<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended SEPTEMBER 30, 1996 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-------------- -------------
COMMISSION FILE 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
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
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
Common Stock, $0.05 par value 6,675,713
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Minntech Corporation
Quarterly Report on Form 10-Q
September 30, 1996
Index
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
Exhibit index 11
Page 2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINNTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 15,845 $ 16,316 $ 32,530 $ 31,761
OPERATING COSTS AND EXPENSES
Cost of sales 9,077 9,505 18,460 18,658
Research and development 829 926 1,654 1,681
Selling, general and administrative 4,306 3,631 8,407 7,210
Amortization of intangible assets 212 155 423 295
Loss due to fiber production scale-up -- 936 -- 936
---------- ---------- ---------- ----------
Total operating costs and expenses 14,424 15,153 28,944 28,780
---------- ---------- ---------- ----------
EARNINGS FROM OPERATIONS 1,421 1,163 3,586 2,981
Other income (expense), net (21) 2 (94) 47
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 1,400 1,165 3,492 3,028
Provision for income taxes 680 418 1,551 1,088
Minority interest (61) -- (131) --
---------- ---------- ---------- ----------
NET EARNINGS $ 781 $ 747 $ 2,072 $ 1,940
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET EARNINGS PER SHARE $.12 $.11 $.30 $.29
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares 6,662 6,835 6,812 6,759
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Page 3
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS September 30, March 31,
1996 1996
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 3,412 $ 4,064
Marketable securities 388 1,154
Accounts receivable, net 11,326 11,262
Inventories
Finished goods 7,953 4,768
Materials and work-in-process 8,812 6,667
Prepaid expenses 720 1,197
--------- ---------
TOTAL CURRENT ASSETS 32,611 29,112
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,653 9,326
Machinery and equipment 23,673 21,024
--------- ---------
33,326 30,350
Less accumulated depreciation (14,576) (13,027)
--------- ---------
18,750 17,323
OTHER ASSETS
Patent costs, net 726 802
Goodwill, net 1,552 1,770
Other 1,507 1,040
--------- ---------
$ 55,146 $ 50,047
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 4,000 $ --
Accounts payable 4,711 5,189
Accrued expenses 1,815 1,795
Income taxes payable (189) --
--------- ---------
TOTAL CURRENT LIABILITIES 10,337 6,984
DEFERRED INCOME TAXES 1,412 1,412
DEFERRED COMPENSATION 187 130
MINORITY INTEREST 179 310
STOCKHOLDERS' EQUITY
Preferred stock, no par value - -
Common stock, $.05 par value 334 332
Additional paid-in capital 12,131 11,647
Retained earnings 30,566 29,232
--------- ---------
43,031 41,210
--------- ---------
$55,146 $50,047
--------- ---------
--------- ---------
Page 4
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
September 30
----------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,072 $ 1,940
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities
Depreciation and amortization 1,968 1,636
Tax benefit from stock option exercises - 65
Provision for losses on accounts
receivable 63 30
Foreign currency exchange loss 95 118
Deferred income taxes - 11
Minority interest (131) -
Other 31 (77)
Changes in assets and liabilities:
Accounts receivable (183) (659)
Inventories (5,381) (756)
Prepaid expenses 70 225
Accounts payable and accrued expenses (449) 561
Income taxes payable 187 (559)
--------- ---------
Total adjustments (3,730) 595
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,658) 2,535
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (3,444) (2,274)
Proceeds from sale of marketable securities 743 -
Patent application costs (118) (166)
Acquisition of product line - (1,452)
Other 18 (1)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,801) (2,131)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 4,000 -
Proceeds from exercise of stock options 486 1297
Grant from foreign government - 331
Payment of cash dividends (667) (653)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,819 975
--------- ---------
Effects of exchange rate changes on
foreign currency cash balances (12) (42)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (652) (425)
Cash and cash equivalents at beginning of
period 4,064 3,325
--------- ---------
Cash and cash equivalents at end of period $ 3,412 $ 2,900
--------- ---------
--------- ---------
Page 5
<PAGE>
MINNTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - FINANCIAL INFORMATION
The unaudited interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission; accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Company's Annual Report on Form 10-K for the year ended March 31, 1996 as filed
with the Securities and Exchange Commission.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods.
