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Proc-Type: 2001,MIC-CLEAR
Originator-Name: [email protected]
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<SEC-DOCUMENT>0000897101-00-001205.txt : 20001221
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ACCESSION NUMBER: 0000897101-00-001205
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20000930
FILED AS OF DATE: 20001220
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ROCHESTER MEDICAL CORPORATION
CENTRAL INDEX KEY: 0000868368
STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
IRS NUMBER: 411613227
STATE OF INCORPORATION: MN
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-18933
FILM NUMBER: 792624
BUSINESS ADDRESS:
STREET 1: ONE ROCHESTER MEDICAL DR
CITY: STEWARTVILLE
STATE: MN
ZIP: 55976
BUSINESS PHONE: 5075339600
MAIL ADDRESS:
STREET 1: ONE ROCHESTER MEDICAL DR
CITY: STEWARTVILLE
STATE: MN
ZIP: 55976
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED SEPTEMBER 30, 2000
Commission File Number: 0-18933
ROCHESTER MEDICAL CORPORATION
MINNESOTA 41-1613227
State of Incorporation IRS Employer Identification No.
ONE ROCHESTER MEDICAL DRIVE
STEWARTVILLE, MINNESOTA 55976
Address of Principal Executive Offices
Telephone Number: (507) 533-9600
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK WITHOUT PAR VALUE
-----------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ___
The issuer's revenues for its most recent fiscal year were $7,860,132.
The aggregate market value of voting stock held by non-affiliates based upon
the closing Nasdaq sale price on December 1, 2000 was $23,907,725.
Number of shares outstanding on December 15, 2000 was 5,338,900 Common Shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its February 8, 2001 Annual
Meeting of Shareholders are incorporated by reference in Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Rochester Medical Corporation (the "Company") develops, manufactures and
markets a broad line of innovative, technologically enhanced latex-free urinary
continence and urine drainage care products for the home care and
acute/extended care markets. The Company's home care products include its
FEMSOFT(R) INSERT, a soft, liquid-filled, conformable urethral insert for
managing female stress urinary incontinence in adult females, a line of male
external catheters for managing male urinary incontinence and a line of
intermittent catheters for managing both male and female urinary retention. The
Company's acute/extended care products include a line of standard Foley
catheters and its RELEASE-NF (TM) CATHETER, an antibacterial Foley catheter to
reduce the incidence of hospital acquired urinary tract infection ("UTI").
The Company markets its products under its own ROCHESTER MEDICAL(R) brand
through a direct field sales force in the United States and independent
distributors in international markets. The Company also supplies its products
to several large medical product companies for sale under brands owned by these
companies.
HOME CARE PRODUCTS
MALE EXTERNAL CATHETERS. The Company's male external catheters are
self-care, disposable devices for managing male urinary incontinence. The
Company manufactures and markets three models of silicone male external
catheters: the ULTRAFLEX(R), "POP-ON"(R) and WIDE BAND(R) catheters. The
UltraFlex catheter has adhesive positioned midway down the catheter sheath. The
"POP-ON" catheter has a sheath that is shorter than that of a standard male
external catheter and has adhesive applied to the full length of the sheath. It
is designed to accommodate patients who require shorter-length external
catheters. The Company's WIDE BAND self-adhering male external catheter has an
adhesive band which extends over the full length of the sheath, providing
approximately 70% more adhesive coverage than other male external catheters
currently marketed. The WIDE BAND catheter is designed to reduce adhesive
failure and the resulting leakage, which is a common complaint among users of
male external catheters.
All models of the Company's male external catheters are produced in five
sizes for better patient fit. The Company's male external catheters are made
from silicone, a non-toxic and biocompatible material that eliminates the risks
of latex-related skin irritation. Silicone catheters are also odor free and
have greater air permeability than catheters made from other materials,
including latex. Air permeability reduces skin irritation and damage from
catheter use and thereby increases patient comfort. The Company's silicone
catheters are transparent, permitting visual skin inspection without removal of
the catheters and aiding proper placement of the catheters. The Company's
catheters also have a kink-proof funnel design to ensure uninterrupted urine
flow. The self-adhering technology of the Company's catheters simplifies
application of the catheters and provides a strong bond to the skin for greater
patient confidence and improved wear.
The Company also manufactures and sells male external catheters made from
a proprietary non-latex, non-silicone material to certain private label
customers. Certain of these catheters use the same self-adhesive technology as
the Company's silicone male external catheters. Like the silicone male external
catheters, these non-silicone catheters eliminate the risk of latex reactions
and latex-related skin irritations. The non-silicone catheters also are odor
free.
PERSONAL CATHETER(TM). The Company's PERSONAL CATHETER is a disposable
intermittent catheter manufactured from two different silicones, with a stiff
core catheter tube and a softer outer cover. This construction provides
sufficient stiffness for ease of insertion, while the softer cover is designed
to reduce tissue irritation during insertion. The Company produces the PERSONAL
CATHETER in three lengths for male, female and pediatric use and multiple
diameters.
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In June 2000, the Company received authorization from the FDA to market
its hydrophilic intermittent catheter. When moistened, the hydrophilic surface
of the catheter becomes slippery to provide a low friction surface. The Company
intends to formally introduce the hydrophilic intermittent catheter in January
2001 under the ROCHESTER MEDICAL brand in the United States.
FEMSOFT INSERT. The FEMSOFT INSERT is a disposable device for the
management of stress urinary incontinence in active women. It is a soft,
conformable urethral insert that assists the female urethra and bladder neck to
control the involuntary loss of urine. The device can be simply inserted, worn
and removed for voiding by most women. It requires no inflation, deflation,
syringes or valving mechanisms.
The Company believes the FEMSOFT INSERT will provide significant
advantages in the management of female stress incontinence. The FEMSOFT INSERT
is a minimally invasive device that provides a patient with effective control
of her urinary function and eliminates the need for collection bags and pads or
liners that can cause embarrassment, restrict mobility and compromise
lifestyle. In addition, the soft, liquid-filled silicone membrane of the
FEMSOFT INSERT has been designed to conform to the irregular shape of the
urethra and follow the movements of the urethra during normal activities,
thereby reducing leakage without chafing or abrasion of the delicate tissues of
the urethra.
The FEMSOFT INSERT is a prescription device that requires a woman to visit
her physician. The physician will fit the patient with the proper size and
instruct the patient on proper application of the FEMSOFT INSERT.
ACUTE/EXTENDED CARE PRODUCTS
RELEASE-NF CATHETER. The Company's RELEASE-NF CATHETER is a silicone Foley
catheter that has been designed to reduce the incidence of hospital acquired
UTI. Using patented technology, the RELEASE-NF CATHETER incorporates
nitrofurazone, an effective broad-spectrum antibacterial agent, into the
structure of the catheter, permitting sustained release of a controlled dosage
directly into the urinary tract to prevent the onset of infection.
FOLEY CATHETERS. The Company offers Foley catheters in a standard two
lumen version for urinary drainage management and in a three lumen version for
irrigation of the urinary tract. These Foley catheters are available in all
standard adult and pediatric sizes. All of the Company's silicone Foley
catheters eliminate the risk of the allergic reactions and tissue irritation
and damage associated with latex Foley catheters. The Company's Foley catheters
are transparent which enables healthcare professionals to observe urine flow.
Unlike the manufacturing processes used by producers of competing silicone
Foley catheters, in which the balloon is made separately and attached by hand
in a separate process involving gluing, the Company's automated manufacturing
processes allow the Company to integrate the balloon into the structure of the
Foley catheter, resulting in a smoother, more uniform exterior that may help
reduce irritation to urinary tissue.
The Company's standard Foley catheters are packaged sterile in single
catheter strips and sold under the ROCHESTER MEDICAL brand and under private
label arrangements. In addition, the Company sells its standard Foley catheters
in bulk under private label arrangements for packaging in kits with tubing,
collection bags and other associated materials.
TECHNOLOGY
The Company uses proprietary, automated manufacturing technologies and
processes to manufacture continence care devices cost effectively. The
production of the Company's products also depends on its materials expertise
and know-how in the formulation of silicone and advanced polymer products. The
Company's proprietary liquid encapsulation technology enables it to manufacture
innovative products, such as its FEMSOFT INSERT, that have soft, conformable,
liquid-filled reservoirs, which cannot be manufactured using conventional
technologies. Using this liquid encapsulation technology, the Company can mold
and form liquid encapsulated devices in a variety of shapes and sizes in an
automated process. The Company's manufacturing technologies and
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materials know-how also allow the Company to incorporate a sustained release
antibacterial agent into its products. The Company believes that its
manufacturing technology is particularly well-suited to high unit volume
production and that its automated processes enable cost-effective production.
The Company further believes that its manufacturing and materials expertise,
particularly its proprietary liquid encapsulation technology, may be applicable
to a variety of other devices for medical applications. The Company plans to
consider, commensurate with its financial and personnel resources, future
research and development activities to investigate opportunities provided by
the Company's technology and know-how.
The Company believes that its proprietary manufacturing processes,
materials expertise, custom designed equipment and technical know-how allow it
to simplify and further automate traditional catheter manufacturing techniques
to reduce the Company's manufacturing costs. In order to manufacture high
quality products at competitive costs, the Company concurrently designs and
develops new products and the processes and equipment to manufacture them.
MARKETING AND SALES
To date, the majority of the Company's revenues have been derived from
sales of its male external catheters and standard Foley catheters to medical
products companies for resale under brands owned by such companies. In fiscal
1999, the Company experienced a significant reduction in sales under these
arrangements due to one customer that switched to its own production of
silicone male external catheters and another customer that significantly
reduced its order volume. Private label arrangements are likely to continue to
account for a significant portion of the Company's revenues in the foreseeable
future, particularly in international markets where the Company does not
maintain a direct sales presence.
The Company sells its products in the United States under the ROCHESTER
MEDICAL brand name through a five-person direct sales force. The primary
markets for the Company's products are individual hospitals and healthcare
institutions, distributors and extended care facilities.
In fiscal 2000, the Company began a phased introduction of FEMSOFT INSERT
in three metropolitan areas, Denver, Detroit and Iowa City, including the
Quad-Cities of Iowa and Illinois, which were among the primary clinical study
locations for the insert. The Company also has begun to introduce the FEMSOFT
INSERT to a select group of clinicians in the United States. The marketing of
the FEMSOFT INSERT requires significant physician and clinician education
efforts. The Company's focus is on enrolling clinicians in its FEMSOFT program
which trains the clinicians in the use of the FEMSOFT INSERT and enters the
clinicians in the Company's distribution and customer service program for the
insert. The Company has formed a distribution and customer service program for
the FEMSOFT INSERT with Healthcare Delivery Systems ("HDS"), a business unit of
McKesson Corporation. Under this program, HDS will administer a centralized
resource center for customer service, product information and nationwide
distribution of the FEMSOFT INSERT. In addition, the Company is testing methods
of consumer advertising of the FEMSOFT INSERT in its initial markets.
The Company is actively exploring alternative approaches to the sales and
marketing of the RELEASE-NF catheter in the United States.
The Company relies on arrangements with medical product companies and
independent distributors to sell the Company's products in Europe and other
international markets. These arrangements are conducted under the ROCHESTER
MEDICAL brand name and under brands controlled by the medical product
companies.
MANUFACTURING
The Company designs and builds custom equipment to implement its
manufacturing technologies and processes. The Company's manufacturing
facilities are located in Stewartville, Minnesota. The Company produces its
Foley catheters on one production line and its male external catheters on other
lines. The Company has constructed a separate manufacturing facility to house
its liquid encapsulation manufacturing operations, and has installed the
FEMSOFT INSERT manufacturing line in this facility.
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The Company maintains a comprehensive quality assurance and quality
control program, which includes documentation of all material specifications,
operating procedures, equipment maintenance and quality control test methods.
The Company has obtained ISO 9001 certification and CE mark quality system
certification for its Foley catheter, male external catheter, and FEMSOFT
INSERT production lines.
The Company's manufacturing facility has been designed to accommodate the
specialized requirements for the manufacture of medical devices, including the
FDA's requirements for Quality System Regulation ("QSR").
SOURCES OF SUPPLY
The Company obtains certain raw materials and components for a number of
its products from a sole supplier or limited number of suppliers. The loss of
such a supplier or suppliers, or a material interruption of deliveries from
such a supplier or suppliers, could have a material adverse effect on the
Company. The Company believes that in most, if not all, cases the Company has
identified other potential suppliers. In the event that the Company had to
replace a supplier, however, the Company may be required to repeat
biocompatibility and other testing of its products using the material from the
new supplier and may be required to obtain additional regulatory clearances.
RESEARCH AND DEVELOPMENT
The Company believes that its ability to add new products to its existing
continence care product lines is important to the Company's future success.
Accordingly, the Company is engaged in ongoing research and development to
develop and introduce new products which provide additional features and
functionality. In the future, consistent with market opportunities and the
Company's financial and personnel resources, the Company intends to perform
clinical studies for other of its products in development.
Research and development expense for fiscal years 2000, 1999 and 1998, was
$1,008,000, $1,052,000 and $1,384,000, respectively.
COMPETITION
The continence care market is highly competitive. The Company believes
that the primary competitive factors include price, product quality, technical
capability, breadth of product line and distribution capabilities. The
Company's ability to compete is affected by its product development and
innovation capabilities, its ability to obtain regulatory clearances, its
ability to protect the proprietary technology of its products and manufacturing
processes, its marketing capabilities, its ability to attract and retain
skilled employees, and, for products sold in managed care environments, its
ability to maintain current distribution relationships, to establish new
distribution relationships and to secure participation in purchase contracts
with group purchasing organizations. The Company believes that it will be
important for the Company to differentiate its products in order to attract
large customers, such as distributors, dealers, institutions and home care
organizations.
The Company's products compete with a number of alternative products and
treatments for continence care. The Company's ability to compete with these
alternative methods for urinary continence care depends on the relative market
acceptance of alternative products and therapies and the technological advances
in these alternative products and therapies. Any development of a broad-based
and effective cure for a significant form of incontinence could have a material
adverse effect on sales of continence care devices such as the Company's
products.
The Company competes directly for sales of continence care devices under
the Company's own brand with larger, multi-product medical device manufacturers
and distributors such as ConvaTec, C.R. Bard, Inc., Maersk Medical, Kendall
Healthcare Products Company, Hollister and Mentor. Many of the competitive
alternative products or therapies to the Company's products are distributed by
larger competitors including Johnson & Johnson Personal Products Company,
Kimberly-Clark Corporation and Proctor & Gamble Company (for adult diapers and
absorbent
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pads), and C.R. Bard, Inc. (for injectable materials). Many of the Company's
competitors, potential competitors and providers of alternative products or
therapies have significantly greater financial, manufacturing, marketing,
distribution and technical resources and experience than the Company. It is
possible that other large healthcare and consumer products companies may enter
this market in the future. Furthermore, academic institutions, governmental
agencies and other public and private research organizations will continue to
conduct research, seek patent protection and establish arrangements for
commercializing products in this market. Such products may compete directly
with products which may be offered by the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's success may depend in part on its ability to obtain patent
protection for its products and manufacturing processes, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. The Company may seek patents on certain features of its products and
technology based on the Company's analysis of various business considerations,
such as the cost of obtaining a patent, the likely scope of patent protection
and the benefits of patent protection relative to relying on trade secret
protection. The Company also relies upon trade secrets, know-how and continuing
technological innovations to develop and maintain its competitive position.
The Company owns 17 United States patents and a number of corresponding
foreign patents that generally relate to certain of the Company's catheters and
devices and certain of the Company's production processes. In addition, the
Company owns a number of pending United States and corresponding foreign patent
applications. The Company may file additional patent applications for certain
of the Company's current and proposed products and processes in the future.
There can be no assurance that the Company's patents will be of sufficient
scope or strength to provide meaningful protection of the Company's products
and technologies. The coverage sought in a patent application can be denied or
significantly reduced before the patent is issued. In addition, there can be no
assurance that the Company's patents will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide proprietary
protection or commercial advantage to the Company.
Should attempts be made to challenge, invalidate or circumvent the
Company's patents in the United States Patent and Trademark Office and/or
courts of competent jurisdiction, including administrative boards or tribunals,
the Company may have to participate in legal or quasi-legal proceedings
therein, to maintain, defend or enforce its rights in these patents. Any legal
proceedings to maintain, defend or enforce the Company's patent rights can be
lengthy and costly, with no guarantee of success. There also can be no
assurance that the Company will file additional patent applications or that
additional patents will issue from the Company's pending patent applications.
A claim by third parties that the Company's current products or products
under development allegedly infringe their patent rights could have a material
adverse effect on the Company. The Company is aware that others have obtained
or are pursuing patent protection for various aspects of the design, production
and manufacturing of continence care products. The medical device industry is
characterized by frequent and substantial intellectual property litigation,
particularly with respect to newly developed technology. Intellectual property
litigation is complex and expensive, and the outcome of such litigation is
difficult to predict. Any future litigation, regardless of outcome, could
result in substantial expense to the Company and significant diversion of the
efforts of the Company's technical and management personnel. An adverse
determination in any such proceeding could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from such
parties, if licenses to such rights could be obtained, and/or require the
Company to cease using such technology. There can be no assurance that if such
licenses were obtainable, they would be obtainable at costs reasonable to the
Company. If forced to cease using such technology, there can be no assurance
that the Company would be able to develop or obtain alternate technology.
Additionally, if third party patents containing
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claims affecting the Company's technology are issued and such claims are
determined to be valid, there can be no assurance that the Company would be
able to obtain licenses to such patents at costs reasonable to the Company, if
at all, or be able to develop or obtain alternate technology. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing, using
or selling certain of its products, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
There also can be no assurance that any third party does not currently
have, has not applied for, or might not in the future apply for, additional
patents in the United States or abroad which, if ultimately granted, might be
infringed in such country by any of the Company's products as currently
configured or any other product of the Company and provide the basis for an
infringement action in such country against the Company.
The Company also relies on proprietary manufacturing processes and
techniques, materials expertise and trade secrets applicable to the manufacture
of its products. The Company seeks to maintain the confidentiality of this
proprietary information. There can be no assurance, however, that the measures
taken by the Company will provide the Company with adequate protection of its
proprietary information or with adequate remedies in the event of unauthorized
use or disclosure. In addition, there can be no assurance that the Company's
competitors will not independently develop or otherwise gain access to
processes, techniques or trade secrets that are similar or superior to the
Company's. Finally, as with patent rights, legal action to enforce trade secret
rights can be lengthy and costly, with no guarantee of success.
GOVERNMENT REGULATION
The manufacture and sale of the Company's products are subject to
regulation by numerous governmental authorities, principally the FDA and
corresponding foreign agencies. In the United States, the medical devices
manufactured and sold by the Company are subject to laws and regulations
administered by the FDA, including regulations concerning the prerequisites to
commercial marketing, the conduct of clinical investigations, compliance with
QSR and labeling.
A manufacturer may seek from the FDA market authorization to distribute a
new medical device by filing a 510(k) Premarket Notification ("510(k)") to
establish that the device is "substantially equivalent" to medical devices
legally marketed in the United States prior to the Medical Device Amendments of
1976. A manufacturer may also seek market authorization for a new medical
device through the more rigorous Premarket Approval ("PMA") application
process, which requires the FDA to determine that the device is safe and
effective for the purposes intended.
The Company received FDA marketing authorization for its FEMSOFT INSERT on
September 30, 1999 pursuant to a PMA. As a condition of FDA approval of the
Company's PMA filing based on interim clinical study results, the Company will
be required to complete the current clinical study of the FEMSOFT INSERT and
submit the additional data to the FDA for its further consideration to
determine whether such approval should be continued. There can be no assurance
that these additional data will be sufficient in the FDA's opinion to permit
continued marketing of the device even though the PMA filing for the FEMSOFT
INSERT was initially approved by the FDA. All of the Company's other marketed
products have received FDA marketing authorization pursuant to 510(k)
notifications.
