10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 ^{(Mark One)}

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

For the quarterly period ended June 30, 2004

or

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

For the transition period from ____ to _____

Commission File No. 0-7955

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

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

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

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

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

As of August 4, 2004 there were approximately 42,344,758 Common Shares, par value $.10 outstanding.

1

MENTOR CORPORATION

INDEX

Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) - June 30, 2004 and March 31, 2004
	Consolidated Statements of Income (unaudited) - Three Months Ended June 30, 2004 and 2003
	Consolidated Statements of Cash Flows (unaudited) - Three Months Ended June 30, 2004 and 2003
	Notes to Condensed Consolidated Financial Statements - June 30, 2004
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II. Other Information
Item 1.	Legal Proceedings
Item 2.	Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K (a)    Exhibits (b)    Reports on Form 8-K

2

 

PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Mentor Corporation Consolidated Balance Sheets (Unaudited)
(in thousands)	June 30, 2004	March 31, 2004
Assets
Current assets:
Cash and cash equivalents	$        111,868	$        118,225
Marketable securities	307	193
Accounts receivable, net	106,680	106,016
Inventories	70,106	67,912
Deferred income taxes	22,171	22,488
Prepaid expenses and other	12,912	13,205
Total current assets	324,044	328,039
Property and equipment, net	74,389	77,529
Intangible assets, net	49,527	51,014
Goodwill, net	23,734	23,711
Long-term marketable securities and investments	34,000	8,326
Other assets	10,160	10,160
	$        515,854	$        498,779
See notes to condensed consolidated financial statements.

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Mentor Corporation Consolidated Balance Sheets (Unaudited)
(in thousands)	June 30, 2004	March 31, 2004
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$    33,920	$    37,126
Warranty and related reserves	24,339	23,396
Accrued compensation	17,427	18,212
Short-term bank borrowings	9,737	10,012
Sales returns	10,983	11,797
Deferred revenue	7,893	6,915
Income taxes payable	4,548	285
Current portion of purchase price related to acquired
technologies and acquisitions	1,850	1,864
Interest payable	72	1,187
Dividends payable	6,346	6,309
Accrued royalties	693	567
Other	13,358	12,260
Total current liabilities	131,166	129,930
Deferred income taxes	2,628	2,549
Long-term accrued liabilities	18,112	17,996
Convertible subordinated notes	150,000	150,000
Shareholders' equity:
Common Stock, $.10 par value:
Authorized - 150,000,000 shares; Issued and outstanding-
42,308,197 shares at June 30, 2004;
42,059,136 shares at March 31, 2004;	4,231	4,206
Capital in excess of par value	4,517	-
Accumulated other comprehensive income	18,919	19,122
Retained earnings	186,281	174,976
	213,948	198,304
	$    515,854	$    498,779
See notes to condensed consolidated financial statements.

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Mentor Corporation Consolidated Statements of Income Three Months Ended June 30, 2004 and 2003 (Unaudited)
(in thousands, except per share data)	2004	2003
Net sales	$      122,432	$      105,106
Costs and expenses:
Cost of sales	43,975	39,373
Gross Profit	78,457	65,733
Selling, general, and administrative	43,252	35,679
Research and development	8,030	7,543
	51,282	43,222
Operating income	27,175	22,511
Interest expense	(1,408)	(161)
Interest income	415	396
Other income (expense), net	(188)	676
Income before income taxes	25,994	23,422
Income taxes	8,340	7,389
Net income	$        17,654	$        16,033
Basic earnings per share	$            0.42	$            0.35
Diluted earnings per share	$            0.39	$            0.33
Dividends per share	$            0.15	$            0.02
Weighted average shares outstanding:
Basic	42,163	46,386
Diluted	45,036	48,346
See notes to condensed consolidated financial statements.

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Mentor Corporation Consolidated Statements of Cash Flows Three Months Ended June 30, 2004 and 2003 (Unaudited)
(in thousands)	2004	2003
Cash From Operating Activities:
Net income	$    17,654	$    16,033
Adjustments to derive cash flows from operating activities:
Depreciation	3,584	3,046
Amortization	1,177	761
Deferred income taxes	122	(1,096)
Tax benefit from exercise of stock options	1,899	1,756
Loss (gain) on sale of assets	1,360	80
Imputed interest on long-term liabilities	15	78
Changes in operating assets and liabilities:
Accounts receivable	(662)	(4,288)
Inventories and other current assets	(1,998)	(714)
Accounts payable and accrued liabilities	(1,632)	(1,018)
Income taxes payable	4,321	1,977
Net cash provided by operating activities	25,840	16,615
Cash From Investing Activities:
Purchases of property and equipment	(1,490)	(3,950)
Purchases of intangibles	(1,512)	(1,256)
Purchases of marketable securities	(50,835)	(16,018)
Sales of marketable securities	25,006	5,007
Net cash used for investing activities	(28,831)	(16,217)
Cash From Financing Activities:
Proceeds from exercise of stock options	2,643	3,873
Dividends paid	(6,346)	(925)
Borrowings under line of credit agreement	667	1,903
Repayments under line of credit agreement	(322)	-
Net cash used for financing activities	(3,358)	4,851
Effect of currency exchange rates on cash and cash equivalents	(8)	226
Increase (decrease) in cash and cash equivalents	(6,357)	5,475
Cash and cash equivalents at beginning of year	118,225	105,840
Cash and cash equivalents at end of period	$   111,868	$   111,315
See notes to condensed consolidated financial statements.

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MENTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004

Note A - Business Activity

Mentor Corporation (the "Company") was incorporated in April 1969.  Unless the context indicates otherwise, when we refer to "Mentor," "we," "us," "our," or the "Company" in this Form 10-Q, we are referring to Mentor Corporation and its subsidiaries on a consolidated basis.  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.

Note B - Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained.  For those subsidiaries where the Company owns less than 100%, the outside shareholders' interests are treated as minority interests.  All inter-company 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. 

Basis of Presentation

The financial information for the three months ended June 30, 2004, and 2003 is unaudited but includes all adjustments (consisting only of normally recurring accruals, unless otherwise indicated) which the Company considers necessary for a fair presentation of the results of operations for these periods.  Interim results are not necessarily indicative of results for the full fiscal year.  

Use of Estimates

Financial statements prepared in accordance with accounting principles generally accepted in the United States require management to make estimates and judgments that affect amounts and disclosures reported in the financial statements.  Actual results could differ from those estimates.   A discussion of the Company’s significant accounting policies is described in the “Application of Critical Accounting Policies” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Effects of Recent Accounting Pronouncements

In July 2004, the Financial Accounting Standards Board (FASB) released draft abstract Emerging Issue Task Force (EITF) Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share," for comment. The objective of this Issue is to provide guidance for whether contingently convertible debt instruments should be included in diluted earnings per share calculations. The draft abstract reflects the Task Force’s tentative conclusion that contingently convertible debt should be included in diluted earnings per share calculations regardless of whether or not the trigger price has been reached. The Task Force has currently targeted the issue to be effective for reporting periods ending after December 31, 2004.  The potential impact of the Issue, if adopted, would be to change the diluted earnings per share calculation by increasing net income used in the numerator by the after tax amount of interest expense related to the convertible notes (approximately $900,000 for the quarter), and increasing weighted average shares outstanding used in the denominator by 5.1 million shares; the number of shares to be issued upon full conversion of the convertible notes.  The effect would decrease diluted earnings per share by $.02 cents per share for the quarter ended June 30, 2004.  We will continue to monitor the progress of this issue and assess any potential impact upon on future diluted earnings per share.

7

In March 2004, the Financial Accounting Standards Board (FASB) approved the consensus reached on the EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. The accounting provisions of EITF 03-1 are effective for all reporting periods beginning after June 15, 2004, while the disclosure requirements are effective only for annual periods ending after June 15, 2004. We have evaluated the impact of the adoption of EITF 03-1 and do not believe it will be significant to our results of operations or financial position.

Note C - Interim Reporting

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

	Fiscal 2005	Fiscal 2004
First Quarter	July 2, 2004	June 27, 2003
Second Quarter	October 1, 2004	September 26, 2003
Third Quarter	December 31, 2004	January 2, 2004

The accompanying unaudited condensed consolidated financial statements for the three-months ended June 30, 2004 and 2003 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting only of normally recurring accruals, unless otherwise indicated) considered necessary for a fair presentation of the results of operations for the indicated periods have been included.  Certain amounts recorded in previous periods have been reclassified to conform to the current period presentation.  Operating results for the three-month period ended June 30, 2004 is not necessarily indicative of the results for the full fiscal year.

8

The balance sheet at March 31, 2004 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 2004. 

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

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

The Company considers its marketable securities available-for-sale as defined in Statement of Financial Accounting Standards (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 were there any material differences between estimated fair values, based on quoted market prices, and the costs of securities in the investment portfolio as of June 30, 2004, and March 31, 2004.  Short-term investments, except auction rate securities, mature between three months and one year from the purchase date.  The Company's short-term marketable securities consist primarily of money market mutual funds, U.S. state and municipal government obligations, auction rate securities, and investment grade corporate obligations including commercial paper.  Auction rate securities carry interest or dividend rates that reset every 28 days but have contractual maturities of greater than one year.

The Company's long-term marketable securities and investments include investments in Federal Home Loan Bank and Mortgage Association bonds (FHLA bonds) with maturities of two to four years. 

Available-for-sale investments at June 30, 2004 were as follows:

		Gross	Gross	Estimated
	Adjusted	Unrealized	Unrealized	Fair
(in thousands)	Cost	Gains	Losses	Value
Cash balances	$   14,461	$        -	$        -	$   14,461
Money market mutual funds	97,407	-	-	97,407
Marketable equity securities	144	-	(13)	131
U.S., State and Municipal agency    obligations	34,140	-	(242)	33,898
Corporate debt securities	278	-	-	278
Total available-for-sale investments	$  146,430	-	$      (255)	$  146,175
Included in cash and cash equivalents	111,868	-	-	111,868
Included in current marketable securities	307	-	-	307
Included in long-term marketable    securities and investments	34,255	-	(255)	34,000
Total available-for-sale investments	$  146,430	$        -	$      (255)	$  146,175

9

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
Bank time deposits	-	-	-	-
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

 Note E - Inventories

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

Inventories at June 30, 2004 and March 31, 2004 consisted of:

(in thousands)	June 30,	March 31
Raw materials	$     13,175	$     13,050
Work in process	11,982	11,572
Finished goods	44,949	43,290
	$     70,106	$     67,912

Note F - Property and Equipment

Property and equipment is stated at cost.  Depreciation is based on the useful lives of the properties and computed using the straight-line method.  Buildings are depreciated over 30 years, furniture and equipment over 3 to 10 years and leasehold improvements over the shorter of their estimated remaining lives or lease terms.  Significant improvements and betterments are capitalized while maintenance and repairs are charged to operations as incurred.

Property and equipment at June 30, 2004 and March 31, 2004 consisted of:

(in thousands)	June 30,	March 31,
Land	$        561	$        561
Buildings	24,624	24,534
Leasehold improvements	24,567	23,776
Furniture, fixtures and equipment	104,468	103,242
Construction in progress	2,139	3,811
	156,359	155,924
Less accumulated depreciation	(81,970)	(78,395)
	$   74,389	$   77,529

Note G - Warranties

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.

10

Information on changes in the Company’s accrued warranties and related reserves are as follows:

(in thousands)	June 30, 2004	June 30, 2003
Beginning warranty and related reserves	$    23,396	$     19,989
Costs of warranty claims	(1,101)	(989)
Accruals for product warranties	2,044	1,995
Ending warranty and related reserves	$     24,339	$     20,995

Note H - Other Comprehensive Income

The components of comprehensive income are listed below:

	Three Months Ended June 30,
(in thousands)	2004	2003
Net income	$  17,654	$  16,033
Foreign currency translation adjustment	(42)	5,032
Unrealized gains (losses) on marketable securities and investment activities, net	(161)	121
Comprehensive income	$  17,451	$  21,186

Note I - Stock Options

The Company has granted options to key employees and non-employee directors under its Amended 2000 Long-Term Incentive Plan (2000 Plan) and 1991 Plan.  Options granted under both plans are exercisable in four equal annual installments beginning one year from the date of grant, and expire ten years from the date of grant.  Options are granted at the fair market value as of the date of grant.  Options to purchase 732,750 shares of common stock at $32.23 per share were granted during the quarter ended June 30, 2004. 

Stock option exercise prices are set at the fair market value of the Company's common stock on the date of grant and the related number of shares granted is fixed at that point in time.  Therefore, under the principles of Accounting Principles Board (APB) Opinion 25, the Company does not recognize compensation expense associated with the grant of stock options.  SFAS 123 "Accounting for Stock-Based Compensation", requires the use of an option valuation model to provide supplemental information regarding options granted after fiscal 1995.  Pro forma information regarding net income and earnings per share shown below were determined as if the Company had accounted for its employee stock options under the fair value method of that statement.  The estimated fair value of the options is amortized ratably over the options' vesting period.  As required by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123", the following table shows the estimated effect on net income and earnings per share if the Company had applied the fair value recognition provision of SFAS 123 to stock-based employee compensation.  The Company's pro forma information is as follows:

	Three Months Ended June 30,
(in thousands except per share data)	2004	2003
Net income: as reported (1)	$   17,654	$   16,033
Deduct: compensation expense fair value method	(1,768)	(1,717)
Net income:  pro forma	$   15,886	$   14,316
Basic earnings per share:  as reported	$         .42	$         .35
Basic earnings per share:  pro forma	.38	.31
Diluted earnings per share:  as reported	$         .39	$         .33
Diluted earnings per share:  pro forma	.35	.30
(1) Net income as reported includes no compensation expense associated with stock option grants.

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Note J - Income Taxes

The effective rate of corporate income taxes was 32.1% and 31.5% for the three-months ended June 30, 2004 and 2003, respectively.  

Note K - Earnings per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of shares of the Company’s common shares outstanding during the period. Diluted earnings per share is calculated in the same manner as basic earnings per share except that the number of shares outstanding is increased by potentially dilutive common shares outstanding during the period.  Potentially dilutive common shares consist of shares issuable under the terms of employee stock options, warrants, and the 2¾% convertible subordinated notes.  A reconciliation of weighted average shares outstanding, used to calculate basic earnings per share, to weighted average shares outstanding assuming dilution, used to calculate diluted earnings per share, follows:

	Three Months Ended June 30,
(in thousands)	2004	2003
Weighted average outstanding shares:  basic	42,163	46,386
Shares issuable upon exercise of stock options	2,873	1,960
Weighted average outstanding shares:  diluted	45,036	48,346

Shares issuable through stock options are determined using the treasury stock method.  Certain potential shares issuable under the terms of employee stock options and upon the conversion of the 2¾% convertible subordinated notes were excluded from the computation of diluted earnings per share since their exercise or conversion prices were greater than the market prices of the common shares during or at the end of the period, and accordingly, their effect would have been anti-dilutive.  Additionally, during the quarter ended June 30, 2004, the price of the Company’s stock did not exceed the specific strike prices of the convertible bond hedge or the warrants that the Company entered into to reduce the potential dilution from any conversion of the notes.  Both the bond hedge and the warrants transaction may be settled at the Company’s option, either in cash or shares, and expire on January 1, 2009. 

Note L - 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 were repurchased for $135.8 million and 3.6 million shares remained authorized for repurchase as of March 31, 2004 and June 30, 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. There were no share repurchases during the quarter ended June 30, 2004.

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Note M – Acquisitions and Liabilities related to acquired technology 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 June 30, 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. 

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 June 30, 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.

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 N – Goodwill & Intangible Assets

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 over their useful lives ranging from 3-20 years on a straight line basis. 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. 

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.

13

As of June 30, 2004 and March 31, 2004 accumulated amortization of intangible assets was $15.3 million and $14.2 million respectively.

Note O - 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.

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 by effectively increasing the conversion price per share to $39.43.  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 P - 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.

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The aesthetic and general surgery products segment consists primarily of breast implants, tissue expanders and the Company's body contouring (liposuction) equipment and disposables.  The surgical urology segment includes penile implants, surgical incontinence products, and brachytherapy seeds for the treatment of prostate cancer.  The clinical and consumer healthcare segment includes catheters and other disposable products for the management of urinary incontinence and retention.

Selected financial information for the Company's reportable segments for the three-month periods ended June 30, 2004 and 2003, and as of June 30, 2004 and March 31, 2003 is as follows:

	Three Months Ended  June 30,
(in thousands)	2004	2003
Net Sales
Aesthetic and General Surgery	$     65,544	$     55,503
Surgical Urology	30,984	28,089
Clinical and Consumer Healthcare	25,904	21,514
Total consolidated revenues	$   122,432	$   105,106
	Three Months Ended June 30,
(in thousands)	2004	2003
Operating profit
Aesthetic and General Surgery	$     24,399	$     19,791
Surgical Urology	2,404	1,696
Clinical and Consumer Healthcare	3,229	3,161
Total reportable segments	$     30,032	$     24,648
	Three Months Ended June 30,
(in thousands)	2004	2003
Operating income
Reportable segments	$   30,032	$   24,648
Corporate operating loss	(2,856)	(2,137)
Interest expense	(1,408)	(161)
Interest income	415	396
Other income	(189)	676
Income before income taxes	$   25,994	$   23,422
	As of
	June 30,	March 31,
(in thousands)	2004	2004
Identifiable assets
Aesthetic and General Surgery	$       130,551	$       135,199
Surgical Urology	117,005	114,937
Clinical and Consumer Healthcare	78,167	76,695
Total reportable segments	$       325,723	$       326,831

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement:

The following discussion and analysis should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this Report.  The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities.  We urge you to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended March 31, 2004 and subsequent reports on Forms 10‑Q and 8‑K, which discuss our business in greater detail.

The section entitled “Risk Factors” set forth below, and similar discussions in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition.  These risks, in addition to the other information in this Report and in our other filings with the SEC, should be carefully considered before deciding to purchase, hold or sell our securities.

All statements included in this report, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Examples of forward-looking statements include, but are not limited to, statements concerning:

• our anticipated growth strategies;

• our intention to introduce or seek regulatory approval for new products;

• our ability to continue to meet FDA and other regulatory requirements;

• our anticipated outcomes of litigation and regulatory reviews;

• our ability to replace sources of supply without disruption or regulatory delay;

• our accounting estimates, assumptions and judgments, the market acceptance and performance of our products, the competitive nature of and anticipated growth in our markets;

• our ability to consummate acquisitions and integrate their operations successfully; and

• the need for additional capital.

These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us.  Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” ”projects,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,”  “ongoing,” "guidance,” and similar expressions, and variations or negatives of these words.  In addition, any statements that refer to expectations, projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.  These forward-looking statements speak only as of the date of this report and are based upon the information available to us at this time.  Such information is subject to change, and we will not necessarily inform you of such changes.  These statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that are difficult to predict.  Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statement as a result of various factors, some of which are listed under the section “Risk Factors” below.  We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

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. 

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Management has identified the critical accounting policies to be those related to revenue recognition, accounts receivable, inventories, warranties and related reserves, and goodwill and intangible asset impairment.  These accounting polices are discussed in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” and notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

Recent Developments

On October 25, 2003, we completed the acquisition of Inform Solutions Inc., now doing business as Mentor Practice Development Services located in San Diego, California.  Inform Solutions is a leading provider of comprehensive integrated practice management software and revenue enhancement services to the plastic surgery industry.  We paid cash and committed to several milestone payments over the ensuing three years based upon sales and earnings.  We expect that the software and consulting revenues generated by Inform Solutions will not be substantial.  We do, however, anticipate that the software and services Inform Solutions offers will assist our plastic surgery customers to better manage their practices, resulting in their overall practice growth, which could in turn result in growth of our aesthetic product sales, generally.

On December 10, 2003 we completed a licensing agreement with the Wisconsin Alumni Research Foundation (“WARF”) which gives us the exclusive manufacturing and marketing rights to the proprietary botulinum toxin technology developed at the University of Wisconsin-Madison.  In exchange, we paid cash and committed to royalty payments based upon future sales, and future payments based upon developmental milestones.  We do not expect any revenues from products utilizing this technology in fiscal year 2005 or fiscal year 2006, as the products will require additional research, clinical studies and regulatory approvals before they can be marketed. 

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 the our common stock at a conversion price of $29.289 per share and are subordinated to all existing and future senior debt. 

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:

	Quarter Ended June 30,
	2004	2003
Net sales	100.0%	100.0%
Cost of sales	35.9	37.5
Gross profit	64.1	62.5
Selling, general, and administrative	35.3	34.0
Research and development	6.5	7.2
	41.8	41.2
Operating income	22.3	21.3
Interest expense	(1.2)	(0.1)
Interest income	0.3	0.4
Other income, net	(0.2)	0.7
Income before income taxes	21.2	22.3
Income taxes	6.8	7.0
Net income	14.4%	15.3%

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Sales

Quarters Ended June 30, 2004 and 2003
Sales for the quarter ended June 30, 2004 increased 16.5% to $122.4 million from $105.1 million for the same quarter in the prior year.  Foreign exchange rate movements had a favorable quarter-to-quarter impact of $2.8 million on international sales. We continue to expect total sales to increase in fiscal 2005 at a low double digit rate over sales in fiscal 2004. 

	Sales by Principal Product Line
	For the Three Months Ended June 30,
	2004	2003	Percent Change
Aesthetic & General Surgery    Products	$   65,544	$   55,503	18.1%
Surgical Urology Products	30,984	28,089	10.3%
Clinical & Consumer    Healthcare Products	25,904	21,514	20.4%
	$ 122,432	$   105,106	16.5%

Sales of aesthetic and general surgery products increased 18.1% to $65.5 million for the quarter ended June 30, 2004 from $55.5 million for the same quarter in 2003.  Sales of breast implant products increased 16% to $57.4 million for the quarter from $49.5 million in the same period of the prior year.  Approximately $7 million of the increase in breast implant products is attributable to organic growth in unit sales of our breast implants and associated products, and a shift in product sales to higher priced implants and the balance is the result of a favorable impact of foreign exchange rate movements.  Increased sales were driven by strong performance in the augmentation and reconstruction markets both domestically and internationally. Sales of body contouring products increased 33% to $4.8 million for the quarter from $3.6 million over the same period in the prior year.  Liposuction continues to be the leading surgical cosmetic procedure in the United States, and the sales of our capital equipment and associated disposable products were the leading contributors to body contouring sales growth for the quarter ended June 30, 2004.

Sales of surgical urology products increased 10.3% to $31.0 million for the quarter ended June 30, 2004 from $28.1 million for the same quarter in 2003.  The growth was primarily due to increases in our women’s health and brachytherapy products and approximately $1.1 million favorable impact of foreign exchange rate movements.  Sales of women’s health products (pelvic floor products) increased 84% to $5.9 million for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003.  This sales growth was primarily attributable to our ObTape™ sling product, which was introduced in the U.S. during August 2003 and is used to treat stress urinary incontinence in women.  Brachytherapy product sales increased 6% to $3.9 million for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003.  Sales for our erectile dysfunction products were $6.4 million for the quarter ended June 30, 2004 which is comparable to sales for the quarter ended June 30, 2003.  Sales of disposable surgical urology products were $14.9 million for the quarter ended June 30, 2004, which is comparable to sales for the quarter ended June 30, 2003.  

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Sales of clinical and consumer healthcare products increased 20.4% to $25.9 million for the quarter ended June 30, 2004 from $21.5 million in the same period in the prior year.  This growth primarily resulted from the reorganization of our urology sales force, which was completed in early 2004 and led to improved selling focus and higher sales productivity.  Approximately $1.0 million of the sales growth was the result of favorable impact of foreign exchange rate movements, as approximately half of these product sales are invoiced in currencies other than the U.S. Dollar. 

Cost of Sales

Cost of sales for the quarter ended June 30, 2004 was 35.9% of net sales, compared to 37.5% for the same quarter in the prior year. Cost of sales for the aesthetic and general surgery products decreased to 25.2% from 28.8% of net sales, primarily due to economies of scale and improved manufacturing efficiencies at our Texas facility and at our new manufacturing facility in The Netherlands.  Cost of sales for surgical urology products decreased to 46.0% from 46.3% of net sales, primarily due to increased sales of our women's health products which has a higher gross margin.  Cost of sales for clinical and consumer healthcare products increased to 51.0% of net sales from 48.3% of net sales in the prior year, due to manufacturing inefficiencies at our foreign manufacturing facilities, and a product mix shift towards lower margin products.

Selling, General and Administrative

Selling, general and administrative expenses were $43.3 million, or 35.3% of net sales for the quarter ended June 30, 2004, compared to $35.7 million, or 34% of net sales for the same quarter in the prior year.  General and administrative expenses increased primarily due to additional expenses in support of sales and marketing initiatives, higher legal expenses from ongoing litigation, and other charges related to continued organizational restructuring. Approximately $1.0 million of the increase in selling, general, and administrative expense was the result of impact of foreign exchange rate movements, primarily the stronger Euro.  For the fiscal year ending March 31, 2005, we currently expect sales, general and administrative expense to be in the range of 35% to 37% of net sales.

Research and Development

Research and development expenses were 6.5% of net sales for the quarter ended June 30, 2004 compared to 7.2% of net sales for the same quarter in the prior year.  Research and development spending for the quarter ended June 30, 2004 was primarily to support key strategic product development programs including our silicone gel breast implant PMA, the botulinum toxin program and the Hyalite dermal filler program.  During the quarter, we recorded a $.8 million charge related to the termination of a brachytherapy development project and related automated manufacturing equipment.  We expect the level of spending on research and development activities to be in the range of 7% to 8% of net sales for the fiscal year ending March 31, 2005.

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Interest Expense

Interest expense increased by approximately $1.2 million to $1.4 million for the quarter ended June 30, 2004 compared to $.2 million for the quarter ended June 30, 2003. Approximately $1.3 million of the expense relates to the $150 million in convertible subordinated notes that we issued in December 2003 carrying a coupon rate of 2 ¾%.  The remaining interest expense is interest on balances outstanding under our foreign lines of credit.  

Income Taxes

The effective rate of corporate income taxes for the three months ended June 30, 2004 was 32.1% as compared to 31.5% for the comparable period in the prior year.  We expect our effective tax rate to be in the range of 32% to 33% for the fiscal year ending March 31, 2005.

Net Income and Earnings Per Share

Net income for the three-month period ended June 30, 2004 increased 10%, or $1.6 million, to $17.6 million from $16.0 million for the same quarter in the prior year. Diluted earnings per share were $.39 and $.33 per share for the quarters ended June 30, 2004 and 2003, respectively. Diluted weighted average shares outstanding were 45.036 million and 48.346 million for the quarters ended June 30, 2004 and 2003 respectively.  Diluted earnings per share had a positive impact on the year over year quarterly comparison as a result of fewer shares outstanding primarily due to our stock repurchase program.

Seasonality

Our quarterly results reflect slight seasonality, as the 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 patients tend to take vacation, particularly in Europe, during this quarter.  

LIQUIDITY AND CAPITAL RESOURCES

Our balance sheet reflected cash, cash equivalents and short-term marketable securities of $112 million at June 30, 2004, compared to $118 million at March 31, 2004.  The decrease is primarily due to our investment of $25 million of cash into long-term marketable securities, primarily Federal Home Loan Bank and Federal National Mortgage Association notes to increase our interest income on our cash reserves. Our cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds.  Our working capital was $193 million at June 30, 2004, compared to $198 million at March 31, 2004.  We generated $26 million of cash from operating activities during the three months ended June 30, 2004, compared to $17 million the same period the previous year.  Approximately $1.6 million of the increase was attributable to increased net income and $2.5 million in additional amortization, depreciation and losses on asset disposals not requiring the use of cash.  Increased accounts receivable collection activities in the quarter provided $3.6 million in additional cash flow from operations compared to the same quarter in the prior year. 

During the three months ended June 30, 2004, we invested approximately $1.5 million in property and equipment, primarily for production equipment purchases. We anticipate investing approximately $18.5 million in the remainder of fiscal 2005 to continue facility improvements and to purchase production equipment.

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We receive cash from the exercise of employee stock options.  Employee stock option exercises provided $2.6 million during the three months ended June 30, 2004 compared to $3.9 million in the same period the previous year. Proceeds from the exercise of employee stock options will vary from period to period based primarily upon fluctuations in the market value of our common shares relative to the exercise price of such options, among other factors.

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.  At June 30, 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.  There were no share repurchases under this program for the quarter ended June 30, 2004.

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 been recorded as an acquisition obligation payments liability of $11.4 million at June 30, 2004.  Approximately $5.9 million of the future acquisition obligation payments 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 to secure 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.  The future payments have been 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 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, expected to be achieved over the next several years.

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 3 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.

In July 2003, the Board of Directors increased 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.  During the quarter ended June 30, 2004 we paid a $.15 dividend. 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.

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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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2004, our total short-term borrowings under all lines of credit were $9.7 million and the weighted-average interest rate was 3.59%.  The total amount of additional borrowings available to us under all lines of credit was $28.1 million at June 30, 2004 and March 31, 2004, respectively. 

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. 

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 June 30, 2004 consisted of $112 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 business, products or technologies.  Additional funds could be raised by selling equity or debt securities to the public or to selected investors, or by borrowing money from financial institutions.  In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons.  We may not be able to obtain additional funds on terms that would be favorable to us, or at all.  If funds are raised by issuing additional equity securities or convertible debt securities, the ownership percentage of existing shareholders would be reduced.  In addition, the equity or debt securities issued by us may have rights, preferences or privileges senior to those of our common stock.

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Risk Factors

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

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements.  The Act was designed to encourage companies to provide prospective information about them without fear of litigation.  The prospective information must be identified as forward-looking and must be accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statements.  The statements about our business, plans, strategies, intentions, expectations and prospects contained throughout this document are based on current expectations.  These statements are forward-looking and actual results may differ materially from those predicted as of the date of this report in the forward-looking statements, which involve risks and uncertainties.  In addition, past financial performance is not necessarily a reliable indicator of future performance and investors should not use historical performance to anticipate results or future period trends.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

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.

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.

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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.

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.

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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.

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.

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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.

On February 1, 2003, our sole source brachytherapy iodine and palladium seed supply agreement with North American Scientific, Inc. (NASI) expired, and 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, additional competition, regulatory delay, additional costs to procure seeds, or loss of customers and market share may have a negative effect on revenues and the results of operations.  For the quarter ended June 30, 2004, our sales of iodine seeds and palladium seeds were approximately $3.9 million.

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;

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• 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.

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.

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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.

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 by the SEC 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.

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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 June 30, 2004, the closing price of our common stock on the New York Stock Exchange was $34.29 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.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk as reported in Item 7A in our Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

Item 4. 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 June 30, 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 June 30, 2004.

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PART II - OTHER INFORMATION

Item 1.	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 seeks compensatory 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 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities None.
Item 3.	Defaults Upon Senior Securities None.
Item 4.	Submission of Matters to a Vote of Security Holders None.
Item 5.	Other Information None.

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Item 6.

