<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, 1998 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.
<TABLE>
<CAPTION>
Class Outstanding at October 22, 1998
----- -------------------------------
<S> <C>
Common Stock, $0.05 par value 6,728,809 shares
</TABLE>
<PAGE>
Minntech Corporation
Quarterly Report on Form 10-Q
September 30, 1998
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
PAGE 2
<PAGE>
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
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales - product $ 17,944 $ 16,355 $ 36,263 $ 34,110
Contract Revenue 60 0 420 0
-------- -------- -------- --------
NET SALES 18,004 16,355 36,683 34,110
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of sales 9,814 9,550 19,994 20,092
Research and development 896 631 1,972 1,330
Selling, general and administrative 4,902 4,532 9,965 9,207
Amortization of intangible assets 208 211 404 422
-------- -------- -------- --------
Total operating costs and expenses 15,820 14,924 32,335 31,051
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 2,184 1,431 4,348 3,059
Other income (expense), net (3) (29) 33 (40)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 2,181 1,402 4,381 3,019
Provision for income taxes 737 386 1,481 1,010
Minority interest (3) (43) (16) (83)
-------- -------- -------- --------
NET EARNINGS $ 1,447 $ 1,059 $ 2,916 $ 2,092
-------- -------- -------- --------
-------- -------- -------- --------
NET EARNINGS PER SHARE
Basic $ .21 $ .16 $ .43 $ .31
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ .21 $ .16 $ .42 $ .31
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS
Basic 6,893 6,742 6,841 6,736
-------- -------- -------- --------
-------- -------- -------- --------
Diluted 6,967 6,746 7,014 6,746
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
PAGE 3
<PAGE>
MINNTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS (Unaudited)
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,245 $ 6,805
Marketable securities 450 431
Accounts receivable, net 15,804 14,571
Inventories
Finished goods 5,370 5,733
Materials and work-in-process 6,806 5,463
-------- --------
Total inventories 12,176 11,196
Prepaid expenses & other current assets 2,188 1,623
-------- --------
TOTAL CURRENT ASSETS 35,863 34,626
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,757 9,533
Machinery and equipment 23,997 23,774
-------- --------
33,754 33,307
Less accumulated depreciation (20,176) (19,116)
-------- --------
Net property and equipment 13,578 14,191
OTHER ASSETS
Patent costs, net 725 780
Goodwill, net 1,208 888
Other 2,298 1,065
-------- --------
TOTAL ASSETS $ 53,672 $ 51,550
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 219 $ 225
Accounts payable 3,858 3,893
Income taxes payable 410 309
Accrued expenses 3,494 4,119
-------- --------
TOTAL CURRENT LIABILITIES 7,981 8,546
DEFERRED INCOME TAXES 461 454
DEFERRED COMPENSATION 732 783
MINORITY INTEREST 0 (66)
STOCKHOLDERS' EQUITY
Preferred stock, no par value -- --
Common stock, $.05 par value 337 339
Additional paid-in capital 12,382 12,657
Accumulated other comprehensive income 91 (319)
Retained earnings 31,688 29,156
-------- --------
TOTAL STOCKHOLDERS' EQUITY 44,498 41,833
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 53,672 $ 51,550
-------- --------
-------- --------
</TABLE>
PAGE 4
<PAGE>
MINNTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30
------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,916 $ 2,093
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,038 1,782
Foreign currency exchange loss (39) 231
Minority interest (16) (83)
Other, net (19) 12
Changes in assets and liabilities:
Accounts receivable (1,104) (1,430)
Inventories (981) 1,067
Prepaid expenses (686) 149
Accounts payable (35) (486)
Accrued expenses (626) 570
Income taxes payable 100 998
------- -------
Total adjustments (1,368) 2,810
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,548 4,903
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,864) (386)
Patent application costs 55 (192)
Other (37) (8)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,846) (586)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of minority interest (436) --
Proceeds from note payable (6) (3,000)
Proceeds from exercise of stock options 566 285
Payment of cash dividends (682) (674)
Stock repurchase (842) --
------- -------
NET CASH USED IN FINANCING ACTIVITIES (1,400) (3,389)
Effects of exchange rate changes on foreign currency
cash balances 138 (21)
------- -------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (1,560) 907
Cash and cash equivalents at beginning of period 6,805 3,222
------- -------
Cash and cash equivalents at end of period $ 5,245 $ 4,129
------- -------
------- -------
</TABLE>
PAGE 5
<PAGE>
MINNTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - 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, 1998 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 2 - RESTRUCTURING AND UNUSUAL ITEMS
During the second quarter ended September 30, 1998, $.115 million of employee
related costs were paid, reducing the restructuring reserve balance. The
restructuring reserve balance as of September 30, 1998 totaled $.401 million.
NOTE 3 - LINE OF CREDIT
At September 30, 1998, the Company had a line of credit with a commercial bank
which allowed the Company to borrow up to $10 million on an unsecured basis at
the prime rate of interest (8.50% at September 30, 1998) or the indexed London
Interbank Offered Rate (LIBOR). As of September 30, 1998, the Company had no
outstanding borrowings under the line of credit.
NOTE 4 - NET EARNINGS PER SHARE
The Company had adopted SFAS No. 128 "Earnings Per Share" which became effective
for financial statements issued for periods ending after December 15, 1997.
Statements of Financial Accounting Standard No. 128 requires presentation of
basic and diluted earnings per share ("EPS") and restatement of EPS data for all
prior periods. Basic EPS includes no dilution and is computed by dividing net
income (loss) by the weighted average shares of common stock outstanding.