The Company is also required to register with the FDA as a medical device
manufacturer. As such, the Company's manufacturing facilities are inspected on
a routine basis for compliance with QSR. These regulations require that the
Company manufacture its products and maintain its documents in a prescribed
manner with respect to design, manufacturing, testing and quality control
activities. As a medical device manufacturer, the Company is further required
to comply with FDA requirements regarding the reporting of adverse events
associated with the use of its medical devices, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the
malfunction were to recur. FDA regulations also govern product labeling and can
prohibit a manufacturer from marketing an approved device for unapproved
applications. If the FDA believes that a manufacturer is not in compliance with
the law, it can institute
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enforcement proceedings to detain or seize products, issue a recall, enjoin
future violations and assess civil and criminal penalties against the
manufacturer, its officers and employees.
The Company may become subject to future legislation and regulations
concerning the manufacture and marketing of medical devices. Such future
legislation and regulations could increase the cost and time necessary to begin
marketing new products and could affect the Company in other respects not
currently foreseeable. The Company cannot predict the effect of possible future
legislation and regulations.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. These laws
and regulations range from simple product registration requirements in some
countries to complex clearance and production controls in others. As a result,
the processes and time periods required to obtain foreign marketing approval
may be longer or shorter than those necessary to obtain FDA approval. These
differences may affect the efficiency and timeliness of international market
introduction of the Company's products. For countries in the European Union
("EU"), medical devices must display a CE mark before they may be imported or
sold. In order to obtain and maintain the CE mark, the Company must comply with
the Medical Device Directive and pass an initial and annual facilities audit
inspections to ISO 9001 by an EU inspection agency. The Company has obtained
ISO 9001 quality system certification for the CE mark for its currently
marketed standard products and the FEMSOFT INSERT. The Company is pursuing CE
mark certification for the RELEASE-NF CATHETER. In order to maintain
certification, if granted, the Company will be required to pass annual
facilities audit inspections conducted by EU inspectors. There can be no
assurance, however, that the Company will be able to obtain or maintain all
necessary regulatory approvals or clearances, including CE mark certification,
for its products in foreign countries.
In addition, international sales of medical devices manufactured in the
United States that have not been approved by the FDA for marketing in the
United States are subject to FDA export requirements. These require that the
Company obtain documentation from the medical device regulatory authority of
the destination country stating that sale of the medical device is not in
violation of that country's medical device laws, and, under some circumstances,
may require the Company to apply to the FDA for permission to export a device
to that country.
THIRD PARTY REIMBURSEMENT
In the United States, healthcare providers that purchase medical devices
generally rely on third party payors, such as Medicare, Medicaid, private
health insurance plans and managed care organizations, to reimburse all or a
portion of the cost of the devices. The Medicare program is funded and
administered by the federal government, while the Medicaid program is jointly
funded by the federal government and the states, which administer the program
under general federal oversight. The Company believes its currently marketed
products, including the RELEASE-NF CATHETER, are generally eligible for
coverage under these third party reimbursement programs. The Company is
currently seeking to establish the eligibility of the FEMSOFT INSERT for
reimbursement. Several private health insurance plans have begun to offer this
reimbursement. The competitive position of certain of the Company's products
may be partially dependent upon the extent of reimbursement for its products.
The federal government and certain state governments are currently
considering a number of proposals to reform the Medicare and Medicaid health
care reimbursement system. The Company is unable to evaluate what legislation
may be drafted and whether or when any such legislation will be enacted and
implemented. Certain of the proposals, if adopted, could have an adverse effect
on the Company's business, financial condition and results of operations.
In foreign countries, the policies and procedures for obtaining third
party payment of reimbursement for medical devices vary widely. Compliance with
such procedures may delay or prevent the eligibility of the Company's branded
and/or private label products for reimbursement, and have an adverse effect on
the Company's ability to sell its branded or private label products in a
particular foreign country.
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PRIVATE LABEL DISTRIBUTION AGREEMENTS
CONVATEC. In April 1998, the Company and ConvaTec entered into a Revised
and Restated Distribution Agreement (the "Revised ConvaTec Agreement"), which
grants ConvaTec certain rights to market the Company's Foley catheters and male
external catheters under the ConvaTec brand. The Revised ConvaTec Agreement
provides, subject to certain existing obligations and limitations, that the
Company will not appoint any other private label distributor for silicone male
external catheters in Central America, South America, Australia, Japan, New
Zealand, South Africa, Israel, Iran, Iraq, Lebanon, Oman, Saudi Arabia, Syria,
United Arab Emirates and Yemen. ConvaTec has non-exclusive rights to distribute
the Company's products in other markets.
The Revised ConvaTec Agreement does not include any minimum purchase
requirements or require that ConvaTec market any or all of the Company's
products. The ConvaTec Agreement also provides in the event that the Company is
unable to supply ConvaTec's requirements for products under certain
circumstances, ConvaTec will have a license to the Company's technologies for
purposes of manufacturing such products for ConvaTec.
The Revised ConvaTec Agreement has an initial term expiring April 30,
2006, and may be renewed for successive annual extensions thereafter. Either
party may terminate the Revised ConvaTec Agreement upon the other party's
material breach of the Revised ConvaTec Agreement, bankruptcy or insolvency, or
inability to perform under the Revised ConvaTec Agreement for a period of more
than six months.
Sales of products to ConvaTec represented 16% of the Company's revenues in
fiscal 2000 and 16% of revenues in fiscal 1999. ConvaTec has consulted with us
regarding its intention going forward in the continence care market and these
consultations may result in modifications to the Company's agreement with
ConvaTec.
The Company supplies a number of medical product companies with products
on a private label basis.
EMPLOYEES
As of September 30, 2000, the Company employed 118 full-time employees, of
whom 80 were in manufacturing, and the remainder in marketing and sales,
research and development and administration. The labor market for medical
device manufacturing personnel has tightened in Minnesota, and particularly in
the Rochester area where the Company's manufacturing facilities are located.
This has resulted in upward pressure on wages for production workers but has
not, to date, adversely affected the Company's ability to hire and retain
capable manufacturing personnel. The Company is not a party to any collective
bargaining agreement and believes its employee relations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of December 19, 2000 are as
follows:
NAME AGE POSITION
- ------------------- ----- -------------------------------------------------
Anthony J. Conway 56 Chairman of the Board, Chief Executive Officer,
President and Secretary
David A. Jonas 36 Controller, Treasurer and Director of Operations
Philip J. Conway 44 Vice President, Production Technologies
Richard D. Fryar 53 Vice President, Research and Development
Dara Lynn Horner 42 Vice President, FEMSOFT Marketing
Martyn R. Sholtis 41 Vice President, Marketing and Sales
ANTHONY J. CONWAY, a founder of the Company, has served as Chairman of the
Board, Chief Executive Officer, President and Secretary of the Company since
May 1988. In addition to his duties as Chief Executive Officer, Mr. Anthony
Conway actively contributes to the Company's research and development and
design activities. From 1979 to March 1988, he was President,
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Secretary and Treasurer of Arcon Corporation ("Arcon"), a company that he
co-founded in 1979 to develop, manufacture and sell latex-based male external
catheters and related medical devices. Prior to founding Arcon, Mr. Anthony
Conway worked for twelve years for International Business Machines Corporation
("IBM") in various research and development capacities. Mr. Anthony Conway is
one of the named inventors on numerous patent applications that have been
assigned to the Company, of which to date 17 have resulted in issued United
States patents.
DAVID A. JONAS has served as the Company's Controller since June 1998, as
its Director of Operations since August 1999, and as its Treasurer since
November 2000. Mr. Jonas has had principal responsibility for the Company's
operational activities since August 1999, and since November 2000 has also had
principal responsibility for the Company's financial activities. Prior to
joining the Company, Mr. Jonas was employed in various financial, financial
management and operational management positions with Polaris Industries, Inc.
from January 1989 to June 1998. Mr. Jonas holds a BS degree in Accounting from
the University of Minnesota and is a certified public accountant.
PHILIP J. CONWAY, a founder of the Company, has served as Vice President
of Production Technologies of the Company since August 1999 and as a Director
of the Company since May 1988. From 1988 to July 1999, Mr. Philip Conway served
as Vice President of Operations of the Company. Mr. Philip Conway is
responsible for plant design as well as new product and production processes,
research, design and development activities. From 1979 to March 1988, Mr.
Philip Conway served as Plant and Production Manager of Arcon, a company that
he co-founded. Prior to joining Arcon, Mr. Philip Conway was employed in a
production supervisory capacity by AFC Corp., a manufacturer and fabricator of
fiberglass, plastics and other composite materials. He is one of the named
inventors on numerous patent applications that have been assigned to the
Company, of which to date 17 have resulted in issued United States patents.
RICHARD D. FRYAR, a founder of the Company, has served as Vice President,
Research and Development and as a director of the Company since May 1988. Mr.
Fryar is responsible for overseeing the Company's research and development and
regulatory affairs activities. From 1984 to March 1988, Mr. Fryar was employed
by Arcon, a company that he co-founded, in research and development capacities.
From 1969 to 1984, he was employed by IBM in various research and development
capacities. He is one of the named inventors on numerous patent applications
that have been assigned to the Company, of which to date 17 have resulted in
issued United States patents.
DARA LYNN HORNER has served as Marketing Director for the Company's
FEMSOFT INSERT product line since November 1998. Ms. Horner has principal
responsibility for management of the Company's FEMSOFT marketing activities.
From 1990 until joining the Company in 1998, Ms. Horner was employed by Lake
Region Manufacturing, Inc., a medical device manufacturer, most recently as
Marketing Director. From 1980 to 1998, she was employed in various marketing
and sales capacities with, respectively, Medtronic, Inc., West Central Tribune,
and Blue Cross-Blue Shield of Minnesota.
MARTYN R. SHOLTIS joined the Company in April 1992 and serves as Vice
President of Marketing & Sales. Mr. Sholtis' responsibilities include
implementation of the Company's marketing & sales strategy as well as the
development of the Company's relationships with the Company's private label and
international customers. From 1985 to 1992 Mr. Sholtis was employed by Sherwood
Medical, a company that manufactured and sold a variety of disposable medical
products including urological catheters, most recently as Regional Sales
Manager for the Nursing Care Division.
Messrs. Anthony J. Conway, Philip J. Conway and Peter R. Conway, a
director of the Company, are brothers.
10
<PAGE>
ITEM 2. PROPERTIES
The Company's administrative offices and liquid encapsulation
manufacturing facilities occupy a 52,000 square foot manufacturing and office
facility on a 28 acre site owned by the Company and located in an industrial
park in Stewartville, Minnesota. The Company's male external and Foley catheter
manufacturing facilities consists of a 34,000 square foot manufacturing and
office building located on a nearby 3.5 acre site owned by the Company in the
same industrial park.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended September 30, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
ROCM. The following table sets forth, for the periods indicated, the range of
high and low last sale prices for the Common Stock as reported by the Nasdaq
National Market.
HIGH LOW
------------ -----------
FISCAL 1999
First Quarter .......... $ 15.250 $ 9.625
Second Quarter ......... 15.500 9.250
Third Quarter .......... 12.250 9.500
Fourth Quarter ......... 12.313 8.375
FISCAL 2000
First Quarter .......... $ 10.156 $ 6.25
Second Quarter ......... 12.375 7.00
Third Quarter .......... 12.25 7.625
Fourth Quarter ......... 9.375 5.875
HOLDERS
As of December 15, 2000, the Company had 132 shareholders of record. Such
number of record holders does not reflect shareholders who beneficially own
Common Stock in nominee or street name.
The Company has paid no cash dividends on its Common Stock, and it does
not intend to pay cash dividends on its Common Stock in the future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company as of September 30,
2000 and 1999 and for the three fiscal years ended September 30, 2000, 1999 and
1998 are derived from, and should be read together with, the financial
statements of the Company audited by Ernst & Young LLP, independent auditors,
included elsewhere in this Form 10-K. The following selected financial data as
of September 30, 1998, 1997 and 1996 and for the fiscal years ended September
30, 1997 and 1996 are derived from audited financial statements not included
herein. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and Notes thereto and other financial
information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales .......................... $ 7,860 $ 7,341 $ 9,518 $ 7,615 $ 5,540
Cost of sales ...................... 6,151 5,602 6,604 4,869 3,788
-------- --------- --------- --------- ---------
Gross profit ...................... 1,709 1,739 2,914 2,746 1,752
Operating expenses:
Marketing and selling .............. 4,589 3,944 3,191 2,210 1,351
Research and development ........... 1,008 1,052 1,384 1,451 1,182
General and administrative ......... 2,238 1,863 1,445 1,499 1,112
-------- --------- --------- --------- ---------
Total operating expenses .......... 7,835 6,859 6,020 5,160 3,645
-------- --------- --------- --------- ---------
Loss from operations ................ (6,126) (5,120) (3,106) (2,414) (1,893)
Interest income ..................... 595 719 848 657 818
Interest expense .................... -- -- -- (342) (285)
-------- --------- --------- --------- ---------
Net loss ............................ $ (5,531) $ (4,401) $ (2,258) $ (2,099) $ (1,360)
======== ========= ========= ========= =========
Net loss per common share --
basic and diluted .................. $ (1.04) $ (.83) $ (.44) $ (.51) $ (.35)
Weighted average number of
common shares outstanding .......... 5,341 5,333 5,141 4,132 3,867
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
Marketable securities ............. $ 8,859 $ 13,246 $ 16,410 $ 4,639 $ 17,408
Working capital .................... 10,329 15,486 19,245 7,081 18,861
Total assets ....................... 23,254 28,702 32,736 18,613 23,888
Long-term debt ..................... -- -- -- -- 3,321
Accumulated deficit ................ (19,706) (14,175) (9,774) (7,516) (5,418)
Total shareholders' equity ......... $ 21,573 $ 27,177 $ 30,918 $ 17,181 $ 19,231
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements other than historical information contained herein constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "predict," "intend," "designed," "estimate," "should" or
"continue" or the negatives thereof or other variations thereon or comparable
terminology. The forward-looking statements involve known or unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed in the section entitled "Risk
Factors" below.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the statements of operations of the Company expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Total net sales ..................... 100% 100% 100%
Cost of sales ....................... 78 76 69
--- --- ---
Gross margin ........................ 22 24 31
Operating expenses:
Marketing and selling .............. 58 54 34
Research and development ........... 13 14 15
General and administrative ......... 29 26 15
--- --- ---
Total operating expenses ............ 100 94 64
Loss from operations ................ (78) (70) (33)
Interest income, net ................ 8 10 9
--- --- ---
Net loss ............................ (70)% (60)% (24)%
=== === ===
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1999
NET SALES. Net sales increased 7% to $7.9 million in fiscal 2000 from $7.3
million in the prior fiscal year. Domestic sales were flat compared to the
prior fiscal year, with growth of 17% in ROCHESTER MEDICAL brand product sales
offset by a 13% decline in sales to domestic private label customers, primarily
Mentor and ConvaTec. International sales increased 18% in fiscal 2000 compared
to the prior fiscal year, primarily due to growth in European markets.
GROSS MARGIN. The Company's gross margin was 22% in fiscal 2000 compared
to 24% in fiscal 1999. The fiscal 2000 margin primarily reflects costs
associated with continuing underutilized production capacity. Costs associated
with increased capacity are anticipated to continue until such time as, if
ever, the Company achieves sufficient sales to absorb the additional capacity.
MARKETING AND SELLING. Marketing and selling expense increased 16% to $4.6
million in fiscal 2000 from $3.9 million in fiscal 1999. The increase in
expense is due to promotional activities for the FEMSOFT INSERT. The Company
anticipates that marketing and selling expenses will decrease in fiscal 2001
because fiscal 2000 included nonrecurring expenses for the development of
marketing materials related to the FEMSOFT INSERT and due to a reduction in the
size of the Company's sales force.
RESEARCH AND DEVELOPMENT. Research and development expense decreased 4% to
$1.0 million in fiscal 2000 from $1.1 million in fiscal 1999. The decrease in
research and development expense primarily reflects a reduction in accruals for
costs of the FEMSOFT INSERT clinical trials related to stage of completion.
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<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
20% to $2.2 million in fiscal 2000 from $1.9 million in fiscal 1999. The
increase in general and administrative expense is related to one-time costs
associated with the terminated transaction with Maersk Medical, as well as
one-time costs related to severance expenses associated with a reduction in
personnel.
INTEREST INCOME. Interest income decreased 17% to $595,000 in fiscal 2000
from $719,000 in fiscal 1999. The decrease in interest income reflects the
comparatively lower average level of invested cash balances in the current
quarter due to the utilization of cash for operations and capital expenditures.
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales decreased 23% to $7.3 million in fiscal 1999 from
$9.5 million in the prior fiscal year. Domestic sales decreased 31% in fiscal
1999 from the prior fiscal year, with growth of 41% in ROCHESTER MEDICAL brand
product sales offset by a 50% decline in sales to domestic private label
customers, primarily Mentor and ConvaTec. International sales decreased 6% in
fiscal 1999 from the prior fiscal year compared with the prior year, with 45%
growth in European markets offset by a 25% decline in all other international
markets.
GROSS MARGIN. The Company's gross margin was 24% in fiscal 1999 compared
to 31% in fiscal 1998. The fiscal 1999 margin primarily reflects costs
associated with continuing underutilized production capacity due to lower
sales. Costs associated with increased capacity are anticipated to continue
until such time as, if ever, the Company achieves sufficient sales to absorb
the additional capacity.
MARKETING AND SELLING. Marketing and selling expense increased 24% to $3.9
million in fiscal 1999 from $3.2 million in fiscal 1998. The increase in
expense is due to promotional activities for the RELEASE-NF CATHETER and market
introduction preparation for the FEMSOFT INSERT. The Company anticipates that
marketing and selling expenses will increase in future periods as the Company
expands its promotional and market development activities related to Rochester
Medical brand products, particularly the Company's FEMSOFT INSERT.
RESEARCH AND DEVELOPMENT. Research and development expense decreased 24%
to $1.1 million in fiscal 1999 from $1.4 million in fiscal 1998. The decrease
in research and development expense primarily reflects a reduction in accruals
for costs of the FEMSOFT INSERT clinical trials related to stage of completion.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
29% to $1.9 million in fiscal 1999 from $1.4 million in fiscal 1998. The
increase in general and administrative expense is related to upgrading of
business systems, including the Year 2000 compliance program, and general
increases in administrative support costs.
INTEREST INCOME. Interest income decreased 15% to $719,000 in fiscal 1999
from $848,000 in fiscal 1998. The decrease in interest income reflects the
comparatively lower average level of invested cash balances in the current
quarter due to the utilization of cash for operations and capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through public offerings
and private placements of its equity securities, and has raised approximately
$40.7 million in net proceeds since its inception. In August 1995, the Company
received proceeds of $3.0 million from issuance of a convertible note to
ConvaTec. The Company repaid the ConvaTec note on September 30, 1997, with
accrued interest, for a total amount of $3.7 million.
The Company's cash, cash equivalents and marketable securities were $8.9
million at September 30, 2000 compared with $13.2 million at September 30,
1999. The Company used a net $3.6 million of cash in operating activities
during the year. Investing activities, primarily sales of
14
<PAGE>
marketable securities, provided net cash of $2,658,000 in fiscal 2000, offset
in part by capital expenditures of $676,000. The Company anticipates lower
capital expenditures in fiscal 2001.
