MENTOR CORPORATION
5425 Hollister Avenue
Santa Barbara, California 93111
Telephone: (805) 681-6000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 25, 1997
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of
Shareholders of Mentor Corporation, a Minnesota corporation (the
"Company") will be held Thursday, September 25, 1997 at 10:00
a.m. (Central Daylight Time) at the Minneapolis Hilton and
Towers, 1001 Marquette Avenue, Minneapolis, Minnesota, to
consider and take action upon the following matters:
1. To elect a Board of Directors to serve until the
next Annual Meeting, or until their successors are
elected;
2. To approve an amendment to the 1991 Stock Option
Plan, to provide for a one-time grant of options to
non-employee members of the Company's Board of
Directors.
3. To ratify the appointment of Ernst & Young LLP to
act as independent auditors of the Company for the
fiscal year ending March 31, 1998; and
4. To transact such other business that may properly
come before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on
July 28, 1997 as the record date for the determination of the
shareholders entitled to vote at the meeting or any adjournment
thereof. A list of stockholders entitled to vote at the Annual
Meeting will be available for inspection at the executive
offices of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
Anthony R. Gette
Secretary
Dated: July 30, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER,
WHETHER OR NOT YOU PLAN TO BE PERSONALLY PRESENT AT THE MEETING,
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR PROXY AT
ANY TIME PRIOR TO THE ANNUAL MEETING. IF YOU ATTEND THE ANNUAL
MEETING AND VOTE BY BALLOT, YOUR PROXY WILL BE REVOKED
AUTOMATICALLY AND ONLY YOUR VOTE AT THE ANNUAL MEETING WILL BE
COUNTED.
MENTOR CORPORATION
____
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 25, 1997
______
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished to the shareholders of
Mentor Corporation (the "Company"), in connection with the
solicitation by the Company's Board of Directors of the enclosed
proxy for use at the Annual Meeting of Shareholders to be held
Thursday, September 25, 1997, at 10:00 a.m. (Central Daylight
Time) at the Minneapolis Hilton and Towers, 1001 Marquette
Avenue, Minneapolis, Minnesota, or at any adjournment(s) thereof
(the "1997 Annual Meeting") for the purposes set forth in the
Notice of Annual Meeting of Shareholders. All Common Stock
represented by proxies in the form solicited will be voted, but
proxies may be revoked at any time before being exercised by
delivery to the Secretary of the Company of a written notice of
revocation of the proxy's authority or a duly executed proxy
bearing a later date. You may also revoke your proxy by
attending the Annual Meeting and voting in person. A
shareholder who attends the Annual Meeting need not revoke his
or her proxy and vote in person, unless he or she wishes to do
so.
Expenses in connection with the solicitation of proxies
will be paid by the Company. Proxies are being solicited
primarily by mail, but, in addition, directors, officers and
regular employees of the Company may solicit proxies personally,
by telephone or by special letter.
So far as the management of the Company is aware, no
matters other than those described in this Proxy Statement will
be acted upon at the meeting. In the event that any other
matters calling for a vote of shareholders properly come before
the Annual Meeting, the persons named as proxies in the enclosed
form of proxy will vote in accordance with their judgment on
such other matters.
The Annual Report of the Company, including financial
statements, for the fiscal year ended March 31, 1997 is being
furnished to each shareholder with this Proxy Statement.
The principal executive offices of the Company are located
at 5425 Hollister Avenue, Santa Barbara, California 93111. The
approximate mailing date of this Proxy Statement and the
accompanying form of proxy is August 4, 1997.
RECORD DATE AND VOTING OF SECURITIES
The Common Stock of the Company, par value $.10 per share,
is the only authorized voting security of the Company. Only the
holders of the Company's Common Stock whose names appear of
record on the Company's books on July 28, 1997 will be entitled
to notice of, and to vote at, the 1997 Annual Meeting. At the
close of business on July 28, 1997, a total of 24,853,748 shares
of Common Stock were outstanding, each entitled to one vote.
Holders of Common Stock do not have cumulative voting rights.
Abstentions and broker non-votes are each included in the number
of shares present for quorum purposes. All votes will be
tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. Abstentions, which may
be specified on all proposals other than the election of
directors, are counted in tabulations of the votes cast on
proposals presented to shareholders and will have the same
effect as negative votes; whereas broker non-votes are not
counted for purposes of determining whether a proposal has been
approved. An affirmative vote of a majority of the shares
present and voting at the meeting is required for approval of
all items being submitted to the shareholders for their
consideration.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended
to be presented by such stockholders at the Company's 1998
Annual Meeting must be received no later than April 1, 1998, in
order that they may be included in the proxy statement and form
of proxy relating to that meeting.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
Nominees
The Company's By-Laws provide that the Board of Directors
must consist of not less than three directors, with the number
to be determined by a resolution of the shareholders. Each
director is elected at the Annual Meeting of Shareholders to
hold office until the Annual Meeting of Shareholders next held
after his or her election or until his or her successor has been
elected and qualified. The Board of Directors has recommended
that the number of directors to be elected for the ensuing year
be set at seven.
It is intended that the persons named as proxies in the
enclosed form of proxy will vote the proxies received by them
for the election as directors of the nominees named in the
table below unless specifically directed otherwise. Each
nominee has indicated a willingness to serve, but in case any
nominee is not a candidate at the meeting, for reasons not now
known to the Company, the proxies named in the enclosed form of
proxy may vote for a substitute nominee in their discretion.
Information regarding these nominees is set forth in the table
below.
Director Principal Occupation and Business
Name (Age) Since Experience for Last Five Years
Christopher J. Conway (58) 1969 Founder, Chairman of the Board and
Chief Executive Officer since
1969.
Anthony R. Gette (41) 1988 President and Chief Operating
Officer since April 1987;
Secretary since March 1986;
Executive Vice President from
September 1986 to April 1987; Vice
President, Finance from September
1983 to September 1986.
Eugene G. Glover (53) 1969 Private investor since October
1986; Founder & Vice President,
Engineering of the Company from
1969 to October 1986.
Walter W. Faster (62) 1980 Retired February 1997 as Vice
President, Corporate Growth and
Development for General
Mills, Inc.(1); held various
marketing and finance capacities
at General Mills since 1963.
Michael Nakonechny (68) 1980 President of NAK Associates
Corp.(2) since 1981; Chairman of
the Board and Secretary of
Transducer Systems, Inc.(3) from
November 1968 to January 1989.
Byron G. Shaffer (63) 1978 Private investor since 1970.
Dr. Richard W. Young (69) 1990 Private investor since April 1992;
Consultant to Mentor O & O,
Inc.(4) from April 1990 to 1992;
Chairman and Chief Executive
Officer of Mentor O & O, Inc. from
April 1985 to 1990; Employed as
President of Houghton Mifflin
Company(5) from 1982 to 1985;
Director of Mentor Ophthalmics,
Inc. and of Instron
Corporation.(6)
(1) General Mills, Inc. is a major manufacturer of packaged
foods and other consumer goods.