NOTE B - NET EARNINGS PER SHARE
The calculations of net earnings per common and common equivalent shares are
presented in the following table. All amounts are in thousands except per share
amounts.
Three Months Ended Six Months Ended
September 30 September 30
1996 1995 1996 1995
------ ------- ------- -------
Net earnings $ 781 $ 747 $ 2,072 $ 1,940
------ ------- ------- -------
------ ------- ------- -------
Weighted average common shares
outstanding 6,662 6,473 6,657 6,442
Weighted average common
equivalent shares for stock
options - 362 155 317
------ ------- ------- -------
Weighted average common and
common equivalent shares 6,662 6,835 6,812 6,759
------ ------- ------- -------
------ ------- ------- -------
Net earnings per share $.12 $.11 $.30 $.29
------ ------- ------- -------
------ ------- ------- -------
NOTE C - CASH DIVIDEND
The Company's Board of Directors on August 28, 1996 declared an annual cash
dividend of $.10 per share on the Company's common stock. The dividend was paid
on September 27, 1996 to stockholders of record as of September 12, 1996.
NOTE D - NOTE PAYABLE/LINE OF CREDIT
In September, 1996, the Company borrowed $4,000,000 against its $10,000,000
unsecured line of credit with a commercial bank. The Company elected the LIBOR
index rate of interest (7.5% at September 30, 1996). This line of credit
expires August 31, 1997.
Page 6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales in the second quarter ended September 30, 1996 decreased by $471,000, or
3%, due primarily to a 24% decline in cardiosurgery product sales which more
than offset a 12% increase in sales of reprocessing products. Sales for the six
months ended September 30, 1996 increased by $769,000, or 2%, due primarily to a
19% increase in sales of reprocessing products which more than offset a 13%
decline in cardiosurgery product sales.
The decrease in sales of cardiosurgery products is due to the scheduled
reduction of oxgenator sales to C.R. Bard, Inc. Dialyzer reprocessing
products accounted for the increase in sales of reprocessing products. At
September 30, 1996, the Company was awaiting FDA market clearance to sell its
second generation oxygenator, the Biocor 200-TM-, in the United States.
Net sales by product group are summarized on the following table:
Three Months Ended Six Months Ended
September 30 September 30
--------------- ---------------
1996 1995 1996 1995
-------- -------- -------- --------
Dialysis supplies and
devices $ 4,873 $ 4,762 $ 9,643 $ 9,722
Reprocessing products 6,127 5,492 11,921 10,051
Cardiosurgery products 4,305 5,665 9,762 11,228
Water filtration products 540 397 1,204 760
-------- -------- -------- --------
$ 15,845 $ 16,316 $ 32,530 $ 31,761
Gross profit for the second quarter ended September 30, 1996 was $6,768,000, or
42.7% of net sales, compared to $6,811,000, or 41.7% of net sales, for the
quarter one year ago. For the six months ended September 30,1996, gross profit
was $14,070,000, or 43.3% of net sales, compared to $13,103,000, or 41.3% of net
sales, for the same period one year ago. The improved gross margin in the
current year was due primarily to improved efficiencies in manufacturing.
Research and development expenses for the second quarter totaled $829,000, or
5.2% of sales, compared to $926,000, or 5.7% of sales, in the quarter one year
ago. For the six months ended September 30, 1996, expenses totaled $1,654,000,
or 5.1% of sales, compared to $1,681,000, or 5.3% of sales, for the same period
one year ago. The Company expects that total research and development expenses
for the fiscal year ending March 31, 1997 will approximate 6% of sales.
Selling, general and administrative expenses for the second quarter ended
September 30, 1996 were $4,306,000, or 27.3% of sales, compared to $3,631,000,
or 22.3% of sales, in the second quarter one year ago. For the six months ended
September 30, 1996, selling, general and administrative expenses totaled
$8,407,000, or 25.8% of sales, compared to $7,210,000, or 22.7% of sales, for
the same period one year ago. Selling, general and administrative expenses have
increased due to expansion of sales and marketing efforts in Japan and Europe.
The Company's effective income tax rates for the second quarter and six months
ended September 30, 1996 were 48.6% and 44.4%, respectively, compared to 35.9%
for the same periods one year ago. The increased effective tax rates in the
current year are due to foreign subsidiary operating losses which were not
deductible as of September 30, 1996.