During fiscal 2000, the Company's working capital position, excluding cash
and marketable securities, decreased by a net $770,000. Accounts receivable
balances decreased 26% or $362,000 during the fiscal year as a result of
receivable collections. Inventories decreased by 8% or $155,000 during the
year. Other current assets decreased 28% or $97,000 as a result of the
collection of miscellaneous receivables. Current liabilities increased 10% or
$156,000 during the year. Changes in other asset and liability balances related
to timing of expense recognition.
In December 1999, the Board of Directors authorized a stock repurchase
program. Up to one million shares of the Company's outstanding common stock may
be repurchased under the program. Purchases may be made from time to time at
prevailing prices in the open market and through other customary means. No time
limit has been placed on the duration of the stock repurchase program and it
may be conducted over an extended period of time as business and market
conditions warrant. The Company also may discontinue the stock repurchase
program at any time. The repurchased shares will be available for reissuance
pursuant to employee stock option plans and for other corporate purposes. The
Company intends to fund such repurchases with currently available funds. During
the first quarter of fiscal 2000, the Company repurchased 10,600 shares of
common stock for $73,000.
Although the Company believes that its existing resources and anticipated
cash flows from operations will be sufficient to satisfy its capital needs for
approximately the next two years, there can be no assurance that the Company
will not require additional financing before that time. The Company's actual
liquidity and capital requirements will depend upon numerous factors, including
the costs and timing of expansion of sales and marketing activities; the amount
of revenues from sales of the Company's existing and new products; changes in,
termination of, and the success of, existing and new distribution arrangements;
the cost of maintaining, enforcing and defending patents and other intellectual
property rights; competing technological and market developments; developments
related to regulatory and third party reimbursement matters; the cost and
progress of the Company's research and development efforts; and other factors.
In the event that additional financing is needed, the Company may seek to raise
additional funds through public or private financing, collaborative
relationships or other arrangements. Any additional equity financing may be
dilutive to shareholders, and debt financing, if available, may involve
significant restrictive covenants. Collaborative arrangements, if necessary to
raise additional funds, may require the Company to relinquish its rights to
certain of its technologies, products or marketing territories. Failure to
raise capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that such financing, if required, will be available on terms
satisfactory to the Company, if at all.
15
<PAGE>
RISK FACTORS
UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS
Much of the Company's ability to increase revenues and to achieve
profitability and positive cash flow will depend on the successful introduction
of new products, primarily the RELEASE-NF CATHETER, the FEMSOFT INSERT and the
new hydrophilic personal catheter. These products represent new methods and
improvements for urinary continence care. There can be no assurance that these
products will gain any significant degree of market acceptance among
physicians, healthcare payors and patients. Market acceptance of these
products, if it occurs, may require lengthy hospital evaluations and/or the
training of numerous physicians and clinicians, which could delay or dampen any
such market acceptance. Moreover, approval of reimbursement for the Company's
products, competing products or alternative medical treatments, and the
Company's pricing policies will be important factors in determining market
acceptance of these products. Any of the foregoing factors, or other factors,
could limit or detract from market acceptance of these products. Insufficient
market acceptance of these products could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH MARKETING AND SALES OF ROCHESTER MEDICAL BRAND PRODUCTS
The Company's success will depend on its ability to overcome established
market positions of competitors and to establish its own market presence under
the ROCHESTER MEDICAL brand name. One of the challenges facing the Company in
this respect is the Company's ability to compete with companies that offer a
wider array of products to hospitals and medical care institutions,
distributors and end users. The Company may also find it difficult to sell its
products due to the limited recognition of its brand name.
LIMITED REVENUES; HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES
The Company has generated only limited revenues to date and has
experienced net losses since its inception. Net losses for the fiscal years
ended September 30, 2000, 1999 and 1998 were $5.5 million, $4.4 million and
$2.3 million, respectively. The Company had an accumulated deficit of
approximately $19.7 million at September 30, 2000. The Company's ability to
increase revenues and achieve profitability and positive cash flow will depend
primarily upon market acceptance of, and achievement of material sales from,
the Company's new products, particularly the RELEASE-NF CATHETER, FEMSOFT
INSERT and hydrophilic personal catheter, of which there can be no assurance. A
substantial portion of the expenses associated with the Company's manufacturing
facilities are fixed in nature (i.e. depreciation) and will reduce the
Company's operating margin until such time, if ever, as the Company is able to
increase utilization of its capacity through increased sales of its new
products. As a result, the Company expects to incur substantial operating
losses for the foreseeable future and there can be no assurance that the
Company will ever generate substantial revenues or achieve or sustain
profitability.
HIGHLY COMPETITIVE MARKETS; ALTERNATIVE TREATMENTS; TECHNOLOGICAL ADVANCEMENTS
The medical products market in general is, and the markets for urinary
continence care products in particular are, highly competitive. Many of the
Company's competitors have greater name recognition than the Company and offer
well known and established products, some of which are less expensive than the
Company's products. As a result, even if the Company can demonstrate that its
products provide greater ease of use, lifestyle improvement or beneficial
effects on medical outcomes over the course of treatment, the Company may not
be successful in capturing a significant share of the market. In addition, many
of the Company's competitors offer broader product lines than the Company,
which may be a competitive advantage in obtaining contracts with healthcare
purchasing groups, and may adversely affect the Company's ability to obtain
contracts with such purchasing groups. Additionally, many of the Company's
competitors have substantially more marketing and sales experience than the
Company and substantially greater resources to devote to such efforts. There
can be no assurance that the Company will be able to compete successfully
against such competitors.
16
<PAGE>
Urinary continence care can be managed with a variety of alternative
medical treatments and management products or techniques, including adult
diapers and absorbent pads, surgery, behavior therapy, pelvic muscle exercise,
implantable devices, injectable materials and other medical devices.
Manufacturers of these products or techniques are engaged in research to
develop more advanced versions of current products and techniques. Many of the
companies that are engaged in such development work have substantially greater
capital resources than the Company and greater expertise than the Company in
research, development and regulatory matters. There can be no assurance that
the Company's products will be able to compete with existing or future
alternative products, techniques or therapies, or that advancements in existing
products, techniques or therapies will not render the Company's products
obsolete.
DEPENDENCE ON DISTRIBUTION ARRANGEMENTS
A significant portion of the Company's net sales to date have depended on
the Company's ability to provide products that meet the requirements of medical
product companies that resell or distribute the Company's products, and on the
sales and marketing efforts of such entities. Arrangements with these entities
are likely to continue to be a significant portion of the Company's revenues in
the future. There can be no assurance that the Company's purchasers and
distributors will be able to successfully market and sell the Company's
products, that they will devote sufficient resources to support the marketing
of any of the Company's products, that they will market any of the Company's
products at prices which will permit such products to develop, achieve, or
sustain market acceptance, or that they will not develop alternative sources of
supply. The failure of the Company's purchasers and distributors to continue to
purchase products from the Company at levels reasonably consistent with their
prior purchases or to effectively market the Company's products could have a
material adverse effect on the Company's business, financial condition and
results of operations.
POSSIBLE NEED FOR ADDITIONAL CAPITAL
The Company intends to expend substantial funds for expansion of sales and
marketing activities, product education efforts, advertising and other working
capital and general corporate purposes. Although the Company believes its
existing resources and anticipated cash flows from operations will be
sufficient to satisfy its capital needs for approximately the next two years,
there can be no assurance that the Company will not require additional
financing before that time. The Company's actual liquidity and capital
requirements will depend on numerous factors, including the costs and timing of
expansion of sales and marketing activities; the amount of revenues from sales
of the Company's existing and new products, including the RELEASE-NF CATHETER
and FEMSOFT INSERT; changes in, termination of, and the success of, existing
and new distribution arrangements; the cost of maintaining, enforcing and
defending patents and other intellectual property rights; competing
technological and market developments; developments relating to regulatory and
third party reimbursement matters; the cost and progress of the Company's
research and development efforts; and other factors. In the event that
additional financing is needed, the Company may seek to raise additional funds
through public or private financing, collaborate relationships or other
arrangements. Any additional equity financing may be dilutive to shareholders,
and debt financing, if available, may involve significant restrictive
covenants. Failure to raise capital when needed could have a material adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that such financing, if required, will be
available on terms satisfactory to the Company, if at all.
EFFECTS OF GOVERNMENT REGULATION
The Company's products, product development activities and manufacturing
processes are subject to extensive regulation by the FDA and by comparable
agencies in foreign countries. In the United States, the FDA regulates the
introduction of medical devices as well as manufacturing, labeling and record
keeping procedures for such products. The process of obtaining marketing
clearance for new medical products from the FDA can be costly and time
consuming, and there can be no assurance that such clearance will be granted
timely, if at all, for the Company's products in
17
<PAGE>
development, or that FDA review will not involve delays that would adversely
affect the Company's ability to commercialize additional products or to expand
permitted uses of existing products. Even if regulatory clearance to market a
product is obtained from the FDA, this clearance may entail limitations on the
indicated uses of the product. Marketing clearance can also be withdrawn by the
FDA due to failure to comply with regulatory standards or the occurrence of
unforeseen problems following initial clearance. The Company may be required to
make further filings with the FDA under certain circumstances, such as the
addition of product claims or product reformulation. The FDA could also limit
or prevent the manufacture or distribution of the Company's products and has
the power to require the recall of such products. FDA regulations depend
heavily on administrative interpretation, and there can be no assurance that
future interpretation made by the FDA or other regulatory bodies, which may
have retroactive effect, will not adversely affect the Company. The FDA and
various state agencies inspect the Company and its facilities from time to time
to determine whether the Company is in compliance with regulations relating to
medical device manufacturing companies, including regulations concerning
design, manufacturing, testing, quality control and product labeling practices.
A determination that the Company is in material violation of such regulations
could lead to the imposition of civil penalties, including fines, product
recalls, product seizures, or, in extreme cases, criminal sanctions.
A portion of the Company's revenues are dependent upon sales of its
products outside the United States. Foreign regulatory bodies have established
varying regulations governing product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements. The Company relies on its third-party foreign distributors to
comply with certain foreign regulatory requirements. The inability or failure
of the Company or such foreign distributors to comply with varying foreign
regulations or the imposition of new regulations could restrict the sale of the
Company's products internationally and thereby adversely affect the Company's
business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTY REIMBURSEMENT
The Company's products are purchased by medical care institutions and
other users, which bill various third party payors, such as government health
programs, private health insurance plans, managed care organizations and other
similar programs, for the health care products and services provided to their
patients. Payors may deny reimbursement if they determine that a product used
in a procedure was not used in accordance with established payor protocols
regarding cost-efficient treatment methods, was used for an unapproved
indication or was not otherwise covered. Third party payors are increasingly
challenging the prices charged for medical products and services and, in some
instances, have pressured medical suppliers to lower their prices. The Company
is unable to predict what changes will be made in the reimbursement methods
used by third party health care payors. There can be no assurance that
treatments utilizing the Company's products will be considered cost effective
by third party payors, that reimbursement for such treatments will be available
or, if available, that payor reimbursement levels will not adversely affect the
Company's ability to sell its products on a profitable basis. Moreover,
Medicare, Medicaid and private third party payors may limit reimbursement for
disposable devices such as those manufactured by the Company by implementing
fee schedules or by allowing reimbursement for only a fixed number of devices
per month. In addition, healthcare costs have risen significantly over the past
decade, and there have been and may continue to be proposals by legislators,
regulators and third party payors to curb these costs. The Company is currently
in the process of assessing the eligibility of the FEMSOFT INSERT for
reimbursement. Failure by users of the Company's products to obtain
reimbursement from third party payors, changes in third party payors' policies
towards reimbursement for the Company's products or legislative action limiting
reimbursement for certain procedures or products could have a material adverse
effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The Company's success may depend in part on its ability to obtain patent
protection for its products and manufacturing processes, to preserve its trade
secrets, and to operate without
18
<PAGE>
infringing the proprietary rights of third parties. The validity and breadth of
claims covered in medical technology patents involve complex legal and factual
questions and, therefore, may be highly uncertain. No assurance can be given
that the scope of any patent protection under the Company's current patents, or
under any patent the Company might obtain in the future, will exclude
competitors or provide competitive advantages to the Company; that any of the
Company's patents will be held valid if subsequently challenged; or that others
will not claim rights in or ownership of the patents and other proprietary
rights held by the Company. There can be no assurance that the Company's
technology, current or future products or activities will not be deemed to
infringe upon the rights of others. Furthermore, there can be no assurance that
others have not developed or will not develop similar products or manufacturing
processes, duplicate any of the Company's products or manufacturing processes,
or design around the Company's patents. The Company also relies upon unpatented
trade secrets to protect its proprietary technology, and no assurance can be
given that others will not independently develop or otherwise acquire
substantially equivalent technology or otherwise gain access to the Company's
proprietary technology or disclose such technology or that the Company can
ultimately protect meaningful rights to such unpatented proprietary technology.
The medical device industry is characterized by frequent and substantial
intellectual property litigation, particularly with respect to newly developed
technology. Litigation may be necessary to enforce patents issued to the
Company, to protect trade secrets or know-how owned by the Company, or to
determine the ownership, scope or validity of the proprietary rights of the
Company and others. Intellectual property litigation is complex and expensive,
and the outcome of such litigation is difficult to predict. Any such
litigation, regardless of outcome, could result in substantial expense to the
Company and significant diversion of the efforts of the Company's technical and
management personnel. As a result, a claim by a third party that the Company's
current products or products in development allegedly infringe its patent
rights could have a material adverse effect on the Company. Moreover, an
adverse determination in any such proceeding could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from such parties, if licenses to such rights could be obtained,
and/or require the Company to cease using such technology. If third party
patents containing claims affecting the Company's technology were issued and
such claims were determined to be valid, there can be no assurance that the
Company would be able to obtain licenses to such patents at costs reasonable to
the Company, if at all, or be able to develop or obtain alternate technology.
Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing, using or selling certain of its products, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
POSSIBILITY OF PRODUCT LIABILITY LITIGATION; POSSIBLE INADEQUACY OF INSURANCE
The medical products industry is subject to substantial product liability
litigation, and the Company faces an inherent business risk of exposure to
product liability claims in the event that the use of its products is alleged
to have resulted in adverse effects to a patient. Although the Company has not
experienced any product liability claims to date, any such claims could have a
material adverse effect on the Company, including on market acceptance of its
products. The Company maintains general insurance policies that include
coverage for product liability claims. The policies are limited to an aggregate
maximum of $6 million per product liability claim, with an annual aggregate
limit of $7 million under the policies. The Company may require increased
product liability coverage as new products are developed and commercialized.
There can be no assurance that liability claims will not exceed the coverage
limits of the Company's policies or that adequate insurance will continue to be
available on commercially reasonable terms, if at all. A product liability
claim or other claim with respect to uninsured liabilities or in excess of
insured liabilities could have a material adverse effect on the Company's
business, financial condition and results of operations.
19
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's operations are not currently subject to market risks for
interest rates, foreign currency exchange rates, commodity prices or other
relevant market price risks of a material nature.
ITEM 8. FINANCIAL STATEMENTS
ROCHESTER MEDICAL CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
PAGE
----
Report of Independent Auditors ............. 20
Audited Financial Statements ............... 21-31
Balance Sheets ............................ 21
Statements of Operations .................. 22
Statement of Shareholders' Equity ......... 23
Statements of Cash Flows .................. 24
Notes to Financial Statements ............. 25
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders
Rochester Medical Corporation
We have audited the accompanying balance sheets of Rochester Medical
Corporation as of September 30, 2000 and 1999, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended September 30, 2000. Our audits also included the financial
statement schedule listed in Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rochester Medical
Corporation at September 30, 2000, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 2000,
in conformity with accounting principles generally accepted in the United
States. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
October 20, 2000
21
<PAGE>
ROCHESTER MEDICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,204,161 $ 4,216,814
Marketable securities 5,654,442 9,029,296
Accounts receivable, less allowance for doubtful accounts
($62,567 - 2000; $59,466 - 1999) 1,007,432 1,369,662
Inventories, net 1,892,455 2,047,820
Prepaid expenses and other current assets 251,328 347,860
------------ ------------
Total current assets 12,009,818 17,011,452
Property, plant and equipment:
Land 169,707 169,707
Buildings 5,250,720 5,221,078
Construction in progress -- 1,699,440
Equipment and fixtures 9,984,496 7,638,733
------------ ------------
15,404,923 14,728,958
Less accumulated depreciation (4,351,235) (3,257,233)
------------ ------------
Total property, plant and equipment 11,053,688 11,471,725
Patents, less accumulated amortization ($710,492 - 2000
$641,516 - 1999) 190,717 219,218
------------ ------------
Total assets $ 23,254,223 $ 28,702,395
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 799,737 $ 689,475
Accrued compensation 530,276 556,329
Accrued clinical costs -- 45,214
Accrued expenses 351,192 234,371
------------ ------------
Total current liabilities 1,681,205 1,525,389
Shareholders' equity:
Common Stock, no par value:
Authorized shares - 20,000,000
Issued and outstanding shares; (5,338,900 - 2000;
5,349,500 - 1999) $ 41,279,359 $ 41,352,202
Accumulated deficit (19,706,341) (14,175,196)
------------ ------------
Total shareholders' equity 21,573,018 27,177,006
------------ ------------
Total liabilities and shareholders' equity $ 23,254,223 $ 28,702,395
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
2000 1999 1998
--------------- --------------- -----------------
<S> <C> <C> <C>
Net sales .............................................. $ 7,860,132 $ 7,340,870 $ 9,518,311
Cost of sales .......................................... 6,151,195 5,602,042 6,604,201
------------ ------------ -------------
Gross profit ........................................... 1,708,937 1,738,828 2,914,110
Operating expenses:
Marketing and selling ................................. 4,588,874 3,943,589 3,190,642
Research and development .............................. 1,008,431 1,052,090 1,384,210
General and administrative ............................ 2,237,985 1,863,194 1,445,167
------------ ------------ -------------
Total operating expenses ............................... 7,835,290 6,858,873 6,020,019
Loss from operations ................................... (6,126,353) (5,120,045) (3,105,909)
Other income (expense):
Interest income ....................................... 595,208 719,322 847,662
Interest expense ...................................... -- -- --
------------ ------------ -------------
Net loss ............................................... $ (5,531,145) $ (4,400,723) $ (2,258,247)
============ ============ =============
Net loss per common share -- basic and diluted ......... $ (1.04) $ (.83) $ (.44)
============ ============ =============
Weighted average number of common shares
outstanding ........................................... 5,341,243 5,332,868 5,140,670
============ ============ =============
</TABLE>
SEE ACCOMPANYING NOTES.
