10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

^{(Mark One)}

x         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
             For the fiscal year ended March 31, 2004

OR

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

Commission file no. 0-7955

MENTOR CORPORATION
(Exact name of registrant as specified in its charter)

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

                                                                              201 Mentor Drive, Santa Barbara, California 93111
                                                                                   (Address of principal executive offices) (Zip Code)
                                                                                                             (805) 879-6000
                                                                              (Registrant's telephone number, including area code)

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

                                                                                Title of                                                Name of Each Exchange
                                                                                Each Class                                         on Which Registered
                                                                                Common Shares                                  New York Stock Exchange

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K  o

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

Based on the closing sale price on the New York Stock Exchange as of the last business day of the Registrant's most recently completed second fiscal quarter (September 30, 2003), the aggregate market value of the Common Shares of the Registrant held by non-affiliates of the Registrant was approximately $664,453,000.  For purposes of this calculation, shares held by each executive officer, director and holder of 10% or more of the outstanding shares of the Registrant have been excluded in that such persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of June 9, 2004 there were approximately 42,208,179 Common Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

            Portions of the Registrant's Proxy Statement for its 2004 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report on Form 10-K.

MENTOR CORPORATION

ITEM	PART I	PAGE
1.	Business
	General	3
	Recent Acquisitions	3
	Principal Products and Markets	4
	Marketing	6
	International Operations	6
	Competition	7
	Government Regulations	8
	Medicare, Medicaid and Third Party Reimbursement	11
	Product Development	15
	Patents and Licenses	16
	Raw Material Supply and Single Source Suppliers	16
	Seasonality	16
	Working Capital	16
	Employees	17
	Executive Officers of the Registrant	17
	Available Information	18
	Risk Factors	18
2.	Properties	25
3.	Legal Proceedings	26
4.	Submission of Matters to a Vote of Security Holders	26
	PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
6.	Selected Financial Data	31
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
7A.	Quantitative and Qualitative Disclosures About Market Risk	42
8.	Financial Statements and Supplementary Data	43
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43
9A.	Controls and Procedures	43
	PART III
10.	Directors and Executive Officers of the Registrant	44
11.	Executive Compensation	44
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
13.	Certain Relationships and Related Transactions	44
14.	Principal Accountant Fees and Services	44
	PART IV
15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	45
	Report of Independent Registered Public Accounting Firm	46
	Consolidated Financial Statements
	Signatures	74
	Exhibit Index	75

PART I

 FORWARD-LOOKING STATEMENTS

Unless the context indicates otherwise, when we refer to "Mentor," "we," "us," "our," or the "Company" in this Form 10-K, we are referring to Mentor Corporation and its subsidiaries on a consolidated basis.  Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings by us with the SEC, in our press releases and in our oral statements made by or with the approval of authorized personnel, constitute "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,"  "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 "Risk Factors" or elsewhere in this Form 10-K.  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 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 you that the forward-looking information contained in this Form 10-K will, in fact, transpire.

ITEM 1. BUSINESS.

Mentor Corporation was incorporated in Minnesota in 1969.  Our fiscal year ends on March 31 and references to fiscal 2004, fiscal 2003 or fiscal 2002 refer to the years ended March 31, 2004, 2003 or 2002, respectively.

General

We develop, manufacture and market a broad range of products serving the medical specialties market.  Our products are utilized by three primary segments, aesthetic and general surgery (plastic and reconstructive surgery), surgical urology, and clinical and consumer healthcare.  Aesthetic and general surgery products include surgically implantable prostheses for plastic and reconstructive surgery as well as capital equipment and consumables used for soft tissue aspiration or body contouring (liposuction).  Surgical urology products include surgically implantable prostheses for the treatment of impotence, surgically implantable incontinence products, urinary care products and brachytherapy seeds for the treatment of prostate cancer.  Clinical and consumer healthcare products include catheters and other products for the management of urinary incontinence and retention.

Recent Acquisitions

On April 15, 2003, we purchased the U.S. method patent rights to a surgical procedure known as the trans-obturator technique, which utilizes a sling device implanted through the trans-obturator foramen in the treatment of female urinary incontinence. In July 2003, we acquired exclusive distribution rights to the ObTape™ product in the United States, which is used in the trans-obturator technique.

3

On August 25, 2003, we acquired A-Life Ltd. located in Edinburgh Scotland from Vitrolife AB.  A-Life has developed proprietary technology for making products based on cross-linked hyaluronic acid.  We have filed an application for CE mark approval to market these products in Europe and are preparing for a U.S. clinical study to seek approval of the products as injectable dermal fillers for facial aesthetic applications. 

On October 29, 2003, we acquired Inform Solutions, Inc., located in San Diego, California.  Inform Solutions is a leading provider of comprehensive, integrated practice management software and revenue enhancement services in the plastic surgery industry. 

On December 10, 2003, we entered into an exclusive license agreement with Wisconsin Alumni Research Foundation (WARF) and Botulinum Toxin Research Associates Inc. (BTRA) to develop, manufacture and distribute products utilizing their proprietary technology related to botulinum toxin.  We are constructing a production facility and preparing for a U.S. clinical study to seek approval of the product initially for, aesthetic applications.

Principal Products and Markets

The following table shows the net sales attributable to each of our principal product lines and the percentage contributions of such sales to total net sales for the periods indicated.

	Year Ended March 31,
	2004		2003		2002
(in thousands)	Amount	%	Amount	%	Amount	%
Aesthetic and General Surgery	$218,437	52%	$191,405	50%	$163,091	51%
Surgical Urology	108,370	26	106,675	28	94,341	29
Clinical and Consumer Healthcare	95,361	22	84,304	22	63,630	20
	$422,168	100%	$382,384	100%	$321,062	100%

Aesthetic and General Surgery Products

We develop, produce, and market a broad line of breast implants, including saline-filled implants and silicone gel-filled implants.  Our breast implants consist of a silicone elastomer shell that is either filled during surgery with a saline solution or pre-filled during the manufacturing process with silicone gel.  The silicone gel comes in varying degrees of cohesiveness.  Our implants can have either a smooth or textured surface and are provided in a variety of sizes and shapes to meet the preferences of patients and surgeons.  Approximately 90% of our aesthetic and general surgery revenues were from sales of products related to breast aesthetics in each of the three years ended 2004. 

Mammary prostheses have applications in both cosmetic and reconstructive plastic surgery procedures. These prostheses are used in cosmetic augmentation procedures to enhance breast size and shape.  In the reconstruction procedure market, mammary prostheses are utilized as a surgical solution to reform the breast following a mastectomy.  Breast reconstruction is a surgical option for many women following a mastectomy either at the time of surgery or a later date.

We carry a full line of breast reconstruction products including the CPX ® family of breast expanders. These expansion products, used in the first-stage of a two-stage breast reconstruction, create the pocket that will ultimately hold the breast implant that is placed in a subsequent second-stage operation.  Our CPX family of expanders has recently grown outside the U.S. with the addition in fiscal 2004 of the CPX low height and CPX tall height expanders to complement the popular CPX medium height.  All of the CPX devices utilize our proprietary BufferZone™ self-sealing technology and Centerscope™ injection port locators.  We also are the industry leader for single-stage breast reconstruction procedures with our line of smooth and textured Becker® implants, which are designed to be used as both an expander and an implant.

We offer a line of extremity tissue expanders.  Extremity tissue expansion involves the process of growing additional tissue for reconstruction and skin graft procedures.  Some of the major applications of extremity tissue expansion include the correction of disfigurements such as burns, large scars and congenital deformities.

4

We market an ultrasound-assisted product used for the aspiration of soft tissues in general surgery and cosmetic surgery applications and have obtained U.S. Food and Drug Administration ("FDA") approval to expand the labeling of the product for use in Ultra-sonic liposuction.  Our acquisition of Byron Medical, Inc., and the acquisition of certain assets of LySonix, Inc., a former competitor in the ultrasonic liposuction equipment and supplies market, have expanded our offering of liposuction products to include traditional, power assisted and ultrasonic liposuction product offerings.  As a result we are positioned as a broad line supplier to the entire body contouring (liposuction) market.

Surgical Urology Products

Our surgical urology products fall into four general categories: erectile dysfunction products, urinary care products, pelvic floor products, and cancer treatment products. 

Our erectile dysfunction products consist of a line of penile implants for the treatment of male sexual impotence.  Penile prostheses are implanted in men who cannot achieve a natural erection of sufficient rigidity for sexual intercourse.  Penile implants have become the standard of care for men who have not responded to less invasive therapies, the best known of which is Pfizer's Viagra^®.  In order to respond to a variety of physician and patient preferences, we manufacture several types of penile prostheses, including hydraulic inflatable devices and a malleable prosthesis.  We have Conformite Europeene (CE) approval for the sale and marketing of penile implants utilizing our new Resist™ coating designed to reduce bacterial adherence.  We also have FDA approval to market the Titan™ inflatable penile prosthesis with the same hydrophilic coating that offers a number of advantages to both the physician and the patient. 

Our urinary care products consist of disposable urological devices for use in the hospital and outpatient setting.  These devices consist of endourological stents, catheters, urinary drainage systems, stone baskets, wound drainage products and other specialty urological items, most of which are manufactured and marketed by our Porges subsidiary.  These products are used during and following surgery for the treatment of upper urinary tract disease such as kidney stones, ureteral stones and tumors, and for the treatment of lower urinary track diseases such as BPH, prostate cancer, bladder cancer and other urinary bladder-related problems.

Our pelvic floor products consist of a line of surgical products for use in stress urinary incontinence and pelvic floor reconstruction procedures.  These sling procedures provide relief for women suffering from urinary stress incontinence.  We offer the following products for pelvic floor reconstruction and stress incontinence:

• ObTape™ and Uratape^®, polypropylene synthetic slings sold in Europe, through an exclusive supply and distribution arrangement.  In fiscal 2004, we acquired the rights to distribute these products in the U.S. and we received 510(k) approval from the FDA to market ObTape™.  The two products use an innovative and patented trans-obturator surgical procedure that offers the benefits of a faster, less invasive surgical procedure to patients and a selection of specially designed surgical tools to the physicians.
   
• Suspend^® Sling, a fascia lata tissue which is treated using Tutogen Medical Inc.'s proprietary Tutoplast^® process to ensure safe and strong tissue grafts; Tutogen harvests and processes the donor tissue, and sells it to us ready for implant.
   
• Axis™, a dermal based tissue which, like Suspend^®, is treated using the patented Tutoplast^® process to provide the surgeon with additional tissue choices for the treatment of pelvic organ prolaspe as well as incontinence.

Our cancer treatment products consist primarily of two types of brachytherapy seeds (iodine and palladium) for the treatment of prostate cancer, as well as associated supplies and delivery systems.  Previously, we sold these products under an exclusive worldwide distribution agreement with North American Scientific, Inc. ("NASI"), a producer of brachytherapy seeds.  NASI manufactured and shipped the seeds, while we performed all of the sales and marketing functions.  In January 2003, NASI discontinued the supply of both iodine and palladium seeds to our customers, and the agreement expired.  We then began to supply customers with ProstaSeed^® iodine seeds manufactured by our newly acquired subsidiary, Mills Biopharmaceuticals, Inc.  In addition, we reached a nonexclusive agreement in January 2003 to distribute Best™ Medical Palladium-103 brachytherapy seeds, and began to distribute those seeds shortly thereafter.  However, due to difficulties in increasing manufacturing capacity in a short time frame, we were unable to secure adequate supply from the vendor to fulfill customer demand during fiscal 2004.   Going forward, we believe that our current sources of supply are adequate to meet anticipated customer demand. 

5

In fiscal 2002, we acquired new technology for a computer-based workstation and automated cartridge-based needle loading system Isoloader™, for use in brachytherapy procedures.  We received FDA approval in October 2002 and began to market the workstation in the United States in February 2003.  We also received the necessary approvals from the Canadian Therapeutic Products Directorate to market and sell the Isoloader workstation and needle loading system in Canada in April 2002. 

Clinical and Consumer Healthcare Products

We market a line of male external catheters that help men manage their incontinence, and a line of intermittent self-catheters for men, women and children who suffer from urinary retention.  These products are disposable and are used in homes, hospitals, rehabilitation and extended care facilities.

In February 2001, we announced the acquisition of Porges S.A., a French company specializing in urological disposables, including diagnostic tools and various devices for surgery and postoperative follow-up.  We introduced the first of these products into the U.S. market in fiscal 2002. 

We also market a variety of other disposable products used in the management of urinary incontinence.  These include leg bags and urine collection systems, organic odor eliminators, and moisturizing skin creams and ointments.  We also distribute the BTA Stat^® point-of-care bladder cancer screening test manufactured by Polymedco, Inc., under an exclusive supply and distribution agreement.

We introduced the Self-Cath Plus™, a lubricious coated intermittent catheter, along with a closed system sterile intermittent catheter, in fiscal 2002.  In early fiscal 2003, we acquired the urology and ostomy businesses of Portex Ltd., which manufactures and markets incontinence and ostomy products primarily for the home healthcare market such as drain bags, ostomy pouches, intermittent catheters, male external catheters, and Foley catheters. 

For additional information regarding our revenues, operating profits and identifiable assets attributable to our business segments as well as domestic and foreign operations, see "Note Q-Business Segment Information" of the "Notes to Consolidated Financial Statements."

Marketing

We employ specialized domestic sales forces for our aesthetic surgery, body contouring, and urologic specialties, which includes our women's health, erectile dysfunction, prostate brachytherapy and clinical and consumer healthcare product lines.  Each sales force provides product information or specific data support and related services to physicians, nurses and other health care professionals.  We also market certain products, particularly our disposable incontinence products, through a domestic network of independent hospital supply dealers and healthcare distributors, and through retail pharmacies.

We promote our products through participation in and sponsorship of medical conferences and educational seminars, radio, newspaper, specialized websites and journal advertising, direct mail programs, and a variety of marketing support programs.  We also participate in support organizations that provide counseling and education for persons suffering from specific disease states, and we provide patient education materials for most of our products to physicians for use with their patients.

International Operations

We export most of our product lines, principally to Canada, Western Europe, Central and South America, and the Pacific Rim.  Products are sold through our direct international sales offices in Canada, the United Kingdom, Germany, France, Japan, Benelux, Australia, Spain, Portugal and Italy, as well as through independent distributors in other countries.  Total foreign sales through distributors and direct international sales offices were $170 million, $138 million, and $101 million in fiscal 2004, 2003 and 2002, respectively.  Other than sales made through our international sales offices, which are denominated in the local currency of the sales office, export sales are made in United States dollars. 

6

In addition, we manufacture mammary implants in The Netherlands, and disposable urology products in France, and through recent acquisitions have acquired manufacturing facilities in the United Kingdom where urologic disposables are also manufactured and warehoused.  Total long-lived assets located in foreign countries were $54 million, $48 million, and $30 million in fiscal 2004, 2003 and 2002, respectively. 

For additional information regarding our international operations, see "Risk Factors - Our International Business Exposes Us to a Number of Risks" and "Note Q-Business Segment Information" of the "Notes to the Consolidated Financial Statements."

Competition

We believe we are one of the leading suppliers of cosmetic and reconstructive surgery products, penile implants, and disposable catheter products.  This belief is based upon information developed internally, public information sources, and information from independent research studies of market share.

In the domestic breast implant market, we compete primarily with one other company, Inamed Corporation.  The primary competitive factors in this market currently are product performance and quality, range of styles and sizes, proprietary design, customer service and, in certain instances, price.  In Europe, we compete with Inamed Corporation and various other smaller competitors.

We compete primarily with only one other company worldwide in the inflatable penile implant market, American Medical Systems, Inc.  Several companies sell competing malleable penile implants.  The primary competitive factors in the penile implant market are product performance and reliability, ease of implantation, proprietary design, and customer service.  We believe that by providing several types of implants that emphasize high performance and reliability, we can successfully respond to various physician and patient preferences.  In addition, the penile implant market continues to be negatively affected by alternative erectile dysfunction therapies, primarily drug therapies.

We compete with many other companies in the United States providing brachytherapy seeds for the treatment of prostate cancer, including Oncura, a division of Amersham Health, C.R. Bard, Inc., Theragenics Corporation, North American Scientific, Inc., and others.  The primary competitive factors in this market are technologies that support efficient preparation and implantation of radioactive sources through improved product delivery, price, product offering, customer service, and consistent quality.  We believe that we have the third largest market share for iodine seeds and palladium seeds.

We compete with a number of other companies in the pubovaginal sling and pelvic floor reconstruction market, including J&J Gynecare, C.R. Bard, Inc., American Medical Systems, Inc., Boston Scientific Microvasive division, and others.  As a first line treatment, the demand factors for this market include having a wide selection of materials and offering the surgeon multiple choices of procedure options to meet specific patient requirements.  We believe we offer the widest selection of choices including allograft, bioresorbable and synthetic materials that may be placed through a number of surgical techniques.  We also believe that our patented surgical method provides the least invasive treatment for stress urinary incontinence.

By superior design and active marketing of catheters and other disposable incontinence products, we have been able to compete successfully against larger companies in this market.  C.R. Bard, Inc., Hollister, Inc., Kendall (a division of Tyco HealthCare), and Coloplast Corporation are the dominant competitors in the worldwide market.  We compete primarily on the basis of product design and performance, and by providing product support and related services to health care professionals and consumers.  The fiscal 2001 Porges S.A. acquisition and the fiscal 2003 acquisition of the urology and ostomy businesses of Portex provided us with a significant presence in the European market.

7

Government Regulations

General

As a manufacturer of medical devices our manufacturing processes and facilities are subject to continuing review by the FDA and various state and international agencies.  These agencies inspect us and our facilities from time to time to determine whether we are in compliance with various regulations relating to manufacturing practices and other requirements.  The FDA has the power to prevent or limit further marketing of products based upon the results of these inspections.  These regulations depend heavily on administrative interpretation by various agencies.  There can be no assurance that future interpretations made by the FDA or other regulatory bodies will not adversely affect us.  Failure to comply with FDA regulatory requirements may result in enforcement action by the FDA, including product recalls, suspension or revocation of product approval, seizure of product to prevent distribution, imposition of injunctions prohibiting product manufacture or distribution, and civil or criminal penalties. 

Advertising and promotion of medical devices are regulated by the FDA and the Federal Trade Commission ("FTC") in the U.S. and by analogous agencies internationally.  A determination that we are in violation of such regulations could lead to imposition of various penalties, including warning letters, product recalls, injunctive relief, civil penalties, or prosecution.

Products and materials manufactured internationally may come under Homeland Security statutes from time to time and could be restricted entry into the United States by FDA and U.S. Customs.  The restricted entry of such products and materials could affect the manufacturing and sale of product domestically and internationally.

Medical Device Amendments of 1976

Under the "Medical Device Amendments of 1976" as amended, the FDA has the authority to adopt regulations that: (i) set standards and general controls for medical devices; (ii) require demonstration of safety and effectiveness or other forms of data support prior to marketing devices which the FDA believes require pre-market approval or clearance; (iii) require test data to be submitted to the FDA prior to evaluation in humans; (iv) permit detailed inspections of device manufacturing facilities; (v) establish Good Manufacturing Practices ("GMPs") that must be followed in device manufacture; (vi) require reporting of certain adverse events, device malfunctions, and other post-market information to the FDA; and (vii) prohibit device exports that do not meet certain requirements.  The FDA also regulates promotional activities by device companies.  All of our products currently marketed are medical devices and are therefore subject to FDA regulation.

The amendments establish complex procedures for FDA regulation of devices.  Devices are placed in three classes:  Class I (general controls to preclude misbranding or adulteration, compliance with labeling and other requirements), Class II (special controls and FDA clearance in addition to general controls), and Class III (a pre-market approval application ("PMAA") before commercial marketing).  Class III devices are the most extensively regulated.  Class III devices require each manufacturer to submit to the FDA a PMAA that includes information demonstrating the safety and effectiveness of the device.  The majority of our aesthetic surgery and urology implants are in Class III, while most of our disposable incontinence products are in Classes I and II.

In 1991, we submitted a pre-market approval application for our silicone gel-filled mammary prostheses to the FDA.  In 1992, the FDA's outside advisory panel on aesthetic surgery products indicated that although there was insufficient data to establish with reasonable certainty that silicone gel implants were safe and effective, there was a public health need for these types of implants.  The FDA adopted the recommendations of the panel.

The FDA denied the pending applications for the use of silicone gel-filled breast implants for augmentation, but provided for the continued availability of the implants for reconstruction and revision purposes on the basis of a public health need.  Since 1993, women have been required to enroll in a clinical program for future follow-up in order to receive gel-filled implants for reconstruction.  Patients are required to sign an informed consent form and physicians must certify that saline implants are not a satisfactory alternative.  We continue to ship these products under the terms of this clinical program, and these shipment activities require device tracking and documentation support to ensure compliance and accountability.

8

In 1993, the FDA published proposed guidelines for the pre-market approval application applicable to our saline-filled breast implants.  We submitted all the required data for our saline implants, and the FDA approved our application on May 10, 2000.  In conjunction with their review of the data, the FDA inspected our manufacturing facility in Irving, Texas and indicated the facility was in substantial compliance with the applicable regulations. 

Concurrently, in 1993, the FDA also published proposed guidelines for the pre-market approval application applicable to our hydraulic inflatable penile prostheses.  We submitted all required data for our penile implants, and received FDA approval on July 14, 2000.  In addition, on July 19, 2002, we received PMA approval from the FDA for our saline-filled testicular implants.

In December 2003, we completed the submission for our silicone gel PMA application to the FDA for breast augmentation, reconstruction and revision.  The FDA has indicated that our PMA "is sufficiently complete to permit a substantive review and is, therefore, suitable for filing."  On January 8, 2004, the FDA released new Draft Guidance for Saline, Silicone Gel, and Alternative Breast Implants.  This new draft guidance has additional requirements from the FDA's previously issued guidance document dated February 2003.  We are in the process of amending our PMA application to meet the new FDA guidelines and to respond to other issues raised by the FDA. 

Biologics

Certain other products being developed by us are regulated by the FDA as biologics under the Public Health Service Act requiring pre-marketing approval, and are subject to regulations and requirements on preclinical and clinical testing, manufacture, labeling, quality control, storage, advertising, promotion, marketing, distribution, and export.  Prior to commercial sale of a biologic, a Biologics License Application ("BLA") that includes results from adequate and well-controlled clinical trials to establish the safety and effectiveness for the product's intended use, and specified manufacturing information must be submitted to, and approved by, the FDA.  FDA inspection of the manufacturing facility during review of the BLA is required to ensure that manufacturing processes conform to FDA-mandated GMPs.  Continued compliance with GMPs is required after product approval, and post-approval changes in manufacturing processes or facilities, product labeling, or other areas require FDA review and approval. 

We have incurred, and will continue to incur, substantial costs relating to laboratory and clinical testing of new and existing products and the preparation and filing of documents in the formats required by the FDA.  The process of obtaining marketing clearance and approvals from the FDA for new products and existing products can be time consuming and expensive, and there is no assurance that such clearances or approvals will be granted.  We also may encounter delays in bringing new products to market as a result of being required by the FDA to conduct and document additional investigations of product safety and effectiveness, which may adversely affect our ability to commercialize additional products or additional applications for existing products.

Texas Facility Review

In May 1998, we entered into a voluntary Consent Decree with the FDA, under which we agreed, among other things, to complete certain re-validations of the manufacturing processes in agreed upon timeframes that were identified during an FDA inspection.  The Consent Decree required us to hire expert consultants to assist in strengthening our compliance program and related processes.  Additionally, under the terms of the Consent Decree, a separate expert consultant was required to conduct annual inspections of the Texas facility and issue a report annually to the FDA.  In August 2003, following a series of inspections by the FDA in May 2000, April 2001, February 2002, and April 2003, we petitioned the U.S. District Court, Northern District of Texas to vacate the Consent Decree.  The Motion was unopposed by the United States Department of Justice.  On August 22, 2003, the Court concluded that the unopposed Motion to Vacate the Consent Decree of Permanent Injunction should be granted.

9

Additional Regulations

As a manufacturer of medical devices and biologics, our manufacturing processes and facilities are subject to regulation and review by international regulatory agencies for products sold internationally.  A medical device may only be marketed in the European Union ("EU") if it complies with the Medical Devices Directive (93/42/EEC) ("MDD") and bears the CE mark as evidence of that compliance.  To achieve this, the medical devices in question must meet the "essential requirements" defined under the MDD relating to safety and performance, and we as manufacturer of the devices must undergo verification of our regulatory compliance by a third party standards certification provider, known as a "Notified Body".  We have obtained CE marking for our products sold in the EU by demonstrating compliance with the ISO 9001, EN46001 and ISO13485 international quality system standards.  Medical device laws and regulations are also in effect in some of the other countries to which we export our products.  These range from comprehensive device approval requirements for some or all of our medical device products, to requests for product data or certifications.  Failure to comply with these international regulatory standards and requirements, and to changes in the international quality system standards, could affect our ability to market and sell products in these markets and may have a significant negative impact on sales and results of operations.

Additional products are being developed, which will be regulated as medicinal products in the EU and as such will require a marketing authorization before they can be introduced into the market.  There are two routes by which this can be achieved: the centralized procedure whereby an approval granted by the European Commission permits the supply of the product in question throughout the EU, or the Mutual Recognition Procedure ("MRP") where a marketing authorization granted by one national authority is "recognized" by the authorities of the other member states in which we intend to supply the products.  The centralized procedure is compulsory for biotechnology products and is optional for certain high-technology products.  All such products which are not authorized by the centralized route must be authorized by the MRP unless the product is designed for a single EU country, in which case a national application can be made.  In each case, the application must contain full details of the product and the research that has been carried out to establish its efficacy, safety and quality.

Our present and future business has been and will continue to be subject to various other laws and regulations, including state and local laws relating to such matters as safe working conditions and disposal of potentially hazardous substances.  We may incur significant costs in complying with such laws and regulations now, or in the future, and any failure to comply may have a material adverse impact on our business.

Environmental Regulation

We are subject to federal, state, local and foreign environmental laws and regulations. Our manufacturing and research and development activities involve the controlled use of hazardous materials, chemicals and biological materials, which require compliance with various laws and regulations regarding the use, storage, and disposal of such materials. We believe that our operations comply in all material respects with applicable environmental laws and regulations in each country where we have a business presence. Although we continue to make expenditures for environmental protection, we do not anticipate any additional significant expenditures, in complying with such laws and regulations, that would have a material impact on our earnings or competitive position. We are not aware of any pending litigation or significant financial obligations arising from current or past environmental practices that are likely to have a material adverse effect on our financial position.  We cannot assure, however, that environmental problems relating to properties owned or operated by us will not develop in the future, nor can we predict whether any such problems, if they were to develop, would require significant expenditures on our part.  In addition, we are unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal.

We are subject to regulation by the United States Environmental Protection Agency in each of our domestic manufacturing facilities.  In addition, in Texas, we are subject to regulation by the local Air Pollution Control District as a result of some of the chemicals used in our manufacturing processes.  In our Oklahoma facility, we are also subject to regulation by the United States Nuclear Regulatory Commission (NRC) due to the manufacture of brachytherapy seeds using radioactive iodine I-125 and palladium Pd-103.  Failure to comply with the regulations and requirements of these various agencies could affect our ability to manufacture products and may have a significant negative impact on sales and results of operations.

10

Medicare, Medicaid and Third-Party Reimbursement

Health care providers that purchase medical devices, such as our products, generally rely on third-party payors, including the Medicare and Medicaid programs and private payors, such as indemnity insurers, employer group health insurance programs and managed care plans, to reimburse all or part of the cost of the products.  Our products in the U.S. are sold principally to hospitals, surgery centers, surgeons and patients directly and, in the case of certain home care products, through dealers and distributors.  We invoice our customers and they remit directly to us.  In some cases, the patient and the procedure may be eligible for reimbursement by third-party payors, including Medicare, Medicaid and other similar programs, but this coverage is invisible to us on a case-by-case basis.  However, we are aware that some of our customers are being reimbursed, in full or in part, for our products or for procedures that utilize our products, and we estimate that as much as 70% or more of our product sales could be reimbursed by these third-party payors.  This reimbursement can be a significant market factor when the product cost represents a major portion of the total procedure cost and the reimbursement for that procedure (or alternative procedures) is changing, or influencing treatment decisions.  As a result, demand for our products is dependent in part on the coverage and reimbursement policies of these payors.  The manner in which reimbursement is sought and obtained for any of our products varies based upon the type of payor involved and the setting in which the product is furnished and utilized by patients.

Payments from Medicare, Medicaid and other third party payors are subject to legislative and regulatory changes and are susceptible to budgetary pressures.  Our customers' revenues and ability to purchase our products and services is therefore subject to the effect of those changes and to possible reductions in coverage or payment rates by third-party payors.  Any changes in the health care regulatory, payment or enforcement landscape relative to our customers' health care services may significantly affect our operations and revenues.  Discussed below are certain factors which could have a significant impact on our future operations and financial condition.  It is difficult to predict the effect of these factors on our operations; however, the effect could be negative and material. 

Medicare

Medicare is a federal program administered by the Centers for Medicare and Medicaid Services ("CMS"), formerly known as HCFA, through fiscal intermediaries and carriers.  Available to individuals age 65 or over, and certain other classes of individuals, the Medicare program provides, among other things, health care benefits that cover, within prescribed limits, the major costs of most medically necessary care for such individuals, subject to certain deductibles and co-payments.  There are three components to the Medicare program relevant to our business:  Part A, which covers inpatient services, home health care and hospice care; Part B which covers physician services, other health care professional services and outpatient services; and Part C or Medicare+Choice, which is a program for managed care plans. 

The Medicare program has established guidelines for the coverage and reimbursement of certain equipment, supplies and services.  In general, in order to be reimbursed by Medicare, a health care item or service furnished to a Medicare beneficiary must be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part.  The methodology for determining (1) the coverage status of our products; and (2) the amount of Medicare reimbursement for our products, varies based upon, among other factors, the setting in which a Medicare beneficiary received health care items and services.  Any changes in federal legislation, regulations and policy affecting Medicare coverage and reimbursement relative to our products could have a material effect on our performance.

11

Inpatient Hospital Setting

A portion of our revenue is derived from our customers who operate inpatient hospital facilities.  Acute care hospitals are generally reimbursed by Medicare for inpatient operating costs based upon prospectively determined rates.  Under the Prospective Payment System, or PPS, acute care hospitals receive a predetermined payment rate based upon the Diagnosis-Related Group, or DRG, into which each Medicare beneficiary stay is assigned, regardless of the actual cost of the services provided.  Certain additional or "outlier" payments may be made to a hospital for cases involving unusually high costs.  Accordingly, acute care hospitals generally do not receive direct Medicare reimbursement under PPS for the distinct costs incurred in purchasing our products.  Rather, reimbursement for these costs is deemed to be included within the DRG-based payments made to hospitals for the services furnished to Medicare-eligible inpatients in which our products are utilized.  Because PPS payments are based on predetermined rates and are often less than a hospital's actual costs in furnishing care, acute care hospitals have incentives to lower their inpatient operating costs by utilizing equipment, devices and supplies, including those sold by us, that will reduce the length of inpatient stays, decrease labor or otherwise lower their costs.  Our product revenue could be affected negatively if acute care hospitals discontinue product use due to insufficient reimbursement, or if other treatment options are perceived to be more profitable.

Outpatient Hospital Setting

 CMS implemented the hospital Outpatient Prospective Payment System, or OPPS, effective July 1, 2000.  OPPS is the current payment methodology for hospital outpatient services, among others.  Services paid under the OPPS are classified into groups called Ambulatory Payment Classifications, or APC.  Services grouped within each APC are similar clinically and in terms of the resources they require.  A payment rate is established for each APC through the application of a conversion factor that CMS updates on an annual basis.  OPPS may cause providers of outpatient services with costs above the payment rate to incur losses on such services provided to Medicare beneficiaries. 

The Balanced Budget Refinement Act of 1999 provides for temporary financial relief from the effects of OPPS through the payment of additional outlier payments and transitional pass-through payments to outpatient providers reimbursed through OPPS who qualify for such assistance.  Transitional pass-through payments are required for new or innovative medical devices, drugs, and biological agents.  The purpose of transitional pass-through payments is to allow for adequate payment of new and innovative technology until there is enough data to incorporate cost for these items into the base APC group.  The qualification of a device for transitional pass-through payments is temporary.  Most of the categories established under the pass-through system expired on January 1, 2003.  At that time, APC payment rates were adjusted to reflect the costs of devices (and drugs and biologics) that received transitional pass-through payments.  In January, 2004, a pass-through methodology was reintroduced for brachytherapy seeds. 

Annually CMS proposes, and after consideration of public comment, implements changes to OPPS and payment rates for the following calendar year.  The OPPS methodology determines the amount hospitals will be reimbursed for procedures performed on an outpatient basis and determines the profitability of certain procedures for the hospital and may impact hospital purchasing decisions. 

The products most affected by these most recent changes in reimbursement rules are our penile implants for the treatment of erectile dysfunction and our brachytherapy seeds for the treatment of prostate cancer.  We cannot predict the final effect that any change in OPPS regulations, including future annual updates, will have on our customers or our penile implant and brachytherapy seed revenues.  Any such effect, however, could be negative if APC groupings become less advantageous, reimbursement allowables decline, or if the OPPS is modified in any other manner detrimental to our business.  

12

Home Setting

Our disposable urological products are provided to Medicare beneficiaries in home care settings.  Medicare, under the Part B program, reimburses beneficiaries, or suppliers accepting assignment, for the purchase or rental of covered Durable Medical Equipment and supplies for use in the beneficiary's home or a home for the aged (as opposed to use in a hospital or skilled nursing facility setting).  As long as the Medicare Part B coverage criteria are met, certain of our products are reimbursed in the home setting pursuant to a fee schedule payment methodology. 

There are increasing pressures on Medicare to control health care costs and to reduce or limit reimbursement rates for home medical equipment, supplies and services, such as urological products.  Medicare is subject to statutory and regulatory changes, retroactive rate adjustments, administrative and executive orders and governmental funding restrictions, all of which could significantly decrease reimbursement payments to our customers for our urological products, which may have a material impact on our revenues.

On February 11, 2003, CMS promulgated an interim final rule implementing its "inherent reasonableness" authority, which allows CMS and third-party insurance carriers to adjust payment amounts by up to 15% per year for certain Medicare covered items and services when the existing payment amounts are determined to be grossly excessive or deficient.  Using this authority, CMS and the carriers may reduce reimbursement levels for certain items and services covered by Medicare Part B, which could have an adverse effect on our results of operations.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003, or MMA, was enacted. The new law significantly changes how Medicare Part B will pay for many medical supplies and products used in the home setting.  Starting in 2007, Medicare will begin to phase in a nationwide competitive bidding program to replace the existing fee schedule payment methodology.  Under competitive bidding, suppliers would compete for the exclusive or limited right to provide items to beneficiaries in a defined region.  CMS may use information on payments from the competitive bidding program to adjust payments in regions not subject to competitive bidding.  The impact of this competitive bidding program on our business is uncertain.  At this time, we do not know with certainty whether urologicals will be subject to inherent reasonableness and/or competitive bidding, nor can we predict the impact of inherent reasonableness and competitive bidding will have on our business. 

Some of our medical supplies may be used by home health agencies ("HHA") in connection with home care services furnished to their patients.  HHAs are reimbursed by Medicare for their services pursuant to a Home Health Prospective Payment System, under which most of the services a Medicare patient receives under a home health plan of care are covered by a single payment received by the home health agency for each 60-day episode of care. Home Health Resource Groups are used to classify patients for purposes of determining payment rates.  The amount of the payment will ultimately depend upon the Home Health Resource Group to which the patient is assigned, and is subject to a variety of adjustments.  The Medicare Prescription Drug, Improvement and Modernization Act of 2003 increased the market basket update by 0.8%, and provided additional reimbursement increases for rural HHAs.  Because our HHA customers generally receive fixed payments for their Medicare covered services, any decrease in reimbursement rates or any increase in HHA operating costs could have a negative impact on our revenues.

13

Skilled Nursing Facility Setting

Skilled nursing facilities, or SNFs, which may purchase our products, are reimbursed by Medicare under a prospective payment system for Medicare covered services.  Under this system, SNFs are paid a predetermined amount per patient, per day, based on the anticipated costs of treating patients. The amount to be paid is determined by assigning each patient upon admission into one of many resource utilization group ("RUG") categories, based upon a patient's acuity level.  Through the RUG reimbursement system, the SNF receives a patient specific prospectively determined daily payment amount intended generally to cover all inpatient services and items for Medicare patients, including use of certain of our products.  Because the RUGs system provides SNFs with fixed daily cost reimbursement, SNFs have become less inclined than in the past to use products which had previously been reimbursed as variable ancillary costs.  CMS issued two increases in SNF rates effective October 1, 2003: a 3.0% increase of the annual update to the market basket and an additional 3.3% market basket increase to correct the underestimate of the market basket forecast in prior years.  Because our SNF customers generally receive fixed payments for their Medicare covered services, any decrease in reimbursement rates or any increase in SNF operating costs could have a negative impact on our revenues.

Medicaid

The Medicaid program is a cooperative federal/state program that provides medical assistance benefits to qualifying low income and medically needy persons.  State participation in Medicaid is optional and each state is given discretion in developing and administering its own Medicaid program, subject to certain federal requirements pertaining to payment levels, eligibility criteria and minimum categories of services.  The coverage, method and level of reimbursement varies from state to state and is subject to each state's budget restraints.  Changes to the coverage, method or level of reimbursement for our products may affect future revenue negatively if reimbursement amounts are decreased or discontinued.

Private Payors

Many third-party private payors, including indemnity insurers, employer group health insurance programs and managed care plans, presently provide coverage for the purchase of our products.  The scope of coverage and payment policies varies among third-party private payors.  Furthermore, many such payors are investigating or implementing methods for reducing health care costs, such as the establishment of capitated or prospective payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective technologies and products by health care providers.  Future changes in reimbursement methods and cost control strategies may limit or discontinue reimbursement for our products and could have a negative effect on revenues and results of operations.

Health Care Fraud and Abuse Laws and Regulations

The federal government has made a policy decision to significantly increase the financial resources allocated to enforcing the health care fraud and abuse laws.  Private insurers and various state enforcement agencies also have increased their level of scrutiny of health care claims and arrangements in an effort to identify and prosecute fraudulent and abusive practices in the health care industry.  We monitor compliance with federal and state laws and regulations applicable to the health care industry in order to minimize the likelihood that we would engage in conduct or enter into contracts that could be deemed to be in violation of the fraud and abuse laws.  The health care fraud and abuse laws to which we are subject include the following, among others:

14

Federal and State Anti-Kickback Laws and Safe Harbor Provisions.  The federal anti-kickback laws make it a felony to knowingly and willfully offer, pay, solicit or receive any form of remuneration in exchange for referring, recommending, arranging, purchasing, leasing or ordering items or services covered by a federal health care program, including Medicare or Medicaid, subject to various "safe harbor" provisions.  The anti-kickback prohibitions apply regardless of whether the remuneration is provided directly or indirectly, in cash or in kind.  Interpretations of the law have been very broad.  Under current law, courts and federal regulatory authorities have stated that this law is violated if even one purpose (as opposed to the sole or primary purpose) of the arrangement is to induce referrals.  A violation of the statute is a felony and could result in civil and administrative penalties, including exclusion from the Medicare or Medicaid program, even if no criminal prosecution is initiated.

The Department of Health and Human Services has issued regulations from time to time setting forth safe harbors, which would guarantee protection of certain limited types of arrangements from prosecution under the statute if all elements of a particular safe harbor are met.  However, failure to fall within a safe harbor or within each element of a particular safe harbor does not mean that an arrangement is per se in violation of the federal anti-kickback laws.  As the comments to the safe harbors indicate, the purpose of the safe harbors is not to describe all illegal conduct, but to set forth standards for certain non-violative arrangements.  If an arrangement violates the federal anti-kickback laws and full compliance with a safe harbor cannot be achieved, we risk greater scrutiny by the Office of the Inspector General, ("OIG"), and, potentially, civil and/or criminal sanctions.  We believe our arrangements are in compliance with the federal anti-kickback laws, and analogous state laws; however, regulatory or enforcement authorities may take a contrary position, and we cannot assure that these laws will ultimately be interpreted in a manner consistent with our practices.

Federal False Claims Act.  We are subject to state and federal laws that govern the submission of claims for reimbursement.  The federal False Claims Act imposes civil liability on individuals or entities that submit (or "cause" to be submitted) false or fraudulent claims to the government for payment.  Violations of the False Claims Act may result in civil monetary penalties for each false claim submitted treble damages and exclusion from the Medicare and Medicaid programs.  In addition, we could be subject to criminal penalties under a variety of federal statutes to the extent that we knowingly violate legal requirements under federal health programs or otherwise present (or cause to be presented) false or fraudulent claims or documentation to the government.  In addition, the OIG may impose extensive and costly corporate integrity requirements upon a health industry participant that is the subject of a false claims judgment or settlement.  These requirements may include the creation of a formal compliance program, the appointment of a government monitor, and the imposition of annual reporting requirements and audits conducted by an independent review organization to monitor compliance with the terms of any such compliance program, as well as the relevant laws and regulations. 

The False Claims Act also allows a private individual to bring a "qui tam" suit on behalf of the government for violations of the False Claims Act, and if successful, the "qui tam" individual shares in the government's recovery.  A qui tam suit may be brought, with only a few exceptions, by any private citizen who has material information of a false claim that has not yet been previously disclosed.  Recently, the number of qui tam suits brought in the health care industry has increased dramatically.  In addition, several states have enacted laws modeled after the False Claims Act.

Product Development

We are focused on the development of new products and improvements to existing products, as well as obtaining FDA approval of certain products and processes, and we maintain the highest quality standards of existing products.  During fiscal 2004, 2003 and 2002, we spent a total of $30,041,000, $22,978,000, and $21,806,000 respectively, for research and development.  

15

Patents and Licenses

It is our policy to protect our intellectual property rights relating to our products when and where possible and appropriate.  Our patents and licenses include those relating to penile prostheses, tissue expanders, a combination breast implant and tissue expander (Becker® implant), pelvic floor products and related surgical implantation methods (trans-obturator approach), body contouring (liposuction) equipment and disposable catheters.  We license technology through supplier and licensing arrangements for certain products, including brachytherapy seeds and breast implants.  We believe that although our patents and licenses are material in their totality, no single patent or license is material to our business as a whole.