Exhibits and Reports on Form 8-K (a) Exhibits

10.1 Employment Agreement dated July 15, 2004, between Mentor Corporation and Peter Shepard. 10.2 Employment agreement dated July 27, 2004, between Mentor Corporation and Bobby Purkait. 10.3 Employment agreement dated August 6, 2004, between Mentor Corporation and Adel Michael. 10.4 Employment agreement dated August 6, 2004, between Mentor Corporation and Joshua Levine. 10.5 Employment agreement dated August 6, 2004, between Mentor Corporation and Loren McFarland. 10.6 Employment agreement dated August 6, 2004, between Mentor Corporation and Cathy Ullery. 10.7 Employment agreement dated August 6, 2004, between Mentor Corporation and Kathleen Beauchamp. 10.8 Employment agreement dated August 6, 2004, between Mentor Corporation and Clarke Scherff. 10.9 Amended and restated Supply Agreement, dated July 6, 2004 by and among Nusil Corporation, SiTech Inc., and Mentor Corporation. 31.1 Certification of Principal Executive Officer Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002. 32.1 CEO Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002, filed herewith. 32.2 CFO Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002, filed herewith. (b) Reports on Form 8-K 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. We filed a report on Form 8-K on August 2, 2004 regarding our press release announcing our first quarter 2005 results.

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SIGNATURES

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

MENTOR CORPORATION

(Registrant)

Date:	August 9, 2004	By:	/S/JOSHUA H. LEVINE Joshua H. Levine Chief Executive Officer
Date:	August 9, 2004	By:	/S/LOREN L .MCFARLAND Loren L. McFarland Chief Financial Officer

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EX-10.1

July 14, 2004

Peter Shepard
1246 North Ontare Road
Santa Barbara, CA 93105

Dear Peter:

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 (10%), position. The terms and conditions of the transfer are as follows:

TITLE:	Senior Vice President, Business Development
SUPERVISOR:	Josh Levine, President/CEO
EFFECTIVE DATES:	August 1, 2004.
BASE SALARY:	10% of base pay  NOTE: This is the rate of base pay that will be used to calculate all other compensation-related benefits, including any applicable bonus and/or  severance  pay-outs.
	_____________                    ___________________ Employee                                         Company
BONUS:	Any bonus payout will be prorated (10%).
STOCK OPTIONS:	Continued participation in the Company stock option program, including vesting of awarded options per defined schedule.
BENEFITS:	All standard health and welfare benefits will remain in full effect, including monthly car allowance, and full monthly premiums will be paid by Company.
TRAVEL:	Travel required by business needs will be reimbursed in accordance with Company policy and guidelines.

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 the ability 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 President/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 President/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.

When you have signed this letter, it, along with your Employee Confidentiality Agreement and the Employment Agreement dated November 28, 2000, 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 agreement.  Please return the original to Corporate Human Resources by July 16, 2004. The copy enclosed is for your files.

Signed By:

/s/JOSH LEVINE                                                                               7/14/04
Josh Levine                                                                                       Date
President/CEO

Accepted By:

/s/PETER SHEPARD                                                                      7/15/04
Peter Shepard                                                                                   Date
Senior Vice President

Cc:      Human Resources

EX-10.2

EMPLOYMENT AGREEMENT

This Employment Agreement, dated July 22, 2004, is by and between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111, and Bobby Purkait ("EMPLOYEE") of  2995 East Valley Road, Santa Barbara, California 93108 and supercedes all other employment agreements by and between the parties.

RECITALS

COMPANY is in the business of manufacturing and selling medical devices and related products. EMPLOYEE has experience in this business and possesses valuable skills and experience, which will be used in advancing COMPANY's interests. EMPLOYEE is willing to be engaged by COMPANY and COMPANY is willing to engage EMPLOYEE in an executive capacity responsible for the Science and Technology function of COMPANY, upon the terms and conditions set forth in this Agreement.

AGREEMENT

EMPLOYEE and COMPANY, intending to be legally bound, agree as follows:

1.         SERVICES

1.1       General Services.

1.1.1  Company shall employ EMPLOYEE as Senior Vice President, Science and Technology). EMPLOYEE shall perform the duties customarily performed by one holding such position in a similar business as that engaged in by COMPANY.  To the extent that they do not reduce the scope of the responsibilities described above, EMPLOYEE's duties may change from time to time on reasonable notice, based on the needs of COMPANY and EMPLOYEE's skills as determined by COMPANY.  These duties shall hereinafter be referred to as "Services."  EMPLOYEE shall report directly to the President and Chief Executive Officer of Mentor Corporation. 

1.1.2  As Senior Vice President, Science and Technology of COMPANY, EMPLOYEE shall also be an officer of COMPANY and shall serve in such capacity without further compensation.  In the event that EMPLOYEE shall from time to time serve COMPANY as a director or shall serve in any other office during the term of this Agreement; EMPLOYEE shall serve in such capacities without further compensation.  If EMPLOYEE is, for any reason, removed as an officer or director of the COMPANY by the Board of Directors of COMPANY, such removal shall be without prejudice to EMPLOYEE's contractual rights under this Agreement. 

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1.1.3.  EMPLOYEE shall devote his entire working time, attention, and energies to the business of COMPANY, and shall not, during the term of this Agreement, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Board of Directors of COMPANY.  This shall not be construed as preventing EMPLOYEE from investing his assets in a form or manner that does not require any services on the part of EMPLOYEE in the operation or affairs of the entities in which such investments are made, or from engaging in such civic, charitable, religious, or political activities that do not interfere with the performance of EMPLOYEE's duties hereunder. 

1.2       Best Abilities.  EMPLOYEE shall serve COMPANY faithfully and to the best of EMPLOYEE's ability.  EMPLOYEE shall use EMPLOYEE's best abilities to perform the Services.  Employee shall act at all times according to what EMPLOYEE reasonably believes is in the best interests of COMPANY.

1.3       Corporate Authority.  Employee, as an executive officer, shall comply with all laws and regulations applicable to EMPLOYEE as a result of this Agreement including, but not limited to, the Securities Act of 1933 and Securities Act of 1934.  Prior to the execution of this Agreement, EMPLOYEE has received and reviewed COMPANY's Policies and Procedures and COMPANY's Employee Handbook.  EMPLOYEE shall comply with COMPANY's Policies and Procedures, and practices now in effect or as later amended or adopted by COMPANY, as required of similarly-situated executives of COMPANY.

2.         TERM

This Agreement shall commence upon the execution of this Agreement and shall continue until terminated as provided in Section 4 of this Agreement.  Due to the nature of EMPLOYEE'S current special project (see Attachment A), EMPLOYEE will not be terminated without cause prior to May 31, 2005; and if terminated as pursuant to Section 4.1.5, EMPLOYEE will receive all compensation through May 31, 2005 including severance compensation per Section 4.2.5.

3.         COMPENSATION AND BENEFITS

3.1  Compensation.  EMPLOYEE's total compensation consists of base salary, bonus potential, stock options, and medical and other benefits generally provided to employees of COMPANY.  Any compensation paid to EMPLOYEE shall be pursuant to COMPANY's policies and practices for exempt employees and shall be subject to all applicable laws and requirements regarding the withholding of federal, state and/or local taxes.  Compensation provided in this Agreement is full payment for Services and EMPLOYEE shall receive no additional compensation for extraordinary services unless otherwise authorized.  EMPLOYEE's entire compensation package will be reviewed annually by the Compensation Committee of the Board of Directors, a practice which is consistent with COMPANY's Executive Compensation Program.

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3.1.1  Base Compensation.  COMPANY agrees to pay EMPLOYEE an annualized base salary of TWO HUNDRED SEVENTY-EIGHT THOUSAND FOUR HUNDRED SIXTY DOLLARS and No Cents ($278,460.00), less applicable withholdings, payable in equal installments no less frequently than semi-monthly. 

3.1.2    Cash Incentive Bonus.  EMPLOYEE shall be eligible for a cash incentive bonus per ATTACHMENT A ("Target Milestones"), and subject to the approval of  the COMPANY's Compensation Committee and Board of Directors.  Any cash incentive bonus shall accrue and become payable to EMPLOYEE upon completion of each milestone(s). EMPLOYEE will not be eligible for a cash incentive bonus for any milestone which is not fully completed by May 31, 2005.

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

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

3.3   Additional Benefits.  COMPANY shall provide EMPLOYEE those additional benefits normally granted by COMPANY to its employees subject to eligibility requirements applicable to each benefit.  COMPANY has no obligation to provide any other benefits unless provided for in this Agreement. Currently COMPANY provides major medical, dental, life, salary continuation, long term disability benefits and eligibility to participate in COMPANY's 401(k) plan.

3.4   Vacation.  Employee shall accrue vacation equal to twenty (20) days per year, at the rate of approximately 1.67 days per month.  The time or times for such vacation shall be selected by EMPLOYEE and approved by the Chairman of the Board, President and Chief Executive Officer of COMPANY.

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4.  TERMINATION

4.1   Circumstances Of Termination.  This Agreement and the employment relationship between COMPANY and EMPLOYEE may be terminated as follows:

4.1.1    Death.  This Agreement shall terminate upon EMPLOYEE's death, effective as of the date of EMPLOYEE's death.

4.1.2    Disability.  COMPANY may, at its option, either suspend compensation payments or terminate this Agreement due to EMPLOYEE's Disability if EMPLOYEE is incapable, even with reasonable accommodation by COMPANY, of performing the Services because of accident, injury, or physical or mental illness for sixty (60) consecutive days, or is unable or shall have failed to perform the Services for a total period of ninety (90) within a twelve (12) month period, regardless of whether such days are consecutive.  If COMPANY suspends compensation payments because of EMPLOYEE's Disability, COMPANY shall resume compensation payments when EMPLOYEE resumes performance of the Services.  If COMPANY elects to terminate this Agreement due to EMPLOYEE's Disability, it must first give EMPLOYEE three (3) days advance written notice.

4.1.3    Discontinuance Of Business.  If COMPANY discontinues operating its business, this Agreement shall terminate as of the last day of the month on which COMPANY ceases its entire operations with the same effect as if that last date were originally established as termination date of this Agreement.

4.1.4  For Cause.  COMPANY may terminate this Agreement without advance notice for Cause.  For the purpose of this Agreement, "Cause" shall mean any failure to comply in any material respect with this Agreement or any Agreement incorporated herein; personal or professional misconduct by EMPLOYEE (including, but not limited to, criminal activity or gross or willful neglect of duty); breach of EMPLOYEE's fiduciary duty to the COMPANY; conduct which threatens public health or safety, or threatens to do immediate or substantial harm to COMPANY's business or reputation; or any other misconduct, deficiency, failure of performance, breach or default, reasonably capable of being remedied or corrected by EMPLOYEE.  To the extent that a breach pursuant to this Section 4.1.4 is curable by EMPLOYEE without harm to COMPANY and/or it's reputation, COMPANY shall, instead of immediately terminating EMPLOYEE pursuant to this Agreement, provide EMPLOYEE with notice of such breach, specifying the actions required to cure such breach, and EMPLOYEE shall have ten (10) days to cure such breach by performing the actions so specified.  If EMPLOYEE fails to cure such breach within the ten (10) day period, COMPANY may terminate this Agreement without further notice.  COMPANY's exercise of its right to terminate under this section shall be without prejudice to any other remedy to which COMPANY may be entitled at law, in equity, or under this Agreement.

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4.1.5.   For Convenience Of Party.  This Agreement and employment relationship is terminable by either party, for convenience, with or without cause, at any time upon thirty (30) days' advance written notice to the other party.

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

(i)         the sale, lease or other disposition of all or substantially all of  Company's assets to a single purchaser or group of related purchasers;

(ii)        the sale, lease or other disposition, in one transaction or a series of related transactions of the majority of COMPANY's outstanding capital stock; or,

(iii)       the merger or consolidation of COMPANY into or with another corporation in which the stockholders of COMPANY shall own less than fifty (50%) percent of the voting securities of the surviving corporation (all of which events shall be referred to as a Change in Control).

4.2       EMPLOYEE's Rights Upon Termination

4.2.1    Death.  Upon termination of this Agreement because of death of EMPLOYEE pursuant to Section 4.1.1 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's death.

4.2.2    Disability.   Upon termination of this Agreement because of Disability of EMPLOYEE pursuant to Sections 4.1.2 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's termination due to Disability.

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4.2.3    Discontinuance Of Business.  Upon termination of this Agreement because of discontinuation of COMPANY's business pursuant to Section 4.1.3, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of termination of this Agreement.

4.2.4    Termination With Cause.  Upon termination of EMPLOYEE's employment for Cause pursuant to Section 4.1.4, COMPANY  shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.  Any compensation and reimbursable expenses owed to EMPLOYEE by COMPANY through the termination date, less applicable withholdings; and

ii.  Severance compensation as provided for in COMPANY's Severance Policy, if any, less applicable withholdings.

4.2.5    Termination Without Cause.  Upon termination of EMPLOYEE's employment by COMPANY without cause pursuant to Section 4.1.5, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.          Any compensation and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings;

ii.          Severance compensation totaling three- (3) month's base pay, plus one (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. " 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. " 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. " 623, et. seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. " 2101, et. seq., and the California Fair Employment and Housing Act, Cal. Gov't Code " 12940, et seq. EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled under COMPANY's policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

4.2.6    Termination Due to Change Of Control.   If employment is terminated within twelve (12) months upon any of the events delineated in Section 4.1.6 of this Agreement ("Change of Control"), COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

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i.   Any compensation and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings;

ii.  A pro-rated share of the cash incentive bonus that would be due to EMPLOYEE if EMPLOYEE had remained employed with COMPANY through the last day of the fiscal year for which the cash incentive bonus is calculated, less applicable withholdings; and

iii.  Severance compensation totaling twelve (12) months base pay, plus one (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

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Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled under COMPANY's policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

5.         REPRESENTATIONS AND WARRANTIES

5.1  Representations of EMPLOYEE.  EMPLOYEE represents and warrants that EMPLOYEE has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, EMPLOYEE will not violate or interfere with the rights of any other person or entity; and that EMPLOYEE is not subject to any contract, understanding or obligation that will or might prevent, interfere with or impair the performance of this Agreement by EMPLOYEE.  EMPLOYEE shall indemnify and hold COMPANY harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys' fees and court costs) resulting from or arising out of any claim or action based upon EMPLOYEE's entering into this Agreement.

5.2  Representations of COMPANY.  COMPANY represents and warrants that it has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement.  All corporate and other actions required to be taken by COMPANY to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken.  This Agreement is the lawful, valid and legally binding obligation of COMPANY enforceable in accordance with its terms.

5.3  Materiality of Representations.  The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto.

6.         COVENANTS

6.1  Nondisclosure and Invention Assignment.  EMPLOYEE acknowledges that, as a result of performing the Services, EMPLOYEE shall have access to confidential and sensitive information concerning COMPANY's business including, but not limited to, their business operations, sales and marketing data, and manufacturing processes.  EMPLOYEE also acknowledges that in the course of performing the Services, EMPLOYEE may develop new product ideas or inventions as a result of COMPANY's information.  Accordingly, to preserve COMPANY's confidential information and to assure it the full benefit of that information, EMPLOYEE shall, as a condition of employment with COMPANY, execute COMPANY's standard form of Employee Confidentiality Agreement attached hereto as Exhibit A, and execute updated versions of the Employee Confidentiality Agreement as it may be modified from time to time by COMPANY and as may be required of similarly-situated executives of COMPANY.  The Employee Confidentiality Agreement is incorporated herein by this reference.  EMPLOYEE's obligations under the Employee Confidentiality Agreement continue beyond the termination of this Agreement.

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6.2  Covenant Not to Compete.  In addition to the provisions of the Employee Confidentiality Agreement, EMPLOYEE shall abide by the following covenant not to compete if COMPANY, at its option upon the termination of this Agreement (regardless of the reason for the termination), exercises this Covenant Not to Compete.  COMPANY shall notify EMPLOYEE within ten (10) days of termination of this Agreement of its intention to exercise this option and make an additional payment to EMPLOYEE of six (6) months' base pay determined at EMPLOYEE's last rate of pay with COMPANY.  EMPLOYEE agrees that for a period of one (1) year following the termination of this Agreement, he shall not directly or indirectly for EMPLOYEE, or as a member of a partnership, or as an officer, director, stockholder, employee, or representative of any other entity or individual, engage, directly or indirectly, in any business activity which is the same or similar to work engaged in by EMPLOYEE on behalf of COMPANY within the same geographic territory as EMPLOYEE's work for COMPANY and which is directly competitive with the business conducted or to EMPLOYEE's knowledge, contemplated by COMPANY at the time of termination of this Agreement, as defined in the Employee Confidentiality Agreement incorporated into this Agreement by reference.  EMPLOYEE may accept employment with an entity competing with COMPANY only if the business of that entity is diversified and EMPLOYEE is employed solely with respect to a separately-managed and separately-operated part of that entity's business that does not compete with COMPANY.  Prior to accepting such employment, EMPLOYEE and the prospective employer entity shall provide COMPANY with written assurances reasonably satisfactory to COMPANY that EMPLOYEE will not render services directly or indirectly to any part of that entity's business that competes with the business of COMPANY.

6.3  Covenant to Deliver Records.  All memoranda, notes, records and other documents made or compiled by EMPLOYEE, or made available to EMPLOYEE during the term of this Agreement concerning the business of COMPANY, shall be and remain COMPANY's property and shall be delivered to COMPANY upon the termination of this Agreement or at any other time on request. 

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6.4  Covenant Not To Recruit.  EMPLOYEE shall not, during the term of this Agreement and for a period of one (1) year following termination of this Agreement, directly or indirectly, either on EMPLOYEE's own behalf, or on behalf of any other individual or entity, solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee associated with COMPANY to become affiliated with him or any other individual or entity. 

7.         CERTAIN RIGHTS OF COMPANY

7.1  Announcement.  COMPANY shall have the right to make public announcements concerning the execution of this Agreement and certain terms thereof. 

7.2  Use of Name, Likeness and Biography.  COMPANY shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of EMPLOYEE to advertise, publicize and promote the business of COMPANY and its affiliates, but not for the purposes of direct endorsement without EMPLOYEE's consent.  An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of EMPLOYEE, or any biographical information or life story concerning the professional career of EMPLOYEE. 

7.3  Right to Insure.  COMPANY shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering EMPLOYEE, and EMPLOYEE shall have no right, title or interest in and to such insurance.  EMPLOYEE shall assist COMPANY in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance.

8.         ASSIGNMENT

Neither party may assign or otherwise dispose of its rights or obligations under this Agreement without the prior written consent of the other party except as provided in this Section.  COMPANY may assign and transfer this Agreement, or its interest in this Agreement, to any affiliate of COMPANY or to any entity that is a party to a merger, reorganization, or consolidation with COMPANY, or to a subsidiary of COMPANY, or to any entity that acquires substantially all of the assets of COMPANY or of any division with respect to which EMPLOYEE is providing services (providing such assignee assumes COMPANY's obligations under this Agreement).  EMPLOYEE shall, if requested by COMPANY, perform EMPLOYEE's duties and Services, as specified in this Agreement, for the benefit of any subsidiary or other affiliate of COMPANY.  Upon assignment, acquisition, merger, consolidation or reorganization, the term "COMPANY" as used herein shall be deemed to refer to such assignee or successor entity.  EMPLOYEE shall not have the right to assign EMPLOYEE's interest in this Agreement, any rights under this Agreement, or any duties imposed under this Agreement, nor shall EMPLOYEE or his spouse, heirs, beneficiaries, executors or administrators have the right to pledge, hypothecate or otherwise encumber EMPLOYEE's right to receive compensation hereunder without the express written consent of COMPANY.  

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9.         RESOLUTION OF DISPUTES

In the event of any dispute arising out of or in connection with this Agreement or in any way relating to the employment of EMPLOYEE which leads to the filing of a lawsuit, the parties agree that venue and jurisdiction shall be in Santa Barbara County, California.  The prevailing party in any such litigation shall be entitled to an award of costs and reasonable attorneys' fees to be paid by the losing party.

10.       GENERAL PROVISIONS

10.1  Notices.  Notice under this Agreement shall be sufficient only if personally delivered by a major commercial paid delivery courier service or mailed by certified or registered mail (return receipt requested and postage pre-paid) to the other party at its address set forth in the signature block below or to such other address as may be designated by either party in writing.  If not received sooner, notices by mail shall be deemed received five (5) days after deposit in the United States mail.

10.2  Agreement Controls.  Unless otherwise provided for in this Agreement, the COMPANY's policies, procedures and practices shall govern the relationship between EMPLOYEE and COMPANY.  If, however, any of COMPANY's policies, procedures and/or practices conflict with this Agreement (together with any amendments hereto), this Agreement (and any amendments hereto) shall control.

10.3  Amendment and Waiver.  Any provision of this Agreement may be amended or modified and the observance of any provision may be waived (either retroactively or prospectively) only by written consent of the parties.  Either party's failure to enforce any provision of this Agreement shall not be construed as a waiver of that party's right to enforce such provision.

10.4  Governing Law.  This Agreement and the performance hereunder shall be interpreted under the substantive laws of the State of California.

10.5  Force Majeure.  Either party shall be temporarily excused from performing under this Agreement if any force majeure or other occurrence beyond the reasonable control of either party makes such performance impossible, except a Disability as defined in this Agreement, provided that the party subject to the force majeure provides notice of such force majeure at the first reasonable opportunity.  Under such circumstances, performance under this Agreement which related to the delay shall be suspended for the duration of the delay provided the delayed party shall resume performance of its obligations with due diligence once the delaying event subsides.  In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension.

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10.6  Remedies.  EMPLOYEE acknowledges that because of the nature of COMPANY's business, and the fact that the services to be performed by EMPLOYEE pursuant to this Agreement are of a special, unique, unusual, extraordinary, and intellectual character which give them a peculiar value, a breach of this Agreement shall cause substantial injury to COMPANY for which money damages cannot reasonably be ascertained and for which money damages would be inadequate.  EMPLOYEE therefore agrees that COMPANY shall have the right to obtain injunctive relief, including the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, in addition to any other remedies that COMPANY may have.

10.7  Severability.  If any term, provision, covenant, paragraph, or condition of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so this Agreement shall otherwise remain enforceable in full force and effect.

10.8  Construction.  Headings and captions are only for convenience and shall not affect the construction or interpretation of this Agreement.  Whenever the context requires, words, used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine, or neuter gender.

10.9  Counterpart Copies.  This Agreement may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

10.10 No Adverse Construction.  The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms hereof. 

10.11 Entire Agreement.  With respect to its subject matter, namely, the employment by COMPANY of EMPLOYEE, this Agreement (including the documents expressly incorporated therein, such as the Employee Confidentiality Agreement), contains the entire understanding between the parties, and supersedes any prior agreements, understandings, and communications between the parties, whether oral, written, implied or otherwise, including, but not limited to, the original offer of employment letter.

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

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

BOBBY PURKAIT	MENTOR CORPORATION
/S/BOBBY PURKAIT	By/s/JOSH LEVINE
	Josh Levine
	President and Chief Executive Officer
NOTICE ADDRESS:	NOTICE ADDRESS:
2995 E. Valley Road	201 Mentor Drive
Santa Barbara, California 93108	Santa Barbara, California 93111

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ATTACHMENT A

INCENTIVE BONUS

TARGET MILESTONES
Activities	Performance Indicators/Results	Estimated Completion Date	Value
Submit IND (if existing data is acceptable to FDA)	Verification of shipping of documents	October 31, 2004	$50,000.
Enroll first patient in Phase 1 Dosing Study	Letter from enrolling clinician or CRO	November 30, 2004	$25,000.
Commission facility	Production facility ready for full validation and in compliance with all government requirements	November 30, 2004	$40,000.
Validation (IQ/OQ)	Completion report from audit	December 31, 2004	$30,000.
Complete Phase 1 Dosing Study	Letter from CRO verifying last patient enrolled	March 31, 2005	$30,000.
Initiate Phase 2 Dosing Study	Initiation letter from CRO	May 31, 2005	$30,000.
TOTAL:			$205,000.

Over-Achievement Bonus
Activities	Performance Indicators/Results	Required Completion Date	Value
Over-achievement	All milestones fully completed by May 31, 2005	May, 31, 2005	$30,000.
TOTAL:			$30,000.

MAXIMUM BONUS OPPORTUNITY,
INCLUDING OVER-ACHIEVEMENT:                                                  $235,000.

/s/JOSH LEVINE                                                                                  7/23/04
Josh Levine, President/CEO                                                                    Date

/s/BOBBY PURKAIT                                                                            7/27/04
Bobby Purkait, Senior Vice President                                                       Date

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EX-10.3

EMPLOYMENT AGREEMENT

This Employment Agreement, dated for reference purposes as of August 5, 2004, is between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111 and ADEL MICHAEL ("EMPLOYEE") of 381 Kingswood Lane, Danville, California, 94506.

RECITALS

COMPANY is in the business of manufacturing and selling medical devices and related products. EMPLOYEE has experience in this business and possesses valuable skills and experience, which will be used in advancing COMPANY's interests. EMPLOYEE is willing to be engaged by COMPANY and COMPANY is willing to engage EMPLOYEE, upon the terms and conditions set forth in this Agreement.

AGREEMENT

EMPLOYEE and COMPANY, intending to be legally bound, agree as follows:

1.         SERVICES

1.1       General Services.

1.1.1  COMPANY shall employ EMPLOYEE as Vice Chairman of the Board of Directors of COMPANY , responsible for mergers, acquisitions, legal structures, negotiations, and special projects.  EMPLOYEE shall remain an executive employee of the COMPANY during the term of the Agreement.  EMPLOYEE shall perform the duties as needed by COMPANY and at the direction of the Board of Directors.  These duties shall include, but are not limited to, consultation on issues of strategic importance to the Board of Directors and shareholders; special projects assigned by the Board of Directors; and, as requested, addressing issues of strategic importance to COMPANY's general operations.  To the extent that they do not reduce the scope of the responsibilities described above, EMPLOYEE's duties may change from time to time on reasonable notice, based on the needs of COMPANY and EMPLOYEE's skills as determined by COMPANY.  These duties shall hereinafter be referred to as "Services."  EMPLOYEE shall report directly to the Board of Directors for Mentor Corporation. 

1.1.2  In the event that EMPLOYEE shall from time to time serve COMPANY in any other office during the term of this Agreement, EMPLOYEE shall serve in such capacity without further compensation. 

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1.1.3.  EMPLOYEE shall devote his entire working time, attention, and energies to the business of COMPANY, and shall not, during the term of this Agreement, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Board of Directors of COMPANY.  This shall not be construed as preventing EMPLOYEE from investing his assets in a form or manner that does not require any services on the part of EMPLOYEE in the operation or affairs of the entities in which such investments are made, or from engaging in such civic, charitable, religious, or political activities that do not interfere with the performance of EMPLOYEE's duties hereunder. 

1.2       Best Abilities.  EMPLOYEE shall serve COMPANY faithfully and to the best of EMPLOYEE's ability.  EMPLOYEE shall use EMPLOYEE's best abilities to perform the Services.  EMPLOYEE shall act at all times according to what EMPLOYEE reasonably believes is in the best interests of COMPANY.

1.3       Corporate Authority.  EMPLOYEE, as an executive officer, shall comply with all laws and regulations applicable to EMPLOYEE as a result of this Agreement including, but not limited to, the Securities Act of 1933 and Securities Act of 1934.  Prior to the execution of this Agreement, EMPLOYEE has received and reviewed COMPANY's Policies and Procedures and COMPANY's Employee Handbook.  EMPLOYEE shall comply with COMPANY's Policies and Procedures, and practices now in effect or as later amended or adopted by COMPANY, as required of similarly-situated executives of COMPANY.

2.         TERM

This Agreement shall be effective as of July 1, 2004 ("Effective Date") and shall continue for a period of one (1) year thereafter ("Initial Term"), or until terminated as provided in Section 4 of this Agreement.  Following the expiration of the Initial Term, this Agreement may be renewed, at the sole discretion of the Board of Directors of the COMPANY, for additional one (1) year periods (each, respectively, "Renewal Term"). 

3.         COMPENSATION AND BENEFITS

3.1  Compensation.  EMPLOYEE's total compensation consists of base salary, bonus potential, continued exercisability and vesting of stock options previously granted, and medical and other benefits generally provided to employees of COMPANY.  Any compensation paid to EMPLOYEE shall be pursuant to COMPANY's policies and practices for exempt employees and shall be subject to all applicable laws and requirements regarding the withholding of federal, state and/or local taxes.  Compensation provided in this Agreement is full payment for Services and EMPLOYEE shall receive no additional compensation for extraordinary services unless otherwise authorized.  EMPLOYEE's entire compensation package will be reviewed annually by the Compensation Committee of the Board of Directors, a practice which is consistent with COMPANY's Executive Compensation Program.

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3.1.1  Base Compensation.  COMPANY agrees to pay EMPLOYEE an annualized base salary of Three Hundred Seventy-Five Thousand Dollars ($375,000.00), less applicable withholdings, payable in equal installments no less frequently than semi-monthly. 

3.1.2  Individualized Performance Bonus.  EMPLOYEE shall be eligible to receive a bonus in an amount equivalent to up to twice EMPLOYEE's base compensation, which such bonus shall be payable only in the event of and upon EMPLOYEE's achievement of certain criteria and strategic objectives, which shall be agreed upon between EMPLOYEE and the Board of Directors of the COMPANY.

3.1.3     EMPLOYEE shall not be eligible for the COMPANY's Cash Incentive Bonus program, nor shall EMPLOYEE be granted any additional options for COMPANY's stock.

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

3.3   Additional Benefits.  COMPANY shall provide EMPLOYEE those additional benefits normally granted by COMPANY to its employees subject to eligibility requirements applicable to each benefit.  COMPANY has no obligation to provide any other benefits unless provided for in this Agreement.  Currently COMPANY provides major medical, dental, life, salary continuation, long term disability benefits and eligibility to participate in COMPANY's 401(k) plan.

3.4   Vacation.  EMPLOYEE shall accrue vacation equal to twenty (20) days per year, at the rate of approximately 1.67 days per month.  The time or times for such vacation shall be selected by EMPLOYEE and approved by the Board of Directors of COMPANY.

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3.5   Automobile Expense.  COMPANY will permit EMPLOYEE to select a business automobile (four-door sedan) for lease by COMPANY for which COMPANY will make lease payments of up to Twelve Hundred Fifty Dollars ($1,250.00) per month.  COMPANY shall pay applicable taxes on the automobile and shall obtain motor vehicle insurance in an amount it deems reasonable in its sole discretion.  EMPLOYEE may obtain additional liability insurance at his own expense if he so chooses.

4.  TERMINATION

4.1   Circumstances Of Termination.  This Agreement and the employment relationship between COMPANY and EMPLOYEE may be terminated as follows:

4.1.1  Death.  This Agreement shall terminate upon EMPLOYEE's death, effective as of the date of EMPLOYEE's death.

4.1.2       Disability.  COMPANY may, at its option, either suspend compensation payments or terminate this Agreement due to EMPLOYEE's Disability if EMPLOYEE is incapable, even with reasonable accommodation by COMPANY, of performing the Services because of accident, injury, or physical or mental illness for sixty (60) consecutive days, or is unable or shall have failed to perform the Services for a total period of ninety (90) within a twelve (12) month period, regardless of whether such days are consecutive.  If COMPANY suspends compensation payments because of EMPLOYEE's Disability, COMPANY shall resume compensation payments when EMPLOYEE resumes performance of the Services.  If COMPANY elects to terminate this Agreement due to EMPLOYEE's Disability, it must first give EMPLOYEE three (3) days advance written notice.

