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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended MARCH 31, 1995 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-11278
MINNTECH CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1229121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14605 - 28TH AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 553-3300
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.05 PER SHARE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of June 2, 1995, 6,432,933 shares of Common Stock, par value $.05 per share,
were outstanding, and the aggregate market value of the shares of Common Stock
(based upon the closing transaction price on such date as reported on the NASDAQ
National Market System) held by non-affiliates of the registrant was
approximately $76,473,000.
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DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENTS INCORPORATED BY REFERENCE 10-K PART AND ITEM WHERE INCORPORATED
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1. Certain portions of the Definitive Proxy Part III: Items 10,11, 12 and 13
Statement for the Annual Meeting of
Shareholders of the Registrant to
be held August 30, 1995
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This Form 10-K consists of 53 pages (including exhibits).
The index to exhibits is set forth on Page 34.
Page 1 of 53 pages
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
Minntech Corporation (the "Company") was incorporated on January 30, 1974 under
the laws of Minnesota. The Company is engaged in the development, manufacturing
and marketing of medical supplies and devices, sterilants and water filtration
products. The Company's products are used primarily in kidney dialysis and in
open-heart surgery. The trade name of Renal Systems is used for products sold
in the dialysis market, the trade name of Minntech is used for products sold in
the cardiosurgery market, and the trade name of Fibercor is used for marketing
water filtration products. The Company has core technologies in electronics,
fibers, plastics, and chemical solutions, all of which were internally
developed.
INDUSTRY SEGMENTS
Through March 31, 1995, the Company has been engaged in a single industry
segment -- medical devices and supplies. The Company also markets filtration
devices for industrial water purification applications. Through March 31, 1995,
sales revenues from such devices have not been material.
PRODUCTS
The Company has four interrelated product groups:
- Dialysis Supplies and Devices
- Reprocessing Products
- Cardiosurgery Products
- Water Filtration Products
DIALYSIS SUPPLIES AND DEVICES
The Company's main dialysis supply product is a line of concentrates used by
kidney centers to prepare dialysate (a salt solution) for hemodialysis
treatments. The Company provides the industry's most complete line of these
concentrates in both liquid and powder forms for use in virtually all types of
kidney dialysis machines. Sales of concentrate products accounted for more than
70% of all sales in this product group in each of the past three fiscal years.
The Company in fiscal 1992 introduced its first dialyzer (artificial kidney) -
the Renaflo -Registered Trademark- HDF1350 dialyzer. In fiscal 1993, the
Company introduced the Primus -Registered Trademark- line of second generation
dialyzers in Europe. In August 1994, the Company received FDA market clearance
to sell the Primus -Registered Trademark- dialyzer in the United States. These
dialyzer products contain the Company's proprietary high flux polysulfone
membrane, and the Company is one of only three manufacturers of such polysulfone
devices in the world. High flux dialyzers allow for more rapid dialysis, are
capable of shortening patient treatment time, and are less traumatic to blood
than dialyzers containing traditional membranes. Dialyzers are the single most
expensive supply item used in hemodialysis treatments. The worldwide annual
market for high flux types of dialyzers is estimated to be approximately $180
million. (Market size is based on published information on patient populations
and the Company's estimate of the percentage of treatments performed with high
flux dialyzers.) The Company's market share at March 31, 1995 was less than one
percent.
The Company's major dialysis electronic products are the Sonalarm-Registered
Trademark- Foam Detector, a device that detects air in blood during
hemodialysis, the Minipump -TM- Hemodialysis Blood Pump which
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circulates blood during hemodialysis, and a peritoneal dialysis pump. The
Sonalarm-Registered Trademark- and the Minipump-TM- are sold to end users and in
component form to other manufacturers of blood processing equipment. The
peritoneal pump is sold as an OEM component to another manufacturer.
In 1992, the Company entered into an agreement with Akzo Faser AG (now AKZO
Nobel Faser AG ("Akzo")) to supply its Polyphen-TM- hollow fiber dialyzer
membrane on an exclusive basis. Under the agreement, Akzo was obligated to
purchase certain minimum quantities of fiber over five years from 1992 to 1997.
In 1995, the Company and Akzo terminated this agreement and concluded an
arrangement allowing Akzo to purchase fiber on a non-exclusive basis without
minimum requirements. This new arrangement allows the Company to sell fiber (or
dialyzers containing this fiber) to any other customers worldwide. Sales to
Akzo in fiscal 1995 amounted to approximately $1,170,000. In fiscal years 1994
and 1993, sales under the agreement totaled $654,000 and $450,000, respectively.
These dialysis products accounted for approximately 33% of product sales in
fiscal 1995, 34% of product sales in fiscal 1994 and 27% of product sales in
fiscal 1993.
REPROCESSING PRODUCTS
Reprocessing products include the Renatron -Registered Trademark- Dialyzer
Reprocessing System and associated supplies including Renalin -Registered
Trademark-, a cold sterilant solution which replaces formaldehyde in dialyzer
reprocessing, and Actril -Registered Trademark- Cold Sterilant, a kidney machine
disinfectant.
In response to government-mandated cost containment measures, many U.S. dialysis
centers in the late 1970s began reusing dialyzers (artificial kidneys) instead
of discarding them after a single use. In 1982, the Company introduced the
Renatron -Registered Trademark-, a machine that provides an automated method of
rinsing, cleaning, testing, and sterilizing dialyzers for multiple reuse. In
1985 dialysis centers began using Renalin -Registered Trademark- sterilant for
manual reprocessing of dialyzers. In 1990, the Company began sales of the
Renatron -Registered Trademark- II, a second generation system that includes a
bar code reader, computer and Renalog -Registered Trademark- software for
automated record keeping and analysis. Recent data released by the Centers for
Disease Control ("CDC") indicate that, as of 1993, 79% of all U.S. hemodialysis
patients were treated in centers that reuse dialyzers. The CDC also reported
that 73% of all dialysis centers in the United States reuse dialyzers and 51%
of these centers used Renalin -Registered Trademark- to sterilize their
dialyzers. The other dialysis centers used primarily formaldehyde or
glutaraldehyde disinfectants to reprocess dialyzers.
The Company believes its Renatron -Registered Trademark- system is faster and
easier to use than competitive automated systems. The Company also believes that
the Renatron -Registered Trademark- system is the top selling automated dialyzer
reprocessing system in the world. At March 31, 1995, the Company had an
installed customer base of more than 2,000 Renatron -Registered Trademark-
systems.
During fiscal 1994, the Company completed the purchase of a sterilant product
line from a German firm as part of its strategy of geographic expansion of its
reprocessing business. Unlike the United States market, dialyzer reuse is in
the formative stages in Europe. The Company has increased its reprocessing
product sales in Europe by employing direct salespersons in major dialysis
markets and promoting the advantages of reuse.
In September 1994, the Company purchased an endoscope reprocessor product line
from Bard Interventional Products, a division of C.R. Bard, Inc. for $934,000 in
cash. Manufacturing of the products was assimilated into the Company's
electronic device production facility in Plymouth, Minnesota. The endoscope
reprocessing machine provides high level disinfection for flexible endoscopes
and is marketed to gastroenterology units of hospitals and ambulatory care
units.
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The Company began sales of the Cathetron-Registered Trademark- Reprocessing
System in Europe in April 1994. The Cathetron-Registered Trademark- System,
along with its companion cold sterilant CATHx-Registered Trademark-, provides an
automated method of cleaning and sterilizing cardiovascular catheters for
subsequent reuse. At March 31, 1995, the Company remained in the early stages
of marketing the Cathetron-Registered Trademark- System in Europe and certain
other international markets. The Company plans to submit an Investigational
Device Exemption application to the FDA in fiscal 1996 so that clinical trials
can be conducted in the United States.
Reprocessing products accounted for approximately 32% of product sales in fiscal
1995 and 28% of product sales in fiscal years 1994 and 1993.
CARDIOSURGERY PRODUCTS
The primary products in this group at March 31, 1995 consisted of three hollow
fiber devices.
OXYGENATORS
Since 1987 the Company has manufactured a hollow-fiber membrane oxygenator for
use in open-heart surgery. The device contains a highly efficient, integrated
heat exchanger, and the Company believes that the unit is capable of
transferring more oxygen than competitive products. Since 1987, the Company has
manufactured the oxygenator for exclusive worldwide distribution pursuant to an
agreement with C.R. Bard, Inc. ("Bard") Bard agreed to purchase certain minimum
quantities of the oxygenator through December 31, 1995. These minimum
quantities had an annual sales value to the Company of approximately $10
million, and Bard's annual purchases through March 31, 1995 exceeded such
minimums.
Bard and the Company in April 1995 entered into a new agreement for the sale of
the oxygenator whereby Bard has agreed to purchase certain minimum quantities of
the oxygenator through March 31, 1997, but the agreement also allows Bard to
continue purchasing the oxygenator through June 30, 1997, without any minimum
purchase obligation. Bard will have exclusive distribution rights through March
31, 1997 and nonexclusive rights thereafter. Bard's minimum purchase obligation
under the agreement for the period April 1, 1995 to March 31, 1997 has a sales
value to the Company of approximately $20 million. The agreement restricts Bard
from selling any other oxygenator until January 1, 1997, but permits the Company
to begin worldwide sales of its second generation oxygenator whenever it becomes
commercially available. See "Significant Customers."
The Company is developing a second generation oxygenator that requires less
priming volume while improving the performance over its existing product. The
device incorporates the Company's proprietary weaving technology for the
membrane oxygenation compartment and heat exchange compartment. At March 31,
1995, the product was in the final stages of development.
HEMOCONCENTRATORS
Since 1985, the Company has manufactured and sold hemoconcentrators, a
filtration device that removes excess body fluids during open-heart surgery. In
1988, the Company introduced a second generation product, the Hemocor Plus -
Registered Trademark- hemoconcentrator, a rinse-free device that allows for
faster set-up during surgery. In February 1994, the Company received FDA market
clearance for a third generation product, the Hemocor HPH -Registered Trademark-
line which contains a higher performance hollow fiber membrane. The Company
estimates that hemoconcentration is currently used in 25% of all open-heart
procedures in the United States and to a lesser extent internationally and that
such procedures require up to 125,000 hemoconcentrator devices annually
worldwide. At March 31, 1995, the Company held more than a 50% share of the
United States hemoconcentrator market.
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HEMOFILTERS
The Renaflo-Registered Trademark- Hemofilter, introduced in 1985, is a device
that performs continuous arteriovenous hemofiltration (CAVH), an intensive care
therapy that treats acute renal failure and fluid overload in critically ill
patients. CAVH is an alternative to conventional dialysis for these patients.
Cardiosurgery products accounted for approximately 33% of product sales in
fiscal 1995, 37% of product sales in fiscal 1994, and 44% of product sales in
fiscal 1993.
In April 1995, the Company completed the acquisition of the hemoconcentrator,
hemofilter and dialysate filter product lines from Amicon Ireland Ltd, an
indirect subsidiary of W.R. Grace & Co. ("Amicon"). The purchase price was
approximately $1.4 million, paid in cash. These products are expected to
generate approximately $4 million in sales in the first year. The Company also
signed a six-month supply agreement with Amicon whereby Amicon will contract
manufacture products for the Company to be sold in Europe. During this six-
month period, the Company expects to transfer manufacturing to its U.S.
facility.
WATER FILTRATION PRODUCTS
There are two major products in this group: Fiberflo -Registered Trademark-
Microfilters and Minncare -Registered Trademark- Disinfectant. The Fiberflo -
Registered Trademark- Microfilter is a hollow fiber filter that has "point of
use" applications in industrial water purification. These filters are being
used for finer filtration in the pharmaceutical, medical device, and
biotechnology industries. Minncare -Registered Trademark- Disinfectant is used
to disinfect water treatment systems. Through March 31, 1995, water filtration
products sales revenues have not been material, accounting for approximately 1%
of product sales in fiscal 1994 and 2% of product sales in fiscal 1995.
MARKETS AND DISTRIBUTION
The Company sells its medical products in the United States primarily to
hospitals, clinics, and kidney treatment centers. The Company markets these
products in the United States through direct sales forces and through
independent stocking distributors. At March 31, 1995, the Company employed a
total of eight dialysis sales representatives in the United States, two
cardiosurgery sales representatives, two water filtration sales representatives,
and one endoscope reprocessor sales representative. In addition, a customer
service staff and a technical services department support field activity. The
Company also operates its own trucks to expedite delivery of certain products
and minimize shipping costs.