In those instances where we have acquired technology from third parties, we have sought to obtain rights of ownership to the technology through the acquisition of underlying patents or licenses.  While we believe design, development, regulatory and marketing aspects of the medical device business represent the principal barriers to entry into such business, we also recognize that our patents and license rights may make it more difficult for our competitors to market products similar to those we produce.  We can give no assurance that our patent rights, whether issued, subject to license, or in process, will not be circumvented, terminated, or invalidated.  Further, there are numerous existing and pending patents on medical products and biomaterials.  We can give no assurance that our existing or planned products do not or will not infringe such rights or that others will not claim such infringement or that we will be able to prevent competitors from challenging our patents or entering markets currently served by us.

Raw Material Supply and Single Source Suppliers

We obtain certain raw materials and components for a number of our products from single source suppliers, including our implant quality silicone elastomers and gel materials for mammary prostheses.  We believe our sources of supply could be replaced if necessary without undue disruption, but it is possible that the process of qualifying new materials and/or vendors for certain raw materials and components could cause an interruption in our ability to manufacture our products and potentially have a negative impact on sales.  No significant interruptions to raw material supplies occurred during fiscal 2004.

Our saline-filled mammary implants, inflatable penile prostheses, catheters and other products are available for sale in the United States under FDA approvals and/or clearances.  Gel-filled mammary implants are only available as part of the adjunct clinical study.  A change in raw material, components or suppliers for these products may require a new FDA submission, and subsequent review and approval.  There is no assurance that such a submission would be approved without delay, or at all.  Any delay or failure to obtain approval may have a significant adverse impact on our sales and results of operations. 

We have secured supplier arrangements for certain products.  Those products includes Tutogen^® processed fascia lata for the Suspend^® Sling, ObTape® and Tutogen^® processed dermis for Axis™, used in pelvic floor reconstruction, BTA Stat^® bladder cancer test, and radioactive sources for our palladium brachytherapy seeds.  These suppliers are our sole-source of these products.  Any interruption in their ability to supply the product may have an adverse impact on our sales and results of operations.  In January 2003, our exclusive distribution and supply agreement with NASI expired and resulted in interruption of our supply of palladium brachytherapy seeds.  This supply interruption contributed to lost sales of approximately $3 million per quarter for the first three quarters of fiscal 2004 and lost sales of approximately $1 million in the fourth quarter. 

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.  

Working Capital

We maintain normal industry levels of inventory in each of the three segments of our business.  This includes significant consignment inventories of our aesthetics products to aid the surgeon in correctly sizing an implant to meet patient needs and to reduce the rate of returns of products that are purchased in order to facilitate sizing options.  Inventories are managed to levels consistent with high levels of customer service.  Additionally, new product introductions require inventory build-ups to ensure success.

16

Our accounts receivable credit terms are consistent with normal industry practices in each of the markets that we sell our products.  Aesthetic surgery product return policies allow for product returns for full or partial credit for up to six months.  It is common practice to order additional quantities and sizes to facilitate correct sizing to meet patient needs.  Consequently, product return rates are high but are considered to be consistent with the industry rates.  See "Application of Critical Accounting Policies - Revenue Recognition" of "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Employees

As of March 31, 2004, we employed approximately 2,050 people, of whom 1,276 were in manufacturing, 434 in sales and marketing, 185 in research and development and 155 in finance and administration.  We have never had a work stoppage due to labor difficulties, and we consider our relations with our employees to be satisfactory.

Executive Officers of the Registrant

Our executive officers as of June 11, 2004 are listed below, followed by brief accounts of their business experience and certain other information.

Name	Age	Position
Christopher J. Conway	65	Chairman of the Board
Eugene G. Glover	61	Senior Vice President, Business Development
Joshua H. Levine	45	President and Chief Executive Officer
Loren L. McFarland	45	Vice President, Chief Financial Officer and Treasurer
Adel Michael	60	Vice Chairman and Secretary
Maher Michael, M.D.	52	Vice President, Medical Director, Clinical and Regulatory Submissions
Bobby K. Purkait	54	Senior Vice President, Business Development
Clarke Scherff	57	Vice President, Regulatory Compliance, Quality Assurance and Compliance Officer
Peter Shepard	58	Senior Vice President, Business Development
Cathy Ullery	51	Vice President, Human Resources

Mr. Conway is a founder of the Company and has served as Chairman of the Board since 1969.  He served as Chief Executive Officer from 1969 through July 1999.  In September 2000, he resumed the positions of Chief Executive Officer and President, and served in these roles until May 2004.  Mr. Conway continues to serve as Chairman of the Board.

Mr. Glover is a founder of the Company and held the position of Vice President, Engineering from 1969 to 1986.  In October 2000, he was appointed Senior Vice President, Advanced Development.  He continued in this role until December 2003, when his focus was shifted to Business Development, where he currently serves as Senior Vice President.

Mr. Levine joined us in October 1996 as Vice President, Sales, Aesthetic Products.  In September 1998, he was promoted to domestic Vice President, Sales and Marketing, Aesthetic Products.  In January 2000, Mr. Levine resigned to join a start-up practice management organization, The Plastic Surgery Company where he was Chief Development Officer until his resignation in September 2000.  (More than a year after his resignation, in March 2002, The Plastic Surgery Company filed a voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.)  In September 2000, Mr. Levine rejoined us as Vice President, Domestic Sales & Marketing for Aesthetic Products, and in November 2001, he assumed global responsibilities for all of aesthetic sales and marketing activities.  Mr. Levine was promoted to Senior Vice President, Global Sales & Marketing in June 2002.  In December 2003, Mr. Levine was promoted to President and Chief Operating Officer, followed by his recent promotion to President and Chief Executive Officer in May 2004.  Prior to joining us, from 1989 to 1996, Mr. Levine was with Kinetic Concepts Inc., a specialty medical equipment manufacturer, in a variety of executive level sales and marketing positions, ultimately serving as Vice President and General Manager of KCI Home Health Care Division.

Mr. McFarland joined us in 1985 as General Accounting Manager.  He was promoted to Assistant Controller in 1987 and to Controller in 1989.  In 2001, Mr. McFarland was promoted to Vice President of Finance and Corporate Controller.  In May 2004, he was promoted to the position of Chief Financial Officer and Treasurer.  From 1981 to 1985, Mr. McFarland was employed by Touche Ross and Co., a public accounting firm, as a Certified Public Accountant and auditor. 

17

Mr. Adel Michael joined us in April 2000 as Senior Vice President, Chief Financial Officer and Treasurer.  He was promoted to Executive Vice President in September 2001.  In December 2003, he was promoted to Vice Chairman.  Mr. Michael relinquished his roles as Chief Financial Officer and Treasurer in May 2004, but remains as Vice Chairman.  Prior to joining us, from 1989 to 2000 he was Vice President, Chief Financial Officer of Getz Brothers, Inc., an international conglomerate with a wide range of products including medical supplies and a subsidiary of the Marmon Group.  From 1983 to 1989 he was a Group Controller for the Marmon Group, Inc.  He was the Controller for Amphenol Corporation, a subsidiary of Allied Corporation, from 1972 to 1983 and was employed by Bell and Howell from 1969 to 1972.

Dr. Maher Michael joined us in February 2002 as Vice President, Clinical and Regulatory Submissions and Medical Director.  Prior to joining us, Dr. Michael was Director, Corporate Regulatory Affairs and Medical Director for APIC, USA, Inc. from 1997 to 2002.  He was Medical Director for ARZCO Medical Systems, Inc., a subsidiary of Marmon Group, Inc., from 1988 to 1996.

Mr. Purkait joined us in February 1986 and has served in various capacities in research and development.  He was promoted to Vice President, Science and Technology in 1988 and to Senior Vice President in April 1998.  In January 2002, his responsibilities were changed to focus on identifying and assessing the value and feasibility of new technologies.  In April 2004, his title was changed to Senior Vice President, Business Development.

Mr. Scherff joined us in July 1995 as Director,Regulatory Affairs following the acquisition of Optical Radiation Corporation, where he held the position of Group Vice President, Quality Assurance/Regulatory Affairs from April 1993 to June 1995.  He was promoted to Vice President, Quality and Regulatory Assurance in June 1997, to Vice President, Regulatory Compliance and Compliance Officer in October 2000, and resumed the duties of quality assurance and designation as Vice President, Regulatory Compliance/Quality Assurance and Compliance Officer.  Prior to Mr. Scherff's employment with us, he held various positions of increasing responsibility for American Hospital Corporation/Baxter Healthcare Corporation during 1980 to 1993, ultimately serving as the Director of Quality Assurance.

Mr. Shepard joined us in 1976 as a sales representative.  In 1982, he was promoted to Vice President, Sales and in 1992 to Vice President, Sales and Marketing for the Surgical Urology and Healthcare products division.  In 1996, he was appointed as Vice President, Business Development.  In October 2000, Mr. Shepard resumed the position of Vice President, Sales and Marketing for the Surgical Urology and Healthcare product lines.  He was promoted to Senior Vice President, Global Sales and Marketing, Urology and Healthcare Products in June 2002.  In January 2004, Mr. Shepard's focus was changed to Business Development, where he is currently a Senior Vice President.

Ms. Ullery joined us in 1998 and served in several capacities in the Human Resources Department.  She was promoted to Director, Human Resources in July 1999, and Vice President, Human Resources in May 2002.  Prior to her employment with us, Ms. Ullery was Director, Organizational Effectiveness for the City of Tucson from 1993 to 1997.  From 1982 to 1993, she held various positions of increasing responsibility for the Arizona Education Association, an affiliate of the National Education Association, ultimately serving as the Executive Manager for Field Services and Member Programs.

Available Information

We maintain a web site at www.mentorcorp.com.  Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, are available, without charge, on our web site, www.mentorcorp/about/investor.htm, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission.  Paper copies are also available, without charge, from Mentor Corporation, 201 Mentor Drive, Santa Barbara, CA 93111, Attention:  Investor Relations.

Risk Factors

Our business faces many risks.  The risks described below may not be the only risks we face.  Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations.  If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer and the trading price of our common stock or the notes offered hereby could decline. You should consider the following risks, as well as the other information included or incorporated by reference in this prospectus, before deciding to invest in our common stock or the notes offered hereby.

18

Significant product liability claims or product recalls may force us to pay substantial damage awards and other expenses that could exceed our accruals and insurance coverage.

The manufacture and sale of medical devices exposes us to significant risk of product liability claims.  In the past, and currently, we have had a number of product liability claims relating to our products, and we may be subject to additional product liability claims in the future, some of which may have a negative impact on our business.  If a product liability claim or series of claims is brought against us for uninsured liabilities or in excess of our insurance coverage, our business could suffer.  Some manufacturers that suffered such claims in the past have been forced to cease operations or even to declare bankruptcy. Additionally, we could experience a material design or manufacturing failure in our products, a quality system failure, other safety issues, or heightened regulatory scrutiny that would warrant a recall of some of our products and could result in exposure to additional product liability claims.

We are subject to substantial government regulation, which could materially adversely affect our business.

The production and marketing of our products and our ongoing research and development, pre-clinical testing and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities both in the U.S. and abroad.  Most of the medical devices we develop must undergo rigorous pre-clinical and clinical testing and an extensive regulatory approval process before they can be marketed.  This process makes it longer, more difficult and more costly to bring our products to market, and we cannot guarantee that any of our products will be approved.  The pre-marketing approval process can be particularly expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing.  In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling, and record-keeping procedures.  If we do not comply with applicable regulatory requirements, such violations could result in non-approval, suspensions of regulatory approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution.

Delays in, withdrawal, or rejection of FDA or other government entity approval of our products, may also adversely affect our business.  Such delays or rejection may be encountered due to, among other reasons, government or regulatory delays, lack of efficacy during clinical trials, unforeseen safety issues, slower than expected rate of patient recruitment for clinical trials, inability to follow patients after treatment in clinical trials, inconsistencies between early clinical trial results and results obtained in later clinical trials, varying interpretations of data generated by clinical trials, or changes in regulatory policy during the period of product development in the U.S. and abroad.  In the U.S., there has been a continuing trend of more stringent FDA oversight in product clearance and enforcement activities, causing medical device manufacturers to experience longer approval cycles, greater risk and uncertainty, and higher expenses. Internationally, there is a risk that we may not be successful in meeting the quality standards or other certification requirements.  Even if regulatory approval of a product is granted, such approval may entail limitations on uses for which the product may be labeled and promoted, or may prevent us from broadening the uses of our current products for different applications.  In addition, we may not receive FDA approval to export our products in the future, and countries to which products are to be exported may not approve them for import.

Our manufacturing facilities also are subject to continual governmental review and inspection.  The FDA has stated publicly that compliance with manufacturing regulations will be scrutinized more strictly.  A governmental authority may challenge our compliance with applicable federal, state and foreign regulations.  In addition, any discovery of previously unknown problems with one of our products or facilities may result in restrictions on the product or the facility, including withdrawal of the product from the market or other enforcement actions.

From time to time, legislative or regulatory proposals are introduced that could alter the review and approval process relating to medical devices.  It is possible that the FDA or other governmental authorities will issue additional regulations which would further reduce or restrict the sales of our present or proposed products.  Any change in legislation or regulations that govern the review and approval process relating to our current and future products could make it more difficult and costly to obtain approval for new products, or to produce, market, and distribute existing products.

19

If we are unable to continue to develop and commercialize new technologies and products, we may experience a decrease in demand for our products or our products could become obsolete.

The medical device industry is highly competitive and is subject to significant and rapid technological change.  We believe that our ability to develop or acquire new technologies is crucial to our success.  We are continually engaged in product development, improvement programs and required clinical studies to maintain and improve our competitive position.  Any significant delays in the above or termination of our clinical trials would materially and adversely affect our development and commercialization timelines.  We cannot guarantee that we will be successful in enhancing existing products, or in developing or acquiring new products or technologies that will timely achieve regulatory approval.  

There is also a risk that our products may not gain market acceptance among physicians, patients and the medical community generally.  The degree of market acceptance of any medical device or other product that we develop will depend on a number of factors, including demonstrated clinical safety and efficacy, cost-effectiveness, potential advantages over alternative products, and our marketing and distribution capabilities.  Physicians will not recommend our products if clinical and other data or other factors do not demonstrate their safety and efficacy compared to other competing products, or if our products do not best meet the particular needs of the individual patient. 

Our products compete with a number of other medical products manufactured by major companies, and may also compete with new products currently under development by others.  On January 8, 2004 the FDA released new Draft Guidance for Saline, Silicone Gel, and Alternative Breast Implants.  This new draft guidance has additional requirements from the FDA's previously issued guidance document dated February 2003.  We completed our PMA application to the FDA for the pre-market approval for our silicone gel-filled implants for breast augmentation, reconstruction and revision in December 2003, using the earlier guidance document provided by the FDA.  The FDA has indicated that our PMA "is sufficiently complete to permit a substantive review and is, therefore, suitable for filing."  Any change in FDA guidance, such as that announced on January 8^th by the FDA, may delay or may otherwise adversely affect our application or its review or approval by the FDA.  A delay, denial, or "not approvable" response by the FDA would have a material adverse affect on our commercialization timelines, competitive position and ultimately our revenue and operating results.  We are in the process of amending our PMA application to meet the new FDA guidelines and responding to other issues raised by the FDA, and these processes may require substantial time and expense, with no assurances of success.  If our competitor gains FDA approval to market its competitive products before we do, our competitive position may suffer.  If our new products do not achieve significant market acceptance, or if our current products are not able to continue competing successfully in the changing market, our sales and earnings may not grow as much as expected, or may even decline.

If we suffer negative publicity concerning the safety of our products, our sales may be harmed and we may be forced to withdraw products.

Physicians and potential patients may have a number of concerns about the safety of our products, including our breast and other implants, whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research.  Negative publicity-whether accurate or inaccurate-concerning our products could reduce market or governmental acceptance of our products and could result in decreased product demand or product withdrawal.  In addition, significant negative publicity could result in an increased number of product liability claims, whether or not these claims are supported by applicable law.

If changes in the economy and consumer spending reduce consumer demand for our products, our sales and profitability could suffer.

Certain elective procedures, such as breast augmentation, body contouring, and surgical treatment for male impotence are typically not covered by insurance.  Adverse changes in the economy may cause consumers to reassess their spending choices and reduce the demand for these surgeries and could have an adverse effect on consumer spending.  This shift could have an adverse effect on our sales and profitability.

20

If we are unable to implement new information technology systems, our ability to manufacture and sell products, maintain regulatory compliance and manage and report our business activities may be impaired, delayed or diminished, which would cause substantial business interruption and loss of sales, customers and profits.

We are in the process of implementing an enterprise resource planning system that will be our primary business management system for nearly all of our businesses worldwide.  Many other companies have had severe problems with computer system implementation of this nature and scope.  We are using a controlled project plan and we believe we have assigned adequate staffing and other resources to the project to ensure its successful implementation; however there is no assurance that the design will meet our current and future business needs or that it will operate as designed.  We are heavily dependent on such computer systems, and any failure or delay in the system implementation would cause a substantial interruption to our business, additional expense, and loss of sales, customers, and profits.

If we are unable to acquire companies, businesses or technologies as part of our growth strategy or to successfully integrate past acquisitions, our growth, sales and profitability could suffer.

A significant portion of our recent growth has been the result of acquisitions of other companies, businesses and technologies.  We intend to continue to acquire other businesses and technologies to facilitate our future business strategies, although there can be no assurance that we will be able to identify appropriate acquisition candidates, consummate transactions or obtain agreements with terms favorable to us.  Further, once a business is acquired, any inability to integrate the business, failure to retain and develop its workforce, or establish and maintain appropriate communications, performance expectations, regulatory compliance procedures, accounting controls, and reporting procedures could adversely affect our future sales and earnings.

If our intellectual property rights do not adequately protect our products or technologies, others could compete against us more directly, which would hurt our profitability.

Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets, operate without infringing upon the proprietary rights of others, and prevent others from infringing on our patents, trademarks and other intellectual property rights.  We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents, trademarks or licenses.  Patent protection generally involves complex legal and factual questions and, therefore, enforceability of patent rights cannot be predicted with certainty; thus, any patents that we own or license from others may not provide us with adequate protection against competitors.  Moreover, the laws of certain foreign countries do not recognize intellectual property rights or protect them to the same extent as do the laws of the United States. 

In addition to patents and trademarks, we rely on trade secrets and proprietary know-how.  We seek protection of these rights, in part, through confidentiality and proprietary information agreements.  These agreements may not provide sufficient protection or adequate remedies for violation of our rights in the event of unauthorized use or disclosure of confidential and proprietary information.  Failure to protect our proprietary rights could seriously impair our competitive position.

If third parties claim we are infringing their intellectual property rights, we could suffer significant litigation or licensing expenses or be prevented from marketing our products.

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of others.  However, regardless of our intent, our technologies may infringe upon the patents or violate other proprietary rights of third parties.  In the event of such infringement or violation, we may face expensive litigation and may be prevented from selling existing products and pursuing product development or commercialization.

We depend on single and sole source suppliers for certain raw materials and licensed products and the loss of any supplier could adversely affect our ability to manufacture or sell many of our products.

We currently rely on single or sole source suppliers for raw materials, including silicone, used in many of our products.  In the event that they cannot meet our requirements, we cannot guarantee that we would be able to produce a sufficient amount of quality raw materials in a timely manner.  We also depend on third party manufacturers for components and licensed products.  If there is a disruption in the supply of these products, our sales and profitability would be adversely affected.

21

On January 31, 2003, our sole source brachytherapy iodine and palladium seed supply agreement with North American Scientific, Inc. (NASI) expired, and we were unable to obtain a sufficient supply of seeds which, along with other factors, resulted in a loss of sales of approximately $10 million during fiscal 2004.  We now manufacture iodine seeds but we continue to rely on a sole source supplier for our supply of palladium seeds.  Future interruptions of the supply of seeds, could result in further lost sales.

Our international business exposes us to a number of risks.

More than one-third of our sales are derived from international operations.  Accordingly, any material decrease in foreign sales would have a material adverse effect on our overall sales and profitability. Most of our international sales are denominated in Euros, British Pounds, Canadian Dollars or U.S. Dollars.  Depreciation or devaluation of the local currencies of countries where we sell our products may result in our products becoming more expensive in local currency terms, thus reducing demand, which could have an adverse effect on our operating results.  Our operations and financial results may be adversely affected by other international factors, including:

• foreign government regulation of medical devices;
• product liability, intellectual property and other claims;
• new export license requirements
• political or economic instability in our target markets;
• trade restrictions;
• changes in tax laws and tariffs;
• managing foreign distributors and manufacturers;
• managing foreign branch offices and staffing; and
• competition.

Health care reimbursement or reform legislation could materially affect our business.

If any national health care reform or other legislation or regulations are passed that imposes limits on the amount of reimbursement for certain types of medical procedures or products, or on the number or type of medical procedures that may be performed, or that has the effect of restricting a physician's ability to select specific products for use in patient procedures, such changes could have a material adverse effect on the demand for our products.  Our revenues depend largely on U.S. and foreign government health care programs and private health insurers reimbursing patients' medical expenses.  Physicians, hospitals, and other health care providers may not purchase our products if they do not receive satisfactory reimbursement from these third-party payers for the cost of procedures using our products.  In the U.S., there have been, and we expect that there will continue to be, a number of federal and state legislative and regulatory proposals to implement greater governmental control over the healthcare industry and its related costs.  These proposals create uncertainty as to the future of our industry and may have a material adverse effect on our ability to raise capital or to form collaborations.  In a number of foreign markets, the pricing and profitability of healthcare products are subject to governmental influence or control.  In addition, legislation or regulations that impose restrictions on the price that may be charged for healthcare products or medical devices may adversely affect our sales and profitability.

If our use of hazardous materials results in contamination or injury, we could suffer significant financial loss.

Our manufacturing and research activities involve the controlled use of hazardous materials.  We cannot eliminate the risk of accidental contamination or injury from these materials.  In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and any applicable insurance coverages.

22

Future changes in financial accounting standards may cause adverse unexpected revenue or expense fluctuations and affect our reported results of operations.

A change in accounting standards could have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective.  The Financial Accounting Standards Board ("FASB") has issued a Proposed Statement of Financial Accounting Standards ("SFAS"), Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95" ("Exposure Draft").  The Exposure Draft would eliminate the ability to account for share-based compensation transactions using Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require such transactions be accounted for using a fair-value-based method and the resulting cost recognized in the financial statements.  The approval of this exposure draft or any changes requiring that we record compensation expense in the statement of operations for employee stock options using the fair value method could have a significant negative effect on our reported results.  New pronouncements and varying interpretations of existing pronouncements have occurred and may occur in the future.  Changes to existing rules or current practices may adversely affect our reported financial results of our business.

Our reported earnings per share may be more volatile because of the contingent conversion provision of the notes.

Holders of our 2¾% convertible notes are entitled to convert the notes into our common stock during any fiscal quarter prior to January 1, 2019, if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading day period ending on the first trading day of such fiscal quarter is more $35.15, if we have called the notes for redemption, or upon other specified events.  Until one of these contingencies is met, the shares underlying the notes are not included in the calculation of our basic or diluted earnings per share.  Should a contingency be met, diluted earnings per share would be expected to decrease as a result of the inclusion of the underlying shares in the diluted earnings per share calculation.  Volatility in our common stock price could cause this condition to be met in one quarter and not in a subsequent quarter, increasing the volatility of our diluted earnings per share.

Hedging transactions and other transactions may affect the value of the notes.

In connection with the original issuance of our 2¾% convertible notes in December 2003, we entered into convertible note hedge and warrant transactions with respect to our common stock with Credit Suisse First Boston International, an affiliate of Credit Suisse First Boston LLC, the initial purchaser of the notes, to reduce the potential dilution from conversion of the notes up to a price of our common stock of $39.43 per share.  In connection with these hedging arrangements, Credit Suisse First Boston International, and/or its affiliates, has taken and, we expect, will continue to take positions in our common stock in secondary market transactions and/or will enter into various derivative transactions.  Such hedging arrangements could adversely affect the market price of our common stock.  In addition, the existence of the notes may encourage short selling in our common stock by market participants because the conversion of the notes could depress the price of our common stock.

Litigation may harm our business or otherwise distract our management.

Substantial, complex or extended litigation could cause us to incur large expenditures and distract our management, and could result in significant monetary or equitable judgments against us.  For example, lawsuits by employees, patients, customers, licensors, licensees, suppliers, distributors, stockholders, or competitors could be very costly and could substantially disrupt our business.  Disputes from time to time with such companies or individuals are not uncommon, and we cannot assure that we will always be able to resolve such disputes out of court or on terms favorable to us.

23

Our publicly-filed SEC reports are reviewed by the SEC from time to time and any significant changes required as a result of any such review may result in material liability to us and have a material adverse impact on the trading price of our common stock.

The reports of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements and to enhance the overall effectiveness of companies public filings, and comprehensive reviews of such reports are now required at least every three years under the Sarbanes-Oxley Act of 2002.  SEC reviews often occur at the time companies file registration statements such as the registration statement we filed in connection with our convertible bond offering, but reviews may also be initiated at any time by the SEC.  While we believe that our previously filed SEC reports comply, and we intend that all future reports will comply in all material respects with the published rules and regulations of the SEC, we could be required to modify or reformulate information contained in prior filings as a result of an SEC review.  Any modification or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of our common stock.

Our operating results may fluctuate substantially, and could precipitate unexpected movement in the price of our common stock and convertible notes. 

Our common stock trades on the New York Stock Exchange under the symbol "MNT."  On March 31, 2004, the closing price of our common stock on the New York Stock Exchange was $30.10 per share.  On December 22, 2003, we completed an offering of $150 million of convertible subordinated notes ("notes") due January 1, 2024 pursuant to Rule 144A under the Securities Act of 1933.  The notes bear interest at 2¾% per annum, are convertible into shares of our common stock at a conversion price of $29.289 per share and are subordinated to all existing and future senior debt.  The market prices of our stock and convertible securities are subject to significant fluctuations in response to the factors set forth above and other factors, many of which are beyond our control such as changes in pricing policies by our competitors and the timing of significant orders and shipments. 

Such factors, as well as other economic conditions, may adversely affect the market price of our securities, including our common stock and the notes.  There could be periods in which we experience shortfalls in revenue and/or earnings from levels expected by securities analysts and investors, which could have an immediate and significant adverse effect on the trading price of our securities, including our common stock and the notes.

24

ITEM 2. PROPERTIES.

At March 31, 2004, we owned and leased the following facilities:

Location	Total Sq. Ft.	Principle Segment and Use
Owned Properties
Minnesota	185,000	Surgical Urology, Clinical and Consumer Healthcare manufacturing, warehousing and administrative offices
France	124,000	Surgical Urology, Clinical and Consumer Healthcare manufacturing, warehousing and administrative offices
Netherlands	65,000	Aesthetic and General Surgery manufacturing, warehousing and administrative offices
Oklahoma	25,000	Surgical Urology manufacturing, warehousing and administrative offices
United Kingdom	13,000	Clinical and Consumer Healthcare manufacturing, warehousing and administrative offices
	412,000
Leased Properties
Texas	134,000	Aesthetic and General Surgery Manufacturing, warehousing and administrative offices
California	126,000	Services all Segments Corporate offices, research and development, and sales and marketing
France	99,000	Surgical Urology, Clinical and Consumer Healthcare Manufacturing, warehousing and administrative offices
United Kingdom	91,000	Clinical and Consumer Healthcare Manufacturing, warehousing and administrative offices
Arizona	20,000	Aesthetic and General Surgery Manufacturing, warehousing and administrative offices
Minnesota	17,000	Surgical Urology, Clinical and Consumer Healthcare Manufacturing, warehousing and administrative offices
Wisconsin	10,000	Aesthetic and General Surgery Research and development
	497,000

Our leases have terms ranging from 1 to 125 years, many of which have options to renew on terms we consider favorable.  In addition to the facilities mentioned above, we have international sales offices throughout ten countries where we lease office and warehouse space ranging from 1,000 to 8,000 square feet.  We anticipate that we will be able to extend or renew the leases that expire in the near future on terms satisfactory to us, or if necessary, locate substitute facilities on acceptable terms.

We believe our facilities are generally suitable and adequate to accommodate our current operations and additional suitable facilities are readily available to accommodate future expansion as necessary.

For information regarding lease obligations see Note N "Commitments" under "Notes to the Consolidated Financial Statements."

25

ITEM 3. LEGAL PROCEEDINGS.

On February 20, 2004, we filed a patent infringement suit in the United States Court for the District of Minnesota against American Medical Systems, Inc. ("AMS").  The suit alleges that AMS is inducing infringement and contributing to the infringement of our United States Patent No. 6,638,211 B2 ("'211 Patent"), a patent involving a method for the treatment of urinary incontinence in women, by AMS offering for sale and selling its Monarc Subfacial Hammock in the United States.  The suit seekscompensatory and treble damages.  On February 23, 2004, AMS served us with a Complaint for declaratory judgment, which was filed in the same District Court on October 28, 2003, seeking a declaration that AMS does not infringe any valid claim of the '211 Patent and that the claims of the '211 Patent are invalid and unenforceable against AMS.  Because the cases involve the same facts, they will be heard by the same judge.

On March 4, 2004, John H. Alico, et. al., d/b/a PTF Royalty Partnership ("PTF") filed a lawsuit against us in the Business Litigation Session of the Superior Court of Massachusetts, Suffolk County in which PTF alleges, among other things, breach of a merger agreement that involved our acquisition of Mentor O&O, Inc. ("O&O"), an unrelated entity at that time, which was dated as of March 14, 1990 ("Merger Agreement") (prior to the merger, O&O had no affiliation with us).  PTF alleges that we breached the terms of the Merger Agreement by failing to exert commercially reasonable and diligent efforts to obtain approval by the FDA for a product used for the treatment of urinary incontinence and by failing to accurately account for and pay royalties due thereunder.  PTF seeks damages in excess of $18 million, which is the maximum amount of royalties PTF could have received under the Merger Agreement.  After almost ten years, in or about January 2001, we elected to discontinue pursuing FDA approval for the product, given the FDA's repeated and ongoing concerns regarding the product's use for urinary incontinence.  We complied with all of our obligations under the Merger Agreement, which specifically provided that we were under no obligation to engage in efforts or expenditures in respect of the product which we in good faith deemed to be inadvisable based on various factors.  Accordingly, we intend to vigorously defend the lawsuit.  Dr. Richard Young, a member of our Board of Directors since March 1990, is a partner of PTF and is a named plaintiff in the above action.  Dr. Young was a shareholder and principal of O&O prior to the merger and was instrumental in facilitating the transition after the merger.

In addition, in the ordinary course of our business we experience other varied types of claims that sometimes result in litigation or other legal proceedings.  Although there can be no certainty, we do not anticipate that any of these proceedings will have a material adverse effect on us.

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

No matters were submitted for a vote of our shareholders during the fourth quarter of the fiscal year ended March 31, 2004.

26

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock has traded on the New York Stock Exchange under the symbol "MNT" since August 2003.  Prior to August 2003, our common stock was traded on the Nasdaq National Market.  The high and low sales prices of our common stock, as reported by the Nasdaq or the NYSE, as applicable, for the two most recent fiscal years and as restated for a two-for-one stock split effected January 21, 2003, are set forth below. 

Year Ended March 31, 2004	High	Low
Quarter ended March 31, 2004	$31.33	$23.87
Quarter ended December 31, 2003	24.37	20.00
Quarter ended September 30, 2003	25.00	19.09
Quarter ended June 30, 2003	$22.43	$17.01
Year Ended March 31, 2003	High	Low
Quarter ended March 31, 2003	$20.08	$15.58
Quarter ended December 31, 2002	22.02	16.14
Quarter ended September 30, 2002	18.16	13.03
Quarter ended June 30, 2002	$20.56	$17.33

According to the records of our transfer agent, there were approximately 925 holders of record of our common stock on June 7, 2004.  However, the majority of shares are held by brokers and other institutions on behalf of shareholders in approximately 8,500 accounts.  The actual number of total shareholders may be less due to shareholders holding accounts at more than one institution.

Dividend Policy

In fiscal 2002, we declared and paid a quarterly dividend of $.03 per share of common stock for all four fiscal quarters.  In fiscal 2003, we declared a quarterly dividend of $.03 per share of common stock for the first and second quarters.  On December 13, 2002, the Board of Directors authorized a two-for-one stock split in the form of a 100% stock dividend to be distributed on or about January 17, 2003 to shareholders of record on December 31, 2002.  A cash dividend for the third quarter of fiscal 2003 equivalent to that in the first and second quarters, but reflecting the two-for-one split, would have resulted in a dividend of $.015 per share.  However, the dividend was declared as $.02 per share payable to shareholders after the distribution of the additional shares issued in the stock split.  The fourth quarter dividend of $.02 per common share was declared on February 28, 2003 to shareholders of record on March 31, 2003 and payable on April 21, 2003.  In fiscal 2004, we declared and paid a quarterly dividend of $.02 per share of common stock for the first fiscal quarter.  On August 1, 2003, the Board of Directors authorized a significant increase in its cash dividend.  The quarterly dividend payable on the common stock was increased from $.02 to $.15 per share.  It is our intent to continue to pay dividends for the foreseeable future subject to, among other things, Board approval, cash availability and alternative cash needs.  Our existing credit agreement limits the aggregate amount of dividends payable in any year to one-half of our net income of the preceding year.

27

Issuer Purchases of Equity Securities

Our Board of Directors has authorized a stock repurchase program, primarily to offset the dilutive effect of our employee stock option plans, to provide liquidity to the market and to reduce the overall number of shares outstanding.  All shares repurchased under the program are retired and are no longer deemed to be outstanding.  The timing of repurchases is subject to market conditions, cash availability, and blackout periods during which we are restricted from repurchasing shares.  We believe, but cannot be certain, that we will continue to repurchase shares during fiscal 2005, although we cannot estimate or guarantee the amount of shares to be repurchased during this time.  The table below sets forth certain share repurchase information for the quarter ended March 31, 2004.

ISSUER PURCHASES OF EQUITY SECURITIES
(in thousands, except per share amounts)	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Fourth Quarter 2004
January 1 - January 31, 2004	249	$  24.99	249	5,595
February 1 - February 29, 2004	-	-	-	5,595
March 1 - March 31, 2004	2,000	30.37	2,000	3,595
Total	2,249	$  29.77	2,249	3,595

a.    In the first quarter of fiscal 1996, our Board of Directors authorized an ongoing stock repurchase program.  The initial authorization was for the repurchase of up to 1.0 million shares.  Subsequently, the Board of Directors has authorized the repurchase of an additional 19.2 million shares including 2.2 million and 5.0 million shares in May and December 2003, respectively.  These share amounts have been adjusted for the two-for-one stock split effected January 21,  2003.

b.   We have not set a date for the stock repurchase program to expire.

28

Issuance of Convertible Subordinated Notes

On December 22, 2003, we completed an offering of $150 million in aggregate principal amount of our 2¾% convertible subordinated notes due January 1, 2024.  From the aggregate offering price of $150 million, we received approximately $145.9 million in net proceeds after deducting the aggregate initial purchasers' discount and other fees of approximately $4.1 million.  Interest is payable on the notes on January 1^st and July 1^st of each year, beginning July 1, 2004.

Holders may require us to repurchase for cash all or part of their notes on January 1, 2009, at a price equal to 100.25% of the principal amount of the notes being repurchased.  In addition, holders may require us to repurchase for cash all or part of their notes on January 1, 2014 and January 1, 2019, or upon a change in control, at a price equal to 100% of the principal amount of the notes being repurchased.

The notes will be convertible into shares of our common stock, subject to the conditions described below, at an initial conversion price of $29.289 per share of common stock, subject to adjustments for certain events.  The closing price of our common stock on the New York Stock Exchange on December 16, 2003 was $22.53 per share.  The initial conversion price is equivalent to a conversion rate of approximately 34.1425 shares of common stock per $1,000 principal amount of notes.  The notes are convertible if any one of the following conditions is satisfied:

• during any fiscal quarter prior to January 1, 2019, if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading day period ending on the first trading day of such fiscal quarter is more than 120% of the conversion price per share of our common stock on such trading day;
   
• any business day on or after January 1, 2019, if the closing price of our common stock on the immediately preceding trading day is more than 120% of the conversion price per share of our common stock on such trading day;
   
• during the five business day period after any five consecutive trading day period if the average of the trading prices of the notes for such five consecutive trading day period is less than 98% of the average of the conversion values of the notes during such period, subject to certain limitations;
   
• if we have called the notes for redemption; or
   
• if we make certain significant distributions to holders of our common stock or we enter into specified corporate transactions.

We may redeem for cash all or part of the notes on January 1, 2009, at a price equal to 100.25% of the principal amount of the notes being redeemed, plus accrued interest.  After January 1, 2009, we may redeem for cash all or part of the notes at a price equal to 100% of the principal amount of the notes being redeemed, plus accrued interest.

The notes are subordinated to our existing and future senior indebtedness and effectively subordinated to all indebtedness and other liabilities of our subsidiaries.  Our common stock is quoted on the New York Stock Exchange under the symbol "MNT." 

The offer and sale of the notes was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Rule 144A promulgated thereunder.  During the fourth quarter, we filed a registration statement for the resale of the notes and the shares of common stock issuable upon conversion of the notes within 90 days after the closing of the offering.

29

We used $18.5 million of the proceeds for the net cost of convertible note hedge and warrants transactions with respect to our common stock to limit exposure to potential dilution from conversion of the notes.  The hedge transaction is designed to offset the conversion feature of the bonds for the same conversion price and same number of shares and cost $30.4 million.  We also issued warrants for net proceed of $11.9 million.  Under the terms of the warrants, upon exercise, we will issue 5,121,377 shares of our common stock at $39.4275 per share.  The warrants were sold to Credit Suisse First Boston and the sale was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section  4(2) of the Act.  We used approximately $102 million of the remaining net proceeds of the offering for repurchases of shares of our common stock.  We intend to use the remaining $25.4 million net proceeds of the offering, hedge and warrant transactions for general corporate purposes, which may include additional repurchases of our common stock.  We may also use a portion of the net proceeds for the acquisition of businesses, products, product rights or technologies.  Pending such uses, we intend to invest the net proceeds in investment-grade obligations and interest-bearing money market instruments.

30

ITEM 6. SELECTED FINANCIAL DATA.

The selected consolidated financial information presented below is obtained from our audited consolidated financial statements for each of the five years ending March 31, 2004.   This selected financial data should be read together with our consolidated financial statements and related notes, as well as the discussion under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."

	Year Ended March 31,
(in thousands, except per share data)	2004	2003(1)	2002(2)	2001(2)	2000
Statement of Income Data:
Net sales	$ 422,168	$ 382,384	$ 321,062	$  268,894	$  249,345
Gross profit	261,385	229,507	190,607	164,198	154,687
Operating income	79,069	76,977	57,516	41,787	39,431
Income before income taxes -
Continuing operations	80,140	79,039	59,216	46,549	42,389
Income taxes - continuing operations	25,361	23,219	17,396	14,731	13,563
Income from continuing operations	54,779	55,820	41,820	31,818	28,826
Discontinued operations, net of income tax	-	-	-	260	7,713
Net income	$   54,779	$   55,820	$   41,820	$   32,078	$   36,539
Basic earnings (loss) per share(3):
Continuing operations	$      1.20	$       1.20	$       0.88	$      0.67	$      0.59
Discontinued operations	-	-	-	0.01	0.16
Basic earnings per share	$      1.20	$       1.20	$       0.88	$      0.68	$      0.75
Diluted earnings (loss) per share(3):
Continuing operations	$      1.15	$       1.15	$       0.85	$      0.66	$     0.57
Discontinued operations	-	-	-	-	0.16
Diluted earnings per share	$      1.15	$       1.15	$       0.85	$      0.66	$     0.73
Dividends per common share	$      0.47	$       0.07	$       0.06	$      0.05	$     0.05
Average outstanding shares(3):
Basic	45,543	46,428	47,278	47,254	48,768
Diluted	47,757	48,388	48,926	48,372	50,168
Balance Sheet Data:
Working capital	$ 198,109	$ 167,996	$ 126,556	$ 112,461	$ 124,141
Total assets	498,779	398,088	324,636	290,837	230,706
Long-term accrued liabilities, less current    portion	17,996	13,970	12,873	10,691	-
Convertible subordinated notes	150,000	-	-	-	-
Shareholders' equity	$ 198,304	$ 276,710	$ 224,178	$ 196,306	$ 183,642

⁽¹⁾   Results in fiscal 2003 include the impact of the Portex acquisition in May 2002.
⁽²⁾   Results after fiscal 2000 include the impact of the Porges S.A. acquisition in February 2001.
⁽³⁾   Per share amounts and shares outstanding have been adjusted to reflect a two-for-one stock split effected January 21, 2003.

31

 

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

The following discussion should be read together with our consolidated financial statements and related notes, which are included in this report, and the "Risk Factors" information in the "Business" section of this report.  All per share amounts and shares outstanding amounts have been adjusted to reflect a two-for-one stock split effected January 21, 2003.

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, 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. 

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize product revenue, net of discounts, returns, and rebates in accordance with Statement of Financial Accounting Standards ("SFAS") No. 48, "Revenue Recognition When the Right of Return Exists," and Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition."

As required by these standards, revenue is recorded when persuasive evidence of a sales arrangement exists, delivery has occurred, the buyer's price is fixed or determinable, contractual obligations have been satisfied, and collectibility is reasonably assured.  These requirements are met, and sales and related cost of sales are recognized upon the shipment of products, or in the case of consignment inventories, upon the notification of usage by the customer.  We record estimated reductions to revenue for customer programs and other volume-based incentives.  Should the actual level of customer participation in these programs differ from those estimated, additional adjustments to revenue may be required.  We also allow credit for products returned within our policy terms.  We record an allowance for estimated returns at the time of sale based on historical experience, recent gross sales levels and any notification of pending returns.  Should the actual returns differ from those estimated, additional adjustments to revenue and cost of sales may be required.

