edX - TXT1x Data
-----BEGIN PRIVACY-ENHANCED MESSAGE-----1Proc-Type: 2001,MIC-CLEAR2Originator-Name: [email protected]3Originator-Key-Asymmetric:4MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen5TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB6MIC-Info: RSA-MD5,RSA,7Wix5/mdsdYismTXOMcxPu/V0qFPbwm2TcqH4vmTw0GZuiDxSb8ddoKonZ0SyCNsm8kDgqOKSo4o1P99dovwGgWQ==910<SEC-DOCUMENT>0000897101-00-001205.txt : 2000122111<SEC-HEADER>0000897101-00-001205.hdr.sgml : 2000122112ACCESSION NUMBER: 0000897101-00-00120513CONFORMED SUBMISSION TYPE: 10-K14PUBLIC DOCUMENT COUNT: 815CONFORMED PERIOD OF REPORT: 2000093016FILED AS OF DATE: 200012201718FILER:1920COMPANY DATA:21COMPANY CONFORMED NAME: ROCHESTER MEDICAL CORPORATION22CENTRAL INDEX KEY: 000086836823STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]24IRS NUMBER: 41161322725STATE OF INCORPORATION: MN26FISCAL YEAR END: 09302728FILING VALUES:29FORM TYPE: 10-K30SEC ACT:31SEC FILE NUMBER: 000-1893332FILM NUMBER: 7926243334BUSINESS ADDRESS:35STREET 1: ONE ROCHESTER MEDICAL DR36CITY: STEWARTVILLE37STATE: MN38ZIP: 5597639BUSINESS PHONE: 50753396004041MAIL ADDRESS:42STREET 1: ONE ROCHESTER MEDICAL DR43CITY: STEWARTVILLE44STATE: MN45ZIP: 5597646</SEC-HEADER>47<DOCUMENT>48<TYPE>10-K49<SEQUENCE>150<FILENAME>0001.txt51<TEXT>525354- --------------------------------------------------------------------------------55- --------------------------------------------------------------------------------56SECURITIES AND EXCHANGE COMMISSION57WASHINGTON, D.C. 205495859-----------------60FORM 10-K6162ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)63OF THE SECURITIES EXCHANGE ACT OF 19346465FOR FISCAL YEAR ENDED SEPTEMBER 30, 20006667Commission File Number: 0-18933686970ROCHESTER MEDICAL CORPORATION717273MINNESOTA 41-161322774State of Incorporation IRS Employer Identification No.757677ONE ROCHESTER MEDICAL DRIVE78STEWARTVILLE, MINNESOTA 5597679Address of Principal Executive Offices808182Telephone Number: (507) 533-9600838485Securities Registered pursuant to Section 12(b) of the Act: None868788Securities Registered Pursuant to Section 12(g) of the Act:899091COMMON STOCK WITHOUT PAR VALUE9293-----------------9495Check whether the issuer (1) filed all reports required to be filed by Section9613 or 15(d) of the Exchange Act during the past 12 months (or for such shorter97period that the Registrant was required to file such reports), and has been98subject to such filing requirements for the past 90 days. Yes _X_ No ___99100101Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation102S-B is contained in this form, and no disclosure will be contained, to the best103of registrant's knowledge, in definitive proxy or information statements104incorporated by reference in Part III of this Form 10-K or any amendment to105this Form 10-K. ___106107The issuer's revenues for its most recent fiscal year were $7,860,132.108109The aggregate market value of voting stock held by non-affiliates based upon110the closing Nasdaq sale price on December 1, 2000 was $23,907,725.111112Number of shares outstanding on December 15, 2000 was 5,338,900 Common Shares.113114115DOCUMENTS INCORPORATED BY REFERENCE116117Portions of Registrant's Proxy Statement for its February 8, 2001 Annual118Meeting of Shareholders are incorporated by reference in Part III.119120121- --------------------------------------------------------------------------------122- --------------------------------------------------------------------------------123124125<PAGE>126127PART I128129130ITEM 1. BUSINESS131132133OVERVIEW134135Rochester Medical Corporation (the "Company") develops, manufactures and136markets a broad line of innovative, technologically enhanced latex-free urinary137continence and urine drainage care products for the home care and138acute/extended care markets. The Company's home care products include its139FEMSOFT(R) INSERT, a soft, liquid-filled, conformable urethral insert for140managing female stress urinary incontinence in adult females, a line of male141external catheters for managing male urinary incontinence and a line of142intermittent catheters for managing both male and female urinary retention. The143Company's acute/extended care products include a line of standard Foley144catheters and its RELEASE-NF (TM) CATHETER, an antibacterial Foley catheter to145reduce the incidence of hospital acquired urinary tract infection ("UTI").146147The Company markets its products under its own ROCHESTER MEDICAL(R) brand148through a direct field sales force in the United States and independent149distributors in international markets. The Company also supplies its products150to several large medical product companies for sale under brands owned by these151companies.152153154HOME CARE PRODUCTS155156MALE EXTERNAL CATHETERS. The Company's male external catheters are157self-care, disposable devices for managing male urinary incontinence. The158Company manufactures and markets three models of silicone male external159catheters: the ULTRAFLEX(R), "POP-ON"(R) and WIDE BAND(R) catheters. The160UltraFlex catheter has adhesive positioned midway down the catheter sheath. The161"POP-ON" catheter has a sheath that is shorter than that of a standard male162external catheter and has adhesive applied to the full length of the sheath. It163is designed to accommodate patients who require shorter-length external164catheters. The Company's WIDE BAND self-adhering male external catheter has an165adhesive band which extends over the full length of the sheath, providing166approximately 70% more adhesive coverage than other male external catheters167currently marketed. The WIDE BAND catheter is designed to reduce adhesive168failure and the resulting leakage, which is a common complaint among users of169male external catheters.170171All models of the Company's male external catheters are produced in five172sizes for better patient fit. The Company's male external catheters are made173from silicone, a non-toxic and biocompatible material that eliminates the risks174of latex-related skin irritation. Silicone catheters are also odor free and175have greater air permeability than catheters made from other materials,176including latex. Air permeability reduces skin irritation and damage from177catheter use and thereby increases patient comfort. The Company's silicone178catheters are transparent, permitting visual skin inspection without removal of179the catheters and aiding proper placement of the catheters. The Company's180catheters also have a kink-proof funnel design to ensure uninterrupted urine181flow. The self-adhering technology of the Company's catheters simplifies182application of the catheters and provides a strong bond to the skin for greater183patient confidence and improved wear.184185The Company also manufactures and sells male external catheters made from186a proprietary non-latex, non-silicone material to certain private label187customers. Certain of these catheters use the same self-adhesive technology as188the Company's silicone male external catheters. Like the silicone male external189catheters, these non-silicone catheters eliminate the risk of latex reactions190and latex-related skin irritations. The non-silicone catheters also are odor191free.192193PERSONAL CATHETER(TM). The Company's PERSONAL CATHETER is a disposable194intermittent catheter manufactured from two different silicones, with a stiff195core catheter tube and a softer outer cover. This construction provides196sufficient stiffness for ease of insertion, while the softer cover is designed197to reduce tissue irritation during insertion. The Company produces the PERSONAL198CATHETER in three lengths for male, female and pediatric use and multiple199diameters.2002012022203204205<PAGE>206207In June 2000, the Company received authorization from the FDA to market208its hydrophilic intermittent catheter. When moistened, the hydrophilic surface209of the catheter becomes slippery to provide a low friction surface. The Company210intends to formally introduce the hydrophilic intermittent catheter in January2112001 under the ROCHESTER MEDICAL brand in the United States.212213FEMSOFT INSERT. The FEMSOFT INSERT is a disposable device for the214management of stress urinary incontinence in active women. It is a soft,215conformable urethral insert that assists the female urethra and bladder neck to216control the involuntary loss of urine. The device can be simply inserted, worn217and removed for voiding by most women. It requires no inflation, deflation,218syringes or valving mechanisms.219220The Company believes the FEMSOFT INSERT will provide significant221advantages in the management of female stress incontinence. The FEMSOFT INSERT222is a minimally invasive device that provides a patient with effective control223of her urinary function and eliminates the need for collection bags and pads or224liners that can cause embarrassment, restrict mobility and compromise225lifestyle. In addition, the soft, liquid-filled silicone membrane of the226FEMSOFT INSERT has been designed to conform to the irregular shape of the227urethra and follow the movements of the urethra during normal activities,228thereby reducing leakage without chafing or abrasion of the delicate tissues of229the urethra.230231The FEMSOFT INSERT is a prescription device that requires a woman to visit232her physician. The physician will fit the patient with the proper size and233instruct the patient on proper application of the FEMSOFT INSERT.234235236ACUTE/EXTENDED CARE PRODUCTS237238RELEASE-NF CATHETER. The Company's RELEASE-NF CATHETER is a silicone Foley239catheter that has been designed to reduce the incidence of hospital acquired240UTI. Using patented technology, the RELEASE-NF CATHETER incorporates241nitrofurazone, an effective broad-spectrum antibacterial agent, into the242structure of the catheter, permitting sustained release of a controlled dosage243directly into the urinary tract to prevent the onset of infection.244245FOLEY CATHETERS. The Company offers Foley catheters in a standard two246lumen version for urinary drainage management and in a three lumen version for247irrigation of the urinary tract. These Foley catheters are available in all248standard adult and pediatric sizes. All of the Company's silicone Foley249catheters eliminate the risk of the allergic reactions and tissue irritation250and damage associated with latex Foley catheters. The Company's Foley catheters251are transparent which enables healthcare professionals to observe urine flow.252Unlike the manufacturing processes used by producers of competing silicone253Foley catheters, in which the balloon is made separately and attached by hand254in a separate process involving gluing, the Company's automated manufacturing255processes allow the Company to integrate the balloon into the structure of the256Foley catheter, resulting in a smoother, more uniform exterior that may help257reduce irritation to urinary tissue.258259The Company's standard Foley catheters are packaged sterile in single260catheter strips and sold under the ROCHESTER MEDICAL brand and under private261label arrangements. In addition, the Company sells its standard Foley catheters262in bulk under private label arrangements for packaging in kits with tubing,263collection bags and other associated materials.264265266TECHNOLOGY267The Company uses proprietary, automated manufacturing technologies and268processes to manufacture continence care devices cost effectively. The269production of the Company's products also depends on its materials expertise270and know-how in the formulation of silicone and advanced polymer products. The271Company's proprietary liquid encapsulation technology enables it to manufacture272innovative products, such as its FEMSOFT INSERT, that have soft, conformable,273liquid-filled reservoirs, which cannot be manufactured using conventional274technologies. Using this liquid encapsulation technology, the Company can mold275and form liquid encapsulated devices in a variety of shapes and sizes in an276automated process. The Company's manufacturing technologies and2772782793280281282<PAGE>283284materials know-how also allow the Company to incorporate a sustained release285antibacterial agent into its products. The Company believes that its286manufacturing technology is particularly well-suited to high unit volume287production and that its automated processes enable cost-effective production.288The Company further believes that its manufacturing and materials expertise,289particularly its proprietary liquid encapsulation technology, may be applicable290to a variety of other devices for medical applications. The Company plans to291consider, commensurate with its financial and personnel resources, future292research and development activities to investigate opportunities provided by293the Company's technology and know-how.294295The Company believes that its proprietary manufacturing processes,296materials expertise, custom designed equipment and technical know-how allow it297to simplify and further automate traditional catheter manufacturing techniques298to reduce the Company's manufacturing costs. In order to manufacture high299quality products at competitive costs, the Company concurrently designs and300develops new products and the processes and equipment to manufacture them.301302303MARKETING AND SALES304To date, the majority of the Company's revenues have been derived from305sales of its male external catheters and standard Foley catheters to medical306products companies for resale under brands owned by such companies. In fiscal3071999, the Company experienced a significant reduction in sales under these308arrangements due to one customer that switched to its own production of309silicone male external catheters and another customer that significantly310reduced its order volume. Private label arrangements are likely to continue to311account for a significant portion of the Company's revenues in the foreseeable312future, particularly in international markets where the Company does not313maintain a direct sales presence.314315The Company sells its products in the United States under the ROCHESTER316MEDICAL brand name through a five-person direct sales force. The primary317markets for the Company's products are individual hospitals and healthcare318institutions, distributors and extended care facilities.319320In fiscal 2000, the Company began a phased introduction of FEMSOFT INSERT321in three metropolitan areas, Denver, Detroit and Iowa City, including the322Quad-Cities of Iowa and Illinois, which were among the primary clinical study323locations for the insert. The Company also has begun to introduce the FEMSOFT324INSERT to a select group of clinicians in the United States. The marketing of325the FEMSOFT INSERT requires significant physician and clinician education326efforts. The Company's focus is on enrolling clinicians in its FEMSOFT program327which trains the clinicians in the use of the FEMSOFT INSERT and enters the328clinicians in the Company's distribution and customer service program for the329insert. The Company has formed a distribution and customer service program for330the FEMSOFT INSERT with Healthcare Delivery Systems ("HDS"), a business unit of331McKesson Corporation. Under this program, HDS will administer a centralized332resource center for customer service, product information and nationwide333distribution of the FEMSOFT INSERT. In addition, the Company is testing methods334of consumer advertising of the FEMSOFT INSERT in its initial markets.335336The Company is actively exploring alternative approaches to the sales and337marketing of the RELEASE-NF catheter in the United States.338339The Company relies on arrangements with medical product companies and340independent distributors to sell the Company's products in Europe and other341international markets. These arrangements are conducted under the ROCHESTER342MEDICAL brand name and under brands controlled by the medical product343companies.344345346MANUFACTURING347The Company designs and builds custom equipment to implement its348manufacturing technologies and processes. The Company's manufacturing349facilities are located in Stewartville, Minnesota. The Company produces its350Foley catheters on one production line and its male external catheters on other351lines. The Company has constructed a separate manufacturing facility to house352its liquid encapsulation manufacturing operations, and has installed the353FEMSOFT INSERT manufacturing line in this facility.3543553564357358359<PAGE>360361The Company maintains a comprehensive quality assurance and quality362control program, which includes documentation of all material specifications,363operating procedures, equipment maintenance and quality control test methods.364The Company has obtained ISO 9001 certification and CE mark quality system365certification for its Foley catheter, male external catheter, and FEMSOFT366INSERT production lines.367368The Company's manufacturing facility has been designed to accommodate the369specialized requirements for the manufacture of medical devices, including the370FDA's requirements for Quality System Regulation ("QSR").371372373SOURCES OF SUPPLY374The Company obtains certain raw materials and components for a number of375its products from a sole supplier or limited number of suppliers. The loss of376such a supplier or suppliers, or a material interruption of deliveries from377such a supplier or suppliers, could have a material adverse effect on the378Company. The Company believes that in most, if not all, cases the Company has379identified other potential suppliers. In the event that the Company had to380replace a supplier, however, the Company may be required to repeat381biocompatibility and other testing of its products using the material from the382new supplier and may be required to obtain additional regulatory clearances.383384385RESEARCH AND DEVELOPMENT386The Company believes that its ability to add new products to its existing387continence care product lines is important to the Company's future success.388Accordingly, the Company is engaged in ongoing research and development to389develop and introduce new products which provide additional features and390functionality. In the future, consistent with market opportunities and the391Company's financial and personnel resources, the Company intends to perform392clinical studies for other of its products in development.393394Research and development expense for fiscal years 2000, 1999 and 1998, was395$1,008,000, $1,052,000 and $1,384,000, respectively.396397398COMPETITION399The continence care market is highly competitive. The Company believes400that the primary competitive factors include price, product quality, technical401capability, breadth of product line and distribution capabilities. The402Company's ability to compete is affected by its product development and403innovation capabilities, its ability to obtain regulatory clearances, its404ability to protect the proprietary technology of its products and manufacturing405processes, its marketing capabilities, its ability to attract and retain406skilled employees, and, for products sold in managed care environments, its407ability to maintain current distribution relationships, to establish new408distribution relationships and to secure participation in purchase contracts409with group purchasing organizations. The Company believes that it will be410important for the Company to differentiate its products in order to attract411large customers, such as distributors, dealers, institutions and home care412organizations.413414The Company's products compete with a number of alternative products and415treatments for continence care. The Company's ability to compete with these416alternative methods for urinary continence care depends on the relative market417acceptance of alternative products and therapies and the technological advances418in these alternative products and therapies. Any development of a broad-based419and effective cure for a significant form of incontinence could have a material420adverse effect on sales of continence care devices such as the Company's421products.422423The Company competes directly for sales of continence care devices under424the Company's own brand with larger, multi-product medical device manufacturers425and distributors such as ConvaTec, C.R. Bard, Inc., Maersk Medical, Kendall426Healthcare Products Company, Hollister and Mentor. Many of the competitive427alternative products or therapies to the Company's products are distributed by428larger competitors including Johnson & Johnson Personal Products Company,429Kimberly-Clark Corporation and Proctor & Gamble Company (for adult diapers and430absorbent4314324335434435436<PAGE>437438pads), and C.R. Bard, Inc. (for injectable materials). Many of the Company's439competitors, potential competitors and providers of alternative products or440therapies have significantly greater financial, manufacturing, marketing,441distribution and technical resources and experience than the Company. It is442possible that other large healthcare and consumer products companies may enter443this market in the future. Furthermore, academic institutions, governmental444agencies and other public and private research organizations will continue to445conduct research, seek patent protection and establish arrangements for446commercializing products in this market. Such products may compete directly447with products which may be offered by the Company.448449450PATENTS AND PROPRIETARY RIGHTS451The Company's success may depend in part on its ability to obtain patent452protection for its products and manufacturing processes, to preserve its trade453secrets and to operate without infringing the proprietary rights of third454parties. The Company may seek patents on certain features of its products and455technology based on the Company's analysis of various business considerations,456such as the cost of obtaining a patent, the likely scope of patent protection457and the benefits of patent protection relative to relying on trade secret458protection. The Company also relies upon trade secrets, know-how and continuing459technological innovations to develop and maintain its competitive position.460461The Company owns 17 United States patents and a number of corresponding462foreign patents that generally relate to certain of the Company's catheters and463devices and certain of the Company's production processes. In addition, the464Company owns a number of pending United States and corresponding foreign patent465applications. The Company may file additional patent applications for certain466of the Company's current and proposed products and processes in the future.467468There can be no assurance that the Company's patents will be of sufficient469scope or strength to provide meaningful protection of the Company's products470and technologies. The coverage sought in a patent application can be denied or471significantly reduced before the patent is issued. In addition, there can be no472assurance that the Company's patents will not be challenged, invalidated or473circumvented or that the rights granted thereunder will provide proprietary474protection or commercial advantage to the Company.475476Should attempts be made to challenge, invalidate or circumvent the477Company's patents in the United States Patent and Trademark Office and/or478courts of competent jurisdiction, including administrative boards or tribunals,479the Company may have to participate in legal or quasi-legal proceedings480therein, to maintain, defend or enforce its rights in these patents. Any legal481proceedings to maintain, defend or enforce the Company's patent rights can be482lengthy and costly, with no guarantee of success. There also can be no483assurance that the Company will file additional patent applications or that484additional patents will issue from the Company's pending patent applications.485486A claim by third parties that the Company's current products or products487under development allegedly infringe their patent rights could have a material488adverse effect on the Company. The Company is aware that others have obtained489or are pursuing patent protection for various aspects of the design, production490and manufacturing of continence care products. The medical device industry is491characterized by frequent and substantial intellectual property litigation,492particularly with respect to newly developed technology. Intellectual property493litigation is complex and expensive, and the outcome of such litigation is494difficult to predict. Any future litigation, regardless of outcome, could495result in substantial expense to the Company and significant diversion of the496efforts of the Company's technical and management personnel. An adverse497determination in any such proceeding could subject the Company to significant498liabilities to third parties, require disputed rights to be licensed from such499parties, if licenses to such rights could be obtained, and/or require the500Company to cease using such technology. There can be no assurance that if such501licenses were obtainable, they would be obtainable at costs reasonable to the502Company. If forced to cease using such technology, there can be no assurance503that the Company would be able to develop or obtain alternate technology.504Additionally, if third party patents containing5055065076508509510<PAGE>511512claims affecting the Company's technology are issued and such claims are513determined to be valid, there can be no assurance that the Company would be514able to obtain licenses to such patents at costs reasonable to the Company, if515at all, or be able to develop or obtain alternate technology. Accordingly, an516adverse determination in a judicial or administrative proceeding or failure to517obtain necessary licenses could prevent the Company from manufacturing, using518or selling certain of its products, which could have a material adverse effect519on the Company's business, financial condition and results of operations.520521There also can be no assurance that any third party does not currently522have, has not applied for, or might not in the future apply for, additional523patents in the United States or abroad which, if ultimately granted, might be524infringed in such country by any of the Company's products as currently525configured or any other product of the Company and provide the basis for an526infringement action in such country against the Company.527528The Company also relies on proprietary manufacturing processes and529techniques, materials expertise and trade secrets applicable to the manufacture530of its products. The Company seeks to maintain the confidentiality of this531proprietary information. There can be no assurance, however, that the measures532taken by the Company will provide the Company with adequate protection of its533proprietary information or with adequate remedies in the event of unauthorized534use or disclosure. In addition, there can be no assurance that the Company's535competitors will not independently develop or otherwise gain access to536processes, techniques or trade secrets that are similar or superior to the537Company's. Finally, as with patent rights, legal action to enforce trade secret538rights can be lengthy and costly, with no guarantee of success.539540541GOVERNMENT REGULATION542The manufacture and sale of the Company's products are subject to543regulation by numerous governmental authorities, principally the FDA and544corresponding foreign agencies. In the United States, the medical devices545manufactured and sold by the Company are subject to laws and regulations546administered by the FDA, including regulations concerning the prerequisites to547commercial marketing, the conduct of clinical investigations, compliance with548QSR and labeling.549550A manufacturer may seek from the FDA market authorization to distribute a551new medical device by filing a 510(k) Premarket Notification ("510(k)") to552establish that the device is "substantially equivalent" to medical devices553legally marketed in the United States prior to the Medical Device Amendments of5541976. A manufacturer may also seek market authorization for a new medical555device through the more rigorous Premarket Approval ("PMA") application556process, which requires the FDA to determine that the device is safe and557effective for the purposes intended.558559The Company received FDA marketing authorization for its FEMSOFT INSERT on560September 30, 1999 pursuant to a PMA. As a condition of FDA approval of the561Company's PMA filing based on interim clinical study results, the Company will562be required to complete the current clinical study of the FEMSOFT INSERT and563submit the additional data to the FDA for its further consideration to564determine whether such approval should be continued. There can be no assurance565that these additional data will be sufficient in the FDA's opinion to permit566continued marketing of the device even though the PMA filing for the FEMSOFT567INSERT was initially approved by the FDA. All of the Company's other marketed568products have received FDA marketing authorization pursuant to 510(k)569notifications.570571The Company is also required to register with the FDA as a medical device572manufacturer. As such, the Company's manufacturing facilities are inspected on573a routine basis for compliance with QSR. These regulations require that the574Company manufacture its products and maintain its documents in a prescribed575manner with respect to design, manufacturing, testing and quality control576activities. As a medical device manufacturer, the Company is further required577to comply with FDA requirements regarding the reporting of adverse events578associated with the use of its medical devices, as well as product malfunctions579that would likely cause or contribute to death or serious injury if the580malfunction were to recur. FDA regulations also govern product labeling and can581prohibit a manufacturer from marketing an approved device for unapproved582applications. If the FDA believes that a manufacturer is not in compliance with583the law, it can institute5845855867587588589<PAGE>590591enforcement proceedings to detain or seize products, issue a recall, enjoin592future violations and assess civil and criminal penalties against the593manufacturer, its officers and employees.594595The Company may become subject to future legislation and regulations596concerning the manufacture and marketing of medical devices. Such future597legislation and regulations could increase the cost and time necessary to begin598marketing new products and could affect the Company in other respects not599currently foreseeable. The Company cannot predict the effect of possible future600legislation and regulations.601602Sales of medical devices outside the United States are subject to foreign603regulatory requirements that vary widely from country to country. These laws604and regulations range from simple product registration requirements in some605countries to complex clearance and production controls in others. As a result,606the processes and time periods required to obtain foreign marketing approval607may be longer or shorter than those necessary to obtain FDA approval. These608differences may affect the efficiency and timeliness of international market609introduction of the Company's products. For countries in the European Union610("EU"), medical devices must display a CE mark before they may be imported or611sold. In order to obtain and maintain the CE mark, the Company must comply with612the Medical Device Directive and pass an initial and annual facilities audit613inspections to ISO 9001 by an EU inspection agency. The Company has obtained614ISO 9001 quality system certification for the CE mark for its currently615marketed standard products and the FEMSOFT INSERT. The Company is pursuing CE616mark certification for the RELEASE-NF CATHETER. In order to maintain617certification, if granted, the Company will be required to pass annual618facilities audit inspections conducted by EU inspectors. There can be no619assurance, however, that the Company will be able to obtain or maintain all620necessary regulatory approvals or clearances, including CE mark certification,621for its products in foreign countries.622623In addition, international sales of medical devices manufactured in the624United States that have not been approved by the FDA for marketing in the625United States are subject to FDA export requirements. These require that the626Company obtain documentation from the medical device regulatory authority of627the destination country stating that sale of the medical device is not in628violation of that country's medical device laws, and, under some circumstances,629may require the Company to apply to the FDA for permission to export a device630to that country.631632633THIRD PARTY REIMBURSEMENT634In the United States, healthcare providers that