Diluted EPS is computed by dividing net income (loss) by the weighted average
shares of common stock and dilutive common stock equivalents outstanding. The
Company's dilutive common stock equivalents result from stock options and are
computed using the treasury stock method. The following table reconciles the
numerators and denominators of the basic and diluted EPS computations for the
three and six month periods ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) Income Before Effect of Dilutive Diluted
THREE MONTHS ENDED 9/30/98 Extraordinary Item Stock Options Earnings Per Share
------------------ ------------- ------------------
<S> <C> <C> <C>
Income (Numerator) $1,447 $1,447
Shares (Denominator) 6,893 74 6,967
Per Share Amount $ .21 $ .21
THREE MONTHS ENDED 9/30/97
Income (Numerator) $1,059 $1,059
Shares (Denominator) 6,742 4 6,746
Per Share Amount $ .16 $ .16
</TABLE>
PAGE 6
<PAGE>
MINNTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 4 - NET EARNINGS PER SHARE (CONT'D)
<TABLE>
<CAPTION>
(in thousands, except per share amounts) Income Before Effect of Dilutive Diluted
SIX MONTHS ENDED 9/30/98 Extraordinary Item Stock Options Earnings Per Share
------------------ ------------- ------------------
<S> <C> <C> <C>
Income (Numerator) $2,916 $2,916
Shares (Denominator) 6,841 173 7,014
Per Share Amount $ .43 $ .42
SIX MONTHS ENDED 9/30/97
Income (Numerator) $2,092 $2,092
Shares (Denominator) 6,736 10 6,746
Per Share Amount $ .31 $ .31
</TABLE>
Outstanding stock options to purchase 599,808 shares of common stock as of
Septmeber 30, 1998 were not included in the computation of diluted earnings per
share because the option exercise prices were greater than the average market
price of the common shares during the period.
NOTE 5 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" effective January 1, 1998. The statement
requires unrealized gains or losses on available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders equity, to be included in other comprehensive income.
The components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, 1998 1997 1998 1997
- ------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Net income $1,469 $ 1,033 $2,916 $ 2,092
Unrealized gains/losses or securities 0 3 15 (10)
Foreign currency translation adjustments 112 (61) 396 (47)
------ ------- ------ -------
Comprehensive income $1,581 $ 975 $3,327 $ 2,035
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
NOTE 6 - STOCKHOLDERS' EQUITY
In August, 1998 the Company's stockholders approved proposals to increase the
number of authorized common shares from 10,000,000 to 20.000,000 shares; adopt
the Minntech Corporation 1998 Stock Option Plan, which makes a total of
1,000,000 common shares available for grant under the plan; and amend the
Minntech Corporation 1990 Employee Stock Purchase Plan to extend its term for
five years to June 1, 2003.
PAGE 7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues in the second quarter ended September 30, 1998 increased by 10.1
percent to $18.0 million. Excluding contract revenue, product sales increased
9.7 percent compared to the second quarter of last fiscal year. Cardiosurgery
product sales increased 24.1 percent over the same period a year ago due to
growth in international unit sales of the Biocor 200-TM- High Performance
Oxygenator. Sales of reprocessing products increased by 13.2 percent in the
quarter as a result of continued unit growth in dialyzer reprocessing products.
Industrial filtration and separation sales grew by 14.0 percent in the quarter.
Dialysis supply and device sales (consisting of dialysis concentrate, dialyzers
and electronic products), declined 4.3 percent for the quarter due to lower
sales of the Company's discontinued dialyzer product line. Sales of dialysis
concentrate grew 10.7 percent for the quarter,
Revenues for the six month period ended September 30, 1998 increased by 7.6
percent to $36.7 million. Fiscal year-to-date product sales increased by 6.3
percent or $2.2 million. Reprocessing product sales are up 10.9 percent over the
same period a year ago due to unit growth in both endoscope and dialyzer
reprocessing. Fiscal year-to-date sales growth of 10.3 percent in cardiosurgery
products is attributable to Biocor 200(TM) High Performance Oxygenator increases
in international markets. Industrial filtration and separation sales are up 17.4
percent over the same period one year ago. Dialysis supply and device sales
decreased 4.0 percent from the same period last fiscal year due to declining
dialyzer product (discontinued product line) sales. Dialysis concentrate and
electronics sales are up 8.0 percent from the same period last year.
Sales by product group are summarized on the following table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(dollars in thousands) September 30 September 30
-----------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dialysis supplies and devices $ 5,069 $ 5,299 $10,251 $10,682
Reprocessing products 8,103 7,156 16,726 15,088
Cardiosurgery products 4,000 3,223 7,794 7,069
Industrial filtration & separation 772 677 1,492 1,271
------- ------- ------- -------
Total product sales $17,944 $16,355 $36,263 $34,110
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Gross margin on product sales as a percentage of sales in the quarter ended
September 30, 1998 increased to 45.3 percent from 41.6 percent in the same
quarter last fiscal year. For the six month period ended September 30, 1998
gross margins on product sales were 44.9 percent as compared to 41.1 percent in
the prior year. The improvement in gross margins for both the three and six
month periods is attributable to product cost reductions combined with favorable
product mix.
Research and development expenses in the second quarter ended September 30, 1998
were $.9 million or 5.0 percent of revenues, compared to $.6 million or 3.9
percent of revenues, in the second quarter of fiscal 1998. For the six months
ended September 30, 1998 expenses totaled $2.0 million, or 5.4 percent of
revenues, compared to $1.3 million, or 3.9 percent of revenues, for the same
period one year ago. The increase in research and development spending for the
three and six month periods is primarily related to the Company's licensing and
development agreement with Advanced Sterilization Products, a division of
Ethicon, Inc., a Johnson and Johnson company for a second generation endoscope
reprocessing machine and sterilant. The Company expects that research and
development spending in fiscal year 1999 will approximate 5.2 to 5.7 percent of
revenues.