Page 7
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The Company reported net earnings of $781,000, or 4.9% of sales for the quarter
ended September 30, 1996, compared to earnings $747,000, or 4.6% of sales in the
second quarter one year ago. Second quarter earnings one year ago included a
one time charge of $936,000 related to dialyzer production scale-up. For the
six months ended September 30, 1996, earnings were $2,072,000, or 6.4% of sales,
compared to earnings of $1,940,000, or 6.1% of sales for the same period one
year ago.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $3,800,000 of cash, cash equivalents and
marketable securities, a decrease of $1,418,000 from the balance at March 31,
1996. Working capital at September 30, 1996 was $22,274,000 compared to
$22,128,000 at March 31, 1996. The decrease in cash was due to a build-up of
finished goods and increased raw material inventories. The Company's current
ratio at September 30, 1996 was 3.2 to 1 compared to 4.2 to 1 at March 31, 1996.
The Company acquired $3,444,000 of capital equipment during the six months ended
September 30, 1996 and expects to invest approximately $5,000,000 in capital
equipment for the full fiscal year.
The Company borrowed $4,000,000 under its bank line of credit to meet working
capital needs in the second quarter ended September 30, 1996 and may require
further borrowing to meet working capital needs in fiscal 1997.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on August 28, 1996.
The stockholders took the following actions: (i) the stockholders elected
two directors to serve for terms ending in 1999 and until their successors
are elected. The stockholders present in person or by proxy cast the
following numbers of votes in connection with the election of directors,
resulting in the election of all of the nominees:
Votes For Votes Withheld
---------- --------------
Fred L. Shapiro, M.D. 5,867,258 141,087
Donald H. Soukup 5,869,318 139,027
The names of the remaining directors whose term of office as a director
continues after the Annual Meeting are George Heenan, Amos Heilicher,
Louis C. Cosentino, and Norman Dann.
(ii)The stockholders ratified the appointment of Price Waterhouse LLP as
the independent auditors of the Company for the fiscal year ending
March 31, 1997. The stockholders present in person or by proxy cast the
following numbers of votes on this item:
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
Ratify Price Waterhouse LLP 5,794,664 9,718 203,963
Page 8
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10a. Amendment to Minntech Corporation Director Emeritus Consulting
Plan dated April 8, 1995.
10b. Amendment to Minntech Corporation 1989 Stock Plan dated July 25,
1989.
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1996.
Page 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MINNTECH CORPORATION
DATE: November 12, 1996
-----------------
/s/ Jules L. Fisher
--------------------
Jules L. Fisher
Vice President and
Chief Financial Officer
(Duly authorized officer)
(Principal financial officer)
Page 10
<PAGE>
MINNTECH CORPORATION
BOARD OF DIRECTORS MEETING
SEPTEMBER 26,1996
RESOLVED that the 1989 Stock Plan (the "1989 Plan") of the Company, as
previously amended, is hereby further amended effective as of September 26,
1996, as follows, provided that no such amendment shall impair the rights of an
optionee (unless consent of such optionee shall have been obtained) under a
Stock Option that was previously granted to such optionee.
1. Paragraph h. of Section 1 of the 1989 Plan is deleted.
2. A new Paragraph v. is hereby added to Section 1 of the 1989 Plan
to read as follows:
v. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute thereto.
3. Paragraph 1. of Section 1 of the 1989 Plan is amended in its
entirety to read as follows:
1."NON-EMPLOYEE DIRECTOR" shall have the meaning set forth in Rule
16b-3(b)(3) under the Exchange Act, or any successor rule thereto.
4. The first paragraph of Section 2 of the 1989 Plan is amended in
its entirety to read as follows:
The Plan shall be administered by the Board of Directors or a
Committee of not less than three Non-Employee Directors, who shall be
appointed by the Board of directors of the Company and who shall serve at
the pleasure of the Board.