purchase medical devices635generally rely on third party payors, such as Medicare, Medicaid, private636health insurance plans and managed care organizations, to reimburse all or a637portion of the cost of the devices. The Medicare program is funded and638administered by the federal government, while the Medicaid program is jointly639funded by the federal government and the states, which administer the program640under general federal oversight. The Company believes its currently marketed641products, including the RELEASE-NF CATHETER, are generally eligible for642coverage under these third party reimbursement programs. The Company is643currently seeking to establish the eligibility of the FEMSOFT INSERT for644reimbursement. Several private health insurance plans have begun to offer this645reimbursement. The competitive position of certain of the Company's products646may be partially dependent upon the extent of reimbursement for its products.647648The federal government and certain state governments are currently649considering a number of proposals to reform the Medicare and Medicaid health650care reimbursement system. The Company is unable to evaluate what legislation651may be drafted and whether or when any such legislation will be enacted and652implemented. Certain of the proposals, if adopted, could have an adverse effect653on the Company's business, financial condition and results of operations.654655In foreign countries, the policies and procedures for obtaining third656party payment of reimbursement for medical devices vary widely. Compliance with657such procedures may delay or prevent the eligibility of the Company's branded658and/or private label products for reimbursement, and have an adverse effect on659the Company's ability to sell its branded or private label products in a660particular foreign country.6616626638664665666<PAGE>667668PRIVATE LABEL DISTRIBUTION AGREEMENTS669670CONVATEC. In April 1998, the Company and ConvaTec entered into a Revised671and Restated Distribution Agreement (the "Revised ConvaTec Agreement"), which672grants ConvaTec certain rights to market the Company's Foley catheters and male673external catheters under the ConvaTec brand. The Revised ConvaTec Agreement674provides, subject to certain existing obligations and limitations, that the675Company will not appoint any other private label distributor for silicone male676external catheters in Central America, South America, Australia, Japan, New677Zealand, South Africa, Israel, Iran, Iraq, Lebanon, Oman, Saudi Arabia, Syria,678United Arab Emirates and Yemen. ConvaTec has non-exclusive rights to distribute679the Company's products in other markets.680681The Revised ConvaTec Agreement does not include any minimum purchase682requirements or require that ConvaTec market any or all of the Company's683products. The ConvaTec Agreement also provides in the event that the Company is684unable to supply ConvaTec's requirements for products under certain685circumstances, ConvaTec will have a license to the Company's technologies for686purposes of manufacturing such products for ConvaTec.687688The Revised ConvaTec Agreement has an initial term expiring April 30,6892006, and may be renewed for successive annual extensions thereafter. Either690party may terminate the Revised ConvaTec Agreement upon the other party's691material breach of the Revised ConvaTec Agreement, bankruptcy or insolvency, or692inability to perform under the Revised ConvaTec Agreement for a period of more693than six months.694695Sales of products to ConvaTec represented 16% of the Company's revenues in696fiscal 2000 and 16% of revenues in fiscal 1999. ConvaTec has consulted with us697regarding its intention going forward in the continence care market and these698consultations may result in modifications to the Company's agreement with699ConvaTec.700701The Company supplies a number of medical product companies with products702on a private label basis.703704705EMPLOYEES706As of September 30, 2000, the Company employed 118 full-time employees, of707whom 80 were in manufacturing, and the remainder in marketing and sales,708research and development and administration. The labor market for medical709device manufacturing personnel has tightened in Minnesota, and particularly in710the Rochester area where the Company's manufacturing facilities are located.711This has resulted in upward pressure on wages for production workers but has712not, to date, adversely affected the Company's ability to hire and retain713capable manufacturing personnel. The Company is not a party to any collective714bargaining agreement and believes its employee relations are good.715716717EXECUTIVE OFFICERS OF THE REGISTRANT718The executive officers of the Company as of December 19, 2000 are as719follows:720721722NAME AGE POSITION723- ------------------- ----- -------------------------------------------------724Anthony J. Conway 56 Chairman of the Board, Chief Executive Officer,725President and Secretary726David A. Jonas 36 Controller, Treasurer and Director of Operations727Philip J. Conway 44 Vice President, Production Technologies728Richard D. Fryar 53 Vice President, Research and Development729Dara Lynn Horner 42 Vice President, FEMSOFT Marketing730Martyn R. Sholtis 41 Vice President, Marketing and Sales731732ANTHONY J. CONWAY, a founder of the Company, has served as Chairman of the733Board, Chief Executive Officer, President and Secretary of the Company since734May 1988. In addition to his duties as Chief Executive Officer, Mr. Anthony735Conway actively contributes to the Company's research and development and736design activities. From 1979 to March 1988, he was President,7377387399740741742<PAGE>743744Secretary and Treasurer of Arcon Corporation ("Arcon"), a company that he745co-founded in 1979 to develop, manufacture and sell latex-based male external746catheters and related medical devices. Prior to founding Arcon, Mr. Anthony747Conway worked for twelve years for International Business Machines Corporation748("IBM") in various research and development capacities. Mr. Anthony Conway is749one of the named inventors on numerous patent applications that have been750assigned to the Company, of which to date 17 have resulted in issued United751States patents.752753DAVID A. JONAS has served as the Company's Controller since June 1998, as754its Director of Operations since August 1999, and as its Treasurer since755November 2000. Mr. Jonas has had principal responsibility for the Company's756operational activities since August 1999, and since November 2000 has also had757principal responsibility for the Company's financial activities. Prior to758joining the Company, Mr. Jonas was employed in various financial, financial759management and operational management positions with Polaris Industries, Inc.760from January 1989 to June 1998. Mr. Jonas holds a BS degree in Accounting from761the University of Minnesota and is a certified public accountant.762763PHILIP J. CONWAY, a founder of the Company, has served as Vice President764of Production Technologies of the Company since August 1999 and as a Director765of the Company since May 1988. From 1988 to July 1999, Mr. Philip Conway served766as Vice President of Operations of the Company. Mr. Philip Conway is767responsible for plant design as well as new product and production processes,768research, design and development activities. From 1979 to March 1988, Mr.769Philip Conway served as Plant and Production Manager of Arcon, a company that770he co-founded. Prior to joining Arcon, Mr. Philip Conway was employed in a771production supervisory capacity by AFC Corp., a manufacturer and fabricator of772fiberglass, plastics and other composite materials. He is one of the named773inventors on numerous patent applications that have been assigned to the774Company, of which to date 17 have resulted in issued United States patents.775776RICHARD D. FRYAR, a founder of the Company, has served as Vice President,777Research and Development and as a director of the Company since May 1988. Mr.778Fryar is responsible for overseeing the Company's research and development and779regulatory affairs activities. From 1984 to March 1988, Mr. Fryar was employed780by Arcon, a company that he co-founded, in research and development capacities.781From 1969 to 1984, he was employed by IBM in various research and development782capacities. He is one of the named inventors on numerous patent applications783that have been assigned to the Company, of which to date 17 have resulted in784issued United States patents.785786DARA LYNN HORNER has served as Marketing Director for the Company's787FEMSOFT INSERT product line since November 1998. Ms. Horner has principal788responsibility for management of the Company's FEMSOFT marketing activities.789From 1990 until joining the Company in 1998, Ms. Horner was employed by Lake790Region Manufacturing, Inc., a medical device manufacturer, most recently as791Marketing Director. From 1980 to 1998, she was employed in various marketing792and sales capacities with, respectively, Medtronic, Inc., West Central Tribune,793and Blue Cross-Blue Shield of Minnesota.794795MARTYN R. SHOLTIS joined the Company in April 1992 and serves as Vice796President of Marketing & Sales. Mr. Sholtis' responsibilities include797implementation of the Company's marketing & sales strategy as well as the798development of the Company's relationships with the Company's private label and799international customers. From 1985 to 1992 Mr. Sholtis was employed by Sherwood800Medical, a company that manufactured and sold a variety of disposable medical801products including urological catheters, most recently as Regional Sales802Manager for the Nursing Care Division.803804Messrs. Anthony J. Conway, Philip J. Conway and Peter R. Conway, a805director of the Company, are brothers.80680780810809810811<PAGE>812813ITEM 2. PROPERTIES814The Company's administrative offices and liquid encapsulation815manufacturing facilities occupy a 52,000 square foot manufacturing and office816facility on a 28 acre site owned by the Company and located in an industrial817park in Stewartville, Minnesota. The Company's male external and Foley catheter818manufacturing facilities consists of a 34,000 square foot manufacturing and819office building located on a nearby 3.5 acre site owned by the Company in the820same industrial park.821822823ITEM 3. LEGAL PROCEEDINGS824The Company is not involved in any material legal proceedings.825826827ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS828No matters were submitted to a vote of security holders during the fourth829quarter ended September 30, 2000.830831832833PART II834835836ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS837The Common Stock is quoted on the Nasdaq National Market under the symbol838ROCM. The following table sets forth, for the periods indicated, the range of839high and low last sale prices for the Common Stock as reported by the Nasdaq840National Market.841842843HIGH LOW844------------ -----------845FISCAL 1999846First Quarter .......... $ 15.250 $ 9.625847Second Quarter ......... 15.500 9.250848Third Quarter .......... 12.250 9.500849Fourth Quarter ......... 12.313 8.375850851FISCAL 2000852First Quarter .......... $ 10.156 $ 6.25853Second Quarter ......... 12.375 7.00854Third Quarter .......... 12.25 7.625855Fourth Quarter ......... 9.375 5.875856857HOLDERS858As of December 15, 2000, the Company had 132 shareholders of record. Such859number of record holders does not reflect shareholders who beneficially own860Common Stock in nominee or street name.861862The Company has paid no cash dividends on its Common Stock, and it does863not intend to pay cash dividends on its Common Stock in the future.86486586611867868869<PAGE>870871ITEM 6. SELECTED FINANCIAL DATA872The following selected financial data of the Company as of September 30,8732000 and 1999 and for the three fiscal years ended September 30, 2000, 1999 and8741998 are derived from, and should be read together with, the financial875statements of the Company audited by Ernst & Young LLP, independent auditors,876included elsewhere in this Form 10-K. The following selected financial data as877of September 30, 1998, 1997 and 1996 and for the fiscal years ended September87830, 1997 and 1996 are derived from audited financial statements not included879herein. The information set forth below should be read in conjunction with880"Management's Discussion and Analysis of Financial Condition and Results of881Operations," the Financial Statements and Notes thereto and other financial882information included elsewhere in this Form 10-K.883884885<TABLE>886<CAPTION>887FISCAL YEARS ENDED SEPTEMBER 30,888---------------------------------------------------------------------------8892000 1999 1998 1997 1996890----------- ------------- ------------- ------------- -------------891<S> <C> <C> <C> <C> <C>892Statements of Operations Data:893Net sales .......................... $ 7,860 $ 7,341 $ 9,518 $ 7,615 $ 5,540894Cost of sales ...................... 6,151 5,602 6,604 4,869 3,788895-------- --------- --------- --------- ---------896Gross profit ...................... 1,709 1,739 2,914 2,746 1,752897Operating expenses:898Marketing and selling .............. 4,589 3,944 3,191 2,210 1,351899Research and development ........... 1,008 1,052 1,384 1,451 1,182900General and administrative ......... 2,238 1,863 1,445 1,499 1,112901-------- --------- --------- --------- ---------902Total operating expenses .......... 7,835 6,859 6,020 5,160 3,645903-------- --------- --------- --------- ---------904Loss from operations ................ (6,126) (5,120) (3,106) (2,414) (1,893)905Interest income ..................... 595 719 848 657 818906Interest expense .................... -- -- -- (342) (285)907-------- --------- --------- --------- ---------908Net loss ............................ $ (5,531) $ (4,401) $ (2,258) $ (2,099) $ (1,360)909======== ========= ========= ========= =========910Net loss per common share --911basic and diluted .................. $ (1.04) $ (.83) $ (.44) $ (.51) $ (.35)912Weighted average number of913common shares outstanding .......... 5,341 5,333 5,141 4,132 3,867914915</TABLE>916917918<TABLE>919<CAPTION>920AS OF SEPTEMBER 30,921----------------------------------------------------------------------9222000 1999 1998 1997 1996923------------ ------------ ----------- ------------ -----------924<S> <C> <C> <C> <C> <C>925Balance Sheet Data:926Cash, cash equivalents and927Marketable securities ............. $ 8,859 $ 13,246 $ 16,410 $ 4,639 $ 17,408928Working capital .................... 10,329 15,486 19,245 7,081 18,861929Total assets ....................... 23,254 28,702 32,736 18,613 23,888930Long-term debt ..................... -- -- -- -- 3,321931Accumulated deficit ................ (19,706) (14,175) (9,774) (7,516) (5,418)932Total shareholders' equity ......... $ 21,573 $ 27,177 $ 30,918 $ 17,181 $ 19,231933</TABLE>93493593693712938939940<PAGE>941942ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS943OF OPERATIONS944Statements other than historical information contained herein constitute945"forward-looking statements" within the meaning of the Private Securities946Litigation Reform Act of 1995. Such forward-looking statements may be947identified by the use of terminology such as "may," "will," "expect,"948"anticipate," "predict," "intend," "designed," "estimate," "should" or949"continue" or the negatives thereof or other variations thereon or comparable950terminology. The forward-looking statements involve known or unknown risks,951uncertainties and other factors which may cause the actual results, performance952or achievements of the Company, or industry results, to be materially different953from any future results, performance or achievements expressed or implied by954such forward-looking statements. Factors that might cause such differences955include, but are not limited to, those discussed in the section entitled "Risk956Factors" below.957958RESULTS OF OPERATIONS959The following table sets forth, for the periods indicated, certain items960from the statements of operations of the Company expressed as a percentage of961net sales:962963964<TABLE>965<CAPTION>966FISCAL YEARS ENDED967SEPTEMBER 30,968------------------------------------9692000 1999 1998970---------- ---------- ----------971<S> <C> <C> <C>972Total net sales ..................... 100% 100% 100%973Cost of sales ....................... 78 76 69974--- --- ---975Gross margin ........................ 22 24 31976Operating expenses:977Marketing and selling .............. 58 54 34978Research and development ........... 13 14 15979General and administrative ......... 29 26 15980--- --- ---981Total operating expenses ............ 100 94 64982Loss from operations ................ (78) (70) (33)983Interest income, net ................ 8 10 9984--- --- ---985Net loss ............................ (70)% (60)% (24)%986=== === ===987</TABLE>988989FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED990SEPTEMBER 30, 1999991992NET SALES. Net sales increased 7% to $7.9 million in fiscal 2000 from $7.3993million in the prior fiscal year. Domestic sales were flat compared to the994prior fiscal year, with growth of 17% in ROCHESTER MEDICAL brand product sales995offset by a 13% decline in sales to domestic private label customers, primarily996Mentor and ConvaTec. International sales increased 18% in fiscal 2000 compared997to the prior fiscal year, primarily due to growth in European markets.998999GROSS MARGIN. The Company's gross margin was 22% in fiscal 2000 compared1000to 24% in fiscal 1999. The fiscal 2000 margin primarily reflects costs1001associated with continuing underutilized production capacity. Costs associated1002with increased capacity are anticipated to continue until such time as, if1003ever, the Company achieves sufficient sales to absorb the additional capacity.10041005MARKETING AND SELLING. Marketing and selling expense increased 16% to $4.61006million in fiscal 2000 from $3.9 million in fiscal 1999. The increase in1007expense is due to promotional activities for the FEMSOFT INSERT. The Company1008anticipates that marketing and selling expenses will decrease in fiscal 20011009because fiscal 2000 included nonrecurring expenses for the development of1010marketing materials related to the FEMSOFT INSERT and due to a reduction in the1011size of the Company's sales force.10121013RESEARCH AND DEVELOPMENT. Research and development expense decreased 4% to1014$1.0 million in fiscal 2000 from $1.1 million in fiscal 1999. The decrease in1015research and development expense primarily reflects a reduction in accruals for1016costs of the FEMSOFT INSERT clinical trials related to stage of completion.10171018101913102010211022<PAGE>10231024GENERAL AND ADMINISTRATIVE. General and administrative expense increased102520% to $2.2 million in fiscal 2000 from $1.9 million in fiscal 1999. The1026increase in general and administrative expense is related to one-time costs1027associated with the terminated transaction with Maersk Medical, as well as1028one-time costs related to severance expenses associated with a reduction in1029personnel.10301031INTEREST INCOME. Interest income decreased 17% to $595,000 in fiscal 20001032from $719,000 in fiscal 1999. The decrease in interest income reflects the1033comparatively lower average level of invested cash balances in the current1034quarter due to the utilization of cash for operations and capital expenditures.1035103610371038FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED1039SEPTEMBER 30, 199810401041NET SALES. Net sales decreased 23% to $7.3 million in fiscal 1999 from1042$9.5 million in the prior fiscal year. Domestic sales decreased 31% in fiscal10431999 from the prior fiscal year, with growth of 41% in ROCHESTER MEDICAL brand1044product sales offset by a 50% decline in sales to domestic private label1045customers, primarily Mentor and ConvaTec. International sales decreased 6% in1046fiscal 1999 from the prior fiscal year compared with the prior year, with 45%1047growth in European markets offset by a 25% decline in all other international1048markets.10491050GROSS MARGIN. The Company's gross margin was 24% in fiscal 1999 compared1051to 31% in fiscal 1998. The fiscal 1999 margin primarily reflects costs1052associated with continuing underutilized production capacity due to lower1053sales. Costs associated with increased capacity are anticipated to continue1054until such time as, if ever, the Company achieves sufficient sales to absorb1055the additional capacity.10561057MARKETING AND SELLING. Marketing and selling expense increased 24% to $3.91058million in fiscal 1999 from $3.2 million in fiscal 1998. The increase in1059expense is due to promotional activities for the RELEASE-NF CATHETER and market1060introduction preparation for the FEMSOFT INSERT. The Company anticipates that1061marketing and selling expenses will increase in future periods as the Company1062expands its promotional and market development activities related to Rochester1063Medical brand products, particularly the Company's FEMSOFT INSERT.10641065RESEARCH AND DEVELOPMENT. Research and development expense decreased 24%1066to $1.1 million in fiscal 1999 from $1.4 million in fiscal 1998. The decrease1067in research and development expense primarily reflects a reduction in accruals1068for costs of the FEMSOFT INSERT clinical trials related to stage of completion.106910701071GENERAL AND ADMINISTRATIVE. General and administrative expense increased107229% to $1.9 million in fiscal 1999 from $1.4 million in fiscal 1998. The1073increase in general and administrative expense is related to upgrading of1074business systems, including the Year 2000 compliance program, and general1075increases in administrative support costs.10761077INTEREST INCOME. Interest income decreased 15% to $719,000 in fiscal 19991078from $848,000 in fiscal 1998. The decrease in interest income reflects the1079comparatively lower average level of invested cash balances in the current1080quarter due to the utilization of cash for operations and capital expenditures.1081108210831084LIQUIDITY AND CAPITAL RESOURCES1085The Company has financed its operations primarily through public offerings1086and private placements of its equity securities, and has raised approximately1087$40.7 million in net proceeds since its inception. In August 1995, the Company1088received proceeds of $3.0 million from issuance of a convertible note to1089ConvaTec. The Company repaid the ConvaTec note on September 30, 1997, with1090accrued interest, for a total amount of $3.7 million.10911092The Company's cash, cash equivalents and marketable securities were $8.91093million at September 30, 2000 compared with $13.2 million at September 30,10941999. The Company used a net $3.6 million of cash in operating activities1095during the year. Investing activities, primarily sales of10961097109814109911001101<PAGE>11021103marketable securities, provided net cash of $2,658,000 in fiscal 2000, offset1104in part by capital expenditures of $676,000. The Company anticipates lower1105capital expenditures in fiscal 2001.11061107During fiscal 2000, the Company's working capital position, excluding cash1108and marketable securities, decreased by a net $770,000. Accounts receivable1109balances decreased 26% or $362,000 during the fiscal year as a result of1110receivable collections. Inventories decreased by 8% or $155,000 during the1111year. Other current assets decreased 28% or $97,000 as a result of the1112collection of miscellaneous receivables. Current liabilities increased 10% or1113$156,000 during the year. Changes in other asset and liability balances related1114to timing of expense recognition.11151116In December 1999, the Board of Directors authorized a stock repurchase1117program. Up to one million shares of the Company's outstanding common stock may1118be repurchased under the program. Purchases may be made from time to time at1119prevailing prices in the open market and through other customary means. No time1120limit has been placed on the duration of the stock repurchase program and it1121may be conducted over an extended period of time as business and market1122conditions warrant. The Company also may discontinue the stock repurchase1123program at any time. The repurchased shares will be available for reissuance1124pursuant to employee stock option plans and for other corporate purposes. The1125Company intends to fund such repurchases with currently available funds. During1126the first quarter of fiscal 2000, the Company repurchased 10,600 shares of1127common stock for $73,000.11281129Although the Company believes that its existing resources and anticipated1130cash flows from operations will be sufficient to satisfy its capital needs for1131approximately the next two years, there can be no assurance that the Company1132will not require additional financing before that time. The Company's actual1133liquidity and capital requirements will depend upon numerous factors, including1134the costs and timing of expansion of sales and marketing activities; the amount1135of revenues from sales of the Company's existing and new products; changes in,1136termination of, and the success of, existing and new distribution arrangements;1137the cost of maintaining, enforcing and defending patents and other intellectual1138property rights; competing technological and market developments; developments1139related to regulatory and third party reimbursement matters; the cost and1140progress of the Company's research and development efforts; and other factors.1141In the event that additional financing is needed, the Company may seek to raise1142additional funds through public or private financing, collaborative1143relationships or other arrangements. Any additional equity financing may be1144dilutive to shareholders, and debt financing, if available, may involve1145significant restrictive covenants. Collaborative arrangements, if necessary to1146raise additional funds, may require the Company to relinquish its rights to1147certain of its technologies, products or marketing territories. Failure to1148raise capital when needed could have a material adverse effect on the Company's1149business, financial condition and results of operations. There can be no1150assurance that such financing, if required, will be available on terms1151satisfactory to the Company, if at all.11521153115415115511561157<PAGE>11581159RISK FACTORS116011611162UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS1163Much of the Company's ability to increase revenues and to achieve1164profitability and positive cash flow will depend on the successful introduction1165of new products, primarily the RELEASE-NF CATHETER, the FEMSOFT INSERT and the1166new hydrophilic personal catheter. These products represent new methods and1167improvements for urinary continence care. There can be no assurance that these1168products will gain any significant degree of market acceptance among1169physicians, healthcare payors and patients. Market acceptance of these1170products, if it occurs, may require lengthy hospital evaluations and/or the1171training of numerous physicians and clinicians, which could delay or dampen any1172such market acceptance. Moreover, approval of reimbursement for the Company's1173products, competing products or alternative medical treatments, and the1174Company's pricing policies will be important factors in determining market1175acceptance of these products. Any of the foregoing factors, or other factors,1176could limit or detract from market acceptance of these products. Insufficient1177market acceptance of these products could have a material adverse effect on the1178Company's business, financial condition and results of operations.117911801181RISKS ASSOCIATED WITH MARKETING AND SALES OF ROCHESTER MEDICAL BRAND PRODUCTS1182The Company's success will depend on its ability to overcome established1183market positions of competitors and to establish its own market presence under1184the ROCHESTER MEDICAL brand name. One of the challenges facing the Company in1185this respect is the Company's ability to compete with companies that offer a1186wider array of products to hospitals and medical care institutions,1187distributors and end users. The Company may also find it difficult to sell its1188products due to the limited recognition of its brand name.118911901191LIMITED REVENUES; HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES1192The Company has generated only limited revenues to date and has1193experienced net losses since its inception. Net losses for the fiscal years1194ended September 30, 2000, 1999 and 1998 were $5.5 million, $4.4 million and1195$2.3 million, respectively. The Company had an accumulated deficit of1196approximately $19.7 million at September 30, 2000. The Company's ability to1197increase revenues and achieve profitability and positive cash flow will depend1198primarily upon market acceptance of, and achievement of material sales from,1199the Company's new products, particularly the RELEASE-NF CATHETER, FEMSOFT1200INSERT and hydrophilic personal catheter, of which there can be no assurance. A1201substantial portion of the expenses associated with the Company's manufacturing1202facilities are fixed in nature (i.e. depreciation) and will reduce the1203Company's operating margin until such time, if ever, as the Company is able to1204increase utilization of its capacity through increased sales of its new1205products. As a result, the Company expects to incur substantial operating1206losses for the foreseeable future and there can be no assurance that the1207Company will ever generate substantial revenues or achieve or sustain1208profitability.120912101211HIGHLY COMPETITIVE MARKETS; ALTERNATIVE TREATMENTS; TECHNOLOGICAL ADVANCEMENTS1212The medical products market in general is, and the markets for urinary1213continence care products in particular are, highly competitive. Many of the1214Company's competitors have greater name recognition than the Company and offer1215well known and established products, some of which are less expensive than the1216Company's products. As a result, even if the Company can demonstrate that its1217products provide greater ease of use, lifestyle improvement or beneficial1218effects on medical outcomes over the course of treatment, the Company may not1219be successful in capturing a significant share of the market. In addition, many1220of the Company's competitors offer broader product lines than the Company,1221which may be a competitive advantage in obtaining contracts with healthcare1222purchasing groups, and may adversely affect the Company's ability to obtain1223contracts with such purchasing groups. Additionally, many of the Company's1224competitors have substantially more marketing and sales experience than the1225Company and substantially greater resources to devote to such efforts. There1226can be no assurance that the Company will be able to compete successfully1227against such competitors.12281229123016123112321233<PAGE>12341235Urinary continence care can be managed with a variety of alternative1236medical treatments and management products or techniques, including adult1237diapers and absorbent pads, surgery, behavior therapy, pelvic muscle exercise,1238implantable devices, injectable materials and other medical devices.1239Manufacturers of these products or techniques are engaged in research to1240develop more advanced versions of current products and techniques. Many of the1241companies that are engaged in such development work have substantially greater1242capital resources than the Company and greater expertise than the Company in1243research, development and regulatory matters. There can be no assurance that1244the Company's products will be able to compete with existing or future1245alternative products, techniques or therapies, or that advancements in existing1246products, techniques or therapies will not render the Company's products1247obsolete.124812491250DEPENDENCE ON DISTRIBUTION ARRANGEMENTS1251A significant portion of the Company's net sales to date have depended on1252the Company's ability to provide products that meet the requirements of medical1253product companies that resell or distribute the Company's products, and on the1254sales and marketing efforts of such entities. Arrangements with these entities1255are likely to continue to be a significant portion of the Company's revenues in1256the future. There can be no assurance that the Company's purchasers and1257distributors will be able to successfully market and sell the Company's1258products, that they will devote sufficient resources to support the marketing1259of any of the Company's products, that they will market any of the Company's1260products at prices which will permit such products to develop, achieve, or1261sustain market acceptance, or that they will not develop alternative sources of1262supply. The failure of the Company's purchasers