PAGE 8
<PAGE>
Selling, general and administrative expenses in the quarter ended September 30,
1998 were $4.9 million or 27.2 percent of revenues, compared to $4.5 million or
27.7 percent of revenues, in the second quarter one year ago. For the six months
ended September 30, 1998 selling, general, and administrative expenses totaled
$10.0 million, or 27.2 percent of revenues, compared to $9.2 million, on 27.0
percent of revenues, for the same period last year. Selling, general and
administrative expenses increased due to spending to support the BiocorTM
Oxygenator launch combined with additional dialyzer reprocessing marketing
programs.
The Company's effective income tax rates for both the second quarter and six
months ended September 30, 1998 were 33.8 percent of revenues, compared to 27.5
percent and 33.4 percent of revenues, respectively, for the same periods one
year ago. The tax provision in the current and prior fiscal year reflect a
benefit for net operating loss carryforwards in the Company's European
subsidiary. The Company expects that the effective tax rate for fiscal 1999 will
range between 33.5 percent and 34.0 percent.
The Company reported net earnings of $1.447 million for the quarter ended
September 30, 1998, or 8.0 percent of revenue, compared to net earnings of
$1.059 million, or 6.5 percent of revenues, in the second quarter one year ago.
For the six months ended September 30, 1998, net earnings were $2.916 million,
or 7.9 percent of revenues, compared to net earnings of $2.092 million, or 6.1
percent of revenues, for the same period one year ago. The increase in net
earnings for both the quarter and six month period is primarily attributable to
improved gross margins on product sales.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $.55 million and $1.55 million of cash and cash
equivalents for the quarter and six months ended September 30, 1998. At
September 30, 1998, the Company had $5.69 million of cash, cash equivalents, and
marketable securities.
Working capital at September 30, 1998 was $27.9 million compared to $26.1
million at March 30, 1998. The current ratio at September 30, 1998 was 4.5:1
compared to 4.1:1 at March 31, 1998. The Company invested $1.86 million in
capital equipment in the six months ended September 30, 1998 and plans to invest
between $3.5 million and $4.0 million during fiscal year 1999.
The Company announced a stock repurchase program on August 21, 1998. To date,
the Company has repurchased 96,200 shares of common stock through this program,
84,700 shares of which were repurchased in the second quarter.
In the second quarter the Company expended $.44 million to purchase the minority
interest in the Minntech Japan joint venture.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result of this
issue, computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. The Year 2000 issue could
result in system failures or miscalculations causing disruption of operations,
including, among other things, a temporary inability to process transactions
involving the recording of sales, manufacture of products, management of
inventory and distribution, preparation of invoices and collection of accounts
receivable.
The Company's management has established a program to address the Year 2000
issue in three phases as follows: (a) an assessment phase, (b) an analysis and
resolution strategy phase, and (c) a remediation and testing phase. The
compliance program focuses on the Company's information technology systems as
well as non-information technology systems (such systems contain embedded
technology in manufacturing, laboratory, or process control equipment containing
microprocessors or other similar circuitry).
PAGE 9
<PAGE>
The assessment phase, during which management attempted to identify all hardware
and software that affect the Company's operations, has been completed with
respect to the majority of the Company's operations. Based on the results of the
assessment phase, the Company has determined that its primary hardware and
operating system software is Year 2000 compliant. In addition, the Company's
internal financial and enterprise resource planning systems are compliant.
Management has determined that certain hardware and software will need to be
updated or replaced so that its information systems will properly recognize
dates after December 31, 1999.
The Company is currently in the remediation phase for most of its information
technology systems. For non-information technology, or embedded technology
systems, the Company is in the assessment, analysis and resolution strategy
phase. The Company anticipates that internal Year 2000 remediation projects will
be complete by June 30, 1999.
In addition, the Company is assessing the possible effect on its operations
of the Year 2000 readiness of critical suppliers of products and services.
The Company's reliance on its key suppliers, and therefore on the proper
functioning of their information systems and software, is increasing, and
another company's failure to address Year 2000 issues may have an adverse
effect on the Company.
The Company has not yet determined the extent of contingency planning required,
but anticipates that such plans will be completed by September 30, 1999. Through
September 30, 1998 Minntech has spent approximately $.7 million for Year 2000
remediation. Based on the status of assessments and remediation plans to date,
the Company estimates the total remaining cost of remediation at approximately
$.1 million. The Company believes it has ample resources to fund and complete
remediation and testing. However, estimates of Year 2000 costs are based on
numerous assumptions, and there can be no assurance that the estimates are
correct or that the actual costs will not be materially greater than
anticipated.
Based on its assessments and current knowledge, the Company believes it will
not, as a result of the Year 2000 issue, experience any material disruptions in
internal manufacturing processes, information processing or interfaces with
major customers, or with processing orders and billing. However, if certain
critical third-party providers, such as providers of electricity, water or
telephone service experience difficulties resulting in disruption of service to
the Company, a shutdown of the Company's operations at individual facilities
could occur for the duration of the disruption. The Company's management will
establish a contingency plan to provide for continuity of processing if the
Company's Year 2000 compliance efforts fail. Assuming no major disruption in
service from utility companies or other critical third-party providers, the
Company believes that it will be able to manage its total Year 2000 transition
without any material effect on the Company's results of operations or financial
condition.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1998 Annual Meeting of Stockholders held on August 26, 1998,
the stockholders approved the following:
(a) The stockholders elected three directors to serve for terms ending in 2001
and 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:
<TABLE>
<CAPTION>
Director Votes For Withheld
-------- --------- --------
<S> <C> <C>
Norman Dann 6,085,801 54,732
William Hope 6,085,501 54,732
Malcolm W. McDonald 6,085,301 54,732
</TABLE>
PAGE 10
<PAGE>
The names of the remaining directors whose term of office as director
continued after the Annual Meeting are Fred Shapiro, M.D., Donald H. Soukup,
George Heenan, Amos Heilicher and Thomas McGoldrick.
(b) The stockholders approved an amendment to the Company's Restated
Articles of Incorporation to increase the number of authorized shares of
common stock from 10 million to 20 million shares. The amendment was
approved with 5,906,203 votes for, 221,607 votes against, and 12,903
abstentions.