4.1.3  Discontinuance Of Business.  If COMPANY discontinues operating its business, this Agreement shall terminate as of the last day of the month on which COMPANY ceases its entire operations with the same effect as if that last date were originally established as termination date of this Agreement.

4.1.4  For Cause.  COMPANY may terminate this Agreement without advance notice for Cause.  For the purpose of this Agreement, "Cause" shall mean any failure to comply in any material respect with this Agreement or any Agreement incorporated herein; personal or professional misconduct by EMPLOYEE (including, but not limited to, criminal activity or gross or willful neglect of duty); breach of EMPLOYEE's fiduciary duty to the COMPANY; conduct which threatens public health or safety, or threatens to do immediate or substantial harm to COMPANY's business or reputation; or any other misconduct, deficiency, failure of performance, breach or default, reasonably capable of being remedied or corrected by EMPLOYEE.  To the extent that a breach pursuant to this Section 4.1.4 is curable by EMPLOYEE without harm to COMPANY and/or it's reputation, COMPANY shall, instead of immediately terminating EMPLOYEE pursuant to this Agreement, provide EMPLOYEE with notice of such breach, specifying the actions required to cure such breach, and EMPLOYEE shall have ten (10) days to cure such breach by performing the actions so specified.  If EMPLOYEE fails to cure such breach within the ten (10) day period, COMPANY may terminate this Agreement without further notice.  COMPANY's exercise of its right to terminate under this section shall be without prejudice to any other remedy to which COMPANY may be entitled at law, in equity, or under this Agreement.

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4.1.5.     For Convenience of Party; Resignation by EMPLOYEE for Good Reason.  This Agreement and employment relationship is terminable by either party, for convenience, with or without cause, including but not limited to resignation by EMPLOYEE for Good Reason, at any time upon thirty (30) days' advance written notice to the other party. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following without EMPLOYEE's express written consent: (i) a significant reduction of EMPLOYEE's material duties, position, or responsibilities as provided in this Agreement, or the removal of EMPLOYEE from the position, duties, and responsibilities contemplated by this Agreement; (ii) a reduction in Base Compensation or Individualized Incentive Bonus other than a one-time reduction of not more than 10% that also is applied to substantially all other senior executives at the COMPANY; or (iii) a material reduction in EMPLOYEE's benefits as compared to the benefits in effect on the Effective Date.  If COMPANY terminates this Agreement for convenience prior to July 1, 2005, or if EMPLOYEE terminates this Agreement for Good Reason prior to said date, COMPANY shall pay EMPLOYEE the base compensation to which he would have been entitled if he had remained employed until July 1, 2005, less applicable withholdings.

4.1.6.     Change of Control.  If employment is terminated within twelve months after any of the following events, EMPLOYEE shall be entitled to severance compensation pursuant to Section 4.2.5:

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(i)         the sale, lease or other disposition of all or substantially all of COMPANY's assets to a single purchaser or group of related purchasers;

(ii)        the sale, lease or other disposition, in one transaction or a series of related transactions of the majority of COMPANY's outstanding capital stock; or,

(iii)       the merger or consolidation of COMPANY into or with another corporation in which the stockholders of COMPANY shall own less than fifty (50%) percent of the voting securities of the surviving corporation (all of which events shall be referred to as a Change in Control).

4.2       EMPLOYEE's Rights Upon Termination

4.2.1   Death.  Upon termination of this Agreement because of death of EMPLOYEE pursuant to Section 4.1.1 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's death.

4.2.2   Disability.   Upon termination of this Agreement because of Disability of EMPLOYEE pursuant to Sections 4.1.2 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's termination due to Disability.

4.2.3   Discontinuance Of Business.  Upon termination of this Agreement because of discontinuation of COMPANY's business pursuant to Section 4.1.3, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of termination of this Agreement. 

4.2.4  Termination With Cause.  Upon termination of EMPLOYEE's employment for Cause pursuant to Section 4.1.4, COMPANY  shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

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i.  Any compensation and reimbursable expenses owed to EMPLOYEE by COMPANY through the termination date, less applicable withholdings; and

ii.  Severance compensation as provided for in COMPANY's Severance Policy, if any, less applicable withholdings.

4.2.5  Termination Without Cause; Resignation for Good Reason.  In the event that, pursuant to Section 4.1.5, (i) COMPANY terminates EMPLOYEE's employment without cause during the Initial Term or during any Renewal Term, (ii) COMPANY does not elect to renew this Agreement after the Initial Term or after any Renewal Term, or (iii) EMPLOYEE terminates this Agreement at any time for Good Reason, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.  Any compensation then due EMPLOYEE in accordance with Sections 3.1.1 and/or 3.1.2, and any reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings;

ii.  Severance compensation totaling twenty-four (24) months base pay as provided in Section 3.1.1.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled under COMPANY's policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

iii.  In the event such termination by COMPANY without cause, non-renewal of Agreement without cause, or resignation by EMPLOYEE for Good Cause pursuant to Section 4.1.5  occurs within four (4) years following the Effective Date,  EMPLOYEE shall continue to be eligible for the benefits provided for in Section 3.3, and any unvested and unexpired COMPANY stock options previously granted to EMPLOYEE shall continue to vest, until the expiration of such four-year period following the Effective Date.  Company shall be entitled to determine, in its sole discretion, the method by which such benefits and options vesting shall continue, including but not limited to the possibility of continuing to retain EMPLOYEE on the Board of Directors of the Company, or entering into a consulting agreement with EMPLOYEE, during such remaining period.

4.2.6  Termination resulting from Change of Control.  In the event COMPANY terminates EMPLOYEE's following Change of Control in accordance with to Section 4.1.6, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

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i.   Any compensation then due EMPLOYEE in accordance with Sections 3.1.1 and/or 3.1.2, and any reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings;

ii.  Severance compensation totaling twenty-four (24) months base pay as provided in Section 3.1.1.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

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Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled under COMPANY's policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

iii.  In the event such termination resulting from Change of Control pursuant to Section 4.1.6 occurs within four (4) years following the Effective Date, EMPLOYEE shall continue to be eligible for the benefits provided for in Section 3.3 until the expiration of such four-year period following the Effective Date.  Company shall be entitled to determine, in its sole discretion, the method by which such benefits shall continue, including but not limited to the possibility of continuing to retain EMPLOYEE on the Board of Directors of the Company, or entering into a consulting agreement with EMPLOYEE, during such remaining period. 

4.3      Resignation From Board.  Upon termination of this Agreement, EMPLOYEE shall immediately submit his written resignation from any Board positions to which he has been appointed or elected. 

5.         REPRESENTATIONS AND WARRANTIES

5.1  Representations of EMPLOYEE.  EMPLOYEE represents and warrants that EMPLOYEE has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, EMPLOYEE will not violate or interfere with the rights of any other person or entity; and that EMPLOYEE is not subject to any contract, understanding or obligation that will or might prevent, interfere with or impair the performance of this Agreement by EMPLOYEE.  EMPLOYEE shall indemnify and hold COMPANY harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys' fees and court costs) resulting from or arising out of any claim or action based upon EMPLOYEE's entering into this Agreement.

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5.2  Representations of COMPANY.  COMPANY represents and warrants that it has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement.  All corporate and other actions required to be taken by COMPANY to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken.  This Agreement is the lawful, valid and legally binding obligation of COMPANY enforceable in accordance with its terms.

5.3  Materiality of Representations.  The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto.

6.         COVENANTS

6.1  Nondisclosure and Invention Assignment.  EMPLOYEE acknowledges that, as a result of performing the Services, EMPLOYEE shall have access to confidential and sensitive information concerning COMPANY's business including, but not limited to, their business operations, sales and marketing data, and manufacturing processes.  EMPLOYEE also acknowledges that in the course of performing the Services, EMPLOYEE may develop new product ideas or inventions as a result of COMPANY's information.  Accordingly, to preserve COMPANY's confidential information and to assure it the full benefit of that information, EMPLOYEE shall, as a condition of employment with COMPANY, execute COMPANY's standard form of Employee Confidentiality Agreement attached hereto as Exhibit A, and execute updated versions of the Employee Confidentiality Agreement as it may be modified from time to time by COMPANY and as may be required of similarly-situated executives of COMPANY.  The Employee Confidentiality Agreement is incorporated herein by this reference.  EMPLOYEE's obligations under the Employee Confidentiality Agreement continue beyond the termination of this Agreement.

6.2  Covenant Not to Compete.  In addition to the provisions of the Employee Confidentiality Agreement, EMPLOYEE shall abide by the following covenant not to compete if COMPANY, at its option upon the termination of this Agreement (regardless of the reason for the termination), exercises this Covenant Not to Compete.  COMPANY shall notify EMPLOYEE within ten (10) days of termination of this Agreement of its intention to exercise this option and make an additional payment to EMPLOYEE  of six (6) months' base pay determined at EMPLOYEE's last rate of pay with COMPANY.  EMPLOYEE agrees that for a period of one (1) year following the termination of this Agreement, he shall not directly or indirectly for EMPLOYEE, or as a member of a partnership, or as an officer, director, stockholder, employee, or representative of any other entity or individual, engage, directly or indirectly, in any business activity which is the same or similar to work engaged in by EMPLOYEE on behalf of COMPANY within the same geographic territory as EMPLOYEE's work for COMPANY and which is directly competitive with the business conducted or to EMPLOYEE's knowledge, contemplated by COMPANY at the time of termination of this Agreement, as defined in the Employee Confidentiality Agreement incorporated into this Agreement by reference.  EMPLOYEE may accept employment with an entity competing with COMPANY only if the business of that entity is diversified and EMPLOYEE is employed solely with respect to a separately-managed and separately-operated part of that entity's business that does not compete with COMPANY.  Prior to accepting such employment, EMPLOYEE and the prospective employer entity shall provide COMPANY with written assurances reasonably satisfactory to COMPANY that EMPLOYEE will not render services directly or indirectly to any part of that entity's business that competes with the business of COMPANY.

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6.3  Covenant to Deliver Records.  All memoranda, notes, records and other documents made or compiled by EMPLOYEE, or made available to EMPLOYEE during the term of this Agreement concerning the business of COMPANY, shall be and remain COMPANY's property and shall be delivered to COMPANY upon the termination of this Agreement or at any other time on request. 

6.4  Covenant Not To Recruit.  EMPLOYEE shall not, during the term of this Agreement and for a period of one (1) year following termination of this Agreement, directly or indirectly, either on EMPLOYEE's own behalf, or on behalf of any other individual or entity, solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee associated with COMPANY to become affiliated with him or any other individual or entity. 

7.         CERTAIN RIGHTS OF COMPANY

7.1  Announcement.  COMPANY shall have the right to make public announcements concerning the execution of this Agreement and certain terms thereof. 

7.2  Use of Name, Likeness and Biography.  COMPANY shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of EMPLOYEE to advertise, publicize and promote the business of COMPANY and its affiliates, but not for the purposes of direct endorsement without EMPLOYEE's consent.  An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of EMPLOYEE, or any biographical information or life story concerning the professional career of EMPLOYEE. 

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7.3  Right to Insure.  COMPANY shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering EMPLOYEE, and EMPLOYEE shall have no right, title or interest in and to such insurance.  EMPLOYEE shall assist COMPANY in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance.

8.         ASSIGNMENT

Neither party may assign or otherwise dispose of its rights or obligations under this Agreement without the prior written consent of the other party except as provided in this Section.  COMPANY may assign and transfer this Agreement, or its interest in this Agreement, to any affiliate of COMPANY or to any entity that is a party to a merger, reorganization, or consolidation with COMPANY, or to a subsidiary of COMPANY, or to any entity that acquires substantially all of the assets of COMPANY or of any division with respect to which EMPLOYEE is providing services (providing such assignee assumes COMPANY's obligations under this Agreement).  EMPLOYEE shall, if requested by COMPANY, perform EMPLOYEE's duties and Services, as specified in this Agreement, for the benefit of any subsidiary or other affiliate of COMPANY.  Upon assignment, acquisition, merger, consolidation or reorganization, the term "COMPANY" as used herein shall be deemed to refer to such assignee or successor entity.  EMPLOYEE shall not have the right to assign EMPLOYEE's interest in this Agreement, any rights under this Agreement, or any duties imposed under this Agreement, nor shall EMPLOYEE or his spouse, heirs, beneficiaries, executors or administrators have the right to pledge, hypothecate or otherwise encumber EMPLOYEE's right to receive compensation hereunder without the express written consent of COMPANY.  

9.         RESOLUTION OF DISPUTES

In the event of any dispute arising out of or in connection with this Agreement or in any way relating to the employment of EMPLOYEE which leads to the filing of a lawsuit, the parties agree that venue and jurisdiction shall be in Santa Barbara County, California.  The prevailing party in any such litigation shall be entitled to an award of costs and reasonable attorneys' fees to be paid by the losing party.

10.       GENERAL PROVISIONS

10.1  Notices.  Notice under this Agreement shall be sufficient only if personally delivered by a major commercial paid delivery courier service or mailed by certified or registered mail (return receipt requested and postage pre-paid) to the other party at its address set forth in the signature block below or to such other address as may be designated by either party in writing.  If not received sooner, notices by mail shall be deemed received five (5) days after deposit in the United States mail.

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10.2  Agreement Controls.  Unless otherwise provided for in this Agreement, the COMPANY's policies, procedures and practices shall govern the relationship between EMPLOYEE and COMPANY.  If, however, any of COMPANY's policies, procedures and/or practices conflict with this Agreement (together with any amendments hereto), this Agreement (and any amendments hereto) shall control.

10.3  Amendment and Waiver.  Any provision of this Agreement may be amended or modified and the observance of any provision may be waived (either retroactively or prospectively) only by written consent of the parties.  Either party's failure to enforce any provision of this Agreement shall not be construed as a waiver of that party's right to enforce such provision.

10.4  Governing Law.  This Agreement and the performance hereunder shall be interpreted under the substantive laws of the State of California.

10.5  Force Majeure.  Either party shall be temporarily excused from performing under this Agreement if any force majeure or other occurrence beyond the reasonable control of either party makes such performance impossible, except a Disability as defined in this Agreement, provided that the party subject to the force majeure provides notice of such force majeure at the first reasonable opportunity.  Under such circumstances, performance under this Agreement which related to the delay shall be suspended for the duration of the delay provided the delayed party shall resume performance of its obligations with due diligence once the delaying event subsides.  In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension.

10.6  Remedies.  EMPLOYEE acknowledges that because of the nature of COMPANY's business, and the fact that the services to be performed by EMPLOYEE pursuant to this Agreement are of a special, unique, unusual, extraordinary, and intellectual character which give them a peculiar value, a breach of this Agreement shall cause substantial injury to COMPANY for which money damages cannot reasonably be ascertained and for which money damages would be inadequate.  EMPLOYEE therefore agrees that COMPANY shall have the right to obtain injunctive relief, including the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, in addition to any other remedies that COMPANY may have.

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10.7  Severability.  If any term, provision, covenant, paragraph, or condition of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so this Agreement shall otherwise remain enforceable in full force and effect.

10.8  Construction.  Headings and captions are only for convenience and shall not affect the construction or interpretation of this Agreement.  Whenever the context requires, words, used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine, or neuter gender.

10.9  Counterpart Copies.  This Agreement may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

10.10 No Adverse Construction.  The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms hereof. 

10.11 Entire Agreement.  With respect to its subject matter, namely, the employment by COMPANY of EMPLOYEE, this Agreement (including the documents expressly incorporated therein, such as the Employee Confidentiality Agreement), contains the entire understanding between the parties, and supersedes any prior agreements, understandings, and communications between the parties, whether oral, written, implied or otherwise, including, but not limited to, the offer of employment letter dated March 3, 2000 and the Employment Agreement dated April 1, 2000.

10.12 Assistance of Counsel.  EMPLOYEE expressly acknowledges that he was represented by counsel of his own choosing in connection with the negotiation and drafting of the terms of this Agreement. 

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

ADEL MICHAEL	MENTOR CORPORATION
/s/ Adel Michael	/s/ Christopher J. Conway
ADEL MICHAEL	Christopher J. Conway
	Chairman of the Board
NOTICE ADDRESS:	NOTICE ADDRESS:
381 Kingswood Lane	201 Mentor Drive
Danville, California 94506	Santa Barbara, California 93111

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EX-10.4

EMPLOYMENT AGREEMENT

This Employment Agreement, effective as of May 26, 2004, is by and between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111, and Joshua Levine ("EMPLOYEE") of 2677 Quail Valley Road, Solvang, California 93463.

RECITALS

COMPANY is in the business of manufacturing and selling medical devices and related products. EMPLOYEE has experience in this business and possesses valuable skills and experience, which will be used in advancing COMPANY's interests. EMPLOYEE is willing to be engaged by COMPANY and COMPANY is willing to engage EMPLOYEE in an executive capacity responsible for ALL EXECUTIVE, ADMINISTRATIVE AND OPERATIONAL functions of COMPANY, upon the terms and conditions set forth in this Agreement.

AGREEMENT

EMPLOYEE and COMPANY, intending to be legally bound, agree as follows:

1.         SERVICES

1.1       General Services.

1.1.1  Company shall employ EMPLOYEE as PRESIDENT AND CHIEF EXECUTIVE OF OPERATIONS. EMPLOYEE shall perform the duties customarily performed by one holding such position in a similar business as that engaged in by COMPANY.  To the extent that they do not reduce the scope of the responsibilities described above, EMPLOYEE's duties may change from time to time on reasonable notice, based on the needs of COMPANY and EMPLOYEE's skills as determined by COMPANY.  These duties shall hereinafter be referred to as "Services."  EMPLOYEE shall report directly to the Board of Directors of Mentor Corporation. 

1.1.2   In the event that EMPLOYEE shall from time to time serve COMPANY as a director or shall serve in any other office during the term of this Agreement; EMPLOYEE shall serve in such capacities without further compensation.

1.1.3.  EMPLOYEE shall devote his entire working time, attention, and energies to the business of COMPANY, and shall not, during the term of this Agreement, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Board of Directors of COMPANY.  This shall not be construed as preventing EMPLOYEE from investing his assets in a form or manner that does not require any services on the part of EMPLOYEE in the operation or affairs of the entities in which such investments are made, or from engaging in such civic, charitable, religious, or political activities that do not interfere with the performance of EMPLOYEE's duties hereunder. 

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1.2       Best Abilities.  EMPLOYEE shall serve COMPANY faithfully and to the best of EMPLOYEE's ability.  EMPLOYEE shall use EMPLOYEE's best abilities to perform the Services.  Employee shall act at all times according to what EMPLOYEE reasonably believes is in the best interests of COMPANY.

1.3       Corporate Authority.   EMPLOYEE, as an executive officer, shall comply with all laws and regulations applicable to EMPLOYEE as a result of this Agreement, including, but not limited to, the Securities Act of 1933 and Securities Act of 1934. Prior to the execution of this Agreement, EMPLOYEE has received and reviewed COMPANY's Policies and Procedures and COMPANY's Employee Handbook.  EMPLOYEE shall comply with COMPANY's Policies and Procedures, and practices now in effect or as later amended or adopted by COMPANY, as required of similarly-situated executives of COMPANY.

2.         TERM

This Agreement shall commence upon the execution of this Agreement and shall     continue until terminated as provided in Section 4 of this Agreement. 

3.         COMPENSATION AND BENEFITS

3.1  Compensation.  EMPLOYEE's total compensation consists of base salary, bonus potential, stock options, and medical and other benefits generally provided to employees of COMPANY.  Any compensation paid to EMPLOYEE shall be pursuant to COMPANY's policies and practices for exempt employees and shall be subject to all applicable laws and requirements regarding the withholding of federal, state and/or local taxes.  Compensation provided in this Agreement is full payment for Services and EMPLOYEE shall receive no additional compensation for extraordinary services unless otherwise authorized.  EMPLOYEE's entire compensation package will be reviewed annually by the Compensation Committee of the Board of Directors, a practice which is consistent with COMPANY's Executive Compensation Program.

3.1.1  Base Compensation.  COMPANY agrees to pay EMPLOYEE an annualized base salary of THREE HUNDRED EIGHTY-FIVE THOUSAND DOLLARS AND NO CENTS ($385,000.), less applicable withholdings, payable in equal installments no less frequently than semi-monthly. 

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3.1.2    Cash Incentive Bonus.  EMPLOYEE shall be eligible for a cash incentive bonus of up to SIXTY (60) Percent of EMPLOYEE's annual base salary, subject to applicable withholdings and subject to approval by COMPANY's Compensation Committee and Board of Directors.  Any cash incentive bonus shall accrue and become payable to EMPLOYEE only if EMPLOYEE is employed with COMPANY on the last day of the fiscal year for which the cash incentive bonus is calculated.

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

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

3.3   Additional Benefits.  COMPANY shall provide EMPLOYEE those additional benefits normally granted by COMPANY to its employees subject to eligibility requirements applicable to each benefit.  COMPANY has no obligation to provide any other benefits unless provided for in this Agreement. Currently COMPANY provides major medical, dental, life, salary continuation, long term disability benefits and eligibility to participate in COMPANY's 401(k) plan.

3.4   Vacation.  Employee shall accrue vacation equal to twenty (20) days per year, at the rate of approximately 1.67 days per month.  The time or times for such vacation shall be selected by EMPLOYEE and approved by the Board of Directors.

4.  TERMINATION

4.1   Circumstances Of Termination.  This Agreement and the employment relationship between COMPANY and EMPLOYEE may be terminated as follows:

4.1.1    Death.  This Agreement shall terminate upon EMPLOYEE's death, effective as of the date of EMPLOYEE's death.

4.1.2    Disability.  COMPANY may, at its option, either suspend compensation payments or terminate this Agreement due to EMPLOYEE's Disability if EMPLOYEE is incapable, even with reasonable accommodation by COMPANY, of performing the Services because of accident, injury, or physical or mental illness for ONE HUNDRED EIGHTY (180) consecutive days, or is unable or shall have failed to perform the Services for a total period of ONE HUNDRED EIGHTY (180) within a twelve (12) month period, regardless of whether such days are consecutive.  If COMPANY suspends compensation payments because of EMPLOYEE's Disability, COMPANY shall resume compensation payments when EMPLOYEE resumes performance of the Services.  If COMPANY elects to terminate this Agreement due to EMPLOYEE's Disability, it must first give EMPLOYEE TEN (10) WORKING days advance written notice.

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4.1.3    Discontinuance Of Business.  If COMPANY discontinues operating its business, this Agreement shall terminate as of the last day of the month on which COMPANY ceases its entire operations with the same effect as if that last date were originally established as termination date of this Agreement.

4.1.4    For Cause.  COMPANY may terminate this Agreement without advance notice for Cause.  For the purpose of this Agreement, "Cause" shall mean any failure to comply in any material respect with this Agreement or any Agreement incorporated herein; personal or    professional misconduct by EMPLOYEE (including, but not limited to, criminal activity or gross or willful neglect of duty); breach of  EMPLOYEE's fiduciary duty to the COMPANY; conduct which     threatens public health or safety, or threatens to do immediate or substantial harm to COMPANY's business or reputation; or any other misconduct, deficiency, failure of performance, breach or default, reasonably capable of being remedied or corrected by EMPLOYEE.  To the extent that a breach pursuant to this Section 4.1.4 is curable by EMPLOYEE without harm to COMPANY and/or it's reputation, COMPANY shall, instead of immediately terminating EMPLOYEE pursuant to this Agreement, provide   EMPLOYEE with notice of such breach, specifying the actions required to cure such breach, and EMPLOYEE shall have ten (10) days to cure such breach by performing the actions so specified.  If  EMPLOYEE fails to cure such breach within the ten (10) day period,  COMPANY may terminate this Agreement without further notice.  COMPANY's exercise of its right to terminate under this section      shall be without prejudice to any other remedy to which COMPANY may be entitled at law, in equity, or under this Agreement.

4.1.5.   For Convenience Of Party; Resignation by EMPLOYEE for Good Reason.  This Agreement and employment relationship is terminable by either party, for convenience, with or without cause, including but not limited to resignation by EMPLOYEE for Good Reason, at any time upon THIRTY (30) days' advance written notice to the other party. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following without EMPLOYEE's express written consent: (i) a significant reduction of EMPLOYEE's material duties, position,  or responsibilities as provided in this Agreement, or the removal of EMPLOYEE from the position, duties, and responsibilities contemplated by this Agreement; (ii) a reduction in Base Compensation or Cash Incentive Bonus other than a one-time reduction of not more than 10% that also is applied to substantially all other senior executives at the COMPANY; (iii) a material reduction in EMPLOYEE's benefits as compared to the benefits in effect on the Effective Date; (iv) EMPLOYEE must perform a substantial portion of his duties at a location other than at the COMPANY headquarters; or (v) COMPANY headquarters are relocated more than 50 miles from the current location in Santa Barbara, California.

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4.1.6.    Change of Control.  If employment is terminated within TWELVE (12) months after the occurrence of any of the events described as a Change of Control under the provisions of the Long-Term Incentive Plan as then defined at the time of such Change of Control,  EMPLOYEE shall be entitled to severance compensation pursuant to Section 4.2.6 (i) and (ii),  and (iii).

4.2       EMPLOYEE's Rights Upon Termination

4.2.1    Death.  Upon termination of this Agreement because of death of EMPLOYEE pursuant to Section 4.1.1 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's death.

4.2.2    Disability.   Upon termination of this Agreement because of Disability of EMPLOYEE pursuant to Sections 4.1.2 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's termination due to Disability.

4.2.3    Discontinuance Of Business.  Upon termination of this Agreement because of discontinuation of COMPANY's business pursuant to Section 4.1.3, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of termination of this Agreement.

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4.2.4    Termination With Cause.  Upon termination of EMPLOYEE's employment for Cause pursuant to Section 4.1.4, COMPANY  shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.  Any compensation and reimbursable expenses owed to EMPLOYEE by COMPANY through the termination date, less applicable withholdings; and

ii.  Severance compensation as provided for in COMPANY's Severance Policy, if any, less applicable withholdings.

4.2.5    Termination Without Cause; Resignation for Good Reason.  Upon termination of EMPLOYEE's employment by COMPANY without cause pursuant to Section 4.1.5, or if EMPLOYEE terminates this Agreement at any time for Good Reason, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1, and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.          Payment of full COBRA premium for TWELVE (12) months following termination.  Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

iii.         Severance compensation totaling TWENTY-FOUR- (24) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. " 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. " 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. " 623, et. seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. " 2101, et. seq., and the California Fair Employment and Housing Act, Cal. Gov't Code " 12940, et seq. EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, under either any other provision to this Agreement or any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

4.2.6    Termination Due to Change Of Control.   If employment is terminated within TWELVE (12) months AFTER any of the events delineated in Section 4.1.6 of this Agreement ("Change of Control"), COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

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i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1, and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.         A pro-rated share of the Cash Incentive Bonus that would be due to EMPLOYEE if EMPLOYEE had remained employed with COMPANY through the last day of the fiscal year for which the cash incentive bonus is calculated, less applicable withholdings and/or any other applicable bonus or compensation program as approved by the Board of Directors; and

iii.         Any options awarded and pursuant to the Long-Term Incentive Plan applicable to EMPLOYEE's option award(s); and

iv.         Payment of full COBRA premium for TWELVE (12) months following termination. Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

v.         Severance compensation totaling TWENTY-FOUR (24) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is   releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law  principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and  adequate consideration for this Release.  EMPLOYEE  further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, either under any provision to this Agreement or  any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of  EMPLOYEE's employment and in one lump sum payment  at the date of termination, less applicable withholdings.

5.         REPRESENTATIONS AND WARRANTIES

5.1  Representations of EMPLOYEE.  EMPLOYEE represents and warrants that EMPLOYEE has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, EMPLOYEE will not violate or interfere with the rights of any other person or entity; and that EMPLOYEE is not subject to any contract, understanding or obligation that will or might prevent, interfere with or impair the performance of this Agreement by EMPLOYEE.  EMPLOYEE shall indemnify and hold COMPANY harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys' fees and court costs) resulting from or arising out of any claim or action based upon EMPLOYEE's entering into this Agreement.

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5.2  Representations of COMPANY.  COMPANY represents and warrants that it has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement.  All corporate and other actions required to be taken by COMPANY to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken.  This Agreement is the lawful, valid and legally binding obligation of COMPANY enforceable in accordance with its terms.

5.3  Materiality of Representations.  The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto.

6.         COVENANTS

6.1  Nondisclosure and Invention Assignment.  EMPLOYEE acknowledges that, as a result of performing the Services, EMPLOYEE shall have access to confidential and sensitive information concerning COMPANY's business including, but not limited to, their business operations, sales and marketing data, and manufacturing processes.  EMPLOYEE also acknowledges that in the course of performing the Services, EMPLOYEE may develop new product ideas or inventions as a result of COMPANY's information.  Accordingly, to preserve COMPANY's confidential information and to assure it the full benefit of that information, EMPLOYEE shall, as a condition of employment with COMPANY, execute COMPANY's standard form of Employee Confidentiality Agreement attached hereto as Exhibit A, and execute updated versions of the Employee Confidentiality Agreement as it may be modified from time to time by COMPANY and as may be required of similarly-situated executives of COMPANY.  The Employee Confidentiality Agreement is incorporated herein by this reference.  EMPLOYEE's obligations under the Employee Confidentiality Agreement continue beyond the termination of this Agreement.

6.2  Covenant Not to Compete.  In addition to the provisions of the Employee Confidentiality Agreement, EMPLOYEE shall abide by the following covenant not to compete if COMPANY, at its option upon the termination of this Agreement (regardless of the reason for the termination), exercises this Covenant Not to Compete.  COMPANY shall notify EMPLOYEE within ten (10) days of termination of this Agreement of its intention to exercise this option and make an additional payment to EMPLOYEE of six (6) months' base pay determined at EMPLOYEE's last rate of pay with COMPANY.  EMPLOYEE agrees that for a period of one (1) year following the termination of this Agreement, he shall not directly or indirectly for EMPLOYEE, or as a member of a partnership, or as an officer, director, stockholder, employee, or representative of any other entity or individual, engage, directly or indirectly, in any business activity which is the same or similar to work engaged in by EMPLOYEE on behalf of COMPANY within the same geographic territory as EMPLOYEE's work for COMPANY and which is directly competitive with the business conducted or to EMPLOYEE's knowledge, contemplated by COMPANY at the time of termination of this Agreement, as defined in the Employee Confidentiality Agreement incorporated into this Agreement by reference.  EMPLOYEE may accept employment with an entity competing with COMPANY only if the business of that entity is diversified and EMPLOYEE is employed solely with respect to a separately-managed and separately-operated part of that entity's business that does not compete with COMPANY.  Prior to accepting such employment, EMPLOYEE and the prospective employer entity shall provide COMPANY with written assurances reasonably satisfactory to COMPANY that EMPLOYEE will not render services directly or indirectly to any part of that entity's business that competes with the business of COMPANY.

