partial reorganization which eliminates Executive's position or to accept the Executive's resignation. RECITALS WHEREAS Executive and the Company previously entered into an Executive Retention Agreement dated as of September 1, 2000 and an Amended Executive Employment Agreement dated April 1, 2001, as amended on June 8, 2001, September 25, 2001, May 13, 2002, and July 15, 2002 (collectively, all of the foregoing agreements shall be referred to as the "Previous Agreements"); WHEREAS Executive and the Company desire for this Agreement to supersede all Previous Agreements as of the effective date of Executive's resignation; and WHEREAS Executive and the Company acknowledge that this Agreement is desirable and would not otherwise be entered into unless the Agreement supersedes the Previous Agreements as of the effective date of Executive's resignation; WHEREAS Executive and the Company desire for this Agreement to resolve amicably and on mutually satisfactory terms any and all issues relating to the Executive's resignation from employment with the Company; WHEREAS Executive desires to resign his position as Clerk, Disclosure Committee Member, and Chief Compliance Officer on the date hereof and as Executive Vice President on August 15, 2003 and the Company recognizes Executive's valuable service to the Company; NOW THEREFORE, in consideration of the mutual promises and forbearances set forth in this Agreement, and other good and valuable consideration which Executive and the Company hereby acknowledge, Executive and the Company agree as follows: TERMS AND CONDITIONS 1. BACKGROUND AND RECITALS. The foregoing Background and Recitals are incorporated into and made a part of the Terms and Conditions of the Agreement. 2. RESIGNATION OF EMPLOYMENT. Executive resigns his position with the Company as Clerk, Disclosure Committee Member, and Chief Compliance Officer effective as of the date of this Agreement. Executive shall, however, remain employed as Executive Vice President through August 15, 2003 or such sooner time as determined by Executive ("Date of Separation"), at which time Executive agrees to execute and deliver the Resignation Letter attached hereto as Exhibit A. 3. SEVERANCE BENEFITS. 3.1 OFFICER SEVERANCE PAY. (a) As of the Date of Separation, the Company shall pay Executive salary continuation at his current base salary for eighteen (18) months, less all state and federal taxes ("Severance"). The Severance shall be paid in accordance with the Company's normal payroll procedures, but in no event shall payment start earlier than the first regular payroll after the end of the Revocation Period for the Release of Claims executed by Executive. (b) The Company shall, within five business days of the Date of Separation, pay to Executive any accrued unpaid salary. In addition, the Company shall pay Executive accrued unpaid bonus for FY2004 of $33,750 (less applicable tax withholdings). (c) The Company shall within five business days of the Date of Separation pay to Executive the amount due to him (less applicable tax withholdings) for his 42.0 days of accrued, unused vacation. 3.2 HEALTH INSURANCE. For a period of 18 months after the Date of Separation, or until the Executive becomes employed, whichever occurs first, the Company shall offer Executive continued health and dental insurance as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), or other law, and shall reimburse Executive for the full cost of that coverage. 3.3 EQUIPMENT. Executive shall be entitled to permanent ownership of the Brother fax machine he currently uses in his home office. 3.4 LIFE INSURANCE. For a period of 18 months after the Date of Separation or until Executive becomes employed, whichever occurs first, the Company shall continue in full force and effect, at its expense, life insurance on the life of the Executive with an Executive-directed beneficiary in the amount of $405,000. 3.5 NOTICE. Executive shall be obligated to provide the Company prompt notice of his subsequent employment. 3.6 401(K) PLANS. (a) Executive is a participant in the Company's non-qualified 401(k) shadow plan/social security equalization plan/pension plan/deferred salary and bonus plan (the "SERP") and has a fully vested account balance in the SERP. Executive shall continue to participate in the SERP through the Date of Separation and the Company shall credit additional amounts to his SERP account based on his salary through the Date of Separation and accrued unpaid bonus for FY2004. As soon as practicable and in no event later than October 1, 2003, the Company shall cause: (1) the full amount in Executive's SERP account (less applicable tax withholdings) to be paid to him in a lump sum; and (2) to be delivered to Executive a schedule of all activity (e.g. contributions and investments) in his account from April 1, 2003 through the effective date of such payment. (b) After the Date of Separation, Executive shall be entitled to roll-over any and all existing 401(k) retirement account(s), including discretionary amounts contributed by the Company, pursuant to the applicable benefit plan provisions. 3.7 OUTPLACEMENT. Executive shall be reimbursed for the cost of outplacement services provided by an outplacement consultant of Executive's choice up to a maximum of twenty-five thousand dollars. 4. INDEMNIFICATION AND NO ADVERSE ACTION. 4.1 The Company acknowledges Executive's rights as an Indemnitee under the Articles of Organization (the "Articles") of the Company. Without limitation of the foregoing, the Company acknowledges that it has received proper notice, in accordance with Section 3 of Article 6F of the Articles, of Executive's claim that he has a right to be indemnified with respect to the following matters: - In re: PolyMedica Corp. Sec. Litig., Civ. A. No. 00-12426 REK, United States District Court, District of Massachusetts - In re: PolyMedica Corp. Shareholder Derivative Litig., Civ. A. No. 01-3446, Superior Court of Middlesex County, Commonwealth of Massachusetts - The investigations currently being conducted by the United States Attorney's for the Southern District of Florida and the Southern District of Illinois The Company further acknowledges that, pursuant to such Section 3, the Company has authorized Executive to employ Kirkpatrick & Lockhart LLP as his counsel with respect to the civil matters set forth above, and Robert C. Josefsberg with respect to the criminal matters set forth above. This acknowledgement shall not limit in any way the right of the Executive to employ his own counsel with respect to other indemnified claims, as provided in such Section 3. 4.2 The Company acknowledges that, pursuant to Section 4 of Article 6F and subject to the last sentence of this Section 4.2, it is obligated, subject to the terms and conditions of such Section 4, to pay the reasonable expenses of the Executive incurred in connection with the matters listed in Section 4.1 above. The Company hereby agrees that the Executive may instruct his attorneys to forward their invoices for fees and expenses that are considered expenses under such Section 4 directly to the Company and the Company shall pay such fees and expenses within 30 days. Executive, in order to comply with the provisions of such Section 4 and with Massachusetts law, hereby undertakes to repay all amounts so advanced in the event that it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company in accordance with the Articles. 4.3 The Company currently maintains Directors and Officers liability insurance, the policies for which will be made available to the Executive and his authorized representatives promptly following any request therefore. The Company shall use commercially reasonable efforts to keep such policies in effect as to the Executive after the date hereof. 5. NON-DISPARAGEMENT. 5.1 The Company, the Senior Executives and Directors agree not to take any action or make any statement which is false, disparages, criticizes, or is derogatory with respect to, Executive regardless of whether such statements would be actionable under statutory or common law liability theories. 5.2 The Executive understands and agrees that he shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution, investor, current or former employee, consultant, client or customer of the Company or any other third party, regarding the Company or any of its directors, officers, employees, attorneys, agents or representatives or about the Company's business affairs or financial condition. The Executive further agrees not to make any statement of any kind to any media outlet other than what has been mutually agreed upon as a press release with the Company. 5.3 The parties recognize that the Company may provide information to a Governmental Entity (as defined below) or plaintiffs, as the case may be, on a voluntary basis. Nothing in this agreement shall be construed to limit or impede such voluntary cooperation or anyone acting on behalf of the Company from providing any information, including but not limited to documents, witnesses, and/or information obtained from any witness, on a voluntary basis. Nor shall it be construed to limit or impede anyone acting on behalf of the Company from responding to any legal process. For purposes of this agreement the term "Governmental Entity" shall mean any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority, agency or instrumentality, any entity charged by a Governmental Entity with the administration of a government program, or any stock market or stock exchange on which shares of the Company's stock are traded. 5.4 The parties agree that Sections 5.1, 5.2 and 5.3 may be specifically enforced by Executive or the Company, as applicable, it being agreed that money damages are not an adequate remedy for breach of Sections 5.1, 5.2 or 5.3. 6. COOPERATION. 6.1 The Executive agrees to cooperate fully with the Company in the defense or prosecution of any claims or actions or investigations which already have been brought, including, but not limited to, In Re: PolyMedica Corp. Sec. Litig., Civil Action No. 00-12426 REK pending in the United States District Court for the District of Massachusetts, and In Re: PolyMedica Corp. Shareholder Derivative Lit., Civil Action No. 01-3446 pending in the Superior Court of Middlesex County for the Commonwealth of Massachusetts, any inquiries by the United States Securities & Exchange Commission, any grand jury investigation or other investigation currently being conducted by the United States Attorney's Office for the Southern District of Florida, or the Southern District of Illinois, or any claims or actions which may be brought in the future against, or on behalf of or involving the Company wherein the Executive is indemnified by the Company, whether before or by a state or federal court or by any local, state or federal government agency. The Executive's full cooperation in connection with such claims or actions shall include, but not be limited to, his being available to meet with counsel to prepare its claims or defenses, to prepare for trial or discovery or an administrative hearing and to act as a witness when requested by the Company at reasonable times designated by the Company. Executive agrees to appear voluntarily before any grand jury proceeding relating to any of the matters set forth in Section 4 above, unless (a) Executive is a subject or target of said grand jury and (b) Executive has not been granted formal immunity. By agreeing to cooperate Executive does not waive any of his constitutional rights or attorney-client or attorney work product privileges and any assertion of such rights or privileges shall not be considered a violation of this Agreement. The Executive agrees that he will notify the Company promptly and in writing in the event that he is served with a subpoena or other such request for information or documents from a third party concerning the Company. 6.2 The Company agrees that the Company and its lawyers will cooperate with Executive by providing him and his lawyers with reasonable access to copies of all business records of the Company, to which the Executive would have been entitled to access in the ordinary course of business during the period in which Executive was employed by the Company, that are necessary to the Executive's defense of the proceedings described in Section 4.1 above or any other indemnified activity for so long as such proceedings continue. 7. NON-DISCLOSURE AND NON-COMPETITION. The Executive acknowledges and reaffirms his obligations with respect to intellectual property and non-competition, as stated more fully in the Confidentiality and Proprietary Information Agreement dated May 16, 1990 (the "Confidentiality Agreement") and the Agreement Not To Compete dated May 16, 1990 (the "Non-Compete Agreement"), each of which remains in full force and effect; provided however, that the Company agrees that if Executive wishes to engage in activities or render services prohibited by the Non-Compete Agreement, Executive may request, in a letter to the General Counsel of the Company describing generally the services he wishes to render and identifying the entity for whom he seeks to provide such services, a release from the Agreement Not To Compete. The decision whether or not to release Executive from his obligations under the Agreement Not to Compete shall be in the Company's discretion, which decision will be reviewable in the discretion of a single arbitrator at the Executive's request pursuant to the commercial arbitration rules of the American Arbitration Association in Massachusetts. 8. RETURN OF COMPANY PROPERTY. On the Date of Separation, the Executive agrees to return all Company property in good working order which has been provided to Executive including, but not limited to, keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, cellular phones, pagers, etc.), Company identification and any other Company-owned property which is in his possession or control and to advise the Company of any password protected identification that he has placed on or used in connection with any document or file on the Company's computer system and any necessary actions required to facilitate the Company's access to all documents on the computer system. Further, Executive agrees to leave intact all electronic Company documents, including those he developed or helped develop during his employment and to cancel all accounts for his benefit, if any, in the Company's name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts and to delete all Company files or records on any personal computer on which he stored such information. 9. CONFIDENTIALITY. To the extent permitted by law, the Executive understands and agrees that the contents of the negotiations and discussions resulting in this Agreement shall be maintained as confidential by the Executive, his attorneys, agents and representatives, and none of the above shall be disclosed except to the extent required by federal or state law or as otherwise agreed to in writing by the authorized agent of each party. 10. RELEASES. 10.1 The Executive agrees to execute and deliver to the Company the Release attached hereto as Exhibit B on the Date of Separation. 10.2 The Company agrees to execute and deliver to the Executive the Release attached hereto as Exhibit C on the Date of Separation. 10.3 Nothing contained in the releases set forth in Sections 10.1 and 10.2 above shall be deemed to defeat the right, if any, of any issuer or underwriter of directors' and officers' liability insurance for PolyMedica and its directors and officers to recover monies on a theory of subrogation, indemnification or contribution. 11. VOLUNTARY ASSENT. The Executive affirms that no other promises or agreements of any kind have been made to or with him by any person or entity whatsoever to cause him to sign this Agreement, and that he fully understands the meaning and intent of this Agreement. The Executive states and represents that he has had an opportunity to fully discuss and review the terms of this Agreement with an attorney. The Executive further states and represents that he has carefully read this Agreement, understands the contents herein, freely and voluntarily assents to all of the terms and conditions hereof, and signs his name of his own free act. 12. NATURE OF AGREEMENT. The parties understand and agree that this Agreement does not constitute an admission of liability or wrongdoing on the part of the Company or the Executive. 13. ATTORNEYS' FEES. The Company agrees to reimburse Executive for the attorneys' fees and expenses incurred by him in connection with the preparation of this Agreement, up to a maximum of twenty thousand dollars, within 30 days after presentation to the Company of invoices reflecting such fees and expenses. The Company further agrees that any reasonable attorneys' fees and expenses incurred by Executive in connection with a dispute regarding this Agreement shall be reimbursed to the extent and only in proportion to the claim(s) on which the Executive prevails in the dispute. 14. STOCK CERTIFICATES AND TRADES. 14.1 The Company shall reissue, as soon as practicable but in no event later than five (5) business days after the Date of Separation, in Employee's or his designee's name and without legends, all legended stock certificates representing shares of the Company's common stock beneficially owned by Employee. In connection with such reissuance(s), the Company shall obtain at its expense any legal opinion it deems necessary or advisable. 14.2 The Company agrees to prepare and file with the Securities and Exchange Commission on a timely basis all reports required to be filed by Employee pursuant to Section 16 of Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder; provided that Employee reports to the Company all of his transactions in the Company's securities triggering the filing of such a report no later than the initiation of such a transaction. Executive acknowledges that he is responsible for promptly and accurately reporting any transactions to the Company and that the Company is not responsible for any liability arising from its filing of such reports at the request of Executive. 15. MISCELLANEOUS. 15.1 ENTIRE AGREEMENT. This Agreement contains the entire understanding of Executive and the Company in respect of its subject matter and supersedes all prior oral or written agreements or understandings between Executive and the Company with respect to such subject matter; provided however, that the Previous Agreements shall remain in effect through the Separation Date and that the Non-Compete Agreement and the Confidentiality Agreement shall remain in effect as set forth in Section 7 above. 15.2 AMENDMENT; WAIVER. This Agreement may not be amended, supplemented, cancelled or discharged, except by written instrument executed by all parties. 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. 15.3 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind any successor of the Company by reorganization, merger, acquisition or consolidation, or any assignee of all or substantially all of the Company's business and properties. The Company will require any successor to all or substantially all of the business and/or assets of the company (whether direct or indirect, by purchase, merger, consolidation, asset or stock acquisition or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Agreement, `the Company" shall mean the Company as hereinbefore defined and any successor to all or substantially all of its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. The Company agrees to require any such successor to acknowledge its obligation pursuant to this Agreement in a binding written agreement approved by Executive prior to such transaction. 15.4 HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 15.5 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 Agreement or the subject matter hereof. 15.6 FURTHER ASSURANCES. The Company and Executive agree 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 documents, 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. 15.7 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. 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 ----------------------- Arthur A. Siciliano President Then personally appeared the above named Arthur A. Siciliano and acknowledged the foregoing instrument to be his free act and deed on behalf of PolyMedica Corporation, before me, /s/ Karen M. Meyer, Notary Public --------------------------------- My commission expires: 3/26/2010 For purposes of Section 5.4: AGREED TO AND ACCEPTED: BOARD OF DIRECTORS /s/ Eric G. Walters /s/ Samuel L. Shanaman - ------------------- ---------------------- Eric G. Walters Samuel L. Shanaman Lead Director, on behalf of the Board of Directors Then personally appeared the above Then personally appeared the above named Eric G. Walters, and acknowledged named Samuel L. Shanaman and the foregoing instrument to be his free acknowledged the foregoing act, instrument to be his free act and deed on behalf of the Board of Directors of PolyMedica Corporation, before me, /s/ Karen M. Meyer, Notary Public - --------------------------------- My commission expires: 3/26/2010 /s/ Karen M. Meyer, Notary Public --------------------------------- My commission expires: 3/26/2010 EX-21.1 8 b46956pcexv21w1.txt EX-21.1 SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21.1 SUBSIDIARIES OF POLYMEDICA CORPORATION