5. Paragraph (c) of Section 5 of the 1989 Plan is amended in its
entirety to read as follows:
(c) EXERCISABILITY. Stock Options shall be exercisable at such
time or times as determined by the Committee at or after grant. If the
Committee provides, in its discretion, that any option is exercisable
only in installments, the Committee may waive such installment exercise
provisions at any time. Notwithstanding the foregoing or any other
provision of this Plan, unless the Stock Option Agreement provides
otherwise, (1) any Stock Option granted under this Plan on or prior to
September 26, 1996 (including options granted to Non-Employee
Directors), that shall not have
<PAGE>
previously expired shall be immediately exercisable in full, without regard
to any installment exercise provisions, for a period specified by the
Company, but not to exceed sixty (60) days, prior to the occurrence of any
of the following events: (i) dissolution or liquidation of the Company
other than in conjunction with a bankruptcy of the Company or any similar
occurrence, (ii any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets
of the Company or 75% or more of the outstanding Stock of the Company and,
in addition, (2) any Stock Option granted under this Plan, whether prior
to, on or after September 26, 1996 (including options granted to Non-
Employee Directors), that shall not have previously expired shall be
immediately exercisable in full, without regard to any installment exercise
provisions, upon the occurrence of a Change in Control. For purposes of
this Plan, a "Change in Control" of the Company shall be deemed to occur if
any of the following occur:
(1) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) acquires or becomes a "beneficial owner"
(as defined in Rule 13d-3 or any successor rule under the Exchange
Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding securities entitled to vote generally in the election
of directors ("Voting Securities"), provided, however, that the
following shall not constitute a Change in Control pursuant to this
paragraph (c)(1):
(A) any acquisition or beneficial ownership by the Company
or a Subsidiary;
(B) any acquisition or beneficial ownership by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or one or more of its Subsidiaries;
(C) any acquisition or beneficial ownership by any
corporation with respect to which, immediately following such
acquisition, more than 70% of both the combined voting power of
the Company's then outstanding Voting Securities and the Stock of
the Company is then beneficially owned, directly or indirectly,
by all or substantially all of the persons who beneficially owned
Voting Securities and Stock of the Company immediately prior to
such acquisition in substantially the same proportions as their
ownership of such Voting Securities and Stock, as the case may
be, immediately prior to such acquisition;
2
<PAGE>
(2) A majority of the members of the Board of Directors of the
Company shall not be Continuing Directors. "Continuing Directors"
shall mean: (A) individuals who, on the date hereof, are directors of
the Company, (B) individuals elected as directors of the Company
subsequent to the date hereof for whose election proxies shall have
been solicited by the Board of Directors of the Company or (C) any
individual elected or appointed by the Board of Directors of the
Company to fill vacancies on the Board of Directors of the Company
caused by death or resignation (but not by removal) or to fill newly-
created directorships;
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation of the Company (other than a
merger or consolidation with a subsidiary of the Company) or a
statutory exchange of outstanding Voting Securities of the Company,
unless immediately following such reorganization, merger,
consolidation or exchange, all or substantially all of the persons who
were the beneficial owners, respectively, of Voting Securities and
Stock of the Company immediately prior to such reorganization, merger,
consolidation or exchange beneficially own, directly or indirectly,
more than 70% of, respectively, the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors and the then outstanding shares of common stock,
as the case may be, of the corporation resulting from such
reorganization, merger, consolidation or exchange in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange, of the Voting
Securities and Stock of the Company, as the case may be; or
(4) Approval by the shareholders of the Company of (x) a
complete liquidation or dissolution of the Company or (y) the sale or
other disposition of all or substantially all of the assets of the
Company (in one or a series of transactions), other than to a
corporation with respect to which, immediately following such sale or
other disposition, more than 70% of, respectively, the combined voting
power of the then outstanding voting securities of such coporation
entitled to vote generally in the election of directors and the then
outstanding shares of common stock of such corporation is then
beneficially owned, directly or indirectly, by all or substantially
all of the persons who were the beneficial owners, respectively, of
the Voting Securities and Stock of the Company immediately prior to
such sale or other disposition in substantially the same proportions
as their ownership, immediately prior to such sale or other
disposition, of the Voting Securities and Stock of the Company, as the
case may be.
3
<PAGE>
6. Paragraph (e) of Section 5 of the 1989 Plan is amended in its
entirety to read as follows:
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Options shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable
during the optionee's lifetime, only by the optionee; provided, however,
that any optionee may transfer any Non-Qualified Stock Option, whether
granted prior to, on or after September 26, 1996 (including any such
options granted to Non-Employee Directors), to members of his or her
immediate family (i.e., his or her children, grandchildren and spouse)
or to one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners, if the
optionee does not receive any consideration for the transfer. Any
Non-Qualified Stock Options held by any such transferee shall continue
to be subject to the same terms and conditions that were applicable to
such Non-Qualified Stock Options immediately prior to their transfer.