(c) The stockholders approved the Minntech Corporation 1998 Stock Option
Plan with 3,669,584 votes for, 1,439,870 votes against, and 21,435
abstentions.
(d) A proposal to amend the Minntech Corporation 1990 Employee Stock Purchase
Plan to extend its term for an additional five years received 4,922,630
votes for, 192,817 votes against, and 15,442 abstentions.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10(i) Amendment to 1989 Stock Plan effective September 30, 1998
10(j) 1998 Stock Plan effective August 26, 1998
10(k) Amendment to 1998 Stock Plan effective September 30, 1998
27 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998
PAGE 11
<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 13, 1998
/s/ Jules L. Fisher
---------------------------------
Jules L. Fisher
Chief Financial Officer
(Duly authorized officer)
(Principal financial officer)
PAGE 12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT FORM OF FILING
- ----------- ---------------------------------------------------------- ------------------------
<S> <C> <C>
10(i) Amendment to 1989 Stock Plan Effective September 30, 1998 Electronic Submission
10(j) 1998 Stock Plan effective August 26, 1998. Electronic Submission
10(k) Amendment to 1998 Stock Plan Effective September 30, 1998 Electronic Submission
27 Financial Data Schedule Electronic Submission
</TABLE>
<PAGE>
MINNTECH CORPORATION
1989 STOCK PLAN
RESOLUTIONS BY THE BOARD OF DIRECTORS
RESOLVED, that the 1989 Stock Plan of the Company, as previously
amended, is hereby further amended effective as of September 30, 1998, by
deleting therefrom Section 5(k) thereof.
<PAGE>
EXHIBIT 10(J)
MINNTECH CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1998 Stock Option Plan (the "Plan") is to
promote the interests of Minntech Corporation, a Minnesota corporation (the
"Company"), and its shareholders by providing personnel of the Company and any
subsidiaries thereof with an opportunity to acquire a proprietary interest in
the Company and thereby develop a stronger incentive to put forth maximum effort
for the continued success and growth of the Company. In addition, the
opportunity to acquire a proprietary interest in the Company will aid in
attracting and retaining personnel of outstanding ability.
2. ADMINISTRATION.
(a) GENERAL. This Plan shall be administered by a committee of two or
more directors of the Company (the "Committee") appointed by the Company's
Board of Directors (the "Board"). If the Board has not appointed a committee
to administer this Plan, then the Board shall constitute the Committee. The
Committee shall have the power, subject to the limitations contained in this
Plan, to fix any terms and conditions for the grant or exercise of any
option under this Plan. No director shall serve as a member of the Committee
unless such director shall be (i) a "non-employee director" as that term is
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or any successor statute or regulation
comprehending the same subject matter and (ii) an "outside director" under
Section 162(m) of the Internal Revenue code of 1986, as amended (the
"Code"), and the regulations issued thereunder. A majority of the members of
the Committee shall constitute a quorum for any meeting of the Committee,
and the acts of a majority of the members present at any meeting at which a
quorum is present or the acts unanimously approved in writing by all members
of the Committee shall be the acts of the Committee. Subject to the
provisions of this Plan, the Committee may from time to time adopt such
rules for the administration of this Plan as it deems appropriate. The
decision of the Committee on any matter affecting this Plan or the rights
and obligations arising under this Plan or any option granted hereunder,
shall be final, conclusive and binding upon all persons, including without
limitation the Company, shareholders and optionees.
(b) INDEMNIFICATION. To the full extent permitted by law, (i) no
member of the Committee or person to whom authority under this Plan is
delegated shall be liable for any action or determination taken or made in
good faith with respect to this Plan or any option granted hereunder and
(ii) the members of the Committee and each person to whom authority under
this Plan is delegated shall be entitled to indemnification by the Company
against and from any loss incurred by such member or person by reason of any
such actions and determinations.
(c) DELEGATION OF AUTHORITY. The Committee may delegate all or any
part of its authority under this Plan to the Chief Executive Officer of the
Company for purposes of granting and administering options granted to
persons other than persons who are then subject to the reporting
requirements of Section 16 of the Exchange Act ("Section 16 Individuals").
The Chief Executive Officer of the Company may, in turn, delegate such
authority to such other officer of the Company as the Chief Executive
Officer may determine.
(d) ACTION BY BOARD. Notwithstanding paragraph 2(a), above, any grant
of options hereunder to any director of the Company who is not an employee
of the Company, and any action taken by the Company with respect to any such
option, including any amendment thereto, and any acceleration of the vesting
of any option granted to or held by a director who is not an employee of the
Company, any extension of the time within which any such option may be
exercised, any determination pursuant to paragraph 9 relating to the payment
of the purchase price of Shares (as defined in paragraph 3 below) subject to
any such option, or any action pursuant to paragraph 10 relating to the
payment of withholding taxes, if any, through the use of Shares with respect
to any such option shall be subject to prior approval by the Board.
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3. SHARES. The shares that may be made subject to options granted under
this Plan shall be authorized and unissued shares of Common Stock of the
Company, par value $.05 per share ("Shares," and each individually a "Share"),
and they shall not exceed 1,000,000 Shares in the aggregate, subject to
adjustment as provided in paragraph 15, below, except that, if any option lapses
or terminates for any reason before such option has been completely exercised,
the Shares covered by the unexercised portion of such option may again be made
subject to options granted under this Plan.