STATE OR OTHER JURISDICTION OF NAME INCORPORATION OR ORGANIZATION - ---- ----------------------------- PolyMedica Holdings, Inc. Delaware PolyMedica Securities, Inc. Massachusetts PolyMedica Healthcare, Inc. Delaware PolyMedica Pharmaceuticals (U.S.A.), Inc. Massachusetts Liberty Healthcare Group, Inc. Delaware Liberty Lane Development Company, Inc. Florida Liberty Home Pharmacy Corporation Delaware

SUBSIDIARIES OF LIBERTY HEALTHCARE GROUP, INC. Liberty Medical Supply, Inc. Florida Liberty Therapeutic Shoe Corporation Delaware (formerly Liberty Enteral Products Corporation) Liberty Marketplace, Inc. Delaware Liberty Commercial Health Services, Inc. Delaware Liberty Value Pharmacy, Inc. Delaware Liberty Pharmacy, Inc. Delaware Liberty Direct Services Corporation Delaware SUBSIDIARIES OF LIBERTY PHARMACY, INC. Liberty Medical Supply Pharmacy, Inc. Delaware SUBSIDIARIES OF POLYMEDICA PHARMACEUTICALS (U.S.A.), INC. Polymedica Pharmaceuticals Securities, Inc. Massachusetts Polymedica Pharmaceuticals (Puerto Rico), Inc. Delaware 1 SUBSIDIARIES OF LIBERTY LANE DEVELOPMENT COMPANY, INC. Liberty Lane Condominium Florida Association, Inc. (1/3 ownership) SUBSIDIARIES OF LIBERTY MEDICAL SUPPLY, INC. Liberty Lane Condominium Florida Association, Inc. (1/3 ownership) Liberty Medical Supply LLC Delaware SUBSIDIARIES OF LIBERTY HOME PHARMACY CORPORATION Liberty Lane Condominium Florida Association, Inc. (1/3 ownership) Liberty Home Pharmacy LLC Delaware 2 EX-23.1 9 b46956pcexv23w1.txt EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-100742, 333-74156, 333-74160, 333-49356, 333-92695, 333-66685, 333-17387, 333-17415, 33-98348, 33-86836, 33-70626, 33-59202, 33-48134, 33-48130 and 33-48132) and on Form S-3 (Nos. 333-35312 and 333-86575) of PolyMedica Corporation of our report dated May 21, 2003, except for Note U as to which the date is June 20, 2003, relating to the consolidated financial statements and consolidated financial statement schedule, which appears in this Form 10-K. /s/PricewaterhouseCoopers LLP Boston, Massachusetts June 30, 2003 EX-99.1 10 b46956pcexv99w1.txt EX-99.1 CERTIFICATIONS EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of PolyMedica Corporation ("PolyMedica") for the fiscal year ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Samuel L. Shanaman, Lead Director and Interim Chief Executive Officer, and Stephen C. Farrell, Senior Vice President and Chief Financial Officer of PolyMedica, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PolyMedica. /s/ Samuel L. Shanaman ---------------------- Dated: June 30, 2003 Samuel L. Shanaman Lead Director and Interim Chief Executive Officer /s/ Stephen C. Farrell ---------------------- Dated: June 30, 2003 Stephen C. Farrell Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

                                                                     EXHIBIT 3.2

                                RESTATED BY-LAWS

                                       OF

                             POLYMEDICA CORPORATION

                       (AS AMENDED THROUGH MARCH 14, 2003)



                                TABLE OF CONTENTS

                                                                           
ARTICLE I

Meetings of Stockholders                                                       1
         Section  1.       Place                                               1
         Section  2.       Annual Meeting                                      1
         Section  3.       Special Meetings                                    1
         Section  4.       Notice                                              1
         Section  5.       Quorum                                              2
         Section  6.       Adjournment                                         2
         Section  7.       Voting                                              2
         Section  8.       Action by Consent                                   3
         Section  9.       Introduction of Business at Meeting                 3
         Section 10.       Action at Meeting                                   5
         Section 11.       Appointment of Judges of Election                   5
ARTICLE II        Officers and Directors                                       6
         Section  1.       Enumeration and Election of Directors               6
         Section  2.       Enumeration and Election of Officers                7
         Section  3.       Qualifications of Directors and Officers            7
         Section  4.       Removal of Directors and Officers                   7
         Section  5.       Resignation of Directors and Officers               8
         Section  6.       Vacancies                                           8
         Section  7.       Compensation of Directors and Officers              8
ARTICLE III       Meeting of Directors                                         8
         Section  1.       Regular Meetings                                    8
         Section  2.       Special Meetings                                    9
         Section  3.       Notice                                              9
         Section  4.       Quorum                                              9
         Section  5.       Action by Consent                                   9
ARTICLE IV        Powers and Duties of Directors and Officers                 10
         Section  1.       Directors                                          10
         Section  2.       Chairman and President                             10
         Section  3.       Vice Presidents                                    10
         Section  4.       Treasurer                                          11
         Section  5.       Clerk                                              11
         Section  6.       Other Officers                                     11
ARTICLE V         Employment Contracts                                        11
ARTICLE VI        Stock and Transfer Books                                    11
ARTICLE VII       Issue of Authorized Stock                                   13
ARTICLE VIII      Signature of Checks                                         13
ARTICLE IX        Seal and Fiscal Year                                        13
ARTICLE X         Amendment of By-Laws                                        13
ARTICLE XI        Control Share Acquisitions                                  14





                                RESTATED BY-LAWS

                                       OF

                             POLYMEDICA CORPORATION

                                    ARTICLE I

                            Meetings of Stockholders

         Section 1. Place. Meetings of the stockholders shall be held at the
principal office of the corporation in Massachusetts or at such other place as
may be named in the notice.

