-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ng7t+26eoxMR4CDm1DXw/I8roWoIMPmUNcmju2avWt5G/Wbjy3OX60wMWCyCtXuL l4V2IzMO0SiSlMlBcnlNBg== 0000064892-03-000009.txt : 20030814 0000064892-03-000009.hdr.sgml : 20030814 20030814152444 ACCESSION NUMBER: 0000064892-03-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR CORP /MN/ CENTRAL INDEX KEY: 0000064892 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 410950791 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31744 FILM NUMBER: 03847082 BUSINESS ADDRESS: STREET 1: 201 MENTOR DR CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8058796000 MAIL ADDRESS: STREET 1: 201 MENTOR DR CITY: SANTA BARBARA STATE: CA ZIP: 93111 10-Q 1 q120041.htm FORM 10-Q FOR PERIOD ENDED JUNE 30, 2003 SECURITIES AND EXCHANGE COMMISSION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 (Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

or

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission File No. 0-7955

MENTOR CORPORATION
(Exact Name of Registrant as Specified in its Charter)

                                                             Minnesota                                                                            41-0950791
                                                (State or other jurisdiction of                                                (IRS Employer Identification No.)
                                                 incorporation or organization)

201 Mentor Drive, Santa Barbara, California 93111
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:  805/879-6000

                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  o

                Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes x   No o

As of August 13, 2003 there were approximately 46,421,778 Common Shares, par value $.10 outstanding.


MENTOR CORPORATION

INDEX

Part I. Financial Information
 

Item 1.

Consolidated Financial Statements (unaudited)
 

Consolidated Balance Sheets - June 30, 2003 and March 31, 2003
 

Consolidated Statements of Income - Three Months Ended June 30, 2003 and 2002

Condensed Consolidated Statements of Cash Flows -
Three Months Ended June 30, 2003 and 2002

Notes to Condensed Consolidated Financial Statements - June 30, 2003

Item 2.

Management's Discussion and Analysis of Results of Operations and Financial Condition

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Part II. Other Information
 

Item 1.

Legal Proceedings
 

Item 2.

Changes in Securities
 

Item 3.

Defaults upon Senior Securities
 

Item 4.

Submission of Matters to a Vote of Security Holders
 

Item 5.

Other Information
 

Item 6.

Exhibits and Reports on Form 8-K

(a)    Exhibits

(b)    Reports on Form 8-K

 



PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Mentor Corporation
Consolidated Balance Sheets
(Unaudited)

(in thousands)

June 30, 2003

March 31, 2003

Assets

 

 

Current assets:

 

 

  Cash and cash equivalents

$        111,315

$        105,840

  Marketable securities

  229

   184

  Accounts receivable, net

85,690

79,784

  Inventories

63,469

61,269

  Deferred income taxes

16,024

15,253

  Prepaid expenses and other

12,153

10,858

Total current assets

288,880

273,188

 

 

 

Property and equipment, net

71,766

68,671

Intangible assets, net

36,048

35,570

Goodwill, net

17,124

16,520

Long-term marketable securities and investments

13,867

3,862

Other assets

490

277

 

$        428,175

$        398,088

See notes to condensed consolidated financial statements.

 

 



Mentor Corporation
Consolidated Balance Sheets
(Unaudited)

(in thousands)

June 30,
2003

March 31, 2003

Liabilities and shareholders' equity

 

 

Current liabilities:

 

 

  Accounts payable

$      28,756 

$    26,759 

  Warranty and related reserves

20,995 

  19,989 

  Accrued compensation

14,788 

18,753 

  Short-term bank borrowings

10,595 

8,176 

  Sales returns

8,871 

10,455 

  Income taxes payable

2,578 

453 

  Current portion of purchase price related to acquired
      technologies and acquisitions


5,689 


5,698 

  Dividends payable

933 

925 

  Accrued royalties

539 

770 

  Other

15,125 

13,214 

Total current liabilities

108,869 

105,192 


Deferred income taxes


2,316 


2,216 

Long-term accrued liabilities

        14,400 

13,970 

 

 

Commitments and contingencies

 

 

 

 

 

Shareholders' equity:

 

 

  Common Stock, $.10 par value:

 

 

    Authorized - 150,000,000 shares; Issued and outstanding--

 

 

    46,664,737 shares at June 30, 2003;

 

 

    46,237,324 shares at March 31, 2003;

4,666 

4,624 

  Capital in excess of par value

5,586 

-   

  Foreign currency translation adjustments

11,542 

6,510 

  Net unrealized gains (losses) on securities

(112)

  Retained earnings

280,787 

265,688 

 

302,590 

276,710 

 

$     428,175 

$    398,088 

See notes to condensed consolidated financial statements.

 

 


 

Mentor Corporation
Consolidated Statements of Income
Three Months Ended June 30, 2003 and 2002
(Unaudited)

 

Three Months Ended
June 30,

(in thousands, except per share data)

2003

2002

Net sales

$      105,106 

$       97,677 

 

 

Costs and expenses:

 

 

  Cost of sales

39,373 

38,245 

  Selling, general, and administrative

35,679 

31,885 

  Research and development

7,543 

5,374 

 

82,595 

75,504 

 

 

 

Operating income

22,511 

22,173 

  Interest expense

(161)

(301)

  Interest income

396 

560 

  Other income, net

676 

1,047 

Income before income taxes

23,422 

23,479 

Income taxes

7,389 

6,730 

Net income

$        16,033 

$       16,749 

 

 

Basic earnings per share

$            0.35 

$           0.36 

Diluted earnings per share

$            0.33 

$           0.34 

Dividends per share

$            0.02 

$         0.015 

 

 

See notes to condensed consolidated financial statements.

 

 


Mentor Corporation
Consolidated Statements of Cash Flows
Three Months Ended June 30, 2003 and 2002
(Unaudited)

(in thousands)

2003

2002

Cash From Operating Activities:

 

 

Net income

$    16,033 

$    16,749 

Adjustments to derive cash flows from operating activities:

 

 

  Depreciation

3,046 

2,719 

  Amortization

761 

996 

  Deferred income taxes

(1,096)

(173)

  Tax benefit from exercise of stock options

1,756 

980 

  Loss (gain) on sale of assets

80 

(465)

  Imputed interest on long-term liabilities

78 

164 

  Foreign currency transaction (gain) loss

(617)

(173)

Changes in operating assets and liabilities:

 

 

    Accounts receivable

(4,288)

(2,154)

    Inventories and other current assets

(714)

3,493 

    Accounts payable and accrued liabilities

(401)

3,604 

    Income taxes payable

1,977 

1,433 

Net cash provided by operating activities

16,615 

27,173 

Cash From Investing Activities:

 

 

Purchases of property and equipment

(3,950)

(3,105)

Purchases of intangibles

(1,256)

(342)

Purchases of marketable securities

(16,018)

(422)

Sales of marketable securities

5,007 

1,647 

Acquisitions, net of cash acquired

(10,603)

Proceeds from sale of property, equipment and intangibles

500 

Net cash used for investing activities

(16,217)

(12,325)

Cash From Financing Activities:

 

 

Proceeds from exercise of stock options

3,873 

2,736 

Dividends paid

(925)

(704)

Borrowings (repayments) under line of credit agreements, net

1,903 

(685)

Net cash used for financing activities

4,851 

1,347 

Effect of currency exchange rates on cash and cash
   equivalents


226 


710 

Increase (decrease) in cash and cash equivalents

5,475 

16,905 

Cash and cash equivalents at beginning of year

105,840 

60,398 

Cash and cash equivalents at end of period

$   111,315 

$     77,303 



MENTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003

Note A - Business Activity

Mentor Corporation, (the "Company") was incorporated in April 1969.  The Company develops, manufactures and markets a broad range of products for the medical specialties, in three reportable segments: aesthetic and general surgery (plastic and reconstructive surgery), surgical urology and clinical and consumer healthcare.  The Company's products are sold to hospitals, physicians and through various healthcare dealers, wholesalers, distributors, and retail outlets by multiple sales forces. The aesthetic and general surgery products segment consists primarily of breast implants, tissue expanders and the Company's body contouring (liposuction) equipment, and disposables.  The surgical urology segment includes penile implants, surgical incontinence products, and brachytherapy seeds for the treatment of prostate cancer and associated supplies and delivery systems.  The clinical and consumer healthcare segment includes catheters and other products for the management of urinary incontinence and retention. 

Note B - Summary of Significant Accounting Policies

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. 

Basis of Presentation

The financial information for the three months ended June 30, 2003 and 2002 is unaudited but includes all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) which the Company considers necessary for a fair presentation of the results of operations for these periods. Interim results are not necessarily indicative of results for the full fiscal year.  

Use of Estimates

Financial statements prepared in accordance with accounting principles generally accepted in the United States require management to make estimates and judgments that affect amounts and disclosures reported in the financial statements.  Actual results could differ from those estimates.