4. ELIGIBLE PARTICIPANTS. Stock options may be granted under this Plan to
any part-time or full-time employee of the Company, or any parent or subsidiary
thereof, including any such person who is also an officer or director of the
Company or any parent or subsidiary thereof. Non-statutory stock options (as
defined in paragraph 5(a) below) also may be granted to (i) any director of the
Company who is not an employee of the Company or any parent or subsidiary
thereof, (ii) other individuals or entities who are not employees but who
provide services to the Company or a parent or subsidiary thereof in the
capacity of an advisor or consultant, and (iii) any individual or entity that
the Company desires to induce to become an employee, advisor or consultant, but
any such grant shall be contingent upon such individual or entity becoming
employed by the Company or a parent or subsidiary thereof. References herein to
"employment" and similar terms (except "employee") shall include the providing
of services in the capacity of an advisor or consultant or as a director. The
employees and other individuals and entities to whom options may be granted
pursuant to this paragraph 4 are referred to herein as "Eligible Participants."
5. TERMS AND CONDITIONS OF OPTIONS.
(a) GENERAL. Subject to the terms and conditions of this Plan, the
Committee may, from time to time during the term of this Plan, grant to such
Eligible Participants as the Committee may determine options to purchase
such number of Shares of the Company on such terms and conditions as the
Committee may determine. In determining the Eligible Participants to whom
options shall be granted and the number of Shares to be covered by each
option, the Committee may take into account the nature of the services
rendered by the respective Eligible Participants, their present and
potential contributions to the success of the Company, and such other
factors as the Committee in its sole discretion may deem relevant. The date
and time of approval by the Committee of the granting of an option shall be
considered the date and the time of the grant of such option. The Committee
in its sole discretion may designate whether an option granted to an
employee is to be considered an "incentive stock option" (as that term is
defined in Section 422 of the Code, or any amendment thereto) or a
non-statutory stock option (an option granted under this Plan that is not
intended to be an "incentive stock option"). The Committee may grant both
incentive stock options and non-statutory stock options to the same
employee. However, if an incentive stock option and a non-statutory stock
option are awarded simultaneously, such options shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event
shall the exercise of one such option affect the right to exercise the
other. To the extent that the aggregate Fair Market Value (as defined in
paragraph 8 below) of Shares with respect to which incentive stock options
are exercisable for the first time by any employee during any calendar year
(under all plans of the Company and its parent and subsidiary corporations)
exceeds $100,000, such options shall be treated as non-statutory stock
options. The maximum number of Shares subject to options that may be granted
to any one Eligible Participant under the Plan in any fiscal year of the
Company may not exceed 200,000 Shares (subject to adjustment pursuant to
paragraph 15 hereof).
(b) PURCHASE PRICE. The purchase price of each Share subject to an
option granted pursuant to this paragraph 5 shall be not less than 100% of
the Fair Market Value of a Share on the date of grant; provided that if an
incentive stock option is granted to an employee who owns, or is deemed
under Section 424(d) of the Code to own, at the time such option is granted,
stock of the Company (or of any parent or subsidiary of the Company)
possessing more than 10% of the total combined voting
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power of all classes of stock therein (a "10% Shareholder"), such purchase
price shall be no less than 110% of the Fair Market Value of a Share on the
date of grant.
(c) VESTING. Each option agreement provided for in paragraph 7 shall
specify when each option granted under this Plan shall become exercisable
with respect to the Shares covered by the option. Notwithstanding the
provisions of any option agreement provided for in paragraph 7, the
Committee may at any time, in its sole discretion, declare that any option
granted under this Plan shall be immediately exercisable in whole or in
part.
(d) TERMINATION. Each option granted pursuant to this paragraph 5
shall expire, and all rights to purchase Shares thereunder shall terminate,
on the earliest of:
(i) ten years after the date such option is granted (or in the case
of an incentive stock option granted to a 10% Shareholder, five years
after the date such option is granted) or on such date prior thereto as
may be fixed by the Committee on or before the date such option is
granted;
(ii) the expiration of the period after the termination of the
optionee's employment within which the option is exercisable as specified
in paragraph 12(b) (provided that the Committee may, in any option
agreement provided for in paragraph 7 or by Committee action with respect
to any outstanding option, extend the periods specified in paragraph
12(b)); or
(iii) the date, if any, fixed for cancellation pursuant to paragraph
13(c) or 14 below.
6. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Each director of the
Company who is not and has never been an employee of the Company and who (i) is
serving an unexpired term as a director of the Company as of the date of the
last regularly scheduled meeting of the Board during any fiscal year of the
Company and (ii) at the time of such meeting has served as a director for at
least six months of the twelve month period preceding the date of such meeting,
shall as of the date of such meeting automatically be granted an option to
purchase 7,030 Shares at an option price per share equal to 100% of the Fair
Market Value of a Share on such date. All such options shall be non-statutory
stock options and shall be subject to the same terms and conditions as are then
in effect with respect to non-statutory stock options granted to officers and
employees of the Company, except that (x) the term of each such option shall be
ten years, (y) each such option shall remain in effect for its full ten year
term and shall not terminate or expire following the death, disability or
retirement of the non-employee director and (z) each such option shall become
exercisable as to all or any part of the Shares subject thereto six months after
the date the option is granted. Subject to the foregoing, all provisions of this
Plan not inconsistent with the foregoing shall apply to options granted to
non-employee directors pursuant to this paragraph 6. The maximum number of
Shares as to which options may be granted to any non-employee director under
this paragraph 6 shall be 140,600 Shares.
7. OPTION AGREEMENTS. All options granted under this Plan shall be
evidenced by a written agreement in such form or forms as the Committee may from
time to time determine, which agreement shall, among other things, designate
whether the options being granted thereunder are non-statutory stock options or
incentive stock options.