23
<PAGE>
ROCHESTER MEDICAL CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------
ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance at September 30, 1997 ............. 4,133,500 $24,697,199 $ (7,516,226) $17,180,973
Common Stock issued in public
offering ................................ 1,125,000 15,862,253 -- 15,862,253
Exercise of common stock options ......... 11,000 132,750 -- 132,750
Net loss for the year .................... -- -- (2,258,247) (2,258,247)
--------- ----------- ------------ ------------
Balance at September 30, 1998 ............. 5,269,500 40,692,202 (9,774,473) 30,917,729
Exercise of common stock options ......... 80,000 660,000 -- 660,000
Net loss for the year .................... -- -- (4,400,723) (4,400,723)
--------- ----------- ------------ ------------
Balance at September 30, 1999 ............. 5,349,500 $41,352,202 $(14,175,196) $27,177,006
Stock Repurchase ......................... (10,600) (72,843) -- (72,843)
Net loss for the year .................... -- -- (5,531,145) (5,531,145)
--------- ----------- ------------ ------------
Balance at September 30, 2000 ............. 5,338,900 $41,279,359 $(19,706,341) $21,573,018
========= =========== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................... $(5,531,145) $(4,400,723) $(2,258,247)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ......................... 1,162,978 837,331 776,699
Changes in operating assets and liabilities:
Accounts receivable .................................. 362,230 585,386 12,146
Inventories .......................................... 155,365 161,779 (555,866)
Other current assets ................................. 96,532 141,141 (235,216)
Accounts payable ..................................... 110,262 (76,829) 308,740
Other current liabilities ............................ 45,554 (215,803) 76,882
----------- ----------- -----------
Net cash used in operating activities .................. (3,598,224) (2,967,718) (1,874,862)
INVESTING ACTIVITIES
Capital expenditures ................................... (675,965) (798,285) (2,305,258)
Patents ................................................ (40,475) (58,081) (43,579)
Purchase of marketable securities ...................... (23,570,342) (54,892,037) (50,871,767)
Sales and maturities of marketable securities .......... 26,945,196 59,408,013 40,773,957
----------- ----------- -----------
Net cash provided by (used in) investing activities 2,658,414 3,659,610 (12,446,647)
FINANCING ACTIVITIES
Sale (purchase) of Common Stock ........................ (72,843) 660,000 15,995,003
----------- ----------- -----------
Net cash provided by (used in) financing
activities ............................................ (72,843) 660,000 15,995,003
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents ........................................... (1,012,653) 1,351,892 1,673,494
Cash and cash equivalents at beginning of year ......... 4,216,814 2,864,922 1,191,428
----------- ----------- -----------
Cash and cash equivalents at end of year ............... $ 3,204,161 $ 4,216,814 $ 2,864,922
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
25
<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. BUSINESS ACTIVITY
Rochester Medical Corporation (the "Company") develops, manufactures and
markets a broad line of innovative, technologically enhanced latex-free urinary
continence and urine drainage care products for the home care and
acute/extended care markets. The Company currently manufactures and markets
standard continence care products, including male external catheters, Foley
catheters and intermittent catheters and innovative and technologically
advanced products such as its FEMSOFT INSERT, RELEASE-NF catheter and
hydrophilic intermittent catheter.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities are classified as available for sale and are carried
at cost which approximates fair value as determined by published market data.
The balance at September 30, 2000 consists of $3,000,000 of bonds maturing in
2001 and $2,650,000 of commercial paper. At September 30, 1999, the balance
consisted entirely of bonds and commercial paper.
MANUFACTURING AND SALES
The Company manufactures and sells its products to a full range of
companies in the medical industry on a worldwide basis. There is a
concentration of sales to larger medical wholesalers and distributors. Sales of
products are recorded upon shipment. The Company performs periodic credit
evaluations of its customers' financial condition. The Company requires
irrevocable letters of credit on sales to certain foreign customers.
Receivables generally are due within 30 days. Credit losses relating to
customers consistently have been within management expectations.
INVENTORIES
Inventories, consisting of material, labor and manufacturing overhead, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is based on estimated useful lives of 4 -- 35 years computed using
the straight-line method.
PATENTS
Capitalized costs include costs incurred in connection with making patent
applications for the Company's products and are amortized on a straight-line
basis over eight years. The Company periodically reviews its patents for
impairment of value. Any adjustment from the analysis is charged to operations.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
Research and development costs include clinical testing costs, certain salary
and related expenses, other labor costs, materials and an allocation of certain
overhead expenses.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between financial reporting and
tax bases of assets and liabilities.
26
<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its stock options. Under APB 25, when the
exercise price of stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Fully diluted and basic net loss
per share are the same because the effect of common equivalent shares from
stock options and convertible debt are excluded from the computation as their
effect is antidilutive.
3. ADVERTISING COSTS
The Company incurred advertising expenses of $1,347,000, $779,000 and
$414,000 for the years ended September 30, 2000, 1999 and 1998, respectively.
All advertising costs are charged to operations as incurred.
4. INVENTORIES
Inventories are summarized as follows:
SEPTEMBER 30,
------------------------------
2000 1999
-------------- -------------
Raw materials .............................. $ 771,468 $ 652,229
Work-in-process ............................ 766,466 1,058,716
Finished goods ............................. 452,640 445,605
Reserve for inventory obsolescence ......... (98,119) (108,730)
---------- ----------
$1,892,455 $2,047,820
========== ==========
5. SHAREHOLDERS' EQUITY
STOCK OPTIONS
In August 1998, the 1991 Stock Option Plan (the Plan) was amended to
increase by 300,000 shares the number of shares authorized for issuance to
1,000,000 shares. Under terms of the Plan, the Board of Directors may grant
employee incentive stock options equal to fair market value of the Company's
Common Stock or employee non-qualified options at a price which cannot be less
than 85% of the fair market value. Automatic non-employee director options are
also covered
27
<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
under the Plan, under which 1,000 shares are granted at fair market value to
non-employee directors on the date of each of the Company's Annual Meetings.
The 1995 Non-Statutory Stock Option Plan authorizes the issuance of up to
50,000 shares of Common Stock. In September 1995, Medical Advisory Board
members were granted options to purchase 12,000 shares of the Company's Common
Stock at an exercise price of $15.75 per share. In April 1999, one member of
the Medical Advisory Board was granted options to purchase 6,000 shares of the
Company's Common Stock at an exercise price of $10.125 per share.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
AVERAGE
SHARES WEIGHTED EXERCISE
RESERVED OPTIONS PRICE PER
FOR GRANT OUTSTANDING SHARE
------------- ------------- ----------
<S> <C> <C> <C>
Balance as of September 30, 1997 ......... 209,000 535,000 $ 12.35
Options granted .......................... (226,000) 226,000 14.90
Options exercised ........................ -- (11,000) 12.07
Options canceled ......................... 27,000 (27,000) 14.13
Increase in authorized shares ............ 300,000 -- --
-------- ------- --------
Balance as of September 30, 1998 ......... 310,000 723,000 13.09
Options granted .......................... (173,500) 173,500 11.40
Options exercised ........................ -- (80,000) 8.25
Options canceled ......................... 70,000 (70,000) 13.80
-------- ------- --------
Balance as of September 30, 1999 ......... 206,500 746,500 13.15
Options granted .......................... (153,000) 153,000 7.85
Options exercised ........................ -- -- --
Options canceled ......................... 124,375 (124,375) 13.34
-------- -------- --------
Balance as of September 30, 2000 ......... 177,875 775,125 $ 12.07
======== ======== ========
</TABLE>
The weighted average fair value of options granted in 2000, 1999 and 1998
was $4.90, $7.48 and $9.67 per share, respectively. The exercise price of
options outstanding at September 30, 2000 ranged from $6.00 to $20.00 per share
as summarized in the following table:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
OUTSTANDING REMAINING EXERCISABLE EXERCISE PRICE
RANGE OF EXERCISE PRICES AT 9/30/00 CONTRACTUAL LIFE AT 9/30/00 PER SHARE
- -------------------------- ------------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C>
$6.00 -- $10.75 .......... 325,375 6.8 years 135,125 $ 8.25
10.76 -- 14.75 ........... 301,250 6.0 years 229,750 13.95
14.76 -- 20.00 ........... 148,500 6.2 years 103,750 16.54
------- -------
775,125 6.4 years 468,625 $ 12.88
======= =======
</TABLE>
The number of stock options exercisable at September 30, 2000, 1999 and
1998 was 468,625, 367,000 and 307,500 at a weighted average exercise price of
$12.88, $12.80 and $9.68 per share, respectively.
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock
28
<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
options. Under APB 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 6.08%; volatility factor of the
expected market price of the Company's common stock of .528 and a weighted
average expected life of the option of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Pro forma net loss .......................... $ (6,803,649) $ (5,934,181) $ (3,796,025)
Pro forma net loss per common share ......... $ (1.27) $ (1.11) $ (.74)
</TABLE>
These pro forma amounts may not be indicative of future years' amounts
since the statement provides for a phase in of option values beginning with
those granted in fiscal 1997.
WARRANTS
In connection with the November 1995 public offering, the Company sold to
the underwriters for a nominal purchase price five-year warrants to purchase
75,000 shares of Common Stock at $14.85 per share. The warrants can be
exercised any time through November 2000.
29
<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
Deferred income taxes are due to temporary differences between the
carrying values of certain assets and liabilities for financial reporting and
income tax purposes. Significant components of deferred income taxes are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
2000 1999
------------ ----------
<S> <C> <C>
Deferred assets:
Net operating loss ........................... $ 7,484,000 $5,466,000
Research and development credits ............. 164,000 143,000
Allowance for uncollectible accounts ......... 23,000 22,000
Inventory reserves ........................... 36,000 40,000
Inventory capitalization ..................... 68,000 37,000
Accrued expenses ............................. 116,000 61,000
------------ ----------
Subtotal ..................................... 7,891,000 5,769,000
Deferred liability:
Depreciation and amortization ................ 346,000 386,000
------------ ----------
Net deferred income tax assets ............... 7,545,000 5,383,000
Valuation allowance .......................... (7,545,000) (5,383,000)
------------ ----------
Net deferred income taxes .................... $ -- $ --
============ ==========
</TABLE>
The Company will be subject to federal income taxes when operations become
profitable. The Company's net operating loss carryforwards of approximately
$20,436,000 can be carried forward to offset future taxable income, subject to
the limitation of Internal Revenue Code Section 382. The net operating loss
carryforward will expire at different times beginning in 2005.
7. LEASES
Rent expense from operating leases for the years ended September 30, 2000,
1999 and 1998 was $1,000, $5,000 and $7,000, respectively.
8. RELATED PARTY TRANSACTIONS
The brother-in-law of the CEO and President, the Vice President of
Production Technologies and a member of the board of directors of the Company
has performed legal services for the Company. During the years ended September
30, 2000, 1999 and 1998, the Company incurred legal fees and expenses of
approximately $16,000, $46,000 and $71,000, respectively, to such counsel for
services rendered in connection with litigation and for general legal services.
Management believes the fees paid for the services rendered to the Company were
on terms at least as favorable to the Company as could have been obtained from
an unrelated party.
The Company contracts with Petersen Blacksmith Company for the fabrication
of customized, proprietary manufacturing equipment used in the Company's
automated production lines. During 2000, 1999 and 1998, the Company paid
Petersen Blacksmith Company the sum of $56,000, $46,000 and $231,000,
respectively. Michael Petersen, the proprietor of Petersen Blacksmith Company,
is the brother-in-law of a Director and Vice President, Research and
Development of the Company. Management believes that the terms of the agreement
are at least as favorable to the Company as could have been obtained from an
unrelated party.
30
<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CONVATEC AGREEMENT
On August 11, 1995, the Company entered into a Distribution and
Co-Development Agreement (the "Distribution Agreement") with ConvaTec, a
division of E.R. Squibb & Sons, Inc., a wholly-owned subsidiary of
Bristol-Myers Squibb Company ("ConvaTec"), for the purpose of marketing and
distributing the Company's incontinence and urological devices. Under the
Distribution Agreement, the Company has granted ConvaTec, subject to
obligations and limitations imposed by the Company's other distribution
agreements, worldwide rights to market the Company's current products and
products in development. The Company is obligated to offer ConvaTec rights of
first and last refusal to market all products developed after the date of the
Distribution Agreement. Under the Distribution Agreement, the Company retains
worldwide marketing rights to its products under the Rochester Medical brand.
In April 1998, the Company and ConvaTec entered into a Revised and
Restated Distribution Agreement (the "Revised Agreement") which grants ConvaTec
limited territorial rights to market certain of the Company's standard male
external catheter and Foley catheter products under the ConvaTec name. In
addition to retaining worldwide marketing rights for Rochester Medical brand
products, the Revised Agreement provides the Company exclusive marketing rights
for its advanced products and products in development.
10. SIGNIFICANT CUSTOMERS
Significant customers, measured as a percentage of sales, are summarized
as follows:
SEPTEMBER 30,
------------------
2000 1999 1998
---- ---- ----
Significant customers:
ConvaTec ........... 16% 16% 25%
Hollister .......... 9 7 7
Maersk ............. 15 18 15*
Mentor ............. 1 10 21
-- -- --
Total ................ 41% 51% 68%
== == ==
- ------------------
* 1998 includes sales to Euromedical Industries SdN., which was acquired by
Maersk in July of 1998.
In May 1998, Mentor advised the Company of its intention to manufacture
its own silicone male external catheters under the royalty-free license it
holds from the Company. There have been no sales of male external catheters to
Mentor since the first quarter of fiscal 1999.
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to portions of the Proxy Statement for
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended September 30,
2000, and "Executive Officers of the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to portions of the Proxy Statement for
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended September 30,
2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to portions of the Proxy Statement for
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended September 30,
2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to portions of the Proxy Statement for
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended September 30,
2000.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are filed herewith in Item 8.
(i) Balance Sheets as of September 30, 2000 and 1999.
(ii) Statements of Operations for the years ended September 30, 2000,
1999 and 1998.
(iii) Statement of Shareholders' Equity for the years ended September
30, 2000 and 1999.
(iv) Statements of Cash Flows for the years ended September 30, 2000,
1999 and 1998.
(v) Notes to financial statements at September 30, 2000.
(a)(2) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts
Financial statement schedules other than those listed have been
omitted since they are not required or are not applicable or the
required information is shown in the financial statements or related
notes.
(b) Exhibits
The following exhibits are submitted herewith:
3.1 Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 4.1 of Registrant's
Registration Statement on Form S-2, Registration Number
33-97788).
3.2 Restated Bylaws of the Company. (Incorporated by reference to
Exhibit 3.2 of Registrant's Registration Statement on Form S-18,
Registration Number 33-36362-C).
32
<PAGE>
3.3 Amendment to Restated Bylaws of the Company. (Incorporated by
reference to Exhibit 4.3 of Registrant's Registration Statement
on Form S-2, Registration Number 33-97788).
4.1 Specimen of Common Stock Certificate. (Incorporated by reference
to Exhibit 4.4 of Registrant's Annual Report on Form 10-KSB for
fiscal year ended September 30, 1995).
4.2 The Company's 1991 Stock Option Plan as amended (Incorporated by
reference to Exhibit 4.5 of Registrant's Registration Statement
on Form S-8, Registration Number 333-10261).
4.3 Amendment to the Company's 1991 Stock Option Plan as amended
(Incorporated by reference to Exhibit 4.3 of Registrant's Annual
Report on Form 10-K for fiscal year ended September 30, 1998).
10.1 Employment Agreement, dated August 31, 1990 between the Company
and Anthony J. Conway. (Incorporated by reference to Exhibit
10.13 of Registrant's Registration Statement on Form S-18,
Registration Number 33-36362-C).
10.2 Employment Agreement, dated August 31, 1990 between the Company
and Philip J. Conway. (Incorporated by reference to Exhibit 10.14
of Registrant's Registration Statement on Form S-18, Registration
Number 33-36362-C).
10.3 Change of Control Agreement dated December 4, 1998, between the
Company and Philip J. Conway (Incorporated by reference to
Exhibit 10.3 of Registrant's Annual Report on Form 10-K for
fiscal year ended September 30, 1998).
10.4 Employment Agreement, dated August 31, 1990 between the Company
and Richard D. Fryar. (Incorporated by reference to Exhibit 10.15
of Registrant's Registration Statement on Form S-18, Registration
Number 33-36362-C).
10.5 Change of Control Agreement dated December 4, 1998, between the
Company and Richard D. Fryar (Incorporated by reference to
Exhibit 10.5 of Registrant's Annual Report on Form 10-K for
fiscal year ended September 30, 1998).
10.6 Change of Control Agreement dated November 21, 2000, between the
Company and Anthony J. Conway.*
10.7 Change of Control Agreement dated November 21, 2000, between the
Company and Dara Lynn Horner.*
10.8 Employment Agreement, dated November 16, 1998 between the Company
and Dara Lynn Horner. (Incorporated by reference to Exhibit 10.8
of Registrant's Annual Report on Form 10-K for fiscal year ended
September 30, 1999.)
10.9 Change of Control Agreement dated November 21, 2000, between the
Company and Martyn R. Sholtis.*
10.10 Change of Control Agreement dated November 21, 2000, between the
Company and David A. Jonas.*
10.11 Revised and Restated Distribution Agreement, dated as of May 6,
1998, between the Company and E. R. Squibb & Sons, Inc. (through
its ConvaTec division). (Incorporated by reference to Exhibit
10.17 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
23 Consent of Ernst & Young LLP.*
24 Power of Attorney*
27 Financial Data Schedule.*
- ------------------
* Filed herewith.
(c) Registrant filed no Report on Form 8-K during its fourth fiscal quarter.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ROCHESTER MEDICAL CORPORATION
Dated: December 19, 2000 By: /s/ ANTHONY J. CONWAY
------------------------------------
Anthony J. Conway
CHAIRMAN OF THE BOARD, PRESIDENT,
CHIEF EXECUTIVE OFFICER AND SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE
- ----------------------------- ------------------------------------------------
/s/ ANTHONY J. CONWAY Chairman of the Board, President,
-------------------------- Chief Executive Officer, and Secretary
Anthony J. Conway (PRINCIPAL EXECUTIVE OFFICER)
/s/ DAVID A. JONAS Controller, Treasurer and Director of Operations
-------------------------- (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
David A. Jonas
* Vice President, Production Technologies
-------------------------- and Director
Philip J. Conway
* Vice President, Research and Development
-------------------------- and Director
Richard D. Fryar
* Director
--------------------------
Darnell L. Boehm
* Director
--------------------------
Peter R. Conway
* Director
--------------------------
Roger W. Schnobrich
*By /s/ DAVID A. JONAS Dated: December 19, 2000
----------------------
David A. Jonas
ATTORNEY-IN-FACT
34
<PAGE>
ROCHESTER MEDICAL CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR CONTINUING OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
COL. A. COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES -- DESCRIBE -- DESCRIBE PERIOD
- ------------------------------ ------------ ----------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 2000:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts ................... $ 59,466 $ 12,000 -- $ 8,899(1) $ 62,567
Allowance for inventory
obsolescence ............... 108,729 14,000 -- 24,611(2) 98,118
Allowance for inventory
valuation .................. -- 200,849(3) -- -- 200,849
Year ended September 30, 1999:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts ................... $ 50,000 $ 10,000 -- $ 534(1) $ 59,466
Allowance for inventory
obsolescence ............... 50,034 60,000 -- 1,305(2) 108,729
Allowance for inventory
valuation .................. -- -- -- -- --
Year ended September 30, 1998:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts ................... $ 52,099 $ 9,000 -- $11,099(1) $ 50,000
Allowance for inventory
obsolescence ............... 91,910 12,300 -- 54,106(2) 50,034
Allowance for inventory
valuation .................. -- -- -- -- --
</TABLE>
- ------------------
(1) Uncollectable accounts written off net of recoveries
(2) Obsolete disposed of net of recoveries
(3) Valuation of inventory at lower of cost or market
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
- --------- -----
<S> <C> <C>
3.1 Articles of Incorporation of the Company, as amended. (Incorporated by reference
to Exhibit 4.1 of Registrant's Registration Statement on Form S-2, Registration
Number 33-97788) ....................................................................
3.2 Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 of
Registrant's Registration Statement on Form S-18, Registration Number
33-36362-C) .........................................................................
3.3 Amendment to Restated Bylaws of the Company. (Incorporated by reference to
Exhibit 4.3 of Registrant's Registration Statement on Form S-2, Registration
Number 33-97788) ....................................................................
4.1 Specimen of Common Stock Certificate. (Incorporated by reference to Exhibit 4.4
of Registrant's Annual Report on Form 10-KSB for fiscal year ended
September 30, 1995) .................................................................
4.2 The Company's 1991 Stock Option Plan as amended (Incorporated by reference
to Exhibit 4.5 of Registrant's Registration Statement on Form S-8, Registration
Number 333-10261) ...................................................................