         Section 2. Annual Meetings. The annual meeting of the stockholders
shall be held within six months after the end of the fiscal year of the
corporation on such date and at such hour and place as the Board of Directors or
an officer designated by the Board of Directors shall determine. In the event
that no date for the annual meeting is established or such meeting has not been
held on the date so determined, a special meeting in lieu of the annual meeting
may be held with all of the force and effect of an annual meeting.

         Section 3. Special Meetings. A special meeting of the stockholders may
be called at any time by the Chairman of the Board, the President, the Chief
Executive Officer or a majority of the Board of Directors. Each call of the
meeting shall state the place, date, hour and purposes of the meeting.

         Section 4. Notice. A written notice of the date, place and hour of all
meetings of stockholders stating the purposes of the meeting shall be given by
the Clerk or an Assistant Clerk (or by any other officer who is entitled to call
such a meeting) at least ten (10) days before the meeting to each stockholder
entitled to vote thereat and to each stockholder who by law, by the Restated
Articles of Organization or these Restated By-Laws is entitled to such notice,
by leaving such notice with him or at his residence or usual place of business,
or by mailing it, postage prepaid, and addressed to such stockholder at his
address as it appears in the records of the corporation. Whenever



notice of a meeting is required to be given a stockholder under applicable law,
the Restated Articles of Organization or these Restated By-laws, a written
waiver thereof, executed before or after the meeting by such stockholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.

         Section 5. Quorum. A majority in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum with
respect to that matter, except that if two or more classes of stock are
outstanding and entitled to vote as separate classes, then in the case of each
such class, a quorum shall consist of the holders of the number of shares of the
stock of the class issued, outstanding and entitled to vote.

         Section 6. Adjournment. Any meeting of stockholders may be adjourned to
any other time and to any other place at which a meeting of stockholders may be
held under these Restated By-laws by the stockholders present or represented at
the meeting, although less than a quorum, or by any officer entitled to preside
or to act as clerk of such meeting, if no stockholder is present. It shall not
be necessary to notify any stockholder of any adjournment. Any business which
could have been transacted at any meeting of the stockholders as originally
called may be transacted at any adjournment of the meeting.

         Section 7. Voting. Stockholders entitled to vote shall have one vote
for each share of stock owned by them and a proportionate vote for each
fractional share; provided that the corporation shall not directly or indirectly
vote any share of its own stock, and provided further that stock shall not be
voted if any installment of the subscription therefor has been duly demanded and
is overdue and unpaid. Stockholders may vote in person or by written proxy dated
not more than six months before the meeting named in the proxy. Proxies shall be
filed with the clerk of the meeting, or of any adjourned meeting, before being
voted.



         Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders,
Such consents shall be treated for all purposes as a vote at a meeting.

         Section 9. Introduction of Business at Meeting. Except as otherwise
provided by law, at any annual or special meeting of stockholders only such
business shall be conducted as shall have been properly brought before the
meeting. In order to be properly brought before the meeting, such business must
have been either (A) specified in the written notice of the meeting (or any
supplement thereto) given to stockholders of record on the record date for such
meeting by or at the direction of the Board of Directors, (B) brought before the
meeting at the direction of the Board of Directors or the chairman of the
meeting, or (C) specified in a written notice given by or on behalf of a
stockholder of record on the record date for such meeting entitled to vote
thereat or a duly authorized proxy for such stockholder, in accordance with all
of the following requirements. A notice referred to in clause (C) hereof must be
delivered personally to or mailed to and received at the principal executive
office of the corporation, addressed to the attention of the Clerk, not more
than five (5) days after the date of the initial notice referred to in clause
(A) hereof, in the case of business to be brought before a special meeting of
stockholders, and not less than thirty (30) days prior to the first anniversary
date of the initial notice referred to in clause (A) hereof to the previous
year's annual meeting, in the case of business to be brought before an annual
meeting of stockholders, provided, however, that such notice shall not be
required to be given more than sixty (60) days to an annual meeting of
stockholders. Such notice referred to in clause (C) hereof shall set forth (i) a
full description of each such item of business proposed to be brought before the
meeting, (ii) the name and address of the person proposing to bring such
business before the meeting, (iii) the class and number of shares held of
record,



held beneficially and represented by proxy by such person as of the record date
for the meeting (if such date has then been made publicly available) and as of
the date of such notice, (iv) if any item of such business involves a nomination
for director, all information regarding each such nominee that would be required
to be set forth in a definitive proxy statement filed with the Securities and
Exchange Commission pursuant to Section 14 of the Securities Exchange Act of
1934, as amended, or any successor thereto, and the written consent of each such
nominee to served if elected, and (v) all other information that would be
required to be filed with the Securities and Exchange Commission if, with
respect to the business proposed to be brought before the meeting, the person
proposing such business was a participant in a solicitation subject to Section
14 of the Securities Exchange Act of 1934, as amended, or any successor thereto.
No business shall be brought before any meeting of stockholders of the
corporation otherwise than as provided in this paragraph.

         Notwithstanding the foregoing provisions, the Board of Directors shall
not be obligated to include information as to any nominee for director in any
proxy statement or other communication sent to stockholders.

         The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that any proposed item of business was not brought before
the meeting in accordance with the foregoing procedure and, if he should so
determine, he shall so declare to the meeting and the defective item of business
shall be disregarded.

         Section 10. Action at Meeting. When a quorum is present at any meeting,
the holders of a majority of the stock present or represented and voting on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of a majority
of the stock of that class present or represented and voting on a matter), shall
decide any matter to be voted on by the stockholders, except when a larger vote
is required by law, the Restated Articles of Organization or these Restated
By-laws. When a quorum is present at any meeting, any election by stockholders
shall be determined by a plurality of the votes cast on the election. No ballot
shall be required for such election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election.

         Section 11. Appointment of Judges of Election. In advance of any
meeting of stockholders, the Board of Directors may appoint judges of election,
who need not be stockholders, to act at such meeting or any adjournment thereof.
If judges of election be not so appointed, the chairman of any such meeting may
and, on the request of any stockholder or his proxy shall, make such appointment
at the meeting. The number of judges shall be one or three as shall be
determined by the Board of Directors, except that, if appointed at the meeting
on the request of one or more stockholders or proxies, the holders of a majority
of the shares of the corporation present and entitled to vote shall determine
whether one or three judges are to be appointed. No person who is a candidate
for office shall act as a judge.

                                   ARTICLE II

                             Officers and Directors

         Section 1. Enumeration and Election of Directors. The corporation shall
have a Board of Directors of not less than three directors, except that whenever
there shall be fewer than three stockholders, the number of directors may be
less than three but in no event less than the number of stockholders. The number
of directors may be decreased at any time and from time to time either by the
stockholders or by a majority of the directors then in office, but only to
eliminate vacancies existing by reason of the death, resignation, removal or
expiration of the term of one or more directors.

         The directors of the corporation shall be divided into three classes,
labelled Class I Directors, Class II Directors and Class III Directors, each
class to consist of approximately an equal number of directors who shall serve
for staggered three-year terms. No one class shall have more than one director
more than any other class. If a fraction is contained in the quotient arrived at
by dividing the designated number of directors by three, then, if such fraction
is one-third, the extra director shall be a member



of Class III, and if such a fraction is two-thirds, one of the extra directors
shall be a member of Class III and one of the extra directors shall be a member
of Class II, unless otherwise provided from time to time by resolution adopted
by the Board of Directors.

         At each annual meeting of the stockholders, the successors to the
directors of the class whose term shall expire in that year shall be elected to
hold office for a term of three years from the date of their election for until
their successors shall be duly elected and qualified, provided, however, the
initial directors to be elected as Class I Directors, Class II Directors and
Class III Directors shall be elected for one year, two years and three years,
respectively. In the case of any decrease or increase in the number of
directors, the increase or decrease shall be distributed among the several
classes as equally as possible, as shall be determined by the affirmative vote
of the whole Board of Directors may be enlarged at any time and from time to
time by the stockholders or by vote of majority of the directors then in office.
Each Director shall hold office until the next annual meeting of stockholders
and until his successor is elected and qualified, or until his earlier death,
resignation or removal for cause.

         Section 2. Enumeration and Election of Officers. The officers of the
corporation shall be a President, a Treasurer, a Clerk and such other officers
as the directors may from time to time appoint. The directors at their annual
meeting in each year shall elect a President, a Treasurer and a Clerk, and may
at any time elect such other officers as they shall determine. Except as
hereinafter provided, the President, the Treasurer and the Clerk shall hold
office until the next annual meeting of stockholders and until their respective
successors are elected and qualified. Other officers shall serve at the pleasure
of the directors.

         Section 3. Qualifications of Directors and Officers. Directors and
officers need not be stockholders. No officer need be a director. Two or more
offices may be held by the same person. The Clerk shall be a resident of
Massachusetts unless a resident agent shall have been appointed pursuant to the
Massachusetts Business Corporation Law.



         Section 4. Removal of Directors and Officers. Directors may be removed
from office at any time but only for cause and only by the vote of the holders
of two-thirds (66 2/3%) of the shares entitled to vote in the election of
directors. Officers elected or appointed by the directors may be removed from
their respective offices with or without cause by vote of a majority of the
directors then in office. A director or officer may be removed for cause only
after a reasonable notice and opportunity to be heard before the body proposing
to remove him.

         Section 5. Resignation of Directors and Officers. Resignations by
officers or directors shall be given in writing to the President, Treasurer,
Clerk or directors.

         Section 6. Vacancies. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors present at any meeting of directors at which a quorum is
present. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is chosen and qualified or until his earlier
death, resignation or removal. Vacancies in any other office may be filled by
the directors.