(2) NAK Associates Corp. is a closely-held company engaged in
consulting engineering.
(3) Transducer Systems, Inc. is a manufacturer of electro-
mechanical transducers.
(4) Mentor O & O, Inc. was acquired by the Company in April
1990. It is a manufacturer of ophthalmic surgical and
diagnostic equipment. During fiscal 1997, Mentor O&O's
name was changed to Mentor Ophthalmics.
(5) Houghton Mifflin Company is a major publishing firm.
(6) Instron Corporation is a manufacturer of materials testing
instruments, systems, software and accessories.
The Board of Directors recommends that the shareholders
vote FOR the election of the nominees named above to serve as
directors of the Company until the next annual meeting following
the 1997 Annual Meeting or until their respective successors
have been elected and qualified.
Board Meetings and Committees
During the fiscal year ended March 31, 1997, the Board of
Directors met or adopted resolutions by unanimous written
consent on six occasions. No director attended less than 75% of
the aggregate number of Board of Directors meetings and meetings
of committees on which he served (including actions taken by
written consent).
The Company has an Audit Committee, currently consisting of
Messrs. Faster, Glover, Nakonechny, Shaffer and Young. The
principal functions of the audit committee are to (i) recommend
to the Board of Directors the independent public accountants to
act as the Company's independent auditors; (ii) discuss with the
independent auditors the scope of their audit; (iii) discuss
with the independent auditors and the Company's executive
officers the Company's accounting principles, policies and
practices; (iv) discuss with the independent auditors the
adequacy of the Company's accounting, financial and operating
controls, and (v) approve the Internal Audit Department annual
Audit Schedule and review with Internal Audit the results and
recommendations of those audits.
The Audit Committee has adopted procedures providing for
its prior review and consideration of the effect of non-audit
services on the independence of Ernst & Young LLP and the
approval of the types of, and estimated fees for, professional
services which are expected to be performed by Ernst & Young LLP
during the forthcoming fiscal year.
The Audit Committee met once during the fiscal year ended
March 31, 1997 with all committee members present, and once
during the fiscal year ended March 31, 1997 with four members
present.
The Company has a standing Compensation Committee,
currently consisting of Messrs. Faster, Glover, Nakonechny,
Shaffer and Young. The principal functions of the Compensation
Committee are to review and recommend compensation for executive
personnel. The Compensation Committee met once during the
fiscal year ended March 31, 1997 with all members present.
The Company has a Stock Option Committee, currently
consisting of Messrs. Faster, Glover, Nakonechny, Shaffer and
Young. The principal functions of the Stock Option Committee is
to administer the Company's stock option plans. The Stock
Option Committee met twice during the fiscal year ended March
31, 1997 with all members present.
Nominating Procedures
The Company does not have a separately constituted
committee to nominate candidates for election to the Board of
Directors of the Company. Such candidates are chosen by the
existing Board after taking into consideration the
recommendations of the Company's executive officers and
shareholders. Shareholders wishing to submit recommendations
for nomination should send them in writing to the attention of
the Company's Chairman at the Company's principal executive
office within sixty days after the end of the Company's fiscal
year.
Compensation of Directors
Board members who are employees of the Company do not
receive compensation for their services as directors. During
the Company's fiscal year ended March 31, 1997 and currently,
individual non-employee Board members received an annual fee of
$20,000. In addition, each person who is a non-employee
director on the date of an annual meeting of shareholders is
entitled to receive an automatic option grant under the
Company's 1991 Stock Option Plan (the "Option Plan") of options
to purchase 6,000 shares of Common Stock at an exercise price
equal to the fair market value per share of the Common Stock on
the date of such grant. These options have a term of ten years
and become exercisable in four equal annual installments over
the optionee's period of Board service, beginning one year after
the grant date. Under the Option Plan, each person who is newly
elected or appointed as a non-employee director will receive, on
the date of election or appointment, an automatic option grant
to purchase 20,000 shares of Common Stock. The maximum number
of shares of Common Stock that a non-employee director currently
may receive under the Option Plan is 60,000, plus 30,000 to the
extent the non-employee director received options to purchase
such number of shares on May 17,1994, less the number of shares
granted to the director under any prior option plan of the
Company, taking into account adjustment for the Company's 2 for
1 stock split effectuated in September 1995. Currently, all non-
employee directors have received such maximum number of shares,
except for Dr. Young who, upon receiving options to purchase an
additional 4,000 shares, will have received such maximum.
At the 1997 Annual meeting, shareholders will be asked to
approve an amendment to the Company's option Plan which will
provide for a one-time grant of options to non-employee members
of the Board in addition to options described in the preceding
paragraph. If the shareholders approve the amendment to the
Option Plan set forth in Proposal No. 2 "Amendment to the 1991
Stock Option Plan," the maximum number of shares of Common Stock
underlying options granted to non-employee directors who
received the one-time grant on May 15, 1997 will be increased by
30,000.
PROPOSAL 2: APPROVAL OF AMENDMENT TO THE COMPANY'S 1991
STOCK OPTION PLAN
Introduction
At the 1997 Annual Meeting, shareholders will be asked to
approve an amendment to the Mentor Corporation 1991 Stock Option
Plan (the "Option Plan") which will provide for a one-time grant
to each individual who was a non-employee member of the Board of
Directors of Mentor Corporation (the "Board") on May 15, 1997, of
options to purchase 30,000 of Common Stock. The changes to the
Option Plan effected by the amendment which is the subject of
this Proposal 2 and the grant of such options on May 15, 1997,
subject to shareholders approval of this Proposal 2, were adopted
by the Board on May 15, 1997.
The Option Plan was adopted by the Board on June 11, 1991
and approved by the shareholders in September of 1991. The
purpose of the Option Plan is to enable Mentor Corporation (the
"Company") to provide eligible individuals with the opportunity
to acquire a proprietary interest in the Company as an incentive
for them to remain in the service of the Company (or its parent
or subsidiary companies).
Mentor management believes that its Board of Directors
should be compensated by a combination of directors' fees and
long term incentive programs, such as stock options, consistent
with industry practices. The proposed one-time grant of stock
options to the Board are intended to induce the directors to
exert maximum effort to increase shareholder value.
The following is a summary of the principal features of the
Option Plan. Since its approval by the shareholders in 1991, the
Option Plan has not been amended, except for (A) an amendment
adopted by the Directors on May 17, 1994 providing for (i) the
addition of the limitation concerning the number of shares that
can be granted to an individual under the Option Plan, and (ii)
the addition of the one-time grant of options to non-employee
members of the Board as of May 17, 1994, and (B) an amendment
adopted by the Directors on May 9, 1996 providing for an increase
in the maximum number of shares authorized for issuance under the
Option Plan from 2,000,000 to 5,000,000. All the share numbers
which appear in the summary have been adjusted to reflect the 2
for 1 split of the Common Stock which was effectuated by the
Company in September 1995. However, the summary does not purport
to be a complete description of all the provisions of the Option
Plan. Any shareholder of the Company who wishes to obtain a copy
of the actual plan document may do so upon written request to the
Secretary of the Company at the executive offices in Santa
Barbara, California.