4.3 Amendment to the Company's 1991 Stock Option Plan as amended (Incorporated
by reference to Exhibit 4.3 of Registrant's Annual Report on Form 10-K for
fiscal year ended September 30, 1998) ...............................................
10.1 Employment Agreement, dated August 31, 1990 between the Company and
Anthony J. Conway. (Incorporated by reference to Exhibit 10.13 of Registrant's
Registration Statement on Form S-18, Registration Number 33-36362-C) ................
10.2 Employment Agreement, dated August 31, 1990 between the Company and
Philip J. Conway. (Incorporated by reference to Exhibit 10.14 of Registrant's
Registration Statement on Form S-18, Registration Number 33-36362-C) ................
10.3 Change of Control Agreement dated December 4, 1998, between the Company
and Philip J. Conway (Incorporated by reference to Exhibit 10.3 of Registrant's
Annual Report on Form 10-K for fiscal year ended September 30, 1998) ................
10.4 Employment Agreement, dated August 31, 1990 between the Company and
Richard D. Fryar. (Incorporated by reference to Exhibit 10.15 of Registrant's
Registration Statement on Form S-18, Registration Number 33-36362-C) ................
10.5 Change of Control Agreement dated December 4, 1998, between the Company
and Richard D. Fryar (Incorporated by reference to Exhibit 10.5 of Registrant's
Annual Report on Form 10-K for fiscal year ended September 30, 1998) ................
10.6 Change of Control Agreement dated November 21, 2000, between the Company
and Anthony J. Conway ...............................................................
10.7 Change of Control Agreement dated November 21, 2000, between the Company
and Dara Lynn Horner ................................................................
10.8 Employment Agreement, dated November 16, 1998 between the Company and
Dara Lynn Horner* (Incorporated by reference to Exhibit 10.8 of Registrant's
Annual Report on Form 10-K for fiscal year ended September 30, 1999) ................
10.9 Change of Control Agreement dated November 21, 2000, between the Company
and Martyn R. Sholtis ...............................................................
10.10 Change of Control Agreement dated November 21, 2000, between the Company
and David A. Jonas* .................................................................
10.11 Revised and Restated Distribution Agreement, dated as of May 6, 1998, between
the Company and E. R. Squibb & Sons, Inc. (through its ConvaTec division)
(Incorporated by reference to Exhibit 10.17 of Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998) .....................................
23 Consent of Ernst & Young LLP ........................................................
24 Power of Attorney ...................................................................
27 Financial Data Schedule .............................................................
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
<TEXT>
EXHIBIT 10.6
Anthony J. Conway
Rochester Medical Corporation
One Rochester Medical Drive
Stewartville, Minnesota 55976
Dear Anthony:
You are presently the President, Chief Executive Officer and Secretary
of Rochester Medical Corporation, a Minnesota corporation (the "Company"). The
Company considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes that,
as is the case with many publicly held corporations, the possibility of a Change
in Control (as defined in Section 1 below) of the Company may arise and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
Accordingly, the Compensation Committee (the "Committee") of the Board
of Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its stockholders receive a proposal for transfer of control of
the Company, that you be able to assess and advise the Board whether such
proposal would be in the best interests of the Company and its stockholders and
to take such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of your own
personal situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (this "Agreement"), which has been approved by the Committee,
sets forth the severance benefits which the Company agrees will be provided to
you in the event your employment with the Company is terminated subsequent to a
Change in Control of the Company under the circumstances described below. This
Agreement also provides you with certain benefits following a Change in Control
of the Company regardless of whether your employment by the Company is
terminated.
In consideration of these benefits, the Agreement contains a covenant
not to compete (Section 7, below).
<PAGE>
1. Definitions. The following terms shall have the meaning set forth
below unless the context clearly requires otherwise. Terms defined elsewhere in
this Agreement shall have the same meaning throughout this Agreement.
(a) "Cause" shall mean: (i) continued failure by you to perform
substantially your duties with the Company (other than any such failure
resulting from your Disability or from termination by you for Good Reason) which
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
acts of personal dishonesty by you intended to result in your personal
enrichment at the expense of the Company (including but not limited to wrongful
appropriation of funds of the Company or its affiliates); (iii) willful and
deliberate misconduct during the course of employment; or (iv) the commission of
a gross misdemeanor or felony (whether or not the Company is the victim of such
offense).
(b) "Change in Control" shall be deemed to have occurred if: (i) a
tender offer shall be made and consummated for the ownership of fifty percent
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
Company shall be merged or consolidated with another corporation and as a result
of such merger or consolidation less than fifty percent (50%) of the outstanding
Voting Securities of the surviving or resulting corporation shall be owned in
the aggregate by the former shareholders of the Company, other than affiliates
(within the meaning of the Exchange Act) of any party to such merger or
consolidation, as the same shall have existed immediately prior to such merger
or consolidation; (iii) the Company shall sell substantially all of its assets
to another corporation which is not a wholly owned subsidiary of the Company;
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
Voting Securities of the Company (whether directly, indirectly, beneficially or
of record) (for purposes hereof, ownership of Voting Securities shall take into
account and shall include ownership as determined by applying the provisions of
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
Act); or (v) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's stockholders,
was approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for purposes of this
clause (v), considered as though such person were a member of the Incumbent
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
Control of the Company shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in: (A) you, or a group of
Persons which includes you, acquiring, directly or indirectly more than fifty
percent (50%) of the combined voting power of the Company's Voting Securities;
or (B) you becoming immediately employed by a Person which leases and/or manages
substantially all of the assets of the Company, providing that the terms of such
employment do not constitute a "Good Reason" termination as defined in
Subsection 1(f) hereof either when such employment commences or at any time
during the then remaining term of this Agreement.
(c) "Date of Termination" shall mean the date specified in the Notice
of Termination (except in the case of your death, in which case Date of
Termination shall be the date of death).
<PAGE>
(d) "Disability" shall have the same meaning as defined in the
Company's long-term disability plan as in effect immediately prior to the Change
in Control of the Company.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Good Reason" shall mean termination based on:
(i) the assignment to you of employment responsibilities which
are not of materially comparable responsibility and status as the
employment responsibilities held by you immediately prior to the Change
in Control of the Company;
(i) a reduction by the Company in your rate of compensation
(or an adverse change in the form or timing of the payment thereof) as
in effect immediately prior to the Change in Control of the Company;
(ii) the failure by the Company to continue in effect any Plan
in which you are participating at the time of the Change in Control of
the Company (or Plans providing you with at least substantially similar
benefits) other than a result of the normal expiration of any such Plan
in accordance with its terms as in effect at the time of the Change in
Control of the Company, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to
you as is the case on the date of the Change in Control of the Company
or which would materially reduce your benefits in the future under any
of such Plans or deprive you of any material benefit enjoyed by you at
the time of the Change in Control in the Company;
(iii) the Company's requiring you to be based anywhere other
than the environs of the municipality where your office is located
immediately prior to the Change in Control of the Company and more than
thirty-five (35) miles from such office location, except for required
travel on the Company's business, and then only to the extent
substantially consistent with the business travel obligations which
your undertook on behalf of the Company prior to the Change in Control
of the Company; or
(iv) the failure by the Company to obtain from any Successor
the assent to this Agreement contemplated by Subsection 8(a) hereof.
(g) "Notice of Termination" shall mean a written notice which shall
state the specific termination provision in this Agreement relied upon. Any
purported termination by the Company or by you following a Change in Control of
the Company shall be communicated by written Notice of Termination to the other
party hereto.
(h) "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person" within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
Act, and used in Section 14(d) thereof, other than the
<PAGE>
Company, a wholly-owned subsidiary of the Company or any employee benefit
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
(i) "Plan" shall mean any compensation plan (such as an incentive stock
option or restricted stock plan) or any employee benefit plan (such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance or
relocation plan or policy) or any other plan, program, policy or agreement of
the Company intended to benefit employees generally, management employees as a
group or you in particular, now in existence or becoming effective hereafter
during the term of this Agreement.
(j) "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger, consolidation or other form of
business combination, or indirectly, by purchase of the Company's Voting
Securities, all or substantially all of its assets or otherwise.
(k) "Voting Securities" shall mean securities of a corporation
ordinarily having the right to vote at elections of directors.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until December 31, 2001; provided, however, that
commencing on January 1, 2002 and each January 1st thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless at
least ninety (90) days prior to such January 1st date, the Company or you shall
have given notice that this Agreement shall not be extended; and provided,
further, that this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of a Change in Control of the Company if such Change
in Control of the Company shall have occurred prior to the end of the then
current term.
3. Agreement to Provide Services; Right to Terminate.
(a) Agreement to Provide Services. You agree to remain in the employ of
the Company during the term of this Agreement unless you terminate your
employment because of death or Disability or your termination is for Good Reason
following a Change in Control of the Company.
(b) Right to Terminate Prior to Change in Control. This Agreement does
not constitute a contract of employment or impose on the Company any obligation
to retain you as an employee, to continue your current employment status or to
change any employment policies of the Company. Prior to any Change in Control of
the Company, the Company may terminate your employment at-will with or without
Cause at any time. If a Change in Control of the Company has occurred, the
Company may thereafter terminate your employment as herein provided, subject to
the Company's providing the benefits hereinafter specified in accordance with
the terms hereof.
4. Benefit Payment Upon Fulfillment of Required Service Following
Change in Control. If a Change in Control of the Company has occurred then, so
long as you have
<PAGE>
remained in the employ of the Company during the term of this Agreement
(including the twelve (12) month period following such Change in Control (as
described in Section 2 hereof)), subject to the limitations set forth in Section
10 hereof, within five (5) business days following the end of such twelve (12)
month period the Company shall pay to you a lump sum cash payment equal to two
and one-half (2.5) times your compensation earned on account of your employment
with the Company during the twelve month (12) period prior to the date of the
Change in Control of the Company. For purposes of this Agreement, compensation
shall include your base salary plus any cash amounts received under incentive or
other bonus plans. No payment shall be paid under this Section 4 if you have not
remained in the employ of the Company during the term of this Agreement,
regardless of the reason your employment was earlier terminated.
5. Welfare Benefit Plans upon a Change in Control. Following a Change
in Control of the Company, unless and until your employment by the Company is
terminated for Cause or Disability or you terminate your employment by the
Company other than for Good Reason, the Company shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating on the earliest of (i) twelve (12) months after the Date of
Termination or (ii) the commencement date of equivalent benefits from a new
employer, each insured and self-insured employee welfare benefit Plan
(including, without limitation, group health, death, dental and disability
plans) in which you were entitled to participate immediately prior to the Change
in Control of the Company, provided that your continued participation is
possible under the general terms and provisions of such Plans (and any
applicable funding media) and provided that you continue to pay an amount equal
to your regular contribution under such Plans for such participation. If, at the
end of twelve (12) months after the date of the Date of Termination, you have
not previously received or are not then receiving equivalent benefits from a new
employer, the Company shall arrange, at your sole cost and expense, to enable
you to convert your and your dependents' coverage under such Plans to individual
policies or programs upon the same terms as employees of the Company may apply
for such conversions. In the event that your participation in any such Plan is
barred, the Company, at your sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of insurance
providing benefits substantially similar (on a federal, state and local income
and employment after-tax basis) to those which you otherwise would have been
entitled to receive under such Plans pursuant to this Section 5 or, if such
insurance is not available at a reasonable cost to the Company, the Company
shall otherwise provide you and your dependents equivalent benefits (on a
federal, state and local income and employment after-tax basis). You shall not
be required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans. Any welfare
benefits which are subject to continuation rights under state or federal law,
and which are provided by the Company pursuant to this Section 5, will be deemed
to be provided by the Company in satisfaction of such continuation requirements
to the extent permitted under such laws.
6. Benefits Upon Termination of Employment Following Change in Control.
(a) Disability or Death. During the term of this Agreement, for any
period following a Change in Control of the Company that you fail to perform
your duties as a result of incapacity due to physical or mental illness, you
shall continue to receive your compensation at the times, in
<PAGE>
the form and at the rate then in effect, and any benefits or awards under any
and all Plans shall continue to accrue during such period to the extent not
inconsistent with such Plans, until your employment is terminated on account of
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
benefits shall be determined in accordance with the Plans (as in effect
immediately prior to a Change in Control of the Company) and as provided in
accordance with this Agreement. If your Death occurs during the term of this
Agreement, and after a Change in Control of the Company but prior to a
termination of your employment, you or your beneficiary (as provided under the
applicable Plans) shall receive all benefits or awards (including, without
limitation, both the cash and stock components) under any and all Plans as in
effect immediately prior to the Change in Control of the Company, and all
benefits to which you or your beneficiary may be entitled under the terms of
this Agreement.
(b) Cause. If, during the term of this Agreement, your employment by
the Company shall be terminated for Cause following a Change in Control of the
Company, the Company shall pay you your compensation through the Date of
Termination at the times, in the form and at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including, without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon, except as otherwise provided
in this Agreement, the Company shall have no further obligations to you under
this Agreement.
(c) Change in Control Termination. If, during the term of this
Agreement, after a Change in Control of the Company shall have occurred your
employment by the Company shall be terminated by the Company other than for
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
without regard to any contrary provisions of any Plan, to the benefits as
provided below:
(i) Compensation. Subject to the limitations set
forth in Section 10 hereof, within five (5) business days
following the Date of Termination, the Company shall pay your
compensation through such Date of Termination in the form and
at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including,
without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or
become payable, but which have not yet been paid to you.
(ii) Outplacement Service. The Company shall pay or
reimburse you for the costs, fees and expenses of reasonable
outplacement assistance services.
(iii) Severance. If your termination occurs under
this Subsection 6(c) within twelve (12) months following a
Change in Control of the Company, then, subject to the
limitations set forth in Section 10 hereof, within five (5)
business days following the Date of Termination, as severance
pay and in lieu of any further salary for periods subsequent
to the Date of Termination, the Company shall pay to you a
lump sum cash payment equal to two and one-half (2.5) times
your compensation earned on account of your employment with
the Company
<PAGE>
during the one (1) year period prior to the date of the Change
in Control of the Company. For purposes of this Agreement,
compensation shall include your base salary plus any cash
amounts received under incentive or other bonus plans.
(d) No Setoff. The amount of any payment provided for in this Section 6
shall not be reduced, offset or subject to recovery by the Company by reason of
any compensation earned by you as the result of employment by another employer
after the Date of Termination or otherwise.
7. Non-Competition; Non-Solicitation. You and the Company recognize
that your services to the Company are special and unique and that your
compensation and other benefits are partly in consideration of and conditioned
upon your not competing with the Company or its subsidiaries, and that a
covenant on your part not to compete during the term of your employment and
during a period of twelve (12) full calendar months thereafter is essential to
protect the business and goodwill of the Company. Accordingly, you agree that
during the term of your employment with the Company or any of its affiliates and
for a period of twelve (12) full calendar months following your termination of
employment for any reason, you shall not, directly or indirectly, alone or as a
partner, officer, director, shareholder or employee of any other firm or entity:
(a) engage in any commercial activity in competition with any substantial part
of the Company's business as conducted during the term of the Agreement or as of
the Date of Termination of your employment or with any substantial part of the
Company's contemplated business; (b) assist, solicit, entice, or induce (or
assist any other person or entity in soliciting, enticing or inducing) any
customer or potential customer (or agent, employee or consultant of any customer
or potential customer) with whom you had contact in the course of your
employment with the Company to deal with a competitor of the Company; and/or (c)
in any manner solicit, assist or encourage (or assist any other person or entity
in soliciting or encouraging) any other officer or employee of the Company to
work or otherwise provide services for you or for any entity in which you
participate in the ownership, management, operation or control of, or is
connected with in any manner as an independent contractor, consultant or
otherwise.. For purposes of this Section 7, "shareholder" shall not include
beneficial ownership of less than five percent (5%) of the combined voting power
of all issued and outstanding voting securities of a publicly held corporation
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
that the services you render to the Company are unique and of extraordinary
character; that the Company has agreed to enter into this Agreement and to
compensate you in the manner provided for herein relying on that fact; that this
covenant not to compete is of the essence of this Agreement and that in the
event of a breach or threatened breach of the provisions of the covenant not to
compete the Company would suffer irreparable damage for which there is no
adequate remedy at law since damages would not be readily determinable.
Accordingly, in the event of a breach or a threatened breach by you of this
covenant, the Company shall be entitled to a temporary restraining order and an
injunction restraining you from any such breach issued by a court of competent
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
court of competent jurisdiction determine that any of the covenants set forth in
this Section 7 are invalid in any respect, the parties agree that the court so
holding may restrict such covenant in time or in area, or in both, or in any
other manner which the court determines sufficient to render the covenant
enforceable against you.
<PAGE>
8. Successors; Binding Agreements.
(a) Upon your written request, the Company will seek to have any
Successor by agreement in form and substance satisfactory to you, assent to the
fulfillment by the Company of the Company's obligations under this Agreement.
Failure of the Company to obtain such assent at least three (3) business days
prior to the time a Person becomes a Successor (or where the Company does not
have at least three (3) business days advance notice that a Person may become a
successor, within one (1) business day after having notice that such Person may
become or has become a Successor) shall constitute Good Reason for termination
by you of your employment and, if a Change in Control of the Company has
occurred, shall entitle you immediately to the benefits provided hereunder upon
delivery by you of a Notice of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
you, your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there be no such designee, to your estate.
(c) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or other form of business combination in
which the Company ceases to exist.
9. Withholding. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income and
employment taxes.
10. Excess Payment Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event that any payment or benefit received or
to be received by you in connection with a change in control of the Company or
termination of your employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a change in control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
change in control of the Company) (collectively, the "Total Payments") would not
be deductible (in whole or in part) by the Company or such other person making
such payment or providing such benefit solely as a result of Section 280G of the
Code, the amounts payable to you under this Agreement shall be reduced until no
portion of the Total Payments is not deductible solely as a result of Section
280G of the Code or such amounts payable to you under this Agreement are reduced
to zero. For purposes of this limitation: (a) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by the
Company does not constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
Company's standard or general severance policies); (b) payments pursuant to this
Agreement shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (a))
in their entirety constitute reasonable compensation within the meaning of
<PAGE>
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (a); and (c) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
to whether all or some portion of a payment is or is not payable to you under
this Agreement, the Company shall initially make the payment to you, and you
agree to refund to the Company any amounts ultimately determined not to have
been payable under the terms hereof.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in or required under this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
when mailed by United States certified or registered mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company shall be directed to the attention of the chairman of the board or
president of the Company, with a copy to the secretary of the Company), or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Limitation of Damages. If for any reason you believe the benefits
provisions of this Agreement have not been properly adhered to by the Company,
and if, pursuant to Section 14 hereof, it is determined that the Company has
not, in fact, properly adhered to the benefits provisions of this Agreement, the
sole and exclusive remedy to which you are entitled are the benefits payment to
which you are entitled under the provisions of this Agreement.
14. Dispute Resolution. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
the American Arbitration Association then in effect. The decision of the
arbitrators shall be final and binding on both parties. Judgment may be entered
on the arbitrators' award in any court having jurisdiction. The arbitrators
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
hereof and may not award or assess punitive damages against either party. Each
party shall bear its own costs and expenses of the arbitration and one-half
(1/2) of the fees and costs of the arbitrators.
15. Related Agreements. To the extent that any provision of any other
Plan or agreement between the Company or any of its subsidiaries and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other Plan agreement
shall be deemed to have been superseded, and to be of no force or effect, as if
such other agreement had been formally amended to the extent necessary to
accomplish such purpose.