Stock Split, Changes in Authorized Shares and Move to NYSE

On December 13, 2002 the Board of Directors authorized a two-for-one stock split in the form of a 100% stock dividend distributed on or about January 17, 2003 to shareholders of record as of December 31, 2002.  All references in the financial statements to number of shares, per share amounts and market prices of the Company's common stock have been retroactively restated to reflect the increased number of common shares outstanding.

At the annual meeting of shareholders held on September 12, 2002, the shareholders approved a proposal to amend the Company's Restated Articles of Incorporation to increase authorized shares from 50,000,000 to 150,000,000.

Effective August 5, 2003 the Company's shares began trading on the New York Stock Exchange under the symbol MNT.  

Effects of Recent Accounting Pronouncements

In 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 148, Accounting for Stock-Based Compensation - Transition and Disclosure.  SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation.  In addition, SFAS 148 amends the disclosure requirement of SFAS 123 to require more prominent disclosures, in both annual and interim financial statements, about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The additional disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002.  The Company has elected to continue to follow the intrinsic value method of accounting as prescribed by Accounting Principles Board Opinion No. 25 (or APB 25), Accounting for Stock Issued to Employees, to account for employee stock options. 

In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"), effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. This rule amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, to provide more consistent reporting of contracts as either derivatives or hybrid instruments. The impact upon adoption of SFAS No. 149 is not expected to have a material impact on the results of operations or the financial position of the Company.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"), effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The impact upon adoption of SFAS No. 150 is not expected to have a material impact on the results of operations or the financial position of the Company.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities ("VIE").  FIN 46 defines a variable interest entity as a corporation, partnership, trust, or any other legal structure that does not have equity investors with a controlling financial interest or has equity investors that do not provide sufficient financial resources for the entity to support its activities.  FIN 46 requires consolidation of a VIE by the primary beneficiary of the assets, liabilities, and results of activities effective in 2003. FIN 46 also requires certain disclosures by all holders of a significant variable interest in a VIE that are not the primary beneficiaries.  The adoption of this interpretation will have no impact on its consolidated financial position or results of operations.

Note C - Interim Reporting

The Company's three quarterly interim reporting periods are each thirteen-week periods ending on the Friday nearest the end of the third calendar month of each calendar quarter.  The fiscal year end remains March 31st.  To facilitate ease of presentation, each interim period is shown as if it ended on the last day of the appropriate calendar month.  The actual dates for each of the three interim quarter-ends are shown below:

Fiscal 2004

Fiscal 2003

First Quarter

June 27, 2003

June 28, 2002

Second Quarter

September 26, 2003

September 27, 2002

Third Quarter

January 2, 2004

December 27, 2002

The accompanying unaudited condensed consolidated financial statements for the three-month period ended June 30, 2003 and 2002 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) considered necessary for a fair presentation of the results of operations for the indicated periods have been included.  Certain amounts recorded in previous periods have been reclassified to conform to the current period presentation.  Operating results for the three months ended June 30, 2003 are not necessarily indicative of the results for the full fiscal year.

The balance sheet at March 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 2003. 

Note D - Cash Equivalents, Marketable Securities, and Long-Term Marketable Securities and Investments

All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.

The Company considers its marketable securities available-for-sale as defined in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities."  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 June 30, 2003  and March 31, 2003.  Short-term investments, except auction rate securities, mature between three months and one year from the purchase date.  The Company's short-term marketable securities consist primarily of money market mutual funds, U.S., state and municipal government obligations, auction rate securities, and investment grade corporate obligations including commercial paper.  Auction rate securities carry interest or dividend rates that reset every 28 days but have contractual maturities of greater than one year.

The Company's long-term marketable securities and investments include investments in Federal Home Loan Bank and Mortgage Association bonds (FHLA bonds) with maturities of two to four years.  The Company has an investment in Paradigm Medical Industries, Inc. Paradigm reported financial and operational difficulties and its quoted market prices decreased substantially during the year ended March 31, 2003.  In the quarter ended March 31, 2003, the Company determined the decrease in market prices were more than temporary and recorded a one-time impairment charge of $1,857,000 pre-tax in other income, net. The remaining investment in Paradigm is recorded at $228,000 at June 30, 2003.

Available-for-sale investments at June 30, 2003 were as follows:

 

 

 

Gross

Gross

Estimated

 

 

Adjusted

Unrealized

Unrealized

Fair

(in thousands)

Cost

Gains

Losses

Value

Cash balances

$    18,682

$          -

$          -

$    18,682

Bank time deposits

-

-

-

-

Money market mutual funds

92,633

-

-

92,633

Marketable equity securities

536

114

(67)

583

U.S., State and Municipal agency
   obligations


13,229


6


-


13,235

Corporate debt securities

278

-

-

278

   Total available-for-sale investments

$  125,358

$     120

$     (67)

$  125,411

 

 

 

 

 

Included in cash and cash equivalents

$  111,315

$          -

$          -

$  111,315

Included in current marketable securities

229

-

-

229

Included in long-term marketable
   securities and investments


13,814


120


(67)


13,867

   Total available-for-sale investments

$  125,358

$      120

$     (67)

$  125,411

Available-for-sale investments at March 31, 2003 were as follows:

 

 

 

Gross

Gross

Estimated

 

 

Adjusted

Unrealized

Unrealized

Fair

(in thousands)

Cost

Gains

Losses

Value

Cash balances

$   16,733

$          -

$          -

$    16,733

Bank time deposits

-

-

-

-

Money market mutual funds

89,107

-

-

89,107

Marketable equity securities

3,493

7

(2,040)

1,460

U.S., State and Municipal agency
   obligations


2,184


3


-


2,187

Corporate debt securities

278

-

-

278

Investment in Intracel

-

-

-

-

   Total available-for-sale investments

$ 111,795

$       10

$ (2,040)

$  109,765

 

 

 

 

Included in cash and cash equivalents

$ 105,840

$          -

$           -

$  105,840

Included in current marketable securities

184

-

-

184

Included in long-term marketable
   securities and investments


5,771


10


(2,040)


3,741

   Total available-for-sale investments

$ 111,795

$       10

$ (2,040)

$  109,765


Note E - Inventories

Inventories are stated at the lower of cost or market, cost determined by the first-in, first-out (FIFO) method.  The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

Inventories at June 30, 2003 and March 31, 2003 consisted of:

(in thousands)

June 30,

March 31,

Raw materials

$     11,929

$     12,175

Work in process

10,554

10,894

Finished goods

40,986

38,200

 

$     63,469

$     61,269

Note F - 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.

Property and equipment at June 30, 2003 and March 31, 2003 consisted of:

(in thousands)

June 30,

March 31,

Land

$         549 

$         538 

Buildings

22,975 

24,595 

Leasehold improvements

23,070 

23,551 

Furniture, fixtures and equipment

86,963 

79,032 

Construction in progress

7,433 

6,620 

140,990 

134,336 

Less accumulated depreciation

(69,224)

      (65,665)

 

$    71,766 

$    68,671 

Note G - Other Comprehensive Income

The components of comprehensive income are listed below:

 

Three Months Ended
June 30,

(in thousands)

2003

2002

Net income

$  16,033

$  16,749 

Foreign currency translation adjustment

5,032

7,519 

Unrealized (losses) on marketable securities
  and investment activities, net


121


(1,069)

Comprehensive income

$  21,186

$  23,199 

Note H - Stock Options

The Company has granted options to key employees and non-employee directors under its 2000 Plan and 1991 Plan.  Options granted under both plans are exercisable in four equal annual installments beginning one year from the date of grant, and expire ten years from the date of grant.  Options are granted at the fair market value as of the date of grant.  Options to purchase 1,073,135 shares of common stock at $21.00 per share were granted during the quarter ended June 30, 2003.

Stock option exercise prices are set at the fair market value of the Company's common stock on the date of grant and the related number of shares granted is 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 "Accounting for Stock-Based Compensation," 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 estimated fair value of the options is amortized ratably over the option's vesting period.  As required by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123," the following table shows the estimated effect on net income and earnings per share if the Company had applied the fair value recognition provision of SFAS 123 to stock-based employee compensation.  The Company's pro forma information is as follows:

Quarter Ended June 30,

(in thousands)

2003

2002

Net income:  as reported

$   16,033 

$   16,749 

Deduct:  compensation expense fair value method

(1,717)

(1,602)

Net income:  pro forma

$   14,316 

$   15,147 

 

 

Basic earnings per share:  as report

$         .35 

$         .36 

Basic earnings per share:  pro forma

.31 

.33 

 

 

Diluted earnings per share:  as reported

$         .33 

$         .34 

Diluted earnings per share:  pro forma

.30 

.31 

Note I - Income Taxes

The effective rate of corporate income taxes was 31.5% and 28.7% for the three-month periods ended June 30, 2003 and 2002 respectively.  The effective tax rate for the three-month period ended June 2002 reflects refunds received in the first quarter of fiscal 2003 related to the amendment of tax returns for the Company's foreign sales corporation.

