SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2000
Commission File No. 0-7955
Mentor Corporation
201 Mentor Drive
Santa Barbara, California 93111
Telephone: 805/879-6000
A Minnesota Corporation I.R.S. Employer Identification
No. 41-0950791
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, par value $.10 per share
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 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 the Registrant's
knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
The aggregate market value of the voting stock of the
Company held by non-affiliates of the Registrant as based upon
the closing National Market System sale price on June 26, 2000
was $645,558,000.
Number of Shares of Common Stock outstanding on June 26, 2000:
23,909,557.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2000
Annual Meeting of Shareholders are incorporated by reference in
Part III in this Report on Form 10-K.
PART I
This Annual Report on Form 10-K filed on behalf of Mentor
Corporation ("Mentor" or the "Company"), including information
incorporated herein by reference, contains certain forward-
looking statements that involve risk and uncertainty. Such
forward-looking statements are characterized by future or
conditional verbs and include statements regarding new and
existing products, technologies and opportunities, market and
industry segment growth and demand and acceptance of new and
existing products. Such statements are only predictions and our
actual results may differ materially from those anticipated in
these forward-looking statements. Factors that may cause such
differences include, but are not limited to, increased
competition, changes in product demand, changes in market
acceptance, new product development, obtaining FDA approval of
new and existing products, changes in government regulation,
supply of raw materials, changes in reimbursement practices,
adverse results of litigation and other risks identified in this
Annual Report or in other documents filed by the Company with the
Securities and Exchange Commission. Specific attention should be
directed to the sections entitled "Government Regulation",
Product Liability", and "Factors that May Effect Future Results
of Operations." The Company assumes no obligation to update
forward-looking statements as circumstances change.
ITEM 1. BUSINESS.
General
The Company develops, manufactures, and markets a broad range of
products for the medical specialties of Aesthetic and General
Surgery (Plastic and Reconstructive Surgery) and Urology.
Aesthetic and General Surgery products include surgically
implantable prostheses for plastic and reconstructive surgery and
capital equipment used in soft tissue aspiration. Urologic
products include disposable and surgical products for the
management of urinary incontinence, surgically implantable
prostheses for the treatment of impotence and brachytherapy seeds
for the treatment of prostate cancer.
During fiscal 2000, the Company completed the divestiture of its
ophthalmology business. Accordingly, all numbers in this 10-K
have been restated to exclude the results of the ophthalmic
business as appropriate. All sales, expenses, gains on assets
sales, and other financial information of the ophthalmology
business are reported, net, as a single line on the financials.
Principal Products and Markets
Aesthetic and General Surgery Products
The Company produces a broad line of mammary prostheses,
including saline-filled implants and silicone gel-filled
implants. Approximately 85% of Aesthetic and General Surgery
revenues are sales of mammary prostheses. Saline-filled breast
implants accounted for approximately 75% of mammary prostheses
sold in fiscal 2000.
Mammary prostheses may be implanted to achieve breast
reconstruction following total or partial removal of the breast
(mastectomy) or to enhance breast size and shape in plastic
surgery. Breast reconstruction is possible for most patients
undergoing a mastectomy, either at the time of the original
surgery or at a later date.
The Company also offers a line of tissue expanders. Tissue
expansion is a technique for growing additional tissue for
reconstruction and skin graft procedures. Some of the major
applications of tissue expansion developed to date include post-
mastectomy reconstruction, and the elimination of disfigurements
such as burns, massive scars and facial deformities.
In September 1997, the Company began marketing the Contour
Genesis(R) System, an ultrasound assisted product used for the
liquefaction and aspiration of soft tissues in general surgery
and cosmetic surgery applications. The Company is currently
conducting clinical trials using the Contour Genesis(R) System in
order to expand the labeling of the product to include ultrasonic
assisted liposuction. The Company expects to submit an
application for approval to the FDA by the end of the current
fiscal year.
Surgical Urology Products
The Company's Surgical Urology products fall into three general
categories of products: impotence treatment, incontinence
treatment, and cancer treatment products.
Impotence Products. The Company's impotence products consist of
a line of penile implants for the treatment of male sexual
impotence. Penile prostheses are implanted in men who cannot
achieve a natural erection of sufficient rigidity for sexual
intercourse. In order to respond to various physician and
patient preferences, the Company manufactures several types of
penile prostheses, including a hydraulic inflatable device and a
malleable prosthesis.
Incontinence Products. The Company markets the Suspend(R) Sling
for use in pubovaginal sling and pelvic floor reconstruction
procedures. The Company also markets a suture fixation device
known as the Cinch(R) bone anchor system. Both procedures provide
relief for women suffering from stress incontinence.
The Company introduced SpiroFlo(TM) bioresorbable prostate stent
outside the United States during fiscal 2000. The product is not
yet available in the United States; however, the Company is
pursuing a clinical study to gain approval to market the product.
Cancer Products. The Company serves as the marketing partner in
two strategic alliances focusing on the treatment of urologic
cancers. The first alliance is with North American Scientific,
Inc. ("NASI") which produces brachytherapy seeds for the
treatment of prostate cancer. NASI manufactures and ships
IoGold(R) I-125 and Pd-Gold(TM) Pd-103 brachytherapy seeds, while the
Company does all of the sales and marketing. Sales of IoGold(R) I-
125 seeds began in January 1998; sales of Pd-Gold(TM) Pd-103 seeds
began in April 1999.
The second alliance is with Intracel Corporation in which Mentor
will be the exclusive worldwide marketing partner for a bladder
cancer treatment Intracel is developing. This product, BCI-
Immune Activator, appears to demonstrate enhanced anti-tumor
activity in the bladder. Intracel has completed Phase I and II
clinical trials, and began Phase III clinical trials during
fiscal 1999. It is expected that clinical trials will be
completed in fiscal 2002.
Clinical and Consumer HealthCare Products
The Agency for Health Care Policy and Research estimates that due
to a variety of causes, thirteen million men, women and children
in the United States suffer from the inability to control the
flow of urine, known as urinary incontinence or retention. The
Company markets a line of male external catheters that help men
manage their incontinence, and a line of intermittent self-
catheters for patients with retention. These products are
disposable and are used in homes, hospitals and extended care
facilities.
The Company also markets a variety of other disposable products
used in the management of urinary incontinence. These include
leg bags and urine collection systems, organic odor eliminators,
and moisturizing skin creams and ointments.
Summary of Sales by Principal Product Lines. The following table
shows the net sales attributable to each of the Company's
principal product lines and the percentage contributions of such
sales to total net sales for the periods indicated.
Year Ended March 31,
2000 1999 1998
(in thousands) Amount % Amount % Amount %
Aesthetic and General
Surgery Products $148,661 60% $122,066 60% $112,449 62%
Surgical Urology
Products 52,656 21 37,307 18 28,413 16
Clinical and Consumer
Healthcare Products 46,027 19 43,410 22 39,405 22
$247,344 100% $202,783 100% $180,267 100%
Marketing
The Company employs specialized domestic sales forces for
aesthetic surgery, surgical urology and disposable healthcare
product lines. Each sales force provides product orientation,
support and related services to physicians, nurses and other
health care professionals. The Company also markets certain
products, particularly its disposable incontinence products,
through a domestic network of independent hospital supply dealers
and health care distributors, and increasingly through retail
pharmacies.
The Company promotes its products through radio, television,
magazine and journal advertising, direct mail programs, and
participation in, and sponsorship of, medical conferences and
seminars. The Company also participates in support organizations
that provide counseling and education for persons suffering from
specific disease states, and provides patient education materials
for some of its products to physicians for use with their
patients.
International Operations
The Company exports most of its products lines, principally to
Canada and Western Europe. Products are sold to both independent
distributors as well as through the Company's direct
international sales offices in Canada, the United Kingdom,
Germany, France, Benelux, Australia, Spain and Italy. Other than
sales made through the Company's international sales offices,
export sales have been made in United States dollars and currency
fluctuations have not significantly affected operating earnings.
The Company generally does not use derivative instruments to
hedge its foreign currency transactions. As March 31, 2000, the
Company had purchased $3 million of forward currency contracts in
anticipation of a European capacity expansion. In fiscal 2000,
sales from the direct international offices accounted for 12% of
total sales.
Competition
The Company believes it is one of the leading suppliers in the
United States of penile implants, cosmetic and reconstructive
surgery products, and disposable catheter products. This belief
is based upon information developed internally, public
information sources and information from independent research
studies of market share.
The Company competes primarily with one other company in the
domestic breast implant market, McGhan Medical Corporation, a
subsidiary of INAMED, Inc. The primary competitive factors
currently are range of styles and sizes, product performance and
quality, proprietary design, customer service and in certain
instances, price.
The Company competes with only one other company in the
inflatable penile implant market, American Medical Systems, Inc.
Several companies sell competing malleable penile implants. The
primary competitive factors are product performance and
reliability, ease of implantation and customer service. The
Company believes that, by providing several types of implants
that stress high performance and reliability, it can successfully
respond to various physician and patient preferences.
The Company competes with several other companies providing
brachytherapy seeds for the treatment of prostate cancer,
including Nycomed-Amersham and Indigo, a division of Johnson &
Johnson. The primary competitive factors are product delivery,
product offering and consistent quality.
By careful design and active marketing of catheters and other
disposable incontinence products, the Company has been able to
compete successfully against larger companies. The Company, C.R.
Bard, Inc., Hollister, Inc., Kendall, a division of Tyco
HealthCare, and Coloplast Corporation are the dominant
competitors in the market. As with many of the Company's other
product lines, the Company competes primarily on the basis of
design and performance, and by providing product orientation,
support and related services to health care professionals and
consumers.
Government Regulation
General
As a manufacturer of medical devices, the Company's manufacturing
processes and facilities are subject to continuing review by the
FDA and various state agencies to insure compliance with current
good manufacturing practices and other regulatory requirements.
These agencies inspect the Company and its facilities from time
to time to determine whether the Company is in compliance with
various regulations relating to manufacturing practices, process
validation, testing, quality control and product labeling. These
regulations depend heavily on administrative interpretation by
the various agencies, and can be influenced by adverse publicity
and political pressure. There can be no assurance that future
interpretations made by the FDA or other regulatory bodies will
not adversely affect the Company. A determination that the
Company is in violation of such regulations could lead to
imposition of various penalties, including the issuance of
warning letters, injunctive relief (whether by adverse court
ruling or by consent), product recalls or product seizures.
Medical Device Amendments of 1976
Under the "Medical Device Amendments of 1976" (the "'76
Amendments"), the FDA has the authority to adopt regulations
that: (i) set standards for medical devices; (ii) require proof
of safety and effectiveness prior to marketing devices which the
FDA believes require pre-market clearance; (iii) require test
data approval prior to clinical evaluation of human use; (iv)
permit detailed inspections of device manufacturing facilities;
(v) establish "good manufacturing practices" ("GMPs") that must
be followed in device manufacture; (vi) require reporting of
product defects to the FDA; and (vii) prohibit device exports
that do not comply with the '76 Amendments unless they comply
with established foreign regulations, do not conflict with
foreign laws, and the FDA and the health agency of the importing
country determine export is not contrary to public health. All
of the Company's products are "medical devices intended for human
use" within the meaning of the '76 Amendments and are, therefore,
subject to FDA regulation.
The '76 Amendments establish complex procedures for FDA
regulation of devices in three classes: Class I (general controls
to preclude mislabeling or adulteration, compliance with labeling
and requirements), Class II (performance standards in addition to
general controls) and Class III (pre-market approval application
("PMAA") before commercial marketing). Class III devices are the
most extensively regulated. Class III devices require each
manufacturer to submit to the FDA a PMAA that includes
information on the safety and effectiveness of the device. The
majority of the Company's aesthetic surgery and urology implants
are in Class III, while most of its disposable incontinence
products are in Classes I and II.
In 1991, the Company submitted a PMAA for its silicone gel-filled
mammary prostheses to the FDA, pursuant to FDA regulations issued
at that time. In 1992, the FDA's outside advisory panel on
aesthetic surgery products indicated that although there was
insufficient data to establish with reasonable certainty that
silicone gel implants were safe and effective, there was a public
health need for these types of implants. The FDA adopted the
recommendations of the panel.
The FDA denied the pending applications for the use of silicone
gel-filled breast implants for augmentation, but provided for the
continued availability of the implants for reconstruction
purposes on the basis of a public health need. Since 1993, women
have been required to enroll in a clinical study for future
follow-up in order to receive gel-filled implants for
reconstruction. Patients are required to sign an informed
consent form and physicians must certify that saline implants are
not a satisfactory alternative. The Company continues to ship
these products under the terms of this clinical study.
In 1993, the FDA published proposed guidelines for PMAA's on the
Company's hydraulic inflatable penile prostheses and saline-
filled breast implants. For saline implants, the FDA published a
schedule that permitted the data required for the PMAA to be
submitted in phases, beginning with preclinical data due in 1995
and ending with final submission of prospective clinical data in
1999. The Company submitted all the required data. The PMA
approval process is the means in which the FDA determines the
safety and efficacy of a Class III device. On May 10, 2000, the
FDA approved the Company's PMAA for saline-filled breast
implants. In addition, the FDA audited the Company's
manufacturing facility in Irving, Texas and indicated the
facility appeared to be in substantial compliance with the
applicable requirements of the Federal Food and Drug and Cosmetic
Act and implementing regulations.
For its penile implants, the Company submitted all required data
for the PMAA, and expects the FDA to complete its review by the
end of the calendar year. FDA approval for the Company's penile
implants, however, cannot be assured. Should the Company's PMAA
be denied, it would have a material adverse effect on the
Company's operations and financial position.
To comply with the '76 Amendments, the Company has incurred, and
will continue to incur, substantial costs relating to laboratory
and clinical testing of new and existing products and the
preparation and filing of documents in the formats required by
the FDA. The process of obtaining marketing clearance and
approvals from the FDA for new products and existing products can
be time-consuming and expensive, and there is no assurance that
such clearances or approvals will be granted. The Company also
may encounter delays in bringing new products to market as a
result of being required by the FDA to conduct and document
additional investigations of product safety and effectiveness,
which may adversely affect the Company's ability to commercialize
additional products or additional applications for existing
products.
Additional Regulations
As a manufacturer of medical devices, the Company's manufacturing
processes and facilities are subject to regulations and review by
the FDA and other regulatory agencies. The Company's domestic
facilities must comply with the FDA's Quality System Regulation
requirements for Good Manufacturing Practices. Also, for
products sold internationally, the Company has obtained a CE mark
for its products by demonstrating compliance with the ISO 9001
and EN46001 international quality system standards. Medical
device laws and regulations similar to those described above are
also in effect in some of the other countries to which the
Company exports its products. These range from comprehensive
device approval requirements for some or all of the Company's
medical device products to requests for product data or
certifications.
Texas Facility Review
In June 1995, Mentor's Texas facility was audited by the FDA. As
a result of that audit, Mentor received an FD483 "list of
observations". These observations dealt primarily with
validation of manufacturing processes and follow-up on product
complaint evaluations. Mentor responded to the FD483 in August
1995. In February 1996, the FDA issued Mentor a warning letter,
concluding that the Company had not satisfactorily addressed the
inadequacies noted in the FD483. In 1996 the Company increased
its activities to address the inadequacies identified by the FDA
and to schedule completion of its re-validations.
In August 1997, the FDA returned to the Texas facility to perform
a comprehensive GMP audit, which included reviewing the Company's
progress in completing the remaining items contained in the 1996
warning letter. While the Company had completed most of those
items, the re-validation effort had not been completed within the
time frame outlined in the 1996 letter. In May 1998, the Company
entered into a voluntary consent decree with the FDA, under which
the Company agreed, among other things, to complete the re-
validations in the agreed upon timeframe.
The consent decree required the Company to hire outside expert
consultants to assist in strengthening the Company's compliance
program and related processes. In July 1998 the consultant
conducted a comprehensive GMP audit of the Texas facility and
submitted a detailed written report to Mentor management and the
FDA on its findings. In that report, the consultant stated that,
except for the outstanding revalidations, there were no
significant areas of GMP noncompliance.
The Company and FDA agreed to time frames under which the Company
was to complete its re-validations of its manufacturing
processes; specifically by November 2, 1998 for saline-filled
devices and by December 31, 1998 for gel-filled devices. The
Company completed its revalidations of both devices in those
timeframes. The outside expert consultant reviewed the
validations and reported to management and to the FDA that all
validation projects had been completed in accordance with
established milestones and within the timeframes established by
the consent decree.
Additionally, under the terms of the consent decree, an expert
consultant is required to conduct an inspection and to issue a
report annually. In his first annual report, the consultant
stated, "Mentor is in substantial compliance with the current
Good Manufacturing Practices." In November 1999, FDA began an
audit of Mentor to assess the Company's compliance with the QSR.
At the end of that inspection, an FD483 was issued identifying
certain processes for further improvement. The Company provided
its response to the observations.
In April-May, 2000 the expert consultant conducted his second
annual comprehensive GMP audit of the Texas facility in
accordance with the consent decree. The consultant's report
concluded that "Mentor's quality and manufacturing systems fully
comply with the GMPs (QSRs)." On May 1-10, 2000 the FDA
conducted an audit at the Texas facility to access the procedures
under which saline breast implants are manufactured. The
inspection was conducted in conjunction with FDA's final decision
on Mentor's saline breast implant PMAA. The inspection resulted
in the issuance of an FD483 with one item related to validation
of a computer system. The PMAA was approved after the FDA
investigator reported findings to FDA's Center for Devices and
Radiological Health.
The Company believes that it will continue to meet the
requirements of the consent decree, although there can be no
assurance that it can do so. In addition, although the expert
consultants have expressed their opinion as to the satisfactory
completion of certain consent decree requirements, FDA
inspectors, during some future audit, may disagree with the
conclusions of these experts. Should the Company fail to comply
with the conditions of the consent decree, under its terms the
FDA is allowed to order the Company to stop manufacturing or
distributing the breast implants, order a recall or take other
corrective actions. The Company may also be subject to penalties
of $10,000 per day until compliance is achieved.
If the Company maintains continuous compliance with the terms of
the consent decree for a period of 5 years after the completion
of the re-validations, the Company can petition the courts to
remove the consent decree without opposition from the government.
Environmental Regulation
In certain states, primarily Texas, the Company is also subject
to regulation by the local Air Pollution Control District and the
United States Environmental Protection Agency as a result of some
of the chemicals used in its manufacturing process.
Health Care Cost Containment
Many of the Company's products are purchased by hospitals,
doctors and other health care providers who are reimbursed for
the health care services provided to their patients by third-
party payors, such as governmental programs (e.g., Medicare and
Medicaid), private insurance plans and managed care programs.
Third party payors may deny coverage for certain technologies
based on assessment criteria as determined by the third-party
payor. Also, third-party payors are increasingly challenging the
prices charged for medical products and services. Medicare
reimbursement systems are under revision in an effort by the
government to reduce costs. There can be no assurance that the
Company's products will be automatically covered by third-party
payors, that reimbursement will be available or, if available,
that the third-party payors' coverage policies will not adversely
affect the Company's ability to sell its products profitably.
All third-party reimbursement programs, whether government funded
or insured commercially, whether inside the United States or
outside, are developing increasingly sophisticated methods of
controlling health care costs through prospective reimbursement
and capitation programs, group purchasing, redesign of benefits,
second opinions required prior to major surgery, careful review
of bills, encouragement of healthier lifestyles and exploration
of more cost-effective methods of delivering health care. These
types of programs can potentially limit the amount which health
care providers may be willing to pay for medical devices.
The U.S. Health Care Financing Administration (HCFA) sets
reimbursement policy for the Medicare program in the United
States. HCFA issued a Final Rule on its Prospective Payment
System For Hospital Outpatient Services on April 7, 2000. This
rule provides for a new system to reimburse the outpatient
services provided in a hospital and is made up of two parts:
payment to the hospital for the procedure costs and a separate
payment, known as a pass-through payment, intended to cover the
cost of medical devices used during the procedure that are "not
insignificant" relative to the total procedure cost.
This rule is scheduled to become effective on August 1, 2000. On
May 12, 2000, HCFA published a list of 345 pharmaceuticals and
medical devices that will be eligible for pass-through payments.
HCFA currently intends to only provide payment for the products
on this list and will update the list on a quarterly basis. Both
Iodine and Palladium brachytherapy seeds are included on the
list. The current list does not contain approval for pass-
through payments for the Company's penile implants, tissue
expanders, breast implants, Suspendr sling material or Cinchr
bone anchors. The Company is actively seeking pass-through codes
for all applicable products.
Product Development
The Company is focused on the development of new products and
improvements to existing products. In addition, research and
development expense reflects the Company's efforts to obtain FDA
approval of certain products and processes and to maintain the
highest quality standards of existing products. During fiscal
years 2000, 1999 and 1998, the Company spent a total of
$16,701,000, $14,820,000 and $15,179,000 respectively, for
research and development.
Patents and Licenses
It is the Company's policy to actively seek patent protection for
its products when appropriate. The Company's patents include
patents relating to its penile prostheses, tissue expanders,
combination breast implant and tissue expander, ultrasonic
assisted soft tissue aspiration and disposable catheters. The
Company licenses technology under exclusive supplier and
licensing arrangements for certain products, including
brachytherapy seeds and breast implants.
As a condition of employment, the Company requires each of its
new employees to execute an agreement relating to confidential
information and patent rights.
Raw Material Supply
The Company obtains certain raw materials and components for a
number of its products from single suppliers. In most cases the
Company's sources of supply could be replaced if necessary
without undue disruption, but it is possible that the process of
qualifying new materials and/or vendors for certain raw materials
and components could cause a material interruption in
manufacturing or sales. No material interruptions occurred
during the last fiscal year.
In the mid 90's, certain suppliers of raw materials, such as Dow
Corning, DuPont and others, announced that they would no longer
supply implant or medical grade materials for products in several
markets related to reproduction, contraception, obstetrics or
cosmetic surgery, due to what they perceived as a product
liability risk in excess of the potential economic benefits of
providing these materials. Certain of the Company's products,
principally breast implants and penile implants, incorporated
materials supplied by these companies. Under guidelines
established by the FDA, the Company successfully replaced these
materials with those being offered by other companies willing to
supply device manufacturers. These sources of supply are
relatively new, and there can be no assurance that they will be
able to supply the Company in the quantities needed, or that
regulatory or other delays will not cause a disruption in sales
of affected products. The Company believes its supply of raw
materials is adequate for the current fiscal year.
Employees
As of March 31, 2000, the Company employed 1,279 people of whom
794 were in manufacturing, 295 in sales and marketing, 74 in
research and development and 116 in finance and administration.
There has never been a work stoppage due to labor difficulties,
and the Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES.
The Company owns manufacturing, warehouse and office buildings in
Minneapolis, Minnesota (161,965 square feet). The Company leases
additional office, manufacturing and warehouse facilities in
Santa Barbara, California (123,885 square feet), Mounds View,
Minnesota (20,000), Irving, Texas (139,109 square feet), Norwell,
Massachusetts (57,000 square feet), Tucson, Arizona (40,000
square feet) and Leiden, the Netherlands (15,000 square feet).
The Company's international sales offices lease office and
warehouse space ranging from 1,000 to 5,500 square feet. All
leases have terms ranging from one to fifteen years, renewable on
terms the Company considers favorable.