8. FAIR MARKET VALUE. For purposes of this Plan, the "Fair Market Value"
of a Share at a specified date shall, unless otherwise expressly provided in
this Plan, mean the closing sale price of a Share on the date immediately
preceding such date or, if no sale of Shares shall have occurred on that date,
on the next preceding day on which a sale of Shares occurred, on the Composite
Tape for New York Stock Exchange listed shares or, if Shares are not quoted on
the Composite Tape for New York Stock Exchange listed shares, on the Nasdaq
National Market or any similar system then in use or, if Shares are not included
in the Nasdaq National Market or any similar system then in use, the mean
between the closing "bid" and the closing "asked" quotation of a Share on the
date immediately preceding the date as of which such Fair Market Value is being
determined, or, if no closing bid or asked quotation is made on that date, on
the next preceding day on which a quotation is made, on the Nasdaq SmallCap
Market or any similar system
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then in use, provided that if the Shares in question are not quoted on any such
system, Fair Market Value shall be what the Committee determines in good faith
to be 100% of the fair market value of a Share as of the date in question.
Notwithstanding anything stated in this paragraph 8, if the applicable
securities exchange or system has closed for the day by the time the
determination is being made, all references in this paragraph to the date
immediately preceding the date in question shall be deemed to be references to
the date in question.
9. MANNER OF EXERCISE OF OPTIONS. A person entitled to exercise an option
granted under this Plan may, subject to its terms and conditions and the terms
and conditions of this Plan, exercise it in whole at any time, or in part from
time to time, by delivery to the Company at its principal executive office of
written notice of exercise, specifying the number of Shares with respect to
which the option is being exercised. The purchase price of the Shares with
respect to which an option is being exercised shall be payable in full at the
time of exercise, provided that, to the extent permitted by law, the holder of
an option may simultaneously exercise an option and sell all or a portion of the
Shares thereby acquired pursuant to a brokerage or similar relationship and use
the proceeds from such sale to pay the purchase price of such Shares. The
purchase price of each Share on the exercise of any option shall be paid in full
in cash (including check, bank draft or money order) or, at the discretion of
the person exercising the option, by tender or delivery to the Company of
unencumbered Shares having an aggregate Fair Market Value on the date of
exercise equal to the amount of the purchase price being paid through such
tender or delivery of Shares, or by a combination of cash and such Shares;
provided, however, that no person shall be permitted to pay any portion of the
purchase price with Shares if the Committee, in its sole discretion, determines
that payment in such manner is undesirable. The granting of an option to a
person shall give such person no rights as a shareholder except as to Shares
issued to such person.
10. TAX WITHHOLDING. Delivery of Shares pursuant to a stock award or upon
exercise of any non-statutory stock option granted under this Plan shall be
subject to any required withholding taxes. A person receiving a stock award or
exercising a non-statutory stock option may, as a condition precedent to
receiving the Shares, be required to pay the Company a cash amount equal to the
amount of any required withholdings. In lieu of all or any part of such a cash
payment, the Committee may, but shall not be required to, provide in any option
agreement provided for in paragraph 7 (or provide by Committee action with
respect to any outstanding option) that a person exercising an option may cover
all or any part of the required withholdings, and any additional withholdings up
to the amount needed to cover the individual's full FICA and federal, state and
local income tax liability with respect to income arising from the exercise of
the option, through the tender or delivery to the Company of unencumbered Shares
having an aggregate Fair Market Value on the date of exercise equal to the
amount of the withholding taxes being paid through such delivery, reduction or
subsequent return of Share.
11. RELOAD OPTIONS. If the Committee so determines, the Agreement relating
to any option may provide for the issuance of "reload" options pursuant to
which, subject to the terms and conditions established by the Committee and any
requirements of applicable law, the person exercising the option will, either
automatically (to the extent Shares remain available under this Plan) or subject
to subsequent Committee approval, be granted a new option when the payment of
the exercise price of the original option and/or the payment of tax withholding
pursuant to paragraph 10 hereof is made through the tender or delivery of Shares
to the Company. Each such reload option shall (i) be a non-statutory option to
purchase the number of Shares provided as consideration for the exercise price
of and in payment of taxes in connection with the exercise of the original
option, (ii) have a per share exercise price equal to the Fair Market Value as
of the date of exercise of the original option, (iii) be immediately exercisable
and have a term of ten years from the date of the original option (that is, such
reload option will terminate on the date the original option terminates or would
have terminated) and (iv) otherwise have the same terms and conditions as the
original option, except that the reload option will not be an incentive stock
option and will not provide for an automatic grant of additional reload options
upon its exercise.
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12. TRANSFERABILITY AND TERMINATION OF EMPLOYMENT.
(a) TRANSFERABILITY. During the lifetime of an optionee, only such
optionee or his or her guardian or legal representative may exercise options
granted under this Plan, and no option granted under this Plan shall be
assignable or transferable by the optionee otherwise than by will or the
laws of descent and distribution or pursuant to a domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Security
Act, or the rules thereunder; provided, however, that any optionee may
transfer a non-statutory stock option granted under this Plan to a member or
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 (i) the option agreement with respect to such option expressly
so provides either at the time of initial grant or by amendment to an
outstanding option agreement and (ii) the optionee does not receive any
consideration for the transfer. Any options held by any such transferee
shall continue to be subject to the same terms and conditions that were
applicable to such options immediately prior to their transfer and may be
exercised by such transferee as and to the extent that such option has
become exercisable and has not terminated in accordance with the provisions
of the Plan and the applicable option agreement. For purposes of any
provision of this Plan relating to notice to an optionee or to vesting or
termination of an option upon the death, disability or termination of
employment of an optionee, the references to "optionee" shall mean the
original grantee of an option and not any transferee.
