SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended July 31, 1996
Commission File No. 0-6132
CANTEL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-1760285
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1135 Broad Street, Clifton, New Jersey 07013
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(201) 470-8700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
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(Title of Class)
Indicate by check mark whether 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 the filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
Aggregate market value of registrant's capital stock held by non-affiliates
(based on shares held and the closing price quoted by NASDAQ on October 4,
1996): $15,487,479
Number of shares of common stock outstanding as of the close of
the period covered by this report: 3,888,695
Documents incorporated by reference: Definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934
in connection with the 1996 Annual Meeting of Stockholders of Registrant.
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PART I
Item 1. BUSINESS.
GENERAL
The Company, through Carsen Group Inc., its wholly-owned Canadian
subsidiary ("Carsen" or "Canadian subsidiary"), is engaged in the marketing and
distribution of medical and infection control, scientific and consumer products
in Canada. The Company, through MediVators, Inc., its wholly-owned United States
subsidiary ("MediVators" or "United States subsidiary"), is engaged in the
manufacturing, marketing and distribution of infection control products. The
Company also provides servicing of the products it manufactures and distributes.
Unless the context otherwise requires, references herein to the "Company"
include Cantel Industries, Inc. ("Cantel") and its subsidiaries.
On March 15, 1996, the Company consummated a merger transaction with
MediVators, a Minnesota company, pursuant to an Agreement and Plan of Merger
under which MediVators became a wholly-owned subsidiary of the Company, and the
stockholders of MediVators received an equity interest of approximately 26.5% in
Cantel (the "Merger"). The Merger has been treated as a pooling of interests for
accounting purposes. Under this accounting treatment, the assets, liabilities,
stockholders' equity, results of operations and cash flows of MediVators have
been consolidated at their historical amounts for all periods presented and
previously issued financial statements are restated as though MediVators had
always been consolidated as a wholly-owned subsidiary.
The medical and infection control products distributed by Carsen consist
of medical equipment, including flexible and rigid endoscopes, endoscope
disinfection equipment, medical sharps disposal systems, surgical equipment and
related accessories. The infection control products manufactured and distributed
by MediVators consist of endoscope disinfection equipment and supplies and
medical sharps disposal systems. The scientific products distributed by Carsen
consist of precision instruments, including microscopes and related accessories
and certain laboratory equipment and related accessories; and industrial
technology equipment, including borescopes, fiberscopes, video image scopes,
laser distance measurement equipment and related accessories. The consumer
products distributed by Carsen consist of photographic and optical equipment,
including cameras and binoculars, and office equipment including hand-held
dictation equipment, paper shredders, and related accessories.
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Carsen distributes the majority of its medical, scientific, and consumer
products pursuant to an agreement with Olympus America Inc. (the "Olympus
Agreement"), a United States affiliate of Olympus Optical Co. Ltd., a Japanese
corporation ("Olympus Optical"), under which the Company has been granted
exclusive distribution rights for certain Olympus products in Canada. Most of
such products are manufactured by Olympus Optical and its affiliates in Japan
and other foreign countries. Unless the context otherwise requires, references
herein to "Olympus" include Olympus America Inc. and Olympus Optical, and their
affiliates. Carsen, or its predecessor, has been distributing Olympus products
in Canada since 1949.
Carsen also distributes other products under separate distribution
agreements, including additional medical and infection control, scientific and
consumer products and accessories.
MediVators' endoscope disinfection equipment is distributed in the United
States, Central and South America, the Caribbean and the West Indies (excluding
Bermuda) by Olympus pursuant to an agreement (the "MediVators Agreement") under
which Olympus has been granted exclusive distribution rights in these
territories. MediVators endoscope disinfection equipment is distributed in other
countries under other exclusive distribution agreements. MediVators medical
sharps disposal systems are distributed in the United States and internationally
pursuant to exclusive distribution agreements.
The following table gives information as to the percentage of consolidated
net sales from continuing operations accounted for by each operating segment
during the indicated periods.
Year Ended July 31,
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1996 1995 1994
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Medical, Infection Control
and Scientific Products:
Medical and Infection
Control Products......... 54.4% 53.3% 49.2%
Scientific Products......... 19.1 16.9 15.7
Product Service............. 12.5 11.8 12.6
Consumer Products............. 14.0 18.0 22.5
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100.0% 100.0% 100.0%
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Medical and Infection Control Products
Medical and Infection Control Products are the Company's major source of
revenue and profitability. This segment is comprised of the medical equipment
distributed by Carsen and infection control equipment manufactured and
distributed by MediVators.
Medical Equipment. Carsen's principal source of revenue is from the
distribution of specialized endoscopes, surgical equipment and related
accessories to hospitals in Canada, the majority of which are manufactured by
Olympus. Olympus is one of the world's leading manufacturers of endoscopes and
related products.
An endoscope is a device comprised of an optical system incorporated in a
flexible or rigid tube that can be inserted inside a patient's body through a
natural opening or through a small incision. Endoscopy, the use of endoscopes in
medical procedures, is a valuable aid in the diagnosis of various disorders.
Endoscopy enables physicians to study and photograph certain organs and body
tissue and, if necessary, to perform a biopsy (removal of a small piece of
tissue for microscopic analysis). Many surgical procedures that formerly
required a major operation are now performed much more simply by endoscopy,
which can often be performed without general anesthesia.
A flexible endoscope generally consists of fiberoptic image and light
carrying bundles contained in a flexible tube, which can be inserted into
irregularly shaped organs of a patient's body, such as the large intestine. The
viewing end of a flexible fiberoptic endoscope contains an eyepiece and a
steering mechanism and is connected to an external light source, which permits a
surgeon to view inside a patient's body. The tip of a flexible endoscope
inserted into a patient's body contains a lens and, in most cases, depending on
the application, an outlet for air and water. Most flexible endoscopes also have
internal working channels which enable accessories such as biopsy forceps to be
passed to the tip. In an advanced version of the flexible endoscope, known as a
flexible video endoscope, the fiberoptic image and light carrying bundles have
been replaced by a charged coupling device (CCD) (which functions like a video
camera) that enables a picture to be transmitted electronically to a monitor,
which picture can be viewed by a physician as a medical procedure is being
performed.
A rigid endoscope is a straight, narrow viewing insertion tube consisting
of a series of relay lenses and light transmitting fibers that connect to an
external light source, which permits a surgeon to view inside a patient's body.
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A technology known as minimally invasive surgery requires the use of a
rigid endoscope. With the addition of a tiny telescopic lens, a light source and
a palm-size video camera, a rigid endoscope utilized for minimally invasive
surgery can transmit images of the patient's organs, as well as the instrument
being used by the surgeon, to a viewing monitor. Minimally invasive surgery
enables a surgeon using an endoscope to operate on a patient through small
keyhole type incisions, avoiding, in many cases, the need for open surgery. For
example, one type of rigid endoscope known as a laproscope, enables a surgeon to
remove a gall bladder by making four or five small incisions in the abdomen,
rather than one larger incision. In this procedure, the surgeon inserts the
laproscope through one of the incisions to view the gall bladder while operating
with surgical instruments inserted in other incisions. This procedure can
significantly reduce surgical trauma and post-operative pain, with reduced
recovery time. Minimally invasive surgery has applications for a growing number
of surgical procedures in addition to gall bladder removal, including hernia
repair, small bowel resection, lung biopsy and advanced gynecological
procedures.
Flexible endoscopes are commonly used for visualization of, and diagnosing
disorders in, the esophagus, stomach, duodenum, and large intestine
(gastroenterology); upper airways and lungs (pneumology); nose and throat (ENT);
bladder, kidney and urinary tract (urology); and uterus (gynecology). Rigid
endoscopes are commonly used for urology, gynecology, orthopedics, and general
surgery, including minimally invasive surgery.
Carsen also distributes various specialized medical instruments and
accessories utilized in both rigid and flexible endoscopy including scissors,
needle holders, forceps and other surgical accessories, ambulatory PH and
motility monitoring equipment (which is used for diagnosis of various
gastrointestinal and respiratory disorders), endoscope disinfection equipment,
carts, trolleys and cleaners, insufflators (which deliver and monitor gas to
expand abdominal and other cavities), video monitors and recorders, mavigraphs
(which print "hard" copies of video images) and "cold" light supplies (which
provide light for endoscopy procedures).
All of the endoscopes and certain other medical instruments and
accessories distributed by Carsen are manufactured by Olympus. Other medical
products distributed by Carsen are manufactured by Sandhill Scientific, Inc.
(ambulatory PH and motility monitoring equipment), Argus Medical Company Inc.
(surgical instruments), Sony of Canada Ltd. (monitors, mavigraphs and video
recorders), and MediVators (endoscope disinfection equipment and medical sharps
disposal systems).
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Infection Control Equipment. MediVators' principal source of revenue is
from the manufacturing and distribution of endoscope disinfection equipment and
related accessories to hospitals through various distributors in the United
States and internationally.
MediVators' primary product is the DSD-91, which received FDA clearance of
its 510(k) premarket notification in March 1994, and is a microprocessor
controlled dual endoscope disinfection system. The DSD-91 will disinfect two
endoscopes at a time, can be used on a broad variety of endoscopes and is
programmable by the user. MediVators also manufactures a new single scope
disinfection unit, the SSD, which is based upon the same design as the DSD-91.
Although endoscopes generally can be manually cleaned and disinfected,
there are many problems associated with such methods including the lack of
uniform cleaning procedures, personnel exposure to disinfectant fumes and
disinfectant residue levels in the endoscope. MediVators believes that more
thorough disinfection is achieved through the use of its endoscope disinfection
equipment. The level of disinfection to be achieved depends upon many factors,
principally contact time, temperature, type and concentration of the active
ingredients of the chemical disinfectant and the nature of the microbe
contamination. The chemical disinfectant to be used in a disinfecting process
generally will be selected by hospital personnel based on the object to be
disinfected, the hospital facilities and the disinfectants available.
After manual cleaning, an endoscope is placed in the reservoir of the
disinfector which then disinfects the endoscope by pumping disinfectant
throughout the endoscope, including the endoscope's working channels. The
disinfector is a delivery system to ensure that the endoscope, including the
working channels, will be exposed to the disinfectant for the recommended period
of time. The disinfector is operated by medical personnel such as
gastrointestinal assistants. Minimal training is required to operate the
disinfector. MediVators believes that the use of such equipment will result in
more thorough disinfection.
MediVators believes its disinfection equipment offers several advantages
over manual immersion in disinfectants. The disinfectors are designed to pump
disinfectant through all working channels of the endoscope, thus exposing all
areas of the endoscope to the disinfectant. This process can also inhibit the
build up of residue in the working channels. In addition, the entire
disinfecting process can be completed with minimal participation by the
operator, freeing the operator for other tasks, reducing the exposure of
personnel to the toxic chemicals used in the disinfection process and reducing
the risk of
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infectious diseases. The disinfectors also reduce the risk of inconsistent
manual disinfecting.
MediVators also manufactures and distributes medical sharps disposal
systems which provide for point-of-use destruction and decontamination of most
types of disposable medical sharps waste, such as syringes, scalpels, razors and
IV needles. The DSI System 2000 is a larger system that is intended for higher
volume hospital use. The DSI System 40 is a smaller unit primarily suitable for
low volume users, such as medical offices. These systems destroy, decontaminate
and reduce the volume of medical waste; thereby eliminating the potential spread
of infection which occurs during the process of accumulating the medical sharps
waste and transporting it to a central location, the expense of disposable
containers, the expense and liability associated with transportation and
off-site destruction, and the negative environmental impact.
Scientific Products
The Scientific Products segment is comprised of the precision instruments
and the industrial technology equipment distributed by Carsen and MediVators'
MedFab custom plastics fabrication operation.
Precision Instruments. Carsen distributes Olympus microscopes and
complementary scientific equipment and accessories. Other precision instruments
distributed by the Company include Narishige U.S.A., Inc. micromanipulators
(which enable a viewer to manipulate objects being viewed under a microscope),
Empix Imaging Inc. high resolution imagers (which transmit images of objects
being viewed to a monitor), CompuCyte Corporation Pathfinder Systems (quality
and efficiency control system for cytologists), Tecan U.S. Inc. microplate
readers and washers (photometric measurement system), Sheldon Manufacturing,
Inc. incubators, warming ovens and water baths (temperature control instruments)
and anaerobic chambers (controlled atmosphere for bacteriology applications), as
well as optical accessories such as high contrast optics, objectives (magnifying
lenses) and reticules and video calipers (both of which measure objects being
viewed under a microscope). The products are used in numerous disciplines for
the microscopic study of objects and are sold directly to the end user.
The precision instruments distributed by Carsen are sold to hospitals for
cytology, pathology and histology purposes; government laboratories for research
and forensics; universities and other educational institutions for research and
teaching purposes; and private and industrial laboratories for bio-technology,
geology, pharmacology, metallography, quality control and manufacturing
applications.
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Industrial Technology Equipment. Carsen distributes three types of
industrial technology equipment that are similar to endoscopes, but are designed
for a market known as remote visual inspection ("RVI".) RVI is the application
of endoscopic technology for industrial uses. These products distributed by
Carsen, most of which are manufactured by Olympus, consist of rigid borescopes
(devices that are similar to rigid endoscopes), which use a series of relay
lenses to transmit an image through a stainless steel insertion tube;
fiberscopes (devices that are similar to flexible endoscopes), which use
fiberoptic image carrying bundles to transmit images through a flexible
insertion tube; and video image scopes, which utilize a small, high resolution
solid state image sensor, similar to the charged coupling device used in
advanced flexible endoscopes, that enable a picture to be transmitted
electronically to a monitor.
Carsen also distributes, under an exclusive distribution agreement
covering the United States, Canada and Mexico, laser meters (devices that use
the travel time of laser pulses as a means of measurement), manufactured by
Jenoptik Technologie GmbH of Germany ("Jenoptik"), designed for determining
distances, vertical angles, target and station heights, as well as speed.
Carsen also has a number of products under its own trademark, "Optiscan".
These products have been sourced from outside suppliers or designed by Carsen.
Most Optiscan products currently available complement or enhance the Olympus RVI
business. Optiscan products include IVS video documentation products which
integrate video camera, monitor and VCR in one portable unit; and very long
(10'-30') ultra-thin quartz glass fiberscopes for specialized applications,
particularly in the nuclear power industry. Unrelated to the Olympus business is
a software application, Optiscan PVM, developed by Carsen, and designed to run
in conjunction with Jenoptik laser rangefinders for the measurement of stock
pile volumes, such as wood chips and coal.
The industrial technology equipment distributed by Carsen is generally
purchased by large industrial companies engaged in the oil and gas, aerospace,
chemical, power generation, mining, forestry, semiconductor and automotive
industries, that require inspections of their machinery or processes for
research and development, measurement, maintenance or quality control. Carsen
also develops new applications for its products, which are then customized by
Carsen for such applications, based upon the nature of a company's business. For
example, Carsen has sold borescopes to an automobile manufacturer to examine the
inside of automobile engines, fiberscopes and laser measurement equipment to the
Canadian customs agency for inspecting vehicles for drugs and other illegal
paraphernalia, and video image scopes to a mining company to inspect rock
formations for cracks and shifting.
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Product Service
Carsen operates a service organization at its Markham, Ontario facility
that provides warranty and out-of-warranty service and repairs for medical,
infection control and scientific products distributed by Carsen. These products
bear a product warranty that entitles the purchaser to warranty repairs and
service at a nominal or no charge during the warranty period. Carsen, and not
the manufacturer of the product, is responsible for the cost of warranty
repairs. The warranty period for these products is generally one year for
medical equipment and infection control products and industrial technology
equipment and five years for precision instruments.
The Company also provides out-of-warranty service of these products for
which the customer pays Carsen on a time and materials basis.
MediVators provides a one year warranty for repairs and service of the
infection control products it manufactures. Generally, warranty repairs and
service related to the endoscope disinfection equipment are performed by the
distributor for these products. Occasionally, MediVators performs
out-of-warranty service of its infection control products for which the customer
pays MediVators on a time and materials basis.
Consumer Products
Carsen distributes consumer products in Canada, comprised principally of
photographic and optical equipment. This equipment, most of which is
manufactured by Olympus, includes 35 mm. lens shutter cameras (also known as
"point and shoot" cameras) and 35 mm. single lens reflex cameras, binoculars,
slide projectors and screens, light meters, camera luggage and other
photographic products and accessories. Carsen distributes 26 models of the 35
mm. lens shutter cameras, 4 models of the 35 mm. single lens reflex cameras and
7 models of binoculars. Cameras and accessories manufactured by Olympus account
for a substantial portion of the sales of Consumer Products. Carsen also
distributes Olympus Pearlcorder hand-held dictation equipment, paper shredders
and other business products.
There are also two new camera systems, APS (advanced photo systems) and
digital, which are expected to be introduced in fiscal 1997. Four APS camera
models manufactured by Olympus are expected to be available, which utilize an
easier, drop-in cartridge system and offer a selection of print formats. Also
expected to be available from Olympus will be two digital camera models which,
unlike conventional 35 mm. cameras, will digitize and store images on a computer
chip incorporated into the camera. These stored, digitized images can then be
downloaded to a
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computer, where images can then be enhanced, manipulated and printed. There can
be no assurance that these new camera systems will be introduced or will
generate significant revenues.
Carsen distributes its consumer products primarily to independent
retailers, cooperative buying groups, large retail store chains, and major
department stores. Carsen also distributes such products to government agencies,
school boards, the military, promotional sales organizations and catalog houses
and other end-users.
Carsen operates a service organization at its Markham, Ontario facility,
as well as contracts with independent service centers throughout Canada to
provide warranty service for the consumer products distributed by Carsen.
Pursuant to the Olympus Agreement, Carsen is required to provide warranty
service for all Olympus cameras presented to Carsen for service, whether or not
such cameras were sold by Carsen. This obligation has not had a material adverse
effect on Carsen. Carsen generally provides a two year warranty for cameras and
a one year warranty for other consumer products. Carsen also provides
out-of-warranty service for its consumer products.
Distribution Agreements
Olympus Agreement. The majority of Carsen's sales of medical, scientific
and consumer products have been made pursuant to the Olympus Agreement, under
which Olympus has granted Carsen the exclusive right to distribute the covered
Olympus products in Canada. All products sold by Carsen pursuant to the
agreement bear the "Olympus" trademark. The Olympus Agreement expires on March
31, 1998.
During the term of the Olympus Agreement, Carsen has agreed that it will
not manufacture, distribute, sell or represent for sale in Canada any products
which are competitive with the Olympus products covered by the Olympus
Agreement.
The Olympus Agreement imposes minimum purchase obligations on Carsen with
respect to each of medical equipment, precision instruments, industrial
technology equipment and consumer products. The aggregate annual minimum
purchase obligations for all such products are approximately $17.2 million and
$18.5 million during the contract years ending March 31, 1997 and 1998,
respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the right to terminate the
Olympus Agreement with respect to each product group for which Carsen has failed
to meet the minimum purchase requirements. If Carsen fails to meet such
requirements
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for both precision instruments and industrial technology equipment, or for
medical equipment, then Olympus has the right to terminate the entire Olympus
Agreement. Olympus may also terminate the Olympus Agreement if Carsen breaches
its other obligations under the Olympus Agreement, or if Carsen fails to meet
any Olympus credit requirement for sale on open account and does not provide
Olympus with a letter of credit to secure Carsen's payment obligations after
demand by Olympus. Carsen has delivered to Olympus a letter of credit to secure
payment of Carsen's first $500,000 of monthly purchases.
MediVators Agreement. MediVators entered into a three year agreement with
Olympus effective May 1, 1996, under which Olympus was granted the exclusive
right to distribute the endoscope disinfection equipment and related accessories
in the United States, Central and South America, the Caribbean, and the West
Indies (excluding Bermuda). All products sold by Olympus pursuant to this
agreement will bear both the "Olympus" and "MediVators" trademarks.
This agreement imposes minimum purchase obligations on Olympus. Failure to
achieve the minimum purchase requirement in any year would give MediVators the
right to terminate the agreement.
Discontinued Operations
On October 29, 1993, the Company consummated the sale of all of the assets
and transferred certain liabilities of its Seating Division to the German
manufacturer of the seating products for $2,809,000. The Company received
$2,659,000 in cash and a $150,000 promissory note of the purchaser of the
Seating Division which was paid in October 1994. An additional contingent
payment of up to $150,000 could become due on the 90th day following the end of
calendar year 1996, dependent upon the operating results of the Seating
Division.
The sale of the Seating Division has been reflected as a discontinued
operation and is presented separately in the consolidated statements of
operations.