Accounts Receivable

We market our products to a diverse customer base, principally throughout the United States, Canada and Western Europe.  We grant credit terms in the normal course of business to our customers, primarily hospitals, doctors and distributors.  We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined through review of their current credit information.  We continuously monitor collections and payments from customers and maintain allowances for doubtful accounts for estimated losses resulting from the inability of some of our customers to make required payments.  Estimated losses are based on historical experience and any specifically identified customer collection issues.  If the financial condition of our customers, or the economy as whole, were to deteriorate resulting in an impairment of our customers' ability to make payments, additional allowances may be required.  These additional allowances for estimated losses would be included in selling, general and administrative expenses.

32

Inventories

We value our inventory at the lower of cost, based on the first-in first-out ("FIFO") cost method, or the current estimated market value of the inventory.  We write down our 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.  If actual future demand or market conditions differ from those projected by us, additional inventory valuation adjustments may be required.  These additional valuation adjustments would be included in cost of goods sold.

Warranties and Related Reserves

We provide an accrual for the estimated cost of product warranties and product liability claims at the time revenue is recognized.  Such accruals are based on estimates, which are based on relevant factors such as historical experience, the warranty period, estimated costs, levels of insurance and insurance retentions, identified product quality issues, if any, and, to a limited extent, information developed by the insurance company using actuarial techniques.  These accruals are analyzed periodically for adequacy.  While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, the warranty obligation is affected by reported rates of product problems and costs incurred in correcting product problems.  Should actual reported problem rates or the resulting costs differ from our estimates, adjustments to the estimated warranty liability may be required.  These adjustments would be included in selling, general and administrative expenses.

Goodwill and Intangible Asset Impairment

We evaluate long-lived assets, including goodwill and other intangibles, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  In addition, we evaluate goodwill on at least an annual basis.  In assessing the recoverability of goodwill and other intangibles, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets.  We adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective April 1, 2002 and analyzed goodwill and intangibles for impairment and no impairment were noted as a result of this analysis.  If these assumptions and their related estimates change in the future, we may be required to record impairment charges for these assets.  These impairment charges would be included in the results of operations.

RESULTS OF OPERATIONS

The following table sets forth various items from the Consolidated Statements of Income as a percentage of net sales for the periods indicated:

	Year Ended March 31,
	2004	2003	2002
Net sales	100.0%	100.0%	100.0%
Cost of sales	38.1	40.0	40.6
Gross profit	61.9	60.0	59.4
Selling, general, and administrative	36.1	33.9	34.7
Research and development	7.1	6.0	6.8
Operating income	18.7	20.1	17.9
Interest expense	(0.4)	(0.3)	(0.3)
Interest income	0.4	0.6	0.7
Other income, net	0.3	0.3	0.1
Income before income taxes	19.0	20.7	18.4
Income taxes	6.0	6.1	5.4
Net income	13.0%	14.6%	13.0%

33

YEARS ENDED MARCH 31, 2004 AND 2003

Sales

Sales for fiscal 2004 increased $40 million to $422 million from $382 million in fiscal 2003, an increase of 10.5%.  The increase in sales occurred in both the domestic and international markets.  Foreign exchange rate movements, primarily the stronger Euro, had a favorable year-to-year impact on international sales of $21 million, or approximately five percentage points of the year-to-year growth.  We expect total sales to increase in fiscal 2005 at a low double digit rate over sales in fiscal 2004. 

Sales of aesthetic and general surgery products increased 14% to $218.4 million from $191.4 million in the prior year.  Sales of breast implant products increased 13% to $194.1 million from $171.4 million in the prior year.  Approximately $17.6 million of the increase in breast implant products is attributable to organic growth in unit sales of our breast implants and associated products and approximately $5.1 million is the result of a favorable impact of foreign exchange rate movements.  Sales of body contouring products increased 21% to $15.3 million from $12.6 million in the prior year.  An increase in body contouring product sales is primarily attributable to increased liposuction procedural volumes, as awareness and acceptance of this procedure increases.  In addition, other product sales increased $1.6 million primarily attributable to our acquisition of Inform Solutions and ancillary product sales.

Sales of surgical urology products increased 1.6% to $108.4 million from $106.7 million in the prior year.  Increases in sales of pelvic floor products and disposable urinary care products, along with a favorable impact of foreign exchange rate movements of $9.4 million were partially offset by a $1.5 million decrease in penile implant sales and a $9.9 million decrease in brachytherapy product sales from the prior year.  Sales of pelvic floor products increased 56% to $15.5 million from $10.0 million in the prior year primarily due to the introduction of the ObTape sling to the U.S. market in August 2003 and the favorable impact of foreign exchange rate movements.  Sales of disposable urinary care and other products increased 13.6% to $55 million from $47.5 million in the prior year.  The increase was primarily a result of the favorable impact of foreign exchange rate movements.  Sales of penile implant products for the year decreased 6% to $23.2 million from $24.7 million in the prior year.  In the fourth quarter of fiscal 2004, we restructured our domestic urology sales force and provided cross-training across the full range of our urology product line, which we believe attributed to a short-term negative impact on our penile implant product sales.  In addition, we believe sales were also negatively impacted by the recent introduction of new drug therapies for erectile dysfunction in the U.S.  Brachytherapy sales decreased $9.9 million to $14.6 million from $24.5 million, a decrease of 40% from the prior year.  This decrease is a result of several factors.  On January 31, 2003, our exclusive distribution and supply agreement with NASI, which was our sole source of iodine and palladium seeds, expired resulting in an interruption of our supply of seeds.  On February 1, 2003, we completed our acquisition of Mills Biopharmaceuticals, Inc. and began supplying our customers with iodine seeds manufactured by Mills.  In addition, we reached a nonexclusive one-year agreement with Best Medical, Inc. (Best) to distribute Best^™ Palladium-103 brachytherapy seeds.  However, due to Best's difficulties in increasing manufacturing capacity in a short time frame, and our inability to secure sufficient new vendor supply of palladium brachytherapy seeds, we were unable to fill all customer orders.  In addition, alternative procedures, changes in Medicare reimbursement, and additional competitive pressures have decreased procedural volumes and decreased average selling prices of our brachytherapy products.  These market factors and supply interruptions resulted in lost sales of approximately $3 million per quarter for the first three quarters of fiscal 2004 and lost sales of approximately $1 million in the fourth quarter.  We do not expect supply interruptions to affect fiscal 2005 sales, however, it is unclear how the other market factors will affect future sales. 

Sales of clinical and consumer healthcare products increased 13% to $95.4 million from $84.3 million in the prior year.  Sales growth was generally aided by the effect of the stronger Euro as nearly half of these product sales are invoiced in currencies other than the U.S. Dollar; this effect was approximately $6.4 million for the segment.  The remainder of the growth is attributable to recent direct-to-consumer advertising, and the introduction of the Self-Cath Plus™ lubricious catheter in fiscal 2002, which positively impacted unit sales.  Sales of intermittent catheters increased 9%, or $2.5 million to $31.0 million, and were partially offset by a decrease of 8%, or $1.5 million in sales of male external catheters as compared in the prior year.  The decrease in male external catheter sales is primarily attributable to the timing of distributor purchases, and future sales are expected to increase at market rates of growth.  Sales of other disposable healthcare and ostomy products increased 28% to $46.3 million from $36.2 million in the prior year primarily due to the favorable impact of foreign exchange rate movements and unit volume growth.

34

Cost of Sales

Cost of sales for fiscal 2004 was 38.1% of net sales, compared to 40.0% in fiscal 2003.  Cost of sales for the aesthetic and general surgery products decreased to 27.7% from 28.1% of net sales, primarily due to efficiencies of scale and improved manufacturing efficiencies at our Texas facility, partially offset by manufacturing inefficiencies at our new manufacturing facility in The Netherlands.  Cost of sales for surgical urology products decreased to 48.6% from 51.2% of net sales, primarily due to the decrease in brachytherapy sales which have a lower margin than other surgical urology products and the vertical integration of our subsidiary, Mills Biopharmaceuticals, as the manufacturer of our own iodine brachytherapy seeds.  Cost of sales for clinical and consumer healthcare products decreased to 49.9% from 52.7% of net sales in the prior year, primarily due to product mix shift towards higher margin products and manufacturing efficiencies in our Minnesota facility.

Selling, General and Administrative

Selling, general and administrative expenses increased $23 million to 36.1% of net sales in fiscal 2004 compared to 33.9% of net sales in fiscal 2003.  Approximately $8 million of the increase reflects the effect of foreign currency rate movements, primarily the stronger Euro.  We had generally higher levels of expenses at our foreign sales and manufacturing subsidiaries of approximately $4.4 million and new general and administrative expenses at recently acquired subsidiaries of approximately $2.2 million.  We are in the process of implementing a global enterprise resource planning ("ERP") system.  As a result, certain non-capitalizable expenses, training costs, depreciation and start-up inefficiencies contributed to higher levels of expenses.  These costs were approximately $3 million of which $1 million is expected to be ongoing.  Selling and marketing expenses included approximately $1 million of additional expenses related to the reorganization of the urology sales forces for cross training and costs related to a reduction in the number of employees.  The balance of the increase is generally related to higher levels of selling and marketing efforts.

Research and Development

Research and development expenses in fiscal 2004 increased $7.0 million to $30.0 million and to 7.1% of net sales from 6% in fiscal 2003.  Approximately $5.8 million of the increase was attributable to the aesthetic and general surgery segment and was primarily due to increased activity in our breast implant studies to support our gel implant PMA, increased patient volume in our adjunct study and our recent acquisition of A-Life Ltd which is developing hyaluronic acid based soft tissue filler for aesthetic facial applications.  The remaining increase of $1.2 million is attributable to our ongoing development activities in our surgical urology segment and the development of automated manufacturing technologies, and development expenses related to brachytherapy seeds.  Our gel implant PMA was filed with the FDA in December 2003 and we are in the process of amending our application to meet new Draft Guidance for Saline, Silicone Gel, and Alternative Breast Implants released by the FDA.   We expect to begin new clinical and laboratory studies in the near future for our newly licensed botulinum toxin and our recently acquired hyaluronic acid products for facial applications.  In addition, we are committed to a variety of clinical and laboratory studies in connection with our gel-filled and saline-filled mammary implants and other products.  

Interest and Other Income and Expense

Interest expense increased to $1.8 million in fiscal 2004, compared to $1.0 million in fiscal 2003.  Interest expense includes interest on our foreign lines of credit and imputed interest on long-term liabilities recorded at net present value related to certain acquisitions of assets during fiscal 2001 and 2002.  In December 2003, we issued 2¾% convertible subordinated notes totaling $150 million.  Interest expense for fiscal 2004 includes four months of accrued interest payable and amortization of bond issue costs.  The increase in interest expense is attributable to the interest on these notes, partially offset by lower rates of interest, lower levels of borrowings on our operating lines and decreased levels of imputed interest on acquisition liabilities.  We expect that interest expense related to the convertible notes will be approximately $4.9 million in fiscal year 2005.

Interest income decreased to $1.7 million in fiscal 2004, from $2.5 million in fiscal 2003.  The decrease is due to lower prevailing interest rates on short-term investments, partially offset by higher levels of cash balances available for investment. 

35

Other income, net primarily includes gains or losses on sales of marketable securities and foreign currency gains or losses related to our foreign operations.  Other income, net increased to $1.2 million from $0.6 million in the prior year.  This increase was the result of the favorable impact of the Euro's relative strength compared to the U.S. dollar, partially offset by a decrease in realized and unrealized gains and losses in our portfolio of marketable securities.  During fiscal 2003 we recorded a one-time pre-tax impairment charge of $1,857,000 related to our investment in Paradigm Medical.  Also in fiscal 2003, we sold our remaining investment in NASI and we recorded a pre-tax gain of $403,000.

Income Taxes

Our effective rate of corporate income taxes was 31.6% in fiscal year 2004, an increase of 2.2% of pretax income from the 29.4% rate in fiscal year 2003.  The increase in the effective tax rate represents a return to our historic effective tax rate, as the prior year's rates reflected refunds received in the third quarter of fiscal year 2003 related to the amendment of tax returns for our foreign sales corporation.

Net Income and Earnings Per Share

Net income in fiscal 2004 decreased 2% to $54.8 million from $55.8 million in fiscal 2003.  Earnings per share was $1.20 per share in both fiscal 2004 and 2003.  Diluted earnings per share was $1.15 per diluted share in both fiscal 2004 and 2003.  The effect of lower net income in fiscal 2004 was offset by the positive impact of fewer shares outstanding due to our stock repurchase program.  Increased sales and lower cost of goods sold in fiscal 2004 were offset by higher operating expenses, which resulted in a decrease in operating income.  Fiscal 2004 net income was partially impacted by a slightly higher effective tax rate compared to fiscal 2003.  We expect earnings per share for fiscal 2005 to increase at a mid-teen percentage rate over earnings per share in fiscal 2004.  

YEARS ENDED MARCH 31, 2003 AND 2002

Sales

Sales for fiscal 2003 increased to $382 million from $321 million in fiscal 2002, an increase of 19%.  Included in fiscal 2003 sales are eleven months of clinical and consumer healthcare product sales relating to our May 2002 acquisition of the urology and ostomy business of Portex Ltd.  Sales of products acquired in the Portex transaction accounted for five percentage points of the year-to-year growth.  The increase in sales was in both domestic and international markets.  Foreign exchange rate movements, primarily the stronger Euro, had a favorable year-to-year impact on international sales of $12 million, or approximately four percentage points of the year-to-year growth.

Sales of aesthetic and general surgery products increased 17% to $191 million from $163 million in the prior year.  Total sales of breast implants products increased 16% to $158 million from $137 million in the prior year.  Sales of body contouring products increased $2.8 million or 28% over the prior year.  We believe that sales growth was primarily attributable to strong product demand both domestically and internationally, the introduction of an improved tissue expander in the fourth quarter of fiscal 2002, a resurgence of demand including surgeries that were postponed after the events of September 11^th and the benefit from the effect of the strong Euro.

Sales of surgical urology products increased 13% to $107 million from $94 million in the prior year.  The growth primarily resulted from strong sales of products acquired in our February 2001 acquisition of Porges S.A., product sales and the effect of a stronger Euro.  Penile implant sales increased $1.5 million, due in part to incremental sales from the Titan™ inflatable device introduced in the third quarter of fiscal 2003 and marketing program efforts to increase consumer awareness.  Sales of pelvic floor reconstruction products increased $2.5 million due to new product introductions late in fiscal 2002.  Brachytherapy sales decreased $1.0 million, or 4%, from the prior year as unit sales increases were partially offset as competitive pressures decreased average selling prices.  In addition, interruption of our supply of palladium radioactive seeds due to the expiration of our exclusive distribution agreement with NASI and difficulties in securing new vendor supply to fulfill customer orders resulted in lost sales, and these difficulties have continued into fiscal 2004.

36

Sales of clinical and consumer healthcare products increased 32% to $84 million from $64 million 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 eleven months of fiscal 2003 and accounted for approximately $16 million of the sales growth over fiscal 2002.  Sales growth was generally aided by the effect of the stronger Euro as nearly half of these product sales are invoiced in currencies other than the U.S. Dollar.  In addition, sales of male external catheters grew 15%, primarily in international markets, offsetting a slight decline in sales of other healthcare products.  Sales of intermittent self-catheters increased 7% following the introduction of the Self-Cath Plus™ lubricious catheter in fiscal 2002.

Cost of Sales

Cost of sales was 40.0% of net sales for fiscal 2003, compared to 40.6% in fiscal 2002.  Cost of sales for the aesthetic and general surgery products decreased from 30.0% of net sales to 28.1%, 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 from 51.7% of net sales to 51.2% primarily due to improved manufacturing efficiencies and the recent acquisition of Mills Biopharmaceuticals, Inc., to manufacture our own iodine brachytherapy seeds.  Cost of sales for clinical and consumer healthcare products increased from 50.2% of net sales to 52.7% primarily due to the May 2002 acquisition of the urology and ostomy businesses of Portex, whose products have lower margins than our previously existing products.

Selling, General and Administrative

Selling, general and administrative expenses were 33.9% of net sales in fiscal 2003 compared to 34.7% in fiscal 2002.  The decrease as a percentage of net sales reflect efficiencies of scale as selling, general and administrative costs grew at rates slower than overall revenue growth.  These economies of scale were offset slightly by the non-recurring general and administrative expenses associated with the recent acquisition of the urology and ostomy business of Portex and non-capitalizable expenses related to the implementation of information technology systems to modernize and integrate recent acquisitions.  

Research and Development

Research and development expenses were 6.0% of net sales in fiscal 2003, a slight decrease from 6.8% in fiscal 2002.  Overall spending on research and development increased by 5.4% from the prior year.  The decrease in research and development as a percentage of net sales is partially attributable to several recent acquisitions and associated revenue growth in the clinical and consumer healthcare segment.  This segment has a generally lower level of research and development spending on new product development than the long term implantable products in the aesthetics and surgical urology segments.  Fiscal 2003 development costs relate primarily to our clinical studies and accelerated product enhancement projects for existing products and new product development.  Although we have successfully completed several pre-market approval application submissions related to mammary and penile implants in recent years, the amount of spending on research and development is not expected to decrease as the focus of our research and development efforts shifts towards product enhancements and new product development.  In addition, we are committed to several post FDA approval follow up studies, and a variety of clinical and laboratory studies in connection with our gel-filled and saline filled mammary implants and other products. 

37

Interest and Other Income and Expense

Interest expense increased to $1.0 million in fiscal 2003, from $859 thousand in fiscal 2002.  In January 2001, we acquired the assets of South Bay Medical LLC.  Approximately $7 million of the purchase price was recorded as a long-term accrued liability at net present value.  In December 2001, we recorded an additional $1.7 million of long-term accrued liability at net present value related to the acquisition of certain intangible rights from Prosurg, Inc., Inc.  Imputed interest on these liabilities is charged to interest expense.  This imputed interest and balances outstanding on several lines of credit established to facilitate operating cash flow needs at our foreign subsidiaries, slightly offset by lower prevailing borrowing rates of interest, accounted for the increase in interest expense over the prior year. 

Interest income increased to $2.5 million in fiscal 2003 from $2.2 million in fiscal 2002.  The increase is due to higher cash and marketable security balances partially offset by lower prevailing interest rates on short-term investments and a change in our investment strategy.  Our investment strategy involves a shift to taxable money market investments which have a higher pretax yield, from tax free municipal bonds and similar tax advantaged investment vehicles, which have a lower pre-tax yield.

Other income, net primarily include gains or losses on sales of marketable securities, disposal of assets, foreign currency gains or losses related to our foreign operations and impairment charges on long term investments.  Both years include income from the sale of marketable securities, net foreign exchange transaction and remeasurement gains and loss, offset by impairment charges on long term investments. In fiscal 2000, we recorded a $3 million permanent impairment of our equity investment in Intracel Corporation.  During fiscal 2002, we recorded an additional $3 million to completely write-off our investment in Intracel Corporation upon its bankruptcy filing.  During fiscal 2003, we sold our remaining investment in North American Scientific, Inc. and recorded a pre-tax gain of $403,000.  We determined the investment in Paradigm Medical Industries Inc. (Paradigm), was impaired and recorded a one-time pre-tax impairment charge of $1,857,000.  Other income, net for fiscal 2002, also includes a one-time gain of $700,000 related to the settlement of a dispute with Paradigm, a one-time foreign exchange gain of $720,000 on the repayment of our 15 million Euro loan to partially fund the acquisition of Porges S.A. and the realized gains on the disposition of long-term marketable securities available-for-sale of $1.3 million.

Income Taxes

The effective rate of corporate income taxes was 29.4% for both fiscal 2003 and fiscal 2002.  The decrease in the effective tax rate from historical levels is a result of a higher proportion of income from foreign operations with lower tax rates and tax refunds received in the first and second quarters of fiscal year 2003 related to the amendment of tax returns for our foreign sales corporation.  As a result these tax refunds, the tax rate for the first half of fiscal 2003 was 27.7% whereas the tax rate in the second half of fiscal 2003 was 31.1%.

Net Income

Net Income for fiscal 2003 was $56 million, compared to $42 million for the previous year, an increase of $14 million or 33%.  Increased sales, primarily of aesthetics products, lower cost of goods sold and lower operating expenses as a percentage of net sales, and a tax refund increased net income, while the write-down of our investment in Paradigm reduced net income.

Inflation

We do not believe that inflation has had a material effect on our financial condition and results of operation for the reporting periods presented in this report.  We cannot be certain that inflation will not have a material adverse effect on our business in the future.

38

LIQUIDITY AND CAPITAL RESOURCES

We had cash, cash equivalents and short-term marketable securities of $118 million and $106 million at March 31, 2004 and 2003, respectively.  Other than the proceeds of the December 2003 offering of convertible subordinated notes, cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds.  Our working capital was $198 million at March 31, 2004, compared to $168 million at March 31, 2003.  We generated $74 million of cash from operating activities during the year ended March 31, 2004, compared to $76 million during the previous year.  Decreased cash flow from operating activities was primarily the result of an increase in accounts receivable due to the increase in net sales partially offset by a decrease in income taxes paid during the year. 

During fiscal 2004, we invested approximately $18 million to upgrade production equipment and facilities, complete brachytherapy seed production, automate production technologies and upgrade and replace our information technology systems with a new Enterprise Resource Planning System (ERP) by JD Edwards.  In addition, we invested $6 million procuring intangible rights to products and technologies.  We anticipate investing approximately $20 million in fiscal 2005 to continue facility improvements and purchase production equipment. 

We receive cash from the exercise of employee stock options.  Employee stock option exercises provided $10.1 million and $6.7 million of cash in fiscal 2004 and 2003, respectively.  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 stock relative to the exercise price of such options.

We have a stock repurchase program, primarily to offset the dilutive effect of our employee stock option program, to provide liquidity to the market and to reduce the overall number of shares outstanding.  All shares repurchased under the program are retired and are no longer deemed to be outstanding.  In May 1999, the Board of Directors authorized the repurchase of 9.2 million shares of our stock.  At March 31, 2003, 1.8 million shares remained authorized for repurchase.  On July 31, 2003 and December 5, 2003 the Board of Directors increased the authorized numbers of shares to be repurchased by 2.2 million and 5.0 million, respectively.  During fiscal 2004, 5.4 million shares were repurchased for $135.8 million.  At March 31, 2004, 3.6 million shares remained authorized for repurchase.  The timing of repurchases is subject to market conditions, cash availability, and blackout periods during which we are restricted from repurchasing shares.  There is no guarantee that shares authorized for repurchase by the Board will ultimately be repurchased. 

In January 2001, we completed the acquisition of the assets of South Bay Medical.  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 are recorded as an acquisition obligation liability of $11.4 million at March 31, 2004.   Approximately $5.9 million of the future acquisition obligation liability is to be paid in shares of our common stock valued at fair market value on the date of issuance, over several years, based on the achievement of unit sale milestones.

In December 2001, we entered into several agreements with Prosurg, Inc. to purchase certain patent rights and a supply of product.  The total consideration included $2.0 million in cash and $1.7 million in short and long-term payments due over the next several years.  These future payments are recorded as an acquisition obligation liability at net present value and will increase with imputed interest to $2.0 million, due over the next several years, based on the achievement of certain milestones. 

On August 25, 2003, we completed the acquisition of A-Life Ltd, a subsidiary of Vitrolife AB.  The consideration totaled $7.5 million of which $7.4 million was paid in cash from existing cash balances.

On September 9, 2003, we entered into several transactions to acquire from AMI, LLC, the exclusive license, marketing and distribution rights for certain products, and a related supply agreement with Prosurg, Inc.  We paid $3 million in cash and issued 133,630 restricted shares of our common stock valued at fair market value of $3 million.  The agreements commit us to make additional payments totaling up to $4.5 million upon the completion of certain developmental and regulatory milestones over the next several years.

39

On October 25, 2003, we acquired Inform Solutions, Inc., for total consideration of $3 million in cash.  The agreement commits us to make additional payments totaling up to $1.7 million based upon achievement of future sales and earnings thresholds over the next three years.

On December 22, 2003, we completed an offering of $150 million of convertible subordinated notes due January 1, 2024 pursuant to Rule 144A under the Securities Act of 1933.  The notes bear interest at 2¾% per annum and are convertible into shares of our common stock at a conversion price of $29.289 per share and are subordinated to all existing and future senior debt.  Concurrent with the issuance of the convertible subordinated notes, we entered into a convertible bond hedge and warrants transactions with respect to our common stock, the exposure for which is held by Credit Suisse First Boston LLC for a net cash payment of $18.5 million.  Both the bond hedge and the warrants transactions may be settled at our option either in cash or net shares and expire January 1, 2009.  The convertible bond hedge and warrants transactions combined are intended to reduce the potential dilution from conversion of the notes by effectively increasing the conversion price per share to $39.43.

For each of 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 quarterly dividend rate from $.02 per share to $.15 per share.  It is our intent to continue to pay dividends for the foreseeable future subject to, among other things, Board approval, cash availability, debt restrictions and alternative cash needs.  At the current annual dividend rate of $.60 per share, the aggregate annual dividend would be approximately $25 million. Our Credit Agreement, described below, limits the aggregate amount of dividends payable in any year to one-half of the net income of the preceding year.

We have a secured line of credit for borrowings up to $25 million ("Credit Agreement"), which accrues interest at the prevailing prime rate or 1.75% over LIBOR, at our discretion.  The 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.  At March 31, 2004, two commercial letters of credit totaling $1.3 million were outstanding and secured by the Credit Agreement.  Accordingly, although there were no borrowings outstanding under the Credit Agreement at March 31, 2004, only $23.7 million was available for additional borrowings.

In addition, in February 2001, we established several lines of credit with local foreign lenders to facilitate operating cash flow needs at our foreign subsidiaries.  These lines are at market rates of interest, unsecured, are guaranteed by us, and total $6.9 million, of which $4.5 million was outstanding, and $2.4 million was available at March 31, 2004. 

In fiscal 2002, a line of credit of $7.5 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 March 31, 2004, $5.5 million was outstanding and $2.0 million was available under this line.  The line of credit provides for conversion to a term loan at prevailing interest rates when construction of the new facility is completed.

At March 31, 2004, our total short-term borrowings under all lines of credit were $10.0 million and the weighted-average interest rate was 3.58%.  The total amount of additional borrowings available to us under all lines of credit was $28.1 million and $26.3 million at March 31, 2004 and 2003, respectively.  At March 31, 2003, $8.2 million was outstanding under these lines of credit at a weighted average borrowing rate of 3.00%.

40

The following table summarizes our contractual obligations and other commitments at March 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. 

	Payments Due by Period
(in thousands)		Less than	1-3	4-5	More than
Contractual Obligations	Total	1 Year	Years	Years	5 Years
Long-term debt	$  150,000	$          -	$         -	$         -	$  150,000
Operating lease obligations	44,605	5,371	16,219	9,804	13,211
Purchase obligations	10,399	10,399	-	-	-
Lines of credit	10,012	10,012	-	-	-
Acquisition and other milestones	13,399	1,849	8,350	2,500	700
Other long-term liabilities reflected   on the balance sheet under GAAP	9,010	375	3,784	750	4,101
Total	$   237,425	$28,006	$28,353	$13,054	$  168,012

The nature of our business creates a need to enter into purchase obligations with suppliers.  In accordance with accounting principles generally accepted in the United States, these unconditional purchase obligations are not reflected in the accompanying consolidated balance sheets.  Inventory related and other purchase obligations do not exceed our projected requirements over the normal course of business. 

We enter into various product and intellectual property acquisitions and business combinations.  In connection with some of these activities, we agree to make payments to third parties when specific milestones are achieved, such as receipt of regulatory approvals or achievement of performance or operational targets. 

The expected timing of payment of the obligations discussed above is estimated based on current information.  Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.  Amounts disclosed as contingent or milestone-based obligations are dependent on the achievement of the milestones or the occurrence of the contingent events and can vary significantly.

We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our financial position or results of operations.

Our principal source of liquidity at March 31, 2004 consisted of $118 million in cash, cash equivalents and short-term marketable securities, plus $28 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 unforeseen requirements or to consummate acquisitions of other businesses, products or technologies through the sale of 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.  There is no assurances that we will 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, equity or debt securities issued by us may have rights, preferences or privileges senior to those of our common stock.

41

FORWARD-LOOKING STATEMENTS

 Certain words in this report like "believe," "intend," "anticipate," "expect," "estimate," "seek," "project", "plan", "will", and similar expressions are intended to identify, in certain cases, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from the predicted results.  Such factors which may affect forward-looking statements include, among others, the following:

• Significant product liability, warranty claims, or other claims;
• Errors in estimates, assumptions and judgments used in accounting;
• Non-compliance with FDA and other regulatory agencies;
• Inadequate reimbursement by government agencies and others for our products;
• Difficulties implementing and integrating new information technologies systems; and
• Other factors outlined in our previously filed public documents, copies of which may be obtained without cost from us.

Given these uncertainties, investors are cautioned not to place too much weight on such statements.  We are not obligated to update these forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The following discussion about our market risks involves forward-looking statements.  Actual results could differ materially from those projected in the forward-looking statements.  We are exposed to market risk related to fluctuations in interest rates and foreign exchange rates.  We generally do not use derivative instruments.

Interest Rate Risk

We maintain a portfolio of highly liquid cash equivalents, with maturities of three months or less from the date of purchase.  We also have current marketable securities, consisting primarily of money market mutual funds, U.S., state and municipal bonds, and commercial paper that are of limited credit risk and have contractual maturities of less than two years.  Given the short-term nature of these investments, we are not subject to significant interest rate risk.  

We have long-term marketable securities and investments which includes investments in Federal Home Loan Bank and Federal Mortgage Association bonds with maturities of two to five years.  We do not expect to experience any material impact upon our results of operation as a result of changes to interest rates related to these investments.

On December 22, 2003, we completed an offering of $150 million of convertible subordinated notes due January 1, 2024 pursuant to Rule 144A under the Securities Act of 1933.  The notes bear interest at a fixed rate of 2¾% per annum.  Our subsidiaries also maintain certain levels of variable rate debt such as operating lines of credit.  The majority of our debt carries a fixed rate percentage and therefore is not subject to significant interest rate risk.  A 100 basis point change in interest rates would not have a material impact on our results of operations or financial condition related to the variable rate debt described.

42

Exchange Rate Risk

A portion of our operations consist of sales activities in foreign markets.  We manufacture our products primarily in the United States and Europe and sell them outside the U.S. through a combination of international distributors and wholly owned sales offices.  Sales to third-party distributors and to the wholly owned sales offices are transacted in U.S. Dollars, Euros, British Pounds, and Canadian Dollars.  Our foreign sales offices primarily invoice customers in their local currency.

As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets mentioned.  The principal risk exposure we face results from fluctuation in foreign exchange rates.  We experience transactional exchange rate risk when one of our subsidiaries enter into transactions denominated in currencies other than their local currency.  In the last two fiscal years the effect of exchange rate risk has been favorable upon our operating results and financial condition.  We do not currently hedge any of the foreign exchange rate exposures.  A significant and rapid change in foreign exchange rates could have a material adverse effect upon our results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this item is submitted pursuant to Item 15 of this Annual Report on Form 10-K and incorporated herein by reference.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2004, the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2004.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2004 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

43

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this item, other than the information regarding Executive Officers set forth in Item 1, Business, is herein incorporated by reference to portions of the Proxy Statement for the Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended March 31, 2004.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item is herein incorporated by reference to portions of the Proxy Statement for the Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended March 31, 2004.

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

The information required by this item is herein incorporated by reference to portions of the Proxy Statement for the Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended March 31, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is herein incorporated by reference to portions of the Proxy Statement for the Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended March 31, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item is herein incorporated by reference to portions of the Proxy Statement for the Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended March 31, 2004.

44

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 

(a)(1)	Consolidated Financial Statements
	Report of Ernst & Young LLP, Independent Auditors
	Consolidated Balance Sheets as of March 31, 2004 and 2003
	Consolidated Statements of Income for the Years Ended March 31, 2004, 2003 and 2002
	Consolidated Statements of Changes in Shareholders' Equity for the Years Ended March 31, 2004, 2003 and 2002
	Consolidated Statements of Cash Flows for the Years Ended March 31, 2004, 2003 and 2002
	Notes to Consolidated Financial Statements
(a)(2)	Consolidated Financial Statement Schedules
	Schedule II - Valuation and Qualifying Accounts and Reserves
	All other schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the consolidated financial statements or notes thereto.
(a)(3)	Exhibits
	The information required by this item is incorporated by reference to the Exhibit Index in this report.
(b)	Reports on Form 8-K
	We filed a report on Form 8-K on May 18, 2004 regarding our press release announcing our fourth quarter and fiscal 2004 results. We filed a report on Form 8-K on June 4, 2004 regarding our press release announcing our new Chief Executive Officer and Chief Financial Officer promotions.

45

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Mentor Corporation

We have audited the accompanying consolidated balance sheets of Mentor Corporation as of March 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended March 31, 2004.  Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2).  These financial statements and schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mentor Corporation at March 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2004, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ERNST & YOUNG LLP

Los Angeles, California
May 17, 2004

46

MENTOR CORPORATION
CONSOLIDATED BALANCE SHEETS

	March 31,
(in thousands)	2004	2003
Assets
Current assets:
Cash and cash equivalents	$   118,225	$   105,840
Marketable securities	193	184
Accounts receivable, net of allowance for doubtful accounts       of $6,801 in 2004 and $5,406 in 2003	106,016	79,784
Inventories	67,912	61,269
Deferred income taxes	22,488	15,253
Prepaid expenses and other	13,205	10,858
Total current assets	328,039	273,188
Property and equipment, net	77,529	68,671
Intangible assets, net	51,014	35,570
Goodwill, net	23,711	16,520
Long-term marketable securities and investments	8,326	3,741
Other assets	10,160	398
	$   498,779	$   398,088
Liabilities and shareholders' equity
Current liabilities:
Account payable and accrued liabilities	$   113,324	$    95,638
Income taxes payable	285	453
Dividends payable	6,309	925
Short-term bank borrowings	10,012	8,176
Total current liabilities	129,930	105,192
Deferred income taxes	2,549	2,216
Long-term accrued liabilities	17,996	13,970
Convertible subordinated notes	150,000	-
Commitments and contingencies
Shareholders' equity:
Common Stock, $.10 par value:
Authorized - 150,000,000 shares; issued and outstanding
42,059,136 shares in 2004;
46,237,324 shares in 2003;	4,206	4,624
Capital in excess of par value	-	-
Accumulated other comprehensive income	19,122	6,399
Retained earnings	174,976	265,687
	198,304	276,710
	$  498,779	$  398,088
See notes to consolidated financial statements.

47

MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

	Year Ended March 31,
(in thousands, except per share data)	2004	2003	2002
Net sales	$   422,168	$   382,384	$   321,062
Cost of sales	160,783	152,877	130,455
Gross Profit	261,385	229,507	190,607
Selling, general, and administrative	152,275	129,552	111,285
Research and development	30,041	22,978	21,806
	182,316	152,530	133,091
Operating income	79,069	76,977	57,516
Interest expense	(1,844)	(1,022)	(859)
Interest income	1,663	2,456	2,217
Other income	1,252	628	342
Income before income taxes	80,140	79,039	59,216
Income taxes	25,361	23,219	17,396
Net income	$     54,779	$     55,820	$    41,820
Earnings per share
Basic earnings per share	$        1.20	$         1.20	$         .88
Diluted earnings per share	1.15	1.15	.85
Dividends per share	$          .47	$         0.07	$         .06
Weighted average shares outstanding
Basic	45,543	46,428	47,278
Diluted	47,757	48,388	48,926
See notes to consolidated financial statements.

48

MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands except per share data)	Common Shares Outstanding	Common Stock $.10 Par Value	Capital in Excess of Par Value	Accumu- lated Other Compre- hensive Income (loss)	Retained Earnings	Total
Balance March 31, 2001	23,672	$   2,367	$     7,625	$   (4,282)	$ 190,596	$ 196,306
Comprehensive income:
Net income	-	-	-	-	41,820	41,820
Foreign currency        translation adjustment	-	-	-	(2,015)	-	(2,015)
Unrealized loss on        investments	-	-	-	(190)	-	(190)
Comprehensive income						39,615
Exercise of stock options	533	53	6,777	-	-	6,830
Income tax benefit arising   from the exercise of   stock options	-	-	2,975	-	-	2,975
Repurchase of common   stock	(732)	(73)	(17,377)	-	(1,265)	(18,715)
Dividends declared   ($.12 per share)	-	-	-	-	(2,833)	(2,833)
Balance March 31, 2002	23,473	$  2,347	$          -	$   (6,487)	$  228,318	$  224,178
Comprehensive income:
Net income	-	-	-	-	55,820	55,820
Foreign currency        translation adjustment	-	-	-	13,437	-	13,437
Unrealized loss on        investments	-	-	-	(551)	-	(551)
Comprehensive income						68,706
Exercise of stock options	374	37	6,621	-	-	6,658
Stock split	23,171	2,318	(2,318)
Income tax benefit arising   from the exercise of   stock options	-	-	2,699	-	-	2,699
Repurchase of common   stock	(781)	(78)	(7,002)	-	(15,194)	(22,274)
Dividends declared   ($.07 per share)	-	-	-	-	(3,257)	(3,257)

 (continued on next page)

49

MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)

(in thousands except per share data)	Common Shares Outstanding	Common Stock $.10 Par Value	Capital in Excess of Par Value	Accumu- lated Other Compre- hensive Income (loss)	Retained Earnings	Total
Balance March 31, 2003	46,237	$   4,624	$          -	$    6,399	$  265,687	$   276,710
Comprehensive income:
Net income	-	-	-	-	54,779	54,779
Foreign currency        translation adjustment	-	-	-	12,616	-	12,616
Unrealized loss on        investments	-	-	-	107	-	107
Comprehensive income						67,502
Exercise of stock options	1,094	109	9,980	-	-	10,089
Income tax benefit arising   from the exercise of   stock options	-	-	5,406	-	-	5,406
Issuance of common   stock for the acquisition   of intangible assets	133	13	2,987	-	-	3,000
Convertible note Hedge and warrants	-	-	(7,741)	-	-	(7,741)
Repurchase of common   stock	(5,405)	(540)	(10,632)	-	(124,662)	(135,834)
Dividends declared   ($.47 per share)	-	-	-	-	(20,828)	(20,828)
Balance March 31, 2004	42,059	$  4,206	$          -	$   19,122	$  174,976	$  198,304

See notes to consolidated financial statements.

50

MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended March 31,
(in thousands)	2004	2003	2002
Operating Activities:
Income from operations	$ 54,779	$ 55,820	$ 41,820
Adjustments to derive cash flows operating activities:
Depreciation	11,808	11,397	9,982
Amortization	3,589	3,336	3,866
Deferred income taxes	(7,102)	(4,183)	(4,799)
Tax benefit from exercise of stock options	5,406	2,699	2,975
Loss (gain) on sale of assets	3,271	(433)	456
Imputed interest on long-term liabilities	2,717	576	512
Loss on long-term marketable securities and investment     write-downs, net	136	1,454	301
Changes in operating assets and liabilities:
Accounts receivable	(22,634)	(9,577)	(8,366)
Inventories and other current assets	(3,681)	(4,276)	(5,338)
Accounts payable and accrued liabilities	25,944	22,946	16,025
Income taxes payable	(179)	(3,467)	997
Foreign currency transaction gain (loss)		(509)	-
Net cash provided by operating activities	74,054	75,783	58,431
Investing Activities:
Purchases of property and equipment	(17,875)	(16,441)	(15,094)
Purchases of intangibles	(6,053)	(302)	(166)
Purchases of marketable securities	(34,540)	(23,789)	(161,200)
Sales of marketable securities	27,813	44,750	140,329
Acquisitions, net of cash acquired	(14,295)	(14,666)	(4,347)
Other, net	(278)	500	(46)
Net cash used for investing activities	(45,228)	(9,948)	(40,524)
Financing Activities:
Issuance of convertible notes, net of issuance costs	126,305	-	-
Sale of warrants	11,891	-	-
Repurchase of common stock	(135,755)	(22,274)	(18,715)
Proceeds from exercise of stock options	10,089	6,658	6,830
Dividends paid	(20,829)	(3,037)	(2,839)
Borrowings under line of credit agreements	3,450	29	6,825
Repayments under line of credit agreements	(2,681)	(3,488)	(13,372)
Reduction in long-term debt	(101)	(14)	-
Deferred tax on investment	(9,503)	-	-
Net cash used for financing activities	(17,134)	(22,126)	(21,271)
Effect of currency exchange rates on cash and cash equivalents	693	1,734	(92)
Increase (decrease) in cash and cash equivalents	12,385	45,442	(3,456)
Cash and cash equivalents at beginning of year	105,840	60,398	63,854
Cash and cash equivalents at end of year	$118,225	$105,840	$ 60,398
Supplemental cash flow information
Cash paid during the year for:
Income taxes	$  25,203	$  30,506	$ 18,945
Interest	$      580	$      447	$     645
Supplemental non-cash investing and financing activities
Issuance of common stock in acquisition of intangible assets	$   3,000	-	-
Liabilities accrued related to the acquisition of intangible assets	-	-	$  2,685
See notes to consolidated financial statements.

51

MENTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

Note A - Summary of Significant Accounting Policies

Business Activity

Mentor Corporation was incorporated in April 1969.  We develop, manufacture and market a broad range of products for the medical specialties of aesthetic and general surgery (plastic and reconstructive surgery), surgical urology and for clinical and consumer healthcare.  Our products are sold to hospitals, physicians and through various healthcare dealers, wholesalers, and retail outlets. 

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. 

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 March 31, 2004 and 2003.  Short-term investments 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, 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 with maturities of two to four years.  During fiscal 1998, the Company made a $6 million equity investment in Intracel Corporation as part of an agreement to develop a bladder cancer treatment.  The investment was valued at cost as quoted market prices were not available.  During fiscal 2000, the Company recorded a $3 million charge to other income related to the investment.  In September 2001, Intracel filed for protection under Chapter 11 of the Bankruptcy Code.  After evaluation of the filing, the Company recorded an additional $3 million write-down as a charge to other income in the quarter ending December 31, 2001.  As a result of these two write-downs, the investment in Intracel is now recorded at no value.  The Company recorded a one-time gain in other income for the quarter ending December 31, 2001 upon the receipt of 350,000 shares of Paradigm Medical Industries, Inc. ("Paradigm") in settlement of a stock registration dispute.  The shares were valued at $700,000 based upon the quoted price on the date received. 