and distributors to continue to1263purchase products from the Company at levels reasonably consistent with their1264prior purchases or to effectively market the Company's products could have a1265material adverse effect on the Company's business, financial condition and1266results of operations.126712681269POSSIBLE NEED FOR ADDITIONAL CAPITAL1270The Company intends to expend substantial funds for expansion of sales and1271marketing activities, product education efforts, advertising and other working1272capital and general corporate purposes. Although the Company believes its1273existing resources and anticipated cash flows from operations will be1274sufficient to satisfy its capital needs for approximately the next two years,1275there can be no assurance that the Company will not require additional1276financing before that time. The Company's actual liquidity and capital1277requirements will depend on numerous factors, including the costs and timing of1278expansion of sales and marketing activities; the amount of revenues from sales1279of the Company's existing and new products, including the RELEASE-NF CATHETER1280and FEMSOFT INSERT; changes in, termination of, and the success of, existing1281and new distribution arrangements; the cost of maintaining, enforcing and1282defending patents and other intellectual property rights; competing1283technological and market developments; developments relating to regulatory and1284third party reimbursement matters; the cost and progress of the Company's1285research and development efforts; and other factors. In the event that1286additional financing is needed, the Company may seek to raise additional funds1287through public or private financing, collaborate relationships or other1288arrangements. Any additional equity financing may be dilutive to shareholders,1289and debt financing, if available, may involve significant restrictive1290covenants. Failure to raise capital when needed could have a material adverse1291effect on the Company's business, financial condition and results of1292operations. There can be no assurance that such financing, if required, will be1293available on terms satisfactory to the Company, if at all.129412951296EFFECTS OF GOVERNMENT REGULATION1297The Company's products, product development activities and manufacturing1298processes are subject to extensive regulation by the FDA and by comparable1299agencies in foreign countries. In the United States, the FDA regulates the1300introduction of medical devices as well as manufacturing, labeling and record1301keeping procedures for such products. The process of obtaining marketing1302clearance for new medical products from the FDA can be costly and time1303consuming, and there can be no assurance that such clearance will be granted1304timely, if at all, for the Company's products in13051306130717130813091310<PAGE>13111312development, or that FDA review will not involve delays that would adversely1313affect the Company's ability to commercialize additional products or to expand1314permitted uses of existing products. Even if regulatory clearance to market a1315product is obtained from the FDA, this clearance may entail limitations on the1316indicated uses of the product. Marketing clearance can also be withdrawn by the1317FDA due to failure to comply with regulatory standards or the occurrence of1318unforeseen problems following initial clearance. The Company may be required to1319make further filings with the FDA under certain circumstances, such as the1320addition of product claims or product reformulation. The FDA could also limit1321or prevent the manufacture or distribution of the Company's products and has1322the power to require the recall of such products. FDA regulations depend1323heavily on administrative interpretation, and there can be no assurance that1324future interpretation made by the FDA or other regulatory bodies, which may1325have retroactive effect, will not adversely affect the Company. The FDA and1326various state agencies inspect the Company and its facilities from time to time1327to determine whether the Company is in compliance with regulations relating to1328medical device manufacturing companies, including regulations concerning1329design, manufacturing, testing, quality control and product labeling practices.1330A determination that the Company is in material violation of such regulations1331could lead to the imposition of civil penalties, including fines, product1332recalls, product seizures, or, in extreme cases, criminal sanctions.13331334A portion of the Company's revenues are dependent upon sales of its1335products outside the United States. Foreign regulatory bodies have established1336varying regulations governing product standards, packaging requirements,1337labeling requirements, import restrictions, tariff regulations, duties and tax1338requirements. The Company relies on its third-party foreign distributors to1339comply with certain foreign regulatory requirements. The inability or failure1340of the Company or such foreign distributors to comply with varying foreign1341regulations or the imposition of new regulations could restrict the sale of the1342Company's products internationally and thereby adversely affect the Company's1343business, financial condition and results of operations.134413451346DEPENDENCE ON THIRD PARTY REIMBURSEMENT1347The Company's products are purchased by medical care institutions and1348other users, which bill various third party payors, such as government health1349programs, private health insurance plans, managed care organizations and other1350similar programs, for the health care products and services provided to their1351patients. Payors may deny reimbursement if they determine that a product used1352in a procedure was not used in accordance with established payor protocols1353regarding cost-efficient treatment methods, was used for an unapproved1354indication or was not otherwise covered. Third party payors are increasingly1355challenging the prices charged for medical products and services and, in some1356instances, have pressured medical suppliers to lower their prices. The Company1357is unable to predict what changes will be made in the reimbursement methods1358used by third party health care payors. There can be no assurance that1359treatments utilizing the Company's products will be considered cost effective1360by third party payors, that reimbursement for such treatments will be available1361or, if available, that payor reimbursement levels will not adversely affect the1362Company's ability to sell its products on a profitable basis. Moreover,1363Medicare, Medicaid and private third party payors may limit reimbursement for1364disposable devices such as those manufactured by the Company by implementing1365fee schedules or by allowing reimbursement for only a fixed number of devices1366per month. In addition, healthcare costs have risen significantly over the past1367decade, and there have been and may continue to be proposals by legislators,1368regulators and third party payors to curb these costs. The Company is currently1369in the process of assessing the eligibility of the FEMSOFT INSERT for1370reimbursement. Failure by users of the Company's products to obtain1371reimbursement from third party payors, changes in third party payors' policies1372towards reimbursement for the Company's products or legislative action limiting1373reimbursement for certain procedures or products could have a material adverse1374effect on the Company's business, financial condition and results of1375operations.137613771378DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS1379The Company's success may depend in part on its ability to obtain patent1380protection for its products and manufacturing processes, to preserve its trade1381secrets, and to operate without13821383138418138513861387<PAGE>13881389infringing the proprietary rights of third parties. The validity and breadth of1390claims covered in medical technology patents involve complex legal and factual1391questions and, therefore, may be highly uncertain. No assurance can be given1392that the scope of any patent protection under the Company's current patents, or1393under any patent the Company might obtain in the future, will exclude1394competitors or provide competitive advantages to the Company; that any of the1395Company's patents will be held valid if subsequently challenged; or that others1396will not claim rights in or ownership of the patents and other proprietary1397rights held by the Company. There can be no assurance that the Company's1398technology, current or future products or activities will not be deemed to1399infringe upon the rights of others. Furthermore, there can be no assurance that1400others have not developed or will not develop similar products or manufacturing1401processes, duplicate any of the Company's products or manufacturing processes,1402or design around the Company's patents. The Company also relies upon unpatented1403trade secrets to protect its proprietary technology, and no assurance can be1404given that others will not independently develop or otherwise acquire1405substantially equivalent technology or otherwise gain access to the Company's1406proprietary technology or disclose such technology or that the Company can1407ultimately protect meaningful rights to such unpatented proprietary technology.140814091410The medical device industry is characterized by frequent and substantial1411intellectual property litigation, particularly with respect to newly developed1412technology. Litigation may be necessary to enforce patents issued to the1413Company, to protect trade secrets or know-how owned by the Company, or to1414determine the ownership, scope or validity of the proprietary rights of the1415Company and others. Intellectual property litigation is complex and expensive,1416and the outcome of such litigation is difficult to predict. Any such1417litigation, regardless of outcome, could result in substantial expense to the1418Company and significant diversion of the efforts of the Company's technical and1419management personnel. As a result, a claim by a third party that the Company's1420current products or products in development allegedly infringe its patent1421rights could have a material adverse effect on the Company. Moreover, an1422adverse determination in any such proceeding could subject the Company to1423significant liabilities to third parties, require disputed rights to be1424licensed from such parties, if licenses to such rights could be obtained,1425and/or require the Company to cease using such technology. If third party1426patents containing claims affecting the Company's technology were issued and1427such claims were determined to be valid, there can be no assurance that the1428Company would be able to obtain licenses to such patents at costs reasonable to1429the Company, if at all, or be able to develop or obtain alternate technology.1430Accordingly, an adverse determination in a judicial or administrative1431proceeding or failure to obtain necessary licenses could prevent the Company1432from manufacturing, using or selling certain of its products, which could have1433a material adverse effect on the Company's business, financial condition and1434results of operations.143514361437POSSIBILITY OF PRODUCT LIABILITY LITIGATION; POSSIBLE INADEQUACY OF INSURANCE1438The medical products industry is subject to substantial product liability1439litigation, and the Company faces an inherent business risk of exposure to1440product liability claims in the event that the use of its products is alleged1441to have resulted in adverse effects to a patient. Although the Company has not1442experienced any product liability claims to date, any such claims could have a1443material adverse effect on the Company, including on market acceptance of its1444products. The Company maintains general insurance policies that include1445coverage for product liability claims. The policies are limited to an aggregate1446maximum of $6 million per product liability claim, with an annual aggregate1447limit of $7 million under the policies. The Company may require increased1448product liability coverage as new products are developed and commercialized.1449There can be no assurance that liability claims will not exceed the coverage1450limits of the Company's policies or that adequate insurance will continue to be1451available on commercially reasonable terms, if at all. A product liability1452claim or other claim with respect to uninsured liabilities or in excess of1453insured liabilities could have a material adverse effect on the Company's1454business, financial condition and results of operations.14551456145719145814591460<PAGE>14611462ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.1463The Company's operations are not currently subject to market risks for1464interest rates, foreign currency exchange rates, commodity prices or other1465relevant market price risks of a material nature.146614671468ITEM 8. FINANCIAL STATEMENTS1469147014711472ROCHESTER MEDICAL CORPORATION14731474FINANCIAL STATEMENTS147514761477YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 19981478147914801481PAGE1482----1483Report of Independent Auditors ............. 2014841485Audited Financial Statements ............... 21-3114861487Balance Sheets ............................ 2114881489Statements of Operations .................. 2214901491Statement of Shareholders' Equity ......... 2314921493Statements of Cash Flows .................. 2414941495Notes to Financial Statements ............. 251496149714981499150020150115021503<PAGE>15041505REPORT OF INDEPENDENT AUDITORS1506150715081509151015111512Shareholders1513Rochester Medical Corporation1514151515161517We have audited the accompanying balance sheets of Rochester Medical1518Corporation as of September 30, 2000 and 1999, and the related statements of1519operations, shareholders' equity and cash flows for each of the three years in1520the period ended September 30, 2000. Our audits also included the financial1521statement schedule listed in Item 14(a). These financial statements and1522schedule are the responsibility of the Company's management. Our responsibility1523is to express an opinion on these financial statements and schedule based on1524our audits.15251526We conducted our audits in accordance with auditing standards generally1527accepted in the United States. Those standards require that we plan and perform1528the audit to obtain reasonable assurance about whether the financial statements1529are free of material misstatement. An audit includes examining, on a test1530basis, evidence supporting the amounts and disclosures in the financial1531statements. An audit also includes assessing the accounting principles used and1532significant estimates made by management, as well as evaluating the overall1533financial statement presentation. We believe that our audits provide a1534reasonable basis for our opinion.15351536In our opinion, the financial statements referred to above present fairly,1537in all material respects, the financial position of Rochester Medical1538Corporation at September 30, 2000, and the results of its operations and its1539cash flows for each of the three years in the period ended September 30, 2000,1540in conformity with accounting principles generally accepted in the United1541States. Also in our opinion, the related financial statement schedule, when1542considered in relation to the basic financial statements taken as a whole,1543presents fairly in all material respects, the information set forth therein.15441545154615471548/s/ ERNST & YOUNG LLP15491550Minneapolis, Minnesota1551October 20, 2000155215531554155515561557155821155915601561<PAGE>15621563ROCHESTER MEDICAL CORPORATION15641565BALANCE SHEETS1566156715681569<TABLE>1570<CAPTION>1571SEPTEMBER 30,1572---------------------------------15732000 19991574------------ ------------1575<S> <C> <C>1576ASSETS1577Current assets:1578Cash and cash equivalents $ 3,204,161 $ 4,216,8141579Marketable securities 5,654,442 9,029,2961580Accounts receivable, less allowance for doubtful accounts1581($62,567 - 2000; $59,466 - 1999) 1,007,432 1,369,6621582Inventories, net 1,892,455 2,047,8201583Prepaid expenses and other current assets 251,328 347,8601584------------ ------------1585Total current assets 12,009,818 17,011,4521586Property, plant and equipment:1587Land 169,707 169,7071588Buildings 5,250,720 5,221,0781589Construction in progress -- 1,699,4401590Equipment and fixtures 9,984,496 7,638,7331591------------ ------------159215,404,923 14,728,9581593Less accumulated depreciation (4,351,235) (3,257,233)1594------------ ------------1595Total property, plant and equipment 11,053,688 11,471,7251596Patents, less accumulated amortization ($710,492 - 20001597$641,516 - 1999) 190,717 219,2181598------------ ------------1599Total assets $ 23,254,223 $ 28,702,3951600============ ============1601LIABILITIES AND SHAREHOLDERS' EQUITY1602Current liabilities:1603Accounts payable $ 799,737 $ 689,4751604Accrued compensation 530,276 556,3291605Accrued clinical costs -- 45,2141606Accrued expenses 351,192 234,3711607------------ ------------1608Total current liabilities 1,681,205 1,525,3891609Shareholders' equity:1610Common Stock, no par value:1611Authorized shares - 20,000,0001612Issued and outstanding shares; (5,338,900 - 2000;16135,349,500 - 1999) $ 41,279,359 $ 41,352,2021614Accumulated deficit (19,706,341) (14,175,196)1615------------ ------------1616Total shareholders' equity 21,573,018 27,177,0061617------------ ------------1618Total liabilities and shareholders' equity $ 23,254,223 $ 28,702,3951619============ ============1620</TABLE>16211622SEE ACCOMPANYING NOTES.16231624162516261627162822162916301631<PAGE>16321633ROCHESTER MEDICAL CORPORATION16341635STATEMENTS OF OPERATIONS1636163716381639<TABLE>1640<CAPTION>1641FISCAL YEARS ENDED SEPTEMBER 30,1642-----------------------------------------------------16432000 1999 19981644--------------- --------------- -----------------1645<S> <C> <C> <C>1646Net sales .............................................. $ 7,860,132 $ 7,340,870 $ 9,518,3111647Cost of sales .......................................... 6,151,195 5,602,042 6,604,2011648------------ ------------ -------------1649Gross profit ........................................... 1,708,937 1,738,828 2,914,1101650Operating expenses:1651Marketing and selling ................................. 4,588,874 3,943,589 3,190,6421652Research and development .............................. 1,008,431 1,052,090 1,384,2101653General and administrative ............................ 2,237,985 1,863,194 1,445,1671654------------ ------------ -------------1655Total operating expenses ............................... 7,835,290 6,858,873 6,020,0191656Loss from operations ................................... (6,126,353) (5,120,045) (3,105,909)1657Other income (expense):1658Interest income ....................................... 595,208 719,322 847,6621659Interest expense ...................................... -- -- --1660------------ ------------ -------------1661Net loss ............................................... $ (5,531,145) $ (4,400,723) $ (2,258,247)1662============ ============ =============1663Net loss per common share -- basic and diluted ......... $ (1.04) $ (.83) $ (.44)1664============ ============ =============1665Weighted average number of common shares1666outstanding ........................................... 5,341,243 5,332,868 5,140,6701667============ ============ =============1668</TABLE>16691670167116721673SEE ACCOMPANYING NOTES.16741675167616771678167923168016811682<PAGE>16831684ROCHESTER MEDICAL CORPORATION16851686STATEMENT OF SHAREHOLDERS' EQUITY1687168816891690<TABLE>1691<CAPTION>1692COMMON STOCK1693------------------------------1694ACCUMULATED1695SHARES AMOUNT DEFICIT TOTAL1696------------- -------------- ---------------- --------------1697<S> <C> <C> <C> <C>1698Balance at September 30, 1997 ............. 4,133,500 $24,697,199 $ (7,516,226) $17,180,9731699Common Stock issued in public1700offering ................................ 1,125,000 15,862,253 -- 15,862,2531701Exercise of common stock options ......... 11,000 132,750 -- 132,7501702Net loss for the year .................... -- -- (2,258,247) (2,258,247)1703--------- ----------- ------------ ------------1704Balance at September 30, 1998 ............. 5,269,500 40,692,202 (9,774,473) 30,917,7291705Exercise of common stock options ......... 80,000 660,000 -- 660,0001706Net loss for the year .................... -- -- (4,400,723) (4,400,723)1707--------- ----------- ------------ ------------1708Balance at September 30, 1999 ............. 5,349,500 $41,352,202 $(14,175,196) $27,177,0061709Stock Repurchase ......................... (10,600) (72,843) -- (72,843)1710Net loss for the year .................... -- -- (5,531,145) (5,531,145)1711--------- ----------- ------------ ------------1712Balance at September 30, 2000 ............. 5,338,900 $41,279,359 $(19,706,341) $21,573,0181713========= =========== ============ ============1714</TABLE>171517161717SEE ACCOMPANYING NOTES.171817191720172124172217231724<PAGE>17251726ROCHESTER MEDICAL CORPORATION17271728STATEMENTS OF CASH FLOWS1729173017311732<TABLE>1733<CAPTION>1734FISCAL YEARS ENDED SEPTEMBER 30,1735------------------------------------------------------17362000 1999 19981737---------------- ---------------- ----------------1738<S> <C> <C> <C>1739OPERATING ACTIVITIES1740Net loss ............................................... $(5,531,145) $(4,400,723) $(2,258,247)1741Adjustments to reconcile net loss to net cash used1742in operating activities:1743Depreciation and amortization ......................... 1,162,978 837,331 776,6991744Changes in operating assets and liabilities:1745Accounts receivable .................................. 362,230 585,386 12,1461746Inventories .......................................... 155,365 161,779 (555,866)1747Other current assets ................................. 96,532 141,141 (235,216)1748Accounts payable ..................................... 110,262 (76,829) 308,7401749Other current liabilities ............................ 45,554 (215,803) 76,8821750----------- ----------- -----------1751Net cash used in operating activities .................. (3,598,224) (2,967,718) (1,874,862)17521753INVESTING ACTIVITIES1754Capital expenditures ................................... (675,965) (798,285) (2,305,258)1755Patents ................................................ (40,475) (58,081) (43,579)1756Purchase of marketable securities ...................... (23,570,342) (54,892,037) (50,871,767)1757Sales and maturities of marketable securities .......... 26,945,196 59,408,013 40,773,9571758----------- ----------- -----------1759Net cash provided by (used in) investing activities 2,658,414 3,659,610 (12,446,647)17601761FINANCING ACTIVITIES1762Sale (purchase) of Common Stock ........................ (72,843) 660,000 15,995,0031763----------- ----------- -----------1764Net cash provided by (used in) financing1765activities ............................................ (72,843) 660,000 15,995,0031766----------- ----------- -----------1767Increase (decrease) in cash and cash1768equivalents ........................................... (1,012,653) 1,351,892 1,673,4941769Cash and cash equivalents at beginning of year ......... 4,216,814 2,864,922 1,191,4281770----------- ----------- -----------1771Cash and cash equivalents at end of year ............... $ 3,204,161 $ 4,216,814 $ 2,864,9221772=========== =========== ===========1773</TABLE>17741775SEE ACCOMPANYING NOTES.1776177725177817791780<PAGE>17811782ROCHESTER MEDICAL CORPORATION17831784NOTES TO FINANCIAL STATEMENTS17851786SEPTEMBER 30, 20001787178817891. BUSINESS ACTIVITY1790Rochester Medical Corporation (the "Company") develops, manufactures and1791markets a broad line of innovative, technologically enhanced latex-free urinary1792continence and urine drainage care products for the home care and1793acute/extended care markets. The Company currently manufactures and markets1794standard continence care products, including male external catheters, Foley1795catheters and intermittent catheters and innovative and technologically1796advanced products such as its FEMSOFT INSERT, RELEASE-NF catheter and1797hydrophilic intermittent catheter.1798179918002. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES180118021803CASH EQUIVALENTS1804The Company considers all highly liquid investments with a remaining1805maturity of three months or less when purchased to be cash equivalents.180618071808MARKETABLE SECURITIES1809Marketable securities are classified as available for sale and are carried1810at cost which approximates fair value as determined by published market data.1811The balance at September 30, 2000 consists of $3,000,000 of bonds maturing in18122001 and $2,650,000 of commercial paper. At September 30, 1999, the balance1813consisted entirely of bonds and commercial paper.181418151816MANUFACTURING AND SALES1817The Company manufactures and sells its products to a full range of1818companies in the medical industry on a worldwide basis. There is a1819concentration of sales to larger medical wholesalers and distributors. Sales of1820products are recorded upon shipment. The Company performs periodic credit1821evaluations of its customers' financial condition. The Company requires1822irrevocable letters of credit on sales to certain foreign customers.1823Receivables generally are due within 30 days. Credit losses relating to1824customers consistently have been within management expectations.182518261827INVENTORIES1828Inventories, consisting of material, labor and manufacturing overhead, are1829stated at the lower of cost or market. Cost is determined by the first-in,1830first-out (FIFO) method.183118321833PROPERTY AND EQUIPMENT1834Property and equipment are stated at cost less accumulated depreciation.1835Depreciation is based on estimated useful lives of 4 -- 35 years computed using1836the straight-line method.183718381839PATENTS1840Capitalized costs include costs incurred in connection with making patent1841applications for the Company's products and are amortized on a straight-line1842basis over eight years. The Company periodically reviews its patents for1843impairment of value. Any adjustment from the analysis is charged to operations.184418451846RESEARCH AND DEVELOPMENT COSTS1847Research and development costs are charged to operations as incurred.1848Research and development costs include clinical testing costs, certain salary1849and related expenses, other labor costs, materials and an allocation of certain1850overhead expenses.185118521853INCOME TAXES1854Income taxes are accounted for under the liability method. Deferred income1855taxes are provided for temporary differences between financial reporting and1856tax bases of assets and liabilities.1857185818591860186126186218631864<PAGE>18651866ROCHESTER MEDICAL CORPORATION18671868NOTES TO FINANCIAL STATEMENTS (CONTINUED)186918702. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)187118721873STOCK-BASED COMPENSATION1874The Company follows Accounting Principles Board Opinion No. 25,1875"Accounting for Stock Issued to Employees" ("APB 25"), and related1876interpretations in accounting for its stock options. Under APB 25, when the1877exercise price of stock options equals the market price of the underlying stock1878on the date of grant, no compensation expense is recognized.18791880The Company has adopted the disclosure-only provisions of Statement of1881Financial Accounting Standards No 123, "Accounting for Stock-Based1882Compensation."18831884USE OF ESTIMATES1885The preparation of financial statements in conformity with generally1886accepted accounting principles requires management to make estimates and1887assumptions that affect the amounts reported in the financial statements and1888accompanying notes. Actual results could differ from those estimates.18891890IMPAIRMENT OF LONG-LIVED ASSETS1891The Company will record impairment losses on long-lived assets used in1892operations when indicators of impairment are present and the undiscounted cash1893flows estimated to be generated by those assets are less than the assets'1894carrying amount.18951896NET LOSS PER SHARE1897Basic net loss per share is computed using the weighted average number of1898common shares outstanding during the period. Fully diluted and basic net loss1899per share are the same because the effect of common equivalent shares from1900stock options and convertible debt are excluded from the computation as their1901effect is antidilutive.1902190319043. ADVERTISING COSTS1905The Company incurred advertising expenses of $1,347,000, $779,000 and1906$414,000 for the years ended September 30, 2000, 1999 and 1998, respectively.1907All advertising costs are charged to operations as incurred.1908190919104. INVENTORIES1911Inventories are summarized as follows:191219131914SEPTEMBER 30,1915------------------------------19162000 19991917-------------- -------------1918Raw materials .............................. $ 771,468 $ 652,2291919Work-in-process ............................ 766,466 1,058,7161920Finished goods ............................. 452,640 445,6051921Reserve for inventory obsolescence ......... (98,119) (108,730)1922---------- ----------1923$1,892,455 $2,047,8201924========== ==========192519265. SHAREHOLDERS' EQUITY19271928STOCK OPTIONS1929In August 1998, the 1991 Stock Option Plan (the Plan) was amended to1930increase by 300,000 shares the number of shares authorized for issuance to19311,000,000 shares. Under terms of the Plan, the Board of Directors may grant1932employee incentive stock options equal to fair market value of the Company's1933Common Stock or employee non-qualified options at a price which cannot be less1934than 85% of the fair market value. Automatic non-employee director options are1935also covered1936193719381939194027194119421943<PAGE>19441945ROCHESTER MEDICAL CORPORATION19461947NOTES TO FINANCIAL STATEMENTS (CONTINUED)194819495. SHAREHOLDERS' EQUITY (CONTINUED)195019511952under the Plan, under which 1,000 shares are granted at fair market value to1953non-employee directors on the date of each of the Company's Annual Meetings.19541955The 1995 Non-Statutory Stock Option Plan authorizes the issuance of up to195650,000 shares of Common Stock. In September 1995, Medical Advisory Board1957members were granted options to purchase 12,000 shares of the Company's Common1958Stock at an exercise price of $15.75 per share. In April 1999, one member of1959the Medical Advisory Board was granted options to purchase 6,000 shares of the1960Company's Common Stock at an exercise price of $10.125 per share.19611962Option activity is summarized as follows:196319641965<TABLE>1966<CAPTION>1967AVERAGE1968SHARES WEIGHTED EXERCISE1969RESERVED OPTIONS PRICE PER1970FOR GRANT OUTSTANDING SHARE1971------------- ------------- ----------1972<S> <C> <C> <C>1973Balance as of September 30, 1997 ......... 209,000 535,000 $ 12.351974Options granted .......................... (226,000) 226,000 14.901975Options exercised ........................ -- (11,000) 12.071976Options canceled ......................... 27,000 (27,000) 14.131977Increase in authorized shares ............ 300,000 -- --1978-------- ------- --------1979Balance as of September 30, 1998 ......... 310,000 723,000 13.091980Options granted .......................... (173,500) 173,500 11.401981Options exercised ........................ -- (80,000) 8.251982Options canceled ......................... 70,000 (70,000) 13.801983-------- ------- --------1984Balance as of September 30, 1999 ......... 206,500 746,500 13.151985Options granted .......................... (153,000) 153,000 7.851986Options exercised ........................ -- -- --1987Options canceled ......................... 124,375 (124,375) 13.341988-------- -------- --------1989Balance as of September 30, 2000 ......... 177,875 775,125 $ 12.071990======== ======== ========1991</TABLE>19921993The weighted average fair value of options granted in 2000, 1999 and 19981994was $4.90, $7.48 and $9.67 per share, respectively. The exercise price of1995options outstanding at September 30, 2000 ranged from $6.00 to $20.00 per share1996as summarized in the following table:199719981999<TABLE>2000<CAPTION>2001NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE2002OUTSTANDING REMAINING EXERCISABLE EXERCISE PRICE2003RANGE OF EXERCISE PRICES AT 9/30/00 CONTRACTUAL LIFE AT 9/30/00 PER SHARE2004- -------------------------- ------------- ------------------ ------------- -----------------2005<S> <C> <C> <C> <C>2006$6.00 -- $10.75 .......... 325,375 6.8 years 135,125 $ 8.25200710.76 -- 14.75 ........... 301,250 6.0 years 229,750 13.95200814.76 -- 20.00 ........... 