The Company believes its facilities are generally suitable and
adequate to accommodate its current operations, and suitable
facilities are readily available to accommodate any future
expansion as necessary.
ITEM 3. LEGAL PROCEEDINGS.
The Company has learned that the FDA's Office of Criminal
Investigations (OCI) is conducting an investigation involving the
Company, which the company believes was initiated in 1998 and
involves manufacturing and operations issues. In April 2000, OCI
issued a letter requesting that the Company provide OCI with
manufacturing data and other corporate records, which the Company
subsequently provided to OCI. The Company is cooperating fully
with the OCI investigation and has an ongoing dialogue with OCI.
The Company believes that it is in compliance with all applicable
laws rules and regulations.
Claims related to product liability are a regular and ongoing
aspect of the medical device industry. At any one time, the
Company is subject to claims asserted against it and is involved
in products liability litigation. These actions can be brought
by an individual, and/or by a group of patients purported to be a
class action. The Company has carried product liability
insurance on all its products, including breast implants,
subsequent to May 1991 and prior to September 1985. This
insurance is subject to certain self-insured retentions and
limits on the policies. From September 1985 through April 1991,
the Company was self insured for the majority of its surgical
implant products, but had product liability insurance on the rest
of its products. From June 1992 on, the Company's insurance has
excluded silicone gel-filled breast implants.
In addition, in the ordinary course of its business the Company
experiences various types of claims that sometimes result in
litigation or other legal proceedings. The Company does not
anticipate that any of these proceedings will have any material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company as well as their ages as of
June 28, 2000, are listed below, followed by brief accounts of
their business experience and certain other information.
Name Age Position
Anthony R. Gette 44 President, Chief Executive Officer,
Secretary and Director
Malcolm Boddy 58 President, Mentor Manufacturing
Operations Division
Trevor Pritchard 46 President, Mentor Medical Inc.
Adel Michael 56 Senior Vice President, Chief
Financial Officer and Treasurer
Bobby K. Purkait 50 Senior Vice President, Research &
Development
Ramona E. Schwab 39 Vice President, Human Resources
Douglas Altschuler 44 Vice President, General
Counsel/Compliance Officer
Mr. Gette joined the Company in December 1980 and has served in
various financial and general management capacities since that
time. He became Vice President, Finance in 1983, Executive Vice
President and Secretary in 1986, President and Chief Operating
Officer in 1987. In 1999 he became Chief Executive Officer.
Mr. Boddy joined the Company in July 1997 as Senior Vice
President of Manufacturing Operations. He was promoted to
President, Mentor Manufacturing Operations Division in February
1998. From 1994 to 1997 he was Vice President, Operations of the
Renal Products Division of National Medical Care, a subsidiary of
W.R. Grace & Co.
Mr. Pritchard joined the Company in November 1998 as President of
Mentor Medical, Inc. From 1995 to 1998 he was Executive Vice
President of International Sales and Marketing for Sherwood-Davis
& Geck, a subsidiary of American Home Products Corporation. From
1994 to 1995 he was Vice President - International for Davis &
Geck.
Mr. Michael joined the Company in April 2000 as Senior Vice
President, Chief Financial Officer and Treasurer. From 1989 to
2000 he was Vice President, Chief Financial Officer of Getz
Brothers and Co., Inc. and from 1983 to 1989 he was a Group
Controller for the Marmon Group, Inc.
Mr. Purkait joined the Company in February 1986 and has served in
various research and development capacities. He was promoted to
Vice President of Research and Development in 1988, and Senior
Vice President in April 1998.
Ms. Schwab joined the Company in March 1996. From 1992 to 1996
she was Director, Human Resources of Sorin Biomedical Inc., a
privately held cardiovascular medical device company.
Mr. Altschuler joined the Company in February 1996 as Chief
Counsel. He was promoted to Vice President, Chief Counsel in
April 1998. He was appointed Compliance Officer in 1998 and
General Counsel in 2000. He was previously in private practice
in the Los Angeles office of Jones, Day, Reavis and Pogue.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) The Common Stock of the Company is traded on the NASDAQ
National Market under the symbol MNTR. There are approximately
14 market makers for the Company's stock. The following table
shows the range of high and low closing sale prices reported on
the NASDAQ National Market. Quotations represent prices between
dealers, and do not reflect retail mark-ups, mark-downs or
commissions.
Year Ended March 31, 2000 High Low
Quarter ended June 30, 1999 18 5/8 13 1/8
Quarter ended September 30, 1999 28 1/2 17 5/16
Quarter ended December 31, 1999 27 1/4 21 5/8
Quarter ended March 31, 2000 34 1/8 22 3/4
Year Ended March 31, 1999 High Low
Quarter ended June 30, 1998 29 13/32 23 3/4
Quarter ended September 30, 1998 24 1/8 11 5/8
Quarter ended December 31, 1998 23 7/16 10 1/8
Quarter ended March 31, 1999 21 3/4 14 1/4
(b) As of June 28, 2000 there were approximately 1,500
holders of record of the Company's Common Stock.
(c) In fiscal 2000 and fiscal 1999, the Company declared
and paid a quarterly dividend of $.025 per share of Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected
financial data of the Company and should be read in conjunction
with the related Consolidated Financial Statements of the Company
and accompanying Notes to Consolidated Financial Statements.
Year Ended March 31,
(in thousands, except
per share data) 2000 1999 1998 1997 1996
Statement of Income
Data
Net sales $247,344 $202,783 $180,267 $166,794 $143,344
Gross profit 154,687 126,609 121,145 116,162 100,558
Operating income 39,431 30,141 36,786 39,649 37,166
Income before income
taxes - continuing
operations 42,389 30,888 38,404 39,832 36,179
Income taxes -
continuing operations 13,563 10,447 13,575 14,497 12,924
Income from continuing
operations 28,826 20,441 24,829 25,335 23,255
Discontinued
operations, net of
income tax 7,713 (6,479) (932) 2,535 564
Net income $ 36,539 $ 13,962 $ 23,897 $ 27,870 $ 23,819
Basic earnings (loss)
per share:
Continuing operations $ 1.18 $ 0.83 $ 1.00 $ 1.02 $ 0.96
Discontinued
operations 0.32 (0.26) (0.04) 0.10 0.03
Basic earnings per
share $ 1.50 $ 0.57 $ 0.96 $ 1.12 $ 0.99
Diluted earnings (loss)
per share:
Continuing operations $ 1.16 $ 0.80 $ 0.94 $ 0.96 $ 0.89
Discontinued
operations 0.30 (0.25) (0.03) 0.10 0.02
Diluted earnings
per share $ 1.46 $ 0.55 $ 0.91 $ 1.06 $ 0.91
Dividends per common
share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10
Average outstanding
shares:
Basic 24,384 24,550 24,894 24,863 24,163
Diluted 25,084 25,394 26,330 26,349 26,412
Balance Sheet Data:
Working capital $124,141 $ 106,532 $115,656 $105,777 $ 88,629
Total assets 230,706 196,011 199,911 164,474 146,072
Long-term debt, less
current portion 8 58
Shareholders' equity $183,642 $ 158,618 $164,685 $138,349 $116,495
SALES BY PRINCIPAL PRODUCT LINE
Year Ended March 31,
2000 1999 1998
(in thousands) Amount % Amount % Amount %
Aesthetic and General
Surgery Products $148,661 60% $122,066 60% $112,449 62%
Surgical Urology
Products 52,656 21 37,307 18 28,413 16
Clinical and Consumer
Healthcare Products 46,027 19 43,410 22 39,405 22
$247,344 100% $202,783 100% $180,267 100%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
In May 1999, the Company announced that its Board of Directors
decided to divest the ophthalmology business, which accounted for
approximately 16% of sales in fiscal 1999. The Company completed
the sale of the assets of the intraocular lens portion of the
ophthalmology business in the first quarter. In the third
quarter, the Company completed the sale of the remaining assets
of the Ophthalmology business, primarily the equipment product
lines. Accordingly, the Company accounts for the ophthalmic
business as a "Discontinued Operations" in accordance with
Generally Accepted Accounting Principles. Accordingly, results
of operations of the ophthalmic business are reported, on a net
basis, as a single line on the financials. All prior period
amounts in this Form 10-K have been presented to exclude the
results of the ophthalmic business as appropriate.
The following table sets forth various items from the
Consolidated Statements of Income as a percentage of net sales
for the periods indicated:
Year Ended March 31,
2000 1999 1998
(in thousands)
Net sales 100.0% 100.0% 100.0%
Costs and expenses
Cost of sales 37.6 37.6 32.8
Selling, general and administrative 39.8 40.3 38.4
Research and development 6.7 7.2 8.4
Operating income from continuing
operations 15.9 14.9 20.4
Interest expense (0.1)
Interest income 1.2 0.4 0.7
Other (expense) income 0.2
Income from continuing operations
before income taxes 17.1 15.2 21.3
Income taxes 5.4 5.1 7.5
Income from continuing operations 11.7 10.1 13.8
Income (loss) from discontinued
operations (net of income taxes) 3.1 (3.2) (0.5)
Net income 14.8% 6.9% 13.3%
RESULTS OF OPERATIONS
Sales
Sales for fiscal 2000 increased to $247 million from $203 million
in 1999, an increase of 22%. Growth was led by strong sales of
Surgical Urology products, increasing 41% compared to a year ago.
The growth is primarily attributable to increased sales of
brachytherapy seeds for the treatment of prostate cancer, and the
Suspend(R) sling for treating female urinary incontinence, both in
their second full year of sales. These products accounted for an
additional $14 million of sales for the year. Brachytherapy sales
were aided by the introduction of a second product offering, the
Pd-Gold(TM) Pd-103 seed in April 1999. Sales of the Suspend(R) sling
benefited from increased product availability. Sales of penile
implants increased 7% over fiscal 1999 sales as the market
disruption caused by the introduction of Pfizer's Viagra(R)
decreases. Viagra(R) was introduced by Pfizer during the Company's
first quarter of fiscal 1999. The Viagra(R) introduction and
concurrent advertising campaign generated an unprecedented amount
of interest in impotence causes and treatments. The Company
continues to believe that this interest in treating impotence
bodes well for the long-term prospects of penile implant sales,
as Viagra will not work on all patients.
Sales of aesthetic and general surgery products increased 22%
from the prior year. The strong sales growth in this segment is
attributable, in part, to direct-to-consumer advertising programs
in the United States which utilize a combination of television,
radio and magazine print ads to encourage consumers to seek
information about breast augmentation. In addition to
information, the program provides directories of local plastic
surgeons that implant Mentor's products. Sales were also aided
by the re-introduction of the Becker reconstruction implant into
the domestic market in September 1999.
Sales of Clinical and Consumer Healthcare products increased 6%
from the prior year. The increase approximates the market growth
rate.
Sales for fiscal 1999 increased to $203 million from $180
million in 1998, an increase of 12%. Sales of surgical urology
products were up 31%. Adding to urology product sales were two
new products: IoGold(R) I-125 brachytherapy seeds for the treatment
of prostate cancer, which was introduced in January 1998, and the
Suspend(R) sling for treating female urinary incontinence,
introduced in May 1998. These products accounted for an
additional $14 million of sales for the year. Sales of penile
implants declined 21% from fiscal 1998, due to competition from
the new impotence drug by Pfizer, Viagra(R). Sales of penile
implants in the second half of fiscal 1999 increased 17% over the
first half of the year. Aesthetic and general surgery product
sales increased 9% compared to fiscal 1998. General surgery
products, which include the Company's Contour Genesis(R) soft
tissue aspiration system and a line of related disposable
products, were up $3 million in fiscal 1999. The remaining sales
growth in fiscal 1999 came from higher sales of plastic surgery
products, which had been adversely affected by a fire at the
Texas manufacturing facility during fiscal 1998. Disposable
urology products increased 10% from the prior year. Growth
continues to be strong in intermittent self-catheters.
Approximately half of the increase in disposable urology product
sales resulted from the mid-year acquisition of Sierra
Laboratories, a privately held manufacturer of specialty
urological disposables.
The Company's export sales to unaffiliated customers accounted
for 9% of net sales in all three fiscal years ended March 31,
2000, 1999 and 1998, respectively. In addition, 12%, 14%, and
14% of sales in each year were from the Company's direct
international sales offices.
Over the three fiscal years ended March 31, 2000, sales increases
have been primarily the result of increased unit sales. General
selling price increases have not been significant in recent
years.
Cost Of Sales
Cost of sales was 37.6% of net sales for fiscal 2000 and fiscal
1999. The Company's product mix has changed somewhat in recent
years. A greater portion of total sales are represented by two
products (brachytherapy seeds and the Suspend(R) Sling) which are
distributed under alliance agreements. These products generate
gross margins of approximately 50%, which is lower than the
margin generated by products manufactured and distributed by the
Company. While this would tend to reduce the Company's overall
gross margin, decreases in manufacturing costs at the Company's
facilities offset the reduction in gross margin percentage over
the most recent fiscal years.
Cost of sales was 37.6% of net sales for fiscal 1999, compared to
32.8% for the prior year. Approximately 1.1% of the change
related to the effect in the sales mix of increased sales of non-
company manufactured products, such as the IoGold(R) I-125
brachytherapy seed and the Suspend(R) Sling.
The remaining increase in fiscal 1999 was primarily related to
costs incurred in re-validating its manufacturing processes at
its Texas facility. The Company agreed to re-validate the
facility, as well as correct other items, in compliance with the
voluntary consent decree with the FDA. The costs included hiring
additional resources, extensive product testing and expert
consultants to conduct annual audits. The Company completed the
required validations during fiscal 1999. Should the Company fail
to comply with the conditions of the consent decree in the
future, the FDA is allowed to order the Company to stop
manufacturing or distributing breast implants, order a recall or
take other corrective actions. The Company may also be subject
to penalties of $10,000 per day until the task is completed.
In fiscal 1999, the Company settled for $6.0 million an insurance
claim related to the fire at its Texas facility in August 1997.
The Company recorded $2.8 million of this amount that had not
been recorded in the previous year as a reduction to cost of
sales during fiscal 1999.
Selling, General and Administrative
Selling, general and administrative expenses decreased to 39.8%
of net sales in fiscal 2000, compared to 40.3% in the previous
year. The small decrease reflects efficiencies of scale in the
Company's selling, general and administrate spending offset by
approximately $7 million of spending on the Company's direct-to-
consumer advertising campaign targeting the Aesthetic surgery
market.
Selling, general and administrative expenses increased to 40.3%
of net sales in fiscal 1999, compared to 38.4% in the 1998. The
Company added additional sales specialists during the year to
better promote its line of soft tissue aspiration products and to
support the launch of its brachytherapy seed products.
Research and Development
Research and development expenses were 6.7% of net sales in
fiscal 2000, a decrease from 7.2% the prior year. The Company
continues to spend substantial funds on its premarket approval
applications ("PMAAs") for its silicone gel-filled breast
implants, saline-filled breast implants and penile implants. The
Company is committed to a variety of clinical and laboratory
studies in connection with these products. The Company completed
the work on its saline-filled breast implant and penile implant
PMAAs and submitted the data to the FDA in fiscal 2000.
The Company has an investment in Intracel Corporation, its marketing partner
for a potential bladder cancer treatment. The Intracel agreement
requires the Company to pay $1 million a year for three years to
defray the costs of the clinical trials for the product,
beginning in January 1998. In addition, the Company is obligated
to pay an additional $3 million upon the completion of certain
milestones by Intracel. The first $1 million milestone payment
was expensed in fiscal 1999. The Company expects the second
milestone payment of $1 million to be made in fiscal 2002.
Research and development expenses were 7.2% of sales in fiscal
1999, compared to 8.4% in fiscal 1998. The decrease reflects the
completion of the majority of the costs in developing the Contour
Genesis(R) System, which was introduced in fiscal 1998 offset in
part by increased spending on the PMAAs for the saline mammary
and penile prosthesis and payments to Intracel.
Interest and Other Income and Expense
Interest expense was $34 thousand in fiscal 2000, a decrease from
$272 thousand in fiscal 1999. During fiscal 1999, the Company
borrowed under its line of credit to help fund a stock repurchase
program. The amount was partially repaid during fiscal 1999 and
the balance repaid early in fiscal 2000, and there were no
borrowings in fiscal 2000.
Interest income increased to $3 million in 2000 from $926
thousand in fiscal year 1999. The increase is a result of higher
cash balances from operations and $59.3 million in proceeds from
the sale of the assets of the ophthalmic business reported as
discontinued operations. Further, the Company increased its use
of fully taxable investments which have a higher coupon rate and
also benefited from higher prevailing interest rates.
Other income and expense primarily includes gains or losses on
disposals of assets, and foreign currency gains or losses related
to the Company's foreign operations. In the fourth quarter of
fiscal 2000, the Company recorded a $3 million permanent
impairment of its equity investment in Intracel Corporation. This was offset
by realized gains on the disposition of marketable securities
recorded as long term marketable securities available for sale.
Interest income decreased to $926 thousand in 1999 from $1.3
million in fiscal 1998, resulting from lower cash balances.
There were no borrowings in fiscal 1998.
Income Taxes
The effective rate of corporate income taxes was 32% for fiscal
2000, 34% in 1999 and 35% in 1998. The decrease is a result of a
higher proportion of income from foreign operations with lower
tax rates.
Discontinued Operations and Restructuring Charge
In December 1998, the Company announced a restructuring plan as
part of a strategic initiative to improve the profitability and
competitiveness of the ophthalmic segment of its business by
reducing manufacturing costs and concentrating on those products
and markets capable of sustained, long-term profitable growth.
During the implementation of this plan, the Board of Directors
authorized management to evaluate potential buyers for the
product lines of the ophthalmic business segment.
During the quarter ended June 30, 1999, the Company completed the
sale of the assets of the intraocular lens business, for cash
consideration of $38.4 million. The Company recorded a gain of
$7.5 million, net of $3.8 million in taxes. On October 4, 1999
the Company completed the sale of the remaining assets of the
ophthalmic equipment business for cash consideration of $21
million. The Company recorded an after tax gain of approximately
$1.1 million from this transaction in the third quarter.
In fiscal 1999, a charge related to the planned restructuring of
$7 million was included in the results of discontinued
operations. The plan included $1.9 million for employee
termination benefits related to a workforce reduction of 150
positions, anticipated plant closing costs of $800 thousand, a
write-down of $3.3 million for production assets, and a write-
down of $1 million of intangibles related to products to be
discontinued. Concurrent with the restructuring, the Company
recorded a $7 million special charge for inventory primarily
related to the discontinuance of certain ophthalmic products. As
a result, total charges of $14.0 million were included in the
results of discontinued operations in fiscal 1999. At March 31,
1999, the remaining liability for termination and plant closing
costs recorded as part of the restructuring plan was $2.2
million. All amounts were paid during fiscal 2000, except
amounts related to remaining rental agreements, which will be
paid during fiscal 2001.
Net Income
Net income from continuing operations for fiscal 2000 was $28.8
million, compared to $20.4 million the previous year. Increased
sales, lower operating expenses, and increased interest income
contributed to the improvement. Fiscal 2000 net income from
discontinued operations is comprised of gains on asset sales
related to the ophthalmic business of $8.5 million, net of taxes
and an after tax loss from discontinued operations of $.8
million.
Net income from continuing operations for fiscal 1999 was $20.4
million, compared to $24.8 million the previous year. Increased
sales were offset by higher costs of sales, and increased selling
expenses. Fiscal 1999 net income from discontinued operations
included a $14.0 million charge related to discontinued
operations.
Inflation
The Company does not believe inflation has had a material impact
on the Company's operations over the three-year period ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the three years ended March 31, 2000, liquidity needs have
been satisfied principally by cash flow from operations and
borrowings under the Company's line of credit.
At March 31, 2000, working capital was $124.1 million compared to
$106.5 million the previous year. The Company generated $31.5
million of cash from continuing operations during fiscal 2000,
compared to $21.1 million the previous year. Increased income
from continuing operations, and an increase in accounts payable
and accrued liabilities were partially offset by an increase in
accounts receivable contributed to the increased cash flow. Cash
proceeds from the sale of the ophthalmic segment were the primary
reason for the increase in marketable securities.
During fiscal 2000, the Company spent $9.2 million on capital
expenditures. The funds were used for a new research and
development facility, additional manufacturing equipment in Texas
as a result of the re-validations, and equipment and data
processing hardware and software. The Company anticipates
investing approximately $12 million in facilities and capital
equipment in fiscal 2001.
At the beginning of fiscal 1999, the Company had available to it
$15 million under a secured line of credit. This was increased
to $25 million during the second quarter. Borrowings accrue
interest at the prevailing prime rate or at a premium to LIBOR,
at the Company's discretion. The line of credit includes certain
covenants that, among others, limit the dividends the Company may
pay and require the maintenance of certain levels of tangible net
worth and debt service ratios. An annual commitment fee of .125%
is paid on the unused portion of the credit line. During fiscal
1999, the Company borrowed $6.9 million under the agreement. At
March 31, 1999, the balance outstanding was $4 million. This
amount was repaid during the first quarter of fiscal 2000. No
amounts are outstanding under the secured line of credit at March
31, 2000 and the full $25 million is available for borrowing.
The Company's Board of Directors has authorized an ongoing stock
repurchase program. The objectives of the program, among other
items, are to offset the issuance of stock options, provide
liquidity to the market and to reduce the overall number of
shares outstanding. Repurchases are subject to market conditions
and cash availability. In May 1999, the Board increased the
repurchase authorization by 4 million shares. As a result,
during fiscal 2000, the Company repurchased 912 thousand shares
for consideration of $19.4 million. The Company intends to
continue the share repurchase program in fiscal 2001, and
repurchased approximately 400 thousand shares for $7.4 million in
the first quarter.
The Company's principal source of liquidity at March 31, 2000
consisted of $76.9 million in cash and short term marketable
securities plus $25 million available under the existing line of
credit. The Company believes that funds generated from
operations, its cash and marketable securities and funds
available under its line of credit will be adequate to meet its
working capital and capital expenditure requirements through
fiscal 2001.
YEAR 2000
The Company believes that as a result of its Year 2000
remediation and planning programs, the Year 2000 Problem has not,
as of June 2000 had a material adverse effect on the operations
or financial results of the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Except for the historical information contained herein, the
matters discussed in this Management's Discussion are forward-
looking statements, the accuracy of which is necessarily subject
to risks and uncertainties. Actual results may differ
significantly from the discussion of such matters in the forward-
looking statements.
Due to the nature of the Company's products and business, the
Company has been and will be involved in various legal actions
arising in the course of business, some of which involve product
liability and intellectual property claims. With respect to
product liability issues, the litigation and regulatory risks
will continue to exist even with respect to those products that
have received or in the future may receive regulatory approval
for commercial sale. It is possible that adverse results arising
from product liability or intellectual property actions, as well
as adverse results arising from regulatory or administrative
proceedings, could negatively affect the Company's future results
of operations.
The Company has been and may be in the future the subject of
negative publicity, which can arise from various sources, ranging
from the news media to legislative and regulatory investigations.
There can be no assurance that such negative publicity will not
result in a material adverse effect on the Company's future
financial position, its results of operations or the market price
of its stock. In addition, significant negative publicity could
result in an increase in product liability claims.