Plan Structure; Eligibility
The Option Plan is comprised of two parts: a discretionary
option grant program and an automatic option grant program.
Under the discretionary option grant program, options may be
granted to employees (including officers) of the Company or its
parent or subsidiaries who contribute to the management, growth
and financial success of the Company or its parent or
subsidiaries. Under the automatic grant program, options are
automatically granted to the non-employee members of the Board.
As of July 28, 1997, approximately 1,100 employees
(including seven (7) executive officers), were eligible to
participate in the Option Plan and five (5) non-employee Board
members were eligible for automatic option grants.
Administration
The Option Plan is administered by a committee appointed by
the Board, currently consisting of the five non-employee
directors (the "Committee"). Administration of the Option Plan
with respect to officers subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act") shall be by members who
are "disinterested persons" as that term is defined in Rule 16b-3
of that Act, and shall comply with the applicable requirements of
Rule 16b-3 under the Exchange Act to the extent necessary to
satisfy such rule.
The Committee has the exclusive authority, subject to the
provisions of the Option Plan, to determine the eligible
individuals who are to receive discretionary options under the
Option Plan, the number of shares to be covered by each granted
option, the date or dates on which the option is to become
exercisable and the maximum term for which the option is to
remain outstanding. The Committee also has the authority to
determine whether the granted option is to be an incentive stock
option under the Federal tax laws and to establish rules and
regulations for proper plan administration. The automatic grant
program is self-administering.
Issuable Shares
Stock subject to awards granted under the Option Plan is the
Company's authorized but unissued or reacquired common stock
("Common Stock"). The aggregate number of shares available for
issuance under the Option Plan may not exceed 5,000,000 plus the
number of shares that would have become available for grant under
the Company's Restated 1987 Stock Option Plan and the 1982
Incentive Stock Option Plan (the "Prior Plans") by reason of
lapse, expiration or cancellation of options thereunder prior to
exercise in full, provided that they are not subject to
subsequent grants under a Prior Plan. This amount is subject to
adjustment from time to time in the event of certain changes in
the Company's capital structure, as discussed below. If an
option expires or terminates or is forfeited or canceled for any
reason without having been exercised in full, the remaining
shares covered by the option will again be available for grants
under the Option Plan.
In no event may any one individual be granted, over the life
of the Option Plan, options to acquire more than 600,000 of the
shares of Common Stock available for issuance under the Option
Plan, subject to adjustment from time to time in the event of
certain changes in the Company's capital structure as discussed
below.
Option Price and Exercisability
The exercise price of options issued under the Option Plan
will be the fair market value of the Common Stock on the grant
date and the maximum term of the option shall be ten (10) years.
If any employee to whom an incentive option is to be granted
under the Option Plan is on the grant date the owner of stock
(determined with application of the ownership attribution rules
of Section 425(d) of the Internal Revenue Code) possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or a parent or subsidiary
thereof, then the option price per share of the Common Stock
subject to such incentive option shall not be less than one
hundred ten percent (110%) of the fair market value of the Common
Stock on the grant date, and the maximum term of the option shall
be five (5) years.
Options issued under the Option Plan may become exercisable
at such time or times during the option term as is determined by
the Committee. The option price may be paid in cash or in shares
of Common Stock valued at fair market value on the exercise date,
or in any combination of cash or shares of Common Stock.
Outstanding options may also be exercised through a same-day sale
program, pursuant to which a designated brokerage firm is to
effect an immediate sale of the shares purchased under the option
and pay over to the Company, out of the sales proceeds available
on the settlement date, sufficient funds to cover the option
price for the purchased shares plus all applicable withholding
taxes.
The Committee may also assist any optionee (including an
officer) in the exercise of outstanding options under the
discretionary option grant program by authorizing a loan from the
Company or permitting the optionee to pay the option price in
installments over a period of years. The terms and conditions of
any such loan or installment payment will be established by the
Committee in its sole discretion, but in no event may the maximum
credit extended to the optionee exceed the aggregate option price
payable for the purchased shares plus any federal and state
income and employment taxes incurred by the optionee in
connection with the option exercise.
Valuation
For all valuation purposes under the Option Plan, the fair
market value of a share of Common Stock on any relevant date
shall be determined in accordance with the following provisions.
If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-
counter market, the fair market value shall be the mean between
the highest bid price and lowest asked price (or, if such
information is available, the closing selling price) of one share
of Common Stock on the date in question in the over-the-counter
market, as such prices are reported on the NASDAQ system. If
there are no reported bid and asked prices (or closing selling
price) on the date in question, then the fair market value will
be the mean between the highest bid price and lowest asked price
(or, if available, the closing selling price) on the last
preceding date for which such quotations exist.
If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall
be the closing selling price of one share of Common Stock on the
date in question on the stock exchange determined by the
Committee to be the primary market for the Common Stock, as such
price is officially quoted on such exchange. If there is no
reported sale of Common Stock on such exchange on the date in
question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such
quotation exists.
If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange or traded in the over-
the-counter market, then the fair market value shall be
determined by the Committee after taking into account such
factors as the Committee shall deem appropriate.
If, however, the Committee determines that, as a result of
circumstances existing on any date, the use of the above rules is
not a reasonable method of determining fair market value on that
date, the Committee may use such other method as, in its
judgment, is reasonable.
On July 28, 1997, the fair market value of the Common Stock
was $31.75 per share.
Termination of Service
The Committee shall determine and shall set forth in each
option whether the option shall continue to be exercisable, and
the terms and conditions of such exercise, after an optionee
ceases to by employed by the Company or any of its subsidiaries.
Repurchase Rights
The shares of Common Stock purchased upon the exercise of
options under the discretionary grant program may be subject to
repurchase by the Company (or its assigns) upon the optionee's
termination of employment. The Committee shall have the
discretion to set the terms and conditions of any such repurchase
and may provide for the expiration of such repurchase rights in
one or more installments. The Committee may provide that all
shares subject to the Company's repurchase rights under the
discretionary grant program will immediately vest in whole or in
part upon a Change in Control (as defined below).
Assignability of Options
Options are not assignable or transferable other than by
will or by the laws of inheritance and, during the optionee's
lifetime, the option may be exercised only by the optionee.
Change in Control
All options under the Option Plan that have not expired will
become exercisable in full immediately prior to a Change in
Control (as defined in the Option Plan); provided that such
Change in Control actually takes place and that the optionee does
not voluntarily terminate his or her position with the Company
prior to the Change in Control.
If the Committee determines in good faith that a Change in
Control may be imminent, the Committee may, but need not, take
the following actions. If the Change in Control is a merger or
consolidation or a statutory share exchange, the Committee may
provide for the replacement of outstanding options with options
to purchase such shares of appropriate voting common stock of the
surviving corporation; or, of the parent corporation of the
Company or such surviving corporation ("Survivor's Stock") as the
Committee deems equitable; or, alternatively, such numbers of
shares of the Survivor's Stock as have a fair market value as of
the date of the Change in Control equal to the product of (i) the
amount by which the Change in Control Proceeds per Share (as
defined in the Option Plan) exceeds the option exercise price per
share times (ii) the number of Common shares covered by the
respective options.