         Section 7. Compensation of Directors and Officers. Directors may be
paid such compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Officers
of the corporation shall be entitled to such salaries, compensation or
reimbursement as shall be fixed or allowed from time to time by the Board of
Directors.



                                   ARTICLE III

                            Meeting of the Directors

         Section 1. Regular Meetings. Regular meetings of the directors may be
held at such times and places within or without the Commonwealth of
Massachusetts as the directors may fix. An annual meeting of the directors shall
be held in each year immediately after and at the place of the meeting at which
the Board is elected.

         Section 2. Special Meetings. Special meetings of the directors may be
held at such times and places within or without the Commonwealth of
Massachusetts as may be determined by the directors or by the President. Special
meetings of the directors may be called by the President, the Chairman, the
Treasurer, or by two or more directors, provided reasonable notice thereof is
given to each director by the Clerk or Assistant Clerk, or by the officer or one
of the directors calling the meeting.

         Section 3. Notice. No notice need be given for a regular or annual
meeting of the directors. Forty-eight hours' notice by mail, telegraph,
telephone or word of mouth shall be given for a special meeting unless shorter
notice is adequate under the circumstances. A notice or waiver of notice need
not specify the purpose of any special meeting. Notice of a meeting need not be
given to any director, if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any director
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him.

         Section 4. Quorum. A majority of the directors then in office shall
constitute a quorum, but a smaller number may adjourn finally or from time to
time without further notice until a quorum is secured. If a quorum is present, a
majority of the directors present may take any action on behalf of the Board
except to the extent that a larger number is required by law or the Restated
Articles of Organization or the Restated By-Laws.



         Section 5. Action by Consent. Any action required or permitted to be
taken at any meeting of the directors may be taken without a meeting if all the
directors consent to the action in writing and the written consents are filed
with the records of the meetings of directors. Such consents shall be treated
for all purposes as a vote at a meeting.

                                   ARTICLE IV

                   Powers and Duties of Directors and Officers

         Section 1. Directors. The business of the corporation shall be managed
by the directors, who may exercise all such powers of the corporation as are not
by law, by the Restated Articles of Organization or by the Restated By-Laws
required to be otherwise exercised. The directors may from time to time to the
extent permitted by law delegate any of their powers to committees, officers,
attorneys, or agents of the corporation, subject to such limitations as the
directors may impose.

         Section 2. Chairman and President. The directors may appoint a Chairman
of the Board who, unless otherwise determined by the directors, shall, when
present, preside at all meetings of the directors and shall have such other
powers and duties as customarily belong to the office of Chairman of the Board
or as may be designated from time to time by the directors. The President shall
be the Chief Executive Officer of the corporation unless the directors designate
another officer, in which event he shall, unless the directors otherwise
determine, be the Chief Operating Officer. The Chief Executive Officer shall,
subject to the direction of the directors, have general supervision and control
of the business of the corporation. Except as provided above regarding the
Chairman and unless the directors specify otherwise, the Chief Executive Officer
shall preside at all meetings of stockholders and of the directors at which he
is present. The President and Chief Executive Officer shall perform such other
duties and shall have such other powers as the directors may designate from time
to time.

         Section 3. Vice Presidents. The Vice Presidents, if any, shall have
such powers and duties as may be designated from time to time by the directors
or by the President.



         Section 4. Treasurer. Except as the directors shall otherwise
determine, the Treasurer shall be the Chief Financial and Accounting Officer of
the corporation and shall have such other powers and duties as customarily
belong to the office of Treasurer or as may be designated from time to time by
the directors or by the President.

         Section 5. Clerk. The clerk shall record all proceedings of the
stockholders and directors in a book or books to be kept therefor and shall have
custody of the seal of the corporation.

         Section 6. Other Officers. Other officers shall have such powers as may
be designated from time to time by the directors.

                                    ARTICLE V

                              Employment Contracts

         The corporation may enter into employment contracts authorized by the
directors extending beyond the terms of the directors. An employment contract
shall be valid despite any inconsistent provision of these Restated By-laws
relating to terms of officers and removal of officers with or without cause but
shall not affect the authority of the directors to remove officers. Any removal
or failure to reelect an officer shall be without prejudice to the officer's
contract rights, if any.

                                   ARTICLE VI

                            Stock and Transfer Books

         The corporation shall keep in the Commonwealth of Massachusetts at its
principal office (or at an office of its transfer agent or of its Clerk or of
its resident agent) stock and transfer records, which shall contain the names of
all stockholders and the record address and the amount of stock held by each.
The corporation for all purposes may conclusively presume that the registered
holder of a stock certificate is the absolute owner of the shares represented
thereby and that his record address is his proper address. The



directors may fix in advance a time, which shall not be more than sixty days
before the date of any meeting of stockholders or the date for the payment of
any dividend or the making of any distribution to stockholders or the last day
on which the consent or dissent of stockholders may be effectively expressed for
any purpose, as the record date for determining the stockholders having the
right to notice of and to vote at such meeting and any adjournment thereof or
the right to receive such dividend or distribution or the right to give such
consent or dissent, and in such case only stockholders of record on such record
date shall have such rights, notwithstanding any transfer of stock on the books
of the corporation after the record date; or without fixing such record date the
directors may for any of such purposes close the transfer books for all or any
part of such period.

         If no record date is fixed and the transfer books are not closed:

                           (1)      The record date for determining stockholders
                  having the right to notice of or to vote at a meeting of
                  stockholders shall be at the close of business on the day next
                  preceding the day on which notice is given.

                           (2)      The record date for determining stockholders
                  for any other purpose shall be at the close of business on the
                  day on which the the Board of Directors acts with respect
                  thereto.

                                   ARTICLE VII

                            Issue of Authorized Stock

         Any unissued capital stock from time to time authorized under the
Restated Articles of Organization may be issued by vote of the directors.



                                  ARTICLE VIII

                               Signature of Checks

         All checks drawn of bank accounts of the corporation may be signed on
its behalf as authorized from time to time by the directors.

                                   ARTICLE IX

                              Seal and Fiscal Year

         The seal shall be circular in form with the name of the corporation
around the periphery and words and figures "Incorporated 1988 Massachusetts"
within. The fiscal year shall commence on April 1st of each year.

                                    ARTICLE X

                          Amendment of Restated By-laws

         Subject to the terms of the Restated Articles of Organization of the
corporation, as amended, these Restated By-laws may be amended, altered or
repealed in whole or in part, and new Restated By-laws may be adopted, by vote
of the holders of a majority of the shares of each class of the capital stock
outstanding and entitled to vote, except with respect to (a) the provisions of
these By-laws governing (i) the staggered Board of Directors, (ii) the removal
of directors and (iii) the amendment of these Restated By-laws and (b) any
provision of these By-laws which by law, the Restated Articles of Organization
or these Restated By-laws requires action by the stockholders, which shall
require the vote of the holders of two-thirds (66-2/3%) of the shares of each
class of the capital stock outstanding and entitled to vote. Subject to the
terms of the Restated Articles of Organization of the corporation, as amended,
the directors may also make, amend or repeal these Restated By-laws in whole or
in part, except with respect to (a) the provisions of these By-laws governing
(i) the staggered Board of Directors, (ii) the removal of directors and (iii)
the amendment of these Restated By-laws and (b) any



provision of these By-laws which by law, the Restated Articles of Organization
or these Restated By-laws requires action by the stockholders. Not later than
the time of giving notice of the meeting of stockholders next following the
making, amending or repealing by the directors of any By-law, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the Restated By-laws. Subject to the terms of the Restated
Articles of Organization of the corporation, as amended, any By-law adopted by
the directors may be amended or repealed by the stockholders.

                                   ARTICLE XI

                           Control Share Acquisitions

         Chapter 110D of the Massachusetts General Laws, as it may be amended
from time to time, shall not apply to control share acquisitions of the
corporation.

EX-10.04

                                                                   EXHIBIT 10.04

                             POLYMEDICA CORPORATION
                            2000 STOCK INCENTIVE PLAN

1.       Purpose

         The purpose of this 2000 Stock Incentive Plan (the "Plan") of
PolyMedica Corporation, a Massachusetts corporation ("PolyMedica" or the
"Company"), is to advance the interests of the Company's stockholders by
enhancing the Company's ability to attract, retain and motivate persons who make
(or are expected to make) important contributions to the Company by providing
such persons with equity ownership opportunities and performance-based
incentives and thereby better aligning the interests of such persons with those
of the Company's stockholders. Except where the context otherwise requires, the
term "Company" shall include any of the Company's present or future subsidiary
corporations as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended, and any regulations promulgated thereunder (the "Code") and any
other business venture (including, without limitation, joint venture or limited
liability company) in which the Company has a significant interest, as
determined by the Board of Directors of the Company (the "Board").

2.       Eligibility

         All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options and restricted stock awards, (each, an "Award")
under the Plan. Each person who has been granted an Award under the Plan shall
be deemed a "Participant".

3.       Administration, Delegation

         a.       Administration by Board of Directors. The Plan will be
administered by the Board. The Board shall have authority to grant Awards and to
adopt, amend and repeal such administrative rules, guidelines and practices
relating to the Plan as it shall deem advisable. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
Award in the manner and to the extent it shall deem expedient to carry the Plan
into effect and it shall be the sole and final judge of such expediency. All
decisions by the Board shall be made in the Board's sole discretion and shall be
final and binding on all persons having or claiming any interest in the Plan or
in any Award. No director or person acting pursuant to the authority delegated
by the Board shall be liable for any action or determination relating to or
under the Plan made in good faith.

         b.       Appointment of Committees. To the extent permitted by
applicable law, the Board may delegate any or all of its powers under the Plan
to one or more committees or subcommittees of the Board (a "Committee"). All
references in the Plan to the "Board" shall mean the Board or a Committee of the
Board to the extent that the Board's powers or authority under the Plan have
been delegated to such Committee.

4.       Stock Available for Awards

         a.       Number of Shares. Subject to adjustment under Section 7,
Awards may be made under the Plan for up to 2,300,000 shares of common stock,
$.01 par value per share, of the Company (the "Common Stock"). If any Award
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part (including as the result of shares
of Common Stock subject to such Award being repurchased by the Company at the
original issuance price pursuant to a contractual repurchase right) or results
in any Common Stock not being issued, the unused Common Stock covered by such
Award shall again be available for the grant of Awards under the Plan, subject,
however, in the case of Incentive Stock Options (as hereinafter defined), to any
limitations required under the Code. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.

         b.       Per-Participant Limit. Subject to adjustment under Section 7,
the maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be 150,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code ("Section 162(m)").