The Company's products, development activities and manufacturing
processes are subject to extensive and rigorous regulation by the
FDA and by comparable agencies in foreign countries. In the
United States, the FDA regulates the introduction, manufacturing,
labeling and record-keeping procedures for medical devices. The
process of obtaining marketing clearance and approval from the
FDA for new products and existing products can be time-consuming
and expensive, and there is no assurance that such clearances or
approvals will be granted or that FDA review will not involve
delays that would adversely affect the Company's ability to
commercialize additional products or additional applications for
existing products. In addition, certain of the Company's
products that are in the research and development stage may be
subject to a lengthy and expensive pre-market approval ("PMA")
process with the FDA. Product approvals by the FDA can also be
withdrawn due to failure to comply with regulatory standards or
the occurrence of unforeseen problems following initial approval.
The FDA could also limit or prevent the manufacture or
distribution of the Company's products and has the power to
require the recall of such products. FDA regulations depend
heavily on administrative interpretation, and there can be no
assurance that future interpretations made by the FDA or other
regulatory bodies will not adversely affect the Company. The
FDA, various state agencies and foreign regulatory agencies
inspect the Company and its facilities from time to time to
determine whether the Company is in compliance with various
regulations relating to manufacturing practices, validation,
testing, quality control and product labeling. A determination
that the Company is in violation of such regulations could lead
to imposition of penalties, product recalls, consent decrees or
product seizures.
Each of the Company's major business segments operates its
manufacturing, warehousing and research and development
activities in a single facility. While the Company has some
limited protection in the form of basic insurance coverage, the
Company's operating results and financial condition would be
materially adversely affected in the event of a fire or similar
catastrophe.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The following discussion about the Company's market risk
disclosures involves forward-looking statements. Actual results
could differ materially from those projected in the forward-
looking statements. The Company is exposed to market risk
related to changes in interest rates and foreign exchange rates.
The Company generally does not use derivative instruments. At
March 31, 2000 the Company had purchased $3 million of forward
contracts in anticipation of a European capacity expansion.
The Company maintains a portfolio of highly liquid cash
equivalents, with maturities of three months or less as of the
date of purchase. The Company also has current marketable
securities consisting primarily of municipal bonds and commercial
paper that are of limited credit risk and have contractual
maturities of less than two years. Given the short-term nature
of these investments, the Company is not subject to significant
interest rate risk.
A portion of the Company's operations consists of sales
activities in foreign markets. The Company manufactures its
products primarily in the United States and sells them outside
the U.S. through a combination of international distributors and
eight wholly owned sales offices. Sales to third party
distributors and to the wholly owned sales offices are in U.S.
dollars. The sales offices invoice their customers in their
local currency.
As a result, the Company's financial results could be
significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in those
foreign markets. The principal exposure on sales to third party
distributors stems from the potential for weak economic
conditions in the foreign market, thus weakening the foreign
currency, decreasing the customer's buying power and potentially
decreasing the Company's sales. The Company's exposure on sales
to its subsidiaries consists of 1) the exposure related to the
weakening of local currency when payment of the trade payable is
made, thus translating into more local currency needed to pay off
the U.S. denominated payable than when it was recorded, lowering
the subsidiaries' earnings, and 2) upon translation of the
subsidiaries' monthly financial statements, that a weakening
local currency would cause lower market sales to be recorded in
U.S. dollars that what have occurred had the currency been stable
as compared to the U.S. dollar. However, in the latter instance,
operating expenses would also be translated at lower amounts and
accordingly, the effect on net income would be mitigated. The
Company does not currently hedge any of these exposures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted pursuant to Item 14 of
this Annual Report on Form 10-K and incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning the directors of the Company is contained
in portions of the Proxy Statement for Annual Meeting of
Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended
March 31, 2000 and incorporated herein by reference. For
information concerning executive officers, see Item 4A of this
Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in this item is incorporated herein by
reference to portions of the Proxy Statement for Annual Meeting
of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended
March 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required in this item is incorporated herein by
reference to portions of the Proxy Statement for Annual Meeting
of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended
March 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in this item is incorporated herein by
reference to portions of the Proxy Statement for Annual Meeting
of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended
March 31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(1) Consolidated Financial Statements
Report of Independent Auditors
Consolidated Statements of Financial Position
as of March 31, 2000 and 1999
Consolidated Statements of Income for the
Years Ended March 31, 2000, 1999, and 1998
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended March 31, 2000, 1999, and
1998
Consolidated Statements of Cash Flows for the
Years Ended March 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a)(2) Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and
Reserves
All other schedules are omitted because they are
not required, inapplicable, or the information is
otherwise shown in the consolidated financial
statements or notes thereto.
(a)(3) List of exhibits:
3(a) Composite Restated Articles of Incorporation of the
Company. (1)
3(b) Composite Restated Bylaws of the Company. (2)
10(a) Mentor Corporation Restated 1987 Non-
Statutory Stock Option Plan and Agreement -
Registration Statement No. 33-25865. (8)(14)
10(b) Mentor Corporation 1991 Stock Option Plan -
Registration Statement No. 33-48815. (9)(14)
10(c) Stock Option Agreement, dated September 21,
1988, between Mentor Corporation and Anthony R. Gette. (2)(11)
10(d) Lease Agreement, dated November 9, 1989,
between Mentor Corporation and Skyway Business Center
Joint Venture. (3)
10(e) First Amendment to Lease Agreement, dated
December 1, 1993, between Mentor Corporation and Skyway
Business Center Joint Venture. (6)
10(f) Credit Agreement, dated May 22, 1995, between
Mentor Corporation and Sanwa Bank California. (7)
10(g) $15,000,000 Revolving Note, dated May 22,
1995, between Mentor Corporation and Sanwa Bank
California. (7)
10(h) Security Agreement, dated May 22, 1995, between
Mentor Corporation and Sanwa Bank California. (7)
10(i) Guarantor Security Agreement, dated May 22,
1995, between Mentor Corporation and its subsidiaries
and Sanwa Bank California. (7)
10(j) Guaranty Agreement, dated May 22, 1995, between
Mentor Corporation and Sanwa Bank California. (7)
10(k) Contribution Agreement, dated May 22, 1995, between
Mentor Corporation and Sanwa Bank California. (7)
10(l) Inter-Company Note, dated May 22, 1995, between
Mentor Corporation and Sanwa Bank California. (7)
10(m) Lease Agreement, dated July 23, 1990, between
Mentor Corporation and SB Corporate Center, Ltd.,
covering 201 Mentor Drive. (4)
10(n) Lease Agreement, dated August 19, 1998, between
Mentor Corporation and SB Corporate Center, LLC
covering 301 Mentor Drive. (11)
10(o) Employment Agreement, dated October 30, 1997, between
Mentor Corporation and Malcolm Boddy. (10)(14)
10(p) Employment Agreement, dated December 1, 1998, between
Mentor Corporation and Trevor M. Pritchard. (10)(14)
10(q) Asset Purchase Agreement, dated as of May 14, 1999
between Mentor Corporation and CIBA Vision Corporation. (12)
10(r) Asset Purchase Agreement, dated as of August 26,
1999 between Mentor Corporation and Xomed, Inc. (13)
10(s) Transition Agreement, dated August 1, 1999,
between Mentor Corporation and Christopher Conway. (14)
10(t) Executive Employment Agreement, dated August 1, 1991,
between Mentor Corporation and Anthony R. Gette. (14)
10(u) Employment Agreement, dated April 1, 2000, between
Mentor Corporation and Adel Michael. (14)
21 Subsidiaries of the Company
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K: None
(1) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1988, File No. 0-
7955.
(2) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1989, File No. 0-
7955.
(3) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1990, File No. 0-
7955.
(4) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1991, File No. 0-
7955.
(5) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1993, File No. 0-
7955.
(6) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1994, File No. 0-
7955.
(7) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1995, File No. 0-
7955.
(8) Incorporated by reference to the post effective amendment
No. 1 to Registration Statement on Form S-8, Registration
No. 33-25865.
(9) Incorporated by reference to Registration Statement on Form
S-8, Registration No. 33-48815.
(10) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1998, File No. 0-7955.
(11) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for the year ended March 31, 1999, File No. 0-7955.
(12) Incorporated by reference to Exhibits to Annual Report on
Form 10-Q for the quarter ended June 30, 1999, File No. 0-7955.
(13) Incorporated by reference to Exhibits to Annual Report on
Form 10-Q for the quarter ended December 31, 1999, File No.
0-7955.
(14) Management contract or compensatory plan or arrangement.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Mentor Corporation
We have audited the accompanying consolidated statements of
financial position of Mentor Corporation as of March 31, 2000 and
1999, and the related consolidated statements of income, changes
in shareholders' equity, and cash flows for each of the three
years in the period ended March 31, 2000. Our audits also
included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Mentor Corporation at March 31, 2000 and
1999, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31,
2000, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ERNST & YOUNG LLP
Los Angeles, California
May 8, 2000
MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31,
(in thousands) 2000 1999
Assets
Current assets:
Cash and cash equivalents $ 24,313 $ 19,533
Marketable securities 52,563 2,088
Accounts receivable, net of
allowance for doubtful accounts
of $2,976 in 2000 and $2,072 in
1999 45,310 37,431
Inventories 34,441 30,552
Deferred income taxes 5,739 7,919
Net assets of discontinued
operations 39,899
Prepaid expenses and other 6,096 4,340
Total current assets 168,462 141,762
Property and equipment, net 36,522 34,995
Intangibles, net 4,008 2,342
Goodwill, net 4,394 4,885
Long-term marketable securities and
investments 12,848 8,356
Other assets 4,472 3,671
$230,706 $196,011
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued
liabilities $ 39,845 $ 26,848
Income taxes payable 3,868 3,770
Dividends payable 608 612
Short-term bank borrowings 4,000
Total current liabilities 44,321 35,230
Deferred income taxes 2,743 2,163
Commitments and contingencies
Shareholders' equity:
Common Stock, $.10 par value:
Authorized - 50,000,000 shares;
Issued and outstanding --
24,208,834 shares in 2000;
24,548,537 shares in 1999; 2,421 2,455
Capital in excess of par value 9,876 21,502
Accumulated other comprehensive
income (loss) 2,323 (261)
Retained earnings 169,022 134,922
183,642 158,618
$ 230,706 $196,011
See notes to consolidated financial statements.
MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
(in thousands, except per share data) 2000 1999 1998
Net sales $247,344 $202,783 $180,267
Costs and expenses:
Cost of sales 92,657 76,174 59,122
Selling, general and administrative 98,555 81,648 69,180
Research and development 16,701 14,820 15,179
207,913 172,642 143,481
Operating income from continuing
operations 39,431 30,141 36,786
Interest expense (34) (272) (27)
Interest income 2,982 926 1,338
Other income, net 10 93 307
Income from continuing operations
before income taxes 42,389 30,888 38,404
Income taxes 13,563 10,447 13,575
Income from continuing operations 28,826 20,441 24,829
Income (loss) from discontinued
operations, net of taxes 7,713 (6,479) (932)
Net income $ 36,539 $ 13,962 $ 23,897
Basic earnings (loss) per share:
Continuing operations $ 1.18 $ 0.83 $ 1.00
Discontinued operations .32 (0.26) (0.04)
Basic earnings per share $ 1.50 $ 0.57 $ 0.96
Diluted earnings (loss) per share:
Continuing operations $ 1.16 $ 0.80 $ 0.94
Discontinued operations .30 (0.25) (0.03)
Diluted earnings per share $ 1.46 $ 0.55 $ 0.91
See notes to consolidated financial statements.
MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumu-
lated
Common Capital Other
Common Stock in Compre- Retained
Shares $.10 Excess hensive Earnings Total
Outstan Par of Par Income
(in thousands) ding Value Value (loss)
Balance March 31,
1997 24,807 $2,481 $34,565 $ (693) $101,996 $138,349
Comprehensive
income:
Net income 23,897 23,897
Foreign
currency
translation
adjustment (711) (711)
Unrealized
gain on
investments 5,000 5,000
Comprehensive
income 28,186
Exercise of stock
options 383 38 2,985 3,023
Income tax
benefit arising
from the
exercise of
stock options 1,703 1,703
Repurchase of
common shares (169) (17) (4,064) (4,081)
Dividends
declared
($.10 per
share) (2,495) (2,495)
Balance March 31,
1998 25,021 2,502 35,189 3,596 123,398 164,685
Comprehensive
income:
Net income 13,962 13,962
Foreign
currency
translation
adjustment 263 263
Unrealized
(loss) on
investments (4,120) (4,120)
Comprehensive
income 10,105
Exercise of stock
options 660 66 4,614 4,680
Income tax
benefit arising
from the
exercise of
stock options 2,038 2,038
Repurchase of
common shares (1,132) (113) (20,339) (20,452)
Dividends
declared
($.10 per
share) (2,438) (2,438)
Balance March 31,
1999 24,549 2,455 21,502 (261) 134,922 158,618
Comprehensive
income:
Net income 36,539 36,539
Foreign
currency
translation
adjustment (1,553) (1,553)
Unrealized
(loss) on
investments 4,137 4,137
Comprehensive
income 39,123
Exercise of stock
options 572 57 5,608 5,665
Income tax
benefit arising
from the
exercise of
stock options 2,077 2,077
Repurchase of
common shares (912) (91) (19,311) (19,402)
Dividends
declared
($.10 per
share) (2,439) (2,439)
Balance March 31,
2000 24,209 $2,421 $ 9,876 $2,323 $169,022 $183,642
See notes to consolidated financial statements.
MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
(in thousands) 2000 1999 1998
Cash From Operating Activities:
Income from continuing operations $ 28,826 $ 20,441 $ 24,829
Adjustments to derive cash flows from
continuing operating activities:
Depreciation 7,760 7,537 6,187
Amortization 973 974 1,026
Deferred income taxes 529 (1,165) 216
Loss on sale of assets 401 107 261
Gains on long-term marketable
securities and investments write
downs, net (134)
Changes in operating assets and
liabilities:
Accounts receivable (7,879) (5,764) (1,066)
Inventories and other current
assets (5,645) (1,522) (3,681)
Accounts payable and accrued
liabilities 11,631 1,918 2,088
Income taxes payable (4,994) (1,422) 2,952
Net cash provided by continuing
operating activities 31,468 21,104 32,812
Net cash provided by (used for)
discontinued operating activities (8,557) 1,720 (4,832)
Net cash provided by operating
activities 22,911 22,824 27,980
Cash From Investing Activities:
Purchases of property and equipment (9,195) (10,850) (11,081)
Purchases of intangibles and goodwill (2,240) (2,866) (612)
Purchases of marketable securities (50,715) (9,073)
Sales of marketable securities 3,757 9,519 9,213
Investment in manufacturing partners (7,006)
Other, net (1,028) (2,053) (1,037)
Net cash used for continuing investing
activities (59,421) (6,250) (19,596)
Net cash provided by (used for)
discontinued investing activities 59,392 (1,423) (5,927)
Net cash used for investing activities (29) (7,673) (25,523)
Cash From Financing Activities:
Repurchase of common stock (19,402) (20,452) (4,081)
Proceeds from exercise of stock options 7,742 6,718 4,726
Dividends paid (2,442) (2,460) (2,489)
Borrowings under line of credit
agreement 6,900
Repayments under line of credit
agreement (4,000) (2,900)
Reduction in long-term debt (50) (8)
Net cash used for financing activities (18,102) (12,244) (1,852)
Increase in cash and equivalents 4,780 2,907 605
Cash and cash equivalents at beginning
of year 19,533 16,626 16,021
Cash and cash equivalents at end of year $ 24,313 $ 19,533 $ 16,626
See notes to consolidated financial statements.
MENTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
Note A Summary of Significant Accounting Policies
Business Activity
Mentor Corporation was incorporated in April 1969. The Company
develops, manufactures and markets a broad range of products for
the medical specialties of plastic and general surgery and
urology. The Company's products are sold to hospitals,
physicians and through various health care dealers, wholesalers,
and retail outlets. The net assets and results of operation of
the ophthalmic segment of the business are presented as
discontinued operations and not included in the continuing
operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries in which a controlling
interest is maintained. For those subsidiaries where the Company
owns less than 100%, the outside shareholders' interests are
treated as minority interests. All intercompany accounts and
transactions have been eliminated. Certain prior year amounts in
previously issued financial statements have been reclassified to
conform to the current year presentation. Financial information
presented in the Notes to Consolidated Financial Statements
excludes discontinued operations, except where noted.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Marketable Securities
The Company considers its marketable securities available-for-
sale as defined in Statement Financial Accounting Standards No.
115. Realized gains and losses and declines in value considered
to be other than temporary are included in income. The cost of
securities sold is based on the specific identification method.
For short-term marketable securities there were no material
realized or unrealized gains or losses nor any material
differences between estimated fair values, based on quoted market
prices, and the costs of securities in the investment portfolio
as of March 31, 2000 and 1999. The Company's short-term
marketable securities consist primarily of commercial paper and
municipal bonds that are of limited credit risk and have
contractual maturities of less than two years.
The Company's long-term marketable securities and investments
includes the Company's equity investments in its manufacturing
partners, Intracel Corporation and North American Scientific,
Inc. (NASI) and shares of Paradigm Medical Industries, Inc.
(Paradigm) received in connection with the sale of assets of
discontinued operations. Intracel Corporation is developing a
new potential treatment for bladder cancer. The Intracel
Corporation investment is valued at $3 million in March 31, 2000
and at $6 million, cost, at March 31, 1999, as quoted market
prices are not available. During the year ended March 31, 2000,
the Company recorded a $3 million write down as a charge to other
income related to its investment in Intracel Corporation. Also
included is an equity interest in NASI, the Company's
manufacturing partner under an exclusive agreement for the
distribution of brachytherapy seeds for the treatment of prostate
cancer, and equity interest in Paradigm. These investments are
recorded at fair market value of $9,840,000, (cost of $2,122,000)
and $2,350,000 million (cost of $1,006,000) based upon quoted
stock market prices at March 31, 2000 and 1999, respectively.
The unrealized gain of $5,017,000 and $880,000, net of taxes of
$2,701,000 and $470,000, at March 31, 2000 and 1999,
respectively, is reported within accumulated other comprehensive
income included as a separate component of shareholders' equity.
During the year ended March 31, 2000, the Company sold a portion
of its NASI securities and realized a gain of $3 million which
was reflected in other income, net.
Concentrations and Credit Risk
The Company obtains certain raw materials and components for a
number of its products from single suppliers. In most cases the
Company's sources of supply could be replaced if necessary
without undue disruption, but it is possible that the process of
qualifying new materials and/or vendors for certain raw materials
and components could cause a material interruption in
manufacturing or sales. No material interruptions occurred
during the last fiscal year.
The Company grants credit terms in the normal course of business
to its customers, primarily hospitals, doctors and distributors.
As part of its ongoing control procedures, the Company monitors
the credit worthiness of its customers. Bad debts have been
minimal. The Company does not normally require collateral or
other security to support credit sales. No customer accounted
for more than 10% of the Company's revenues or accounts
receivable balance for all periods presented.
Revenue Recognition
Sales and related cost of sales are recognized primarily upon the
shipment of products. The Company allows credit for products
returned within its policy terms. Such returns are estimated and
an allowance provided at the time of sale. The Company provides
a warranty on certain of its implants and capital equipment
products against defects in workmanship and material. Estimated
warranty costs are provided at the time of sale and periodically
adjusted to reflect actual experience.
Inventories
Inventories are stated at the lower of cost or market, cost
determined by the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is based
on the useful lives of the properties and computed using the
straight-line method. Buildings are depreciated over 30 years,
furniture and equipment over 3 to 10 years and leasehold
improvements over the shorter of their estimated remaining lives
or lease term. Significant improvements and betterments are
capitalized while maintenance and repairs are charged to
operations as incurred.
Intangible Assets and Goodwill
Intangible assets consist of values assigned to patents,
licenses, and trademarks. These are stated at cost less
accumulated amortization and are amortized over their economic
useful life ranging from 3 to 20 years using the straight-line
method. Accumulated amortization of intangibles was $4,425,000
at March 31, 2000 and $3,745,000 at March 31, 1999. The excess
purchase cost over fair value of net identifiable assets
acquired, goodwill, is amortized on a straight-line basis over 15
to 40 years. Accumulated amortization of goodwill was $1,422,000
at March 31, 2000 and $1,177,000 at March 31, 1999. The Company
assesses on an ongoing basis the recoverability of goodwill and
intangibles based on estimates of future undiscounted cash flows
for the applicable business compared to net book value. If the
future undiscounted cash flow estimates were less than net book
value, then the net book value would then be reduced to fair
value based on an estimate of discounted cash flow.
Income Taxes
Deferred income taxes are provided on the temporary differences
between income for financial statement and tax purposes.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") encourages but does
not require companies to record compensation expense for stock
options at fair value. The Company has chosen to continue to
account for stock options using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB Opinion 25")
and related interpretations. Accordingly, the Company has
provided pro forma disclosures of the earnings per share as
determined under the provision of SFAS 123.
Advertising Expenses
The Company expenses media advertising costs as incurred or where
applicable, upon first showing. Advertising expenses for 2000
were approximately $7.2 million and were not significant in 1999
and 1998. There were no significant capitalized advertising
costs as of March 31, 2000, 1999 and 1998.
Foreign Sales
Export sales to independent distributors, principally to Canada
and Western Europe, were $19,977,000, $17,600,000 and $16,173,000
in 2000, 1999 and 1998, respectively. In addition, $29,224,000,
$27,450,000 and $25,731,000 of sales in 2000, 1999 and 1998,
respectively, were from the Company's direct international sales
offices primarily in Canada and Western Europe.
Foreign Currency Translation
The financial statements of the Company's non-U.S. subsidiaries
are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency
Translation." The assets and liabilities of certain non-U.S.
subsidiaries whose "functional" currencies are other than the
U.S. Dollar are translated at current rates of exchange. Revenue
and expense items are translated at the average exchange rate for
the year. The resulting translation adjustments are recorded
directly into an accumulated other comprehensive income (loss).
Transaction gains and losses, other than intercompany debt deemed
to be of a long-term nature, are included in net income in the
period they occur. Transaction exchange gains and losses were
immaterial in 2000, 1999 and 1998. The Company generally does
not use derivative instruments. At March 31, 2000 the Company
had purchased $3 million of forward contracts in anticipation of
a European capacity expansion.
Effects of Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements" or SAB 101. SAB 101 summarizes certain of
the SEC Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The
Company is currently evaluating the potential impact, if any,
that this SAB will have on its revenue recognition policies.
However, based on preliminary evaluations, the Company does not
believe that this SAB will result in any material change to its
revenue recognition policies.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). Subsequently, the FASB
issued Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" which deferred the effective date of SFAS 133
for one year. This standard is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS 133 will
require the Company to record all derivatives as assets for
liabilities at fair value. Changes in derivative fair values
will either be recognized in earnings, offset against changes in
the fair value of the related hedged assets, liabilities and firm
commitments or, for forecasted transactions, recorded as a
component of accumulated other comprehensive income in
shareholders' equity until the hedge transactions occur and are
recognized in earnings. The ineffective portion of a hedging
derivative's change in fair value will depend on a variety of
factors, including the extent of the Company's hedging
activities, the types of hedging instruments used and the
effectiveness of such instruments. The effect of adopting SFAS
133 is currently being evaluated, however, management does not
anticipate that the adoption of this standard will have a
significant effect on earnings or the financial position of the
Company.