(b) TERMINATION OF EMPLOYMENT DURING LIFETIME. During the lifetime of
an optionee, an option granted to such optionee may be exercised only while
the optionee is employed by the Company or by a parent or subsidiary
thereof, and only if such optionee has been continuously so employed since
the date the option was granted, provided that (except as may be otherwise
provided in the applicable option agreement at the time of grant or
thereafter):
(i) if an optionee's employment is terminated for cause (which for
purposes hereof shall mean that the optionee was convicted of a felony or
the optionee failed to contest prosecution for a felony or the optionee
engaged in willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company), then
the option shall terminate immediately upon such termination of
employment;
(ii) if an optionee's employment is voluntarily terminated by the
optionee, otherwise than in connection with the optionee's retirement
(which for purposes hereof shall mean (a) retirement from active
employment with the Company or any subsidiary or parent of the Company
prior to age 60 with the consent of the Committee or (b) retirement from
active employment with the Company or any subsidiary or parent of the
Company on or after age 60) then the option shall continue to be
exercisable for ten days after the termination of the optionee's
employment but only to the extent that the option was exercisable
immediately prior to such optionee's termination of employment;
(iii) if an optionee's employment is terminated by the Company
otherwise than for cause, then the option shall continue to be
exercisable for three months after termination of the optionee's
employment but only to the extent that the option was exercisable
immediately prior to such optionee's termination of employment;
(iv) if an optionee's employment is terminated by reason of
retirement, death or disability (which for purposes hereof shall mean
permanent and total disability as determined by the Committee), then the
option shall continue to be exercisable for three years after termination
of the optionee's employment but only to the extent that the option was
exercisable immediately prior to such optionee's termination of
employment; and
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(v) as to any optionee whose termination of employment occurs
following a declaration pursuant to paragraph 14 below, an option may be
exercised at any time permitted by such declaration.
(c) TRANSFERS AND LEAVES OF ABSENCE. Neither the transfer of
employment of a person to whom an option is granted between any combination
of the Company, a parent corporation or a subsidiary thereof, nor a leave of
absence granted to such person and approved by the Committee, shall be
deemed a termination of employment for purposes of this Plan. The terms
"parent" or "parent corporation" and "subsidiary" as used in this Plan shall
have the meaning ascribed to "parent corporation" and "subsidiary
corporation", respectively, in Sections 424(e) and (f) of the Code.
(d) RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Plan, or
in any option granted pursuant to this Plan, shall confer upon any optionee
any right to continued employment by the Company or any parent or subsidiary
of the Company or limit in any way the right of the Company or any such
parent or subsidiary to terminate such optionee's employment at any time.
(e) EXPIRATION DATE. In no event shall any option be exercisable at
any time after the time it shall have expired in accordance with paragraph
5(d) of this Plan. When an option is no longer exercisable, it shall be
deemed to have lapsed or terminated and will no longer be outstanding.
13. CHANGE IN CONTROL.
(a) 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 (a)(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 Shares of the Company is then
beneficially owned, directly or indirectly, by all or substantially
all of the persons who beneficially owned Voting Securities and
Shares of the Company immediately prior to such acquisition in
substantially the same proportions as their ownership of such Voting
Securities and Shares, as the case may be, immediately prior to such
acquisition;
(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 or a statutory exchange of
outstanding Voting Securities of the Company, unless immediately
following such reorganization, merger, consolidation or exchange,
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all or substantially all of the persons who were the beneficial owners,
respectively, of Voting Securities and Shares 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 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 Shares 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 Shares of
the Company, as the case may be.
(b) ACCELERATION OF VESTING. Notwithstanding anything in paragraph
5(c) above to the contrary, if a Change of Control of the Company shall
occur, then, without any action by the Committee or the Board, each option
granted under this Plan and not already exercised in full or otherwise
terminated, expired or canceled shall become immediately exercisable in
full.
(c) CASH PAYMENT. If a Change in Control of the Company shall occur,
then, so long as a majority of the members of the Board are Continuing
Directors, the Committee, in its sole discretion, and without the consent of
the holder of any option affected thereby, may determine that some or all
outstanding options shall be cancelled as of the effective date of any such
Change in Control and that the holder or holders of such cancelled options
shall receive, with respect to some or all of the Common Shares subject to
such options, as of the date of such cancellation, cash in an amount, for
each Share subject to an option, equal to the excess of the per Share Fair
Market Value of such Shares immediately prior to such Change in Control of
the Company over the exercise price per Share of such options.
(d) LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything
in paragraph 13(b) or 13(c) above or paragraph 14 below to the contrary, if,
with respect to an optionee, the acceleration of the exercisability of an
option or the payment of cash in exchange for all or part of an option as
provided in paragraph 13(b) or 13(c) above or paragraph 14 (which
acceleration or payment could be deemed a "payment" within the meaning of
Section 280G(b)(2) of the Code), together with any other payments which such
optionee has the right to receive from the Company or any corporation which
is a member of an "affiliated group" (as defined in Section 1504(a) of the
Code without regard to Section 1504(b) of the Code) of which the Company is
a member, would constitute a "parachute payment" (as defined in Section
280G(b)(2) of the Code), then such acceleration of exercisability and
payments pursuant to paragraph 13(b) or 13(c) above or paragraph 14 shall be
reduced to the largest amount as, in the sole judgment of the Committee,
will result in no portion of such payments being subject to the excise tax
imposed by Section 4999 of the Code.
14. DISSOLUTION, LIQUIDATION, MERGER. 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, consolidation of the
Company with or into any other entity, regardless of whether the Company is the
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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 options granted under this Plan by the substitution,
in lieu of such options, of options to purchase appropriate voting common stock
(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, 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 option as of such effective date over (B) the exercise price per
Share of the Shares subject to such option, times (y) the number of Shares
covered by such option or (ii) declare, at least twenty days prior to the Event,
and provide written notice to each optionee of the declaration, that each
outstanding option, 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 cancelled option to each holder of an
option that is cancelled, of cash equal to the amount (if any), for each Share
covered by the canceled option, by which the Event Proceeds per Share (as
hereinafter defined) exceeds the exercise price per Share covered by such
option. At the time of any declaration pursuant to clause (ii) of the first
sentence of this paragraph 14, each option that has not previously expired
pursuant to paragraph 5(d)(i) or 5(d)(ii) of this Plan or been cancelled
pursuant to paragraph 13(c) of this Plan shall immediately become exercisable in
full and each holder of an option shall have the right, during the period
preceding the time of cancellation of the option, to exercise his or her option
as to all or any part of the Shares covered thereby. In the event of a
declaration pursuant to clause (ii) of the first sentence of this paragraph 14,
each outstanding option 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, and this Plan shall
terminate at the time of such cancellation, subject to the payment obligations
of the Company provided in this paragraph 14. Notwithstanding the foregoing, no
person holding an option shall be entitled to the payment provided in this
paragraph 14 if such option shall have expired pursuant to paragraph 5(d)(i) or
5(d)(ii) of this Plan or been cancelled pursuant to paragraph 13(c) of this
Plan. For purposes of this paragraph 14, "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 by the
shareholders of the Company upon the occurrence of the Event.