At least ten (10) days prior to the Change in Control, the
Committee may provide that each outstanding option, whether or
not then exercisable, will be canceled at the time of the Change
in Control (unless exercised prior to the Change in Control) in
exchange for a cash payment for each share covered by the
canceled option, equal to the amount (if any), by which the
Change in Control Proceeds per Share exceeds the exercise price
per share covered by such option.
No such action by the Committee will in any way affect the
acceleration of the exercisability of options as described above,
and each optionee will have the right, preceding the Change in
Control, to exercise his or her option as to all or any part of
the shares covered thereby.
A Change in Control occurs when:
(i) a person or group acquires or beneficially owns
twenty percent (20%) or more of the outstanding voting power
of the Company;
(ii) a majority of the Board consists of individuals
other than those for whom proxies were solicited by the
Board or who were appointed by the Board to fill either (a)
vacancies caused by death or resignation or (b) new
directorship; or
(iii) there shall have occurred:
(A) a merger or consolidation of the Company with
or into another corporation (other than (1) a merger or
consolidation with a subsidiary of the Company or (2) a
merger or consolidation in which (aa) the holders of
voting stock immediately prior to the merger as a class
continue to hold immediately after the merger at least
sixty percent (60%) of all outstanding voting power of
the surviving or resulting corporation or its parent
and (bb) all holders of each outstanding class or
series of voting stock of the Company immediately prior
to the merger or consolidation have the right to
receive substantially the same cash, securities or
other property in exchange for their voting stock of
the Company as all other holders of such class or
series);
(B) a statutory exchange of shares for cash,
securities or other property;
(C) the sale or disposition of all or
substantially all of the assets of the
Company; or
(D) the dissolution or liquidation of the
Company;
unless, as to any optionee, more than twenty-five percent (25%)
of the voting stock (or the voting equity interest) of the
surviving corporation or the corporation or other entity
acquiring all or substantially all of the assets of the Company
(in the case of a merger, consolidation or disposition of assets)
or of the Company or its resulting parent corporation (in the
case of a statutory share exchange) is beneficially owned by such
optionee or a Group that includes such optionee.
A "Group" for purposes of the Option Plan shall mean any two
or more persons acting as a partnership, limited partnership,
syndicate, or other group acting in concert for the purpose of
acquiring, holding or disposing of voting stock of the Company.
Cancellation and New Grant of Options
The Committee has the authority to effect from time to time
with the consent of the affected optionees, the cancellation of
outstanding options under the discretionary program of the Option
Plan or the Prior Plans and to grant replacement options covering
the same or different numbers of shares of Common Stock but
having an option price per share not less than the fair market
value of the Common Stock on the new grant date. It is
anticipated that the option price in effect under the replacement
grant would in all instances be less than the option price in
effect under the canceled option.
Tax Withholding Election
The Committee may, in its discretion and subject to such
limitations and rules as it may adopt, permit an optionee under
the discretionary option program to satisfy any income and
employment tax obligation incurred in connection with the
exercise of the options, in whole or in part, by delivering
shares of Common Stock already held by the optionee or by making
an irrevocable election that a portion of the total value of the
shares of Common Stock subject to the exercised option to be paid
in the form of cash in lieu of the issuance of Common Stock and
that such cash payment be applied to the satisfaction of the
withholding obligations.
Changes in Capitalization
In the event any change is made to the Common Stock issuable
under the Option Plan by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of
shares, or other change in corporate structure, then, unless such
change results in the termination of all outstanding options, the
Committee shall make appropriate adjustments to (i) the maximum
number and/or class of securities issuable under the Option Plan,
(ii) the number and/or class of securities and price per share in
effect under each outstanding option (including all option grants
incorporated from the Prior Plans), (iii) the number of shares to
be made the subject of subsequent automatic option grants, and
(iv) the maximum number of shares issuable to any one individual
under the Option Plan.
Option grants under the Option Plan will not affect the
right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
Automatic Option Grant Program
The automatic option grant program under the Option Plan
authorizes the grant of non-statutory options to purchase shares
of Common Stock to non-employee members of the Board. Each non-
employee Board member who first becomes a non-employee Board
member at any time after June 11, 1991 shall automatically be
granted at the time of such initial election or appointment,
provided they have not otherwise been in the prior employ of the
Company (or any parent of subsidiary), an option to purchase
20,000 shares of Common Stock. At each Annual Meeting of
Shareholders beginning with the 1992 Annual Meeting, each
individual who is at the time serving as a continuing non-
employee Board member or who is then newly elected or appointed
as a non-employee Board member, will automatically be granted
options to purchase 6,000 shares of Common Stock on the date of
the Annual Meeting. Also, each individual who was a non-employee
Board member on May 17, 1994, received an automatic option grant
to purchase 30,000 shares at an exercise price of $6.88 per
share. In addition, each individual who was a non-employee Board
member on May 15, 1997, received, subject to shareholder approval
of this Proposal 2, an automatic option grant to purchase 30,000
shares at an exercise price of $21.88 per share. The maximum
number of shares of Common Stock that a non-employee Board member
may receive under the Option Plan is 60,000 plus the 30,000
shares granted on May 17, 1994 and the 30,000 shares granted,
subject to shareholder approval of this Proposal 2, on May 15,
1997, less the number of shares covered by options previously
granted to that non-employee Board member under the Prior Plans.
The non-employee Board members on May 15, 1997 consisted of Mr.
Glover, Mr. Faster, Mr. Nakonechny, Mr. Shaffer and Dr. Young.
The option price per share for each automatic grant will be
the fair market value per share of Common Stock on the date of
grant. The option price for purchased shares will be payable in
cash or shares of Common Stock held for at least six (6) months.
Automatic option grants have a term of ten (10) years from
the date of grant and become exercisable in four 25% annual
installments beginning one year after the grant date, provided
the non-employee Board member remains a member of the Board
through such date. Options with an automatic option grant date
of May 17, 1994 and May 15, 1997 will become exercisable in three
331/3 % annual installments beginning one year after the grant
date. However, full and immediate vesting will occur upon a
Change in Control and shall terminate to the extent unexercised
if the Common Stock ceases to exist or be publicly traded as a
result of a Change in Control, unless the options are expressly
assumed or replaced by substitute options by the entity that
survives the Change in Control.
If the optionee ceases to serve as a director, the option
may be exercised, to the extent then exercisable and within its
term, for a period of ninety (90) days after the date of
cessation (twelve (12) months if due to disability or death). In
the case of death, the option may be exercised within such period
by the estate of heirs of the optionee.