7. Paragraph (c)(i) of Section 7 of the 1989 Plan is amended in its
entirety to read as follows:
(i) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such award
(the "Restriction Period"), the participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the
Plan; provided, however, that the participant may transfer any Restricted
Stock, whether granted prior to, on or after September 26, 1996, to members
of his or her immediate family (i.e., his or her children, grandchildren
and spouse) or to one or more trusts for the benefit of such family members
or partnerships in which such family members are the only partners, if the
participant does not receive any consideration for the transfer. Any
Restricted Stock held by any such transferee shall continue to be subject
to the same terms and conditions that were applicable to such Restricted
Stock immediately prior to its transfer. In no event shall the Restriction
Period be less than one (1) year. Within these limits, the Committee may
provide for the lapse of such restrictions in installments where deemed
appropriate.
8. Paragraph (c)(v) of Section 7 of the 1989 Plan is hereby amended
in its entirety to read as follows:
(v) Notwithstanding the foregoing, all restrictions with respect to
any participant's shares of Restricted Stock that shall not previously have
been forfeited shall lapse immediately upon the occurrence of a Change in
Control.
4
<PAGE>
9. Paragraph (b)(i) Of Section 8 of the 1989 Plan is amended in its
entirety to read as follows:
(i) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period; provided, however, that
any participant may transfer any Deferred Stock, whether granted prior to,
on or after September 26, 1996, to members of his or her immediate family
(i.e., his or her children, grandchildren and spouse) or to one or more
trusts for the benefit of such family members or partnerships in which such
family members are the only partners if the participant does not receive
any consideration for the transfer. Any Deferred Stock held by any such
transferee shall continue to be subject to the same terms and conditions
that were applicable to such Deferred Stock immediately prior to its
transfer and the transferee shall be deemed to be the participant for
purposes of making the election referred to in paragraph (b)(v) of this
Section 8. In no event shall the Deferral Period be less than one (1) year.
At the expiration of the Deferral Period (or elective Deferral Period,
where applicable), share certificates shall be delivered to the
participant, transferee, or their respective legal representative, in a
number equal to the shares covered by the Deferred Stock award.
10. A new paragraph (b)(vii) is hereby added to Section 8 of the 1989
Plan to read as follows:
(vii) Notwithstanding the foregoing, the Deferral Period (or
Elective Deferred Period, where applicable) with respect to a participant's
Deferred Stock that shall not previously have been forfeited shall expire
and share certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award upon the occurrence of a Change in Control.
11. A new paragraph (g) is hereby added to Section 12 of the 1989
Plan to read as follows:
(g) In the event of (a) the proposed dissolution or liquidation of
the Company, (b) a proposed sale of substantially all of the assets of the
Company or (c) a proposed merger or consolidation of the Company with or
into any other entity, regardless of whether the Company is the surviving
corporation, or a proposed statutory share exchange with any other entity
(the actual effective date of the dissolution, liquidation, sale, merger,
consolidation or exchange being herein called an "Event"), the Committee
may, but shall not be obligated to, either (i) if the Event is a merger,
consolidation or statutory share exchange, make appropriate provision for
the protection of outstanding Stock Options, Stock Appreciation Rights,
Restricted Stock and Deferred Stock awards granted under this Plan by the
substitution, in lieu of such Stock Options, Stock Appreciation Rights,
Restricted Stock or Deferred Stock awards,
5
<PAGE>
of options to purchase, or stock appreciation rights with respect to,
appropriate voting common stock (or of restricted voting common stock
or, with respect to Deferred Stock Awards, voting common stock), as the
case may be (the "Survivor's Stock") of the corporation surviving any
such merger or consolidation or, if appropriate, the parent corporation
of the Company or such surviving corporation, or, alternatively with
respect to Stock Options or Stock Appreciation Rights, by the delivery
of a number of shares of the Survivor's Stock which has a Fair Market
Value as of the effective date of such merger, consolidation or
statutory share exchange equal to the product of (x) the excess of (A)
the Event Proceeds per Share (as hereinafter defined) covered by the
Stock Options or Stock Appreciation Rights as of such effective date
over (B) the exercise price per share of the shares of Stock subject to
such Stock Options or used to measure the value of such Stock