15. ADJUSTMENTS. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, or extraordinary dividend
or divestiture (including a spin-off), or any other change in the corporate
structure or Shares of the Company, the Committee (or if the Company does not
survive any such transaction, a comparable committee of the Board of Directors
of the surviving corporation) may, without the consent of any holder of an
option, make such adjustment as it determines in its discretion to be
appropriate as to the number and kind of securities subject to and reserved
under this Plan and, in order to prevent dilution or enlargement of rights of
participants in this Plan, the number and kind of securities issuable upon
exercise of outstanding options and the exercise price thereof.
16. SUBSTITUTE OPTIONS. Options may be granted under this Plan from time
to time in substitution for stock options held by employees of other
corporations who are about to become employees of the Company, or any parent or
subsidiary thereof, or whose employer is about to become a subsidiary of the
Company, as the result of a merger or consolidation of the Company or a
subsidiary of the Company with another corporation, the acquisition by the
Company or a subsidiary of the Company of all or substantially all the assets of
another corporation or the acquisition by the Company or a subsidiary of the
Company of at least 50% of the issued and outstanding stock of another
corporation. The terms and conditions of the
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substitute options so granted may vary from the terms and conditions set forth
in this Plan to such extent as the Board at the time of the grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted, but with respect to stock
options which are incentive stock options, no such variation shall be permitted
which affects the status of any such substitute option as an incentive stock
option.
17. COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) GENERAL. No certificate for Shares distributable under this Plan
shall be issued and delivered unless the issuance of such certificate
complies with all applicable legal requirements including, without
limitation, compliance with the provisions of applicable state securities
laws, the Securities Act of 1933, as amended, and the Exchange Act.
(b) RULE 16B-3. With respect to Section 16 Individuals, transactions
under this Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the Exchange Act. To the extent any
provision of this Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
18. GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken under this Plan
shall be governed by the laws of the State of Minnesota, without regard to the
conflicts of law provisions thereof, and construed accordingly.
19. AMENDMENT AND DISCONTINUANCE OF PLAN. The Board may at any time amend,
suspend or discontinue this Plan; provided, however, that no amendment to this
Plan shall, without the consent of the holder of the option, alter or impair any
option previously granted under this Plan. To the extent considered necessary to
comply with applicable provisions of the Code, any such amendments to this Plan
may be made subject to approval by the shareholders of the Company.
20. TERM.
(a) EFFECTIVE DATE. This Plan shall be effective as of March 24, 1998.
(b) TERMINATION. This Plan shall remain in effect until all Shares
subject to it are distributed or this Plan is terminated under paragraph 19
above. No award of an incentive stock option shall be made under this Plan
more than ten years after the effective date of this Plan (or such other
limit as may be required by the Code) if such limitation is necessary to
qualify the option as an incentive stock option.
9
<PAGE>
MINNTECH CORPORATION
1998 STOCK PLAN
RESOLUTIONS BY THE BOARD OF DIRECTORS
RESOLVED, that the 1998 Stock Plan of the Company is hereby amended
effective as of September 30, 1998, as follows:
1. A new sentence is hereby added at the end of paragraph 3 of the
Plan, being and reading as follows:
"Commencing April 1, 1998, no option may be granted under this
Plan in any fiscal year of the Company if following such grant
the number of Shares purchasable pursuant to options granted
under this Plan in such fiscal year of the Company (excluding any
such options that have terminated or lapsed) would exceed 3% of
the total number of outstanding Shares of the Company as of the
date of such grant."
2. A new paragraph 5(e) is hereby added to the Plan, being and
reading as follows:
"(e) REPRICING. No option shall be granted under this Plan in
complete or partial replacement of or substitution for an outstanding
option (an option that has not expired in accordance with its terms)
that was granted under this Plan or any other plan of the Company if
the exercise price of such replacing or substitution new option is
less than the exercise price of the option being replaced or for which
such new option is being substituted. No option that is outstanding
under this Plan shall be amended so as to reduce the exercise price of
such option."
3. Paragraph 11 of the Plan is hereby deleted.
4. A new sentence is hereby added at the end of paragraph 19 of the
Plan, being and reading as follows:
"Notwithstanding the foregoing, paragraph 5(e) of this Plan may not be
amended without the approval of the shareholders of the Company."
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,245
<SECURITIES> 450
<RECEIVABLES> 16,219
<ALLOWANCES> 415
<INVENTORY> 12,176
<CURRENT-ASSETS> 35,863
<PP&E> 33,755
<DEPRECIATION> 20,176
<TOTAL-ASSETS> 53,672
<CURRENT-LIABILITIES> 7,801
<BONDS> 0
0
0
<COMMON> 337
<OTHER-SE> 44,160
<TOTAL-LIABILITY-AND-EQUITY> 53,672
<SALES> 36,263
<TOTAL-REVENUES> 36,683
<CGS> 19,994
<TOTAL-COSTS> 32,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 415
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,381
<INCOME-TAX> 1,481
<INCOME-CONTINUING> 2,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,916
<EPS-PRIMARY> .43
<EPS-DILUTED> .42
</TABLE>