Modification of Options
The Committee shall have full power and authority to modify
or waive any or all of the terms, conditions, or restrictions
applicable to any outstanding option, to the extent not
inconsistent with the Option Plan; provided, however, that no
such modification or waiver shall (1) without the consent of the
optionee, adversely affect the optionee's rights thereunder, or
(2) affect any outstanding option granted pursuant to the
automatic option grant program, except to the extent necessary to
conform to any amendment to the automatic option grant provisions
of the Option Plan.
Amendment and Termination of the Option Plan
The Board may amend or modify the Option Plan in any or all
respects whatsoever; provided, however, that no such amendment
may adversely affect the rights of outstanding optionees without
their consent, and the Board may not, without the approval of the
Company's shareholders: (i) increase the maximum number of
shares issuable under the Option Plan or the number of shares for
which automatic grants may be made to non-employee Board members,
except in the event of certain changes to the Company's capital
structure as indicated above; (ii) modify the eligibility
requirements for option grants; or (iii) make any other change
for which the Board determines that shareholder approval is
required by applicable law or regulatory standards. Amendments
that affect the amount, price and timing of awards under the
automatic option grant program may not be made more than once
every six (6) months other than to comport with changes in the
Internal Revenue Code or rules thereunder.
No option may be granted under the Option Plan after the
earlier of (i) June 10, 2001, or (ii) the date on which all
shares available for issuance under the Plan have been issued
pursuant to the exercise of options.
Federal Income Tax Consequences
The following is a summary of the federal income taxation
consequences to the participant and the Company with respect to
the options granted under the Option Plan. The summary does not
discuss the tax consequences of a participants' death or the
income tax laws of any city, state or foreign country in which
the participant may reside.
Options granted under the Option Plan may be either
incentive stock options which satisfy the requirements of Section
422 of the Internal Revenue Code or non-statutory options which
are not intended to meet such requirements.
Non-Statutory Options. No taxable income is recognized by
an optionee upon the grant of a non-statutory option. The
optionee will in general recognize ordinary income, in the year
in which the option is exercised, equal to the excess of the fair
market value of the purchased shares on the exercise date over
the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable
to such income.
If the shares acquired upon exercise of the non-statutory
option are unvested and subject to repurchase by the Company in
the event of the optionee's termination of service prior to
vesting in those shares, then the optionee will not recognize any
taxable income at the time of exercise but will have to report as
ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of (i) the fair market
value of the shares on the date the repurchase right lapses over
(ii) the exercise price paid for the shares. The optionee may,
however, elect under Section 83(b) of the Internal Revenue Code
to include as ordinary income in the year of exercise of the
option an amount equal to the excess of (i) the fair market value
of the purchased shares on the exercise date over (ii) the
exercise price paid for such shares. If the Section 83(b)
election is made, the optionee will not recognize any additional
income as and when the repurchase right lapses.
The Company will be entitled to a business expense deduction
equal to the ordinary income recognized by an optionee on
exercise of a non-statutory option. The ordinary income
recognized will generally equal the excess of the fair market
value of the purchased shares on the date of recognition over the
exercise price. Generally, the date of recognition will be the
date the option is exercised or, if later, the first date shares
acquired on exercise are not subject to a substantial risk of
forfeiture.
Incentive Stock Options. No taxable income is recognized by
the optionee at the time of the option grant, and no taxable
income is generally recognized at the time the option is
exercised. The optionee will, however, recognize taxable income
in the year in which the purchased shares are sold or otherwise
made the subject of a taxable disposition. For federal tax
purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the
optionee has held the shares for more than two (2) years after
the option grant date and more than one (1) year after the
exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the
purchased shares, then the Company will be entitled to a business
expense deduction, for the taxable year in which such disposition
occurs, equal to the excess of (i) the fair market value of such
shares on the option exercise date over (ii) the exercise price
paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of
the purchased shares.
If no disqualifying disposition is made of shares acquired
under an incentive stock option, any gain on the subsequent sale
of those shares will constitute long-term capital gains and the
Company will not be entitled to any deduction with respect to
such shares.
To the extent that the aggregate fair market value
(determined as of the respective date or dates of grant) of
shares with respect to which options that would otherwise be
incentive stock options are exercisable for the first time by any
individual during any calendar year exceeds $100,000, such
options will be treated as nonstatutory options.
Parachute Payments. If the exercisability of an option or
stock appreciation right is accelerated as a result of a change
of control, all or a portion of the value of the option or stock
appreciation right at that time may be a parachute payment for
purposes of the excess parachute provisions of the Internal
Revenue Code. Those provisions generally provide that if
parachute payments exceed three times an employee's average
compensation for the five (5) tax years preceding the change of
control, the Company loses its deduction and the recipient is
subject to a 20% excise tax for the amount of the parachute
payments in excess of one times such average compensation.
Limitation of Deductions for Executive Compensation.
Recently enacted Section 162(m) of the Internal Revenue Code
limits federal income tax deductions for compensation that is
otherwise deductible for tax years beginning after 1993 with
respect to the Company's Chief Executive Officer or any of the
four other most highly compensated officers to $1 million per
year, but contains an exception for performance-based
compensation that satisfies certain conditions and amounts
payable pursuant to written binding contracts in effect on
February 17, 1993.
The Company believes that options granted pursuant to the
Option Plan will qualify for the performance based-compensation
exception and that options granted before February 17, 1993 will
qualify for the pre-existing binding contract exception. Under
the final Treasury regulations, options that are intended to
qualify as performance-based compensation must be granted
pursuant to a shareholder approved plan that includes a limit on
the number of shares for which a single individual may receive
options over the life of the plan. At the 1994 Annual Meeting,
the Company obtained shareholder approval for certain amendments
to the Company's Option Plan which were designed to assure that
any compensation deemed paid in connection with the exercise of
stock options granted under the Option Plan will qualify as
performance-based compensation. However, there can be no
assurance that the options will so qualify. In addition, future
amendments to the Company's Option Plan may be necessary to
preserve such qualification in the future.
Accounting Treatment
Option grants with exercise prices less than the fair market
value of the shares on the grant date will result in a
compensation expense to the Company's earnings equal to the
difference between the exercise price and the fair market value
of the shares on the grant date. Such expense will be accruable
by the Company over the period that the option shares are to
vest. Option grants at 100% of fair market value will not result
in any charge to the Company's earnings, but the Company must
disclose, in footnotes to the Company's financial statements, the
impact that those options would have upon the Company's reported
earnings were the value of those options treated as compensation
expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis.
New Plan Benefits
The following table contains information about options
granted under the Company's Option Plan during fiscal 1997 and
from April 1, 1997 through July 28, 1997, respectively, to the
named executive officers and directors and groups indicated,
taking into account the option grants provided in the amendment
to the Option Plan for which shareholder approval is sought,
together with the option exercise price payable per share. All
of the options granted during the period from April 1, 1997
through July 28, 1997 were granted on May 15, 1997, at an
exercise price of $21.88.