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:

 

Three Months Ended
June 30,

(in thousands)

2003

2002

Weighted average outstanding shares:  basic

46,386

47,068

Shares issuable through exercise of stock options

1,960

2,292

Weighted average outstanding shares:  diluted

48,346

49,360

Shares issuable through options are determined using the treasury stock method.

Certain employee stock options were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

Note K - Acquisitions

Portex Ltd.

On May 6, 2002, the Company purchased the assets of the urology and ostomy businesses of Portex Ltd., a subsidiary of Smiths Group plc.  The acquired businesses, now named Mentor Medical, Ltd., manufactures and markets incontinence and ostomy products primarily for the home healthcare market.  The products are sold mainly in the UK, Germany and the Netherlands.  The acquisition was valued at $11,232,000, of which $10,603,000 was paid in cash, plus an acquired liability of $629,000.  The acquisition was accounted for using SFAS No. 141, "Business Combinations," using the purchase method of accounting, and the purchase price was preliminarily allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date.  The total purchase price was preliminarily allocated to inventory of $3,150,000, buildings of $739,000, production equipment of $1,185,000, leasehold improvements of $621,000, patents, trademarks and licenses of $731,000 and goodwill and other intangibles with indefinite lives of $4,806,000.

Mills Biopharmaceuticals, Inc.

On February 1, 2003, the Company completed the acquisition of Mills Biopharmaceuticals, Inc., a manufacturer of iodine brachytherapy seeds for the treatment of prostate cancer.  The acquisition will be accounted for using SFAS No. 141, "Business Combinations," using the purchase method of accounting, and the purchase price will be allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date.  The acquisition was valued at $4,063,000, net of cash acquired, and was paid from existing cash balances.  The purchase price was preliminarily allocated to accounts receivable $626,000, inventory of $322,000, other assets of  $36,000, production equipment of $830,000, long-term investments of $1,100,000 net of acquired accrued liabilities of $261,000 and goodwill and other intangibles with indefinite lives of $1,410,000.

Note L - Business Segment Information

The Company's operations are principally managed and reported on a product basis.  There are three reportable segments:  aesthetic and general surgery, surgical urology, and clinical and consumer healthcare.  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 body contouring (liposuction) equipment and disposables.  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 disposable products for the management of urinary incontinence and retention.

Selected financial information for the Company's reportable segments for the three-month periods ended June 30, 2003 and 2002, and as of June 30, 2003 and March 31, 2003 is as follows:

Three Months Ended June 30,

(in thousands)

2003

2002

Net Sales

 

 

Aesthetic and General Surgery

$     55,503

$    53,680

Surgical Urology

28,089

26,242

Clinical and Consumer Healthcare

21,514

17,755

  Total consolidated revenues

$   105,106

$    97,677

 

 

 

Three Months Ended
June 30,

(in thousands)

2003

2002

Operating profit

 

 

Aesthetic and General Surgery

$     19,791

$   19,941

Surgical Urology

1,696

2,245

Clinical and Consumer Healthcare

3,161

2,781

  Total reportable segments

$     24,648

$   24,967

 

 

 

Three Months Ended
June 30,

(in thousands)

2003

2002

Operating income

 

 

Reportable segments

$   24,648 

$  24,967 

Corporate operating loss

(2,137)

(2,794)

Interest expense

(161)

(301)

Interest income

396 

560 

Other income

676 

1,047 

Income before income taxes

$   23,422 

$  23,479 

 

 

 

 

As of

(in thousands)

June 30,
2003

March 31,
2003

Identifiable assets

 

 

Aesthetic and General Surgery

$  103,915

$  102,570

Surgical Urology

112,125

105,415

Clinical and Consumer Healthcare

67,196

62,155

  Total reportable segments

$  283,236

$  270,140

 

 

 


Item 2.

Management's Discussion and Analysis of Results of Operations and Financial Condition

Except for the historical information contained herein, the matters discussed in this Management's Discussion contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on current expectations and are indicated by words or phrases such as "anticipate," "estimate," "expect," "intend," "project," "plan," "we believe," "will," "seek," and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Some of the factors that could affect our financial performance or cause actual results to differ from our estimates in, or underlying, such forward-looking statements are set forth under the heading of  "Governmental Regulation," "Risk Factors," "Legal Proceedings," or elsewhere in our Form 10-K for the fiscal year ended March 31, 2003.  Forward-looking statements include statements regarding, among other things:

  • Our anticipated growth strategies;
  • Our intention to introduce or seek approval for new products;
  • Our ability to continue to meet FDA and other regulatory requirements;
  • Our anticipated outcomes of litigation and regulatory reviews; and
  • Our ability to replace sources of supply without disruption and regulatory delay.

These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control.  Actual results could differ materially from these forward-looking statements as a result of the facts described in "Risk Factors" or elsewhere in our annual report on Form 10-K, including, among others, problems with suppliers, changes in the competitive marketplace, significant product liability or other claims, difficulties with new product development, the introduction of new products by our competitors, changes in the economy, United States Food Drug and Administration (FDA) delay in approval or rejection of new or existing products, changes in Medicare, Medicaid or third-party reimbursement policies, changes in government regulations, use of hazardous or environmentally sensitive materials, inability to implement new information technology systems, inability to integrate new acquisitions, and other events.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In light of these risks and uncertainties, we cannot assure that the forward-looking information contained in this Form 10-Q and our Form 10-K will, in fact, transpire.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Management's Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, we evaluate our estimates and judgments.  We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions. 

Management has identified the critical accounting policies to be those related to revenue recognition, accounts receivable, inventories, warranties and related reserves, and goodwill and intangible asset impairment.  These accounting polices are discussed in the Management's Discussion and Analysis and notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2003.

On December 12, 2002 the Board of Directors authorized a two-for-one stock split in the form of a 100% stock dividend distributed on or about January 17, 2003 to shareholders of record as of December 31, 2002.  All references to the number of shares and per share amounts have been retroactively restated to reflect the increased number of common shares outstanding.  

RESULTS OF OPERATIONS

Quarters Ended June 30, 2003 and 2002

Sales

Sales for the three months ended June 30, 2003 increased to $105.1 million from $97.7 million for the same quarter in 2002, an increase of 7.6%.  Included in fiscal 2004 sales are three months of clinical and consumer healthcare product sales relating to our May 2002 acquisition of the urology and ostomy business of Portex Ltd. versus two months in fiscal 2003.  Sales of products acquired in the Portex transaction accounted for approximately one third of the year-to-year growth.  Foreign exchange rate movements, primarily the stronger Euro, had a favorable year-to-year impact of $6.3 million on international sales.

Sales of aesthetic and general surgery products increased 3% to $55.5 million for the quarter ended June 30, 2003 from $53.7 million in the same quarter in the prior year.  Total sales of breast implants products increased 3% to $50.1 million for the quarter from $48.3 million in the same period of the prior year.  Sales of body contouring products increased 8% to $3.6 million for the quarter from $3.3 million, over the same period in the prior year.  We believe that relatively low sales growth percentages over the prior year reflect the unusually strong sales in the same quarter of the prior year.  The strength in sales in the same quarter of the prior year was attributed to a resurgence of demand including surgeries that were postponed after the events of September 11th.  The sales for this quarter also reflected the benefit from the effect of the strong Euro.  Sales of aesthetic and general surgery are expected to increase at a higher rate for the remaining three quarters of fiscal 2004.

Sales of surgical urology products increased 7% to $28.1 million for the quarter ended June 30, 2003 from $26.2 million in the prior year.  The growth primarily resulted from strong sales of disposable urinary care products acquired in our February 2001 acquisition of Porges S.A., and the effect of a stronger Euro.  Penile implant sales increased slightly over the same quarter in the prior year.  In the third quarter of 2003, we introduced the Titan™ inflatable penile device.  Sales of pelvic floor reconstruction products increased $1.0 million, or 42%, due to continued momentum of new product introductions made late in fiscal 2002.  Brachytherapy sales decreased by $2.9 million, or 45% from the same quarter in the prior year as a result of interruption of our supply of palladium radioactive seeds after the expiration of our exclusive distribution agreement with NASI and as competitive pressures decreased average selling prices.  Due to difficulties in increasing manufacturing capacity in a short time frame, we have been unable to secure sufficient new vendor supply to fulfill customer orders. This resulted in lost sales, and which may continue through most of fiscal 2004.

Sales of clinical and consumer healthcare products increased 21% to $21.5 million for the quarter ended June 30, 2003 from $17.8 million in the same period in the prior year.  This growth primarily resulted from our May 2002 acquisition of the urology and ostomy businesses of Portex Ltd., whose product sales are included for three months in fiscal 2004 versus two months in the comparable quarter of the prior year. Sales growth was generally aided by the effect of the stronger Euro, as approximately half of these product sales are invoiced in currencies other than the U.S. Dollar.  In addition, strong sales of urinary products acquired in the Porges acquisition were offset by a 6% decrease in sales of male external catheters.  Sales of intermittent self-catheters increased 5% following the introduction of the Self-Cath Plus™ lubricious catheter in fiscal 2002.  