Use of Estimates
Financial statements prepared in accordance with generally
accepted accounting principles require management to make
estimates and judgments that affect amounts and disclosures
reported in the financial statements. Actual results could
differ from those estimates.
Note B Inventories
Inventories at March 31 consisted of:
(in thousands) 2000 1999
Raw materials $ 5,880 $ 7,640
Work in process 7,068 6,563
Finished goods 21,493 16,349
$34,441 $30,552
Note C Property and Equipment
Property and equipment at March 31 consisted of:
(in thousands) 2000 1999
Land $ 286 $ 286
Buildings 9,489 9,489
Leasehold improvements 16,502 12,508
Furniture, fixtures and
equipment 47,847 42,213
Construction in progress 1,711 3,053
75,835 67,549
Less accumulated depreciation
and amortization (39,313) (32,554)
$36,522 $34,995
Note D Other Comprehensive Income
Other comprehensive income includes the net change in unrealized
gains (losses) on available-for-sale securities as follows:
Year Ended March 31,
(in thousands) 2000 1999 1998
Unrealized gains (losses)
arising during period,
net of taxes of $3,257,
($2,330) and $2,800. $6,043 $(4,120) $ 5,000
Reclassification
adjustments for gains
realized in net income,
net of taxes $1,026 (1,906)
Change in net unrealized
gains (losses) on
securities $4,137 $(4,120) $ 5,000
Accumulated other comprehensive income for each classification is
as follows:
Year Ended March
31,
(in thousands) 2000 1999
Net unrealized gains on
securities $ 5,017 $ 880
Foreign currency
translation adjustments (2,694) (1,141)
Accumulated other
comprehensive income
(loss) $ 2,323 $ (261)
Note E Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at March 31 consisted
of:
(in thousands) 2000 1999
Trade accounts payables $ 10,342 $ 5,726
Accrued compensation 8,972 7,049
Sales returns 6,401 5,126
Warranty and related reserves 6,563 4,248
Accrued royalties 1,600 1,076
Other 5,967 3,623
$ 39,845 $26,848
Note F Short-Term Bank Borrowings
At March 31, 2000, the Company had a secured line of credit, (the
Credit Agreement), for borrowings up to $25 million. Borrowings
accrue interest at the prevailing prime rate or at a mark-up over
LIBOR at the Company's discretion. The Credit Agreement includes
certain covenants, which, among others, limit the dividends the
Company may pay and require maintenance of certain levels of
tangible net worth and debt service ratios. A commitment fee of
.125% is paid on the unused portion of the credit line. At March
31, 1999, $4 million was outstanding, at 6.9% interest. The
balance was paid in May 1999. No amounts were outstanding at
March 31, 2000 and accordingly $25 million was available for
borrowings.
Note G Stock Options
The Company has granted options to key employees and non-employee
directors under a qualified 1991 Plan and a non-qualified 1987
Plan. Options granted under both plans are exercisable in four
equal annual installments beginning one year from the date of
grant, and expire in ten years. Options are granted at the fair
market value on the date of grant. Activity in the stock option
plans during fiscal 2000, 1999 and 1998 was as follows:
At March 31, 2000
Options Outstanding
Weighted Average
Number of Shares Price per Share
Balance March 31, 1997 2,666,280 $ 9.91
Granted 592,550 22.79
Exercised (383,441) 7.50
Canceled or terminated (56,496) 17.91
Balance March 31, 1998 2,818,893 $ 12.76
Granted 361,300 21.31
Exercised (633,682) 7.02
Canceled or terminated (166,725) 21.52
Balance March 31, 1999 2,379,786 $ 15.04
Granted 613,000 15.84
Exercised (577,659) 10.15
Canceled or terminated (184,750) 19.99
Balance March 31, 2000 2,230,377 $ 16.12
At March 31, 2000 and 1999, there were 1,590,125 shares and
2,018,375 shares available for grant under the 1991 Plan. There
are no additional shares available for grant under the 1987 Plan.
Stock option exercise prices are set at the closing price of the
Company's Common Stock on the date of grant and the related
number of shares granted are fixed at that point in time.
Therefore under the principles of APB Opinion 25, the Company
does not recognize compensation expense associated with the grant
of stock options. SFAS 123 requires the use of an option
valuation model to provide supplemental information regarding
options granted after fiscal 1995. Pro forma information
regarding net income and earnings per share shown below were
determined as if the Company had accounted for its employee stock
options under the Fair Value method of that statement.
The weighted average fair values of stock option granted were
estimated at the date of grant using the Black-Scholes option
valuation model and the following assumptions:
2000 1999 1998
Weighted average fair
value of stock
Options granted $ 8.67 $ 11.99 $ 13.18
Risk-free interest rate 5.5% 5.6% 6.6%
Expected life (in years) 7.5 7.2 6.8
Expected volatility .524 .528 .531
Expected dividend yield 0.7% 0.5% 0.4%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's
employee stock options have characteristics significantly
different from those of traded options such as vesting
restrictions and extremely limited transferability. In addition,
the assumptions used in option valuation models (see above) are
highly subjective, particularly the expected stock price
volatility of the underlying stock. Because changes in these
subjective input assumptions can materially effect the fair value
estimate, in management's opinion, the existing models do not
provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosure, the estimated fair value of
the options is amortized over the option's vesting period. The
pro forma effect on net income for the years ended March 31, 1999
and 1998 is not representative of the pro forma effect on net
income in future years because it does not take into
consideration pro forma compensation expense related to grants
prior to 1996. In 2000, however, the proforma results include a
full four years worth of option grants. Pro forma information in
future years will reflect the amortization of a larger number of
stock options granted in several succeeding years. The Company's
pro forma information is as follows (in thousands, except per
share information):
Year Ended March 31,
2000 1999 1998
Net income: as reported $36,539 $13,962 $23,897
Net income: Pro forma $33,812 $11,266 $21,599
Basic earnings per share:
as reported $ 1.50 $ .57 $ .96
Basic earnings per share:
pro forma $ 1.39 $ .46 $ .87
Diluted earnings per
share: as reported $ 1.46 $ .55 $ .91
Diluted earnings per
share: Pro forma $ 1.36 $ .44 $ .83
Information regarding stock options outstanding as of March 31,
2000 is as follows:
Options Outstanding Options Exercisable
Weighted-
Average Weighted-
Remaining Average Weighted-
Number of Contractu Exercise Number Average
Price Range Shares al Price of Exercise
Life Shares Price
Under $13.00 729,352 3.7 years $ 7.91 729,352 $ 7.91
$13.00 to
$22.00 1,138,450 8.3 years $ 18.42 263,250 $21.42
Over $22.00 362,575 6.9 years $ 25.41 210,250 $24.79
At March 31, 2000, 1999 and 1998 stock options to purchase
1,202,852; 1,424,000 and 1,698,000 shares, respectively, were
exercisable at weighted-average prices of $13.78, $10.73 and
$7.96, respectively.
Note H Income Taxes
Income tax expense from continuing operations consists of the
following:
Year Ended March 31,
(in thousands) 2000 1999 1998
Current:
Federal $ 10,650 $ 9,736 $ 10,307
Foreign 1,036 1,052 1,949
State 1,348 834 1,103
13,034 11,622 13,359
Deferred:
Federal 521 (1,150) 206
State 8 (25) 10
529 (1,175) 216
$ 13,563 $ 10,447 $ 13,575
The reconciliation of the federal statutory rate to the Company's
effective rate for continuing operations is as follows:
Year Ended March 31,
2000 1999 1998
Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease)
resulting from:
State tax, net of
federal tax benefit 1.8 2.7 2.3
Non-taxable interest
and dividends (.1) (.4) (.7)
Research and
development credit (2.0) (2.0) (2.0)
Foreign Sales
Corporation (1.1) (1.2) (1.1)
Foreign operations (1.9) (1.0) 1.0
Non-deductible
goodwill .2 .2 .2
Other .1 .5 .6
32.0% 33.8% 35.3%
Significant components of the Company's deferred tax liabilities
and assets at March 31 are as follows:
Year Ended March 31,
(in thousands) 2000 1999
Deferred tax liabilities:
Tax over book depreciation $ 1,146 $ 1,693
Unrealized gain on long term
marketable securities 2,701 470
3,847 2,163
Deferred tax assets:
Book liabilities not deductible
for tax 5,122 5,774
Inventory 809 862
Profit in inventory of foreign
subsidiaries 912 1,283
6,843 7,919
$ 2,996 $ 5,756
Note I Supplemental Information
Supplemental schedule of cash flow information:
Year Ended March 31,
(in thousands) 2000 1999 1998
Interest paid $ 51 $ 226 $ 54
Income taxes paid $8,365 $6,727 $9,190
Note J Earnings per Share
A reconciliation of weighted average shares outstanding, used to
calculate Basic earnings per share, to weighted average shares
outstanding assuming dilution, used to calculate Diluted earnings
per share, follows:
Year Ended March 31,
(in thousands) 2000 1999 1998
Weighted average outstanding
shares: basic 24,384 24,550 24,894
Shares issueable through
options 700 844 1,436
Weighted average outstanding
shares: diluted 25,084 25,394 26,330
Shares issueable through options are determined using the
treasury stock method.
Options to purchase 980,525; 1,114,100 and 23,500 shares with
exercise prices greater than the average market prices of common
stock were outstanding during the years ended March 31, 2000,
1999 and 1998, respectively. These options were excluded from
the respective computations of diluted earnings per share because
their effect would be anti-dilutive.
Note K Commitments
The Company leases certain facilities under non-cancelable
operating leases with unexpired terms ranging from one to twelve
years. Most leases contain renewal options. Rental expense for
these leases was $3.6 million, $3.4 million and $2.8 million for
fiscal 2000, 1999 and 1998, respectively.
Future minimum lease payments under lease arrangements at March
31, 2000 are as follows:
(in thousands)
2001 3,653
2002 3,217
2003 3,064
2004 3,183
2005 3,354
Thereafter 27,266
Total $ 43,737
During fiscal 1998, the Company entered into an alliance with
Intracel Corporation, in which the Company will be the exclusive
distributor of a bladder cancer test manufactured by Intracel.
In addition, the Company has the right to distribute a potential
bladder cancer treatment product currently under development by
Intracel. The agreement with Intracel requires the Company to
pay $1 million per year, beginning in January 1998, for three
years, to defray the costs of the clinical trials for the cancer
treatment product. The Company must also pay an additional $3
million upon the completion of certain milestones related to the
clinical trials. During fiscal year 1999, $1 million was paid
toward the cost of the clinical trials and an additional $1
million was paid on the achievement of the first milestone.
During fiscal 2000, $.8 million was due and paid as Intracel
encountered delays in the clinical studies. The amounts paid are
included in research and development expense. Total remaining
commitments to Intracel at March 31, 2000 amount to $2,950,000.
Note L Related Party Transactions
In 1991, the Company entered into an exclusive license agreement
with Rochester Medical Corporation (Rochester) to market and
distribute certain external catheter products developed by
Rochester. The Company purchased $101,000, $1,900,000 and
$2,400,000 of product from Rochester in 2000, 1999 and 1998,
respectively. Several officers/founders of Rochester, a public
company, are siblings of the Chairman of Mentor Corporation. The
Chairman derived no financial or other benefit from transactions
between the Company and Rochester.
Note M Contingencies
Claims related to product liability are a regular and ongoing
aspect of the medical device industry. At any one time, the
Company is subject to claims against it and is involved in
litigation. These actions can be brought by an individual, or by
a group of patients purported to be a class action. The Company
carries product liability insurance on all its products, except
silicone gel-filled implants, which are only available within the
United States thorough a controlled clinical study. This
insurance is subject to certain self-insured retention and other
limits of the policy, exclusions and deductibles that the Company
believes to be appropriate. In addition, the Company also offers
warranty coverage on some of its products. The Company has
recorded warranty and related reserves ($6,563,000 and $4,248,000
at March 31, 2000 and 1999, respectively) in an amount it
believes to be reasonably sufficient to cover the cost of
anticipated warranty and product liability claims.
In addition, in the ordinary course of its business, the Company
experiences various types of claims that sometimes result in
litigation or other legal proceedings. The Company does not
anticipate that any of these proceedings will have a material
adverse effect on the Company.
Note N Restructuring Charge and Discontinued Operations
In December 1998, Mentor announced a restructuring plan as part
of a strategic initiative to improve the profitability and
competitiveness of its ophthalmic business by reducing
manufacturing costs and concentrating on those products and
markets capable of sustained, long-term profitable growth.
The restructuring plan resulted in a third quarter charge to the
operating results of the ophthalmic business segment of $14
million. The $14 million charge consisted of approximately $1.9
million for employee termination benefits related to the
workforce reduction of 150 positions, $800,000 for plant closing
costs, $3.3 million for the impairment write down of production
assets to their estimated fair value, approximately $1 million
for the write down of intangible assets related to discontinued
products, and $7 million for the write down of inventory to its
estimated net realizable value.
During the implementation of this plan, the Board of Directors
authorized management to evaluate potential buyers for the
product lines of the ophthalmic business segment. In March 1999,
the Company adopted a plan to dispose of its ophthalmic business
segment. During the quarter ended June 30, 1999, the Company
completed the sale of the assets of the intraocular lens
business, for cash consideration of $38.4 million. The Company
recorded a gain of $7.5 million, net of $3.8 million in taxes.
On October 4, 1999 the Company completed the sale of the
remaining assets of the Ophthalmic equipment business for cash
consideration of $21 million. The Company recorded an after tax
gain of approximately $1.1 million from this transaction in the
third quarter.
Consistent with the plan to dispose of its ophthalmic business
segment, the net assets and operations of the ophthalmic segment
of the business, comprised of the intraocular lens products and
ophthalmic equipment product lines have been classified as
discontinued operations.
The results of discontinued operations for the three years ending
March 31, 2000, 1999 and 1998 are as follows:
Year Ended March 31,
(in thousands) 2000(2) 1999(1) 1998
Revenues $14,660 $37,893 $35,029
Income (loss) before income taxes 169 (10,436) (2,075)
Income tax expense (benefit) 973 (3,957) (1,143)
Net income (loss) from
discontinued operations (804) (6,479) (932)
Gain from disposal, net of taxes
of $8,933 8,517
Net income (loss) from
discontinued operations $ 7,713 $(6,479) $ (932)
1) Includes charges totaling $14 million related to the
restructuring plan discussed above.
2) Income taxes as a percent of the income before income taxes,
and the gain from disposal are higher than the statutory
income tax rate due to non-deductible goodwill included in
the sale and Puerto Rico tollgate taxes arising from the
repatriation of earnings.
The assets and liabilities of discontinued operations as of March
31, 1999 have been classified in the balance sheet as net assets
of discontinued operations and consist of the following:
March 31,
(in thousands) 1999
Accounts receivable, net $ 7,981
Inventory 17,687
Property, plant and equipment, net 3,985
Intangibles and goodwill, net 12,098
Other 4,525
Total assets 46,276
Current liabilities 6,377
Net assets of discontinued
operations $ 39,899
Remaining assets and liabilities related to discontinued
operations at March 31, 2000 are not significant.
Note O Business Segment Information
The Company's operations are principally managed on a functional
basis and reported on a product and geographic basis. As a
result there are four reportable segments: Aesthetic and General
Surgery, Surgical Urology, Clinical and Consumer Healthcare and
International. The accounting policies of the reportable
segments are the same as those described in the summary of
significant accounting policies except that certain expenses such
as interest and certain corporate expenses are not allocated to
the segments.
The Aesthetic and General Surgery products segment consists
primarily of breast implants, tissue expanders and the Company's
Contour Genesis Ultrasonic equipment product line along with
equipment and disposables for traditional liposuction. The
Surgical Urology segment includes penile implants, surgical
incontinence products and brachytherapy seeds for the treatment
of prostate cancer. The Clinical and Consumer Healthcare segment
includes catheters and other products for the management of
urinary incontinence and retention. The International segment
includes the operations of the Company's wholly owned
international sales offices, which cover most of the Company's
implantable product lines, and a small European manufacturing and
distribution facility. Segment revenues include domestic sales,
sales to independent foreign distributors and sales to the
Company's direct international sales and offices.
Selected financial information for the Company's reportable
segments for the years ended March 31, 2000, 1999 and 1998
follows:
Year Ended March 31,
(in thousands) 2000 1999 1998
Revenues
Aesthetic and General
Surgery $ 132,127 $ 107,247 $ 98,794
Surgical Urology 51,067 36,084 27,131
Clinical and Consumer
Healthcare 43,555 41,446 37,201
International 39,129 36,683 32,837
Total reportable
segments 265,878 221,460 195,963
Elimination of inter-
segment revenues (18,534) (18,677) (15,696)
Total consolidated
revenues $ 247,344 $ 202,783 $ 180,267
Year Ended March 31,
(in thousands) 2000 1999 1998
Operating profit
Aesthetic and General
Surgery $ 27,956 $ 21,326 $ 25,513
Surgical Urology 6,265 4,410 2,164
Clinical and Consumer
Healthcare 7,261 7,001 9,276
International 6,629 4,707 4,822
Total reportable
segments $ 48,111 $ 37,444 $ 41,775
March 31,
(in thousands) 2000 1999 1998
Identifiable assets
Aesthetic and General
Surgery $ 56,017 $ 48,818 $ 53,799
Surgical Urology 26,507 20,094 17,876
Clinical and Consumer
Healthcare 24,202 28,354 23,000
International 24,627 20,957 17,371
Total reportable
segments $ 131,353 $ 118,223 $ 112,046
Year Ended March 31,
(in thousands) 2000 1999 1998
Depreciation and
amortization
Aesthetic and General
Surgery $ 2,653 $ 3,418 $ 2,950
Surgical Urology 1,017 1,554 1,249
Clinical and Consumer
Healthcare 2,452 1,562 1,142
International 370 502 313
Total reportable
segments 6,492 7,036 5,654
Corporate and other 2,241 1,475 1,559
$ 8,733 $ 8,511 $ 7,213
Year Ended March 31,
(in thousands) 2000 1999 1998
Capital expenditures
Aesthetic and General
Surgery $ 843 $ 3,499 $ 2,716
Surgical Urology 2,277 2,173 2,011
Clinical and Consumer
Healthcare 719 4,819 4,003
International 801 356 91
Total reportable
segments 4,640 10,847 8,821
Corporate and other 6,805 2,869 2,872
$ 11,445 $ 13,716 $ 11,693
The following tables reconcile segment information to the amounts
shown on the consolidated financial statements.
Year Ended March 31,
(in thousands) 2000 1999 1998
Operating profit from
continuing operations
Reportable segments $ 48,111 $ 37,444 $ 41,775
Corporate operating loss (8,680) (7,303) (4,989)
Interest expense (34) (272) (27)
Interest income 2,982 926 1,338
Other income 10 93 307
Income from continuing
operations before
taxes $ 42,389 $ 30,888 $ 38,404
March 31,
(in thousands) 2000 1999
Identifiable assets
Reportable segments $ 131,353 $ 118,223
Corporate and other 99,353 37,889
Net assets of
discontinued
operations 39,899
Consolidated assets $230,706 $196,011
Selected financial information for the Company's operations by
geographic area is as follows:
Year Ended March 31,
(in thousands) 2000 1999 1998
Geographic area revenue
United States $198,143 $157,733 $138,363
Foreign 49,201 45,050 41,904
Consolidated total $247,344 $202,783 $180,267
March 31,
(in thousands) 2000 1999 1998
Geographic area long-
lived assets
United States $ 42,948 $ 40,667 $ 35,490
Foreign 1,976 1,555 1,635
Consolidated total $ 44,924 $ 42,222 $ 37,125
Sales by principal product line for the years ended March 31, 2000,
1999 and 1998 are as follows:
Year Ended March 31,
(in thousands) 2000 1999 1998
Sales by principal
product line
Aesthetic and General
Surgery Products $148,661 $122,066 $112,449
Surgical Urology
Products 52,656 37,307 28,413
Clinical and Consumer
Healthcare Products 46,027 43,410 39,405
$247,344 $202,783 $180,267
Note P Event Subsequent to March 31, 2000
Subsequent to March 31, 2000, the Company offered to purchase the
rights of a limited partnership, established in 1983, for which
the Company is the General Partner according to the terms of the
partnership agreement, as amended. The Company makes payments to
the partnership based upon the amount of the Company's sales of
certain products. Pursuant to the terms of the partnership
agreement, as amended, the limited partners can elect to be paid
in either cash or the Company's stock. The transaction is
expected to close no later than August 14, 2000.
Note Q Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly results of
operations. Results originally reported for the first three
quarters of the year ended March 31, 1999 have been reclassified
to reflect the Ophthalmic business as discontinued operations.
See Note N.
(in thousands, except per Quarter
share data)
Year Ended March 31, 2000 First Second Third Fourth
Net sales $ 60,144 $ 58,002 $ 60,587 $ 68,611
Gross profit 38,624 36,091 37,443 42,528
Income from continuing
operations 6,976 6,013 7,273 8,564
Income (loss) from
discontinued operations 6,937 289 571 (84)
Net income $ 13,913 $ 6,302 $ 7,844 $ 8,480
Basic earnings per share:
Continuing operations $ .28 $ .25 $ .30 $ .35
Discontinued operations .29 .01 .02
Basic earnings per share $ .57 $ .26 $ .32 $ .35
Diluted earnings (loss) per
share:
Continuing operations $ .28 $ .24 $ .29 $ .34
Discontinued operations .28 .01 .02
Diluted earnings per share $ .56 $ .25 $ .31 $ .34
Year Ended March 31, 1999 First Second Third Fourth
Net sales $ 48,084 $ 47,713 $ 51,655 $ 55,331
Gross profit 32,893 30,717 30,644 32,355
Income from continuing
operations 7,313 4,880 3,454 4,794
Income (loss) from
discontinued operations 526 692 (8,652) 955
Net income $ 7,839 $ 5,572 $ (5,198) $ 5,749
Basic earnings (loss) per
share:
Continuing operations $ .29 $ .20 $ .14 $ .20
Discontinued operations .02 .03 (.35) .04
Basic earnings (loss) per
share $ .31 $ .23 $ (.21) $ .24
Diluted earnings (loss) per
share:
Continuing operations $ .28 $ .19 $ .14 $ .19
Discontinued operations .02 .03 (.35) .04
Diluted earnings (loss) per
share $ .30 $ .22 $ (.21) $ .23
MENTOR CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
COL. A COL. B COL. C COL. D COL. E
Additions
Balance
at Charged to Charged
Description Beginn- to Costs to Balance at
ing of and Other Deduc- End of
Description Period Expenses Accounts tions Period
Year Ended March 31, 2000
Deducted from asset
accounts:
Allowance for doubtful
accounts $2,072 $1,888 $ 984 $ 2,976
Liability Reserves:
Warranty and related
reserves $4,248 $6,515 $ $4,200 $ 6,563
Accrued sales returns
and allowances 5,126 1,275 6,401
$9,374 $7,790 $ $4,200 $12,964
Year Ended March 31, 1999
Deducted from asset
accounts:
Allowance for doubtful
accounts $1,606 $ 960 $ $ 494 $ 2,072
Liability Reserves:
Warranty and related
reserves $3,580 $3,825 $ $3,157 $ 4,248
Accrued sales returns
and allowances 5,503 377 5,126
$9,083 $3,825 $ $3,534 $ 9,374
Year Ended March 31, 1998
Deducted from asset
accounts:
Allowance for doubtful
accounts $1,497 $ 933 $ $ 824 $ 1,606
Liability Reserves:
Warranty and related
reserves $3,400 $2,385 $ $2,205 $ 3,580
Accrued sales returns
and allowances 5,398 105 5,503
$8,798 $2,490 $ $2,205 $ 9,083
EXHIBIT 21
LIST OF
SUBSIDIARIES OF MENTOR CORPORATION
1. Mentor Texas Inc. (Formerly Mentor H/S, Inc).
2. Mentor Minnesota Inc. (Formerly Mentor Urology, Inc.)
3. Mentor Ophthalmics, Inc. (Formerly Mentor O&O, Inc.)
(Dissolved 12/31/99)
4. Mentor Caribe, Inc. (Dissolved 12/31/99)
5. Mentor ORC, Inc. (Dissolved 4/1/96)
6. Mentor Polymer Technologies Company
7. Teknar Corporation (Dissolved 4/1/96)
8. Mentor International Sales Corporation
9. Mentor International Holdings Alpha, Inc.
10. Mentor International Holdings Beta, Inc.
11. Mentor International Holdings Camda, Inc.
12. Mentor International Holdings Delta, inc.
13. Mentor Medical Systems, Australia, Pty. Ltd.
14. Mentor Medical Systems Ltd., U.K.
15. Mentor Medical Systems, B.V.
16. Mentor Deutschland GMBH
17. Mentor Medical Systems, France, S.A.
18. Mentor Medical Systems, Canada, Inc.
19. MDI Company Ltd.
EXHIBIT 21
LIST OF
SUBSIDIARIES OF MENTOR CORPORATION
(continued)
20. Mentor Medical Systems, Iberica, S.L.
21. Havas Medical,B.V.
22. Mentor Medical Inc.
23. Mentor Benelux B.V.
24. Mentor Japan K.K.
25. Mentor Medical Systems, C.V.
26. Mentor Medical Italia, S.r.l.
27. Sierra Laboratories, Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration
Statement Number 33-25865 on Form S-8 dated December 22, 1988 and
Registration Statement Number 33-48815 on Form S-8 dated June 24,
1992 of our report dated May 8, 2000 with respect to the
consolidated financial statements and schedule of Mentor
Corporation included in the Annual Report on Form 10-K for the
year ended March 31, 2000.