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6.3  Covenant to Deliver Records.  All memoranda, notes, records and other documents made or compiled by EMPLOYEE, or made available to EMPLOYEE during the term of this Agreement concerning the business of COMPANY, shall be and remain COMPANY's property and shall be delivered to COMPANY upon the termination of this Agreement or at any other time on request. 

6.4  Covenant Not To Recruit.  EMPLOYEE shall not, during the term of this Agreement and for a period of one (1) year following termination of this Agreement, directly or indirectly, either on EMPLOYEE's own behalf, or on behalf of any other individual or entity, solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee associated with COMPANY to become affiliated with him or any other individual or entity. 

7.         CERTAIN RIGHTS OF COMPANY

7.1  Announcement.  COMPANY shall have the right to make public announcements concerning the execution of this Agreement and certain terms thereof. 

7.2  Use of Name, Likeness and Biography.  COMPANY shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of EMPLOYEE to advertise, publicize and promote the business of COMPANY and its affiliates, but not for the purposes of direct endorsement without EMPLOYEE's consent.  An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of EMPLOYEE, or any biographical information or life story concerning the professional career of EMPLOYEE. 

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7.3  Right to Insure.  COMPANY shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering EMPLOYEE, and EMPLOYEE shall have no right, title or interest in and to such insurance.  EMPLOYEE shall assist COMPANY in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance.

8.         ASSIGNMENT

Neither party may assign or otherwise dispose of its rights or obligations under this Agreement without the prior written consent of the other party except as provided in this Section.  COMPANY may assign and transfer this Agreement, or its interest in this Agreement, to any affiliate of COMPANY or to any entity that is a party to a merger, reorganization, or consolidation with COMPANY, or to a subsidiary of COMPANY, or to any entity that acquires substantially all of the assets of COMPANY or of any division with respect to which EMPLOYEE is providing services (providing such assignee assumes COMPANY's obligations under this Agreement).  EMPLOYEE shall, if requested by COMPANY, perform EMPLOYEE's duties and Services, as specified in this Agreement, for the benefit of any subsidiary or other affiliate of COMPANY.  Upon assignment, acquisition, merger, consolidation or reorganization, the term "COMPANY" as used herein shall be deemed to refer to such assignee or successor entity.  EMPLOYEE shall not have the right to assign EMPLOYEE's interest in this Agreement, any rights under this Agreement, or any duties imposed under this Agreement, nor shall EMPLOYEE or his spouse, heirs, beneficiaries, executors or administrators have the right to pledge, hypothecate or otherwise encumber EMPLOYEE's right to receive compensation hereunder without the express written consent of COMPANY.  

9.         RESOLUTION OF DISPUTES

In the event of any dispute arising out of or in connection with this Agreement or in any way relating to the employment of EMPLOYEE which leads to the filing of a lawsuit, the parties agree that venue and jurisdiction shall be in Santa Barbara County, California.  The prevailing party in any such litigation shall be entitled to an award of costs and reasonable attorneys' fees to be paid by the losing party.

10.       GENERAL PROVISIONS

10.1  Notices.  Notice under this Agreement shall be sufficient only if personally delivered by a major commercial paid delivery courier service or mailed by certified or registered mail (return receipt requested and postage pre-paid) to the other party at its address set forth in the signature block below or to such other address as may be designated by either party in writing.  If not received sooner, notices by mail shall be deemed received five (5) days after deposit in the United States mail.

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10.2  Agreement Controls.  Unless otherwise provided for in this Agreement, the COMPANY's policies, procedures and practices shall govern the relationship between EMPLOYEE and COMPANY.  If, however, any of COMPANY's policies, procedures and/or practices conflict with this Agreement (together with any amendments hereto), this Agreement (and any amendments hereto) shall control.

10.3  Amendment and Waiver.  Any provision of this Agreement may be amended or modified and the observance of any provision may be waived (either retroactively or prospectively) only by written consent of the parties.  Either party's failure to enforce any provision of this Agreement shall not be construed as a waiver of that party's right to enforce such provision.

10.4  Governing Law.  This Agreement and the performance hereunder shall be interpreted under the substantive laws of the State of California.

10.5  Force Majeure.  Either party shall be temporarily excused from performing under this Agreement if any force majeure or other occurrence beyond the reasonable control of either party makes such performance impossible, except a Disability as defined in this Agreement, provided that the party subject to the force majeure provides notice of such force majeure at the first reasonable opportunity.  Under such circumstances, performance under this Agreement which related to the delay shall be suspended for the duration of the delay provided the delayed party shall resume performance of its obligations with due diligence once the delaying event subsides.  In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension.

10.6  Remedies.  EMPLOYEE acknowledges that because of the nature of COMPANY's business, and the fact that the services to be performed by EMPLOYEE pursuant to this Agreement are of a special, unique, unusual, extraordinary, and intellectual character which give them a peculiar value, a breach of this Agreement shall cause substantial injury to COMPANY for which money damages cannot reasonably be ascertained and for which money damages would be inadequate.  EMPLOYEE therefore agrees that COMPANY shall have the right to obtain injunctive relief, including the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, in addition to any other remedies that COMPANY may have.

10.7  Severability.  If any term, provision, covenant, paragraph, or condition of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so this Agreement shall otherwise remain enforceable in full force and effect.

10.8  Construction.  Headings and captions are only for convenience and shall not affect the construction or interpretation of this Agreement.  Whenever the context requires, words, used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine, or neuter gender.

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10.9  Counterpart Copies.  This Agreement may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

10.10 No Adverse Construction.  The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms hereof. 

10.11 Entire Agreement.  With respect to its subject matter, namely, the employment by COMPANY of EMPLOYEE, this Agreement (including the documents expressly incorporated therein, such as the Employee Confidentiality Agreement), contains the entire understanding between the parties, and supersedes any prior agreements, understandings, and communications between the parties, whether oral, written, implied or otherwise, including, but not limited to, the original offer of employment letter.

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

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

EMPLOYEE/DATE	MENTOR CORPORATION/DATE
/s/ Joshua Levine	By /s/ Jeffrey Ubben
Joshua Levine/Date	Jeffrey Ubben/Date
	Chairman
	Executive Compensation Committee
	Mentor Corporation
NOTICE ADDRESS	NOTICE ADDRESS:
2677 Quail Valley Road	201 Mentor Drive
Solvang, California 93463	Santa Barbara, California 93111

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EX-10.5

EMPLOYMENT AGREEMENT

This Employment Agreement, effective as of August 5, 2004, is by and between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111, and Loren McFarland ("EMPLOYEE") of 6173 La Goleta Road, Goleta, California 93117.

RECITALS

COMPANY is in the business of manufacturing and selling medical devices and related products. EMPLOYEE has experience in this business and possesses valuable skills and experience, which will be used in advancing COMPANY's interests. EMPLOYEE is willing to be engaged by COMPANY and COMPANY is willing to engage EMPLOYEE in an executive capacity responsible for ALL FINANCIAL functions of COMPANY, upon the terms and conditions set forth in this Agreement.

AGREEMENT

EMPLOYEE and COMPANY, intending to be legally bound, agree as follows:

1.         SERVICES

1.1       General Services.

1.1.1  Company shall employ EMPLOYEE as VICE PRESIDENT OF FINANCE/CHIEF FINANCIAL OFFICER/TREASURER. EMPLOYEE shall perform the duties customarily performed by one holding such position in a similar business as that engaged in by COMPANY.  To the extent that they do not reduce the scope of the responsibilities described above, EMPLOYEE's duties may change from time to time on reasonable notice, based on the needs of COMPANY and EMPLOYEE's skills as determined by COMPANY.  These duties shall hereinafter be referred to as "Services."  EMPLOYEE shall report directly to the President/CEO of Mentor Corporation. 

1.1.2   In the event that EMPLOYEE shall from time to time serve COMPANY as a director or shall serve in any other office during the term of this Agreement; EMPLOYEE shall serve in such capacities without further compensation.

1.1.3.  EMPLOYEE shall devote his entire working time, attention, and energies to the business of COMPANY, and shall not, during the term of this Agreement, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Board of Directors of COMPANY.  This shall not be construed as preventing EMPLOYEE from investing his assets in a form or manner that does not require any services on the part of EMPLOYEE in the operation or affairs of the entities in which such investments are made, or from engaging in such civic, charitable, religious, or political activities that do not interfere with the performance of EMPLOYEE's duties hereunder. 

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1.2       Best Abilities.  EMPLOYEE shall serve COMPANY faithfully and to the best of EMPLOYEE's ability.  EMPLOYEE shall use EMPLOYEE's best abilities to perform the Services.  Employee shall act at all times according to what EMPLOYEE reasonably believes is in the best interests of COMPANY.

1.3       Corporate Authority.   EMPLOYEE, as an executive officer, shall comply with all laws and regulations applicable to EMPLOYEE as a result of this Agreement, including, but not limited to, the Securities Act of 1933 and Securities Act of 1934. Prior to the execution of this Agreement, EMPLOYEE has received and reviewed COMPANY's Policies and Procedures and COMPANY's Employee Handbook.  EMPLOYEE shall comply with COMPANY's Policies and Procedures, and practices now in effect or as later amended or adopted by COMPANY, as required of similarly-situated executives of COMPANY.

2.         TERM

This Agreement shall commence upon the execution of this Agreement and shall continue until terminated as provided in Section 4 of this Agreement. 

3.         COMPENSATION AND BENEFITS

3.1  Compensation.  EMPLOYEE's total compensation consists of base salary, bonus potential, stock options, and medical and other benefits generally provided to employees of COMPANY.  Any compensation paid to EMPLOYEE shall be pursuant to COMPANY's policies and practices for exempt employees and shall be subject to all applicable laws and requirements regarding the withholding of federal, state and/or local taxes.  Compensation provided in this Agreement is full payment for Services and EMPLOYEE shall receive no additional compensation for extraordinary services unless otherwise authorized.  EMPLOYEE's entire compensation package will be reviewed annually by the Compensation Committee of the Board of Directors, a practice which is consistent with COMPANY's Executive Compensation Program.

3.1.1  Base Compensation.  COMPANY agrees to pay EMPLOYEE an annualized base salary of TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($250,000.) less applicable withholdings, payable in equal installments no less frequently than semi-monthly. 

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3.1.2    Cash Incentive Bonus.  EMPLOYEE shall be eligible for a cash incentive bonus of up to FIFTY (50) Percent of EMPLOYEE's annual base salary, subject to applicable withholdings and subject to approval by COMPANY's Compensation Committee and Board of Directors.  Any cash incentive bonus shall accrue and become payable to EMPLOYEE only if EMPLOYEE is employed with COMPANY on the last day of the fiscal year for which the cash incentive bonus is calculated.

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

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

3.3   Additional Benefits.  COMPANY shall provide EMPLOYEE those additional benefits normally granted by COMPANY to its employees subject to eligibility requirements applicable to each benefit.  COMPANY has no obligation to provide any other benefits unless provided for in this Agreement. Currently COMPANY provides major medical, dental, life, salary continuation, long term disability benefits and eligibility to participate in COMPANY's 401(k) plan.

3.4   Vacation.  Employee shall accrue vacation equal to TWENTY (20) days per year, at the rate of approximately 1.67 days per month.  The time or times for such vacation shall be selected by EMPLOYEE and approved by the President and Chief Executive Officer of COMPANY.

4.  TERMINATION

4.1   Circumstances Of Termination.  This Agreement and the employment relationship between COMPANY and EMPLOYEE may be terminated as follows:

4.1.1    Death.  This Agreement shall terminate upon EMPLOYEE's death, effective as of the date of EMPLOYEE's death.

4.1.2    Disability.  COMPANY may, at its option, either suspend compensation payments or terminate this Agreement due to EMPLOYEE's Disability if EMPLOYEE is incapable, even with reasonable accommodation by COMPANY, of performing the Services because of accident, injury, or physical or mental illness for ONE HUNDRED EIGHTY (180) consecutive days, or is unable or shall have failed to perform the Services for a total period of ONE HUNDRED EIGHTY (180) within a TWELVE (12) month period, regardless of whether such days are consecutive.  If COMPANY suspends compensation payments because of EMPLOYEE's Disability, COMPANY shall resume compensation payments when EMPLOYEE resumes performance of the Services.  If COMPANY elects to terminate this Agreement due to EMPLOYEE's Disability, it must first give EMPLOYEE TEN (10) WORKING days advance written notice.

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4.1.3    Discontinuance Of Business.  If COMPANY discontinues operating its business, this Agreement shall terminate as of the last day of the month on which COMPANY ceases its entire operations with the same effect as if that last date were originally established as termination date of this Agreement.

4.1.4  For Cause.  COMPANY may terminate this Agreement without advance notice for Cause.  For the purpose of this Agreement,  "Cause" shall mean any failure to comply in any material respect with this Agreement or any Agreement incorporated herein; personal or professional misconduct by EMPLOYEE (including, but not limited to, criminal activity or gross or willful neglect of duty); breach of  EMPLOYEE's fiduciary duty to the COMPANY; conduct which threatens public health or safety, or threatens to do immediate or substantial harm to COMPANY's business or reputation; or any other misconduct, deficiency, failure of performance, breach or default, reasonably capable of being remedied or corrected by            EMPLOYEE.  To the extent that a breach pursuant to this Section 4.1.4 is curable by EMPLOYEE without harm to COMPANY  and/or it's reputation, COMPANY shall, instead of immediately  terminating EMPLOYEE pursuant to this Agreement, provide   EMPLOYEE with notice of such breach, specifying the actions required to cure such breach, and EMPLOYEE shall have ten (10) days to cure such breach by performing the actions so specified.  If  EMPLOYEE fails to cure such breach within the ten (10) day period,   COMPANY may terminate this Agreement without further notice.  COMPANY's exercise of its right to terminate under this section  shall be without prejudice to any other remedy to which COMPANY may be entitled at law, in equity, or under this Agreement.

4.1.5.    For Convenience Of Party; Resignation by EMPLOYEE for Good Reason.  This Agreement and employment relationship is terminable by either party, for convenience, with or without cause, including but not limited to resignation by EMPLOYEE for Good Reason, at any time upon THIRTY (30) days' advance written notice to the other party. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following without EMPLOYEE's express written consent: (i) a significant reduction of EMPLOYEE's material duties, position,  or responsibilities as provided in this Agreement, or the removal of EMPLOYEE from the position, duties, and responsibilities contemplated by this Agreement; (ii) a reduction in Base Compensation or Cash Incentive Bonus other than a one-time reduction of not more than 10% that also is applied to substantially all other senior executives at the COMPANY; (iii) a material reduction in EMPLOYEE's benefits as compared to the benefits in effect on the Effective Date; (iv) EMPLOYEE must perform a significant portion of his duties at a location other than at COMPANY headquarters; or (v) COMPANY headquarters are relocated more than 50 miles from the current location in Santa Barbara, California.

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4.1.6.   Change of Control.  If employment is terminated within TWELVE (12) months after the occurrence of any of the events described as a Change of Control under the provisions of the Long-Term Incentive Plan as then defined at the time of such Change of Control,  EMPLOYEE shall be entitled to severance compensation pursuant to Section 4.2.6 (i) and (ii),  and (iii).

4.2       EMPLOYEE's Rights Upon Termination

4.2.1    Death.  Upon termination of this Agreement because of death of EMPLOYEE pursuant to Section 4.1.1 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's death.

4.2.2    Disability.   Upon termination of this Agreement because of Disability of EMPLOYEE pursuant to Sections 4.1.2 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's termination due to Disability.

4.2.3    Discontinuance Of Business.  Upon termination of this Agreement because of discontinuation of COMPANY's business pursuant to Section 4.1.3, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of termination of this Agreement.

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4.2.4    Termination With Cause.  Upon termination of EMPLOYEE's employment for Cause pursuant to Section 4.1.4, COMPANY  shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.  Any compensation and reimbursable expenses owed to EMPLOYEE by COMPANY through the termination date, less applicable withholdings; and

ii.  Severance compensation as provided for in COMPANY's Severance Policy, if any, less applicable withholdings.

4.2.5    Termination Without Cause; Resignation for Good Reason.  Upon termination of EMPLOYEE's employment by COMPANY without cause pursuant to Section 4.1.5, or if EMPLOYEE terminates this Agreement at any time for Good Reason, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1 , and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.         Payment of full COBRA premium for TWELVE (12) months following termination.  Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

iii.        Severance compensation totaling TWELVE- (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. " 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. " 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. " 623, et. seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. " 2101, et. seq., and the California Fair Employment and Housing Act, Cal. Gov't Code " 12940, et seq. EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, under either any other provision to this Agreement or any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

4.2.6    Termination Due to Change Of Control.   If employment is terminated within TWELVE (12) months AFTER any of the events delineated in Section 4.1.6 of this Agreement ("Change of Control"), COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

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i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1  and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.          A pro-rated share of the Cash Incentive Bonus that would be due to EMPLOYEE if EMPLOYEE had remained employed with COMPANY through the last day of the fiscal year for which the cash incentive bonus is calculated, less applicable withholdings and/or any other applicable bonus or compensation program as approved by the Board of Directors; and

iii.         Any options awarded and pursuant to the Long-Term Incentive Plan applicable to EMPLOYEE's option award(s); and

iv.         Payment of full COBRA premium for TWELVE (12) months following termination. Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

v.         Severance compensation totaling TWELVE (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is   releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and  adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release,  understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement.

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, either under any provision to this Agreement or  any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of  EMPLOYEE's employment and in one lump sum payment   at the date of termination, less applicable withholdings.

5.         REPRESENTATIONS AND WARRANTIES

5.1  Representations of EMPLOYEE.  EMPLOYEE represents and warrants that EMPLOYEE has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, EMPLOYEE will not violate or interfere with the rights of any other person or entity; and that EMPLOYEE is not subject to any contract, understanding or obligation that will or might prevent, interfere with or impair the performance of this Agreement by EMPLOYEE.  EMPLOYEE shall indemnify and hold COMPANY harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys' fees and court costs) resulting from or arising out of any claim or action based upon EMPLOYEE's entering into this Agreement.

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5.2  Representations of COMPANY.  COMPANY represents and warrants that it has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement.  All corporate and other actions required to be taken by COMPANY to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken.  This Agreement is the lawful, valid and legally binding obligation of COMPANY enforceable in accordance with its terms.

5.3  Materiality of Representations.  The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto.

6.         COVENANTS

6.1  Nondisclosure and Invention Assignment.  EMPLOYEE acknowledges that, as a result of performing the Services, EMPLOYEE shall have access to confidential and sensitive information concerning COMPANY's business including, but not limited to, their business operations, sales and marketing data, and manufacturing processes.  EMPLOYEE also acknowledges that in the course of performing the Services, EMPLOYEE may develop new product ideas or inventions as a result of COMPANY's information.  Accordingly, to preserve COMPANY's confidential information and to assure it the full benefit of that information, EMPLOYEE shall, as a condition of employment with COMPANY, execute COMPANY's standard form of Employee Confidentiality Agreement attached hereto as Exhibit A, and execute updated versions of the Employee Confidentiality Agreement as it may be modified from time to time by COMPANY and as may be required of similarly-situated executives of COMPANY.  The Employee Confidentiality Agreement is incorporated herein by this reference.  EMPLOYEE's obligations under the Employee Confidentiality Agreement continue beyond the termination of this Agreement.

6.2  Covenant Not to Compete.  In addition to the provisions of the Employee Confidentiality Agreement, EMPLOYEE shall abide by the following covenant not to compete if COMPANY, at its option upon the termination of this Agreement (regardless of the reason for the termination), exercises this Covenant Not to Compete.  COMPANY shall notify EMPLOYEE within ten (10) days of termination of this Agreement of its intention to exercise this option and make an additional payment to EMPLOYEE of six (6) months' base pay determined at EMPLOYEE's last rate of pay with COMPANY.  EMPLOYEE agrees that for a period of one (1) year following the termination of this Agreement, he shall not directly or indirectly for EMPLOYEE, or as a member of a partnership, or as an officer, director, stockholder, employee, or representative of any other entity or individual, engage, directly or indirectly, in any business activity which is the same or similar to work engaged in by EMPLOYEE on behalf of COMPANY within the same geographic territory as EMPLOYEE's work for COMPANY and which is directly competitive with the business conducted or to EMPLOYEE's knowledge, contemplated by COMPANY at the time of termination of this Agreement, as defined in the Employee Confidentiality Agreement incorporated into this Agreement by reference.  EMPLOYEE may accept employment with an entity competing with COMPANY only if the business of that entity is diversified and EMPLOYEE is employed solely with respect to a separately-managed and separately-operated part of that entity's business that does not compete with COMPANY.  Prior to accepting such employment, EMPLOYEE and the prospective employer entity shall provide COMPANY with written assurances reasonably satisfactory to COMPANY that EMPLOYEE will not render services directly or indirectly to any part of that entity's business that competes with the business of COMPANY.

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6.3  Covenant to Deliver Records.  All memoranda, notes, records and other documents made or compiled by EMPLOYEE, or made available to EMPLOYEE during the term of this Agreement concerning the business of COMPANY, shall be and remain COMPANY's property and shall be delivered to COMPANY upon the termination of this Agreement or at any other time on request. 

6.4  Covenant Not To Recruit.  EMPLOYEE shall not, during the term of this Agreement and for a period of one (1) year following termination of this Agreement, directly or indirectly, either on EMPLOYEE's own behalf, or on behalf of any other individual or entity, solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee associated with COMPANY to become affiliated with him or any other individual or entity. 

7.         CERTAIN RIGHTS OF COMPANY

7.1  Announcement.  COMPANY shall have the right to make public announcements concerning the execution of this Agreement and certain terms thereof. 

7.2  Use of Name, Likeness and Biography.  COMPANY shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of EMPLOYEE to advertise, publicize and promote the business of COMPANY and its affiliates, but not for the purposes of direct endorsement without EMPLOYEE's consent.  An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of EMPLOYEE, or any biographical information or life story concerning the professional career of EMPLOYEE. 

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7.3  Right to Insure.  COMPANY shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering EMPLOYEE, and EMPLOYEE shall have no right, title or interest in and to such insurance.  EMPLOYEE shall assist COMPANY in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance.

8.         ASSIGNMENT

Neither party may assign or otherwise dispose of its rights or obligations under this Agreement without the prior written consent of the other party except as provided in this Section.  COMPANY may assign and transfer this Agreement, or its interest in this Agreement, to any affiliate of COMPANY or to any entity that is a party to a merger, reorganization, or consolidation with COMPANY, or to a subsidiary of COMPANY, or to any entity that acquires substantially all of the assets of COMPANY or of any division with respect to which EMPLOYEE is providing services (providing such assignee assumes COMPANY's obligations under this Agreement).  EMPLOYEE shall, if requested by COMPANY, perform EMPLOYEE's duties and Services, as specified in this Agreement, for the benefit of any subsidiary or other affiliate of COMPANY.  Upon assignment, acquisition, merger, consolidation or reorganization, the term "COMPANY" as used herein shall be deemed to refer to such assignee or successor entity.  EMPLOYEE shall not have the right to assign EMPLOYEE's interest in this Agreement, any rights under this Agreement, or any duties imposed under this Agreement, nor shall EMPLOYEE or his spouse, heirs, beneficiaries, executors or administrators have the right to pledge, hypothecate or otherwise encumber EMPLOYEE's right to receive compensation hereunder without the express written consent of COMPANY.  

9.         RESOLUTION OF DISPUTES

In the event of any dispute arising out of or in connection with this Agreement or in any way relating to the employment of EMPLOYEE which leads to the filing of a lawsuit, the parties agree that venue and jurisdiction shall be in Santa Barbara County, California.  The prevailing party in any such litigation shall be entitled to an award of costs and reasonable attorneys' fees to be paid by the losing party.

10.       GENERAL PROVISIONS

10.1  Notices.  Notice under this Agreement shall be sufficient only if personally delivered by a major commercial paid delivery courier service or mailed by certified or registered mail (return receipt requested and postage pre-paid) to the other party at its address set forth in the signature block below or to such other address as may be designated by either party in writing.  If not received sooner, notices by mail shall be deemed received five (5) days after deposit in the United States mail.

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10.2  Agreement Controls.  Unless otherwise provided for in this Agreement, the COMPANY's policies, procedures and practices shall govern the relationship between EMPLOYEE and COMPANY.  If, however, any of COMPANY's policies, procedures and/or practices conflict with this Agreement (together with any amendments hereto), this Agreement (and any amendments hereto) shall control.

10.3  Amendment and Waiver.  Any provision of this Agreement may be amended or modified and the observance of any provision may be waived (either retroactively or prospectively) only by written consent of the parties.  Either party's failure to enforce any provision of this Agreement shall not be construed as a waiver of that party's right to enforce such provision.

10.4  Governing Law.  This Agreement and the performance hereunder shall be interpreted under the substantive laws of the State of California.

10.5  Force Majeure.  Either party shall be temporarily excused from performing under this Agreement if any force majeure or other occurrence beyond the reasonable control of either party makes such performance impossible, except a Disability as defined in this Agreement, provided that the party subject to the force majeure provides notice of such force majeure at the first reasonable opportunity.  Under such circumstances, performance under this Agreement which related to the delay shall be suspended for the duration of the delay provided the delayed party shall resume performance of its obligations with due diligence once the delaying event subsides.  In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension.

10.6  Remedies.  EMPLOYEE acknowledges that because of the nature of COMPANY's business, and the fact that the services to be performed by EMPLOYEE pursuant to this Agreement are of a special, unique, unusual, extraordinary, and intellectual character which give them a peculiar value, a breach of this Agreement shall cause substantial injury to COMPANY for which money damages cannot reasonably be ascertained and for which money damages would be inadequate.  EMPLOYEE therefore agrees that COMPANY shall have the right to obtain injunctive relief, including the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, in addition to any other remedies that COMPANY may have.

10.7  Severability.  If any term, provision, covenant, paragraph, or condition of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so this Agreement shall otherwise remain enforceable in full force and effect.

10.8  Construction.  Headings and captions are only for convenience and shall not affect the construction or interpretation of this Agreement.  Whenever the context requires, words, used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine, or neuter gender.

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10.9  Counterpart Copies.  This Agreement may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

10.10 No Adverse Construction.  The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms hereof. 

10.11 Entire Agreement.  With respect to its subject matter, namely, the employment by COMPANY of EMPLOYEE, this Agreement (including the documents expressly incorporated therein, such as the Employee Confidentiality Agreement), contains the entire understanding between the parties, and supersedes any prior agreements, understandings, and communications between the parties, whether oral, written, implied or otherwise, including, but not limited to, the original offer of employment letter.

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

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

EMPLOYEE/DATE	MENTOR CORPORATION/DATE
/s/ Loren McFarland	By /s/ Joshua Levine
Loren McFarland/Date	Joshua Levine/Date
	President/CEO
	Mentor Corporation
NOTICE ADDRESS	NOTICE ADDRESS:
6173 La Goleta	201 Mentor Drive
Goleta, California 93117	Santa Barbara, California 93111

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EX-10.6

EMPLOYMENT AGREEMENT

This Employment Agreement, effective as of August 5, 2004, is by and between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111, and Cathy Ullery ("EMPLOYEE") of 2591 Deer Hill Lane, Solvang, California 93463.

RECITALS

COMPANY is in the business of manufacturing and selling medical devices and related products. EMPLOYEE has experience in this business and possesses valuable skills and experience, which will be used in advancing COMPANY's interests. EMPLOYEE is willing to be engaged by COMPANY and COMPANY is willing to engage EMPLOYEE in an executive capacity responsible for ALL HUMAN RESOURCES functions of COMPANY, upon the terms and conditions set forth in this Agreement.

AGREEMENT

EMPLOYEE and COMPANY, intending to be legally bound, agree as follows:

1.         SERVICES

1.1       General Services.

1.1.1  Company shall employ EMPLOYEE as VICE PRESIDENT OF HUMAN RESOURCES. EMPLOYEE shall perform the duties customarily performed by one holding such position in a similar business as that engaged in by COMPANY.  To the extent that they do not reduce the scope of the responsibilities described above, EMPLOYEE's duties may change from time to time on reasonable notice, based on the needs of COMPANY and EMPLOYEE's skills as determined by COMPANY.  These duties shall hereinafter be referred to as "Services."  EMPLOYEE shall report directly to the President/CEO of Mentor Corporation.

1.1.2   In the event that EMPLOYEE shall from time to time serve COMPANY as a director or shall serve in any other office during the term of this Agreement; EMPLOYEE shall serve in such capacities without further compensation.

1.1.3.  EMPLOYEE shall devote her entire working time, attention, and energies to the business of COMPANY, and shall not, during the term of this Agreement, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Board of Directors of COMPANY.  This shall not be construed as preventing EMPLOYEE from investing her assets in a form or manner that does not require any services on the part of EMPLOYEE in the operation or affairs of the entities in which such investments are made, or from engaging in such civic, charitable, religious, or political activities that do not interfere with the performance of EMPLOYEE's duties hereunder. 

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1.2       Best Abilities.  EMPLOYEE shall serve COMPANY faithfully and to the best of EMPLOYEE's ability.  EMPLOYEE shall use EMPLOYEE's best abilities to perform the Services.  Employee shall act at all times according to what EMPLOYEE reasonably believes is in the best interests of COMPANY.

1.3       Corporate Authority.   EMPLOYEE, as an executive officer, shall comply with all laws and regulations applicable to EMPLOYEE as a result of this Agreement, including, but not limited to, the Securities Act of 1933 and Securities Act of 1934. Prior to the execution of this Agreement, EMPLOYEE has received and reviewed COMPANY's Policies and Procedures and COMPANY's Employee Handbook.  EMPLOYEE shall comply with COMPANY's Policies and Procedures, and practices now in effect or as later amended or adopted by COMPANY, as required of similarly-situated executives of COMPANY.

2.         TERM

This Agreement shall commence upon the execution of this Agreement and shall continue until terminated as provided in Section 4 of this Agreement. 

3.         COMPENSATION AND BENEFITS

3.1  Compensation.  EMPLOYEE's total compensation consists of base salary, bonus potential, stock options, and medical and other benefits generally provided to employees of COMPANY.  Any compensation paid to EMPLOYEE shall be pursuant to COMPANY's policies and practices for exempt employees and shall be subject to all applicable laws and requirements regarding the withholding of federal, state and/or local taxes.  Compensation provided in this Agreement is full payment for Services and EMPLOYEE shall receive no additional compensation for extraordinary services unless otherwise authorized.  EMPLOYEE's entire compensation package will be reviewed annually by the Compensation Committee of the Board of Directors, a practice which is consistent with COMPANY's Executive Compensation Program.

3.1.1  Base Compensation.  COMPANY agrees to pay EMPLOYEE an annualized base salary of TWO HUNDRED THOUSAND DOLLARS AND NO CENTS ($200,000.) less applicable withholdings, payable in equal installments no less frequently than semi-monthly. 

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3.1.2    Cash Incentive Bonus.  EMPLOYEE shall be eligible for a cash incentive bonus of up to FORTY (40) Percent of EMPLOYEE's annual base salary, subject to applicable withholdings and subject to approval by COMPANY's Compensation Committee and Board of Directors.  Any cash incentive bonus shall accrue and become payable to EMPLOYEE only if EMPLOYEE is employed with COMPANY on the last day of the fiscal year for which the cash incentive bonus is calculated.