Appreciation Rights, times (y) the number of shares covered by such
Stock Options or Stock Appreciation Rights, as the case may be, or (ii)
declare, at least twenty days prior to the Event, and provide written
notice to each optionee of the declaration, that each outstanding Stock
Option and Stock Appreciation Right, whether or not then exercisable,
shall be canceled at the time of, or immediately prior to the occurrence
of, the Event (unless it shall have been exercised prior to the
occurrence of the Event). In connection with any declaration pursuant
to clause (ii) of the preceding sentence, the Committee may, but shall
not be obligated to, cause payment to be made, within twenty days after
the Event in exchange for each canceled Stock Option and Stock
Appreciation Right, of cash equal to the amount (if any), for each share
of Stock covered by the canceled option or used to measure the value of
a Stock Appreciation Right, by which the Event Proceeds per share of
Stock (as hereinafter defined) exceeds the exercise price per Share
covered by such Stock Option or used to measure the value of a Stock
Appreciation Right. At the time of any declaration pursuant to clause
(ii) of the first sentence of this paragraph (g), each Stock Option and
Stock Appreciation Right that has not previously expired or have been
terminated or canceled pursuant to this Plan shall immediately become
exercisable in full and each optionee or holder of a stock appreciation
right shall have the right, during the period preceding the time of
cancellation of the Stock Option or Stock Appreciation Right, to
exercise his or her Stock Option or Stock Appreciation Right as to all
or any part of the Shares covered thereby or used to measure the value
thereof. In the event of a declaration pursuant to clause (ii) of the
first sentence of this paragraph (g), each outstanding Stock Option and
Stock Appreciation Right granted pursuant to this Plan that shall not
have been exercised prior to the Event shall be canceled at the time of,
or immediately prior to, the Event, as provided in the declaration,
subject to the payment obligations of the Company, if any, provided in
this paragraph (g). Notwithstanding the foregoing, no person holding a
Stock Option or Stock Appreciation Right shall be entitled to the
payment provided in this paragraph (g) if a Stock Option or Stock
Appreciation Right shall have expired pursuant to this Plan. For
purposes of this paragraph (g), "Event Proceeds per Share" shall mean
the cash plus the fair market value, as determined in good faith by the
Committee, of the non-cash consideration to be received per share of
Stock by the
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shareholders of the Company upon the occurrence of the Event. Nothing
stated in this paragraph (g) shall impair the rights of an optionee (unless
the consent of the optionee shall have been obtained) under a Stock Option
granted to such optionee on or prior to September 26, 1996, the date of
adoption of the Amendment to this Plan to add paragraph (g).
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Exhibit 10B
BOARD OF DIRECTORS
OF MINNTECH CORPORATION
SEPTEMBER 26, 1996
RESOLVED that the Minntech Corporation Emeritus Director Consulting
Plan effective as of April 8, 1995 (the "Emeritus Director Consulting Plan") is
hereby amended effective as of September 26, 1996 as follows:
1. Section 3 of the Emeritus Director Consulting Plan is hereby amended to
read in its entirety as follows:
3. ELIGIBILITY FOR A PLAN YEAR.
(a) Except as provided in Section 3(f), at its last regularly scheduled
meeting for each Plan Year, the Board of Directors shall determine in
its sole discretion which Former Directors will be designated as
Participants in the Plan for the next Plan Year. Designation as a
Participant for a particular Plan Year does not guarantee designation
as a Participant for any other Plan Year. If a Former Director
retires from the Board of Directors other than at the end of a Plan
Year, the initial decision regarding eligibility for participation in
the Plan shall be made at the next regularly scheduled meeting of the
Board of Directors following any such retirement and shall apply to
that portion of the Plan Year following the date such retirement
occurred.
(b) Subject to Section 3(f), each Former Director designated by the Board
of Directors as a Participant shall execute a written agreement in the
form attached hereto as Exhibit A to provide consulting services to
Minntech's Board of Directors (a "Consulting Agreement") for the Plan
Year during which he/she will be Participant and shall receive the
payments provided under Section 4 for such Plan Year.
(c) The Consulting Agreement shall provide that a Participant shall make
himself or herself available to advise and consult with the Board of
Directors upon request of the Board of Directors or the Chairman of
the Board of Directors. The number of consulting hours required under
the Consulting Agreement shall not exceed six hours per calendar
quarter with an additional eight hours annually as requested by the
Chairman of the Board.