/s/ERNST & YOUNG LLP
Los Angeles, California
June 26, 2000
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Mentor Corporation has duly
caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MENTOR CORPORATION
/s/ANTHONY R. GETTE
Anthony R. Gette
President and Chief Executive Officer
DATE: June 26, 2000
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:
/s/CHRISTOPHER J. CONWAY Chairman and June 26, 2000
Christopher J. Conway Director
/s/ANTHONY R. GETTE President, June 26, 2000
Anthony R. Gette Chief Executive
Officer, Secretary
and Director (Principal
Executive Officer)
/s/ADEL MICHAEL Senior Vice President June 26, 2000
Adel Michael Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
/s/WALTER W. FASTER Director June 26, 2000
Walter W. Faster
/s/EUGENE G. GLOVER Director June 26, 2000
Eugene G. Glover
/s/MICHAEL NAKONECHNY Director June 26, 2000
Michael Nakonechny
/s/DR. RICHARD W. YOUNG Director June 26, 2000
Dr. Richard W. Young
/s/RONALD J. ROSSI Director June 26, 2000
Ronald J. Rossi
TRANSITION AGREEMENT
This Transition Agreement ("Agreement"), dated August 1,
1999, is between MENTOR Corporation ("COMPANY"), with its
executive offices at 201 Mentor Drive, Santa Barbara, California
93111 and CHRISTOPHER J. CONWAY ("CONWAY") of 1530 Roble Drive,
Santa Barbara, California 93110.
RECITALS
COMPANY is in the business of manufacturing and selling
medical devices and related products. CONWAY has been Chairman
and CEO of COMPANY. Pursuant to succession plans discussed and
approved by COMPANY's Board of Directors, CONWAY has agreed to
serve in a transitional capacity for a period of up to two years
to provide certain skills and experience that will be used in
advancing COMPANY's interest. CONWAY intends to resign effective
July 31, 2001. CONWAY is willing to be engaged by COMPANY and
COMPANY is willing to engage CONWAY upon the terms and conditions
set forth in this Agreement.
AGREEMENT
CONWAY and COMPANY, intending to be legally bound, agree as
follows:
1. SERVICES
1.1 General Services.
10.7.1 Company shall engage CONWAY as Chairman of the Board
Of COMPANY. CONWAY shall remain a non-executive
employee of the Company for the term of this Agreement
or unless terminated. CONWAY shall perform duties as
needed by COMPANY and at the direction of the Board of
Directors.. These activities shall include, but are
not limited to, transitional issues, shareholder
matters, technical matters, and strategic oversight.
(These duties shall hereinafter be referred to as
"Services.") CONWAY shall report directly to the Board
of Directors of COMPANY.
1.1.2 CONWAY shall devote such working time,
attention, and energies to the business of COMPANY as
requested to perform the Services.
1.2 Best Abilities. CONWAY shall serve COMPANY faithfully
and to the best of CONWAY's ability and shall use his best
abilities to perform the Services. CONWAY shall act at all
times according to what is reasonably believed to be in the
best interests of COMPANY.
1.3 Corporate Authority. CONWAY shall comply with all laws
and regulations applicable to CONWAY as a result of this
Agreement including, but not limited to, the Securities Act
of 1933 and Securities Act of 1934. Prior to the execution
of this Agreement, CONWAY has received and reviewed
COMPANY's Policies and Procedures and COMPANY's Employee
Handbook. CONWAY shall comply with COMPANY's Policies and
Procedures, as well as practices now in effect or as later
amended or adopted by COMPANY, as required of similarly
situated individuals at COMPANY.
2. TERM
This Agreement shall commence upon the execution of this
Agreement and shall continue until July 31, 2001 (the "Term"),
unless terminated sooner as provided in Section 4 of this
Agreement.
3. COMPENSATION AND BENEFITS
3.1 Compensation. CONWAY's compensation shall consist of
salary and medical and other benefits generally provided to
employees of COMPANY. Any compensation paid to CONWAY shall
be pursuant to COMPANY's policies and practices for exempt
employees and shall be subject to all applicable laws and
requirements regarding the withholding of federal, state
and/or local taxes. Compensation is paid upon condition
that CONWAY is substantially performing the Services, that
CONWAY is not in material default of this Agreement, and
that grounds do not then exist for the termination of this
Agreement for cause as provided in Section 4.1.4 below.
Compensation provided in this Agreement is full payment for
Services and CONWAY shall receive no additional compensation
for extraordinary services unless otherwise authorized.
3.1.1 Base Compensation. COMPANY agrees to pay CONWAY
an annualized base salary of Three Hundred Ninety
Thousand Dollars ($390,000.00), less applicable
withholdings, payable in equal installments no less
frequently than semi-monthly.
3.1.2 Cash Incentive Bonus. Any grant of a cash
incentive bonus to CONWAY pursuant to this Agreement
shall be subject to performance considerations and
shall be in the sole and absolute discretion of
COMPANY's Board of Directors.
3.2 Business Expenses. COMPANY shall reimburse CONWAY for
business expenses reasonably incurred in performing Services
according to COMPANY's Expense Reimbursement Policy.
3.3 Additional Benefits. COMPANY shall provide CONWAY
those additional benefits normally granted by COMPANY to
similarly situated individuals subject to eligibility
requirements applicable to each benefit. COMPANY has no
obligation to provide any other benefits unless provided for
in this Agreement. Currently COMPANY provides major
medical, dental, salary continuation (short-term disability)
and long term disability benefits, and eligibility to
participate in COMPANY's 401(k) plan.
3.4 Automobile Expense. COMPANY will permit CONWAY to
select a business automobile (four-door sedan) for lease by
COMPANY for which COMPANY will make lease payments of up to
Eight Hundred Dollars ($800.00) per month, or as modified
from time to time by COMPANY. COMPANY shall pay applicable
taxes on the automobile and shall obtain motor vehicle
insurance in an amount it deems reasonable in its sole
discretion. CONWAY may obtain additional liability
insurance at his own expense if he so chooses.
3.5 Indemnification. COMPANY shall indemnify CONWAY from
and against any and all claims and liabilities arising from
CONWAY's performance of his duties under this Agreement
whether such claim and/or liability(s) arises during the
term of the Agreement or thereafter. This indemnification
provision applies only to conduct undertaken solely for the
benefit of the Company.
4. TERMINATION
4.1 Circumstances Of Termination. This Agreement and the
relationship between COMPANY and CONWAY may be terminated
prior to the expiration of the Term as follows:
4.1.1 Death. This Agreement shall terminate upon
CONWAY's death, effective as of the date of CONWAY's
death.
4.1.2 Disability. COMPANY may, at its option,
either suspend compensation payments or terminate this
Agreement due to CONWAY's Disability if CONWAY is
incapable, even with reasonable accommodation by
COMPANY, of performing the Services because of
accident, injury, or physical or mental illness for
thirty (30) consecutive days, or is unable or shall
have failed to perform the Services for a total period
of sixty (60) days, regardless of whether such days are
consecutive. If COMPANY suspends compensation payments
because of CONWAY's Disability; COMPANY shall resume
compensation payments when CONWAY resumes performance
of the Services. If COMPANY elects to terminate this
Agreement due to CONWAY's Disability, it will give
CONWAY three (3) days advance written notice if
practicable and COMPANY shall retain the right to
terminate this Agreement notwithstanding CONWAY's
utilization of salary continuation and/or long term
disability benefits.
4.1.3 Discontinuance Of Business. If COMPANY
discontinues operating its business, this Agreement
shall terminate as of the last day of the month on
which COMPANY ceases its entire operations with the
same effect as if that last date were originally
established as termination date of this Agreement.
4.1.4 For Cause. COMPANY may terminate this Agreement
without advance notice for Cause. For the purpose of
this Agreement, "Cause" shall mean any failure to
comply in any material respect with this Agreement or
any Agreement incorporated herein; personal or
professional misconduct by CONWAY (including, but not
limited to, criminal activity or gross or willful
neglect of duty); breach of CONWAY's fiduciary duty to
COMPANY and/or any subsidiaries, affiliates or
successors of COMPANY; conduct that threatens public
health or safety, or threatens to do immediate or
substantial harm to COMPANY's business or reputation;
or any other misconduct, deficiency, failure of
performance, breach or default, reasonably capable of
being remedied or corrected by CONWAY. To the extent
that a breach pursuant to this Section 4.1.4 is, in
COMPANY's sole discretion, curable by CONWAY without
harm to COMPANY or its reputation, COMPANY shall,
instead of immediately terminating CONWAY pursuant to
this Agreement, provide CONWAY with notice of such
breach, specifying the actions required to cure such
breach, and CONWAY shall have ten (10) days to cure
such breach by performing the actions so specified. If
CONWAY fails to cure such breach within the ten- (10)
day period, COMPANY may terminate this Agreement
without further notice. COMPANY's exercise of its
right to terminate under this section shall be without
prejudice to any other remedy to which COMPANY may be
entitled at law, in equity, or under this Agreement.
4.1.5. For Convenience Of COMPANY. This Agreement is
terminable by the Board of Directors for convenience,
with or without cause, at any time upon thirty (30)
days' advance written notice to CONWAY.
4.2 CONWAY's Rights Upon Termination
4.2.1 Expiration of Term. Upon termination of this
Agreement by expiration of the Term set forth in
Section 2 above, COMPANY shall have no further
obligation to CONWAY under the Agreement except to
distribute to CONWAY any unpaid compensation and
reimbursable expenses, less applicable withholdings,
owed to CONWAY prior to the expiration of the Term.
CONWAY also shall be entitled to accelerated vesting of
any employee stock options that have not yet vested at
the time of the termination or expiration of this
Agreement.
4.2.2 Death or Disability. Upon termination of
this Agreement because of death or Disability of CONWAY
pursuant to Sections 4.1.1 or 4.1.2 above, COMPANY
shall have no further obligation to CONWAY under the
Agreement except to distribute to CONWAY's estate or
designated beneficiary any unpaid compensation and
reimbursable expenses, less applicable withholdings,
owed to CONWAY prior to the date of CONWAY's death or
termination due to Disability, except that, if CONWAY
already is utilizing COMPANY's salary continuation
and/or long term disability benefits, he shall have the
right to continue to do so under the terms of the
applicable plan(s). CONWAY also shall be entitled to
accelerated vesting of any employee stock options that
have not yet vested at the time of the termination
pursuant to this section.
4.2.3 Discontinuance Of Business. Upon termination of
this Agreement because of discontinuation of COMPANY's
business pursuant to Section 4.1.3, COMPANY shall have
no further obligation to CONWAY under the Agreement
except to distribute to CONWAY any unpaid compensation
and reimbursable expenses, less applicable
withholdings, owed to CONWAY prior to the date of
termination of this Agreement. CONWAY shall be
entitled to major medical, dental, salary continuation,
long term disability, and life insurance during the
full Term of this Agreement, even if this Agreement is
terminated prior to the natural expiration of that Term
pursuant to Section 4.1.3. CONWAY also shall be
entitled to accelerated vesting of any stock options
that have not yet vested at the time of the termination
of this Agreement.
4.2.4 Termination With Cause. Upon termination
of CONWAY's employment for Cause pursuant to Section
4.1.4, COMPANY shall have no further obligation to
CONWAY under this Agreement except to distribute to
CONWAY any compensation and reimbursable expenses owed
to CONWAY by COMPANY through the termination date, less
applicable withholdings.
4.2.5 Termination For Convenience.
i. Upon termination of CONWAY's employment by the
Board of Directors for convenience pursuant to
Section 4.1.5, COMPANY shall have no further
obligation to CONWAY under this Agreement except
to distribute to CONWAY any compensation and
reimbursable expenses owed by COMPANY to CONWAY
through the termination date, less applicable
withholdings; and
ii. COMPANY also shall pay to CONWAY compensation
equal to the amount of remainder of the base pay
to which he would have been entitled if he had
remained engaged with COMPANY during the entire
Term of the Agreement. In consideration for this
additional compensation, CONWAY, on behalf of
himself, his agents, heirs, executors,
administrators, and assigns, expressly releases
and forever discharges COMPANY and its successors
and assigns, and all of its respective agents,
directors, officers, partners, employees,
representatives, insurers, attorneys, parent
companies, subsidiaries, affiliates, and joint
ventures, and each of them, from any and all
claims based upon acts or events that occurred on
or before the date on which CONWAY accepts this
additional compensation, including any claim
arising under any state or federal statute or
common law, including, but not limited to, Title
VII of the Civil Rights Act of 1964, 42 U.S.C.
2000e, et seq., the Americans with Disabilities
Act, 42 U.S.C. 12101, et seq., the Age
Discrimination in Employment Act, 29 U.S.C.
623, et seq., the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. 2101, et
seq., and the California Fair Employment and
Housing Act, Cal. Gov't Code 12940, et seq.
CONWAY acknowledges that he is familiar with
section 1542 of the California Civil Code, which
reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.
CONWAY expressly acknowledges and agrees that he
is releasing all known and unknown claims, and
that he is waiving all rights he has or may have
under Civil Code Section 1542 or under any other
statute or common law principle of similar effect.
CONWAY acknowledges that the benefits he is
receiving in exchange for this Release are more
than the benefits to which he otherwise would have
been entitled, and that such benefits constitute
valid and adequate consideration for this Release.
CONWAY further acknowledges that he has read this
Release, understands all of its terms, and has
consulted with counsel of his choosing before
signing this Agreement.
iii. The additional compensation paid to CONWAY
pursuant to this paragraph shall be in lieu of any
other severance benefit to which CONWAY would
otherwise be entitled under COMPANY's policies in
effect on the date of execution of this Agreement
or thereafter. This additional compensation shall
be paid upon termination of CONWAY's engagement
and in one lump sum payment at the date of
termination, less applicable withholdings.
iv. CONWAY also shall be entitled to major medical, dental
and life insurance during the full Term of this Agreement, even
if this Agreement is terminated prior to the natural expiration
of that Term pursuant to Section 4.1.5.
v. CONWAY also shall be entitled to accelerated vesting of
any employee stock options that have not yet vested at the time
of the termination or expiration of this Agreement.
4.2.6 Change In Control.
i. Definition. A "Change in Control"
shall occur upon any of the following events:
a. Any Person (as such term is used in
Sections 12(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the "Act")) becomes a
beneficial owner (as such term is defined in
Rule 13d-3 promulgated under the Act) (other
than COMPANY, any trustee or other fiduciary
holding securities under an employee benefit
plan of COMPANY, or any corporation owned,
directly or indirectly, by the stockholders
of COMPANY in substantially the same
proportions of their ownership of stock of
COMPANY), directly or indirectly, of
securities of COMPANY representing fifty
percent (50%) of more of the combined voting
power of COMPANY's then-outstanding
securities;
b. The stockholders of COMPANY approve a
merger or consolidation of COMPANY with
another corporation or entity, other than (a)
a merger or consolidation that results in the
voting securities of COMPANY outstanding
immediately prior thereto continuing to
represent (either by remaining outstanding or
by being converted into voting securities of
the surviving entity) more than eighty
percent (80%) of the combined voting power of
the voting securities of COMPANY or such
surviving entity outstanding immediately
after such merger or consolidation, or (b) a
merger or consolidation effected to implement
a recapitalization of COMPANY (or similar
transaction) in which no Person (as defined
above) acquires more than fifty percent (50%)
of the combined voting power of COMPANY's
then-outstanding securities; or
c. The stockholders of COMPANY approve a
plan of complete liquidation of COMPANY or an
agreement for the sale or disposition by
COMPANY of all or substantially all of
COMPANY's assets.
ii. Compensation.
a. In the event this Agreement is terminated
by the Board of Directors prior to the
expiration of the Term and provided COMPANY
does not have grounds to terminate this
Agreement for cause pursuant to Section 4.1.4
above, COMPANY shall have no further
obligation to CONWAY under this Agreement
except to distribute to CONWAY any
compensation and reimbursable expenses owed
by COMPANY to CONWAY through the termination
date, less applicable withholdings; and
b. COMPANY also shall pay to CONWAY
compensation in an amount equal to the
remainder of the base pay to which he would
have been entitled if he had remained engaged
with COMPANY during the entire Term of the
Agreement, less applicable withholdings,
payable in a lump-sum payment within thirty-
one (31) days of date of termination. In
consideration for this additional
compensation, CONWAY, on behalf of himself,
his agents, heirs, executors, administrators,
and assigns, expressly releases and forever
discharges COMPANY and its successors and
assigns, and all of its respective agents,
directors, officers, partners, employees,
representatives, insurers, attorneys, parent
companies, subsidiaries, affiliates, and
joint ventures, and each of them, from any
and all claims based upon acts or events that
occurred on or before the date on which
CONWAY accepts the additional compensation,
including any claim arising under any state
or federal statute or common law, including,
but not limited to, Title VII of the Civil
Rights Act of 1964, 42 U.S.C. 2000e, et
seq., the Americans with Disabilities Act, 42
U.S.C. 12101, et seq., the Age
Discrimination in Employment Act, 29 U.S.C.
55 623, et seq., the Worker Adjustment and
Retraining Notification Act, 29 U.S.C.
2101, et seq., and the California Fair
Employment and Housing Act, Cal. Gov't Code
12940, et seq. CONWAY acknowledges that
he is familiar with section 1542 of the
California Civil Code, which reads as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
CONWAY expressly acknowledges and agrees that
he is releasing all known and unknown claims,
and that he is waiving all rights he has or
may have under Civil Code Section 1542 or
under any other statute or common law
principle of similar effect. CONWAY
acknowledges that the benefits he is
receiving in exchange for this Release are
more than the benefits to which he otherwise
would have been entitled, and that such
benefits constitute valid and adequate
consideration for this Release. CONWAY
further acknowledges that he has read this
Release, understands all of its terms, and
has consulted with counsel of his choosing
before signing this Agreement.
c. The additional compensation paid pursuant
to this paragraph shall be in lieu of any
other severance benefit to which CONWAY would
otherwise be entitled under COMPANY's
policies in effect on the date of execution
of this Agreement or thereafter. This
additional compensation shall be paid upon
termination of CONWAY's engagement and in one
lump sum payment at the date of termination,
less applicable withholdings.
d. CONWAY also shall be entitled to major
medical, dental, salary continuation (short
term disability), long term disability, and
life insurance during the full Term of this
Agreement, even if this Agreement is
terminated prior to the natural expiration of
that Term pursuant to this Section 4.2.6.
iii. CONWAY also shall be entitled to accelerated
vesting of any stock options that have not yet
vested at the time of the termination of this
Agreement.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations of CONWAY. CONWAY represents and
warrants that he has all right, power, authority and
capacity, and is free to enter into this Agreement; that by
doing so, CONWAY will not violate or interfere with the
rights of any other person or entity; and that CONWAY is not
subject to any contract, understanding or obligation that
will or might prevent, interfere with or impair the
performance of this Agreement by CONWAY. CONWAY shall
indemnify and hold COMPANY harmless with respect to any
losses, liabilities, demands, claims, fees, expenses,
damages and costs (including attorneys' fees and court
costs) resulting from or arising out of any claim or action
based upon CONWAY's entering into this Agreement.
5.2 Representations of COMPANY. COMPANY represents and
warrants that it has all right, power and authority, without
the consent of any other person, to execute and deliver, and
perform its obligations under, this Agreement. All
corporate and other actions required to be taken by COMPANY
to authorize the execution, delivery and performance of this
Agreement and the consummation of all transactions
contemplated hereby have been duly and properly taken. This
Agreement is the lawful, valid and legally binding
obligation of COMPANY enforceable in accordance with its
terms.
5.3 Materiality of Representations. The representations,
warranties and covenants set forth in this Agreement shall
be deemed to be material and to have been relied upon by the
parties hereto.
6. COVENANTS
6.1 Nondisclosure and Invention Assignment. CONWAY
acknowledges that, as a result of performing the Services,
CONWAY shall have access to confidential and sensitive
information concerning COMPANY's business including, but not
limited to, its business operations, sales and marketing
data, and manufacturing processes. CONWAY also acknowledges
that in the course of performing the Services, CONWAY may
develop new product ideas or inventions as a result of
COMPANY's information. Accordingly, to preserve COMPANY's
confidential information and to assure it the full benefit
of that information, CONWAY shall, as a condition of
engagement by COMPANY, execute COMPANY's standard form of
Confidentiality Agreement attached hereto as Exhibit A, and
execute updated versions of the Confidentiality Agreement as
it may be modified from time to time by COMPANY and as may
be required of similarly-situated individuals at COMPANY.
The Confidentiality Agreement is incorporated herein by this
reference. CONWAY's obligations under the Confidentiality
Agreement continue beyond the termination of this Agreement.