52

During the year ended March 31, 2002, the Company sold a portion of its North American Scientific, Inc. ("NASI") and Paradigm securities and realized a pre-tax gain of $1.3 million, which is reflected in other income, net.  During the year ended March 31, 2004 the Company sold its remaining investment in NASI and recorded a pre-tax gain of $403,000, which is reflected in other income, net.  Paradigm reported financial and operational difficulties and its quoted market prices decreased substantially during the year ended March 31, 2003 and we determined the decrease in market prices was 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 $48,000.

Available-for-sale investments at March 31, 2004 were as follows:

		Gross	Gross	Estimated
	Adjusted	Unrealized	Unrealized	Fair
(in thousands)	Cost	Gains	Losses	Value
Cash balances	$  19,139	$       -	$        -	$  19,139
Money market mutual funds	99,086	-	-	99,086
Marketable equity securities	56	-	(8)	48
U.S., State and Municipal agency    obligations	8,193	-	-	8,193
Corporate debt securities	278	-	-	278
Total available-for-sale investments	$ 126,752	$       -	$      (8)	$ 126,744
Included in cash and cash equivalents	118,225	$      -	$        -	$ 118,225
Included in current marketable securities	193	-	-	193
Included in long-term marketable    securities and investments	8,334	-	(8)	8,326
Total available-for-sale investments	$ 126,752	$       -	$      (8)	$ 126,744

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
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

53

Concentrations and Credit Risk

The Company obtains certain raw materials and components for a number of its products from single suppliers.  In most cases the Company's sources of supply could be replaced if necessary without undue disruption, but it is possible that the process of qualifying new materials and/or vendors for certain raw materials and components could cause a material interruption in manufacturing or sales.  During fiscal 2004, our supply of palladium brachytherapy seeds was reduced after the expiration of our supply agreement with NASI in fiscal 2003.  No material interruptions in raw material supply occurred during the last fiscal year.

The Company grants credit terms in the normal course of business to its customers, primarily hospitals, doctors and distributors.  The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current credit worthiness, as determined through review of their current credit information.  The Company continuously monitors collections and payments from customers and maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  Estimated losses are based on historical experience and any specific customer collection issues identified.  Bad debts have been minimal.  The Company does not normally require collateral or other security to support credit sales.  No customer accounted for more than 10% of the Company's revenues or accounts receivable balance for any periods presented.

Revenue Recognition

In the United States and in those countries where the Company has sales offices, the Company employs specialized direct sales employees.  The Company also markets its products through distributors in those countries where it does not have a sales office or for certain products, particularly its disposable incontinence products, through a domestic network of independent hospital supply dealers and healthcare distributors and through retail pharmacies.

The Company recognizes product revenue, net of discounts, returns, and rebates in accordance with SFAS No. 48, "Revenue Recognition When the Right of Return Exists," and SAB No. 104, "Revenue Recognition."  As required by these standards, revenue can be recorded when persuasive evidence of a sales arrangement exists, delivery has occurred, the buyer's price is fixed or determinable, contractual obligations have been satisfied, and collectibility is reasonably assured.  These requirements are met, and sales and related cost of sales are recognized primarily upon the shipment of products, or in the case of consignment inventories, upon the notification of usage by the customer.  The Company records estimated reductions to revenue for customer programs and other volume-based incentives.  Should customer participation in these programs exceed that estimated by the Company, additional reductions to revenue may be required.  The Company also allows credit for products returned within its policy terms.  The Company records an allowance for estimated returns, based on historical experience, recent gross sales levels and any notification of pending returns, at the time of sale.  Should the actual returns exceed those estimated by the Company, additional reductions to revenue and cost of sales may be required.

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.

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 useful lives ranging from 3 to 15 years or lease term.  Significant improvements and betterments are capitalized while maintenance and repairs are charged to operations as incurred.

54

Intangible Assets and Goodwill

Intangible assets consist of values assigned to patents, licenses, trademarks and other intangibles.  These are stated at cost less accumulated amortization and are amortized over their economic useful life ranging from 3 to 20 years using the straight-line method.  Goodwill, the excess purchase cost over fair value of net identifiable assets acquired, was amortized using the straight-line method in fiscal year 2002.  Goodwill amortization was discontinued in fiscal 2003 in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.  As required by SFAS No. 142, the Company has reassessed the remaining amortization periods of intangible assets acquired on or before June 30, 2001 and assigned all goodwill to reporting units for impairment testing.  The impairment tests involved the use of both estimates of fair value for the Company's reporting units as well as discounted cash flow assumptions.  If the fair value exceeds the book value, then the net book value would then be reduced to fair value based on an estimate of discounted cash flow.

Income Taxes

Deferred income taxes are provided on the temporary differences between income for financial statement and tax purposes.  The Company has not recorded a valuation allowance on its deferred tax assets as management believes that it is more likely than not that all deferred tax assets will be realized.

Stock Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does not require companies to record compensation expense for stock options at fair value.  The Company has chosen to account for stock options using the intrinsic value method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations.  Accordingly, the Company has provided pro forma disclosures of net income and earnings per share as determined under the provision of SFAS No. 123 in Note G-Stock Options.

Advertising Expenses

The Company expenses media advertising costs as incurred or where applicable, upon first showing.  Advertising expenses were $1.2 million, $1.2 million and $1.4 million in 2004, 2003 and 2002, respectively.  There were no capitalized advertising costs as of March 31, 2004, 2003 and 2002. 

Foreign Operations

Export sales to independent distributors, were $9,909,000, $13,281,000 and $11,765,000 in 2004, 2003 and 2002, respectively.  In addition, $160,471,000, $124,883,000 and $89,033,000 of sales in 2004, 2003 and 2002, respectively, were from the company's direct international sales offices primarily in Canada and Western Europe.  Income before income taxes for foreign operations was $9,635,000, $7,240,000 and $7,391,000 for fiscal 2004, 2003 and 2002, respectively.

Foreign Currency Translation

The financial statements of the Company's non-U.S. subsidiaries are translated into U.S. Dollars in accordance with SFAS No. 52, "Foreign Currency Translation."  The assets and liabilities of certain non-U.S. subsidiaries whose functional currencies are other than the U.S. Dollar are translated at current rates of exchange.  Revenue and expense items are translated at the average exchange rate for the year.  The resulting translation adjustments are recorded directly into accumulated other comprehensive income (loss).  Transaction gains and losses, other than intercompany debt deemed to be of a long-term nature, are included in net income in the period they occur. 

55

Derivative Instruments

The Company accounts for derivative instruments and hedging activities in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."  SFAS No. 133 requires all derivatives to be recorded as assets or liabilities at fair value.  Changes in derivative fair values will either be recognized in earnings, offset against changes in the fair value of the related hedged assets, liabilities and firm commitments or, for forecasted transactions, recorded as a component of accumulated other comprehensive income in shareholders' equity until the hedge transactions occur and are recognized in earnings.

Effects of Recent Accounting Pronouncements

In 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure.  This rule amends SFAS No. 123 to provide several alternatives for adopting the stock option expense provisions of SFAS No. 123, as well as additional required interim financial statement disclosures.  SFAS No. 148 does not require companies to expense stock options in current earnings.  The Company has not adopted the provisions of SFAS No. 123 for expensing stock based compensation (see " Employee stock option and stock purchase plans"); however, the Company has adopted the additional interim disclosure provisions of the statement.  The additional disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002.  We have elected to continue to follow the intrinsic value method of accounting as prescribed by APB No. 25, to account for employee stock options.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities."  In December 2003, the FASB issued a revised version of this Interpretation, FIN 46(R).  FIN 46(R) addresses the requirements for business enterprises to consolidate related entities, in which they do not have controlling interests through voting or other rights, if they are determined to be the primary beneficiary of these entities as a result of variable economic interests.  The Company must apply either FIN 46 or FIN 46(R) to Special Purpose Entities ("SPEs") created prior to February 1, 2003 and all entities, including SPEs, created subsequent to January 31, 2003 in the third quarter of fiscal year 2004.  The Company also must apply FIN 46(R) for all entities created prior to February 1, 2003 in the fourth quarter of fiscal year 2004.  We adopted FIN 46 on July 1, 2003 and FIN 46R for the quarter ended December 31, 2003.  The adoption did not have a material impact on our financial position or results of operation.

In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after September 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 adoption of SFAS No. 149 did not 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", 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 September 15, 2003.  The adoption of SFAS No. 150 did not have a material impact on the results of operations or the financial position of the Company.

In December 2003, the SEC issued SAB No. 104, "Revenue Recognition," which codifies, revises, and rescinds certain sections of SAB No. 101, "Revenue Recognition," in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations.  The adoption of SAB No. 104 did not have a material impact on our financial position or results of operation.

Stock Split

On December 13, 2002 the Board of Directors authorized a two-for-one stock split in the form of a 100% stock dividend to be distributed on or about January 17, 2003 to shareholders of record on 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.

56

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.

Note B - Inventories

Inventories at March 31 consisted of:

(in thousands)	2004	2003
Raw materials	$     13,050	$     12,175
Work in process	11,572	10,894
Finished goods	43,290	38,200
	$     67,912	$     61,269

Note C - Property and Equipment

Property and equipment at March 31 consisted of:

(in thousands)	2004	2003
Land	$        561	$        538
Buildings	24,534	24,595
Leasehold improvements	23,776	23,551
Furniture, fixtures and equipment	103,242	79,032
Construction in progress	3,811	6,620
	155,924	134,336
Less accumulated depreciation and amortization	(78,395)	(65,665)
	$   77,529	$   68,671

Note D - Other Comprehensive Income

Other comprehensive income includes the net change in unrealized gains (losses) on available-for-sale securities as follows:

	Year Ended March 31,
(in thousands)	2004	2003	2002
Unrealized (gains) losses arising during period,    net of taxes of $8, $225 and $347, respectively	$      14	$     421	$    641
Reclassification adjustments for (gains) losses    realized in net income, net of taxes of $50, $523    and $448, respectively	93	(972)	(831)
Change in net unrealized (gains) losses on securities	$    107	$    (551)	$   (190)

57

Accumulated other comprehensive income which is included in the Company's shareholders' equity at March 31 consisted of:

(in thousands)	2004	2003
Net unrealized (losses) gains on securities	$        (5)	$    (112)
Foreign currency translation adjustments	19,127	6,511
Accumulated other comprehensive income	$ 19,122	$  6,399

Note E - Accounts Payable and Accrued Liabilities and Long-Term Accrued Liabilities

Accounts payable and accrued liabilities at March 31 consisted of:

(in thousands)	2004	2003
Trade accounts payable	$   37,126	$   26,759
Warranty and related reserves	23,396	19,989
Accrued compensation	18,212	18,753
Sales returns	11,797	10,455
Deferred revenue	6,915	4,441
Current portion of purchase price related to   acquired technologies and acquisitions	1,864	5,698
Interest Payable	1,187	-
Accrued royalties	567	770
Other	12,260	8,773
	$ 113,324	$  95,638

Long-term accrued liabilities at March 31 consisted of:

(in thousands)	2004	2003
Accrued acquisition liabilities - South Bay Medical	$   10,550	$   7,934
Accrued acquisition liabilities - Prosurg, Inc.	985	884
Deferred compensation	6,461	5,025
Other	-	127
	$   17,996	$ 13,970

58

Note F - Short-Term Bank Borrowings

Credit Agreement

As of March 31, 2002 and 2003, the Company had a secured line of credit ("$25M Credit Agreement") for borrowings up to $25 million, which accrue interest at the prevailing prime rate or at 1.75% over LIBOR at the Company's discretion.  The $25M Credit Agreement includes certain covenants that, among others, limit the dividends the Company may pay and requires maintenance of certain levels of tangible net worth and debt service ratios.  During fiscal year 2002, the Company used the $25M Credit Agreement to guarantee the secured loan to a vendor to facilitate the ramp up of production capacity related to a new product in the amount of $5.3 million.  This loan was repaid in 2003 and the guarantee expired.  Two letters of credit totaling $1.3 million are outstanding at March 31, 2004, which reduced the amount available under the $25M Credit Agreement.  Accordingly, although there were no borrowings outstanding under the $25M Credit Agreement at March 31, 2004, only $23.7 million was available for additional borrowings.

Foreign Lines of Credit

In addition, in February 2001, several lines of credit were established at a local level to facilitate operating cash flow needs at our foreign subsidiaries.  These lines are at market rates of interest, unsecured, guaranteed by us and total $6.9 million and $5.8 million at March 31, 2004 and 2003, respectively.  Total borrowed and outstanding under these lines were $4.5 million and $3.3 million at March 31, 2004 and 2003, respectively.  The amount available for additional borrowing was $2.4 million and $2.5 million at March 31, 2004 and 2003, respectively.

In fiscal year 2002, a line of credit of $7.5 million to finance the construction of a new facility in The Netherlands was established.  The borrowings accrue interest at EURIBOR plus 0.75% and are secured by the new facility and other assets in The Netherlands.  Total borrowed and outstanding under this line was $5.5 million and $4.9 million at March 31, 2004 and 2003, respectively.  The amount available for additional borrowing was $2.0 million and $1.8 million was available for additional borrowings at March 31, 2004 and 2003, respectively.

Outstanding borrowings under all credit arrangements had a weighted-average interest rate of 3.58% and 3.00% at March 31, 2004 and 2003, respectively.  A total of $28.1 million and $26.3 million was available under the $25M Credit Agreement and the foreign lines of credit at March 31, 2004 and 2003, respectively. 

59

Note G - 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 on the date of grant.  Activity in the stock option plans during fiscal 2004, 2003 and 2002 was as follows:

	At March 31
	Options Outstanding
	Number of Shares	Weighted Average Price per Share
Balance March 31, 2001	5,748,562	$      8.265
Granted	1,931,500	13.435
Exercised	(1,198,034)	7.405
Canceled or terminated	(453,560)	8.940
Balance March 31, 2002	6,028,468	$    10.025
Granted	1,270,140	19.01
Exercised	(711,877)	9.35
Canceled or terminated	(150,206)	12.75
Balance March 31, 2003	6,436,525	$     11.84
Granted	1,289,635	21.45
Exercised	(1,097,036)	9.36
Canceled or terminated	(110,971)	16.34
Balance March 31, 2004	6,518,153	$     14.08

At March 31, 2004, the Company had one Plan under which stock options were available, the Amended 2000 Long-term Incentive Plan (2000 Plan), approved by the Company's shareholders on October 19, 2000 and amended by vote of the shareholders September 14, 2001.  At March 31, 2004, the 2000 Plan had options for 2,943,775 shares granted and outstanding, and 3,138,137 shares available for grant.  The 1991 Plan had options for 3,726,788 shares granted and outstanding at March 31, 2004.  No additional options can be granted under the 1991 Plan.

Information regarding stock options outstanding at March 31, 2004 is as follows:

	Options Outstanding			Options Exercisable
Price Range	Number of Shares	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price	Number of Shares	Weighted-Average Exercise Price
Under $10.94	2,386,414	5.06 years	$ 8.33	1,896,047	$ 8.38
$11.56-$19.01	2,871,129	7.21 years	$15.61	1,077,162	$14.54
$21.00-$28.20	1,260,610	9.24 years	$21.46	N/A	N/A

At March 31, 2004, 2003 and 2002, stock options to purchase 2,973,209, 2,644,804 and 2,160,248 shares, respectively, were exercisable at weighted-average prices of $10.61, $9.24 and $8.64, respectively. 

60

Stock option exercise prices are set at the closing price of the Company's common stock on the date of grant and the related number of shares granted 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 requires the use of an option valuation model to provide supplemental information regarding options granted after fiscal 1995.  Pro forma information regarding net income and earnings per share shown below were determined as if the Company had accounted for its employee stock options under the fair value method of that statement.

The weighted average fair values of stock option granted were estimated at the date of grant using the Black-Scholes option valuation model and the following assumptions:

	Year Ended March 31,
	2004	2003	2002
Weighted average fair value of stock   options granted	$   4.85	$    11.01	$   7.92
Risk-free interest rate	2.68%	4.5%	4.6%
Expected life (in years)	4.65	7.00	7.20
Expected volatility	0.310	0.557	0.550
Expected dividend yield	2.86%	0.5%	0.4%

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options.  The Company's employee stock options have characteristics significantly different from those of traded options such as vesting restrictions and extremely limited transferability.  In addition, the assumptions used in option valuation models are highly subjective, particularly the expected stock price volatility of the underlying stock.  Because changes in these subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosure, the estimated fair value of the options is amortized ratably over the option's vesting period.  The pro forma effect on net income is not representative of the pro forma effect on net income in future years because compensation expense in future years will reflect the amortization of a larger number of stock options granted in several succeeding years.  The Company's pro forma information is as follows:

	Year Ended March 31,
(in thousands, except per share information)	2004	2003	2002
Net income:  as reported (1)	$ 54,779	$ 55,820	$  41,820
Deduct:  compensation expense fair value    method	(7,099)	(6,408)	(4,376)
Net income: pro forma	$ 47,680	$ 49,412	$  37,444
Basic earnings per share:  as reported	$    1.20	$    1.20	$       .88
Basic earnings per share:  pro forma	$    1.05	$    1.06	$       .79
Diluted earnings per share:  as reported	$    1.15	$    1.15	$       .85
Diluted earnings per share:  pro forma	$    1.01	$    1.04	$       .78
(1) Net income as reported includes no compensation expense associated with stock grants.

In March 2004, the FASB issued a Proposed SFAS, "Share-Based Payment, an amendment of FASB Statements No. 123 and No. 95" ("Exposure Draft").  The Exposure Draft would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require such transactions be accounted for using a fair-value-based method and the resulting cost recognized in the financial statements.  The Company will adopt the final standards upon issuance.

61

Note H - Income Taxes

Income tax expense consists of the following:

	Year Ended March 31,
(in thousands)	2004	2003	2002
Current:
Federal	$  25,589	$  22,414	$  17,763
Foreign	2,593	2,478	1,621
State	2,683	2,125	1,617
	30,865	27,017	21,001
Deferred:
Federal	(4,504)	(3,256)	(2,796)
Foreign	(52)	(55)	(467)
State	(948)	(487)	(342)
	(5,504)	(3,798)	(3,605)
	$  25,361	$  23,219	$  17,396

The reconciliation of the federal statutory rate to the Company's effective rate is as follows:

	Year Ended March 31,
	2004	2003	2002
Federal statutory rate	35.0%	35.0%	35.0%
Increase (decrease) resulting from:
State taxes net of federal tax benefit	1.1	1.3	1.4
Non-taxable interest and dividends	(0.0)	(0.1)	(0.1)
Research and development credit	(1.4)	(2.0)	(2.1)
Foreign Sales Corporation/ETI	(0.9)	(2.8)	(2.4)
Foreign operations	(2.3)	(2.1)	(2.5)
Non-deductible goodwill	0.1	-	0.1
Other	-	0.1	-
	31.6%	29.4%	29.4%

Significant components of the Company's deferred tax liabilities and assets at March 31 are as follows:

(in thousands)	2004	2003
Deferred tax liabilities:
Tax over book depreciation	$      (74)	$      (20)
Unrealized gain on long-term marketable securities	3	61
Porges book over tax basis/net deferred liabilities	(2,576)	(2,257)
	(2,647)	(2,216)
Deferred tax assets:
Book liabilities not deductible for tax	16,880	11,898
Inventory	1,257	891
Profit in inventory of foreign subsidiaries	2,993	2,464
Convertible notes hedge	10,766	-
	31,896	15,253
Net deferred tax assets	$ 29,249	$ 13,037

For the years ended March 31, 2004, 2003, and 2002 income before taxes from foreign operations were $11.2 million, $8.5 million and $8.1 million, respectively.  At March 31, 2004, foreign earnings of $21.3 million have been retained indefinitely by subsidiary companies for reinvestment, on which no U.S. tax has been provided.  If repatriated, additional taxes of approximately $7.5 million on these earnings, net of applicable foreign tax credit carry-forwards, would be due.  

62

Note I - Intangible Assets and Goodwill

In 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets".  SFAS No. 142 was effective for the Company as of April 1, 2002.  SFAS No. 142 specifies the financial accounting and reporting for acquired goodwill and other intangible assets.  Goodwill and intangible assets that have indefinite useful lives are no longer to be amortized but rather are to be tested for impairment annually or more frequently if impairment indicators arise.  None of the Company's intangible assets have an indefinite life.  Intangible assets with finite lives continue to be amortized on a straight-line basis over their useful lives.  Goodwill and intangible assets have been recorded at either incurred or allocated cost.  Allocated costs were based on respective fair values at the date of acquisition.  In 2002, goodwill amortization was recorded in selling, general and administrative expense and was immaterial

Upon the adoption of SFAS No. 142, the Company reassessed the remaining amortization periods of intangible assets acquired on or before June 30, 2001 and assigned all goodwill to reporting units for impairment testing.  The impairment tests involve the use of both estimates of fair value for the Company's reporting units as well as discounted cash flow assumptions.  Impairment tests were performed at adoption and in the fourth quarter of fiscal years 2003 and 2004 and no impairment was noted on a result of these analyses.

Balances of acquired intangible assets were as follows:

	Year Ended March 31, 2004
(in thousands)	Original Cost	Accumulated Amortization	Carrying Value	Useful Life
Patents	$  35,972	$    (4,822)	$  31,150	5-20
Licenses	15,424	(3,695)	11,729	3-17
Trademarks	1,668	(376)	1,292	10-20
Other intangibles	8,854	(2,011)	6,843	3-20
Subtotal intangibles	61,918	(10,904)	51,014
Goodwill	27,022	(3,311)	23,711	-
Total intangibles and    goodwill	$  88,940	$  (14,215)	$ 74,725

	Year Ended March 31, 2003
(in thousands)	Original Cost	Accumulated Amortization	Carrying Value	Useful Life
Patents	$ 24,094	$   (6,678)	$ 17,416	5-20
Licenses	16,107	(4,705)	11,402	3-17
Trademarks	2,140	(292)	1,848	10-20
Other intangibles	5,558	(654)	4,904	3-20
Subtotal intangibles	47,899	(12,329)	35,570
Goodwill	19,136	(2,616)	16,520	-
Total intangibles and    goodwill	$ 67,035	$ (14,945)	$52,090

The aggregate amortization expense on intangible assets recorded for the year ended March 31, 2004 was $3.6 million.  The following table summarizes the estimated aggregate amortization expense for each of the five succeeding years:

Year Ended	Estimated Amortization Expense (in thousands)
March 31, 2005	$3,626
March 31, 2006	3,918
March 31, 2007	3,880
March 31, 2008	3,695
March 31, 2009	$3,560

63

Upon adoption of SFAS 142 we identified four reporting units: aesthetics, body contouring, surgical urology, and clinical and consumer healthcare.  Goodwill is the result of acquisitions directly benefiting only one of the four reporting units of the Company.  That goodwill resides completely within that reporting unit, and accordingly the goodwill was assigned to the reporting units based upon specific identification.

The changes in the carrying amount of goodwill for the years ended March 31, 2004, 2003 and 2002 are as follows:

(in thousands)	Aesthetics	Surgical Urology	Clinical and Consumer Healthcare	Total
Balance at March 31, 2001	$    2,801	$  1,884	$   1,862	$    6,547
Goodwill acquired	2,238	665	285	3,188
Goodwill amortization	(443)	(35)	(102)	(580)
Balance at March 31, 2002	4,596	2,514	2,045	9,155
Goodwill acquired	739	1,809	4,817	7,365
Balance at March 31, 2003	5,335	4,323	6,862	16,520
Goodwill acquired	5,714	417	1,060	7,191
Balance at March 31, 2004	$11,049	$  4,740	$  7,922	$  23,711

Note J - Acquisitions   

South Bay Medical LLC

On January 19, 2001, the Company purchased the assets of South Bay Medical LLC (South Bay), a company focused on the development of a new computer-based workstation and automated cartridge-based needle loading system for use in brachytherapy procedures.  The acquisition was accounted for as a purchase with the results of operations included in the Company's financial statements from the date of acquisition.  The Company paid $2,000,000 in cash and issued restricted common stock valued at $4 million on the date of purchase.  Additional purchase price payments will be made to South Bay over the next several years as workstation sales are made.  The net present value of these amounts is recorded at March 31, 2004, in current accrued liabilities ($850,000) and in long-term accrued liabilities ($10,550,000) as the Company believes it is probable these payments will be paid. 

Byron Medical, Inc.

In December 2001, the Company paid $3 million for 51% of the outstanding shares of Byron Medical, Inc.  The Company had previously purchased 49% of the shares in 1998, and now owns all outstanding shares.  The purchase price allocation included goodwill of $2.1 million and net assets of $900,000.  Byron Medical, Inc. is located in Tucson, Arizona and specializes in the distribution of liposuction equipment and disposables.

Prosurg, Inc.

In December 2001, the Company entered into several agreements with Prosurg, Inc., Inc. to acquire certain patent rights and obtain a source of supply of a bio-absorbable co-polymer for $2 million in cash and up to an additional $2 million upon the achievement of certain milestones.  The purchase price was allocated to intangible assets and the net present value of these amounts is recorded at March 31, 2004, in accrued liabilities ($1,000,000) and in long-term accrued liabilities ($985,000) as the Company believes it is probable these payments will be paid.

64

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 reported in our clinical and consumer healthcare segment.  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 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 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 was accounted for using SFAS No. 141, "Business Combinations," using the purchase method of accounting, and the purchase price was allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date.  The acquisition is included in our surgical urology segment.  The acquisition was valued at $4,063,000, net of cash acquired, and was paid from existing cash balances.  The purchase price was initially allocated to accounts receivable of $626,000, inventory of $322,000, other assets of $36,000, production equipment of $830,000, long-term investments, preliminarily valued at $1,100,000, and goodwill and other intangibles with indefinite lives of $1,410,000, net of accrued liabilities of $261,000.  In fiscal 2004, the fair value of certain assets and liabilities were adjusted based upon more recent information and as a result goodwill was decreased by $125,000. 

A-Life Ltd.

On August 25, 2003, the Company completed the acquisition of A-Life Ltd, which has developed a hyaluronic acid based dermal filler product, from Vitrolife, AB.  The acquisition was valued at $7.5 million, net of cash acquired, and was paid from existing cash balances.  The purchase price was allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date.  The purchase price was preliminarily allocated to accounts receivable of $36,000, other assets of $349,000, production equipment of $393,000 and intangible assets of $6,821,000, net of accrued liabilities of $123,000.

Note K - Earnings per Share

A reconciliation of weighted average shares outstanding, used to calculate basic earnings per share, to weighted average shares outstanding assuming dilution, used to calculate diluted earnings per share, follows:

	Year Ended March 31,
(in thousands)	2004	2003	2002
Weighted average outstanding shares:  basic	45,543	46,428	47,278
Shares issuable through exercise of stock   options	2,214	1,960	1,648
Weighted average outstanding shares:  diluted	47,757	48,388	48,926

Employee stock options

Shares issuable under our employee stock option plan that have exercise prices in excess of the average price per share during the period are included in the diluted earnings per share calculation using the treasury stock method.  Options to purchase 10,175, 1,089,478 and 129,534 shares with exercise prices greater than the average market prices of common stock were outstanding during the years ended March 31, 2004, 2003 and 2002, respectively.  These options were excluded from the respective computations of diluted earnings per share because their effect would be anti-dilutive.

65

Convertible subordinated notes and warrants

At the end of each period, SFAS 128 requires that we use the if-converted method to determine the dilutive impact of the convertible subordinated notes described below in Note L.  Since the terms of these notes include restrictions which prevent the holder from converting the notes until our share price exceeds the 120% Conversion Price, there will be no impact of these notes on the total diluted shares figure for a particular reporting period unless our stock price exceeds the 120% Conversion Price on 20 trading days of the 30 consecutive trading day period ending on the first day of such fiscal quarter.  If that occurs, the numerator of the diluted earnings per share calculation is increased by the after tax interest expense avoided for the period upon conversion and the denominator of the calculation is increased by 5.1 million shares for both that current reporting period and the corresponding year-to-date reporting period. 

As described below in Note L, we purchased a convertible note hedge and sold warrants which, in combination, have the effect of reducing the dilutive impact of the convertible subordinated notes by increasing the effective conversion price for the notes from our perspective to $39.4275. SFAS 128, however, requires us to analyze the impact of the convertible note hedge and warrants on diluted EPS separately. As a result, the purchase of the convertible note hedge is excluded because its impact will always be anti-dilutive.  SFAS 128 further requires that the impact of the sale of the warrants be computed using the treasury stock method. For example, using the treasury stock method, if the average price of our stock during the period ended March 31, 2004 had been $38.00, $40.00 or $45.00, the shares from the Warrants to be included in diluted EPS would have been zero, 400,000 and 900,000 shares, respectively. The total number of shares that could potentially be included under the warrants is 5.1 million. Since the average share price of our stock during the year ended March 31, 2004 did not exceed the conversion price of warrants, $39.4275, there was no impact of these warrants on diluted shares or diluted EPS during that period.

Note L - Long-Term Debt

On December 22, 2003, the Company completed an offering of $150 million of convertible subordinated notes due January 1, 2024 pursuant to Rule 144A under the Securities Act of 1933.  The notes bear interest at 2¾% per annum and are convertible into shares of the Company's common stock at a conversion price of $29.289 per share and are subordinated to all existing and future senior debt.

Holders of the notes may convert their notes only if any of the following conditions is satisfied:

• during any fiscal quarter prior to January 1, 2019, if the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading day period ending on the first trading day of such fiscal quarter is more than 120% of the conversion price per share of the Company's common stock on such trading day;
   
• any business day on or after January 1, 2019, if the closing price of the Company's common stock on the immediately preceding trading day is more than 120% of the conversion price per share of the Company's common stock on such trading day;
   
• during the five business day period after any five consecutive trading day period if the average of the trading prices of the notes for such five consecutive trading day period is less than 98% of the average of the conversion values of the notes during such period, subject to certain limitations;
   
• if the Company has called the notes for redemption; or
   
• if the Company makes certain significant distributions to holders of its common stock or the Company enters into specified corporate transactions.

At an initial conversion price of $29.289, each $1,000 principle amount of notes will be convertible into 34.1425 shares of common stock.

66

Concurrent with the issuance of the convertible subordinated notes, the Company entered into a convertible note hedge and a warrants transaction with respect to its common stock, the exposure for which is held by Credit Suisse First Boston LLC.  Both the note hedge and the warrants transaction may be settled at the Company's option either in cash or shares and expire January 1, 2009.  The convertible note hedge and warrants transactions combined are intended to reduce the potential dilution from conversion of the notes.  The cost of the note hedge and  the proceeds of warrants sale have been included in stockholder's equity in accordance with the guidance in Emerging Issues Task Force No. 00-19, "Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company's own Stock."  Any proceeds received or payments made upon termination of these instruments will be recorded in stockholders equity. 

Note M - Share Repurchase Program

The Company has a stock repurchase program, primarily to offset the dilutive effect of our employee stock option program, to provide liquidity to the market and to reduce the overall number of shares outstanding.  All shares repurchased under the program are retired and are no longer deemed to be outstanding.  In May 1999, the Board of Directors authorized the repurchase of 9.2 million shares of our stock.  Each year shares have been repurchased including 1.4 million shares for $22.3 million and 1.5 million shares for $18.7 million in the years ended March 31, 2003 and 2002, respectively.  At March 31, 2003, 1.8 million shares were remaining under this authorization.  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.  On December 5, 2003, the Board of Directors increased the authorized number of shares to be repurchased by 5 million shares from 2.5 million to 7.5 million shares.  During fiscal 2004, 5.4 million shares have been repurchased for $135.8 million and 3.6 million shares remain authorized for repurchase as of March 31, 2004.  The timing of repurchases is subject to market conditions, cash availability, and blackout periods during which the Company is restricted from repurchasing shares.  There is no guarantee that shares authorized for repurchase by the Board will ultimately be repurchased.

Note N - Commitments

The Company leases certain facilities under non-cancelable operating leases with unexpired terms ranging from 1 to 123 years.  Most leases contain renewal options.  Rental expense for these leases was $5.1 million, $4.5 million and $4.1 million for fiscal 2004, 2003 and 2002, respectively.

Future minimum lease payments under lease arrangements at March 31, 2004 are as follows:

(in thousands)
2005	$     5,371
2006	5,587
2007	5,381
2008	5,251
2009	4,844
Thereafter	18,171
Total	$   44,605

67

Note O - Related Party Transactions

Since 1991, the Company has had an exclusive license agreement with Rochester Medical Corporation ("Rochester") to market and distribute certain external catheter products developed by Rochester.  The Company purchased $3,506,000, $3,443,000 and $860,000 of product from Rochester in 2004, 2003 and 2002, respectively.  Several officers/founders of Rochester, a public company, are siblings of the Chairman of Mentor Corporation.  The Chairman derived no financial or other benefit from transactions between the Company and Rochester. 

In December 2001, the Company purchased the remaining 51% of the outstanding shares of Byron Medical, Inc. and currently owns all outstanding shares.  Byron Medical, Inc. leases a facility from Avtar, LLC, which is owned by Byron Economidy, President of Byron Medical, Inc. and an employee of the Company.  Rent paid to Avtar, LLC was $119,000 and $115,000 in 2004 and 2003.  During 2003, the Company paid $270,000 to retire a note payable to Byron Economidy, President of Byron Medical, Inc. and an employee of the Company.

In February 2003, the Company purchased Mills Biopharmaceuticals, Inc. (see Note J Acquisitions for more information) and as part of the acquisition, purchased the building owned by Dr. Stan Mills, an employee, and his wife, for $525,000.

On January 19, 2001, the Company purchased the assets of South Bay Medical LLC (South Bay), a company focused on the development of a new computer-based workstation and automated cartridge-based needle loading system for use in brachytherapy procedures.  Additional purchase price payments will be made to South Bay over the next several years as workstation sales are made.  The net present value of these amounts is recorded at March 31, 2004, in accrued liabilities ($850,000) and in long-term accrued liabilities ($10,550,000).  The related acquisition agreement also provides for certain other contingent amounts to be paid to South Bay which will be expensed as earned based upon future sales levels.  The majority of the shares of South Bay are owned by individuals, who became employees of the Company, and their spouses.  These individuals have directly benefited from the past payments of cash and common stock to South Bay and will benefit as future payments are made based on workstation and brachytherapy seed sales.  During fiscal 2004, $385,000 was paid to South Bay under the agreement.  No amounts were paid in fiscal years 2003 and 2002.

Note P - Contingencies

Warranty and product liability claims are a regular and ongoing aspect of the medical device industry.  At any one time, the Company is subject to claims against it and is involved in litigation.  These actions can be brought by an individual, or by a group of patients purported to be a class action.  The Company carries product liability insurance on all its products, except silicone gel-filled implants, which are only available within the United States through a controlled clinical study.  This insurance is subject to certain self-insured retention and other limits of the policy, exclusions and deductibles that the Company believes to be appropriate. 

In addition, the Company also offers warranty coverage on some of its products.  The Company provides an accrual for the estimated cost of product warranties and product liability claims at the time revenue is recognized.  Such accruals are based on estimates, which are based on relevant factors such as historical experience, the warranty period, estimated costs, levels of insurance and insurance retentions, identified product quality issues, if any, and to a limited extent, information developed by the insurance company using actuarial techniques.  The Company assesses the adequacy of these accruals periodically and adjusts the amounts as necessary based on actual experience and changes in future expectations.  While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the warranty obligation is affected by reported rates of product problems as well as the costs incurred in correcting product problems.  The Company has recorded warranty and related reserves of $23,396,000, $19,989,000 and $16,252,000 at March 31, 2004, 2003 and 2002, respectively, to cover the cost of anticipated warranty and product liability claims. 

68

The following table presents changes in the Company's accrued warranties and related costs for the years ended March 31, 2004, 2003 and 2002.

	Year Ended March 31,
(in thousands)	2004	2003	2002
Beginning warranty reserves	$       19,989	$       16,252	$       12,062
Cost of warranty claims	(4,244)	(3,893)	(4,147)
Accrual for product warranties	7,651	7,630	8,337
Ending warranty reserves	$       23,396	$       19,989	$       16,252

In addition, in the ordinary course of its business, the Company experiences various types of claims that sometimes result in litigation or other legal proceedings.  The Company does not anticipate that any of these proceedings will have a material adverse effect on the Company.

Note Q - 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 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 products for the management of urinary incontinence and retention.

Selected financial information for the Company's reportable segments for the years ended March 31, is as follows:

	Year Ended March 31,
(in thousands)	2004	2003	2002
Net Sales
Aesthetic and General Surgery	$       218,437	$      191,405	$      163,091
Surgical Urology	108,370	106,675	94,341
Clinical and Consumer Healthcare	95,361	84,304	63,630
Total consolidated revenues	$       422,168	$       382,384	$      321,062
	Year Ended March 31,
(in thousands)	2004	2003	2002
Operating profit
Aesthetic and General Surgery	$        76,696	$        67,631	$        49,516
Surgical Urology	(860)	6,851	6,945
Clinical and Consumer Healthcare	13,294	12,854	11,927
Total reportable segments	$        89,130	$        87,336	$        68,388
	At March 31,
(in thousands)	2004	2003	2002
Identifiable assets
Aesthetic and General Surgery	$       135,199	$       102,570	$        95,675
Surgical Urology	114,937	105,415	87,482
Clinical and Consumer Healthcare	76,695	62,155	43,101
Total reportable segments	$       326,831	$       270,140	$      226,258
69 Table of Contents
	At March 31,
(in thousands)	2004	2003	2002
Depreciation and amortization
Aesthetic and General Surgery	$           4,469	$          3,852	$          3,617
Surgical Urology	5,045	4,865	4,400
Clinical and Consumer Healthcare	2,834	3,261	2,808
Total reportable segments	$         12,348	$        11,978	$        10,825
Corporate and other	3,049	2,755	3,023
	$         15,397	$        14,733	$        13,848
	At March 31,
(in thousands)	2004	2003	2002
Capital expenditures
Aesthetic and General Surgery	$           4,460	$          4,995	$       10,669
Surgical Urology	8,911	7,420	2,705
Clinical and Consumer Healthcare	3,197	2,576	1,393
Total reportable segments	$         16,568	$        14,991	$       14,767
Corporate and other	7,360	1,752	493
	$         23,928	$        16,743	$       15,260

The following tables reconcile segment information to the amounts shown on the consolidated financial statements.
	Year Ended March 31,
(in thousands)	2004	2003	2002
Operating profit
Reportable segments	$        89,130	$        87,336	$         68,388
Corporate operating loss	(10,061)	(10,359)	(10,872)
Interest expense	(1,844)	(1,022)	(859)
Interest income	1,663	2,456	2,217
Other income	1,252	628	342
Income before taxes	$        80,140	$        79,039	$         59,216
	At March 31,
(in thousands)	2004	2003	2002
Identifiable assets
Reportable segments	$      326,831	$      270,140	$      226,258
Corporate and other	171,948	127,948	98,378
Consolidated assets	$      498,779	$      398,088	$      324,636
Selected financial information for the Company's operations by geographic area is as follows:
	Year Ended March 31,
(in thousands)	2004	2003	2002
Geographic area revenue
United States	$      251,788	$      244,220	$      220,264
France	49,653	39,436	33,061
All other countries	120,727	98,728	67,737
Consolidated total	$      422,168	$      382,384	$      321,062
70 Table of Contents
	At March 31,
(in thousands)	2004	2003	2002
Geographic area long-lived assets
United States	$        97,911	$        72,649	$        71,627
France	26,733	24,532	18,698
Netherlands	16,259	14,052	10,064
All other countries	11,351	9,528	1,009
Consolidated total	$      152,254	$      120,761	$      101,398

71

Note R - Quarterly Financial Data (Unaudited)

The following is a summary of unaudited quarterly results of operations.