MENTOR CORPORATION
1991 STOCK OPTION PLAN
Number of Average Net Value
Shares Exercise Realized
Underlying Price of From
Options Options Exercised
Name Granted Granted Awards
Christopher J. Conway:
Fiscal 1997 60,000 $23.13 $0
May 15, 1997 60,000 $21.88 $0
Anthony R. Gette:
Fiscal 1997 40,000 $23.13 $522,000
May 15, 1997 40,000 $21.88 $0
Dennis E. Condon:
Fiscal 1997 24,000 $23.13 $0
May 15, 1997 24,000 $21.88 $0
Gary E. Mistlin:
Fiscal 1997 14,000 $23.13 $ 75,000
May 15, 1997 14,000 $21.88 $0
Karen H. Edwards:
Fiscal 1997 14,000 $23.13 $0
May 15, 1997 14,000 $21.88 $241,125
Executive Group (7
persons)
Fiscal 1997 196,000 $23.13 $692,321
May 15, 1997 172,250 $21.88 $537,977
Non-Executive Director
Group (5 persons)
Fiscal 1997 6,000 $30.00 $1,225,499
May 15, 1997 150,000 $21.88 $241,875
Non-Executive Officer
Employee Group (58
persons)
Fiscal 1997 200,800 $23.02 $2,811,940
May 15, 1997 181,100 $21.88 $872,144
Dr. Richard Young received options to purchase 6,000 shares
pursuant to the automatic option grant provisions of the Option
Plan on September 12, 1996, at an exercise price of $30.00.
Shareholder Approval
The affirmative vote of a majority of the outstanding shares
of the Company's voting Common Stock represented and voted at the
1997 Annual Meeting is required for approval of the amendment to
Option Plan. If such shareholder approval is not obtained, the
amendment will not be effective and the May 15, 1997 option
grants to the non-employee members of the Board on such date will
be canceled. The Option Plan will, however, continue to remain
in effect, and option grants may continue to be made pursuant to
the provisions of the Option Plan.
The Board of Directors recommends a vote FOR the approval of the
amendment to the Option Plan.
PROPOSAL 3: RATIFICATION OF INDEPENDENT AUDITORS
Pursuant to authority delegated to the Audit Committee by
the Board of Directors, the Audit Committee has appointed the
firm of Ernst & Young LLP to act as principal independent
auditors for the Company for the fiscal year ending March 31,
1998. This appointment will be submitted to the Company's
shareholders for ratification. This firm has audited the
financial statements of the Company for the fiscal year ended
March, 31, 1997, and for prior years, and has advised the
Company that neither the firm nor any of its partners has any
direct or indirect material financial interests in the Company
or its subsidiaries, nor have they had any connection during the
past three years with the Company or its subsidiaries, in any
capacity other than that of independent accountants and
auditors. Ernst & Young LLP will have representatives at the
1997 Annual Meeting who will have an opportunity to make a
statement and will be available to respond to appropriate
questions.
In the event the shareholders do not ratify the appointment
of Ernst & Young LLP, the selection of other independent
auditors will be considered by the Board of Directors.
The Board of Directors recommends that shareholders vote
FOR ratification of the appointment of Ernst & Young LLP to
serve as the Company's independent auditors for the fiscal year
ending March 31, 1998.
OTHER MATTERS
The Company knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other
matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of Proxy to
vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other
matters is granted by the execution of the enclosed Proxy.
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table shows the ownership of the Common Stock
of the Company on July 28, 1997, (i) by each person who, to the
knowledge of the Company, owned beneficially more than five
percent (5%) of such stock, (ii) by each of the Company's
directors, (iii) by each of the executive officers named in the
Summary Compensation Table below, and (iv) by all directors and
executive officers who served as directors or executive officers
as of March 31, 1997 as a group:
Amount and Approximate
Name and Address (if percentage of Nature of Percent of
shares applicable) Beneficial Class
of Beneficial Owner Ownership (1)
5% Stockholders:
Mellon Bank Corporation (2) 1,503,000 (2) 6.0%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Directors:
Christopher J. Conway (3) 1,027,600 3.9%
Eugene G. Glover 536,000 (4) 2.0%
Byron G. Shaffer 814,000 (5) 3.1%
Walter W. Faster 138,600 *
Michael Nakonechny 270,500 1.0%
Anthony R. Gette (4) 345,000 1.3%
Richard W. Young 78,700 *
Named Executive Officers:
Dennis E. Condon 223,080 (6) *
Gary E. Mistlin 133,500 *
Karen H. Edwards 138,000 *
All directors and executive officers
as a group (12 persons) 3,825,000 14.4%
* Less than 1%
(1) These shares, unless noted below, are subject to the sole
voting and investment power of the indicated person. The
figures include options to purchase Common Stock
exercisable within sixty days and held by: Mr. Conway,
390,000 shares; Mr. Glover, 90,000 shares; Mr. Shaffer,
70,000 shares; Mr. Faster, 90,000 shares; Mr. Nakonechny,
70,000 shares; Mr. Gette, 294,000 shares; Dr. Young, 34,500
shares; Mr. Condon, 177,000 shares; Mr. Mistlin, 122,500
shares; Ms. Edwards, 137,500 shares; and all directors and
executive officers as a group, 1,595,500 shares.
(2) Includes 1,251,000 shares held by Mellon Bank N.A. Mellon
Bank Corporation has sole voting power with respect to
1,503,000 shares, sole dispositive power with respect to
125,000 shares and shared dispositive power with respect to
1,378,000 shares. Mellon Bank N.A. has sole voting power
with respect to 1,251,000 shares, sole dispositive power
with respect to 83,000 shares and shared dispositive power
with respect to 1,168,000 shares.
(3) Also an executive officer named in the Summary Compensation
Table.
(4) Includes 426,000 shares held by a trust of which Mr. Glover
is the sole trustee.
(5) Includes 103,800 shares owned by Mr. Shaffer's spouse and
120,000 shares owned by Mr. Shaffer as custodian for their
children.
(6) Includes 540 shares owned by Mr. Condon's spouse.
Executive Compensation and Related Information
Executive compensation is determined by the Board of
Directors based on the recommendations of the Compensation
Committee, which is composed entirely of independent, outside
directors. The following information relates to compensation
paid by the Company for services rendered during the three (3)
fiscal years ended March 31, 1997 for the Company's Chief
Executive Officer and each of the other four (4) most highly
compensated executive officers.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Fiscal Salary Bonus (1) Compensation Stock Options/SARs Payouts Compensation
Position Year ($) ($) ($) Awards ($) (#) (3) ($) (2) ($)
<S> <C> <C> <C> <C> <S> <C> <S> <C>
Christopher J. Conway 1997 $358,300 $174,230 - - 60,000 - $9,143
Chairman and CEO 1996 $340,900 $338,307 - - 70,000 - $5,013
1995 $285,700 $189,409 - - 48,000 - $2,310
Anthony R. Gette 1997 $268,800 $165,709 - - 40,000 - $7,531
President, Secretary 1996 $258,200 $256,236 - - 60,000 - $5,262
and COO 1995 $234,300 $155,333 - - 40,000 - $2,310
Dennis E. Condon 1997 $187,400 $ 82,077 - - 24,000 - $6,685
President, 1996 $180,000 $211,247 - - 30,000 - $4,100
Mentor H/S, Inc. 1995 $158,800 $124,069 - - 24,000 - $2,760
Gary E. Mistlin 1997 $173,100 $43,637 - - 14,000 - $5,410
Vice President of 1996 $157,000 $56,115 - - 16,000 - $3,503
Finance/Treasurer 1995 $138,500 $38,200 - - 24,000 - $2,048
Karen H. Edwards 1997 $159,500 $40,490 - - 14,000 - $5,055
Vice President RA/QA 1996 $153,200 $52,659 - - 16,000 - $3,672
and Legal Affairs 1995 $132,000 $36,100 - - 24,000 - $1,580
</TABLE>
(1) Annual bonus amounts are earned and accrued during the fiscal years
indicated, and paid subsequent to the end of the fiscal year.