<PAGE>
16. Survival. The respective obligations of, and benefits afforded to,
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
Agreement shall survive termination of this Agreement and shall remain in full
force and effect according to their terms.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and the chairman of the board or president of the
Company, provided, however, if you occupy those positions at the time, such
writings shall be signed by another officer of the Company at the direction of
the Board of Directors. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. Any and all previous written or oral agreements with
respect to compensation and/or benefits triggered by a Change in Control of the
Company or a similar event are hereby superseded and canceled, and no other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. This Agreement and the legal
relations among the parties as to all matters, including, without limitation,
matters of validity, interpretation, construction, performance and remedies,
shall be governed by and construed in accordance with the internal laws of the
State of Minnesota. Headings are for purpose of convenience only and do not
constitute a part of this Agreement. The parties hereto agree to perform, or
cause to be performed, such further acts and deeds and shall execute and
deliver, or cause to be executed and delivered, such additional or supplemental
documents or instruments as may be reasonably required by the other party to
carry into effect the intent and purpose of this Agreement.
<PAGE>
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
ROCHESTER MEDICAL CORPORATION
By: /s/ Anthony J. Conway
--------------------------
Name: Anthony J. Conway
Title: President and Chief Executive Officer
Agreed to this 21st day of November, 2000.
/s/ Anthony J. Conway
- ---------------------
Anthony J. Conway
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
<TEXT>
EXHIBIT 10.7
Dara Lynn Horner
Rochester Medical Corporation
One Rochester Medical Drive
Stewartville, Minnesota 55976
Dear Dara Lynn:
You are presently the Vice President, FEMSOFT Marketing of Rochester
Medical Corporation, a Minnesota corporation (the "Company"). The Company
considers the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of the Company and
its stockholders. In this connection, the Company recognizes that, as is the
case with many publicly held corporations, the possibility of a Change in
Control (as defined in Section 1 below) of the Company may arise and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
Accordingly, the Compensation Committee (the "Committee") of the Board
of Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its stockholders receive a proposal for transfer of control of
the Company, that you be able to assess and advise the Board whether such
proposal would be in the best interests of the Company and its stockholders and
to take such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of your own
personal situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (this "Agreement"), which has been approved by the Committee,
sets forth the severance benefits which the Company agrees will be provided to
you in the event your employment with the Company is terminated subsequent to a
Change in Control of the Company under the circumstances described below. This
Agreement also provides you with certain benefits following a Change in Control
of the Company regardless of whether your employment by the Company is
terminated.
In consideration of these benefits, the Agreement contains a covenant
not to compete (Section 7, below).
<PAGE>
1. Definitions. The following terms shall have the meaning set forth
below unless the context clearly requires otherwise. Terms defined elsewhere in
this Agreement shall have the same meaning throughout this Agreement.
(a) "Cause" shall mean: (i) continued failure by you to perform
substantially your duties with the Company (other than any such failure
resulting from your Disability or from termination by you for Good Reason) which
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
acts of personal dishonesty by you intended to result in your personal
enrichment at the expense of the Company (including but not limited to wrongful
appropriation of funds of the Company or its affiliates); (iii) willful and
deliberate misconduct during the course of employment; or (iv) the commission of
a gross misdemeanor or felony (whether or not the Company is the victim of such
offense).
(b) "Change in Control" shall be deemed to have occurred if: (i) a
tender offer shall be made and consummated for the ownership of fifty percent
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
Company shall be merged or consolidated with another corporation and as a result
of such merger or consolidation less than fifty percent (50%) of the outstanding
Voting Securities of the surviving or resulting corporation shall be owned in
the aggregate by the former shareholders of the Company, other than affiliates
(within the meaning of the Exchange Act) of any party to such merger or
consolidation, as the same shall have existed immediately prior to such merger
or consolidation; (iii) the Company shall sell substantially all of its assets
to another corporation which is not a wholly owned subsidiary of the Company;
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
Voting Securities of the Company (whether directly, indirectly, beneficially or
of record) (for purposes hereof, ownership of Voting Securities shall take into
account and shall include ownership as determined by applying the provisions of
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
Act); or (v) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's stockholders,
was approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for purposes of this
clause (v), considered as though such person were a member of the Incumbent
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
Control of the Company shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in: (A) you, or a group of
Persons which includes you, acquiring, directly or indirectly more than fifty
percent (50%) of the combined voting power of the Company's Voting Securities;
or (B) you becoming immediately employed by a Person which leases and/or manages
substantially all of the assets of the Company, providing that the terms of such
employment do not constitute a "Good Reason" termination as defined in
Subsection 1(f) hereof either when such employment commences or at any time
during the then remaining term of this Agreement.
(c) "Date of Termination" shall mean the date specified in the Notice
of Termination (except in the case of your death, in which case Date of
Termination shall be the date of death).
<PAGE>
(d) "Disability" shall have the same meaning as defined in the
Company's long-term disability plan as in effect immediately prior to the Change
in Control of the Company.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Good Reason" shall mean termination based on:
(i) the assignment to you of employment responsibilities which
are not of materially comparable responsibility and status as the
employment responsibilities held by you immediately prior to the Change
in Control of the Company;
(i) a reduction by the Company in your rate of compensation
(or an adverse change in the form or timing of the payment thereof) as
in effect immediately prior to the Change in Control of the Company;
(ii) the failure by the Company to continue in effect any Plan
in which you are participating at the time of the Change in Control of
the Company (or Plans providing you with at least substantially similar
benefits) other than a result of the normal expiration of any such Plan
in accordance with its terms as in effect at the time of the Change in
Control of the Company, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to
you as is the case on the date of the Change in Control of the Company
or which would materially reduce your benefits in the future under any
of such Plans or deprive you of any material benefit enjoyed by you at
the time of the Change in Control in the Company;
(iii) the Company's requiring you to be based anywhere other
than the environs of the municipality where your office is located
immediately prior to the Change in Control of the Company and more than
thirty-five (35) miles from such office location, except for required
travel on the Company's business, and then only to the extent
substantially consistent with the business travel obligations which
your undertook on behalf of the Company prior to the Change in Control
of the Company; or
(iv) the failure by the Company to obtain from any Successor
the assent to this Agreement contemplated by Subsection 8(a) hereof.
(g) "Notice of Termination" shall mean a written notice which shall
state the specific termination provision in this Agreement relied upon. Any
purported termination by the Company or by you following a Change in Control of
the Company shall be communicated by written Notice of Termination to the other
party hereto.
(h) "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person" within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
Act, and used in Section 14(d) thereof, other than the
<PAGE>
Company, a wholly-owned subsidiary of the Company or any employee benefit
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
(i) "Plan" shall mean any compensation plan (such as an incentive stock
option or restricted stock plan) or any employee benefit plan (such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance or
relocation plan or policy) or any other plan, program, policy or agreement of
the Company intended to benefit employees generally, management employees as a
group or you in particular, now in existence or becoming effective hereafter
during the term of this Agreement.
(j) "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger, consolidation or other form of
business combination, or indirectly, by purchase of the Company's Voting
Securities, all or substantially all of its assets or otherwise.
(k) "Voting Securities" shall mean securities of a corporation
ordinarily having the right to vote at elections of directors.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until December 31, 2001; provided, however, that
commencing on January 1, 2002 and each January 1st thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless at
least ninety (90) days prior to such January 1st date, the Company or you shall
have given notice that this Agreement shall not be extended; and provided,
further, that this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of a Change in Control of the Company if such Change
in Control of the Company shall have occurred prior to the end of the then
current term.
3. Agreement to Provide Services; Right to Terminate.
(a) Agreement to Provide Services. You agree to remain in the employ of
the Company during the term of this Agreement unless you terminate your
employment because of death or Disability or your termination is for Good Reason
following a Change in Control of the Company.
(b) Right to Terminate Prior to Change in Control. This Agreement does
not constitute a contract of employment or impose on the Company any obligation
to retain you as an employee, to continue your current employment status or to
change any employment policies of the Company. Prior to any Change in Control of
the Company, the Company may terminate your employment at-will with or without
Cause at any time. If a Change in Control of the Company has occurred, the
Company may thereafter terminate your employment as herein provided, subject to
the Company's providing the benefits hereinafter specified in accordance with
the terms hereof.
4. Benefit Payment Upon Fulfillment of Required Service Following
Change in Control. If a Change in Control of the Company has occurred then, so
long as you have
<PAGE>
remained in the employ of the Company during the term of this Agreement
(including the twelve (12) month period following such Change in Control (as
described in Section 2 hereof)), subject to the limitations set forth in Section
10 hereof, within five (5) business days following the end of such twelve (12)
month period the Company shall pay to you a lump sum cash payment equal to two
and one-half (2.5) times your compensation earned on account of your employment
with the Company during the twelve month (12) period prior to the date of the
Change in Control of the Company. For purposes of this Agreement, compensation
shall include your base salary plus any cash amounts received under incentive or
other bonus plans. No payment shall be paid under this Section 4 if you have not
remained in the employ of the Company during the term of this Agreement,
regardless of the reason your employment was earlier terminated.
5. Welfare Benefit Plans upon a Change in Control. Following a Change
in Control of the Company, unless and until your employment by the Company is
terminated for Cause or Disability or you terminate your employment by the
Company other than for Good Reason, the Company shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating on the earliest of (i) twelve (12) months after the Date of
Termination or (ii) the commencement date of equivalent benefits from a new
employer, each insured and self-insured employee welfare benefit Plan
(including, without limitation, group health, death, dental and disability
plans) in which you were entitled to participate immediately prior to the Change
in Control of the Company, provided that your continued participation is
possible under the general terms and provisions of such Plans (and any
applicable funding media) and provided that you continue to pay an amount equal
to your regular contribution under such Plans for such participation. If, at the
end of twelve (12) months after the date of the Date of Termination, you have
not previously received or are not then receiving equivalent benefits from a new
employer, the Company shall arrange, at your sole cost and expense, to enable
you to convert your and your dependents' coverage under such Plans to individual
policies or programs upon the same terms as employees of the Company may apply
for such conversions. In the event that your participation in any such Plan is
barred, the Company, at your sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of insurance
providing benefits substantially similar (on a federal, state and local income
and employment after-tax basis) to those which you otherwise would have been
entitled to receive under such Plans pursuant to this Section 5 or, if such
insurance is not available at a reasonable cost to the Company, the Company
shall otherwise provide you and your dependents equivalent benefits (on a
federal, state and local income and employment after-tax basis). You shall not
be required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans. Any welfare
benefits which are subject to continuation rights under state or federal law,
and which are provided by the Company pursuant to this Section 5, will be deemed
to be provided by the Company in satisfaction of such continuation requirements
to the extent permitted under such laws.
6. Benefits Upon Termination of Employment Following Change in Control.
(a) Disability or Death. During the term of this Agreement, for any
period following a Change in Control of the Company that you fail to perform
your duties as a result of incapacity due to physical or mental illness, you
shall continue to receive your compensation at the times, in
<PAGE>
the form and at the rate then in effect, and any benefits or awards under any
and all Plans shall continue to accrue during such period to the extent not
inconsistent with such Plans, until your employment is terminated on account of
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
benefits shall be determined in accordance with the Plans (as in effect
immediately prior to a Change in Control of the Company) and as provided in
accordance with this Agreement. If your Death occurs during the term of this
Agreement, and after a Change in Control of the Company but prior to a
termination of your employment, you or your beneficiary (as provided under the
applicable Plans) shall receive all benefits or awards (including, without
limitation, both the cash and stock components) under any and all Plans as in
effect immediately prior to the Change in Control of the Company, and all
benefits to which you or your beneficiary may be entitled under the terms of
this Agreement.
(b) Cause. If, during the term of this Agreement, your employment by
the Company shall be terminated for Cause following a Change in Control of the
Company, the Company shall pay you your compensation through the Date of
Termination at the times, in the form and at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including, without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon, except as otherwise provided
in this Agreement, the Company shall have no further obligations to you under
this Agreement.
(c) Change in Control Termination. If, during the term of this
Agreement, after a Change in Control of the Company shall have occurred your
employment by the Company shall be terminated by the Company other than for
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
without regard to any contrary provisions of any Plan, to the benefits as
provided below:
(i) Compensation. Subject to the limitations set
forth in Section 10 hereof, within five (5) business days
following the Date of Termination, the Company shall pay your
compensation through such Date of Termination in the form and
at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including,
without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or
become payable, but which have not yet been paid to you.
(ii) Outplacement Service. The Company shall pay or
reimburse you for the costs, fees and expenses of reasonable
outplacement assistance services.
(iii) Severance. If your termination occurs under
this Subsection 6(c) within twelve (12) months following a
Change in Control of the Company, then, subject to the
limitations set forth in Section 10 hereof, within five (5)
business days following the Date of Termination, as severance
pay and in lieu of any further salary for periods subsequent
to the Date of Termination, the Company shall pay to you a
lump sum cash payment equal to two and one-half (2.5) times
your compensation earned on account of your employment with
the Company
<PAGE>
during the one (1) year period prior to the date of the Change
in Control of the Company. For purposes of this Agreement,
compensation shall include your base salary plus any cash
amounts received under incentive or other bonus plans.
(d) No Setoff. The amount of any payment provided for in this Section 6
shall not be reduced, offset or subject to recovery by the Company by reason of
any compensation earned by you as the result of employment by another employer
after the Date of Termination or otherwise.
7. Non-Competition; Non-Solicitation. You and the Company recognize
that your services to the Company are special and unique and that your
compensation and other benefits are partly in consideration of and conditioned
upon your not competing with the Company or its subsidiaries, and that a
covenant on your part not to compete during the term of your employment and
during a period of twelve (12) full calendar months thereafter is essential to
protect the business and goodwill of the Company. Accordingly, you agree that
during the term of your employment with the Company or any of its affiliates and
for a period of twelve (12) full calendar months following your termination of
employment for any reason, you shall not, directly or indirectly, alone or as a
partner, officer, director, shareholder or employee of any other firm or entity:
(a) engage in any commercial activity in competition with any substantial part
of the Company's business as conducted during the term of the Agreement or as of
the Date of Termination of your employment or with any substantial part of the
Company's contemplated business; (b) assist, solicit, entice, or induce (or
assist any other person or entity in soliciting, enticing or inducing) any
customer or potential customer (or agent, employee or consultant of any customer
or potential customer) with whom you had contact in the course of your
employment with the Company to deal with a competitor of the Company; and/or (c)
in any manner solicit, assist or encourage (or assist any other person or entity
in soliciting or encouraging) any other officer or employee of the Company to
work or otherwise provide services for you or for any entity in which you
participate in the ownership, management, operation or control of, or is
connected with in any manner as an independent contractor, consultant or
otherwise.. For purposes of this Section 7, "shareholder" shall not include
beneficial ownership of less than five percent (5%) of the combined voting power
of all issued and outstanding voting securities of a publicly held corporation
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
that the services you render to the Company are unique and of extraordinary
character; that the Company has agreed to enter into this Agreement and to
compensate you in the manner provided for herein relying on that fact; that this
covenant not to compete is of the essence of this Agreement and that in the
event of a breach or threatened breach of the provisions of the covenant not to
compete the Company would suffer irreparable damage for which there is no
adequate remedy at law since damages would not be readily determinable.
Accordingly, in the event of a breach or a threatened breach by you of this
covenant, the Company shall be entitled to a temporary restraining order and an
injunction restraining you from any such breach issued by a court of competent
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
court of competent jurisdiction determine that any of the covenants set forth in
this Section 7 are invalid in any respect, the parties agree that the court so
holding may restrict such covenant in time or in area, or in both, or in any
other manner which the court determines sufficient to render the covenant
enforceable against you.
<PAGE>
8. Successors; Binding Agreements.
(a) Upon your written request, the Company will seek to have any
Successor by agreement in form and substance satisfactory to you, assent to the
fulfillment by the Company of the Company's obligations under this Agreement.
Failure of the Company to obtain such assent at least three (3) business days
prior to the time a Person becomes a Successor (or where the Company does not
have at least three (3) business days advance notice that a Person may become a
successor, within one (1) business day after having notice that such Person may
become or has become a Successor) shall constitute Good Reason for termination
by you of your employment and, if a Change in Control of the Company has
occurred, shall entitle you immediately to the benefits provided hereunder upon
delivery by you of a Notice of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
you, your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there be no such designee, to your estate.
(c) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or other form of business combination in
which the Company ceases to exist.
9. Withholding. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income and
employment taxes.
10. Excess Payment Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event that any payment or benefit received or
to be received by you in connection with a change in control of the Company or
termination of your employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a change in control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
change in control of the Company) (collectively, the "Total Payments") would not
be deductible (in whole or in part) by the Company or such other person making
such payment or providing such benefit solely as a result of Section 280G of the
Code, the amounts payable to you under this Agreement shall be reduced until no
portion of the Total Payments is not deductible solely as a result of Section
280G of the Code or such amounts payable to you under this Agreement are reduced
to zero. For purposes of this limitation: (a) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by the
Company does not constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
Company's standard or general severance policies); (b) payments pursuant to this
Agreement shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (a))
in their entirety constitute reasonable compensation within the meaning of
<PAGE>
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (a); and (c) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
to whether all or some portion of a payment is or is not payable to you under
this Agreement, the Company shall initially make the payment to you, and you
agree to refund to the Company any amounts ultimately determined not to have
been payable under the terms hereof.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in or required under this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
when mailed by United States certified or registered mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company shall be directed to the attention of the chairman of the board or
president of the Company, with a copy to the secretary of the Company), or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Limitation of Damages. If for any reason you believe the benefits
provisions of this Agreement have not been properly adhered to by the Company,
and if, pursuant to Section 14 hereof, it is determined that the Company has
not, in fact, properly adhered to the benefits provisions of this Agreement, the
sole and exclusive remedy to which you are entitled are the benefits payment to
which you are entitled under the provisions of this Agreement.
14. Dispute Resolution. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
the American Arbitration Association then in effect. The decision of the
arbitrators shall be final and binding on both parties. Judgment may be entered
on the arbitrators' award in any court having jurisdiction. The arbitrators
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
hereof and may not award or assess punitive damages against either party. Each
party shall bear its own costs and expenses of the arbitration and one-half
(1/2) of the fees and costs of the arbitrators.
15. Related Agreements. To the extent that any provision of any other
Plan or agreement between the Company or any of its subsidiaries and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other Plan agreement
shall be deemed to have been superseded, and to be of no force or effect, as if
such other agreement had been formally amended to the extent necessary to
accomplish such purpose.
<PAGE>
16. Survival. The respective obligations of, and benefits afforded to,
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
Agreement shall survive termination of this Agreement and shall remain in full
force and effect according to their terms.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and the chairman of the board or president of the
Company, provided, however, if you occupy those positions at the time, such
writings shall be signed by another officer of the Company at the direction of
the Board of Directors. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. Any and all previous written or oral agreements with
respect to compensation and/or benefits triggered by a Change in Control of the
Company or a similar event are hereby superseded and canceled, and no other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. This Agreement and the legal
relations among the parties as to all matters, including, without limitation,
matters of validity, interpretation, construction, performance and remedies,
shall be governed by and construed in accordance with the internal laws of the
State of Minnesota. Headings are for purpose of convenience only and do not
constitute a part of this Agreement. The parties hereto agree to perform, or
cause to be performed, such further acts and deeds and shall execute and
deliver, or cause to be executed and delivered, such additional or supplemental
documents or instruments as may be reasonably required by the other party to
carry into effect the intent and purpose of this Agreement.
<PAGE>
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
ROCHESTER MEDICAL CORPORATION
By: /s/ Anthony J. Conway
--------------------------
Name: Anthony J. Conway
Title: President and Chief Executive Officer
Agreed to this 21st day of November, 2000.