6.2 Covenant Not to Compete. In addition to the provisions
of the Confidentiality Agreement, CONWAY shall abide by the
following covenant not to compete if COMPANY, at its option
upon the termination of this Agreement (regardless of the
reason for the termination), exercises this Covenant Not to
Compete. COMPANY shall notify CONWAY within ten (10) days
of termination of this Agreement of its intention to
exercise this option and shall make an additional payment to
CONWAY of six (6) months' base pay determined at CONWAY's
last rate of pay with COMPANY. CONWAY agrees that for a
period of one (1) year following the termination of this
Agreement, he shall not directly for himself, member of a
partnership, or as an officer, director, stockholder,
employee or representative of any other entity or
individual, engage, directly or indirectly, in any business
activity which is directly competitive with the business
conducted or to CONWAY's knowledge, contemplated by COMPANY
at the time of termination of this Agreement, as defined in
the Confidentiality Agreement incorporated into this
Agreement by reference.
6.3 Covenant to Deliver Records. All memoranda, notes,
records and other documents made or compiled by CONWAY, or
made available to CONWAY during the term of this Agreement
concerning the business of COMPANY shall be and remain
COMPANY's property and shall be delivered to COMPANY upon
the termination of this Agreement or at any other time on
request.
6.4 Covenant Not To Recruit. CONWAY shall not, during the
term of this Agreement and for a period of one (1) year
following termination of this Agreement, directly or
indirectly, either on his own behalf, or on behalf of any
other individual or entity, solicit, interfere with, induce
(or attempt to induce) or endeavor to entice away any
employee associated with COMPANY to become affiliated with
him or any other individual or entity.
7. CERTAIN RIGHTS OF COMPANY
7.1 Announcement. COMPANY shall have the right to make
public announcements concerning the execution of this
Agreement and certain terms thereof.
7.2 Use of Name, Likeness and Biography. COMPANY shall have
the right (but not the obligation) to use, publish and
broadcast, and to authorize others to do so, the name,
approved likeness and approved biographical material of
CONWAY to advertise, publicize and promote the business of
COMPANY and its affiliates, but not for the purposes of
direct endorsement without CONWAY's consent. An "approved
likeness" and "approved biographical material" shall be,
respectively, any photograph or other depiction of CONWAY,
or any biographical information or life story concerning the
professional career of CONWAY.
7.3 Right to Insure. COMPANY shall have the right to
secure, in its own name or otherwise, and at its own
expense, life, health, accident or other insurance covering
CONWAY, and CONWAY shall have no right, title or interest in
and to such insurance. CONWAY shall assist COMPANY in
procuring such insurance by submitting to examinations and
by signing such applications and other instruments as may be
required by the insurance carriers to which application is
made for any such insurance.
8. ASSIGNMENT
Neither party may assign or otherwise dispose of its
rights or obligations under this Agreement without the prior
written consent of the other party except as provided in
this Section. COMPANY may assign and transfer this
Agreement, or its interest in this Agreement, to any
affiliate of COMPANY or to any entity that is a party to a
merger, reorganization, or consolidation with COMPANY, or to
a subsidiary of COMPANY, or to any entity that acquires
substantially all of the assets of COMPANY or of any
division with respect to which CONWAY is providing services
(providing such assignee assumes COMPANY's obligations under
this Agreement). CONWAY shall, if requested by COMPANY,
perform CONWAY's duties and Services, as specified in this
Agreement, for the benefit of any subsidiary or other
affiliate of COMPANY. Upon assignment, acquisition, merger,
consolidation or reorganization, the term "COMPANY" as used
herein shall be deemed to refer to such assignee or
successor entity. CONWAY shall not have the right to assign
his interest in this Agreement, any rights under this
Agreement, or any duties imposed under this Agreement, nor
shall CONWAY or his spouse, heirs, beneficiaries, executors
or administrators have the right to pledge, hypothecate or
otherwise encumber CONWAY's right to receive compensation
hereunder without the express written consent of COMPANY.
9. RESOLUTION OF DISPUTES
In the event of any dispute arising out of or in connection
with this Agreement or in any way relating to the employment of
CONWAY which leads to the filing of a lawsuit, the parties agree
that venue and jurisdiction shall be in Santa Barbara County,
California. The prevailing party in any such litigation shall be
entitled to an award of costs and reasonable attorneys' fees to
be paid by the losing party.
10. GENERAL PROVISIONS
10.1 Notices. Notice under this Agreement shall be
sufficient only if personally delivered by a major
commercial paid delivery courier service or mailed by
certified or registered mail (return receipt requested and
postage pre-paid) to the other party at its address set
forth in the signature block below or to such other address
as may be designated by either party in writing. If not
received sooner, notices by mail shall be deemed received
five (5) days after deposit in the United States mail.
10.2 Agreement Controls. Unless otherwise provided for in
this Agreement, the COMPANY's policies, procedures and
practices shall govern the relationship between CONWAY and
COMPANY. If, however, any of COMPANY's policies, procedures
and/or practices conflict with this Agreement (together with
any amendments hereto), this Agreement (and any amendments
hereto) shall control.
10.3 Amendment and Waiver. Any provision of this Agreement
may be amended or modified and the observance of any
provision may be waived (either retroactively or
prospectively) only by written consent of the parties.
Either party's failure to enforce any provision of this
Agreement shall not be construed as a waiver of that party's
right to enforce such provision.
10.4 Governing Law. This Agreement and the performance
hereunder shall be interpreted under the substantive laws of
the State of California.
10.5 Force Majeure. Either party shall be temporarily
excused from performing under this Agreement if any force
majeure or other occurrence beyond the reasonable control of
either party makes such performance impossible, except a
Disability as defined in this Agreement, provided that the
party subject to the force majeure provides notice of such
force majeure at the first reasonable opportunity. Under
such circumstances, performance under this Agreement that
related to the delay shall be suspended for the duration of
the delay provided the delayed party shall resume
performance of its obligations with due diligence once the
delaying event subsides. In case of any such suspension,
the parties shall use their best efforts to overcome the
cause and effect of such suspension.
10.6 Remedies. CONWAY acknowledges that because of the
nature of COMPANY's business, and the fact that the services
to be performed by CONWAY pursuant to this Agreement are of
a special, unique, unusual, extraordinary, and intellectual
character that give them a peculiar value, a breach of this
Agreement shall cause substantial injury to COMPANY for
which money damages cannot reasonably be ascertained and for
which money damages would be inadequate. CONWAY therefore
agrees that COMPANY shall have the right to obtain
injunctive relief, including the right to have the
provisions of this Agreement specifically enforced by any
court having equity jurisdiction, in addition to any other
remedies that COMPANY may have.
10.7 Severability. If any term, provision, covenant, paragraph,or
condition of this Agreement is held to be invalid, illegal,
or unenforceable by any court of competent jurisdiction,
that provision shall be limited or eliminated to the minimum
extent necessary so this Agreement shall otherwise remain
enforceable in full force and effect.
10.8 Construction. Headings and captions are only for
convenience and shall not affect the construction or
interpretation of this Agreement. Whenever the context
requires, words, used in the singular shall be construed to
include the plural and vice versa and pronouns of any gender
shall be deemed to include the masculine, feminine, or
neuter gender.
10.9 Counterpart Copies. This Agreement may be signed in
counterpart copies, each of which shall represent an
original document, and all of which shall constitute a
single document.
10.10 No Adverse Construction. The rule that a contract is
to be construed against the party drafting the contract is
hereby waived, and shall have no applicability in construing
this Agreement or the terms hereof.
10.11 Entire Agreement. With respect to its subject matter,
namely, the engagement by COMPANY of CONWAY, this Agreement
(including the documents expressly incorporated therein,
such as the Confidentiality Agreement), contains the entire
understanding between the parties, and supersedes any prior
agreements, understandings, and communications between the
parties, whether oral, written, implied or otherwise.
The parties execute this Agreement as of the date stated above:
CHRISTOPHER J. CONWAY MENTOR CORPORATION
/s/CHRISTOPHER J. CONWAY By: /s/ANTHONY R. GETTE
Anthony R. Gette
Secretary, for the Board of
Directors
NOTICE ADDRESS: NOTICE ADDRESS:
1530 Roble Drive 201 Mentor Drive
Santa Barbara, CA 93110 Santa Barbara, CA 93111
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement"), dated
August 1, 1999, is between MENTOR Corporation ("COMPANY"), with
its executive offices at 201 Mentor Drive, Santa Barbara,
California 93111 and ANTHONY R. GETTE ("GETTE") of 4632 Via
Roblada, Santa Barbara, CA 93110.
RECITALS
COMPANY is in the business of manufacturing and selling
medical devices and related products. GETTE has experience in
this business and possesses valuable skills and experience that
will be used in advancing COMPANY's interests. GETTE is willing
to be engaged by COMPANY and COMPANY is willing to engage GETTE
in the capacity of President and Chief Executive Officer of
COMPANY, upon the terms and conditions set forth in this
Agreement.
AGREEMENT
GETTE and COMPANY, intending to be legally bound, agree as
follows:
1. SERVICES
1.1 General Services.
1.1.1 Company shall engage GETTE as President and Chief
Executive Officer ("CEO") of COMPANY. GETTE shall perform the
duties customarily performed by one holding such positions in a
similar business as that engaged in by COMPANY, as determined
by COMPANY in its sole and absolute discretion. To the extent
that they do not reduce the scope of the responsibilities
described above and/or the physical location at which the
Services will be rendered, GETTE's duties may change from time
to time on reasonable notice, based on the needs of COMPANY and
GETTE's skills as determined by COMPANY. (These duties shall
hereinafter be referred to as "Services.") GETTE shall report
directly to the Board of Directors of COMPANY.
1.1.2 As President and CEO of COMPANY, GETTE shall
also be an officer of COMPANY. In such capacity, GETTE
shall serve at the pleasure of COMPANY's Board of
Directors. GETTE shall serve in this further capacity
without further compensation. If GETTE is, for any
reason, removed as an officer or director of COMPANY,
such removal shall be without prejudice to GETTE's
contractual rights under this Agreement.
1.1.3 GETTE shall devote his entire working time,
attention, and energies to the business of COMPANY, and
shall not, during the term of this Agreement, be
engaged in any other business activity whether or not
such business activity is pursued for gain, profit or
other pecuniary advantage, without the prior written
consent of the Board of Directors of COMPANY. The
foregoing is not intended to restrict GETTE's ability
to enter into passive investments that do not compete
in any way with COMPANY's Business, as that term is
defined in COMPANY's Confidentiality Agreement,
executed concurrently herewith.
1.2 Location. GETTE shall be based in and shall render
services for COMPANY primarily in Santa Barbara, California,
but GETTE shall undertake such travel as is necessary or
advisable for the effective performance of the duties of the
position.
1.3 Best Abilities. GETTE shall serve COMPANY faithfully
and to the best of his ability and shall use his best
abilities to perform the Services. GETTE shall act at all
times according to what is reasonably believed to be in the
best interests of COMPANY.
1.4 Corporate Authority. GETTE, as an executive officer of
COMPANY, shall comply with all laws and regulations
applicable to GETTE as a result of this Agreement including,
but not limited to, the Securities Act of 1933 and
Securities Act of 1934. Prior to the execution of this
Agreement, GETTE has received and reviewed COMPANY's
Policies and Procedures and COMPANY's Employee Handbook.
GETTE shall comply with COMPANY's Policies and Procedures,
as well as practices now in effect or as later amended or
adopted by COMPANY, as required of similarly situated
employees at COMPANY.
2. TERM
This Agreement shall commence upon the execution of this
Agreement and shall continue until July 31, 2001 (the "Term"),
unless terminated sooner as provided in Section 4 of this
Agreement. This Agreement will be renewed at the end of each
term period for one year unless either party provides thirty (30)
days advance notice in writing of his or it's intent not to renew
("Non-renewal") the Agreement.
3. COMPENSATION AND BENEFITS
3.1 Compensation. GETTE's total compensation consists of
base salary, bonus potential, stock options, and medical and
other benefits generally provided to employees of COMPANY.
Any compensation paid to GETTE shall be pursuant to
COMPANY's policies and practices for exempt employees and
shall be subject to all applicable laws and requirements
regarding the withholding of federal, state and/or local
taxes. Compensation is paid upon condition that GETTE is
substantially performing the Services, that GETTE is not in
material default of this Agreement, and that grounds do not
then exist for the termination of this Agreement for cause
as provided in Section 4.1.4 below. Compensation provided
in this Agreement is full payment for Services and GETTE
shall receive no additional compensation for extraordinary
services unless otherwise authorized.
3.1.1 Base Compensation. COMPANY agrees to pay GETTE
an annualized base salary of Three Hundred Sixty
Thousand Dollars ($360,000.00), less applicable
withholdings, payable in equal installments no less
frequently than semi-monthly. This base salary shall
be reviewed and fixed annually by the Compensation
Committee of COMPANY's Board of Directors
3.1.2 Cash Incentive Bonus. GETTE shall be eligible
for a cash incentive bonus, subject to applicable
withholdings and subject to approval by COMPANY's
Compensation Committee and Board of Directors. Any
cash incentive bonus shall accrue and become payable to
GETTE only if GETTE is employed with COMPANY on the
last day of the fiscal year for which the cash
incentive bonus is calculated.
3.1.3 Stock Options. GETTE shall be eligible to
participate in COMPANY's 1991 Stock Option Plan
("Plan") and shall be eligible for additional option
grants of COMPANY's common stock subject to a four (4)
year vesting schedule one (1) year after grant at the
rate of twenty-five percent (25%) per year. Options
are exercisable for a period of ten (10) years after
vesting and shall be exercised in accordance with the
Plan, as amended from time to time. GETTE shall
execute the Option Agreement and otherwise comply with
the terms of the Plan with regard to the options being
granted by this Agreement. This provision is subject
to applicable state and federal securities laws.
Subsequent grants, if any, also shall be subject to
performance considerations as well as approval by
COMPANY's Board of Directors.
3.2 Business Expenses. COMPANY shall reimburse GETTE for
business expenses reasonably incurred in performing Services
according to COMPANY's Expense Reimbursement Policy.
3.3 Additional Benefits. COMPANY shall provide GETTE
those additional benefits normally granted by COMPANY to
similarly-situated employees subject to eligibility
requirements applicable to each benefit. COMPANY has no
obligation to provide any other benefits unless provided for
in this Agreement. Currently COMPANY provides major
medical, dental, salary continuation (short-term
disability) and long term disability benefits, and
eligibility to participate in COMPANY's 401(k) plan.
3.4 Vacation. GETTE shall accrue vacation equal to twenty
(20) days per year.
3.5 Automobile Expense. COMPANY will permit GETTE to
select a business automobile (four-door sedan) for lease by
COMPANY for which COMPANY will make lease payments of up to
Eight Hundred Dollars ($800.00) per month. COMPANY shall
pay applicable taxes on the automobile and shall obtain
motor vehicle insurance in an amount it deems reasonable in
its sole discretion. GETTE may obtain additional liability
insurance at his own expense if he so chooses.
4. TERMINATION
4.1 Circumstances Of Termination. This Agreement and the
relationship between COMPANY and GETTE may be terminated
prior to the expiration of the term as follows:
4.1.1 Death. This Agreement shall terminate upon
GETTE's death, effective as of the date of GETTE's
death.
4.1.2 Disability. COMPANY may, at its option, either
suspend compensation payments or terminate this
Agreement due to GETTE's Disability if GETTE is
incapable, even with reasonable accommodation by
COMPANY, of performing the Services because of
accident, injury, or physical or mental illness for
thirty (30) consecutive days, or is unable or shall
have failed to perform the Services for a total period
of sixty (60) days, regardless of whether such days are
consecutive. If COMPANY suspends compensation payments
because of GETTE's Disability, COMPANY shall resume
compensation payments when GETTE resumes performance of
the Services. If COMPANY elects to terminate this
Agreement due to GETTE's Disability, it will give GETTE
three (3) days advance written notice if practicable
and COMPANY shall retain the right to terminate this
Agreement notwithstanding GETTE's utilization of salary
continuation and/or long term disability benefits.
4.1.3 Discontinuance Of Business. If COMPANY
discontinues operating its business, provided that such
discontinuance is not the result of a Change in Control
as defined in Section 4.2.5 below, this Agreement shall
terminate as of the last day of the month on which
COMPANY ceases its entire operations with the same
effect as if that last date were originally established
as termination date of this Agreement.
4.1.4 For Cause. COMPANY may terminate this Agreement
without advance notice for Cause. For the purpose of
this Agreement, "Cause" shall mean any failure to
comply in any material respect with this Agreement or
any Agreement incorporated herein; personal or
professional misconduct by GETTE (including, but not
limited to, criminal activity or gross or willful
neglect of duty); breach of GETTE's fiduciary duty to
COMPANY and/or any subsidiaries, affiliates or
successors of COMPANY; conduct that threatens public
health or safety, or threatens to do immediate or
substantial harm to COMPANY's business or reputation;
or any other misconduct, deficiency, failure of
performance, breach or default, reasonably capable of
being remedied or corrected by GETTE. To the extent
that a breach pursuant to this Section 4.1.4 is, in
COMPANY's sole discretion, curable by GETTE without
harm to COMPANY or its reputation, COMPANY shall,
instead of immediately terminating GETTE pursuant to
this Agreement, provide GETTE with notice of such
breach, specifying the actions required to cure such
breach, and GETTE shall have thirty (30) days to cure
such breach by performing the actions so specified. If
GETTE fails to cure such breach within the thirty (30)
day period, COMPANY may terminate this Agreement
without further notice. COMPANY's exercise of its
right to terminate under this section shall be without
prejudice to any other remedy to which COMPANY may be
entitled at law, in equity, or under this Agreement.
4.1.5. For Convenience Of COMPANYor by Non-Renewal of
Agreement. This Agreement is terminable by COMPANY for
convenience or by non-renewal with or without cause, at
any time upon thirty (30) days advance written notice
to GETTE.
4.2 GETTE's Rights Upon Termination or Non-Renewal of
Agreement
4.2.1 Death or Disability. Upon termination of this
Agreement because of death or Disability of GETTE
pursuant to Sections 4.1.1 or 4.1.2 above, COMPANY
shall have no further obligation to GETTE under the
Agreement except to distribute to GETTE's estate or
designated beneficiary any unpaid compensation and
reimbursable expenses, less applicable withholdings,
owed to GETTE prior to the date of GETTE's death or
termination due to Disability, except that, if GETTE
already is utilizing COMPANY's salary continuation
and/or long term disability benefits, he shall have the
right to continue to do so under the terms of the
applicable plan(s).
4.2.2 Discontinuance Of Business. Upon termination of
this Agreement because of discontinuation of COMPANY's
business pursuant to Section 4.1.3, COMPANY shall have
no further obligation to GETTE under the Agreement
except to distribute to GETTE any unpaid compensation
and reimbursable expenses, less applicable
withholdings, owed to GETTE prior to the date of
termination of this Agreement.
4.2.3 Termination With Cause. Upon termination of
GETTE's employment for Cause pursuant to Section 4.1.4,
COMPANY shall have no further obligation to GETTE
under this Agreement except to distribute to GETTE any
compensation and reimbursable expenses owed to GETTE by
COMPANY through the termination date, less applicable
withholdings.
4.2.4 Termination For Convenience or by Nonrenewal.
Upon termination of GETTE's employment by COMPANY for
convenience pursuant to Section 4.1.5 or by non-renewal
of this agreement pursuant to Section 2, COMPANY shall
have no further obligation to GETTE under this
Agreement except to distribute to GETTE:
i. Any compensation and reimbursable expenses
owed by COMPANY to GETTE through the termination
date, less applicable withholdings; and
ii. Severance Compensation totaling twenty-four
(24) months' base pay, determined at GETTE's then-
current rate of base pay. In consideration for
this Severance Compensation, GETTE, on behalf of
himself, his agents, heirs, executors,
administrators, and assigns, expressly releases
and forever discharges COMPANY and its successors
and assigns, and all of its respective agents,
directors, officers, partners, employees,
representatives, insurers, attorneys, parent
companies, subsidiaries, affiliates, and joint
venturers, and each of them, from any and all
claims based upon acts or events that occurred on
or before the date on which GETTE accepts the
severance compensation, including any claim
arising under any state or federal statute or
common law, including, but not limited to, Title
VII of the Civil Rights Act of 1964, 42 U.S.C. ''
2000e, et seq., the Americans with Disabilities
Act, 42 U.S.C. '' 12101, et seq., the Age
Discrimination in Employment Act, 29 U.S.C. ''
623, et seq., the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. '' 2101, et
seq., and the California Fair Employment and
Housing Act, Cal. Gov't Code '' 12940, et seq.
GETTE acknowledges that he is familiar with
section 1542 of the California Civil Code, which
reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.
GETTE expressly acknowledges and agrees that he is
releasing all known and unknown claims, and that
he is waiving all rights he has or may have under
Civil Code Section 1542 or under any other statute
or common law principle of similar effect. GETTE
acknowledges that the benefits he is receiving in
exchange for this Release are more than the
benefits to which he otherwise would have been
entitled, and that such benefits constitute valid
and adequate consideration for this Release.
GETTE further acknowledges that he has read this
Release, understands all of its terms, and has
consulted with counsel of his choosing before
signing this Agreement.
Severance compensation pursuant to this paragraph
shall be in lieu of any other severance benefit to
which GETTE would otherwise be entitled under
COMPANY's policies in effect on the date of
execution of this Agreement or thereafter.
Severance compensation shall be paid upon
termination of GETTE's engagement and in one lump
sum payment at the date of termination, less
applicable withholdings.
iii. In the event this Agreement is terminated
either by Convenience or by Non-renewal within
twenty-four (24) months after a Change in Control
(as that term is defined in Section 4.2.5 below),
the termination provisions of Section 4.2.5,
rather than the termination provisions of this
Section 4.2.4, shall govern.
4.2.5 Change In Control. A "Change in Control" shall
occur upon any of the following events:
i. Any Person (as such term is used in Sections
12(d) and 14(d)(2) of the Securities Exchange Act
of 1934 (the "Act")) becomes a beneficial owner
(as such term is defined in Rule 13d-3 promulgated
under the Act) (other than COMPANY, any trustee or
other fiduciary holding securities under an
employee benefit plan of COMPANY, or any
corporation owned, directly or indirectly, by the
stockholders of COMPANY in substantially the same
proportions of their ownership of stock of
COMPANY), directly or indirectly, of securities of
COMPANY representing fifty percent (50%) of more
of the combined voting power of COMPANY's then-
outstanding securities;
ii. The stockholders of COMPANY approve a merger
or consolidation of COMPANY with another
corporation or entity, other than (a) a merger or
consolidation that results in the voting
securities of COMPANY outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) more
than eighty percent (80%) of the combined voting
power of the voting securities of COMPANY or such
surviving entity outstanding immediately after
such merger or consolidation, or (b) a merger or
consolidation effected to implement a
recapitalization of COMPANY (or similar
transaction) in which no Person (as defined above)
acquires more than fifty percent (50%) of the
combined voting power of COMPANY's then-
outstanding securities; or
iii. The stockholders of COMPANY approve a plan
of complete liquidation of COMPANY or an agreement
for the sale or disposition by COMPANY of all or
substantially all of COMPANY's assets.