Marketing
Carsen markets its products through a sales organization comprised of
employees and independent sales representatives. Each industry segment in Canada
has a separate, dedicated sales force. Sales persons, who are paid on a salary
and/or commission basis, are, among other things, responsible for identifying
customers and demonstrating products in their respective geographic markets.
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MediVators sells its endoscope disinfection equipment and related
accessories, both in the United States and internationally, through distributors
which generally operate under exclusive distribution agreements. MediVators
generally sells its medical sharps disposal systems, both in the United States
and internationally, through either exclusive distribution agreements or sales
representatives. MediVators employs only a small number of sales persons who are
paid on a salary basis.
Effect of Currency Fluctuations and Trade Barriers
A substantial portion of Carsen's products have been imported from the Far
East and Western Europe, and Carsen's business could be materially and adversely
affected by the imposition of trade barriers, fluctuations in the rates of
exchange of various currencies, tariff increases and import and export
restrictions, affecting both the United States and Canada.
Competition
The Company distributes substantially all of its products in highly
competitive markets, which contain many products available from nationally and
internationally recognized competitors of the Company. Many of such competitors
have greater financial and technical resources than the Company and are
well-established, with reputations for success in the sale and service of their
products. In addition, certain companies have developed or may be expected to
develop technologies or products that could directly or indirectly compete with
the products distributed by the Company. In some areas, the Company competes
with manufacturers who distribute and service their own products and have
greater financial and technical resources than the Company and, as
manufacturers, may have certain other competitive advantages over the Company.
The Company believes that the world-wide reputation for the quality and
innovation of its products among consumers, the Company's reputation for
providing quality product service, particularly with respect to medical and
infection control products, the numerous customer contacts developed during its
lengthy service as a distributor of Olympus products, and the distribution
arrangement for certain MediVators infection control products with Olympus, give
the Company a competitive advantage with respect to certain of its products.
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Government Regulation
MediVators' products are subject to regulation by the United States Food
and Drug Administration ("FDA"), which regulates the testing, manufacturing,
packaging, distribution and marketing of medical devices in the United States,
including certain products manufactured by MediVators. Delays in FDA review of
proposed new products can significantly delay new product introduction and may
result in a product becoming "dated" or losing its market opportunity before it
can be introduced. Certain of MediVators' products may be regulated by other
governmental agencies, including the Environmental Protection Agency ("EPA"),
Underwriter Laboratories, and comparable agencies in certain foreign countries.
The FDA and other governmental agency clearances generally are required before
MediVators can market new products in the United States or make significant
changes to existing products. The FDA also has the authority to require a recall
or modification of products in the event of a defect.
The Medical Device Amendments of 1976 to the Food, Drug and Cosmetic Act,
amended in 1990 (the "Act") also requires compliance with specific manufacturing
and quality assurance standards. The regulations also require that each
manufacturer establish a quality assurance program by which the manufacturer
monitors the manufacturing process and maintains records which show compliance
with the FDA regulations and the manufacturer's written specifications and
procedures relating to the devices. The FDA makes unannounced inspections of
medical device manufacturers and may issue reports or citations where the
manufacturer has failed to comply with appropriate regulations and procedures.
Compliance with the provisions of the Act and the FDA's regulations is
time-consuming and expensive. On March 18, 1996, the FDA conducted a routine
General Manufacturing Practices inspection and MediVators was found to be in a
general state of control and no FD-483 complaint was issued. Federal, state and
foreign regulations regarding the manufacture and sale of MediVators' products
are subject to change. MediVators cannot predict what impact, if any, such
changes might have on its business.
Regulations affecting the generation, handling and disposal of infectious
waste span many jurisdictions. These wastes are regulated as solid or hazardous
medical wastes under various federal, state and local environmental laws and
regulations. Moreover, many jurisdictions are taking steps to develop specific
regulations for such waste. The United States Congress, with the Medical Waste
Tracking Act of 1988, mandated that a federal program to track such wastes be
implemented by the EPA. Additionally, a substantial majority of states now have
infectious biomedical waste laws and regulations, according to the
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Federal Office of Technology Assessment. Finally, local regulations can
dramatically impact the location and approval of disposal facilities.
The Medical Waste Tracking Act required the EPA to establish regulations
concerning the tracking of all aspects of medical waste treatment and disposal
in designated states. In particular, all regulated medical waste must be
segregated and packaged in specially marked and labeled containers prior to
shipment for disposal off-site. Any regulated medical waste transported off-site
must be accompanied by a Medical Waste Tracking form which identifies the
generator of the waste, intermediate handlers and transporters and the disposal
facility. Under the Act, the hospital or medical facility remains liable for the
contaminated waste throughout this process including the transportation and
destruction of the waste. The Medical Waste Tracking Act has effectively made
disposal of medical waste, including sharps, much more expensive by increasing
the hospital's or medical facility's liability, paperwork and man-hours required
to legally process medical waste. Infectious waste treated on-site is exempted
from the tracking requirements except that hospital's operating incinerators
must report the quantity of the waste burned.
State and local medical waste disposal laws vary. Accordingly, MediVators
is required to present each individual governing body with the efficacy test
results of the DSI Infectious Waste Disposal Systems and to request permission
to distribute in that jurisdiction.
License Agreement
MediVators is a party to an exclusive worldwide license agreement with the
Mayo Foundation for Medical Education and Research (the "Mayo Foundation") which
grants MediVators a license to manufacture and sell certain related patented
equipment known as the OTT Disinfector for flexible endoscopes ("OTT
Disinfector") and to use certain related proprietary know-how of the Mayo
Foundation (the "License Agreement"). Under the License Agreement, the Mayo
Foundation owns all patent rights and know-how with respect to the OTT
Disinfector. The License Agreement expires on December 31, 2005. Under the
License Agreement, MediVators must pay a royalty equal to five percent (5%) of
the net revenues received by MediVators from sales of the OTT Disinfector and
enhancements or improvements to the OTT Disinfector. Although MediVators no
longer sells the OTT Disinfector, it pays the Mayo Foundation a royalty on
revenues from sales of a successor line of disinfector product developed by
MediVators known as the DSD-91. This product does not utilize the patented
technology of the OTT Disinfector but did evolve from certain licensed know-how
related thereto. The Mayo Foundation
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has the right to terminate the License Agreement if MediVators fails to pay
minimum royalties of $75,000 per year.
Under the License Agreement, MediVators is obligated to adhere to a
general marketing plan pursuant to which MediVators is to emphasize sales to key
teaching or teaching affiliated hospitals in major markets, attend meetings of
endoscopy professionals, monitor sales activities and performance of sales
representatives, engage an international sales firm with representatives or
distributors in foreign markets and perform other marketing activities. The
License Agreement provides that the Mayo Foundation may terminate such agreement
if MediVators defaults in the payment of any royalty or the making of any
required report, breaches any covenant or makes a false report, and fails to
remedy such default, breach or report within ten days after written notice
thereof from the Mayo Foundation.
Patents and Proprietary Rights
MediVators holds patents on certain of its medical sharps disposal systems
which it believes are of material importance to MediVators. However, MediVators
does not currently hold any patents with respect to its endoscope disinfection
equipment. Its current disinfector product, the DSD 91, utilizes certain
know-how developed by the Mayo Foundation pursuant to a license agreement, but
has no patent protection.
Backlog
On October 4, 1996, the Company's consolidated backlog was approximately
$860,000 compared with approximately $1,360,000 on October 5, 1995.
Employees
As of October 4, 1996, the Company employed 139 persons. Of the Company's
employees, 97 are located in Canada and 42 are located in the United States; 15
are executives and/or managers, 40 are engaged in sales, 9 are engaged in
customer service, 20 are engaged in product service, 27 are engaged in
manufacturing, shipping and warehouse functions, 25 perform various
administrative functions and 3 are engaged in research and development.
None of the Company's employees is represented by labor unions. The
Company considers its relations with its employees to be satisfactory.
-15-
<PAGE>
Item 2. PROPERTIES.
Carsen leases a building, containing approximately 41,000 square feet,
located in Markham, Ontario. This facility is used for warehouse, service,
showroom and office space for Carsen. The lease, as amended, expires in July
2000, subject to the Company's option to renew for five years. The lease
provides for monthly base rent of approximately $9,400 for the next year and
approximately $10,000 for the remaining three years.
MediVators leases approximately 27,500 square feet of commercial space,
located in Eagan, Minnesota. This facility is used for manufacturing, warehouse
and office space for MediVators. The lease expires on September 30, 2001,
subject to the Company's option to renew for five years. The lease provides for
monthly base rent of approximately $13,000 for the next three years and
approximately $14,000 for the last two years.
The Company leases approximately 2,000 square feet of office space in
Clifton, New Jersey, for its executive offices. The lease, which expires in
January 1997, provides for monthly base rent of approximately $3,000.
The Company believes that its facilities are adequate for its current
needs.
Item 3. LEGAL PROCEEDINGS.
In November 1995, the Company was one of 102 named defendants in the
lawsuit titled "Caldwell Trucking PRP Group v. ADT Automotive, Inc., including
Cantel Industries, Inc." (Civ. No. 95-1690 (WGB) brought by nine companies which
settled a Comprehensive Environmental Response Compensation and Liability Act
claim by the United States Government and the State of New Jersey for
contribution to the remediation costs of an alleged hazardous waste site in New
Jersey. The complaint, which relates to alleged septic and/or industrial waste
disposed of prior to 1984, seeks total past and future remediation costs from
the 102 named defendants and prior settling companies, originally estimated at
approximately $30 million (but subsequently estimated by plaintiff's group to be
approximately $42 million, of which they claim to have already expended $10
million), but does not allege any specific offense against the Company at this
time. Management of the Company believes that Cantel was not engaged in the
production, transportation or dumping of industrial waste at any time. Although
the Company can make no estimate of what its share, if any, of this total
potential exposure could be, based on its current knowledge and available
information, management believes that the claim will not have a material adverse
effect on the Company or its liquidity, financial condition or operating
-16-
<PAGE>
results. Furthermore, the Company believes that it has defenses to the suit and
that it may have insurance covering such claims in whole or in part, and intends
to vigorously defend itself in this litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
-17-
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the NASDAQ National Market under the
symbol "CNTL." The following table sets forth, for the periods indicated, the
high and low bid prices for the Common Stock as reported by NASDAQ.
The Company has not paid any cash dividends on the Common Stock, and a
change in this policy is not presently under consideration by the Board of
Directors.
HIGH LOW
---- ---
Year Ended July 31, 1995
- ------------------------
First Quarter 7 4 5/16
Second Quarter 6 3/4 3 1/4
Third Quarter 6 1/2 4 1/2
Fourth Quarter 7 3/4 5 1/2
Year Ended July 31, 1996
- ------------------------
First Quarter 10 1/4 5 7/8
Second Quarter 11 3/8 8 3/4
Third Quarter 10 1/2 6 3/4
Fourth Quarter 11 6 3/4
On October 4, 1996, the closing price of the Company's Common Stock was
$7.25 and the Company had 344 record holders of Common Stock. A number of such
holders of record are brokers and other institutions holding shares of Common
Stock in "street name" for more than one beneficial owner.
-18-
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The financial data in the following table is qualified in its entirety by,
and should be read in conjunction with, the financial statements and notes
thereto and other information incorporated by reference in this Form 10-K. The
Merger of Cantel and MediVators has been accounted for as a pooling of interests
in accordance with generally accepted accounting principles. Under this
accounting treatment, the assets, liabilities, stockholders' equity, results of
operations and cash flows of MediVators have been consolidated at their
historical amounts for all periods presented and previously issued financial
statements are restated as though MediVators had always been consolidated as a
wholly-owned subsidiary. For fiscal 1996, 1995 and 1994, the data below has been
extracted from the audited consolidated financial statements of the Company as
of and for each of the years ended July 31. For fiscal 1993 and 1992, the data
below has been extracted from the audited consolidated financial statements of
Cantel as of and for each of the fiscal years ended July 31, and the audited
consolidated financial statements of MediVators as of and for each of the
calendar years 1993 and 1992, except for the weighted average number of common
and common equivalent shares and the common shares outstanding which are
combined as of July 31 of each of these two years.
-19-
<PAGE>
Consolidated Statements of Operations Data:
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales................ $29,792 $ 34,125 $ 32,204 $ 31,521 $ 30,259
Cost of sales .................. 19,433 23,704 21,737 21,491 19,784
Gross profit ................... 10,359 10,421 10,467 10,030 10,475
Income (loss) from con-
tinuing operations before
interest expense, income
taxes and extraordinary
gain (1) ..................... 1,216 700 1,276 (162) 1,077
Interest expense (2) ........... 258 492 283 159 6
Income (loss) from con-
tinuing operations
before income taxes .......... 958 208 993 (321) 1,071
Income taxes (2) ............... 536 1,001 1,054 1,160 1,051
Income (loss) from con-
tinuing operations ........... 422 (793) (61) (1,481) 20
Income (loss) from
discontinued operations (3) .. -- -- 562 (24) 763
Extraordinary gain on
extinguishment of debt (4) ... -- -- 1,211 -- --
Net income (loss) .............. 422 (793) 1,712 (1,505) 783
Dividends on preferred
stocks ....................... -- -- 314 1,185 890
Net income (loss) attri-
butable to common stock ...... 422 (793) 1,398 (2,690) (107)
Earnings per common share:
Primary:
Continuing operations ........ $ .10 $ (.21) $ (.10) $ (.96) $ (.34)
Discontinued operations ...... -- -- .15 (.01) .30
Extraordinary gain ........... -- -- .31 -- --
-------- -------- -------- -------- --------
Net income (loss) .......... $ .10 $ (.21) $ .36 $ (.97) (.04)
======== ======== ======== ======== ========
Fully diluted (5):
Continuing operations ........ $ .10 $ (.21) $ (.10) $ (.83) $ (.34)
Discontinued operations ...... -- -- .15 (.01) .30
Extraordinary gain ........... -- -- .31 -- --
-------- -------- -------- -------- --------
Net income (loss) .......... $ .10 $ (.21) $ .36 $ (.84) $ (.04)
======== ======== ======== ======== ========
Weighted average number
of common and common
equivalent shares:
Primary ....................... 4,309 3,739 3,845 2,765 2,524
Fully diluted ................. 4,309 3,739 3,889 3,197 2,524
</TABLE>
-20-
<PAGE>
Consolidated Balance Sheet Data:
(Amounts in thousands, except per share data)
July 31,
----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total assets ................. $15,998 $19,823 $18,412 $20,910 $23,901
Current assets ............... 14,454 17,994 16,328 18,691 21,339
Working capital .............. 11,373 12,723 11,299 11,518 14,704
Current liabil-
ities (6) .................. 3,081 5,271 5,029 7,173 6,635
Long-term debt, less
current portion(6) ......... 3,419 6,087 4,327 7,989 9,761
Stockholders' equity ......... 9,401 8,374 8,885 5,457 7,126
Book value per
outstanding common
share ...................... $ 2.42 $ 2.22 $ 2.39 $ 1.71 $ 2.74
Common shares
outstanding ................ 3,889 3,765 3,713 3,198 2,596
- ----------
(1) Includes for fiscal 1996, costs of $486,000 associated with the Merger.
Includes for fiscal 1995, a $903,000 write-down of certain inventory and
related assets of MediVators' Disposal Sciences, Inc. subsidiary. Includes
for fiscal 1993 a write-off of $135,000 in costs related to the
termination of a proposed private placement of securities. Includes for
fiscal 1992 a write-off of $175,000 in expenses related to the termination
of a proposed public offering of securities.
(2) Includes for fiscal 1996, a recovery of prior years' federal and
provincial income taxes and withholding taxes of approximately $182,000
and interest of approximately $103,000 arising from a negotiated
settlement with Revenue Canada of a prior year tax reassessment. Includes
for fiscal 1993, an income tax charge of $413,000 related to management's
estimated cost to settle this reassessment. Includes for fiscal 1994 and
1993, an interest charge of $34,000 and $120,000, respectively,
representing interest on the federal and provincial income taxes and
withholding taxes.
(3) Income (loss) from discontinued operations reflects the October 1993 sale
of all of the assets, and the transfer of certain liabilities, of the
Seating Division previously owned by Cantel, to the German manufacturer of
the seating products, as well as the operating results of the Seating
Division in periods prior to the sale.
-21-
<PAGE>
(4) In fiscal 1994, the extraordinary gain on the extinguishment of debt
reflects the recognition of the remaining deferred interest benefit
arising from Cantel's 1991 debt restructuring with its lending banks and
subordinated debenture holders.
(5) In fiscal 1993, includes the adding back of Cantel Series B Preferred
Stock dividends of $100,000 and Cantel Series B Preferred Stock imputed
dividends of $152,000 to reflect the conversion of the Series B Preferred
Stock into 600,000 shares of Common Stock as of the beginning of the
fiscal year.
(6) Current liabilities and long-term debt as of July 31, 1993 and 1992
include an aggregate of $1,388,000 and $1,972,000, respectively, of
deferred interest benefit arising out of Cantel's debt restructuring which
was consummated in fiscal 1991.
-22-
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Continuing Operations
The results of continuing operations described hereafter reflect the
results of Carsen and MediVators. There was no significant impact upon the
Company's results of operations for fiscal 1996 compared with fiscal 1995, or
fiscal 1995 compared with fiscal 1994, as a result of translating Canadian
dollars into United States dollars.
The following table gives information as to the net sales from continuing
operations and the percentage to the total net sales accounted for by each
operating segment of the Company.
Year Ended July 31,
-------------------
1996 1995 1994
-----------------------------------------------------
(Dollar amounts in thousands)
$ % $ % $ %
-------- -------- -------- -------- -------- --------
Medical and Infection
Control and Scientific
Products:
Medical and
Infection Control
Products $16,221 54.4 $18,213 53.3 $15,845 49.2
Scientific
Products 5,693 19.1 5,756 16.9 5,041 15.7
Product Service 3,718 12.5 4,030 11.8 4,059 12.6
Consumer Products 4,160 14.0 6,126 18.0 7,259 22.5
------- ----- ------- ----- ------- -----
$29,792 100.0 $34,125 100.0 $32,204 100.0
======= ===== ======= ===== ======= =====
Fiscal 1996 compared with Fiscal 1995
Net sales decreased by $4,333,000, or 12.7%, to $29,792,000 in fiscal
1996, from $34,125,000 in fiscal 1995. This decrease was principally
attributable to the decreased sales of Medical and Infection Control Products
and Consumer Products. The decreased sales of Medical and Infection Control
Products in fiscal 1996 was primarily attributable to a decrease in demand for
medical products, offset in part by an increase in demand for infection control
products. The sales of medical equipment have been adversely impacted in Canada
by certain cost control measures implemented by various provincial governments
which decreased or delayed funding to hospitals, thereby reducing hospital
spending for capital equipment. The new distribution agreement with Olympus
America Inc. entered into by the Company's United States subsidiary on May 1,
1996 as described in Note 8 to the Consolidated Financial Statements, had a
limited effect on net
-23-
<PAGE>
sales of infection control products during fiscal 1996. The decreased sales of
Consumer Products resulted from lower demand for product, primarily attributable
to the loss of national account business.
Although net sales of Consumer Products represented approximately 14%,
18%, and 23% of net revenues during fiscal 1996, 1995 and 1994, respectively,
Consumer Products has incurred operating losses for each of the past three
fiscal years. The lack of growth and profitability of Consumer Products has
resulted principally from lower demand for product. During fiscal 1996 and 1995,
the reduced demand and increased operating losses were primarily attributable to
the loss of national account business, either through the total loss of
customers or the reduction of orders. The Company has undertaken steps to
address the current market conditions by restructuring the Consumer Products'
sales functions and marketing strategies. The Company has also discussed these
issues with Olympus and suggested strategies for making Olympus cameras more
price competitive in Canada, where all other significant manufacturers of
cameras distribute on a direct basis. In fiscal 1997, Olympus has extended price
reductions on certain camera models and is expected to introduce new products.
Even with these developments the Company does not anticipate a significant
increase in national account business, and there can be no assurance that
Consumer Products will return to profitability.
Gross profit decreased by $62,000, or 0.6%, to $10,359,000 in fiscal 1996,
from $10,421,000 in fiscal 1995. The gross profit margin as a percentage of
sales increased to 34.8% in fiscal 1996, from 30.5% in fiscal 1995. The higher
gross profit margin was principally attributable to a provision for slow-moving
infection control inventory recorded in fiscal 1995, the sales mix in all
divisions, the decreased sales of Consumer Products which generally have lower
profit margins, and a more efficient method of repairing endoscopes. These
margin increases were partially offset by price increases received from Olympus,
a portion of which could not be passed on through higher selling prices.