Sales by Principal Product Line

For the Three Months Ended
June 30,


2003


2002

Percent Change

Aesthetic & General Surgery
   Products


$   55,503


$   53,680


3.4%

Surgical Urology Products

28,089

26,242

7.0%

Clinical & Consumer
   Healthcare Products


21,514


17,755


21.2%

 

$ 105,106

$   97,677

7.6%

Cost of Sales

Cost of sales was 37.5% of net sales for the quarter ended June 30, 2003, compared to 39.2% in the comparable period in fiscal 2003.  Cost of sales for the aesthetic and general surgery products decreased to 28.3% of net sales for the quarter ended June 30, 2003 from 28.8% for the comparable quarter in fiscal 2003, primarily due to efficiencies of scale and improved manufacturing efficiencies at our Texas facility, partially offset by startup costs at our new manufacturing facility in the Netherlands.  Cost of sales for surgical urology products decreased to 51.4% of net sales for the quarter ended June 30, 2003 from 46.5% in the comparable quarter in the prior year primarily due to the February 2003 acquisition of Mills Biopharmaceutical, Inc., to manufacture our own iodine brachytherapy seeds.  In addition, the interruption of supply of palladium seeds has shifted the product mix towards products which have lower cost of sales as a percent of sales.  Cost of sales for clinical and consumer healthcare products decreased from 52.4% of net sales for the quarter ended June 30, 2003 to 49.3% for the comparable period of the prior year, primarily due to efficiencies of scale and improved manufacturing efficiencies at our manufacturing facilities.

Selling, General and Administrative

Selling, general and administrative expenses increased to 33.9% of net sales for the quarter ended June 30, 2003, compared to 32.6% for the comparable quarter in the prior year.  Improved efficiencies in selling expenses in the Aesthetics segment were offset by additional selling expenses in the Surgical urology segment, primarily in our international operations related to recent acquisitions and to currency rates.  General and administrative expenses increased primarily due to additional expenses associated with our recently acquired subsidiaries, Mills Biopharmaceuticals and the urology and ostomy businesses of Portex and currency exchange rates.  In addition, non-capitalizable expenses related to the implementation of our new J.D. Edwards information technology system were offset by lower levels of expenses at our corporate headquarters.

Research and Development

Research and development expenses as a percent of net sales for the three month periods ended June 30, 2003 were 7.2%, compared to 5.5% for the same period a year ago.  Spending increased as a percentage of net sales in all three segments, with the largest increase being in Aesthetic and General surgery segment products due to increased activity in our breast implant studies as we prepare our filing of our gel implant PMA for the FDA.  The Company is committed to a variety of clinical and laboratory studies in connection with its gel-filled and saline filled mammary implants and other products.  We expect the level of spending on research and development activities to continue at the current levels for the remainder of fiscal 2004.

Interest and Other Income and Expense

Interest expense decreased to $161,000 in the first quarter of fiscal 2004, compared to $301,000 in the same period of the prior year.  Interest expense includes interest our foreign lines of credit and imputed interest on long-term liabilities recorded at net present value related to the acquisitions of assets of SouthBay Medical and ProSurg Inc. during fiscal 2001 and 2002, respectively.

Interest income decreased to $396,000 in the first quarter of fiscal 2004 from $560,000 in the same period of the prior year.  The decrease is due to lower prevailing interest rates on short-term investments offset by higher levels of cash balances available for investment.

Other income, net primarily includes gains or losses on sales of marketable securities, disposals of non-operating assets, and foreign currency gains or losses related to our foreign operations.  Other income, net for the three-month ending June 30, 2003 decreased to $676,000 from $1.0 million in the comparable quarter in the prior year.  The prior year amount includes a one-time gain on the sale of an intangible asset of $500,000 and is the primary reason for the decrease from the prior year.

Income Taxes

The effective rate of corporate income taxes for the three months ended June 30, 2003 was 31.5% as compared to 28.7% for the comparable period in the prior year.  The increase in the effective tax rate from the comparable periods in the prior year represents a return to our historic effective tax rate as the prior year rates reflected refunds received in the first quarter of fiscal year 2003 related to the amendment of tax returns for our foreign sales corporation.

Net Income

Net income for the three-month period ended June 30, 2003 decreased 4% to $16.0 million from $16.7 million in the comparable period in the prior year.  Diluted earnings per share decreased 3% to $0.33 for the three-month period compared to $0.34 for the comparable period last year.  Increased sales and lower cost of goods sold were offset by higher operating expenses which resulted in a slight increase in operating income.  Although operating income increased from the comparable period in the prior year, net income decreased as the prior year results included the favorable effect of a gain on an asset sale and tax refunds which lowered income tax expense.

Seasonality

Our quarterly results reflect slight seasonality, as the second fiscal quarter ending September 30 tends to have the lowest revenue of all of the quarters.  This is primarily due to lower levels of sales of breast implants for augmentation, an elective procedure, as surgeons and patients tend to take vacation, particularly in Europe, during this quarter.  

LIQUIDITY AND CAPITAL RESOURCES

We had cash, cash equivalents and short-term marketable securities of $112 million at June 30, 2003, compared to $106 million at March 31, 2003.  Cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds.  Our working capital was $180 million at June 30, 2003, compared to $168 million at March 31, 2003.  We generated $17 million of cash from operating activities during the three months ended June 30, 2003, compared to $27 million the same period the previous year.  Decreased cash flow from operating activities was primarily the result of decreased net income, larger increases in inventory and accounts receivable, and decreases in accounts payable and accrued liabilities.

During the three months ended June 30, 2003, we invested $4 million in property and equipment, primarily in production equipment at our new facility in Oklahoma and in information technology systems.  We anticipate investing approximately $20 million in fiscal 2004 to expand production equipment and facilities for brachytherapy seed production, purchase other production equipment and upgrade and replace information technology systems. 

We received cash from the exercise of employee stock options.  Employee stock option exercises provided $3.9 million during the three months ended June 30, 2003 compared to $2.7 million in the same period the previous year.  Proceeds from the exercise of employee stock options will vary from period to period based upon, among other factors, fluctuations in the market value of our common shares relative to the exercise price of such options.

Our Board of Directors has authorized an ongoing stock repurchase program under which we repurchased 1.4 million shares in fiscal 2003.  On July 31, 2003 the Board of Directors increased the authorized number of shares to be repurchased from 1.8 million to 4 million shares.  The objectives of the program are, among others, to offset the dilutive effect of our employee stock option program, provide liquidity to the market and to reduce the overall number of shares outstanding.  Repurchases are subject to market conditions and cash availability.  Since the increased authorization, we have repurchased 363,000 shares for consideration of $7.5 million.  We intend to continue the share repurchase program during the remainder of fiscal 2004 and 3.6 million shares remain authorized for repurchase. 

In January 2001, we completed the acquisition of South Bay Medical, a development stage company focused on the development of a new technology for a computer-based workstation and automated cartridge-based needle loading system for use in brachytherapy procedures.  The total consideration included $2 million in cash, 470,586 restricted shares of our common stock having a fair market value of $4 million, and $13.6 million to be paid in cash or our common stock over the next several years.  These future payments have been recorded as an acquisition obligation liability at net present value ($12.6 million at June 30, 2003), and will continue to increase as imputed interest is recorded.  Approximately $5.9 million of the acquisition obligation liability is to be paid in shares of our common stock valued at fair market value on the date of issuance.

In December 2001, we entered into several agreements with ProSurg, Inc. to purchase certain patent rights and a supply of a bio-absorbable co-polymer product to be used in the surgical treatment of female incontinence.  The total consideration included $2.0 million in cash and $2.7 million in short and long-term payments due over the next several years.  The future payments have been recorded as an acquisition obligation liability at net present value and will increase with imputed interest to $3.0 million due in fiscal 2004 and over the next several years. 

We secured line of credit ("$25M Credit Agreement") for borrowings of up to $25 million, which accrue interest at the prevailing prime rate or at a mark-up over LIBOR at our discretion.  The $25M Credit Agreement includes certain covenants that, among other things, limit the dividends we may pay and requires maintenance of certain levels of tangible net worth and debt service ratios.  We use the $25M Credit Agreement to guarantee three commercial letters of credit totaling $3.8 million.  Accordingly, although there were no borrowings outstanding under the $25M Credit Agreement at June 30, 2003, only $21.2 million was available for additional borrowings.

In addition, several lines of credit were established with local foreign lenders to facilitate operating cash flow needs at our foreign subsidiaries.  These lines are at market rates of interest, are unsecured and guaranteed by Mentor Corporation, and total $5.9 million, of which $5.5 million was outstanding, and $0.4 million additional borrowings were available at June 30, 2003. 

In fiscal 2002, a line of credit of $7.0 million was established to finance the construction of a new facility in Leiden, the Netherlands.  The borrowings accrue interest at EURIBOR plus 0.75% and are secured by the new facility and other assets in the Netherlands.  At June 30, 2003, $5.1 million was outstanding and $1.9 million was available under this line. 