148,500 6.2 years 103,750 16.542009------- -------2010775,125 6.4 years 468,625 $ 12.882011======= =======2012</TABLE>20132014The number of stock options exercisable at September 30, 2000, 1999 and20151998 was 468,625, 367,000 and 307,500 at a weighted average exercise price of2016$12.88, $12.80 and $9.68 per share, respectively.20172018The Company has elected to follow Accounting Principles Board Opinion No.201925, Accounting for Stock Issued to Employees ("APB 25") and related2020interpretations in accounting for its employee stock options because, as2021discussed below, the alternative fair value accounting provided under FASB2022Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),2023requires use of option valuation models that were not developed for use in2024valuing employee stock20252026202720282029203028203120322033<PAGE>20342035ROCHESTER MEDICAL CORPORATION20362037NOTES TO FINANCIAL STATEMENTS (CONTINUED)203820395. SHAREHOLDERS' EQUITY (CONTINUED)204020412042options. Under APB 25, when the exercise price of the Company's employee stock2043options equals the market price of the underlying stock on the date of grant,2044no compensation expense is recognized.20452046Pro forma information regarding net loss and loss per share is required by2047Statement 123, and has been determined as if the Company had accounted for its2048employee stock options under the fair value method of Statement 123. The fair2049value of these options was estimated at the date of grant using the2050Black-Scholes option pricing model with the following weighted average2051assumptions: risk-free interest rate of 6.08%; volatility factor of the2052expected market price of the Company's common stock of .528 and a weighted2053average expected life of the option of seven years.20542055The Black-Scholes option valuation model was developed for use in2056estimating the fair value of traded options which have no vesting restrictions2057and are fully transferable. In addition, option valuation models require the2058input of highly subjective assumptions. Because the Company's employee stock2059options have characteristics significantly different from those of traded2060options, and because changes in the subjective input assumptions can materially2061affect the fair value estimate, in management's opinion, the existing models do2062not necessarily provide a reliable single measure of the fair value of its2063employee stock options.20642065For purposes of pro forma disclosures, the estimated fair value of the2066options is amortized to expense over the option's vesting period. The Company's2067pro forma information is as follows:206820692070<TABLE>2071<CAPTION>2072YEAR ENDED SEPTEMBER 30,2073------------------------------------------------------20742000 1999 19982075---------------- ---------------- ----------------2076<S> <C> <C> <C>2077Pro forma net loss .......................... $ (6,803,649) $ (5,934,181) $ (3,796,025)2078Pro forma net loss per common share ......... $ (1.27) $ (1.11) $ (.74)2079</TABLE>20802081These pro forma amounts may not be indicative of future years' amounts2082since the statement provides for a phase in of option values beginning with2083those granted in fiscal 1997.20842085WARRANTS2086In connection with the November 1995 public offering, the Company sold to2087the underwriters for a nominal purchase price five-year warrants to purchase208875,000 shares of Common Stock at $14.85 per share. The warrants can be2089exercised any time through November 2000.20902091209229209320942095<PAGE>20962097ROCHESTER MEDICAL CORPORATION20982099NOTES TO FINANCIAL STATEMENTS (CONTINUED)210021016. INCOME TAXES2102Deferred income taxes are due to temporary differences between the2103carrying values of certain assets and liabilities for financial reporting and2104income tax purposes. Significant components of deferred income taxes are as2105follows:210621072108<TABLE>2109<CAPTION>2110SEPTEMBER 30,2111---------------------------21122000 19992113------------ ----------2114<S> <C> <C>2115Deferred assets:2116Net operating loss ........................... $ 7,484,000 $5,466,0002117Research and development credits ............. 164,000 143,0002118Allowance for uncollectible accounts ......... 23,000 22,0002119Inventory reserves ........................... 36,000 40,0002120Inventory capitalization ..................... 68,000 37,0002121Accrued expenses ............................. 116,000 61,0002122------------ ----------2123Subtotal ..................................... 7,891,000 5,769,0002124Deferred liability:2125Depreciation and amortization ................ 346,000 386,0002126------------ ----------2127Net deferred income tax assets ............... 7,545,000 5,383,0002128Valuation allowance .......................... (7,545,000) (5,383,000)2129------------ ----------2130Net deferred income taxes .................... $ -- $ --2131============ ==========2132</TABLE>21332134The Company will be subject to federal income taxes when operations become2135profitable. The Company's net operating loss carryforwards of approximately2136$20,436,000 can be carried forward to offset future taxable income, subject to2137the limitation of Internal Revenue Code Section 382. The net operating loss2138carryforward will expire at different times beginning in 2005.2139214021417. LEASES2142Rent expense from operating leases for the years ended September 30, 2000,21431999 and 1998 was $1,000, $5,000 and $7,000, respectively.2144214521468. RELATED PARTY TRANSACTIONS2147The brother-in-law of the CEO and President, the Vice President of2148Production Technologies and a member of the board of directors of the Company2149has performed legal services for the Company. During the years ended September215030, 2000, 1999 and 1998, the Company incurred legal fees and expenses of2151approximately $16,000, $46,000 and $71,000, respectively, to such counsel for2152services rendered in connection with litigation and for general legal services.2153Management believes the fees paid for the services rendered to the Company were2154on terms at least as favorable to the Company as could have been obtained from2155an unrelated party.21562157The Company contracts with Petersen Blacksmith Company for the fabrication2158of customized, proprietary manufacturing equipment used in the Company's2159automated production lines. During 2000, 1999 and 1998, the Company paid2160Petersen Blacksmith Company the sum of $56,000, $46,000 and $231,000,2161respectively. Michael Petersen, the proprietor of Petersen Blacksmith Company,2162is the brother-in-law of a Director and Vice President, Research and2163Development of the Company. Management believes that the terms of the agreement2164are at least as favorable to the Company as could have been obtained from an2165unrelated party.2166216721682169217030217121722173<PAGE>21742175ROCHESTER MEDICAL CORPORATION21762177NOTES TO FINANCIAL STATEMENTS (CONTINUED)217821799. CONVATEC AGREEMENT2180On August 11, 1995, the Company entered into a Distribution and2181Co-Development Agreement (the "Distribution Agreement") with ConvaTec, a2182division of E.R. Squibb & Sons, Inc., a wholly-owned subsidiary of2183Bristol-Myers Squibb Company ("ConvaTec"), for the purpose of marketing and2184distributing the Company's incontinence and urological devices. Under the2185Distribution Agreement, the Company has granted ConvaTec, subject to2186obligations and limitations imposed by the Company's other distribution2187agreements, worldwide rights to market the Company's current products and2188products in development. The Company is obligated to offer ConvaTec rights of2189first and last refusal to market all products developed after the date of the2190Distribution Agreement. Under the Distribution Agreement, the Company retains2191worldwide marketing rights to its products under the Rochester Medical brand.21922193In April 1998, the Company and ConvaTec entered into a Revised and2194Restated Distribution Agreement (the "Revised Agreement") which grants ConvaTec2195limited territorial rights to market certain of the Company's standard male2196external catheter and Foley catheter products under the ConvaTec name. In2197addition to retaining worldwide marketing rights for Rochester Medical brand2198products, the Revised Agreement provides the Company exclusive marketing rights2199for its advanced products and products in development.22002201220210. SIGNIFICANT CUSTOMERS2203Significant customers, measured as a percentage of sales, are summarized2204as follows:220522062207SEPTEMBER 30,2208------------------22092000 1999 19982210---- ---- ----2211Significant customers:2212ConvaTec ........... 16% 16% 25%2213Hollister .......... 9 7 72214Maersk ............. 15 18 15*2215Mentor ............. 1 10 212216-- -- --2217Total ................ 41% 51% 68%2218== == ==22192220- ------------------2221* 1998 includes sales to Euromedical Industries SdN., which was acquired by2222Maersk in July of 1998.22232224In May 1998, Mentor advised the Company of its intention to manufacture2225its own silicone male external catheters under the royalty-free license it2226holds from the Company. There have been no sales of male external catheters to2227Mentor since the first quarter of fiscal 1999.22282229223031223122322233<PAGE>22342235ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND2236FINANCIAL DISCLOSURE2237None.223822392240PART III224122422243ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT2244Incorporated herein by reference to portions of the Proxy Statement for2245Annual Meeting of Shareholders to be filed with the Securities and Exchange2246Commission within 120 days of the close of the fiscal year ended September 30,22472000, and "Executive Officers of the Registrant" in Part I of this report.224822492250ITEM 11. EXECUTIVE COMPENSATION2251Incorporated herein by reference to portions of the Proxy Statement for2252Annual Meeting of Shareholders to be filed with the Securities and Exchange2253Commission within 120 days of the close of the fiscal year ended September 30,22542000.225522562257ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT2258Incorporated herein by reference to portions of the Proxy Statement for2259Annual Meeting of Shareholders to be filed with the Securities and Exchange2260Commission within 120 days of the close of the fiscal year ended September 30,22612000.226222632264ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS2265Incorporated herein by reference to portions of the Proxy Statement for2266Annual Meeting of Shareholders to be filed with the Securities and Exchange2267Commission within 120 days of the close of the fiscal year ended September 30,22682000.226922702271ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K2272(a)(1) The following financial statements are filed herewith in Item 8.22732274(i) Balance Sheets as of September 30, 2000 and 1999.22752276(ii) Statements of Operations for the years ended September 30, 2000,22771999 and 1998.22782279(iii) Statement of Shareholders' Equity for the years ended September228030, 2000 and 1999.22812282(iv) Statements of Cash Flows for the years ended September 30, 2000,22831999 and 1998.22842285(v) Notes to financial statements at September 30, 2000.22862287(a)(2) Financial Statement Schedules.22882289Schedule II -- Valuation and Qualifying Accounts22902291Financial statement schedules other than those listed have been2292omitted since they are not required or are not applicable or the2293required information is shown in the financial statements or related2294notes.22952296(b) Exhibits22972298The following exhibits are submitted herewith:229923003.1 Articles of Incorporation of the Company, as amended.2301(Incorporated by reference to Exhibit 4.1 of Registrant's2302Registration Statement on Form S-2, Registration Number230333-97788).230423053.2 Restated Bylaws of the Company. (Incorporated by reference to2306Exhibit 3.2 of Registrant's Registration Statement on Form S-18,2307Registration Number 33-36362-C).2308230923102311231232231323142315<PAGE>231623173.3 Amendment to Restated Bylaws of the Company. (Incorporated by2318reference to Exhibit 4.3 of Registrant's Registration Statement2319on Form S-2, Registration Number 33-97788).232023214.1 Specimen of Common Stock Certificate. (Incorporated by reference2322to Exhibit 4.4 of Registrant's Annual Report on Form 10-KSB for2323fiscal year ended September 30, 1995).232423254.2 The Company's 1991 Stock Option Plan as amended (Incorporated by2326reference to Exhibit 4.5 of Registrant's Registration Statement2327on Form S-8, Registration Number 333-10261).232823294.3 Amendment to the Company's 1991 Stock Option Plan as amended2330(Incorporated by reference to Exhibit 4.3 of Registrant's Annual2331Report on Form 10-K for fiscal year ended September 30, 1998).2332233310.1 Employment Agreement, dated August 31, 1990 between the Company2334and Anthony J. Conway. (Incorporated by reference to Exhibit233510.13 of Registrant's Registration Statement on Form S-18,2336Registration Number 33-36362-C).2337233810.2 Employment Agreement, dated August 31, 1990 between the Company2339and Philip J. Conway. (Incorporated by reference to Exhibit 10.142340of Registrant's Registration Statement on Form S-18, Registration2341Number 33-36362-C).2342234310.3 Change of Control Agreement dated December 4, 1998, between the2344Company and Philip J. Conway (Incorporated by reference to2345Exhibit 10.3 of Registrant's Annual Report on Form 10-K for2346fiscal year ended September 30, 1998).2347234810.4 Employment Agreement, dated August 31, 1990 between the Company2349and Richard D. Fryar. (Incorporated by reference to Exhibit 10.152350of Registrant's Registration Statement on Form S-18, Registration2351Number 33-36362-C).2352235310.5 Change of Control Agreement dated December 4, 1998, between the2354Company and Richard D. Fryar (Incorporated by reference to2355Exhibit 10.5 of Registrant's Annual Report on Form 10-K for2356fiscal year ended September 30, 1998).2357235810.6 Change of Control Agreement dated November 21, 2000, between the2359Company and Anthony J. Conway.*2360236110.7 Change of Control Agreement dated November 21, 2000, between the2362Company and Dara Lynn Horner.*2363236410.8 Employment Agreement, dated November 16, 1998 between the Company2365and Dara Lynn Horner. (Incorporated by reference to Exhibit 10.82366of Registrant's Annual Report on Form 10-K for fiscal year ended2367September 30, 1999.)2368236910.9 Change of Control Agreement dated November 21, 2000, between the2370Company and Martyn R. Sholtis.*2371237210.10 Change of Control Agreement dated November 21, 2000, between the2373Company and David A. Jonas.*2374237510.11 Revised and Restated Distribution Agreement, dated as of May 6,23761998, between the Company and E. R. Squibb & Sons, Inc. (through2377its ConvaTec division). (Incorporated by reference to Exhibit237810.17 of Registrant's Quarterly Report on Form 10-Q for the2379quarter ended March 31, 1998).2380238123 Consent of Ernst & Young LLP.*2382238324 Power of Attorney*2384238527 Financial Data Schedule.*23862387- ------------------2388* Filed herewith.23892390(c) Registrant filed no Report on Form 8-K during its fourth fiscal quarter.23912392239323942395239633239723982399<PAGE>24002401SIGNATURES24022403Pursuant to the requirements of Section 13 or 15(d) of the Securities2404Exchange Act of 1934, the registrant has duly caused this report to be signed2405on its behalf by the undersigned, thereunto duly authorized.240624072408ROCHESTER MEDICAL CORPORATION2409241024112412Dated: December 19, 2000 By: /s/ ANTHONY J. CONWAY2413------------------------------------2414Anthony J. Conway2415CHAIRMAN OF THE BOARD, PRESIDENT,2416CHIEF EXECUTIVE OFFICER AND SECRETARY24172418Pursuant to the requirements of the Securities Exchange Act of 1934, this2419Report has been signed below by the following persons in the capacities and on2420the dates indicated.24212422242324242425SIGNATURE TITLE2426- ----------------------------- ------------------------------------------------24272428/s/ ANTHONY J. CONWAY Chairman of the Board, President,2429-------------------------- Chief Executive Officer, and Secretary2430Anthony J. Conway (PRINCIPAL EXECUTIVE OFFICER)24312432/s/ DAVID A. JONAS Controller, Treasurer and Director of Operations2433-------------------------- (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)2434David A. Jonas24352436* Vice President, Production Technologies2437-------------------------- and Director2438Philip J. Conway24392440* Vice President, Research and Development2441-------------------------- and Director2442Richard D. Fryar24432444* Director2445--------------------------2446Darnell L. Boehm24472448* Director2449--------------------------2450Peter R. Conway24512452* Director2453--------------------------2454Roger W. Schnobrich24552456*By /s/ DAVID A. JONAS Dated: December 19, 20002457----------------------2458David A. Jonas2459ATTORNEY-IN-FACT24602461246234246324642465<PAGE>24662467ROCHESTER MEDICAL CORPORATION24682469SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES2470FOR CONTINUING OPERATIONS247124722473<TABLE>2474<CAPTION>2475- ----------------------------------------------------------------------------------------------------------2476COL. A. COL. B COL. C COL. D COL. E2477- ----------------------------------------------------------------------------------------------------------2478ADDITIONS2479----------------------------------2480BALANCE AT CHARGED TO CHARGED TO BALANCE AT2481BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF2482DESCRIPTION OF PERIOD EXPENSES -- DESCRIBE -- DESCRIBE PERIOD2483- ------------------------------ ------------ ----------------- ---------------- --------------- -----------2484<S> <C> <C> <C> <C> <C>2485Year ended September 30, 2000:2486Reserves and allowances2487deducted from asset accounts:2488Allowance for doubtful2489accounts ................... $ 59,466 $ 12,000 -- $ 8,899(1) $ 62,5672490Allowance for inventory2491obsolescence ............... 108,729 14,000 -- 24,611(2) 98,1182492Allowance for inventory2493valuation .................. -- 200,849(3) -- -- 200,84924942495Year ended September 30, 1999:2496Reserves and allowances2497deducted from asset accounts:2498Allowance for doubtful2499accounts ................... $ 50,000 $ 10,000 -- $ 534(1) $ 59,4662500Allowance for inventory2501obsolescence ............... 50,034 60,000 -- 1,305(2) 108,7292502Allowance for inventory2503valuation .................. -- -- -- -- --25042505Year ended September 30, 1998:2506Reserves and allowances2507deducted from asset accounts:2508Allowance for doubtful2509accounts ................... $ 52,099 $ 9,000 -- $11,099(1) $ 50,0002510Allowance for inventory2511obsolescence ............... 91,910 12,300 -- 54,106(2) 50,0342512Allowance for inventory2513valuation .................. -- -- -- -- --2514</TABLE>25152516- ------------------2517(1) Uncollectable accounts written off net of recoveries25182519(2) Obsolete disposed of net of recoveries25202521(3) Valuation of inventory at lower of cost or market252225232524<PAGE>25252526INDEX TO EXHIBITS252725282529<TABLE>2530<CAPTION>2531EXHIBIT PAGE2532- --------- -----2533<S> <C> <C>25343.1 Articles of Incorporation of the Company, as amended. (Incorporated by reference2535to Exhibit 4.1 of Registrant's Registration Statement on Form S-2, Registration2536Number 33-97788) ....................................................................253725383.2 Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 of2539Registrant's Registration Statement on Form S-18, Registration Number254033-36362-C) .........................................................................254125423.3 Amendment to Restated Bylaws of the Company. (Incorporated by reference to2543Exhibit 4.3 of Registrant's Registration Statement on Form S-2, Registration2544Number 33-97788) ....................................................................254525464.1 Specimen of Common Stock Certificate. (Incorporated by reference to Exhibit 4.42547of Registrant's Annual Report on Form 10-KSB for fiscal year ended2548September 30, 1995) .................................................................254925504.2 The Company's 1991 Stock Option Plan as amended (Incorporated by reference2551to Exhibit 4.5 of Registrant's Registration Statement on Form S-8, Registration2552Number 333-10261) ...................................................................255325544.3 Amendment to the Company's 1991 Stock Option Plan as amended (Incorporated2555by reference to Exhibit 4.3 of Registrant's Annual Report on Form 10-K for2556fiscal year ended September 30, 1998) ...............................................2557255810.1 Employment Agreement, dated August 31, 1990 between the Company and2559Anthony J. Conway. (Incorporated by reference to Exhibit 10.13 of Registrant's2560Registration Statement on Form S-18, Registration Number 33-36362-C) ................2561256210.2 Employment Agreement, dated August 31, 1990 between the Company and2563Philip J. Conway. (Incorporated by reference to Exhibit 10.14 of Registrant's2564Registration Statement on Form S-18, Registration Number 33-36362-C) ................2565256610.3 Change of Control Agreement dated December 4, 1998, between the Company2567and Philip J. Conway (Incorporated by reference to Exhibit 10.3 of Registrant's2568Annual Report on Form 10-K for fiscal year ended September 30, 1998) ................2569257010.4 Employment Agreement, dated August 31, 1990 between the Company and2571Richard D. Fryar. (Incorporated by reference to Exhibit 10.15 of Registrant's2572Registration Statement on Form S-18, Registration Number 33-36362-C) ................2573257410.5 Change of Control Agreement dated December 4, 1998, between the Company2575and Richard D. Fryar (Incorporated by reference to Exhibit 10.5 of Registrant's2576Annual Report on Form 10-K for fiscal year ended September 30, 1998) ................2577257810.6 Change of Control Agreement dated November 21, 2000, between the Company2579and Anthony J. Conway ...............................................................2580258110.7 Change of Control Agreement dated November 21, 2000, between the Company2582and Dara Lynn Horner ................................................................2583258410.8 Employment Agreement, dated November 16, 1998 between the Company and2585Dara Lynn Horner* (Incorporated by reference to Exhibit 10.8 of Registrant's2586Annual Report on Form 10-K for fiscal year ended September 30, 1999) ................2587258810.9 Change of Control Agreement dated November 21, 2000, between the Company2589and Martyn R. Sholtis ...............................................................2590259110.10 Change of Control Agreement dated November 21, 2000, between the Company2592and David A. Jonas* .................................................................2593259410.11 Revised and Restated Distribution Agreement, dated as of May 6, 1998, between2595the Company and E. R. Squibb & Sons, Inc. (through its ConvaTec division)2596(Incorporated by reference to Exhibit 10.17 of Registrant's Quarterly Report on2597Form 10-Q for the quarter ended March 31, 1998) .....................................2598259923 Consent of Ernst & Young LLP ........................................................2600260124 Power of Attorney ...................................................................2602260327 Financial Data Schedule .............................................................26042605</TABLE>2606260726082609</TEXT>2610</DOCUMENT>2611<DOCUMENT>2612<TYPE>EX-10.62613<SEQUENCE>22614<FILENAME>0002.txt2615<DESCRIPTION>CHANGE OF CONTROL AGREEMENT2616<TEXT>2617261826192620EXHIBIT 10.626212622262326242625Anthony J. Conway2626Rochester Medical Corporation2627One Rochester Medical Drive2628Stewartville, Minnesota 5597626292630Dear Anthony:26312632You are presently the President, Chief Executive Officer and Secretary2633of Rochester Medical Corporation, a Minnesota corporation (the "Company"). The2634Company considers the establishment and maintenance of a sound and vital2635management to be essential to protecting and enhancing the best interests of the2636Company and its stockholders. In this connection, the Company recognizes that,2637as is the case with many publicly held corporations, the possibility of a Change2638in Control (as defined in Section 1 below) of the Company may arise and that2639such possibility, and the uncertainty and questions which it may raise among2640management, may result in the departure or distraction of management personnel2641to the detriment of the Company and its stockholders.26422643Accordingly, the Compensation Committee (the "Committee") of the Board2644of Directors of the Company (the "Board") has determined that appropriate steps2645should be taken to reinforce and encourage the continued attention and2646dedication of members of the Company's management to their assigned duties2647without distraction in circumstances arising from the possibility of a Change in2648Control of the Company. In particular, the Board believes it important, should2649the Company or its stockholders receive a proposal for transfer of control of2650the Company, that you be able to assess and advise the Board whether such2651proposal would be in the best interests of the Company and its stockholders and2652to take such other action regarding such proposal as the Board might determine2653to be appropriate, without being influenced by the uncertainties of your own2654personal situation.26552656In order to induce you to remain in the employ of the Company, this2657letter agreement (this "Agreement"), which has been approved by the Committee,2658sets forth the severance benefits which the Company agrees will be provided to2659you in the event your employment with the Company is terminated subsequent to a2660Change in Control of the Company under the circumstances described below. This2661Agreement also provides you with certain benefits following a Change in Control2662of the Company regardless of whether your employment by the Company is2663terminated.26642665In consideration of these benefits, the Agreement contains a covenant2666not to compete (Section 7, below).266726682669<PAGE>267026711. Definitions. The following terms shall have the meaning set forth2672below unless the context clearly requires otherwise. Terms defined elsewhere in2673this Agreement shall have the same meaning throughout this Agreement.26742675(a) "Cause" shall mean: (i) continued failure by you to perform2676substantially your duties with the Company (other than any such failure2677resulting from your Disability or from termination by you for Good Reason) which2678failure, in the reasonable judgment of the Company, is willful; (ii) any act or2679acts of personal dishonesty by you intended to result in your personal2680enrichment at the expense of the Company (including but not limited to wrongful2681appropriation of funds of the Company or its affiliates); (iii) willful and2682deliberate misconduct during the course of employment; or (iv) the commission of2683a gross misdemeanor or felony (whether or not the Company is the victim of such2684offense).26852686(b) "Change in Control" shall be deemed to have occurred if: (i) a2687tender offer shall be made and consummated for the ownership of fifty percent2688(50%) or more of the outstanding Voting Securities of the Company; (ii) the2689Company shall be merged or consolidated with another corporation and as a result2690of such merger or consolidation less than fifty percent (50%) of the outstanding2691Voting Securities of the surviving or resulting corporation shall be owned in2692the aggregate by the former shareholders of the Company, other than affiliates2693(within the meaning of the Exchange Act) of any party to such merger or2694consolidation, as the same shall have existed immediately prior to such merger2695or consolidation; (iii) the Company shall sell substantially all of its assets2696to another corporation which is not a wholly owned subsidiary of the Company;2697(iv) a Person shall acquire fifty percent (50%) or more of the outstanding2698Voting Securities of the Company (whether directly, indirectly, beneficially or2699of record) (for purposes hereof, ownership of Voting Securities shall take into2700account and shall include ownership as determined by applying the provisions of2701Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange2702Act); or (v) individuals who constitute the Board on the date hereof (the2703"Incumbent Board") cease for any reason to constitute at least a majority2704thereof, provided that any person becoming a director subsequent to the date2705hereof whose election, or nomination for election by the Company's stockholders,2706was approved by a vote of at least three-quarters (3/4) of the directors2707comprising the Incumbent Board (either by a specific vote or by approval of the2708proxy statement of the Company in which such person is named as a nominee for2709director, without objection to such nomination) shall be, for purposes of this2710clause (v), considered as though such person were a member of the Incumbent2711Board. Notwithstanding anything in the foregoing to the contrary, no Change in2712Control of the Company shall be deemed to have occurred for purposes of this2713Agreement by virtue of any transaction which results in: (A) you, or a group of2714Persons which includes you, acquiring, directly or indirectly more than fifty2715percent (50%) of the combined voting power of the Company's Voting Securities;2716or (B) you becoming immediately employed by a Person which leases and/or manages2717substantially all of the assets of the Company, providing that the terms of such2718employment do not constitute a "Good Reason" termination as defined in2719Subsection 1(f) hereof either when such employment commences or at any time2720during the then remaining term of this Agreement.27212722(c) "Date of Termination" shall mean the date specified in the Notice2723of Termination (except in the case of your death, in which case Date of2724Termination shall be the date of death).272527262727<PAGE>27282729(d) "Disability" shall have the same meaning as defined in the2730Company's long-term disability plan as in effect immediately prior to the Change2731in Control of the Company.27322733(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as2734amended.27352736(f) "Good Reason" shall mean termination based on:27372738(i) the assignment to you of employment responsibilities which2739are not of materially comparable responsibility and status as the2740employment responsibilities held by you immediately prior to the Change2741in Control of the Company;27422743(i) a reduction by the Company in your rate of compensation2744(or an adverse change in the form or timing of the payment thereof) as2745in effect immediately prior to the Change in Control of the Company;27462747(ii) the failure by the Company to continue in effect any Plan2748in which you are participating at the time of the Change in Control of2749the Company (or Plans providing you with at least substantially similar2750benefits) other than a result of the normal expiration of any such Plan2751in accordance with its terms as in effect at the time of the Change in2752Control of the Company, or the taking of any action, or the failure to2753act, by the Company which would adversely affect your continued2754participation in any of such Plans on at least as favorable a basis to2755you as is the case on the date of the Change in Control of the Company2756or which would materially reduce your benefits in the future under any2757of such Plans or deprive you of any material benefit enjoyed by you at2758the time of the Change in Control in the Company;27592760(iii) the Company's requiring you to be based anywhere other2761than the environs of the municipality where your office is located2762immediately prior to the Change in Control of the Company and more than2763thirty-five (35) miles from such office location, except for required2764travel on the Company's business, and then only to the extent2765substantially consistent with the business travel obligations which2766your undertook on behalf of the Company prior to the Change in Control2767of the Company; or27682769(iv) the failure by the Company to obtain from any Successor2770the assent to this Agreement contemplated by Subsection 8(a) hereof.27712772(g) "Notice of Termination" shall mean a written notice which shall2773state the specific termination provision in this Agreement relied upon. Any2774purported termination by the Company or by you following a Change in Control of2775the Company shall be communicated by written Notice of Termination to the other2776party hereto.27772778(h) "Person" shall mean and include any individual, corporation,2779partnership, group, association or other "person" within the meaning of Section27803(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange2781Act, and used in Section 14(d) thereof, other than the278227832784<PAGE>27852786Company, a wholly-owned subsidiary