Shipping and warehouse expenses as a percentage of net sales were 2.3% for
fiscal 1996 and 1995 respectively. The impact of reduced sales against the fixed
portion of these expenses was offset by a reduction in certain fixed shipping
and warehouse expenses.
Selling expenses as a percentage of net sales were 14.6% for fiscal 1996,
compared with 14.8% for fiscal 1995. The impact of the reduced sales against the
fixed portion of these expenses was offset in part by a reduction in fixed
selling expenses.
-24-
<PAGE>
General and administrative expenses decreased by $269,000 to $3,251,000
for fiscal 1996 from $3,520,000 for fiscal 1995. The decrease was primarily
attributable to a cost reduction program implemented at Carsen, as well the
write-down of certain MediVators' assets to their estimated net realizable value
in fiscal 1995.
Costs associated with the Merger of $486,000 in fiscal 1996 represented
expenses incurred in connection with the MediVators acquisition which was
accounted for as a pooling of interests.
Interest expense decreased to $258,000 in fiscal 1996, compared with
$492,000 in fiscal 1995. This decrease is due to a recovery of interest of
approximately $103,000 related to the tax reassessments described in Note 7 to
the Consolidated Financial Statements and a decrease in average borrowings and
lower average interest rates under the Canadian revolver.
Income from continuing operations before income taxes increased by
$750,000 to $958,000 for fiscal 1996 from $208,000 for fiscal 1995.
Income taxes represent taxes imposed on the Company's Canadian operations
and Canadian withholding taxes on dividends remitted by Carsen to Cantel in the
United States. In addition, income taxes for fiscal 1996 are net of a recovery
of $182,000 of taxes related to the tax reassessment described in Note 7 to the
Consolidated Financial Statements.
No tax benefits have been recognized on the Company's United States
operations as a result of the losses generated in fiscal 1996 and prior years.
Fiscal 1995 compared with Fiscal 1994
Net sales increased by $1,921,000, or 6.0%, to $34,125,000 in fiscal 1995,
from $32,204,000 in fiscal 1994. This increase was principally attributable to
the increased sales of Medical and Infection Control Products and Scientific
Products, resulting from increased demand for existing products; the
introduction of new products such as the Olympus B-Max microscope; and increases
in selling prices for certain products, which increases were partially offset by
decreased sales of Consumer Products, resulting from lower demand.
Gross profit decreased by $46,000, or 0.4%, to $10,421,000 in fiscal 1995
from $10,467,000 in fiscal 1994. The gross profit margin decreased as a
percentage of net sales to 30.5% in fiscal 1995, from 32.4% in fiscal 1994. The
lower gross profit margin for fiscal 1995 reflects a provision for slow-moving
-25-
<PAGE>
infection control inventory, the reduction in the selling prices of certain
camera models in Consumer Products to meet competition; supplier price
increases, of which only a portion was passed along to customers; and changes in
product mix.
Shipping and warehouse expenses as a percentage of net sales were 2.3% for
fiscal 1995, compared with 2.2% for fiscal 1994. This percentage increase was
principally attributable to higher occupancy costs, including insurance,
utilities and property tax, and increased costs of packing and shipping
supplies.
Selling expenses as a percentage of net sales were 14.8% for fiscal 1995,
compared with 13.9% for fiscal 1994. Although selling expenses as a percentage
of net sales increased as a result of additional personnel costs in the sales
and product management functions and related travel expenses, this increase was
offset in part by higher levels of sales against the fixed portion of these
expenses.
General and administrative expenses increased by $35,000 to $3,520,000 for
fiscal 1995 from $3,485,000 for fiscal 1994. This increase was principally
attributable to higher personnel costs, including termination pay for several
former employees, an increase in professional fees and a write-down of certain
MediVators assets to their estimated net realizable value in fiscal 1995, which
increases were partially offset by a decrease in foreign exchange losses which
resulted from translating the Company's Canadian subsidiary's United States
dollar denominated loans into Canadian dollars at the period-end exchange rates
during the first quarter of fiscal 1994. In October 1993, the Company began
borrowing in Canadian dollars which eliminated such foreign exchange losses.
Interest expense increased to $492,000 in fiscal 1995 as compared with
$283,000 in fiscal 1994. This increase principally reflects interest at market
rates on borrowings outstanding under Carsen's revolving credit facility, which
was consummated on October 29, 1993 and an increase in average Canadian interest
rates. Prior to October 29, 1993, the Company reported substantially reduced
interest expense on its outstanding borrowings as a result of the 1991 debt
restructuring.
Income from continuing operations before income taxes and extraordinary
gain decreased by $785,000 to $208,000 for fiscal 1995 from $993,000 for fiscal
1994.
The provisions for income taxes in fiscal 1995 and 1994 represent taxes
imposed on the Company's Canadian operations and, in 1995, Canadian withholding
taxes on dividends remitted by Carsen to Cantel in the United States.
-26-
<PAGE>
No tax benefits have been recognized on the Company's United States
operations as a result of the losses generated in fiscal 1995 and prior years.
Income from discontinued operations of $562,000 in fiscal 1994 principally
reflects the gain on the sale of all of the assets and the transfer of certain
liabilities of the Seating Division to the German manufacturer of the seating
products.
During fiscal 1994, the Company paid in full its outstanding United States
bank debt and refinanced its Canadian bank debt with a Canadian bank and
recognized $1,211,000, which represents the remaining deferred interest benefit
from the Company's 1991 debt restructuring with its lending banks and
subordinated debenture holders, as an extraordinary gain on the extinguishment
of debt.
Dividends on preferred stock of $314,000 for fiscal 1994, represent
non-cash imputed dividends of approximately $205,000 and cash dividends payable
of $109,000 on the Series A Preferred Stock.
Liquidity and Capital Resources
At July 31, 1996, the Company's working capital was $11,373,000, compared
with $12,723,000 at July 31, 1995. This decrease primarily reflects a decrease
in accounts receivable, partially offset by a decrease in accounts payable, both
of which were high at July 31, 1995 due to increased sales in July 1995. The
decrease in working capital was partially attributable to a reduction of
long-term debt, which decreased from $6,087,000 at July 31, 1995 to $3,419,000
at July 31, 1996.
Net cash provided by operating activities was $2,133,000 for fiscal 1996,
compared with net cash used in operating activities of $2,059,000 for fiscal
1995 and net cash provided by operating activities of $168,000 for fiscal 1994.
In fiscal 1996, the net cash provided by operating activities was primarily due
to income from continuing operations after adjusting for depreciation and a
decrease in accounts receivable, partially offset by a decrease in accounts
payable. The net cash used in operating activities in fiscal 1995 was primarily
due to a loss from continuing operations after adjusting for depreciation, an
increase in accounts receivable and a decrease in income taxes payable,
partially offset by an increase in accounts payable. The net cash provided by
operating activities in fiscal 1994 was primarily due to income from continuing
operations after adjusting for depreciation and a decrease in accounts
receivable, partially offset by a decrease in accounts payable.
-27-
<PAGE>
Net cash used in investing activities was $142,000 in fiscal 1996 and
$134,000 in fiscal 1995, compared with net cash provided by investing activities
of $2,055,000 in fiscal 1994 which was due primarily to proceeds from the sale
of discontinued operations.
Net cash used in financing activities was $2,108,000 in fiscal 1996,
compared with net cash provided by financing activities of $1,495,000 in fiscal
1995 and net cash used in financing activities of $2,202,000 in fiscal 1994.
These changes were principally due in fiscal 1996 to the reduction of long-term
debt, partially offset by proceeds from the exercise of stock options, in fiscal
1995 due to an increase in outstanding borrowings under the Canadian revolving
credit facility, and in fiscal 1994 due to a refinancing and reduction of
long-term debt partially offset by proceeds from the sale of stock by MediVators
prior to the Merger.
The Company has two credit facilities, a $7,500,000 revolving credit
facility for Carsen, and a $2,000,000 revolving credit facility for MediVators,
which was entered into on May 27, 1996.
Pursuant to the terms of the Carsen revolving credit facility, the
borrowing availability is subject to a potential reduction on January 1, 1998 to
an amount which will be agreed to by both Carsen and the lender and borrowings
must be paid in full no later than December 31, 1998. Borrowings outstanding at
July 31, 1996 and 1995 are in Canadian dollars and bear interest at .75% above
the lender's Canadian prime rate. A commitment fee on the unused portion of this
facility is payable in arrears at a rate of .25% per annum, with interest on
borrowings payable monthly.
Pursuant to the terms of the MediVators revolving credit facility,
borrowings must be paid in full no later than December 3, 1998. Borrowings bear
interest at 1.5% above the lender's U.S. prime rate. A commitment fee on the
unused portion of this facility is payable in arrears at a rate of .5% per
annum, with interest on borrowings payable monthly.
Each of the credit facilities provide for restrictions on available
borrowings based primarily upon percentages of eligible accounts receivable and
inventories; require the subsidiary to meet certain financial covenants; are
secured by substantially all assets of the subsidiary; and are guaranteed by
Cantel.
A decrease in the value of the Canadian dollar against the United States
dollar could adversely affect the Company because the Company's Canadian
subsidiary purchases substantially all of its products in United States dollars
and sells its products in
-28-
<PAGE>
Canadian dollars. Such adverse currency fluctuations could also result in a
corresponding adverse change in the United States dollar value of the Company's
assets that are denominated in Canadian dollars. Under the Carsen credit
facility the Company's Canadian subsidiary has a $15,000,000 (U.S. dollars)
foreign exchange hedging facility which is available to be used to minimize
future adverse currency fluctuations as they relate to purchases of inventories.
The Company's Canadian subsidiary had foreign exchange forward contracts
at October 15, 1996 aggregating $12,000,000 (U.S. dollars) to hedge against
possible declines in the value of the Canadian dollar which would otherwise
result in higher inventory costs. Such contracts represent the Canadian
subsidiary's projected purchases of inventories through April 30, 1997.
The average exchange rate of the contracts open at October 15, 1996 was
$1.3587 Canadian dollar per United States dollar, or $.7360 United States dollar
per Canadian dollar. The exchange rate published by the Wall Street Journal on
October 7, 1996 was $1.3544 Canadian dollar per United States dollar, or $.7383
United States dollar per Canadian dollar.
The Company believes that its anticipated cash flow from operations and
the funds available under the revolving credit facilities will be sufficient to
satisfy the Company's cash operating requirements for the foreseeable future
based upon the current level of operations. At October 4, 1996, $4,120,000 was
available under the credit facilities.
As of July 31, 1996, the Company had net operating loss carryforwards for
United States income tax purposes ("NOLs") of approximately $15,389,000 which
will expire through July 31, 2011. Of this amount, approximately $4,300,000
represents NOLs accumulated by MediVators prior to the Merger, which may only be
used against the future earnings of MediVators and are subject to annual
limitations due to the ownership change.
In addition, the Company and its Canadian subsidiary cannot file
consolidated tax returns, for Canadian or United States income tax purposes.
Therefore, neither net losses sustained by the Company in the United States nor
the NOLs can be utilized to reduce Canadian federal or provincial income taxes
payable by the Canadian subsidiary on its taxable income nor can losses
sustained by the Canadian subsidiary, if any, be used to offset taxable income
earned by the Company in the United States. This has resulted in the payment of
income taxes by the Company in Canada, notwithstanding net losses sustained by
the Company in the United States.
-29-
<PAGE>
Inflation has not significantly impacted the Company's operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements, which is Item 14(a), and
the Consolidated Financial Statements and schedule attached to this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not had any disagreements with its accountants on
accounting or financial disclosure.
-30-
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the Registrant's definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934 in connection with the
1996 Annual Meeting of Stockholders of Registrant.
Item 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Registrant's definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934 in connection with the
1996 Annual Meeting of Stockholders of Registrant.
Item 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Registrant's definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934 in connection with the
1996 Annual Meeting of Stockholders of Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Registrant's definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934 in connection with the
1996 Annual Meeting of Stockholders of Registrant.
-31-
<PAGE>
PART IV
Item 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND
REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-K for the fiscal year ended July 31, 1996.
1. Consolidated Financial Statements:
(i) Reports of Independent Auditors.
(ii) Consolidated Balance Sheets as of July 31, 1996 and 1995.
(iii) Consolidated Statements of Operations for the years
ended July 31, 1996, 1995, and 1994.
(iv) Consolidated Statements of Changes in Stockholders'
Equity for the years ended July 31, 1996, 1995, and 1994.
(v) Consolidated Statements of Cash Flows for the years ended
July 31, 1996, 1995, and 1994.
(vi) Notes to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedules:
(i) Schedule II - Valuation and Qualifying Accounts for the
years ended July 31, 1996, 1995, and 1994.
All other financial statement schedules are omitted since they are
not required, not applicable, or the information has been included in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits:
2 - Agreement and Plan of Merger dated as of November 14, 1995
by and among MediVators, Inc., Registrant and Cantel Acquisition Corp.
(Incorporated herein by reference to
-32-
<PAGE>
Annex I of Registrant's Registration Statement on Form S-4, Reg. No. 33-64727.)
3(a) - Registrant's Restated Certificate of Incorporation
dated July 20, 1978. (Incorporated herein by reference to Exhibit 3(a) to
Registrant's 1981 Annual Report on Form 10-K.)
3(b) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on February 16, 1982. (Incorporated herein by
reference to Exhibit 3(b) to Registrant's 1982 Annual Report on Form 10-K.)
3(c) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on May 4, 1984. (Incorporated herein by
reference to Exhibit 3(c) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1984.)
3(d) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on August 19, 1986. (Incorporated herein by
reference to Exhibit 3(d) of Registrant's 1986 Annual Report on Form 10-K.)
3(e) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on December 12, 1986. (Incorporated herein by
reference to Exhibit 3(e) of Registrant's 1987 Annual Report on Form 10-K [the
"1987 10-K"].)
3(f) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on April 3, 1987. (Incorporated herein by
reference to Exhibit 3(f) of Registrant's 1987 10-K).
3(g) - Certificate of Change of Registrant, filed on July 12,
1988. (Incorporated herein by reference to Exhibit 3(g) of Registrant's 1988
Annual Report on Form 10-K.)
3(h) - Certificate of Amendment of Certificate of
Incorporation of Registrant filed on April 17, 1989. (Incorporated herein by
reference to Exhibit 3(h) to Registrant's 1989 Annual Report on Form 10-K [the
"1989 10-K"].)
3(i) - Registrant's By-Laws adopted June 1, 1976, as amended
through the date of this Report. (Incorporated herein by reference to Exhibit
3(d) to Registrant's 1985 Annual Report on Form 10-K.)
-33-
<PAGE>
10(a) - Registrant's 1991 Employee Stock Option Plan, as
amended. (Incorporated herein by reference to Exhibit 10(a) to Registrant's 1991
Annual Report on Form 10-K (the "1991 10-K".)
10(b) - Form of Stock Option Agreement under Registrant's 1991
Employee Stock Option Plan. (Incorporated herein by reference to Exhibit 10(b)
to Registrant's 1991 10-K.)
10(c) - Registrant's 1991 Directors' Stock Option Plan.
(Incorporated herein by reference to Exhibit 10(c) to Registrant's 1991 10-K.)
10(d) - Form of Stock Option Agreement under the Registrant's
1991 Directors Stock Option Plan. (Incorporated herein by reference to Exhibit
10(d) to Registrant's 1991 10-K.)
10(e) - Stock Option Agreement, dated as of June 20, 1990,
between the Registrant and James P. Reilly. (Incorporated by reference to
Exhibit 10(g) to Registrant's 1990 Annual Report on Form 10-K (the "1990 10-K".)
10(f) - Stock Option Agreement, dated as of July 25, 1990
between the Registrant and James P. Reilly. (Incorporated by reference to
Exhibit 10(q) to Registrant's 1990 10-K.)
10(g) - Agreement between Carsen Group Inc. and Olympus
America, Inc., dated April 1, 1994. (Incorporated by reference to Exhibit 10(g)
to Registrant's 1994 Annual Report on Form 10-K (the "1994 10-K".)
10(h) - Form of Registrant's Common Stock Purchase Warrants
dated December 27, 1988. (Incorporated herein by reference to Exhibit 10(t) to
Registrant's 1989 10-K.)
10(i) - Form of Registrant's Common Stock Purchase Warrants
dated July 14, 1989. (Incorporated herein by reference to Exhibit 10(w) to
Registrant's 1989 10-K.)
10(j) - Loan Agreement dated as of October 29, 1993 among
Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated herein
by reference to Exhibit 10(v) of Registrant's 1993 10-K.)
10(k) - Stock Option Agreement, dated as of February 3, 1994,
between the Registrant and Darwin C. Dornbush. (Incorporated herein by reference
to Exhibit 10(1) to Registrant's 1995 Annual Report on Form 10-K (the "1995
10-K".)
-34-
<PAGE>
10(l) - Stock Option Agreement, dated as of December 15, 1994,
between the Registrant and Robert L. Barbanell. (Incorporated herein by
reference to Exhibit 10(m) of Registrant's 1995 10-K.)
10(m) - Amendment to Loan Agreement, dated as of August 28,
1995, among Registrant, Carsen Group Inc. and National Bank of Canada.
(Incorporated herein by reference to Exhibit 10(n) of Registrant's 1995 10-K.)
10(n) - Exclusive License Agreement by and between Mayo
Foundation for Medical Education and Research (formerly Mayo Medical Resources)
and MediVators regarding the OTT Disinfector dated April 1, 1986, together with
the First Amendment thereto dated May 26, 1988 and the Second Amendment thereto
dated as of January 1, 1990. (Incorporated herein by reference to Exhibit 10A to
MediVators' Registration Statement on Form S-18, File No. 33-41859C.)
10(o) - MediVators' 1991 Stock Option and Compensation Plan as
amended. (Incorporated by reference to Exhibit 10P to MediVators' Registration
Statement on Form S-3, File No. 33-79764.)
10(p) - MediVators' 1993 Director Stock Option Plan.
(Incorporated by reference to Exhibit 10Q to MediVators' Registration Statement
on Form S-3, File No. 33-79764.)
10(q) - Stock Option Agreement, dated as of March 15, 1996 ,
between the Registrant and Donald L. Sturtevant.
10(r) - Employment Agreement, dated as of March 15, 1996
between the Registrant and Donald L. Sturtevant.
10(s) - Loan and Security Agreement dated as of May 27, 1996
among MediVators, Inc., Disposal Sciences, Inc. and National Canada Finance
Corp.
11 - Computation of Earnings per Share Data.
21 - Subsidiaries of Registrant.
24(a) - Consent of Ernst & Young LLP.
24(b) - Consent of Price Waterhouse LLP.
27 - Financial Data Schedule.
(b) Reports on Form 8-K: A Current Report on Form 8-K/A dated March 15,
1996, which amended a report on Form 8-K and a report on Form 8-K/A previously
filed, was filed during the
-35-
<PAGE>
three months ended July 31, 1996, reporting an event under Item 2 of Form 8-K
related to the Registrant's acquisition of MediVators, Inc. The financial
statements included in the Form 8-K/A were: (i) Consolidated Financial
Statements of MediVators for the fiscal years ended December 31, 1994 and
December 31, 1993 (incorporated by reference), (ii) Consolidated Financial
Statements of MediVators for the nine months ended September 30, 1995
(incorporated by reference), (iii) Audited Consolidated Financial Statements of
MediVators for the fiscal years ended July 31, 1995 and July 31, 1994, (iv)
unaudited pro forma combined condensed statements of operations of the Company
for the fiscal years ended July 31, 1995, 1994 and 1993 and the three month
periods ended October 31, 1995 and 1994, and the unaudited pro forma combined
condensed balance sheet of the Company as at October 31, 1995 (incorporated by
reference), and (v) unaudited pro forma combined condensed statements of
operations of the Company for the six month periods ended January 31, 1996 and
1995, and the unaudited pro forma combined condensed balance sheet of the
Company as at January 31, 1996.
-36-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANTEL INDUSTRIES, INC.
Date: October 28, 1996 By: /s/ James P. Reilly
--------------------
James P. Reilly, President
and Chief Executive Officer
(Principal Executive Officer
and Principal Financial
Officer)
By: /s/ Craig A. Sheldon
---------------------
Craig A. Sheldon, Vice
President and Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Charles M. Diker Date: October 28, 1996
- -------------------------------
Charles M. Diker, a Director
and Chairman of the Board
/s/ James P. Reilly Date: October 28, 1996
- -------------------------------
James P. Reilly, a Director
and President
/s/ Robert L. Barbanell Date: October 28, 1996
- -------------------------------
Robert L. Barbanell, a Director
/s/ Richard L. Bloch Date: October 28, 1996
- -------------------------------
Richard L. Bloch, a Director
/s/ Darwin C. Dornbush Date: October 28, 1996
- -------------------------------
Darwin C. Dornbush, a Director
/s/ Alan J. Hirschfield Date: October 28, 1996
- -------------------------------
Alan J. Hirschfield, a Director
/s/ Morris W. Offit Date: October 28, 1996
- -------------------------------
Morris W. Offit, a Director
/s/ Bruce Slovin Date: October 28, 1996
- -------------------------------
Bruce Slovin, a Director
-37-
<PAGE>
C A N T E L I N D U S T R I E S, I N C.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
<PAGE>
CONTENTS
Reports of Independent Auditors ......................................... 1
Financial Statements
Consolidated Balance Sheets ......................................... 4
Consolidated Statements of Operations ............................... 5
Consolidated Statements of Changes
in Stockholders' Equity ........................................... 6
Consolidated Statements of Cash Flows ............................... 8
Notes to Consolidated Financial Statements .......................... 9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cantel Industries, Inc.