5.       Stock Options

         a.       General. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option". Notwithstanding anything contained herein to the contrary, without the
prior approval of the Company's



shareholders, no option issued hereunder shall be repriced, replaced or
regranted through cancellation, or by lowering the option exercise price of a
previously granted award.

         b.       Incentive Stock Options. An Option that the Board intends to
be an "incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of PolyMedica or
any of its present or future subsidiaries as defined in section 424(f) of the
code, and shall be subject to and shall be construed consistently with the
requirements of Section 422 of the Code. The Company shall have no liability to
a Participant, or any other party, if an Option (or any part thereof) which is
intended to be an Incentive Stock Option is not an Incentive Stock Option.

         c.       Exercise Price. The Board shall establish the exercise price
at the time each Option is granted at not less than 100% of the fair market
value of the shares of Common Stock, as determined by the Board, at such time,
and shall specify that exercise price in the applicable option agreement.

         d.       Duration of Options. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement, provided, however, that no Option will be granted
for a term in excess of 10 years.

         e.       Exercise of Option. Options may be exercised by delivery to
the Company of a written notice of exercise signed by the proper person or by
any other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.

         f.       Payment Upon Exercise. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:

                  1.       in cash or by check, payable to the order of the
Company;

                  2.       except as the Board may, in its sole discretion,
otherwise provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price and any required tax
withholding or (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price and
any required tax withholding;

                  3.       by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by (or in a manner
approved by) the Board in good faith ("Fair Market Value"), provided (i) such
method of payment is then permitted under applicable law and (ii) such Common
Stock, if acquired directly from the Company was owned by the Participant at
least six months prior to such delivery;

                  4.       to the extent permitted by the Board, in its sole
discretion by (i) delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or

                  5.       by any combination of the above permitted forms of
payment.

         g.       Substitute Options. In connection with a merger or
consolidation of an entity with the Company or the acquisition by the Company of
property or stock of an entity, the Board may grant Options in substitution for
any options or other stock or stock-based awards granted by such entity or an
affiliate thereof. Substitute Options may be granted on such terms as the Board
deems appropriate in the circumstances, notwithstanding any limitations on
Options contained in the other sections of this Section 5 or in Section 2.

6.       Restricted Stock

         a.       Grants. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each, a
"Restricted Stock Award").

         b.       Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant



or if the Participant has died, to the beneficiary designated, in a manner
determined by the Board, by a Participant to receive amounts due or exercise
rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.

7.       Adjustments for Changes in Common Stock and Certain Other Events

         a.       Changes in Capitalization. In the event of any stock split,
reverse stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 7(a)
applies and Section 7(c) also applies to any event, Section 7(c) shall be
applicable to such event, and this Section 7(a) shall not be applicable.

         b.       Liquidation or Dissolution. In the event of a proposed
liquidation or dissolution of the Company, the Board shall upon written notice
to the Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.

8.       Acquisition Events

         a.       Definition. An "Acquisition Event" shall mean: (a) any merger
or consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a share exchange transaction.

         b.       Consequences of an Acquisition Event on Options. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Acquisition Event, the Option confers the right to
purchase, for each share of Common Stock subject to the Option immediately prior
to the consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior to
the consummation of the Acquisition Event (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely common
stock of the acquiring or succeeding corporation (or an affiliate thereof), the
Company may, with the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.

         Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all Options will become exercisable in full as of a
specified time prior to the Acquisition Event and will terminate immediately
prior to the consummation of such Acquisition Event, except to the extent
exercised by the Participants before the consummation of such Acquisition Event;
provided, however, that in the event of an Acquisition Event under the terms of
which holders of Common Stock will receive upon consummation thereof a cash
payment for each share of Common Stock surrendered pursuant to such Acquisition
Event (the "Acquisition Price"), then the Board may instead provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and that each Participant shall receive, in exchange therefor, a cash payment
equal to the amount (if any) by which (A) the Acquisition Price multiplied by
the number of shares of Common Stock subject to such outstanding Options
(whether or not then exercisable), exceeds (B) the aggregate exercise price of
such Options.

         c.       Consequences of an Acquisition Event on Restricted Stock
Awards. Upon the occurrence of an Acquisition Event, the repurchase and other
rights of the Company under each outstanding Restricted Stock Award shall inure
to the benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Stock was converted into or
exchanged for pursuant to such Acquisition Event in the same manner and to the
same extent as they applied to the Common Stock subject to such Restricted Stock
Award.



9.       General Provisions Applicable to Awards

         a.       Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

         b.       Documentation. Each Award shall be evidenced by a written
instrument in such form as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.

         c.       Board Discretion. Except as otherwise provided by the Plan,
each Award may be made alone or in addition or in relation to any other Award.
The terms of each Award need not be identical, and the Board need not treat
Participants uniformly.

         d.       Termination of Status. The Board shall determine the effect on
an Award of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.

         e.       Withholding. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in connection with Awards to such Participant no later than
the date of the event creating the tax liability. Except as the Board may
otherwise provide in an Award, when the Common Stock is registered under the
Exchange Act, Participants may, to the extent then permitted under applicable
law, satisfy such tax obligations in whole or in part by delivery of shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value; provided , however, that the
total tax withholding where stock is being used to satisfy such tax obligation
cannot exceed the Company's minimum statutory withholding obligations (based on
minimum statutory withholding rates for federal and state taxes including
payroll taxes that are applicable to such supplemental taxable income). The
Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to a Participant.

         f.       Amendment of Award. Subject to the provisions of the last
sentence of Section 5(a) hereof, the Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.

         g.       Conditions on Delivery of Stock. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

         h.       Acceleration. The Board may at any time provide that any
Options shall become immediately exercisable in full or in part, or that any
Restricted Stock Awards shall be free of restrictions in full or in part.

10.      Miscellaneous

         a.       No Right To Employment or Other Status. No person shall have
any claim or right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued employment or any
other relationship with the Company. The Company expressly reserves the right at
any time to dismiss or otherwise terminate its relationship with a Participant
free from any liability or claim under the Plan, except as expressly provided in
the applicable Award.

         b.       No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.

         c.       Effective Date and Term of Plan. The Plan shall become
effective on the date on which it is adopted by the Board, but no Award granted
to a Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as


applicable to such Award, unless and until the Plan has been approved by the
Company's stockholders to the extent stockholder approval is required by Section
162(m) in the manner required under Section 162(m) (including the vote required
under Section 162(m)). No Awards shall be granted under the Plan after the
completion of ten years from the earlier of (i) the date on which the Plan was
adopted by the Board or (ii) the date the Plan was approved by the Company's
stockholders, but Awards previously granted may extend beyond that date.

         d.       Amendment of Plan. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time, provided that to the extent
required by Section 162(m), no Award granted to a Participant that is intended
to comply with Section 162(m) after the date of such amendment shall become
exercisable, realizable or vested, as applicable to such Award, unless and until
such amendment shall have been approved by the Company's stockholders as
required by Section 162(m) (including the vote required under Section 162(m)).

         e.       Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Massachusetts, without regard to any applicable conflicts of law.

                           Adopted by the Board of Directors on June 8, 2000
                           Approved by the Shareholders on September 14, 2000

                           (Increase from 1,200,000 to 1,800,000 Common Stock
                           authorized for issuance under the Plan)

                           Amended by the Board of Directors on August 27, 2001
                           Approved by the Shareholders on September 13, 2001

                           (Increase from 1,800,000 to 2,300,000 shares of
                           Common Stock authorized for issuance under the Plan)

                           Amended by the Board of Directors on July 24, 2002
                           Approved by the Shareholders on September 12, 2002

EX-10.62

                                                                   EXHIBIT 10.62

April 1, 2003

John K. P. Stone III
Frenchman's Marina
2700 Donald Ross Road
Palm Beach Gardens, FL 33410

                 Re: Amendment to Executive Employment Agreement

Dear Nick,

This letter agreement serves to amend the Executive Employment Agreement dated
as of March 27, 2002, by and between you and PolyMedica Corporation. (the
"Company") (together, the "Executive Employment Agreement").

         Term of Employment. The Employment Period, as defined in Section 2 of
         the Amended Executive Employment Agreement, is extended to August 31,
         2003.

If the foregoing is acceptable to you, please indicate your agreement by signing
a copy of this letter agreement and returning it to the undersigned.

                                            Very truly yours,

                                            /s/ Arthur A. Siciliano
                                            -----------------------
                                            Arthur A. Siciliano
                                            President

ACCEPTED AND AGREED TO:

/s/ John K. P. Stone III
- ------------------------
John K. P. Stone III

EX-10.63

                                                                   EXHIBIT 10.63

         AGREEMENT made this 14th day of March 2003, between PolyMedica
Corporation, a Massachusetts corporation (the "Company"), and Samuel L. Shanaman
(the "Participant").

         For valuable consideration, receipt of which is acknowledged, the
parties hereto agree as follows:

         1. Purchase of Shares.

         The Company shall issue and sell to the Participant, and the
Participant shall purchase from the Company, subject to the terms and conditions
set forth in this Agreement and in the Company's 2000 Stock Incentive Plan (the
"Plan"), 3,600 shares (the "Shares") of common stock, $0.01 par value, of the
Company ("Common Stock"), at a purchase price of $0.01 per share. The aggregate
purchase price for the Shares shall be paid by the Participant by check payable
to the order of the Company or such other method as may be acceptable to the
Company. Upon receipt by the Company of payment for the Shares, the Company
shall issue to the Participant one or more certificates in the name of the
Participant for that number of Shares purchased by the Participant. The
Participant agrees that certain of the Shares shall be subject to the purchase
options set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 4 of this Agreement.

         2. Purchase Option.

         Upon the termination of the employment agreement dated as of the date
hereof by and between the Company and the Participant (the "Employment
Agreement"), for any reason or no reason, with or without cause, prior to July
31, 2003, the Company shall have the right and option (the "Purchase Option") to
purchase from the Participant, for a sum of $0.01 per share (the "Option
Price"), some or all of the Unvested Shares (as defined below).

         "Unvested Shares" means the total number of Shares less the total
number of Vested Shares (as defined herein) at the time the Purchase Option
becomes exercisable by the Company. Of the Shares, 1,039 shall be "Vested
Shares" on the date hereof and the remaining 2,561 Shares shall vest on the 30th
day of each month that the Employment Agreement is in effect, beginning March
30, 2003, in an amount determined by multiplying 67 Shares by the number of days
actually worked by the Participant during the period from the last vesting date
to and including the current vesting date. The calculation of Vested Shares to
be made on March 30, 2003 shall be made for the period beginning March 15, 2003.