/s/ Dara Lynn Horner
- --------------------
Dara Lynn Horner
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
<TEXT>
EXHIBIT 10.9
Martyn R. Sholtis
Rochester Medical Corporation
One Rochester Medical Drive
Stewartville, Minnesota 55976
Dear Martyn:
You are presently the Vice President, Sales and Marketing of Rochester
Medical Corporation, a Minnesota corporation (the "Company"). The Company
considers the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of the Company and
its stockholders. In this connection, the Company recognizes that, as is the
case with many publicly held corporations, the possibility of a Change in
Control (as defined in Section 1 below) of the Company may arise and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
Accordingly, the Compensation Committee (the "Committee") of the Board
of Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its stockholders receive a proposal for transfer of control of
the Company, that you be able to assess and advise the Board whether such
proposal would be in the best interests of the Company and its stockholders and
to take such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of your own
personal situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (this "Agreement"), which has been approved by the Committee,
sets forth the severance benefits which the Company agrees will be provided to
you in the event your employment with the Company is terminated subsequent to a
Change in Control of the Company under the circumstances described below. This
Agreement also provides you with certain benefits following a Change in Control
of the Company regardless of whether your employment by the Company is
terminated.
In consideration of these benefits, the Agreement contains a covenant
not to compete (Section 7, below).
<PAGE>
1. Definitions. The following terms shall have the meaning set forth
below unless the context clearly requires otherwise. Terms defined elsewhere in
this Agreement shall have the same meaning throughout this Agreement.
(a) "Cause" shall mean: (i) continued failure by you to perform
substantially your duties with the Company (other than any such failure
resulting from your Disability or from termination by you for Good Reason) which
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
acts of personal dishonesty by you intended to result in your personal
enrichment at the expense of the Company (including but not limited to wrongful
appropriation of funds of the Company or its affiliates); (iii) willful and
deliberate misconduct during the course of employment; or (iv) the commission of
a gross misdemeanor or felony (whether or not the Company is the victim of such
offense).
(b) "Change in Control" shall be deemed to have occurred if: (i) a
tender offer shall be made and consummated for the ownership of fifty percent
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
Company shall be merged or consolidated with another corporation and as a result
of such merger or consolidation less than fifty percent (50%) of the outstanding
Voting Securities of the surviving or resulting corporation shall be owned in
the aggregate by the former shareholders of the Company, other than affiliates
(within the meaning of the Exchange Act) of any party to such merger or
consolidation, as the same shall have existed immediately prior to such merger
or consolidation; (iii) the Company shall sell substantially all of its assets
to another corporation which is not a wholly owned subsidiary of the Company;
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
Voting Securities of the Company (whether directly, indirectly, beneficially or
of record) (for purposes hereof, ownership of Voting Securities shall take into
account and shall include ownership as determined by applying the provisions of
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
Act); or (v) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's stockholders,
was approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for purposes of this
clause (v), considered as though such person were a member of the Incumbent
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
Control of the Company shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in: (A) you, or a group of
Persons which includes you, acquiring, directly or indirectly more than fifty
percent (50%) of the combined voting power of the Company's Voting Securities;
or (B) you becoming immediately employed by a Person which leases and/or manages
substantially all of the assets of the Company, providing that the terms of such
employment do not constitute a "Good Reason" termination as defined in
Subsection 1(f) hereof either when such employment commences or at any time
during the then remaining term of this Agreement.
(c) "Date of Termination" shall mean the date specified in the Notice
of Termination (except in the case of your death, in which case Date of
Termination shall be the date of death).
<PAGE>
(d) "Disability" shall have the same meaning as defined in the
Company's long-term disability plan as in effect immediately prior to the Change
in Control of the Company.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Good Reason" shall mean termination based on:
(i) the assignment to you of employment responsibilities which
are not of materially comparable responsibility and status as the
employment responsibilities held by you immediately prior to the Change
in Control of the Company;
(i) a reduction by the Company in your rate of compensation
(or an adverse change in the form or timing of the payment thereof) as
in effect immediately prior to the Change in Control of the Company;
(ii) the failure by the Company to continue in effect any Plan
in which you are participating at the time of the Change in Control of
the Company (or Plans providing you with at least substantially similar
benefits) other than a result of the normal expiration of any such Plan
in accordance with its terms as in effect at the time of the Change in
Control of the Company, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to
you as is the case on the date of the Change in Control of the Company
or which would materially reduce your benefits in the future under any
of such Plans or deprive you of any material benefit enjoyed by you at
the time of the Change in Control in the Company;
(iii) the Company's requiring you to be based anywhere other
than the environs of the municipality where your office is located
immediately prior to the Change in Control of the Company and more than
thirty-five (35) miles from such office location, except for required
travel on the Company's business, and then only to the extent
substantially consistent with the business travel obligations which
your undertook on behalf of the Company prior to the Change in Control
of the Company; or
(iv) the failure by the Company to obtain from any Successor
the assent to this Agreement contemplated by Subsection 8(a) hereof.
(g) "Notice of Termination" shall mean a written notice which shall
state the specific termination provision in this Agreement relied upon. Any
purported termination by the Company or by you following a Change in Control of
the Company shall be communicated by written Notice of Termination to the other
party hereto.
(h) "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person" within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
Act, and used in Section 14(d) thereof, other than the
<PAGE>
Company, a wholly-owned subsidiary of the Company or any employee benefit
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
(i) "Plan" shall mean any compensation plan (such as an incentive stock
option or restricted stock plan) or any employee benefit plan (such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance or
relocation plan or policy) or any other plan, program, policy or agreement of
the Company intended to benefit employees generally, management employees as a
group or you in particular, now in existence or becoming effective hereafter
during the term of this Agreement.
(j) "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger, consolidation or other form of
business combination, or indirectly, by purchase of the Company's Voting
Securities, all or substantially all of its assets or otherwise.
(k) "Voting Securities" shall mean securities of a corporation
ordinarily having the right to vote at elections of directors.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until December 31, 2001; provided, however, that
commencing on January 1, 2002 and each January 1st thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless at
least ninety (90) days prior to such January 1st date, the Company or you shall
have given notice that this Agreement shall not be extended; and provided,
further, that this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of a Change in Control of the Company if such Change
in Control of the Company shall have occurred prior to the end of the then
current term.
3. Agreement to Provide Services; Right to Terminate.
(a) Agreement to Provide Services. You agree to remain in the employ of
the Company during the term of this Agreement unless you terminate your
employment because of death or Disability or your termination is for Good Reason
following a Change in Control of the Company.
(b) Right to Terminate Prior to Change in Control. This Agreement does
not constitute a contract of employment or impose on the Company any obligation
to retain you as an employee, to continue your current employment status or to
change any employment policies of the Company. Prior to any Change in Control of
the Company, the Company may terminate your employment at-will with or without
Cause at any time. If a Change in Control of the Company has occurred, the
Company may thereafter terminate your employment as herein provided, subject to
the Company's providing the benefits hereinafter specified in accordance with
the terms hereof.
4. Benefit Payment Upon Fulfillment of Required Service Following
Change in Control. If a Change in Control of the Company has occurred then, so
long as you have
<PAGE>
remained in the employ of the Company during the term of this Agreement
(including the twelve (12) month period following such Change in Control (as
described in Section 2 hereof)), subject to the limitations set forth in Section
10 hereof, within five (5) business days following the end of such twelve (12)
month period the Company shall pay to you a lump sum cash payment equal to two
and one-half (2.5) times your compensation earned on account of your employment
with the Company during the twelve month (12) period prior to the date of the
Change in Control of the Company. For purposes of this Agreement, compensation
shall include your base salary plus any cash amounts received under incentive or
other bonus plans. No payment shall be paid under this Section 4 if you have not
remained in the employ of the Company during the term of this Agreement,
regardless of the reason your employment was earlier terminated.
5. Welfare Benefit Plans upon a Change in Control. Following a Change
in Control of the Company, unless and until your employment by the Company is
terminated for Cause or Disability or you terminate your employment by the
Company other than for Good Reason, the Company shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating on the earliest of (i) twelve (12) months after the Date of
Termination or (ii) the commencement date of equivalent benefits from a new
employer, each insured and self-insured employee welfare benefit Plan
(including, without limitation, group health, death, dental and disability
plans) in which you were entitled to participate immediately prior to the Change
in Control of the Company, provided that your continued participation is
possible under the general terms and provisions of such Plans (and any
applicable funding media) and provided that you continue to pay an amount equal
to your regular contribution under such Plans for such participation. If, at the
end of twelve (12) months after the date of the Date of Termination, you have
not previously received or are not then receiving equivalent benefits from a new
employer, the Company shall arrange, at your sole cost and expense, to enable
you to convert your and your dependents' coverage under such Plans to individual
policies or programs upon the same terms as employees of the Company may apply
for such conversions. In the event that your participation in any such Plan is
barred, the Company, at your sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of insurance
providing benefits substantially similar (on a federal, state and local income
and employment after-tax basis) to those which you otherwise would have been
entitled to receive under such Plans pursuant to this Section 5 or, if such
insurance is not available at a reasonable cost to the Company, the Company
shall otherwise provide you and your dependents equivalent benefits (on a
federal, state and local income and employment after-tax basis). You shall not
be required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans. Any welfare
benefits which are subject to continuation rights under state or federal law,
and which are provided by the Company pursuant to this Section 5, will be deemed
to be provided by the Company in satisfaction of such continuation requirements
to the extent permitted under such laws.
6. Benefits Upon Termination of Employment Following Change in Control.
(a) Disability or Death. During the term of this Agreement, for any
period following a Change in Control of the Company that you fail to perform
your duties as a result of incapacity due to physical or mental illness, you
shall continue to receive your compensation at the times, in
<PAGE>
the form and at the rate then in effect, and any benefits or awards under any
and all Plans shall continue to accrue during such period to the extent not
inconsistent with such Plans, until your employment is terminated on account of
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
benefits shall be determined in accordance with the Plans (as in effect
immediately prior to a Change in Control of the Company) and as provided in
accordance with this Agreement. If your Death occurs during the term of this
Agreement, and after a Change in Control of the Company but prior to a
termination of your employment, you or your beneficiary (as provided under the
applicable Plans) shall receive all benefits or awards (including, without
limitation, both the cash and stock components) under any and all Plans as in
effect immediately prior to the Change in Control of the Company, and all
benefits to which you or your beneficiary may be entitled under the terms of
this Agreement.
(b) Cause. If, during the term of this Agreement, your employment by
the Company shall be terminated for Cause following a Change in Control of the
Company, the Company shall pay you your compensation through the Date of
Termination at the times, in the form and at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including, without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon, except as otherwise provided
in this Agreement, the Company shall have no further obligations to you under
this Agreement.
(c) Change in Control Termination. If, during the term of this
Agreement, after a Change in Control of the Company shall have occurred your
employment by the Company shall be terminated by the Company other than for
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
without regard to any contrary provisions of any Plan, to the benefits as
provided below:
(i) Compensation. Subject to the limitations set
forth in Section 10 hereof, within five (5) business days
following the Date of Termination, the Company shall pay your
compensation through such Date of Termination in the form and
at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including,
without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or
become payable, but which have not yet been paid to you.
(ii) Outplacement Service. The Company shall pay or
reimburse you for the costs, fees and expenses of reasonable
outplacement assistance services.
(iii) Severance. If your termination occurs under
this Subsection 6(c) within twelve (12) months following a
Change in Control of the Company, then, subject to the
limitations set forth in Section 10 hereof, within five (5)
business days following the Date of Termination, as severance
pay and in lieu of any further salary for periods subsequent
to the Date of Termination, the Company shall pay to you a
lump sum cash payment equal to two and one-half (2.5) times
your compensation earned on account of your employment with
the Company
<PAGE>
during the one (1) year period prior to the date of the Change
in Control of the Company. For purposes of this Agreement,
compensation shall include your base salary plus any cash
amounts received under incentive or other bonus plans.
(d) No Setoff. The amount of any payment provided for in this Section 6
shall not be reduced, offset or subject to recovery by the Company by reason of
any compensation earned by you as the result of employment by another employer
after the Date of Termination or otherwise.
7. Non-Competition; Non-Solicitation. You and the Company recognize
that your services to the Company are special and unique and that your
compensation and other benefits are partly in consideration of and conditioned
upon your not competing with the Company or its subsidiaries, and that a
covenant on your part not to compete during the term of your employment and
during a period of twelve (12) full calendar months thereafter is essential to
protect the business and goodwill of the Company. Accordingly, you agree that
during the term of your employment with the Company or any of its affiliates and
for a period of twelve (12) full calendar months following your termination of
employment for any reason, you shall not, directly or indirectly, alone or as a
partner, officer, director, shareholder or employee of any other firm or entity:
(a) engage in any commercial activity in competition with any substantial part
of the Company's business as conducted during the term of the Agreement or as of
the Date of Termination of your employment or with any substantial part of the
Company's contemplated business; (b) assist, solicit, entice, or induce (or
assist any other person or entity in soliciting, enticing or inducing) any
customer or potential customer (or agent, employee or consultant of any customer
or potential customer) with whom you had contact in the course of your
employment with the Company to deal with a competitor of the Company; and/or (c)
in any manner solicit, assist or encourage (or assist any other person or entity
in soliciting or encouraging) any other officer or employee of the Company to
work or otherwise provide services for you or for any entity in which you
participate in the ownership, management, operation or control of, or is
connected with in any manner as an independent contractor, consultant or
otherwise.. For purposes of this Section 7, "shareholder" shall not include
beneficial ownership of less than five percent (5%) of the combined voting power
of all issued and outstanding voting securities of a publicly held corporation
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
that the services you render to the Company are unique and of extraordinary
character; that the Company has agreed to enter into this Agreement and to
compensate you in the manner provided for herein relying on that fact; that this
covenant not to compete is of the essence of this Agreement and that in the
event of a breach or threatened breach of the provisions of the covenant not to
compete the Company would suffer irreparable damage for which there is no
adequate remedy at law since damages would not be readily determinable.
Accordingly, in the event of a breach or a threatened breach by you of this
covenant, the Company shall be entitled to a temporary restraining order and an
injunction restraining you from any such breach issued by a court of competent
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
court of competent jurisdiction determine that any of the covenants set forth in
this Section 7 are invalid in any respect, the parties agree that the court so
holding may restrict such covenant in time or in area, or in both, or in any
other manner which the court determines sufficient to render the covenant
enforceable against you.
<PAGE>
8. Successors; Binding Agreements.
(a) Upon your written request, the Company will seek to have any
Successor by agreement in form and substance satisfactory to you, assent to the
fulfillment by the Company of the Company's obligations under this Agreement.
Failure of the Company to obtain such assent at least three (3) business days
prior to the time a Person becomes a Successor (or where the Company does not
have at least three (3) business days advance notice that a Person may become a
successor, within one (1) business day after having notice that such Person may
become or has become a Successor) shall constitute Good Reason for termination
by you of your employment and, if a Change in Control of the Company has
occurred, shall entitle you immediately to the benefits provided hereunder upon
delivery by you of a Notice of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
you, your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there be no such designee, to your estate.
(c) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or other form of business combination in
which the Company ceases to exist.
9. Withholding. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income and
employment taxes.
10. Excess Payment Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event that any payment or benefit received or
to be received by you in connection with a change in control of the Company or
termination of your employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a change in control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
change in control of the Company) (collectively, the "Total Payments") would not
be deductible (in whole or in part) by the Company or such other person making
such payment or providing such benefit solely as a result of Section 280G of the
Code, the amounts payable to you under this Agreement shall be reduced until no
portion of the Total Payments is not deductible solely as a result of Section
280G of the Code or such amounts payable to you under this Agreement are reduced
to zero. For purposes of this limitation: (a) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by the
Company does not constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
Company's standard or general severance policies); (b) payments pursuant to this
Agreement shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (a))
in their entirety constitute reasonable compensation within the meaning of
<PAGE>
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (a); and (c) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
to whether all or some portion of a payment is or is not payable to you under
this Agreement, the Company shall initially make the payment to you, and you
agree to refund to the Company any amounts ultimately determined not to have
been payable under the terms hereof.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in or required under this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
when mailed by United States certified or registered mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company shall be directed to the attention of the chairman of the board or
president of the Company, with a copy to the secretary of the Company), or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Limitation of Damages. If for any reason you believe the benefits
provisions of this Agreement have not been properly adhered to by the Company,
and if, pursuant to Section 14 hereof, it is determined that the Company has
not, in fact, properly adhered to the benefits provisions of this Agreement, the
sole and exclusive remedy to which you are entitled are the benefits payment to
which you are entitled under the provisions of this Agreement.
14. Dispute Resolution. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
the American Arbitration Association then in effect. The decision of the
arbitrators shall be final and binding on both parties. Judgment may be entered
on the arbitrators' award in any court having jurisdiction. The arbitrators
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
hereof and may not award or assess punitive damages against either party. Each
party shall bear its own costs and expenses of the arbitration and one-half
(1/2) of the fees and costs of the arbitrators.
15. Related Agreements. To the extent that any provision of any other
Plan or agreement between the Company or any of its subsidiaries and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other Plan agreement
shall be deemed to have been superseded, and to be of no force or effect, as if
such other agreement had been formally amended to the extent necessary to
accomplish such purpose.
<PAGE>
16. Survival. The respective obligations of, and benefits afforded to,
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
Agreement shall survive termination of this Agreement and shall remain in full
force and effect according to their terms.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and the chairman of the board or president of the
Company, provided, however, if you occupy those positions at the time, such
writings shall be signed by another officer of the Company at the direction of
the Board of Directors. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. Any and all previous written or oral agreements with
respect to compensation and/or benefits triggered by a Change in Control of the
Company or a similar event are hereby superseded and canceled, and no other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. This Agreement and the legal
relations among the parties as to all matters, including, without limitation,
matters of validity, interpretation, construction, performance and remedies,
shall be governed by and construed in accordance with the internal laws of the
State of Minnesota. Headings are for purpose of convenience only and do not
constitute a part of this Agreement. The parties hereto agree to perform, or
cause to be performed, such further acts and deeds and shall execute and
deliver, or cause to be executed and delivered, such additional or supplemental
documents or instruments as may be reasonably required by the other party to
carry into effect the intent and purpose of this Agreement.
<PAGE>
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
ROCHESTER MEDICAL CORPORATION
By: /s/ Anthony J. Conway
--------------------------
Name: Anthony J. Conway
Title: President and Chief Executive Officer
Agreed to this 21st day of November, 2000.
/s/ Martyn R. Sholtis
- ---------------------
Martyn R. Sholtis
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT
<TEXT>
EXHIBIT 10.10
David A. Jonas
Rochester Medical Corporation
One Rochester Medical Drive
Stewartville, Minnesota 55976
Dear David:
You are presently the Controller, Director of Operations and Principle
Financial Officer of Rochester Medical Corporation, a Minnesota corporation (the
"Company"). The Company considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing the best
interests of the Company and its stockholders. In this connection, the Company
recognizes that, as is the case with many publicly held corporations, the
possibility of a Change in Control (as defined in Section 1 below) of the
Company may arise and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of management personnel to the detriment of the Company and its stockholders.
Accordingly, the Compensation Committee (the "Committee") of the Board
of Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its stockholders receive a proposal for transfer of control of
the Company, that you be able to assess and advise the Board whether such
proposal would be in the best interests of the Company and its stockholders and
to take such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of your own
personal situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (this "Agreement"), which has been approved by the Committee,
sets forth the severance benefits which the Company agrees will be provided to
you in the event your employment with the Company is terminated subsequent to a
Change in Control of the Company under the circumstances described below. This
Agreement also provides you with certain benefits following a Change in Control
of the Company regardless of whether your employment by the Company is
terminated.
In consideration of these benefits, the Agreement contains a covenant
not to compete (Section 7, below).