We have audited the accompanying consolidated balance sheet of Cantel
Industries, Inc. as of July 31, 1996 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cantel
Industries, Inc. at July 31, 1996 and the consolidated results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We previously audited and reported on the consolidated balance sheet as of July
31, 1995 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows of Cantel Industries, Inc. for each of the
two years in the period ended July 31, 1995, as well as the
<PAGE>
financial statement schedule listed in the Index at Item 14(a), prior to their
restatement for the 1996 pooling of interests as described in Note 3. The
contribution of Cantel Industries, Inc. to total assets, net sales and income
from continuing operations represented $17,399,000, $31,079,000 and $1,001,000
of the respective restated 1995 totals and $29,349,000 and $1,246,000 of the
restated 1994 totals for net sales and income from continuing operations,
respectively. Financial statements of MediVators, Inc. included in the 1995 and
1994 restated consolidated statements were audited and reported on separately by
other auditors. The report of the other auditors who audited these statements
appears elsewhere herein. We also have audited, as to combination only, the
accompanying consolidated balance sheet of Cantel Industries, Inc. as of July
31, 1995 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the two years in the period
ended July 31, 1995, after restatement for the 1996 pooling of interests; in our
opinion, such consolidated financial statements have been properly combined on
the basis described in Note 3 to the consolidated financial statements.
ERNST & YOUNG LLP
Princeton, New Jersey
September 18, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholder of
MediVators, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of stockholders' equity and of cash flows as of and
for each of the two years in the period ended July 31, 1995 (not presented
separately herein) present fairly, in all material respects, the financial
position, results of operations and cash flows of MediVators, Inc. and its
subsidiary as of and for each of the two years in the period ended July 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of MediVators,
Inc. for any period subsequent to July 31, 1995.
Price Waterhouse LLP
Minneapolis, Minnesota
May 3, 1996
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands, Except Share Data)
July 31,
1996 1995
-----------------------
Assets
Current assets:
Cash $ 682 $ 799
Accounts receivable, net of allowance for
doubtful accounts of $132 in 1996 and
$138 in 1995 5,268 8,392
Inventories 8,196 8,456
Prepaid expenses and other current assets 308 347
------- -------
Total current assets 14,454 17,994
Property and equipment, at cost:
Furniture and equipment 1,796 2,088
Leasehold improvements 697 842
------- -------
2,493 2,930
Less accumulated depreciation and amortization 1,884 2,052
------- -------
609 878
Other assets, including goodwill of $167 in
1996 and 1995 935 951
------- -------
$15,998 $19,823
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,486 $ 3,426
Compensation payable 722 941
Other accrued expenses 792 540
Income taxes payable 81 364
------- -------
Total current liabilities 3,081 5,271
Long-term debt 3,419 6,087
Deferred income taxes 97 91
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $1.00 per share;
authorized 1,000,000 shares; none issued - -
Common Stock, $.10 par value per share;
authorized 7,500,000 shares; issued and
outstanding, 1996 - 3,888,695 shares;
1995 - 3,765,353 shares 389 377
Additional capital 17,088 16,428
Accumulated deficit (6,748) (7,170)
Cumulative foreign currency translation
adjustment (1,328) (1,261)
------- -------
Total stockholders' equity 9,401 8,374
------- -------
$15,998 $19,823
======= =======
See accompanying notes.
4
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar Amounts in Thousands, Except Per Share Data)
Year Ended July 31,
1996 1995 1994
---------------------------
Net sales:
Product sales $26,074 $30,095 $28,145
Product service 3,718 4,030 4,059
------- ------- -------
Total net sales 29,792 34,125 32,204
------- ------- -------
Cost of sales:
Product sales 17,081 21,222 19,189
Product service 2,352 2,482 2,548
------- ------- -------
Total cost of sales 19,433 23,704 21,737
------- ------- -------
Gross profit 10,359 10,421 10,467
------- ------- -------
Expenses:
Shipping and warehouse 679 786 719
Selling 4,353 5,037 4,480
General and administrative 3,251 3,520 3,485
Research and development 374 378 507
Costs associated with the Merger 486 - -
------- ------- -------
Total operating expenses 9,143 9,721 9,191
------- ------- -------
Income from continuing operations
before interest expense, income
taxes and extraordinary gain 1,216 700 1,276
Interest expense 258 492 283
------- ------- -------
Income from continuing operations
before income taxes and
extraordinary gain 958 208 993
Income taxes 536 1,001 1,054
------- ------- -------
Income (loss) from continuing operations
before extraordinary gain 422 (793) (61)
Income on disposal of discontinued
operations - - 562
------- ------- -------
Income (loss) before extraordinary gain 422 (793) 501
Extraordinary gain on extinguishment
of debt - - 1,211
------- ------- -------
Net income (loss) 422 (793) 1,712
Dividends on preferred stock - - 314
------- ------- -------
Net income(loss) attributable to common stock $ 422 $ (793) $ 1,398
======= ======== =======
Earnings per common share:
Primary:
Continuing operations $ 0.10 $ (0.21) $ (0.10)
Discontinued operations - - 0.15
Extraordinary gain on
extinguishment of debt - - 0.31
------- -------- -------
Net income (loss) $ 0.10 $ (0.21) $ 0.36
======= ======== =======
Fully diluted:
Continuing operations $ 0.10 $ (0.21) $ (0.10)
Discontinued operations - - 0.15
Extraordinary gain on
extinguishment of debt - - 0.31
------- -------- -------
Net income (loss) $ 0.10 $ (0.21) $ 0.36
======= ======== =======
See accompanying notes.
5
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in Thousands, Except Share Data)
Years Ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Preferred Stock
Series A Common Stock
-------------------- --------------------
Number of Number of Additional
Shares Amount Shares Amount Capital
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1993 1,000 $1 3,197,734 $320 $17,248
Repurchase and redemption
of Series A Preferred Stock (1,000) (1) 133,950 13 (3,256)
Exercise of options and
warrants into Common Stock 135,277 14 209
Sales of stock by MediVators
before the Merger 246,392 24 1,852
Compensation expense 8
Translation loss
Net income
Cash dividends payable
Imputed dividends on Series A
Preferred Stock 205
--------- ---------- --------- --------- ----------
Balance, July 31, 1994 - - 3,713,353 371 16,266
Exercise of options
into Common Stock 33,065 4 55
Dividends on MediVators stock
before the Merger 6,989 1 (1)
Issuance of stock by
MediVators before the Merger 12,910 1 98
Expense related to grant of
non-employee options 6
Forfeiture of deferred
compensation (964)
Compensation expense 4
Translation gain
Net loss
--------- ---------- --------- --------- ----------
Balance, July 31, 1995 - - 3,765,353 377 16,428
Exercise of options
into Common Stock 122,985 12 653
Dividends on MediVators stock
before the Merger 357
Compensation expense 7
Translation loss
Net income
--------- ---------- --------- --------- ----------
Balance, July 31, 1996 - - 3,888,695 $389 $17,088
========= ========== ========= ========= ==========
</TABLE>
See accompanying notes.
Continued......
6
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in Thousands, Except Share Data)
Years Ended July 31, 1996, 1995 and 1994
Cumulative
Foreign
Currency Total
Accumulated Translation Stockholders'
Deficit Adjustment Equity
----------- ----------- ----------
Balance, July 31, 1993 $(10,992) $ (936) $5,641
Repurchase and redemption
of Series A Preferred Stock 3,217 (27)
Exercise of options and
warrants into Common Stock 223
Sales of stock by MediVators
before the Merger 1,876
Compensation expense 8
Translation loss (439) (439)
Net income 1,712 1,712
Cash dividends payable (109) (109)
Imputed dividends on Series A
Preferred Stock (205) -
--------- --------- ----------
Balance, July 31, 1994 (6,377) (1,375) 8,885
Exercise of options
into Common Stock 59
Dividends on MediVators stock
before the Merger -
Issuance of stock by
MediVators before the Merger 99
Expense related to grant of
non-employee options 6
Forfeiture of deferred
compensation -
Compensation expense 4
Translation gain 114 114
Net loss (793) (793)
--------- --------- ----------
Balance, July 31, 1995 (7,170) (1,261) 8,374
Exercise of options
into Common Stock 665
Dividends on MediVators stock
before the Merger -
Compensation expense 7
Translation loss (67) (67)
Net income 422 422
--------- --------- ----------
Balance, July 31, 1996 $ (6,748) $(1,328) $9,401
========= ========= ==========
See accompanying notes.
7
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
Year Ended July 31,
1996 1995 1994
----------------------------
Cash flows from operating activities
Income (loss) from continuing operations $ 422 $ (793) $ (61)
Adjustments to reconcile income (loss) from
continuing operations to net cash provided
by (used in) operating activities:
Discontinued operations - - (94)
Depreciation and amortization of continuing
operations 367 573 464
Depreciation and amortization of discontinued
operations - - 13
Deferred income taxes 7 26 10
Imputed interest 5 21 37
Changes in assets and liabilities:
Accounts receivable 3,124 (2,853) 525
Inventories 260 115 (13)
Prepaid expenses and other current assets 39 266 (110)
Accounts payable and accrued expenses (1,808) 1,046 (753)
Income taxes payable (283) (460) 150
--------------------------
Net cash provided by (used in) operating
activities 2,133 (2,059) 168
--------------------------
Cash flows from investing activities
Additions of property and equipment of continuing
operations (60) (214) (133)
Additions of property and equipment of discontinued
operations - - (4)
Cash provided by discontinued operations - - 88
Proceeds from sale of discontinued operations - - 2,613
Other, net (82) 80 (509)
---------------------------
Net cash (used in) provided by investing
activities (142) (134) 2,055
--------------------------
Cash flows from financing activities
Borrowings under credit facilities 15,855 15,079 14,103
Repayments under credit facilities (18,523) (13,319) (18,320)
Repurchase of Series A Preferred Stock - - (207)
Expenses associated with extinguishment of debt - - (33)
Deferred compensation payments (105) (133) (134)
Proceeds (repayments) of note payable - (240) 290
Proceeds from sales of MediVators stock - 49 1,876
Proceeds from exercise of stock options
and warrants 665 59 223
--------------------------
Net cash (used in) provided by financing
activities (2,108) 1,495 (2,202)
---------------------------
(Decrease) increase in cash (117) (698) 21
Cash at beginning of year 799 1,497 1,476
--------------------------
Cash at end of year $ 682 $ 799 $ 1,497
==========================
Supplemental schedule of non-cash activity
Common stock of MediVators issued in
satisfaction of note payable - $ 50 -
==========================
See accompanying notes.
8
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 1996, 1995 and 1994
1. Business Description
Cantel Industries, Inc. ("Cantel") has two wholly-owned subsidiaries
(collectively known as the "Company"). Its Canadian subsidiary, Carsen Group
Inc. ("Carsen" or "Canadian subsidiary") is engaged in the marketing,
distribution and service of medical and infection control, scientific and
consumer products in Canada. Its United States subsidiary, MediVators, Inc.
("MediVators" or "United States subsidiary") was acquired in March 1996 and is
engaged in the manufacturing, marketing, distribution and service of infection
control products.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Cantel Industries,
Inc. and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Revenue Recognition
Revenue is generally recognized as products are shipped to customers, net of
provisions for sales allowances, warranties and similar items.
Translation of Foreign Currency Financial Statements
Assets and liabilities of Carsen are translated into United States dollars at
year-end exchange rates; income and expenses are translated using average
exchange rates during the year. The cumulative effect of the translation of
Carsen's financial statements is presented as a separate component of
stockholders' equity. Foreign exchange gains and losses related to the purchase
of inventories are included in cost of sales. Non-cash foreign exchange losses
resulting from translating Carsen's United States dollar denominated loans
9
<PAGE>
into Canadian dollars at the period-end exchange rate through October 29, 1993
are included in general and administrative expenses ($103,000 for the year ended
July 31, 1994).
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Additions and improvements are
capitalized, while maintenance and repair costs are expensed. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the respective accounts and any resulting gain or loss is
included in income. Depreciation and amortization are provided on either the
straight-line method or, for certain furniture and equipment at Carsen the
declining balance method, over the estimated useful lives of the assets which
generally range from 3-7 years for furniture and equipment and the life of the
lease for leasehold improvements.
Other Assets
Inventories of sales samples which have not turned over within one year and
medical loaners available for customers are included in other assets and are
carried at the lower of cost or net realizable value.
Income Taxes
The Company accounts for income taxes by the liability method
in accordance with Statement of Financial Accounting Standards
No. 109 (SFAS No. 109) "Accounting for Income Taxes".
No income taxes have been provided on the undistributed earnings ($9,131,000 at
July 31, 1996) of Carsen since the Company does not intend to repatriate such
earnings unless no additional United States taxes would result upon such
repatriation.
Goodwill
Goodwill with respect to Carsen is not being amortized since, in the opinion of
management, there has been no diminution of value since acquisition prior to
1970. The carrying value of the goodwill is reviewed if the facts and
circumstances suggest that it may be permanently impaired. Such review is based
upon the undiscounted expected future operating profit
10
<PAGE>
derived from such business. In the event such result is less than the carrying
value of the goodwill, the carrying value of the goodwill is reduced to an
amount that reflects the expected future benefit.
Earnings Per Common Share
Primary earnings per common share are computed based upon the weighted average
number of common shares outstanding during the year plus the dilutive effect of
options and warrants using the treasury stock method and the average market
price for the period. In addition, for fiscal 1994, primary earnings per common
share was calculated reflecting imputed dividends of $205,000 and cash dividends
of $109,000 on the Series A Preferred Stock.
Fully diluted earnings per common share are computed based upon the weighted
average number of common shares outstanding during the year plus the dilutive
effect of options and warrants using the treasury stock method and the higher of
the period-end or average market price for the period. Fully diluted earnings
per share for 1994 was computed reflecting imputed dividends of $205,000 and
cash dividends of $109,000 on the Series A Preferred Stock.
The following average shares were used for the computation of primary and fully
diluted earnings per share:
Year Ended July 31,
1996 1995 1994
---------------------------------
Primary 4,308,579 3,739,396 3,845,118
=================================
Fully Diluted 4,308,579 3,739,396 3,888,750
=================================
During the year ended July 31, 1996, the Company incurred $486,000 in costs
associated with the Merger. Without the effect of these merger costs, earnings
per share from continuing operations would have been as follows:
Year Ended July 31,
1996 1995 1994
---------------------------
Primary $0.21 $(0.21) $(0.10)
===========================
Fully Diluted $0.21 $(0.21) $(0.10)
===========================
11
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Acquisition of MediVators
On March 15, 1996, the Company consummated a merger transaction with MediVators,
a Minnesota company, pursuant to an Agreement and Plan of Merger under which
MediVators became a wholly-owned subsidiary of the Company, and the stockholders
of MediVators received an equity interest of approximately 26.5% in Cantel
(without giving effect to outstanding options and warrants to acquire stock of
Cantel or MediVators) (the "Merger").
The Merger has been accounted for as a pooling of interests for accounting
purposes in accordance with generally accepted accounting principles. Under this
accounting treatment, the assets, liabilities, stockholders' equity, results of
operations, and cash flows of MediVators have been consolidated at their
historical amounts for all periods presented and previously issued financial
statements are restated as though MediVators had always been consolidated as a
wholly-owned subsidiary.
In connection with the Merger, the Company filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission, declared effective on
February 8, 1996, which covered the issuance of the Company's common shares to
the stockholders of MediVators in exchange for shares of MediVators common
stock.
MediVators, a public company prior to the Merger, designs, manufactures, markets
and distributes infection control equipment and supplies used for disinfecting
flexible endoscopes and medical sharps disposal systems.
12
<PAGE>
A reconciliation of consolidated net sales and income (loss) from continuing
operations to the respective amounts of each of Cantel and MediVators prior to
the Merger is as follows:
Year Ended July 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
Net sales:
Consolidated-post-Merger $ 12,408,000 $ - $ -
Cantel-pre-Merger 15,155,000 31,079,000 29,349,000
MediVators-pre-Merger 2,446,000 3,473,000 2,950,000
Effect of eliminating
intercompany sales -
pre-Merger (217,000) (427,000) (95,000)
--------------------------------------------
Total consolidated net
sales $ 29,792,000 $ 34,125,000 $ 32,204,000
===========================================
Income (loss) from
continuing operations:
Consolidated-post-Merger $ 565,000 $ - $ -
Cantel-pre-Merger 123,000 1,001,000 1,246,000
MediVators-pre-Merger (254,000) (1,768,000) (1,307,000)
Effect of eliminating
intercompany profit
in inventory-pre-Merger (12,000) (26,000) -
-------------------------------------------
Total consolidated
income (loss) from
continuing operations $ 422,000 $ (793,000) $ (61,000)
============================================
In fiscal 1995, a $903,000 provision was recorded to write-down to net
realizable value certain assets of MediVators' medical sharps disposal business,
the majority of which was slow moving inventory.
In fiscal 1994, the income on disposal of discontinued operations and
extraordinary gain on extinguishment of debt were entirely attributable to the
pre-merger operations of Cantel.
4. Inventories
A summary of inventories is as follows:
July 31,
1996 1995
------------------------
Parts $1,958,000 $1,574,000
Work-in-process 275,000 369,000
Finished Goods 5,963,000 6,513,000
------------------------
Total $8,196,000 $8,456,000
========================
13
<PAGE>
5. Discontinued Operations
On October 29, 1993, the Company consummated the sale of all of the assets and
transferred certain liabilities of its Seating Division to the German
manufacturer of the seating products for $2,809,000. The Company received
$2,659,000 in cash and a $150,000 promissory note of the purchaser of the
Seating Division. The promissory note was paid in October 1994. An additional
contingent payment of up to $150,000 could become due on the 90th day following
the end of the calendar year 1996, dependent upon the operating results of the
Seating Division.
6. Financing Arrangements
Simultaneous with the sale of its Seating Division, the Company paid in full its
then outstanding United States bank debt of $1,300,000 plus accrued interest and
refinanced the Company's Canadian credit facility. The remaining deferred
interest benefit of $1,211,000 arising from the Company's 1991 debt
restructuring with its lending banks and subordinated debenture holders was
recognized as an extraordinary gain on extinguishment of debt. Since October 29,
1993, the Company's interest expense reflects a market rate of interest on its
borrowings.
The Company has two credit facilities, a $7,500,000 revolving credit facility
for Carsen, and a $2,000,000 revolving credit facility for MediVators, which was
entered into on May 27, 1996.
Pursuant to the terms of the Carsen revolving credit facility, the borrowing
availability is subject to a potential reduction on January 1, 1998 to an amount
which will be agreed to by both Carsen and the lender and borrowings must be
paid in full no later than December 31, 1998. Borrowings outstanding at July 31,
1996 and 1995 are in Canadian dollars and bear interest at .75% above the
lender's Canadian prime rate. The lender's Canadian prime rate was 6.25% at July
31, 1996. A commitment fee on the unused portion of this facility is payable in
arrears at a rate of .25% per annum, with interest on borrowings payable
monthly. There were $3,419,000 of borrowings outstanding under this facility at
July 31, 1996.
Pursuant to the terms of the MediVators revolving credit facility, borrowings
must be paid in full no later than December 3, 1998. Borrowings bear interest at
1.5% above the lender's United States prime rate. The lender's prime rate was
8.25% at July 31, 1996. A commitment fee on the unused portion of this facility
is payable in arrears at a rate of .5% per annum, with interest on borrowings
payable monthly. There were no borrowings outstanding under this facility at
July 31, 1996.
14
<PAGE>
Each of the credit facilities provide for restrictions on available borrowings
based primarily upon percentages of eligible accounts receivable and
inventories; require the subsidiary to meet certain financial covenants; are
secured by substantially all assets of the subsidiary; and are guaranteed by
Cantel.