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

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

3.3   Additional Benefits.  COMPANY shall provide EMPLOYEE those additional benefits normally granted by COMPANY to its employees subject to eligibility requirements applicable to each benefit.  COMPANY has no obligation to provide any other benefits unless provided for in this Agreement. Currently COMPANY provides major medical, dental, life, salary continuation, long term disability benefits and eligibility to participate in COMPANY's 401(k) plan.

3.4   Vacation.  Employee shall accrue vacation equal to TWENTY (20) days per year, at the rate of approximately 1.67 days per month.  The time or times for such vacation shall be selected by EMPLOYEE and approved by the President and Chief Executive Officer of COMPANY.

4.  TERMINATION

4.1   Circumstances Of Termination.  This Agreement and the employment relationship between COMPANY and EMPLOYEE may be terminated as follows:

4.1.1    Death.  This Agreement shall terminate upon EMPLOYEE's death, effective as of the date of EMPLOYEE's death.

4.1.2    Disability.  COMPANY may, at its option, either suspend compensation payments or terminate this Agreement due to EMPLOYEE's Disability if EMPLOYEE is incapable, even with reasonable accommodation by COMPANY, of performing the Services because of accident, injury, or physical or mental illness for ONE HUNDRED EIGHTY (180) consecutive days, or is unable or shall have failed to perform the Services for a total period of ONE HUNDRED EIGHTY (180) within a TWELVE (12) month period, regardless of whether such days are consecutive.  If COMPANY suspends compensation payments because of EMPLOYEE's Disability, COMPANY shall resume compensation payments when EMPLOYEE resumes performance of the Services.  If COMPANY elects to terminate this Agreement due to EMPLOYEE's Disability, it must first give EMPLOYEE TEN (10) WORKING days advance written notice.

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4.1.3    Discontinuance Of Business.  If COMPANY discontinues operating its business, this Agreement shall terminate as of the last day of the month on which COMPANY ceases its entire operations with the same effect as if that last date were originally established as termination date of this Agreement.

4.1.4    For Cause.  COMPANY may terminate this Agreement without advance notice for Cause.  For the purpose of this Agreement, "Cause" shall mean any failure to comply in any material respect with this Agreement or any Agreement incorporated herein; personal or professional misconduct by EMPLOYEE (including, but not limited to, criminal activity or gross or willful neglect of duty); breach of EMPLOYEE's fiduciary duty to the COMPANY; conduct which threatens public health or safety, or threatens to do immediate or substantial harm to COMPANY's business or reputation; or any other misconduct, deficiency, failure of performance, breach or default, reasonably capable of being remedied or corrected by EMPLOYEE.  To the extent that a breach pursuant to this Section 4.1.4 is curable by EMPLOYEE without harm to COMPANY and/or it's reputation, COMPANY shall, instead of immediately terminating EMPLOYEE pursuant to this Agreement, provide   EMPLOYEE with notice of such breach, specifying the actions required to cure such breach, and EMPLOYEE shall have ten (10) days to cure such breach by performing the actions so specified.  If  EMPLOYEE fails to cure such breach within the ten (10) day period, COMPANY may terminate this Agreement without further notice. COMPANY's exercise of its right to terminate under this section shall be without prejudice to any other remedy to which COMPANY may be entitled at law, in equity, or under this Agreement.

4.1.5.   For Convenience Of Party; Resignation by EMPLOYEE for Good Reason.  This Agreement and employment relationship is terminable by either party, for convenience, with or without cause, including but not limited to resignation by EMPLOYEE for Good Reason, at any time upon THIRTY (30) days' advance written notice to the other party. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following without EMPLOYEE's express written consent: (i) a significant reduction of EMPLOYEE's material duties, position,  or responsibilities as provided in this Agreement, or the removal of EMPLOYEE from the position, duties, and responsibilities contemplated by this Agreement; (ii) a reduction in Base Compensation or Cash Incentive Bonus other than a one-time reduction of not more than 10% that also is applied to substantially all other senior executives at the COMPANY; (iii) a material reduction in EMPLOYEE's benefits as compared to the benefits in effect on the Effective Date; (iv) EMPLOYEE must perform a significant portion of her duties at a location other than at COMPANY headquarters; or (v) COMPANY headquarters are relocated more than 50 miles from the current location in Santa Barbara, California.

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4.1.6.   Change of Control.  If employment is terminated within TWELVE (12) months after the occurrence of any of the events described as a Change of Control under the provisions of the Long-Term Incentive Plan as then defined at the time of such Change of Control,  EMPLOYEE shall be entitled to severance compensation pursuant to Section 4.2.6 (i) and (ii),  and (iii).

4.2       EMPLOYEE's Rights Upon Termination

4.2.1    Death.  Upon termination of this Agreement because of death of EMPLOYEE pursuant to Section 4.1.1 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's death.

4.2.2    Disability.   Upon termination of this Agreement because of Disability of EMPLOYEE pursuant to Sections 4.1.2 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's termination due to Disability.

4.2.3    Discontinuance Of Business.  Upon termination of this Agreement because of discontinuation of COMPANY's business pursuant to Section 4.1.3, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of termination of this Agreement.

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4.2.4    Termination With Cause.  Upon termination of EMPLOYEE's employment for Cause pursuant to Section 4.1.4, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i. Any compensation and reimbursable expenses owed to EMPLOYEE by COMPANY through the termination date, less applicable withholdings; and

ii. Severance compensation as provided for in COMPANY's Severance Policy, if any, less applicable withholdings.

4.2.5    Termination Without Cause; Resignation for Good Reason.  Upon termination of EMPLOYEE's employment by COMPANY without cause pursuant to Section 4.1.5, or if EMPLOYEE terminates this Agreement at any time for Good Reason, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1 , and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.         Payment of full COBRA premium for TWELVE (12) months following termination.  Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

iii.         Severance compensation totaling TWELVE- (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of herself, her agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. " 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. " 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. " 623, et. seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. " 2101, et. seq., and the California Fair Employment and Housing Act, Cal. Gov't Code " 12940, et seq. EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HER MUST HAVE MATERIALLY AFFECTED HER SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that she is releasing all known and unknown claims, and that she is waiving all rights she has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits she is receiving in exchange for this Release are more than the benefits to which she otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that she has read this Release, understands all of its terms, and has consulted with counsel of her choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, under either any other provision to this Agreement or any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

4.2.6        Termination Due to Change Of Control.   If employment is terminated within TWELVE (12) months AFTER any of the events delineated in Section 4.1.6 of this Agreement ("Change of Control"), COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

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i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1  and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.         A pro-rated share of the Cash Incentive Bonus that would be due to EMPLOYEE if EMPLOYEE had remained employed with COMPANY through the last day of the fiscal year for which the cash incentive bonus is calculated, less applicable withholdings and/or any other applicable bonus or compensation program as approved by the Board of Directors; and

iii.         Any options awarded and pursuant to the Long-Term Incentive Plan applicable to EMPLOYEE's option award(s); and

iv.         Payment of full COBRA premium for TWELVE (12) months following termination. Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

v.         Severance compensation totaling TWELVE (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of herself, her agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that she is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HER MUST HAVE MATERIALLY AFFECTED HER SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that she is  releasing all known and unknown claims, and that she is   waiving all rights she has or may have under Civil Code  Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits she is receiving in exchange for this Release are more than the benefits to which she otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that she has read this Release, understands all of its terms, and has consulted with counsel of her choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE  would otherwise be entitled, either under any provision to     this Agreement or  any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

5.         REPRESENTATIONS AND WARRANTIES

5.1  Representations of EMPLOYEE.  EMPLOYEE represents and warrants that EMPLOYEE has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, EMPLOYEE will not violate or interfere with the rights of any other person or entity; and that EMPLOYEE is not subject to any contract, understanding or obligation that will or might prevent, interfere with or impair the performance of this Agreement by EMPLOYEE.  EMPLOYEE shall indemnify and hold COMPANY harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys' fees and court costs) resulting from or arising out of any claim or action based upon EMPLOYEE's entering into this Agreement.

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5.2  Representations of COMPANY.  COMPANY represents and warrants that it has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement.  All corporate and other actions required to be taken by COMPANY to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken.  This Agreement is the lawful, valid and legally binding obligation of COMPANY enforceable in accordance with its terms.

5.3  Materiality of Representations.  The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto.

6.         COVENANTS

6.1  Nondisclosure and Invention Assignment.  EMPLOYEE acknowledges that, as a result of performing the Services, EMPLOYEE shall have access to confidential and sensitive information concerning COMPANY's business including, but not limited to, their business operations, sales and marketing data, and manufacturing processes.  EMPLOYEE also acknowledges that in the course of performing the Services, EMPLOYEE may develop new product ideas or inventions as a result of COMPANY's information.  Accordingly, to preserve COMPANY's confidential information and to assure it the full benefit of that information, EMPLOYEE shall, as a condition of employment with COMPANY, execute COMPANY's standard form of Employee Confidentiality Agreement attached hereto as Exhibit A, and execute updated versions of the Employee Confidentiality Agreement as it may be modified from time to time by COMPANY and as may be required of similarly-situated executives of COMPANY.  The Employee Confidentiality Agreement is incorporated herein by this reference.  EMPLOYEE's obligations under the Employee Confidentiality Agreement continue beyond the termination of this Agreement.

6.2  Covenant Not to Compete.  In addition to the provisions of the Employee Confidentiality Agreement, EMPLOYEE shall abide by the following covenant not to compete if COMPANY, at its option upon the termination of this Agreement (regardless of the reason for the termination), exercises this Covenant Not to Compete.  COMPANY shall notify EMPLOYEE within ten (10) days of termination of this Agreement of its intention to exercise this option and make an additional payment to EMPLOYEE of six (6) months' base pay determined at EMPLOYEE's last rate of pay with COMPANY.  EMPLOYEE agrees that for a period of one (1) year following the termination of this Agreement, she shall not directly or indirectly for EMPLOYEE, or as a member of a partnership, or as an officer, director, stockholder, employee, or representative of any other entity or individual, engage, directly or indirectly, in any business activity which is the same or similar to work engaged in by EMPLOYEE on behalf of COMPANY within the same geographic territory as EMPLOYEE's work for COMPANY and which is directly competitive with the business conducted or to EMPLOYEE's knowledge, contemplated by COMPANY at the time of termination of this Agreement, as defined in the Employee Confidentiality Agreement incorporated into this Agreement by reference.  EMPLOYEE may accept employment with an entity competing with COMPANY only if the business of that entity is diversified and EMPLOYEE is employed solely with respect to a separately-managed and separately-operated part of that entity's business that does not compete with COMPANY.  Prior to accepting such employment, EMPLOYEE and the prospective employer entity shall provide COMPANY with written assurances reasonably satisfactory to COMPANY that EMPLOYEE will not render services directly or indirectly to any part of that entity's business that competes with the business of COMPANY.

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6.3  Covenant to Deliver Records.  All memoranda, notes, records and other documents made or compiled by EMPLOYEE, or made available to EMPLOYEE during the term of this Agreement concerning the business of COMPANY, shall be and remain COMPANY's property and shall be delivered to COMPANY upon the termination of this Agreement or at any other time on request. 

6.4  Covenant Not To Recruit.  EMPLOYEE shall not, during the term of this Agreement and for a period of one (1) year following termination of this Agreement, directly or indirectly, either on EMPLOYEE's own behalf, or on behalf of any other individual or entity, solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee associated with COMPANY to become affiliated with him or any other individual or entity. 

7.         CERTAIN RIGHTS OF COMPANY

7.1  Announcement.  COMPANY shall have the right to make public announcements concerning the execution of this Agreement and certain terms thereof. 

7.2  Use of Name, Likeness and Biography.  COMPANY shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of EMPLOYEE to advertise, publicize and promote the business of COMPANY and its affiliates, but not for the purposes of direct endorsement without EMPLOYEE's consent.  An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of EMPLOYEE, or any biographical information or life story concerning the professional career of EMPLOYEE. 

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7.3  Right to Insure.  COMPANY shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering EMPLOYEE, and EMPLOYEE shall have no right, title or interest in and to such insurance.  EMPLOYEE shall assist COMPANY in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance.

8.         ASSIGNMENT

Neither party may assign or otherwise dispose of its rights or obligations under this Agreement without the prior written consent of the other party except as provided in this Section.  COMPANY may assign and transfer this Agreement, or its interest in this Agreement, to any affiliate of COMPANY or to any entity that is a party to a merger, reorganization, or consolidation with COMPANY, or to a subsidiary of COMPANY, or to any entity that acquires substantially all of the assets of COMPANY or of any division with respect to which EMPLOYEE is providing services (providing such assignee assumes COMPANY's obligations under this Agreement).  EMPLOYEE shall, if requested by COMPANY, perform EMPLOYEE's duties and Services, as specified in this Agreement, for the benefit of any subsidiary or other affiliate of COMPANY.  Upon assignment, acquisition, merger, consolidation or reorganization, the term "COMPANY" as used herein shall be deemed to refer to such assignee or successor entity.  EMPLOYEE shall not have the right to assign EMPLOYEE's interest in this Agreement, any rights under this Agreement, or any duties imposed under this Agreement, nor shall EMPLOYEE or her spouse, heirs, beneficiaries, executors or administrators have the right to pledge, hypothecate or otherwise encumber EMPLOYEE's right to receive compensation hereunder without the express written consent of COMPANY.  

9.         RESOLUTION OF DISPUTES

In the event of any dispute arising out of or in connection with this Agreement or in any way relating to the employment of EMPLOYEE which leads to the filing of a lawsuit, the parties agree that venue and jurisdiction shall be in Santa Barbara County, California.  The prevailing party in any such litigation shall be entitled to an award of costs and reasonable attorneys' fees to be paid by the losing party.

10.       GENERAL PROVISIONS

10.1  Notices.  Notice under this Agreement shall be sufficient only if personally delivered by a major commercial paid delivery courier service or mailed by certified or registered mail (return receipt requested and postage pre-paid) to the other party at its address set forth in the signature block below or to such other address as may be designated by either party in writing.  If not received sooner, notices by mail shall be deemed received five (5) days after deposit in the United States mail.

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10.2  Agreement Controls.  Unless otherwise provided for in this Agreement, the COMPANY's policies, procedures and practices shall govern the relationship between EMPLOYEE and COMPANY.  If, however, any of COMPANY's policies, procedures and/or practices conflict with this Agreement (together with any amendments hereto), this Agreement (and any amendments hereto) shall control.

10.3  Amendment and Waiver.  Any provision of this Agreement may be amended or modified and the observance of any provision may be waived (either retroactively or prospectively) only by written consent of the parties.  Either party's failure to enforce any provision of this Agreement shall not be construed as a waiver of that party's right to enforce such provision.

10.4  Governing Law.  This Agreement and the performance hereunder shall be interpreted under the substantive laws of the State of California.

10.5  Force Majeure.  Either party shall be temporarily excused from performing under this Agreement if any force majeure or other occurrence beyond the reasonable control of either party makes such performance impossible, except a Disability as defined in this Agreement, provided that the party subject to the force majeure provides notice of such force majeure at the first reasonable opportunity.  Under such circumstances, performance under this Agreement which related to the delay shall be suspended for the duration of the delay provided the delayed party shall resume performance of its obligations with due diligence once the delaying event subsides.  In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension.

10.6  Remedies.  EMPLOYEE acknowledges that because of the nature of COMPANY's business, and the fact that the services to be performed by EMPLOYEE pursuant to this Agreement are of a special, unique, unusual, extraordinary, and intellectual character which give them a peculiar value, a breach of this Agreement shall cause substantial injury to COMPANY for which money damages cannot reasonably be ascertained and for which money damages would be inadequate.  EMPLOYEE therefore agrees that COMPANY shall have the right to obtain injunctive relief, including the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, in addition to any other remedies that COMPANY may have.

10.7  Severability.  If any term, provision, covenant, paragraph, or condition of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so this Agreement shall otherwise remain enforceable in full force and effect.

10.8  Construction.  Headings and captions are only for convenience and shall not affect the construction or interpretation of this Agreement.  Whenever the context requires, words, used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine, or neuter gender.

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10.9  Counterpart Copies.  This Agreement may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

10.10 No Adverse Construction.  The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms hereof. 

10.11 Entire Agreement.  With respect to its subject matter, namely, the employment by COMPANY of EMPLOYEE, this Agreement (including the documents expressly incorporated therein, such as the Employee Confidentiality Agreement), contains the entire understanding between the parties, and supersedes any prior agreements, understandings, and communications between the parties, whether oral, written, implied or otherwise, including, but not limited to, the original offer of employment letter.

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

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

EMPLOYEE/DATE	MENTOR CORPORATION/DATE
/s/ Cathy Ullery	By /s/ Joshua Levine
Cathy Ullery/Date	Joshua Levine/Date
	President/CEO
	Mentor Corporation
NOTICE ADDRESS	NOTICE ADDRESS:
2591 Deer Hill Lane	201 Mentor Drive
Solvang, California 93463	Santa Barbara, California 93111

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EX-10.7

EMPLOYMENT AGREEMENT

This Employment Agreement, effective as of August 5, 2004, is by and between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111, and Kathleen Beauchamp ("EMPLOYEE") of 672 Cambridge, California 93111.

RECITALS

COMPANY is in the business of manufacturing and selling medical devices and related products. EMPLOYEE has experience in this business and possesses valuable skills and experience, which will be used in advancing COMPANY's interests. EMPLOYEE is willing to be engaged by COMPANY and COMPANY is willing to engage EMPLOYEE in an executive capacity responsible for ALL SALES AND MARKETING functions of COMPANY, upon the terms and conditions set forth in this Agreement.

AGREEMENT

EMPLOYEE and COMPANY, intending to be legally bound, agree as follows:

1.         SERVICES

1.1       General Services.

1.1.1  Company shall employ EMPLOYEE as VICE PRESIDENT OF SALES AND MARKETING. EMPLOYEE shall perform the duties customarily performed by one holding such position in a similar business as that engaged in by COMPANY.  To the extent that they do not reduce the scope of the responsibilities described above, EMPLOYEE's duties may change from time to time on reasonable notice, based on the needs of COMPANY and EMPLOYEE's skills as determined by COMPANY.  These duties shall hereinafter be referred to as "Services."  EMPLOYEE shall report directly to the President/CEO of Mentor Corporation.

1.1.2   In the event that EMPLOYEE shall from time to time serve COMPANY as a director or shall serve in any other office during the term of this Agreement; EMPLOYEE shall serve in such capacities without further compensation.

1.1.3.  EMPLOYEE shall devote her entire working time, attention, and energies to the business of COMPANY, and shall not, during the term of this Agreement, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Board of Directors of COMPANY.  This shall not be construed as preventing EMPLOYEE from investing her assets in a form or manner that does not require any services on the part of EMPLOYEE in the operation or affairs of the entities in which such investments are made, or from engaging in such civic, charitable, religious, or political activities that do not interfere with the performance of EMPLOYEE's duties hereunder. 

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1.2       Best Abilities.  EMPLOYEE shall serve COMPANY faithfully and to the best of EMPLOYEE's ability.  EMPLOYEE shall use EMPLOYEE's best abilities to perform the Services.  Employee shall act at all times according to what EMPLOYEE reasonably believes is in the best interests of COMPANY.

1.3       Corporate Authority.   EMPLOYEE, as an executive officer, shall comply with all laws and regulations applicable to EMPLOYEE as a result of this Agreement, including, but not limited to, the Securities Act of 1933 and Securities Act of 1934. Prior to the execution of this Agreement, EMPLOYEE has received and reviewed COMPANY's Policies and Procedures and COMPANY's Employee Handbook.  EMPLOYEE shall comply with COMPANY's Policies and Procedures, and practices now in effect or as later amended or adopted by COMPANY, as required of similarly-situated executives of COMPANY.

2.         TERM

This Agreement shall commence upon the execution of this Agreement and shall     continue until terminated as provided in Section 4 of this Agreement. 

3.         COMPENSATION AND BENEFITS

3.1  Compensation.  EMPLOYEE's total compensation consists of base salary, bonus potential, stock options, and medical and other benefits generally provided to employees of COMPANY.  Any compensation paid to EMPLOYEE shall be pursuant to COMPANY's policies and practices for exempt employees and shall be subject to all applicable laws and requirements regarding the withholding of federal, state and/or local taxes.  Compensation provided in this Agreement is full payment for Services and EMPLOYEE shall receive no additional compensation for extraordinary services unless otherwise authorized.  EMPLOYEE's entire compensation package will be reviewed annually by the Compensation Committee of the Board of Directors, a practice which is consistent with COMPANY's Executive Compensation Program.

3.1.1  Base Compensation.  COMPANY agrees to pay EMPLOYEE an annualized base salary of TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($250,000.) less applicable withholdings, payable in equal installments no less frequently than semi-monthly. 

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3.1.2    Cash Incentive Bonus.  EMPLOYEE shall be eligible for a cash incentive bonus of up to FIFTY (50) Percent of EMPLOYEE's annual base salary, subject to applicable withholdings and subject to approval by COMPANY's Compensation Committee and Board of Directors.  Any cash incentive bonus shall accrue and become payable to EMPLOYEE only if EMPLOYEE is employed with COMPANY on the last day of the fiscal year for which the cash incentive bonus is calculated.

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

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

3.3   Additional Benefits.  COMPANY shall provide EMPLOYEE those additional benefits normally granted by COMPANY to its employees subject to eligibility requirements applicable to each benefit.  COMPANY has no obligation to provide any other benefits unless provided for in this Agreement. Currently COMPANY provides major medical, dental, life, salary continuation, long term disability benefits and eligibility to participate in COMPANY's 401(k) plan.

3.4   Vacation.  Employee shall accrue vacation equal to TWENTY (20) days per year, at the rate of approximately 1.67 days per month.  The time or times for such vacation shall be selected by EMPLOYEE and approved by the President and Chief Executive Officer of COMPANY.

4.  TERMINATION

4.1   Circumstances Of Termination.  This Agreement and the employment relationship between COMPANY and EMPLOYEE may be terminated as follows:

4.1.1    Death.  This Agreement shall terminate upon EMPLOYEE's death, effective as of the date of EMPLOYEE's death.

4.1.2    Disability.  COMPANY may, at its option, either suspend compensation payments or terminate this Agreement due to EMPLOYEE's Disability if EMPLOYEE is incapable, even with reasonable accommodation by COMPANY, of performing the Services because of accident, injury, or physical or mental illness for ONE HUNDRED EIGHTY (180) consecutive days, or is unable or shall have failed to perform the Services for a total period of ONE HUNDRED EIGHTY (180) within a TWELVE (12) month period, regardless of whether such days are consecutive.  If COMPANY suspends compensation payments because of EMPLOYEE's Disability, COMPANY shall resume compensation payments when EMPLOYEE resumes performance of the Services.  If COMPANY elects to terminate this Agreement due to EMPLOYEE's Disability, it must first give EMPLOYEE TEN (10) WORKING days advance written notice.

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4.1.3    Discontinuance Of Business.  If COMPANY discontinues operating its business, this Agreement shall terminate as of the last day of the month on which COMPANY ceases its entire operations with the same effect as if that last date were originally established as termination date of this Agreement.

4.1.4    For Cause.  COMPANY may terminate this Agreement without advance notice for Cause.  For the purpose of this Agreement, "Cause" shall mean any failure to comply in any material respect with this Agreement or any Agreement incorporated herein; personal or professional misconduct by EMPLOYEE (including, but not limited to, criminal activity or gross or willful neglect of duty); breach of EMPLOYEE's fiduciary duty to the COMPANY; conduct which threatens public health or safety, or threatens to do immediate or substantial harm to COMPANY's business or reputation; or any        other misconduct, deficiency, failure of performance, breach or default, reasonably capable of being remedied or corrected by EMPLOYEE.  To the extent that a breach pursuant to this Section           4.1.4 is curable by EMPLOYEE without harm to COMPANY and/or it's reputation, COMPANY shall, instead of immediately terminating EMPLOYEE pursuant to this Agreement, provide   EMPLOYEE with notice of such breach, specifying the actions required to cure such breach, and EMPLOYEE shall have ten (10) days to cure such breach by performing the actions so specified.  If  EMPLOYEE fails to cure such breach within the ten (10) day period, COMPANY may terminate this Agreement without further notice.  COMPANY's exercise of its right to terminate under this section      shall be without prejudice to any other remedy to which COMPANY may be entitled at law, in equity, or under this Agreement.

4.1.5.    For Convenience Of Party; Resignation by EMPLOYEE for Good Reason.  This Agreement and employment relationship is terminable by either party, for convenience, with or without cause, including but not limited to resignation by EMPLOYEE for Good Reason, at any time upon THIRTY (30) days' advance written notice to the other party. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following without EMPLOYEE's express written consent: (i) a significant reduction of EMPLOYEE's material duties, position,  or responsibilities as provided in this Agreement, or the removal of EMPLOYEE from the position, duties, and responsibilities contemplated by this Agreement; (ii) a reduction in Base Compensation or Cash Incentive Bonus other than a one-time reduction of not more than 10% that also is applied to substantially all other senior executives at the COMPANY; (iii) a material reduction in EMPLOYEE's benefits as compared to the benefits in effect on the Effective Date; (iv) EMPLOYEE must perform a significant portion of her duties at a location other than at COMPANY headquarters; or (v) COMPANY headquarters are relocated more than 50 miles from the current location in Santa Barbara, California.

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4.1.6.   Change of Control.  If employment is terminated within TWELVE (12) months after the occurrence of any of the events described as a Change of Control under the provisions of the Long-Term Incentive Plan as then defined at the time of such Change of Control,  EMPLOYEE shall be entitled to severance compensation pursuant to Section 4.2.6 (i) and (ii),  and (iii).

4.2       EMPLOYEE's Rights Upon Termination

4.2.1    Death.  Upon termination of this Agreement because of death of EMPLOYEE pursuant to Section 4.1.1 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's death.

4.2.2    Disability.   Upon termination of this Agreement because of Disability of EMPLOYEE pursuant to Sections 4.1.2 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's termination due to Disability.

4.2.3    Discontinuance Of Business.  Upon termination of this Agreement because of discontinuation of COMPANY's business pursuant to Section 4.1.3, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of termination of this Agreement.

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4.2.4    Termination With Cause.  Upon termination of EMPLOYEE's employment for Cause pursuant to Section 4.1.4, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i. Any compensation and reimbursable expenses owed to EMPLOYEE by COMPANY through the termination date, less applicable withholdings; and

ii. Severance compensation as provided for in COMPANY's Severance Policy, if any, less applicable withholdings.

4.2.5    Termination Without Cause; Resignation for Good Reason.  Upon termination of EMPLOYEE's employment by COMPANY without cause pursuant to Section 4.1.5, or if EMPLOYEE terminates this Agreement at any time for Good Reason, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1 , and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.         Payment of full COBRA premium for TWELVE (12) months following termination.  Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

iii.        Severance compensation totaling TWELVE- (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of herself, her agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. " 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. " 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. " 623, et. seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. " 2101, et. seq., and the California Fair Employment and Housing Act, Cal. Gov't Code " 12940, et seq. EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HER MUST HAVE MATERIALLY AFFECTED HER SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that she is releasing all known and unknown claims, and that she is waiving all rights she has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits she is receiving in exchange for this Release are more than the benefits to which she otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that she has read this Release, understands all of its terms, and has consulted with counsel of her choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, under either any other provision to this Agreement or any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

4.2.6    Termination Due to Change Of Control.   If employment is terminated within TWELVE (12) months AFTER any of the events delineated in Section 4.1.6 of this Agreement ("Change of Control"), COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

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i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1  and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.         A pro-rated share of the Cash Incentive Bonus that would be due to EMPLOYEE if EMPLOYEE had remained employed with COMPANY through the last day of the fiscal year for which the cash incentive bonus is calculated, less applicable withholdings and/or any other applicable bonus or compensation program as approved by the Board of Directors; and

iii.         Any options awarded and pursuant to the Long-Term Incentive Plan applicable to EMPLOYEE's option award(s); and

iv.         Payment of full COBRA premium for TWELVE (12) months following termination. Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

v.         Severance compensation totaling TWELVE (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of herself, her agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that she is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW  OR SUSPECT TO EXIST IN HER FAVOR AT THE  TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HER MUST HAVE MATERIALLY AFFECTED HER SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that she is releasing all known and unknown claims, and that she is   waiving all rights she has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that  the benefits she is receiving in exchange for this Release are more than the benefits to which she otherwise would have    been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE  further acknowledges that she has read this Release, understands all of its terms, and has consulted with counsel of her choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, either under any provision to this Agreement or  any COMPANY policies in effect on the date of execution of this Agreement.  Severance  compensation shall be paid upon termination of  EMPLOYEE's employment and in one lump sum payment   at the date of termination, less applicable withholdings.

5.         REPRESENTATIONS AND WARRANTIES

5.1  Representations of EMPLOYEE.  EMPLOYEE represents and warrants that EMPLOYEE has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, EMPLOYEE will not violate or interfere with the rights of any other person or entity; and that EMPLOYEE is not subject to any contract, understanding or obligation that will or might prevent, interfere with or impair the performance of this Agreement by EMPLOYEE.  EMPLOYEE shall indemnify and hold COMPANY harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys' fees and court costs) resulting from or arising out of any claim or action based upon EMPLOYEE's entering into this Agreement.

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5.2  Representations of COMPANY.  COMPANY represents and warrants that it has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement.  All corporate and other actions required to be taken by COMPANY to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken.  This Agreement is the lawful, valid and legally binding obligation of COMPANY enforceable in accordance with its terms.

5.3  Materiality of Representations.  The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto.

6.         COVENANTS

6.1  Nondisclosure and Invention Assignment.  EMPLOYEE acknowledges that, as a result of performing the Services, EMPLOYEE shall have access to confidential and sensitive information concerning COMPANY's business including, but not limited to, their business operations, sales and marketing data, and manufacturing processes.  EMPLOYEE also acknowledges that in the course of performing the Services, EMPLOYEE may develop new product ideas or inventions as a result of COMPANY's information.  Accordingly, to preserve COMPANY's confidential information and to assure it the full benefit of that information, EMPLOYEE shall, as a condition of employment with COMPANY, execute COMPANY's standard form of Employee Confidentiality Agreement attached hereto as Exhibit A, and execute updated versions of the Employee Confidentiality Agreement as it may be modified from time to time by COMPANY and as may be required of similarly-situated executives of COMPANY.  The Employee Confidentiality Agreement is incorporated herein by this reference.  EMPLOYEE's obligations under the Employee Confidentiality Agreement continue beyond the termination of this Agreement.