At June 30, 2003, the total of short-term borrowings under all lines of credit was $10.6 million and the weighted-average interest rate was 3.77%.  The total amount of additional borrowings available to the Company under all lines of credit was $23.5 million as of June 30, 2003.

For the first and second quarters of fiscal 2003, we paid a quarterly cash dividend of $.03 per share.  In December 2002, our Board of Directors authorized a 2-for-1 stock split in the form of a 100% stock dividend and increased the quarterly dividend on a post-split basis from $.015 per share to $.02 per share.  In July 2003, the Board of Directors declared another increase in the dividend rate from $.02 per share to $.15 per share.  At the new indicated annual rate of $.60 per share, the aggregate annual dividend would equal approximately $28 million.  It is the Company's intent to continue to pay dividends for the foreseeable future subject to, among other things, Board approval, cash availability and alternative cash needs.  The $25M Credit Agreement limits the aggregate amount of dividends payable in any year to one-half of the net income of the preceding year.

The following table summarizes contractual cash and other commercial commitments at June 30, 2003:

(in thousands)

 

Less Than

1-3

4-5

After 5

Contractual Cash Obligations

Total

1 Year

Years

Years

Years

Operating leases

$ 44,499

$  4,797

$14,410

$ 9,022

$16,270

   Total Contractual Cash Obligations

$ 44,499

$  4,797

$14,410

$ 9,022

$16,270

 

 

 

 

 

Commercial Commitments

 

 

 

 

 

Lines of credit

$ 10,595

$ 10,595

$         -

$        -

$         -

Other commercial commitments

20,230

6,086

9,542

1,370

3,232

   Total Commercial Commitments

$30,825

$16,681

$9,542

$ 1,370

$ 3,232

In addition, we have, at any one time, purchase orders in the ordinary course of business for raw materials and other supplies, which may in aggregate be significant but for which usage does not exceed one year.  

Our principal source of liquidity at June 30, 2003 consisted of $112 million in cash, cash equivalents and short-term marketable securities, plus $26 million available under our existing lines of credit.  We believe that funds generated from operations, our cash, cash equivalents and marketable securities and funds available under our line of credit agreements will be adequate to meet our working capital needs and capital expenditure investment requirements and commitments for the foreseeable future.  However, it is possible that we may need to raise additional funds to finance our unforeseen requirements or to consummate acquisitions of other business, products or technologies.  Additional funds could be raised by selling equity or debt securities to the public or to selected investors, or by borrowing money from financial institutions.  In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons.  We may not be able to obtain additional funds on terms that would be favorable to us, or at all.  If funds are raised by issuing additional equity securities or convertible debt securities, the ownership percentage of existing shareholders would be reduced.  In addition, the equity or debt securities issued by us may have rights, preferences or privileges senior to those of our common stock.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

Forward-Looking Information Under the Private Securities Litigation Reform Action of 1995

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements.  The Act was designed to encourage companies to provide prospective information about them without fear of litigation.  The prospective information must be identified as forward-looking and must be accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statements.  The statements about the Company, plans, strategies, intentions, expectations and prospects contained throughout this document are based on current expectations.  These statements are forward-looking and actual results may differ materially from those predicted as of the date of this report in the forward-looking statements, which involve risks and uncertainties.  In addition, past financial performance is not necessarily a reliable indicator of future performance and investors should not use historical performance to anticipate results or future period trends.  The Company does not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Brachytherapy Seed Supply

On November 4, 2002, we announced we had reached an agreement to purchase Mills Biopharmaceutical Inc. (Mills), a manufacturer of iodine brachytherapy seeds.  The purchase was completed February 1, 2003 after the expiration of the agreement with NASI and we have begun to supply customers with seeds manufactured by Mills.  In addition, on January 8, 2003, we announced that we had reached a nonexclusive agreement to distribute Best ™ Palladium-103 brachytherapy seeds.  In addition, we are seeking other sources for similar radioactive seeds.  There is no assurance that such seeds can be manufactured or obtained on terms satisfactory to us, without interruption or regulatory delay, or that such additional seeds will ultimately be acceptable to customers.  Interruption of the supply of seeds, additional competition, regulatory delay, additional costs to procure seeds, or loss of customers and market share may have a negative effect on revenues and the results of operations. 


Item 3.

Quantitative And Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk as reported in Item 7A in the annual report on Form 10-K for the fiscal year ended March 31, 2003.

Item 4.

Controls and Procedures

Based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended), our Chief Executive Officer and our Chief Financial Officer have concluded that such controls and procedures were effective as of the end of the period covered by this report.  In connection with such evaluation, no change in our internal control over financial reporting was identified that occurred during the period covered by this report and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

Not applicable. 
 

Item 2.

Changes in Securities

None.
 

Item 3.

Defaults Upon Senior Securities

Not applicable.
 

Item 4.

Submission of Matters to a Vote of Security Holders

None.
 

Item 5.

Other Information

Effective August 5, 2003 the Company's shares began trading on the New York Stock Exchange under the symbol MNT.
 

Item 6.

Exhibits and Reports on Form 8-K

(a) Exhibits

3.2   Amended and Restated Bylaws of Mentor Corporation dated July 15, 2003.
 

10.1 Employment agreement, between Mentor Corporation and Joshua Levine.

10.2 Incentive Bonus Plans

31.1 Certification of Principal Executive Officer Pursuant To
Section 302 of The Sarbanes-Oxley Act of 2002.

31.2 Certification of Principal Financial Officer Pursuant To
Section 302 of The Sarbanes-Oxley Act of 2002.

32.1 CEO Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002, filed herewith.

32.2 CFO Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002, filed herewith.

(b) Reports on Form 8-K

The following reports on Form 8-K were filed during the three months ended June 30, 2003.

1.  On May 13, 2003, a report was filed which furnished, under Item 12, a press release in connection with the fiscal 2003 fourth quarter and year-end results of operation issued by Mentor Corporation.

 

   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MENTOR CORPORATION

(Registrant)

Date:

August 14, 2003

By:

/S/CHRISTOPHER; J. CONWAY
Christopher J. Conway
President and Chief Executive Officer

 

Date:

August 14, 2003

By:

/S/ADEL MICHAEL
Adel Michael
Executive Vice President
Chief Financial Officer


EX-3 3 bylaws0715031.htm AMENDED AND RESTATED BYLAWS

EXHIBIT 3.2

AMENDED AND RESTATED BYLAWS
of
MENTOR CORPORATION

Containing all amendments through July 15, 2003

SHAREHOLDERS

Section 1.01  Place of Meetings; Authorization of Remote Communication.  Each meeting of the shareholders shall be held at the principal executive office of the Corporation or at such other place as may be designated by the Board of Directors or the Chief Executive Officer; provided, however, that any meeting called by or at the demand of a shareholder or shareholders shall be held in the county where the principal executive office of the Corporation is located.  The Board of Directors is authorized to hold regular or special meetings of the shareholders solely by means of remote communication through which the shareholders may participate in the meeting.

Section 1.02  Annual Meetings.  The Board of Directors shall fix the date for the annual meeting of shareholders which is to be held in each calendar year. At the annual meeting, the shareholders shall designate the number of directors to constitute the Board of Directors, shall elect directors and shall transact such other business as may properly come before them; provided, however, that no business with respect to which special notice is required by law shall be transacted unless such notice shall have been given.

Section 1.03  Special Meetings.  A special meeting of the shareholders may be called for any purpose or purposes at any time by the Chief Executive Officer; by the Chief Financial Officer; by the Board of Directors or any two or more members thereof; or by one or more shareholders holding not less than ten percent of the voting power of all shares of the Corporation entitled to vote, who shall demand such special meeting by written notice given to the Chief Executive Officer or the Chief Financial Officer of the Corporation specifying the purposes of such meeting, except that a special meeting for the purpose of considering any action to directly or indirectly facilitate or effect a business combination (as such term is from time to time defined in the Minnesota Business Corporation Act), including any action to change or otherwise affect the composition of the Board of Directors for that purpose, must be called by 25 percent or more of the voting power of all shares entitled to vote.

Section 1.04  Meetings Held Upon Shareholder Demand.  Within 30 days of receipt of a demand by the Chief Executive Officer or the Chief Financial Officer from any shareholder or shareholders entitled to call a meeting of the shareholders, it shall be the duty of the Board of Directors of the Corporation to cause a special or regular meeting of shareholders, as the case may be, to be duly called and held on notice no later than ninety days after receipt of such demand. If the Board of Directors fails to cause such a meeting to be called and held as required by this Section, the shareholder or shareholders making the demand may call the meeting by giving notice as provided in Section 1.06 hereof at the expense of the Corporation.