Until 1991, the Company had historically marketed its products internationally
through independent distributors. Starting in 1991, the Company began
establishing direct sales operations in Europe to enhance marketing of its
products. The Company's goal is to increase its revenues in Europe through
expanded direct sales activities. The Company recently established a
headquarters for its European operations in the Netherlands and employed a total
of 11 people in Europe at March 31, 1995.
The Company's dialysis marketing programs are directed at nephrologists (doctors
who specialize in treating kidney disease), nurses, hospital and clinic
administrators, and others who influence purchasing decisions. Cardiosurgery
marketing programs are directed at perfusionists (technicians who operate heart-
lung bypass equipment) and cardiovascular surgeons. The Company supports its
field organization and network of distributors through advertising, distribution
of sales materials, publication of articles in medical journals, and attendance
at medical conferences.
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NEW PRODUCTS
In July 1992, the Company submitted premarket notification to the FDA for
clearance of the Primus -Registered Trademark- series of dialyzers which utilize
the Company's internally developed polysulfone hollow fiber membrane. FDA
market clearance was finally received in August 1994, following a two-year
review cycle, and the Company commenced direct sales of the Primus -Registered
Trademark- dialyzer in the United States in September.
During fiscal 1995, the Company continued development of a second generation
membrane oxygenator and associated products, including venous blood reservoirs.
The new oxygenator is intended to replace the Company's existing oxygenator.
The new oxygenator is smaller in size, requires less priming volume and is
intended to have improved performance compared to the existing product. The
Company expects to complete development of these products in fiscal 1996, obtain
necessary market clearances, and commence sales.
SOURCES AND AVAILABILITY OF MATERIALS
The majority of the materials and components that the Company uses in its
manufacturing operations are readily obtainable from multiple sources worldwide.
In addition, the Company constructs many of its injection molds and also molds
and extrudes many of its component plastic parts.
PATENTS AND TRADEMARKS
The Company holds rights under 81 patents worldwide (including 32 U.S. patents)
covering its products or components thereof. At March 31, 1995, the Company also
had a total of 93 pending patent applications in the United States and in
foreign countries. The Company also holds rights under 114 trademark
registrations worldwide and has 75 applications pending.
The Company believes that patent protection is a significant factor in
maintaining its market position but the rapid changes of technology in kidney
dialysis therapy, cardiosurgery, and the other areas in which the Company
competes may limit the value of the Company's existing patents.
While patents have a presumption of validity under the law, the issuance of a
patent is not conclusive as to its validity or the enforceable scope of its
claims. Accordingly, there can be no assurance that the Company's existing
patents will afford protection against competitors with similar inventions nor
can there be any assurance that the Company's patents will not be infringed.
Competitors also may obtain patents that the Company would need to license or
design around. These factors also tend to limit the value of the Company's
existing patents. Consequently, in certain instances, the Company may consider
trade secret protection to be a more effective method of maintaining its
proprietary positions.
SEASONALITY OF THE BUSINESS
The Company's business is not seasonal.
WORKING CAPITAL AND BACKLOG
The Company's credit practices and related working capital needs are comparable
to those of other companies in the medical device and supplies industry. The
Company generally fills orders within 30 days of receipt. No material order
backlogs existed at March 31, 1994. An order backlog existed for
hemoconcentrators, dialyzers and water filters at March 31, 1995. This backlog
had an estimated aggregate sales value of $600,000, and the Company expects to
fill these orders in fiscal 1996.
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SIGNIFICANT CUSTOMERS
The Company's five largest customers in fiscal 1995 accounted for approximately
40% of total product sales. Sales of oxygenators to C.R. Bard, Inc. ("Bard")
accounted for 25% or more of product sales in fiscal years 1995, 1994 and 1993.
Bard agreed to purchase certain minimum quantities of the oxygenator under a
contract that began in fiscal 1988 and was scheduled to terminate December 31,
1995. In April 1995, a new agreement was reached extending the term to
June 30, 1997. The loss of Bard as a customer would likely have a material
adverse effect upon the Company's business if the Company was unable to
successfully market the oxygenator (or successor products) itself or to arrange
for other means of distribution. See "Oxygenators" under "Products."
RENEGOTIATION OR TERMINATION OF GOVERNMENT CONTRACTS
No material portion of the Company's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
Government.
COMPETITION AND MARKET CONDITIONS
The Company's dialysis and reprocessing products are sold in a highly
competitive market, and the Company competes with many other firms. The dialysis
market is dominated by a few firms including Baxter International, Gambro AB
(CGH Medical), W.R. Grace & Co. (National Medical Care), and Fresenius AG.
These firms have substantially greater financial and personnel resources than
the Company and most of them produce and sell a more comprehensive line of
dialysis equipment and supplies. The Company also faces competition from other
international companies and several smaller companies that carry a limited line
of products.
The Company's membrane oxygenator is sold exclusively by Bard Cardiopulmonary
Division of C.R. Bard, Inc. ("Bard") Bard's major competitors are Medtronic,
Inc., CGH Medical, Bentley Laboratories, Inc., Terumo Corporation and Avecor
Cardiovascular, Inc. The Company's hemoconcentrators are sold by its own direct
sales force and by a network of independent medical distributors. The major
competitors in the hemoconcentrator market are CGH Medical, C.R. Bard, Inc., and
Bentley Laboratories, Inc.
The health care industry in the United States operates under cost containment
pressures imposed by the federal government, employers, and health insurance
carriers. One major influence is the Medicare Prospective Payment System,
implemented in 1983, which provides for fixed payments to hospitals for care of
Medicare patients based on diagnosis rather than actual hospital charges (the
DRG system). In addition, the Company's end user customers for its dialysis and
reprocessing products are subject to fixed payments per treatment under separate
Medicare regulations which have been in place for more than 20 years.
Health care providers, in general, have responded by shortening hospital stays
through quicker clinical diagnoses and by employing less invasive medical
procedures and more efficient therapies. In addition, hospitals and other health
care providers have sought to lower their costs by reducing their purchased
supplies costs and by improving their utilization of facilities and equipment.
Dialysis centers, in particular, have also responded by reprocessing and reusing
dialyzers and other supplies and by shortening treatment times.
Under the current cost containment environment, the competitive factors in the
medical markets served by the Company are such that cost reduction is a prime
consideration. Although cost containment may adversely affect some of the
Company's supply products, cost containment pressures may be a positive factor
for certain of the Company's products such as its dialyzer reprocessing
products, hemoconcentrators, and the Cathetron-Registered Trademark-
Reprocessing System.
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Proposals to reform the health care system in the United States are under
consideration at various levels of government. Areas under review include the
uninsured segment of the population, the rise in national health care
expenditures and the portion of the total gross domestic product (GDP) consumed
by health care costs. It is possible that changes to the existing health care
system may be enacted into law in the future. The Company cannot predict the
effect, if any, such changes will have on the Company's operating results.
RESEARCH AND PRODUCT DEVELOPMENT
The Company strives to design and develop technologically advanced products that
are cost effective and, in the case of its medical products, improve the quality
of patient care. The Company emphasizes product development rather than basic
research. The ability of the Company to compete effectively depends upon its
ability to anticipate changing market needs and successfully develop products to
meet those needs.
As of March 31, 1995, 17 of the Company's employees were engaged in research and
development. In addition to its own research activities, the Company from time
to time obtains experimental and clinical research from outside investigators,
consultants and institutions.
Over the past three years the Company has expended a total of $8,431,000 in
research and development as follows: fiscal 1993 - $2,405,000, fiscal 1994-
$2,893,000, and fiscal 1995 - $3,133,000. Such costs represented 5.4%, 6.1% and
5.6% of total revenues, respectively, in each such period.
The Company's current research and development efforts are directed toward
reprocessing applications, blood filtration and oxygenation technologies, and
cold sterilant/ disinfection applications.
GOVERNMENT REGULATION
The medical products manufactured and marketed by the Company are subject to the
Federal Food, Drug and Cosmetic Act and the Medical Device Amendments of 1976
(collectively, the "FDCA"). These laws give the Food and Drug Administration
("FDA") extensive regulatory authority over medical products developed,
manufactured or marketed by the Company in the United States. The FDCA requires
the Company to register with the FDA, provide updated device listings and submit
a premarket notification to FDA when (i) a device is being introduced into the
market for the first time; (ii) the manufacturer makes a significant change or
modification to an already marketed device that could affect safety or
effectiveness; or (iii) there is a major change or modification in the intended
use of the device. The FDCA also requires that the Company submit a premarket
approval application for devices that are life supporting or sustaining, or
present a potential unreasonable risk of injury or illness. In addition, the
FDCA subjects the Company to the Good Manufacturing Practice regulations under
which the FDA conducts periodic unannounced inspections to verify compliance.
Further, the FDCA imposes certain requirements regarding manufacturing
procedures, distribution, advertising, labeling, and record keeping. The FDA
also has the power to order suspension of manufacturing or marketing or to
recall products that are not in compliance with law.
Before introducing its products into the market, the Company must comply with
the premarket approval and/or notification provisions of the FDCA. Data
regarding the product's safety and effectiveness must be submitted to the FDA.
In some instances, clinical studies may be necessary to obtain this data.
Before commencing clinical trials, the Company must apply for an
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Investigational Device Exemption ("IDE"). Under an approved IDE, a device is
exempt from certain FDA provisions including misbranding, registration, listing,
premarket approval, records and reports and good manufacturing practices, thus
enabling the applicant company to test a device clinically. Before an IDE is
granted, sufficient nonclinical data must be submitted to demonstrate that the
device is safe and effective. Significant time and expense may be associated
with the collection of both clinical and nonclinical data and there are no
assurances, that the necessary FDA premarket approvals or clearances will be
granted.
During 1992 and 1993, the time between submission to the FDA and final clearance
for marketing increased substantially; however, review times by the FDA are
beginning to decrease. Notwithstanding, there are no assurances that this trend
will continue, and the Company is still experiencing delays in receiving product
clearances.
In January 1995, the Company received ISO 9001 certification for its Plymouth,
Minnesota facilities. This certification allows the Company to self-certify its
products for sale throughout the European Community. In order to self-certify,
the Company must maintain certain records and files which are reviewed by a
"notified body" organization on an annual basis. Many of the Company's products
now display the CE (Communaute Europeene) mark.
Certain products of the Company are also subject to registration with the
Environmental Protection Agency (EPA). The registration process generally
entails the collection and submission of data to support the products' label
claims. Considerable time and cost may be involved with the collection of data
to support these submissions, and there are no assurances that the necessary EPA
approvals will be granted for the Company's new products. Currently, EPA and
FDA have entered into a memorandum of understanding whereby the agencies intend
to cooperate on chemical product submissions that are currently duplicative for
both applicants and the agencies.
Compliance with federal, state, and local provisions regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, do not have a material adverse effect upon the capital
expenditures, earnings, and competitive position of the Company.
EMPLOYEES
As of March 31, 1995, the Company employed 341 persons, including 244 in
manufacturing operations. None of the employees is covered by a collective
bargaining agreement, and the Company believes its employee relations are good.
GEOGRAPHIC AREA INFORMATION
The major foreign markets for the Company's products are Western Europe and the
Far East. Sales outside the United States for the years ended March 31, 1993,
1994 and 1995 were approximately $3,856,000, $4,586,000, and $7,261,000,
respectively. Sales outside the United States accounted for approximately 9%,
10% and 13% of total sales in each such period.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, and the year they became
executive officers are listed below:
First Elected
Name Position with Company Age as Officer
- - ------------------- -------------------------- ------ --------------
Louis C. Cosentino, Ph.D. President, Chief Executive
Officer and Director 51 1974
LeRoy J. Fischbach Vice President-Regulatory 51 1980
Affairs
Thomas J. McGoldrick Executive Vice President 54 1985
Daniel H. Schyma Vice President - International 53 1992
Douglas A. Luehmann Vice President - Reprocessing 52 1993
Products
Richard P. Goldhaber Vice President - Research 51 1993
& Development
Barbara A. Wrigley Vice President, General 44 1994
Counsel and Secretary
Robert W. Johnson Vice President - Quality 39 1994
Assurance
David F. Meyer Vice President - Finance 41 1995
and Chief Financial Officer
Executive officers are elected annually by the Board of Directors and serve
until their successors are duly elected and qualified. Dr. Cosentino and Mssrs.
Fischbach, McGoldrick and Schyma have been employed by the Company in an
executive or management capacity for more than five years.
Mr. Luehmann joined the Company in June 1991, having previously been employed by
the Regional Kidney Disease Program of Minneapolis from 1966 to 1991. At RKDP,
Mr. Luehmann held several technical positions including Director of Technical
Services and Quality Assurance from 1986 to 1991.