(in thousands, except per share data)
Year Ended March 31, 2004	First	Second	Third	Fourth
Net sales	$   105,106	$     93,263	$   106,502	$   117,297
Gross profit	65,733	57,702	66,041	71,909
Net income	16,033	11,238	12,540	14,968
Earnings per share
Basic earnings per share	$        0.35	$        0.24	$        0.27	$        0.34
Diluted earnings per share	$        0.33	$        0.23	$        0.26	$        0.33
Year Ended March 31, 2003	First	Second	Third	Fourth
Net sales	$    97,677	$    89,586	$    94,039	$   101,082
Gross profit	59,432	51,917	55,872	62,286
Net income	16,749	12,506	12,982	13,583
Earnings per share
Basic earnings per share	$        0.36	$        0.27	$        0.28	$        0.29
Diluted earnings per share	$        0.34	$        0.26	$        0.27	$        0.28

72

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)

COL. A	COL. B	COL. C		COL. D	COL. E
		Additions
Description	Balance at Beginning of Period	Charged to Costs and Expenses	Charged to Other Accounts	Deductions	Balance at End of Period
Year Ended March 31, 2004
Deducted from asset accounts:
Allowance for doubtful accounts	$      5,406	$   2,708	$           -	$    1,313	$     6,801
Liability Reserves:
Warranty and related reserves	$    19,989	$   7,651	$           -	$    4,244	$   23,396
Accrued sales returns and allowances	10,455	1,342			11,797
	$    30,444	$   8,993	$           -	$    4,244	$   35,193
Year Ended March 31, 2003
Deducted from asset accounts:
Allowance for doubtful accounts	$      3,870	$   3,605	$           -	$    2,069	$     5,406
Liability Reserves:
Warranty and related reserves	$    16,252	$   7,630	$           -	$    3,893	$   19,989
Accrued sales returns and allowances	7,806	2,649	-	-	10,455
	$    24,058	$ 10,279	$           -	$    3,893	$   30,444
Year Ended March 31, 2002
Deducted from asset accounts:
Allowance for doubtful accounts	$      3,578	$   2,374	$     (259)	$    1,823	$     3,870
Liability Reserves:
Warranty and related reserves	$    12,062	$   8,337	$           -	$    4,147	$   16,252
Accrued sales returns and allowances	4,913	2,893	-	-	7,806
	$    16,975	$ 11,230	$           -	$    4,147	$   24,058

73

Signatures

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

                                                            MENTOR CORPORATION

                                                            /s/JOSHUA H. LEVINE
                                                           Joshua H. Levine
                                                           President and Chief Executive Officer

DATE:       June 11, 2004

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

Signatures	Title	Date Signed
/s/JOSHUA H. LEVINE	President and Chief Executive Officer	June 11, 2004
Joshua H. Levine	(Principal Executive Officer)
/s/LOREN L. MCFARLAND	Chief Financial Officer and Treasurer	June 11, 2004
Loren L. McFarland	(Principal Financial and Accounting Officer)
/s/CHRISTOPHER J. CONWAY	Chairman of the Board	June 14, 2004
Christopher J. Conway
/s/WALTER W. FASTER	Director	June 4, 2004
Walter W. Faster
/s/EUGENE G. GLOVER	Director	June 10, 2004
Eugene G. Glover
/s/MICHAEL NAKONECHNY	Director	June 8, 2004
Michael Nakonechny
/s/RONALD J. ROSSI	Director	June 9, 2004
Ronald J. Rossi
/s/JEFFREY W. UBBEN	Director	June 6, 2004
Jeffrey W. Ubben
/s/DR. RICHARD W. YOUNG	Director	June 7, 2004
Dr. Richard W. Young

74

EXHIBIT INDEX

Regulation S-K Exhibit Table Item Number	Description of Exhibit
3.1	Composite Restated Articles of Incorporation of the Company dated December 12, 2002 Incorporated by reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2003.
3.2	Amended and Restated Bylaws of Mentor Corporation dated July 15, 2003 -- Incorporated by reference to Exhibit 3.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter  ended June 30, 2003.
4.1	Indenture 2¾% Convertible Subordinated Notes Due 2024, dated December 22, 2003 --Incorporated by reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.
10.1*	Mentor Corporation 1991 Stock Option Plan -- Incorporated by reference to Registration Statement on Form S-8, Registration No. 333-48815, filed June 24, 1992.
10.2*	Mentor Corporation 2000 Stock Option Plan -- Incorporated by reference to Registration Statement on Form S-8, Registration No. 333-73306, filed November 14, 2001.
10.3*	Mentor Corporation 1991 Stock Option Plan -- Incorporated by reference to Registration Statement on Form S-8, Registration No. 333-100841, filed October 30, 2002.
10.4	Lease Agreement, dated November 1989, between Mentor Corporation and Skyway Business Center Joint Venture -- Incorporated by reference to Exhibit 10(b) of the Registrant's  Annual Report on Form 10-K for the year ended March 31, 2002.
10.5	First Amendment to Lease Agreement, dated December 1, 1993, between Mentor Corporation and Skyway Business Center Joint Venture -- Incorporated by reference to Exhibit 10(c) of the Registrant's  Annual Report on Form 10-K for the year ended March 31, 2002.
10.6	Lease Agreement, dated July 23, 1990, between Mentor Corporation and SB Corporate Center, Ltd., covering 201 Mentor Drive, Santa Barbara, CA 93111 -- Incorporated by reference to Exhibit 10(f) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2003.
10.7	Lease Agreement, dated August 19, 1998, between Mentor Corporation and SB Corporate Center, LLC, covering 301 Mentor Drive -- Incorporated by reference to Exhibit 10(n) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 1999.
10.8*	Transition Agreement, dated August 1, 1999, between Mentor Corporation and Christopher Conway -- Incorporated by reference to Exhibit 10(s) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2000.
10.9*	Employment Agreement, dated April 1, 2000, between Mentor Corporation and Adel Michael -- Incorporated by reference to Exhibit 10(u) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2000.
10.10*	Employment Agreement, dated October 16, 2000, between Mentor Corporation and Eugene G. Glover -- Incorporated by reference to Exhibit 10(a) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000.

75

EXHIBIT INDEX (continued)

Regulation S-K Exhibit Table Item Number	Description of Exhibit
10.11*	Employment Agreement, dated November 28, 2000, between Mentor Corporation and Bobby K. Purkait -- Incorporated by reference to Exhibit 10(c) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000.
10.12	Purchase Agreement, dated January 19, 2001, between Mentor Corporation and South Bay Medical LLC -- Incorporated by reference to Exhibit 10(w) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2001.
10.13	Amended and Restated Credit Agreement, dated October 25, 2000, between Mentor Corporation and Sanwa Bank California -- Incorporated by reference to Exhibit 10(x) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2001.
10.14	First Amendment to Amended and Restated Credit Agreement, dated February 2, 2001, between Mentor Corporation and Sanwa Bank California -- Incorporated by reference to Exhibit 10(y) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2001.
10.15	Second Amendment to Amended and Restated Credit Agreement, dated February 14, 2001, between Mentor Corporation and Sanwa Bank California -- Incorporated by reference to Exhibit 10(z) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2001.
10.16	Third Amendment to Amended and Restated Credit Agreement, dated December 14, 2001, between Mentor Corporation and Bank of the West -- Incorporated by reference to Exhibit 10(s) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2003.
10.17	Fourth Amendment to Amended and Restated Credit Agreement, dated March 25, 2003, between Mentor Corporation and Bank of the West -- Incorporated by reference to Exhibit 10(t) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2003.
10.18*	Employment Agreement, dated August 3, 2000, between Mentor Corporation and Joshua Levine -- Incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
10.19*	Employment Agreement, dated November 28, 2000, between Mentor Corporation and Peter Shepard -- Incorporated by reference to Exhibit 10(u) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2002.
10.20*	Employment Agreement, dated November 28, 2000, between Mentor Corporation and Clarke Scherff -- Incorporated by reference to Exhibit 10(v) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2002.
10.21*	Employment Agreement, dated August 30, 2002, between Mentor Corporation and Cathy Ullery -- Incorporated by reference to Exhibit 10(x) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2003.
10.22*	Employment Agreement, dated August 30, 2002, between Mentor Corporation and Maher Michael, M.D. -- Incorporated by reference to Exhibit 10(y) of the Registrant's Annual Report on Form 10-K for the year ended March 31, 2003.

76

EXHIBIT INDEX (continued)

Regulation S-K Exhibit Table Item Number	Description of Exhibit
10.23*	Incentive Bonus Plan -- Incorporated by reference to Exhibit 10(2) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
10.24	Option and Asset Purchase Agreement between Alchemy Engineering, LLC and Mentor Corporation -- Incorporated by reference to Exhibit 10(a) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.
10.25	Convertible Note Hedge Confirmation, dated December 17, 2003 -- Incorporated by reference to Exhibit 10(b) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.
10.26	Registration Rights Agreement - 2¾% Convertible Subordinated Notes Due 2024, dated December 22, 2003 - Incorporated by reference to Exhibit 10(c) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.
10.27	Warrants Confirmation, dated December 17, 2003 -- Incorporated by reference to Exhibit 10(d) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.
10.28	Purchase Agreement - 2¾% Convertible Subordinated Notes Due 2024, dated December 17, 2003 -- Incorporated by reference to Exhibit 10(e) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.
10.29	Collared Accelerated Share Repurchase Transaction, dated March 8, 2004.
10.30*	Employment Agreement, dated February 18, 2004 between Mentor Corporation and Bobby Purkait.
10.31*	Amendment to Employment Agreement between Mentor Corporation and Bobby Purkait, effective April 1, 2004.
10.32*	Amendment to Employment Agreement between Mentor Corporation and Eugene Glover, effective April 9, 2004.
10.33	Exclusive Supply Agreement between Alchemy Engineering, LLC d/b/a SiTech, LLC and Mentor Corporation.
21	Subsidiaries of the Company
23	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
31.1	Rule 13a-15(e) and 15d-15(e) Certification - Principal Executive Officer - Joshua H. Levine
31.2	Rule 13a-15(e) and 15d-15(e) Certification - Principal Financial Officer - Loren L. McFarland
32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Joshua H. Levine
32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Loren L. McFarland

* Management contract or compensatory plan or arrangement.

77

 

EX-10

December 17, 2003

Mentor Corporation
201 Mentor Drive
Santa Barbara, CA  93111
Attention: 

Credit Suisse First Boston International
One Cabot Square
London E14 4QJ
England

Dear Sirs:

The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between Party A and Party B through the Agent on the Trade Date specified below (the "Transaction").  This Confirmation constitutes a "Confirmation" as referred to in the Agreement specified below.

1.         The definitions and provisions contained in the 1996 ISDA Equity Derivatives Definitions (the "Equity Definitions") and in the 2000 ISDA Definitions (the "Swap Definitions" and, together with the Equity Definitions, the "Definitions") (in each case as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation.  In the event of any inconsistency between the Equity Definitions and the Swap Definitions, the Equity Definitions will govern, and between the Definitions and this Confirmation, this Confirmation will prevail.  References herein to a "Transaction" shall be deemed to be references to a "Share  Option Transaction" for purposes of the Equity Definitions and an "Swap Transaction" for the purposes of the Swap Definitions.

            This Confirmation (together with all other Confirmations of Share Transactions between Party A and Party B with respect to Shares of the Issuer contemporaneously or previously entered into between them, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to an ISDA 1992 Master Agreement (Multicurrency - Cross Border) (the "Agreement"), as if, on the Trade Date of the first such Transaction between Party A and Party B, they had executed the Agreement (without any Schedule thereto) and specified that (1) the Automatic Early Termination provisions contained in Section 6(a) of such Agreement would apply, (2) Second Method and Loss would apply, (3) such Agreement would cover only Share Transactions with respect to Shares of the Issuer referred to herein and (4) for purposes of Section 2(c) of such Agreement, references to payments of amounts denominated in the same currency shall be deemed to include references to deliveries of Shares issued by the Issuer, and Section 2(c)(ii) of such Agreement would not apply.  

            The Agreement and each Confirmation thereunder will be governed by and construed in accordance with New York law without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

            In this Confirmation, "Party A" means Credit Suisse First Boston International, "Party B" means Mentor Corporation and "Agent" means Credit Suisse First Boston, acting through its New York branch and solely in its capacity as agent for Party A and Party B.

2.         The terms of the particular Transaction to which this Confirmation relates are as follows:

            General Terms:

  Transaction Type:    Convertible Note Hedge.  Upon the occurrence of a Conversion Event (as defined below), (i) Party A shall deliver to Party B   the number of Shares (as defined below) that Party B is obligated to deliver to the holders of the Reference Notes (as defined below) with respect to such Conversion Event and (ii) Party B shall pay to Party A the Redemption Equivalent Amount (as defined below) with respect to such Conversion Event.  Alternatively, Party B may elect Net Cash Settlement or Net Share Settlement (each as defined below). 

                    Trade Date:                              December 17, 2003

Settlement Date:                        Subject to the provisions of Section 6 below, for each Conversion Event for which Party A receives the related Conversion Notice prior to the Settlement Cutoff Date, (i) if Physical Settlement applies, the date on which the Issuer delivers Shares to the related converting holders of Reference Notes and (ii) if Net Cash Settlement or Net Share Settlement applies, the third Exchange Business Day following the related Reference Price Period.

                                                Subject to the provisions of Section 6 below, for each Conversion Event for which Party A receives the related Conversion Notice on or following the Settlement Cutoff Date, the Expiration Date.

                        Seller:                                       Party A

                        Buyer:                                      Party B

Calculation Agent:                     Party A.  The definition of "Calculation Agent" in the Equity Definitions shall be amended by deleting the second sentence thereof and replacing it with the following:  "Whenever a Calculation Agent acts or makes any determination, it will do so in good faith and in a reasonable manner.  In the event of a good faith error, and upon becoming or being made aware of such error, the Calculation Agent shall promptly correct such error (and shall not be liable for any error promptly corrected for any amounts greater than the actual cost of such error)."

Reference Notes:                      The Convertible Notes due January 1, 2024 (the "Maturity Date"), first putable on January 1, 2009 and issued by Mentor Corporation (the "Issuer") on December 22, 2003 pursuant to the Note Indenture (as defined below) with an original principal amount of $150,000,000.

Conversion Event:                     Each conversion of any Reference Note into Shares  (or cash or a combination of Shares and cash, as applicable) pursuant to the terms of the Note Indenture (the principal amount of Reference Notes so converted, the "Conversion Amount" with respect to such Conversion Event).

                                    If the Conversion Amount for any Conversion Event is less than the principal amount of Reference Notes then outstanding, then the terms of this Transaction shall continue to apply, subject to the terms and conditions set forth herein.

Settlement Cutoff Date:             The date that is thirty (30) days prior to the Expiration Date.  By no later than the Settlement Cutoff Date, Party B may elect, by notice (the "Settlement Election Notice") in writing to Party A (given through the Agent), that Net Cash Settlement or Net Share Settlement shall apply with respect to all Conversion Events occurring on or after the Settlement Cutoff Date, in which case the Physical Settlement terms shall not apply with respect to such Conversion Events.  If no Settlement Election Notice is delivered to Party A on or prior to the Settlement Cutoff Date, then the Physical Settlement terms shall apply with respect to all Conversion Events occurring on or after the Settlement Cutoff Date.

Note Indenture:                         The Indenture dated as of December 22, 2003 between the Issuer and U.S. Bank, National Association, as trustee, as the same may be amended, modified or supplemented and in effect from time to time.

Shares:                                     The shares of common stock of the Issuer, par value $0.10 per Share (Bloomberg ticker MNT, ISIN US5871881034).

Exchange:                                 New York Stock Exchange

Clearance System:                     The Depository Trust Company
 

Convertible Note Hedge Purchase Price:

Payment of Hedge Purchase

Price:                                        On the Hedge Purchase Price Payment Date, Party B shall pay to Party A, through the Agent, the Hedge Purchase Price.

                        Hedge Purchase Price

Payment Date:                          December 22, 2003

                        Hedge Purchase Price:              USD 30,397,421

Expiration of Convertible Note Hedge:              

                        Expiration Time:                        The close of trading on the Exchange.

Expiration Date:                        January 1, 2009.  For the avoidance of doubt this Convertible Note Hedge shall expire on the Expiration Date, with no further payments or deliveries required hereunder (other than payments and deliveries owing hereunder with respect to Conversion Events occurring, and as to which Party A has received notice, on or prior to the Expiration Date), as if this Transaction were an Option Transaction for purposes of the Equity Definitions.

Automatic Exercise:                  Not Applicable.

            Settlement upon a Conversion Event:

Settlement Terms:                     Physical Settlement, unless Party B elects Net Cash Settlement or Net Share Settlement (each as defined below).

Physical Settlement:                   Unless Party B has elected Net Cash Settlement or Net Share Settlement, subject to Section 6 below, on the Settlement Date, Party B shall pay to Party A, through the Agent, the related Redemption Equivalent Amount for each Conversion Event and Party A shall deliver to Party B, through the Agent, the related Share Equivalent Amount for each Conversion Event.  Such payment and delivery shall take place on a delivery-versus-payment basis.

Redemption Equivalent

Amount:                                    With respect to each Conversion Event, an amount in U.S. Dollars equal to the related Conversion Amount.

Share Equivalent Amount:          With respect to each Conversion Event, the aggregate number of Shares Party B is obligated to deliver pursuant to the terms of the Note Indenture to the holders of the Reference Notes that are converted into Shares pursuant to such Conversion Event.

Failure to Deliver:                      Applicable.  For such purposes, Section 6.9 of the Equity Definitions shall apply as if this Transaction were a Physically-settled Transaction, and references in said Section 6.9 to "illiquidity in the market" shall be deemed to include, in addition to "illiquidity in the market", the occurrence of a Disruption Event with respect to the Shares.

Disruption Event:                       A Market Disruption Event as specified in Section 4.3(a)(ii) of the Equity Definitions (determined as if this Transaction were a Cash-settled Share Transaction) or a Settlement Disruption Event as specified in Section 6.5 of the Equity Definitions (determined as if this Transaction were a Physically-settled Share Transaction).

Net Settlement:                                    

Net Settlement

Election:                                    For each Conversion Event for which Party A receives the related Conversion Notice prior to the Settlement Cutoff Date, Party B may elect in writing in the related Conversion Notice that either Net Cash Settlement or Net Share Settlement applies, in which case the Physical Settlement terms set out above shall not apply.  For each Conversion Event for which Party A receives the Conversion Notice on or following the Settlement Cutoff Date, Party B may elect Net Cash Settlement or Net Share Settlement in accordance with the terms described above.

Net Cash Settlement:                 If Party B properly elects Net Cash Settlement with respect to any Conversion Event, then on the related Settlement Date Party A shall pay to Party B, through the Agent, the related Net Settlement Amount.

Net Share Settlement:                If Party B properly elects Net Share Settlement with respect to any Conversion Event, then on the related Settlement Date Party A shall deliver to Party B, through the Agent, a number of Shares equal to the related Final Settlement Amount.

Reference Price Period:             For each Conversion Event for which Party A receives the related Conversion Notice prior to the Settlement Cutoff Date, the period of five (5) consecutive Valid Days commencing on the Exchange Business Day following Party A's receipt of the related Conversion Notice, provided that if such Reference Price Period otherwise would exceed seven (7) Exchange Business Days then such Reference Price Period shall end on such seventh (7^th) Exchange Business Day.

                                                For each Conversion Event for which Party A receives the related Conversion Notice on or after the Settlement Cutoff Date, the period of twenty (20) consecutive Valid Days commencing on the date that is the 22^nd Exchange Business Day expected to occur prior to the scheduled Expiration Date, provided that if such Reference Price Period otherwise would exceed twenty (20) Exchange Business Days or would end after the scheduled Expiration Date due to the occurrence of one or more Disruption Events, then such Reference Price Period shall end on such twentieth (20^th) Exchange Business Day or on the day prior to the scheduled Expiration Date, as applicable.

Valid Day:                                An Exchange Business Day on which there is no Disruption Event with respect to the Shares.

Final Settlement Amount:           For each Conversion Event, the number of Shares, rounded up to the nearest whole Share, determined by the Calculation Agent to be equal to the quotient of (x) the related Net Settlement Amount divided by (y) the related Reference Price.

Net Settlement Amount:             For each Conversion Event, the product of (x) the number of Shares into which the Reference Notes are to be converted in connection with the related Conversion Event multiplied by (y) the Final Price Differential.

Final Price Differential:              For each Conversion Event, an amount equal to the greater of (x) the excess of the related Reference Price over the related Adjusted Conversion Price and (y) zero.

Reference Price:                       For each Conversion Event, the average of the Volume Weighted Average Prices of the Shares on the Exchange for each Valid Day falling in the related Reference Price Period, provided that if there are fewer than five, in the case of Conversion Notices delivered to Party A prior to the Settlement Cutoff Date, or twenty, in the case of Conversion Notices delivered to Party A on or following the Settlement Cutoff Date, Valid Days within such Reference Price Period then the related Reference Price shall be the Calculation Agent's good faith estimate of the value of one (1) Share on such day.

                        Volume Weighted

Average Price:                          In respect of any Valid Day, the volume weighted average price per Share as displayed under the heading "Bloomberg VWAP" on Bloomberg Page MNT <equity> AQR in respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on each such Valid Day, or if such Volume Weighted Average Price is not available, the Calculation Agent's good faith estimate of the volume weighted average price of the Shares on such Valid Day.

Adjusted Conversion Price:        For each Conversion Event, the Conversion Price (as defined in the Note Indenture and as adjusted from time to time pursuant to the terms thereof) as in effect at the time of the related Conversion Event.

Additional Party B Payments:                 If a Conversion Event occurs on or following the Settlement Cutoff Date, then Party B shall pay to Party A, on the related Settlement Date, an amount (in addition to any other amount that Party B is required to pay to Party A in connection with such Conversion Event) equal to 0.25% of the related Conversion Amount.

Adjustments:

     Method of Adjustment:                      Not Applicable.

3.         Additional Agreements, Representations and Covenants of Party B, Etc.:

(a)        Party B hereby represents and warrants to Party A, on each day from the Trade Date to and including the date that is the earliest of (x) the date by which Party A is able to initially complete a hedge of its position created by this Transaction, (y) the date that is five (5) Exchange Business Days following the expiration of the period during which the Initial Purchaser is permitted to exercise its option to purchase additional Reference Notes, and (z) the date that is five (5) Exchange Business Days following the exercise by the Initial Purchaser of its option to purchase additional Reference Notes, that:

(1)        it will not, and will not permit any person or entity subject to its control to, bid for or purchase Shares during such period (in each case other than Shares purchased from or through Party A); and

(2)        Party B has publicly disclosed all material information necessary for Party B to be able to purchase or sell Shares in compliance with applicable federal securities laws and that it has publicly disclosed all material information with respect to its condition (financial or otherwise).

(b)        Party B hereby agrees that, during the Term of this Transaction, it will comply in all material respects with all corporate or, if applicable, similar laws affecting its ability to perform its obligations under this Transaction, including any such requirements of the United States Securities and Exchange Commission (the "Commission") or any applicable law.

(c)        Each of Party A and Party B hereby represents and warrants that (1) it has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of this Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on its part; and this Confirmation has been duly and validly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms; and (2) neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of it  hereunder will conflict with or result in a breach of, or require any consent under, the certificate of incorporation or by‑laws (or any equivalent documents) of it, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which it or any of its affiliates is a party or by which it or any of its affiliates is bound or to which it or any of its affiliates is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.

(d)        The Issuer hereby agrees to promptly deliver to Party A a copy of all notices and other communications required or permitted to be given to the holders of any Reference Notes pursuant to the terms of the Note Indenture on the dates so required or permitted in the Note Indenture.  The Issuer further covenants to Party A that it shall promptly provide written notice to Party A, through the Agent, (1) if it receives notice of a conversion with respect to any Reference Notes pursuant to the terms of the Note Indenture (identifying in such notice (a "Conversion Notice") the principal amount of Reference Notes being converted and the settlement date applicable to such Conversion Event pursuant to the terms of the Note Indenture), (2) of an Amendment Event (including in such notice a detailed description of any such amendment) and (3) of a Repayment Event (identifying in such notice the nature of such Repayment Event and the principal amount of Reference Notes being paid).  The Issuer shall deliver each Conversion Notice to Party A within two Business Days following the date on which the Issuer receives the notice of conversion from the related converting holders, or if earlier, the Expiration Date; provided that if the related converting holders retract their notice of conversion pursuant to the terms of the Note Indenture, then the Issuer shall immediately (and in any event within one Business Day following the receipt by the Issuer of notice of a retraction) notify Party A of such retraction.  The Issuer hereby acknowledges and agrees that its obligations under this Section 3(d) shall continue as obligations of the Issuer notwithstanding any transfer by it of any of its rights or obligations to any other person or entity in accordance with Section 5 below.

(e)        If the Initial Purchaser party to the Purchase Agreement (as defined below) exercises its right to receive additional Reference Notes pursuant to the Initial Purchaser's option to purchase additional Reference Notes, then Party A and Party B will (i) enter into a confirmation for a Convertible Note Hedge on substantially identical terms, including pricing, to this Confirmation with respect to such additional Reference Notes or (ii) amend this Confirmation to provide for such increase in Reference Notes (such additional confirmation or amendment to this Confirmation to provide for the payment by Party B to Party A of the additional hedge purchase price related thereto).

(f)        Notwithstanding anything to the contrary herein, if any event occurs that, pursuant to the terms of the Note Indenture, alters the nature of property that the holders of the Reference Notes will be entitled to receive upon conversion, then the Calculation Agent shall make such adjustments to the terms of this Transaction as it deems necessary to preserve the hedge provided by this Transaction and, in such connection, the Calculation Agent may adjust (1) the definition of "Shares" herein to reflect the property into which the Reference Notes are convertible after giving effect to such event, and (2) Party A's obligations to deliver Shares (or to pay amounts determined by reference to the value of Shares) hereunder so that Party A will instead be obligated to deliver such property (or to pay the equivalent value thereof as reasonably determined by the Calculation Agent) against (in the case of Physical Settlement) payment by Party B of the related Redemption Equivalent Amount.

(g)        Party B shall deliver an opinion of counsel to Party A in form and substance satisfactory to Party A and Party B.

(h)        If an event occurs that results in a put of any Reference Notes to the Issuer by the holders thereof pursuant to the terms of the Note Indenture (other than in connection with a Repayment Event), then this Transaction shall terminate automatically in respect of the principal amount of Reference Notes that cease to be outstanding in connection with or as a result of such event and no payments or deliveries shall be required hereunder in respect of such event (and, for the avoidance of doubt, if the principal amount of Reference Notes that cease to be outstanding is less than the total principal amount outstanding of Reference Notes, then the terms of this Transaction shall continue to apply, subject to the terms and conditions set forth herein).

(i)         The parties hereby agree that all documentation with respect to this Transaction is intended to qualify this Transaction as an equity instrument for purposes of EITF 00-19.  No collateral shall be required by either party for any reason in connection with this Transaction.

(j)         Party A hereby agrees that from the Trade Date through to and including each Settlement Date, it will:

(1)        use its reasonable efforts to not become an "affiliate" of Party B as such term is defined in Regulation 144(a)(1) under the Securities Act;

(2)        not vote any Shares, as to which it has the right to exercise a vote; and

(3)        not permit any director, officer, employee, agent or affiliate to serve as a member of the board of directors of Party B.

4.         Additional Termination Events:

            The occurrence of any the following shall be an Additional Termination Event with respect to Party B (which shall be the sole Affected Party and this Transaction shall be the sole Affected Transaction):

(a)        an Amendment Event occurs, in which case the entirety of this Transaction shall be subject to termination;

(b)        a Repayment Event occurs, in which case this Transaction shall be subject to termination only in respect of the principal amount of Reference Notes that cease to be outstanding in connection with or as a result of such Repayment Event (and, for the avoidance of doubt, if the principal amount of Reference Notes that cease to be outstanding is less than the total principal amount outstanding of Reference Notes, then the terms of this Transaction shall continue to apply, subject to the terms and conditions set forth herein); or

(c)        the transactions contemplated by the Purchase Agreement among Party B and Credit Suisse First Boston LLC, as Initial Purchaser, dated as of December 17, 2003 (the "Purchase Agreement"), relating to the purchase of the Reference Notes shall fail to close as a result of any breach by Party B of its obligations thereunder or as a result of any action, or failure to act, by Party B thereunder, in which case the entirety of this Transaction shall terminate automatically.

In addition, if the transactions contemplated by the Purchase Agreement shall fail to close for any reason other than those set forth in clause (c) above, then the entirety of this Transaction shall terminate automatically and no payments or deliveries shall be required hereunder.

            As used in this Section 4:

                        "Amendment Event" means that the Issuer amends, modifies, supplements or waives any term of the Note Indenture or the Reference Notes if such amendment, modification, supplement or waiver has a material effect on this Transaction or Party A's ability to hedge all or a portion of this Transaction, with such materiality determination to be made in the reasonable discretion of the Calculation Agent.

"Repayment Event" means that (a) any Reference Notes are repurchased or redeemed (in each case whether in connection with or as a result of a change of control, howsoever defined,  or for any other reason other than on scheduled repurchase dates) by the Issuer, (b) any Reference Notes are delivered to the Issuer in exchange for delivery of any property or assets of the Issuer or any of its affiliates (howsoever described), (c) any principal of any of the Reference Notes is repaid prior to the Maturity Date (whether following acceleration of the Reference Notes or otherwise), or (d) any Reference Notes are exchanged by or for the benefit of the holders thereof for any other securities of the Issuer or any of its affiliates (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction.

5.         Transfer:

(a)        Notwithstanding Section 7 of the Agreement, Party A may transfer its rights and obligations under this Transaction:

(1)        without the consent of Party B to any person or entity, provided that the rating by Moody's Investors Service Inc. or Standard and Poor's Ratings Services of the long-term, senior unsecured indebtedness of the transferee (or any Credit Support Provider for such transferee) shall be at least equal to the rating by such rating agency of the long-term, senior unsecured indebtedness of Party A as at the date of such transfer; or

(2)        to any other person or entity with Party B's consent (such consent not to be unreasonably withheld),

in each case subject to any applicable federal or state laws, regulations or other requirements.

(b)        Notwithstanding Section 7 of the Agreement, Party B may transfer its rights and obligations (other than, if Party B is the Issuer, those under Section 3(d) above) under this Transaction with the consent of Party A (such consent not to be unreasonably withheld), subject to any applicable federal or state laws, regulations or other requirements, and subject in all cases to Party A's standard compliance processes.

6.         Staggered Settlement:

            If Party A determines reasonably and in good faith that the number of Shares required to be delivered to Party B hereunder on any Settlement Date would exceed 9.9% of all outstanding Shares, then Party A may, by notice to Party B on or prior to such Settlement Date (a "Nominal Settlement Date"), elect to deliver the Shares comprising the related Share Equivalent Amount (in the case of Physical Settlement) or the Final Settlement Amount (in the case of Net Share Settlement) on two or more dates (each, a "Staggered Settlement Date") as follows:

(a)        in such notice, Party A will specify to Party B the related Staggered Settlement Dates (the first of which will be such Nominal Settlement Date and the last of which will be no later than the twentieth (20^th) Exchange Business Day following such Nominal Settlement Date) and the number of Shares that it will deliver on each Staggered Settlement Date;

(b)        the aggregate number of Shares that Party A will deliver to Party B hereunder on all such Staggered Settlement Dates will equal the number of Shares that Party A would otherwise be required to deliver on such Nominal Settlement Date;

(c)        if the Physical Settlement terms set forth above were to apply on such Nominal Settlement Date, then the Physical Settlement terms will apply on each Staggered Settlement Date, except that the related Share Equivalent Amount will be allocated among such Staggered Settlement Dates as specified by Party in the notice referred to in clause (a) above and the Redemption Equivalent Amount will be payable on the Nominal Settlement Date; and

(d)        if the Net Share Settlement terms set forth above were to apply on the Nominal Settlement Date, then the Net Share Settlement terms will apply on each Staggered Settlement Date, except that the Shares comprising the Final Settlement Amount will be allocated among such Staggered Settlement Dates as specified by Party A in the notice referred to in clause (a) above.

Notwithstanding anything herein to the contrary, Party A shall be entitled to deliver Shares to Party B from time to time prior to the date on which Party A would be obligated to deliver them to Party B pursuant to the Physical Settlement and Net Share Settlement terms set forth above, and Party B agrees to credit all such early deliveries against Party A's obligations hereunder in the direct order in which such obligations arise.  No such early delivery of Shares will accelerate or otherwise affect any of Party B's obligations to Party A hereunder.  To the extent Party A receives or is entitled to receive any distribution or payment in respect of Shares by reason of Party A's being a holder of record of such Shares on any date after the Nominal Settlement Date which Party A would have delivered to Party B on such Nominal Settlement Date but for the provisions of this Section 6, Party A shall deliver such distribution or payment to Party B at the time Party A delivers the related Shares to Party B in accordance with this Section 6, if such distribution or payment has already been received by Party A at such time, or within a reasonable period of time following Party A's receipt of the distribution or payment, if such distribution or payment has not already been received by Party A at the time Party A delivers the related Shares to Party B in accordance with this Section 6.

7.         Matters relating to the Agent:

(a)        Credit Suisse First Boston, New York branch, in its capacity as Agent will be responsible for (i) effecting this Transaction, (ii) issuing all required confirmations and statements to Party A and Party B, (iii) maintaining books and records relating to this Transaction in accordance with its standard practices and procedures and in accordance with applicable law and (iv) unless otherwise requested by Party B, receiving, delivering, and safeguarding Party B's funds and any securities in connection with this Transaction, in accordance with its standard practices and procedures and in accordance with applicable law.

(b)        Agent is acting in connection with this Transaction solely in its capacity as Agent for Party A and Party B pursuant to instructions from Party A and Party B.  Agent shall have no responsibility or personal liability to Party A or Party B arising from any failure by Party A or Party B to pay or perform any obligations hereunder, or to monitor or enforce compliance by Party A or Party B with any obligation hereunder, including, without limitation, any obligations to maintain collateral.  Each of Party A and Party B agrees to proceed solely against the other to collect or recover any securities or monies owing to it in connection with or as a result of this Transaction.  Agent shall otherwise have no liability in respect of this Transaction, except for its gross negligence or willful misconduct in performing its duties as Agent.

(c)        Any and all notices, demands, or communications of any kind relating to this Transaction between Party A and Party B shall be transmitted exclusively through Agent at the following address:

Credit Suisse First Boston, New York branch
Eleven Madison Avenue
New York, NY 10010-3629

For payments and deliveries:
Facsimile No.: (212) 325 8175
Telephone No.: (212) 325 8678 / (212) 325 3213

For all other communications:
Facsimile No.: (212) 325 8173
Telephone No.: (212) 325 8676 / (212) 538 5306 /
(212) 538 1193 / (212) 538 6886

(d)        The date and time of the Transaction evidenced hereby will be furnished by the Agent to Party A and Party B upon written request.

(e)        The Agent will furnish to Party B upon written request a statement as to the source and amount of any remuneration received or to be received by the Agent in connection with the Transaction evidenced hereby.

(f)        Party A and Party B each represents and agrees (i) that this Transaction is not unsuitable for it in the light of such party's financial situation, investment objectives and needs and (ii) that it is entering into this Transaction in reliance upon such tax, accounting, regulatory, legal and financial advice as it deems necessary and not upon any view expressed by the other or the Agent.

8.         Account Details:

           Payments to Agent:                   The Bank of New York
                                                           Swift:    IRVTUS3N
                                                           A/C:     Credit Suisse First Boston
                                                           A/C#:   8900374179

            Payments to Party A:                To be advised

            Payments to Party B:                 To be advised

            Deliveries to Party B:                To be advised

Credit Suisse First Boston International is regulated by The Financial Services Authority and has entered into this Transaction as principal.  The time at which this Transaction was executed will be notified to Party B (through the Agent) on request.

Please confirm that the foregoing correctly sets forth the terms of your agreement by signing and returning this Confirmation.

Yours faithfully,

CREDIT SUISSE FIRST BOSTON, acting through its New York branch and solely in its capacity as Agent

By: /S/THOMAS DECKER
Name:  Thomas Decker
Title:  Vice President Operations

By: /S/AUGUSTINE VARGETTA
Name:  Augustine Vargetta
Title:  Director Operations
 

Confirmed as of the date first written above:

MENTOR CORPORATION (Party B)

By:  /S/ADEL MICHAEL
Name:  Adel Michael
Title:  CFO

CREDIT SUISSE FIRST BOSTON INTERNATIONAL (Party A)

By:  /S/ANDREW WALTON
Name:  Andrew Walton
Title:  Attorney-in-Fact
 

By:  /S/NICK HORNSEY
Name:  Nick Hornsey
Title:  Attorney-in-Fact

EX-10

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.  PARTY B MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO PARTY B THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

December 17, 2003

Mentor Corporation
201 Mentor Drive
Santa Barbara, CA  93111
Attention:  Chief Financial Officer

Credit Suisse First Boston International
One Cabot Square
London E14 4QJ
England

Dear Sirs:

The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between Party A and Party B through the Agent on the Trade Date specified below (the "Transaction").  This Confirmation constitutes a "Confirmation" as referred to in the Agreement specified below.

1.         The definitions and provisions contained in the 1996 ISDA Equity Derivatives Definitions (the "Equity Definitions") and in the 2000 ISDA Definitions (the "Swap Definitions" and, together with the Equity Definitions, the "Definitions") (in each case as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation.  In the event of any inconsistency between the Equity Definitions and the Swap Definitions, the Equity Definitions will govern, and between the Definitions and this Confirmation, this Confirmation will prevail.  References herein to a "Transaction" shall be deemed to be references to an "Share Option Transaction" for the purposes of the Equity Definitions and to a "Swap Transaction" for the purposes of the Swap Definitions.  For purposes of this Transaction, "Warrant Style", "Warrant Type", "Number of Warrants" and "Warrant Entitlement" (each as defined below) shall be used herein as if such terms were referred to as "Option Style", "Option Type", "Number of Options" and "Option Entitlement", respectively, in the Definitions.

            This Confirmation (together with all other Confirmations of Share Transactions between Party A and Party B with respect to Shares of the Issuer contemporaneously or previously entered into between them, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to an ISDA 1992 Master Agreement (Multicurrency - - Cross Border) (the "Agreement"), as if, on the Trade Date of the first such Transaction between Party A and Party B, they had executed the Agreement (without any Schedule thereto) and specified that (1) the Automatic Early Termination provisions contained in Section 6(a) of such Agreement would apply, (2) Second Method and Loss would apply, (3) such Agreement would cover only Share Transactions with respect to Shares of the Issuer referred to herein and (4) for purposes of Section 2(c) of such Agreement, references to payments of amounts denominated in the same currency shall be deemed to include references to deliveries of Shares issued by the Issuer, and Section 2(c)(ii) of such Agreement would not apply. 

            The Agreement and each Confirmation thereunder will be governed by and construed in accordance with New York law without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

            In this Confirmation, "Party A" means Credit Suisse First Boston International, "Party B" means Mentor Corporation and "Agent" means Credit Suisse First Boston, acting through its New York branch and solely in its capacity as agent for Party A and Party B.

2.         The terms of the particular Transaction to which this Confirmation relates are as follows:

            General Terms:

                        Trade Date:                              December 17, 2003

                        Warrant Style:                           European

                        Warrant Type:                           Call

                        Seller:                                       Party B

                        Buyer:                                      Party A

Shares:                                     The shares of the common stock of Mentor Corporation (the "Issuer"), par value USD 0.10 per Share (Bloomberg ticker MNT, ISIN US5871881034).

                        Number of Warrants:                 5,121,377

                        Warrant Entitlement:                  One (1) Share per Warrant

                        Strike Price:                              USD 39.4275

                        Premium:                                  USD 11,890,813

Premium Payment Date:            December 22, 2003

                        Exchange:                                 New York Stock Exchange

                        Clearance System:                     The Depository Trust Company

Calculation Agent:                     Party A.  The definition of "Calculation Agent" in the Equity Definitions shall be amended by deleting the second sentence thereof and replacing it with the following:  "Whenever a Calculation Agent acts or makes any determination, it will do so in good faith and in a reasonable manner.  In the event of a good faith error, and upon becoming or being made aware of such error, the Calculation Agent shall promptly correct such error (and shall not be liable for any error promptly corrected for any amounts greater than the actual cost of such error)."

            Procedure for Exercise:

                        Expiration Time:                        The close of trading on the Exchange.

Expiration Date:                        January 1, 2009.

Automatic Exercise:                  Applicable, subject to Section 3(a) below.

Settlement Terms:                                 Net Share Settlement, unless Party B elects Net Cash Settlement (as defined below).

Net Share Settlement:                Subject to Sections 3 and 4 below, unless Net Cash Settlement applies, on the Settlement Date Party B shall deliver to Party A, through the Agent, a number of Shares equal to the Final Settlement Amount.

Net Cash Settlement

Election:                                    By no later than the Settlement Cutoff Date, Party B may elect, by notice in writing to Party A (given through the Agent), that Net Cash Settlement shall apply, in which case the Net Share Settlement terms set out above shall not apply.  If no such notice is delivered to Party A by the Settlement Cutoff Date, the Net Share Settlement terms set out above shall apply.

Net Cash Settlement:                 If Party B elects Net Cash Settlement, subject to Section 3 below, then on the Settlement Date Party B shall pay to Party A, through the Agent, the Net Settlement Amount.

Settlement Date:                        The scheduled Expiration Date, unless otherwise provided by Section 3 below.

Reference Price Period:             The period of twenty (20) consecutive Valid Days commencing on the date that is the 22^nd Exchange Business Day expected to occur prior to the scheduled Expiration Date, provided that if such Reference Price Period otherwise would exceed twenty (20) Exchange Business Days or would end after the scheduled Expiration Date due to the occurrence of one or more Disruption Events, then such Reference Price Period shall end on such twentieth (20^th) Exchange Business Day or on the day prior to the scheduled Expiration Date, as applicable.

Settlement Cutoff Date:             The date that is thirty (30) days prior to the Expiration Date.

Valid Day:                                An Exchange Business Day on which there is no Disruption Event with respect to the Shares.

Disruption Event:                       A Market Disruption Event as specified in Section 4.3(a)(ii) of the Equity Definitions (determined as if this Transaction were a Cash-settled Share Option Transaction) or a Settlement Disruption Event as specified in Section 6.5 of the Equity Definitions (determined as if this Transaction were a Physically-settled Share Option Transaction).

Final Settlement Amount:           The number of Shares, rounded up to the nearest whole Share, determined by the Calculation Agent to be equal to the quotient of (x) the related Net Settlement Amount divided by (y) the related Reference Price.

Net Settlement Amount:             The product of (x) the number of Warrants expiring on the Expiration Date multiplied by (y) the related Final Price Differential.

Final Price Differential:              An amount equal to the greater of (x) the excess of the related Reference Price over the Strike Price and (y) zero.

Reference Price:                       The average of the Volume Weighted Average Prices of the Shares on the Exchange for each Valid Day falling in the Reference Price Period, provided that if there are fewer than twenty Valid Days within the Reference Price Period then the related Reference Price shall be the Calculation Agent's good faith estimate of the value of one (1) Share on such day.

                        Volume Weighted

Average Price:                          In respect of any Valid Day, the volume weighted average price per Share as displayed under the heading "Bloomberg VWAP" on Bloomberg Page MNT <equity> AQR in respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on each such Valid Day, or if such Volume Weighted Average Price is not available, the Calculation Agent's good faith estimate of the volume weighted average price of the Shares on such Valid Day.

            Adjustments:

     Method of Adjustment:                      Calculation Agent Adjustment.  For the purposes of Section 9.1(e)(iii) of the Equity Definitions, a regular dividend or distribution of $0.15 or less per Share per fiscal quarter shall not be deemed an "extraordinary dividend" and any dividend or distribution of greater than $0.15 per fiscal quarter shall be deemed an "extraordinary dividend".

Extraordinary Events:

                 Consequences of Merger Events:

     (a)    Share-for-Share:                      Alternative Obligation; provided that notwithstanding the above, the Calculation Agent will determine if such Merger Event adjustment affects the theoretical value of this Transaction and if so, may in its reasonable discretion make the adjustment set forth in paragraph (A) under the definition of "Calculation Agent Adjustment" (as defined in the Equity Definitions) to the terms of this Transaction to reflect the characteristics (including without limitation, the volatility, dividend practice and policy and liquidity) of the New Shares.