         3. Exercise of Purchase Option and Closing.

                  a.       The Company may exercise the Purchase Option by
delivering or mailing to the Participant (or his estate), within 60 days after
the termination of the Employment Agreement, a written notice of exercise of the
Purchase Option. Such notice shall specify the number of Shares to be purchased.
If and to the extent the Purchase Option is not so exercised by the giving of
such a notice within such 60-day period, the Purchase Option shall automatically
expire and terminate effective upon the expiration of such 60-day period.

                  b.       Within 10 days after delivery to the Participant of
the Company's notice of the exercise of the Purchase Option pursuant to
subsection (a) above, the Participant (or his estate) shall, pursuant to the
provisions of the Joint Escrow Instructions referred to in Section 5 below,
tender to the Company at its principal offices the certificate or certificates
representing the Shares which the Company has elected to purchase in accordance
with the terms of this Agreement, duly endorsed in blank or with duly endorsed
stock powers attached thereto, all in form suitable for the transfer of such
Shares to the Company. Promptly following its receipt of such certificate or
certificates, the Company shall pay to the Participant the aggregate Option
Price for such Shares (provided that any delay in making such payment shall not
invalidate the Company's exercise of the Purchase Option with respect to such
Shares).

                  c.       After the time at which any Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Shares or permit the Participant to exercise any of the privileges or
rights of a stockholder with respect to such Shares, but shall, in so far as
permitted by law, treat the Company as the owner of such Shares.

                  d.       The Option Price may be payable, at the option of the
Company, in cancellation of all or a portion of any outstanding indebtedness of
the Participant to the Company or in cash (by check) or both.

                  e.       The Company shall not purchase any fraction of a
Share upon exercise of the Purchase Option, and any fraction of a Share
resulting from a computation made pursuant to Section 2 of this Agreement shall
be rounded to the nearest whole



Share (with any one-half Share being rounded upward).

                  f.       The Company may assign its Purchase Option to one or
more persons or entities.

         4. Restrictions on Transfer.

                  a.       The Participant shall not sell, assign, transfer,
pledge, hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively "transfer") any Shares, or any interest therein, that are subject
to the Purchase Option, except that the Participant may transfer such Shares (i)
to or for the benefit of any spouse, children, parents, uncles, aunts, siblings,
grandchildren and any other relatives approved by the Board of Directors
(collectively, "Approved Relatives") or to a trust established solely for the
benefit of the Participant and/or Approved Relatives, provided that such Shares
shall remain subject to this Agreement (including without limitation the
restrictions on transfer set forth in this Section 4 and the Purchase Option)
and such permitted transferee shall, as a condition to such transfer, deliver to
the Company a written instrument confirming that such transferee shall be bound
by all of the terms and conditions of this Agreement or (ii) as part of the sale
of all or substantially all of the shares of capital stock of the Company
(including pursuant to a merger or consolidation), provided that, in accordance
with the Plan, the securities or other property received by the Participant in
connection with such transaction shall remain subject to this Agreement.

                  b.       The Participant shall have the right, at any time and
from time to time, to pledge or hypothecate the Shares to a commercial bank or
financial institution (the "Bank") as security for a loan from such Bank. During
the term of the pledge or hypothecation agreement, the Company may not exercise
the Purchase Option with respect to the Shares that are subject to the pledge
(the "Pledged Shares"), and if the Participant defaults on such loan, then the
Bank may take possession of the Pledged Shares provided that such Pledged Shares
shall remain subject to this Agreement, other than the Purchase Option which
shall terminate with respect to the Pledged Shares and such permitted transferee
shall, as a condition to such transfer, deliver to the Company a written
instrument confirming that such transferee shall be bound by all of the other
terms and conditions of this Agreement.

         5. Escrow.

                  a.       The Participant shall, upon the execution of this
Agreement, execute Joint Escrow Instructions in the form attached to this
Agreement as Exhibit A. The Joint Escrow Instructions shall be delivered to the
Chief Financial Officer of the Company, as escrow agent thereunder. The
Participant shall deliver to such escrow agent a stock assignment duly endorsed
in blank, in the form attached to this Agreement as Exhibit B, and hereby
instructs the Company to deliver to such escrow agent, on behalf of the
Participant, the certificate(s) evidencing the Shares issued hereunder. Such
materials shall be held by such escrow agent pursuant to the terms of such Joint
Escrow Instructions.

         6. Restrictive Legends.

                  a.       All certificates representing Shares shall have
affixed thereto legends in substantially the following form, in addition to any
other legends that may be required under federal or state securities laws:

                  "The shares of stock represented by this certificate are
subject to restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the registered
owner of these shares (or his predecessor in interest), and such Agreement is
available for inspection without charge at the office of the Chief Financial
Officer of the corporation."

         7. Provisions of the Plan.

                  a.       This Agreement is subject to the provisions of the
Plan, a copy of which is furnished to the Participant with this Agreement.

                  b.       As provided in the Plan, upon the occurrence of an
Acquisition Event (as defined in the Plan), the repurchase and other rights of
the Company hereunder shall inure to the benefit of the Company's successor and
shall apply to the cash, securities or other property which the Shares were
converted into or exchanged for pursuant to such Acquisition Event in the same
manner and to the same extent as they applied to the Shares under this
Agreement. If, in connection with an Acquisition Event, a portion of the cash,
securities and/or other property received upon the conversion or exchange of the
Shares is to be placed into escrow to secure indemnification or similar
obligations, the mix between the vested and unvested portion of such cash,
securities and/or other property that is placed into escrow shall be the same as
the mix between the vested and unvested portion of such cash, securities and/or
other property that is not subject to escrow.

         8. Withholding Taxes; Section 83(b) Election.

                  a.       The Participant acknowledges and agrees that the
Company has the right to deduct from payments of any



kind otherwise due to the Participant any federal, state or local taxes of any
kind required by law to be withheld with respect to the purchase of the Shares
by the Participant or the lapse of the Purchase Option.

                  b.       The Participant has reviewed with the Participant's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Participant
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Participant understands that the
Participant (and not the Company) shall be responsible for the Participant's own
tax liability that may arise as a result of this investment or the transactions
contemplated by this Agreement. The Participant understands that it may be
beneficial in many circumstances to elect to be taxed at the time the Shares are
purchased rather than when and as the Company's Purchase Option expires by
filing an election under Section 83(b) of the Code with the I.R.S. within 30
days from the date of purchase.

                  THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON THE PARTICIPANT'S BEHALF.

         9. Miscellaneous.

                  a.       No Rights to Employment. The Participant acknowledges
and agrees that the vesting of the Shares pursuant to Section 2 hereof is earned
only by continuing service pursuant to the Employment Agreement (not through the
act of being hired or purchasing shares hereunder). The Participant further
acknowledges and agrees that the transactions contemplated hereunder and the
vesting schedule set forth herein do not constitute an express or implied
promise of continued engagement as an employee or consultant for the vesting
period, for any period, or at all.

                  b.       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, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.

                  c.       Waiver. Any provision for the benefit of the Company
contained in this Agreement may be waived, either generally or in any particular
instance, by the Board of Directors of the Company.

                  d.       Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Company and the Participant and their respective
heirs, executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 4 of this
Agreement.

                  e.       Notice. All notices required or permitted hereunder
shall be in writing and deemed effectively given upon personal delivery or five
days after deposit in the United States Post Office, by registered or certified
mail, postage prepaid, addressed to the other party hereto at the address shown
beneath his or its respective signature to this Agreement, or at such other
address or addresses as either party shall designate to the other in accordance
with this Section 9(e).

                  f.       Pronouns. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural, and vice versa.

                  g.       Entire Agreement. This Agreement and the Plan
constitute the entire agreement between the parties, and supersede all prior
agreements and understandings, relating to the subject matter of this Agreement.

                  h.       Amendment. This Agreement may be amended or modified
only by a written instrument executed by both the Company and the Participant.

                  i.       Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the internal laws of the
Commonwealth of Massachusetts without regard to any applicable conflicts of
laws.

                  j.       Participant's Acknowledgments. The Participant
acknowledges that he or she: (i) has read this Agreement; (ii) has been
represented in the preparation, negotiation, and execution of this Agreement by
legal counsel of the Participant's own choice or has voluntarily declined to
seek such counsel; (iii) understands the terms and consequences of this
Agreement; (iv) is fully aware of the legal and binding effect of this
Agreement; and (v) understands that the law firm of Hale and Dorr LLP, is acting
as counsel to the Company in connection with the transactions contemplated by
the Agreement, and is not acting as counsel for the Participant.



IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

                                            POLYMEDICA CORPORATION

                                            By: /s/ Stephen C. Farrell
                                                ----------------------
                                            Name: Stephen C. Farrell
                                            Title: Senior Vice President and
                                                   Chief Financial Officer

                                            /s/ Samuel L. Shanaman
                                            --------------------------
                                            Name: Samuel L. Shanaman
                                            Title: Lead Director and Interim
                                                   Chief Executive Officer

EX-10.64

                                                                   EXHIBIT 10.64

         This Agreement (the "Agreement") is entered into and is effective as of
the 6th day of June, 2003, by and between Eric G. Walters ("Executive"),
PolyMedica Corporation, a Massachusetts Corporation (the "Company"), and the
Board of Directors of the Company (the "Board of Directors").

BACKGROUND

         The Company, through its Board of Directors, has determined that a
partial reorganization of operations is appropriate at this time to meet
challenges and take advantage of opportunities presented by current market
conditions. This reorganization includes, among other things, the elimination of
the position of Executive Vice President now held by Executive. The Company has
offered Executive the option to resign his employment with the Company on terms
which reflect his long service and substantial contribution to the growth and
success of the Company. Executive, after careful consideration of the Company's
offer and his professional goals, believes that the most attractive
opportunities for his personal professional development exist outside the
Company, and has decided to resign his employment at the conclusion of an
appropriate transitional period to facilitate the Company's reorganization
plans. This important business decision is taking place at a time when the
Company is the subject of government civil and criminal investigations and civil
litigation, as noted in section 4.1 of this Agreement. It is of great importance
to both the Board of Directors and the Executive that the resignation of the
Executive not be interpreted by others as the product of a finding of
impropriety as to the Executive. Such an interpretation would be inaccurate. The
Company has neither resolved, nor is it determined to attempt to resolve some or
all of the proceedings in which it is currently involved by offering to provide
information to third parties concerning the Executive. The existence of the
proceedings was not the basis for the decision by the Board to implement a
partial reorganization which eliminates Executive's position or to accept the
Executive's resignation.