(d) During the Plan Year covered by the Consulting Agreement, the status
of the Participant shall be that of an independent contractor rather
than an employee,
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and the Participant shall not be eligible for any benefits provided to
employees of Minntech.
(e) A Former Director shall only be eligible for designation as a
Participant for a number of years equal to the number of full,
consecutive Fiscal Years that the individual served as a member of the
Board of Directors.
(f) Notwithstanding anything stated in Section 3 other than in this
Section 3(f), in the event of a Change in Control, as defined in
Section 3(g), a Former Director who ceases to be a director of
Minntech at the time of, or within three years following, a Change in
Control (without regard to whether such Former Director has been
designated as a Participant pursuant to Section 3(a)) or has ceased to
be a director of Minntech prior to a Change in Control but is a party
to a Consulting Agreement that is in effect at the time of a Change in
Control, shall automatically become a Participant in this Plan for the
portion of the Plan Year in which the Former Director ceases to be a
director of Minntech (if such cessation occurs at the time of, or
after, a Change in Control) and shall automatically continue to be a
Participant for each successive Plan Year ending after the date the
individual ceases to be a member of the Board of Directors (or
following the expiration of the Consulting Agreement in the case of a
Former Director who is subject to such a Consulting Agreement at the
time of the Change in Control), provided that (1) the aggregate number
of Plan Years with respect to which the Former Director shall receive
payments pursuant to this Plan shall not exceed the number of full,
consecutive Plan Years that the Former Director served as a member of
the Board of Directors, (2) this Section 3(f) shall be subject to the
limitations contained in Section 5, (3) the Former Director shall
receive the payments provided for in Section 4 regardless of whether,
after the Change in Control, the Board of Directors requests that the
Former Director sign a Consulting Agreement and (4) notwithstanding
Section 3(b), the Former Director shall sign a Consulting Agreement
following a Change in Control only if so requested by the Board of
Directors. Notwithstanding any provision to the contrary contained
herein, if the payments due and the other benefits to which the Former
Director shall become entitled under Section 4 hereof by reason of
this Section 3(f), either alone or together with other payments in the
nature of compensation to the Former Director which are contingent on
a change in the ownership or effective control of Minntech or in the
ownership of a substantial portion of the assets of Minntech or
otherwise, would constitute a "parachute payment" as defined in
Section 28OG of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision thereto, such payments under
Section 4 and/or such other benefits and payments shall be reduced
(but not below zero) to the largest aggregate amount as will result in
no portion thereof being subject to the excise tax imposed under
Section 4999 of the Code (or any successor provision
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thereto) or being non-deductible to Minntech for federal income tax
purposes pursuant to Section 28OG of the Code (or any successor
provision thereto). The Former Director in good faith shall determine
the amount of any reduction to be made pursuant to the immediately
preceding sentence and shall select from among the foregoing benefits
and payments those which shall be reduced. No modification of, or
successor provision to, Section 28OG or Section 4999 subsequent to the
date of this Agreement shall, however, reduce the benefits to which
the Former Director would be entitled under the two immediately
preceding sentences of this Section 3(f) to a greater extent than they
would have been reduced if Section 28OG and Section 4999 had not been
modified or superseded subsequent to September 26, 1996,
notwithstanding anything to the contrary provided in the two preceding
sentences.
(g) For purposes of the Plan, a Change in Control shall be deemed to have
occurred if:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended, or
any successor statute thereto (the "Exchange Act')) acquires or
becomes a "beneficial owner" (as defined in Rule 13d-3 or any
successor rule under the Exchange Act), directly or indirectly,
of securities of Minntech representing 30% or more of the
combined voting power of Minntech's then outstanding securities
entitled to vote generally in the election of directors ("Voting
Securities"), provided, however, that the following shall not
constitute a Change in Control pursuant to this Section 3(g)(i):
(A) any acquisition or beneficial ownership by
Minntech or a subsidiary of Minntech.