7. Income Taxes
During fiscal 1994, Carsen received notice of reassessment for federal and
provincial income taxes and withholding taxes from Revenue Canada for the
taxable years 1990 through 1992. This notice was based upon the disallowance as
a deduction for income tax purposes and treatment as a taxable dividend, of all
of the payments made to Cantel by Carsen during this period with respect to a
purchasing fee charged by Cantel for negotiating certain distribution agreements
on behalf of Carsen.
The Company recorded a charge of $413,000 in its income tax provision for fiscal
1993, which represented management's estimated cost to settle this matter as
well as related provincial income taxes for the period. In addition, the Company
provided interest charges of approximately $34,000 and $120,000 in fiscal 1994
and 1993, respectively, which represented interest on the federal and provincial
income taxes and withholding taxes. Such provisions approximated the full amount
of the reassessment for the federal and provincial income and withholding taxes
and the related interest thereon. The federal and provincial income taxes and
the withholding taxes and related interest thereon were paid under protest
during fiscal 1995. During fiscal 1996, the Company negotiated a settlement with
Revenue Canada which resulted in the recovery of federal and provincial income
taxes and withholding taxes of approximately $182,000 and interest of
approximately $103,000. Of these amounts, approximately $218,000 has been
received to date.
Deferred income taxes recorded in the consolidated balance sheets at July 31,
1996 and 1995 include deferred tax assets related to net operating loss
carryforwards ("NOLs") of $5,232,000 and $5,062,000 respectively, which have
been fully offset by valuation allowances, and deferred tax liabilities related
to the use of accelerated methods of depreciation for income tax purposes of
$97,000 and $91,000, respectively. The valuation allowances have been
established equal to the full amount of the deferred tax assets, as the Company
was not assured at July 31, 1996 and 1995, that it was more likely than not that
a benefit will be realized.
For financial statement and domestic tax reporting purposes, the Company has
NOLs of approximately $15,389,000 at July 31, 1996, which expire
15
<PAGE>
through July 31, 2011. Of this amount, approximately $4,300,000 represents NOLs
accumulated by MediVators prior to the Merger, which may only be used against
the future earnings of MediVators and are subject to annual limitations due to
the ownership change. The net operating loss carryforwards presented are based
upon the tax returns as filed and are subject to examination by the Internal
Revenue Service.
The provision for income taxes consists of the following:
Year Ended July 31,
1996 1995 1994
--------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
--------------------------------------------------------------
United
States $ 27,000 $ - $ 14,000 $ - $ 2,000 $ -
Canada 502,000 7,000 961,000 26,000 1,042,000 10,000
---------------------------------------------------------------
Total $529,000 $ 7,000 $ 975,000 $26,000 $1,044,000 $10,000
===============================================================
The components of income (loss) from continuing operations before income taxes
are as follows:
Year Ended July 31,
1996 1995 1994
---------------------------------------
United States $ (525,000) $ (2,072,000) $ (1,359,000)
Canada 1,483,000 2,280,000 2,352,000
---------------------------------------
Total $ 958,000 $ 208,000 $ 993,000
=======================================
The effective rate on continuing operations differs from the United States
statutory rate (34%) due to the following:
Year Ended July 31,
1996 1995 1994
-----------------------------------
Expected statutory tax expense $ 326,000 $ 71,000 $ 338,000
Canadian dividend withholding taxes 22,000 12,000 -
Canadian tax settlement (182,000) - -
Differential attributable to
Canadian operations 187,000 212,000 252,000
Benefit not recognized on domestic
operating losses 178,000 704,000 462,000
State and local taxes 5,000 2,000 2,000
-----------------------------------
Total $ 536,000 $1,001,000 $1,054,000
===================================
16
<PAGE>
8. Commitments and Contingencies
Distribution Agreements
Olympus Agreement
The majority of Carsen's sales of medical, scientific and consumer products have
been made pursuant to an agreement with Olympus America, Inc. ("Olympus") under
which Olympus has granted Carsen the exclusive right to distribute the covered
Olympus products in Canada. All products sold by Carsen pursuant to the
agreement bear the "Olympus" trademark. The Olympus Agreement expires on March
31, 1998.
During the term of the Olympus Agreement, Carsen has agreed that it will not
manufacture, distribute, sell or represent for sale in Canada any products which
are competitive with the Olympus products covered by the Olympus Agreement.
The Olympus Agreement imposes minimum purchase obligations on Carsen with
respect to each of medical equipment, precision instruments, industrial
technology equipment and consumer products. The aggregate annual minimum
purchase obligations for all such products are approximately $17.2 million and
$18.5 million during the contract years ending March 31, 1997 and 1998,
respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the right to terminate the
Olympus Agreement with respect to each product group for which Carsen has failed
to meet the minimum purchase requirements. If Carsen fails to meet such
requirements for both precision instruments and industrial technology equipment,
or for medical equipment, then Olympus has the right to terminate the entire
Olympus Agreement. Olympus may also terminate the Olympus Agreement if Carsen
breaches its other obligations under the Olympus Agreement, or if Carsen fails
to meet any Olympus credit requirement for sale on open account and does not
provide Olympus with a letter of credit to secure Carsen's payment obligations
after demand by Olympus. Carsen has delivered to Olympus a letter of credit to
secure payment of Carsen's first $500,000 of monthly purchases.
MediVators Agreement
MediVators entered into a three year agreement with Olympus effective May 1,
1996, under which Olympus was granted the exclusive right to distribute the
endoscope disinfection equipment and related accessories in the United States,
Central and South America, The Caribbean, and the West Indies (excluding
Bermuda). All products sold by Olympus pursuant to this agreement will bear both
the "Olympus" and "MediVators" trademarks.
17
<PAGE>
This agreement imposes minimum purchase obligations on Olympus. Failure to
achieve the minimum purchase requirement in any year would give MediVators the
right to terminate the agreement.
Revenue on sales to Olympus is recognized on a bill and hold basis based upon
the receipt of a written purchase order from Olympus, the completion date
specified in the order, the actual completion of the manufacturing process and
the invoicing of goods. At July 31, 1996, accounts receivable included bill and
hold receivables of approximately $566,000.
License Agreement
MediVators is a party to an exclusive worldwide license agreement with the Mayo
Foundation for Medical Education and Research (the "Mayo Foundation") which
grants MediVators a license to manufacture and sell certain related patented
equipment known as the OTT Disinfector for flexible endoscopes ("OTT
Disinfector") and to use certain related proprietary know-how of the Mayo
Foundation (the "License Agreement"). Under the License Agreement, the Mayo
Foundation owns all patent rights and know-how with respect to the OTT
Disinfector. The License Agreement expires December 31, 2005. Under the License
Agreement, MediVators must pay a royalty equal to five percent (5%) of the net
revenues received by MediVators from sales of the OTT Disinfector and
enhancements or improvements to the OTT Disinfector. Although MediVators no
longer sells the OTT Disinfector, it pays the Mayo Foundation a royalty on
revenue from sales of a successor line of disinfector product developed by
MediVators known as the DSD-91. This product does not utilize the patented
technology of the OTT Disinfector but did evolve from certain licensed know-how
related thereto. The Mayo Foundation has the right to terminate the License
Agreement if MediVators fails to pay minimum royalties of $75,000 per year.
Foreign Exchange Contracts
The Company's Canadian subsidiary enters into foreign exchange forward contracts
to purchase United States dollars to hedge against currency fluctuations
affecting purchases of inventory. Total commitments for such forward contracts
amounted to approximately $4,137,000 at July 31, 1996, and cover projected
purchases of inventory through September 30, 1996. The fair value of such
contracts at July 31, 1996, based upon current market quotes for contracts with
similar terms, approximated the carrying value of such contracts.
18
<PAGE>
Lease Obligations
Aggregate future minimum rental commitments at July 31, l996 under operating
leases for warehouse and office space are as follows:
Year Ended July 31,
1997 $ 288,000
1998 279,000
1999 279,000
2000 279,000
2001 160,000
Thereafter 27,000
---------
Total rental commitments $ 1,312,000
=========
Rent expense aggregated $283,000, $316,000 and $293,000 for fiscal 1996, 1995
and 1994, respectively. Of these amounts, approximately $106,000 in each year
was paid to a director and former officer of MediVators who was previously the
landlord of MediVators' manufacturing, warehouse and office facility.
Environmental Litigation
In November 1995, the Company was one of 102 named defendants in the lawsuit
titled "Caldwell Trucking PRP Group v. ADT Automotive, Inc., including Cantel
Industries, Inc." brought by nine companies which settled a Comprehensive
Environmental Response Compensation and Liability Act claim by the United States
Government and the State of New Jersey for contribution to the remediation costs
of an alleged hazardous waste site in New Jersey. The complaint, which related
to alleged septic and/or industrial waste disposed of prior to 1984, seeks total
past and future remediation costs from the 102 named defendants and prior
settling companies, originally estimated at approximately $30 million (but
subsequently estimated by plaintiff's group to be approximately $42 million, of
which they claim to have already expended $10 million), but does not allege any
specific offense against the Company at this time. Management of the Company
believes that Cantel was not engaged in the production, transportation or
dumping of industrial waste at any time. Although the Company can make no
estimate of what its share, if any, of this total potential exposure could be,
based on its current knowledge and available information, management believes
that the claim will not have a material adverse effect on the Company or its
liquidity, financial condition or operating results. Furthermore, the Company
believes that it has defenses to the suit and that it may have insurance
covering such claims in whole or in part, and intends to vigorously defend
itself in this litigation.
19
<PAGE>
9. Stockholders' Equity
On October 29, 1993, the Company redeemed all 1,000 issued and outstanding
shares of the Series A Preferred Stock which had previously been issued to the
Company's lending banks in connection with the 1991 debt restructuring,
including any rights the banks may have had to receive warrants and/or dividends
thereunder, for a cash payment of $200,000, the assignment of the $150,000 note
of the purchaser of the Seating Division, which was paid in October 1994, and
the assignment of 50% of the contingent payment of up to $150,000 which could
become due on the 90th day following the end of the calendar year 1996,
dependent upon the operating results of the Seating Division. The banks also
received 133,950 shares of the Company's Common Stock.
During the year ended July 31, 1994, the equivalent of 246,392 shares of Common
Stock were issued by MediVators in connection with two private placements of its
stock.
At July 31, 1996 and 1995, respectively, there was an aggregate of 352,469
warrants outstanding to purchase shares of Common Stock at prices ranging from
$1.50 to $19.45 per share.
The Company's 1991 Employee Stock Option Plan provides for the granting of
options to employees to purchase up to 250,000 shares of the Company's Common
Stock through January 2, 2001. Options under this plan are granted at no less
than 100% of the market price at the time of the grant, and become exercisable
in four equal annual installments and expire up to a maximum of ten years from
the date of the grant. At July 31, 1996, 105,625 shares were available for grant
under this plan.
The Company's 1991 Directors' Stock Option Plan provides for the granting of
options to directors to purchase up to 200,000 shares of its Common Stock.
Options under this plan may be granted to directors only. Under the plan,
options to purchase 1,000 shares are granted annually on the last business day
of the Company's fiscal year to each member of the Company's Board of Directors.
The annual options are exercisable, as to 50% of the number of shares, on the
first anniversary of the grant of such options and are exercisable for the
balance of such shares on the second anniversary of the grant of such options.
On a quarterly basis, options to purchase 500 shares are granted to each member
of the Company's Board, except for employees of the Company, in attendance at
that quarter's Board of Directors meeting. The quarterly options are exercisable
immediately.
20
<PAGE>
The exercise price of each option is the fair market value on the date the
option is granted. At July 31, 1996, 40,000 shares were available for grant
under this plan.
The Company also has outstanding non-plan options which have been granted at the
market price at the time of grant, are fully exercisable and expire up to a
maximum of ten years from the date of grant, and options granted by MediVators
prior to the Merger under the MediVators 1991 Stock Option Plan which became
fully exercisable as the result of the Merger. No future options will be granted
under the MediVators Stock Option Plan.
A summary of stock option activity follows:
Year ended July 31,
1996 1995 1994
-----------------------------------
Outstanding at beginning of year 612,717 550,165 588,200
Granted 96,000 119,309 60,000
Canceled (11,500) (16,757) (51,785)
Exercised (124,533) (40,000) (46,250)
-----------------------------------
Outstanding at end of year 572,684 612,717 550,165
==================================
Exercisable at end of year 467,934 537,342 496,915
==================================
Average price of options outstanding $4.53 $4.12 $3.81
==================================
10. Profit Sharing Plan
Carsen has a profit-sharing plan for the benefit of eligible employees.
Contributions by Carsen are discretionary and aggregate contributions are
limited in any year to the amount allowable as a deduction in computing taxable
income.
Contributions under the Carsen plan were $26,000, $53,000 and $40,000 for fiscal
1996, 1995 and 1994, respectively.
11. Supplemental Income Statement and Cash Flow Information
Advertising costs charged to expenses were $295,000, $380,000 and $443,000 for
fiscal 1996, 1995 and 1994, respectively.
Interest paid was $362,000, $488,000 and $434,000 for fiscal 1996, 1995 and
1994, respectively.
Federal, state and foreign income tax payments were $784,000, $949,000 and
$835,000 for fiscal 1996, 1995 and 1994 respectively.
21
<PAGE>
12. Information as to Operations in Different Industries and Foreign and
Domestic Operations
The Company is engaged in the marketing, distribution and service of medical and
infection control, scientific and consumer products in Canada, and the
manufacturing, marketing, distribution and service of medical and infection
control products in the United States.
The medical and infection control and scientific products distributed by the
Company consist of medical equipment, including flexible and rigid endoscopes,
endoscope disinfection equipment, medical sharps disposal systems, surgical
equipment and related accessories that are sold to hospitals; precision
instruments, including microscopes and related accessories that are sold to
educational institutions, hospitals and government and industrial laboratories;
and industrial technology equipment, including borescopes, fiberscopes, video
image scopes and laser distance measurement products that are sold primarily to
large industrial companies.
The consumer products distributed by the Company consist of photographic and
optical equipment, including cameras, binoculars, slide projectors and screens,
light meters, camera luggage, and other photographic products and accessories.
The Company also distributes hand-held dictation equipment, paper shredders and
other business products. The consumer products are distributed mostly to
independent retailers, cooperative buying groups, large retail store chains, and
major department stores.
22
<PAGE>
(a) Information as to continuing operations in different industries is
summarized below:
Year Ended July 31,
1996 1995 1994
---------------------------------------
Net sales from continuing
operations:
Medical and infection control
and scientific products:
Medical and infection
control products $16,221,000 $18,213,000 $15,845,000
Scientific products 5,693,000 5,756,000 5,041,000
Product service 3,718,000 4,030,000 4,059,000
Consumer products 4,160,000 6,126,000 7,259,000
---------------------------------------
Total $29,792,000 $34,125,000 $32,204,000
=======================================
Operating income (loss) from
continuing operations:
Medical and infection control
and scientific products:
Medical and infection
control products $ 2,101,000 $ 949,000 $ 1,147,000
Scientific products (148,000) (28,000) 18,000
Product service 1,102,000 1,247,000 1,210,000
Consumer products (560,000) (662,000) (309,000)
---------------------------------------
2,495,000 1,506,000 2,066,000
General corporate expenses (793,000) (806,000) (790,000)
Costs associated with the
Merger (486,000) - -
Interest expense (258,000) (492,000) (283,000)
---------------------------------------
Income from continuing
operations before income
taxes and extraordinary
gain $ 958,000 $ 208,000 $ 993,000
=======================================
23
<PAGE>
Year Ended July 31,
1996 1995 1994
---------------------------------------
Identifiable assets:
Medical and infection control
and scientific products:
Medical and infection
control products $ 7,992,000 $10,368,000 $ 8,494,000
Scientific products 3,798,000 4,285,000 3,688,000
Product service 1,176,000 1,500,000 1,564,000
Consumer products 2,129,000 2,664,000 2,722,000
General corporate 903,000 1,006,000 1,944,000
---------------------------------------
Total $15,998,000 $19,823,000 $18,412,000
=======================================
Capital expenditures:
Medical and infection control
and scientific products:
Medical and infection
control products $ 36,000 $ 181,000 $ 86,000
Scientific products 7,000 3,000 18,000
Product service 5,000 10,000 7,000
Consumer products 5,000 14,000 12,000
General corporate 7,000 6,000 10,000
---------------------------------------
Total from continuing operations 60,000 214,000 133,000
Discontinued operations - - 4,000
---------------------------------------
Total $ 60,000 $ 214,000 $ 137,000
=======================================
Depreciation and amortization:
Medical and infection control
and scientific products:
Medical and infection
control products $ 175,000 $ 392,000 $ 298,000
Scientific products 143,000 134,000 116,000
Product service 21,000 17,000 17,000
Consumer products 23,000 26,000 29,000
General corporate 5,000 4,000 4,000
---------------------------------------
Total from continuing operations 367,000 573,000 464,000
Discontinued operations - - 13,000
---------------------------------------
Total $ 367,000 $ 573,000 $ 477,000
=======================================
24
<PAGE>
(b) Information as to geographic areas is summarized below:
Year Ended July 31,
1996 1995 1994
---------------------------------------
Net sales from continuing
operations:
United States $ 4,646,000 $ 3,098,000 $ 2,855,000
Canada 25,146,000 31,027,000 29,349,000
---------------------------------------
Total $29,792,000 $34,125,000 $32,204,000
=======================================
Operating income (loss) from
continuing operations:
United States $ 148,000 $ (1,725,000) $(1,293,000)
Canada 2,347,000 3,231,000 3,359,000
---------------------------------------
Total $ 2,495,000 $ 1,506,000 $ 2,066,000
=======================================
Total assets:
United States $ 3,180,000 $ 2,602,000 $ 4,646,000
Canada 12,818,000 17,221,000 13,766,000
---------------------------------------
Total $15,998,000 $19,823,000 $18,412,000
=======================================
25
<PAGE>
CANTEL INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------
Balance at Balance
Beginning at End
of Period Additions Deductions of Period
---------------------------------------------------
Allowance for
doubtful accounts:
Year ended
July 31, 1996 $138,000 $ 34,000 $ 40,000 $132,000
==================================================
Year ended
July 31, 1995 $152,000 $105,000 $119,000 $138,000
==================================================
Year ended
July 31, 1994 $ 61,000 $119,000 $ 28,000 $152,000
==================================================
EXHIBIT 10(q)
STOCK OPTION AGREEMENT made as of the 15th day of March, 1996, by and
between CANTEL INDUSTRIES, INC., a Delaware corporation with principal offices
located at 1135 Broad Street, Clifton, New Jersey 07013 (the "Company"), and
DONALD L. STURTEVANT (the "Optionee").
___________________
The Company has adopted the 1991 Employee Stock Option Plan, as amended
(the "Plan"), permitting the grant of incentive stock options (within the
meaning of Section 422A of the Internal Revenue Code) to employees of the
Company or its subsidiaries or any parent corporation of the Company. The
Optionee, pursuant to the Plan, is presently employed by the Company or one of
its subsidiaries. The Company is desirous of increasing the incentive of the
Optionee to exert his utmost efforts to improve the business and increase the
assets of the Company.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Company,
pursuant to the Plan, hereby grants the Optionee the option to acquire shares of
the common stock of the Company upon the following terms and conditions:
1. GRANT OF OPTION. (a) The Company hereby grants to the Optionee the
right and option (the "Option")
<PAGE>
to purchase up to 25,000 shares of Common Stock, par value $.10 per share, of
the Company (the "Shares"), to be issued upon the exercise hereof, fully paid
and non-assessable, during the following periods:
(i) No Shares may be purchased hereunder prior to March 15, 1997;
(ii) 8,334 Shares may be purchased commencing March 15, 1997;
(iii) an additional 8,333 Shares may be purchased commencing March
15, 1998: and
(iv) an additional 8,333 Shares may be purchased commencing March
15, 1999.
(b) The Option granted hereby shall expire and terminate at 5:00
p.m. local time in New York, New York on March 14, 2000 (the "Expiration Date")
at which time the Optionee shall have no further right to purchase any Shares
not then purchased.
2. EXERCISE PRICE. The exercise price of the Option shall be $8.75 per
Share, and shall be payable in cash or by certified check; provided, however,
that in lieu of payment in full in cash or by such check, the exercise price (or
balance thereof) may be paid in full or in part by the delivery and transfer to
the
-2-
<PAGE>
Company of Shares already owned by the Optionee and having a fair market value
(as determined by the Board of Directors in its absolute discretion) equal to
the cash exercise price (or balance thereof) for the number of Shares as to
which the Option is being exercised. The Company shall pay all original issue or
transfer taxes on the exercise of the Option.