Section 1.05  Notice of Meetings.  Except when a meeting of shareholders is an adjourned meeting to be held not more than 120 days after the date fixed for the original meeting and the date, time, and place of such meeting were announced at the time of the original meeting or any adjournment of the original meeting, notice of all meetings shall be given to every holder of shares entitled to vote.  Such notice shall contain the date, time, and place of the shareholder meeting and any other information required by law.  In the case of a special meeting, the notice shall contain a statement of the purpose or purposes of the meeting.  The notice may also contain any other information deemed necessary or desirable by the Board of Directors or by any other person or persons calling the meeting.

Unless a different minimum notice period has been fixed by applicable law, the Articles of Incorporation, or these Bylaws, notice of all meetings, including meetings for consideration of the sale or other disposition of all or substantially all of the assets of the Corporation, shall be given not less ten nor more than sixty 60 days before the date of the meeting.

In the event that a plan of merger or exchange is to be considered at a meeting of shareholders, written notice of such meeting shall be given to every shareholder, whether or not entitled to vote, not less than 14 nor more than 60 days before the date of the meeting.  Such a notice shall contain the date, time, and place of the shareholder meeting, shall state that a purpose of such meeting is to consider the proposed plan of merger or exchange, and shall include a copy or a short description of the plan of merger or exchange.

Notice of all meetings shall be given to each eligible shareholder either by oral communication, by mailing a copy of the notice to an address designated by the shareholder or to the last known address of the shareholder, by handing a copy to the shareholder, or by any other delivery that conforms to law, including, without limitation, electronic communication if consent is given by a shareholder.  Notice shall be deemed received when it is given.  Notice by mail shall be deemed given when deposited in the United States mail with sufficient postage affixed.  Notice by electronic communication shall be deemed given (1) if by facsimile communication, when directed to a telephone at which the shareholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the shareholder has consented to give notice; (3) if by a posting on an electronic network on which the shareholder has consented to receive notice, together with separate notice to the shareholder of specific posting, upon the later of: (i) the posting; and (ii) the giving of separate notice; and (4) if by any other form of electronic communication by which the shareholder has consented to receive notice, when directed to the shareholder.  Consent by a shareholder to notice given by electronic communication may be given in writing or by authenticated electronic communication.  The Corporation is entitled to rely on any consent so given until revoked by the shareholder, provided that no revocation affects the validity of any notice given before receipt by the Corporation of revocation of the consent.

Section 1.06  Waiver of Notice.  A shareholder may waive notice of the date, time, place and purpose or purposes of a meeting of shareholders. A waiver of notice by a shareholder entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a shareholder at a meeting is a waiver of notice of that meeting, unless the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting. 

Section 1.07  Quorum; Adjourned Meetings.  The holders of a majority of the shares outstanding and entitled to vote shall constitute a quorum for the transaction of business at any annual or special meeting. In case a quorum shall not be present at a meeting, those present shall adjourn to such day as they shall by majority vote agree upon, and a notice of such adjournment shall be mailed to each shareholder entitled to vote at least five days before such adjourned meeting. If a quorum is present, a meeting may be adjourned from time to time without notice other than announcement at the meeting. At adjourned meetings at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. If a quorum is present, the shareholders may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

Section 1.08  Voting.  Subdivision 1. A shareholder shall have one vote for each share held which is entitled to vote. Except as otherwise required by law, a holder of shares entitled to vote may vote any portion of the shares in any way the shareholder chooses. If a shareholder votes without designating the proportion or number of shares voted in a particular way, the shareholder is deemed to have voted all of the shares in that way.

Subdivision 2.  The Board may fix a date not more than 60 days before the date of a meeting of shareholders as the date for the determination of the holders of shares entitled to notice of and entitled to vote at the meeting. When a date is so fixed, only shareholders on that date are entitled to notice of and permitted to vote at that meeting of shareholders.

Subdivision 3.  The shareholders shall take action by the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote, except when a different vote is required by law or the Articles of Incorporation.

Section 1.09  Proxies.  A shareholder may cast or authorize the casting of a vote by filing a written appointment of a proxy with an officer of the orporation at or before the meeting at which the appointment is to be effective.

Section 1.10  Action Without a Meeting.  Any action required or permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting by written action signed, or consented to by authenticated electronic communication, by all of the shareholders entitled to vote on that action. The written action is effective when it has been signed, or consented to by authenticated electronic communication, by all of those shareholders, unless a different effective time is provided in the written action.

Section 1.11  Remote Communications for Shareholder Meetings.  The Board of Directors is authorized to hold regular or special meetings of the shareholders solely by means of remote communication through which the shareholders may participate in the meeting, if notice of the meeting is given to every holder of shares entitled to vote, and if the number of shares held by the shareholders participating in the meeting would be sufficient to constitute a quorum at the meeting.  Furthermore, the Board of Directors is authorized to determine that a shareholder not physically present in person or by proxy at a regular or special meeting of shareholders may, by means of remote communication, participate in a meeting of shareholders held at a designated place.  In any meeting of shareholders held solely by means of remote communication or in any meeting of shareholders held at a designated place in which one or more shareholders participate by means of remote communication the Corporation must implement reasonable measures to verify that each person deemed present and entitled to vote at the meeting by means of remote communication is a shareholder; and the Corporation must implement reasonable measures to provide each shareholder participating by means of remote communication with a reasonable opportunity to participate in the meeting, including an opportunity to:  (i) read or hear the proceedings of the meeting substantially concurrently with those proceedings; (ii) if allowed by the procedures governing the meeting, have the shareholder's remarks heard or read by other participants in the meeting substantially concurrently with the making of those remarks; and (iii) if otherwise entitled, vote on matters submitted to the shareholders.

 DIRECTORS

Section 2.01  Number, Qualifications and Term of Office.  Until the first meeting of shareholders, the number of directors shall be the number named in the Articles of Incorporation. Thereafter, the number of directors shall be established by resolution of the shareholders but shall not be less than the lesser of (i) the number of shareholders of record and beneficially or (ii) three. In the absence of such resolution, the number of directors shall be the number last fixed by the shareholders or the Articles of Incorporation. Directors need not be shareholders. Each of the directors shall hold office until the annual meeting of shareholders next held after his or her election and until he or she shall resign, or shall have been removed as hereinafter provided.

Section 2.02  Vacancies.  If there be a vacancy among the directors of this Corporation by reason of death, resignation, increase in the number of directors required by Section 2.01 or otherwise, such vacancy shall be filled for the unexpired term by a majority of the remaining directors of the Board, and each person so elected shall be a director until his successor is elected by the shareholders, who may make such election at their next annual meeting or at any meeting duly called for that purpose.

Section 2.03  Removal.  The entire Board of Directors or any individual director may be removed from office, with or without cause, by a vote of the shareholders holding a majority of the shares entitled to vote at an election of directors, except as otherwise provided by law where the shareholders have the right to cumulate their votes. In the event that the entire Board or any one or more directors be so removed, new directors shall be elected at the same meeting.

Section 2.04  Place of Meetings; Meetings by Remote Communication.  Each meeting of the Board of Directors shall be held at the principal executive office of the Corporation or at such other place as may be designated from time to time by a majority of the members of the Board.  The Board of Directors may determine that a meeting of the Board of Directors shall be held solely by one or more means of remote communication through which all of the directors may participate with each other during the meeting.  Furthermore, a director may participate in a board meeting by means of conference telephone or, if authorized by the Board, by such other means of remote communication, in each case through which the director, other directors so participating, and all directors physically present at the meeting may participate with each other during the meeting.  Participation in a meeting by that means constitutes presence at the meeting.

Section 2.05  Regular Meetings.  Regular meetings of the Board of Directors for the election of officers and the transaction of any other business shall be held without notice at the place of and immediately after each regular meeting of the shareholders.

Section 2.06  Special Meetings.  A special meeting of the Board of Directors may be called for any purpose or purposes at any time by any member of the Board by giving not less than 24 hours' notice to all directors of the date, time and place of the meeting, provided that when notice is mailed, at least four days' notice shall be given. The notice need not state the purpose of the meeting.

Section 2.07  Waiver of Notice: Previously Scheduled Meetings.  Subdivision 1. A director of the Corporation may waive notice of the date, time and place of a meeting of the Board. A waiver of notice by a director entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a director at a meeting is a waiver of notice of that meeting, unless the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting.

Subdivision 2.  If the day or date, time and place of a Board meeting have been provided herein or announced at a previous meeting of the Board, no notice is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken of the date, time and place at which the meeting will be reconvened.

Section 2.08  Quorum; Acts of Board.  The presence of a majority of the directors currently holding office shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time without further notice until a quorum is present. If a quorum is present when a duly held meeting is convened, the directors present may continue to transact business until adjournment, even though the withdrawal of a number of the directors originally present leaves less than the proportion or number otherwise required for a quorum. Except as otherwise required by law or specified in the Articles of Incorporation of the Corporation, the Board shall take action by the affirmative vote of a majority of the directors present at a duly held meeting.

Section 2.09  Absent Directors.  A director of the Corporation may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected.