Mr. Goldhaber joined the Company in November 1993, having previously been
employed by Baxter Healthcare Corporation from 1965 to 1993 in various
manufacturing and engineering capacities including Vice President, New Product
Development for Baxter's European operations.
Ms. Wrigley joined the Company in September 1991, having previously been
associated with the Minneapolis law firm of Dorsey & Whitney from 1989 to 1991
and the Cleveland-based firm of Jones, Day, Reavis & Pogue during 1991. While
in private practice, Ms. Wrigley specialized in the areas of intellectual
property and general corporate law.
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Mr. Johnson joined the Company in August 1992, having previously been employed
from 1991 to 1992 as Director of Quality Assurance and Regulatory Affairs at
Aortech Inc., a manufacturer of artificial heart valves. From 1989 to 1991, Mr.
Johnson was Director of Operations at Specialty Engineering Corporation, a
custom metal fabricator for the computer and medical device industries.
Mr. Meyer joined the Company in May 1995. From January 1994 to May 1995, he
served as Vice President of Finance and Administration and Chief Financial
Officer for Tele Digital Development, Inc., a company which designs and sells
call management software for cellular telephones. From 1988 to 1993, Mr. Meyer
was Vice President of Finance and Administration and Chief Financial Officer at
Clarus Medical Systems, Inc., a manufacturer of disposable endoscopes.
ITEM 2. PROPERTIES
UNITED STATES
The Company owns two facilities located on adjacent sites, comprising a total of
14 acres of land in Plymouth, a suburb of Minneapolis, Minnesota. One facility
is a 65,000 square-foot building, occupied by the Company since 1977, which is
used for manufacturing and warehousing operations. The second facility is a
110,000 square-foot building, purchased in 1990, that houses the Company's
executive, administrative and sales staffs, and research operations. This
building is also used for manufacturing and warehousing.
The Company also owns two parcels of undeveloped land adjacent to these
facilities comprising a total of 7.8 acres.
EUROPE
In January 1995, the Company purchased a 21,000 square-foot building on a 4.4
acre site in Heerlen, The Netherlands. Occupancy commenced in April 1995. The
facility will serve as the Company's European headquarters and is being used as
a sales office, warehouse and manufacturing facility.
At March 31, 1995, the Company leased 5,500 square feet of office/warehouse
space in Ober-Morlen, Germany.
The Company believes its facilities are in good condition, being utilized for
their intended purposes, and have sufficient capacity to meet its reasonably
anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal proceedings which it
regards as likely to have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1995.
-10-
Page 11 of 53
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System under
the symbol "MNTX." The prices below are the high and low transaction prices as
reported in each quarter of the last two fiscal years.
<TABLE>
<CAPTION>
Years Ended March 31
Fiscal ------------------------------------
Quarter Prices 1995 1994
-------------- --------------- ----------------
High Low High Low
------ ----- ------ -----
<S> <C> <C> <C> <C>
First Quarter $ 12.50 $10.50 $14.50 $10.50
Second Quarter 16.50 11.50 14.75 9.75
Third Quarter 16.00 12.25 12.75 8.13
Fourth Quarter 16.50 14.50 13.00 10.00
</TABLE>
As of June 2, 1995, the Company had approximately 550 shareholders of record.
The Company for the first time paid an annual cash dividend of ten cents per
share on its common stock in September 1994. The Board of Directors will
consider annually the payment of dividends. However, any future determination
as to payment of cash dividends will depend upon the financial condition and
results of operations of the Company and such other factors that are deemed
relevant by the Board of Directors.
-11-
Page 12 of 53
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended March 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA
Net sales - products $ 55,882,512 $ 47,487,981 $44,016,645 $ 34,793,390 $ 28,688,051
Contract revenues 300,000 300,000 300,000 100,000 ---
------------ ------------ ----------- ------------ ------------
Total revenues 56,182,512 47,787,981 44,316,645 34,893,390 28,688,051
Cost of product sales 31,774,240 26,620,243 24,799,821 19,709,208 17,061,579
Research and development
expenses 3,133,075 2,892,514 2,404,838 2,099,375 1,647,505
Selling, general and
administrative expenses 11,939,902 10,053,196 9,552,534 7,013,315 5,434,088
Amortization of intangible
assets 358,068 197,578 141,473 105,573 101,661
------------ ------------ ----------- ------------ ------------
Earnings from operations 8,977,227 8,024,450 7,417,979 5,965,919 4,443,218
Other income (expense),
net 236,630 (44,345) 115,181 (11,519) 82,894
------------ ------------ ----------- ------------ ------------
Earnings before income
taxes 9,213,857 7,980,105 7,533,160 5,954,400 4,526,112
Provision for income
taxes 3,294,000 3,045,000 2,814,000 2,128,000 1,590,000
------------ ------------ ----------- ------------ ------------
Net earnings $ 5,919,857 $ 4,935,105 $ 4,719,160 $ 3,826,400 $ 2,936,112
------------ ------------ ----------- ------------ ------------
------------ ------------ ----------- ------------ ------------
Net earnings per share $.90 $ .78 $ .72 $ .58 $ .46
Weighted average
common and common
equivalent shares 6,613,391 6,354,348 6,524,277 6,630,797 6,383,003
BALANCE SHEET DATA
Cash, cash equivalents and
marketable securities $ 4,487,345 $ 7,698,787 $ 6,249,516 $ 7,120,991 $ 3,869,036
Working capital 18,105,889 17,874,988 13,653,062 11,239,365 8,696,802
Property and equipment,
net 15,631,510 12,899,800 12,039,244 10,909,692 8,735,879
Total assets 41,273,591 36,029,630 31,352,470 27,943,534 21,361,767
Long-term debt - 1,905,920 1,942,577 1,961,966 2,960,855
Stockholders' equity 35,052,404 28,704,406 23,066,499 19,131,053 14,298,829
Book value per common
share $5.49 $4.66 $3.80 $3.26 $2.47
GENERAL DATA AND RATIOS
Current ratio 4.56 5.36 3.71 3.08 3.44
Gross margin on net
product sales 43.1% 43.9% 43.7% 43.4% 40.5%
Net earnings as a %
of total revenues 10.5% 10.3% 10.6% 11.0% 10.2%
Return on average stockholders'
equity 18.6% 19.1% 22.4% 22.9% 23.4%
</TABLE>
-12-
Page 13 of 53
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues in fiscal year 1995 increased by $8,395,000, or 18%, due to
increased unit sales of all major product lines except for sales of membrane
oxygenators to C.R. Bard, Inc. ("Bard") which remained approximately constant
with the prior year. Product price increases in fiscal year 1995 accounted for
approximately 10% of the increase in revenue dollars.
Sales of oxygenators to Bard accounted for 25% of revenues in fiscal year 1995
under a contract that was scheduled to expire December 31, 1995. In April 1995,
a new agreement was reached extending the term to June 30, 1997. The Company
expects that unit sales of oxygenators to Bard in fiscal year 1996 will
approximate fiscal year 1995 shipments. Unit sales in fiscal year 1997 are
scheduled to decrease substantially. The decline in sales to Bard in future
fiscal years is expected to be offset to a certain extent (in whole or in part)
by sales of the Company's second generation oxygenator which was under
development at March 31, 1995.
Total revenues in fiscal year 1994 increased by $3,471,000, or 8%, due primarily
to higher unit sales of dialysis concentrate products and dialyzer reprocessing
supplies which more than offset a decline in unit sales of cardiosurgery
products, primarily membrane oxygenators. Product price increases in fiscal
year 1994 accounted for approximately 15% of the increase in revenue dollars.
Changes in foreign currency exchange rates did not have a significant impact on
the Company's revenues in fiscal years 1995, 1994 and 1993.
Product sales have grown at a compound annual rate of 17% over the past three
years. The following table indicates sales and percent of total corporate sales
by product group for each of the last three fiscal years:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Dialysis supplies and devices $ 18,552,000 33% $ 16,223,000 34% $ 12,065,000 27%
Reprocessing products 17,816,000 32 13,127,000 28 12,358,000 28
Cardiosurgery products 18,263,000 33 17,637,000 37 19,271,000 44
Water filtration products 1,252,000 2 501,000 1 323,000 1
------------- ---- ------------- ---- ------------- ----
$ 55,883,000 100% $ 47,488,000 100% $ 44,017,000 100%
------------- ---- ------------- ---- ------------- ----
------------- ---- ------------- ---- ------------- ----
</TABLE>
The Company recorded $300,000 in contract revenues in fiscal years 1995, 1994
and 1993 under a hollow fiber membrane supply agreement. No further contract
revenues will be recorded under this agreement.
-13-
Page 14 of 53
<PAGE>
GROSS MARGINS
Gross profit from product sales in fiscal 1995 was $24,108,000, or 43.1% of net
sales, compared to $20,868,000, or 43.9%, in fiscal 1994 and $19,217,000, or
43.7%, in fiscal 1993. The decrease in gross margin in fiscal 1995 resulted
primarily from reduced dialysis concentrate margins. The improvement in gross
margin in fiscal 1994 resulted from higher manufacturing volumes of dialysis
concentrate and manufacturing efficiencies which lowered unit costs. Unabsorbed
dialyzer manufacturing costs depressed gross margins in each of fiscal years
1995, 1994, and 1993.
Some of the Company's research and development efforts are directed to the
development of new versions of existing products. Gross margin in the past has
not been materially impacted by obsolete inventories resulting from the
introduction of new products. The Company does not expect inventory obsolescence
to impact gross margins significantly in the foreseeable future.
RESEARCH AND DEVELOPMENT
Research and development expenses increased in each of the past three fiscal
years. Development expenditures in fiscal 1995 were $3,133,000, or 5.6% of total
revenues, compared to $2,893,00, or 6.1% of total revenues, in fiscal 1994 and
$2,405,000, or 5.4% of total revenues, in fiscal 1993. The higher expenses in
fiscal years 1995 and 1994 reflected planned increases in development
activities. The Company intends to continue investing a substantial portion of
its revenues in new product development. The Company expects that total
research and development expenses in fiscal 1996 will approximate 6% of
revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general, and administrative expenses as a percentage of total revenues
were 21.3% in fiscal 1995 compared to 21.0% in fiscal 1994 and 21.6% in fiscal
1993. The higher costs in fiscal 1995 were due primarily to increases in sales
staffs and expanded marketing efforts in the United States and Europe. Fiscal
1994 expenses included $566,000 of legal expenses associated with a lawsuit in
which the Company was the plaintiff. The lawsuit was settled in April 1994. The
Company expects selling, general, and administrative expenses will approximate
22% of total revenues in fiscal 1996.
INCOME TAXES
The Company recorded an income tax provision in fiscal 1995 of $3,294,000, an
effective tax rate of 35.8%, compared to effective tax rates of 38.1% in fiscal
1994 and 37.4% in fiscal 1993. The decrease in the Company's income tax rate in
fiscal 1995 was due primarily to the deduction of losses related to the
investment in a foreign subsidiary. The Company expects that its income tax
rate in fiscal 1996 will be approximately 36%.
NET EARNINGS
Net earnings increased by 20% in fiscal 1995 and totaled $5,920,000, or 10.5% of
total revenues, compared to net earnings of $4,935,000, or 10.3% of total
revenues, in fiscal 1994 and net earnings of $4,719,000, or 10.6% of total
revenues, in fiscal 1993. The increase in earnings in fiscal years 1995 and 1994
was due to higher sales revenues.
INFLATION
Management believes inflation has not had a material effect on the Company's
results of operations or on its financial condition.
-14-
Page 15 of 53
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong balance sheet, as evidenced by the
following liquidity trends:
<TABLE>
<CAPTION>
March 31
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash, cash equivalents
and marketable securities $ 4,487,000 $ 7,699,000 $ 6,250,000
Working capital 18,106,000 17,875,000 13,653,000
Long-term debt - 1,906,000 1,943,000
Stockholders' equity 35,052,000 28,704,000 23,067,000
Cash flow from operations 5,615,000 5,183,000 4,808,000
Cash dividends paid 623,000 - -
</TABLE>
The decrease in cash and cash equivalents in fiscal 1995 was due primarily to
real estate acquisitions, retirement of long-term debt, and the acquisition of a
product line. The Company's current ratio at March 31, 1995 was 4.6 to 1
compared to 5.4 to 1 at March 31, 1994. The Company has an unused $2,000,000
bank line of credit that allows the Company to borrow on an unsecured basis at
the prime rate of interest (9% at March 31, 1995).
Inventories and accounts receivable increased during fiscal 1995 due primarily
to the increased level of sales.