of the Company or any employee benefit2787plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.27882789(i) "Plan" shall mean any compensation plan (such as an incentive stock2790option or restricted stock plan) or any employee benefit plan (such as a thrift,2791pension, profit sharing, medical, disability, accident, life insurance or2792relocation plan or policy) or any other plan, program, policy or agreement of2793the Company intended to benefit employees generally, management employees as a2794group or you in particular, now in existence or becoming effective hereafter2795during the term of this Agreement.27962797(j) "Successor" shall mean any Person that succeeds to, or has the2798practical ability to control (either immediately or with the passage of time),2799the Company's business directly, by merger, consolidation or other form of2800business combination, or indirectly, by purchase of the Company's Voting2801Securities, all or substantially all of its assets or otherwise.28022803(k) "Voting Securities" shall mean securities of a corporation2804ordinarily having the right to vote at elections of directors.280528062. Term of Agreement. This Agreement shall commence on the date hereof2807and shall continue in effect until December 31, 2001; provided, however, that2808commencing on January 1, 2002 and each January 1st thereafter, the term of this2809Agreement shall automatically be extended for one (1) additional year unless at2810least ninety (90) days prior to such January 1st date, the Company or you shall2811have given notice that this Agreement shall not be extended; and provided,2812further, that this Agreement shall continue in effect for a period of twelve2813(12) months beyond the date of a Change in Control of the Company if such Change2814in Control of the Company shall have occurred prior to the end of the then2815current term.281628173. Agreement to Provide Services; Right to Terminate.28182819(a) Agreement to Provide Services. You agree to remain in the employ of2820the Company during the term of this Agreement unless you terminate your2821employment because of death or Disability or your termination is for Good Reason2822following a Change in Control of the Company.28232824(b) Right to Terminate Prior to Change in Control. This Agreement does2825not constitute a contract of employment or impose on the Company any obligation2826to retain you as an employee, to continue your current employment status or to2827change any employment policies of the Company. Prior to any Change in Control of2828the Company, the Company may terminate your employment at-will with or without2829Cause at any time. If a Change in Control of the Company has occurred, the2830Company may thereafter terminate your employment as herein provided, subject to2831the Company's providing the benefits hereinafter specified in accordance with2832the terms hereof.283328344. Benefit Payment Upon Fulfillment of Required Service Following2835Change in Control. If a Change in Control of the Company has occurred then, so2836long as you have283728382839<PAGE>28402841remained in the employ of the Company during the term of this Agreement2842(including the twelve (12) month period following such Change in Control (as2843described in Section 2 hereof)), subject to the limitations set forth in Section284410 hereof, within five (5) business days following the end of such twelve (12)2845month period the Company shall pay to you a lump sum cash payment equal to two2846and one-half (2.5) times your compensation earned on account of your employment2847with the Company during the twelve month (12) period prior to the date of the2848Change in Control of the Company. For purposes of this Agreement, compensation2849shall include your base salary plus any cash amounts received under incentive or2850other bonus plans. No payment shall be paid under this Section 4 if you have not2851remained in the employ of the Company during the term of this Agreement,2852regardless of the reason your employment was earlier terminated.285328545. Welfare Benefit Plans upon a Change in Control. Following a Change2855in Control of the Company, unless and until your employment by the Company is2856terminated for Cause or Disability or you terminate your employment by the2857Company other than for Good Reason, the Company shall maintain in full force and2858effect, for the continued benefit of you and your dependents for a period2859terminating on the earliest of (i) twelve (12) months after the Date of2860Termination or (ii) the commencement date of equivalent benefits from a new2861employer, each insured and self-insured employee welfare benefit Plan2862(including, without limitation, group health, death, dental and disability2863plans) in which you were entitled to participate immediately prior to the Change2864in Control of the Company, provided that your continued participation is2865possible under the general terms and provisions of such Plans (and any2866applicable funding media) and provided that you continue to pay an amount equal2867to your regular contribution under such Plans for such participation. If, at the2868end of twelve (12) months after the date of the Date of Termination, you have2869not previously received or are not then receiving equivalent benefits from a new2870employer, the Company shall arrange, at your sole cost and expense, to enable2871you to convert your and your dependents' coverage under such Plans to individual2872policies or programs upon the same terms as employees of the Company may apply2873for such conversions. In the event that your participation in any such Plan is2874barred, the Company, at your sole cost and expense, shall arrange to have issued2875for the benefit of you and your dependents individual policies of insurance2876providing benefits substantially similar (on a federal, state and local income2877and employment after-tax basis) to those which you otherwise would have been2878entitled to receive under such Plans pursuant to this Section 5 or, if such2879insurance is not available at a reasonable cost to the Company, the Company2880shall otherwise provide you and your dependents equivalent benefits (on a2881federal, state and local income and employment after-tax basis). You shall not2882be required to pay any premiums or other charges in an amount greater than that2883which you would have paid in order to participate in such Plans. Any welfare2884benefits which are subject to continuation rights under state or federal law,2885and which are provided by the Company pursuant to this Section 5, will be deemed2886to be provided by the Company in satisfaction of such continuation requirements2887to the extent permitted under such laws.288828896. Benefits Upon Termination of Employment Following Change in Control.28902891(a) Disability or Death. During the term of this Agreement, for any2892period following a Change in Control of the Company that you fail to perform2893your duties as a result of incapacity due to physical or mental illness, you2894shall continue to receive your compensation at the times, in289528962897<PAGE>28982899the form and at the rate then in effect, and any benefits or awards under any2900and all Plans shall continue to accrue during such period to the extent not2901inconsistent with such Plans, until your employment is terminated on account of2902Disability pursuant to and in accordance with the terms hereof. Thereafter, your2903benefits shall be determined in accordance with the Plans (as in effect2904immediately prior to a Change in Control of the Company) and as provided in2905accordance with this Agreement. If your Death occurs during the term of this2906Agreement, and after a Change in Control of the Company but prior to a2907termination of your employment, you or your beneficiary (as provided under the2908applicable Plans) shall receive all benefits or awards (including, without2909limitation, both the cash and stock components) under any and all Plans as in2910effect immediately prior to the Change in Control of the Company, and all2911benefits to which you or your beneficiary may be entitled under the terms of2912this Agreement.29132914(b) Cause. If, during the term of this Agreement, your employment by2915the Company shall be terminated for Cause following a Change in Control of the2916Company, the Company shall pay you your compensation through the Date of2917Termination at the times, in the form and at the rate in effect just prior to2918the time a Notice of Termination is given plus any benefits or awards2919(including, without limitation, both the cash and stock components) which2920pursuant to the terms of any and all Plans have been earned or become payable,2921but which have not yet been paid to you. Thereupon, except as otherwise provided2922in this Agreement, the Company shall have no further obligations to you under2923this Agreement.29242925(c) Change in Control Termination. If, during the term of this2926Agreement, after a Change in Control of the Company shall have occurred your2927employment by the Company shall be terminated by the Company other than for2928Cause or shall be terminated by you for Good Reason, then you shall be entitled,2929without regard to any contrary provisions of any Plan, to the benefits as2930provided below:29312932(i) Compensation. Subject to the limitations set2933forth in Section 10 hereof, within five (5) business days2934following the Date of Termination, the Company shall pay your2935compensation through such Date of Termination in the form and2936at the rate in effect just prior to the time a Notice of2937Termination is given plus any benefits or awards (including,2938without limitation, both the cash and stock components) which2939pursuant to the terms of any and all Plans have been earned or2940become payable, but which have not yet been paid to you.29412942(ii) Outplacement Service. The Company shall pay or2943reimburse you for the costs, fees and expenses of reasonable2944outplacement assistance services.29452946(iii) Severance. If your termination occurs under2947this Subsection 6(c) within twelve (12) months following a2948Change in Control of the Company, then, subject to the2949limitations set forth in Section 10 hereof, within five (5)2950business days following the Date of Termination, as severance2951pay and in lieu of any further salary for periods subsequent2952to the Date of Termination, the Company shall pay to you a2953lump sum cash payment equal to two and one-half (2.5) times2954your compensation earned on account of your employment with2955the Company295629572958<PAGE>29592960during the one (1) year period prior to the date of the Change2961in Control of the Company. For purposes of this Agreement,2962compensation shall include your base salary plus any cash2963amounts received under incentive or other bonus plans.29642965(d) No Setoff. The amount of any payment provided for in this Section 62966shall not be reduced, offset or subject to recovery by the Company by reason of2967any compensation earned by you as the result of employment by another employer2968after the Date of Termination or otherwise.296929707. Non-Competition; Non-Solicitation. You and the Company recognize2971that your services to the Company are special and unique and that your2972compensation and other benefits are partly in consideration of and conditioned2973upon your not competing with the Company or its subsidiaries, and that a2974covenant on your part not to compete during the term of your employment and2975during a period of twelve (12) full calendar months thereafter is essential to2976protect the business and goodwill of the Company. Accordingly, you agree that2977during the term of your employment with the Company or any of its affiliates and2978for a period of twelve (12) full calendar months following your termination of2979employment for any reason, you shall not, directly or indirectly, alone or as a2980partner, officer, director, shareholder or employee of any other firm or entity:2981(a) engage in any commercial activity in competition with any substantial part2982of the Company's business as conducted during the term of the Agreement or as of2983the Date of Termination of your employment or with any substantial part of the2984Company's contemplated business; (b) assist, solicit, entice, or induce (or2985assist any other person or entity in soliciting, enticing or inducing) any2986customer or potential customer (or agent, employee or consultant of any customer2987or potential customer) with whom you had contact in the course of your2988employment with the Company to deal with a competitor of the Company; and/or (c)2989in any manner solicit, assist or encourage (or assist any other person or entity2990in soliciting or encouraging) any other officer or employee of the Company to2991work or otherwise provide services for you or for any entity in which you2992participate in the ownership, management, operation or control of, or is2993connected with in any manner as an independent contractor, consultant or2994otherwise.. For purposes of this Section 7, "shareholder" shall not include2995beneficial ownership of less than five percent (5%) of the combined voting power2996of all issued and outstanding voting securities of a publicly held corporation2997whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree2998that the services you render to the Company are unique and of extraordinary2999character; that the Company has agreed to enter into this Agreement and to3000compensate you in the manner provided for herein relying on that fact; that this3001covenant not to compete is of the essence of this Agreement and that in the3002event of a breach or threatened breach of the provisions of the covenant not to3003compete the Company would suffer irreparable damage for which there is no3004adequate remedy at law since damages would not be readily determinable.3005Accordingly, in the event of a breach or a threatened breach by you of this3006covenant, the Company shall be entitled to a temporary restraining order and an3007injunction restraining you from any such breach issued by a court of competent3008jurisdiction notwithstanding the provisions of Section 14 hereof. Should any3009court of competent jurisdiction determine that any of the covenants set forth in3010this Section 7 are invalid in any respect, the parties agree that the court so3011holding may restrict such covenant in time or in area, or in both, or in any3012other manner which the court determines sufficient to render the covenant3013enforceable against you.3014301530163017<PAGE>3018301930208. Successors; Binding Agreements.30213022(a) Upon your written request, the Company will seek to have any3023Successor by agreement in form and substance satisfactory to you, assent to the3024fulfillment by the Company of the Company's obligations under this Agreement.3025Failure of the Company to obtain such assent at least three (3) business days3026prior to the time a Person becomes a Successor (or where the Company does not3027have at least three (3) business days advance notice that a Person may become a3028successor, within one (1) business day after having notice that such Person may3029become or has become a Successor) shall constitute Good Reason for termination3030by you of your employment and, if a Change in Control of the Company has3031occurred, shall entitle you immediately to the benefits provided hereunder upon3032delivery by you of a Notice of Termination.30333034(b) This Agreement shall inure to the benefit of and be enforceable by3035you, your personal or legal representatives, executors, administrators,3036successors, heirs, distributees, devisees and legatees. If you should die while3037any amount would still be payable to you hereunder if you had continued to live,3038all such amounts, unless otherwise provided herein, shall be paid in accordance3039with the terms of this Agreement to your devisee, legatee or other designee or,3040if there be no such designee, to your estate.30413042(c) For purposes of this Agreement, the "Company" shall include any3043corporation or other entity which is the surviving or continuing entity in3044respect of any merger, consolidation or other form of business combination in3045which the Company ceases to exist.304630479. Withholding. All payments to be made to you under this Agreement3048will be subject to required withholding of federal, state and local income and3049employment taxes.3050305110. Excess Payment Limitation. Notwithstanding anything in this3052Agreement to the contrary, in the event that any payment or benefit received or3053to be received by you in connection with a change in control of the Company or3054termination of your employment (whether payable pursuant to the terms of this3055Agreement or any other plan, contract, agreement or arrangement with the3056Company, with any person whose actions result in a change in control of the3057Company or with any person constituting a member of an "affiliated group" as3058defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended3059(the "Code"), with the Company or with any person whose actions result in a3060change in control of the Company) (collectively, the "Total Payments") would not3061be deductible (in whole or in part) by the Company or such other person making3062such payment or providing such benefit solely as a result of Section 280G of the3063Code, the amounts payable to you under this Agreement shall be reduced until no3064portion of the Total Payments is not deductible solely as a result of Section3065280G of the Code or such amounts payable to you under this Agreement are reduced3066to zero. For purposes of this limitation: (a) no portion of the Total Payments3067shall be taken into account which in the opinion of tax counsel selected by the3068Company does not constitute a "parachute payment" within the meaning of3069Section 280G(b)(2) of the Code (such as payments payable pursuant to the3070Company's standard or general severance policies); (b) payments pursuant to this3071Agreement shall be reduced only to the extent necessary so that the Total3072Payments (other than those referred to in the immediately preceding clause (a))3073in their entirety constitute reasonable compensation within the meaning of307430753076<PAGE>307730783079Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to3080in the immediately preceding clause (a); and (c) the value of any other non-cash3081benefit or of any deferred cash payment included in the Total Payments shall be3082determined by the Company's independent auditors in accordance with the3083principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as3084to whether all or some portion of a payment is or is not payable to you under3085this Agreement, the Company shall initially make the payment to you, and you3086agree to refund to the Company any amounts ultimately determined not to have3087been payable under the terms hereof.3088308911. Notice. For the purposes of this Agreement, notices and all other3090communications provided for in or required under this Agreement shall be in3091writing and shall be deemed to have been duly given when personally delivered or3092when mailed by United States certified or registered mail, return receipt3093requested, postage prepaid and addressed to each party's respective address set3094forth on the first page of this Agreement (provided that all notices to the3095Company shall be directed to the attention of the chairman of the board or3096president of the Company, with a copy to the secretary of the Company), or to3097such other address as either party may have furnished to the other in writing in3098accordance herewith, except that notice of change of address shall be effective3099only upon receipt.3100310112. Validity. The invalidity or unenforceability of any provision of3102this Agreement shall not affect the validity or enforceability of any other3103provision of this Agreement, which shall remain in full force and effect.3104310513. Limitation of Damages. If for any reason you believe the benefits3106provisions of this Agreement have not been properly adhered to by the Company,3107and if, pursuant to Section 14 hereof, it is determined that the Company has3108not, in fact, properly adhered to the benefits provisions of this Agreement, the3109sole and exclusive remedy to which you are entitled are the benefits payment to3110which you are entitled under the provisions of this Agreement.3111311214. Dispute Resolution. Any dispute or controversy arising under or in3113connection with this Agreement shall be settled exclusively by arbitration in3114Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of3115the American Arbitration Association then in effect. The decision of the3116arbitrators shall be final and binding on both parties. Judgment may be entered3117on the arbitrators' award in any court having jurisdiction. The arbitrators3118shall strictly adhere to the sole and exclusive remedy set forth in Section 133119hereof and may not award or assess punitive damages against either party. Each3120party shall bear its own costs and expenses of the arbitration and one-half3121(1/2) of the fees and costs of the arbitrators.3122312315. Related Agreements. To the extent that any provision of any other3124Plan or agreement between the Company or any of its subsidiaries and you shall3125limit, qualify or be inconsistent with any provision of this Agreement, then for3126purposes of this Agreement, while the same shall remain in force, the provision3127of this Agreement shall control and such provision of such other Plan agreement3128shall be deemed to have been superseded, and to be of no force or effect, as if3129such other agreement had been formally amended to the extent necessary to3130accomplish such purpose.313131323133<PAGE>3134313516. Survival. The respective obligations of, and benefits afforded to,3136the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this3137Agreement shall survive termination of this Agreement and shall remain in full3138force and effect according to their terms.3139314017. Counterparts. This Agreement may be executed in several3141counterparts, each of which shall be deemed to be an original but all of which3142together will constitute one and the same instrument.3143314418. Miscellaneous. No provision of this Agreement may be modified,3145waived or discharged unless such modification, waiver or discharge is agreed to3146in a writing signed by you and the chairman of the board or president of the3147Company, provided, however, if you occupy those positions at the time, such3148writings shall be signed by another officer of the Company at the direction of3149the Board of Directors. No waiver by either party hereto at any time of any3150breach by the other party hereto of, or of compliance with, any condition or3151provision of this Agreement to be performed by such other party shall be deemed3152a waiver of similar or dissimilar provisions or conditions at the same or at any3153prior or subsequent time. Any and all previous written or oral agreements with3154respect to compensation and/or benefits triggered by a Change in Control of the3155Company or a similar event are hereby superseded and canceled, and no other3156agreements or representations, oral or otherwise, express or implied, with3157respect to the subject matter hereof have been made by either party which are3158not expressly set forth in this Agreement. This Agreement and the legal3159relations among the parties as to all matters, including, without limitation,3160matters of validity, interpretation, construction, performance and remedies,3161shall be governed by and construed in accordance with the internal laws of the3162State of Minnesota. Headings are for purpose of convenience only and do not3163constitute a part of this Agreement. The parties hereto agree to perform, or3164cause to be performed, such further acts and deeds and shall execute and3165deliver, or cause to be executed and delivered, such additional or supplemental3166documents or instruments as may be reasonably required by the other party to3167carry into effect the intent and purpose of this Agreement.316831693170<PAGE>31713172If this letter correctly sets forth our agreement on the subject matter3173hereof, kindly sign and return to the Company the enclosed copy of this letter3174which will then constitute our agreement on this subject.31753176Sincerely,31773178ROCHESTER MEDICAL CORPORATION317931803181By: /s/ Anthony J. Conway3182--------------------------3183Name: Anthony J. Conway3184Title: President and Chief Executive Officer31853186Agreed to this 21st day of November, 2000.318731883189/s/ Anthony J. Conway3190- ---------------------3191Anthony J. Conway319231933194</TEXT>3195</DOCUMENT>3196<DOCUMENT>3197<TYPE>EX-10.73198<SEQUENCE>33199<FILENAME>0003.txt3200<DESCRIPTION>CHANGE OF CONTROL AGREEMENT3201<TEXT>32023203320432053206EXHIBIT 10.732073208320932103211Dara Lynn Horner3212Rochester Medical Corporation3213One Rochester Medical Drive3214Stewartville, Minnesota 5597632153216Dear Dara Lynn:32173218You are presently the Vice President, FEMSOFT Marketing of Rochester3219Medical Corporation, a Minnesota corporation (the "Company"). The Company3220considers the establishment and maintenance of a sound and vital management to3221be essential to protecting and enhancing the best interests of the Company and3222its stockholders. In this connection, the Company recognizes that, as is the3223case with many publicly held corporations, the possibility of a Change in3224Control (as defined in Section 1 below) of the Company may arise and that such3225possibility, and the uncertainty and questions which it may raise among3226management, may result in the departure or distraction of management personnel3227to the detriment of the Company and its stockholders.32283229Accordingly, the Compensation Committee (the "Committee") of the Board3230of Directors of the Company (the "Board") has determined that appropriate steps3231should be taken to reinforce and encourage the continued attention and3232dedication of members of the Company's management to their assigned duties3233without distraction in circumstances arising from the possibility of a Change in3234Control of the Company. In particular, the Board believes it important, should3235the Company or its stockholders receive a proposal for transfer of control of3236the Company, that you be able to assess and advise the Board whether such3237proposal would be in the best interests of the Company and its stockholders and3238to take such other action regarding such proposal as the Board might determine3239to be appropriate, without being influenced by the uncertainties of your own3240personal situation.32413242In order to induce you to remain in the employ of the Company, this3243letter agreement (this "Agreement"), which has been approved by the Committee,3244sets forth the severance benefits which the Company agrees will be provided to3245you in the event your employment with the Company is terminated subsequent to a3246Change in Control of the Company under the circumstances described below. This3247Agreement also provides you with certain benefits following a Change in Control3248of the Company regardless of whether your employment by the Company is3249terminated.32503251In consideration of these benefits, the Agreement contains a covenant3252not to compete (Section 7, below).325332543255<PAGE>325632571. Definitions. The following terms shall have the meaning set forth3258below unless the context clearly requires otherwise. Terms defined elsewhere in3259this Agreement shall have the same meaning throughout this Agreement.32603261(a) "Cause" shall mean: (i) continued failure by you to perform3262substantially your duties with the Company (other than any such failure3263resulting from your Disability or from termination by you for Good Reason) which3264failure, in the reasonable judgment of the Company, is willful; (ii) any act or3265acts of personal dishonesty by you intended to result in your personal3266enrichment at the expense of the Company (including but not limited to wrongful3267appropriation of funds of the Company or its affiliates); (iii) willful and3268deliberate misconduct during the course of employment; or (iv) the commission of3269a gross misdemeanor or felony (whether or not the Company is the victim of such3270offense).32713272(b) "Change in Control" shall be deemed to have occurred if: (i) a3273tender offer shall be made and consummated for the ownership of fifty percent3274(50%) or more of the outstanding Voting Securities of the Company; (ii) the3275Company shall be merged or consolidated with another corporation and as a result3276of such merger or consolidation less than fifty percent (50%) of the outstanding3277Voting Securities of the surviving or resulting corporation shall be owned in3278the aggregate by the former shareholders of the Company, other than affiliates3279(within the meaning of the Exchange Act) of any party to such merger or3280consolidation, as the same shall have existed immediately prior to such merger3281or consolidation; (iii) the Company shall sell substantially all of its assets3282to another corporation which is not a wholly owned subsidiary of the Company;3283(iv) a Person shall acquire fifty percent (50%) or more of the outstanding3284Voting Securities of the Company (whether directly, indirectly, beneficially or3285of record) (for purposes hereof, ownership of Voting Securities shall take into3286account and shall include ownership as determined by applying the provisions of3287Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange3288Act); or (v) individuals who constitute the Board on the date hereof (the3289"Incumbent Board") cease for any reason to constitute at least a majority3290thereof, provided that any person becoming a director subsequent to the date3291hereof whose election, or nomination for election by the Company's stockholders,3292was approved by a vote of at least three-quarters (3/4) of the directors3293comprising the Incumbent Board (either by a specific vote or by approval of the3294proxy statement of the Company in which such person is named as a nominee for3295director, without objection to such nomination) shall be, for purposes of this3296clause (v), considered as though such person were a member of the Incumbent3297Board. Notwithstanding anything in the foregoing to the contrary, no Change in3298Control of the Company shall be deemed to have occurred for purposes of this3299Agreement by virtue of any transaction which results in: (A) you, or a group of3300Persons which includes you, acquiring, directly or indirectly more than fifty3301percent (50%) of the combined voting power of the Company's Voting Securities;3302or (B) you becoming immediately employed by a Person which leases and/or manages3303substantially all of the assets of the Company, providing that the terms of such3304employment do not constitute a "Good Reason" termination as defined in3305Subsection 1(f) hereof either when such employment commences or at any time3306during the then remaining term of this Agreement.33073308(c) "Date of Termination" shall mean the date specified in the Notice3309of Termination (except in the case of your death, in which case Date of3310Termination shall be the date of death).331133123313<PAGE>33143315(d) "Disability" shall have the same meaning as defined in the3316Company's long-term disability plan as in effect immediately prior to the Change3317in Control of the Company.33183319(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as3320amended.33213322(f) "Good Reason" shall mean termination based on:33233324(i) the assignment to you of employment responsibilities which3325are not of materially comparable responsibility and status as the3326employment responsibilities held by you immediately prior to the Change3327in Control of the Company;33283329(i) a reduction by the Company in your rate of compensation3330(or an adverse change in the form or timing of the payment thereof) as3331in effect immediately prior to the Change in Control of the Company;33323333(ii) the failure by the Company to continue in effect any Plan3334in which you are participating at the time of the Change in Control of3335the Company (or Plans providing you with at least substantially similar3336benefits) other than a result of the normal expiration of any such Plan3337in accordance with its terms as in effect at the time of the Change in3338Control of the Company, or the taking of any action, or the failure to3339act, by the Company which would adversely affect your continued3340participation in any of such Plans on at least as favorable a basis to3341you as is the case on the date of the Change in Control of the Company3342or which would materially reduce your benefits in the future under any3343of such Plans or deprive you of any material