3. EXERCISE OF OPTION. The Optionee shall notify the Company by registered
or certified mail, return receipt requested, addressed to its principal office,
as to the number of Shares which he desires to purchase under the Option, which
notice shall be accompanied by payment of the Option exercise price therefor as
specified in Paragraph 2 above. As soon as practicable after the receipt of such
notice, the Company shall, at its principal office or another mutually
convenient location, tender to the Optionee certificates issued in the
Optionee's name evidencing the Shares purchased by the Optionee hereunder.
4. CONDITIONS OF EXERCISE.
(a) The Optionee shall have the right to exercise the Option only
while he shall be in the full-time employ of the Company or any of its
subsidiaries, except that if the Optionee's employment shall be terminated for
any reason other than his death, the Option may be exercised at any time within
three (3) months after the date of termination but only to the extent that it
was exercisable upon such date of termination and in no event after the
Expiration Date.
-3-
<PAGE>
If the Optionee shall have terminated his employment within one year of the date
of the grant of the Option, the Option shall immediately terminate.
(b) If the Optionee shall die while in the employ of the Company or
any of its subsidiaries, this Option may be exercised, to the extent exercisable
on the date of the Optionee's death, by his executor, administrator or other
person at the time entitled by law to his rights under this Option, at any time
within three (3) months after such date of death, but in no event after the
Expiration Date.
(c) Notwithstanding anything to the contrary contained herein, the
aggregate fair market value, determined at the time of option grant, of the
Shares with respect to which the Option, together with any other "incentive
stock option" within the meaning of Section 422A of the Internal Revenue Code
("ISO"), granted to the Optionee by the Company or any of its subsidiaries, may
be first exercised in any calendar year, cannot exceed $100,000 plus any "unused
carryover" from previous years. For purposes of this Agreement, "unused
carryover" means the amount, computed separately for each calendar year, by
which $100,000 exceeds the fair market value (determined at the time of grant)
of all ISO's granted to the Optionee by the Company and its subsidiaries that
first became exercisable and were in fact exercised by the Optionee in such
year, reduced by the amount that such carryover may have been used in prior
calendar years.
-4-
<PAGE>
5. NON-ASSIGNABILITY OF OPTION. The Optionee may not give, grant, sell,
exchange, transfer legal title, pledge, assign or otherwise encumber or dispose
of the Option herein granted or any interest therein, otherwise than by will or
the laws of descent and distribution and, except as provided in Paragraph 4(b)
hereof, the Option shall be exercisable only by the Optionee.
6. THE SHARES AS INVESTMENT. By accepting the Option, the Optionee agrees
for himself, his heirs and legatees that any and all Shares purchased upon the
exercise thereof shall be acquired for investment and not for distribution, and
upon the issuance of any or all of the Shares subject to the Option, the
Optionee, or his heirs or legatees receiving such Shares, shall deliver to the
Company a representation in writing that such Shares are being acquired in good
faith for investment and not for distribution. The Company may place a "stop
transfer" order with respect to such Shares with its transfer agent and may
place an appropriate restrictive legend on the certificate(s) evidencing such
Shares.
7. RESTRICTION ON ISSUANCE OF SHARES. The Optionee shall, if so requested
by the Company, represent and agree, in writing and in such form as the Company
shall determine, that any securities purchased by the Optionee upon the exercise
of this Option are being purchased for investment and not with a view to the
distribution thereof, and shall make such other or additional representations
and agreements and furnish such information as the
-5-
<PAGE>
Company may in its reasonable discretion deem necessary or desirable to assure
compliance by the Company, on terms acceptable to the Company, with provisions
of the Securities Act of 1933 and any other applicable legal requirements. If at
any time the Company shall reasonably determine that the listing, registration
or qualification of the Shares subject to this Option upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, are necessary or desirable in connection with the
issuance or purchase of the Shares subject thereto, this Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company. The Optionee shall have no rights against the
Company if this Option is not exerciseable by virtue of the foregoing provision.
The certificate representing any securities issued pursuant to the exercise of
this Option may, at the discretion of the Company, bear a legend in
substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933. The securities have
been acquired for investment and may not pledge or hypothecated and
may not be sold or transferred in the absence of an effective
Registration Statement for the securities under the Securities Act
of 1933 or an opinion of counsel to the Company that registration is
not required under said Act. In the event that a Registration
Statement becomes effective covering the
-6-
<PAGE>
securities or counsel to the Company delivers a written opinion that
registration is not required under said Act, this certificate may be
exchanged for a certificate free from this legend."
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Shares by reason of
stock dividends, split-ups, recapitalizations, mergers, consolidations,
combination, exchanges of shares, separations, reorganizations, liquidations and
the like, the number of Shares issuable upon the exercise of the Option and the
exercise price thereof shall be correspondingly adjusted by the Company. No
adjustment shall be made, however, with respect to stock dividends or splits
which do not exceed 5% in any fiscal year, cash dividends or the issuance to the
Company's shareholders of rights to subscribe for additional Shares or other
securities.
(b) Any adjustment in the number of Shares shall apply
proportionately to only the then unexercised portion of the Option. If
fractional Shares would result from any such adjustment, the adjustment shall be
revised to the next higher whole number.
9. NO RIGHTS AS SHAREHOLDERS. The Optionee shall have no rights as a
shareholder in respect of the Shares as to which the Option shall not have been
exercised and payment made as herein provided.
10. EFFECT UPON EMPLOYMENT. This Agreement does not give nor shall it be
construed as giving the Optionee any right to continued employment by the
Company or any of its subsidiaries.
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<PAGE>
11. CONFLICT BETWEEN OPTION AGREEMENT AND PLAN. In the event there are any
conflicts between this Agreement and the terms and conditions of the Plan, the
terms and conditions of the Plan shall control.
12. BINDING EFFECT. Except as herein otherwise expressly provided, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, their legal representatives and assigns.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey applicable to agreements
made and to be performed wholly within the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CANTEL INDUSTRIES, INC.
By: /s/ James P. Reilly
--------------------------
James P. Reilly, President
/s/ Donald L. Sturtevant
--------------------------
Donald L. Sturtevant
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EXHIBIT 10(r)
EMPLOYMENT AGREEMENT
AGREEMENT dated this 15th day of March, 1996, by and between
MediVators, Inc., a Minnesota corporation (the "Company"), and Donald L.
Sturtevant (the "Employee").
R E C I T A L :
A. Employee currently serves as President and Chief Executive
Officer of the Company pursuant to an Employment Agreement dated as of June 15,
1991 (the "1991 Agreement"). Said Employment Agreement terminates in accordance
with its terms on June 30, 1996.
B. Simultaneously with the execution of this Agreement, the Company
and Cantel Acquisition Corp. ("Newco") are executing and filing with the
Secretary of State of the State of Minnesota, Articles of Merger pursuant to
which Newco, a wholly-owned subsidiary of Cantel Industries, Inc. ("Cantel"),
will merge with and into the Company (the "Merger"). Upon consummation of the
Merger, the Company will become a wholly-owned subsidiary of Cantel.
C. The Company is desirous of continuing the employment of Employee
and Employee is desirous of continuing his employment by the Company after June
30, 1996 on the terms and conditions hereinafter set forth.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is hereby agreed by and between the Company and Employee as
follows:
1. Engagement and Term. The Company hereby employs Employee and
Employee hereby accepts such employment by the Company on the terms and
conditions set forth herein, for the three-year period commencing on July 1,
1996 (the "Effective Date") and ending, unless sooner terminated in accordance
with the provisions of Section 4 hereof, on June 30, 1999 (the "Employment
Period"). As used in this Agreement, the term "Contract Year" shall refer to the
twelve-month period commencing on the Effective Date and each twelve-month
period thereafter during the term of this Agreement.
2. Scope of Duties. Employee shall be employed by the Company as its
President and Chief Executive Officer. In such capacities, the Employee shall
have such authority, powers and duties customarily attendant upon such offices.
If elected or appointed, Employee shall also serve, without additional
compensation, in one or more offices and, if and when elected, as a director of
the Company or any subsidiary or affiliate of the Company, provided that his
duties and responsibilities are not inconsistent with those pertaining to his
position as stated above. Employee agrees to perform the duties associated with
his employment to the best of his abilities, and shall faithfully devote his
full business time and efforts so as to advance the best interests of the
Company. During the Employment Period,
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<PAGE>
Employee shall not be engaged in any other business activity, whether or not
such business activity is pursued for profit or other pecuniary advantage.
Notwithstanding the foregoing, Employee shall be permitted to serve as a
director of any other company, provided Employee shall first obtain the prior
written consent of the Company, which shall not be unreasonably withheld, and
provided further that any such service does not interfere with the performance
by Employee of his duties hereunder and is in no way, directly or indirectly,
competitive with, or opposed to the best interests of the Company.
3. Compensation.
3.1 Basic Compensation. In respect of services to be performed
by the Employee during the Employment Period, the Company agrees to pay the
Employee an annual base salary of $96,000 during the first Contract Year,
$103,000 during the second Contract Year, and $110,000 during the third Contract
Year ("Basic Compensation"), payable in accordance with the Company's customary
payroll practices for executive employees.
3.2 Discretionary Increases. The Employee shall also be
entitled to such additional increments and bonuses, if any, as shall be
determined from time to time by the Compensation Committee of the Board of
Directors of Cantel, based upon the performance of Employee and the Company.
3.3 Stock Options. The Company agrees to cause the grant to
Employee as of the date hereof of an option (the "Option") to purchase
Twenty-five Thousand (25,000) shares of
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<PAGE>
Common Stock, par value $.10 per share of Cantel. The Option will be granted
under Cantel's 1991 Employee Stock Option Plan (the "Plan") pursuant to a
separate option agreement in the form annexed hereto as Exhibit A. The Option
shall have an option exercise price per share equal to the fair market value of
Cantel's Common Stock on the date hereof determined in accordance with the Plan.
3.4 Life Insurance. Provided that Employee is insurable at
rates that are comparable to those obtainable on other persons of similar age
and position in good health (if Employee is classified in a higher risk category
he may elect to pay the excess premium cost to obtain the coverage), during the
Employment Term the Company shall procure and maintain life insurance on the
life of Employee in the face amount of $250,000. Employee shall be the owner of
such life insurance policy and shall have the absolute right to designate the
beneficiaries thereunder. The type of policy (whether term, whole life, etc., or
combination of types) shall be in the sole discretion of the Company. The
Company shall pay all premiums for such life insurance. Employee agrees to
submit to all medical examinations, supply all information and execute all
documents required by insurance companies in connection with the issuance of
such policy.
3.5 Use of Automobile. During the Employment Term, Employee
shall at all times have the use of a Company-owned or leased automobile of style
and type selected by the Company,
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<PAGE>
but comparable to the automobile currently being furnished by the Company to
Employee. At the end of the Employment Term, Employee shall have the right to
purchase the automobile from the Company at its then book value, or, if the
automobile is being leased, in accordance with the terms of the lease.
3.6 Other Benefits.
(a) During the Employment Period, Employee shall be entitled
to participate in the major medical health insurance plan, and all other health,
insurance or other benefit plans applicable generally to executive officers of
the Company on the same basis as such officers.
(b) During the Employment Period, Employee will be entitled to
paid vacations and holidays consistent with the Company's policy applicable to
executives generally. All vacations shall be scheduled at the mutual convenience
of the Company and the Employee.
4. Term of Employment. The provisions of Section 1 of this Agreement
notwithstanding, the Company may terminate this Agreement and Employee's
employment hereunder in the manner and for the causes hereinafter set forth, in
which event the Company shall be under no further obligation to Employee other
than as specifically provided herein:
A. If Employee is absent from work or otherwise substantially
unable to assume his normal duties for a period of sixty (60) successive days or
an aggregate of ninety (90) business days during any consecutive twelve-month
period during
- 5 -
<PAGE>
the Employment Period because of physical or mental disability, accident,
illness, or any other cause other than vacation or approved leave of absence,
the Company may thereupon, or any time thereafter while such absence or
disability still exists, terminate the employment of Employee hereunder upon ten
(10) days' written notice to Employee.
B. In the event of the death of Employee, this Agreement shall
immediately terminate on the date thereof.
C. If Employee materially breaches or violates any material
term of his employment hereunder, or commits any criminal act or an act of
dishonesty or moral turpitude, in the reasonable judgment of the Company's Board
of Directors, then the Company may, in addition to other rights and remedies
available at law or equity, immediately terminate this Agreement upon written
notice to Employee with the date of such notice being the termination date and
such termination being deemed for "cause."
D. In the event Employee's employment shall be terminated by
reason of the provisions of subparagraph A or B of this Section 4, then in such
event, the Company shall continue to pay to Employee, if living, or other person
or persons as Employee may from time to time designate in writing as the
beneficiary of such payments, the Basic Compensation in effect at the time which
such death or disability occurred during the three-month period following such
death or disability.
5. Disclosure of Confidential Information, Assignment of Inventions,
and Covenant Not to Compete.
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<PAGE>
5.1 Confidential Information. Employee acknowledges that the
Company possesses confidential information, know-how, customer lists,
purchasing, merchandising and selling techniques and strategies, and other
information used in its operations of which Employee will obtain knowledge, and
that the Company will suffer serious and irreparable damage and harm if this
confidential information were disclosed to any other party or if Employee used
this information to compete against the Company. Accordingly, Employee hereby
agrees that except as required by Employee's duties to the Company, Employee
without the consent of the Company's Board of Directors, shall not at any time
during or after the Employment Period disclose or use any secret or confidential
information of the Company, including, without limitation, such business
opportunities, customer lists, trade secrets, formulas, techniques and methods
of which Employee shall become informed during his employment, whether learned
by him as an employee of the Company, as a member of its Board of Directors or
otherwise, and whether or not developed by Employee, unless such information
shall be or become public knowledge other than as a result of the Employee's
direct or indirect disclosure of the same.
5.2 Patent and Related Matters.
5.2.1 Employee will promptly disclose in writing to the
Company complete information concerning each and every invention, discovery,
improvement, idea, device, design, apparatus, practice, process, method or
product, whether
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<PAGE>
patentable or not, and including those which may be subject to copyright
protection, made, developed, perfected, devised, conceived or first reduced to
practice by Employee, either solely or in collaboration with others, during the
term of his employment, whether or not during regular working hours (hereinafter
collectively referred to as the "Inventions"). Employee, to the extent that he
has the legal right to do so, hereby acknowledges that any and all of the
Inventions are property of the Company and hereby assigns and agrees to assign
to the Company any and all of Employee's right, title and interest in and to any
and all of the Inventions.
5.2.2 Limitation. It is further agreed and Employee is hereby
notified that the above agreement to assign the Inventions to the Company does
not apply to an Invention for which no equipment, supplies, facility or
confidential information of the Company was used and which was developed
entirely on Employee's own time, and
(i) which does not relate (aa) directly to the business
of the Company or (bb) to the Company's actual or demonstrably anticipated
research and development, or
(ii) which does not result from any work performed by
Employee for the Company.
5.2.3 Assistance. Upon request and without further
compensation therefor, but at no expense to Employee, and whether during the
Employment Period or thereafter, the Employee will do all lawful acts,
including, but not limited to, the
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<PAGE>
execution of documents and instruments and the giving of testimony, that in the
opinion of the Company, its successors and assigns, may be necessary or
desirable in obtaining, sustaining, reissuing, extending or enforcing United
States and foreign copyrights and Letters Patent, including, but not limited to,
design patents, on any and all of the Inventions, and for perfecting, affirming
and recording the Company's complete ownership and title thereto, and to
cooperate otherwise in all proceedings and matters relating thereto.
5.2.4 Records. Employee will keep complete, accurate and
authentic accounts, notes, data and records of all the Inventions in the manner
and form requested by the Company. Such accounts, notes, data and records shall
be the property of the Company, and upon its request, Employee will promptly
surrender the same to it.
Upon the termination of the Employment Period, Employee agrees to
deliver promptly to the Company all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables,
accounts, calculations and copies thereof, which are the property of the Company
or which relate in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and confidential information
of the Company, including, but not limited to, all documents which in whole or
in part contain any trade secrets or confidential information of the Company,
which
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<PAGE>
in any of these cases are in his possession or under his control.
5.3 Non-Compete. Employee agrees that for a period of one year
following the termination of Employee's employment hereunder (the
"Non-Competition Period"), except as a result of the breach by the Company of
any material term or condition hereof, Employee will not, directly or
indirectly, alone or with others, individually or through or by a corporate or
other business entity in which he may be interested as a partner, shareholder,
joint venturer, officer, director, employee or otherwise, own, manage, control,
participate in, lend his name to, or render services to or for any business
within the continental United States which is competitive with that of the
Company or any of its affiliates, provided, however, that the foregoing shall
not be deemed to prevent the ownership by Employee of up to five percent of any
class of securities of any corporation which is regularly traded on any stock
exchange or over-the-counter market. For the purpose of this Agreement, a
business activity competitive with the business of the Company or any of its
affiliates shall include only the design, manufacture, marketing, sale, or
distribution of (i) endoscopes or endoscope disinfection equipment or (ii)
medical waste disposal systems or (iii) infection control equipment or supplies.
5.4 Non-interference. Employee further agrees that during the
Non-Competition Period he will not (i) induce or attempt to induce any other
employee of the Company or any of its
- 10 -
<PAGE>
affiliates to leave the employ of the Company or affiliate, or in any way
interfere with the relationship between the Company (or any of its affiliates)
and any other employee, or (ii) induce or attempt to induce any customer,
supplier, franchisee, licensee, distributor or other business relation of the
Company or any of its affiliates to cease doing business with the Company or
affiliate, or in any way interfere with the relationship between any customer,
franchisee or other business relation and the Company and any of its affiliates
without prior written consent of the Board of Directors of the Company (or
affiliate).
5.5 Enforcement. If, at the time of enforcement of any
provisions of this section, a court of competent jurisdiction holds that the
restrictions stated herein are unreasonable under the circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances will be substituted for
the stated period, scope or area. Employee agrees that the covenants made in
this Section shall be construed as an agreement independent of any other
provision of this Agreement, and shall survive the termination of this
Agreement.
6. Reimbursement of Expenses. The Company shall further pay
directly, or reimburse the Employee, for all other reasonable and necessary
expenses and disbursements incurred by him for and on behalf of the Company in
the performance of his duties during the Employment Period upon submission of
vouchers
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<PAGE>
or other evidence thereof in accordance with the Company's usual policies of
expense reimbursement.
7. Miscellaneous Provisions.
7.1 Section headings are for convenience only and shall not be
deemed to govern, limit, modify or supersede the provisions of this Agreement.
7.2 This Agreement is entered into in the State of Minnesota
and shall be governed pursuant to the laws of the State of Minnesota. If any
provision of this Agreement shall be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable, the remaining provisions hereof shall
continue to be fully effective.
7.3 This Agreement contains the entire agreement of the
parties regarding this subject matter. There are no contemporaneous oral
agreements, and all prior understandings, agreements (except for the 1991
Agreement, which shall remain in full force and effect in accordance with its
terms), negotiations and representations are merged herein.
7.4 This Agreement may be modified only by means of a writing
signed by the party to be charged with such modification.
7.5 Notices or other communications required or permitted to
be given hereunder shall be in writing and shall be deemed duly given upon
receipt by the party to whom sent at the respective addresses set forth below or
to such other address as
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<PAGE>
any party shall hereafter designate to the other in writing delivered in
accordance herewith:
If to Medivators:
MediVators, Inc.
6352 320 Street Way
Cannon Falls, MN 55009
With a copy to:
Cantel Industries, Inc.
1135 Broad Street
Suite 203
Clifton, New Jersey 07013
If to Employee:
Donald L. Sturtevant
3693 East Oak Creek Drive
Vadnais Heights, MN 55127
7.6 This Agreement shall inure to the benefit of, and shall be
binding upon, the Company, its successors and assigns, including, without
limitation, any entity that may acquire all or substantially all of the
Company's assets and business or into which the Company may be consolidated or
merged. This Agreement may not be assigned by Employee.
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<PAGE>
7.7 This Agreement may be executed in separate counterparts,
each of which shall constitute the original hereof.
IN WITNESS WHEREOF, the parties have set their hands as of the date
first above written.
MEDIVATORS, INC.
By:/s/ Donald L. Sturtevant
------------------------
/s/ Donald L. Sturtevant
------------------------
Donald L. Sturtevant
- 14 -
EXHIBIT 10(s)
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement"), made this 27th day of May,
1996, between and among NATIONAL CANADA FINANCE CORP., a Delaware Corporation
with offices at 125 West 55th Street, New York, New York 10019 ("Lender"),
MEDIVATORS, INC., a Minnesota corporation with offices at Cannon Plaza South,
6352 320 Street Way, Cannon Falls, Minnesota 50009 ("MediVators") and DISPOSAL
SCIENCES, INC., a Minnesota corporation, with offices at Cannon Plaza South,
6352 320 Street Way, Cannon Falls, Minnesota 50009 ("Disposal").