6.2  Covenant Not to Compete.  In addition to the provisions of the Employee Confidentiality Agreement, EMPLOYEE shall abide by the following covenant not to compete if COMPANY, at its option upon the termination of this Agreement (regardless of the reason for the termination), exercises this Covenant Not to Compete.  COMPANY shall notify EMPLOYEE within ten (10) days of termination of this Agreement of its intention to exercise this option and make an additional payment to EMPLOYEE of six (6) months' base pay determined at EMPLOYEE's last rate of pay with COMPANY.  EMPLOYEE agrees that for a period of one (1) year following the termination of this Agreement, she shall not directly or indirectly for EMPLOYEE, or as a member of a partnership, or as an officer, director, stockholder, employee, or representative of any other entity or individual, engage, directly or indirectly, in any business activity which is the same or similar to work engaged in by EMPLOYEE on behalf of COMPANY within the same geographic territory as EMPLOYEE's work for COMPANY and which is directly competitive with the business conducted or to EMPLOYEE's knowledge, contemplated by COMPANY at the time of termination of this Agreement, as defined in the Employee Confidentiality Agreement incorporated into this Agreement by reference.  EMPLOYEE may accept employment with an entity competing with COMPANY only if the business of that entity is diversified and EMPLOYEE is employed solely with respect to a separately-managed and separately-operated part of that entity's business that does not compete with COMPANY.  Prior to accepting such employment, EMPLOYEE and the prospective employer entity shall provide COMPANY with written assurances reasonably satisfactory to COMPANY that EMPLOYEE will not render services directly or indirectly to any part of that entity's business that competes with the business of COMPANY.

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6.3  Covenant to Deliver Records.  All memoranda, notes, records and other documents made or compiled by EMPLOYEE, or made available to EMPLOYEE during the term of this Agreement concerning the business of COMPANY, shall be and remain COMPANY's property and shall be delivered to COMPANY upon the termination of this Agreement or at any other time on request. 

6.4  Covenant Not To Recruit.  EMPLOYEE shall not, during the term of this Agreement and for a period of one (1) year following termination of this Agreement, directly or indirectly, either on EMPLOYEE's own behalf, or on behalf of any other individual or entity, solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee associated with COMPANY to become affiliated with him or any other individual or entity. 

7.         CERTAIN RIGHTS OF COMPANY

7.1  Announcement.  COMPANY shall have the right to make public announcements concerning the execution of this Agreement and certain terms thereof. 

7.2  Use of Name, Likeness and Biography.  COMPANY shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of EMPLOYEE to advertise, publicize and promote the business of COMPANY and its affiliates, but not for the purposes of direct endorsement without EMPLOYEE's consent.  An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of EMPLOYEE, or any biographical information or life story concerning the professional career of EMPLOYEE. 

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7.3  Right to Insure.  COMPANY shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering EMPLOYEE, and EMPLOYEE shall have no right, title or interest in and to such insurance.  EMPLOYEE shall assist COMPANY in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance.

8.         ASSIGNMENT

Neither party may assign or otherwise dispose of its rights or obligations under this Agreement without the prior written consent of the other party except as provided in this Section.  COMPANY may assign and transfer this Agreement, or its interest in this Agreement, to any affiliate of COMPANY or to any entity that is a party to a merger, reorganization, or consolidation with COMPANY, or to a subsidiary of COMPANY, or to any entity that acquires substantially all of the assets of COMPANY or of any division with respect to which EMPLOYEE is providing services (providing such assignee assumes COMPANY's obligations under this Agreement).  EMPLOYEE shall, if requested by COMPANY, perform EMPLOYEE's duties and Services, as specified in this Agreement, for the benefit of any subsidiary or other affiliate of COMPANY.  Upon assignment, acquisition, merger, consolidation or reorganization, the term "COMPANY" as used herein shall be deemed to refer to such assignee or successor entity.  EMPLOYEE shall not have the right to assign EMPLOYEE's interest in this Agreement, any rights under this Agreement, or any duties imposed under this Agreement, nor shall EMPLOYEE or her spouse, heirs, beneficiaries, executors or administrators have the right to pledge, hypothecate or otherwise encumber EMPLOYEE's right to receive compensation hereunder without the express written consent of COMPANY.  

9.         RESOLUTION OF DISPUTES

In the event of any dispute arising out of or in connection with this Agreement or in any way relating to the employment of EMPLOYEE which leads to the filing of a lawsuit, the parties agree that venue and jurisdiction shall be in Santa Barbara County, California.  The prevailing party in any such litigation shall be entitled to an award of costs and reasonable attorneys' fees to be paid by the losing party.

10.       GENERAL PROVISIONS

10.1  Notices.  Notice under this Agreement shall be sufficient only if personally delivered by a major commercial paid delivery courier service or mailed by certified or registered mail (return receipt requested and postage pre-paid) to the other party at its address set forth in the signature block below or to such other address as may be designated by either party in writing.  If not received sooner, notices by mail shall be deemed received five (5) days after deposit in the United States mail.

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10.2  Agreement Controls.  Unless otherwise provided for in this Agreement, the COMPANY's policies, procedures and practices shall govern the relationship between EMPLOYEE and COMPANY.  If, however, any of COMPANY's policies, procedures and/or practices conflict with this Agreement (together with any amendments hereto), this Agreement (and any amendments hereto) shall control.

10.3  Amendment and Waiver.  Any provision of this Agreement may be amended or modified and the observance of any provision may be waived (either retroactively or prospectively) only by written consent of the parties.  Either party's failure to enforce any provision of this Agreement shall not be construed as a waiver of that party's right to enforce such provision.

10.4  Governing Law.  This Agreement and the performance hereunder shall be interpreted under the substantive laws of the State of California.

10.5  Force Majeure.  Either party shall be temporarily excused from performing under this Agreement if any force majeure or other occurrence beyond the reasonable control of either party makes such performance impossible, except a Disability as defined in this Agreement, provided that the party subject to the force majeure provides notice of such force majeure at the first reasonable opportunity.  Under such circumstances, performance under this Agreement which related to the delay shall be suspended for the duration of the delay provided the delayed party shall resume performance of its obligations with due diligence once the delaying event subsides.  In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension.

10.6  Remedies.  EMPLOYEE acknowledges that because of the nature of COMPANY's business, and the fact that the services to be performed by EMPLOYEE pursuant to this Agreement are of a special, unique, unusual, extraordinary, and intellectual character which give them a peculiar value, a breach of this Agreement shall cause substantial injury to COMPANY for which money damages cannot reasonably be ascertained and for which money damages would be inadequate.  EMPLOYEE therefore agrees that COMPANY shall have the right to obtain injunctive relief, including the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, in addition to any other remedies that COMPANY may have.

10.7  Severability.  If any term, provision, covenant, paragraph, or condition of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so this Agreement shall otherwise remain enforceable in full force and effect.

10.8  Construction.  Headings and captions are only for convenience and shall not affect the construction or interpretation of this Agreement.  Whenever the context requires, words, used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine, or neuter gender.

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10.9  Counterpart Copies.  This Agreement may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

10.10 No Adverse Construction.  The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms hereof. 

10.11 Entire Agreement.  With respect to its subject matter, namely, the employment by COMPANY of EMPLOYEE, this Agreement (including the documents expressly incorporated therein, such as the Employee Confidentiality Agreement), contains the entire understanding between the parties, and supersedes any prior agreements, understandings, and communications between the parties, whether oral, written, implied or otherwise, including, but not limited to, the original offer of employment letter.

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

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

EMPLOYEE/DATE	MENTOR CORPORATION/DATE
/s/ Kathleen Beauchamp	By /s/ Joshua Levine
Kathleen Beauchamp/Date	Joshua Levine/Date
	President/CEO
	Mentor Corporation
NOTICE ADDRESS	NOTICE ADDRESS:
672 Cambridge	201 Mentor Drive
Santa Barbara, California 93111	Santa Barbara, California 93111

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EX-10.8

EMPLOYMENT AGREEMENT

This Employment Agreement, effective as of August 5, 2004, is by and between MENTOR Corporation ("COMPANY"), with its executive offices at 201 Mentor Drive, Santa Barbara, California 93111, and Clarke Scherff ("EMPLOYEE") of 5540 Pineglen Road, La Cresenta, California 91214.

RECITALS

COMPANY is in the business of manufacturing and selling medical devices and related products. EMPLOYEE has experience in this business and possesses valuable skills and experience, which will be used in advancing COMPANY's interests. EMPLOYEE is willing to be engaged by COMPANY and COMPANY is willing to engage EMPLOYEE in an executive capacity responsible for COMPLIANCE AND REGULATORY ASSURANCE functions of COMPANY, upon the terms and conditions set forth in this Agreement.

AGREEMENT

EMPLOYEE and COMPANY, intending to be legally bound, agree as follows:

1.         SERVICES

1.1       General Services.

1.1.1  Company shall employ EMPLOYEE as VICE PRESIDENT OF REGULATORY COMPLIANCE/QUALITY ASSURANCE AND COMPLIANCE OFFICER. EMPLOYEE shall perform the duties customarily performed by one holding such position in a similar business as that engaged in by COMPANY.  To the extent that they do not reduce the scope of the responsibilities described above, EMPLOYEE's duties may change from time to time on reasonable notice, based on the needs of COMPANY and EMPLOYEE's skills as determined by COMPANY.  These duties shall hereinafter be referred to as "Services."  EMPLOYEE shall report directly to the President/CEO of Mentor Corporation. 

1.1.2   In the event that EMPLOYEE shall from time to time serve COMPANY as a director or shall serve in any other office during the term of this Agreement; EMPLOYEE shall serve in such capacities without further compensation.

1.1.3.  EMPLOYEE shall devote his entire working time, attention, and energies to the business of COMPANY, and shall not, during the term of this Agreement, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Board of Directors of COMPANY.  This shall not be construed as preventing EMPLOYEE from investing his assets in a form or manner that does not require any services on the part of EMPLOYEE in the operation or affairs of the entities in which such investments are made, or from engaging in such civic, charitable, religious, or political activities that do not interfere with the performance of EMPLOYEE's duties hereunder. 

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1.2       Best Abilities.  EMPLOYEE shall serve COMPANY faithfully and to the best of EMPLOYEE's ability.  EMPLOYEE shall use EMPLOYEE's best abilities to perform the Services.  Employee shall act at all times according to what EMPLOYEE reasonably believes is in the best interests of COMPANY.

1.3       Corporate Authority.   EMPLOYEE, as an executive officer, shall comply with all laws and regulations applicable to EMPLOYEE as a result of this Agreement, including, but not limited to, the Securities Act of 1933 and Securities Act of 1934. Prior to the execution of this Agreement, EMPLOYEE has received and reviewed COMPANY's Policies and Procedures and COMPANY's Employee Handbook.  EMPLOYEE shall comply with COMPANY's Policies and Procedures, and practices now in effect or as later amended or adopted by COMPANY, as required of similarly-situated executives of COMPANY.

2.         TERM

This Agreement shall commence upon the execution of this Agreement and shall continue until terminated as provided in Section 4 of this Agreement. 

3.         COMPENSATION AND BENEFITS

3.1  Compensation.  EMPLOYEE's total compensation consists of base salary, bonus potential, stock options, and medical and other benefits generally provided to employees of COMPANY.  Any compensation paid to EMPLOYEE shall be pursuant to COMPANY's policies and practices for exempt employees and shall be subject to all applicable laws and requirements regarding the withholding of federal, state and/or local taxes.  Compensation provided in this Agreement is full payment for Services and EMPLOYEE shall receive no additional compensation for extraordinary services unless otherwise authorized.  EMPLOYEE's entire compensation package will be reviewed annually by the Compensation Committee of the Board of Directors, a practice which is consistent with COMPANY's Executive Compensation Program.

3.1.1  Base Compensation.  COMPANY agrees to pay EMPLOYEE an annualized base salary of ONE HUNDRED EIGHTY THOUSAND SEVEN HUNDRED TWO DOLLARS AND NO CENTS ($180,702.) less applicable withholdings, payable in equal installments no less frequently than semi-monthly. 

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3.1.2    Cash Incentive Bonus.  EMPLOYEE shall be eligible for a cash incentive bonus of up to FORTY (40) Percent of EMPLOYEE's annual base salary, subject to applicable withholdings and subject to approval by COMPANY's Compensation Committee and Board of Directors.  Any cash incentive bonus shall accrue and become payable to EMPLOYEE only if EMPLOYEE is employed with COMPANY on the last day of the fiscal year for which the cash incentive bonus is calculated.

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

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

3.3   Additional Benefits.  COMPANY shall provide EMPLOYEE those additional benefits normally granted by COMPANY to its employees subject to eligibility requirements applicable to each benefit.  COMPANY has no obligation to provide any other benefits unless provided for in this Agreement. Currently COMPANY provides major medical, dental, life, salary continuation, long term disability benefits and eligibility to participate in COMPANY's 401(k) plan.

3.4   Vacation.  Employee shall accrue vacation equal to TWENTY (20) days per year, at the rate of approximately 1.67 days per month.  The time or times for such vacation shall be selected by EMPLOYEE and approved by the President and Chief Executive Officer of COMPANY.

4.  TERMINATION

4.1   Circumstances Of Termination.  This Agreement and the employment relationship between COMPANY and EMPLOYEE may be terminated as follows:

4.1.1    Death.  This Agreement shall terminate upon EMPLOYEE's death, effective as of the date of EMPLOYEE's death.

4.1.2    Disability.  COMPANY may, at its option, either suspend compensation payments or terminate this Agreement due to EMPLOYEE's Disability if EMPLOYEE is incapable, even with reasonable accommodation by COMPANY, of performing the Services because of accident, injury, or physical or mental illness for ONE HUNDRED EIGHTY (180) consecutive days, or is unable or shall have failed to perform the Services for a total period of ONE HUNDRED EIGHTY (180) within a TWELVE (12) month period, regardless of whether such days are consecutive.  If COMPANY suspends compensation payments because of EMPLOYEE's Disability, COMPANY shall resume compensation payments when EMPLOYEE resumes performance of the Services.  If COMPANY elects to terminate this Agreement due to EMPLOYEE's Disability, it must first give EMPLOYEE TEN (10) WORKING days advance written notice.

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4.1.3    Discontinuance Of Business.  If COMPANY discontinues operating its business, this Agreement shall terminate as of the last day of the month on which COMPANY ceases its entire operations with the same effect as if that last date were originally established as termination date of this Agreement.

4.1.4  For Cause.  COMPANY may terminate this Agreement without  advance notice for Cause.  For the purpose of this Agreement, "Cause" shall mean any failure to comply in any material respect with this Agreement or any Agreement incorporated herein; personal or professional misconduct by EMPLOYEE (including, but not limited to, criminal activity or gross or willful neglect of duty); breach of EMPLOYEE's fiduciary duty to the COMPANY; conduct which threatens public health or safety, or threatens to do immediate or  substantial harm to COMPANY's business or reputation; or any  other misconduct, deficiency, failure of performance, breach or default, reasonably capable of being remedied or corrected by EMPLOYEE.  To the extent that a breach pursuant to this Section 4.1.4 is curable by EMPLOYEE without harm to COMPANY  and/or it's reputation, COMPANY shall, instead of immediately terminating EMPLOYEE pursuant to this Agreement, provide   EMPLOYEE with notice of such breach, specifying the actions required to cure such breach, and EMPLOYEE shall have ten (10) days to cure such breach by performing the actions so specified.  If  EMPLOYEE fails to cure such breach within the ten (10) day period,  COMPANY may terminate this Agreement without further notice. COMPANY's exercise of its right to terminate under this section  shall be without prejudice to any other remedy to which COMPANY may be entitled at law, in equity, or under this Agreement.

4.1.5.   For Convenience Of Party; Resignation by EMPLOYEE for Good Reason.  This Agreement and employment relationship is terminable by either party, for convenience, with or without cause, including but not limited to resignation by EMPLOYEE for Good Reason, at any time upon THIRTY (30) days' advance written notice to the other party. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following without EMPLOYEE's express written consent: (i) a significant reduction of EMPLOYEE's material duties, position,  or responsibilities as provided in this Agreement, or the removal of EMPLOYEE from the position, duties, and responsibilities contemplated by this Agreement; (ii) a reduction in Base Compensation or Cash Incentive Bonus other than a one-time reduction of not more than 10% that also is applied to substantially all other senior executives at the COMPANY; (iii) a material reduction in EMPLOYEE's benefits as compared to the benefits in effect on the Effective Date; (iv) EMPLOYEE must perform a significant portion of his duties at a location other than at COMPANY headquarters; or (v) COMPANY headquarters are relocated more than 50 miles from the current location in Santa Barbara, California.

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4.1.6.   Change of Control.  If employment is terminated within TWELVE (12) months after the occurrence of any of the events described as a Change of Control under the provisions of the Long-Term Incentive Plan as then defined at the time of such Change of Control,  EMPLOYEE shall be entitled to severance compensation pursuant to Section 4.2.6 (i) and (ii),  and (iii).

4.2       EMPLOYEE's Rights Upon Termination

4.2.1    Death.  Upon termination of this Agreement because of death of EMPLOYEE pursuant to Section 4.1.1 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's death.

4.2.2    Disability.   Upon termination of this Agreement because of Disability of EMPLOYEE pursuant to Sections 4.1.2 above, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE's estate or designated beneficiary any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of EMPLOYEE's termination due to Disability.

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4.2.3    Discontinuance Of Business.  Upon termination of this Agreement because of discontinuation of COMPANY's business pursuant to Section 4.1.3, COMPANY shall have no further obligation to EMPLOYEE under the Agreement except to distribute to EMPLOYEE any unpaid compensation and reimbursable expenses, less applicable withholdings, owed to EMPLOYEE prior to the date of termination of this Agreement.

4.2.4    Termination With Cause.  Upon termination of EMPLOYEE's employment for Cause pursuant to Section 4.1.4, COMPANY  shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.  Any compensation and reimbursable expenses owed to EMPLOYEE by COMPANY through the termination date, less applicable withholdings; and

ii.  Severance compensation as provided for in COMPANY's Severance Policy, if any, less applicable withholdings.

4.2.5    Termination Without Cause; Resignation for Good Reason.  Upon termination of EMPLOYEE's employment by COMPANY without cause pursuant to Section 4.1.5, or if EMPLOYEE terminates this Agreement at any time for Good Reason, COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1 , and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.         Payment of full COBRA premium for TWELVE (12) months following termination.  Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

iii.        Severance compensation totaling TWELVE- (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. " 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. " 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. " 623, et. seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. " 2101, et. seq., and the California Fair Employment and Housing Act, Cal. Gov't Code " 12940, et seq. EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, under either any other provision to this Agreement or any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

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4.2.6     Termination Due to Change Of Control.   If employment is terminated within TWELVE (12) months AFTER any of the events delineated in Section 4.1.6 of this Agreement ("Change of Control"), COMPANY shall have no further obligation to EMPLOYEE under this Agreement except to distribute to EMPLOYEE:

i.          Any compensation then due EMPLOYEE in accordance with Section 3.1.1  and reimbursable expenses owed by COMPANY to EMPLOYEE through the termination date, less applicable withholdings; and

ii.          A pro-rated share of the Cash Incentive Bonus that would be due to EMPLOYEE if EMPLOYEE had remained employed with COMPANY through the last day of the fiscal year for which the cash incentive bonus is calculated, less applicable withholdings and/or any other applicable bonus or compensation program as approved by the Board of Directors; and

iii.         Any options awarded and pursuant to the Long-Term Incentive Plan applicable to EMPLOYEE's option award(s); and

iv.         Payment of full COBRA premium for TWELVE (12) months following termination. Should EMPLOYEE discontinue COBRA coverage or elect alternative coverage, a cash payment will not be provided in lieu of payment of premium; and

v.         Severance compensation totaling TWELVE (12) months base pay, plus ONE (1) month base pay for each full year of service, determined at EMPLOYEE's then-current rate of base pay.  In consideration for this severance compensation, EMPLOYEE, on behalf of himself, his agents, heirs, executors, administrators, and assigns, expressly releases and forever discharges COMPANY and its successors and assigns, and all of its respective agents, directors, officers, partners, employees, representatives, insurers, attorneys, parent companies, subsidiaries, affiliates, and joint ventures, and each of them, from any and all claims based upon acts or events that occurred on or before the date on which EMPLOYEE accepts the severance compensation, including any claim arising under any state or federal statute or common law, including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. '' 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. '' 12101, et seq., the Age Discrimination in Employment Act, 29 U.S.C. ''  623, et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. '' 2101, et seq., and the California Fair Employment and Housing Act, Cal. Gov't Code '' 12940, et seq.  EMPLOYEE acknowledges that he is familiar with section 1542 of the California Civil Code, which reads as follows:

8

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

EMPLOYEE expressly acknowledges and agrees that he is   releasing all known and unknown claims, and that he is waiving all rights he has or may have under Civil Code Section 1542 or under any other statute or common law principle of similar effect.  EMPLOYEE acknowledges that the benefits he is receiving in exchange for this Release are more than the benefits to which he otherwise would have been entitled, and that such benefits constitute valid and adequate consideration for this Release.  EMPLOYEE further acknowledges that he has read this Release, understands all of its terms, and has consulted with counsel of his choosing before signing this Agreement. 

Severance compensation pursuant to this paragraph shall be in lieu of any other severance benefit to which EMPLOYEE would otherwise be entitled, either under any provision to this Agreement or  any COMPANY policies in effect on the date of execution of this Agreement.  Severance compensation shall be paid upon termination of  EMPLOYEE's employment and in one lump sum payment at the date of termination, less applicable withholdings.

5.         REPRESENTATIONS AND WARRANTIES

5.1  Representations of EMPLOYEE.  EMPLOYEE represents and warrants that EMPLOYEE has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, EMPLOYEE will not violate or interfere with the rights of any other person or entity; and that EMPLOYEE is not subject to any contract, understanding or obligation that will or might prevent, interfere with or impair the performance of this Agreement by EMPLOYEE.  EMPLOYEE shall indemnify and hold COMPANY harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys' fees and court costs) resulting from or arising out of any claim or action based upon EMPLOYEE's entering into this Agreement.

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5.2  Representations of COMPANY.  COMPANY represents and warrants that it has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement.  All corporate and other actions required to be taken by COMPANY to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken.  This Agreement is the lawful, valid and legally binding obligation of COMPANY enforceable in accordance with its terms.

5.3  Materiality of Representations.  The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto.

6.         COVENANTS

6.1  Nondisclosure and Invention Assignment.  EMPLOYEE acknowledges that, as a result of performing the Services, EMPLOYEE shall have access to confidential and sensitive information concerning COMPANY's business including, but not limited to, their business operations, sales and marketing data, and manufacturing processes.  EMPLOYEE also acknowledges that in the course of performing the Services, EMPLOYEE may develop new product ideas or inventions as a result of COMPANY's information.  Accordingly, to preserve COMPANY's confidential information and to assure it the full benefit of that information, EMPLOYEE shall, as a condition of employment with COMPANY, execute COMPANY's standard form of Employee Confidentiality Agreement attached hereto as Exhibit A, and execute updated versions of the Employee Confidentiality Agreement as it may be modified from time to time by COMPANY and as may be required of similarly-situated executives of COMPANY.  The Employee Confidentiality Agreement is incorporated herein by this reference.  EMPLOYEE's obligations under the Employee Confidentiality Agreement continue beyond the termination of this Agreement.

6.2  Covenant Not to Compete.  In addition to the provisions of the Employee Confidentiality Agreement, EMPLOYEE shall abide by the following covenant not to compete if COMPANY, at its option upon the termination of this Agreement (regardless of the reason for the termination), exercises this Covenant Not to Compete.  COMPANY shall notify EMPLOYEE within ten (10) days of termination of this Agreement of its intention to exercise this option and make an additional payment to EMPLOYEE of six (6) months' base pay determined at EMPLOYEE's last rate of pay with COMPANY.  EMPLOYEE agrees that for a period of one (1) year following the termination of this Agreement, he shall not directly or indirectly for EMPLOYEE, or as a member of a partnership, or as an officer, director, stockholder, employee, or representative of any other entity or individual, engage, directly or indirectly, in any business activity which is the same or similar to work engaged in by EMPLOYEE on behalf of COMPANY within the same geographic territory as EMPLOYEE's work for COMPANY and which is directly competitive with the business conducted or to EMPLOYEE's knowledge, contemplated by COMPANY at the time of termination of this Agreement, as defined in the Employee Confidentiality Agreement incorporated into this Agreement by reference.  EMPLOYEE may accept employment with an entity competing with COMPANY only if the business of that entity is diversified and EMPLOYEE is employed solely with respect to a separately-managed and separately-operated part of that entity's business that does not compete with COMPANY.  Prior to accepting such employment, EMPLOYEE and the prospective employer entity shall provide COMPANY with written assurances reasonably satisfactory to COMPANY that EMPLOYEE will not render services directly or indirectly to any part of that entity's business that competes with the business of COMPANY.

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6.3  Covenant to Deliver Records.  All memoranda, notes, records and other documents made or compiled by EMPLOYEE, or made available to EMPLOYEE during the term of this Agreement concerning the business of COMPANY, shall be and remain COMPANY's property and shall be delivered to COMPANY upon the termination of this Agreement or at any other time on request. 

6.4  Covenant Not To Recruit.  EMPLOYEE shall not, during the term of this Agreement and for a period of one (1) year following termination of this Agreement, directly or indirectly, either on EMPLOYEE's own behalf, or on behalf of any other individual or entity, solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee associated with COMPANY to become affiliated with him or any other individual or entity. 

7.         CERTAIN RIGHTS OF COMPANY

7.1  Announcement.  COMPANY shall have the right to make public announcements concerning the execution of this Agreement and certain terms thereof. 

7.2  Use of Name, Likeness and Biography.  COMPANY shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of EMPLOYEE to advertise, publicize and promote the business of COMPANY and its affiliates, but not for the purposes of direct endorsement without EMPLOYEE's consent.  An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of EMPLOYEE, or any biographical information or life story concerning the professional career of EMPLOYEE. 

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7.3  Right to Insure.  COMPANY shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering EMPLOYEE, and EMPLOYEE shall have no right, title or interest in and to such insurance.  EMPLOYEE shall assist COMPANY in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance.

8.         ASSIGNMENT

Neither party may assign or otherwise dispose of its rights or obligations under this Agreement without the prior written consent of the other party except as provided in this Section.  COMPANY may assign and transfer this Agreement, or its interest in this Agreement, to any affiliate of COMPANY or to any entity that is a party to a merger, reorganization, or consolidation with COMPANY, or to a subsidiary of COMPANY, or to any entity that acquires substantially all of the assets of COMPANY or of any division with respect to which EMPLOYEE is providing services (providing such assignee assumes COMPANY's obligations under this Agreement).  EMPLOYEE shall, if requested by COMPANY, perform EMPLOYEE's duties and Services, as specified in this Agreement, for the benefit of any subsidiary or other affiliate of COMPANY.  Upon assignment, acquisition, merger, consolidation or reorganization, the term "COMPANY" as used herein shall be deemed to refer to such assignee or successor entity.  EMPLOYEE shall not have the right to assign EMPLOYEE's interest in this Agreement, any rights under this Agreement, or any duties imposed under this Agreement, nor shall EMPLOYEE or his spouse, heirs, beneficiaries, executors or administrators have the right to pledge, hypothecate or otherwise encumber EMPLOYEE's right to receive compensation hereunder without the express written consent of COMPANY.  

9.         RESOLUTION OF DISPUTES

In the event of any dispute arising out of or in connection with this Agreement or in any way relating to the employment of EMPLOYEE which leads to the filing of a lawsuit, the parties agree that venue and jurisdiction shall be in Santa Barbara County, California.  The prevailing party in any such litigation shall be entitled to an award of costs and reasonable attorneys' fees to be paid by the losing party.

10.       GENERAL PROVISIONS

10.1  Notices.  Notice under this Agreement shall be sufficient only if personally delivered by a major commercial paid delivery courier service or mailed by certified or registered mail (return receipt requested and postage pre-paid) to the other party at its address set forth in the signature block below or to such other address as may be designated by either party in writing.  If not received sooner, notices by mail shall be deemed received five (5) days after deposit in the United States mail.

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10.2  Agreement Controls.  Unless otherwise provided for in this Agreement, the COMPANY's policies, procedures and practices shall govern the relationship between EMPLOYEE and COMPANY.  If, however, any of COMPANY's policies, procedures and/or practices conflict with this Agreement (together with any amendments hereto), this Agreement (and any amendments hereto) shall control.

10.3  Amendment and Waiver.  Any provision of this Agreement may be amended or modified and the observance of any provision may be waived (either retroactively or prospectively) only by written consent of the parties.  Either party's failure to enforce any provision of this Agreement shall not be construed as a waiver of that party's right to enforce such provision.

10.4  Governing Law.  This Agreement and the performance hereunder shall be interpreted under the substantive laws of the State of California.

10.5  Force Majeure.  Either party shall be temporarily excused from performing under this Agreement if any force majeure or other occurrence beyond the reasonable control of either party makes such performance impossible, except a Disability as defined in this Agreement, provided that the party subject to the force majeure provides notice of such force majeure at the first reasonable opportunity.  Under such circumstances, performance under this Agreement which related to the delay shall be suspended for the duration of the delay provided the delayed party shall resume performance of its obligations with due diligence once the delaying event subsides.  In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension.

10.6  Remedies.  EMPLOYEE acknowledges that because of the nature of COMPANY's business, and the fact that the services to be performed by EMPLOYEE pursuant to this Agreement are of a special, unique, unusual, extraordinary, and intellectual character which give them a peculiar value, a breach of this Agreement shall cause substantial injury to COMPANY for which money damages cannot reasonably be ascertained and for which money damages would be inadequate.  EMPLOYEE therefore agrees that COMPANY shall have the right to obtain injunctive relief, including the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, in addition to any other remedies that COMPANY may have.

10.7  Severability.  If any term, provision, covenant, paragraph, or condition of this Agreement is held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, that provision shall be limited or eliminated to the minimum extent necessary so this Agreement shall otherwise remain enforceable in full force and effect.

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10.8  Construction.  Headings and captions are only for convenience and shall not affect the construction or interpretation of this Agreement.  Whenever the context requires, words, used in the singular shall be construed to include the plural and vice versa, and pronouns of any gender shall be deemed to include the masculine, feminine, or neuter gender.

10.9  Counterpart Copies.  This Agreement may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

10.10 No Adverse Construction.  The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms hereof. 

10.11 Entire Agreement.  With respect to its subject matter, namely, the employment by COMPANY of EMPLOYEE, this Agreement (including the documents expressly incorporated therein, such as the Employee Confidentiality Agreement), contains the entire understanding between the parties, and supersedes any prior agreements, understandings, and communications between the parties, whether oral, written, implied or otherwise, including, but not limited to, the original offer of employment letter.