RECITALS

         WHEREAS Executive and the Company previously entered into an Executive
Retention Agreement dated as of September 1, 2000 and an Amended Executive
Employment Agreement dated April 1, 2001, as amended on June 8, 2001, September
25, 2001, May 13, 2002, and July 15, 2002 (collectively, all of the foregoing
agreements shall be referred to as the "Previous Agreements");

         WHEREAS Executive and the Company desire for this Agreement to
supersede all Previous Agreements as of the effective date of Executive's
resignation; and

         WHEREAS Executive and the Company acknowledge that this Agreement is
desirable and would not otherwise be entered into unless the Agreement
supersedes the Previous Agreements as of the effective date of Executive's
resignation;

         WHEREAS Executive and the Company desire for this Agreement to resolve
amicably and on mutually satisfactory terms any and all issues relating to the
Executive's resignation from employment with the Company;

         WHEREAS Executive desires to resign his position as Clerk, Disclosure
Committee Member, and Chief Compliance Officer on the date hereof and as
Executive Vice President on August 15, 2003 and the Company recognizes
Executive's valuable service to the Company;

         NOW THEREFORE, in consideration of the mutual promises and forbearances
set forth in this Agreement, and other good and valuable consideration which
Executive and the Company hereby acknowledge, Executive and the Company agree as
follows:

TERMS AND CONDITIONS

1.       BACKGROUND AND RECITALS. The foregoing Background and Recitals are
incorporated into and made a part of the Terms and Conditions of the Agreement.

2.       RESIGNATION OF EMPLOYMENT. Executive resigns his position with the
Company as Clerk, Disclosure Committee Member, and Chief Compliance Officer
effective as of the date of this Agreement. Executive shall, however, remain
employed as Executive Vice President through August 15, 2003 or such sooner time
as determined by Executive ("Date of Separation"), at which time Executive
agrees to execute and deliver the Resignation Letter attached hereto as Exhibit
A.

3.       SEVERANCE BENEFITS.

         3.1      OFFICER SEVERANCE PAY.

                  (a)      As of the Date of Separation, the Company shall pay
Executive salary continuation at his current base salary



for eighteen (18) months, less all state and federal taxes ("Severance"). The
Severance shall be paid in accordance with the Company's normal payroll
procedures, but in no event shall payment start earlier than the first regular
payroll after the end of the Revocation Period for the Release of Claims
executed by Executive.

                  (b)      The Company shall, within five business days of the
Date of Separation, pay to Executive any accrued unpaid salary. In addition, the
Company shall pay Executive accrued unpaid bonus for FY2004 of $33,750 (less
applicable tax withholdings).

                  (c)      The Company shall within five business days of the
Date of Separation pay to Executive the amount due to him (less applicable tax
withholdings) for his 42.0 days of accrued, unused vacation.

         3.2      HEALTH INSURANCE. For a period of 18 months after the Date of
Separation, or until the Executive becomes employed, whichever occurs first, the
Company shall offer Executive continued health and dental insurance as required
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), or
other law, and shall reimburse Executive for the full cost of that coverage.

         3.3      EQUIPMENT. Executive shall be entitled to permanent ownership
of the Brother fax machine he currently uses in his home office.

         3.4      LIFE INSURANCE. For a period of 18 months after the Date of
Separation or until Executive becomes employed, whichever occurs first, the
Company shall continue in full force and effect, at its expense, life insurance
on the life of the Executive with an Executive-directed beneficiary in the
amount of $405,000.

         3.5      NOTICE. Executive shall be obligated to provide the Company
prompt notice of his subsequent employment.

         3.6      401(K) PLANS.

                  (a)      Executive is a participant in the Company's
non-qualified 401(k) shadow plan/social security equalization plan/pension
plan/deferred salary and bonus plan (the "SERP") and has a fully vested account
balance in the SERP. Executive shall continue to participate in the SERP through
the Date of Separation and the Company shall credit additional amounts to his
SERP account based on his salary through the Date of Separation and accrued
unpaid bonus for FY2004. As soon as practicable and in no event later than
October 1, 2003, the Company shall cause: (1) the full amount in Executive's
SERP account (less applicable tax withholdings) to be paid to him in a lump sum;
and (2) to be delivered to Executive a schedule of all activity (e.g.
contributions and investments) in his account from April 1, 2003 through the
effective date of such payment.

                  (b)      After the Date of Separation, Executive shall be
entitled to roll-over any and all existing 401(k) retirement account(s),
including discretionary amounts contributed by the Company, pursuant to the
applicable benefit plan provisions.

         3.7      OUTPLACEMENT. Executive shall be reimbursed for the cost of
outplacement services provided by an outplacement consultant of Executive's
choice up to a maximum of twenty-five thousand dollars.

4.       INDEMNIFICATION AND NO ADVERSE ACTION.

         4.1      The Company acknowledges Executive's rights as an Indemnitee
under the Articles of Organization (the "Articles") of the Company. Without
limitation of the foregoing, the Company acknowledges that it has received
proper notice, in accordance with Section 3 of Article 6F of the Articles, of
Executive's claim that he has a right to be indemnified with respect to the
following matters:

                  -        In re: PolyMedica Corp. Sec. Litig., Civ. A. No.
                           00-12426 REK, United States District Court, District
                           of Massachusetts

                  -        In re: PolyMedica Corp. Shareholder Derivative
                           Litig., Civ. A. No. 01-3446, Superior Court of
                           Middlesex County, Commonwealth of Massachusetts

                  -        The investigations currently being conducted by the
                           United States Attorney's for the Southern District of
                           Florida and the Southern District of Illinois

         The Company further acknowledges that, pursuant to such Section 3, the
Company has authorized Executive to employ Kirkpatrick & Lockhart LLP as his
counsel with respect to the civil matters set forth above, and Robert C.
Josefsberg with respect to the criminal matters set forth above. This
acknowledgement shall not limit in any way the right of the Executive to employ
his own counsel with respect to other indemnified claims, as provided in such
Section 3.



         4.2      The Company acknowledges that, pursuant to Section 4 of
Article 6F and subject to the last sentence of this Section 4.2, it is
obligated, subject to the terms and conditions of such Section 4, to pay the
reasonable expenses of the Executive incurred in connection with the matters
listed in Section 4.1 above. The Company hereby agrees that the Executive may
instruct his attorneys to forward their invoices for fees and expenses that are
considered expenses under such Section 4 directly to the Company and the Company
shall pay such fees and expenses within 30 days.

         Executive, in order to comply with the provisions of such Section 4 and
with Massachusetts law, hereby undertakes to repay all amounts so advanced in
the event that it shall ultimately be determined that the Executive is not
entitled to be indemnified by the Company in accordance with the Articles.

         4.3      The Company currently maintains Directors and Officers
liability insurance, the policies for which will be made available to the
Executive and his authorized representatives promptly following any request
therefore. The Company shall use commercially reasonable efforts to keep such
policies in effect as to the Executive after the date hereof.

5.       NON-DISPARAGEMENT.

         5.1      The Company, the Senior Executives and Directors agree not to
take any action or make any statement which is false, disparages, criticizes, or
is derogatory with respect to, Executive regardless of whether such statements
would be actionable under statutory or common law liability theories.

         5.2      The Executive understands and agrees that he shall not make
any false, disparaging or derogatory statements to any media outlet, industry
group, financial institution, investor, current or former employee, consultant,
client or customer of the Company or any other third party, regarding the
Company or any of its directors, officers, employees, attorneys, agents or
representatives or about the Company's business affairs or financial condition.
The Executive further agrees not to make any statement of any kind to any media
outlet other than what has been mutually agreed upon as a press release with the
Company.

         5.3      The parties recognize that the Company may provide information
to a Governmental Entity (as defined below) or plaintiffs, as the case may be,
on a voluntary basis. Nothing in this agreement shall be construed to limit or
impede such voluntary cooperation or anyone acting on behalf of the Company from
providing any information, including but not limited to documents, witnesses,
and/or information obtained from any witness, on a voluntary basis. Nor shall it
be construed to limit or impede anyone acting on behalf of the Company from
responding to any legal process. For purposes of this agreement the term
"Governmental Entity" shall mean any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority, agency or instrumentality, any entity charged by a Governmental
Entity with the administration of a government program, or any stock market or
stock exchange on which shares of the Company's stock are traded.

         5.4      The parties agree that Sections 5.1, 5.2 and 5.3 may be
specifically enforced by Executive or the Company, as applicable, it being
agreed that money damages are not an adequate remedy for breach of Sections 5.1,
5.2 or 5.3.

6.       COOPERATION.

         6.1      The Executive agrees to cooperate fully with the Company in
the defense or prosecution of any claims or actions or investigations which
already have been brought, including, but not limited to, In Re: PolyMedica
Corp. Sec. Litig., Civil Action No. 00-12426 REK pending in the United States
District Court for the District of Massachusetts, and In Re: PolyMedica Corp.
Shareholder Derivative Lit., Civil Action No. 01-3446 pending in the Superior
Court of Middlesex County for the Commonwealth of Massachusetts, any inquiries
by the United States Securities & Exchange Commission, any grand jury
investigation or other investigation currently being conducted by the United
States Attorney's Office for the Southern District of Florida, or the Southern
District of Illinois, or any claims or actions which may be brought in the
future against, or on behalf of or involving the Company wherein the Executive
is indemnified by the Company, whether before or by a state or federal court or
by any local, state or federal government agency. The Executive's full
cooperation in connection with such claims or actions shall include, but not be
limited to, his being available to meet with counsel to prepare its claims or
defenses, to prepare for trial or discovery or an administrative hearing and to
act as a witness when requested by the Company at reasonable times designated by
the Company. Executive agrees to appear voluntarily before any grand jury
proceeding relating to any of the matters set forth in Section 4 above, unless
(a) Executive is a subject or target of said grand jury and (b) Executive has
not been granted formal immunity. By agreeing to cooperate Executive does not
waive any of his constitutional rights or attorney-client or attorney work
product privileges and any assertion of such rights or privileges shall not be
considered a violation of this Agreement. The Executive agrees that he will
notify the Company promptly and in writing in the event that he is served with a
subpoena or other such request for information or documents from a third party
concerning the Company.

         6.2      The Company agrees that the Company and its lawyers will
cooperate with Executive by providing him and his lawyers with reasonable access
to copies of all business records of the Company, to which the Executive would
have been entitled to



access in the ordinary course of business during the period in which Executive
was employed by the Company, that are necessary to the Executive's defense of
the proceedings described in Section 4.1 above or any other indemnified activity
for so long as such proceedings continue.

7.       NON-DISCLOSURE AND NON-COMPETITION. The Executive acknowledges and
reaffirms his obligations with respect to intellectual property and
non-competition, as stated more fully in the Confidentiality and Proprietary
Information Agreement dated May 16, 1990 (the "Confidentiality Agreement") and
the Agreement Not To Compete dated May 16, 1990 (the "Non-Compete Agreement"),
each of which remains in full force and effect; provided however, that the
Company agrees that if Executive wishes to engage in activities or render
services prohibited by the Non-Compete Agreement, Executive may request, in a
letter to the General Counsel of the Company describing generally the services
he wishes to render and identifying the entity for whom he seeks to provide such
services, a release from the Agreement Not To Compete. The decision whether or
not to release Executive from his obligations under the Agreement Not to Compete
shall be in the Company's discretion, which decision will be reviewable in the
discretion of a single arbitrator at the Executive's request pursuant to the
commercial arbitration rules of the American Arbitration Association in
Massachusetts.