During fiscal 1995, the Company retired mortgage debt of $1,942,000 on one of
its buildings, purchased a 21,000 square foot building in Heerlen, The
Netherlands for $1,539,000, and acquired 5.2 acres of undeveloped land in
Plymouth, Minnesota for $530,000. The Company also continued to expand its
production facilities to increase capacity to manufacture new products in fiscal
1995. The Company expended a total of $3,573,000 for plant improvements and
equipment in fiscal 1995 compared to $2,970,000 in fiscal 1994 and $3,270,000 in
fiscal 1993. The Company plans to invest approximately $4,000,000 in capital
equipment in fiscal 1996 to meet the needs of its expanding business.
In fiscal 1995, the Company acquired an endoscope reprocessing product line for
$934,000, paid in cash. Subsequent to year-end, in April 1995, the Company
acquired a group of hollow fiber product lines for $1,402,000 in cash, payable
in two cash installments through July 1995. Assets acquired in both of these
transactions included inventory, equipment, and goodwill.
During fiscal years 1994 and 1993, the Company repurchased 27,500 shares and
98,200 shares of its common stock in open market transactions for $264,000 and
$1,337,000, respectively.
The Company believes that its strong financial condition at March 31, 1995,
along with funds expected to be generated from operations, will be sufficient to
meet its working capital and capital equipment needs in fiscal 1996.
FOREIGN CURRENCY TRANSACTIONS
Substantially all of the Company's U.S.-based export sales are invoiced and paid
in U.S. dollars. The transactions of the Company's German-based subsidiary are
invoiced and paid in German marks and U.S. dollars. The Company does not
currently hedge its foreign currency transactions. Accordingly, the Company is
subject to risks associated with fluctuations in currency exchange rates.
-15-
Page 16 of 53
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Reports of Independent Certified Public Accountants
are contained on pages 19 through 31 of this report.
QUARTERLY FINANCIAL DATA
Quarterly financial data has not been submitted because the Company has less
than 800 shareholders of record.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Grant Thornton LLP, the Company's independent accountants since 1974, was
dismissed on January 30, 1995 and Price Waterhouse LLP was appointed as the
CompanyOs new independent accountants. Grant Thornton's report on the financial
statements for the years ended March 31, 1994 and 1993 was unqualified. There
have been no disagreements with Grant Thornton LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. There have occurred no "reportable events" as defined in Item 304(a)
of Regulation S-K. The decision to change accountants was recommended by the
Audit Committee of the Company's Board of Directors and approved by the Board of
Directors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item with respect to directors will be
included under the heading "Election of Directors" in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held August 30,
1995, and is incorporated herein by reference.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, information as to
executive officers of the Company is set forth in Part I of this Form 10-K under
the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item will be included under the heading
"Executive Compensation and Other Information" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held August 30, 1995, and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required under this Item will be included under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held August 30, 1995, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item with respect to certain relationships and
related transactions, will be included under the heading "Certain Transactions"
in the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on August 30, 1995, and is incorporated herein by
reference.
-16-
Page 17 of 53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Page
----------
(a) DOCUMENTS FILED AS PART OF REPORT:
1. Financial Statements.
The following consolidated financial
statements of the Company and its
subsidiaries are filed as a part of Form 10-K
(i) Consolidated Balance Sheets 19
March 31, 1995 and 1994
(ii) Consolidated Statements of Earnings 20
three years ended March 31, 1995, 1994, and
1993
(iii) Consolidated Statements of Stockholders' Equity 21
three years ended March 31, 1995, 1994, and
1993
(iv) Consolidated Statements of Cash Flows 22
three years ended March 31, 1995, 1994, and
1993
(v) Notes to Consolidated Financial Statements 23 to 29
(vi) Reports of Independent Certified Public
Accountants 30 and 31
2. Schedules filed as part of Form 10-K: none
All schedules are omitted because they are not
applicable to the Company or because the
information required is included in the
consolidated financial statements and notes
thereto.
3. Exhibits included herein:
3(a) Articles of Incorporation as amended (1)
3(b) Amendment of By-Laws in March 1986 (2)
3(c) Restated By-Laws (2)
-17-
Page 18 of 53
<PAGE>
4 Form of Specimen Common Stock Certificate (3)
10(a) 1989 Stock Plan, as amended August 28, 1991 and
August 25, 1993 (4)
10(b) Restated 1982 Incentive Stock Option Plan, as
amended (1)
10(c) Form of Employment Agreement dated April 22, 1986
with certain officers of the Company (5)
10(d) Form of Amendment dated February 27, 1989 to Employment
Agreements dated April 22, 1986 (5)
10(e) Form of Employment Agreement dated February 27, 1989 with
certain officers and key employees of the Company (5)
10(f) 1990 Employee Stock Purchase Plan, as amended
June 1, 1993 (3)
10(g) Supplemental Executive Retirement Plan effective
April 1, 1995
10(h) Severance Agreement with Robert M. Rosner dated
March 22, 1995
10(i) Consulting Agreement with Robert M. Rosner dated
May 31, 1995
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Grant Thornton LLP
27 Financial Data Schedules
(1) Incorporated by reference to the specified exhibit
filed as part of the Company's Annual Report on
Form 10-K for the year ended March 31, 1988,
File No. 0-11278.
(2) Incorporated by reference to the specified exhibit filed
as part of the Company's report on Form 8-K on
March 12, 1986, File No. 0-11278.
(3) Incorporated by reference to the specified exhibit
filed as part of the Company's Annual Report on Form 10-K
for the year ended March 31, 1993, File No. 0-11278.
(4) Incorporated by reference to exhibit 4(a) filed as part
of the Company's registration statement on Form S-8,
which became effective on December 5, 1989, File
No. 33-32070.
(5) Incorporated by reference to the specified exhibit filed
as part of the Company's Annual Report on Form 10-K for
the year ended March 31, 1989, File No. 0-11278.
(b) REPORTS ON FORM 8-K.
A report on Form 8-K was filed on January 31, 1995
reporting a change in independent accountants.
-18-
Page 19 of 53
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,324,738 $ 6,206,818
Marketable securities 1,162,607 1,491,969
Accounts receivable, less allowance for
doubtful accounts of $125,000 and $124,000 10,329,512 7,716,545
Inventories 7,463,675 5,938,393
Prepaid expenses and other current assets 911,544 624,567
------------ ------------
TOTAL CURRENT ASSETS 23,192,076 21,978,292
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,145,529 7,206,735
Machinery and equipment 15,024,370 14,321,932
Office and sales equipment 2,000,058 1,720,179
------------ ------------
26,169,957 23,248,846
Less accumulated depreciation (10,538,447) (10,349,046)
------------ ------------
15,631,510 12,899,800
OTHER ASSETS
Patent costs, net of accumulated amortization
of $520,300 and $443,800 617,254 436,041
Goodwill, net of accumulated amortization
of $181,600 and $28,100 1,151,185 559,515
Other 681,566 155,982
------------ ------------
$ 41,273,591 $ 36,029,630
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 36,464
Accounts payable 2,810,844 2,379,818
Accrued compensation 1,684,072 822,610
Other accrued expenses 519,416 546,049
Income taxes payable 71,855 318,363
------------ ------------
TOTAL CURRENT LIABILITIES 5,086,187 4,103,304
LONG-TERM DEBT - 1,905,920
DEFERRED CONTRACT REVENUE - 300,000
DEFERRED INCOME TAXES 1,135,000 1,016,000
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock - 5,000,000 shares authorized,
none outstanding - -
Common stock - $.05 par value; 10,000,000
shares authorized; 6,384,758 and 6,163,757
shares issued and outstanding 319,238 308,187
Additional paid-in capital 9,124,098 8,161,543
Retained earnings 25,609,068 20,234,676
------------ ------------
35,052,404 28,704,406
------------ ------------
$ 41,273,591 $ 36,029,630
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are in integral part of these statements.
19
Page 20 of 53
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended March 31
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Net sales - products $55,882,512 $47,487,981 $44,016,645
Contract revenues 300,000 300,000 300,000
----------- ----------- -----------
Total revenues 56,182,512 47,787,981 44,316,645
OPERATING COSTS AND EXPENSES
Cost of product sales 31,774,240 26,620,243 24,799,821
Research and development 3,133,075 2,892,514 2,404,838
Selling, general and administrative 11,939,902 10,053,196 9,552,534
Amortization of intangible assets 358,068 197,578 141,473
----------- ----------- -----------
Total operating costs and expenses 47,205,285 39,763,531 36,898,666
----------- ----------- -----------
EARNINGS FROM OPERATIONS 8,977,227 8,024,450 7,417,979
OTHER INCOME (EXPENSE)
Interest expense (192,009) (250,697) (242,119)
Interest income and other, net 428,639 206,352 257,926
Income from settlement of litigation,
net of expenses - - 99,374
----------- ----------- -----------
236,630 (44,345) 115,181
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 9,213,857 7,980,105 7,533,160
Provision for income taxes 3,294,000 3,045,000 2,814,000
----------- ----------- -----------
NET EARNINGS $5,919,857 $ 4,935,105 $ 4,719,160
----------- ----------- -----------
----------- ----------- -----------
NET EARNINGS PER SHARE $ .90 $ .78 $ .72
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common
equivalent shares 6,613,391 6,354,348 6,524,277
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
20
Page 21 of 53
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock
--------------------------
Shares Additional
Issued and Paid-In Retained
Outstanding Amount Capital Earnings Total
------------ -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES APRIL 1, 1992 5,866,552 $293,327 $ 8,258,053 $10,579,673 $19,131,053
Exercise of stock options,
net of 50,590 shares
surrendered in payment 308,405 15,420 315,118 - 330,538
Tax benefit from exercise of
stock options - - 376,400 - 376,400
Surrender of common stock in
payment of employee taxes (9,803) (490) (156,358) - (156,848)
Repurchases of common stock (98,200) (4,910) (1,332,070) - (1,336,980)
Foreign currency translation
adjustment - - - 3,176 3,176
Net earnings - - - 4,719,160 4,719,160
--------- -------- ----------- ----------- -----------
BALANCES MARCH 31, 1993 6,066,954 303,347 7,461,143 15,302,009 23,066,499
Exercise of stock options,
net of 19,971 shares
surrendered in payment 124,303 6,215 314,488 - 320,703
Tax benefit from exercise of
stock options - - 648,100 - 648,100
Repurchases of common stock (27,500) (1,375) (262,188) - (263,563)
Foreign currency translation
adjustment - - - (2,438) (2,438)
Net earnings - - - 4,935,105 4,935,105
--------- -------- ----------- ----------- -----------
BALANCES MARCH 31, 1994 6,163,757 308,187 8,161,543 20,234,676 28,704,406
Exercise of stock options,
net of 25,465 shares
surrendered in payment 221,001 11,051 898,355 - 909,406
Tax benefit from exercise of
stock options - - 64,200 - 64,200
Dividend paid - - - (623,250) (623,250)
Unrealized holding losses
on investments (153,803) (153,803)
Foreign currency translation
adjustment - - - 231,588 231,588
Net earnings - - - 5,919,857 5,919,857
--------- -------- ----------- ----------- -----------
BALANCES MARCH 31, 1995 6,384,758 $319,238 $ 9,124,098 $25,609,068 $35,052,404
--------- -------- ----------- ----------- -----------
--------- -------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
21
Page 22 of 53
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 5,919,857 $ 4,935,105 $ 4,719,160
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 2,775,352 2,290,535 2,152,013
Tax benefit from stock option exercises 64,200 648,100 376,400
Deferred contract revenue (300,000) (300,000) (300,000)
Foreign currency exchange gain (204,146) - -
Deferred income taxes 31,800 105,000 163,000
Other 90,528 118,790 22,099
Changes in assets and liabilities:
Accounts receivable (2,429,575) (994,149) (1,600,383)
Inventories (1,198,859) (537,629) (1,208,786)
Prepaid expenses (157,777) (140,930) (128,011)
Accounts payable 432,485 (60,532) 438,866
Accrued expenses 837,459 (762,346) 292,805
Income taxes payable (246,647) (119,242) (119,584)
----------- ----------- -----------
Total adjustments (305,180) 247,597 88,419
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,614,677 5,182,702 4,807,579
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (5,111,925) (2,970,214) (3,269,893)
Purchase of undeveloped land (529,842) - -
Proceeds from sale of equipment 18,772 22,965 135,696
Purchase of marketable securities - - (1,569,616)
Patent application costs (385,725) (268,120) (242,081)
Acquisition of product lines (933,600) (467,453) (133,060)
Other (1,742) (2,572) (16,751)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (6,944,062) (3,685,394) (5,095,705)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (1,942,384) (29,402) (1,020,682)
Proceeds from long-term debt - - 19,695
Proceeds from exercise of stock options 909,406 320,703 330,538
Payment of cash dividend (623,250) - -
Repurchases of common stock - (263,563) (1,493,828)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,656,228) 27,738 (2,164,277)
Effects of exchange rate changes on foreign currency
cash balances 103,533 1,872 11,312
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,882,080) 1,526,918 (2,441,091)
Cash and cash equivalents at beginning of year 6,206,818 4,679,900 7,120,991
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,324,738 $ 6,206,818 $ 4,679,900
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
22
Page 23 of 53
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Minntech Corporation is a leader in developing, manufacturing and marketing
medical devices, sterilants and water filtration products. The Company's
products are used in kidney dialysis, open-heart surgery and in the preparation
of pure water for medical, industrial and laboratory use.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
REVENUE RECOGNITION
Sales are recognized at the time products are shipped. The Company allows
customers to return products for credit upon written authorization from the
Company.