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

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

EMPLOYEE/DATE	MENTOR CORPORATION/DATE
/s/ Clarke Scherff	By /s/ Joshua Levine
Clarke Scherff/Date	Joshua Levine/Date
	President/CEO
	Mentor Corporation
NOTICE ADDRESS	NOTICE ADDRESS:
5140 Pineglen Road	201 Mentor Drive
La Cresenta, California 91214	Santa Barbara, California 93111

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EX-10.9

Amended and Restated Exclusive Supply Agreement

 by and among

NuSil Corporation
a California corporation

 SiTech, Inc.
a California corporation

and

 Mentor Corporation
a Minnesota corporation

July 6, 2004

EXCLUSIVE SUPPLY AGREEMENT:  Page 1

	TABLE OF CONTENTS
Section		Page
1...... DEFINITIONS.		1
	1.1      Affected Material.	1
	1.2      Affiliate.	1
	1.3      Applicable Requirements.	2
	1.4      Delivery Date.	2
	1.5      Effective Date.	2
	1.6      Equivalent Material.	2
	1.7      FDA.	2
	1.8      Improvements.	2
	1.9      Initial Materials.	2
	1.10    Initial Month.	2
	1.11    Long-Term Implantable Materials.	2
	1.12    Market Segment.	2
	1.13    Material.	2
	1.14    Mentor.	2
	1.15    Non-Long-Term Implantable Materials.	2
	1.16    NuSil.	2
	1.17    Products.	2
	1.18    Qualified Alternative Supplier.	2
	1.19    Supplier.	3
	1.20    Term.	3
	1.21    Transfer Agreement.	3
	1.22    Year.	3
2...... SALE AND PURCHASE OF MATERIALS.		3
	2.1      Delegation of Supplier's duties to SiTech.	3
	2.2      Supply of Materials.	3
	2.3      Specifications; Regulatory Compliance; Manufacturing.	6
	2.4      Purchase Orders; Forecasts.	8
	2.5      Fulfillment by NuSil.	8
	2.6      Labeling and Packaging.	9
	2.7      Delivery.	9
	2.8      Supplier's Compliance Certificate; Invoice.	9
	2.9      Rejection and Inspection of Material.	9
3...... PRICES, TERMS AND PAYMENTS.		10
	3.1      Certain Definitions for Computation Purposes.	10
	3.2      Price List.	11
	3.3      Most Favored Nation Pricing.	11
	3.4      Credits against Purchase Price.	12
	3.5      Books and Records; Reports.	12
	3.6      Annual Report.	12
	3.7      Audits.	13
	3.8      Price Adjustments.	13
	3.9      Method of Payment.	14
	3.10    Past Due Amount.	14

EXCLUSIVE SUPPLY AGREEMENT:  Page i

	TABLE OF CONTENTS (CONT'D)
Section		Page
4...... PARTIAL TERMINATION AND PENDING DISPUTES.		14
	4.1      Failure to Supply.	14
	4.2      Termination Right.	15
5...... TERMINATION, RIGHTS, AND OBLIGATIONS UPON TERMINATION		15
	5.1      Term.	15
	5.2      Termination for Cause.	15
	5.3      Termination by Supplier.	15
	5.4      Mentor Purchase of SiTech Assets.	15
	5.5      Liability of Mentor upon Termination for Default.	16
	5.6      Liability of Supplier upon Termination for Default.	16
	5.7      Effect of Expiration or Termination.	16
	5.8      Return of Property.	16
	5.9      Enumerated Remedies not Exclusive.	16
	5.10    Continuation after Expiration of Initial Term.	16
6...... REPRESENTATIONS, WARRANTIES AND COVENANTS.		16
	6.1      Vendor Audit Rights.	16
	6.2      No Rights Created.	17
	6.3      Rights, Power, Authority and Binding Obligation.	17
	6.4      Compliance with Law.	17
	6.5      Fulfillment Facilities.	17
	6.6      No Infringement.	17
	6.7      Production Capacity.	17
	6.8      Confidential Information.	17
	6.9      Duty to Keep Books and Records.	18
	6.10    Intellectual Property.	19
	6.11    Warranties.	19
	6.12    Reports by Mentor.	19
7...... INDEMNIFICATION..		19
	7.1      Indemnification by Mentor.	19
	7.2      Indemnification by SiTech.	19
8...... MISCELLANEOUS.		20
	8.1      Effective Date and Implementation.	20
	8.2      Amendment and Waiver.	20
	8.3      Governing Law and Legal Actions.	21
	8.4      Notice and Reports.	21
	8.5      Entire Agreement.	21
	8.6      Severability.	21
	8.7      Relationship of Parties.	21
	8.8      Delegation of Duties.	21
	8.9      Assignment.	21
	8.10    Publicity and Press Releases.	22
	8.11    Force Majeure.	22
	8.12    Counterparts.	22

EXCLUSIVE SUPPLY AGREEMENT:  Page ii

Amended and Restated Exclusive Supply Agreement

            This Amended and Restated Exclusive Supply Agreement (the "Agreement") is dated for reference purposes as of July 6, 2004, and effective as of the "Effective Date" identified below, by and among NUSIL CORPORATION, a California corporation ("NuSil"); SiTech, Inc., a California corporation that is wholly owned by NuSil ("SiTech" and, collectively with NuSil, the "Supplier"), and Mentor Corporation, a Minnesota corporation ("Mentor"), with reference to the following facts:

         Recitals:

A.                 Alchemy Engineering, LLC, a California limited liability company doing business under the fictitious business name of "SiTech" ("Alchemy"), is an Affiliate of NuSil.

B.                 Mentor and Alchemy executed that certain Exclusive Supply Agreement dated effective September 16, 1997 (the "Original Supply Agreement"), pursuant to which Alchemy has manufactured and sold to Mentor certain Materials (as defined in Section 1.13 below) which are used by Mentor in the manufacture of its Products (as defined in Section 1.17 below).

C.                 In order to provide Mentor with a means of assuring itself a continuing source of supply of the Materials, NuSil and Alchemy entered into an Option and Asset Purchase Agreement with Mentor dated effective as of September 16, 1997 (the "Option Agreement") pursuant to which Mentor was granted an option to purchase the assets of Alchemy, and Mentor has given notice of the exercise of such option.

D.                 Mentor and NuSil have now agreed that the rights of Mentor under the Option Agreement should be transferred to SiTech, Inc., a newly formed, wholly-owned subsidiary of NuSil ("SiTech"), in exchange for the agreement of NuSil and SiTech to supply the Materials to Mentor for a period of twenty (20) Years.

E.                  Mentor, NuSil and SiTech are therefore executing this Agreement in order to replace and supersede the Original Supply Agreement and to memorialize (1) the terms and conditions on which SiTech and NuSil jointly and severally agree to produce and supply the Materials after the assignment of the Option Agreement to SiTech, and (2) Mentor agrees to acquire such Materials from NuSil and SiTech following the acquisition by SiTech of the assets of Alchemy. 

        AGREEMENTS:

       Now, Therefore, in consideration of the premises and the mutual promises and covenants set forth below, NuSil, SiTech and Mentor mutually agree as follows:

1.    DEFINITIONS.

For purposes of this Agreement, (a) the words and phrases defined in Section 3.1 below shall have the meanings ascribed to them in that Section and (b) the following terms and phrases shall have the meanings set forth below:

1.1              Affected Material.   Any Material that Supplier is unable to supply to Mentor (a) at the time and in the quantity required by this Agreement or (b) in conformity with the specifications for such Material and in compliance with Applicable Requirements.

1.2              Affiliate.  Any one of (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, and (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.

EXCLUSIVE SUPPLY AGREEMENT:  Page 1

1.3              Applicable Requirements.  Has the meaning assigned thereto in Section 2.3.1, below.

1.4              Delivery Date.  A date for which delivery of a Material to Mentor is properly requested by Mentor in a written purchase order.

1.5              Effective Date.  May 8, 2004.

1.6              Equivalent Material.  Any material that is equivalent to or substantially the same as a Material.

1.7              FDA.  The United States Food and Drug Administration.

1.8              Improvements.   Any change in a Material or a component of a Material, or in the processes, procedures, methods or techniques used in its manufacture, production or assembly, that enhances the safety, efficacy or performance of such Material or that makes such Material quicker, easier or less expensive to manufacture, assemble, distribute, store, use or dispose of.

1.9            Initial Materials.  Those Materials that Supplier is initially supplying to Mentor as of the Effective Date, and any substantially equivalent materials that may be supplied to Mentor by any Qualified Alternative Supplier.

1.10          Initial Month. The second full calendar month following the date on which this Agreement has been executed by each of the parties to this Agreement.

1.11          Long-Term Implantable Materials.  Silicone materials that are designed to be implanted in the human body for a period of time greater than twenty-nine (29) days.

1.12          Market Segment. A discrete portion of the market (defined by reference to the territory to which Products are shipped, the type of Product shipped, or other similarly specific factors) to which Mentor sells Products containing Materials supplied by Supplier hereunder.

1.13          Material.  Any material manufactured by Supplier as set forth in Exhibit A to this Agreement, any variation of such material resulting from any Improvements to such material, and any other Long-Term Implantable Material or Non-Long-Term Implantable Material that Supplier may hereafter supply to Mentor pursuant to Section 2.2 below.

1.14          Mentor.  Mentor and/or each of its wholly-owned Affiliates.

1.15          Non-Long-Term Implantable Materials.   Silicone materials other than Long-Term Implantable Materials.

1.16          NuSil.  NuSil Corporation, a California corporation, and each of its Affiliates.

1.17          Products.  Silicone or other synthetic implants that replace, reconstruct, expand, enhance, augment or improve the functioning or appearance either of human tissue or human organs or both.

1.18          Qualified Alternative Supplier.  A person or entity that is reasonably qualified to produce or supply a Material or Equivalent Material of the type, in the quantity, and at the same levels of reliability and quality that Supplier delivers (or is entitled to deliver) hereunder for use in the Products marketed and sold by Mentor.

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1.19          Supplier.  Collectively, NuSil and SiTech, who shall be jointly and severally liable for the performance of the obligations of the Supplier under this Agreement.

1.20          Term.  A period of twenty (20) Years, measured from the Effective Date of this Agreement. 

1.21          Transfer Agreement.   That certain Transfer Agreement by and among SiTech, Mentor and NuSil being executed by the parties concurrently with the execution of this Agreement pursuant to which the Option is being transferred by Mentor to SiTech.

1.22          Year.   A period of twelve (12) consecutive months commencing on the Effective Date of this Agreement and on each succeeding annual anniversary of the Effective Date.

2.                  SALE AND PURCHASE OF MATERIALS

2.1              Delegation of Supplier's duties to SiTech.  For as long as SiTech is an Affiliate of NuSil, NuSil shall delegate to SiTech all of the duties and obligations of the Supplier under this Agreement and may assign to SiTech all of the rights and benefits of this Agreement, and SiTech shall accept such delegation and any such assignment and shall perform all of the duties of the Supplier hereunder.

2.1.1        No such delegation or assignment shall release NuSil from its obligations as a Supplier under this Agreement.  For as long as the duty to perform the obligations of the Supplier under this Agreement has been delegated solely to SiTech, NuSil shall (a) take those actions in its capacity as the sole shareholder of SiTech as are necessary or appropriate to enable SiTech to perform the duties and obligations delegated to it under this Agreement, and (b) refrain from taking any action that would impair or interfere with the ability of SiTech to perform the duties and obligations delegated to under this Agreement.

2.1.2        If for any reason SiTech fails to perform any of the duties and obligations of the Supplier under this Agreement, then NuSil shall immediately resume the performance of such duties and obligations as fully and completely as if this Agreement were solely between Mentor and NuSil.

2.1.3        Mentor, upon request of Supplier from time to time, shall conduct such tests and inspections as may be reasonably necessary in order to verify that NuSil and its Affiliates appear to be qualified, under Applicable Requirements and the requirements of Mentor, to supply Materials to Mentor from facilities other than the SiTech facilities in Irving, Texas, but no such verification given by Mentor shall (a) constitute a certification by Mentor that Supplier is in compliance with Applicable Requirements or (b) relieve Supplier of its obligation to comply with all Applicable Requirements or (c) constitute or be construed to constitute a waiver by Mentor of its rights to require Supplier to remedy any noncompliance that did not come to the attention of Mentor during any such tests and inspections, whether due to the negligence of Mentor or otherwise

2.2              Supply of Materials.

2.2.1        Manufacture by Supplier.  Supplier hereby agrees to manufacture for, and deliver to Mentor, and Mentor agrees to purchase from Supplier, such quantities of the Materials listed on Exhibit A hereto as may be necessary to meet Mentor's requirements based upon such written purchase orders and forecasts provided pursuant to Section 2.4 of this Agreement.  In the event that Mentor's requirements differ significantly (by more than 25%) from the forecasts, Mentor will promptly notify Supplier of the fact and the amount of such variance.  Supplier shall use commercially reasonable efforts to satisfy any increases in Mentor's requirements over its binding and non-binding forecasts as provided for in Section 2.4.1.  The parties hereto acknowledge and agree that Supplier may manufacture or sell other products to any third party. 

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2.2.2        Mentor Purchase Commitments.  Subject to Supplier's discharge of its obligations under this Agreement and the provisions of Sections 2.2.2A and 4 below, during the term of this Agreement Mentor (a) shall purchase solely from Supplier all Long-Term Implantable Materials (and any alternative materials having substantially the same specifications and functionality as the Materials) required by Mentor, and (b) shall not purchase any Non-Long-Term Implantable Materials from any Person other than Supplier without first (i) delivering to Supplier a detailed written summary of the specifications and proposed purchase price of such Non-Long-Term Implantable Materials, and (ii) negotiating exclusively with Supplier, in good faith, for fourteen (14) days regarding whether and on what terms Supplier may fulfill Mentor's requirements for such Non-Long-Term Implantable Materials; provided that, notwithstanding the foregoing:

A.                 Alternative Supply.  If either (1) Mentor identifies a Qualified Alternative Supplier for any Material for use in an identified Market Segment at a cost that is less than the price charged by Supplier hereunder, or (2) a Material supplied by Supplier hereunder, in the reasonable judgment of Mentor, does not satisfy the reasonable requirements of Mentor for quality, reliability and timeliness, then Mentor shall deliver written notice of such circumstances to Supplier, including a description of the events or circumstances occasioning the invocation of this Section 2.2.2A, the name and location of the proposed alternative supplier, a description of the Market Segment affected, and all other relevant circumstances.

(1)                Supplier thereafter may elect, within thirty (30) days following the receipt of such written notice from Mentor, either to lower its price for such Material or to modify its manufacturing practices to meet the reasonable requirements of Mentor, as applicable under clause "(1)" or "(2)" of Section 2.2.2A above.  If Supplier fails, within that 30-day period, either to meet the alternative supplier's price or to meet Mentor's reasonable requirements, as applicable, then Mentor thereafter shall be released from its exclusivity commitment with respect to such Material under this Agreement and may procure such Material from the Qualified Alternative Supplier (with respect to clause "(1)", above) or any other supplier (with respect to clause "(2)", above).

(2)                An election by Mentor to procure Materials from a Qualified Alternative Supplier pursuant to clause (1) of Section 2.2.2A above shall release Supplier from its obligations under this Agreement only with respect to those Materials being purchased by Mentor from the Qualified Alternative Supplier and only for as long as Mentor elects to procure such Materials from such Qualified Alternative Supplier.  Mentor shall be entitled at any time to resume procuring the Materials from SiTech or NuSil in accordance with the provisions of this Agreement provided that either SiTech or NuSil is still in the business of producing such Materials.  A suspension in the purchase of Materials by Mentor pursuant to this Section 2.2.2A shall not toll the term of this Agreement or result in an extension of its term.

B.     NuSil Election to Discontinue.  If in any period of twelve (12) consecutive calendar months during the term of this Agreement Mentor's purchases of Initial Materials from one or more Qualified Alternative Suppliers ("QAS Procured Initial Materials") are, in the aggregate, more than twenty percent (20%) of the total dollar volume of its aggregate purchases of Initial Materials, including those procured from a Qualified Alternative Supplier and those procured from Supplier (the "Total Procured Initial Materials"), then Supplier may elect to deliver to Mentor a written notice of Supplier's intent to discontinue supplying Mentor pursuant to this Agreement (a "Preliminary Notice"), specifying the date on which such discontinuation will become effective, not less than ninety (90) days prior to such effective date.

(1)    Within thirty (30) days of its receipt of any such Preliminary Notice, Mentor may elect to adjust the quantity of the Initial Materials Mentor is purchasing from Supplier and any Qualified Alternative Suppliers such that its purchases of the QAS Procured Initial Materials will not exceed twenty percent (20%) of the Total Procured Initial Materials.  Mentor shall notify NuSil of any such election (an "Adjustment Election") within thirty (30) days of Mentor's receipt of Supplier's Preliminary Notice.  If Mentor timely gives Supplier written notice of an Adjustment Election, then during the sixty (60) days following its delivery of the Adjustment Notice (the "Adjustment Period"), Mentor shall make the adjustments to its purchases of the Initial Materials being procured from Supplier and from Qualified Alternative Suppliers to amounts such that, if its purchases during the Adjustment Period were to continue at the same level for the twenty-four (24) full calendar months following its delivery of the Adjustment Election (the "Remedial Period"), its QAS Procured Initial Materials during such 24-month Remedial Period would not exceed twenty percent (20%) of the Total Procured Initial Materials during the Remedial Period.

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a.       If Mentor does not timely give an Adjustment Notice, or if, after timely giving an Adjustment Notice, Mentor fails during the Adjustment Period to make the adjustments to its purchases of the Initial Materials required by subparagraph 2.2.2B(1) above, then the provisions of 2.2.2B(2) below shall apply and Supplier shall be entitled to discontinue supplying Mentor under this Agreement on the effective date specified in the Preliminary Notice.

b.       If Mentor timely gives an Adjustment Notice and thereafter during the Adjustment Period makes the adjustments to its purchases of the Initial Materials required by subparagraph 2.2.2B(1) above, then Supplier's Preliminary Notice shall automatically be suspended for as long as Mentor's purchases of the QAS Procured Initial Materials do not exceed twenty percent (20%) of the Total Procured Initial Materials.

c.       If at any time during the 24-month Remedial Period Mentor's purchases of the QAS Procured Initial Materials, in the aggregate, exceed twenty percent (20%) of Total Procured Initial Materials, then Supplier shall be entitled to discontinue supplying Mentor pursuant to this Agreement by giving Mentor notice of its intent to do so, specifying the effective date on which it shall discontinue supplying Mentor, not less than ninety (90) days prior to such effective date (a "Discontinuation Notice") at any time prior to the expiration of the Remedial Period.  If a Discontinuation Notice is not properly given by Supplier prior to the expiration of the Remedial Period, then the Preliminary Notice shall automatically be cancelled and Supplier shall not be entitled to discontinue supplying Mentor under this Agreement without first again giving a Preliminary Notice in accordance with the provisions of this Section 2.2.2B and affording Mentor the opportunity to make an Adjustment Election.

(2)    If Supplier becomes entitled to discontinue supplying Mentor pursuant to any provision of this Section 2.2.2B, then during the ninety (90)-day period following its receipt of any Preliminary Notice or any Discontinuation Notice given pursuant to this Section 2.2.2B (the "Option Period"):

a.       Mentor may elect to purchase the assets of SiTech in accordance with the terms and conditions set forth in Sections 4.1 and 5 of the Transfer Agreement (the "SiTech Purchase Option").  If Mentor elects to exercise the SiTech Purchase Option, then Mentor shall deliver to SiTech within such 90-day Option Period an irrevocable, binding election to purchase such assets.  The purchase and sale of the SiTech assets thereafter shall close at the time, in the manner, and with such mutual deliveries as are required under Section 5 of the Transfer Agreement.  If Mentor fails to timely exercise its purchase option and close the purchase of SiTech's assets in accordance with the foregoing subparagraph (a), then at the expiration of the 90-day Option Period Supplier shall be entitled to discontinue supplying Mentor under this Agreement.

b.       The parties shall also negotiate in good faith such other prices or terms for the Materials as may be mutually acceptable to the parties, in their respective sole discretion.  If the parties agree upon such alternative prices or terms within such subsequent 90-day period, then (a) this Agreement shall remain in full force and effect as modified by such agreement regarding alternative prices and terms and (b) the Discontinuation Notice shall be cancelled.  If the parties fail to reach agreement upon such alternative prices or terms within such 90-day period, then Supplier may elect to terminate this Agreement pursuant to Section 5.3 below.

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C.                  Suspension of Obligation.  Mentor's obligation to purchase a Material exclusively from Supplier and Supplier's obligation to manufacture and sell such Material to Mentor may be suspended for not more than ninety (90) days after the filing by Supplier of a Master Access File for that Material with the FDA to the extent necessary to enable Supplier or Mentor to perform such clinical testing or other procedures as may be required by the FDA as a condition to its approval of the marketing and sale of such Material or a Product of which such Material is a component.

2.2.3        Materials.  Supplier shall maintain an inventory of raw materials and finished goods sufficient to assure that at all times during the term of this Agreement Supplier can ship and deliver to Mentor within thirty (30) days a three (3) month supply of the Materials to be purchased by Mentor pursuant to the terms of this Agreement after taking into account shipments made during the preceding thirty (30) days (the "Minimum Inventory Level").  Upon written request of Mentor from time to time (but in all events not more frequently than once in any consecutive three (3) month period), Supplier shall provide to Mentor within thirty (30) days of written request therefor a list of Supplier's raw materials and finished goods inventory as of the last day of the last preceding calendar month.  Mentor shall have the right, but not the obligation, to conduct an annual audit of Supplier, at Mentor's expense, to satisfy itself that such Minimum Inventory Level is being met.  In the event that Mentor's audit or any Supplier report reveals that Supplier is not maintaining the Minimum Inventory Level for each necessary raw material, Mentor may, at its sole option, but shall not be obligated to purchase a three (3) month supply of any such raw material and store such raw material at Supplier's facility at any time when Supplier's inventory (including any inventory provided by Mentor hereunder) is below (the "Minimum Inventory Level").  Supplier shall use any such raw material purchased by Mentor prior to using any raw materials thereafter purchased by Supplier and shall reimburse Mentor the amount of Mentor's actual cost for such raw materials upon Supplier's use of the raw material purchased by Mentor.  An election by Mentor not to purchase and store an inventory of raw materials at Supplier's facility shall not excuse a default by Supplier in its duty to timely supply Mentor as provided by Section 2.4 below.

2.3              Specifications; Regulatory Compliance; Manufacturing.

2.3.1        Product specifications.  Supplier shall manufacture the Materials in accordance with the specifications therefor to which Supplier has been manufacturing such Materials prior to the date hereof.  Supplier's Manufacturing operations shall be in conformance with the requirements of the United States Food and Drug Administration applicable to Supplier, the Quality System Regulations as promulgated or modified by the FDA from time to time ("QSRs"), and the requirements of other cognizant foreign, federal, state, and local regulatory authorities applicable to Supplier (collectively, the "Applicable Requirements").  Supplier shall not deviate in any way whatsoever therefrom without the prior written consent of a duly authorized representative of Mentor.

A.                 In the event Mentor determines that Supplier is not in compliance with Applicable Requirements, including without limitation applicable QSRs, Mentor shall promptly deliver to Supplier written notice of such non-compliance ("Non-compliance Notice").  Supplier shall create and deliver to Mentor an action plan to address any such non-compliance (the "Action Plan") within fifteen (15) days of its receipt of the Non-compliance Notice.  The Action Plan shall be mutually agreeable to Mentor and Supplier, including the time period and the action(s) necessary to correct any non-compliance by Supplier.  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 Supplier's receipt of the Non-compliance Notice.

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(1)                In the event Supplier 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 5.2.5 below with respect to the Affected Material or to elect to have some or all of the Affected Materials supplied by a third party supplier pursuant to Section 4 below. 

(2)                The termination of this Agreement by Mentor pursuant to this Section 2.3.1 shall be without prejudice to any other rights and remedies Mentor may have by reason of the breach by Supplier of its obligations under this Agreement.

B.     For any changes to the specifications for any Materials requested by Mentor which are not required to comply with Applicable Requirements, including without limitation, applicable QSRs, Mentor shall deliver to Supplier written notice of such desired changes, and Supplier shall use its commercially reasonable efforts to implement such changes requested by Mentor.  The parties hereto agree to work together in good faith to implement any such changes to the specifications.  Supplier shall charge for such work at rates equal to its established hourly rates for the research, technical and engineering personnel actually performing such work, and Mentor shall reimburse the charges therefor promptly upon receipt of an itemized invoice therefor.  Notwithstanding any other provision hereof to the contrary, Supplier shall be entitled to increase the prices for the Improved Materials containing such changed specifications by the amount of any increase in Supplier's costs of materials and other direct manufacturing costs.

2.3.2        Master Access File.  Supplier shall establish, file with the FDA and maintain in accordance with the requirements of the FDA a Master Access File ("Master Access File") with respect to the Materials.

A.                  Subject to Paragraphs B and C, below, upon Mentor's request, Supplier shall:

(1)    Provide Mentor with a table of contents of any other summary information regarding the Master Access File that Mentor may reasonably request, but nothing in this Section 2.3.2 shall require Supplier to disclose any confidential information in such table of contents.

(2)    Authorize the FDA to access on behalf of Mentor any Master Access File of Supplier pertaining to the Materials (provided that, this clause "(2)" is not intended and shall not be construed to avoid the limitations imposed by Sections 2.3.2 B and C, below).

(3)    Provide Mentor with such information as Mentor may reasonably request relative to the interpretation or application of data contained in the Master Access 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.

(4)    Certify to or on behalf of Mentor that any Materials delivered hereunder meet the specifications contained in the Master Access File and are manufactured in compliance with Applicable Requirements.

(5)    Notify Mentor of the nature and extent of any deficiency alleged by the FDA to exist in the Master Access File and any actions that Supplier proposes to take to remedy any such deficiency required to be remedied to satisfy Applicable Requirements. 

B.                  Notwithstanding Paragraph A of this Section 2.3.3, as a condition of NuSil's delivering any of the information contemplated by subparagraphs (1) through (5) of the foregoing Paragraph A, Supplier may require Mentor to execute and deliver an appropriate confidentiality agreement or nondisclosure agreement as a condition to the disclosure of any proprietary information requested by Mentor hereunder.

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C.     Notwithstanding Paragraph A of this Section 2.3.3, in no event shall Mentor be entitled to have access to, or shall Supplier be required to disclose hereunder, any information containing Supplier's manufacturing processes for Materials except in the connection with the transfer of the SiTech Assets to Mentor upon exercise by Mentor of the SiTech Purchase Option contained in the Transfer Agreement. 

2.4              Purchase Orders; Forecasts.

2.4.1        Forecast.  Mentor shall deliver to Supplier within five (5) days after the execution of this Agreement by each party (a) Mentor's rolling non-binding forecast of its requirements for the Materials for the twelve (12) month period commencing with the first day of the Initial Month, and (b) a written purchase order setting forth the quantities and Delivery Dates for Mentor's first purchase order of Materials for the sixty (60) day period commencing with the Initial Month.  Thereafter, Mentor shall deliver to Supplier on a monthly basis (or at such other intervals as Mentor and Supplier mutually agree upon, but in no event longer than ninety (90) days), an updated non-binding forecast of its requirements for the ensuing twelve (12) month period and a binding update of its quantity requirements and purchase order for such Materials for the ensuing sixty (60) day period or such longer period as the parties agree. 

2.4.2        Purchase Orders.  Each written purchase order shall specify the Delivery Date and shall include a reference to this Agreement.  Supplier shall acknowledge within three (3) business days after receipt of any written purchase orders submitted by Mentor (a) its receipt of such purchase order,  (b) its ability or inability to fulfill the above-described sixty (60) day forecasts and (c) if it is unable to fulfill the order, the reasons why.  The terms and conditions of this Agreement will control over any terms contained in any Mentor written purchase order, written acceptance or acknowledgement by Supplier, invoice or any other document that is not expressly identified as an amendment to this Agreement and signed by both parties.

2.4.3        Priority of Shipments to Mentor and Other Customers.  Supplier shall afford all purchase orders for the Materials received from Mentor equal priority with Supplier's own supply requirements and orders from other customers or distributors for both the Materials, Equivalent Materials, and other similar products manufactured by Supplier.  Supplier will ship all orders for Materials, and for other products manufactured or supplied by Supplier to others, in the priority in which such orders were received, and Supplier will not place any purchase orders for Materials received from Mentor on a back-order status if Supplier is then shipping Materials, Equivalent Materials other products manufactured or supplied by Supplier to its other customers or distributors.  In addition, if Supplier is unable to satisfy the requirements of Mentor and of any third party whose purchase orders precede those submitted by Mentor, then Supplier shall not refuse or refrain from filling Mentor's purchase orders, but rather shall fill Mentor's purchase orders in proportion to its Purchase Ratio as compared to the Purchase Ratio of any such third party.  For purposes of this provision, Mentor's "Purchase Ratio" shall equal whichever of the following accords Mentor a higher allocation of Materials with respect to the competing purchase orders:  (i) the ratio of Mentor's then-pending purchase order size (determined by the dollar-denominated price of such Purchase Order) to the then-pending (and earlier-submitted) purchase order size (as also determined by the dollar-denominated price of such purchase order) of such other third-party; or (ii) the ratio of Mentor's prior 12-months' purchases to the prior 12-month's purchases of such other third-party that submitted an earlier purchase order.

2.5              Fulfillment by NuSil.  Supplier may from time to time elect to have any order for Materials hereunder fulfilled by NuSil from NuSil's facilities, but nothing in this Section 2.5 is intended, and this Section 2.5 shall not be construed, to be in derogation of (a) the obligation of NuSil under Section 2.1 to delegate the performance of its duties and obligations hereunder to SiTech or (b) the obligation of SiTech under Section 6.7 to maintain the capacity to produce and supply the Materials to Mentor.

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2.6              Labeling and Packaging.  Supplier shall label the Materials in accordance with the labeling specifications set forth in this Section 2.6.  Unless Mentor otherwise requests, all Materials ordered by Mentor shall be packed for domestic shipment and storage in accordance with Supplier's standard commercial practices.  Supplier 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 (a) the purchase order number(s) prominently marked, (b) the quantity of the Material shipped, (c) the date of shipment, (d) supplier parts number, (e) supplier parts description, (f) supplier lot number, (g) net weight and (h) the warranty period.  Mentor shall notify Supplier of any special packaging requirements, which shall be at Mentor's expense.

2.7              Delivery.  All Materials delivered to Mentor shall be FOB Supplier's facilities set forth in each written purchase order (or, at the election of Supplier pursuant to Section 2.5 above, NuSil's facilities).  Supplier 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.  Supplier 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.

2.8              Supplier's Compliance Certificate; Invoice.  All Materials delivered to Mentor shall be accompanied by a certificate, signed by the President or the most senior Quality Assurance Manager of Supplier at such time indicating that the Materials being delivered (a) have been tested by Supplier, (b) meet the specifications therefor and are in compliance with applicable QSRs and all other Applicable Requirements, and (c) are free from any manufacturing defects.  An invoice for the amount due for the Materials shall be sent separately by Supplier to Mentor's accounts payable department.

2.9              Rejection and Inspection of Material.  Every tender of Materials must materially comply with the Material specifications therefor.  Mentor may reject any portion of any shipment of the Materials which is not conforming with such specifications.  In order to reject a shipment, Mentor must (i) give notice to Supplier 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 Supplier shall both examine the Materials in question using mutually agreeable test methods to determine the extent and existence, if any, of any nonconformity.  If it is determined that the Materials in question are non-conforming, then (a) the date for payment for such Materials, as set forth in Section 3 below, shall be suspended and (b) Supplier 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.

2.9.1        Notwithstanding Section 2.9 above, in the case of Materials having defects which Mentor could not reasonably have been discovered by diligent examination upon receipt thereof, or the physical characteristics of Materials have changed so that such Material is not conforming with the specifications therefor, 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 expiration of the warranty period set forth in Section 6.11 below, except as otherwise provided in Section 2.9.2 below.  Upon receipt of such notice, Supplier shall provide replacement Materials to Mentor at Supplier's own expense.