(2) Represents matching amounts contributed by the Company on behalf of the
named individual under the terms of the Company's 401(k) Plan.
(3) All share references are after adjustment for the 2 for 1 stock split
effectuated by the Company in September 1995.
<TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Terms (3)
Securities % of Total Exercise
Underlying Options/SARs or Base
Options/SARs Granted to Price
Granted (#) Employees in ($/Share) Expiration
Name (1)(4) Fiscal Year (2) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Christopher J. Conway 60,000 15.1% $23.13 05/09/06 $872,591 $2,211,317
Anthony R. Gette 40,000 10.1% $23.13 05/09/06 $581,727 $1,474,211
Dennis E. Condon 24,000 6.0% $23.13 05/09/06 $349,036 $884,527
Gary E. Mistlin 14,000 3.5% $23.13 05/09/06 $203,604 $515,974
Karen H. Edwards 14,000 3.5% $23.13 05/09/06 $203,604 $515,974
</TABLE>
(1) All of these options were granted under the 1991 Stock
Option Plan on May 9, 1996. Each option will become
exercisable for the option shares in four equal and
successive annual installments over the optionee's period of
service with the Company, beginning one year after the grant
date. Each option has a maximum term of ten years, subject
to earlier termination immediately prior to a Change in
Control (as defined in the 1991 Stock Option Plan);
alternatively, the administrator of the 1991 Stock Option
Plan may provide for replacement of outstanding options with
options to purchase shares of the surviving corporation, or
for a cash payment in exchange for the cancellation of
outstanding options.
(2) The exercise price of each option is equal to the market
value of the Common Stock on the date of grant. The
exercise price may be paid in cash, in Common Stock or
pursuant to a cashless exercise procedure under which the
optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to the
Company, out of the sale proceeds, an amount equal to the
exercise price plus all applicable withholding taxes. The
administrator of the 1991 Stock Option Plan may authorize a
loan or loan guarantee from the Company to help the optionee
pay the exercise price or the administrator may permit the
optionee to pay the option price in installments.
(3) Potential realizable value is based on an assumption that
the market price of the stock appreciates at the stated
rate, compounded annually, from the date of grant until the
end of the ten year option term. These values are
calculated based on regulations promulgated by the
Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price appreciation.
There is no assurance that the actual stock price
appreciation over the ten year option term will be at the
assumed 5% or 10% levels, or at any other defined level.
(4) All share references are after adjustment for the 2 for 1
stock split effectuated by the Company in September 1995.
<TABLE>
Shares Number of Securities Underlying Value of Unexercised In-
Acquired on Value Unexercised Options/SARs at The-Money Options/SARs at
Exercise Realized Fiscal Year End Fiscal Year (2)
Name (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <S> <C> <C> <C>
Christopher J. Conway 0 - 337,500 144,500 $5,095,039 $1,017,485
Anthony R. Gette 24,000 $522,000 253,000 111,000 $3,790,596 $ 849,855
Dennis E. Condon 0 - 154,500 61,500 $2,360,522 $ 454,687
Gary E. Mistlin 5,000 $ 75,000 106,000 41,000 $1,586,092 $ 348,322
Karen H. Edwards 0 - 131,000 41,000 $1,972,467 $ 348,322
</TABLE>
(1) Value realized is based on the fair market value of the
Company's Common Stock on the date of exercise minus the
exercise price and does not necessarily indicate that the
optionee sold such stock.
(2) An in-the-money option is an option which has an exercise
price for the Common Stock which is lower than the fair
market value of the Common Stock on a specified date. The
fair market value of the Company's Common Stock at March 31,
1997 was $21.63 per share.
(3) All share references are after adjustment for the 2 for 1
stock split effectuated by the Company in September 1995.
Employment Contracts and Severance Arrangements
The Company has entered into an Employment Agreement with
William M. Freeman, the President of Mentor Ophthalmics, Inc.
The agreement provided for Mr. Freeman to receive in fiscal 1995
(i) a base salary of $150,000, prorated from the date of
employment, (ii) a bonus of up to 40% of such base salary based
on attainment of mutually designated objectives, (iii) options
to purchase 30,000 shares of Common Stock, with a vesting period
of five years, and (iv) a relocation package to defray his costs
of moving to Santa Barbara, California. Beginning in fiscal
1996, Mr. Freeman's compensation is fixed annually by the
Compensation Committee. The agreement also provides that upon
termination of Mr. Freeman's employment by the Company without
cause (as defined therein), Mr. Freeman will be entitled to
severance compensation equal to three months of base salary plus
one month of base salary for each complete year of service with
the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") was
established in 1980 and is composed entirely of independent,
outside members of the Company's Board of Directors. The
Committee reviews and approves each of the elements of the
executive compensation program and assesses the effectiveness
and competitiveness of the overall program.
Mentor's executive compensation program is designed to
accomplish several goals, including:
1. To attract, retain, and motivate employees of outstanding
ability
2. To link changes in employee compensation to individual and
corporate performance
3. To align the interests of management with the interests of
the Company's shareholders
4. To provide levels of compensation that are competitive with
those provided in the markets in which the Company competes for
executives.
Key Provisions of the Executive Compensation Program
The Company's executive compensation plan consists of three
components: base salary, annual incentive bonus, and long-term
incentive in the form of stock options. The Company has
established a strong link between pay and performance by
emphasizing variable components of the plan, that is, annual
incentive bonus and stock options.
Base Salary
The Committee determines base salaries for executive
officers on the basis of a number of factors, including an
assessment of competitive compensation levels for similar-size
manufacturing companies performed by an independent consulting
firm, the Company's financial condition, any changes in job
responsibilities, and the performance of each executive.
Executive officer base salaries generally are set to correspond
to the 60th percentile of the comparable competitive
compensation data.