8.       RETURN OF COMPANY PROPERTY. On the Date of Separation, the Executive
agrees to return all Company property in good working order which has been
provided to Executive including, but not limited to, keys, files, records (and
copies thereof), equipment (including, but not limited to, computer hardware,
software and printers, cellular phones, pagers, etc.), Company identification
and any other Company-owned property which is in his possession or control and
to advise the Company of any password protected identification that he has
placed on or used in connection with any document or file on the Company's
computer system and any necessary actions required to facilitate the Company's
access to all documents on the computer system. Further, Executive agrees to
leave intact all electronic Company documents, including those he developed or
helped develop during his employment and to cancel all accounts for his benefit,
if any, in the Company's name, including but not limited to, credit cards,
telephone charge cards, cellular phone and/or pager accounts and computer
accounts and to delete all Company files or records on any personal computer on
which he stored such information.

9.       CONFIDENTIALITY. To the extent permitted by law, the Executive
understands and agrees that the contents of the negotiations and discussions
resulting in this Agreement shall be maintained as confidential by the
Executive, his attorneys, agents and representatives, and none of the above
shall be disclosed except to the extent required by federal or state law or as
otherwise agreed to in writing by the authorized agent of each party.

10.      RELEASES.

         10.1     The Executive agrees to execute and deliver to the Company the
Release attached hereto as Exhibit B on the Date of Separation.

         10.2     The Company agrees to execute and deliver to the Executive the
Release attached hereto as Exhibit C on the Date of Separation.

         10.3     Nothing contained in the releases set forth in Sections 10.1
and 10.2 above shall be deemed to defeat the right, if any, of any issuer or
underwriter of directors' and officers' liability insurance for PolyMedica and
its directors and officers to recover monies on a theory of subrogation,
indemnification or contribution.

11.      VOLUNTARY ASSENT. The Executive affirms that no other promises or
agreements of any kind have been made to or with him by any person or entity
whatsoever to cause him to sign this Agreement, and that he fully understands
the meaning and intent of this Agreement. The Executive states and represents
that he has had an opportunity to fully discuss and review the terms of this
Agreement with an attorney. The Executive further states and represents that he
has carefully read this Agreement, understands the contents herein, freely and
voluntarily assents to all of the terms and conditions hereof, and signs his
name of his own free act.

12.      NATURE OF AGREEMENT. The parties understand and agree that this
Agreement does not constitute an admission of liability or wrongdoing on the
part of the Company or the Executive.

13.      ATTORNEYS' FEES. The Company agrees to reimburse Executive for the
attorneys' fees and expenses incurred by him in connection with the preparation
of this Agreement, up to a maximum of twenty thousand dollars, within 30 days
after presentation to the Company of invoices reflecting such fees and expenses.
The Company further agrees that any reasonable attorneys' fees and expenses
incurred by Executive in connection with a dispute regarding this Agreement
shall be reimbursed to the extent and only in proportion to the claim(s) on
which the Executive prevails in the dispute.

14.      STOCK CERTIFICATES AND TRADES.

         14.1     The Company shall reissue, as soon as practicable but in no
event later than five (5) business days after the Date of



Separation, in Employee's or his designee's name and without legends, all
legended stock certificates representing shares of the Company's common stock
beneficially owned by Employee. In connection with such reissuance(s), the
Company shall obtain at its expense any legal opinion it deems necessary or
advisable.

         14.2     The Company agrees to prepare and file with the Securities and
Exchange Commission on a timely basis all reports required to be filed by
Employee pursuant to Section 16 of Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder; provided that Employee
reports to the Company all of his transactions in the Company's securities
triggering the filing of such a report no later than the initiation of such a
transaction. Executive acknowledges that he is responsible for promptly and
accurately reporting any transactions to the Company and that the Company is not
responsible for any liability arising from its filing of such reports at the
request of Executive.

15.      MISCELLANEOUS.

         15.1     ENTIRE AGREEMENT. This Agreement contains the entire
understanding of Executive and the Company in respect of its subject matter and
supersedes all prior oral or written agreements or understandings between
Executive and the Company with respect to such subject matter; provided however,
that the Previous Agreements shall remain in effect through the Separation Date
and that the Non-Compete Agreement and the Confidentiality Agreement shall
remain in effect as set forth in Section 7 above.

         15.2     AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
all parties. 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.

         15.3     BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind any successor of the Company by reorganization, merger,
acquisition or consolidation, or any assignee of all or substantially all of the
Company's business and properties. The Company will require any successor to all
or substantially all of the business and/or assets of the company (whether
direct or indirect, by purchase, merger, consolidation, asset or stock
acquisition or otherwise) to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. As used in this
Agreement, `the Company" shall mean the Company as hereinbefore defined and any
successor to all or substantially all of its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law or
otherwise. The Company agrees to require any such successor to acknowledge its
obligation pursuant to this Agreement in a binding written agreement approved by
Executive prior to such transaction.

         15.4     HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.

         15.5     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 Agreement or the subject matter hereof.

         15.6     FURTHER ASSURANCES. The Company and Executive agree 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 documents, 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.

         15.7     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.

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
                                            -----------------------
                                            Arthur A. Siciliano
                                            President

                                            Then personally appeared the above
                                            named Arthur A. Siciliano and
                                            acknowledged the foregoing
                                            instrument to be his free act and
                                            deed on behalf of PolyMedica
                                            Corporation, before me,

                                            /s/ Karen M. Meyer, Notary Public
                                            ---------------------------------
                                            My commission expires: 3/26/2010

                                            For purposes of Section 5.4:

AGREED TO AND ACCEPTED:                     BOARD OF DIRECTORS

/s/ Eric G. Walters                         /s/ Samuel L. Shanaman
- -------------------                         ----------------------
Eric G. Walters                             Samuel L. Shanaman
                                            Lead Director, on behalf of the
                                            Board of Directors

Then personally appeared the above          Then personally appeared the above
named Eric G. Walters, and acknowledged     named Samuel L. Shanaman and
the foregoing instrument to be his free     acknowledged the foregoing
act,                                        instrument to be his free act and
                                            deed on behalf of the Board of
                                            Directors of PolyMedica Corporation,
                                            before me,

/s/ Karen M. Meyer, Notary Public
- ---------------------------------
My commission expires: 3/26/2010            /s/ Karen M. Meyer, Notary Public
                                            ---------------------------------
                                            My commission expires: 3/26/2010

EX-21.1

                                                                               .
                                                                               .
                                                                               .

                                                                    EXHIBIT 21.1

                                 SUBSIDIARIES OF
                             POLYMEDICA CORPORATION


                                                         STATE OR OTHER JURISDICTION OF
NAME                                                     INCORPORATION OR ORGANIZATION
- ----                                                     -----------------------------
                                                      
PolyMedica Holdings, Inc.                                          Delaware

PolyMedica Securities, Inc.                                        Massachusetts

PolyMedica Healthcare, Inc.                                        Delaware

PolyMedica Pharmaceuticals (U.S.A.), Inc.                          Massachusetts

Liberty Healthcare Group, Inc.                                     Delaware

Liberty Lane Development Company, Inc.                             Florida

Liberty Home Pharmacy Corporation                                  Delaware




                                 SUBSIDIARIES OF
                         LIBERTY HEALTHCARE GROUP, INC.
                                                                
Liberty Medical Supply, Inc.                                       Florida

Liberty Therapeutic Shoe Corporation                               Delaware
(formerly Liberty Enteral Products Corporation)

Liberty Marketplace, Inc.                                          Delaware

Liberty Commercial Health Services, Inc.                           Delaware

Liberty Value Pharmacy, Inc.                                       Delaware

Liberty Pharmacy, Inc.                                             Delaware

Liberty Direct Services Corporation                                Delaware





                                SUBSIDIARIES OF
                             LIBERTY PHARMACY, INC.
                                                                
Liberty Medical Supply Pharmacy, Inc.                              Delaware







                                 SUBSIDIARIES OF
                    POLYMEDICA PHARMACEUTICALS (U.S.A.), INC.
                                                                
Polymedica Pharmaceuticals Securities, Inc.                        Massachusetts

Polymedica Pharmaceuticals (Puerto Rico), Inc.                     Delaware




                                       1

                                 SUBSIDIARIES OF
                     LIBERTY LANE DEVELOPMENT COMPANY, INC.
                                                                  
Liberty Lane Condominium                                               Florida
Association, Inc. (1/3 ownership)




                                 SUBSIDIARIES OF
                          LIBERTY MEDICAL SUPPLY, INC.
                                                                  
Liberty Lane Condominium                                               Florida
Association, Inc. (1/3 ownership)

Liberty Medical Supply LLC                                             Delaware




                                 SUBSIDIARIES OF
                       LIBERTY HOME PHARMACY CORPORATION
                                                                  
Liberty Lane Condominium                                               Florida
Association, Inc. (1/3 ownership)

Liberty Home Pharmacy LLC                                              Delaware





                                       2

EX-23.1

                                                                    EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

         We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-100742, 333-74156, 333-74160, 333-49356,
333-92695, 333-66685, 333-17387, 333-17415, 33-98348, 33-86836, 33-70626,
33-59202, 33-48134, 33-48130 and 33-48132) and on Form S-3 (Nos. 333-35312 and
333-86575) of PolyMedica Corporation of our report dated May 21, 2003, except
for Note U as to which the date is June 20, 2003, relating to the consolidated
financial statements and consolidated financial statement schedule, which
appears in this Form 10-K.

                                                   /s/PricewaterhouseCoopers LLP

Boston, Massachusetts
June 30, 2003

EX-99.1

                                                                    EXHIBIT 99.1

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Annual Report on Form 10-K of PolyMedica
Corporation ("PolyMedica") for the fiscal year ended March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned, Samuel L. Shanaman, Lead Director and Interim Chief Executive
Officer, and Stephen C. Farrell, Senior Vice President and Chief Financial
Officer of PolyMedica, each hereby certifies, pursuant to 18 U.S.C. Section
1350, that:

         (1) The Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         PolyMedica.

                                            /s/ Samuel L. Shanaman
                                            ----------------------
Dated: June 30, 2003                        Samuel L. Shanaman
                                            Lead Director and Interim Chief
                                            Executive Officer

                                            /s/ Stephen C. Farrell
                                            ----------------------
Dated: June 30, 2003                        Stephen C. Farrell
                                            Senior Vice President and Chief
                                            Financial Officer