In the event this Agreement is terminated by COMPANY
for Convenience or by Non-renewal after a Change in
Control and provided that COMPANY does not have grounds
to terminate this Agreement for cause under Section
4.1.4 above, COMPANY shall have no further obligation
to GETTE under this Agreement except to distribute to
GETTE:
i. Severance Compensation in an amount equal to
two (2) times base compensation as defined above,
less applicable withholdings, payable in a lump-
sum payment within thirty-one (31) days of date of
termination; and
ii. Additional compensation that shall apply
solely to the extent the sum of (a) the payments
made by COMPANY to or for the benefit of GETTE
under this Agreement and (b) the value, as
calculated in accordance with Section 280G of the
Internal Revenue Code of 1986, as amended (the
"Code") of the benefits received by GETTE as a
result of a Change in Control under any other
agreement ("Total Severance Benefits") exceed
three hundred thirty percent (330%) of the
Severance Compensation (the "Threshold Amount"):
a. In the event the Total Severance Benefits
exceed the Threshold Amount, GETTE shall be
entitled to receive an additional payment
such that the net amount retained by GETTE,
after deduction of excise taxes imposed by
Code Section 4999 on the Total Severance
Benefits, any federal, state and local income
tax, employment tax, and excise tax upon the
payment provided by this subsection, and any
interest or penalties assessed with respect
to such excise tax, shall be equal to the
Total Severance Benefits (the "Gross-Up
Payment");
b. COMPANY shall, in its sole and absolute
discretion, determine the amount of the Gross-
Up Payment, if any, and shall provide
reasonable supporting documentation to GETTE
supporting its determination. For purposes
of calculating the Gross-Up Payment, GETTE
shall be deemed to pay taxes at the highest
marginal rate of federal income taxation
applicable to individuals for the calendar
year in which the Gross-Up Payment is to be
made, and state and local income taxes at the
highest marginal rates of individual taxation
in the State and locality of GETTE's
residence on the date of termination, less
the maximum reduction in federal income taxes
that could be obtained from deduction of such
state and local taxes.
c. GETTE shall notify COMPANY in writing
within ten (10) days of GETTE's notice
thereof of any claim by the Internal Revenue
Service that, if successful, would require
payment by COMPANY of the Gross-Up Payment.
If COMPANY notifies GETTE within thirty (30)
days thereafter that it desires to contest
such claim, GETTE shall provide all
information reasonably requested by COMPANY,
shall take such action and cooperate with
COMPANY as may reasonably be requested by
COMPANY to contest such claim, and shall
permit COMPANY to participate in any
proceedings related to such claim at
COMPANY's own expense. GETTE further agrees
that COMPANY shall have sole control over all
proceedings relating to issues affecting the
payment of the Gross-Up Payment, including
the decision to settle such claim.
d. If, and only if, the Total Severance
Benefits are less than or equal to the
Threshold Amount, it is the intention of
COMPANY that no payments of the Total
Severance Benefits to or for the benefit of
GETTE under this Agreement or any other
agreement or plan shall be non-deductible to
COMPANY by reason of the operation of Code
Section 280G relating to parachute payments.
Notwithstanding any provision of this
Agreement or any other, if by reason of Code
Section 280G, any such payments exceed the
amount that can be deducted by COMPANY, the
Severance Payment to which GETTE is entitled
under this Agreement shall be reduced by that
amount which exceeds the maximum amount
deductible by COMPANY. To the extent such
Severance Payments already have been made by
COMPANY, such excess payments shall be
refunded to COMPANY with interest at the then-
prevailing rate or at such other rate as may
be required in order that no such payment
shall be non-deductible.
iii. In consideration for this Severance
Compensation, and Gross-Up Payment (if
applicable), GETTE, on behalf of himself, his
agents, heirs, executors, administrators, and
assigns, expressly releases and forever discharges
COMPANY and its successors and assigns, and all of
its respective agents, directors, officers,
partners, employees, representatives, insurers,
attorneys, parent companies, subsidiaries,
affiliates, and joint venturers, and each of them,
from any and all claims based upon acts or events
that occurred on or before the date on which GETTE
accepts the severance compensation, including any
claim arising under any state or federal statute
or common law, including, but not limited to,
Title VII of the Civil Rights Act of 1964, 42
U.S.C. '' 2000e, et seq., the Americans with
Disabilities Act, 42 U.S.C. '' 12101, et seq., the
Age Discrimination in Employment Act, 29 U.S.C. ''
623, et seq., the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. '' 2101, et
seq., and the California Fair Employment and
Housing Act, Cal. Gov't Code '' 12940, et seq.
GETTE acknowledges that he is familiar with
section 1542 of the California Civil Code, which
reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.
GETTE expressly acknowledges and agrees that he is
releasing all known and unknown claims, and that
he is waiving all rights he has or may have under
Civil Code Section 1542 or under any other statute
or common law principle of similar effect. GETTE
acknowledges that the benefits he is receiving in
exchange for this Release are more than the
benefits to which he otherwise would have been
entitled, and that such benefits constitute valid
and adequate consideration for this Release.
GETTE further acknowledges that he has read this
Release, understands all of its terms, and has
consulted with counsel of his choosing before
signing this Agreement.
iv. Severance Compensation pursuant to this paragraph shall be
in lieu of any other severance benefit to which GETTE would
otherwise be entitled under COMPANY's policies in effect on
the date of execution of this Agreement or thereafter.
4.2.6 Reduction in Scope of Responsibilities.
For purposes of this Agreement a Change in Control
shall be considered to constitute a significant
reduction in the scope of responsibilities as
described in Section 1.1.1 above. Upon Change of
Control GETTE shall, within ninety (90) days upon
such Change in Control, have the right but not
the obligation to terminate this Agreement
provided that GETTE is not in material breach of
this Agreement and that COMPANY does not then have
cause to terminate this Agreement under Section
4.1.4 above. Such notice of termination must be
in writing.
In the event GETTE terminates this Agreement
within ninety (90) days after a Change in Control
hereunder, GETTE shall be entitled to the
Severance Compensation to which he would have been
entitled if COMPANY had terminated this Agreement
pursuant to Section 4.2.4 above.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations of GETTE. GETTE represents and warrants
that he has all right, power, authority and capacity, and is free
to enter into this Agreement; that by doing so, GETTE will not
violate or interfere with the rights of any other person or
entity; and that GETTE is not subject to any contract,
understanding or obligation that will or might prevent, interfere
with or impair the performance of this Agreement by GETTE. GETTE
shall indemnify and hold COMPANY harmless with respect to any
losses, liabilities, demands, claims, fees, expenses, damages and
costs (including attorneys' fees and court costs) resulting from
or arising out of any claim or action based upon GETTE's entering
into this Agreement.
5.2 Representations of COMPANY. COMPANY represents and warrants
that it has all right, power and authority, without the consent
of any other person, to execute and deliver, and perform its
obligations under, this Agreement. All corporate and other
actions required to be taken by COMPANY to authorize the
execution, delivery and performance of this Agreement and the
consummation of all transactions contemplated hereby have been
duly and properly taken. This Agreement is the lawful, valid and
legally binding obligation of COMPANY enforceable in accordance
with its terms.
5.3 Materiality of Representations. The representations,
warranties and covenants set forth in this Agreement shall be
deemed to be material and to have been relied upon by the parties
hereto.
6. COVENANTS
6.1 Nondisclosure and Invention Assignment. GETTE
acknowledges that, as a result of performing the Services,
GETTE shall have access to confidential and sensitive
information concerning COMPANY's business including, but not
limited to, its business operations, sales and marketing
data, and manufacturing processes. GETTE also acknowledges
that in the course of performing the Services, GETTE may
develop new product ideas or inventions as a result of
COMPANY's information. Accordingly, to preserve COMPANY's
confidential information and to assure it the full benefit
of that information, GETTE shall, as a condition of
engagement by COMPANY, execute COMPANY's standard form of
Confidentiality Agreement attached hereto as Exhibit A, and
execute updated versions of the Confidentiality Agreement as
it may be modified from time to time by COMPANY and as may
be required of similarly-situated employees at COMPANY. The
Confidentiality Agreement is incorporated herein by this
reference. GETTE's obligations under the Confidentiality
Agreement continue beyond the termination of this Agreement.
6.2 Covenant Not to Compete. In addition to the provisions
of the Confidentiality Agreement, GETTE shall abide by the
following Covenant Not to Compete if COMPANY, at its option
upon the termination of this Agreement (regardless of the
reason for the termination except in the event of a Change
of Control as defined in Section 4.2.5), exercises this
Covenant Not to Compete. COMPANY shall notify GETTE within
ten (10) days of termination of this Agreement of its
intention to exercise this option and shall make an
additional payment to GETTE of one (1) year base pay
determined at GETTE's last rate of pay with COMPANY. GETTE
agrees that for a period of two (2) years following the
termination of this Agreement, he shall not, without the
written consent of COMPANY's Board of Directors, directly or
indirectly for himself, or as a member of a partnership, or
as an officer, director, stockholder, employee or
representative of any other entity or individual, engage,
directly or indirectly, in any business activity which is
directly competitive with the business conducted or to
GETTE's knowledge, contemplated by COMPANY at the time of
termination of this Agreement, as defined in the
Confidentiality Agreement incorporated into this Agreement
by reference. In the event of a Change of Control as
defined in Section 4.2.5, COMPANY, at its option upon the
termination of this Agreement, may exercise this Covenant
Not to Compete. COMPANY shall notify GETTE within ten (10)
days of termination of this Agreement of its intention to
exercise this option and shall make an additional payment to
GETTE of six (6) months' base pay determined at GETTE's last
rate of pay with COMPANY. GETTE agrees that for a period of
one (1) year following the termination of this Agreement, he
shall not, without the written consent of COMPANY's Board of
Directors, directly or indirectly for himself, or as a
member of a partnership, or as an officer, director,
stockholder, employee or representative of any other entity
or indivdual, engage, directly or indirectly, in any
business activity which is directly competitive with the
business conducted or to GETTE's knowledge, contemplated by
COMPANY at the time of termination of this Agreement, as
defined in the Confidentiality Agreement incorporated into
this Agreement by reference.
6.3 Covenant to Deliver Records. All memoranda, notes,
records and other documents made or compiled by GETTE, or
made available to GETTE during the Term of this Agreement
concerning the business of COMPANY shall be and remain
COMPANY's property and shall be delivered to COMPANY upon
the termination of this Agreement or at any other time on
request.
6.4 Covenant Not To Recruit. GETTE shall not, during the
Term of this Agreement and for a period of one (1) year
following termination of this Agreement, directly or
indirectly, either on his own behalf, or on behalf of any
other individual or entity, solicit, interfere with, induce
(or attempt to induce) or endeavor to entice away any
employee associated with COMPANY to become affiliated with
him or any other individual or entity.
7. CERTAIN RIGHTS OF COMPANY
7.1 Announcement. COMPANY shall have the right to make
public announcements concerning the execution of this
Agreement and certain terms thereof.
7.2 Use of Name, Likeness and Biography. COMPANY shall
have the right (but not the obligation) to use, publish and
broadcast, and to authorize others to do so, the name,
approved likeness and approved biographical material of
GETTE to advertise, publicize and promote the business of
COMPANY and its affiliates, but not for the purposes of
direct endorsement without GETTE's consent. An "approved
likeness" and "approved biographical material" shall be,
respectively, any photograph or other depiction of GETTE, or
any biographical information or life story concerning the
professional career of GETTE.
7.3 Right to Insure. COMPANY shall have the right to
secure, in its own name or otherwise, and at its own
expense, life, health, accident or other insurance covering
GETTE, and GETTE shall have no right, title or interest in
and to such insurance. GETTE shall assist COMPANY in
procuring such insurance by submitting to examinations and
by signing such applications and other instruments as may be
required by the insurance carriers to which application is
made for any such insurance.
8. ASSIGNMENT
Neither party may assign or otherwise dispose of its rights
or obligations under this Agreement without the prior written
consent of the other party except as provided in this Section.
COMPANY may assign and transfer this Agreement, or its interest
in this Agreement, to any affiliate of COMPANY or to any entity
that is a party to a merger, reorganization, or consolidation
with COMPANY, or to a subsidiary of COMPANY, or to any entity
that acquires substantially all of the assets of COMPANY or of
any division with respect to which GETTE is providing services
(providing such assignee assumes COMPANY's obligations under this
Agreement). GETTE shall, if requested by COMPANY, perform
GETTE's duties and Services, as specified in this Agreement, for
the benefit of any subsidiary or other affiliate of COMPANY.
Upon assignment, acquisition, merger, consolidation or
reorganization, the term ACOMPANY@ as used herein shall be deemed
to refer to such assignee or successor entity. GETTE shall not
have the right to assign his interest in this Agreement, any
rights under this Agreement, or any duties imposed under this
Agreement, nor shall GETTE or his spouse, heirs, beneficiaries,
executors or administrators have the right to pledge, hypothecate
or otherwise encumber GETTE's right to receive compensation
hereunder without the express written consent of COMPANY.
9. RESOLUTION OF DISPUTES
In the event of any dispute arising out of or in connection
with this Agreement or in any way relating to the employment of
GETTE which leads to the filing of a lawsuit, the parties agree
that venue and jurisdiction shall be in Santa Barbara County,
California. The prevailing party in any such litigation shall be
entitled to an award of costs and reasonable attorneys' fees to
be paid by the losing party.
10. GENERAL PROVISIONS
10.1 Notices. Notice under this Agreement shall be
sufficient only if personally delivered by a major
commercial paid delivery courier service or mailed by
certified or registered mail (return receipt requested and
postage pre-paid) to the other party at its address set
forth in the signature block below or to such other address
as may be designated by either party in writing. If not
received sooner, notices by mail shall be deemed received
five (5) days after deposit in the United States mail.
10.2 Agreement Controls. Unless otherwise provided for in
this Agreement, the COMPANY's policies, procedures and
practices shall govern the relationship between GETTE and
COMPANY. If, however, any of COMPANY's policies, procedures
and/or practices conflict with this Agreement (together with
any amendments hereto), this Agreement (and any amendments
hereto) shall control.
10.3 Amendment and Waiver. Any provision of this Agreement
may be amended or modified and the observance of any
provision may be waived (either retroactively or
prospectively) only by written consent of the parties.
Either party's failure to enforce any provision of this
Agreement shall not be construed as a waiver of that party's
right to enforce such provision.
10.4 Governing Law. This Agreement and the performance
hereunder shall be interpreted under the substantive laws of
the State of California.
10.5 Force Majeure. Either party shall be temporarily
excused from performing under this Agreement if any force
majeure or other occurrence beyond the reasonable control of
either party makes such performance impossible, except a
Disability as defined in this Agreement, provided that the
party subject to the force majeure provides notice of such
force majeure at the first reasonable opportunity. Under
such circumstances, performance under this Agreement that
related to the delay shall be suspended for the duration of
the delay provided the delayed party shall resume
performance of its obligations with due diligence once the
delaying event subsides. In case of any such suspension,
the parties shall use their best efforts to overcome the
cause and effect of such suspension.
10.6 Remedies. GETTE acknowledges that because of the
nature of COMPANY's business, and the fact that the services
to be performed by GETTE pursuant to this Agreement are of a
special, unique, unusual, extraordinary, and intellectual
character that give them a peculiar value, a breach of this
Agreement shall cause substantial injury to COMPANY for
which money damages cannot reasonably be ascertained and for
which money damages would be inadequate. GETTE therefore
agrees that COMPANY shall have the right to obtain
injunctive relief, including the right to have the
provisions of this Agreement specifically enforced by any
court having equity jurisdiction, in addition to any other
remedies that COMPANY may have.
10.7 Severability. If any term, provision, covenant,
paragraph, or condition of this Agreement is held to be
invalid, illegal, or unenforceable by any court of competent
jurisdiction, that provision shall be limited or eliminated
to the minimum extent necessary so this Agreement shall
otherwise remain enforceable in full force and effect.
10.8 Construction. Headings and captions are only for
convenience and shall not affect the construction or
interpretation of this Agreement. Whenever the context
requires, words, used in the singular shall be construed to
include the plural and vice versa, and pronouns of any
gender shall be deemed to include the masculine, feminine,
or neuter gender.
10.9 Counterpart Copies. This Agreement may be signed in
counterpart copies, each of which shall represent an
original document, and all of which shall constitute a
single document.
10.10 No Adverse Construction. The rule that a contract is
to be construed against the party drafting the contract is
hereby waived, and shall have no applicability in construing
this Agreement or the terms hereof.
10.11 Entire Agreement. With respect to its subject matter,
namely, the engagement by COMPANY of GETTE, this Agreement
(including the documents expressly incorporated therein,
such as the Confidentiality Agreement), contains the entire
understanding between the parties, and supersedes any prior
agreements, understanding, and communications between the
parties, whether oral, written, implied or otherwise.
The parties execute this Agreement as of the date stated above:
ANTHONY R. GETTE MENTOR CORPORATION
/s/ANTHONY R. GETTE /s/CHRISTOPHER CONWAY
Notice Address: Notice Address:
4632 Via Roblada 201 Mentor Drive
Santa Barbara, CA 93110 Santa Barbara, CA 93111
EMPLOYMENT AGREEMENT
This Employment Agreement, dated April 1,2000, is between
MENTOR Corporation ("COMPANY"), with its executive offices at 201
Mentor Drive, Santa Barbara, California 93111 and ADEL MICHAEL
("EMPLOYEE") of 381 Kingswood Lane, Danville, California, 94506.
RECITALS
COMPANY is in the business of manufacturing and selling
medical devices and related products. EMPLOYEE has experience in
this business and possesses valuable skills and experience, which
will be used in advancing COMPANY's interests. EMPLOYEE is
willing to be engaged by COMPANY and COMPANY is willing to engage
EMPLOYEE in an executive capacity responsible for the financial
operations of COMPANY, upon the terms and conditions set forth in
this Agreement.
AGREEMENT
EMPLOYEE and COMPANY, intending to be legally bound, agree as
follows:
1. SERVICES
1.1 General Services.
1.1.1 Company shall employ EMPLOYEE as Senior Vice
President & Chief Financial Officer. EMPLOYEE shall
perform the duties customarily performed by one holding
such position in a similar business as that engaged in
by COMPANY. To the extent that they do not reduce the
scope of the responsibilities described above,
EMPLOYEE's duties may change from time to time on
reasonable notice, based on the needs of COMPANY and
EMPLOYEE's skills as determined by COMPANY. These
duties shall hereinafter be referred to as "Services."
EMPLOYEE shall report directly to the President and
Chief Executive Officer of Mentor Corporation.
1.1.2 As Senior Vice President & Chief Financial
Officer of COMPANY, EMPLOYEE shall also be an officer
of COMPANY and shall serve in such capacity without
further compensation. In the event that EMPLOYEE shall
from time to time serve COMPANY as a director or shall
serve in any other office during the term of this
Agreement, EMPLOYEE shall serve in such capacities
without further compensation. If EMPLOYEE is, for any
reason, removed as an officer or director of the
COMPANY by the Board of Directors of COMPANY, such
removal shall be without prejudice to EMPLOYEE's
contractual rights under this Agreement.
1.1.3. EMPLOYEE shall devote his entire working time,
attention, and energies to the business of COMPANY, and
shall not, during the term of this Agreement, be
engaged in any other business activity whether or not
such business activity is pursued for gain, profit or
other pecuniary advantage, without the prior written
consent of the Board of Directors of COMPANY. This
shall not be construed as preventing EMPLOYEE from
investing his assets in a form or manner that does not
require any services on the part of EMPLOYEE in the
operation or affairs of the entities in which such
investments are made, or from engaging in such civic,
charitable, religious, or political activities that do
not interfere with the performance of EMPLOYEE's duties
hereunder.
1.2 Location. EMPLOYEE shall be based in and shall render
services for COMPANY primarily in Santa Barbara, California,
but EMPLOYEE shall undertake such travel as is necessary or
advisable for the effective performance of the duties of the
position.
1.3 Best Abilities. EMPLOYEE shall serve COMPANY
faithfully and to the best of EMPLOYEE's ability. EMPLOYEE
shall use EMPLOYEE's best abilities to perform the Services.
Employee shall act at all times according to what EMPLOYEE
reasonably believes is in the best interests of COMPANY.
1.4 Corporate Authority. Employee, as an executive
officer, shall comply with all laws and regulations
applicable to EMPLOYEE as a result of this Agreement
including, but not limited to, the Securities Act of 1933
and Securities Act of 1934. Prior to the execution of this
Agreement, EMPLOYEE has received and reviewed COMPANY's
Policies and Procedures and COMPANY's Employee Handbook.
EMPLOYEE shall comply with COMPANY's Policies and
Procedures, and practices now in effect or as later amended
or adopted by COMPANY, as required of similarly-situated
executives of COMPANY.
2. TERM
This Agreement shall commence upon the execution of this
Agreement and shall continue until terminated as provided in
Section 4 of this Agreement.
3. COMPENSATION AND BENEFITS
3.1 Compensation. EMPLOYEE's total compensation consists
of base salary, bonus potential, stock options, and medical
and other benefits generally provided to employees of
COMPANY. Any compensation paid to EMPLOYEE shall be
pursuant to COMPANY's policies and practices for exempt
employees and shall be subject to all applicable laws and
requirements regarding the withholding of federal, state
and/or local taxes. Compensation provided in this Agreement
is full payment for Services and EMPLOYEE shall receive no
additional compensation for extraordinary services unless
otherwise authorized. EMPLOYEE's entire compensation
package will be reviewed annually by the Compensation
Committee of the Board of Directors, a practice which is
consistent with COMPANY's Executive Compensation Program.
3.1.1 Base Compensation. COMPANY agrees to pay
EMPLOYEE an annualized base salary of Two Hundred Forty
Thousand Dollars ($240,000.00), less applicable
withholdings, payable in equal installments no less
frequently than semi-monthly. Effective April 1, 2001
your annualized base salary will be increased to a
minimum of Two Hundred Sixty Five Thousand Dollars
($265,000.00), less applicable withholdings, payable in
equal installments no less frequently than semi-
monthly.
3.1.2 Cash Incentive Bonus. EMPLOYEE shall be
eligible for a cash incentive bonus of up to Forty
Percent (40%) of your annual base salary, subject to
applicable withholdings and subject to approval by
COMPANY's Compensation Committee and Board of
Directors. Any cash incentive bonus shall accrue and
become payable to EMPLOYEE only if EMPLOYEE is employed
with COMPANY on the last day of the fiscal year for
which the cash incentive bonus is calculated. For the
fiscal year ending March 31, 2001 only, the COMPANY
will guarantee that your actual paid bonus will not be
less than Fifty Percent (50%) of the potential Forty
Percent opportunity referred to above (or, $48,000.00).
3.1.3 Stock Options. EMPLOYEE shall be granted an
option for Fifty Thousand (50,000) shares of COMPANY's
common stock subject to a four (4) year vesting
schedule one (1) year after grant at the rate of twenty-
five percent (25%) per year. Options are exercisable
for a period of ten (10) years after vesting and shall
be exercised in accordance with the Mentor Corporation
1991 Stock Option Plan ("Plan"), as amended from time
to time. EMPLOYEE shall execute the Option Agreement
and otherwise comply with the terms of the Plan with
regard to the options being granted by this Agreement.
This provision is subject to applicable state and
federal securities laws. Based upon satisfactory
performance, under the Plan, COMPANY expects that
EMPLOYEE will qualify for additional grants of options
to acquire common stock of COMPANY in the April-May
2001 time frame, subject to determination by the Board
of Directors, of an amount which is consistent with
COMPANY's Executive Compensation Program. Subsequent
grants, if any, shall also be subject to performance
considerations as well as the determination of the
Board of Directors.