benefit enjoyed by you at3344the time of the Change in Control in the Company;33453346(iii) the Company's requiring you to be based anywhere other3347than the environs of the municipality where your office is located3348immediately prior to the Change in Control of the Company and more than3349thirty-five (35) miles from such office location, except for required3350travel on the Company's business, and then only to the extent3351substantially consistent with the business travel obligations which3352your undertook on behalf of the Company prior to the Change in Control3353of the Company; or33543355(iv) the failure by the Company to obtain from any Successor3356the assent to this Agreement contemplated by Subsection 8(a) hereof.33573358(g) "Notice of Termination" shall mean a written notice which shall3359state the specific termination provision in this Agreement relied upon. Any3360purported termination by the Company or by you following a Change in Control of3361the Company shall be communicated by written Notice of Termination to the other3362party hereto.33633364(h) "Person" shall mean and include any individual, corporation,3365partnership, group, association or other "person" within the meaning of Section33663(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange3367Act, and used in Section 14(d) thereof, other than the336833693370<PAGE>33713372Company, a wholly-owned subsidiary of the Company or any employee benefit3373plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.33743375(i) "Plan" shall mean any compensation plan (such as an incentive stock3376option or restricted stock plan) or any employee benefit plan (such as a thrift,3377pension, profit sharing, medical, disability, accident, life insurance or3378relocation plan or policy) or any other plan, program, policy or agreement of3379the Company intended to benefit employees generally, management employees as a3380group or you in particular, now in existence or becoming effective hereafter3381during the term of this Agreement.33823383(j) "Successor" shall mean any Person that succeeds to, or has the3384practical ability to control (either immediately or with the passage of time),3385the Company's business directly, by merger, consolidation or other form of3386business combination, or indirectly, by purchase of the Company's Voting3387Securities, all or substantially all of its assets or otherwise.33883389(k) "Voting Securities" shall mean securities of a corporation3390ordinarily having the right to vote at elections of directors.339133922. Term of Agreement. This Agreement shall commence on the date hereof3393and shall continue in effect until December 31, 2001; provided, however, that3394commencing on January 1, 2002 and each January 1st thereafter, the term of this3395Agreement shall automatically be extended for one (1) additional year unless at3396least ninety (90) days prior to such January 1st date, the Company or you shall3397have given notice that this Agreement shall not be extended; and provided,3398further, that this Agreement shall continue in effect for a period of twelve3399(12) months beyond the date of a Change in Control of the Company if such Change3400in Control of the Company shall have occurred prior to the end of the then3401current term.340234033. Agreement to Provide Services; Right to Terminate.34043405(a) Agreement to Provide Services. You agree to remain in the employ of3406the Company during the term of this Agreement unless you terminate your3407employment because of death or Disability or your termination is for Good Reason3408following a Change in Control of the Company.34093410(b) Right to Terminate Prior to Change in Control. This Agreement does3411not constitute a contract of employment or impose on the Company any obligation3412to retain you as an employee, to continue your current employment status or to3413change any employment policies of the Company. Prior to any Change in Control of3414the Company, the Company may terminate your employment at-will with or without3415Cause at any time. If a Change in Control of the Company has occurred, the3416Company may thereafter terminate your employment as herein provided, subject to3417the Company's providing the benefits hereinafter specified in accordance with3418the terms hereof.341934204. Benefit Payment Upon Fulfillment of Required Service Following3421Change in Control. If a Change in Control of the Company has occurred then, so3422long as you have342334243425<PAGE>34263427remained in the employ of the Company during the term of this Agreement3428(including the twelve (12) month period following such Change in Control (as3429described in Section 2 hereof)), subject to the limitations set forth in Section343010 hereof, within five (5) business days following the end of such twelve (12)3431month period the Company shall pay to you a lump sum cash payment equal to two3432and one-half (2.5) times your compensation earned on account of your employment3433with the Company during the twelve month (12) period prior to the date of the3434Change in Control of the Company. For purposes of this Agreement, compensation3435shall include your base salary plus any cash amounts received under incentive or3436other bonus plans. No payment shall be paid under this Section 4 if you have not3437remained in the employ of the Company during the term of this Agreement,3438regardless of the reason your employment was earlier terminated.343934405. Welfare Benefit Plans upon a Change in Control. Following a Change3441in Control of the Company, unless and until your employment by the Company is3442terminated for Cause or Disability or you terminate your employment by the3443Company other than for Good Reason, the Company shall maintain in full force and3444effect, for the continued benefit of you and your dependents for a period3445terminating on the earliest of (i) twelve (12) months after the Date of3446Termination or (ii) the commencement date of equivalent benefits from a new3447employer, each insured and self-insured employee welfare benefit Plan3448(including, without limitation, group health, death, dental and disability3449plans) in which you were entitled to participate immediately prior to the Change3450in Control of the Company, provided that your continued participation is3451possible under the general terms and provisions of such Plans (and any3452applicable funding media) and provided that you continue to pay an amount equal3453to your regular contribution under such Plans for such participation. If, at the3454end of twelve (12) months after the date of the Date of Termination, you have3455not previously received or are not then receiving equivalent benefits from a new3456employer, the Company shall arrange, at your sole cost and expense, to enable3457you to convert your and your dependents' coverage under such Plans to individual3458policies or programs upon the same terms as employees of the Company may apply3459for such conversions. In the event that your participation in any such Plan is3460barred, the Company, at your sole cost and expense, shall arrange to have issued3461for the benefit of you and your dependents individual policies of insurance3462providing benefits substantially similar (on a federal, state and local income3463and employment after-tax basis) to those which you otherwise would have been3464entitled to receive under such Plans pursuant to this Section 5 or, if such3465insurance is not available at a reasonable cost to the Company, the Company3466shall otherwise provide you and your dependents equivalent benefits (on a3467federal, state and local income and employment after-tax basis). You shall not3468be required to pay any premiums or other charges in an amount greater than that3469which you would have paid in order to participate in such Plans. Any welfare3470benefits which are subject to continuation rights under state or federal law,3471and which are provided by the Company pursuant to this Section 5, will be deemed3472to be provided by the Company in satisfaction of such continuation requirements3473to the extent permitted under such laws.347434756. Benefits Upon Termination of Employment Following Change in Control.34763477(a) Disability or Death. During the term of this Agreement, for any3478period following a Change in Control of the Company that you fail to perform3479your duties as a result of incapacity due to physical or mental illness, you3480shall continue to receive your compensation at the times, in348134823483<PAGE>34843485the form and at the rate then in effect, and any benefits or awards under any3486and all Plans shall continue to accrue during such period to the extent not3487inconsistent with such Plans, until your employment is terminated on account of3488Disability pursuant to and in accordance with the terms hereof. Thereafter, your3489benefits shall be determined in accordance with the Plans (as in effect3490immediately prior to a Change in Control of the Company) and as provided in3491accordance with this Agreement. If your Death occurs during the term of this3492Agreement, and after a Change in Control of the Company but prior to a3493termination of your employment, you or your beneficiary (as provided under the3494applicable Plans) shall receive all benefits or awards (including, without3495limitation, both the cash and stock components) under any and all Plans as in3496effect immediately prior to the Change in Control of the Company, and all3497benefits to which you or your beneficiary may be entitled under the terms of3498this Agreement.34993500(b) Cause. If, during the term of this Agreement, your employment by3501the Company shall be terminated for Cause following a Change in Control of the3502Company, the Company shall pay you your compensation through the Date of3503Termination at the times, in the form and at the rate in effect just prior to3504the time a Notice of Termination is given plus any benefits or awards3505(including, without limitation, both the cash and stock components) which3506pursuant to the terms of any and all Plans have been earned or become payable,3507but which have not yet been paid to you. Thereupon, except as otherwise provided3508in this Agreement, the Company shall have no further obligations to you under3509this Agreement.35103511(c) Change in Control Termination. If, during the term of this3512Agreement, after a Change in Control of the Company shall have occurred your3513employment by the Company shall be terminated by the Company other than for3514Cause or shall be terminated by you for Good Reason, then you shall be entitled,3515without regard to any contrary provisions of any Plan, to the benefits as3516provided below:35173518(i) Compensation. Subject to the limitations set3519forth in Section 10 hereof, within five (5) business days3520following the Date of Termination, the Company shall pay your3521compensation through such Date of Termination in the form and3522at the rate in effect just prior to the time a Notice of3523Termination is given plus any benefits or awards (including,3524without limitation, both the cash and stock components) which3525pursuant to the terms of any and all Plans have been earned or3526become payable, but which have not yet been paid to you.35273528(ii) Outplacement Service. The Company shall pay or3529reimburse you for the costs, fees and expenses of reasonable3530outplacement assistance services.35313532(iii) Severance. If your termination occurs under3533this Subsection 6(c) within twelve (12) months following a3534Change in Control of the Company, then, subject to the3535limitations set forth in Section 10 hereof, within five (5)3536business days following the Date of Termination, as severance3537pay and in lieu of any further salary for periods subsequent3538to the Date of Termination, the Company shall pay to you a3539lump sum cash payment equal to two and one-half (2.5) times3540your compensation earned on account of your employment with3541the Company354235433544<PAGE>35453546during the one (1) year period prior to the date of the Change3547in Control of the Company. For purposes of this Agreement,3548compensation shall include your base salary plus any cash3549amounts received under incentive or other bonus plans.35503551(d) No Setoff. The amount of any payment provided for in this Section 63552shall not be reduced, offset or subject to recovery by the Company by reason of3553any compensation earned by you as the result of employment by another employer3554after the Date of Termination or otherwise.355535567. Non-Competition; Non-Solicitation. You and the Company recognize3557that your services to the Company are special and unique and that your3558compensation and other benefits are partly in consideration of and conditioned3559upon your not competing with the Company or its subsidiaries, and that a3560covenant on your part not to compete during the term of your employment and3561during a period of twelve (12) full calendar months thereafter is essential to3562protect the business and goodwill of the Company. Accordingly, you agree that3563during the term of your employment with the Company or any of its affiliates and3564for a period of twelve (12) full calendar months following your termination of3565employment for any reason, you shall not, directly or indirectly, alone or as a3566partner, officer, director, shareholder or employee of any other firm or entity:3567(a) engage in any commercial activity in competition with any substantial part3568of the Company's business as conducted during the term of the Agreement or as of3569the Date of Termination of your employment or with any substantial part of the3570Company's contemplated business; (b) assist, solicit, entice, or induce (or3571assist any other person or entity in soliciting, enticing or inducing) any3572customer or potential customer (or agent, employee or consultant of any customer3573or potential customer) with whom you had contact in the course of your3574employment with the Company to deal with a competitor of the Company; and/or (c)3575in any manner solicit, assist or encourage (or assist any other person or entity3576in soliciting or encouraging) any other officer or employee of the Company to3577work or otherwise provide services for you or for any entity in which you3578participate in the ownership, management, operation or control of, or is3579connected with in any manner as an independent contractor, consultant or3580otherwise.. For purposes of this Section 7, "shareholder" shall not include3581beneficial ownership of less than five percent (5%) of the combined voting power3582of all issued and outstanding voting securities of a publicly held corporation3583whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree3584that the services you render to the Company are unique and of extraordinary3585character; that the Company has agreed to enter into this Agreement and to3586compensate you in the manner provided for herein relying on that fact; that this3587covenant not to compete is of the essence of this Agreement and that in the3588event of a breach or threatened breach of the provisions of the covenant not to3589compete the Company would suffer irreparable damage for which there is no3590adequate remedy at law since damages would not be readily determinable.3591Accordingly, in the event of a breach or a threatened breach by you of this3592covenant, the Company shall be entitled to a temporary restraining order and an3593injunction restraining you from any such breach issued by a court of competent3594jurisdiction notwithstanding the provisions of Section 14 hereof. Should any3595court of competent jurisdiction determine that any of the covenants set forth in3596this Section 7 are invalid in any respect, the parties agree that the court so3597holding may restrict such covenant in time or in area, or in both, or in any3598other manner which the court determines sufficient to render the covenant3599enforceable against you.3600360136023603<PAGE>3604360536068. Successors; Binding Agreements.36073608(a) Upon your written request, the Company will seek to have any3609Successor by agreement in form and substance satisfactory to you, assent to the3610fulfillment by the Company of the Company's obligations under this Agreement.3611Failure of the Company to obtain such assent at least three (3) business days3612prior to the time a Person becomes a Successor (or where the Company does not3613have at least three (3) business days advance notice that a Person may become a3614successor, within one (1) business day after having notice that such Person may3615become or has become a Successor) shall constitute Good Reason for termination3616by you of your employment and, if a Change in Control of the Company has3617occurred, shall entitle you immediately to the benefits provided hereunder upon3618delivery by you of a Notice of Termination.36193620(b) This Agreement shall inure to the benefit of and be enforceable by3621you, your personal or legal representatives, executors, administrators,3622successors, heirs, distributees, devisees and legatees. If you should die while3623any amount would still be payable to you hereunder if you had continued to live,3624all such amounts, unless otherwise provided herein, shall be paid in accordance3625with the terms of this Agreement to your devisee, legatee or other designee or,3626if there be no such designee, to your estate.36273628(c) For purposes of this Agreement, the "Company" shall include any3629corporation or other entity which is the surviving or continuing entity in3630respect of any merger, consolidation or other form of business combination in3631which the Company ceases to exist.363236339. Withholding. All payments to be made to you under this Agreement3634will be subject to required withholding of federal, state and local income and3635employment taxes.3636363710. Excess Payment Limitation. Notwithstanding anything in this3638Agreement to the contrary, in the event that any payment or benefit received or3639to be received by you in connection with a change in control of the Company or3640termination of your employment (whether payable pursuant to the terms of this3641Agreement or any other plan, contract, agreement or arrangement with the3642Company, with any person whose actions result in a change in control of the3643Company or with any person constituting a member of an "affiliated group" as3644defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended3645(the "Code"), with the Company or with any person whose actions result in a3646change in control of the Company) (collectively, the "Total Payments") would not3647be deductible (in whole or in part) by the Company or such other person making3648such payment or providing such benefit solely as a result of Section 280G of the3649Code, the amounts payable to you under this Agreement shall be reduced until no3650portion of the Total Payments is not deductible solely as a result of Section3651280G of the Code or such amounts payable to you under this Agreement are reduced3652to zero. For purposes of this limitation: (a) no portion of the Total Payments3653shall be taken into account which in the opinion of tax counsel selected by the3654Company does not constitute a "parachute payment" within the meaning of3655Section 280G(b)(2) of the Code (such as payments payable pursuant to the3656Company's standard or general severance policies); (b) payments pursuant to this3657Agreement shall be reduced only to the extent necessary so that the Total3658Payments (other than those referred to in the immediately preceding clause (a))3659in their entirety constitute reasonable compensation within the meaning of366036613662<PAGE>366336643665Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to3666in the immediately preceding clause (a); and (c) the value of any other non-cash3667benefit or of any deferred cash payment included in the Total Payments shall be3668determined by the Company's independent auditors in accordance with the3669principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as3670to whether all or some portion of a payment is or is not payable to you under3671this Agreement, the Company shall initially make the payment to you, and you3672agree to refund to the Company any amounts ultimately determined not to have3673been payable under the terms hereof.3674367511. Notice. For the purposes of this Agreement, notices and all other3676communications provided for in or required under this Agreement shall be in3677writing and shall be deemed to have been duly given when personally delivered or3678when mailed by United States certified or registered mail, return receipt3679requested, postage prepaid and addressed to each party's respective address set3680forth on the first page of this Agreement (provided that all notices to the3681Company shall be directed to the attention of the chairman of the board or3682president of the Company, with a copy to the secretary of the Company), or to3683such other address as either party may have furnished to the other in writing in3684accordance herewith, except that notice of change of address shall be effective3685only upon receipt.3686368712. Validity. The invalidity or unenforceability of any provision of3688this Agreement shall not affect the validity or enforceability of any other3689provision of this Agreement, which shall remain in full force and effect.3690369113. Limitation of Damages. If for any reason you believe the benefits3692provisions of this Agreement have not been properly adhered to by the Company,3693and if, pursuant to Section 14 hereof, it is determined that the Company has3694not, in fact, properly adhered to the benefits provisions of this Agreement, the3695sole and exclusive remedy to which you are entitled are the benefits payment to3696which you are entitled under the provisions of this Agreement.3697369814. Dispute Resolution. Any dispute or controversy arising under or in3699connection with this Agreement shall be settled exclusively by arbitration in3700Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of3701the American Arbitration Association then in effect. The decision of the3702arbitrators shall be final and binding on both parties. Judgment may be entered3703on the arbitrators' award in any court having jurisdiction. The arbitrators3704shall strictly adhere to the sole and exclusive remedy set forth in Section 133705hereof and may not award or assess punitive damages against either party. Each3706party shall bear its own costs and expenses of the arbitration and one-half3707(1/2) of the fees and costs of the arbitrators.3708370915. Related Agreements. To the extent that any provision of any other3710Plan or agreement between the Company or any of its subsidiaries and you shall3711limit, qualify or be inconsistent with any provision of this Agreement, then for3712purposes of this Agreement, while the same shall remain in force, the provision3713of this Agreement shall control and such provision of such other Plan agreement3714shall be deemed to have been superseded, and to be of no force or effect, as if3715such other agreement had been formally amended to the extent necessary to3716accomplish such purpose.371737183719<PAGE>3720372116. Survival. The respective obligations of, and benefits afforded to,3722the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this3723Agreement shall survive termination of this Agreement and shall remain in full3724force and effect according to their terms.3725372617. Counterparts. This Agreement may be executed in several3727counterparts, each of which shall be deemed to be an original but all of which3728together will constitute one and the same instrument.3729373018. Miscellaneous. No provision of this Agreement may be modified,3731waived or discharged unless such modification, waiver or discharge is agreed to3732in a writing signed by you and the chairman of the board or president of the3733Company, provided, however, if you occupy those positions at the time, such3734writings shall be signed by another officer of the Company at the direction of3735the Board of Directors. No waiver by either party hereto at any time of any3736breach by the other party hereto of, or of compliance with, any condition or3737provision of this Agreement to be performed by such other party shall be deemed3738a waiver of similar or dissimilar provisions or conditions at the same or at any3739prior or subsequent time. Any and all previous written or oral agreements with3740respect to compensation and/or benefits triggered by a Change in Control of the3741Company or a similar event are hereby superseded and canceled, and no other3742agreements or representations, oral or otherwise, express or implied, with3743respect to the subject matter hereof have been made by either party which are3744not expressly set forth in this Agreement. This Agreement and the legal3745relations among the parties as to all matters, including, without limitation,3746matters of validity, interpretation, construction, performance and remedies,3747shall be governed by and construed in accordance with the internal laws of the3748State of Minnesota. Headings are for purpose of convenience only and do not3749constitute a part of this Agreement. The parties hereto agree to perform, or3750cause to be performed, such further acts and deeds and shall execute and3751deliver, or cause to be executed and delivered, such additional or supplemental3752documents or instruments as may be reasonably required by the other party to3753carry into effect the intent and purpose of this Agreement.375437553756<PAGE>37573758If this letter correctly sets forth our agreement on the subject matter3759hereof, kindly sign and return to the Company the enclosed copy of this letter3760which will then constitute our agreement on this subject.37613762Sincerely,37633764ROCHESTER MEDICAL CORPORATION376537663767By: /s/ Anthony J. Conway3768--------------------------3769Name: Anthony J. Conway3770Title: President and Chief Executive Officer37713772Agreed to this 21st day of November, 2000.377337743775/s/ Dara Lynn Horner3776- --------------------3777Dara Lynn Horner37783779</TEXT>3780</DOCUMENT>3781<DOCUMENT>3782<TYPE>EX-10.93783<SEQUENCE>43784<FILENAME>0004.txt3785<DESCRIPTION>CHANGE OF CONTROL AGREEMENT3786<TEXT>3787378837893790EXHIBIT 10.937913792379337943795Martyn R. Sholtis3796Rochester Medical Corporation3797One Rochester Medical Drive3798Stewartville, Minnesota 5597637993800Dear Martyn:38013802You are presently the Vice President, Sales and Marketing of Rochester3803Medical Corporation, a Minnesota corporation (the "Company"). The Company3804considers the establishment and maintenance of a sound and vital management to3805be essential to protecting and enhancing the best interests of the Company and3806its stockholders. In this connection, the Company recognizes that, as is the3807case with many publicly held corporations, the possibility of a Change in3808Control (as defined in Section 1 below) of the Company may arise and that such3809possibility, and the uncertainty and questions which it may raise among3810management, may result in the departure or distraction of management personnel3811to the detriment of the Company and its stockholders.38123813Accordingly, the Compensation Committee (the "Committee") of the Board3814of Directors of the Company (the "Board") has determined that appropriate steps3815should be taken to reinforce and encourage the continued attention and3816dedication of members of the Company's management to their assigned duties3817without distraction in circumstances arising from the possibility of a Change in3818Control of the Company. In particular, the Board believes it important, should3819the Company or its stockholders receive a proposal for transfer of control of3820the Company, that you be able to assess and advise the Board whether such3821proposal would be in the best interests of the Company and its stockholders and3822to take such other action regarding such proposal as the Board might determine3823to be appropriate, without being influenced by the uncertainties of your own3824personal situation.38253826In order to induce you to remain in the employ of the Company, this3827letter agreement (this "Agreement"), which has been approved by the Committee,3828sets forth the severance benefits which the Company agrees will be provided to3829you in the event your employment with the Company is terminated subsequent to a3830Change in Control of the Company under the circumstances described below. This3831Agreement also provides you with certain benefits following a Change in Control3832of the Company regardless of whether your employment by the Company is3833terminated.38343835In consideration of these benefits, the Agreement contains a covenant3836not to compete (Section 7, below).3837<PAGE>383838391. Definitions. The following terms shall have the meaning set forth3840below unless the context clearly requires otherwise. Terms defined elsewhere in3841this Agreement shall have the same meaning throughout this Agreement.38423843(a) "Cause" shall mean: (i) continued failure by you to perform3844substantially your duties with the Company (other than any such failure3845resulting from your Disability or from termination by you for Good Reason) which3846failure, in the reasonable judgment of the Company, is willful; (ii) any act or3847acts of personal dishonesty by you intended to result in your personal3848enrichment at the expense of the Company (including but not limited to wrongful3849appropriation of funds of the Company or its affiliates); (iii) willful and3850deliberate misconduct during the course of employment; or (iv) the commission of3851a gross misdemeanor or felony (whether or not the Company is the victim of such3852offense).38533854(b) "Change in Control" shall be deemed to have occurred if: (i) a3855tender offer shall be made and consummated for the ownership of fifty percent3856(50%) or more of the outstanding Voting Securities of the Company; (ii) the3857Company shall be merged or consolidated with another corporation and as a result3858of such merger or consolidation less than fifty percent (50%) of the outstanding3859Voting Securities of the surviving or resulting corporation shall be owned in3860the aggregate by the former shareholders of the Company, other than affiliates3861(within the meaning of the Exchange Act) of any party to such merger or3862consolidation, as the same shall have existed immediately prior to such merger3863or consolidation; (iii) the Company shall sell substantially all of its assets3864to another corporation which is not a wholly owned subsidiary of the Company;3865(iv) a Person shall acquire fifty percent (50%) or more of the outstanding3866Voting Securities of the Company (whether directly, indirectly, beneficially or3867of record) (for purposes hereof, ownership of Voting Securities shall take into3868account and shall include ownership as determined by applying the provisions of3869Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange3870Act); or (v) individuals who constitute the Board on the date hereof (the3871"Incumbent Board") cease for any reason to constitute at least a majority3872thereof, provided that any person becoming a director subsequent to the date3873hereof whose election, or nomination for election by the Company's stockholders,3874was approved by a vote of at least three-quarters (3/4) of the directors3875comprising the Incumbent Board (either by a specific vote or by approval of the3876proxy statement of the Company in which such person is named as a nominee for3877director, without objection to such nomination) shall be, for purposes of this3878clause (v), considered as though such person were a member of the Incumbent3879Board. Notwithstanding anything in the foregoing to the contrary, no Change in3880Control of the Company shall be deemed to have occurred for purposes of this3881Agreement by virtue of any transaction which results in: (A) you, or a group of3882Persons which includes you, acquiring, directly or indirectly more than fifty3883percent (50%) of the combined voting power of the Company's Voting Securities;3884or (B) you becoming immediately employed by a Person which leases and/or manages3885substantially all of the assets of the Company, providing that the terms of such3886employment do not constitute a "Good Reason" termination as defined in3887Subsection 1(f) hereof either when such employment commences or at any time3888during the then remaining term of this Agreement.38893890(c) "Date of Termination" shall mean the date specified in the Notice3891of Termination (except in the case of your death, in which case Date of3892Termination shall be the date of death).389338943895<PAGE>38963897(d) "Disability" shall have the same meaning as defined in the3898Company's long-term disability plan as in effect immediately prior to the Change3899in