Contract revenues derived from development and marketing agreements are recorded
as earned based on the performance requirements of the contract.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents consisted of:
<TABLE>
<CAPTION>
March 31
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash $1,819,125 $1,269,760
Commercial paper 502,213 3,935,088
Municipal bonds 1,003,400 1,001,970
---------- ----------
$3,324,738 $6,206,818
---------- ----------
---------- ----------
</TABLE>
A substantial portion of the Company's cash balances are held in one financial
institution.
Commercial paper and municipal bonds are stated at fair value, which
approximates cost at March 31, 1995 and 1994.
MARKETABLE SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), on April 1, 1994. In accordance with SFAS 115, prior
period financial statements were not restated to reflect the change in
accounting principle. The effect of applying the new standard to prior periods
would not have had a material impact on the Company's financial statements.
Marketable securities consisted of investments in bond funds. At March 31,
1995, the adjusted cost and fair value were $1,402,410 and $1,162,607,
respectively. Unrealized holding losses amounted to $239,803. These holding
losses, net of income taxes, are reported as a reduction in stockholders'
equity.
23
Page 24 of 53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined by
the first-in, first-out method.
Inventories consisted of:
<TABLE>
<CAPTION>
MARCH 31
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Finished goods $ 2,658,231 $ 2,952,356
Materials and work-in-process 4,805,444 2,986,037
----------- -----------
$ 7,463,675 $ 5,938,393
----------- -----------
----------- -----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are depreciated on a straight-line basis over their
estimated service lives. Accelerated and straight-line methods are used for
income tax reporting purposes.
PATENT COSTS
Patent application costs consist principally of legal and filing fees and are
capitalized and amortized over five years.
GOODWILL
Goodwill represents the cost in excess of the fair value of net assets acquired
and is amortized using the straight-line method over five to seven years. The
Company periodically evaluates the existence of goodwill impairment on the basis
of whether the goodwill is fully recoverable from projected, undiscounted net
cash flows of the related business unit.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." This standard required a
change from the deferred method of accounting for income taxes. Under the asset
and liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The adoption of this standard did not have a
material impact on the Company's financial statements and no cumulative effect
adjustment was required.
FOREIGN CURRENCY TRANSLATION
Foreign assets and liabilities are translated to U.S. dollars at year-end
exchange rates. Revenues and expenses are translated at the average exchange
rates in effect for the year. Unrealized translation adjustments are reported
as a component of stockholders' equity.
RECLASSIFICATIONS
Certain reclassifications have been made to conform the 1993 and 1994 financial
statements to the 1995 presentation.
24
Page 25 of 53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
MARCH 31
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Mortgage note, interest rate of 10.25%,
due in monthly installments of $18,528
including interest through November 1997.
Paid in full on December 1, 1994. $ - $ 1,931,459
Other - 10,925
----------- -----------
1,942,384
Less current maturities - (36,464)
----------- -----------
$ - $ 1,905,920
----------- -----------
----------- -----------
</TABLE>
Cash payments for interest amounted to approximately $192,000, $251,000 and
$242,000 for fiscal years 1995, 1994, and 1993, respectively.
At March 31, 1995, the Company had an unused line of credit with a commercial
bank that allows the Company to borrow up to $2,000,000 on an unsecured basis at
the prime rate of interest (9% at March 31, 1995). This line of credit expires
October 31, 1995.
NOTE C - SIGNIFICANT CUSTOMERS AND EXPORT SALES
Sales to one unaffiliated customer accounted for approximately 25%, 30% and 35%
of sales in fiscal years 1995, 1994 and 1993, respectively. The Company has a
corresponding concentration of accounts receivable due from this customer.
Sales to this customer are made under a contract which was scheduled to expire
December 31, 1995. In April 1995, the term of the contract was extended to June
30, 1997.
Consolidated sales outside the United States, principally to customers in
Western Europe and the Far East, amounted to $7,261,000, $4,586,000, and
$3,856,000 in fiscal years 1995, 1994 and 1993, respectively.
NOTE D - CONTRACT REVENUES
In January 1992, the Company entered into an agreement to manufacture and supply
hollow fiber membrane to another party. In consideration for entering into this
contract, the Company received a cash fee of $1,000,000, of which $900,000 was
deferred and earned at the rate of $300,000 per year over the three-year period
ended March 31, 1995.
25
Page 26 of 53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year ended March 31, Federal State Total
-------------------- ----------- ----------- -----------
<S> <C> <C> <C>
1995
Currently payable $ 3,016,300 $ 245,900 $ 3,262,200
Deferred 25,800 6,000 31,800
----------- ----------- -----------
$ 3,042,100 $ 251,900 $ 3,294,000
----------- ----------- -----------
----------- ----------- -----------
1994
Currently payable $ 2,721,000 $ 219,000 $ 2,940,000
Deferred 102,000 3,000 105,000
----------- ----------- -----------
$ 2,823,000 $ 222,000 $ 3,045,000
----------- ----------- -----------
----------- ----------- -----------
1993
Currently payable $ 2,454,900 $ 196,100 $ 2,651,000
Deferred 135,500 27,500 163,000
----------- ----------- -----------
$ 2,590,400 $ 223,600 $ 2,814,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The provision for income taxes differs from the statutory U.S. federal tax rate
of 34% applied to earnings before income taxes as follows:
<TABLE>
<CAPTION>
Years ended March 31
----------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense at
statutory federal
income tax rates $ 3,132,700 $ 2,713,200 $ 2,561,300
Foreign subsidiary losses 72,100 224,800 98,900
State income taxes, net
of federal tax benefit 166,300 155,000 147,600
Exempt income
attributable to
foreign sales (59,200) - -
Other, net (17,900) (48,000) 6,200
----------- ----------- -----------
$ 3,294,000 $ 3,045,000 $ 2,814,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
26
Page 27 of 53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of cumulative temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
March 31
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets
Foreign subsidiary net operating losses $ 705,300 $ 385,500
Inventories 108,200 119,800
Unrealized holding losses on investments 86,000 -
Accrued vacation pay 126,000 112,600
Other, net 59,000 (26,400)
---------- ----------
Gross deferred tax asset 1,084,500 591,500
Valuation allowance (705,300) (385,500)
---------- ----------
Net deferred tax asset $ 379,200 $ 206,000
---------- ----------
---------- ----------
Deferred tax liability
Plant and equipment depreciation $1,135,000 $1,016,000
---------- ----------
---------- ----------
</TABLE>
The Company recorded valuation allowances related to foreign subsidiary net
operating losses which are not recognized until utilized.
Cash payments for income taxes were approximately $3,452,000, $2,475,900 and
$2,394,000 in fiscal years 1995, 1994 and 1993, respectively.
NOTE F - COMMITMENTS
OPERATING LEASES
Total rental expense for operating leases for fiscal years 1995, 1994 and 1993
was approximately $808,000, $680,000 and $514,000, respectively.
Future minimum lease payments for operating leases, net of cancellation clauses,
consist of the following at March 31, 1995:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1996 $ 415,088
1997 181,502
1998 93,609
1999 24,673
---------
$ 714,872
---------
---------
</TABLE>
SEVERANCE AGREEMENTS
The Company has employment agreements with certain officers that provide
severance pay benefits if there is a change in control of the Company. Under the
agreements, these officers receive 100% of such severance benefits if they are
involuntarily terminated and 50% of such severance benefits if they voluntarily
terminate. The maximum contingent liability under these agreements at March 31,
1995 was approximately $3,469,000.
27
Page 28 of 53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - STOCK OPTIONS
At March 31, 1995, the Company had 2,090,466 shares of common stock reserved
under its 1982 Incentive Stock Option Plan and 1989 Stock Plan. The plans
provide for incentive stock options and other options to be granted to
directors, officers, key employees, and consultants at an exercise price not
less than fair market value of the common stock at the date of grant.
Option transactions under these plans during the three years ended March 31,
1995 are summarized as follows:
<TABLE>
<CAPTION>
Number Average Option
of Shares Option Price Price Range
--------- ------------ ----------------
<S> <C> <C> <C>
Outstanding at April 1, 1992 1,480,755 $ 7.42 $ 2.03 - $17.25
Granted 383,150 13.74 13.00 - 15.38
Exercised (344,208) 2.76 2.03 - 10.83
Cancelled (47,165) 11.26 4.83 - 16.75
---------
Outstanding at March 31, 1993 1,472,532 10.03 2.03 - 17.25
Granted 398,150 11.31 9.50 - 11.50
Exercised (128,722) 2.90 2.03 - 11.25
Cancelled (176,438) 12.29 4.83 - 16.75
---------
Outstanding at March 31, 1994 1,565,522 9.87 2.03 - 16.75
Granted 96,150 14.45 10.88 - 15.83
Exercised (231,421) 4.89 2.03 - 13.75
Cancelled (121,035) 12.60 9.50 - 15.83
---------
Outstanding at March 31, 1995 1,309,216 10.84 2.03 - 16.75
---------
---------
</TABLE>
In July 1993, 234,000 options granted in 1991 and 1992 with exercise prices
ranging from $14.00 to $17.25 were repriced to $11.25 per share, the market
price at the time of repricing.
Options to purchase 936,772 shares were exercisable at March 31, 1995.
The Company adopted an employee stock purchase plan on June1, 1990. Under the
plan, 562,500 shares of common stock were reserved for issuance to eligible
employees. The plan allows employees to designate up to 10% of their base
salaries for purchase of common stock at 85% of fair market value.
A total of 63,490 shares have been issued under the plan since inception as
follows:
<TABLE>
<CAPTION>
Number
May 31 of Shares
------ ---------
<S> <C>
1994 15,045
1993 15,552
1992 14,787
1991 18,106
</TABLE>
At March 31, 1995, the Company held a total of $150,500 in payroll withholdings
for the purchase of stock under the plan.
28
Page 29 of 53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - PROFIT SHARING AND RETIREMENT SAVINGS
The Company has a 401(k) retirement savings and profit sharing plan under which
eligible employees may contribute up to 10% of their salaries. The Company
matches 10% of employee contributions to a maximum of 6/10ths of 1% of
compensation. The Company also makes annual profit sharing contributions to the
plan at the discretion of the Board of Directors. The Company's contributions
are as follows:
<TABLE>
<CAPTION>
Years ended March 31
---------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Matching
401(k)contributions $ 38,800 $ 32,900 $ 29,000
Profit sharing contributions 363,600 171,700 313,500
--------- --------- ---------
$ 402,400 $ 204,600 $ 342,500
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE I - PREFERRED STOCK
The Company's Board of Directors is authorized to issue five million shares of
no par value preferred stock in one or more series. The board can determine
voting, conversion, dividend and redemption rights, and other preferences of
each series. No shares have been issued under this authorization.
NOTE J - NET EARNINGS PER SHARE
Net earnings per share are computed based on the weighted average number of
common shares and common equivalent shares outstanding. Common share equivalents
include potentially dilutive stock options using the "modified treasury stock"
method. Shares used in the computations are as follows:
<TABLE>
<CAPTION>
Years ended March 31
---------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares
outstanding 6,274,270 6,129,153 5,990,009
Weighted average common equivalent
shares for stock options 339,121 225,195 534,268
--------- --------- ---------
6,613,391 6,354,348 6,524,277
--------- --------- ---------
--------- --------- ---------
</TABLE>
29
Page 30 of 53
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Minntech Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Minntech
Corporation and its subsidiaries at March 31, 1995 and the results of their
operations and their cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
May 25 , 1995
30
Page 31 of 53
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Minntech Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Minntech
Corporation (a Minnesota corporation) and Subsidiaries as of March 31, 1994 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the two years in the period ended March 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Minntech
Corporation and Subsidiaries as of March 31, 1994 and the consolidated results
of their operations and their consolidated cash flows for each of the two years
in the period ended March 31, 1994 in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Minneapolis, Minnesota
May 20, 1994
31
Page 32 of 53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MINNTECH CORPORATION
(Registrant)
By: /s/ Louis C. Cosentino, Ph.D.