Section 2.10  Action Without a Meeting.  An action required or permitted to be taken at a board meeting may be taken without a meeting by written action signed, or consented to by authenticated electronic communication, by all of the directors. Any action, other than an action requiring shareholder approval, if the Articles of Incorporation so provide, may be taken by written action signed, or consented to by authenticated electronic communication, by the number of directors that would be required to take the same action at a meeting of the Board at which all directors were present. The written action is effective when signed, or consented to by authenticated electronic communication, by the required number of directors, unless a different effective time is provided in the written action. When written action is permitted to be taken by less than all directors, all directors shall be notified immediately of its text and effective date.

Section 2.11  Committees.  Subdivision 1. A resolution approved by the affirmative vote of a majority of the Board may establish committees having the authority of the Board in the management of the business of the Corporation only to the extent provided in the resolution. Committees shall be subject at all times to the direction and control of the Board, except special litigation committees and committees formed pursuant to Minnesota Statutes Section 302A.673, subdivision 1(d).

Subdivision 2.  A committee shall consist of one or more natural persons, who need not be directors, appointed by affirmative vote of a majority of the directors present at a duly held Board meeting.

Subdivision 3.  Section 2.04 and Sections 2.06 to 2.10 hereof shall apply to committees and members of committees to the same extent as those sections apply to the Board and directors.

Subdivision 4.  Minutes, if any, of committee meetings shall be made available upon request to members of the committee and to any director.

Section 2.12  Committee of Disinterested Persons.  Pursuant to the procedure set forth in Section 2.11, the Board may establish a committee composed of two or more disinterested directors or other disinterested persons to determine whether it is in the best interests of the Corporation to pursue a particular legal right or remedy of the Corporation and whether to cause the dismissal or discontinuance of a particular proceeding that seeks to assert a right or remedy on behalf of the Corporation. The committee, once established, is not subject to the direction or control of, or termination by, the Board. A vacancy on the committee may be filled by a majority vote of the remaining committee members. The good faith determinations of the committee are binding upon the Corporation and its directors, officers and shareholders. The committee terminates when it issues a written report of its determinations to the Board.

Section 2.14  Compensation.  The Board may fix the compensation, if any, of directors.

OFFICERS

Section 3.01  Number and Designation.  The Corporation shall have one or more natural persons exercising the functions of the offices of Chief Executive Officer and Chief Financial Officer. The Board of Directors may elect or appoint such other officers or agents as it deems necessary for the operation and management of the Corporation, with such powers, rights, duties and responsibilities as may be determined by the Board, including, without limitation, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall have the powers, rights, duties and responsibilities set forth in these Bylaws unless otherwise determined by the Board. Any of the offices or functions of those offices may be held by the same person.

Section 3.02  Chief Executive Officer.  Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Executive Officer (a) shall have general active management of the business of the Corporation; (b) shall, when present, preside at all meetings of the shareholders and Board of Directors; (c) shall see that all orders and resolutions of the Board are carried into effect; (d) may maintain records of and certify proceedings of the Board and shareholders; and (e) shall perform such other duties as may from time to time be assigned by the Board of Directors.

Section 3.03  Chief Financial Officer.  Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Financial Officer (a) shall keep accurate financial records for the Corporation; (b) shall deposit all monies, drafts and checks in the name of and to the credit of the Corporation in such banks and depositories as the Board of Directors shall designate from time to time; (c) shall endorse for deposit all notes, checks and drafts received by the Corporation as ordered by the Board, making proper vouchers therefor; (d) shall disburse corporate funds and issue checks and drafts in the name of the Corporation, as ordered by the Board; (e) shall render to the Chief Executive Officer and the Board of Directors, whenever requested, an account of all of such officers transactions as Chief Financial Officer and of the financial condition of the Corporation; and (f) shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time.

Section 3.04  President.  Unless otherwise determined by the Board, the President shall be the Chief Executive Officer of the Corporation. If an officer other than the President is designated Chief Executive Officer, the President shall perform such duties as may from time to time be assigned by the Board of Directors.

Section 3.05  Vice Presidents.  Any one or more Vice Presidents, if any, may be designated by the Board of Directors as Executive Vice Presidents or Senior Vice Presidents. During the absence or disability of the President, it shall be the duty of the highest ranking Executive Vice President, and, in the absence of any such Vice President, it shall be the duty of the highest ranking Senior Vice President or other Vice President, who shall be present at the time and able to act, to perform the duties of the President. The determination of who is the highest ranking of two or more persons holding the same office shall, in the absence of specific designation of order of rank by the Board of Directors, be made on the basis of the earliest date of appointment or election, or, in the event of simultaneous appointment or election, on the basis of the longest continuous employment by the Corporation.

Section 3.06  Secretary.  The Secretary, unless otherwise determined by the Board, shall attend all meetings of the shareholders and all meetings of the Board of Directors, shall record or cause to be recorded all proceedings thereof in a book to be kept for that purpose, and may certify such proceedings. Except as otherwise required or permitted by law or by these Bylaws, the Secretary shall give or cause to be given notice of all meetings of the shareholders and all meetings of the Board of Directors.

Section 3.07  Treasurer.  Unless otherwise determined by the Board, the Treasurer shall be the Chief Financial Officer of the Corporation. If an officer other than the Treasurer is designated Chief Financial Officer, the Treasurer shall perform such duties as may from time to time be assigned by the Board of Directors.

Section 3.08  Authority and Duties.  In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors. Unless prohibited by a resolution approved by the affirmative vote of a majority of the directors present, an officer elected or appointed by the Board may, without the approval of the Board, delegate some or all of the duties and powers of an office to other persons.

Section 3.09  Term.  Subdivision 1.  All officers of the Corporation shall hold office until their respective successors are chosen and have qualified or until their earlier death, resignation or removal.

Subdivision 2.  An officer may resign at any time by giving written notice to the Corporation. The resignation is effective without acceptance when the notice is given to the Corporation, unless a later effective date is specified in the notice.

Subdivision 3.  An officer may be removed at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present at a duly held Board meeting.

Subdivision 4.  A vacancy in an office because of death, resignation, removal, disqualification or other cause may, or in the case of a vacancy in the office of Chief Executive Officer or Chief Financial Officer shall, be filled for the unexpired portion of the term by the Board.

Section 3.10 Compensation.  The compensation of all officers of the Corporation shall be fixed by the Board of Directors or by the Chief Executive Officer if authorized by the Board.

INDEMNIFICATION

Section 4.01  Indemnification.  The Corporation shall indemnify such persons, for such expenses and liabilities, in such manner, under such circumstances, and to such extent, as required or permitted by Minnesota Statutes, Section 302A.521, as amended from time to time, or as required or permitted by other provisions of law; provided, however, that the Corporation shall not make advances to any person other than a director of the Corporation or of another corporation at least 80% of the common stock of all classes of which is owned directly or indirectly by the Corporation (a "Subsidiary") or an officer of the Corporation or of a Subsidiary who was elected by the directors of the Corporation or Subsidiary, as the case may be; and provided, further, that the Corporation shall not indemnify any person, other than a director of the Corporation or of a Subsidiary or an officer of the Corporation or of a Subsidiary who was elected by the directors, in respect of any judgment, penalty, fine, excise tax, settlement, expense or other matter for which such person shall have been finally determined to be liable by reason of his or her negligence, recklessness or willful misconduct.

Section 4.02  Insurance.  The Corporation may purchase and maintain insurance on behalf of any person in such person's official capacity against any liability asserted against and incurred by such person in or arising from that capacity, whether or not the Corporation would otherwise be required to indemnify the person against the liability.

SHARES

Section 5.01  Certificated and Uncertificated Shares.  Subdivision 1.  The shares of the Corporation shall be either certificated shares or uncertificated shares. Each holder of duly issued certificated shares is entitled to a certificate of shares.

Subdivision 2.  Each certificate of shares of the Corporation shall bear the corporate seal, if any, and shall be signed by the Chief Executive Officer, or the President or any Vice President, and the Chief Financial Officer, or the Secretary or any Assistant Secretary, but when a certificate is signed by a transfer agent or a registrar, the signature of any such officer and the corporate seal upon such certificate may be facsimiles, engraved or printed. If a person signs or has a facsimile signature placed upon a certificate while an officer, transfer agent or registrar of the Corporation, the certificate may be issued by the Corporation, even if the person has ceased to serve in that capacity before the certificate is issued, with the same effect as if the person had that capacity at the date of its issue.

Subdivision 3.  A certificate representing shares issued by the Corporation shall, if the Corporation is authorized to issue shares of more than one class or series, set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series authorized to be issued, so far as they have been determined, and the authority of the Board to determine the relative rights and preferences of subsequent classes or series.

Subdivision 4.  A resolution approved by the affirmative vote of a majority of the directors present at a duly held meeting of the Board may provide that some or all of any or all classes and series of the shares of the Corporation will be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation.