W I T N E S S E T H:
WHEREAS, National Canada Finance Corp. has agreed to make certain advances
to MediVators and Disposal up to the amount of $2,000,000 in accordance with the
conditions hereinafter stated; and
WHEREAS, MediVators and Disposal and National Canada Finance Corp. wish to
provide herein and in the supplemental documents executed in conjunction with
the execution of this Loan and Security Agreement for the terms of such
borrowing.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Certain Defined Terms: As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Accountant's Letter" shall mean a letter in form and substance
reasonably satisfactory to Lender from independent public accountants of
recognized standing acceptable to the Lender (i) stating that, in connection
with its audit of the consolidating financial statements of Guarantor and its
subsidiaries, which audit was conducted by such accounting firm in accordance
with generally accepted auditing standards, nothing came to such accounting
firm's attention to cause it to believe that Borrowers failed to comply with the
terms, covenants, provisions or conditions of the Agreement, and (ii) setting
forth the following acknowledgment or other acknowledgment of a similar nature
generally used by such accountants to effect compliance with N.J.P.L. 1995, C.
49 or like statutes applicable in other jurisdictions: "We hereby acknowledge
that (1) the financial statements referenced in this Accountant's Letter and
this Accountant's Letter are being made available to Lender, (2) Lender intends
to rely on this Accountant's Letter and
<PAGE>
such financial statements, and (3) Borrowers have knowledge of that reliance.
This acknowledgement is made pursuant to section 1.B(3) of N.J.P.L. 1995, C.49,
and any like statutes having applicability in other jurisdictions."
"Accounts", "Chattel Paper", "Documents", "Equipment", "General
Intangibles", "Goods", "Instruments" and "Money" have the same respective
meanings as are given to those terms in the UCC. "Accounts" shall include
"contracts" and "contract rights" (including MediVators' right to receive
payments under the Olympus Agreement) without respect to the definition of the
latter terms under applicable laws, and shall also include any rights which may
also be evidenced by Instruments, Documents or Chattel Paper.
"Accounts Receivable" means accounts receivable of the Borrowers from time
to time, determined in accordance with reasonable accounting methods
consistently applied.
"Advance" shall include any sums advanced by Lender or credited by Lender
to or for the account of the Borrowers under this Agreement, including without
limitation advances of principal or to pay interest or fees, or the incurring of
expenses reimbursable by the Borrowers under this Agreement.
"Advance Request" has the meaning specified in Section 2.2(b) hereof.
"Affiliate" includes any corporation, partnership, association, joint
venture, company, limited liability company, limited partnership, limited
liability partnership, trust, individual or other legal entity, which now or
hereafter at any time controls, is controlled by, or is under common control
with any of the Borrowers.
"Agreement" means this Loan and Security Agreement as amended in writing
from time to time.
"Availability" shall mean, as to the Revolving Line of Credit Loan, an
amount, varying from time to time, equal to the Borrowing Base, minus all
Advances outstanding and unpaid.
"Bank" means National Bank of Canada, a chartered bank constituted under
the Bank Act of Canada, with offices at 125 West 55th Street, New York, New York
10019.
"Borrowers" means MediVators, Inc., a corporation organized under the laws
of the State of Minnesota and Disposal Science, Inc., a corporation organized
under the laws of the State of Minnesota, and any successor thereto permitted
hereunder (either of the Borrowers individually a "Borrower").
-2-
<PAGE>
"Borrowing Base" means, as to the Revolving Line of Credit Loan, the sum
of the following: (a) 80% of the Net Balance of Eligible Accounts Receivable of
the Borrowers, plus (b) 50% of the cost or market value, whichever is lower, of
all Eligible Inventory. Whenever the Borrowing Base is used as a measure of the
Revolving Line of Credit Loan, it shall be computed as of, and the balance owing
on the Revolving Line of Credit Loan shall be determined as of, the required
reporting date for the Borrowing Base Certificate most recently due hereunder.
"Borrowing Base Certificate" means a certificate signed by the president,
vice president, chief financial officer or controller of a Borrower completed
and supplemented in a manner acceptable to Lender, mathematically computing the
Borrowing Base, in the form annexed as Exhibit I or otherwise as required by
Lender from time to time.
"Carsen" means Carsen Group, Inc., an Ontario corporation.
"Chief Executive Office" shall have the meaning ascribed to it under the
UCC.
"Closing Date" or "Closing" shall mean the date of this Agreement.
"Collateral" shall mean all real and personal property in which the
Borrowers grant Lender a lien or security interest to secure the Obligations,
pursuant to this Agreement or any security agreement, mortgage, deed of trust or
other undertaking or instrument related to the Loans or this Agreement.
"Controlled Group Member" means each trade or business (whether or not
incorporated) which together with Borrower are treated as a single employer
under Section 4001(b)(1) of ERISA.
"Default" means an Event of Default or Potential Event of Default.
"Dividends" shall mean dividends approved by Lender.
"Documents of Title" means one or more original, duly issued "documents of
title" as that term is defined in the UCC (and originals or copies of shipping
receipts, or license, customs, tax or other documentation related to the Goods
or their shipment), all in form and substance, and issued by such persons, as
may be satisfactory to Lender from time to time.
"Dollars" and "$" shall mean lawful money of the United States of America.
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"Eligible Account Receivable" means an Account Receivable which conforms
and continues to conform to the requirements and warranties set forth in Section
8.1 hereof.
"Eligible Inventory" means Inventory (whether raw materials, work in
process or finished goods or Inventory in transit, provided, as to Inventory in
transit, Borrower holds title to such Inventory and the sale of such Inventory
has not given rise to an Account Receivable) which initially and at all times
until sold is (i) as to finished goods, new and unused and fully saleable
through normal trade channels, (ii) owned by either Borrower free and clear of
any lien except in favor of Lender, (iii) valued at lower of cost or market on a
specific identification basis, (iv) at any one of the Locations and is subject
to a perfected first priority security interest in favor of Lender, (v) has not
been designated by Lender in its reasonable discretion as unacceptable for any
reason, and (vi) has not at any previous time had its value "written off" by
either Borrower for accounting purposes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder as in effect from time to time.
"Event of Default" means an event specified in Article 9 hereof following
any required notice and/or expiration of any applicable grace or cure period.
"GAAP" means generally accepted accounting principles consistently
applied.
"Guarantor" means Cantel Industries, Inc., a Delaware corporation, and the
sole shareholder of MediVators.
"Guaranty" means the unlimited guaranty of Guarantor given to Lender in
conjunction with the execution of this Agreement.
"Indebtedness" means, as the context shall require, all items of
indebtedness, obligation or liability, whether matured or unmatured, liquidated
or unliquidated, direct or contingent, joint or several, including, but without
limitation:
(a) All indebtedness guaranteed, directly or indirectly, in any manner, or
endorsed (other than for collection or deposit in the ordinary course of
business) or discounted with recourse;
(b) All indebtedness in effect guaranteed, directly or indirectly, through
agreements, contingent or otherwise: (i) to purchase such indebtedness; or (ii)
to purchase, sell or lease (as lessee or lessor) property, products, materials
or supplies or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such indebtedness or to assure the
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owner of the indebtedness against loss; or (iii) to supply funds to or in any
manner invest in the debtor;
(c) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed;
(d) All indebtedness incurred as the lessee of goods or services under
capital or operating leases; and
(e) All reimbursement, indemnity or similar obligations.
"Inventory" means all Goods now owned or hereafter acquired, intended for
sale or lease, or to be furnished or delivered or consumed under contracts of
service; and all raw materials, work in process, finished goods, and materials
and supplies of every nature and description, now owned, or hereafter acquired,
used or consumed, or which might be acquired, used or consumed in connection
with any business of either Borrower; but only to the extent the foregoing would
be classified as inventory in accordance with reasonable accounting methods
consistently applied.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any work similar entity.
"Lender" means National Canada Finance Corp., a Delaware corporation, and
any successor or assignee thereto hereunder.
"Leverage Ratio" means the ratio, expressed as a decimal, of Total
Liabilities to Tangible Net Worth.
"Lien" includes, without limitation, all mortgages, security interests,
liens, chattel mortgages, capital leases, operating leases, rental agreements,
trusts, charges, pledges, claims or other interests in property, legal or
equitable, whether consensual or nonconsensual, fixed, or contingent, choate or
in choate, and whether given or implied by statute or common law or by agreement
or grant.
"Loan(s)" means the Revolving Line of Credit Loan and any Advances made
for the benefit of the either Borrower pursuant to this Agreement.
"Loan Account" means the account or accounts on the books of Lender in
which Lender may record Loans, Advances, payments made on the Loans, and other
appropriate debits and credits as provided by this Agreement.
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"Loan Documents" means, individually and collectively, this Agreement, the
Note, the Guaranty, the Pledge Agreement, and all other existing and future
agreements, instruments, documents, assignments, guaranties and undertakings
(including amendments to any of the foregoing) delivered by either Borrower, or
any other person or entity in connection with any of the Loans.
"Locations" means any one or more of the places identified on Exhibit E,
or required to be identified pursuant to Section 8.2(q).
"Net Balance of Eligible Accounts Receivable" means the net value of all
Eligible Accounts Receivable, deducting all chargebacks, freight claims, finance
charges, contras, retainages, discounts, returns, credits, allowances,
adjustments, and losses.
"Net Income" shall mean, for any fiscal period, the net income (or net
loss) of Borrowers as determined in accordance with GAAP.
"Note" means the Revolving Line of Credit Note, including all amendments,
renewals and modifications thereof.
"Obligations" means the obligations (whether sole, joint or several,
contingent or fixed, or otherwise, and whether now existing or hereafter
arising) of the Borrowers, to Lender and/or Bank:
(a) To pay the principal of and interest on and other fees, charges and
expenses accruing with respect to the Advances, the Loans or any of the Loan
Documents, and to satisfy all other Indebtedness to Lender or Bank , whether
hereunder or otherwise, whether now existing or hereafter incurred, including
any extensions, modifications, renewals thereof and substitutions therefor;
(b) To repay to Lender or Bank all amounts advanced by Lender or Bank in
connection with this Agreement or any other Loan Document herewith, to any
person or entity whatever, including without limitation advances of principal,
advances of interest, fees or other charges or expenses, payments to prior
secured parties, mortgagees, or lienors, or for taxes, levies, insurance, rent,
repairs to or maintenance of any of the Collateral; and
(c) To reimburse Lender or Bank, on demand, to the extent provided for in
this Agreement, for all of Lender's or Bank's reasonable expenses and costs,
before or after closing hereon, including the reasonable fees and expenses of
their counsel, in connection with the preparation, administration, amendment,
modification, or enforcement of this Agreement and the documents required
hereunder, including, without limitation, prosecution or defense of any
proceeding brought, contemplated or threatened with respect to the obligations
referred to in the foregoing paragraphs (a) and (b) or any of the transactions
relating thereto.
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"Obligee" means, as to any Account Receivable, the applicable Borrower or
any third party undertaking the transaction giving rise to the Account.
"Obligor" means, as to any Account Receivable, the party or parties who
are liable to the Obligee with respect thereto.
"Officer" means any authorized president or vice president of either
Borrower.
"Olympus Agreement" means the Distributor Agreement between Olympus
America, Inc. - Endoscope Division and MediVators dated March 16, 1996, as
amended.
"Periodic Recap" means a "Period End Recapitulation Report" and a "Period
End Accounts Receivable and Loan Reconciliation" signed by Officers of both the
Borrowers, acceptable to Lender, reconciling Accounts Receivable and the
Borrowing Base with the Borrowers' general ledgers.
"Permitted Liens" or "Permitted Exceptions" means:
(a) Liens for taxes, assessments, or similar charges incurred in the
ordinary course of business that are not yet due and payable;
(b) Pledges or segregated deposits made in the ordinary course of business
to secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age pension
or other social security programs;
(c) Liens in favor of Lender;
(d) Purchase money security interests, motor vehicles liens, capital
leases, operating leases and rental agreements which are existing including
renewals and extensions thereof and disclosed on Exhibit G hereto; and
(e) The following, if incurred in the ordinary course of business and the
validity or amount thereof is being contested in good faith by appropriate and
lawful proceedings, to the extent (i) levy and execution thereon have been
stayed and continue to be stayed, (ii) an adequate holdback from Availability
shall have been established hereunder, and (iii) aggregate amounts being
contested do not exceed $25,000;
(1) Claims or liens for taxes or assessments,
(2) Claims or liens of mechanics, materialmen, warehousemen,
carriers or other like liens, and adverse judgments.
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"Person" means, any individual, limited liability company, limited
partnership, limited liability partnership, corporation, partnership,
association, joint-stock company, trust, incorporated organization, joint
venture, court or government or political subdivision or agency thereof.
"Plan" means any employee pension benefit plan to which Section 4021(a) of
ERISA applies and (i) which is maintained for employees of either Borrower or
any Controlled Group Member with respect to either Borrower, or (ii) to which
either Borrower or Controlled Group Member with respect to either Borrower made,
or was required to make, contributions at any time within the preceding five (5)
years. "Multiemployer Plan" means any Plan which is a "multiemployer plan"
within the meaning of Section 4001(a)(3) of ERISA.
"Pledge Agreement" means the Pledge Agreement of even date herewith
between Guarantor and Lender whereby Guarantor pledges the Stock of MediVators
as security for the Loan.
"Policies" shall have the meaning ascribed to such term in Section
6.12(a).
"Post-Default Rate" shall have the meaning ascribed to it in Section
2.3(a).
"Potential Default" means an event, circumstance, act, omission or state
of affairs which would, with the passing of time or of any grace period, or the
giving of notice by the Lender or any third party, or any combination of the
foregoing, become an Event of Default.
"Prime Rate" means the rate of interest established by Bank and announced
in New York, N.Y. from time to time as its "prime rate" of interest. The
Borrowers acknowledge that Lender may lend to other borrowers, or classes of
borrowers, at rates below the Prime Rate or at rates based on other indices, and
that Lender may change the index from time to time.
"Records" means correspondence, memoranda, tapes, data processing cards,
discs, papers, tabulating runs, programs, books and other documents, or manually
or electronically recorded information (whether or not transcribed) of any type,
whether expressed in ordinary or machine or other language.
"Revolving Line of Credit Loan" means the revolving line of credit
provided for in Article 2 hereof, and the Advances made pursuant thereto.
"Revolving Line of Credit Loan Rate" means with respect to the Revolving
Line of Credit Loan a variable rate of one and one-half
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percent (1 1/2%) per annum in excess of the Prime Rate in effect from time to
time.
"Revolving Line of Credit Note" means the Revolving Line of Credit Note
referred to in Section 2.2(a) hereof and shall include all amendments, renewals
and modifications of the Revolving Line of Credit Note.
"Revolving Line of Credit Termination Date" shall have the meaning
ascribed to it in Section 2.1.
"Tangible Net Worth" shall mean, for any fiscal period, shareholders'
equity as determined in accordance with GAAP less (i) intangibles (as determined
in accordance with GAAP) and (ii) Indebtedness owing a Borrower from an
Affiliate or stockholder.
"Total Liabilities" means at any time, all short term and long term
liabilities of Borrowers as determined in accordance with GAAP.
"UCC" means the Uniform Commercial Code in effect from time to time in New
York, or as to issues with respect to which the UCC of the jurisdiction of the
applicable property takes precedence, the UCC applicable to such jurisdiction.
1.2 Accounting Terms: All accounting terms, whether defined or not
specifically defined herein shall be construed, and all financial data submitted
pursuant to this Agreement shall (unless otherwise provided herein) be prepared,
in accordance with GAAP.
ARTICLE 2 - THE REVOLVING LINE OF CREDIT LOAN
2.1 General Terms: Subject to the terms hereof, Lender has established a
Revolving Line of Credit Loan in favor of the Borrowers under which Lender
shall, from time to time during the period from the date hereof through and
including the Revolving Line of Credit Termination Date (as hereinafter
defined), make Advances to either or both Borrowers up to the Availability,
provided, in no event shall the Advances in the aggregate at any time
outstanding exceed $2,000,000, all subject to the other terms and conditions
contained herein. The entire outstanding balance of principal, and any accrued
and unpaid interest thereon, shall be due and payable and the Revolving Line of
Credit Loan shall terminate on the earlier of (i) the date thirty months from
the date of this Agreement, or (ii) acceleration of the Obligations upon an
Event of Default (the earlier of such dates being the "Revolving Line of Credit
Termination Date").
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2.2 Borrowing Procedures:
(a) The Borrowers are simultaneously with the execution of this Agreement
executing and delivering to Lender a Revolving Line of Credit Note in the face
amount of $2,000,000 which Note shall evidence the aggregate of all Advances
outstanding from time to time pursuant to the Revolving Line of Credit Loan, and
shall be payable on the Revolving Line of Credit Termination Date.
(b) At any time of reference, additional Advances may be made available by
Lender to either Borrower subject to the conditions of this Agreement, up to the
amount of the Availability and subject to the limitations of Sections 2.1 and
2.6, upon the request of either Borrower dated the date of the request which the
Lender may require be made in writing (the "Advance Request"). Upon compliance
by either Borrower with the applicable terms and conditions, Lender will make
each Advance by crediting the amount of the Advance to the Loan Account, or by
wiring the amount of the Advance to the account of the Borrower according to
instructions given to Lender by the Borrower, or by otherwise disbursing to a
third party upon terms and conditions mutually agreeable to Lender and the
Borrowers.
2.3 Interest Rate and Payments; Charging the Borrowers' Accounts; Fees:
Interest on the Advances shall be accrued, paid and calculated as follows:
(a) Interest will accrue daily and be payable on principal amounts
advanced by the Lender at the Revolving Line of Credit Loan Rate, and shall be
payable as accrued on the last day of each calendar month, commencing
immediately hereafter. Notwithstanding any provision herein to the contrary, or
any provision in the Note, upon the occurrence of an Event of Default, the
applicable interest rate shall be increased to a rate (the "Post-Default Rate")
three (3%) percent per annum over and above the interest rate otherwise
applicable hereunder.
(b) If at any time the rate of interest set forth above on any Loan (the
"Stated Rate" for such Loan) exceeds the maximum non- usurious interest rate
permissible for Lender to charge commercial borrowers under applicable law (the
"Maximum Rate"), the rate of interest charged on such Loan hereunder shall be
limited to the Maximum Rate.
In the event the Stated Rate for any Loan that has theretofore been
subject to the preceding paragraph at any time is less than the Maximum Rate,
the principal amount of such Loan shall bear interest at the Maximum Rate until
the total amount of interest paid or accrued on its Loans hereunder equals the
amount
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of interest which would have been paid or accrued on such Loans hereunder if the
Stated Rate had at all times been in effect.
In the event, upon payment in full of all amounts payable hereunder,
the total amount of interest paid to Lender or accrued on the Loans under the
terms of this Agreement is less than the total amount of interest which would
have been paid or accrued if the Stated Rate had, at all times, been in effect,
then Borrowers shall, to the extent permitted by applicable law, pay to Lender
an amount equal to the difference between (a) the lesser of (i) the amount of
interest which would have accrued on the Loans to Borrowers if the Maximum Rate
had at all times been in effect or (ii) the amount of interest which would have
accrued on the Loans if the Stated Rate had at all times been in effect and (b)
the amount of interest actually paid to Lender or accrued on such Loans under
this Agreement.
In the event Lender ever receives, collects or applies as interest
in respect of any Loan any sum in excess of the Maximum Rate, such excess amount
shall be applied to the reduction of the principal balance of the Loans to the
Borrowers or to other amounts (other than interest) payable by Borrowers
hereunder, and if no such principal is then outstanding, such excess or part
thereof remaining shall be paid to Borrowers.
(c) Interest shall be calculated on the basis of a 360-day year, counting
the actual number of days elapsed. All accrued and then unpaid interest shall
nevertheless be payable upon the Revolving Line of Credit Termination Date.
(d) All sums payable to Lender hereunder including repayments of Advances,
and payments of interest, reasonable fees, late charges and other charges shall
be paid directly to Lender on the date due. Any interest due as of the last day
of any month which remains unpaid five days thereafter shall be added to the
principal of the Loans. At Lender's option, the Borrower shall execute a
promissory note reflecting their obligations therefor, but the execution and
delivery of any such note shall not limit the Borrowers' obligations therefor as
provided in this Agreement. Lender is authorized to charge the Loan Account, or
any deposit account of the Borrowers with Bank, for principal, interest, and
with prior notice to Borrowers, other amounts due hereunder as they come due, or
at Lender's option make an Advance to pay any of the same; if Lender bills the
Borrowers for principal, interest or other amounts due hereunder, such will be
payable, as to principal and interest within one (1) business day after billing,
and, as to other amounts due, within ten business days after billing.