3.2 Relocation Expenses. COMPANY shall reimburse EMPLOYEE for
relocation expenses, whether or not deductible pursuant to
federal, state and local tax laws. Relocation expenses shall be
limited to reasonable expenses for real estate commissions
incurred upon the sale of EMPLOYEE's primary residence, house-
hunting trips, physical moving expenses (once upon movement into
temporary housing, if necessary, and once upon movement into
permanent housing), closing costs and fees not to exceed two
(2.0) mortgage points, temporary living expenses of up to
approximately Four Thousand Five Hundred Dollars ($4,500.00) per
month, not to exceed twelve (12) months, in the Santa Barbara
area, including commuting trips until Employee and his family
complete a physical relocation to a permanent residence in the
Santa Barbara, California area, and other reasonable out-of-
pocket expenses (other than home decorating expenses, differences
in mortgage rates, costs of comparable housing, etc.). COMPANY
will reimburse EMPLOYEE for federal and state income taxes
EMPLOYEE would not otherwise have incurred attributable to the
receipt of Relocation Expenses as provided in this Section
(generally referred to as reimbursement on a "gross-up" basis).
All reimbursements of relocation expenses as provided hereunder
shall be subject to EMPLOYEE providing appropriate documentation
of such expenses.
In the event EMPLOYEE elects to purchase a
residence in Santa Barbara, California area before
he is able to sell his home in Danville,
California, the COMPANY will reimburse EMPLOYEE a
one-time lump sum equal to the total of the
estimated costs that would have been incurred as
described above (specifically, estimated real
estate commissions associated with the projected
sale of your Danville, California home, closing
costs and fees). Said estimate will be supported
by actual estimates from third parties, e.g., an
appraisal of the value of the home in Danville,
California by at least two qualified appraisers.
Any and all physical movement costs shall be paid
for by COMPANY directly. If the agreed upon
relocation lump sum is less than the estimated
sum, or, higher than the estimated sum, COMPANY
and EMPLOYEE shall reconcile appropriately.
Should EMPLOYEE voluntarily resign his employment
with COMPANY on or before the first anniversary of
EMPLOYEE's employment, EMPLOYEE shall be required
to reimburse COMPANY for the aforementioned
payment.
3.3 Business Expenses. COMPANY shall reimburse EMPLOYEE
for business expenses reasonably incurred in performing
Services according to COMPANY's Expense Reimbursement
Policy.
3.4 Additional Benefits. COMPANY shall provide EMPLOYEE
those additional benefits normally granted by COMPANY to its
employees subject to eligibility requirements applicable to
each benefit. COMPANY has no obligation to provide any
other benefits unless provided for in this Agreement.
Currently COMPANY provides major medical, dental, life,
salary continuation, long term disability benefits and
eligibility to participate in COMPANY's 401(k) plan.
3.5 Vacation. Employee shall accrue vacation equal to
fifteen (15) days per year during the first five (5) years
of service, at the rate of 1.25 days per month. Thereafter,
vacation will accrue at twenty (20) days per year, at the
rate of approximately 1.67 days per month. The time or
times for such vacation shall be selected by EMPLOYEE and
approved by the President and Chief Executive Officer of
COMPANY.
3.6 Automobile Expense. COMPANY will permit EMPLOYEE to
select a business automobile (four-door sedan) for lease by
COMPANY for which COMPANY will make lease payments of up to
Eight Hundred Dollars ($800.00) per month. COMPANY shall
pay applicable taxes on the automobile and shall obtain
motor vehicle insurance in an amount it deems reasonable in
its sole discretion. EMPLOYEE may obtain additional
liability insurance at his own expense if he so chooses.
4. TERMINATION
4.1 Circumstances Of Termination. This Agreement and the
employment relationship between COMPANY and EMPLOYEE may be
terminated as follows:
4.1.1 Death. This Agreement shall terminate upon
EMPLOYEE's death, effective as of the date of
EMPLOYEE's death.
4.1.2 Disability. COMPANY may, at its option, either suspend
compensation payments or terminate this Agreement due to
EMPLOYEE's Disability if EMPLOYEE is incapable, even with
reasonable accommodation by COMPANY, of performing the Services
because of accident, injury, or physical or mental illness for
sixty (60) consecutive days, or is unable or shall have failed to
perform the Services for a total period of ninety (90) within a
twelve (12) month period, regardless of whether such days are
consecutive. If COMPANY suspends compensation payments because
of EMPLOYEE's Disability, COMPANY shall resume compensation
payments when EMPLOYEE resumes performance of the Services. If
COMPANY elects to terminate this Agreement due to EMPLOYEE's
Disability, it must first give EMPLOYEE three (3) days advance
written notice.
4.1.3 Discontinuance Of Business. If COMPANY
discontinues operating its business, this
Agreement shall terminate as of the last day of
the month on which COMPANY ceases its entire
operations with the same effect as if that last
date were originally established as termination
date of this Agreement.
4.1.4 For Cause. COMPANY may terminate this Agreement
without advance notice for Cause. For the purpose of
this Agreement, "Cause" shall mean any failure to
comply in any material respect with this Agreement or
any Agreement incorporated herein; personal or
professional misconduct by EMPLOYEE (including, but not
limited to, criminal activity or gross or willful
neglect of duty); breach of EMPLOYEE's fiduciary duty
to the COMPANY; conduct which threatens public health
or safety, or threatens to do immediate or substantial
harm to COMPANY's business or reputation; or any other
misconduct, deficiency, failure of performance, breach
or default, reasonably capable of being remedied or
corrected by EMPLOYEE. To the extent that a breach
pursuant to this Section 4.1.4 is curable by EMPLOYEE
without harm to COMPANY and/or it's reputation, COMPANY
shall, instead of immediately terminating EMPLOYEE
pursuant to this Agreement, provide EMPLOYEE with
notice of such breach, specifying the actions required
to cure such breach, and EMPLOYEE shall have ten (10)
days to cure such breach by performing the actions so
specified. If EMPLOYEE fails to cure such breach
within the ten (10) day period, COMPANY may terminate
this Agreement without further notice. COMPANY's
exercise of its right to terminate under this section
shall be without prejudice to any other remedy to which
COMPANY may be entitled at law, in equity, or under
this Agreement.
4.1.5. For Convenience Of Party. This Agreement and
employment relationship is terminable by either party, for
convenience, with or without cause, at any time upon thirty (30)
days' advance written notice to the other party. If COMPANY
terminates this Agreement for convenience prior to April 3, 2001,
COMPANY shall pay EMPLOYEE the base compensation to which he
would have been entitled if he had remained employed until April
3, 2001, less applicable withholdings.
4.1.6. Change of Control. If employment is terminated within
twelve months upon any of the following events EMPLOYEE shall be
entitled to severance compensation pursuant to Section 4.2.5:
(i) the sale, lease or other disposition of all or substantially
all of Company's assets to a single purchaser or group of
related purchasers;
(ii) the sale, lease or other disposition, in one
transaction or a series of related
transactions of the majority of COMPANY's
outstanding capital stock; or,
(iii) the merger or consolidation of COMPANY
into or with another corporation in which the
stockholders of COMPANY shall own less than
fifty (50%) percent of the voting securities
of the surviving corporation (all of which
events shall be referred to as a Change in
Control).
4.2 EMPLOYEE's Rights Upon Termination
4.2.1 Death. Upon termination of this Agreement
because of death of EMPLOYEE pursuant to Section
4.1.1 above, COMPANY shall have no further
obligation to EMPLOYEE under the Agreement except
to distribute to EMPLOYEE's estate or designated
beneficiary any unpaid compensation and
reimbursable expenses, less applicable
withholdings, owed to EMPLOYEE prior to the date
of EMPLOYEE's death.
4.2.2 Disability. Upon termination of this
Agreement because of Disability of EMPLOYEE
pursuant to Sections 4.1.2 above, COMPANY shall
have no further obligation to EMPLOYEE under the
Agreement except to distribute to EMPLOYEE's
estate or designated beneficiary any unpaid
compensation and reimbursable expenses, less
applicable withholdings, owed to EMPLOYEE prior to
the date of EMPLOYEE's termination due to
Disability.
4.2.3 Discontinuance Of Business. Upon termination of this
Agreement because of discontinuation of COMPANY's business
pursuant to Section 4.1.3, COMPANY shall have no further
obligation to EMPLOYEE under the Agreement except to distribute
to EMPLOYEE any unpaid compensation and reimbursable expenses,
less applicable withholdings, owed to EMPLOYEE prior to the date
of termination of this Agreement.
4.2.4 Termination With Cause. Upon termination of
EMPLOYEE's employment for Cause pursuant to
Section 4.1.4, COMPANY shall have no further
obligation to EMPLOYEE under this Agreement except
to distribute to EMPLOYEE:
i. Any compensation and reimbursable expenses
owed to EMPLOYEE by COMPANY through the
termination date, less applicable withholdings;
and
ii. Severance compensation as provided for in
COMPANY's Severance Policy, if any, less
applicable withholdings.
4.2.5 Termination Without Cause. Upon termination
of EMPLOYEE's employment by COMPANY without cause
pursuant to Section 4.1.5, COMPANY shall have no
further obligation to EMPLOYEE under this
Agreement except to distribute to EMPLOYEE:
i. Any compensation and reimbursable expenses
owed by COMPANY to EMPLOYEE through the
termination date, less applicable withholdings;
ii. A pro-rated share of the cash incentive bonus
that would be due to EMPLOYEE if EMPLOYEE had
remained employed with COMPANY through the last
day of the fiscal year for which the cash
incentive bonus is calculated, less applicable
withholdings; and
iii. Severance compensation totaling twelve (12)
months base pay, plus one (1) month base pay for
each full year of service, determined at
EMPLOYEE's then-current rate of base pay. In
consideration for this severance compensation,
EMPLOYEE, on behalf of himself, his agents, heirs,
executors, administrators, and assigns, expressly
releases and forever discharges COMPANY and its
successors and assigns, and all of its respective
agents, directors, officers, partners, employees,
representatives, insurers, attorneys, parent
companies, subsidiaries, affiliates, and joint
ventures, and each of them, from any and all
claims based upon acts or events that occurred on
or before the date on which EMPLOYEE accepts the
severance compensation, including any claim
arising under any state or federal statute or
common law, including, but not limited to, Title
VII of the Civil Rights Act of 1964, 42 U.S.C. ''
2000e, et seq., the Americans with Disabilities
Act, 42 U.S.C. '' 12101, et seq., the Age
Discrimination in Employment Act, 29 U.S.C. ''
623, et seq., the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. '' 2101, et
seq., and the California Fair Employment and
Housing Act, Cal. Gov't Code '' 12940, et seq.
EMPLOYEE acknowledges that he is familiar with
section 1542 of the California Civil Code, which
reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.
EMPLOYEE expressly acknowledges and agrees that he
is releasing all known and unknown claims, and
that he is waiving all rights he has or may have
under Civil Code Section 1542 or under any other
statute or common law principle of similar effect.
EMPLOYEE acknowledges that the benefits he is
receiving in exchange for this Release are more
than the benefits to which he otherwise would have
been entitled, and that such benefits constitute
valid and adequate consideration for this Release.
EMPLOYEE further acknowledges that he has read
this Release, understands all of its terms, and
has consulted with counsel of his choosing before
signing this Agreement.
Severance compensation pursuant to this paragraph
shall be in lieu of any other severance benefit to
which EMPLOYEE would otherwise be entitled under
COMPANY's policies in effect on the date of
execution of this Agreement. Severance
compensation shall be paid upon termination of
EMPLOYEE's employment and in one lump sum payment
at the date of termination, less applicable
withholdings.
4.3 Resignation From Board. Upon termination of this Agreement,
EMPLOYEE shall immediately submit his written resignation from
any Board positions to which he has been appointed or elected.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations of EMPLOYEE. EMPLOYEE represents and
warrants that EMPLOYEE has all right, power, authority and
capacity, and is free to enter into this Agreement; that by
doing so, EMPLOYEE will not violate or interfere with the
rights of any other person or entity; and that EMPLOYEE is
not subject to any contract, understanding or obligation
that will or might prevent, interfere with or impair the
performance of this Agreement by EMPLOYEE. EMPLOYEE shall
indemnify and hold COMPANY harmless with respect to any
losses, liabilities, demands, claims, fees, expenses,
damages and costs (including attorneys' fees and court
costs) resulting from or arising out of any claim or action
based upon EMPLOYEE's entering into this Agreement.
5.2 Representations of COMPANY. COMPANY represents and
warrants that it has all right, power and authority, without
the consent of any other person, to execute and deliver, and
perform its obligations under, this Agreement. All
corporate and other actions required to be taken by COMPANY
to authorize the execution, delivery and performance of this
Agreement and the consummation of all transactions
contemplated hereby have been duly and properly taken. This
Agreement is the lawful, valid and legally binding
obligation of COMPANY enforceable in accordance with its
terms.
5.3 Materiality of Representations. The representations,
warranties and covenants set forth in this Agreement shall
be deemed to be material and to have been relied upon by the
parties hereto.
6. COVENANTS
6.1 Nondisclosure and Invention Assignment. EMPLOYEE
acknowledges that, as a result of performing the Services,
EMPLOYEE shall have access to confidential and sensitive
information concerning COMPANY's business including, but not
limited to, their business operations, sales and marketing
data, and manufacturing processes. EMPLOYEE also
acknowledges that in the course of performing the Services,
EMPLOYEE may develop new product ideas or inventions as a
result of COMPANY's information. Accordingly, to preserve
COMPANY's confidential information and to assure it the full
benefit of that information, EMPLOYEE shall, as a condition
of employment with COMPANY, execute COMPANY's standard form
of Employee Confidentiality Agreement attached hereto as
Exhibit A, and execute updated versions of the Employee
Confidentiality Agreement as it may be modified from time to
time by COMPANY and as may be required of similarly-situated
executives of COMPANY. The Employee Confidentiality
Agreement is incorporated herein by this reference.
EMPLOYEE's obligations under the Employee Confidentiality
Agreement continue beyond the termination of this Agreement.
6.2 Covenant Not to Compete. In addition to the provisions
of the Employee Confidentiality Agreement, EMPLOYEE shall
abide by the following covenant not to compete if COMPANY,
at its option upon the termination of this Agreement
(regardless of the reason for the termination), exercises
this Covenant Not to Compete. COMPANY shall notify EMPLOYEE
within ten (10) days of termination of this Agreement of its
intention to exercise this option and make an additional
payment to EMPLOYEE of six (6) months' base pay determined
at EMPLOYEE's last rate of pay with COMPANY. EMPLOYEE
agrees that for a period of one (1) year following the
termination of this Agreement, he shall not directly or
indirectly for EMPLOYEE, or as a member of a partnership, or
as an officer, director, stockholder, employee, or
representative of any other entity or individual, engage,
directly or indirectly, in any business activity which is
the same or similar to work engaged in by EMPLOYEE on behalf
of COMPANY within the same geographic territory as
EMPLOYEE's work for COMPANY and which is directly
competitive with the business conducted or to EMPLOYEE's
knowledge, contemplated by COMPANY at the time of
termination of this Agreement, as defined in the Employee
Confidentiality Agreement incorporated into this Agreement
by reference. EMPLOYEE may accept employment with an entity
competing with COMPANY only if the business of that entity
is diversified and EMPLOYEE is employed solely with respect
to a separately-managed and separately-operated part of that
entity's business that does not compete with COMPANY. Prior
to accepting such employment, EMPLOYEE and the prospective
employer entity shall provide COMPANY with written
assurances reasonably satisfactory to COMPANY that EMPLOYEE
will not render services directly or indirectly to any part
of that entity's business that competes with the business of
COMPANY.
6.3 Covenant to Deliver Records. All memoranda, notes,
records and other documents made or compiled by EMPLOYEE, or
made available to EMPLOYEE during the term of this Agreement
concerning the business of COMPANY, shall be and remain
COMPANY's property and shall be delivered to COMPANY upon
the termination of this Agreement or at any other time on
request.
6.4 Covenant Not To Recruit. EMPLOYEE shall not, during
the term of this Agreement and for a period of one (1) year
following termination of this Agreement, directly or
indirectly, either on EMPLOYEE's own behalf, or on behalf of
any other individual or entity, solicit, interfere with,
induce (or attempt to induce) or endeavor to entice away any
employee associated with COMPANY to become affiliated with
him or any other individual or entity.
7. CERTAIN RIGHTS OF COMPANY
7.1 Announcement. COMPANY shall have the right to make
public announcements concerning the execution of this
Agreement and certain terms thereof.
7.2 Use of Name, Likeness and Biography. COMPANY shall
have the right (but not the obligation) to use, publish and
broadcast, and to authorize others to do so, the name,
approved likeness and approved biographical material of
EMPLOYEE to advertise, publicize and promote the business of
COMPANY and its affiliates, but not for the purposes of
direct endorsement without EMPLOYEE's consent. An "approved
likeness" and "approved biographical material" shall be,
respectively, any photograph or other depiction of EMPLOYEE,
or any biographical information or life story concerning the
professional career of EMPLOYEE.
7.3 Right to Insure. COMPANY shall have the right to
secure in its own name, or otherwise, and at its own
expense, life, health, accident or other insurance covering
EMPLOYEE, and EMPLOYEE shall have no right, title or
interest in and to such insurance. EMPLOYEE shall assist
COMPANY in procuring such insurance by submitting to
examinations and by signing such applications and other
instruments as may be required by the insurance carriers to
which application is made for any such insurance.
8. ASSIGNMENT
Neither party may assign or otherwise dispose of its rights
or obligations under this Agreement without the prior written
consent of the other party except as provided in this Section.
COMPANY may assign and transfer this Agreement, or its interest
in this Agreement, to any affiliate of COMPANY or to any entity
that is a party to a merger, reorganization, or consolidation
with COMPANY, or to a subsidiary of COMPANY, or to any entity
that acquires substantially all of the assets of COMPANY or of
any division with respect to which EMPLOYEE is providing services
(providing such assignee assumes COMPANY's obligations under this
Agreement). EMPLOYEE shall, if requested by COMPANY, perform
EMPLOYEE's duties and Services, as specified in this Agreement,
for the benefit of any subsidiary or other affiliate of COMPANY.
Upon assignment, acquisition, merger, consolidation or
reorganization, the term "COMPANY" as used herein shall be deemed
to refer to such assignee or successor entity. EMPLOYEE shall
not have the right to assign EMPLOYEE's interest in this
Agreement, any rights under this Agreement, or any duties imposed
under this Agreement, nor shall EMPLOYEE or his spouse, heirs,
beneficiaries, executors or administrators have the right to
pledge, hypothecate or otherwise encumber EMPLOYEE's right to
receive compensation hereunder without the express written
consent of COMPANY.
9. RESOLUTION OF DISPUTES
In the event of any dispute arising out of or in connection
with this Agreement or in any way relating to the employment of
EMPLOYEE which leads to the filing of a lawsuit, the parties
agree that venue and jurisdiction shall be in Santa Barbara
County, California. The prevailing party in any such litigation
shall be entitled to an award of costs and reasonable attorneys'
fees to be paid by the losing party.
10. GENERAL PROVISIONS
10.1 Notices. Notice under this Agreement shall be
sufficient only if personally delivered by a major
commercial paid delivery courier service or mailed by
certified or registered mail (return receipt requested and
postage pre-paid) to the other party at its address set
forth in the signature block below or to such other address
as may be designated by either party in writing. If not
received sooner, notices by mail shall be deemed received
five (5) days after deposit in the United States mail.
10.2 Agreement Controls. Unless otherwise provided for in
this Agreement, the COMPANY's policies, procedures and
practices shall govern the relationship between EMPLOYEE and
COMPANY. If, however, any of COMPANY's policies, procedures
and/or practices conflict with this Agreement (together with
any amendments hereto), this Agreement (and any amendments
hereto) shall control.
10.3 Amendment and Waiver. Any provision of this Agreement
may be amended or modified and the observance of any
provision may be waived (either retroactively or
prospectively) only by written consent of the parties.
Either party's failure to enforce any provision of this
Agreement shall not be construed as a waiver of that party's
right to enforce such provision.
10.4 Governing Law. This Agreement and the performance
hereunder shall be interpreted under the substantive laws of
the State of California.
10.5 Force Majeure. Either party shall be temporarily
excused from performing under this Agreement if any force
majeure or other occurrence beyond the reasonable control of
either party makes such performance impossible, except a
Disability as defined in this Agreement, provided that the
party subject to the force majeure provides notice of such
force majeure at the first reasonable opportunity. Under
such circumstances, performance under this Agreement which
related to the delay shall be suspended for the duration of
the delay provided the delayed party shall resume
performance of its obligations with due diligence once the
delaying event subsides. In case of any such suspension,
the parties shall use their best efforts to overcome the
cause and effect of such suspension.
10.6 Remedies. EMPLOYEE acknowledges that because of the
nature of COMPANY's business, and the fact that the services
to be performed by EMPLOYEE pursuant to this Agreement are
of a special, unique, unusual, extraordinary, and
intellectual character which give them a peculiar value, a
breach of this Agreement shall cause substantial injury to
COMPANY for which money damages cannot reasonably be
ascertained and for which money damages would be inadequate.
EMPLOYEE therefore agrees that COMPANY shall have the right
to obtain injunctive relief, including the right to have the
provisions of this Agreement specifically enforced by any
court having equity jurisdiction, in addition to any other
remedies that COMPANY may have.
10.7 Severability. If any term, provision, covenant,
paragraph, or condition of this Agreement is held to be
invalid, illegal, or unenforceable by any court of competent
jurisdiction, that provision shall be limited or eliminated
to the minimum extent necessary so this Agreement shall
otherwise remain enforceable in full force and effect.
10.8 Construction. Headings and captions are only for
convenience and shall not affect the construction or
interpretation of this Agreement. Whenever the context
requires, words, used in the singular shall be construed to
include the plural and vice versa, and pronouns of any
gender shall be deemed to include the masculine, feminine,
or neuter gender.
10.9 Counterpart Copies. This Agreement may be signed in
counterpart copies, each of which shall represent an
original document, and all of which shall constitute a
single document.
10.10 No Adverse Construction. The rule that a contract is
to be construed against the party drafting the contract is
hereby waived, and shall have no applicability in construing
this Agreement or the terms hereof.
10.11 Entire Agreement. With respect to its subject matter,
namely, the employment by COMPANY of EMPLOYEE, this
Agreement (including the documents expressly incorporated
therein, such as the Employee Confidentiality Agreement),
contains the entire understanding between the parties, and
supersedes any prior agreements, understandings, and
communications between the parties, whether oral, written,
implied or otherwise, including, but not limited to, the
offer of employment letter dated March 3,2000.
10.12 Assistance of Counsel. EMPLOYEE expressly
acknowledges that he was represented by counsel of his own
choosing in connection with the negotiation and drafting of
the terms of this Agreement.
The parties execute this Agreement as of the date stated above:
ADEL MICHAEL MENTOR CORPORATION
/s/ADEL MICHAEL By/s/ANTHONY R. GETTE
Anthony R. Gette
President and Chief Executive
Officer
NOTICE ADDRESS: NOTICE ADDRESS:
381 Kingswood Lane 201 Mentor Drive
Danville, CA 94506 Santa Barbara, CA 93111