<PAGE>
1. Definitions. The following terms shall have the meaning set forth
below unless the context clearly requires otherwise. Terms defined elsewhere in
this Agreement shall have the same meaning throughout this Agreement.
(a) "Cause" shall mean: (i) continued failure by you to perform
substantially your duties with the Company (other than any such failure
resulting from your Disability or from termination by you for Good Reason) which
failure, in the reasonable judgment of the Company, is willful; (ii) any act or
acts of personal dishonesty by you intended to result in your personal
enrichment at the expense of the Company (including but not limited to wrongful
appropriation of funds of the Company or its affiliates); (iii) willful and
deliberate misconduct during the course of employment; or (iv) the commission of
a gross misdemeanor or felony (whether or not the Company is the victim of such
offense).
(b) "Change in Control" shall be deemed to have occurred if: (i) a
tender offer shall be made and consummated for the ownership of fifty percent
(50%) or more of the outstanding Voting Securities of the Company; (ii) the
Company shall be merged or consolidated with another corporation and as a result
of such merger or consolidation less than fifty percent (50%) of the outstanding
Voting Securities of the surviving or resulting corporation shall be owned in
the aggregate by the former shareholders of the Company, other than affiliates
(within the meaning of the Exchange Act) of any party to such merger or
consolidation, as the same shall have existed immediately prior to such merger
or consolidation; (iii) the Company shall sell substantially all of its assets
to another corporation which is not a wholly owned subsidiary of the Company;
(iv) a Person shall acquire fifty percent (50%) or more of the outstanding
Voting Securities of the Company (whether directly, indirectly, beneficially or
of record) (for purposes hereof, ownership of Voting Securities shall take into
account and shall include ownership as determined by applying the provisions of
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
Act); or (v) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's stockholders,
was approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for purposes of this
clause (v), considered as though such person were a member of the Incumbent
Board. Notwithstanding anything in the foregoing to the contrary, no Change in
Control of the Company shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in: (A) you, or a group of
Persons which includes you, acquiring, directly or indirectly more than fifty
percent (50%) of the combined voting power of the Company's Voting Securities;
or (B) you becoming immediately employed by a Person which leases and/or manages
substantially all of the assets of the Company, providing that the terms of such
employment do not constitute a "Good Reason" termination as defined in
Subsection 1(f) hereof either when such employment commences or at any time
during the then remaining term of this Agreement.
(c) "Date of Termination" shall mean the date specified in the Notice
of Termination (except in the case of your death, in which case Date of
Termination shall be the date of death).
<PAGE>
(d) "Disability" shall have the same meaning as defined in the
Company's long-term disability plan as in effect immediately prior to the Change
in Control of the Company.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Good Reason" shall mean termination based on:
(i) the assignment to you of employment responsibilities which
are not of materially comparable responsibility and status as the
employment responsibilities held by you immediately prior to the Change
in Control of the Company;
(i) a reduction by the Company in your rate of compensation
(or an adverse change in the form or timing of the payment thereof) as
in effect immediately prior to the Change in Control of the Company;
(ii) the failure by the Company to continue in effect any Plan
in which you are participating at the time of the Change in Control of
the Company (or Plans providing you with at least substantially similar
benefits) other than a result of the normal expiration of any such Plan
in accordance with its terms as in effect at the time of the Change in
Control of the Company, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to
you as is the case on the date of the Change in Control of the Company
or which would materially reduce your benefits in the future under any
of such Plans or deprive you of any material benefit enjoyed by you at
the time of the Change in Control in the Company;
(iii) the Company's requiring you to be based anywhere other
than the environs of the municipality where your office is located
immediately prior to the Change in Control of the Company and more than
thirty-five (35) miles from such office location, except for required
travel on the Company's business, and then only to the extent
substantially consistent with the business travel obligations which
your undertook on behalf of the Company prior to the Change in Control
of the Company; or
(iv) the failure by the Company to obtain from any Successor
the assent to this Agreement contemplated by Subsection 8(a) hereof.
(g) "Notice of Termination" shall mean a written notice which shall
state the specific termination provision in this Agreement relied upon. Any
purported termination by the Company or by you following a Change in Control of
the Company shall be communicated by written Notice of Termination to the other
party hereto.
(h) "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person" within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange
Act, and used in Section 14(d) thereof, other than the
<PAGE>
Company, a wholly-owned subsidiary of the Company or any employee benefit
plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.
(i) "Plan" shall mean any compensation plan (such as an incentive stock
option or restricted stock plan) or any employee benefit plan (such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance or
relocation plan or policy) or any other plan, program, policy or agreement of
the Company intended to benefit employees generally, management employees as a
group or you in particular, now in existence or becoming effective hereafter
during the term of this Agreement.
(j) "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger, consolidation or other form of
business combination, or indirectly, by purchase of the Company's Voting
Securities, all or substantially all of its assets or otherwise.
(k) "Voting Securities" shall mean securities of a corporation
ordinarily having the right to vote at elections of directors.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until December 31, 2001; provided, however, that
commencing on January 1, 2002 and each January 1st thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless at
least ninety (90) days prior to such January 1st date, the Company or you shall
have given notice that this Agreement shall not be extended; and provided,
further, that this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of a Change in Control of the Company if such Change
in Control of the Company shall have occurred prior to the end of the then
current term.
3. Agreement to Provide Services; Right to Terminate.
(a) Agreement to Provide Services. You agree to remain in the employ of
the Company during the term of this Agreement unless you terminate your
employment because of death or Disability or your termination is for Good Reason
following a Change in Control of the Company.
(b) Right to Terminate Prior to Change in Control. This Agreement does
not constitute a contract of employment or impose on the Company any obligation
to retain you as an employee, to continue your current employment status or to
change any employment policies of the Company. Prior to any Change in Control of
the Company, the Company may terminate your employment at-will with or without
Cause at any time. If a Change in Control of the Company has occurred, the
Company may thereafter terminate your employment as herein provided, subject to
the Company's providing the benefits hereinafter specified in accordance with
the terms hereof.
4. Benefit Payment Upon Fulfillment of Required Service Following
Change in Control. If a Change in Control of the Company has occurred then, so
long as you have
<PAGE>
remained in the employ of the Company during the term of this Agreement
(including the twelve (12) month period following such Change in Control (as
described in Section 2 hereof)), subject to the limitations set forth in Section
10 hereof, within five (5) business days following the end of such twelve (12)
month period the Company shall pay to you a lump sum cash payment equal to two
and one-half (2.5) times your compensation earned on account of your employment
with the Company during the twelve month (12) period prior to the date of the
Change in Control of the Company. For purposes of this Agreement, compensation
shall include your base salary plus any cash amounts received under incentive or
other bonus plans. No payment shall be paid under this Section 4 if you have not
remained in the employ of the Company during the term of this Agreement,
regardless of the reason your employment was earlier terminated.
5. Welfare Benefit Plans upon a Change in Control. Following a Change
in Control of the Company, unless and until your employment by the Company is
terminated for Cause or Disability or you terminate your employment by the
Company other than for Good Reason, the Company shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating on the earliest of (i) twelve (12) months after the Date of
Termination or (ii) the commencement date of equivalent benefits from a new
employer, each insured and self-insured employee welfare benefit Plan
(including, without limitation, group health, death, dental and disability
plans) in which you were entitled to participate immediately prior to the Change
in Control of the Company, provided that your continued participation is
possible under the general terms and provisions of such Plans (and any
applicable funding media) and provided that you continue to pay an amount equal
to your regular contribution under such Plans for such participation. If, at the
end of twelve (12) months after the date of the Date of Termination, you have
not previously received or are not then receiving equivalent benefits from a new
employer, the Company shall arrange, at your sole cost and expense, to enable
you to convert your and your dependents' coverage under such Plans to individual
policies or programs upon the same terms as employees of the Company may apply
for such conversions. In the event that your participation in any such Plan is
barred, the Company, at your sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of insurance
providing benefits substantially similar (on a federal, state and local income
and employment after-tax basis) to those which you otherwise would have been
entitled to receive under such Plans pursuant to this Section 5 or, if such
insurance is not available at a reasonable cost to the Company, the Company
shall otherwise provide you and your dependents equivalent benefits (on a
federal, state and local income and employment after-tax basis). You shall not
be required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans. Any welfare
benefits which are subject to continuation rights under state or federal law,
and which are provided by the Company pursuant to this Section 5, will be deemed
to be provided by the Company in satisfaction of such continuation requirements
to the extent permitted under such laws.
6. Benefits Upon Termination of Employment Following Change in Control.
(a) Disability or Death. During the term of this Agreement, for any
period following a Change in Control of the Company that you fail to perform
your duties as a result of incapacity due to physical or mental illness, you
shall continue to receive your compensation at the times, in
<PAGE>
the form and at the rate then in effect, and any benefits or awards under any
and all Plans shall continue to accrue during such period to the extent not
inconsistent with such Plans, until your employment is terminated on account of
Disability pursuant to and in accordance with the terms hereof. Thereafter, your
benefits shall be determined in accordance with the Plans (as in effect
immediately prior to a Change in Control of the Company) and as provided in
accordance with this Agreement. If your Death occurs during the term of this
Agreement, and after a Change in Control of the Company but prior to a
termination of your employment, you or your beneficiary (as provided under the
applicable Plans) shall receive all benefits or awards (including, without
limitation, both the cash and stock components) under any and all Plans as in
effect immediately prior to the Change in Control of the Company, and all
benefits to which you or your beneficiary may be entitled under the terms of
this Agreement.
(b) Cause. If, during the term of this Agreement, your employment by
the Company shall be terminated for Cause following a Change in Control of the
Company, the Company shall pay you your compensation through the Date of
Termination at the times, in the form and at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including, without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon, except as otherwise provided
in this Agreement, the Company shall have no further obligations to you under
this Agreement.
(c) Change in Control Termination. If, during the term of this
Agreement, after a Change in Control of the Company shall have occurred your
employment by the Company shall be terminated by the Company other than for
Cause or shall be terminated by you for Good Reason, then you shall be entitled,
without regard to any contrary provisions of any Plan, to the benefits as
provided below:
(i) Compensation. Subject to the limitations set
forth in Section 10 hereof, within five (5) business days
following the Date of Termination, the Company shall pay your
compensation through such Date of Termination in the form and
at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including,
without limitation, both the cash and stock components) which
pursuant to the terms of any and all Plans have been earned or
become payable, but which have not yet been paid to you.
(ii) Outplacement Service. The Company shall pay or
reimburse you for the costs, fees and expenses of reasonable
outplacement assistance services.
(iii) Severance. If your termination occurs under
this Subsection 6(c) within twelve (12) months following a
Change in Control of the Company, then, subject to the
limitations set forth in Section 10 hereof, within five (5)
business days following the Date of Termination, as severance
pay and in lieu of any further salary for periods subsequent
to the Date of Termination, the Company shall pay to you a
lump sum cash payment equal to two and one-half (2.5) times
your compensation earned on account of your employment with
the Company
<PAGE>
during the one (1) year period prior to the date of the Change
in Control of the Company. For purposes of this Agreement,
compensation shall include your base salary plus any cash
amounts received under incentive or other bonus plans.
(d) No Setoff. The amount of any payment provided for in this Section 6
shall not be reduced, offset or subject to recovery by the Company by reason of
any compensation earned by you as the result of employment by another employer
after the Date of Termination or otherwise.
7. Non-Competition; Non-Solicitation. You and the Company recognize
that your services to the Company are special and unique and that your
compensation and other benefits are partly in consideration of and conditioned
upon your not competing with the Company or its subsidiaries, and that a
covenant on your part not to compete during the term of your employment and
during a period of twelve (12) full calendar months thereafter is essential to
protect the business and goodwill of the Company. Accordingly, you agree that
during the term of your employment with the Company or any of its affiliates and
for a period of twelve (12) full calendar months following your termination of
employment for any reason, you shall not, directly or indirectly, alone or as a
partner, officer, director, shareholder or employee of any other firm or entity:
(a) engage in any commercial activity in competition with any substantial part
of the Company's business as conducted during the term of the Agreement or as of
the Date of Termination of your employment or with any substantial part of the
Company's contemplated business; (b) assist, solicit, entice, or induce (or
assist any other person or entity in soliciting, enticing or inducing) any
customer or potential customer (or agent, employee or consultant of any customer
or potential customer) with whom you had contact in the course of your
employment with the Company to deal with a competitor of the Company; and/or (c)
in any manner solicit, assist or encourage (or assist any other person or entity
in soliciting or encouraging) any other officer or employee of the Company to
work or otherwise provide services for you or for any entity in which you
participate in the ownership, management, operation or control of, or is
connected with in any manner as an independent contractor, consultant or
otherwise.. For purposes of this Section 7, "shareholder" shall not include
beneficial ownership of less than five percent (5%) of the combined voting power
of all issued and outstanding voting securities of a publicly held corporation
whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree
that the services you render to the Company are unique and of extraordinary
character; that the Company has agreed to enter into this Agreement and to
compensate you in the manner provided for herein relying on that fact; that this
covenant not to compete is of the essence of this Agreement and that in the
event of a breach or threatened breach of the provisions of the covenant not to
compete the Company would suffer irreparable damage for which there is no
adequate remedy at law since damages would not be readily determinable.
Accordingly, in the event of a breach or a threatened breach by you of this
covenant, the Company shall be entitled to a temporary restraining order and an
injunction restraining you from any such breach issued by a court of competent
jurisdiction notwithstanding the provisions of Section 14 hereof. Should any
court of competent jurisdiction determine that any of the covenants set forth in
this Section 7 are invalid in any respect, the parties agree that the court so
holding may restrict such covenant in time or in area, or in both, or in any
other manner which the court determines sufficient to render the covenant
enforceable against you.
<PAGE>
8. Successors; Binding Agreements.
(a) Upon your written request, the Company will seek to have any
Successor by agreement in form and substance satisfactory to you, assent to the
fulfillment by the Company of the Company's obligations under this Agreement.
Failure of the Company to obtain such assent at least three (3) business days
prior to the time a Person becomes a Successor (or where the Company does not
have at least three (3) business days advance notice that a Person may become a
successor, within one (1) business day after having notice that such Person may
become or has become a Successor) shall constitute Good Reason for termination
by you of your employment and, if a Change in Control of the Company has
occurred, shall entitle you immediately to the benefits provided hereunder upon
delivery by you of a Notice of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
you, your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there be no such designee, to your estate.
(c) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or other form of business combination in
which the Company ceases to exist.
9. Withholding. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income and
employment taxes.
10. Excess Payment Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event that any payment or benefit received or
to be received by you in connection with a change in control of the Company or
termination of your employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a change in control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
change in control of the Company) (collectively, the "Total Payments") would not
be deductible (in whole or in part) by the Company or such other person making
such payment or providing such benefit solely as a result of Section 280G of the
Code, the amounts payable to you under this Agreement shall be reduced until no
portion of the Total Payments is not deductible solely as a result of Section
280G of the Code or such amounts payable to you under this Agreement are reduced
to zero. For purposes of this limitation: (a) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by the
Company does not constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code (such as payments payable pursuant to the
Company's standard or general severance policies); (b) payments pursuant to this
Agreement shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (a))
in their entirety constitute reasonable compensation within the meaning of
<PAGE>
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (a); and (c) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as
to whether all or some portion of a payment is or is not payable to you under
this Agreement, the Company shall initially make the payment to you, and you
agree to refund to the Company any amounts ultimately determined not to have
been payable under the terms hereof.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in or required under this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
when mailed by United States certified or registered mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company shall be directed to the attention of the chairman of the board or
president of the Company, with a copy to the secretary of the Company), or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Limitation of Damages. If for any reason you believe the benefits
provisions of this Agreement have not been properly adhered to by the Company,
and if, pursuant to Section 14 hereof, it is determined that the Company has
not, in fact, properly adhered to the benefits provisions of this Agreement, the
sole and exclusive remedy to which you are entitled are the benefits payment to
which you are entitled under the provisions of this Agreement.
14. Dispute Resolution. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of
the American Arbitration Association then in effect. The decision of the
arbitrators shall be final and binding on both parties. Judgment may be entered
on the arbitrators' award in any court having jurisdiction. The arbitrators
shall strictly adhere to the sole and exclusive remedy set forth in Section 13
hereof and may not award or assess punitive damages against either party. Each
party shall bear its own costs and expenses of the arbitration and one-half
(1/2) of the fees and costs of the arbitrators.
15. Related Agreements. To the extent that any provision of any other
Plan or agreement between the Company or any of its subsidiaries and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other Plan agreement
shall be deemed to have been superseded, and to be of no force or effect, as if
such other agreement had been formally amended to the extent necessary to
accomplish such purpose.
<PAGE>
16. Survival. The respective obligations of, and benefits afforded to,
the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this
Agreement shall survive termination of this Agreement and shall remain in full
force and effect according to their terms.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and the chairman of the board or president of the
Company, provided, however, if you occupy those positions at the time, such
writings shall be signed by another officer of the Company at the direction of
the Board of Directors. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. Any and all previous written or oral agreements with
respect to compensation and/or benefits triggered by a Change in Control of the
Company or a similar event are hereby superseded and canceled, and no other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. This Agreement and the legal
relations among the parties as to all matters, including, without limitation,
matters of validity, interpretation, construction, performance and remedies,
shall be governed by and construed in accordance with the internal laws of the
State of Minnesota. Headings are for purpose of convenience only and do not
constitute a part of this Agreement. The parties hereto agree to perform, or
cause to be performed, such further acts and deeds and shall execute and
deliver, or cause to be executed and delivered, such additional or supplemental
documents or instruments as may be reasonably required by the other party to
carry into effect the intent and purpose of this Agreement.
<PAGE>
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
ROCHESTER MEDICAL CORPORATION
By: /s/ Anthony J. Conway
--------------------------
Name: Anthony J. Conway
Title: President and Chief Executive Officer
Agreed to this 21st day of November, 2000.
/s/ David A. Jonas
- ------------------
David A. Jonas
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>CONSENT
<TEXT>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-10261) pertaining to the 1991 Stock Option Plan of Rochester
Medical Corporation, of our report dated October 20, 2000, with respect to the
financial statements and schedule of Rochester Medical Corporation included in
this Annual Report (Form 10-K) for the year ended September 30, 2000.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 13, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Anthony J. Conway and David A. Jonas, with
full power to each to act without the other, his or her true and lawful
attorney-in-fact and agent with full power of substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K of Rochester Medical Corporation (the "Company") for
the Company's fiscal year ended September 30, 2000, and any or all amendments
to said Annual Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and to file the same with such other authorities as necessary,
granting unto each such attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each such
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th
day of December, 2000, by the following persons.
/s/ ANTHONY J. CONWAY /s/ DARNELL L. BOEHM
------------------------- -------------------------
Anthony J. Conway Darnell L. Boehm
/s/ DAVID A. JONAS /s/ PETER CONWAY
------------------------- -------------------------
David A. Jonas Peter Conway
/s/ PHILIP CONWAY /s/ ROGER SCHNOBRICH
------------------------- -------------------------
Philip Conway Roger Schnobrich
/s/ RICHARD FRYAR
-------------------------
Richard Fryar
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<CASH> 3,204,161
<SECURITIES> 5,654,442
<RECEIVABLES> 1,069,999
<ALLOWANCES> 62,567
<INVENTORY> 1,892,455
<CURRENT-ASSETS> 12,009,818
<PP&E> 15,404,923
<DEPRECIATION> 4,351,235
<TOTAL-ASSETS> 23,254,223
<CURRENT-LIABILITIES> 1,681,205
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 41,279,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,254,223
<SALES> 7,860,132
<TOTAL-REVENUES> 7,860,132
<CGS> 6,151,195
<TOTAL-COSTS> 13,986,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (6,126,353)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,531,145)
<EPS-BASIC> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