     (b)    Share-for-Other:                       Cancellation and Payment, subject to the terms of Section 5 below.

     (c)    Share-for-Combined:                Cancellation and Payment, subject to the terms of Section 5 below.

     Delisting, Nationalization

     or Insolvency:                                   Cancellation and Payment, subject to the terms of Section 5 below.

3.         Excess Share Ownership Provisions;  Conversion Exercise Condition; Conversion Notices:

(a)        (1)  Excess Share Ownership Provisions.  Notwithstanding any other provision hereof, Party A may not exercise any Warrant hereunder, and Automatic Exercise shall not apply with respect thereto, if the exercise of such Warrant would cause Party A to become, directly or indirectly, the beneficial owner of more than 9.9 percent of the class of the Issuer's equity securities that is comprised of the Shares for purposes of Section 13 of the Securities Exchange Act of 1934, as amended (in such case, an "Excess Share Owner").

Party A shall provide prior notice to Party B, through the Agent, if the exercise of any Warrant hereunder would cause Party A to become directly or indirectly, an Excess Share Owner; provided that the failure of Party A to provide such notice shall not alter the effectiveness of the provisions set forth in the preceding sentence and any purported exercise in violation of such provisions shall be void and have no effect.

If Party A is not permitted to exercise any Warrant because such exercise would cause Party A to become, directly or indirectly, an Excess Share Owner and Party A thereafter disposes of Shares owned by it or any action is taken that would then permit Party A to exercise such Warrant without such exercise causing it to become, directly or indirectly, an Excess Share Owner, then Party A shall provide notice of the taking of such action to Party B, through the Agent, and such Warrant shall then become exercisable by Party A to the extent such Warrant is otherwise exercisable hereunder.  In such event, the Expiration Date with respect to such Warrant shall be the date on which Party B receives such notice from Party A, and the related Settlement Date shall be as soon as reasonably practicable after receipt of such notice but no more than three (3) Business Days thereafter (but in no event shall the Settlement Date occur prior to the date on which it would have otherwise occurred but for the provisions of this paragraph (a)); provided that the related Net Settlement Amount shall be the same as the Net Settlement Amount but for the provisions of this paragraph (a).

(2)  Conversion Exercise Condition. Party A may not exercise any Warrant hereunder, and Automatic Exercise shall not apply with respect thereto, unless and until a Conversion Event occurs on or after the Settlement Cutoff Date (in which case such condition shall be deemed to be satisfied with respect to a number of Warrants equal to the total Number of Warrants multiplied by the related Expiration Ratio).  "Expiration Ratio" means, with respect to any Conversion Event, the ratio of (a) the principal amount of Reference Notes converted in connection therewith to (b) the total principal amount of Reference Notes originally issued.

(b)        Conversion Notices, Etc.  If the Issuer receives notice of a conversion of the  Convertible Notes due January 1, 2024 (the "Maturity Date"), first putable January 1, 2009 with an original principal amount of $150,000,000 (such Notes, the "Reference Notes", the Indenture under which such Reference Notes are issued, the "Reference Indenture", and such conversion a "Conversion Event"), then it shall promptly (and in any event within two Business Days following the date on which the Issuer receives such conversion notice provide a written notice to Party A, through the Agent, specifying the details of such event, including the principal amount of Reference Notes being converted and the related conversion settlement date.  The Issuer further covenants to Party A that it shall promptly notify Party A of each Amendment Event (including in such notice a detailed description of any such amendment) and Repayment Event (identifying in such notice the nature of such Repayment Event and the principal amount of Reference Notes being paid).  The Issuer hereby acknowledges and agrees that its obligations under this paragraph shall continue notwithstanding any transfer by it of any of its rights or obligations to any other person or entity in accordance with Section 8 below.

4.         Delivery of Shares:

Subject to Section 9 below, if Party B is obligated to deliver Shares to Party A pursuant to the terms of this Confirmation (including, for the avoidance of doubt, pursuant to Section 5(c) hereof), Party B may elect to deliver such Shares in accordance with any of the following:

(a)        if, in the reasonable determination of Party B, such Shares can be delivered such that they may be sold free of any limitation on transfer imposed by reason of material contractual limitations imposed on Party B and may be sold by Party A after such delivery in the United States without any registration under the Securities Act of 1933, as amended (the "Securities Act") and without volume limitations or restrictions on the manner of sale, then Party B shall at the time of such election deliver an opinion of counsel (from counsel reasonably acceptable to Party A and in form and substance reasonably satisfactory to Party A) confirming that such Shares after delivery may be sold free of any limitation on transfer imposed by reason of material contractual limitations imposed on Party B and may be sold by Party A after such delivery in the United States without any registration under the Securities Act and without volume limitations or restrictions on the manner of sale, then Party B may deliver such Shares to Party A without compliance with the procedures set forth on Appendix A or Appendix B hereto; provided that, if no opinion is delivered to Party A in accordance with this paragraph (a), then Party B shall deliver such Shares in accordance with paragraph (b) or (c) below;

(b)        Party B may register such Shares and otherwise satisfy each of the terms and procedures set forth on Appendix A hereto (a "Registered Offering") and deliver such Shares pursuant to such Registered Offering; provided that if no such Registered Offering is effected, Party A shall deliver such Shares in accordance with the procedures set forth on Appendix B hereto; or

(c)        Party B may, or if Party B is unable to deliver such Shares pursuant to the terms of paragraphs (a) and (b) above, shall, deliver such Shares pursuant to an offering that is exempt from the registration requirements of the Securities Act, and that shall otherwise comply with the terms and procedures (including the obligation, if applicable, to deliver additional Shares) set forth on Appendix B hereto (an "Exempt Offering").

5.         Discharge of certain payment obligations:

Subject to Section 9 below:

(a)        For the purposes of this Section 5 the terms of Section 9.7 of the Equity Definitions shall be deemed to apply to this Transaction.

(b)        If Party B shall owe Party A any amount pursuant to Section 9.7 of the Equity Definitions (except in the event of a Nationalization, an Insolvency or a Merger Event in which the merger consideration to be paid to holders of Shares consists solely of cash) or pursuant to Section 6 of the Agreement (except in the event of an Event of Default, other than by virtue of Bankruptcy, with respect to which Party B is the Defaulting Party) (in any such case, such amount owed shall be a "Payment Obligation"), then Party B may elect to satisfy such Payment Obligation by delivering to Party A, through the Agent, Shares.  If Party B fails to communicate such election to Party A by such time, it shall be deemed that Party B did not make such election and the terms of Section 9.7 of the Equity Definitions or of Section 6 of the Agreement, as the case might be, will apply.

(c)        If Party B makes such election, then Shares with a value (determined by the Calculation Agent acting to maximize the proceeds of the sale thereof (net of any fees and commissions, including without limitation, underwriting or placement fees at the time of such sale)) equal to the amount of the Payment Obligation described in paragraph (b) above shall be delivered in accordance with Section 4 of this Confirmation (and, if applicable, the terms set forth on Appendix A or Appendix B hereto, as applicable, shall apply mutatis mutandis); provided that for purposes of such application: (i) any deliveries in respect thereof shall be made on the date of payment or delivery required by Section 9.7 of the Equity Definitions or Section 6 of the Agreement, as the case may be; and (ii) the Final Resale Date, in the case of an Exempt Offering, shall be the second Exchange Business Day immediately following such date of delivery.  For the avoidance of doubt, Section 6 of this Confirmation shall apply to any discharge of a Payment Obligation pursuant to this Section 5.

6.         Maximum Number of Shares to be Delivered:

            Subject to Section 9 below, the maximum number of Shares that Party B shall be required to deliver to Party A in relation to this Transaction shall be equal to two times the Number of Warrants (the "Maximum Number of Shares to be Delivered").

7.         Additional Agreements of the Parties:

Subject to Section 9 below:

(a)        In the event of the bankruptcy of Party B (if it is the Issuer), Party A agrees that (1) Party A shall not have rights or assert a claim in respect of this Transaction that is senior in priority to the rights and claims available to the shareholders of the common stock of Party B, and (2) Party A shall not set off any claim in respect of this Transaction against any amounts owing by Party A to Party B under any other transaction between the parties.

(b)        The parties acknowledge that this Transaction is not secured by any collateral that would otherwise secure the obligations of Party B herein pursuant to the Agreement.  Without limiting the generality of the foregoing, this Transaction will not be considered to create obligations covered by any collateral credit support annex to the Agreement and will be disregarded for the purposes of calculating any exposures pursuant to any such annex.

8.         Transfer:

(a)        Notwithstanding Section 7 of the Agreement, Party A may transfer its rights and obligations under this Transaction at any time in its reasonable discretion (subject to any applicable federal or state laws, regulations or other requirements).

(b)        Notwithstanding Section 7 of the Agreement, Party B may transfer its rights and obligations under this Transaction with the consent of Party A (such consent not to be unreasonably withheld), subject to any applicable federal or state laws, regulations or other requirements, and subject in all cases to Party A's standard credit approval and compliance processes (including, without limitation, the execution and delivery by the transferee, if required by Party A, of a Credit Support Annex containing Party A's standard terms).

9.         Applicability and Inapplicability of Certain Provisions:

(a)        The second sentence of Section 3(b) of this Confirmation shall constitute a continuing obligation of the Issuer, and Sections 10(a) and (b) and Appendices A and B shall continue to apply to the Issuer, notwithstanding any transfer of its rights or other obligations in accordance with Section 8 above.

(b)        Sections 4, 5, 6 and 7 of this Confirmation shall not be applicable to Party B if Party B is not the Issuer or any of its affiliates.

10.        Additional Agreements, Representations and Covenants of Party B, Etc.:

(a)        Party B hereby represents and warrants to Party A, on each day from the Trade Date to and including the date that is the earliest of (x) the date by which Party A is able to initially complete a hedge of its position created by this Transaction, (y) the date that is five (5) Exchange Business Days following the expiration of the period during which the Initial Purchaser is permitted to exercise its option to purchase additional Reference Notes, and (z) the date that is five (5) Exchange Business Days following the exercise by the Initial Purchaser of its option to purchase additional Reference Notes, that:

(1)        it will not, and will not permit any person or entity subject to its control to, bid for or purchase Shares during such period (in each case other than Shares purchased from or through Party A); and

(2)        it has publicly disclosed all material information necessary for it to be able to purchase or sell Shares in compliance with applicable federal securities laws and that it has publicly disclosed all material information with respect to its condition (financial or otherwise).

(b)        Each of Party A and Party B hereby agrees that from the Trade Date through to and including the Settlement Date, it will comply in all material respects with all corporate or, if applicable, similar laws affecting its ability to perform its obligations under this Transaction, including any such requirements of the Commission or any applicable law.

(c)        Each of Party A and Party B hereby represents and warrants that (1) it has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of this Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on its part; and this Confirmation has been duly and validly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms; and (2) neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of it hereunder will conflict with or result in a breach of, or require any consent under, the certificate of incorporation or by‑laws (or any equivalent documents) of it, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which it or any of its affiliates is a party or by which it or any of its affiliates is bound or to which it or any of its affiliates is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.

(d)        If the Initial Purchaser party to the Purchase Agreement (as defined below) exercises its right to receive additional Reference Notes pursuant to the Initial Purchaser's option to purchase additional Reference Notes, then Party A and Party B will (i) enter into a confirmation for a Warrant on substantially identical terms, including pricing, to this Confirmation with respect to such additional Reference Notes or (ii) amend this Confirmation to provide for such increase in Reference Notes (such additional confirmation or amendment to this Confirmation to provide for the payment by Party A to Party B of the additional premium related thereto).

(e)        Party B shall deliver an opinion of counsel to Party A in form and substance satisfactory to Party A and Party B.

(f)        If an event occurs that results in a put of any Reference Notes to the Issuer by the holders thereof pursuant to the terms of the Reference Indenture (other than in connection with a Repayment Event), then this Transaction shall terminate automatically in respect of the number of Warrants whose ratio to the total Number of Warrants is equal to the ratio of the principal amount of Reference Notes that cease to be outstanding in connection with or as a result of such event to the total principal amount of Reference Notes originally issued (and, for the avoidance of doubt, if the principal amount of Reference Notes that cease to be outstanding is less than the total principal amount outstanding of Reference Notes, then the terms of this Transaction shall continue to apply, subject to the terms and conditions set forth herein).

(g)        The parties hereby agree that all documentation with respect to this Transaction is intended to qualify this Transaction as an equity instrument for purposes of EITF 00-19. 

(h)        Party A hereby agrees that from the Trade Date through to and including each Settlement Date, it will:

(1)        use its reasonable efforts to not become an "affiliate" of Party B as such term is defined in Regulation 144(a)(1) under the Securities Act;

(2)        not vote any Shares, as to which it has the right to exercise a vote; and

(3)        not permit any director, officer, employee, agent or affiliate to serve as a member of the board of directors of Party B.

11.        Additional Termination Events:

            The occurrence of the following shall be Additional Termination Events with respect to Party B (which shall be the sole Affected Party and this Transaction shall be the sole Affected Transaction):

(a)        the transactions contemplated by the Purchase Agreement among the Issuer and Credit Suisse First Boston LLC, as Initial Purchaser, dated as of December 17, 2003 (the "Purchase Agreement") relating to the purchase of the Reference Notes shall fail to close as a result of any breach by the Issuer of its obligations thereunder or as a result of any action, or failure to act, by the Issuer thereunder, in which case the entirety of this Transaction shall terminate automatically (and, for purposes of determining Loss in relation to any such Additional Termination Event, it shall be assumed that all conditions to the exercise of the Warrants have occurred);

(b)        a Conversion Event occurs prior to the Settlement Cutoff Date, which shall constitute an Additional Termination Event in respect of the portion of this Transaction covering a number of Warrants equal to the total Number of Warrants multiplied bythe ratio of (1) the principal amount of Reference Notes converted in connection therewith to (2) the total principal amount of Reference Notes originally issued (and, for the avoidance of doubt, if the principal amount of Reference Notes that cease to be outstanding as a result of such Conversion Event is less than the total principal amount outstanding of Reference Notes, then the terms of this Transaction shall continue to apply with respect to the remaining Warrants hereunder, subject to the terms and conditions set forth herein);

(c)        an Amendment Event occurs, in which case the entirety of this Transaction shall terminate automatically; or

(d)        a Repayment Event occurs, in which case this Transaction shall terminate automatically in respect of the number of Warrants whose ratio to the total Number of Warrants is equal to the ratio of the principal amount of Reference Notes that cease to be outstanding in connection with or as a result of such Repayment Event to the total principal amount of Reference Notes originally issued (and, for the avoidance of doubt, if the principal amount of Reference Notes that cease to be outstanding is less than the total principal amount outstanding of Reference Notes, then the terms of this Transaction shall continue to apply, subject to the terms and conditions set forth herein).

In addition, if the transactions contemplated by the Purchase Agreement shall fail to close for any reason other than those set forth in clause (a) above, then the entirety of this Transaction shall terminate automatically and no payments shall be required hereunder.      

For purposes of determining Loss in relation to any such Additional Termination Event, it shall be assumed that all conditions to the exercise of the Warrants have occurred.

As used in this Section 11:

                        "Amendment Event" means that the Issuer amends, modifies, supplements or waives any term of the Reference Indenture or the Reference Notes if such amendment, modification, supplement or waiver has a material effect on this Transaction or Party A's ability to hedge all or a portion of this Transaction, with such materiality determination to be made in the reasonable discretion of the Calculation Agent.

"Repayment Event" means that (a) any Reference Notes are repurchased or redeemed (in each case whether in connection with or as a result of a change of control, howsoever defined,  or for any other reason other than on scheduled repurchase dates) by the Issuer, (b) any Reference Notes are delivered to the Issuer in exchange for delivery of any property or assets of the Issuer or any of its affiliates (howsoever described), (c) any principal of any of the Reference Notes is repaid prior to the Maturity Date (whether following acceleration of the Reference Notes or otherwise), or (d) any Reference Notes are exchanged by or for the benefit of the holders thereof for any other securities of the Issuer or any of its affiliates (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction.

12.        Matters relating to the Agent:

(a)        Credit Suisse First Boston, New York branch, in its capacity as Agent will be responsible for (i) effecting this Transaction, (ii) issuing all required confirmations and statements to Party A and Party B, (iii) maintaining books and records relating to this Transaction in accordance with its standard practices and procedures and in accordance with applicable law and (iv) unless otherwise requested by Party B, receiving, delivering, and safeguarding Party B's funds and any securities in connection with this Transaction, in accordance with its standard practices and procedures and in accordance with applicable law.

(b)        Agent is acting in connection with this Transaction solely in its capacity as Agent for Party A and Party B pursuant to instructions from Party A and Party B.  Agent shall have no responsibility or personal liability to Party A or Party B arising from any failure by Party A or Party B to pay or perform any obligations hereunder, or to monitor or enforce compliance by Party A or Party B with any obligation hereunder, including, without limitation, any obligations to maintain collateral.  Each of Party A and Party B agrees to proceed solely against the other to collect or recover any securities or monies owing to it in connection with or as a result of this Transaction.  Agent shall otherwise have no liability in respect of this Transaction, except for its gross negligence or willful misconduct in performing its duties as Agent.

(c)        Any and all notices, demands, or communications of any kind relating to this Transaction between Party A and Party B shall be transmitted exclusively through Agent at the following address:

Credit Suisse First Boston, New York branch
Eleven Madison Avenue
New York, NY 10010-3629

For payments and deliveries:
Facsimile No.: (212) 325 8175
Telephone No.: (212) 325 8678 / (212) 325 3213

For all other communications:
Facsimile No.: (212) 325 8173
Telephone No.: (212) 325 8676 / (212) 538 5306 /
(212) 538 1193 / (212) 538 6886

(d)        The date and time of the Transaction evidenced hereby will be furnished by the Agent to Party A and Party B upon written request.

(e)        The Agent will furnish to Party B upon written request a statement as to the source and amount of any remuneration received or to be received by the Agent in connection with the Transaction evidenced hereby.

(f)        Party A and Party B each represents and agrees (i) that this Transaction is not unsuitable for it in the light of such party's financial situation, investment objectives and needs and (ii) that it is entering into this Transaction in reliance upon such tax, accounting, regulatory, legal and financial advice as it deems necessary and not upon any view expressed by the other or the Agent.

13.        Account Details:

                       Payments to Agent:                   The Bank of New York
                                                                       Swift:    IRVTUS3N
                                                                       A/C:     Credit Suisse First Boston
                                                                        A/C#:   8900374179

                        Payments to Party A:                To be advised

                        Payments to Party B:                 To be advised

                        Deliveries to Party B:                To be advised

Credit Suisse First Boston International is regulated by The Financial Services Authority and has entered into this Transaction as principal.  The time at which this Transaction was executed will be notified to Party B (through the Agent) on request.

Please confirm that the foregoing correctly sets forth the terms of your agreement by signing and returning this Confirmation.

Yours faithfully,

CREDIT SUISSE FIRST BOSTON, acting through its New York branch and solely in its capacity as Agent

By:  /S/THOMAS DECKER
Name:  Thomas Decker
Title:  Vice President Operations

By:  /S/AUGUSTINE VARGETTO
Name:  Augustine Vargetto
Title:  Director Operations
 

Confirmed as of the date first written above:

MENTOR CORPORATION (Party B)

By:  /S/ADEL MICHAEL
Name:  Adel Michael
Title:  CFO

CREDIT SUISSE FIRST BOSTON INTERNATIONAL (Party A)

By:  /S/ANDREW WALTON
Name:  Andrew Walton
Title:  Attorney-in-Fact

By:  /S/NICK HORNSEY
Name:  Nick Hornsey
Title:  Attorney-in-Fact

APPENDIX A
to the
CONFIRMATION
of a
TRANSACTION
between
CREDIT SUISSE FIRST BOSTON INTERNATIONAL
and
MENTOR CORPORATION

Terms and Procedures Relating to a Registered Offering

The terms and procedures relating to a Registered Offering are as follows:

(a)        Prior to the beginning of the relevant Reference Price Period, Party B shall file with the United States Securities and Exchange Commission (the "Commission") pursuant to the Securities Act a registration statement on Form S-3 (or any successor form thereto) or such other form as is acceptable to Party A and Party B, in respect of at least a number of Shares sufficient to cover the number of Shares to be sold in respect of this Transaction, including a number of Shares equal to the Maximum Number of Shares to be Delivered; such registration statement shall have been declared effective with respect to such Shares (the "Registration Statement") and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the Commission.

(b)        To the extent required to effect such Registered Offering, Party A will use reasonable efforts, and shall use reasonable efforts to cause any Selling Agent engaged by Party A and any underwriter(s), to cooperate with Party B in order to comply in all material respects with the Registration Procedures.  "Selling Agent" shall mean a broker dealer registered with the Commission under Section 15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and for purposes of this Transaction, the Selling Agent may also be an underwriter.

(c)        Party B shall have reserved and have available, free from pre-emptive rights, out of its authorized but unissued capital stock the number of Shares of Capital Stock that would be issuable with respect to such payment, for the purpose of effecting the delivery of any amount of Shares due from Party B as provided in the Confirmation.

(d)        Party B, at the request of Party A, shall deliver an underwriting agreement on commercially reasonable terms, naming Party A, or its designee, as underwriter, together with such other agreements, certificates and instruments as Party A may reasonably require either pursuant to such underwriting agreement or as are customarily provided together with such underwriting agreement.

(e)        Party B shall have registered and qualified such Shares under such securities or "blue sky" laws of such States and other jurisdictions in the United States of America and Puerto Rico as Party A or any underwriter shall have reasonably requested, and shall have done any and all other acts and things as may be reasonably necessary to be done by Party B to enable Party A or any underwriter to consummate the disposition in such jurisdictions of the Shares covered by the Registration Statement; provided that Party B shall not be required to make any filing or take any action as a result of this paragraph (e) that would require Party B to qualify as a foreign corporation or file a general consent to service of process in any jurisdiction.

(f)        Party B shall have caused such Shares and the issuance thereof to be registered with or approved by such other governmental agencies or authorities in the United States of America as may be reasonably necessary to be done by Party B to enable Party A or any underwriter to consummate the disposition of such Shares.       

(g)        Party B shall have (i) given Party A and its underwriter(s), if any, and their respective counsel and accountants, the opportunity to participate in the preparation of all materials filed with the Commission pursuant to the requirements of either the Securities Act or the Exchange Act or any other governmental agency (the "Filed Materials") prior to the first day of a sale period (a "Sale Period"), (ii) furnished to each of them copies of all such Filed Materials (and all documents incorporated therein by reference) sufficiently in advance of filing to provide them with a reasonable opportunity to review such documents and comment thereon, (iii) given each of them such access to its books and records and such opportunities to discuss the business of Party B with its officers and the independent public accountants who have issued a report on its financial statement as shall be reasonably necessary, in the opinion of Party A and such underwriter(s) or their respective counsel, to conduct a reasonable investigation (within the meaning of the Securities Act) with respect to such Filed Materials, (iv) delivered to Party A and its underwriter(s), if any, the financial statements of Party B filed with the Commission, (v) included in such Filed Materials material, furnished to Party B in writing, which in the reasonable judgment of Party A or its underwriter(s), if any, subject to the consent of Party B (which shall not be unreasonably withheld), should be included with respect to Party A, Party A's underwriter(s) and the "Plan of Distribution", including, without limitation, language to the effect that the holding by Party A of the Shares is not to be construed as a recommendation by Party A of the investment quality thereof and (vi) if requested by Party A, deleted from such Filed Materials any reference to Party A by name or otherwise if in the written opinion of counsel to Party A, acceptable in form and substance to Party B, such reference to Party A by name or otherwise is not required by the Securities Act or any similar Federal statute or applicable law then in force.

(h)        Party B shall have furnished to Party A and any underwriter, addressed to Party A and any such underwriter and dated the first day of the Sale Period, (i) an opinion of counsel for Party B (which opinion may be from internal counsel for Party B) and (ii) a "cold comfort" letter signed by the independent public accountants who have issued a report on Party B's financial statements included in such Registration Statement, each in form and substance satisfactory to Party A and any such underwriter and their respective counsel covering substantially the same matters with respect to such Shares and the offering, sale and issuance thereof and the financial statements of Party B as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriter(s) in underwritten public offerings of securities and, in the case of the accountants' letter, such other financial matters as Party A may have reasonably requested.

(i)         Party B shall have complied with all applicable provisions of the Securities Act and the Exchange Act, all applicable rules of the Commission and all other applicable laws, rules and regulations of any governmental or regulatory authority with respect to such Filed Materials and such Shares and the offering, sale and issuance thereof.

(j)         Party B shall have caused all such Shares to be listed on the Exchange and on each securities exchange on which similar securities issued by Party B are then listed.

(k)        Party B shall have provided a transfer agent and registrar for such Shares.

(l)         Party B shall have taken such other actions as Party A or any underwriter of such Shares shall have reasonably requested in order to expedite or facilitate the disposition of such Shares.

(m)       Party B shall provide Party A and its underwriter(s), if any, with indemnity and contribution in form and substance reasonably acceptable to Party A covering such matters relating to the Shares, the Filed Materials, and such other matters as Party A shall reasonably request.

(n)        Party B shall have paid all customary costs and expenses reasonably incurred in connection with the foregoing, including, but without limitation, all underwriting fees relating to the sale of the Shares.

(o)        Party B shall deliver all such registered Shares through the Clearance System.

(p)        If Party B is not the Issuer, then references above in this Appendix A to Party B shall be deemed to be references to the Issuer as necessary, and Party B agrees to use its best efforts to comply with the Registration Procedures set forth above.

APPENDIX B
to the
CONFIRMATION
of a
TRANSACTION
between
CREDIT SUISSE FIRST BOSTON INTERNATIONAL
and
MENTOR CORPORATION

Terms and Procedures Relating to an Exempt Offering

The terms and procedures relating to an Exempt Offering are as follows:

(a)        The Calculation Agent shall determine the Net Settlement Amount with respect to the related Expiration Date in accordance with the Settlement Terms set forth in the Confirmation.

(b)        On the Business Day following the end of the Reference Price Period, Party B shall deliver to Party A, in accordance with the other provisions of this Appendix B, the number of shares that the Calculation Agent reasonably estimates to be the number of Shares that will produce Net Proceeds (as defined below) at least equal to such Net Settlement Amount.

(c)        Party A, through the Selling Agent or any underwriter(s), shall sell all, or such lesser portion as may be required hereunder, of such Shares.

The proceeds of each sale in accordance with this Appendix B, net of any fees and commissions (including, without limitation, underwriting or placement fees), together with carrying charges and expenses incurred in connection with such offer and sale of the Shares (including, but without limitation to, the covering of any over-allotment or short position (syndicate or otherwise)) are referred to the "Net Proceeds" of such sale, in each case, customary for similar transactions under the circumstances at the time of such sale.

If the aggregate Net Proceeds of all such sales is less than the Net Settlement Amount for such Expiration Date, then:

(1)        on the date on which Party A determines that there was a shortfall (the "Shortfall Determination Date") Party A shall notify Party B of the amount of such shortfall and provide evidence of the same to Party B;

(2)        on the Exchange Business Day next succeeding the Shortfall Determination Date (the "Election Date"), Party B shall deliver to Party A, through the Agent, a notice of its election either to pay to Party A, through the Agent, an amount in U.S. Dollars equal to such shortfall or to deliver to Party A, through the Agent, additional Shares;

(3)        if Party B so elects to pay Party A such shortfall, then on the Currency Business Day next succeeding the Election Date Party B shall pay to Party A, through the Agent, an amount in U.S. Dollars equal to such shortfall; and

(4)        if Party B so elects to deliver additional Shares, then on the first Clearance System Business Day following the Election Date Party B shall deliver to Party A, through the Agent, additional Shares (meeting the conditions specified herein with respect to the Shares initially delivered to Party A under paragraph (b) above) in such number as the Calculation Agent reasonably estimates to be the number of Shares that will produce Net Proceeds at least equal to such shortfall, and thereafter Party A, through the Selling Agent or any underwriter(s), shall sell all, or such lesser portion as may be required hereunder, of such Shares.

The provisions of this paragraph (c) shall be repeated with respect to such additional Shares until the aggregate Net Proceeds from the sales of all Shares delivered by Party B under paragraph (b) above and this paragraph (c) shall be at least equal to the Net Settlement Amount for such Expiration Date (with the date on which the final sale of Shares occurs being referred to herein as the "Final Resale Date" for such Expiration Date), provided that the aggregate number of Shares sold pursuant to this Appendix B with respect to all Expiration Dates shall not exceed the Maximum Number of Shares to be Delivered.

Party A shall retain all Net Proceeds of all such sales, provided that if the aggregate Net Proceeds of all such sales exceeds the Net Settlement Amount for such Expiration Date, then Party A will refund such excess to Party B in U.S. Dollars on the date that is three (3) Currency Business Days following such Final Resale Date.  If any portion of the Shares delivered to Party A remains unsold after the Final Resale Date, then Party A shall return such unsold Shares to Party B on such Final Resale Date.

(d)        Party B agrees to comply with the reasonable requests of Party A, the Selling Agent, any placement agent and any purchaser of the Shares, and Party A agrees to use commercially reasonable means to effect each offer and sale of Shares at commercially reasonable prices in light of the market conditions and the circumstances of Party B at the time of such offer and sale.  Party B hereby acknowledges that any Shares sold pursuant to an Exempt Offering may be sold at prices that are less than the prices that may otherwise be available if such Shares were to be sold pursuant to a registered public offering or at prices observed in the secondary market.

(e)        Neither Party A nor the Selling Agent nor any other party shall have any obligation to commence any offer and sale of any Shares in respect of an Exempt Offering until such conditions as any purchasers or the Selling Agent, or their respective counsel, may reasonably require to comply with any laws or regulations directly applicable to the offer and sale of the shares are satisfied. 

(f)        For purposes of this Appendix B, the Net Settlement Amount shall be deemed to be the Net Settlement Amount (determined as provided in the Confirmation to which this Appendix B is attached) plus an additional amount (determined from time to time by the Calculation Agent in its commercially reasonable judgment) attributable to interest that would be earned on such Net Settlement Amount (increased on a daily basis to reflect the accrual of such interest and reduced from time to time by the amount of Net Proceeds received by Party A as provided herein) at a rate equal to the open Federal Funds Rate plus the Spread for the period from, and including, such Settlement Date to, but excluding, the related Final Resale Date and calculated on an Actual/360 basis.  The foregoing provision shall be without prejudice to Party A's rights under the Agreement (including, without limitation, Sections 5 and 6 thereof).

            As used in this paragraph (f), "Spread" means, with respect to any Net Settlement Amount, the credit spread over the applicable overnight rate that would be imposed if Party A were to extend credit to Party B in an amount equal to such Net Settlement Amount, all as determined by the Calculation Agent using its commercially reasonable judgment as of the related Settlement Date.  Commercial reasonableness shall take in to consideration all factors deemed relevant by the Calculation Agent, which are expected to include, among other things, the credit quality of Party B (and any relevant affiliates) in the then-prevailing market and the credit spread of similar companies in the relevant industry and other companies having a substantially similar credit quality.

(g)        If Party B is not the Issuer, references above in this Appendix B to Party B shall be deemed to be references to the Issuer as necessary, and Party B agrees to use its best efforts to comply with the Registration Procedures set forth above.

EX-10

GOLDMAN SACHS & CO. | 85 BROAD STREET | NEW YORK, NEW YORK 10004 | TEL:  212-902-1000

Opening Transaction

To:	Mentor Corporation 201 Mentor Drive Santa Barbara, California 93111
From:	Goldman, Sachs & Co.
Subject:	Collared Accelerated Share Repurchase Transaction - VWAP Pricing
Ref. No:	[Insert Reference Number]
Date:	March 8, 2004

This master confirmation ("Master Confirmation") dated as of March 8, 2004, is intended to supplement the terms and provisions of certain Transactions (each, a "Transaction") entered into from time to time between Goldman, Sachs & Co. ("GS&Co.") and Mentor Corporation ("Counterparty").  This Master Confirmation, taken alone, is neither a commitment by either party to enter into any Transaction nor evidence of a Transaction.  The terms of any particular Transaction shall be set forth in a Supplemental Confirmation in the form of Annex A hereto and which references this Master Confirmation, in which event the terms and provisions of this Master Confirmation shall be deemed to be incorporated into and made a part of each such Supplemental Confirmation.  This Master Confirmation and each Supplemental Confirmation together shall constitute a "Confirmation" as referred to in the Agreement specified below.

The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the "Equity Definitions"), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Master Confirmation.  This Master Confirmation and each Supplemental Confirmation evidences a complete binding agreement between the Counterparty and GS&Co. as to the terms of each Transaction to which this Master Confirmation and the related Supplemental Confirmation relates.

GS&Co. and Counterparty agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the "ISDA Form" or the "Agreement"), with such modifications as GS&Co. and Counterparty will in good faith agree.  Upon the execution by GS&Co. and Counterparty of the Agreement, this Master Confirmation and each Supplemental Confirmation will supplement, form a part of, and be subject to the Agreement.  All provisions contained in or incorporated by reference in the Agreement upon its execution will govern this Master Confirmation and each Supplemental Confirmation except as expressly modified below.  Until GS&Co. and Counterparty execute and deliver the Agreement, this Master Confirmation and each Supplemental Confirmation, together with all other documents referring to the Agreement confirming Transactions entered into between GS&Co. and Counterparty (notwithstanding anything to the contrary in a Confirmation), shall supplement, form a part of, and be subject to the ISDA Form as if GS&Co. and Counterparty had executed the Agreement (but without any Schedule except for (i) the election of Loss and Second Method, New York law (without regard to the conflicts of law principles) as the governing law and US Dollars ("USD") as the Termination Currency, (ii) the election that subparagraph (ii) of Section 2(c) will not apply to Transactions, (iii) the replacement of the word "third" in the last line of Section 5(a)(i) with the word "first" and (iv) the election that the "Cross Default" provisions of Section 5(a)(vi) shall apply to Counterparty, with a "Threshold Amount" of USD 50 million).

All provisions contained in the Agreement shall govern this Master Confirmation and the related Supplemental Confirmation relating to a Transaction except as expressly modified below or in the related Supplemental Confirmation.  With respect to any relevant Transaction, the Agreement, this Master Confirmation and the related Supplemental Confirmation shall represent the entire agreement and understanding of the parties with respect to the subject matter and terms of such Transaction and shall supersede all prior or contemporaneous written or oral communications with respect thereto.

If, in relation to any Transaction to which this Master Confirmation and related Supplemental Confirmation relate, there is any inconsistency between the Agreement, this Master Confirmation, any Supplemental Confirmation and the Equity Definitions that are incorporated into any Supplemental Confirmation, the following will prevail for purposes of such Transaction in the order of precedence indicated: (i) such Supplemental Confirmation; (ii) this Master Confirmation; (iii) the Agreement; and (iv) the Equity Definitions.

1.    Each Transaction constitutes a Share Forward Transaction for the purposes of the Equity Definitions.  Set forth below are the terms and conditions which, together with the terms and conditions set forth in each Supplemental Confirmation (in respect of each relevant Transaction), shall govern each such Transaction.

General Terms:

Trade Date:                                           For each Transaction, as set forth in the Supplemental Confirmation.

Seller:                                                   Counterparty

Buyer:                                                   GS&Co.

Shares:                                                 Common shares of Counterparty (Ticker: MNT)

Number of Shares:                                 For each Transaction, as set forth in the Supplemental Confirmation.

Forward Price:                                       For each Transaction, as set forth in the Supplemental Confirmation.

Capped Settlement Amount:                   For each Transaction, as set forth in the Supplemental Confirmation.

Floor Settlement Amount:                       For each Transaction, as set forth in the Supplemental Confirmation.

Prepayment:                                          Not Applicable

Variable Obligation:                                Not Applicable

Exchange:                                             New York Stock Exchange

Related Exchange(s):                             All Exchanges

Market Disruption Event:                         The definition of "Market Disruption Event" in Section 6.3(a) of the Equity Definitions is hereby amended by inserting the words "at any time on any Scheduled Trading Day during the Valuation Period or" after the word "material," in the third line thereof.

Valuation:

Valuation Period:                                   Each Scheduled Trading Day during the period commencing on and including the first succeeding Scheduled Trading Day following the Trade Date, to and including the Valuation Date (but excluding any day(s) on which the Valuation Period is suspended in accordance with Section 5 herein and including any day(s) by which the Valuation Period is extended pursuant to the provision below).

                                                            Notwithstanding anything to the contrary in the Equity Definitions, to the extent that any Scheduled Trading Day in the Valuation Period is a Disrupted Day, the Valuation Date shall be postponed and the Calculation Agent in its sole discretion shall extend the Valuation Period and make adjustments to the weighting of each Relevant Price for purposes of determining the Settlement Price, with such adjustments based on, among other factors, the duration of any Market Disruption Event and the volume, historical trading patterns and price of the Shares.  To the extent that there are 9 consecutive Disrupted Days during the Valuation Period, then notwithstanding the occurrence of a Disrupted Day, the Calculation Agent shall have the option in its sole discretion to either determine the Relevant Price using its good faith estimate of the value for the Share on such 9^th consecutive day or elect to further extend the Valuation Period as it deems necessary.

Valuation Date:                                      For each Transaction, as set forth in the Supplemental Confirmation (as the same may be postponed in accordance with the provisions of "Valuation Period" and Section 5 herein).

Settlement Terms:

Settlement Currency:                             USD (all amounts shall be converted to the Settlement Currency in good faith and in a commercially reasonable manner by the Calculation Agent).

Settlement Method Election:                   Applicable; provided that (a) Section 7.1 of the Equity Definitions is hereby amended by deleting the word "Physical" in the sixth line thereof and replacing it with the words "Net Share" and deleting the word "Physical" in the last line thereof and replacing it with word "Cash" and (b) in the event that GS&Co. would deliver to the Counterparty an amount of Shares under Net Share Settlement, Cash Settlement shall be applicable in lieu of Net Share Settlement.

Electing Party:                                       Counterparty

Settlement Method Election Date:           20 Scheduled Trading Days prior to the originally scheduled Valuation Date.

Default Settlement Method:                     Cash Settlement

Cash Settlement Procedures:                 Notwithstanding anything to the contrary in Section 8.4(a) of the Equity Definitions:

(a) if the Forward Cash Settlement Amount is a positive number then Seller shall pay to Buyer the lesser of (i) the Capped Settlement Amount plus the Dividend Amount and (ii) the Forward Cash Settlement Amount (such amount, the "Net Cash Amount"); and

(b) if the Forward Cash Settlement Amount is a negative number then Buyer shall pay to Seller the lesser of (i) the Floor Settlement Amount plus the Dividend Amount and (ii) the absolute value of the Forward Cash Settlement Amount.

Forward Cash Settlement Amount:          An amount in the Settlement Currency equal to the sum of (a) the Number of Shares multiplied by an amount equal to (i) the Settlement Price minus (ii) the Forward Price plus (b) the Dividend Amount.

Settlement  Price:                                  The arithmetic mean of the Relevant Prices of the Shares for each Exchange Business Day in the Valuation Period.

Relevant Price:                                      The New York 10b-18 Volume Weighted Average Price per share of the Shares for the regular trading session (including any extensions thereof) of the Exchange on the related Exchange Business Day (without regard to pre-open or after hours trading outside of such regular trading session) as published by Bloomberg at 4:15 p.m. New York time on such date. 

Cash Settlement Payment Date:             3 Currency Business Days after the Valuation Date.

Counterparty's Contact Details

for Purpose of Giving Notice:                   To be provided by Counterparty

GS&Co.'s Contact Details for

Purpose of Giving Notice:                        Telephone No.:  (212) 902-8996
                                                            Facsimile No.:   (212) 902-0112
                                                            Attention:  Equity Operations:  Options and Derivatives

                                                            With a copy to:
                                                            Jim Ziperski
                                                            Equity Capital Markets
                                                            One New York Plaza
                                                            New York, NY 10004
                                                            Telephone No.:  (212) 902-8557
                                                            Facsimile No.:   (212) 346-2126

Net Share Settlement:

Net Share Settlement Procedures:          Net Share Settlement shall be made in accordance with the procedures attached hereto as Annex B.

Net Share Settlement Price:                   (a) in respect of any Share for which the Exchange is an auction or "open outcry" exchange that has a price as of the Valuation Time at which any trade can be submitted for execution, the Net Share Settlement Price shall be the price per Share as of the Valuation Time on the Net Share Valuation Date as reported in the official real-time price dissemination mechanism for such Exchange and (b) in respect of any Share for which the Exchange is a dealer exchange or dealer quotation system, the Net Share Settlement Price shall be the mid-point of the highest bid and lowest ask prices quoted as of the Valuation Time on the Net Share Valuation Date (or the last such prices quoted immediately before the Valuation Time) without regard to quotations that "lock" or "cross" the dealer exchange or dealer quotation system. In all cases the Net Share Settlement Price shall be reduced by the per Share amount of the underwriting discount and/or commissions agreed to pursuant to the equity underwriting agreement contemplated by the Net Share Settlement Procedures.

Valuation Time:                                      As provided in Section 6.1 of the Equity Definitions; provided that Section 6.1 of the Equity Definitions is hereby amended by inserting the words "Net Share Valuation Date,"  before the words "Valuation Date" in the first and third lines thereof.

Net Share Valuation Date:                      The Exchange Business Day immediately following the Valuation Date.

Net Share Settlement Date:                    The third Exchange Business Day immediately following the Valuation Date.

Reserved Shares:                                   Initially, 1,000,000 Shares.  The Reserved Shares may be increased or decreased in a Supplemental Confirmation.

Dividends:

Dividend Period:                                     First Period

Dividend Amount:                                   The sum of, for each gross cash dividend declared by the Issuer during the Dividend Period, the related Record Amount multiplied by the Assumed Shares on the relevant record date.

Assumed Shares:                                  For any Exchange Business Day in the Dividend Period, an amount equal to (a) the Number of Shares minus (b) the Number of Shares divided by the total number of Exchange Business Days in the Dividend Period (the "Daily Amount") multiplied by the number of Exchange Business Days in the Dividend Period preceding and including such Exchange Business Day.  The Daily Amount will be deemed to be zero for each day on which the Valuation Period is suspended in accordance with Section 5 herein.  In the event that the Valuation Period is extended pursuant to the provisions of "Valuation Period" or Section 5 herein, the Calculation Agent may make corresponding adjustments to the amount of Assumed Shares for the related Transaction.