Annual Incentive Bonus
Executive officers are eligible to receive annual incentive
compensation equivalent to a specified percentage of their
salaries under the Company's bonus plan. The Company
establishes bonus payout targets (ranging from 30% to 60% of
base salary) that are designed to bring the level of total
annual cash compensation (base salary plus annual incentive
bonus) to the 75th percentile for comparable positions at
similar-size manufacturing companies when superior performance
is achieved. Performance is measured at the corporate, business
unit, and individual level. The total potential bonus for each
executive is broken down into several factors as appropriate for
that executive's area of responsibility. Each factor is then
weighted with emphasis placed on profitability measures. These
factors, and the relative weight given to each factor, vary with
each executive officer in the Committee's sole discretion. For
each factor, the Committee establishes a threshold, target and
outstanding goal. No bonus is paid for performance below
threshold levels. Bonuses for threshold performance are paid at
50% of the targeted levels. Bonuses for outstanding performance
are paid at 200% of targeted levels for the Chief Executive
Officer and President, and 150% of targeted levels for all other
executive officers. The total bonus paid each executive is thus
a weighted average of each factor, adjusted for performance
against a predefined target for that factor.
Long-term Incentive (Stock Options)
Generally, the Company awards stock options to executive
officers on an annual basis. Each grant is designed to align
the interests of executive officer with those of the
shareholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Awards to specific
employees, including the Chief Executive Officer, are made on
the basis of each employee's job responsibilities and
recommendations of the executive officers of the Company
concerning the individual's contributions (both historical and
potential) to the success of the Company, without regard to
prior awards of stock option grants. These recommendations also
take into consideration competitive practice for stock option
grants as determined by an independent compensation consultant
from survey information. The survey information encompasses
data on both competitive grant levels for individual executives
and total options granted as a percentage of shares outstanding.
Compensation of Chief Executive Officer
Mr. Conway is a founder of the Company and has served as
its Chief Executive Officer and Chairman of the Board since its
incorporation in 1969. Mr. Conway's base salary and annual
incentive bonus are set by the Committee using the same policies
and criteria used for other executive officers. In setting Mr.
Conway's salary for fiscal 1997, the Committee considered
competitive information for similar sized manufacturing
companies provided by an independent compensation consultant and
the Company's financial performance. Mr. Conway is currently
paid at the targeted competitive position base salary, which has
been set by the Committee at the 60th percentile of the
comparable competitive compensation data.
Mr. Conway's bonus potential is designed to bring his total
annual cash compensation to the 75th percentile for comparable
positions at similar sized manufacturing companies. For Mr.
Conway, this targeted bonus equated to 60% of his base salary in
fiscal 1997. Mr. Conway's fiscal 1997 bonus was based on the
achievement of two separate corporate goals: net sales
(weighted 30%) and corporate profitability (weighted 70%). The
compensation plan for fiscal 1997 was designed to encourage
aggressive operating profit growth over the prior year. The
Company performed slightly below its targeted performance in
fiscal 1997. As a result, Mr. Conway received a bonus below his
targeted level of 60%.
Tax Limitation
As a result of federal tax legislation enacted in 1993, a
publicly-held company such as the Company will not be allowed a
federal income tax deduction for compensation paid to certain
executive officers, to the extent that compensation exceeds $1
million per officer in any year. It is not expected that the
compensation to be paid to the Company's executive officers for
the 1998 fiscal year will exceed the $1 million limit per
officer. Compensation which qualifies as performance-based
compensation will not have to be taken into account for purposes
of this limitation. At the 1994 Annual Meeting, the Company
obtained shareholder approval for certain amendments to the
Company's Option Plan which were designed to assure that any
compensation deemed paid in connection with the exercise of
stock options granted under that plan will qualify as
performance-based compensation. As a result, the Company
believes that stock options granted to its executives qualify
for the performance-based exception to the deduction limit.
However, there can be no assurance that the options will so
qualify. In addition, future amendments to the Company's Option
Plan may be necessary to preserve such qualification in the
future.
The cash compensation paid to the Company's executive
officers for the fiscal 1997 year did not exceed the one (1)
million dollar limit per officer, nor is the cash compensation
to be paid to the Company's executive officers for the 1998
fiscal year expected to reach that level. Because it is very
unlikely that the cash compensation payable to any of the
Company's executive officers in the foreseeable future will
approach the one (1) million dollar limitation, the Compensation
Committee has decided not to take action at this time to limit
or restructure the elements of cash compensation payable to the
Company's executive officers. The Compensation Committee will
reconsider this decision should the individual compensation of
any executive officer ever approach the one (1) million dollar
level.
SUBMITTED BY THE
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
- Eugene G. Glover
- Walter W. Faster
- Michael Nakonechny
- Byron G. Shaffer
- Dr. Richard W. Young
Stock Performance Graph
The following graph compares the yearly percentage changes in
the cumulative total shareholder return on the Company's Common
Stock with the cumulative total return on the NASDAQ Market
Value Index and the Media General Financial Services Medical
Instruments and Supplies Index ("MG Index") during the five
fiscal years ended March 31, 1997. The comparison assumes $100
was invested on March 31, 1992 in the Company's Common Stock and
in each of the foregoing indices and assumes reinvestment of
dividends.
COMPARISON OF 5-YEAR CUMULATIVE RETURN
_____________________________________________________________________
Legend
Symbol Index 3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
Company 100.0 123.0 135.9 265.2 467.4 434.4
NASDAQ Index 100.0 111.9 129.3 137.2 184.6 206.5
MG Index 100.0 87.0 78.3 106.9 158.1 149.7
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933 or
the Securities Exchange Act of 1934 that might incorporate
future filings, including this Proxy Statement, in whole or in
part, the preceding Compensation Committee Report on Executive
Compensation and the preceding Company Stock Performance Graph
are not to be incorporated by reference into any such filings;
nor are such Report or Graph to be incorporated by reference
into any future filings.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is a former officer or
employee of the Company or any of its subsidiaries, except for
Mr. Glover, who was Founder and Vice President, Engineering of
the Company from 1969 to October 1986.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of a registered
class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and
greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended March 31, 1997, all Section 16(a) filing
requirements applicable to its officers, directors and greater
than ten-percent beneficial owners were complied with, except
that Mr. Shaffer and Dr. Young each filed a Form 4 late with
respect to one transaction.
CERTAIN TRANSACTIONS
In April 1991, the Company entered into a distribution
agreement with Rochester Medical Corporation ("Rochester").
Under the terms of the agreement, the Company received an
exclusive license, subject to annual minimum purchase
commitments, to market and distribute certain external catheter
products developed by Rochester, in exchange for a payment of
$500,000. In addition, the Company has a non-exclusive right to
market and distribute certain additional products currently
under development by Rochester. The Company purchased
$1,958,000 under the agreement in fiscal year 1997.
Certain directors and executive officers of Rochester, a
public company, are siblings of Christopher J. Conway, the
Chairman of Mentor Corporation.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997 as filed with the Securities
and Exchange Commission is available without charge by writing
to the Company's principal executive office.
Please mark, sign, date and return promptly the enclosed
proxy provided. The signing of a proxy will not prevent you
from attending the meeting in person.
BY ORDER OF THE BOARD OF
DIRECTORS
Anthony R. Gette
Secretary
Dated: July 30, 1997