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2.9.2        Notwithstanding Sections 2.9 and 2.9.1 above, Mentor may return to Supplier at any time any Material with physical characteristics that have changed such that the Material is not conforming with the specifications therefor to be reconditioned and returned to Mentor, provided that Supplier may charge Mentor an amount not greater than fifty percent (50%) of the original price paid by Mentor for such reconditioned Material if the warranty period set for in Section 6.11 below has expired.  If such Material's shelf life and the warranty period set forth in the Section 6.11 have not expired, Supplier shall provide Mentor with new Material at Supplier's own cost.

2.9.3        Except as otherwise agreed to by Mentor, Supplier 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.

3.                  PRICES, TERMS AND PAYMENTS

3.1              Certain Definitions for Computation Purposes.  The following words and phrases shall have the meanings set forth below:

3.1.1        Competitor.  Each Person other than Mentor or its Affiliates that (a) competes with Mentor in any Market Segment, and (b) purchases Materials or Equivalent Materials from Supplier or any Affiliate of Supplier for use in one or more Products of the type which are then being manufactured or distributed by Mentor using Materials or Equivalent Materials purchased by Mentor from Supplier pursuant to this Agreement.

3.1.2        Major Competitor.  A Competitor to whom Supplier sells a Common Material in a quantity that equals or exceeds during a single Year ten percent (10%) of the quantity of the same Common Material sold to Mentor during such Year. 

3.1.3        Customer.  Mentor and/or any Major Competitor.

3.1.4        Common Material.  With respect to each separate Major Competitor, any Material and Equivalent Material if such Material was sold to Mentor during a Year and the same Material or an Equivalent Material was also sold to such Major Competitor during the same Year.  A Material or an Equivalent Material shall be a Common Material as to Mentor and any single Major Competitor in any Year only to the extent that Supplier sold such Material or an Equivalent Material both to Mentor and such Major Competitor during the same Year.  For example, in the following table illustrating the Materials (designated by an alpha character) purchased by Mentor or by a Major Competitor and Equivalent Materials (designated by an alpha-numeric code) purchased by Major Competitors 1, 2 and 3:

MENTOR	COMPETITOR 1	COMPETITOR 2	COMPETITOR 3
A	A1	--	--
B	B1	B	--
C	--	C1	C1
D	--	D1	D2
--	E	--	E
--	F	F1	F2
--	G	--	--
H	--	--	--

Materials A & A1 are Common Materials as to Mentor and Major Competitor 1; 
Materials B & B1 Common Materials as to Mentor and Major Competitors 1 and 2;

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Materials C & C1 are Common Materials as to Mentor and Major Competitors 2 and 3;
Materials D, D1 & D2 are Common Materials as to Mentor and Major Competitors 2 and 3; and
Materials E, F, F1, F2 & G are not Common Materials because they were not purchased by Mentor.
Material H is not a Common Material since no Major Competitor purchased it or an Equivalent Material.

3.1.5        Unit Purchase Price.  With respect to any single Common Material, the price per unit, exclusive of charges made for packaging, labeling, shipping, insurance and returns, charged to a Customer for such Common Material during a Year, computed by dividing the aggregate amount charged to such Customer for its total purchases of such Common Material during such Year by the total quantity of such Common Material purchased by such Customer during such Year.

3.1.6        Aggregate Purchase Price.  With respect to any single Common Material, the aggregate amount charged to a Customer for its total purchases of such Common Material during a Year, exclusive of charges made for packaging, labeling, shipping, insurance and returns, computed by multiplying: (a) the total quantity of such Common Material purchased by such Customer, by (b) the Unit Purchase Price charged to such Customer for such Common Material. 

3.1.7        Actual Cost of Common Materials.  The aggregate amount charged to a Customer during a Year for its total purchases of all Common Materials during such Year, exclusive of charges made for packaging, labeling, shipping, insurance and returns, computed by adding the sum of the Aggregate Purchase Prices charged to such Customer for each of the Common Materials purchased by such Customer during such Year.

3.1.8        Imputed Aggregate Purchase Price.  With respect to any Major Competitor, a hypothetical Aggregate Purchase Price that Mentor would have been charged for a Common Material during a Year had Supplier charged Mentor the same Aggregate Purchase Price as Supplier actually charged such Major Competitor for such Common Material during the same Year, computed by multiplying the Unit Purchase Price charged to such Customer for such Common Material by the total quantity of the same Common Material purchased by Mentor during the same Year.

3.1.9        Imputed cost of Common Materials.  With respect to any Major Competitor during any Year, the sum of the Imputed Aggregate Purchase Prices calculated for the Common Materials purchased by such Major Competitor in such Year. 

3.2              Price List.  Subject to adjustment pursuant to Section 3.8 below, the initial Unit Purchase Price charged to Mentor for each Material specified in Exhibit A from and after the Effective Date of this Agreement shall be such prices as are agreed to by the parties within thirty (30) days of the date on which this Agreement is signed by the parties. 

3.3              Most Favored Nation Pricing.  At no time during the term of this Agreement will Supplier sell Common Materials to Mentor at Unit Purchase Prices which, on average, exceed the Unit Purchase Prices charged to any Major Competitor for all such Common Materials during such Year, taking into account only Mentor's (and not Major Competitor's) purchase volumes of such Common Materials.

3.3.1        Supplier shall be deemed to be in compliance with the provisions of Section 3.3 in any given Year when, with respect to each Major Competitor of Mentor:

Σ (MP x MQ) <  Σ (CP x MQ)

where, with respect to any single Major Competitor of Mentor:

A.     MP equals the Unit Purchase Price charged to Mentor for each separate Common Material (as it pertains to each applicable Major Competitor) during the Year; and

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B.     MQ equals the quantity of such Common Material purchased by Mentor during the Year; and

C.     Σ (MP x MQ) means the Actual Cost of Common Materials (calculated separately for each Major Competitor) charged to Mentor, computed by adding the sum of the products of (MP x MQ) with respect to each Common Material purchased both by Mentor and such Major Competitor during the Year; and

D.     CP equals the Unit Purchase Price (calculated separately for each Major Competitor) charged to a Major Competitor for each separate Common Material purchased both by Mentor and such Major Competitor during the Year; and

E.        Σ (CP x MQ) means the Imputed Cost of Common Materials (calculated separately for each Major Competitor), computed by adding the sum of the products of (CP x MQ) with respect to each Common Material purchased both by Mentor and such Major Competitor during the Year.

3.3.2        Supplier shall be deemed to be in breach of the provisions of this Section 3.3 when, with respect to any Major Competitor of Mentor:

Σ (MP x MQ) > Σ (MQ x CP)

3.3.3        The formula set forth in Section 3.3.1 above shall be calculated separately for each Major Competitor each Year in order to compare the Actual Cost of Common Materials charged to Mentor for the Common Materials purchased by Mentor during the Year with the Imputed Cost of Common Materials calculated for the Common Materials purchased by each Major Competitor during such Year.

3.4              Credits against Purchase Price.  If in any Year the Actual Cost of Common Materials charged to Mentor exceeds the Imputed Cost of Common Materials as calculated for any Major Competitor during such Year, then Mentor shall be entitled to a credit against the purchase price for the next Materials purchased by Mentor from Supplier in an amount equal to 105% of the amount by which the Actual Cost of Common Materials charged to Mentor exceeded the lowest Imputed Cost of Common Materials as calculated for to that Major Competitor for whom the computation required by Section 3.2 above produces the lowest Imputed Cost of Common Materials. 

3.5              Books and Records; Reports.  Supplier shall keep books and records in sufficient detail to permit independent verification by a disinterested auditing firm of the compliance by Supplier with the pricing, supply and delivery provisions of this Agreement

3.6              Annual Report.       Supplier shall prepare and submit to Mentor within sixty (60) days after the end of each Year a written compliance certificate executed by its Chief Executive Officer or its Chief Financial Officer certifying that Supplier has made each of the computations called for by Section 3.3 above for the purpose of comparing the Actual Cost of Common Materials charged to Mentor during the preceding Year with the Imputed Cost of Common Materials calculated for the Common Materials sold to each Major Competitor during such Year and stating that (a) the Actual Cost of Common Materials charged to Mentor during such Year did not exceed the Imputed Cost of Common Materials calculated for the Common Materials sold to any Major Competitor during such Year or, (b) if the Actual Cost of Common Materials paid to Mentor during such Year exceeded the Imputed Cost of Common Materials sold to any Major Competitor during such Year, (i) a computation of any credit to which Mentor is entitled pursuant to Section 3.4 above and (ii) a revised Price List setting forth  the reductions in the Unit Purchase Price of the Materials being made to assure that Supplier will be in compliance with the provisions of Section 3.3.1 above for the Year following the Year for which the report is being submitted. 

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3.7              Audits.   Mentor shall be entitled to have an audit of the books and records maintained by Supplier pursuant to Section 3.5 above performed no more often than once in any consecutive twelve (12) month period for the purpose of verifying the compliance by Supplier with the pricing provisions of Section 3.3 of this Agreement.

3.7.1        Any such audit shall be performed by a regional or national accounting and auditing firm that does not otherwise perform auditing or accounting services for Mentor and its Affiliates or for Supplier and its Affiliates.

3.7.2        Such auditing firm shall submit a written report to Mentor advising whether Supplier is in compliance with the pricing provisions of this Agreement and, if it is not, the dollar amount by which the Cost of Materials charged to Mentor for the Materials during the period covered by the audit exceeded the Cost of Materials charged to that Major Competitor who paid the lowest Cost of Materials during such Year, but the auditing firm shall not be permitted to disclose to Mentor the quantities of Materials or Equivalent Materials being purchased by any individual Competitor.

3.7.3        Any credit shown by such audit report to be owing to Mentor shall be credited against the next purchases made by Mentor until such credit is exhausted.

3.7.4        The costs and expense of any audit conducted pursuant to this Section 3.7 shall be borne by Mentor, but if any such audit discloses that the Actual Cost of Common Materials charged to Mentor for the period covered by the audit exceeded the Imputed Cost of Common Materials as calculated for the Common Materials purchased by any Major Competitor for the period covered by such audit, and if the amount of that excess is greater than the amount of Mentor's out-of-pocket costs for the audit, then Supplier shall pay the entire out-of-pocket cost of such audit.

3.8              Price Adjustments.   Subject to the provisions of Section 3.3 above

3.8.1        Annual CPI Adjustment.  The Selling Price applicable for each Material hereunder shall be adjusted as of each Adjustment Date during the term of this Agreement to be equal to the product determined by multiplying (a) the Purchase Price therefor set forth on Exhibit A hereto, times (b) a fraction, (i) the numerator of which is the Index for the Comparison Period, and (ii) the denominator of which is the Index for the Base Period; provided that, in no event shall any such adjustment cause the Selling Price for any Year be reduced below the Selling Price in effect in the immediately preceding calendar Year.

A.     Definitions.  For purposes of this Section 3.8, the term:

(1)    "Adjustment Date" shall mean each January 1 during the term of this Agreement.

(2)    "Base Period" shall mean November 2003. 

(3)    "Comparison Period" shall mean the month of November in the calendar Year immediately prior to the Adjustment Date.

(4)    "Index" shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers for the Los Angeles/Anaheim/Riverside Area, Average Subgroup "All Items," 1982-84=100 Base, as published by the Bureau of Labor Statistics.  If such Index is no longer published, then the term "Index" shall refer to each successor or comparable Index mutually agreed by the parties to be authoritative, and if the parties are unable to agree, then the substituted Index shall be selected by the then-presiding judge of the Superior Court for Santa Barbara County upon application of either party.

B.     Notice of Adjustment.  Supplier shall provide Mentor written notice of the adjustments pursuant to this Section 3.8, setting forth the computation thereof, on or before each Adjustment Date or as soon thereafter as practicable, but no delay in computing or giving notice of any adjustments shall constitute a waiver of the right of either party to have such adjustments made, retroactive to the applicable Adjustment Date, once such computation has been made.

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3.8.2        Cost Increases Caused by External Circumstances.  Supplier may adjust its prices prospectively from time to time upon delivery of written notice to Mentor specifying the amount of the increase and the reason therefor if external factors beyond the ability of Supplier to control affect Supplier's cost structure.  Such external factors shall include, for example, but shall not be limited to dislocations in materials supply markets, changes in laws, regulations, and other governmental rules affecting the production or sale of the Materials, and changes in specifications requested by Mentor, but shall not include increases in the costs of labor, materials, manufacturing costs, selling expense or overhead and general and administrative expense occurring in the ordinary course of business or as the result of changing economic conditions that are not caused by extraordinary circumstances.

3.9              Method of Payment.  All payments due hereunder to Supplier shall be paid in United States dollars on the later of (a) thirty (30) days following the date of the applicable invoice and (b) the receipt of the applicable invoice in proper form (which form shall include (i) Mentor's purchase order number, (ii) the customer part number and (iii) 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 2.9 above, payment for such rejected Materials shall be suspended in accordance with the terms set forth in Section 2.9 above until Mentor and Supplier are able to determine the extent and existence, if any, of any nonconformity of the Materials in question.

3.10          Past Due Amount.  Any amount due hereunder shall, if remaining past due for thirty (30) days (i.e., sixty (60) days after Mentor's receipt of invoice), accrue interest thereon at the rate of one and one-half percent (1-1/2 %) per month for each month or portion thereof that the amount remains unpaid.  In the event that any invoice remains past due for more than ninety (90) days, Supplier may, at its option, require any further shipments of Materials to Mentor to be sent C.O.D until all past due payments have been made.

4.                  PARTIAL TERMINATION AND PENDING DISPUTES

4.1              Failure to Supply.   If Supplier (a) fails to timely deliver fifty percent (50%) of the amount of any Materials ordered by Mentor as required hereunder for any reason other than force majeure, as measured over any period of sixty (60) or more consecutive days, or (b) the Materials delivered by Supplier do not conform to the specifications for such Materials set forth in Exhibit A or are not manufactured in conformance with Applicable Requirements, including without limitation applicable QSRs, then:

4.1.1        Mentor upon twenty (20) days' prior written notice to Supplier (so long as Supplier has not cured such default within such time) may but shall not be obligated to elect to have such 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").

4.1.2        Upon the expiration of the Third Party Period and upon the satisfactory completion of an audit and inspection of Supplier pursuant to Section 2.3 above, Supplier 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 Supplier is not satisfactory to Mentor, Mentor may, at its sole discretion, (a) continue to have Affected Materials supplied by a third party supplier and terminate this Agreement with respect to the Affected Materials or (b) continue to have the Affected Materials supplied by a third party supplier for indefinite consecutive periods of ninety (90) days until satisfactory completion of an audit and inspection of Supplier pursuant to Section 2.3 above.

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4.2              Termination Right.   If such default continues uncured for a period in excess of ninety (90) days, then the Mentor shall have the right at any time thereafter until such default has been cured to purchase from Supplier all of the assets required to manufacture and produce the Materials at the price and on the terms set forth in Section 4 of the Transfer Agreement.

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, the term of this Agreement shall commence on the Effective Date and shall expire on the twentieth (20^th) annual anniversary thereof in 2024 (the "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 purposes of this Section 5.2, an "Event of Default" is any of the following events:

5.2.1        Failure by Mentor to make any payment when due and the failure of Mentor to pay such delinquent amount plus any other delinquent amounts then due and payable within thirty (30) days of Mentor's receipt of the Notice of Termination, excluding in each case amounts that are being disputed by Mentor in good faith;

5.2.2        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;

5.2.3        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;

5.2.4        If either party hereto breaches any material provision of this Agreement and fails to cure such breach within ninety (90) days of written notice describing the breach; or

5.2.5        If Supplier is at any time not in compliance with any of the Applicable Requirements, including but not limited to QSRs, and it fails to deliver an Action Plan to Mentor pursuant to Section 2.3.1A above, or it fails to otherwise cure the non-compliance pursuant to the Action Plan delivered to Mentor pursuant to Section 2.3.1A above.

5.3              Termination by Supplier.  If Supplier has delivered a Discontinuation Notice to Mentor pursuant to Section 2.2.2B(1)c above, then Supplier may terminate this Agreement effective at any time after the expiration of the 90-day Option Period described in Section 2.2.2B(2) above by giving Mentor not less than ten (10) day's prior written notice of its intention to do so unless the parties have reached agreement on alternative prices and terms for the continuing supply of the Initial Materials to Mentor prior to the expiration of such 90-day Option Period.

5.4              Mentor Purchase of SiTech Assets.  This Agreement shall terminate upon any purchase by Mentor of the assets of SiTech pursuant to the exercise of the SiTech Purchase Option under Transfer Agreement; provided that, in accordance with the terms and conditions of the Transfer Agreement, to the extent that the assets of SiTech that are purchased by Mentor pursuant to the Transfer Agreement do not provide Mentor the capacity to produce the volume of Materials that Supplier is then supplying to Mentor (such shortfall in production capacity, the "Capacity Shortfall"), this Agreement shall remain in full force and effect and Supplier shall continue to be obligated to supply to Mentor hereunder (a) such portion of those Materials as would be produced by the Capacity Shortfall and (b) any other materials that were being supplied to Mentor pursuant to this Agreement prior to the exercise of the SiTech Purchase Option to the extent that there was not transferred to Mentor sufficient Production Capacity to manufacture and supply such materials itself.

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5.5              Liability of Mentor upon Termination for Default.  Should this Agreement be properly terminated by Supplier due to an uncured material default by Mentor, then: Supplier (a) shall be entitled to recover damages from Mentor and (b) shall have no further duty to supply Mentor hereunder.  In such event, Mentor's optional purchase and first-refusal rights under the Transfer Agreement shall remain in effect for a period of six (6) months following the effective date of the termination of this Agreement and shall thereupon terminate without further notice.

5.6              Liability of Supplier upon Termination for Default.  Should this Agreement be terminated by Mentor due to an uncured material default by Supplier, then Mentor shall be entitled (a) to recover damages from Supplier and (b) to have the right to purchase the assets of Supplier on the terms and conditions set forth in the Transfer Agreement.

5.7              Effect of Expiration or Termination.  The following provisions shall survive the expiration or termination of this Agreement: Sections 3 (to the extent of firm orders required to be completed pursuant to the remainder of this Section 5.7), 5.5, 5.6, 6.5, 6.7, 6.8, 6.10, 7 and 8.  Remedies for all breaches hereunder will also survive the expiration or termination of this Agreement.  Upon expiration or termination of this Agreement, Supplier shall continue to fulfill, subject to the terms of Section 3, all firm orders accepted by it prior to the effective date of expiration or termination, and Mentor shall be obligated to pay for all Materials ordered or delivered prior to the date of expiration or termination, subject to the terms of Section 3 of this Agreement.  Notwithstanding anything in this Section 5.7 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.

5.8              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.

5.9              Enumerated Remedies not Exclusive.  The remedies identified by this Agreement as being available to either party upon a default by the other are not intended to be exclusive, but shall be in addition to any other remedies available to a party at law or in equity upon the occurrence of any such default.  The exercise of any such remedy by a party shall not constitute an election of remedies and shall be without prejudice to the right of such party to exercise any other remedy available by reason of a default by the other party in the performance of its obligations under this Agreement, including the right to recover damages suffered by reason of a breach of this Agreement by the other party without terminating this Agreement in whole or in part.

5.10          Continuation after Expiration of Initial Term.  After the expiration of the initial Term of this Agreement, Supplier shall continue to supply the requirements of Mentor for the Materials at the same price and on the same terms as it supplies its other customers for the Materials or Equivalent Materials on a year to year basis, subject to the right of either party to terminate this agreement during any such renewal term at any time upon six (6) months prior written notice of termination.

6.                  REPRESENTATIONS, WARRANTIES AND COVENANTS

6.1              Vendor Audit Rights.  Mentor shall have the right and Supplier shall allow Mentor access, from time to time, and upon reasonable notice and during business hours, to inspect or audit Supplier's manufacturing and storage facility, tools, and equipment as well as Supplier's quality assurance systems, testing operations, compliance procedures, and records relating to the Material, to ensure compliance by Supplier with Applicable Requirements, provided that in no event shall Mentor be entitled to have access to Supplier's manufacturing processes except in the connection with the transfer of the SiTech Assets to Mentor upon exercise by Mentor of the SiTech Purchase Option contained in the Transfer Agreement.  Any audits shall be scheduled at normal business hours upon at least fifteen (15) days prior written notice to Supplier.

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6.2              No Rights Created.  Mentor and Supplier hereby agree that nothing in this Agreement shall confer upon 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.

6.3              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 of such party.

6.4              Compliance with Law.  Supplier 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 and manufacturing and delivering the Materials.  Supplier 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 Supplier.

6.5              Fulfillment Facilities.  Supplier represents and warrants that each facility used to manufacture the Materials or the location at which the Materials are produced (including but not limited to each such facility owned by SiTech and each such facility owned by NuSil, as permitted pursuant to Section 2.5, above) shall be in compliance with Applicable Requirements.  If Supplier elects to manufacture any Material from any location other than Supplier's current location on Campus Circle in Irving, Texas (or any facility owned by NuSil, as permitted by Section 2.5, above), then Supplier shall be solely responsible for all costs, fees expenses associated with ensuring that such alternative facility meets the foregoing requirements, including but not limited to any quality assurance, regulatory or other production costs, fees and expenses resulting from such change in location (provided that, the foregoing is not intended and shall not be construed to impose upon Supplier any liability for the cost of shipping or transporting Materials from any such alternative facility).

6.6              No Infringement.  Supplier represents and warrants that (a) 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 (b) to Supplier's knowledge, 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.

6.7              Production Capacity.  NuSil and SiTech each shall at all times during the term of this Agreement maintain the facilities, equipment and staff necessary to produce the Materials in quantities sufficient to satisfy the requirements of Mentor and its Affiliates (collectively, the "Production Capacity"), but NuSil shall be relieved of its obligation to maintain Production Capacity under this Section 6.7 for as long as the duties and responsibilities of Supplier have been delegated exclusively to SiTech and SiTech is maintaining such Production Capacity.

6.8              Confidential Information.  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").

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6.8.1        The parties shall keep strictly secret and confidential and shall not, either during or after expiration or termination of the Agreement, without the other party's written consent disclose to any third parties or use at any time after expiration or 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 (a) 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 6.8 and (b) shall not use the Proprietary Information of the other party commercially or for any other purpose other than for the purpose contemplated by this Agreement.

6.8.2        The obligations undertaken by the parties pursuant to Section 6.8 above shall not apply to:

A.                 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;

B.                 Such information that was in the Recipient Party's possession prior to disclosure hereunder;

C.                 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;

D.                 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

E.                  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.

F.                  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.

G.                 Mentor and Supplier acknowledge that any breach or violation of the confidentiality provision in Section 6.8 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 Supplier 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.

6.9              Duty to Keep Books and Records.  Supplier 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 the sale of Materials and Equivalent Materials to Mentor and its Competitors, device master records, device history records, and master access files.  Such records shall be kept in a manner that permits easy identification of each Material and Equivalent Material comprising a Common Material as to Mentor and any Major Competitor so as to enable NuSil's independent public accountants and any disinterested auditor or other third party to make and/or verify the accuracy of the computations required by Section 3.3 of this Agreement.

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6.10          Intellectual Property.  All discoveries, improvements, inventions and trade secrets developed by Supplier in the performance of this Agreement shall be the sole property of Supplier.

6.11          Warranties.  Supplier warrants to Mentor that the Materials shipped hereunder (a) shall conform in all material respects to the specifications set for in Exhibit A, as then in effect, and to all Applicable Requirements, including without limitation, applicable QSRs regulations, as then in effect, and (b) shall meet the specifications therefor for a period of at least six (6) months from the date of shipment of such Materials to Mentor.  SUPPLIER 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.

6.12          Reports by Mentor If at any time during the term of this Agreement Mentor is purchasing one or more Initial Materials from a Qualified Alternative Supplier pursuant to clause (a) of Section 2.2.2A of this Agreement, then:

6.12.1    Mentor shall furnish to Supplier within thirty (30) days after the end of each calendar quarter a written report setting forth for each Initial Material and for Qualified Alternative Supplier from whom Mentor is purchasing such Initial Material (a) the quantity of such Initial Material purchased by Mentor from Supplier and from any Qualified Alternative Supplier during the preceding calendar quarter and (b) the amount paid by Mentor to Supplier and such Qualified Alternative Supplier for each such Initial Material during such calendar quarter; and .

6.12.2    If Mentor has made an Adjustment Election pursuant to 2.2.2B(1) above, then the reports required by Section 6.12.1 above shall be made on a monthly basis instead of a quarterly basis during the 24-month Remedial Period and shall be given to Supplier within thirty (30) days after the end of each month.

7.                  INDEMNIFICATION

7.1              Indemnification by Mentor.  Mentor shall indemnify, defend and hold Supplier and its officers, directors, employees, and agents (collectively, the "Supplier Indemnitees") 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 Supplier Indemnitee (collectively, "Supplier 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 Supplier Losses are caused by Supplier conduct of the type described in Section 7.2 below for which Supplier is obligated to indemnify Mentor.

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 (a) the death of, or bodily injury to, any person on account of the Materials as a result of negligence or willful misconduct of Supplier or any affiliate, officer, director, employee or agent of Supplier (b) any reasonable SiTech-approved out-of-pocket costs to Mentor and its Affiliates due to the recall of any Processed Material or (c) 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 caused by (x) Supplier's failure to deliver such Material in accordance with Supplier's warranties set for in Section 6.11, (y) the negligence or willful misconduct of Supplier or any employee, consultant, agent or subcontractor of Supplier or its Affiliates, or (z) an breach of a material obligation of Supplier under this Agreement (collectively, a "Supplier Claim") except that, if any Mentor Losses are caused in part by the negligence or willful misconduct of Mentor, then SiTech's liability shall be in proportion to the fault of Supplier.

EXCLUSIVE SUPPLY AGREEMENT:  Page 19

7.2.1        Limitations to Indemnity.  The indemnities of Sections 7.1 and 7.2 shall not apply (a) 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 (b) 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).

7.2.2        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 unreasonably withheld.

7.2.3        Insurance.  Supplier, 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 Dollars ($2,000,000) 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 and Supplier shall name Mentor as an additional insured in each such policy.  Supplier, upon request of Mentor, will supply Mentor with appropriate certificates of insurance evidencing the forgoing insurance coverage.

8.                  MISCELLANEOUS

8.1              Effective Date and Implementation.  This Agreement shall not become effective until it has been executed by each of the parties but, when so executed, shall be given retroactive effect to the Effective Date and be applicable to all purchases of Materials by Mentor from Supplier on and after such Effective Date.  If the execution and implementation of this Agreement occurs after the Effective Date, then Mentor shall be given a retroactive credit against its purchases of Materials from and after the Effective Date to reflect the adjustment in the Selling Price of the Materials that became effective as of the Effective Date.

8.2              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.

EXCLUSIVE SUPPLY AGREEMENT:  Page 20

8.3              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.

8.4              Notice and Reports.  Any notices permitted or required hereunder shall be in writing and shall be deemed to have been delivered and received (a) when personally delivered; (b) on the third (3rd) business day after the date on which deposited in the United States mail for first-class mail delivery, postage prepaid, certified or registered mail, return receipt requested; (c) on the date on which transmitted by facsimile or other similar electronic means generating a receipt evidencing a successful transmission, or (d) on the next business day after the day on which deposited with a regulated public carrier (e.g., Federal Express) during such carrier's regular business hours, freight prepaid, for overnight delivery, to the address or facsimile number appearing on the signature page of this Agreement, or such other address or facsimile number, notice of which is given in a manner permitted by this Section 8.3.

8.5              Entire Agreement.  This Agreement (and all Exhibits hereto) supersedes and replaces the Original Supply Agreement and constitutes 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.

8.6              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.

8.7              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.

8.8              Delegation of Duties.  Neither party may further delegate to a third party its respective obligations hereunder without the written consent of the other party.

8.9              Assignment.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided that, notwithstanding the foregoing, Supplier may not delegate to any other Person its duties of such party hereunder, except either (a) to any Person that acquires all or substantially all of the assets of Supplier (whether in a merger transaction, asset purchase transaction, or other reorganization transaction), or (b) with the prior written consent of Mentor.

EXCLUSIVE SUPPLY AGREEMENT:  Page 21

8.10          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.

8.11          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 force majeure, 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 Supplier'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 Supplier is able to resume performance.

8.12          Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall constitute one and the same instrument.

[Signatures appear on following page.]

EXCLUSIVE SUPPLY AGREEMENT:  Page 22

            In Witness Whereof, the parties hereto have executed this Agreement to be effective as of the date first written above.

"NuSil:"   NuSil Corporation, a California corporation By /s/ Richard Compton                                    
      Richard Compton, Chief Executive Officer                                                                          
                                 Date Address and Facsimile No.  for Notices: NuSil Corporation
1050 Cindy Lane
Carpinteria, California 93013 Facsimile No.:  (805) 566-9905    "SiTech:"   SiTech, Inc., a California corporation By  /s/ Richard Compton                                     
      Richard Compton, Chief Executive Officer                                                                          
                                 Date Address and Facsimile No. for Notices: SiTech, Inc.
c/o NuSil Corporation
1050 Cindy Lane
Carpinteria, California 93013 Facsimile No.:  (805) 566-9905 "Mentor:"   Mentor Corporation,
a Minnesota corporation By  /s/ Adel Michael                                        
      Adel Michael, Vice-Chairman                                                                          
                                Date Address and Facsimile No. for Notices; Mentor Corporation
ATTN:  General Counsel
5425 Hollister Avenue
Santa Barbara, California 93111 Facsimile No.:  (805) 879-6008

 

EXCLUSIVE SUPPLY AGREEMENT:  Page 23

EXHIBIT A

to

Amended and Restated Exclusive Supply Agreement

initial Materials

FGB014,Me 35

FGB014-1,Me 31

FGB015,Bar 37

FGB015-1,Bar 31

Gel2167/2168,3:1

Gel2167-1/2168-1,1:1

Gel2167-2/2168-2,1:1

HCE4735

HCE4750

MED6-6605,RTV,30

                        Initials of Supplier                         Initials of Mentor

EX-31.1

EXHIBIT 31.1

§302 CERTIFICATION

I, Joshua H. Levine, certify that:

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

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

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

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

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

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

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

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

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

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

Date:  August 9, 2004                                              /s/JOSHUA H. LEVINE
                                                                             Joshua H. Levine
                                                                             President and Chief Executive Officer
                                                                             (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

§302 CERTIFICATION

I, Loren L. McFarland, certify that:

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

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

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

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

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

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

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

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

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

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

Date:  August 9, 2004                                                /s/LOREN L. MCFARLAND
                                                                              Loren L. McFarland
                                                                              Chief Financial Officer and Treasurer
                                                                              (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

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

In connection with the Quarterly Report of Mentor Corporation (the "Company") on Form 10‑Q for the quarter ending June 30, 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
August 9, 2004

EX-32.2

EXHIBIT 32.2

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

In connection with the Quarterly Report of Mentor Corporation (the "Company") on Form 10‑Q for the quarter ending June 30, 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
August 9, 2004