Reinvestment of Dividends:                     Not Applicable

Share Adjustments:

Method of Adjustment:                           Calculation Agent Adjustment

Extraordinary Events:

Consequences of Merger Events:

(a)        Share-for-Share:                         Modified Calculation Agent Adjustment

(b)        Share-for-Other:                         Cancellation and Payment on that portion of the Other Consideration that consists of cash; Modified Calculation Agent Adjustment on the remainder of the Other Consideration.

(c)        Share-for-Combined:                   Component Adjustment

Determining Party:                                 GS&Co.

Tender Offer:                                                      Applicable

Consequences of Tender Offers:

(a)        Share-for-Share:                         Modified Calculation Agent Adjustment

(b)        Share-for-Other:                         Cancellation and Payment on that portion of the Other Consideration that consists of cash; Modified Calculation Agent Adjustment on the remainder of the Other Consideration.

(c)        Share-for-Combined:                   Component Adjustment

Determining Party:                                 GS&Co.

Nationalization, Insolvency or Delisting:                Negotiated Close-out; provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the American Stock Exchange or The NASDAQ National Market (or their respective successors).

Additional Disruption Events:

(a)                 Change in Law:                          Applicable

(b)                 Failure to Deliver:                       Not Applicable

(c)                 Insolvency Filing:                       Applicable

(d)                 Loss of Stock Borrow:                Applicable; furthermore Sections 12.9(a)(vii) and 12.9(b)(iv) of the Equity Definitions are amended by deleting the words "at a rate equal to or less than the Maximum Stock Loan Rate" and replacing them with "at a rate of return equal to or greater than zero". 

            Hedging Party:                           GS&Co.

Determining Party:                                 GS&Co.

Non-Reliance:                                                    Applicable

Agreements and Acknowledgements

Regarding Hedging Activities:                              Applicable

Additional Acknowledgements:                            Applicable

Net Share Settlement following Extraordinary

Event:                                                               Counterparty shall have the right, in its sole discretion, to make any payment required to be made by it pursuant to Sections 12.7 or 12.9 of the Equity Definitions (except with respect to any portion of the consideration for the Shares consisting of cash in the event of a Merger Event or Tender Offer) following the occurrence of an Extraordinary Event by electing to Net Share Settle the Transactions under this Master Confirmation in accordance with the terms, and subject to the conditions, for Net Share Settlement herein by giving written notice to GS&Co. of such election on the day that the notice fixing the date that the Transactions are terminated or cancelled, as the case may be, (the "Cancellation Date") pursuant to the applicable provisions of Section 12 of the Equity Definitions is effective.  If Counterparty elects Net Share Settlement: (a) the Net Share Valuation Date shall be the date specified in the notice fixing the date that the Transactions are terminated or cancelled, as the case may be; provided that the Net Share Valuation Date shall be either the  Exchange Business Day that such notice is effective or the first Exchange Business Day immediately following the Exchange Business Day that such notice is effective, (b) the Net Share Settlement Date shall be deemed to be the Exchange Business Day immediately following the Cancellation Date and (c) all references to the Net Cash Amount in Annex B hereto shall be deemed to be references to the Cancellation Amount.

Net Share Settlement Upon

Early Termination:                                              Counterparty shall have the right, in its sole discretion, to make any payment required to be made by it (the "Early Termination Amount") pursuant to Sections 6(d) and 6(e) of the Agreement following the occurrence of an Early Termination Date in respect of the Agreement by electing to Net Share Settle all the Transactions under this Master Confirmation in accordance with the terms, and subject to the conditions, for Net Share Settlement herein by giving written notice to GS&Co. of such election on the day that the notice fixing an Early Termination Date is effective.  If Counterparty elects Net Share Settlement: (a) the Net Share Valuation Date shall be the date specified in the notice fixing an Early Termination Date; provided that the Net Share Valuation Date shall be either the Exchange Business Day that such notice is effective or the first Exchange Business Day immediately following the Exchange Business Day that such notice is effective, (b) the Net Share Settlement Date shall be deemed to be the Exchange Business Day immediately following the Early Termination Date and (c) all references to Net Cash Amount in Annex B hereto shall be deemed references to the Early Termination Amount.

Transfer:                                                            Notwithstanding anything to the contrary in the Agreement, GS&Co. may assign, transfer and set over all rights, title and interest, powers, privileges and remedies of GS&Co. under any Transaction, in whole or in part, to an affiliate of GS&Co. that is guaranteed by The Goldman Sachs Group, Inc. without the consent of Counterparty.

GS&Co. Payment Instructions:                           Chase Manhattan Bank New York
For A/C Goldman, Sachs & Co.
A/C # 930-1-011483
ABA:  021-000021

Counterparty Payment Instructions:                     To be provided by Counterparty

2.                    Calculation Agent:  GS&Co.

3.                    Representations, Warranties and Covenants of GS&Co. and Counterparty. 

(a)                 Each party represents and warrants that it (i) is an "eligible contract participant", as defined in the U.S. Commodity Exchange Act, as amended and (ii) is entering into each Transaction hereunder as principal (and not as agent or in any other capacity, fiduciary or otherwise)and not for the benefit of any third party.

(b)                 Each party acknowledges that the offer and sale of each Transaction to it is intended to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 4(2) thereof and the provisions of Regulation D promulgated thereunder ("Regulation D").  Accordingly, each party represents and warrants to the other that (i) it has the financial ability to bear the economic risk of its investment in each Transaction and is able to bear a total loss of its investment, (ii) it is an "accredited investor" as that term is defined under Regulation D, (iii) it will purchase each Transaction for investment and not with a view to the distribution or resale thereof, and (iv) the disposition of each Transaction is restricted under this Master Confirmation and each Supplemental Confirmation, the Securities Act and state securities laws.

4.                    Additional Representations, Warranties and Covenants of Counterparty.

As of (i) the date hereof and (ii) the period of time from the time at which Counterparty places an order with GS&Co. for a Transaction (the "Time of the Order") until the time that each party has fully performed all of its obligations under the related Transaction, Counterparty represents, warrants and covenants to GS&Co. that:

(a)                 the purchase or writing of each Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Securities Exchange Act of 1934, as amended (the "Exchange Act");

(b)                 it is not entering into any Transaction on the basis of, or is aware of, any material non-public information with respect to the Shares or in anticipation of, in connection with, or to facilitate, a distribution of its securities, a self tender offer or a third-party tender offer;

(c)                 it is not entering into any Transaction to create, and will not engage in any other securities or derivative transaction to create, a false or misleading appearance of active trading or market activity in the Shares (or any security convertible into or exchangeable for the Shares), or which would otherwise violate the Exchange Act;

(d)                 Counterparty is in compliance with its reporting obligations under the Exchange Act and its most recent Annual Report on Form 10-K, together with all reports subsequently filed by it pursuant to the Exchange Act, taken together and as amended and supplemented to the date of this representation, do not , as of their respective filing dates, contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading;

(e)                 each Transaction is being entered into pursuant to a publicly disclosed Share buy-back program and its Board of Directors has approved the use of derivatives to effect the Share buy-back program;

(f)                   notwithstanding the generality of Section 13.1 of the Equity Definitions, GS&Co. is not making any representations or warranties with respect to the treatment of any Transaction under FASB Statements 149 or 150, EITF 00-19 (or any successor issue statements) or under FASB's Liabilities & Equity Project;

(g)                 it will not take any action or refrain from taking any action that would limit or in any way adversely affect GS&Co.'s rights under the Agreement;

(h)                 it has not, and during any Valuation Period (as extended pursuant to the provisions of Section 5 and  "Valuation Period" herein) will not, enter into agreements similar to the Transactions described herein where the valuation period in such other transaction will overlap at any time (including as a result of extensions in such valuation period as provided in the relevant agreements) with any Valuation Period (as extended pursuant to the provisions of Section 5 and "Valuation Period" herein) under this Master Confirmation.  In the event that the valuation period in any other similar transaction overlaps with any Valuation Period under this Master Confirmation as a result of any extension made pursuant to the provisions of Section 5 and "Valuation Period" herein, Counterparty shall promptly amend such transaction to avoid any such overlap;

(i)                   during the Valuation Period (as extended or suspended pursuant to the provisions of Section 5 and "Valuation Period" herein) the Shares or securities that are convertible into, or exchangeable or exercisable for Shares are not subject to a "restricted period" as such term is defined in Regulation M promulgated under the Exchange Act ("Regulation M");

(j)                   upon entering into each Transaction the Counterparty covenants that it will immediately hold in treasury the Number of Shares purchased by it in connection with the relevant Transaction from an entity affiliated with GS&Co.; and

(k)                 it shall report each Transaction as required under Regulation S-K and/or Regulation S-B under the Exchange Act, as applicable.

5.                    Suspension of Valuation Period. 

(a)                 If Counterparty concludes that it will be engaged in a distribution of the Shares for purposes of Regulation M, Counterparty agrees that it will, on one Scheduled Trading Day's written notice, direct GS&Co. not to purchase Shares in connection with hedging any Transaction during the "restricted period" (as defined in Regulation M).  If on any Scheduled Trading Day Counterparty delivers written notice (and confirms by telephone) by 8:30 a.m. New York Time (the "Notification Time") then such notice shall be effective to suspend the Valuation Period as of such Notification Time.  In the event that Counterparty delivers notice and/or confirms by telephone after the Notification Time, then the Valuation Period shall be suspended effective as of 8:30 a.m. New York Time on the following Scheduled Trading Day or as otherwise required by law or agreed between Counterparty and GS&Co.  The Valuation Period shall be suspended and the Valuation Date extended for each Scheduled Trading Day in such restricted period.

(b)                 In the event that GS&Co. concludes, in its sole discretion, that it is appropriate with respect to any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by GS&Co.), for it to refrain from purchasing Shares on any Scheduled Trading Day during the Valuation Period, GS&Co. may by written notice to Counterparty elect to suspend the Valuation Period for such number of Scheduled Trading Days as is specified in the notice. The notice shall not specify, and GS&Co. shall not otherwise communicate to Counterparty, the reason for GS&Co.'s election to suspend the Valuation Period. The Valuation Period shall be suspended and the Valuation Date extended for each Scheduled Trading Day occurring during any such suspension.

(c)                 On one occasion and upon written notice to GS&Co. prior to 8:30 a.m. New York time on any Scheduled Trading Day during the Valuation Period, Counterparty may elect to suspend the Valuation Period for such number of Scheduled Trading Days as is specified in the notice up to a maximum of 30 calendar days.  The notice shall not specify, and Counterparty shall not otherwise communicate to GS&Co., the reason for Counterparty's election to suspend the Valuation Period.  The Valuation Period shall be suspended and the Valuation Date extended for each Scheduled Trading Day occurring during any such suspension.

(d)           In the event that the Valuation Period is suspended pursuant to Sections 5(a),(b) or (c) above during the regular trading session on the Exchange then the Calculation Agent in its sole discretion shall, in calculating the Forward Cash Settlement Amount, extend the Valuation Period and make adjustments to the weighting of each Relevant Price for purposes of determining the Settlement Price, with such adjustments based on, among other factors, the duration of any such suspension and the volume, historical trading patterns and price of the Shares.

6.                    Counterparty Purchases.  Counterparty represents, warrants and covenants to GS&Co. that for each Transaction:

(a)                 Counterparty (or any "affiliated purchaser" as defined in Rule 10b-18 under the Exchange Act ("Rule 10b-18")) shall not without the prior written consent of GS&Co. purchase any Shares, or securities that are convertible into, or exchangeable or exercisable for Shares (including, without limitation, any Rule 10b-18 purchases of blocks (as defined in Rule 10b-18)) during any Valuation Period.  During this time, any purchases of Shares by Counterparty shall be made through GS&Co., and in compliance with Rule 10b‑18 or otherwise in a manner that Counterparty and GS&Co. believe is in compliance with applicable requirements.  Each such purchase by Counterparty of the Shares shall be disregarded for purposes of determining the Forward Cash Settlement Amount.  This subparagraph (a) shall not restrict any purchases by Counterparty of Shares effected during any suspension of any Valuation Period in accordance with Section 5 herein and purchases during such suspension shall be disregarded in calculating Forward Cash Settlement Amount;

(b)                 Counterparty is entering into this Master Confirmation and each Transaction hereunder in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 under the Exchange Act ("Rule 10b5-1").  It is the intent of the parties that each Transaction entered into under this Master Confirmation comply with the requirements of Rule 10b5-1(c)(1)(i)(A) and (B) and each Transaction entered into under this Master Confirmation shall be interpreted to comply with the requirements of Rule 10b5-1(c).  Counterparty will not seek to control or influence GS&Co. to make "purchases or sales" (within the meaning of Rule 10b5-1(c)(1)(i)(B)(3)) under any Transaction entered into under this Master Confirmation, including, without limitation, GS&Co.'s decision to enter into any hedging transactions.  Counterparty represents and warrants that it has consulted with its own advisors as to the legal aspects of its adoption and implementation of this Master Confirmation and each Supplemental Confirmation under Rule 10b5-1; and

(c)     during the Valuation Period (as extended pursuant to the provisions of Section 5 and "Valuation Period" herein) Counterparty (or any "affiliated purchaser" as defined in Rule 10b-18) shall not purchase any Shares or listed contracts on the Shares except through GS&Co.  To the extent that Counterparty purchases any securities that are convertible into, or exchangeable or exercisable for Shares other than in connection with such Transaction, Counterparty hereby represents and warrants to GS&Co. that (a) it will not take other action that would or could cause GS&Co.'s purchases of the Shares during the Valuation Period not to comply with Rule 10b-18 and (b) any such purchases will not otherwise constitute a violation of Section 9(a) or Rule 10(b) of the Exchange Act.

7.                    Additional Termination Events.  Additional Termination Event will apply.  The following will constitute Additional Termination Events, in each case with Counterparty as the sole Affected Party:

(a)                 The price of the Shares on the Exchange at any time falls below the Termination Price (as specified in the related Supplemental Confirmation) provided (for the avoidance of doubt only) that such Additional Termination Event shall be an Additional Termination Event only with respect to the Transaction documented in such related Supplemental Confirmation;

(b)           Notwithstanding anything to the contrary in the Equity Definitions, the occurrence of a Nationalization, Insolvency or a Delisting (in each case effective on the Announcement Date as determined by the Calculation Agent);

(c)                 Notwithstanding anything to the contrary in the Equity Definitions, the occurrence of a Merger Event (effective on the Merger Date) or a Tender Offer (effective on the Tender Offer Date) in respect of which any Other Consideration received for the Shares does not consist of cash.  For the avoidance of doubt, in the event that any portion of the consideration received for the Shares consists of cash or New Shares, this Additional Termination Event shall only apply with respect to all or any Transaction(s) (or portions thereof) remaining after giving effect to the provisions in "Consequences of Merger Events"  or  "Consequences of Tender Offers", as the case may be, above; or

(d)                 GS&Co. shall reasonably believe in good faith that Counterparty will be unable to meet its obligations when due for any reason and Counterparty fails, after 10 Business Days prior written notice from GS&Co. to provide GS&Co. with adequate assurance of its ability to perform.

(e)                 During the period of time from the Valuation Time on the Trade Date to the open of the regular trading session of the Exchange on the first Exchange Business Day following the Trade Date for any Transaction, GS&Co. in its sole discretion elects to terminate such Transaction.

8.                    Additional Event of Default.  The following occurrence will constitute an Event of Default for purposes of Section 5(a) of the Agreement (with Counterparty considered to be the Defaulting Party):

Counterparty fails to perform any obligation required to be performed under any other agreement between Counterparty and GS&Co. or its affiliated entities.

9.        Special Provisions for Merger Events.  Notwithstanding anything to the contrary herein or in the Equity Definitions, to the extent that an Announcement Date for a potential Merger Transaction occurs during any Valuation Period:

(a)                 Promptly after request from GS&Co., Counterparty shall provide GS&Co. with written notice specifying (i) Counterparty's average daily Rule 10b-18 Purchases (as defined in Rule 10b-18) during the three full calendar months immediately preceding the Announcement Date that were not effected through GS&Co. or its affiliates and (ii) the number of Shares purchased in Excepted Blocks for the three full calendar months preceding the Announcement Date.  Such written notice shall be deemed to be a certification by Counterparty to GS&Co. that such information is true and correct.  Counterparty understands that GS&Co. will use this information in calculating the trading volume for purposes of Rule 10b-18; and

(b)                 GS&Co. in its sole discretion may (i) make adjustments to the terms of any Transaction, including, without limitation, the Valuation Date, the Dividend Amount and the Number of Shares to account for the number of Shares that could be purchased on each day during the Valuation Period in compliance with Rule 10b-18 following the Announcement Date or (ii) treat the occurrence of the Announcement Date as an Additional Termination Event with Counterparty as the sole Affected Party. 

                        "Merger Transaction" means any merger, acquisition or similar transaction involving a recapitalization as contemplated by Rule 10b-18(a)(13)(iv) under the Exchange Act.

10.     Acknowledgments.  The parties hereto intend for:

(a)           Each Transaction to be a "securities contract" as defined in Section 741(7) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the "Bankruptcy Code"), a "swap agreement" as defined in Section 101(53B) of the Bankruptcy Code, or a "forward contract" as defined in Section 101(25) of the Bankruptcy Code, and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 555, 556, and 560 of the Bankruptcy Code;

(b)           A party's right to liquidate or terminate any Transaction, net out or offset termination values of payment amounts, and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a "contractual right" (as defined in the Bankruptcy Code);

(c)           Any cash, securities or other property transferred as performance assurance, credit support or collateral with respect to each Transaction to constitute "margin payments" (as defined in the Bankruptcy Code); and

(d)                 All payments for, under or in connection with each Transaction, all payments for the Shares and the transfer of such Shares to constitute "settlement payments" and "transfers" (as defined in the Bankruptcy Code).

11.                 Calculations on Early Termination and Set-Off.

(a)                 Notwithstanding anything to the contrary in the Agreement or the Equity Definitions, the calculation of any Settlement Amounts, Unpaid Amounts and amounts owed in respect of cancelled Transactions under Article 12 of the Equity Definitions shall be calculated separately for (A) all Terminated Transactions (it being understood that such term for the purposes of this paragraph includes cancelled Transactions under Article 12 of the Equity Definitions) in the Shares of the Issuer that qualify as equity under applicable accounting rules (collectively, the "Equity Shares") as determined by the Calculation Agent and (B) all other Terminated Transactions under the Agreement including, without limitation, Transactions in Shares other than those of the Issuer (collectively, the "Other Shares") and the netting and set-off provisions of the Agreement shall only operate to provide netting and set-off (i) among Terminated Transactions in the Equity Shares and (ii) among Terminated Transactions in the Other Shares.  In no event shall the netting and set-off provisions of the Agreement operate to permit netting and set-off between Terminated Transactions in the Equity Shares and Terminated Transactions in the Other Shares.

(b)                 The parties agree to amend Section 6 of the Agreement by adding a new Section 6(f) thereto as follows:

"(f)  Upon the occurrence of an Event of Default or Termination Event with respect to a party who is the Defaulting Party or the Affected Party ("X"), the other party ("Y") will have the right (but not be obliged) without prior notice to X or any other person to set-off or apply any obligation of X owed to Y (or any Affiliate of Y) (whether or not matured or contingent and whether or not arising under the Agreement, and regardless of the currency, place of payment or booking office of the obligation) against any obligation of Y (or any Affiliate of Y) owed to X (whether or not matured or contingent and whether or not arising under the Agreement, and regardless of the currency, place of payment or booking office of the obligation).  Y will give notice to the other party of any set-off effected under this Section 6(f).

Amounts (or the relevant portion of such amounts) subject to set-off may be converted by Y into the Termination Currency at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency.  If any obligation is unascertained, Y may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained.  Nothing in this Section 6(f) shall be effective to create a charge or other security interest.  This Section 6(f) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise)."

12.                 Payment Date Upon Early Termination.  Notwithstanding anything to the contrary in Section 6(d)(ii) of the Agreement, all amounts calculated as being due in respect of an Early Termination Date under Section 6(e) of the Agreement will be payable on the day that notice of the amount payable is effective.

13.                 Governing Law.  The Agreement, this Master Confirmation and each Supplemental Confirmation and all matters arising in connection with the Agreement, this Master Confirmation and each Supplemental Confirmation shall be governed by, and construed and enforced in accordance with, the law of the State of New York without reference to its choice of law doctrine.

14.                 Offices.

(a)                 The Office of GS&Co. for each Transaction is:  One New York Plaza, New York, New York 10004.  

(b)                 The Office of Counterparty for each Transaction is:201 Mentor Drive, Santa Barbara, CA 93111.

15.                  Arbitration.

(a)                 Arbitration is final and binding on Counterparty and GS&Co.

(b)                 Counterparty and GS&Co. are waiving their right to seek remedies in court, including the right to a jury trial.

(c)                 Pre-arbitration discovery is generally more limited than and different from court proceedings.

(d)                 The arbitrator's award is not required to include factual findings or legal reasoning and any party's right to appeal or to seek modification of rulings by the arbitrators is strictly limited.

(e)                 The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.

Any controversy between or among GS&Co. or its affiliates, or any of its or their partners, directors, agents or employees, on the one hand, and Counterparty or its agents and affiliates, on the other hand, arising out of or relating to the Agreement or any Transaction entered into hereunder, shall be settled by arbitration, in accordance with the then current rules of, at Counterparty's election, the American Arbitration Association ("AAA") or the Board of Arbitration of the New York Stock Exchange, Inc. ("BANYSE").  If Counterparty does not make such election by registered mail addressed to GS&Co. within five (5) Exchange Business Days after receipt of notification from GS&Co. requesting such election, then Counterparty irrevocably authorizes GS&Co. to make such election on behalf of Counterparty.  The award of the arbitrators shall be final, and judgment upon the award rendered may be entered in any court, state or Federal, having jurisdiction.

Neither party shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action; who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until:

      (i)                the class certification is denied;

      (ii)                the class is decertified; or

      (iii)                the party is excluded from the class by the court.

Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under the Agreement except to the extent stated herein.

16.     Counterparty hereby agrees (a) to check this Master Confirmation carefully and immediately upon receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm that the foregoing (in the exact form provided by GS&Co.) correctly sets forth the terms of the agreement between GS&Co. and Counterparty with respect to any Transaction, by manually signing this Master Confirmation or this page hereof as evidence of agreement to such terms and providing the other information requested herein and immediately returning an executed copy to Equity Derivatives Documentation Department, facsimile No. 212-428-1980/83.

Yours sincerely,

GOLDMAN, SACHS & CO.

By:  /s/JAMES ZIPERSKI
Managing Director/Authorized Signatory

Agreed and Accepted By:

MENTOR CORPORATION

By:/s/ADEL MICHAEL
Name:  Adel Michael

      Title:  CFO

 

ANNEX A

SUPPLEMENTAL CONFIRMATION

To:	Mentor Corporation 201 Mentor Drive Santa Barbara, California 93111
From:	Goldman, Sachs & Co.
Subject:	Collared Accelerated Share Repurchase Transaction - VWAP Pricing
Ref. No:	[Insert Reference No.]
Date:	March 8, 2004

The purpose of this Supplemental Confirmation is to confirm the terms and conditions of the Transaction entered into between Goldman, Sachs & Co. ("GS&Co.") and Mentor Corporation ("Counterparty") (together, the "Contracting Parties") on the Trade Date specified below.  This Supplemental Confirmation is a binding contract between GS&Co. and Counterparty as of the relevant Trade Date for the Transaction referenced below.   The final terms of the Transaction shall be sent to Counterparty  by GS&Co. substantially in the form of a Trade Notification attached hereto as Schedule A.

The definitions and provisions contained in the Master Confirmation specified below are incorporated into this Supplemental Confirmation.  In the event of any inconsistency between those definitions and provisions and this Supplemental Confirmation, this Supplemental Confirmation will govern.

1.         This Supplemental Confirmation supplements, forms part of, and is subject to the Master Confirmation dated as of March 8, 2004 (the "Master Confirmation") between the Contracting Parties, as amended and supplemented from time to time.  All provisions contained in the Master Confirmation govern this Supplemental Confirmation except as expressly modified below.

2.         The terms of the Transaction to which this Supplemental Confirmation relates are as follows:

Trade Date:	The Scheduled Trading Day on which GS&Co. finishes establishing its Hedge Positions.
Forward Price:	The arithmetic mean of the New York 10b-18 Volume Weighted Average Price per share of the Shares for each regular trading session (including any extensions thereof) for each Exchange Business Day during the Hedge Period (without regard to pre-open or after hours trading outside of such regular trading sessions), each as published by Bloomberg at 4:15 New York time on each such  Exchange Business Day.
Hedge Period: Capped Settlement Amount:	The number of Scheduled Trading Days from and including the Time of the Order to and including the Scheduled Trading Day upon which GS&Co. fully establishes its Hedge Positions. 0% of the Forward Price multiplied by the Number of Shares.
Floor Settlement Amount:	5.5% of the Forward Price multiplied by the Number of Shares.
Initial Payment Amount:	An amount in USD equal to 5% multiplied by (Number of Shares x Forward Price), payable by Counterparty to GS&Co. by 10:00 a.m. New York time on the Scheduled Trading Day immediately following the Trade Date.
Valuation Date:	6 month(s) after the Trade Date.
Number of Shares:	2,000,000 Shares
Termination Price:	$0.00 per Share

3.         Counterparty represents and warrants to GS&Co. that neither it (nor any "affiliated purchaser" as defined in Rule 10b-18 under the Exchange Act) have made any purchases of blocks pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act during the four full calendar weeks immediately preceding the Trade Date.

Counterparty hereby agrees (a) to check this Supplemental Confirmation carefully and immediately upon receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm that the foregoing (in the exact form provided by GS&Co.) correctly sets forth the terms of the agreement between GS&Co. and Counterparty with respect to this Transaction, by manually signing this Supplemental Confirmation or this page hereof as evidence of agreement to such terms and providing the other information requested herein and immediately returning an executed copy to Equity Derivatives Documentation Department, facsimile No. 212-428-1980/83.

Yours sincerely,
GOLDMAN, SACHS & CO.

By:  /s/JAMES ZIPERSKI
Managing Director/Authorized Signatory

Agreed and Accepted
By:  MENTOR CORPORATION

By:/s/ADEL MICHAEL
Name:  Adel Michael
Title: CFO

 

SCHEDULE A

TRADE NOTIFICATION

To:	Mentor Corporation 201 Mentor Drive Santa Barbara, California 93111
From:	Goldman, Sachs & Co.
Subject:	Collared Accelerated Share Repurchase Transaction-VWAP Pricing
Ref. No:	[Insert Reference No.]
Date:	March 8, 2004

The purpose of this Trade Notification is to notify you of certain terms in the Transaction entered into between Goldman, Sachs & Co. ("GS&Co.") andMentor Corporation ("Counterparty") (together, the "Contracting Parties") on the Trade Date specified below. 

The definitions and provisions contained in the Supplemental Confirmation specified below are incorporated into this Trade Notification.  In the event of any inconsistency between those definitions and provisions and this Trade Notification, this Trade Notification will govern.

This Trade Notification supplements, forms part of, and is subject to the Supplemental Confirmation dated as of March 8, 2004 (the "Supplemental Confirmation") between the Contracting Parties, as amended and supplemented from time to time.  All provisions contained in the Supplemental Confirmation govern this Trade Notification.

The Supplemental Confirmation specified a method or formula for determining the amounts, dates or numbers below. The actual amounts, dates or numbers are as follows:

Trade Date:	March 8, 2004.  In a related transaction Counterparty agreed to purchase  a number of Shares equal to the Number of Shares from GS&Co. on the Trade Date at the Forward Price per Share.
Forward Price: Capped Settlement Amount: Floor Settlement Amount: Initial Payment Amount:	USD $28.92 per Share USD $0.00 USD $3,181,200.00 USD $2,892,000.00

Yours sincerely,
GOLDMAN, SACHS & CO.

By:  /s/JAMES ZIPERSKI
Managing Director/Authorized Signatory

 

ANNEX B

NET SHARE SETTLEMENT PROCEDURES

The following Net Share Settlement Procedures shall apply to the extent that Counterparty elects Net Share Settlement in accordance with the Master Confirmation:

Net Share Settlement shall be made by delivery of the number of Shares equal in value to the Net Cash Amount (the "Settlement Shares"), with such Shares' value based on the Net Share Settlement Price.  Delivery of such Settlement Shares shall be made free of any contractual or other restrictions in good transferable form on the Net Share Settlement Date with Counterparty (i) representing and warranting to GS&Co. at the time of such delivery that it has good, valid and marketable title or right to sell and transfer all such Shares to GS&Co. under the terms of the related Transaction free of any lien charge, claim or other encumbrance and (ii) making the representations and agreements contained in Section 9.11(ii) through (iv) of the Equity Definitions to GS&Co. with respect to the Settlement Shares.  GS&Co. or any affiliate of GS&Co. designated by GS&Co. (GS&Co. or such affiliate, "GS") shall resell the Settlement Shares during a period (the "Resale Period") commencing no earlier than the Net Share Valuation Date.  The Resale Period shall end on the Exchange Business Day on which GS completes the sale of all Settlement Shares or a sufficient number of Settlement Shares so that the realized net proceeds of such sales exceed the Net Cash Amount.  Notwithstanding the foregoing, if resale by GS of the Settlement Shares, as determined by GS in its sole discretion (i) occurs during a distribution for purposes of Regulation M, and if GS would be subject to the restrictions of Rule 101 of Regulation M in connection with such distribution, the Resale Period will be postponed or tolled, as the case may be, until the Exchange Business Day immediately following the end of any "restricted period" as such term is defined in Regulation M with respect to such distribution under Regulation M or (ii) conflict with any legal, regulatory or self-regulatory requirements or related policies and procedures applicable to GS (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by GS), the Resale Period will be postponed or tolled, as the case may be, until such conflict is no longer applicable.  During the Resale Period, if the realized net proceeds from the resale of the Settlement Shares exceed the Net Cash Amount, GS shall refund such excess in cash to Counterparty by the close of business on the third Exchange Business Day immediately following the last day of the Resale Period.  If the Net Cash Amount exceeds the realized net proceeds from such resale, Counterparty shall transfer to GS by the open of the regular trading session on the Exchange on the third Scheduled Trading Day immediately following the last day of the Resale Period the amount of such excess (the "Additional Amount") in cash or in the number of Shares ("Make-whole Shares") in an amount that, based on the Net Share Settlement Price on the last day of the Resale Period (as if such day was the "Net Share Valuation Date" for purposes of computing such Net Share Settlement Price), has a dollar value equal to the Additional Amount.  The Resale Period shall continue to enable the sale of the Make-whole Shares.  If Counterparty elects to pay the Additional Amount in Shares, the requirements and provisions set forth below shall apply.  This provision shall be applied successively until the Additional Amount is equal to zero.

Net Share Settlement of a Transaction is subject to the following conditions:

Counterparty at its sole expense shall:

                                                    (i)                as promptly as practicable (but in no event more than five (5) Exchange Business Days immediately following the Settlement Method Election Date or, in the case of an election of Net Share Settlement upon the occurrence of an Extraordinary Event or an Early Termination Date, no more than one Exchange Business Day immediately following either the Cancellation Date or the Early Termination Date, as the case may be) file under the Securities Act and use its best efforts to make effective, as promptly as practicable, a registration statement or supplement or amend an outstanding registration statement, in any such case, in form and substance reasonably satisfactory to GS (the "Registration Statement") covering the offering and sale by GS of not less than 150% of the Shares necessary to fulfill the Net Share Settlement delivery obligation by Counterparty (determining the number of such Shares to be registered on the basis of the average of the Settlement Prices on the five (5) Exchange Business Days prior to the date of such filing, amendment or supplement, as the case may be);

                                                  (ii)                maintain the effectiveness of the Registration Statement until GS has sold all shares to be delivered by Counterparty in satisfaction of its Net Share Settlement obligations;

                                                (iii)                have afforded GS and its counsel and other advisers a reasonable opportunity to conduct a due diligence investigation of Counterparty customary in scope for transactions in which GS acts as underwriter of equity securities, and GS shall have been satisfied (with the approval of its Commitments Committee in accordance with its customary review process) with the results of such investigation;

                                                 (iv)                have negotiated and entered into an agreement with GS providing for such covenants, conditions, representations and warranties, underwriting discounts, commissions, indemnities and contribution rights as are customary for GS equity underwriting agreements, together with customary certificates and opinions of counsel and letters of independent auditors of Counterparty to be delivered to GS covering the shares to be delivered by Counterparty in satisfaction of its Net Share Settlement obligations;

                                                  (v)                have delivered to GS such number of prospectuses relating thereto as GS shall have reasonably requested and shall promptly update and provide GS with replacement prospectuses as necessary to ensure the prospectus does not contain any untrue statement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading;

                                                  (vi)                have retained for GS nationally-recognized underwriting counsel acceptable to GS (in its sole discretion) with broad experience in similar registered securities offerings and such counsel shall have agreed to act as such;

                                               (vii)                have taken all steps necessary for the shares sold by GS to be listed or quoted on the primary exchange or quotation system that the Shares are listed or quoted on;

                                              (viii)                have paid all reasonable and actual out-of-pocket costs and expenses of GS and all reasonable and actual fees and expenses of GS's outside counsel and other independent experts in connection with the foregoing; and

                                                (ix)                take such action as is required to ensure that GS's sale of the Shares does not violate, or result in a violation of, the federal or state securities laws.

In the event that the Registration Statement is not declared effective by the Securities Exchange Commission (the "SEC") or any of the conditions specified in (ii) through (ix) above are not satisfied on or prior to the Valuation Date (or, in the case of an election of Net Share Settlement upon the occurrence of an Extraordinary Event or an Early Termination Date, on or prior to the first Exchange Business Day following either the Cancellation Date or the Early Termination Date, as the case may be), then Counterparty may deliver Unregistered Shares (as defined below) to GS in accordance with the following conditions.  If GS and Counterparty can agree on acceptable pricing, procedures and documentation relating to the sale of such Unregistered Shares (including, without limitation, applicable requirements in (iii) through (ix) above and insofar as pertaining to private offerings), then such Unregistered Shares shall be deemed to be the "Settlement Shares" for the purposes of the related Transaction  and the settlement procedure specified in this Annex B shall be followed except that in the event that the Forward Cash Settlement Amount exceeds the proceeds from the sale of such Unregistered Shares then for the purpose of calculating the number of "Make-whole Shares" to be delivered by Counterparty, GS shall determine the discount to the Net Share Settlement Price at which it can sell the Unregistered Shares.  Notwithstanding the delivery of the Unregistered Shares, Counterparty shall endeavor in good faith to have a registration statement declared effective by the SEC as soon as practical.  In the event that GS has not sold sufficient Unregistered Shares to satisfy Counterparty's obligations to GS contained herein at the time that a Registration Statement covering the offering and sale by GS of a number Shares equal in value to not less than 150% of the amount then owed to GS is declared effective (based on the Net Share Settlement Price on the Exchange Business Day (as if such Exchange Business Day were the "Net Share Valuation Date" for purposes of computing such Net Share Settlement Price) that the Registration Statement was declared effective), GS shall return all unsold Unregistered Shares to Counterparty and Counterparty shall deliver such number of Shares covered by the effective Registration Statement equal to 100% of the amount then owed to GS based on such Net Share Settlement Price.  Such delivered shares shall be deemed to be the "Settlement Shares" for the purposes of the related Transaction and the settlement procedure specified in this Master Confirmation (including the obligation to deliver any Make-whole Shares, if applicable) shall be followed.  In all cases GS shall be entitled to take any and all required actions in the course of its sales of the Settlement Shares, including without limitation making sales of the Unregistered Shares only to "Qualified Institutional Buyers" (as such term is defined under the Securities Act), to ensure that the sales of the Unregistered Shares and the Settlement Shares covered by the Registration Statement are not integrated resulting in a violation of the securities laws and Counterparty agrees to take all actions requested by GS in furtherance thereof. 

If GS and Counterparty cannot agree on acceptable pricing, procedures and documentation relating to the sales of such Unregistered Shares then the number of Unregistered Shares to be delivered to GS pursuant to the provisions above shall not be based on the Net Share Settlement Price but rather GS shall determine the value attributed to each Unregistered Share in a commercially reasonable manner and based on such value Counterparty shall deliver a number of Shares equal in value to the Forward Cash Settlement Amount.  For the purposes hereof "Unregistered Shares" means Shares that have not been registered pursuant to an effective registration statement under the Securities Act or any state securities laws ("Blue Sky Laws") and that cannot be sold, transferred, pledged or otherwise disposed of without registration under the Securities Act or under applicable Blue Sky Laws unless such sale, transfer, pledge or other disposition is made in a transaction exempt from registration thereunder.

In the event that Counterparty delivers Shares pursuant to an election of Net Share Settlement then Counterparty agrees to indemnify and hold harmless GS, its affiliates and its assignees and their respective directors, officers, employees, agents and controlling persons (GS and each such person being an "Indemnified Party") from and against any and all losses, claims, damages and liabilities (or actions in respect thereof), joint or several, to which such Indemnified Party may become subject, under the Securities Act or otherwise, (i) relating to or arising out of any of the Transactions contemplated by this Master Confirmation concerning the Shares or (ii) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, prospectus, Registration Statement or other written material relating to the Shares delivered to prospective purchasers, including in each case any amendments or supplements thereto and including but not limited to any documents deemed to be incorporated in any such document by reference (the "Offering Materials"), or arising out of or based upon any omission or alleged omission to state in the Offering Materials a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that, in the case of this clause (ii), Counterparty will not be liable to the extent that any loss, claim, damage or liability arises out of or is based upon any untrue statement or omission or alleged untrue statement or omission in the Offering Materials made in reliance upon and in conformity with written information furnished to Counterparty by GS expressly for use in the Offering Materials, as expressly identified in a letter to be delivered at the closing of the delivery of Shares by Counterparty to GS.  The foregoing indemnity shall exclude losses that GS incurs solely by reason of the proceeds from the sale of the Capped Number of Shares being less than the Forward Cash Settlement Amount.  Counterparty will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a nonappealable judgment by a court of competent jurisdiction to have resulted from GS's willful misconduct, gross negligence or bad faith in performing the services that are subject of this Master Confirmation.  If for any reason the foregoing indemnification is unavailable to any Indemnified Party or insufficient to hold harmless any Indemnified Party, then Counterparty shall contribute, to the maximum extent permitted by law, to the amount paid or payable by the Indemnified Party as a result of such loss, claim, damage or liability.  In addition, Counterparty will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred (after notice to Counterparty) in connection with the investigation of, preparation for or defense or settlement of any pending or threatened claim or any action, suit or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto and whether or not such claim, action, suit or proceeding is initiated or brought by or on behalf of Counterparty.  Counterparty also agrees that no Indemnified Party shall have any liability to Counterparty or any person asserting claims on behalf of or in right of Counterparty in connection with or as a result of any matter referred to in this Agreement except to the extent that any losses, claims, damages, liabilities or expenses incurred by Counterparty result from the gross negligence, willful misconduct or bad faith of the Indemnified Party.  This indemnity shall survive the completion of any Transaction contemplated by this Master Confirmation and any assignment and delegation of a Transaction made pursuant to this Master Confirmation or the Agreement shall inure to the benefit of any permitted assignee of GS&Co.

In no event shall the number of Settlement Shares (including, without duplication, any Unregistered Shares) and any Make-whole Shares, be greater than the Reserved Shares minus the amount of any Shares actually delivered under any other Transaction(s) under this Master Confirmation (the result of such calculation, the "Capped Number").  Counterparty represents and warrants (which shall be deemed to be repeated on each day that a Transaction is outstanding) that the Capped Number is equal to or less than the number of Shares determined according to the following formula:

A - B

Where   A = the number of authorized but unissued shares of the Issuer that are not reserved for future issuance on the date of the determination of the Capped Number; and

            B = the maximum number of Shares required to be delivered to third parties if Counterparty elected Net Share Settlement of all transactions in the Shares (other than Transactions in the Shares under this Master Confirmation) with all third parties that are then currently outstanding and unexercised.

EX-10

EXHIBIT 10.33

EXCLUSIVE SUPPLY AGREEMENT

            This Exclusive Supply Agreement (this "Agreement") is entered and made effective as of September 16, 1997 (the "Effective Date") by and between Alchemy Engineering, LLC, a California limited liability company d/b/a SiTech, LLC, with its principal executive offices located at 6125 West Campus Circle Drive, Irving, Texas 75038 ("SiTech"), and Mentor Corporation, a Minnesota corporation with its principal executive offices located at 5425 Hollister Avenue, Santa Barbara, California ("Mentor").

            WHEREAS, SiTech intends to manufacture certain Material (as defined in Section 1.6 below) which are used by Mentor in its manufacturing business;

            WHEREAS, SiTech desires to supply the Materials manufactured by SiTech exclusively to mentor on the terms and conditions set forth in this Agreement;

            WHEREAS, Mentor desires to purchase from SiTech substantially all the materials manufactured by SiTech on the terms and conditions set forth in this Agreement; and

            WHEREAS, concurrent herewith Mentor and SiTech will enter into that certain Option and Stock Purchase Agreement (the "Option Agreement") whereby Mentor will be granted an option to purchase all the capital stock of SiTech from the SiTech shareholders;

            NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants set forth below, SiTech and mentor mutually agree as follows:

1.                DEFINITIONS

1.1                 "Affiliate" shall mean (a) any company owned or controlled to the extent of at least fifty percent (50%) of its issued and outstanding voting stock by a party to this Agreement and any other company so owned or controlled (directly or indirectly) by any such company or the owner of any such company, or (b) any partnership, joint venture or other entity directly or indirectly controlled by, controlling, or under common control of, to the extent of fifty percent (50%) or more of voting power) or otherwise having power to control its general activities), a party to this Agreement, but in each case only for so long as such ownership or control shall continue.

1.2                 "Delivery Date" shall mean a date for which delivery of the Material to Mentor is properly requested by Mentor in a written purchase order.