Control of the Company.39003901(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as3902amended.39033904(f) "Good Reason" shall mean termination based on:39053906(i) the assignment to you of employment responsibilities which3907are not of materially comparable responsibility and status as the3908employment responsibilities held by you immediately prior to the Change3909in Control of the Company;39103911(i) a reduction by the Company in your rate of compensation3912(or an adverse change in the form or timing of the payment thereof) as3913in effect immediately prior to the Change in Control of the Company;39143915(ii) the failure by the Company to continue in effect any Plan3916in which you are participating at the time of the Change in Control of3917the Company (or Plans providing you with at least substantially similar3918benefits) other than a result of the normal expiration of any such Plan3919in accordance with its terms as in effect at the time of the Change in3920Control of the Company, or the taking of any action, or the failure to3921act, by the Company which would adversely affect your continued3922participation in any of such Plans on at least as favorable a basis to3923you as is the case on the date of the Change in Control of the Company3924or which would materially reduce your benefits in the future under any3925of such Plans or deprive you of any material benefit enjoyed by you at3926the time of the Change in Control in the Company;39273928(iii) the Company's requiring you to be based anywhere other3929than the environs of the municipality where your office is located3930immediately prior to the Change in Control of the Company and more than3931thirty-five (35) miles from such office location, except for required3932travel on the Company's business, and then only to the extent3933substantially consistent with the business travel obligations which3934your undertook on behalf of the Company prior to the Change in Control3935of the Company; or39363937(iv) the failure by the Company to obtain from any Successor3938the assent to this Agreement contemplated by Subsection 8(a) hereof.39393940(g) "Notice of Termination" shall mean a written notice which shall3941state the specific termination provision in this Agreement relied upon. Any3942purported termination by the Company or by you following a Change in Control of3943the Company shall be communicated by written Notice of Termination to the other3944party hereto.39453946(h) "Person" shall mean and include any individual, corporation,3947partnership, group, association or other "person" within the meaning of Section39483(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange3949Act, and used in Section 14(d) thereof, other than the395039513952<PAGE>39533954Company, a wholly-owned subsidiary of the Company or any employee benefit3955plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.39563957(i) "Plan" shall mean any compensation plan (such as an incentive stock3958option or restricted stock plan) or any employee benefit plan (such as a thrift,3959pension, profit sharing, medical, disability, accident, life insurance or3960relocation plan or policy) or any other plan, program, policy or agreement of3961the Company intended to benefit employees generally, management employees as a3962group or you in particular, now in existence or becoming effective hereafter3963during the term of this Agreement.39643965(j) "Successor" shall mean any Person that succeeds to, or has the3966practical ability to control (either immediately or with the passage of time),3967the Company's business directly, by merger, consolidation or other form of3968business combination, or indirectly, by purchase of the Company's Voting3969Securities, all or substantially all of its assets or otherwise.39703971(k) "Voting Securities" shall mean securities of a corporation3972ordinarily having the right to vote at elections of directors.397339742. Term of Agreement. This Agreement shall commence on the date hereof3975and shall continue in effect until December 31, 2001; provided, however, that3976commencing on January 1, 2002 and each January 1st thereafter, the term of this3977Agreement shall automatically be extended for one (1) additional year unless at3978least ninety (90) days prior to such January 1st date, the Company or you shall3979have given notice that this Agreement shall not be extended; and provided,3980further, that this Agreement shall continue in effect for a period of twelve3981(12) months beyond the date of a Change in Control of the Company if such Change3982in Control of the Company shall have occurred prior to the end of the then3983current term.398439853. Agreement to Provide Services; Right to Terminate.39863987(a) Agreement to Provide Services. You agree to remain in the employ of3988the Company during the term of this Agreement unless you terminate your3989employment because of death or Disability or your termination is for Good Reason3990following a Change in Control of the Company.39913992(b) Right to Terminate Prior to Change in Control. This Agreement does3993not constitute a contract of employment or impose on the Company any obligation3994to retain you as an employee, to continue your current employment status or to3995change any employment policies of the Company. Prior to any Change in Control of3996the Company, the Company may terminate your employment at-will with or without3997Cause at any time. If a Change in Control of the Company has occurred, the3998Company may thereafter terminate your employment as herein provided, subject to3999the Company's providing the benefits hereinafter specified in accordance with4000the terms hereof.400140024. Benefit Payment Upon Fulfillment of Required Service Following4003Change in Control. If a Change in Control of the Company has occurred then, so4004long as you have400540064007<PAGE>40084009remained in the employ of the Company during the term of this Agreement4010(including the twelve (12) month period following such Change in Control (as4011described in Section 2 hereof)), subject to the limitations set forth in Section401210 hereof, within five (5) business days following the end of such twelve (12)4013month period the Company shall pay to you a lump sum cash payment equal to two4014and one-half (2.5) times your compensation earned on account of your employment4015with the Company during the twelve month (12) period prior to the date of the4016Change in Control of the Company. For purposes of this Agreement, compensation4017shall include your base salary plus any cash amounts received under incentive or4018other bonus plans. No payment shall be paid under this Section 4 if you have not4019remained in the employ of the Company during the term of this Agreement,4020regardless of the reason your employment was earlier terminated.402140225. Welfare Benefit Plans upon a Change in Control. Following a Change4023in Control of the Company, unless and until your employment by the Company is4024terminated for Cause or Disability or you terminate your employment by the4025Company other than for Good Reason, the Company shall maintain in full force and4026effect, for the continued benefit of you and your dependents for a period4027terminating on the earliest of (i) twelve (12) months after the Date of4028Termination or (ii) the commencement date of equivalent benefits from a new4029employer, each insured and self-insured employee welfare benefit Plan4030(including, without limitation, group health, death, dental and disability4031plans) in which you were entitled to participate immediately prior to the Change4032in Control of the Company, provided that your continued participation is4033possible under the general terms and provisions of such Plans (and any4034applicable funding media) and provided that you continue to pay an amount equal4035to your regular contribution under such Plans for such participation. If, at the4036end of twelve (12) months after the date of the Date of Termination, you have4037not previously received or are not then receiving equivalent benefits from a new4038employer, the Company shall arrange, at your sole cost and expense, to enable4039you to convert your and your dependents' coverage under such Plans to individual4040policies or programs upon the same terms as employees of the Company may apply4041for such conversions. In the event that your participation in any such Plan is4042barred, the Company, at your sole cost and expense, shall arrange to have issued4043for the benefit of you and your dependents individual policies of insurance4044providing benefits substantially similar (on a federal, state and local income4045and employment after-tax basis) to those which you otherwise would have been4046entitled to receive under such Plans pursuant to this Section 5 or, if such4047insurance is not available at a reasonable cost to the Company, the Company4048shall otherwise provide you and your dependents equivalent benefits (on a4049federal, state and local income and employment after-tax basis). You shall not4050be required to pay any premiums or other charges in an amount greater than that4051which you would have paid in order to participate in such Plans. Any welfare4052benefits which are subject to continuation rights under state or federal law,4053and which are provided by the Company pursuant to this Section 5, will be deemed4054to be provided by the Company in satisfaction of such continuation requirements4055to the extent permitted under such laws.405640576. Benefits Upon Termination of Employment Following Change in Control.40584059(a) Disability or Death. During the term of this Agreement, for any4060period following a Change in Control of the Company that you fail to perform4061your duties as a result of incapacity due to physical or mental illness, you4062shall continue to receive your compensation at the times, in406340644065<PAGE>40664067the form and at the rate then in effect, and any benefits or awards under any4068and all Plans shall continue to accrue during such period to the extent not4069inconsistent with such Plans, until your employment is terminated on account of4070Disability pursuant to and in accordance with the terms hereof. Thereafter, your4071benefits shall be determined in accordance with the Plans (as in effect4072immediately prior to a Change in Control of the Company) and as provided in4073accordance with this Agreement. If your Death occurs during the term of this4074Agreement, and after a Change in Control of the Company but prior to a4075termination of your employment, you or your beneficiary (as provided under the4076applicable Plans) shall receive all benefits or awards (including, without4077limitation, both the cash and stock components) under any and all Plans as in4078effect immediately prior to the Change in Control of the Company, and all4079benefits to which you or your beneficiary may be entitled under the terms of4080this Agreement.40814082(b) Cause. If, during the term of this Agreement, your employment by4083the Company shall be terminated for Cause following a Change in Control of the4084Company, the Company shall pay you your compensation through the Date of4085Termination at the times, in the form and at the rate in effect just prior to4086the time a Notice of Termination is given plus any benefits or awards4087(including, without limitation, both the cash and stock components) which4088pursuant to the terms of any and all Plans have been earned or become payable,4089but which have not yet been paid to you. Thereupon, except as otherwise provided4090in this Agreement, the Company shall have no further obligations to you under4091this Agreement.40924093(c) Change in Control Termination. If, during the term of this4094Agreement, after a Change in Control of the Company shall have occurred your4095employment by the Company shall be terminated by the Company other than for4096Cause or shall be terminated by you for Good Reason, then you shall be entitled,4097without regard to any contrary provisions of any Plan, to the benefits as4098provided below:40994100(i) Compensation. Subject to the limitations set4101forth in Section 10 hereof, within five (5) business days4102following the Date of Termination, the Company shall pay your4103compensation through such Date of Termination in the form and4104at the rate in effect just prior to the time a Notice of4105Termination is given plus any benefits or awards (including,4106without limitation, both the cash and stock components) which4107pursuant to the terms of any and all Plans have been earned or4108become payable, but which have not yet been paid to you.41094110(ii) Outplacement Service. The Company shall pay or4111reimburse you for the costs, fees and expenses of reasonable4112outplacement assistance services.41134114(iii) Severance. If your termination occurs under4115this Subsection 6(c) within twelve (12) months following a4116Change in Control of the Company, then, subject to the4117limitations set forth in Section 10 hereof, within five (5)4118business days following the Date of Termination, as severance4119pay and in lieu of any further salary for periods subsequent4120to the Date of Termination, the Company shall pay to you a4121lump sum cash payment equal to two and one-half (2.5) times4122your compensation earned on account of your employment with4123the Company412441254126<PAGE>41274128during the one (1) year period prior to the date of the Change4129in Control of the Company. For purposes of this Agreement,4130compensation shall include your base salary plus any cash4131amounts received under incentive or other bonus plans.41324133(d) No Setoff. The amount of any payment provided for in this Section 64134shall not be reduced, offset or subject to recovery by the Company by reason of4135any compensation earned by you as the result of employment by another employer4136after the Date of Termination or otherwise.413741387. Non-Competition; Non-Solicitation. You and the Company recognize4139that your services to the Company are special and unique and that your4140compensation and other benefits are partly in consideration of and conditioned4141upon your not competing with the Company or its subsidiaries, and that a4142covenant on your part not to compete during the term of your employment and4143during a period of twelve (12) full calendar months thereafter is essential to4144protect the business and goodwill of the Company. Accordingly, you agree that4145during the term of your employment with the Company or any of its affiliates and4146for a period of twelve (12) full calendar months following your termination of4147employment for any reason, you shall not, directly or indirectly, alone or as a4148partner, officer, director, shareholder or employee of any other firm or entity:4149(a) engage in any commercial activity in competition with any substantial part4150of the Company's business as conducted during the term of the Agreement or as of4151the Date of Termination of your employment or with any substantial part of the4152Company's contemplated business; (b) assist, solicit, entice, or induce (or4153assist any other person or entity in soliciting, enticing or inducing) any4154customer or potential customer (or agent, employee or consultant of any customer4155or potential customer) with whom you had contact in the course of your4156employment with the Company to deal with a competitor of the Company; and/or (c)4157in any manner solicit, assist or encourage (or assist any other person or entity4158in soliciting or encouraging) any other officer or employee of the Company to4159work or otherwise provide services for you or for any entity in which you4160participate in the ownership, management, operation or control of, or is4161connected with in any manner as an independent contractor, consultant or4162otherwise.. For purposes of this Section 7, "shareholder" shall not include4163beneficial ownership of less than five percent (5%) of the combined voting power4164of all issued and outstanding voting securities of a publicly held corporation4165whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree4166that the services you render to the Company are unique and of extraordinary4167character; that the Company has agreed to enter into this Agreement and to4168compensate you in the manner provided for herein relying on that fact; that this4169covenant not to compete is of the essence of this Agreement and that in the4170event of a breach or threatened breach of the provisions of the covenant not to4171compete the Company would suffer irreparable damage for which there is no4172adequate remedy at law since damages would not be readily determinable.4173Accordingly, in the event of a breach or a threatened breach by you of this4174covenant, the Company shall be entitled to a temporary restraining order and an4175injunction restraining you from any such breach issued by a court of competent4176jurisdiction notwithstanding the provisions of Section 14 hereof. Should any4177court of competent jurisdiction determine that any of the covenants set forth in4178this Section 7 are invalid in any respect, the parties agree that the court so4179holding may restrict such covenant in time or in area, or in both, or in any4180other manner which the court determines sufficient to render the covenant4181enforceable against you.4182418341844185<PAGE>4186418741888. Successors; Binding Agreements.41894190(a) Upon your written request, the Company will seek to have any4191Successor by agreement in form and substance satisfactory to you, assent to the4192fulfillment by the Company of the Company's obligations under this Agreement.4193Failure of the Company to obtain such assent at least three (3) business days4194prior to the time a Person becomes a Successor (or where the Company does not4195have at least three (3) business days advance notice that a Person may become a4196successor, within one (1) business day after having notice that such Person may4197become or has become a Successor) shall constitute Good Reason for termination4198by you of your employment and, if a Change in Control of the Company has4199occurred, shall entitle you immediately to the benefits provided hereunder upon4200delivery by you of a Notice of Termination.42014202(b) This Agreement shall inure to the benefit of and be enforceable by4203you, your personal or legal representatives, executors, administrators,4204successors, heirs, distributees, devisees and legatees. If you should die while4205any amount would still be payable to you hereunder if you had continued to live,4206all such amounts, unless otherwise provided herein, shall be paid in accordance4207with the terms of this Agreement to your devisee, legatee or other designee or,4208if there be no such designee, to your estate.42094210(c) For purposes of this Agreement, the "Company" shall include any4211corporation or other entity which is the surviving or continuing entity in4212respect of any merger, consolidation or other form of business combination in4213which the Company ceases to exist.421442159. Withholding. All payments to be made to you under this Agreement4216will be subject to required withholding of federal, state and local income and4217employment taxes.4218421910. Excess Payment Limitation. Notwithstanding anything in this4220Agreement to the contrary, in the event that any payment or benefit received or4221to be received by you in connection with a change in control of the Company or4222termination of your employment (whether payable pursuant to the terms of this4223Agreement or any other plan, contract, agreement or arrangement with the4224Company, with any person whose actions result in a change in control of the4225Company or with any person constituting a member of an "affiliated group" as4226defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended4227(the "Code"), with the Company or with any person whose actions result in a4228change in control of the Company) (collectively, the "Total Payments") would not4229be deductible (in whole or in part) by the Company or such other person making4230such payment or providing such benefit solely as a result of Section 280G of the4231Code, the amounts payable to you under this Agreement shall be reduced until no4232portion of the Total Payments is not deductible solely as a result of Section4233280G of the Code or such amounts payable to you under this Agreement are reduced4234to zero. For purposes of this limitation: (a) no portion of the Total Payments4235shall be taken into account which in the opinion of tax counsel selected by the4236Company does not constitute a "parachute payment" within the meaning of4237Section 280G(b)(2) of the Code (such as payments payable pursuant to the4238Company's standard or general severance policies); (b) payments pursuant to this4239Agreement shall be reduced only to the extent necessary so that the Total4240Payments (other than those referred to in the immediately preceding clause (a))4241in their entirety constitute reasonable compensation within the meaning of424242434244<PAGE>424542464247Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to4248in the immediately preceding clause (a); and (c) the value of any other non-cash4249benefit or of any deferred cash payment included in the Total Payments shall be4250determined by the Company's independent auditors in accordance with the4251principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as4252to whether all or some portion of a payment is or is not payable to you under4253this Agreement, the Company shall initially make the payment to you, and you4254agree to refund to the Company any amounts ultimately determined not to have4255been payable under the terms hereof.4256425711. Notice. For the purposes of this Agreement, notices and all other4258communications provided for in or required under this Agreement shall be in4259writing and shall be deemed to have been duly given when personally delivered or4260when mailed by United States certified or registered mail, return receipt4261requested, postage prepaid and addressed to each party's respective address set4262forth on the first page of this Agreement (provided that all notices to the4263Company shall be directed to the attention of the chairman of the board or4264president of the Company, with a copy to the secretary of the Company), or to4265such other address as either party may have furnished to the other in writing in4266accordance herewith, except that notice of change of address shall be effective4267only upon receipt.4268426912. Validity. The invalidity or unenforceability of any provision of4270this Agreement shall not affect the validity or enforceability of any other4271provision of this Agreement, which shall remain in full force and effect.4272427313. Limitation of Damages. If for any reason you believe the benefits4274provisions of this Agreement have not been properly adhered to by the Company,4275and if, pursuant to Section 14 hereof, it is determined that the Company has4276not, in fact, properly adhered to the benefits provisions of this Agreement, the4277sole and exclusive remedy to which you are entitled are the benefits payment to4278which you are entitled under the provisions of this Agreement.4279428014. Dispute Resolution. Any dispute or controversy arising under or in4281connection with this Agreement shall be settled exclusively by arbitration in4282Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of4283the American Arbitration Association then in effect. The decision of the4284arbitrators shall be final and binding on both parties. Judgment may be entered4285on the arbitrators' award in any court having jurisdiction. The arbitrators4286shall strictly adhere to the sole and exclusive remedy set forth in Section 134287hereof and may not award or assess punitive damages against either party. Each4288party shall bear its own costs and expenses of the arbitration and one-half4289(1/2) of the fees and costs of the arbitrators.4290429115. Related Agreements. To the extent that any provision of any other4292Plan or agreement between the Company or any of its subsidiaries and you shall4293limit, qualify or be inconsistent with any provision of this Agreement, then for4294purposes of this Agreement, while the same shall remain in force, the provision4295of this Agreement shall control and such provision of such other Plan agreement4296shall be deemed to have been superseded, and to be of no force or effect, as if4297such other agreement had been formally amended to the extent necessary to4298accomplish such purpose.429943004301<PAGE>4302430316. Survival. The respective obligations of, and benefits afforded to,4304the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this4305Agreement shall survive termination of this Agreement and shall remain in full4306force and effect according to their terms.4307430817. Counterparts. This Agreement may be executed in several4309counterparts, each of which shall be deemed to be an original but all of which4310together will constitute one and the same instrument.4311431218. Miscellaneous. No provision of this Agreement may be modified,4313waived or discharged unless such modification, waiver or discharge is agreed to4314in a writing signed by you and the chairman of the board or president of the4315Company, provided, however, if you occupy those positions at the time, such4316writings shall be signed by another officer of the Company at the direction of4317the Board of Directors. No waiver by either party hereto at any time of any4318breach by the other party hereto of, or of compliance with, any condition or4319provision of this Agreement to be performed by such other party shall be deemed4320a waiver of similar or dissimilar provisions or conditions at the same or at any4321prior or subsequent time. Any and all previous written or oral agreements with4322respect to compensation and/or benefits triggered by a Change in Control of the4323Company or a similar event are hereby superseded and canceled, and no other4324agreements or representations, oral or otherwise, express or implied, with4325respect to the subject matter hereof have been made by either party which are4326not expressly set forth in this Agreement. This Agreement and the legal4327relations among the parties as to all matters, including, without limitation,4328matters of validity, interpretation, construction, performance and remedies,4329shall be governed by and construed in accordance with the internal laws of the4330State of Minnesota. Headings are for purpose of convenience only and do not4331constitute a part of this Agreement. The parties hereto agree to perform, or4332cause to be performed, such further acts and deeds and shall execute and4333deliver, or cause to be executed and delivered, such additional or supplemental4334documents or instruments as may be reasonably required by the other party to4335carry into effect the intent and purpose of this Agreement.433643374338<PAGE>43394340If this letter correctly sets forth our agreement on the subject matter4341hereof, kindly sign and return to the Company the enclosed copy of this letter4342which will then constitute our agreement on this subject.43434344Sincerely,43454346ROCHESTER MEDICAL CORPORATION434743484349By: /s/ Anthony J. Conway4350--------------------------4351Name: Anthony J. Conway4352Title: President and Chief Executive Officer43534354Agreed to this 21st day of November, 2000.435543564357/s/ Martyn R. Sholtis4358- ---------------------4359Martyn R. Sholtis436043614362</TEXT>4363</DOCUMENT>4364<DOCUMENT>4365<TYPE>EX-10.104366<SEQUENCE>54367<FILENAME>0005.txt4368<DESCRIPTION>CHANGE OF CONTROL AGREEMENT4369<TEXT>437043714372EXHIBIT 10.1043734374437543764377David A. Jonas4378Rochester Medical Corporation4379One Rochester Medical Drive4380Stewartville, Minnesota 5597643814382Dear David:43834384You are presently the Controller, Director of Operations and Principle4385Financial Officer of Rochester Medical Corporation, a Minnesota corporation (the4386"Company"). The Company considers the establishment and maintenance of a sound4387and vital management to be essential to protecting and enhancing the best4388interests of the Company and its stockholders. In this connection, the Company4389recognizes that, as is the case with many publicly held corporations, the4390possibility of a Change in Control (as defined in Section 1 below) of the4391Company may arise and that such possibility, and the uncertainty and questions4392which it may raise among management, may result in the departure or distraction4393of management personnel to the detriment of the Company and its stockholders.43944395Accordingly, the Compensation Committee (the "Committee") of the Board4396of Directors of the Company (the "Board") has determined that appropriate steps4397should be taken to reinforce and encourage the continued attention and4398dedication of members of the Company's management to their assigned duties4399without distraction in circumstances arising from the possibility of a Change in4400Control of the Company. In particular, the Board believes it important, should4401the Company or its stockholders receive a proposal for transfer of control of4402the Company, that you be able to assess and advise the Board whether such4403proposal would be in the best interests of the Company and its stockholders and4404to take such other action regarding such proposal as the Board might determine4405to be appropriate, without being influenced by the uncertainties of your own4406personal situation.44074408In order to induce you to remain in the employ of the Company, this4409letter agreement (this "Agreement"), which has been approved by the Committee,4410sets forth the severance benefits which the Company agrees will be provided to4411you in the event your employment with the Company is terminated subsequent to a4412Change in Control of the Company under the circumstances described below. This4413Agreement also provides you with certain benefits following a Change in Control4414of the Company regardless of whether your employment by the Company is4415terminated.44164417In consideration of these benefits, the Agreement contains a covenant4418not to compete (Section 7, below).441944204421<PAGE>442244231. Definitions. The following terms shall have the meaning set forth4424below unless the context clearly requires otherwise. Terms defined elsewhere in4425this Agreement shall have the same meaning throughout this Agreement.44264427(a) "Cause" shall mean: (i) continued failure by you to perform4428substantially your duties with the Company (other than any such failure4429resulting from your Disability or from termination by you for Good Reason) which4430failure, in the reasonable judgment of the Company, is willful; (ii) any act or4431acts of personal dishonesty by you intended to result in your personal4432enrichment at the expense of the Company (including but not limited to wrongful4433appropriation of funds of the Company or its affiliates); (iii) willful and4434deliberate misconduct during the course of employment; or (iv) the commission of4435a gross misdemeanor or felony (whether or not the Company is the victim of such4436offense).44374438(b) "Change in Control" shall be deemed to have occurred if: (i) a4439tender offer shall be made and consummated for the ownership of fifty percent4440(50%) or more of the outstanding Voting Securities of the Company; (ii) the4441Company shall be merged or consolidated with another corporation and as a result4442of such merger or consolidation less than fifty percent (50%) of the outstanding4443Voting Securities of the surviving or resulting corporation shall be owned in4444the aggregate by the former shareholders of the Company, other than affiliates4445(within the meaning of the Exchange Act) of any party to such merger or4446consolidation, as the same shall have existed immediately prior to such merger4447or consolidation; (iii) the Company shall sell substantially all of its assets4448to another corporation which is not a wholly owned subsidiary of the Company;4449(iv) a Person shall acquire fifty percent (50%) or more of the outstanding4450Voting Securities of the Company (whether directly, indirectly, beneficially or4451of record) (for purposes hereof, ownership of Voting Securities shall take into4452account and shall include ownership as determined by applying the provisions of4453Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange4454Act); or (v) individuals who constitute the Board on the date hereof (the4455"Incumbent Board") cease for any reason to constitute at least a majority4456thereof, provided that any person becoming a director subsequent to the date4457hereof whose election, or nomination for election by the Company's stockholders,4458was approved by a vote of at least three-quarters (3/4) of the directors4459comprising the Incumbent Board (either by a specific