------------------------------
Louis C. Cosentino, Ph.D.
Date: June 23, 1995 President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of l934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Louis C. Cosentino, Ph.D. President, Chief Executive Officer and
- - ------------------------------ Director
Louis C. Cosentino, Ph.D. (Principal Executive Officer) June 23, 1995
/s/ David F. Meyer Vice President Finance and Chief Financial
- - ------------------------------ Officer
David F. Meyer (Principal Accounting and Financial Officer)
June 23, 1995
/s/ George Heenan Director June 23, 1995
- - ------------------------------
George Heenan
/s/ Amos Heilicher Director June 23, 1995
- - ------------------------------
Amos Heilicher
/s/ Robert M. Rosner Director June 23, 1995
- - ------------------------------
Robert M. Rosner
/s/ Donald J. Shapiro Director June 23, 1995
- - ------------------------------
Donald J. Shapiro
/s/ Fred L. Shapiro, M.D. Director June 23, 1995
- - ------------------------------
Fred L. Shapiro, M.D.
/s/ Donald H. Soukup Director June 23, 1995
- - ------------------------------
Donald H. Soukup
32
Page 33 of 53
<PAGE>
INDEX TO EXHIBITS
10(g) Supplemental Executive Retirement Plan effective
April 1, 1995
10(h) Severance Agreement with Robert M. Rosner dated
March 22, 1995
10(i) Consulting Agreement with Robert M. Rosner dated
May 31, 1995
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Grant Thornton LLP
27 Financial Data Schedule
Page 34 of 53
<PAGE>
Minntech Corporation
Exhibit 10 (g)
Form 10-K March 31, 1995
1-23-95
MINNTECH CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
THIS INSTRUMENT establishes the Minntech Corporation Supplemental Executive
Retirement Plan effective as of April 1, 1995.
SEC. 1. PURPOSE OF PLAN. The purpose of this Plan is to permit a select
group of management employees and directors to defer a portion of their
compensation to a later date and to provide these employees and directors with
supplemental retirement benefits as set forth herein.
SEC. 2. DEFINITIONS. When used in this Plan, the following terms shall
have the meanings assigned below:
2.1 BOARD. "Board" is the Board of Directors of Minntech Corporation.
2.2 COVERED COMPENSATION. "Covered Compensation" is the base salary
earned by the Participant for the Plan Year. For a Board member, "Covered
Compensation" is directors' fees.
2.3 DEFERRED COMPENSATION. "Deferred Compensation" is the portion of a
Participant's Covered Compensation and Incentive Compensation which the
Participant has elected to defer under Section 3 of this Plan.
2.4 INCENTIVE COMPENSATION. "Incentive Compensation" is the Participant's
annual cash bonus accrued by the Employer on the last day of the Plan Year and
payable thereafter to the Participant.
2.5 MINNTECH. "Minntech" is Minntech Corporation, a Minnesota
corporation. Minntech Corporation is the administrator of the Plan. The chief
financial officer of Minntech is authorized to perform general administrative
functions under the Plan on behalf of Minntech.
2.6 PARTICIPANT. A "Participant" is any executive or management level
employee of Minntech who meets all of the following three requirements: (i) the
individual is an officer, (ii) the individual is a highly compensated employee
as defined in Internal Revenue Code Section 414(q), and (iii) the individual is
a member of a select group of management or highly compensated employees within
the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974. "Participant" also means any Board
member. Each such employee or Board member shall continue to be eligible to
contribute to this Plan until such individual ceases to be an employee or Board
member as described above; provided, however, that the individual shall continue
to be a Participant in this Plan until his or her benefits are fully paid. The
Board, from time to time, may provide by resolution for additional positions
that will qualify for participation in this Plan, provided, however, that any
such employee must satisfy clauses (ii) and (iii) of the first sentence of this
section.
2.7 PLAN YEAR. The "Plan Year" is the 12 month period ending on each
March 31.
Page 35 of 53
<PAGE>
SEC. 3. DEFERRED COMPENSATION.
3.1 DEFERRAL ELECTION. Each Participant may elect to have treated as
Deferred Compensation amounts which are earned or ascertained subsequent to the
date of such election, subject to the following:
(a) The maximum amounts that may be elected for any Plan Year are:
(1) 10% of the Participant's Covered Compensation in the case of an
employee, and 100% of the Participant's Covered Compensation in
the case of a Board member.
(2) 90% of the Participant's Incentive Compensation.
(b) An election of Deferred Compensation pursuant to this Section shall be
in writing, and shall be made on or before the March 30 prior to the
beginning of the Plan Year. The Election shall apply to Covered
Compensation and Incentive Compensation payable during the next Plan
Year. Such election shall remain in effect for and shall be
irrevocable during the Plan Year, except that a Participant who is
determined by the Company in its sole discretion to have incurred a
financial hardship as defined in Section 6 may elect to completely
discontinue future deferrals. A new election may be made for each
subsequent Plan Year. If no election is made by a Participant prior
to the first day of any Plan Year, the election in effect for the
prior Plan Year, if any, shall continue in effect.
(c) Notwithstanding subsection (b), within 30 days of the date on which
the Participant first becomes eligible to participate in the Plan, the
Participant may make an election of Deferred Compensation for Covered
Compensation with respect to services to be performed subsequent to
the election.
(d) Notwithstanding the foregoing, no amounts shall be deferred from any
Covered or Incentive Compensation that is payable on a date that is
after the individual's termination of employment or directorship
occurred.
3.2 PARTICIPANT ACCOUNT. On the date that an amount of Deferred
Compensation under Section 3.1 would otherwise be paid to the Participant, the
amount of such Deferred Compensation shall be credited to an account on the
books of Minntech. No Participant shall derive any rights or benefits in or to
any assets of Minntech solely from the establishment or maintenance of such
accounts on the books of Minntech.
SEC. 4. DEEMED INVESTMENT OF DEFERRALS.
4.1 ELECTION OF DEEMED INVESTMENT. Each Participant shall designate the
form and percentage of deemed investment options in Section 4.2 at the time of
his or her annual election of Deferred Compensation on a form provided by
Minntech. The Participant may change the form or percentage of deemed
investment options during his or her period of employment or directorship with
Minntech by filing a new form with Minntech. The new investment options shall
apply to the period on and after the first day of the calendar quarter following
the date on which the change is filed with Minntech and before the effective
date of a subsequent election. Any election that is effective on a date other
than April 1st must be filed at least 10 days prior to the effective date. All
Page 36 of 53
<PAGE>
elections must be expressed in 25% increments for each investment option. The
Participant may file separate elections for the deemed investment of the
existing account balance and the deemed investment of future deferrals.
4.2 INVESTMENT OPTIONS. Prior to the time any Deferred Compensation is
actually paid to the Participant as provided below, the Deferred Compensation
amount shall be increased by the gain or decreased by the loss (the
"adjustment") determined on the basis of the following forms of investments as
selected by the Participant as in effect from time to time during the period
after the Deferred Compensation amount was credited to the Participant's
account.
(a) Fidelity Magellan Fund.
(b) Fidelity Growth and Income Fund.
(c) Fidelity Intermediate Bond Fund.
(d) Fidelity Overseas Fund.
(e) Fidelity Spartan Money Market Fund.
(f) Kaufmann Fund.
(g) Such other investments that Minntech may from time to time add to the Plan.
If an investment option becomes unavailable, Minntech may replace the option
with one that maintains similar investment characteristics. Minntech may in its
sole discretion add additional options or delete options at any time.
4.3 ACCOUNT INFORMATION. The selection of investments by which
adjustments to the Participant's Deferred Compensation will be determined shall
be solely for the purpose of establishing a method of calculating the
adjustments in such Deferred Compensation and shall not obligate Minntech to set
aside any assets or to invest any assets it may set aside in such investment or
in any particular type of investment. Adjustments shall be determined in each
fund by Minntech no less often than annually, and Minntech's determination shall
be final. Minntech shall provide each Participant with a report of the account
value as of the end of each Plan Year, or more frequently.
SEC. 5. DISTRIBUTIONS FROM ACCOUNTS.
5.1 TERMINATION WITH MINNTECH. Following termination of employment or
directorship with Minntech, the Participant shall receive cash distribution of
the Deferred Compensation account at the time and in the manner specified by the
Participant under Section 5.2.
5.2 TIMING AND FORM OF DISTRIBUTION. At the time of initial enrollment in
the Plan, Participants shall elect to have their accounts distributed to them
(or their beneficiaries) at the times and in the manner provided below. Such
elections shall be made in writing and are irrevocable.
(a) Participants may elect to have distributions commence at the following
times:
(1) In the calendar year of the Participant's termination of
employment or directorship with Minntech.
(2) In the calendar year following the Participant's termination of
employment or directorship with Minntech.
Page 37 of 53
<PAGE>
(3) Following the fifth anniversary of the Participant's termination
of employment or directorship with Minntech.
(4) In the calendar year in which there occurs the later of (i) the
Participant's 60th birthday, or (ii) the Participant's
termination of employment or directorship with Minntech.
(b) Participants shall elect to have their accounts distributed in one of
the following forms, subject to approval by Minntech:
(1) A single lump sum.
(2) Distribution in substantially equal quarterly installments
ranging from two to 10 years.
Lump sum distributions shall be paid on the 15th day of the first
calendar quarter immediately following the date the applicable event
specified in subsection (a) occurs. Installment payments shall also
commence on the same date, with succeeding amounts paid on the 15th
day of each calendar quarter thereafter until paid in full. The
amount of each installment shall be determined by dividing the total
of the account by the number of installments remaining to be paid,
including the current installment. During the installment period,
earnings or losses on all unpaid amounts shall be credited in
accordance with the Participant's deemed investment election at the
commencement of payments.
(c) Notwithstanding the foregoing, if a Participant had less than five
years of employment or directorship with Minntech at the time the termination of
employment or directorship occurs, the entire benefit under the Plan shall be
paid in a lump sum on the earlier of (i) the date payments are to commence under
subsections (a) and (b), or (ii) January 15th of the year following the calendar
year in which the termination of employment or directorship occurred.
5.3 DISTRIBUTION TO BENEFICIARY. If the Participant is deceased, the
distribution shall be payable to the beneficiary of the Participant in the form
payable to the Participant hereunder. Minntech, in its sole discretion, may
accelerate the payment of benefits under this Plan to the Participant's
beneficiary.
SEC. 6. DISTRIBUTIONS FOR FINANCIAL HARDSHIP. Participants may withdraw
any portion of their Deferred Compensation account without regard to the
provisions of Section 5, in the event the Participant, in the sole discretion of
Minntech, has incurred, or will incur, an immediate and heavy financial
hardship.
(a) A distribution based upon financial hardship shall not exceed the
amount required to meet the immediate financial need created by the
hardship and not reasonably available from other resources of the
Participant. A "financial hardship" for purposes of this section must
involve an unforeseeable emergency that is caused by events beyond the
control of the Participant.
(b) An application for a distribution pursuant to this section shall be
made in writing and delivered to the chief financial officer of
Minntech. Minntech may require the submission of such supporting
documentation as it deems necessary and shall render its final and
conclusive decision on such applications.
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<PAGE>
SEC. 7. FUNDING. Nothing in this Plan shall be construed as permitting a
Participant or beneficiary to claim any security for the fulfilling of the
obligations of Minntech hereunder, and the Participant or beneficiary shall look
only to the general assets of Minntech for the satisfaction of Minntech's
obligations. Minntech is not required to invest in any property to secure its
obligations under this Plan. If Minntech should invest in property to fund its
obligations under this Plan, Minntech shall be the sole owner of such property,
and the Participant, beneficiary and estate shall have no rights in said
property. If Minntech obtains an insurance contract in connection with its
obligations under this Plan, the Participant shall cooperate with Minntech and
shall execute any documents reasonably requested by Minntech to obtain such
insurance.