1.3                 "FDA" means the United States Food and Drug Administration.

1.4                 "First Sale" shall mean the first sale of the Material by SiTech to Mentor.

1.5                 "Initial Term" shall have the meaning set forth in Section 5.1 hereof.

1.6                 "Materials" shall mean all materials manufactured by SiTech as set forth inExhibit A attached hereto and by this reference incorporated herein.

1.7                 "Mentor" as used in this Agreement shall include Mentor and/or each of its wholly-owned Affiliates.

2.                SALE AND PURCHASE OF MATERIALS

2.1                 Supply of Material.

(a)                 SiTech hereby agrees to manufacture for, and deliver exclusively to Mentor, and Mentor agrees to purchase from SiTech, such quantities of the Materials to meet Mentor requirements based upon such written purchase orders and forecasts provided Pursuant to Section 2.3 hereof.  In the event that Mentor's requirements differ significantly (by more than 10%) from the forecasts, Mentor will promptly notify SiTech of the fact and of the amount of such variance, and SiTech shall use its best efforts to accommodate any variance upon receiving notice thereof from Mentor.  The parties hereto acknowledge and agree that SiTech may manufacture or sell other products to any third party upon the prior written consent of Mentor, which consent may be withheld by Mentor at Mentor's sole and absolute discretion.

(b)                 Mentor shall be provided with a list of raw materials and finished goods inventory on a quarterly basis.  Such list shall reflect the status of SiTech's inventory at the end of each calendar quarter sufficient to assure that Mentor shall have a three (3) month supply of the materials to be purchased by Mentor pursuant to the terms of this Agreement (the "Minimum Inventory Level").  Mentor shall have the right, but not the obligation, to conduct an annual audit of SiTech, at Mentor's expense, to satisfy itself that such Minimum Inventory Level is being met.  In the event that Mentor's audit or any SiTech Quarterly report shall reveal that SiTech has not maintained the Minimum Inventory Level for each necessary raw material, Mentor may, at its sole option, purchase a three (3) month supply of any such raw material and store such raw material at SiTech's facility.  SiTech shall reimburse Mentor for Mentor's actual cost for such raw materials upon SiTech's use of the raw material purchased by Mentor.

2.2                 Specifications; Regulatory Compliance; Manufacturing; Master Device File.

(a)                 SiTech shall manufacture the Materials in accordance with the specifications set forth in Exhibit A attached hereto; provided, however, that in the case of a discrepancy, SiTech shall be required to meet such specification sonly to the extent met by Mentor's prior vendor.  SiTech's Manufacturing operations shall be in conformance with ISO-9002 and shall follow current good manufacturing practices as promulgated or modified by the FDA from time to time ("GMPs"), and all other applicable federal, state, and local regulatory authorities as requested by Mentor.  SiTech shall not deviate in any way whatsoever therefrom without the prior written consent of a duly authorized representative of Mentor.  Mentor shall have the right and SiTech shall allow Mentor access, from time to time, and upon reasonable notice and during business hours, to inspect or audit SiTech's manufacturing and storage facility, tools, and equipment as well as SiTech's quality assurance systems, testing operations, compliance procedures, and records relating to the Material, to ensure compliance by SiTech with applicable regulatory requirements, including without limitation applicable GMP regulations.  Any audits shall be scheduled at normal business hours upon at least fifteen (15) days prior written notice to SiTech.

(b)                 In the event Mentor determines that SiTech is not in compliance with applicable regulatory requirements, including without limitation applicable GMP regulations, Mentor shall promptly deliver to SiTech written notice of such non-compliance ("Non-compliance Notice").  SiTech shall create and deliver to Mentor an action plan to address any such non-compliance (the "Action Plan") within fifteen 915) days of this receipt of the Non-compliance notice.  The Action Plan shall be mutually agreeable to Mentor and SiTech, including the time period and the action(s) necessary to correct any non-compliance by SiTech.  In no event shall the time period set forth in the Action Plan to correct any current non-compliance exceed twelve (12) months from the date of SiTech's receipt of the Non-compliance Notice.  In the event SiTech fails to cure any such non-compliance within the time period set forth in the Action Plan, Mentor shall have the right, but not the obligation, to terminate this Agreement pursuant to Section 5.2(e) below with respect to the Materials affected or to elect to have some or all of the affected Materials supplied by a third party supplier pursuant to Section 4 below.

(c)                 For any changes to the specifications set forth in Exhibit A requested by Mentor which are not required to comply with applicable regulatory requirements, including without limitation, applicable GMP regulations.  Mentor shall deliver to SiTech written notice of such desired changes, and SiTech shall use its best efforts to implement, at Mentor's reasonable expense, such changes requested by Mentor.  The parties hereto agree to work together in good faith to implement any such changes to the specifications. 

(d)                 SiTech shall establish, file with the FDA and maintain in accordance with the requirements of the FDA, a Master Device File ("Master Device File") with respect to the Materials.  Upon Mentor's request SiTech shall:

(i)                  Provide Mentor with a table of contents of the Master Device File and any other summary information that is not of a proprietary nature;

(ii)                Authorize the FDA to access on behalf of Mentor any Master Device File of SiTech pertaining to the Materials;

(iii)               Provide Mentor with information not of a proprietary nature relative to the interpretation or application of data contained in the Master Device File in order to support (a) any filing or application then pending before the FDA or any other United States or foreign government agency, or (b) any proceedings then being conducted by or before the FDA or any other United States or foreign government agency, or (c) any pending or threatened litigation or other proceeding involving Materials to which Mentor is or may become a party;

(iv)              Certify to or on behalf of Mentor that any Materials hereunder meet the specifications contained in the Master Device File and are manufactured in compliance with applicable governmental statutes, regulations, and guidelines; and

(v)                Notify Mentor of the nature and extent of any deficiency alleged by the FDA to exist in the Master Device File and, any actions, if any, that SiTech proposes to take to remedy such deficiency.

2.3                 Purchase Orders; Forecasts.  With respect to the Materials, Mentor shall deliver to SiTech at least one (1) full calendar quarter prior to the month in which the First Sale (the "Initial Month") is projected to occur, (i) Mentor's rolling non-binding forecast for the twelve (12) month period commencing with the first calendar day of the Initial Month, and (ii) with respect to Mentor's first purchase order of Materials, a written purchase order and Delivery Dates for the initial sixty (60) day period commencing with the Initial Month.  Thereafter, commencing with the Initial Month, Mentor shall deliver to SiTech on a monthly basis, or at intervals Mentor and SiTech may otherwise mutually agree upon, but in no event longer than ninety (90) days, a binding forecast update of its quantity requirements for such Materials for the ensuing sixty day period.  Each written purchase order shall specify the Delivery Date and shall include a reference to this Agreement.  SiTech shall acknowledge in writing within three (3) business days after receipt of any written purchase orders submitted by Mentor (i) its receipt of such purchase order and (ii) its ability to inability to fulfill such sixty (60) day forecasts.  The terms and conditions of this Agreement will control over any terms contained in any Mentor written purchase order, written acceptance or acknowledgement by SiTech, invoice or any other document that is not clearly an amendment to this Agreement signed by both parties.

2.4                 Labeling and Packaging.  SiTech shall label the Materials in accordance with the labeling specifications set for in this Section 2.4.  Unless Mentor otherwise requests, all Materials ordered by mentor shall be packed for domestic shipment and storage in accordance with SiTech's standard commercial practices.  SiTech will mark all containers with necessary handling and shipping information, including but not limited to any special handling that may be required, and will provide an itemized packing list with each shipment which shall include (i) the purchase order number(s) prominently marked, (ii) the quantity of the Material shipped, (iii) the date of shipment, (iv) supplier parts number, (v) suppliers parts description (vi) supplier lot number, (vii) net weight and (viii) expiration date.  Mentor shall notify SiTech of any special packaging requirements, which she be at Mentor's expense.

2.5                 Delivery.  All Materials delivered to mentor shall be F.O.B. SiTech's facilities set forth in each written purchase order.  SiTech shall use its best efforts and the latest and most efficient delivery systems to deliver the Materials no sooner than three (3) days prior to the applicable Delivery Dates and no later than the applicable Delivery Date.  SiTech shall use its best efforts to assist Mentor in arranging any desired insurance (in amounts that Mentor shall determine) and transportation, via air freight unless otherwise specified in writing, to any destination specified in writing from time to time by Mentor.  All customs, duties, costs, taxes, insurance premiums, and other expenses relating to such transportation and delivery, shall be at Mentor's expense.

2.6                 Certificate Regarding Specifications and Regulatory Compliance: Invoice.

(a)                 All materials delivered to Mentor shall be accompanied by a certificate, signed by the President or the most senior Quality Assurance Manager of SiTech at such time indicating that the Materials being delivered (i) have been tested by SiTech, (ii) meet the specifications set forth in Exhibit A attached hereto and are in compliance with all applicable regulatory requirements, including without limitation, GMPs pursuant to Section 2.2 above, and (iii) are free from any manufacturing defects.

(b)                 An invoice for the amount due for the Materials shall be sent separately by SiTech to Mentor's accounts payable department.

2.7                 Rejection and Inspection of Material.

(a)                 Every tender of Materials must materially comply with the Material specifications set forth in Exhibit A hereto.  Mentor may reject any portion of any shipment of the Materials which is not conforming with the specifications contained in Exhibit A.  In order to reject a shipment, Mentor must (i) give notice to SiTech of Mentor's intent to reject the shipment within fourteen (14) days of receipt together with a written indication of the reasons for such possible rejection.  After notice if intention to reject is given, Mentor and SiTech shall both examine the Materials in question using mutually agreeable test methods as set forth on Exhibit B to determine the extent and existence, if any, of any nonconformity has been made, the deadline for payment  for the Materials, as set forth in Section 3 below, shall be suspended.  If the Materials are determined to be nonconforming, Sitech shall, at its own cost and expense, promptly undertake to replace such nonconforming Materials and deliver conforming Materials to Mentor.  If no such notice of intent to reject is timely received, Mentor shall be deemed to have accepted such delivery of Material.

(b)                 Notwithstanding Section 2.7(a) above, in the case of Materials having latent defects which upon diligent examination by Mentor upon receipt could not have been discovered, or the physical characteristics of Materials have changed so such Material is not conforming with the specifications contained in Exhibit A attached hereto, mentor shall give notice of Mentor's intent to return such Materials within thirty (30) days after discovery of such defects or change in physical characteristics, provided that such notice may in no event be given later than the warranty period set forth in Section 6.10 below, except as otherwise provided in Section 2.7(c) below.  Upon receipt of such notice, SiTech shall use its reasonable efforts to provide replacement Materials to Mentor at SiTech's own expense.

(c)                 Notwithstanding Sections 2.7(a) and 2.7(b) above, Mentor may return to SiTech at any time any Materials with physical characteristics that have changed so that such materials is not conforming with the specifications contained in Exhibit A attached hereto to be reconditioned and returned to Mentor, provided that SiTech may charge Mentor an amount not greater than fifty percent (50%) of the original price paid by Mentor for such reconditioned Material if (i) such Material's "shelf life" has expired and (ii) the warranty period set for in Section 6.10 has expired.  If such reconditioned Material's shelf life and the warranty period set forth in the Section 6.10 have not expired, Sitech shall provide Mentor with such reconditioned Material at SiTech's own cost.

(d)                 Except as otherwise agreed to by Mentor, SiTech shall not change in any way the specifications of the Material, or any process, material, equipment or facility use in the production of the Material without the prior written approval of Mentor's Quality Assurance Manager at such time.

2.8                 Conditions Precedent.  Mentor's obligation to purchase the Materials exclusively from SiTech and SiTech's obligation to manufacture and sell the Materials exclusively to Mentor is (a) conditioned upon the execution of the Option Agreement by SiTech, its Members (as defined therein) and Mentor an (b) severable as to each Material and shall commence upon completion satisfactory to Mentor of the inspection, acceptance and validation of each Material.  However, in no event shall Mentor's obligation to purchase each Material be suspended by operation of the Section 2.8 for more than ninety (90) days after the filing by SiTech of a Master Device File for that Material with FDA.

3.                PRICE AND PAYMENTS

3.1                 Price.  The price for the Materials hall be set for in Exhibit C attached hereto and by this reference incorporated herein (collectively, the "Purchase Price"), and such Purchase Price shall remain firm for the term of this Agreement, except as otherwise provided in Section 3.2 below.

3.2                 Price Increase.  Mentor and SiTech will reexamine the Purchase Price annually on each anniversary of the Effective Date and shall mutually determine whether an increase or decrease of the Purchase Price is necessary to reflect any change in the market price or in the cost of raw materials used to produce such Materials.  There shall be no change in the Purchase Price if Mentor and SiTech are unable to agree upon any such change within thirty (30) days of the anniversary of the Effective Date.

3.3                 Method of Payment.  All payments are hereunder to SitTech shall be due to SiTech in United States dollars on the later of (i) thirty (30) days following the date of the applicable invoice and (ii) the receipt of the applicable invoice in proper form (which form shall include (A) Mentor's purchase order number, (B) the customer part number an (C) the same price for the materials set forth in corresponding purchase order); provided, however that in the event Mentor rejects any Materials pursuant to Section 2.7 above, payment for such rejected Materials shall be suspended in accordance with the terms set forth in Section 2.7 above until Mentor and SiTech are able to determine the extent and existence, if any, of any nonconformity of the Materials in question.

3.4                 Past Due Amount.  Any amount due hereunder shall, if remaining past due for thirty (30) days (sixty (60) days after Mentor's receipt of invoice), shall accrue interest hereon at the rate of 1-1/2 % per month for each month or portion thereof that the amount remains due.  In the event that any invoice remains past due for more than ninety (90) days, SiTech may, at its option, require any further shipments of Materials to mentor to be sent C.O.D. until otherwise agreed by SiTech.

4.                PARTIAL TERMINATION AND PENDING DISPUTES.  If SiTech (i) fails to timely deliver ninety percent (90%) of the amount of any Materials ordered by Mentor as required hereunder for nay reason excluding force majeure, as measure over any period of sixty (60) or more consecutive days, or (ii) the Materials delivered by SiTech do not conform to the specifications for such Materials set forth in Exhibit A or are not manufactured in the conformance with applicable regulatory requirements, including without limitation applicable GMP regulations, then Mentor may upon twenty (20) days' prior written notice to SiTech (as long as SiTech has not cured such default within such time) elect to have such affected Materials (the "Affected Materials") supplied by a third party supplier, selected by Mentor in its sole discretion, for the next ninety (90) days (the "Third Party Period").  Upon the expiration of the Third Party Period and upon the satisfactory completion of an audit and inspection of SiTech pursuant to Section 2.2 above, SiTech shall recommence supplying the Affected Materials to Mentor; provided, however, that if after the expiration of the Third Party Period, the audit and inspection of SiTech is not satisfactory to Mentor, Mentor shall, at its sole discretion, (i) continue to have Affected Materials supplied by a third party supplier and terminate this Agreement with respect to the Affected Materials or (ii) continue to have the Affected Materials supplied by a third party supplier for indefinite consecutive periods of ninety (90) days until a satisfactory completion of an audit and inspection of SiTech pursuant to Section 2.2 above.

5.                TERMINATION, RIGHTS, AND OBLIGATIONS UPON TERMINATION

5.1                 Term.  Unless terminated for any particular Material pursuant to Section 4 above or by either party pursuant to the other provisions of this Section 5, this Agreement shall continue in effect until seven (7) years from the date first set forth above (the "Initial Term").  After the Initial Term and in the event the Option Agreement is renewed, this Agreement shall automatically renew for additional one (1) year terms to coincide with any renewal term of the Option Agreement unless written notice terminating this Agreement without cause is given by Mentor not less than six (6) months prior to the expiration of the Initial Term or any renewal term.

5.2                 Termination for cause.  This Agreement may be terminated in its entirety by either party upon the occurrence of an "Event of Default" (as defined below) by delivering to the defaulting party at least thirty (30) days prior to the effective date of the written notice of termination (the "Notice of Termination") describing the Event of Default.  For the purposes of Section 5.2, an Event of Default is any of the following events:

(a)                 Failure by Mentor to make any payment when due and the failure of Mentor to pay such delinquent amount plus any other non-delinquent amounts due and payable at such time within thirty (30) days of Mentor's receipt of the Notice of Termination;

(b)                 Filing by either party hereto for bankruptcy , receivership, assignment for the benefit of creditors of all or a substantial portion of the assets of such party or other admission by such party of its inability to pay its debts as they mature;

(c)                 The filing of an involuntary petition for bankruptcy, reorganization, receivership or similar proceeding against either party hereto which proceeding is not dismissed within sixty (60) days;

(d)                 If either party hereto  breaches any material provision of this Agreement and fails to cure such breach within sixty (60) days of written notice describing the breach; or

(e)                 If SiTech is at any time not in compliance with any of the applicable regulatory requirements, including but not limited to GMPs, and it fails to deliver an Action Place to Mentor pursuant to Section 2.2(b) above, or it fails to otherwise cure the non-compliance pursuant to the Action Plan delivered to mentor pursuant to Section 2.2(b) above.

5.3                 Other Termination Event.  This Agreement may be terminated in its entirety by Mentor upon the exercise by mentor of its option to purchase all of the assets of SiTech and the closing of the purchase of such assets by Mentor pursuant to the terms of the Option Agreement.

5.4                 No Liability for Termination.  Neither party shall incur any liability whatsoever for any damage, loss or expenses of any kind suffered or incurred by the other (or for any compensation to other) arising from or incident to any termination of the Agreement by such party which complies with the terms of this Agreement, whether or not such party is aware of any such damage, loss or expenses.

5.5                 Effect of Termination.  The following provisions shall survive the termination of this Agreement: Sections 3, 5.4, 5.5., 6.5, 6.6, 6.7, 6.8, 6.10, 7 and 8.  Remedies for all breaches hereunder will also survive.  Upon termination of his Agreement, SiTech shall continue to fulfill, subject to the terms of Section 3, all firm orders accepted by it prior to the effective date of termination, and Mentor shall be obligated to pay for all Materials ordered or delivered prior to the date of termination, subject to the terms of Section 3 of this Agreement.  Notwithstanding anything in this Section 5.5 to the contrary, in the case of termination under Section 5.2, the terminating party may elect whether obligations under firm orders will remain in effect.

5.6                 Return of Property.  Upon expiration or termination of this Agreement, each party shall return to the other party any information, confidential materials, technical materials, samples, correspondence, specifications and other documents or materials belonging to the other party, together with any copies thereof (the "Properties"); provided, however, that each party shall have the right to retain such Properties to perform its obligations remaining hereunder after the expiration or termination of the Agreement.

6.                REPRESENTATIONS, WARRANTIES, COVENANTS, AND INDEMNIFICATION

6.1                 No Rights Created.  Mentor and SiTech hereby agree that nothing in this Agreement shall give either party any right, title or interest in any information, or any copyrights, trademarks, patents or trade secrets of the other party or used by the other party under license from a third party.

6.2                 Rights, Power, Authority and Binding Obligation.  Each party hereby represents and warrants to the other party that it has full right, power and authority to enter into this Agreement and that this Agreement constitutes a valid and binding obligation on such party.

6.3                 Compliance with Law.  SiTech represents and warrants that it is in compliance with all applicable laws and regulations (including but not limited to environmental laws and regulations) and other orders in connection with entering into this Agreement, manufacturing the Materials and delivering the Materials.  SiTech will be solely responsible for the proper disposal of any materials or waste resulting from the manufacturing of the Materials.  Under no circumstances shall Mentor be liable for direct, incidental or consequential damages result from the use, handling, storage or disposal of materials, waste or any other chemicals, raw materials or inputs by any affiliate, employee, agent or contractor of SiTech.

6.4                 SiTech Facilities.  SiTech represents and warrants that the facility used to manufacture the Materials or the location where the Materials are produced is in compliance with ISO 9002 and follows applicable GMP regulations.

6.5                 No Infringement.  SiTech represents and warrants that (i) the materials are free from rights or claims of any other person and Mentor's purchase and resale (or holding in inventory) of the Materials does not infringe upon or violate any United States or foreign intellectual or industrial property right or other right of any third party and (ii) there are no patents issued by any country, or any other prior art, that invalidate or would invalidate any of the patents covering the Materials, if any, to SiTech's knowledge.

6.6                 Confidential Information.

(a)                 From time to time during the term hereof, the parties may require from each other certain secret confidential information, including knowledge, information, data, know-how, concepts, ideas, methods, processes, formulae, trade secrets, procedures, techniques and improvements and all other compilation of information (whether or not reduced in writing or in electronic format or whether or not patentable or copyrightable) which re or may in any way be related to the Materials or to the respective businesses of the parties ("Proprietary Information").  The parties shall keep strictly secret and confidential and shall not, either during or after termination of the Agreement, without the other party's written consent disclose to any third parties or use at any time after termination of this Agreement any Proprietary Information of the other party, excepting that either party may disclose such Proprietary Information to its employees for whom such information is necessary for performance of their duties.  The parties shall use their best efforts to compel any parties to whom they provide Proprietary Information to keep such information confidential in accordance with this Section 6.6(a).  The parties agree not to use the Proprietary Information of the other party commercially or for any other purpose other than for the purpose contemplated by this Agreement.

(b)                 The obligations undertaken by he parties pursuant to Section 6.6(a) above shall not apply to:

(i)                  Such information that is generally known to the public at the time of disclosure to the other party (the "Recipient Party") or subsequently becomes generally known to the public through no breach of Section 6.6(a) above by the non-disclosing party;

(ii)                Such information that was in the Recipient Party's possession prior to disclosure hereunder;

(iii)               Such information that was obtained by the Recipient Party in good faith from a third party lawfully possessing and having a right to disclose same;

(iv)              Such information that the Recipient Party is required by court order to disclose, provided that any Recipient Party receiving any subpoena, or governmental, judicial or administrative request for any Proprietary Information of the other party shall notify the other party of the request immediately, and shall not disclose such information absent the other party's consent or a court order requiring such disclosure; or

(v)                Such information that the Recipient Party affirmatively demonstrates to the other party's reasonable satisfaction, prior to any use or disclosure, that the Propriety  Information was independently developed by the Recipient Party without the aid, application, reference or use in any way of information received from the other party.

(c)                 Within thirty (30) days following the termination or expiration of this Agreement or the request of a party hereto, each party shall return all Proprietary Information belonging to the other party and copies hereof, and any other records containing such Proprietary Information to the other party, except that each party may retain copies of such Proprietary Information to the extent necessary to meet its continuing obligations to supply Material under this Agreement.

(d)                 Mentor and SiTech acknowledge that any breach or violation of the confidentiality provision in Section 6.6(a) above will result in irreparable and continuing damage to the non-breaching party for which there may be no adequate remedy at law, and Mentor and SiTech agree that in the event of any such breach or violation by either party, the non-breaching party shall be entitled to both damages and/or injunctive relief.

6.7                 Duty to Keep Books and Records.  SiTech hereby covenants and agrees to keep and maintain at all times an accurate account of all operations within the scope of this Agreement for a period of at least seven (7) years after the expiration or termination of this Agreement, including without limitation, all of its books and records of Material sales, device master records, device history records, and master access files.

6.8                 Intellectual Property.  All discoveries, improvements, inventions, and trade secrets developed by SiTech in the performance of this Agreement shall be the sole property of SiTech.

6.9                 Best Efforts.  Sitech shall use its best efforts to carry on the developments of SiTech's business in order for SiTech to fulfill its obligations under this Agreement.

6.10              Warranties.  SiTech warrants to Mentor that the Materials shipped hereunder (i) shall conform in all material respects to the specifications set for in Exhibit A, as then in effect, and to all applicable regulatory requirements, including without limitation, applicable GMP regulations, as then in effect, (ii) shall have a shelf life of at least six (6) months from the date of receipt of such Materials by Mentor, and (iii) shall be free from any defects or change in physical characteristics for a period of six (6) months from the date of receipt of such Materials by Mentor.  SiTech  HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY OTHER THAN AS PROVIDED ABOVE.  THE FORGOING LIMITATIONS OF WARRANTIES SHALL NOT IN ANY WAY LIMIT MENTOR'S RIGHTS UNDER SECTION 7 HEREOF.

7.                      INDEMNIFICATION.

7.1                 Indemnification by Mentor.  Mentor shall indemnify, defend and hold SiTech and its officers, directors, employees, and agents (collectively, the "SiTechIndemnitees") harmless from and against any and all loss, harm and liability including, without limitation, all costs, damages, settlements, claims, suits and expenses (including reasonable attorneys' fees) made against or sustained by any SiTechIndemnitee (collectively, "SiTech Losses") arising out of or resulting from the death of, or bodily injury to, any person which is attributed to the use of a Material by Mentor or the incorporation of a Material into any mentor product, except to the extent that such SiTech Losses are caused by the intentional misconduct of SiTech or its employees, agents, contractors or representatives.

7.2                 Indemnification by SiTech.  SiTech shall indemnify, defend and hold Mentor and its Affiliates and their officers, directors, employees and agents (collectively, the "Mentor Indemnitees") harmless from and against all loss, harm and liability including, without limitation, all costs, damages, settlements, claims, suits, and expenses (including reasonable attorneys' fees) made against or sustained by any Mentor Indemnitee arising from (i) the death of, or bodily injury to, any person on account of the Materials as a result of negligence or willful misconduct of SiTech or any affiliate, officer, director, employee or agent of SiTech (ii) any reasonable SiTech-approved out-of-pocket costs to Mentor and its Affiliates due to the recall of any Processed Material or (iii) an infringement of any third party patent right, copyright right, trademark right or other intellectual property right or misappropriation of any trade secret (collectively "Mentor Losses") to the extent such Mentor Losses are finally determined by a court of competent jurisdiction or by specific reference in a settlement of litigation consented to by SiTech pursuant to Section 7.4 to have been caused by (a) willful or intentional failure to deliver such Material in accordance with SiTech's warranties set for in Section 6.10, (b) the negligence or willful misconduct of SiTech or any employee, consultant, agent or subcontractor of SiTech or its Affiliates, or (c) an breach of a material obligation of SiTech under this Agreement (collectively, a "SiTech Claim"), except that SiTech shall have no liability under this Section 7.2 for any Mentor Losses arising from a Mentor Claim.

7.3                 Limitations to Indemnity.  The indemnities of Sections 7.1 and 7.2 shall not apply (i) if the indemnified party fails to give the indemnifying party prompt notice of any claim it receives and such failure materially prejudices the indemnifying party, or (ii) unless the indemnifying party is given the opportunity to approve any settlement.  Furthermore, the indemnifying party shall not be liable for attorneys' fees or expenses of litigation of the indemnified party unless the indemnified party gives the indemnifying party the opportunity to assume control of the defense or settlement.  In no event shall the indemnifying party assume control of the defense of the indemnified party without the consent of the indemnified party (which consent shall be given at its sole discretion).

7.4                 Settlement.  In no event shall the indemnifying party be entitled to settle any of the above-mentioned claims without the written consent of the indemnified party, which consent shall not be reasonably withheld.

7.5                 Insurance.  SiTech, at its sole cost and expense, shall carry and at all times during the Initial Term and any subsequent period, maintain in full force and effect the following insurance coverage:

(a)                 Workers' Compensation Insurance as required by Texas law;

(b)                 Employers' Liability Insurance as required by Texas law;

(c)                 General Comprehensive Liability Insurance, with contractual liability and property damage endorsements in the minimum amount of Two Million Five Hundred Thousand Dollars ($2,500,000) each occurrence and in the aggregate.  Such coverage shall also include coverage for business interruption with coverage limits and terms reasonably acceptable to Mentor.

(d)                 Environmental impairment liability insurance for non-sudden and accidental occurrences, if required by applicable law or regulation.

Such insurance policies shall cover any and all Mentor Losses as provided herein for which indemnification is provided by Section 7.2 above.  SiTech, upon request of Mentor, will supply Mentor with appropriate certificates of insurance evidencing the forgoing insurance coverage.

8.                      MISCELLANEOUS

8.1                 Amendment and Waiver.  Except as otherwise expressly provided herein, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or in any particular instance and either retroactively or prospectively) only with the written consent of the parties hereto.  However, it is the intention of the parties that this Agreement be controlling over additional or different terms of any purchase order, confirmation, invoice or similar document, even if accepted in writing by both parties, and that waivers and amendments of any provision of this Agreement shall be effective only if made by non-pre-printed agreements signed by both parties and clearly understood by both parties to be an amendment or waiver.  The failure of either party to enforce its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights.

8.2                 Governing Law and Legal Actions.  This Agreement shall be governed by and construed under the law of the State of California and the United States without regard to conflicts of laws provisions thereof.  Unless the parties hereto mutually agree otherwise, the sole jurisdiction and venue for actions related to the subject matter hereof shall be the California state and U.S. federal courts having within their jurisdiction the location of Mentor's principal place of business.  Both parties consent to the jurisdiction of such courts and agree that process may be served in the manner provided herein for giving of notices or otherwise allowed by California state or U.S. federal law.  In any action or proceeding to enforce rights under this Agreement, the prevailing party shall be entitled to recover costs and attorneys' fees.

8.3                 Notice and Reports.  All notices, consents or approvals required by this Agreement shall be in writing sent by certified air mail, postage prepaid or y facsimile (confirmed by such certified or registered mail) to the parties at the following addresses or such other addresses as may be designated in writing by the respective parties:

To SiTech:         Alchemy Engineering, LLC
                        d/b/ SiTech, LLC
                        Attn: Richard Compton
                        P.O. Box 1018
                        Carpinteria, CA 93104

To Mentor:        Mentor Corporation
                        5425 Hollister Avenue
                        Santa Barbara, CA 93111
                        Facsimile No,: (805) 681-6006
                        Attention: Anthony R. Gette

With a copy to: Chief Legal Counsel
                        Mentor Corporation
                        5425 Hollister Avenue
                        Santa Barbara, CA 93111
                        Facsimile No,: (805) 681-6006
                        Attention: Douglas H. Altschuler, Esq.

Notices shall be deemed effective on the date of mailing. 

8.4                 Entire Agreement.   This Agreement (and all Exhibits hereto), the Option Agreement and the License Agreement (and all Exhibits and Schedules thereto) constitute the entire understanding and agreement with respect to the subject matter hereof and supersede all proposals, oral and written, all negotiations, conversations, or discussion between or among parties relating to the subject matter of this Agreement and all past dealing or industry custom.

8.5                 Severability.  If any provision of this Agreement is held to be illegal or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

8.6                 Relationship of Parties.  The parties hereto expressly understand and agree that the other is an independent contractor in the performance of each and every part of this Agreement, is solely responsible for all of its employees and agents and its labor costs and expenses arising in connection herewith.  Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind to any contract, agreement or undertaking with any third party.  Neither party may use or assign to an Affiliate or any other third party the name, brand, logo, or trademark or any derivative thereof, of the other party without the prior written consent of said other party.

8.7                 Delegation of Duties.  Neither party may delegate to a third party their respective obligations hereunder without the written consent of the other party.

8.8                 Assignment.  This Agreement and the rights hereunder are not transferable or assignable without the prior written consent of the parties hereto, except for rights to payment and except to a person or entity who acquires all or substantially all of a party's stock, assets or business to which this Agreement pertains, whether by sale, merger, acquisition or otherwise.  This Agreement will bind and inure to the benefit of the parties and their respective successors and permitted assigns.

8.9                 Publicity and Press Releases.  Except to the extent necessary under applicable laws or for ordinary marketing purposes, the parties agree that no press releases or other publicity relating to the substance of the matters contained herein will be made without approval by both parties.

8.10              Force Majeure.  No liability or loss of rights hereunder shall result to either party from delay or failure in performance caused by an event of force majeure (that is, circumstances beyond the reasonable control of the party affected thereby, including without limitations, acts of God, fire, flood, war or government action).  Obligations hereunder, however, shall in no event be excused for a period of longer than six (6) months.  In the event of  forcemajeure, the party whose performance is affected shall give prompt written notice to the other party stating the period of time the same is expected to continue and will use its best efforts to mitigate the effect of the event giving rise to the failure or delay in performance.  upon the occurrence of a force majeure which affects SiTech's performance hereunder for long than six (6) months, Mentor shall have the right, but not he obligation, to terminate this Agreement, or to elect to have the affected Materials supplied by a third party supplier until SiTech is able to resume performance.

8.11              Remedies.  Except as otherwise expressly stated in this Agreement, the rights and remedies of a party set forth herein with respect to failure of the other to comply with the terms of this Agreement (including, without limitation, rights of full termination of this Agreement) are not exclusive, the exercise thereof shall not constitute an election of remedies and the aggrieved party shall in all events be entitled to seek whatever additional remedies may be available in law or in equity.

8.12              Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall constitute one and the same instrument.

[SIGNATURE PAGE TO FOLLOW]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first written above.

                                                                                    Alchemy Engineering, LLC,
                                                                                    a California limited liability company
                                                                                    d/b/aSiTech, LLC

                                                                       
                                                                                    By: /s/RICHARD A. COMPTON
                                                                                    Richard A. Compton

                                                                                    Mentor Corporation
                                                                                    a Minnesota corporation
                                                                                    By: /s/GARY E. MISTLIN
                                                                                    Gary E. Mistlin
                                                                                    VP Finance

EX-10

EXHIBIT 10.30

 EMPLOYMENT AGREEMENT WITH BOBBY PURKAIT DATED FEBRUARY 18, 2004

February 18, 2004    REVISED

Bobby Purkait
2995 East Valley Road
Montecito, CA 93108

Dear Bobby:

The purpose of this letter is to confirm the transfer of your assignment as Senior Vice President for Business Development from a full to a part-time (50%), interim position. The terms and conditions of the transfer are as follows:

TITLE:                                      Senior Vice President, Business Development

SUPERVISOR:                          Chris Conway, Chairman/CEO

EFFECTIVE DATES:                  April 1, 2004 through May 31, 2004.  NOTE:  Final day of work may be accelerated with approval of CEO, or extended by agreement of
                                                Employee and Company.

 BASE SALARY:                        60% of base pay

BONUS:                                    Any FY04 bonus paid at 100%; any FY05 bonus pay-out will be prorated (60%).

STOCK OPTIONS:                    Continued participation in the Company stock option program, including vesting of awarded options per defined schedule.

BENEFITS:                               All current benefits will remain in full effect, including monthly car allowance.

TRAVEL:                                  Travel required by business needs will be reimbursed in accordance with Company policy and guidelines.

RESPONSIBILITIES:                 Coordination of all project activities related to Botulinum Toxin project. In addition, we have agreed that you may work as an independent
                                                consultant and/or to develop your own products; however, you may not divulge any confidential or proprietary information and/or engage in
                                                any work that might present a conflict with Mentor Corporation or its business. This includes any work related to the following products:

                                                AESTHETIC:                 Breast Implants (Gel and Saline)
                                                                                    Dermal Filler (Hyaluronic Acid, Polyacrylamide)
                                                                                    Botulinum Toxin Type A (injectable)
                                                                                    Liposuction
                                                                                    Tissue Expanders

                                                UROLOGY:                   Penile Implant(s)
                                                                                    Brachytherapy Products
                                                                                    Gel Ablation Products
                                                                                    Saber
                                                                                    Obtape
                                                                                    Incontinence or Pelvic Floor Repair
                                                                                    Home Health Care Products

Mentor Corporation is committed to a standard of excellence in the products and services that it provides to its customers.  Our employees have participated in our efforts to meet this commitment and to achieve a standard of excellence.  Because the company and its employees are judged on their performance and results, it is important that both retain theability to determine their own relationships with one another.  Accordingly, either the employee or Mentor can terminate the employment relationship at will, with or without cause, and with or without advance notice, at any time.  No one other than the Chairman/CEO of Mentor Corporation has the authority to enter into any agreement for employment for any specified period of time, or to make any agreement contrary to the foregoing.  Any agreement contrary to the foregoing must be in writing and signed by the Chairman/CEO of Mentor Corporation and the employee.

Any salary figures provided to an employee in annual or monthly terms are stated for the sake of convenience or to facilitate comparisons and are not intended and do not create an employment contract.

This covers all of the details of our offer to you.  When you have signed this letter, it, along with your Employee Confidentiality Agreement, will together constitute the entire agreement between you and Mentor concerning your employment. 

If the above meets with your approval, please sign the original of the two letters enclosed indicating your acceptance of this offer.  Please return the original to Corporate Human Resources by February 19, 2004. The copy enclosed is for your files.

Signed By:

/s/CHRIS CONWAY                                                              2/18/04

Chris Conway                                                                            Date

Chairman/CEO

Accepted By:

/s/BOBBY PURKAIT                                                             2/18/04

Bobby Purkait                                                                            Date

Senior Vice President

EX-10

EXHIBIT 10.31

 AMENDMENT TO EMPLOYMENT AGREEMENT FOR BOBBY PURKAIT

Summary of Amendment

Mr. Purkait's employment agreement provided he would transfer from full time to a part time (50%), interim position, at 60% base pay starting April 1, 2004.  In addition, it indicated his final day of employment would be May 31, 2004.  In March 2004, this agreement was verbally amended to make his employment for an indeterminate period, to resume his full-time duties and to continue his compensation at his base salary of $278,460 annually.  In addition, he would be eligible for additional compensation up to $200,000 upon the achievement of certain milestones.  The other terms of his employment agreement dated February 18, 2004 remain in effect.

EX-10

EXHIBIT 10.32

 AMENDMENT TO EMPLOYMENT AGREEMENT FOR EUGENE GLOVER

Summary of Amendment

In December, Mr. Glover's duties changed from those described in his employment agreement dated October 16, 2000 as Senior Vice President, Advanced Development to those customarily required as Senior Vice President, Business Development.  In March 2004, Mr. Glover's agreement was amended to decrease his time, efforts, and compensation by one half of the previous amount to reflect the part-time nature of his revised duties, effective April 9, 2004.  The other terms of his employment agreement remain in effect.

EX-21

EXHIBIT 21

LIST OF WHOLLY OWNED SUBSIDIARIES OF MENTOR CORPORATION

Subsidiary	State of Incorporation or Organization
Biopolymers (Scotland) Limited	Scotland
Byron Medical, Inc.	Arizona
Havas Medical, B.V. (merged into Mentor Benelux B.V. 11/17/97)
Inform Solutions, Inc.	California
MDI Company Ltd.	Bermuda
Mentor 1983 Research Limited Partnership (dissolved 6/14/00)
Mentor Benelux B.V.	Netherlands
Mentor Biopolymers Limited	United Kingdom
Mentor Caribe, Inc. (Dissolved 12/31/99)	Delaware
Mentor Deutschland GmbH	Germany
Mentor International Holdings Alpha, Inc.	Delaware
Mentor International Holdings Beta, Inc.	Delaware
Mentor International Holdings Camda, Inc.	Delaware
Mentor International Holdings Delta, Inc.	Delaware
Mentor International Sales Corporation	U.S. Virgin Islands
Mentor International, EURL	France
Mentor International, LLC	Delaware
Mentor Japan K.K. (dissolved)
Mentor Medical Inc.	Delaware
Mentor Medical Italia, S.r.l.	Italy
Mentor Medical Limited (U.K.)	United Kingdom
Mentor Medical Systems (Canada), Inc.	Canada
Mentor Medical Systems B.V.	Netherlands
Mentor Medical Systems Ltd. (U.K.)	United Kingdom
Mentor Medical Systems (Aust) Pty. Ltd.	Australia
Mentor Medical Systems, C.V.	Netherlands
Mentor Medical Systems, France, S.A.	France
Mentor Medical Systems, Iberica, S.L.	Spain
Mentor Minnesota Inc. (Formerly Mentor Urology, Inc.)	Delaware
Mentor Ophthalmics, Inc. (Formerly Mentor O&O, Inc.)    (Dissolved 12/31/99)	Massachusetts
Mentor ORC, Inc. (Dissolved 4/1/96)	Delaware
Mentor Polymer Technologies Company	Texas
Mentor Texas LP (Formerly Mentor H/S, Inc).	Delaware
Mills Biopharmaceuticals, Inc.	Oklahoma
Porges (Belgium)	Belgium
Porges (Netherlands)	Netherlands
Porges Co, Ltd.	Japan
Porges GmbH	Germany
Porges S.A.	France
Porges S.L.	Spain
Porges S.R.L.	Italy
Porges U.K. Ltd	United Kingdom
Porges, Lda	Portugal
Selene Corporation	California
Sierra Laboratories, Inc. (dissolved 3/20/02)	Arizona
Teknar Corporation (dissolved 4/1/96)	Missouri

EX-23

EXHIBIT 23

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement Number 33-48815 on Form S-8 dated June 24, 1992, Registration Statement Number 333-73306 on Form S-8 dated November 14, 2001, the Registration Statement Number 333-100841 on Form S-8 dated October 30, 2002 and the Registration Statement Number 333-113037 on Form S-3 dated February 24, 2004 of our report dated May 17, 2004, with respect to the consolidated financial statements and financial statement schedule of Mentor Corporation included in this Annual Report on Form 10-K for the year ended March 31, 2004.

/s/ERNST & YOUNG LLP

Los Angeles, California
June 11, 2004

EX-31

EXHIBIT 31.1

§302 CERTIFICATION

I, Joshua H. Levine, certify that:

1.    I have reviewed this annual report on Form 10-K 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:  June 11, 2004                                               /s/JOSHUA H. LEVINE
                                                                             Joshua H. Levine
                                                                             President and Chief Executive Officer
                                                                             (Principal Executive Officer)

EX-31

EXHIBIT 31.2

§302 CERTIFICATION

I, Loren L. McFarland, certify that:

1)       I have reviewed this annual report on Form 10-K 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:  June 11, 2004                                                /s/LOREN L. MCFARLAND
                                                                              Loren L. McFarland
                                                                              Chief Financial Officer and Treasurer
                                                                              (Principal Financial Officer)

EX-32

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 Annual Report of Mentor Corporation (the "Company") on Form 10‑K for the year ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joshua H. Levine, President and 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/JOSHUA H. LEVINE
Joshua H. Levine
President and Chief Executive Officer
June 11, 2004

EX-32

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 Annual Report of Mentor Corporation (the "Company") on Form 10‑K for the year ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Loren L. McFarland, Chief Financial Officer and Treasurer 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/LOREN L. MCFARLAND
Loren L. McFarland
Chief Financial Officer and Treasurer
June 11, 2004