vote or by approval of the4460proxy statement of the Company in which such person is named as a nominee for4461director, without objection to such nomination) shall be, for purposes of this4462clause (v), considered as though such person were a member of the Incumbent4463Board. Notwithstanding anything in the foregoing to the contrary, no Change in4464Control of the Company shall be deemed to have occurred for purposes of this4465Agreement by virtue of any transaction which results in: (A) you, or a group of4466Persons which includes you, acquiring, directly or indirectly more than fifty4467percent (50%) of the combined voting power of the Company's Voting Securities;4468or (B) you becoming immediately employed by a Person which leases and/or manages4469substantially all of the assets of the Company, providing that the terms of such4470employment do not constitute a "Good Reason" termination as defined in4471Subsection 1(f) hereof either when such employment commences or at any time4472during the then remaining term of this Agreement.44734474(c) "Date of Termination" shall mean the date specified in the Notice4475of Termination (except in the case of your death, in which case Date of4476Termination shall be the date of death).447744784479<PAGE>44804481(d) "Disability" shall have the same meaning as defined in the4482Company's long-term disability plan as in effect immediately prior to the Change4483in Control of the Company.44844485(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as4486amended.44874488(f) "Good Reason" shall mean termination based on:44894490(i) the assignment to you of employment responsibilities which4491are not of materially comparable responsibility and status as the4492employment responsibilities held by you immediately prior to the Change4493in Control of the Company;44944495(i) a reduction by the Company in your rate of compensation4496(or an adverse change in the form or timing of the payment thereof) as4497in effect immediately prior to the Change in Control of the Company;44984499(ii) the failure by the Company to continue in effect any Plan4500in which you are participating at the time of the Change in Control of4501the Company (or Plans providing you with at least substantially similar4502benefits) other than a result of the normal expiration of any such Plan4503in accordance with its terms as in effect at the time of the Change in4504Control of the Company, or the taking of any action, or the failure to4505act, by the Company which would adversely affect your continued4506participation in any of such Plans on at least as favorable a basis to4507you as is the case on the date of the Change in Control of the Company4508or which would materially reduce your benefits in the future under any4509of such Plans or deprive you of any material benefit enjoyed by you at4510the time of the Change in Control in the Company;45114512(iii) the Company's requiring you to be based anywhere other4513than the environs of the municipality where your office is located4514immediately prior to the Change in Control of the Company and more than4515thirty-five (35) miles from such office location, except for required4516travel on the Company's business, and then only to the extent4517substantially consistent with the business travel obligations which4518your undertook on behalf of the Company prior to the Change in Control4519of the Company; or45204521(iv) the failure by the Company to obtain from any Successor4522the assent to this Agreement contemplated by Subsection 8(a) hereof.45234524(g) "Notice of Termination" shall mean a written notice which shall4525state the specific termination provision in this Agreement relied upon. Any4526purported termination by the Company or by you following a Change in Control of4527the Company shall be communicated by written Notice of Termination to the other4528party hereto.45294530(h) "Person" shall mean and include any individual, corporation,4531partnership, group, association or other "person" within the meaning of Section45323(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange4533Act, and used in Section 14(d) thereof, other than the453445354536<PAGE>45374538Company, a wholly-owned subsidiary of the Company or any employee benefit4539plan(s) sponsored by the Company or a wholly-owned subsidiary of the Company.45404541(i) "Plan" shall mean any compensation plan (such as an incentive stock4542option or restricted stock plan) or any employee benefit plan (such as a thrift,4543pension, profit sharing, medical, disability, accident, life insurance or4544relocation plan or policy) or any other plan, program, policy or agreement of4545the Company intended to benefit employees generally, management employees as a4546group or you in particular, now in existence or becoming effective hereafter4547during the term of this Agreement.45484549(j) "Successor" shall mean any Person that succeeds to, or has the4550practical ability to control (either immediately or with the passage of time),4551the Company's business directly, by merger, consolidation or other form of4552business combination, or indirectly, by purchase of the Company's Voting4553Securities, all or substantially all of its assets or otherwise.45544555(k) "Voting Securities" shall mean securities of a corporation4556ordinarily having the right to vote at elections of directors.455745582. Term of Agreement. This Agreement shall commence on the date hereof4559and shall continue in effect until December 31, 2001; provided, however, that4560commencing on January 1, 2002 and each January 1st thereafter, the term of this4561Agreement shall automatically be extended for one (1) additional year unless at4562least ninety (90) days prior to such January 1st date, the Company or you shall4563have given notice that this Agreement shall not be extended; and provided,4564further, that this Agreement shall continue in effect for a period of twelve4565(12) months beyond the date of a Change in Control of the Company if such Change4566in Control of the Company shall have occurred prior to the end of the then4567current term.456845693. Agreement to Provide Services; Right to Terminate.45704571(a) Agreement to Provide Services. You agree to remain in the employ of4572the Company during the term of this Agreement unless you terminate your4573employment because of death or Disability or your termination is for Good Reason4574following a Change in Control of the Company.45754576(b) Right to Terminate Prior to Change in Control. This Agreement does4577not constitute a contract of employment or impose on the Company any obligation4578to retain you as an employee, to continue your current employment status or to4579change any employment policies of the Company. Prior to any Change in Control of4580the Company, the Company may terminate your employment at-will with or without4581Cause at any time. If a Change in Control of the Company has occurred, the4582Company may thereafter terminate your employment as herein provided, subject to4583the Company's providing the benefits hereinafter specified in accordance with4584the terms hereof.458545864. Benefit Payment Upon Fulfillment of Required Service Following4587Change in Control. If a Change in Control of the Company has occurred then, so4588long as you have458945904591<PAGE>45924593remained in the employ of the Company during the term of this Agreement4594(including the twelve (12) month period following such Change in Control (as4595described in Section 2 hereof)), subject to the limitations set forth in Section459610 hereof, within five (5) business days following the end of such twelve (12)4597month period the Company shall pay to you a lump sum cash payment equal to two4598and one-half (2.5) times your compensation earned on account of your employment4599with the Company during the twelve month (12) period prior to the date of the4600Change in Control of the Company. For purposes of this Agreement, compensation4601shall include your base salary plus any cash amounts received under incentive or4602other bonus plans. No payment shall be paid under this Section 4 if you have not4603remained in the employ of the Company during the term of this Agreement,4604regardless of the reason your employment was earlier terminated.460546065. Welfare Benefit Plans upon a Change in Control. Following a Change4607in Control of the Company, unless and until your employment by the Company is4608terminated for Cause or Disability or you terminate your employment by the4609Company other than for Good Reason, the Company shall maintain in full force and4610effect, for the continued benefit of you and your dependents for a period4611terminating on the earliest of (i) twelve (12) months after the Date of4612Termination or (ii) the commencement date of equivalent benefits from a new4613employer, each insured and self-insured employee welfare benefit Plan4614(including, without limitation, group health, death, dental and disability4615plans) in which you were entitled to participate immediately prior to the Change4616in Control of the Company, provided that your continued participation is4617possible under the general terms and provisions of such Plans (and any4618applicable funding media) and provided that you continue to pay an amount equal4619to your regular contribution under such Plans for such participation. If, at the4620end of twelve (12) months after the date of the Date of Termination, you have4621not previously received or are not then receiving equivalent benefits from a new4622employer, the Company shall arrange, at your sole cost and expense, to enable4623you to convert your and your dependents' coverage under such Plans to individual4624policies or programs upon the same terms as employees of the Company may apply4625for such conversions. In the event that your participation in any such Plan is4626barred, the Company, at your sole cost and expense, shall arrange to have issued4627for the benefit of you and your dependents individual policies of insurance4628providing benefits substantially similar (on a federal, state and local income4629and employment after-tax basis) to those which you otherwise would have been4630entitled to receive under such Plans pursuant to this Section 5 or, if such4631insurance is not available at a reasonable cost to the Company, the Company4632shall otherwise provide you and your dependents equivalent benefits (on a4633federal, state and local income and employment after-tax basis). You shall not4634be required to pay any premiums or other charges in an amount greater than that4635which you would have paid in order to participate in such Plans. Any welfare4636benefits which are subject to continuation rights under state or federal law,4637and which are provided by the Company pursuant to this Section 5, will be deemed4638to be provided by the Company in satisfaction of such continuation requirements4639to the extent permitted under such laws.464046416. Benefits Upon Termination of Employment Following Change in Control.46424643(a) Disability or Death. During the term of this Agreement, for any4644period following a Change in Control of the Company that you fail to perform4645your duties as a result of incapacity due to physical or mental illness, you4646shall continue to receive your compensation at the times, in4647464846494650<PAGE>46514652the form and at the rate then in effect, and any benefits or awards under any4653and all Plans shall continue to accrue during such period to the extent not4654inconsistent with such Plans, until your employment is terminated on account of4655Disability pursuant to and in accordance with the terms hereof. Thereafter, your4656benefits shall be determined in accordance with the Plans (as in effect4657immediately prior to a Change in Control of the Company) and as provided in4658accordance with this Agreement. If your Death occurs during the term of this4659Agreement, and after a Change in Control of the Company but prior to a4660termination of your employment, you or your beneficiary (as provided under the4661applicable Plans) shall receive all benefits or awards (including, without4662limitation, both the cash and stock components) under any and all Plans as in4663effect immediately prior to the Change in Control of the Company, and all4664benefits to which you or your beneficiary may be entitled under the terms of4665this Agreement.46664667(b) Cause. If, during the term of this Agreement, your employment by4668the Company shall be terminated for Cause following a Change in Control of the4669Company, the Company shall pay you your compensation through the Date of4670Termination at the times, in the form and at the rate in effect just prior to4671the time a Notice of Termination is given plus any benefits or awards4672(including, without limitation, both the cash and stock components) which4673pursuant to the terms of any and all Plans have been earned or become payable,4674but which have not yet been paid to you. Thereupon, except as otherwise provided4675in this Agreement, the Company shall have no further obligations to you under4676this Agreement.46774678(c) Change in Control Termination. If, during the term of this4679Agreement, after a Change in Control of the Company shall have occurred your4680employment by the Company shall be terminated by the Company other than for4681Cause or shall be terminated by you for Good Reason, then you shall be entitled,4682without regard to any contrary provisions of any Plan, to the benefits as4683provided below:46844685(i) Compensation. Subject to the limitations set4686forth in Section 10 hereof, within five (5) business days4687following the Date of Termination, the Company shall pay your4688compensation through such Date of Termination in the form and4689at the rate in effect just prior to the time a Notice of4690Termination is given plus any benefits or awards (including,4691without limitation, both the cash and stock components) which4692pursuant to the terms of any and all Plans have been earned or4693become payable, but which have not yet been paid to you.46944695(ii) Outplacement Service. The Company shall pay or4696reimburse you for the costs, fees and expenses of reasonable4697outplacement assistance services.46984699(iii) Severance. If your termination occurs under4700this Subsection 6(c) within twelve (12) months following a4701Change in Control of the Company, then, subject to the4702limitations set forth in Section 10 hereof, within five (5)4703business days following the Date of Termination, as severance4704pay and in lieu of any further salary for periods subsequent4705to the Date of Termination, the Company shall pay to you a4706lump sum cash payment equal to two and one-half (2.5) times4707your compensation earned on account of your employment with4708the Company470947104711<PAGE>47124713during the one (1) year period prior to the date of the Change4714in Control of the Company. For purposes of this Agreement,4715compensation shall include your base salary plus any cash4716amounts received under incentive or other bonus plans.47174718(d) No Setoff. The amount of any payment provided for in this Section 64719shall not be reduced, offset or subject to recovery by the Company by reason of4720any compensation earned by you as the result of employment by another employer4721after the Date of Termination or otherwise.472247237. Non-Competition; Non-Solicitation. You and the Company recognize4724that your services to the Company are special and unique and that your4725compensation and other benefits are partly in consideration of and conditioned4726upon your not competing with the Company or its subsidiaries, and that a4727covenant on your part not to compete during the term of your employment and4728during a period of twelve (12) full calendar months thereafter is essential to4729protect the business and goodwill of the Company. Accordingly, you agree that4730during the term of your employment with the Company or any of its affiliates and4731for a period of twelve (12) full calendar months following your termination of4732employment for any reason, you shall not, directly or indirectly, alone or as a4733partner, officer, director, shareholder or employee of any other firm or entity:4734(a) engage in any commercial activity in competition with any substantial part4735of the Company's business as conducted during the term of the Agreement or as of4736the Date of Termination of your employment or with any substantial part of the4737Company's contemplated business; (b) assist, solicit, entice, or induce (or4738assist any other person or entity in soliciting, enticing or inducing) any4739customer or potential customer (or agent, employee or consultant of any customer4740or potential customer) with whom you had contact in the course of your4741employment with the Company to deal with a competitor of the Company; and/or (c)4742in any manner solicit, assist or encourage (or assist any other person or entity4743in soliciting or encouraging) any other officer or employee of the Company to4744work or otherwise provide services for you or for any entity in which you4745participate in the ownership, management, operation or control of, or is4746connected with in any manner as an independent contractor, consultant or4747otherwise.. For purposes of this Section 7, "shareholder" shall not include4748beneficial ownership of less than five percent (5%) of the combined voting power4749of all issued and outstanding voting securities of a publicly held corporation4750whose stock is traded on a major stock exchange or quoted on NASDAQ. You agree4751that the services you render to the Company are unique and of extraordinary4752character; that the Company has agreed to enter into this Agreement and to4753compensate you in the manner provided for herein relying on that fact; that this4754covenant not to compete is of the essence of this Agreement and that in the4755event of a breach or threatened breach of the provisions of the covenant not to4756compete the Company would suffer irreparable damage for which there is no4757adequate remedy at law since damages would not be readily determinable.4758Accordingly, in the event of a breach or a threatened breach by you of this4759covenant, the Company shall be entitled to a temporary restraining order and an4760injunction restraining you from any such breach issued by a court of competent4761jurisdiction notwithstanding the provisions of Section 14 hereof. Should any4762court of competent jurisdiction determine that any of the covenants set forth in4763this Section 7 are invalid in any respect, the parties agree that the court so4764holding may restrict such covenant in time or in area, or in both, or in any4765other manner which the court determines sufficient to render the covenant4766enforceable against you.4767476847694770<PAGE>4771477247738. Successors; Binding Agreements.47744775(a) Upon your written request, the Company will seek to have any4776Successor by agreement in form and substance satisfactory to you, assent to the4777fulfillment by the Company of the Company's obligations under this Agreement.4778Failure of the Company to obtain such assent at least three (3) business days4779prior to the time a Person becomes a Successor (or where the Company does not4780have at least three (3) business days advance notice that a Person may become a4781successor, within one (1) business day after having notice that such Person may4782become or has become a Successor) shall constitute Good Reason for termination4783by you of your employment and, if a Change in Control of the Company has4784occurred, shall entitle you immediately to the benefits provided hereunder upon4785delivery by you of a Notice of Termination.47864787(b) This Agreement shall inure to the benefit of and be enforceable by4788you, your personal or legal representatives, executors, administrators,4789successors, heirs, distributees, devisees and legatees. If you should die while4790any amount would still be payable to you hereunder if you had continued to live,4791all such amounts, unless otherwise provided herein, shall be paid in accordance4792with the terms of this Agreement to your devisee, legatee or other designee or,4793if there be no such designee, to your estate.47944795(c) For purposes of this Agreement, the "Company" shall include any4796corporation or other entity which is the surviving or continuing entity in4797respect of any merger, consolidation or other form of business combination in4798which the Company ceases to exist.479948009. Withholding. All payments to be made to you under this Agreement4801will be subject to required withholding of federal, state and local income and4802employment taxes.4803480410. Excess Payment Limitation. Notwithstanding anything in this4805Agreement to the contrary, in the event that any payment or benefit received or4806to be received by you in connection with a change in control of the Company or4807termination of your employment (whether payable pursuant to the terms of this4808Agreement or any other plan, contract, agreement or arrangement with the4809Company, with any person whose actions result in a change in control of the4810Company or with any person constituting a member of an "affiliated group" as4811defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended4812(the "Code"), with the Company or with any person whose actions result in a4813change in control of the Company) (collectively, the "Total Payments") would not4814be deductible (in whole or in part) by the Company or such other person making4815such payment or providing such benefit solely as a result of Section 280G of the4816Code, the amounts payable to you under this Agreement shall be reduced until no4817portion of the Total Payments is not deductible solely as a result of Section4818280G of the Code or such amounts payable to you under this Agreement are reduced4819to zero. For purposes of this limitation: (a) no portion of the Total Payments4820shall be taken into account which in the opinion of tax counsel selected by the4821Company does not constitute a "parachute payment" within the meaning of4822Section 280G(b)(2) of the Code (such as payments payable pursuant to the4823Company's standard or general severance policies); (b) payments pursuant to this4824Agreement shall be reduced only to the extent necessary so that the Total4825Payments (other than those referred to in the immediately preceding clause (a))4826in their entirety constitute reasonable compensation within the meaning of482748284829<PAGE>483048314832Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to4833in the immediately preceding clause (a); and (c) the value of any other non-cash4834benefit or of any deferred cash payment included in the Total Payments shall be4835determined by the Company's independent auditors in accordance with the4836principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as4837to whether all or some portion of a payment is or is not payable to you under4838this Agreement, the Company shall initially make the payment to you, and you4839agree to refund to the Company any amounts ultimately determined not to have4840been payable under the terms hereof.4841484211. Notice. For the purposes of this Agreement, notices and all other4843communications provided for in or required under this Agreement shall be in4844writing and shall be deemed to have been duly given when personally delivered or4845when mailed by United States certified or registered mail, return receipt4846requested, postage prepaid and addressed to each party's respective address set4847forth on the first page of this Agreement (provided that all notices to the4848Company shall be directed to the attention of the chairman of the board or4849president of the Company, with a copy to the secretary of the Company), or to4850such other address as either party may have furnished to the other in writing in4851accordance herewith, except that notice of change of address shall be effective4852only upon receipt.4853485412. Validity. The invalidity or unenforceability of any provision of4855this Agreement shall not affect the validity or enforceability of any other4856provision of this Agreement, which shall remain in full force and effect.4857485813. Limitation of Damages. If for any reason you believe the benefits4859provisions of this Agreement have not been properly adhered to by the Company,4860and if, pursuant to Section 14 hereof, it is determined that the Company has4861not, in fact, properly adhered to the benefits provisions of this Agreement, the4862sole and exclusive remedy to which you are entitled are the benefits payment to4863which you are entitled under the provisions of this Agreement.4864486514. Dispute Resolution. Any dispute or controversy arising under or in4866connection with this Agreement shall be settled exclusively by arbitration in4867Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules of4868the American Arbitration Association then in effect. The decision of the4869arbitrators shall be final and binding on both parties. Judgment may be entered4870on the arbitrators' award in any court having jurisdiction. The arbitrators4871shall strictly adhere to the sole and exclusive remedy set forth in Section 134872hereof and may not award or assess punitive damages against either party. Each4873party shall bear its own costs and expenses of the arbitration and one-half4874(1/2) of the fees and costs of the arbitrators.4875487615. Related Agreements. To the extent that any provision of any other4877Plan or agreement between the Company or any of its subsidiaries and you shall4878limit, qualify or be inconsistent with any provision of this Agreement, then for4879purposes of this Agreement, while the same shall remain in force, the provision4880of this Agreement shall control and such provision of such other Plan agreement4881shall be deemed to have been superseded, and to be of no force or effect, as if4882such other agreement had been formally amended to the extent necessary to4883accomplish such purpose.488448854886<PAGE>4887488816. Survival. The respective obligations of, and benefits afforded to,4889the Company and you as provided in Sections 4, 5, 6, 7, 8(b), 14 and 15 of this4890Agreement shall survive termination of this Agreement and shall remain in full4891force and effect according to their terms.4892489317. Counterparts. This Agreement may be executed in several4894counterparts, each of which shall be deemed to be an original but all of which4895together will constitute one and the same instrument.4896489718. Miscellaneous. No provision of this Agreement may be modified,4898waived or discharged unless such modification, waiver or discharge is agreed to4899in a writing signed by you and the chairman of the board or president of the4900Company, provided, however, if you occupy those positions at the time, such4901writings shall be signed by another officer of the Company at the direction of4902the Board of Directors. No waiver by either party hereto at any time of any4903breach by the other party hereto of, or of compliance with, any condition or4904provision of this Agreement to be performed by such other party shall be deemed4905a waiver of similar or dissimilar provisions or conditions at the same or at any4906prior or subsequent time. Any and all previous written or oral agreements with4907respect to compensation and/or benefits triggered by a Change in Control of the4908Company or a similar event are hereby superseded and canceled, and no other4909agreements or representations, oral or otherwise, express or implied, with4910respect to the subject matter hereof have been made by either party which are4911not expressly set forth in this Agreement. This Agreement and the legal4912relations among the parties as to all matters, including, without limitation,4913matters of validity, interpretation, construction, performance and remedies,4914shall be governed by and construed in accordance with the internal laws of the4915State of Minnesota. Headings are for purpose of convenience only and do not4916constitute a part of this Agreement. The parties hereto agree to perform, or4917cause to be performed, such further acts and deeds and shall execute and4918deliver, or cause to be executed and delivered, such additional or supplemental4919documents or instruments as may be reasonably required by the other party to4920carry into effect the intent and purpose of this Agreement.492149224923<PAGE>49244925If this letter correctly sets forth our agreement on the subject matter4926hereof, kindly sign and return to the Company the enclosed copy of this letter4927which will then constitute our agreement on this subject.49284929Sincerely,49304931ROCHESTER MEDICAL CORPORATION493249334934By: /s/ Anthony J. Conway4935--------------------------4936Name: Anthony J. Conway4937Title: President and Chief Executive Officer49384939Agreed to this 21st day of November, 2000.4940494149424943/s/ David A. Jonas4944- ------------------4945David A. Jonas494649474948</TEXT>4949</DOCUMENT>4950<DOCUMENT>4951<TYPE>EX-234952<SEQUENCE>64953<FILENAME>0006.txt4954<DESCRIPTION>CONSENT4955<TEXT>49564957EXHIBIT 23495849594960CONSENT OF ERNST & YOUNG LLP496149624963We consent to the incorporation by reference in the Registration Statement4964(Form S-8 No. 333-10261) pertaining to the 1991 Stock Option Plan of Rochester4965Medical Corporation, of our report dated October 20, 2000, with respect to the4966financial statements and schedule of Rochester Medical Corporation included in4967this Annual Report (Form 10-K) for the year ended September 30, 2000.4968496949704971/s/ Ernst & Young LLP49724973Minneapolis, Minnesota4974December 13, 2000497549764977</TEXT>4978</DOCUMENT>4979<DOCUMENT>4980<TYPE>EX-244981<SEQUENCE>74982<FILENAME>0007.txt4983<DESCRIPTION>POWER OF ATTORNEY4984<TEXT>498549864987EXHIBIT 24498849894990POWER OF ATTORNEY499149924993KNOW ALL BY THESE PRESENTS, that each person whose signature appears below4994constitutes and appoints each of Anthony J. Conway and David A. Jonas, with4995full power to each to act without the other, his or her true and lawful4996attorney-in-fact and agent with full power of substitution, for him or her and4997in his or her name, place and stead, in any and all capacities, to sign the4998Annual Report on Form 10-K of Rochester Medical Corporation (the "Company") for4999the Company's fiscal year ended September 30, 2000, and any or all amendments5000to said Annual Report, and to file the same, with all exhibits thereto, and5001other documents in connection therewith, with the Securities and Exchange5002Commission, and to file the same with such other authorities as necessary,5003granting unto each such attorney-in-fact and agent full power and authority to5004do and perform each and every act and thing requisite and necessary to be done5005in and about the premises, as fully to all intents and purposes as he or she5006might or could do in person, hereby ratifying and confirming all that each such5007attorney-in-fact and agent, or his substitute, may lawfully do or cause to be5008done by virtue hereof.50095010IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th5011day of December, 2000, by the following persons.501250135014/s/ ANTHONY J. CONWAY /s/ DARNELL L. BOEHM5015------------------------- -------------------------5016Anthony J. Conway Darnell L. Boehm50175018/s/ DAVID A. JONAS /s/ PETER CONWAY5019------------------------- -------------------------5020David A. Jonas Peter Conway50215022/s/ PHILIP CONWAY /s/ ROGER SCHNOBRICH5023------------------------- -------------------------5024Philip Conway Roger Schnobrich50255026/s/ RICHARD FRYAR5027-------------------------5028Richard Fryar502950305031</TEXT>5032</DOCUMENT>5033<DOCUMENT>5034<TYPE>EX-275035<SEQUENCE>85036<FILENAME>0008.txt5037<DESCRIPTION>FINANCIAL DATA SCHEDULE5038<TEXT>50395040<TABLE> <S> <C>5041504250435044<ARTICLE> 550455046<S> <C>5047<PERIOD-TYPE> 12-MOS5048<FISCAL-YEAR-END> SEP-30-20005049<PERIOD-END> SEP-30-20005050<PERIOD-START> OCT-01-19995051<CASH> 3,204,1615052<SECURITIES> 5,654,4425053<RECEIVABLES> 1,069,9995054<ALLOWANCES> 62,5675055<INVENTORY> 1,892,4555056<CURRENT-ASSETS> 12,009,8185057<PP&E> 15,404,9235058<DEPRECIATION> 4,351,2355059<TOTAL-ASSETS> 23,254,2235060<CURRENT-LIABILITIES> 1,681,2055061<BONDS> 05062<PREFERRED-MANDATORY> 05063<PREFERRED> 05064<COMMON> 41,279,3595065<OTHER-SE> 05066<TOTAL-LIABILITY-AND-EQUITY> 23,254,2235067<SALES> 7,860,1325068<TOTAL-REVENUES> 7,860,1325069<CGS> 6,151,1955070<TOTAL-COSTS> 13,986,4855071<OTHER-EXPENSES> 05072<LOSS-PROVISION> (6,126,353)5073<INTEREST-EXPENSE> 05074<INCOME-PRETAX> 05075<INCOME-TAX> 05076<INCOME-CONTINUING> 05077<DISCONTINUED> 05078<EXTRAORDINARY> 05079<CHANGES> 05080<NET-INCOME> (5,531,145)5081<EPS-BASIC> (1.04)5082<EPS-DILUTED> (1.04)508350845085</TABLE>5086</TEXT>5087</DOCUMENT>5088</SEC-DOCUMENT>5089-----END PRIVACY-ENHANCED MESSAGE-----509050915092