Section 5.02  Declaration of Dividends and Other Distributions.  The Board of Directors shall have the authority to declare dividends (and other distributions) upon the shares of the Corporation to the extent permitted by law.

Section 5.03  Transfer of Shares.  Shares of the Corporation may be transferred only on the books of the Corporation by the holder thereof, in person or by such person's attorney. In the case of certificated shares, shares shall be transferred only upon surrender and cancellation of certificates for a like number of shares. The Board of Directors, however, may appoint one or more transfer agents and registrars to maintain the share records of the Corporation and to effect transfers of shares.

Section 5.04  Record Date.  The Board of Directors may fix a time, not exceeding sixty days preceding the date fixed for the payment of any dividend or other distribution, as a record date for the determination of the shareholders entitled to receive payment of such dividend or other distribution, and in such case only shareholders of record on the date so fixed shall be entitled to receive payment of such dividend or other distribution, notwithstanding any transfer of any shares on the books of the Corporation after any record date so fixed.

MISCELLANEOUS

Section 6.01  Execution of Instruments.  Subdivision 1.  All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Corporation shall be signed on behalf of the Corporation by the Chief Executive Officer, or the President, or any Vice President, or by such other person or persons as may be designated from time to time by the Board of Directors.

Subdivision 2.  If a document must be executed by persons holding different offices or functions and one person holds such offices or exercises such functions, that person may execute the document in more than one capacity if the document indicates each such capacity.

Section 6.02  Advances.  The Corporation may, without a vote of the directors, advance money to its directors, officers or employees to cover expenses that can reasonably be anticipated to be incurred by them in the performance of their duties and for which they would be entitled to reimbursement in the absence of an advance.

Section 6.03  Corporate Seal.  The seal of the Corporation, if any, shall be a circular embossed seal having inscribed thereon the name of the Corporation and the following words:

"Corporate Seal Minnesota"

Section 6.04  Fiscal Year.  The fiscal year of the Corporation shall be determined by the Board of Directors.

Section 6.05  Amendments.  The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation, subject to the power of the shareholders to change or repeal the same, provided, however, that the Board shall not adopt, amend or repeal any Bylaw fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the Board, or fixing the number of directors or their classifications, qualifications or terms of office, but may adopt or amend a Bylaw that increases the number of directors.

Section 6.06 Definitions.  The following words or phrases when used in these Bylaws have the meanings set forth below:

(1)           "Electronic Communication" means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient of the communication, and that may be directly reproduced in paper form by the recipient through an automated process.

(2)           "Remote Communication" means communication via electronic communication, conference telephone, video conference, the Internet, or such other means by which persons not physically present in the same location may communicate with each other on a substantially simultaneous basis.

(3)           "Authenticated" means, with respect to an electronic communication, that the communication is delivered to the principal place of business of the Corporation, or to an officer or agent of the Corporation authorized by the Corporation to receive the communication, and that the communication sets forth information from which the Corporation can reasonably conclude that the communication was sent by the purported sender.

EX-10 4 joshlevineagree1.htm

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

 This Employment Agreement, dated August 30, 2002, is by and between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111, and JOSH LEVINE ("EMPLOYEE") of 2677 Quail Valley Road, Solvang, California, 93463.

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 AESTHETICS GLOBAL SALES AND MARKETING functions 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, AESTHETICS GLOBAL SALES AND MARKETING. 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 Chairman of the Board, President and Chief Executive Officer of Mentor (Iorporation.

1.1.2   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.

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 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.

1.3 Corporate Authority. 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 SEVEN THOUSAND DOLLARS AND NO CENTS ($207,000.), 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 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.

3.1.3 Stock Options. Based upon satisfactory performance, under the Plan, COMPANY expects that EMPLOYEE will qualify for grants of options to acquire common stock of COMPANY subject to determination by the Board of Directors, of an amount which is consistent with COMPANY's Executive Compensation Program. Any such grants shall also be subject to performance considerations as well as the determination of the Board of Directors.

3.2 Business Expenses. COMPANY shall reimburse EMPLOYEE for business expenses reasonably incurred in performing Services according to COMPANY's Expense Reimbursement Policy.

3.3 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.

3.4 Vacation. Employee shall accrue vacation equal to 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 Chairman of the Board, President and Chief Executive Officer of COMPANY.

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 COM7PANY 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.

4.1.6.   Change of Control. If employment is terminated within twelve (12) months upon any of the following events EMPLOYEE shall be entitled to severance compensation pursuant to Section 4.2.6 (1) and

(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 tthe 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.                Severance compensation totaling three- (3) month's 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.

4.2.6     Termination Due to Change Of Control. If employment is terminated within twelve (12) months upon any of the events delineated in Section 4.1.6 of this Agreement ("Change of Control"), 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

ii.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, patent 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, Tide 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, ~ seq., the Age Discrimination in Employment Act, 29 U.S.C." 623, ~ seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101, ~ seq., and the californiaFair Employment and Housing Act, Cal. Gov't code"12940, ~ seq. EMPLOYEE acknowledges that he is familiar with section 1542 of the californiacivil 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.

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 andBiography. 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  ForceMajeure. 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 original offer of employment letter.

10.12         Assistance of Counsel. EMPLOYEE expressly acknowledges that he was given the right to be represented by counsel of his own choosing in connection with the terms of this Agreement.

The parties execute this Agreement as of the date stated above:

JOSH LEVINE                                                 MENTOR CORPORATION
/s/Josh Levine                                                    /s/Christopher Conway
President and Chief Executive Officer

NOTICE ADDRESS:                                        NOTICE ADDRESS:
2677 Quail Valley Road                                      201 Mentor Drive
Solvang, California 93463                                    Santa Barbara, California 93111

EX-10 5 ex10-21.htm Exhibit 10

EXHIBIT 10.2

 INCENTIVE BONUS PLANS

 The named executive officers of the Company participate in the Quarterly Incentive Bonus Plan and the Annual Incentive Bonus Plan.  The plans are effective April 1, 2003, and the thresholds and targets defined in the plans are measured over the fiscal year ending March 31, 2004.

Quarterly Incentive Bonus.  Executive officers are eligible to receive a quarterly incentive bonus equivalent to one-half of one percent (0.5%) of their salaries under a broad plan which includes most U.S. employees.  The bonus is earned if the Company achieves its stated operating earnings threshold for the applicable quarter.

Annual Incentive Bonus.  Executive officers are eligible to receive annual incentive compensation equivalent to a specified percentage of their salaries under the Company's Annual Incentive Bonus plan.  The plan includes most U.S. management personnel.  The Company establishes bonus pay-out targets (ranging from 40% to 60% of base salary plus the potential for a 20% additional bonus for outstanding results of the Company, plus up to 20% additional bonus for outstanding individual performances, which increases the range to 40% to 86%) that are designed to bring the level of total annual cash compensation (base salary plus Annual Incentive Bonus) within the range for comparable positions at similar U.S.-based medical equipment and supply companies when superior performance is achieved.  Performance is measured at the corporate, functional unit and individual levels.  The total potential bonus for each executive is broken down into several factors as appropriate for that executive's area of responsibility.  Each factor is then weighted with emphasis placed on profitability measures or other appropriate measures.  These factors, and the relative weight given to each factor, vary with each executive officer at the Board of Director's Compensation Committee's sole discretion.  For each factor, the Compensation Committee defines and establishes quantifiable and qualitative measures.  No bonus is paid for performance below acceptable levels.

EX-31 6 ex31-1.htm SECURITIES AND EXCHANGE COMMISSION

EXHIBIT 31.1

§ 302 CERTIFICATION

I, Christopher Conway, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Mentor Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(c)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 13, 2003                                                   /S/CHRISTOPHER J. CONWAY
                                                                                    Christopher J. Conway
                                                                                    President and Chief Executive Officer
                                                                                    (Principal Executive Officer)

EX-31 7 ex31-2.htm SECURITIES AND EXCHANGE COMMISSION


EXHIBIT 31.2

§ 302 CERTIFICATION

I, Adel Michael, certify that:

1)       I have reviewed this quarterly report on Form 10-Q of Mentor Corporation;

2)       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)       The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)       Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

c)       Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5)       The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 13, 2003                                                   /S/ADEL MICHAEL
                                                                                    Adel Michael
                                                                                    Chief Financial Officer
                                                                                    (Principal Financial Officer)

EX-32 8 ex32-1.htm SECURITIES AND EXCHANGE COMMISSION

EXHIBIT 32.1

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

In connection with the Quarterly Report of Mentor Corporation (the "Company") on Form 10‑Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher J. Conway, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

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

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

/S/CHRISTOPHER J. CONWAY
Christopher J. Conway
Chief Executive Officer
August 13, 2003

EX-32 9 ex32-2.htm SECURITIES AND EXCHANGE COMMISSION

EXHIBIT 32.2

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

In connection with the Quarterly Report of Mentor Corporation (the "Company") on Form 10‑Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Adel Michael, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

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

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

/S/ADEL MICHAEL
Adel Michael
Chief Financial Officer
August 13, 2003

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