SEC. 8. DESIGNATION OF BENEFICIARY. Each Participant shall file with
Minntech a written designation of the person or persons to receive the benefits
under this Plan in the event of the Participant's death. This right of the
Participant shall include the right to name and change primary and contingent
beneficiaries. Any designation of beneficiaries shall be effective only when
filed by the Participant in writing with Minntech during the Participant's
lifetime. In the absence of such written designation, or if all the
beneficiaries so named predecease the Participant, the individuals in the first
of the following classes in which there is a survivor, share and share alike,
shall be considered the designated beneficiary:
(a) The Participant's spouse, if surviving, with unpaid amounts at the
spouse's death payable to the spouse's estate or as otherwise
designated by the spouse.
(b) The Participant's surviving children and surviving issue of deceased
children, such issue of deceased children taking by right of
representation.
(c) The Participant's estate.
SEC. 9. CLAIMS PROCEDURE.
9.1 CLAIMS PROCEDURE AND REVIEW. A Participant or beneficiary may make a
claim for Plan benefits within the time and in the manner described herein.
Such claim shall be made within 60 days after the claim arises by filing a
written request with the chief financial officer of Minntech. The claim shall
be determined by Minntech within 90 days after the receipt of the written claim.
Notice of Minntech's decision shall be communicated to the claimant in writing.
If the claim is denied, the notice shall include the specific reasons for the
denial (including reference to pertinent Plan provisions), a description of any
additional material or information necessary for Minntech to reconsider the
claim, the reasons for any of such additional material or information, and an
explanation of the review procedure.
9.2 APPEAL. The claimant or a duly authorized representative may, within
60 days after receiving such written notice, request the president of Minntech
to review Minntech's decision. The president shall afford the claimant a
hearing and the opportunity to review all pertinent documents and submit issues
and comments orally or in writing and shall render a review decision in writing
within 60 days after receipt of request for review. The review proceeding shall
be conducted in accordance with the rules and regulations adopted from time to
time by the president of Minntech.
9.3 ATTORNEYS' FEES AND COSTS OF LITIGATION. If a Participant or
beneficiary who has exhausted the above claims procedure subsequently brings an
action in court and receives a final judgment that he or she is entitled to a
greater benefit than Minntech had determined, Minntech shall reimburse the
individual for all reasonable attorneys' fees and related costs incurred in
obtaining and enforcing the judgment.
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<PAGE>
SEC. 10. MISCELLANEOUS.
10.1 LIABILITY. No officer of Minntech shall be personally liable by
virtue of any contract, agreement or other instrument made or executed by the
officer or on his or her behalf as an officer, nor for any mistake or judgment
made by such officer or any other officer, nor for any negligence, omission or
wrongdoing of any other officer or of anyone employed by Minntech, nor for any
loss, unless resulting from his or her own gross negligence or willful
misconduct. In addition, Minntech does not assure or guarantee the tax
consequences of benefits provided hereunder or other matters beyond its control.
10.2 TITLE TO ASSETS. No Participant or former Participant shall have any
legal or equitable right or interest in any funds set aside by Minntech or in
any assets in which Minntech may invest, from time to time, to cover its
obligations under this Plan.
10.3 AMENDMENTS. Minntech reserves the right to amend or modify, in whole
or in part, any or all of the provisions of this Plan at any time by action of
the Board or by a written instrument executed by the president of Minntech;
provided, however, that no amendment or modification shall be made which will
deprive any Participant or any Participant's beneficiary of any vested benefits
to which he or she is entitled under the Plan. Notwithstanding the foregoing,
the amendment can alter the deemed investment options under Section 4 with
respect to periods after the date the amendment is adopted, both for future
deferrals and for amounts deferred in past.
10.4 TERMINATION. Continuation of the Plan is not a contractual obligation
of Minntech, and the right is reserved by Minntech to reduce, suspend or
discontinue the Plan at any time by action of the Board or by written instrument
executed by the president of Minntech. However, no such reduction, suspension
or discontinuance shall deprive any Participant or beneficiary of any benefits
that become vested under the Plan prior to the termination, but may alter future
deemed investments as provided in Section 10.3.
10.5 ASSIGNMENT AND LEVY. The Plan is for the benefit and protection of
the Participants and their beneficiaries and the rights, privileges and benefits
herein conferred shall not, to the extent permitted by law, be subject to
alienation, assignment, pledge, levy, attachment, garnishment or other legal
process or in any manner anticipated, encumbered, committed, withdrawn or
surrendered, and neither shall the same be subject or liable in any way for
debts, contracts, or agreements or other claims of creditors of such
Participants or their beneficiaries whether such claims are now contracted or
may hereafter be contracted or incurred.
10.6 PARTICIPANT'S RIGHTS. The establishment of this Plan shall not create
any legal or equitable right against Minntech unless such right is specifically
provided for in this Plan. Furthermore, nothing in this Plan shall be construed
as giving a Participant the right to be retained in the employment of Minntech,
and a Participant shall remain subject to discharge at any time to the same
extent as if this Plan had not been adopted.
10.7 INCOMPETENCY. Every person receiving or claiming benefits under this
Plan shall be conclusively presumed to be mentally competent until the date on
which Minntech receives a written notice in a form and manner acceptable to
Minntech that such person is incompetent and that a guardian, conservator or
other person legally vested with the care of his or her estate has been
appointed. In such event, Minntech may direct payments of benefits to such
guardian conservator or other person legally vested with the care of the
person's estate and any such payments so made shall be a complete discharge of
Minntech to the extent so made.
10.8 NOTICES. Notices required by this Plan to be given to Minntech or a
Participant shall be in writing and shall be considered to have been duly given
or served if personally delivered, or sent by first class, certified or
registered mail.
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10.9 SEVERABILITY. The invalidity or partial invalidity of any portion of
this Plan shall not invalidate the remainder thereof, and said remainder shall
remain in full force and effect.
10.10 RELEASE. Any payment to or for the benefit of any Participant or
beneficiary in accordance with the provisions hereof shall, to the extent
thereof, be in full satisfaction of all claims hereunder against Minntech.
10.11 WITHHOLDING OF TAXES. The benefits payable under this Plan shall be
subject to the deduction of any federal, state or local income taxes or other
taxes which are required to be withheld from such payments by applicable laws
and regulations.
10.12 GOVERNING LAW. Construction and administration of this Plan shall
be governed by the laws of the State of Minnesota, except to the extent such
laws are preempted by federal law.
MINNTECH CORPORATION
By /s/
Louis C. Cosentino, Ph.D.
President
MYY02401.WP5
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<PAGE>
Minntech Corporation
Exhibit 10 (h)
Form 10-K March 31, 1995
[Minntech Letterhead]
March 22, 1995
Mr. Robert M. Rosner BY HAND
1571 17th Avenue N.W.
New Brighton, MN 55112
Dear Bob:
1. You have decided to voluntarily terminate your employment with
Minntech Corporation ("Minntech") effective May 31, 1995. Because of the many
years of service you have given to Minntech and the anticipated continued
relationship between you and Minntech as described below, this letter describes
Minntech's offer of severance in connection with your voluntary termination.
After reading this letter, if you agree to the terms set forth herein, please
return a signed copy to me as described below.
2. Although not obligated to do so, in exchange for agreeing to the
terms set forth in this letter, we have offered to provide you with the
following severance benefits. Minntech will pay to you a guaranteed amount
equal to six (6) months' salary (payable semi-monthly in the amount of
$3,857.12) commencing June 1, 1995 and ending November 30, 1995 (the "Post-
Termination Period") whether you commence employment elsewhere or remain
unemployed. If Minntech for any reason whatsoever asks you to leave prior to
May 31, 1995, it will continue to pay you an amount equal to $3,857.12 semi-
monthly through May 31, 1995 and thereafter as provided herein.
3. In the event you become deceased at any time by reasons other
than suicide (i) from the signing of this Severance Agreement to May 31, 1995,
(ii) during the Post-Termination Period, or (iii) during the Additional Period,
Minntech will continue to pay your designated beneficiary a semi-monthly payment
of $3,857.12 until May 31, 1996.
4. You agree to make a good faith effort to find employment.
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<PAGE>
5. If you do not find employment during the Post-Termination Period
and sign a second release of claims (in the form attached hereto) on or after
May 31, 1995, Minntech will continue to pay you semi-monthly in the amount of
$3,857.12 for each month you remain unemployed for up to six additional (6)
months commencing December 1, 1995 and ending May 31, 1996 (the "Additional
Period"). If you commence such employment during the Post-Termination or
Additional Period, you agree to notify Minntech and Minntech's obligation to
make the aforementioned salary payment during the Additional Period shall cease.
The term "employment" as used in this paragraph shall mean any employment
whether de minimis or not.
6. You will also be eligible under the Minntech Management Incentive
Compensation Plan for a performance bonus for work performed during fiscal year
ending March 31, 1995, which is payable on or about June, 1995. As you know
however, the determination of the amount of bonus paid to any employee is at the
discretion of the President and may vary from employee to employee. Because that
determination has not yet been made, Minntech cannot guarantee a fixed amount to
you at this point in time.
7. In exchange for the foregoing payments, you agree (a) to serve as
a consultant to Minntech during (i) the Post-Termination Period and (ii) the
Additional Period for so long as the aforementioned semi-monthly payments are
being made to you; (b) to remain an employee of Minntech through May 31, 1995 in
order to assist as necessary on the audit for fiscal year-ended March 31, 1995,
transfer files and projects, and accomplish an orderly transition; (c) agree to
the release of claims as explained more fully below; and (d) to execute the new
form of employee agreement dated April 1, 1995 (the "Employment Agreement"). In
regard to (a) above, the consulting agreement shall be in accordance with the
agreement attached hereto (the "Consulting Agreement"). In the event that
either party terminates the Consulting Agreement as provided therein, except as
otherwise set forth in paragraph 11, release of the claims set forth in this
Severance Agreement shall remain in effect and shall be fully enforceable by
each party. In regard to (d) above, the Employment Agreement shall be in
accordance with the agreement attached hereto; provided, however, that this
Severance Agreement shall supersede both parties' right to terminate at will
under the Employment Agreement.
8. You will remain on the group insurance plan through May 31, 1995.
Thereafter, you will be eligible for an extension of those insurance benefits
for eighteen (18) months under COBRA.
9. For the reasons set forth below, the payments to you would
commence on the later of June 15, 1995 or seventeen (17) days after you sign
this Agreement and return it to me, if you do not rescind your release of
claims.
10. As you have offered, you will continue to serve as a Board member
(with no per meeting payment) until the Annual Meeting of Shareholders in
August, 1995.
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<PAGE>
11. As consideration for the severance package set forth above,
except for claims related to non-performance by Minntech under this Severance
Agreement and the Consulting Agreement, you agree to release Minntech, its
officers, directors, agents and employees from any and all claims and causes of
action which you may have against them. As consideration for your release of
claims, except for claims related to breach of your obligations related to non-
competition and disclosure of confidential information under the Employment
Agreement and non-performance under the Consulting Agreement, Minntech releases
you from any and all claims and causes of action which it may have against you.
12. Through these releases, both parties extinguish any and all
causes of action against the other occurring up to the date of this Agreement,
including, but not limited to, impairment of economic opportunity or any
contract claims, intentional inflection of emotional distress or any other tort,
and all claims arising from any federal, state or municipal law or ordinance.
Your release also extinguishes any potential claims of employment discrimination
arising from your employment and termination of employment with Minntech,
including specifically any claims under the Minnesota Human Rights Act, the
Federal Age Discrimination in Employment Act, or Title VII of the Civil Rights
Act of 1964. You are advised to consult an attorney prior to signing your
acknowledgment to this Agreement.
13. Because this Severance Agreement includes a release of any rights
you may have under the Age Discrimination in Employment Act, under federal law
you are entitled to a period of at least twenty-one (21) days from your receipt
of this letter during which to consider that agreement. You have the full
twenty-one (21) days during which to consider the terms of this Agreement, and
we encourage you to use the waiting period to consider this proposal if you so
desire. If, with full knowledge of your right to the twenty-one (21) day
waiting period, you wish to waive all or any part of that twenty-one (21) day
waiting period, you may do so by signing the acknowledgment attached to the
severance agreement that confirms your choice to waive the twenty-one (21) day
waiting period.
14. Under Minnesota Statutes, you have the right to rescind your
release of only those rights and remedies secured by the Minnesota Human Rights
Act, Minnesota Statute Chapter 363, within fifteen (15) calendar days of your
execution of this release. To be effective, your rescission must be in writing
and delivered to Minntech Corporation, Attention: Louis C. Cosentino, Ph.D.,
President, 14605 28th Avenue North, Minneapolis, Minnesota 55447, either by hand
or mail, within the fifteen (15) day period. If delivery is my mail, the
rescission must be (i) postmarked within the fifteen (15) day period; (ii)
properly addressed to Minntech at the address stated in the preceding sentence;
and (iii) sent by certified mail, return receipt requested. If you effectively
exercise this right of rescission, this Agreement shall be rendered null and
void, with neither you nor Minntech having any further obligation to the other
under this Agreement, except that your resignation will remain in effect and you
shall
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<PAGE>
then promptly reimburse Minntech for any payments or other benefits received by
you under this Agreement.