(B) any acquisition or beneficial ownership by any
employee benefit plan (or related trust) sponsored or
maintained by Minntech or one or more of its subsidiaries;
(C) any acquisition or beneficial ownership by any
corporation with respect to which, immediately following
such acquisition, more than 70% of both the combined voting
power of Minntech's then outstanding Voting Securities and
the common stock of Minntech is then beneficially owned,
directly or indirectly, by all or substantially all of the
persons who beneficially owned Voting Securities and common
stock of Minntech immediately prior to such acquisition in
substantially the same proportions as their ownership of
such Voting
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Securities and common stock, as the case may be, immediately
prior to such acquisition;
(ii) A majority of the members of the Board of
Directors shall not be Continuing Directors. For purposes of
this subsection 3(g)(ii), "Continuing Directors" shall mean: (A)
individuals who, on the date hereof, are directors of Minntech,
(B) individuals elected as directors of Minntech subsequent to
the date hereof for whose election proxies shall have been
solicited by the Board of Directors or (C) any individual elected
or appointed by the Board of Directors to fill vacancies on the
Board of Directors caused by death or resignation (but not by
removal) or to fill newly-created directorships;
(iii) Approval by the shareholders of Minntech of a
reorganization, merger or consolidation of Minntech (other than a
merger or consolidation with a subsidiary of Minntech) or a
statutory exchange of outstanding Voting Securities of Minntech,
unless immediately following such reorganization, merger,
consolidation or exchange, all or substantially all of the
persons who were the beneficial owners, respectively, of Voting
Securities and common stock of Minntech immediately prior to such
reorganization, merger, consolidation or exchange beneficially
own, directly or indirectly, more than 70% of, respectively, the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors and the
then outstanding shares of common stock, as the case may be, of
the corporation resulting from such reorganization, merger,
consolidation or exchange in substantially the same proportions
as their ownership, immediately prior to such reorganization,
merger, consolidation or exchange, of the Voting Securities and
common stock of Minntech, as the case may be;
(iv) Approval by the shareholders of Minntech of (x) a
complete liquidation or dissolution of Minntech or (y) the sale
or other disposition of all or substantially all of the assets of
Minntech (in one or a series of transactions), other than to a
corporation with respect to which, immediately following such
sale or other disposition, more than 70% of, respectively, the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and the then outstanding shares of common stock of such
corporation is then beneficially owned, directly or indirectly,
by all or substantially all of the persons who were the
beneficial owners, respectively, of the Voting Securities and
common stock of Minntech immediately prior to such sale or other
disposition in
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substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the
Voting Securities and common stock of Minntech, as the case may
be; or
(v) Minntech enters into a letter of intent, an agreement
in principle or a definitive agreement relating to a Change in
Control described in Section 3(g)(i), 3(g)(ii), 3(g)(iii) or
3(g)(iv) above that ultimately results in such a Change in
Control or a tender or exchange offer or proxy contest is
commenced which ultimately results in a Change in Control
described in Section 3(g)(i) or 3(g)(ii) hereof.
Notwithstanding the above, a Change in Control shall not be deemed to
occur with respect to a Former Director for purposes of Section 3(f)
if (x) the acquisition or beneficial ownership of the 30% or greater
interest referred to in Section 3(g)(i) is by the Former Director or
by a group, acting in concert, that includes the Former Director or
(y) if a majority of the then combined voting power of the then
outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of Minntech shall,
immediately after a reorganization, merger, consolidation, statutory
share exchange or disposition of assets referred to in Section
3(g)(iii) or 3(g)(iv), be beneficially owned, directly or indirectly,
by the Former Director or by a group, acting in concert, that includes
the Former Director. For purposes of this Section 3(g), a
"subsidiary" of Minntech shall mean any entity of which securities or
other ownership interests having general voting power to elect a
majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by
Minntech.
2. Section 5(b) and 5(c) of the Emeritus Director Consulting Plan are hereby
amended to read as follows:
(b) The Participant is unable or refuses to perform his or her duties
under the Consulting Agreement that is then in effect (provided that
this Section 5(b) shall not be effective with respect to a Former
Director who is a Participant as a result of Section 3(f) and who is
not at the time, and is not required to be, covered by a Consulting
Agreement).
(c) The Participant, prior to a Change in Control, commits any act which
constitutes a felony or gross misdemeanor, or which the Board of
Directors, prior to a Change in Control, determines in its sole
discretion is harmful to the business, operations or reputation of
Minntech, or, after a Change in Control, and while a party to a
Consulting Agreement, commits any act which constitutes a felony or
gross misdemeanor of a nature that, because of the
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Former Director's then existing consulting relationship with Minntech,
would have a material adverse effect on the business, operations or
reputation of Minntech if the Participant continued to be a consultant
for Minntech.
6