15. Upon your execution of this Agreement, we will arrange to speak
with you seventeen (17) days after the date you sign this Agreement (or the next
business day after that date if the seventeenth day falls on a weekend). If you
have not exercised your right to rescind this Agreement and confirm that fact to
us, Minntech will then commence your continued salary payment as set forth
above, if it is on or after June 15, 1995.
16. This Severance Agreement and General Release shall not in any way
be construed as an admission of liability by Minntech Corporation or as an
admission that Minntech has acted wrongly with respect to you. Minntech
Corporation specifically denies and disclaims any such liability or wrongful
acts.
17. This Severance Agreement and the attached Consulting and
Employment Agreements set forth the entire agreement between you and Minntech
and fully supersede any prior agreements or understandings between you and
Minntech, concerning your termination of employment. This Agreement does not
amend or in any manner limit any of your post-employment obligations to
Minntech, including your obligations regarding non-competition and non-
disclosure of confidential information under the Employment Agreement, as more
fully set forth in the attached letter. We ask that our records reflect that
you conclude your employment with Minntech on terms you understand and accept.
Therefore, we ask you to declare that you have entered into these Agreements
voluntarily, without coercion or duress, and with the opportunity to review its
contents with legal counsel if you so desire. We ask you to reflect on the fact
that this Severance Agreement releases all known and unknown claims against
Minntech Corporation.
18. If you accept Minntech's severance package as outlined herein,
please sign the original and two copies and return the original and one copy to
me. The second copy is for your files. Additionally, if you decide to accept
this Severance Agreement prior to the end of the twenty-one (21) day waiting
period, also sign the attached acknowledgement that you are voluntarily waiving
the waiting period.
Thank you for your twenty years of service to Minntech. I know that I
speak for everyone at Minntech in wishing you both personal satisfaction and
continued professional success as you enter this new phase of your life.
Very truly yours,
/s/
Louis C. Cosentino, Ph.D.
President
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<PAGE>
Read and agreed to, with
declarations confirmed.
Dated: March 22, 1995
__________/s/_________________
Robert M. Rosner
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<PAGE>
Minntech Corporation
Exhibit 10 (I)
Form 10-K March 31, 1995
3/22/95
CONSULTING AGREEMENT
CONSULTING AGREEMENT, Made and entered into as of the
31st day of May, 1995, by and between Minntech Corporation,
a Minnesota corporation (the "Company"), and Robert M. Rosner, an
individual and resident of New Brighton, Minnesota ("Consultant").
WHEREAS, in consideration for entering into the Severance Agreement dated
March 22, 1995, the Company desires to retain Consultant to render consulting
and advisory services for the Company on the terms and conditions set forth in
this Agreement, and Consultant desires to provide such consulting and advisory
services to the Company on such terms and conditions.
NOW THEREFORE, in consideration of the premises, the respective covenants
and commitments of the Company and Consultant set forth in this Agreement, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and Consultant agree as follows:
1. RETENTION OF CONSULTANT; SERVICES TO BE PERFORMED. The Company hereby
retains Consultant to render such financial, management, and advisory services
that fell within the scope of his employment by the Company, as the Company may
request. Consultant hereby accepts such engagement and agrees to perform such
services for the Company upon the terms and conditions set forth in this
Agreement. During the term of this Agreement, Consultant shall devote such
portion of his time, attention, skill and energy to the business of the Company
up to a maximum time commitment of thirty (30) hours per month, and shall assume
and perform to the best of his ability such reasonable responsibilities and
duties as shall be assigned to Consultant from time to time by the Company.
Consultant shall perform services hereunder primarily at his home but if
necessary and at the Company's request he may be asked to perform such services
at the Company's offices in Plymouth, Minnesota. The Company shall give
reasonable notice to Consultant in asking him to perform services hereunder and
Consultant shall endeavor to keep the Company informed as to the telephone
number and location at which he can be reached.
2. TERM. Unless sooner terminated pursuant to Section 6, the term of this
Agreement shall commence as of the date first above written and shall continue
until the earlier of May 30, 1996 or the date Consultant commences employment
with a third party provided that such date falls outside of the Post-Employment
Period but within the Additional Period as those terms are defined in the
Severance Agreement.
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<PAGE>
3. CONSIDERATION. (a) In consideration for Consultant's services and
covenants hereunder (and for the release of claims and other agreements made by
Consultant in the Severance Agreement dated March 20, 1995), the Company shall
pay Consultant in accordance with the terms set forth in the Severance
Agreement.
(b) Consultant acknowledges that federal and state taxes payable with
respect to and other deductions requested to be withheld by Consultant from all
amounts paid to Consultant under this Agreement will be deducted from the semi-
monthly payments made to Consultant.
4. IMPROVEMENTS AND INVENTIONS.
a. NOTIFICATION AND DISCLOSURE. Consultant shall promptly notify the
Company in writing of the existence and nature of, and shall promptly and fully
disclose to the Company, any and all ideas, designs, practices, processes,
apparatus, improvements and inventions, whether or not they are believed to be
patentable (all of which are hereinafter sometimes referred to as "inventions"),
which Consultant has conceived or first actually reduced to practice and/or may
conceive or first actually reduce to practice during the period of Consultant's
consulting arrangement with the Company or which Consultant may conceive or
reduce to practice within six (6) months after termination of this Agreement, if
such inventions relate to a product or process upon which Consultant worked
during the term of his consulting arrangement with the Company.
b. OWNERSHIP AND PATENTING OF INVENTIONS. All such inventions shall be
the sole and exclusive property of the Company or its nominee, and during the
term of this Agreement and thereafter, whenever requested to do so by the
Company, Consultant shall execute and assign any and all applications,
assignments and other instruments that the Company shall deem necessary or
convenient in order to apply for and obtain Letters Patent of the United States
and/or of any foreign countries for such inventions and in order to assign and
convey to the Company or its nominee the sole and exclusive right, title and
interest in and to such inventions. Consultant will render aid and assistance
to the Company in any interference or litigation pertaining to such inventions,
and all expenses reasonably incurred by Consultant at the request of the Company
shall be borne by the Company.
c. LIMITATION. The provisions of this Section 4 shall not apply to any
invention meeting the following conditions:
(1) such invention was developed entirely on Consultant's own time;
(2) such invention was made without the use of any of the equipment,
supplies, facility or trade secret information of the Company;
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<PAGE>
(3) such invention does not relate (i) directly to the business of the
Company, of (ii) to the Company's actual or demonstrably anticipated
research or development;
(4) such invention does not result from any work performed by Consultant
for the Company; and
(5) encompasses Consultant's general knowledge.
5. Protection of Trade Secrets, Know-How and/or Other Confidential
Information of the Company.
a. Confidential Information. Except as permitted or directed by the
Company's Board of Directors, during the term of this Agreement or at any time
thereafter Consultant shall not divulge, furnish or make accessible to anyone or
use in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of the Company
which Consultant has acquired or become acquainted with or will acquire or
become acquainted with prior to the termination of the period of his employment
by the Company (including employment by the Company or any affiliated companies
prior to the date of this Agreement), whether developed by himself or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Consultant
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company acquired at great time and expense by
the Company and its predecessors, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company would be
wrongful and would cause irreparable harm to the Company. Both during and after
the term of this Agreement, Consultant will refrain from any acts or omissions
that would reduce the value of such knowledge or information to the Company.
The foregoing obligations of confidentiality, however, shall not apply to any
knowledge or information which is now published or which subsequently becomes
generally publicly known in the form in which it was obtained from the Company,
other than as a direct or indirect result of the breach of this Agreement by
Consultant.
b. KNOW-HOW AND TRADE SECRETS. All know-how and trade secret information
conceived or originated by Consultant which arises out of the performance of his
obligations or responsibilities under this Agreement or any related material or
information shall be the property of the Company, and all rights therein are by
this Agreement assigned to the Company.
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<PAGE>
6. TERMINATION. Notwithstanding any contrary provision contained
elsewhere in this Agreement, this Agreement and the rights and obligations of
the Company and Consultant hereunder (other than the rights and obligations of
the parties under Section 4 or 5 or under the Severance Agreement) shall be
terminated upon the occurrence of any of the following events:
a. Immediately in the event of Consultant's death, provided, however,
that the payments made to Consultant in accordance with the Severance Agreement
shall continue until May 31, 1996 so long as such death was not caused by
suicide; or
b. Upon thirty (30) days' prior written notice to Consultant if
Consultant has failed in any material respect to perform his consulting
responsibilities hereunder and such default is not cured within the sixty (60)
day period following such notice. Any such notice given to Consultant pursuant
to this Section 6(b) shall specify the default.
In the event this Agreement is terminated pursuant to Section 6(b) prior to
the expiration of the term hereof, Consultant shall be entitled to receive
payments made in accordance with the Severance Agreement through the date of
termination, but all other rights to receive such payments shall terminate on
such date.
7. MISCELLANEOUS.
a. ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereunder shall not be assignable, in whole or in part, by either party
without the prior written consent of the other party.
b. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the state of Minnesota.
c. ENTIRE AGREEMENT. This Agreement and the Severance Agreement evidences
the entire understanding and Agreement of the parties hereto relative to the
consulting arrangement between Consultant and the Company and the other matters
discussed herein. This Agreement and the Severance Agreement supersede any and
all other agreements and understandings, whether written or oral, relative to
the matters discussed herein. This Agreement may only be amended by a written
document signed by both Consultant and the Company.
d. INJUNCTIVE RELIEF. Consultant acknowledges that it would be difficult
to fully compensate the Company for damages resulting from any breach by
Consultant of the provisions of 5 and/or 6 of this Agreement. Accordingly, in
the event of any actual or threatened breach of such provisions, the Company
shall (in addition to any other remedies that it may have) be entitled to
temporary and/or permanent injunctive relief to enforce such provisions, and
such relief may be granted without the necessity of proving actual damages.
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e. SEVERABILITY. To the extent any provision of this Agreement shall be
determined to be invalid or unenforceable, such provision shall be deleted from
this Agreement, and the validity and enforceability of the remainder of such
provision and of this Agreement shall be unaffected.
f. STATUS OF CONSULTANT. In rendering services pursuant to this
Agreement, Consultant shall be acting as an independent contractor and not as an
employee or agent of the Company. As an independent contractor, Consultant
shall have no authority, express or implied, to commit or obligate the Company
in any manner whatsoever, except as specifically authorized from time to time in
writing by an authorized representative of the Company, which authorization may
be general or specific. Nothing contained in this Agreement shall be construed
or applied to create a partnership.
IN WITNESS WHEREOF, The Company and Consultant have executed this Agreement
as of the date first set forth above.
MINNTECH CORPORATION
By /s/
---------------------------
Louis C. Cosentino, Ph.D.
President
ROBERT M. ROSNER
[Consultant]
By /s/
-----------------------------
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<PAGE>
Minntech Corporation
Exhibit 23a
Form 10-K March 31, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 2-99511 effective July 18, 1985; File No.
33-32070 effective December 5, 1989; File No. 33-34621 effective May 20,
1990; File No. 33-35368 effective July 1, 1990; File No. 33-35990 effective
July 24, 1990; and File No. 33-45351 effective January 28, 1992) of
Minntech Corporation of our report dated May 25, 1995, appearing on page
30 of this Form 10-K.
Price Waterhouse LLP
Minneapolis, Minnesota
June 23, 1995
Page 52 of 53
<PAGE>
Minntech Corporation
Exhibit 23b
Form 10-K March 31, 1995
Consent of Independent Certified
Public Accountants
We have issued our report dated May 20, 1994, appearing on page 31 of this
Form 10-K, accompanying the consolidated financial statements included in the
Annual Report on Form 10-K of Minntech Corporation and Subsidiaries for the year
ended March 31, 1995. We hereby consent to the incorporation by reference of
said report in the Registration Statements of Minntech Corporation on Forms S-8
(File No. 2-99511 effective July 18, 1988; File No. 33-32070 effective December
5, 1989; File No. 33-34621 effective May 20, 1990; File No. 33-35368 effective
July 1, 1990; File No. 33-335990 effective July 24, 1990; and File No. 33-45351
effective January 28, 1992).
Grant Thornton LLP
Minneapolis, Minnesota
May 25, 1995
Page 53 of 53
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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