2.4 Borrowing Base Certificates: Borrowers shall upon Lender's request
prepare and forward to Lender completed Borrowing Base Certificates.
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2.5 Loan Account: Lender may, in its discretion, establish a Loan Account
and enter therein Advances, interest, fees, other charges, expenses and other
items properly chargeable to the Borrowers under this Agreement; all payments
made by the Borrowers on account of Indebtedness relating to any Loans; all
proceeds of collateral which are finally paid to Lender at its offices in cash
or solvent credits; and any other appropriate debits and credits. Subaccounts
may be established for each Loan or Advance established hereunder. Absent
manifest error, the aggregate of the debit balances in the Loan Account shall
reflect the Borrowers' aggregate Indebtedness to Lender and Bank from time to
time by reason of the Loans or otherwise with respect hereto.
2.6 Limits on Advances Under Revolving Line of Credit Loan:
Notwithstanding any other provision hereof, the aggregate unpaid balance of the
Borrowers' Obligations, including without limitation all principal, interest,
fees and other charges, under the Revolving Line of Credit Loan at any time
shall not exceed the lesser of (i) the Borrowing Base or (ii) $2,000,000. Each
Borrower agrees that it shall, immediately upon Lender's demand, pay or cause to
be paid to Lender the amount of any such excess, or, at Lender's option, deposit
with Lender collateral therefor which shall continue to be satisfactory to
Lender at all times thereafter.
2.7 Fees: (a) On any payment by any Borrower of interest and/or principal
not received within ten (10) days of the due date, a late charge of five percent
(5%) of the payment of interest and/or principal, as applicable shall be
assessed.
(b) Borrowers agree to pay to Lender a commitment fee on the average
daily Availability calculated on a monthly basis, for the period from the date
hereof to the Revolving Line of Credit Termination Date, at a rate per annum of
one-half of one percent. Accrued commitment fees shall be payable in arrears on
the last day of each month.
(c) Borrowers shall pay at Closing to Lender a closing fee in the
amount of $10,000 (and are entitled to a credit toward such fee of $5,000
previously paid).
2.8 Use of Proceeds: The proceeds of the Revolving Line of Credit Loan
shall be used by the Borrowers for working capital purposes.
ARTICLE 3 - PREPAYMENT; EARLY TERMINATION
3.1 Term of the Borrowers' Commitment; Early Termination: Borrowers may
prepay the Loans in full at any time without penalty or fee. Borrowers shall
notify Lender of the Borrowers' desire to terminate this Agreement by giving not
less than ninety (90) days
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prior written notice thereof to Lender; provided, however, upon a termination,
the terms and conditions of this Agreement (including the maintenance of
Lender's security interest in the Collateral) shall continue until all
Obligations of the Borrowers to Lender shall have been fully paid and satisfied.
ARTICLE 4 - CONDITIONS PRECEDENT AND SUBSEQUENT
The obligation of Lender to enter into this Agreement and to make any
Advance is subject to the following conditions:
4.1 Documents Required for the Closing: The Borrowers shall have delivered
or caused to be delivered to Lender, at the Closing and execution hereof, the
following, in form and substance satisfactory to Lender:
(a) The Note;
(b) All necessary releases, satisfactions, discharges, assignments and
termination statements to cause the security interests granted herein to be
first priority security interests (subject to Permitted Exceptions) in the
Collateral;
(c) The financing statements required by Section 5.6 hereof, or otherwise
necessary to perfect the security interests in the Collateral;
(d) Any financial statements required under the terms of this Agreement in
form and substance satisfactory to Lender;
(e) Copies of the resolutions of the board of directors and shareholders
of each Borrower authorizing the execution, delivery and performance of this
Agreement, the Note, and each other Loan Document to be delivered to Lender
pursuant hereto;
(f) Copies (certified by the Secretary of State of the state of
incorporation, and by authorized officers of each Borrower), of the certificate
of incorporation of each Borrower, together with a copy (certified by the
secretary or assistant secretary or other authorized officer of each Borrower)
of the by-laws of each Borrower, and a certificate (dated as of the Closing
Date) of each such officer to the effect that the foregoing documents have not
been amended and remain in full force and effect;
(g) The Guaranty, executed by Guarantor and documents as to the Guarantor
corresponding to the deliveries for Borrowers under Sections 4.1(e), (f), (h)
and (i);
(h) A certificate of an authorized officer of each Borrower as to the
incumbency and signatures of the officers who are executing this Agreement on
behalf of each Borrower;
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(i) Certificates of good standing with respect to each Borrower as of the
most recent date practicable from each state in which each Borrower is organized
or qualified to transact business;
(j) Evidence of the insurance coverages required under the terms of this
Agreement together with evidence of payment of all premiums which are due and
payable as of the date hereof;
(k) An initial Periodic Recap duly completed and executed by the each
Borrower;
(l) UCC, Judgment, Tax Lien and Title Searches satisfactory to Lender
regarding each Borrower and all Collateral in each jurisdiction in which
Collateral is situate;
(m) Written opinions of counsel to the Borrowers, and addressed to Lender,
in form and substance reasonably satisfactory to Lender regarding such legal
matters as Lender shall reasonably request relating to the subject matter
hereof;
(n) A certificate of each Borrower and its officers attesting that all
Collateral has been and will be assigned to Lender for full and adequate
consideration, in good faith and without fraud or fraudulent intent;
(o) All other Loan Documents executed by the applicable obligors along
with all deliveries required under the terms of such Loan Documents;
(p) Documents confirming establishment of an operating account with Bank;
and
(q) Such other undertakings, instruments and documents as Lender shall
reasonably require.
4.2 Other Conditions Precedent: There shall have occurred no changes in
the financial condition or business of the Borrowers, which are singly or
collectively materially adverse when compared with the respective financial
condition and business of the Borrowers as previously represented to Lender.
Lender shall have received satisfactory results of its field examination and
standard customer, trade and bank checks.
4.3 Conditions Subsequent to Signing and Effective Date: Each of the
following shall have occurred within the respective times indicated after the
Closing Date, or else Lender shall not be obligated to make any further
Advances, and Lender shall have the option, at any time thereafter, to declare
that an Event of Default has occurred:
(a) The Borrowers shall pay or reimburse to Lender and Lender's legal
counsel or agents, as the case may be, all of their
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respective reasonable fees (with legal fees not to exceed $10,000), charges and
expenses incurred in completing all of the matters contemplated by this
Agreement. Charges and expenses shall be limited to the cost of (i) UCC
searches, (ii) corporate searches, (iii) UCC financing statement filing charges
and (iv) photocopy, telecopy, and long distance telephone charges.
(b) Any conditions precedent which shall not have been satisfied as of the
Closing Date, or at the time Lender made any Advance, and which Lender shall not
have specifically waived in writing.
ARTICLE 5 - COLLATERAL SECURITY
5.1 The Collateral: The Collateral, together with all of the Borrowers'
other property of any kind held by Lender or any of Lender's Affiliates from
time to time, in any capacity whatsoever, shall stand as one general, continuing
collateral security for the Obligations of the Borrowers.
5.2 Rights in Property Held by Lender: As security for the Obligations,
including without limitation payment of the Indebtedness evidenced by the Note,
each Borrower hereby assigns, transfers, and sets over to Lender and Bank all of
its right, title, and interest in and to, and grants Lender and Bank a lien upon
and security interest in, all amounts that may be owing from time to time
hereafter to it by Lender or Bank from time to time in any capacity, including,
but without limitation, any balance or share belonging to any of them of any
deposit or other account, which lien and security interest shall be independent
of any right of set-off which Lender or Bank may have.
Any and all deposits or other sums at any time credited by or due from
Bank or Lender to Borrowers shall at all times constitute security for
Obligations and may be set-off against any Obligations which are then due.
Any and all instruments, documents, policies and certificates of
insurance, securities, goods, accounts, choses in action, general intangibles,
chattel paper, cash, property and the proceeds thereof (whether or not the same
are Collateral or proceeds thereof) owned by the Borrowers or in which either
Borrower has an interest, which now or hereafter are at any time in possession
or control of Lender or Bank or in transit by mail or carrier to or from Lender
or Bank or in the possession of any third party acting in Lender's or Bank's
behalf, without regard to whether Bank or Lender received the same in pledge,
for safekeeping, as agent for collection or transmission or otherwise or whether
Bank or Lender had conditionally released the same, shall constitute security
for Obligations and may be applied at any time to Obligations which are then due
and owing.
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5.3 Rights in Property Held by the Borrowers: As security for the
Obligations, including without limitation payment of the Indebtedness evidenced
by the Note, each Borrower hereby assigns, transfers, and sets over to Lender
all of its right, title, and interest in and to, and grants Lender a lien upon
and continuing security interest in, all of the following, wherever located,
whether now owned or existing or hereafter acquired or arising, together with
all replacements and substitutions therefor and all additions and accessions
thereto, and all proceeds (including, but without limitation, insurance
proceeds) and products thereof:
(a) All Inventory;
(b) All Accounts and Accounts Receivable, together with all documents,
contracts, contract rights, lien and security instruments and guarantees,
relating thereto;
(c) All Goods;
(d) All Equipment, including without limitation, all fixtures, furniture,
tools and supplies;
(e) Any interest (fee, leasehold or otherwise) either Borrower may have in
any real property;
(f) All cash and non-cash proceeds, products and insurance proceeds of the
foregoing and all proceeds of consignment sales; and
(g) All Records pertaining to the foregoing.
5.4 Additional Security: To further secure the Loans made and to be made
hereunder and all other Obligations of the Borrower to Bank or Lender, each
Borrower shall cause to be delivered such additional promissory notes,
undertakings, collateral, assignments, instruments, powers of attorney and other
documents as Lender may from time to time reasonably request consistent with the
security provided and the general intent of this Agreement.
5.5 Priority of Liens: The foregoing liens shall be first priority
perfected liens, subject only to Permitted Liens.
5.6 Financing Statements:
(a) Each Borrower on Lender's request will:
(1) Execute and deliver to the Lender such financing statements
(including amendments thereto and continuation statements thereof), assignments,
certificates of title and applications and powers of attorney for transfer
thereof, conveyances, notices, instruments and other documents in form
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satisfactory to Lender as Lender may specify to perfect or continue the
perfection of any security interest granted to Lender hereunder;
(2) Pay or reimburse Lender for all reasonable fees, costs and taxes
related to filing or recording the same in such public offices as Lender may
designate; and
(3) Take such other steps as Lender may reasonably direct, to
perfect Lender's interest in the Collateral.
(b) In addition to the foregoing, and not in limitation thereof to the
extent lawful, each Borrower hereby appoints Lender and Lender's attorneys and
agents severally as its attorney-in-fact (without requiring Lender to act as
such) with full power of substitution, to execute and file any financing
statement (including amendments and continuation statements thereto), and
assignments in the name of the Borrower, or its respective successors or
assigns, and to perform all other acts that Lender reasonably and in good faith
deems appropriate to perfect and continue its security interest in the
Collateral. This power of attorney is irrevocable as coupled with an interest.
5.7 Collecting on Accounts:
(a) Upon the occurrence of a Default, Lender shall have the right to
notify any and all Obligors to make payment on Accounts Receivable or other
Accounts directly to Lender, and to take control of the cash and non-cash
proceeds thereof, with full power to settle or compromise disputed claims
thereon. All such proceeds shall be applied in satisfaction of the Obligations,
including payment of the Indebtedness evidenced by the Note, in such order as
Lender shall determine.
(b) Unless and until such time as Lender elects to notify Obligors
pursuant to Section 5.7(a), Lender hereby authorizes and permits the Borrowers
to receive all amounts due on the Collateral and Accounts Receivable from the
Obligors, as Lender's collection agent, but at the Borrowers' own cost and
expense subject to the direction of Lender at all times. At either Borrower's
option, all proceeds of Collateral and Accounts Receivable shall be deposited by
the Borrower into a "Dominion Account" pursuant to an arrangement with the Bank.
Each Borrower shall issue to any such depository bank an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to the
Lender, and only to Lender, either to any account maintained by the Lender at
said depository bank, by wire transfer to appropriate account(s) designated by
Lender or by checks drawn on such accounts in favor of Lender. All funds and
amounts so transferred from said Dominion Account to the Lender are to be
credited to the applicable Borrower's Loan Account upon transfer. All such
credits shall be conditioned upon clearance of funds transferred to Lender's
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Account. If any items are not so paid, the amount of any credit given shall be
charged as a debit to Borrower's Loan Account, whether or not the item is
returned. In addition to all such other charges set forth in this Agreement,
interest shall continue to accrue with respect to any credit applied to the
applicable Borrower's Loan Account from the proceeds of the Dominion Account for
two business days after transfer from the Dominion Account of the item giving
rise to the credits. Interest shall continue to accrue on all items received
from sources other than the Dominion Account for three business days after
deposit of the item giving rise to the credit or if actual collection of the
item takes longer than three days, then until Lender receives notice of actual
collection of the item. Proceeds shall be credited to Borrower's Loan Account at
the time of the notice of the deposit, provided, that if the notice of deposit
is received by the Lender after 2:30 p.m., the proceeds shall be deemed, for the
purpose of this Agreement, to have been received on the next succeeding Business
Day. All funds deposited in the Dominion Account not in excess of the then
existing Obligations shall immediately become the property of the Lender and the
applicable Borrower(s) shall obtain the agreement by such depository bank to
waive any offset rights against the funds so deposited. The Lender assumes no
responsibility for such Dominion Account arrangement, including without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any depository bank thereunder. An accounting shall be
rendered to the Borrowers once each month setting forth an accounting of the
application of the funds so collected. If Borrowers do not notify Lender, in
writing, within 15 days of the mailing of the accounting, the allocation therein
set forth shall be deemed acceptable, correct and proper, and be binding on
Borrowers.
5.8 Verification of Accounts: Lender shall at all times after the
occurrence and continuance of a Default, and on a once per year basis otherwise,
have the right to confirm orders, and to verify all Accounts or Accounts
Receivable or other Collateral in which it has a security interest and to do so
through any public accountants.
ARTICLE 6 - BORROWERS' AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, from and after the date of this
Agreement and so long as either Borrower shall be indebted to Lender hereunder
or under the Note or any other Loan Document, unless Lender shall otherwise
consent in writing, each Borrower will comply with the following covenants:
6.1 Shipping Reports: Each Borrower will make available to
Lender at the Borrower's offices during regular business hours:
shipping and delivery receipts evidencing the shipment of the Goods
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which gave rise to an Account; completion certificates or other proof of the
satisfactory performance of services which gave rise to an Account; a copy of
the invoice for each Account; and a copy of any written contract or order from
which an Account arose.
6.2 Intentionally Omitted.
6.3 Returned Goods: Each Borrower will advise Lender whenever an account
debtor refuses to retain, or returns, other than in the ordinary course of
business, any Goods from the sale of which an Account arose.
6.4 Sales Agreements: Each Borrower will identify for Lender, and if
requested provide copies to the Lender of, any sales agreement not entered into
in the ordinary course of business, or the terms of which do not reflect terms
granted in the ordinary course of business.
6.5 Government Contracts: For any Accounts which arise out of contracts
with the United States or any department, agency, or instrumentality thereof,
each Borrower will, on Lender's reasonable request, execute any instruments and
take any steps required by Lender in order that all moneys due and to become due
under such contracts shall be assigned to Lender and notice thereof given to the
Government according to the Federal Assignment of Claims Act.
6.6 Intentionally Omitted.
6.7 Account Assignments: Each Borrower will give Lender, upon Lender's
reasonable request, specific assignments of Accounts after they come into
existence, and schedules of Accounts, the form and content of such assignments
and schedules to be satisfactory to Lender, and will execute and deliver to
Lender any instrument, document, financing statement, assignment or other
writing to carry out the terms of this Agreement, to perfect Lender's security
interest in the Accounts and any other Collateral, or to enable Lender to
enforce conveniently its security interest in any of the foregoing.
6.8 Maintenance of Books and Records: Each Borrower will maintain, in
accordance with reasonable accounting methods consistently applied, accurate
records and books of account showing, among other things, all Inventory and
Accounts, the proceeds of the said or other disposition thereof and the
collections therefrom; and hereby grants Lender the right to call at the
Borrower's places of business during regular business hours, upon reasonable
notice, at intervals to be determined by Lender (provided, Lender shall endeavor
not to unduly interfere with the operation of the Borrower's businesses), and,
without hindrance or delay, to inspect, audit, check and make extracts and
copies from the books, records, journals, orders, receipts, correspondence and
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other data relating to Inventory, Accounts, or any other Collateral.
6.9 Notation of Security Interest: If reasonably requested by Lender, each
Borrower will mark its records concerning Inventory, Accounts, and other
Collateral in a manner reasonably satisfactory to Lender to show the Lender's
security interest therein; and shall, after a Default, at Lender's request,
notify all purchasers, warehouses, warehousemen, agents, landlords, processors,
or others in possession of Inventory ("Bailees"), of Lender's security interest
in the Collateral, and instruct them to hold Collateral for Lender's account and
subject to Lender's instructions, and take such other steps and obtain such
documents, assurances and financing statements executed by such Bailees, as
Lender may reasonably require from time to time to perfect and maintain the
perfection of Lender's security interests and the priority thereof over the
claims or interests of any Bailees.
6.10 Reporting Requirements. Each Borrower will furnish to Lender:
(i) as soon as possible, and in any event within five Business Days,
after an officer of either Borrower obtains actual knowledge of the
occurrence of a Potential Event of Default or Event of Default, a
statement of an officer of such Borrower setting forth details of such
default and the action that such Borrower proposes to take with respect
thereto;
(ii) as soon as available, and in any event within 45 days after the
end of each quarter of each fiscal year (excepting the last quarter of
each fiscal year) of Guarantor, a consolidated balance sheet of Guarantor
and its subsidiaries, as of the end of such quarter and statements of
income and retained earnings and of cash flows of Guarantor and its
subsidiaries for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, setting forth in each case
in comparative form the corresponding figures for the corresponding period
of the preceding fiscal year, and the corresponding figures from the
budget of Guarantor for such period (except for the fiscal year preceding
Closing), all in reasonable detail and duly certified (subject to year-end
audit adjustments) by an Officer of Guarantor as having been prepared in
accordance with GAAP, together with a certificate of an Officer of each
Borrower stating that, to the best knowledge of such Officer, after due
inquiry, each Borrower is in compliance with Sections 6.14 and 7.13 hereof
and no Default has occurred and is continuing or, if such Officer has
knowledge that a Default has occurred and is continuing, a statement as to
the nature thereof and the action that such Borrower proposes to take with
respect thereto; and
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(iii) as soon as available, and in any event within 90 days, after
the end of each fiscal year of Guarantor, a copy of the annual
consolidated audit report for such year for Guarantor and its
subsidiaries, including therein a consolidated balance sheet of Guarantor
and its subsidiaries as of the end of such fiscal year and a consolidated
statement of income and retained earnings and of cash flows of Guarantor
and its subsidiaries for such fiscal year, in each case certified in a
manner acceptable to the Lender by independent public accountants of
recognized standing acceptable to the Lender together with an Accountant's
Letter and a certificate of an Officer of each Borrower stating that, to
the best knowledge of such Officer, after due inquiry, each Borrower is in
compliance with Sections 6.14 and 7.13 hereof and no Default has occurred
and is continuing or, if such Officer has knowledge that a Default has
occurred and is continuing, a statement as to the nature thereof and the
action that such Borrower proposes to take with respect thereto.
(iv) within twenty (20) days of the end of each month, (a) Periodic
Recaps, together with a schedule of agings and listings of Account
Receivables for the prior calendar month, and (b) a listing of the types,
and respective values of Inventory for each type, of all Inventory, in
such form as Lender may from time to time reasonably specify.
6.11 Existence, Properties, Etc.: Each Borrower will do or cause to be
done all things necessary to obtain, preserve, renew and keep in full force and
effect its existence and its qualification to do business and good standing in
the state of its incorporation or organization and any other jurisdiction in
which such qualification is necessary for the proper conduct of its business,
and conduct and operate its business in substantially the manner in which same
is presently contemplated to be conducted and operated; at all times maintain,
preserve and protect all material patents, franchises, trademarks, trade names,
copyrights and other General Intangibles; preserve the condition of all property
useful in the conduct of its business and keep the same in good repair, working
order and condition (reasonable wear and tear excepted) and from time to time
make, or cause to be made, all repairs, renewals, replacements, betterments and
improvements thereto, to the extent that the same are necessary for the proper
and advantageous conduct of its business; and comply with all present and future
regulatory and other Laws applicable to it in the operation of its business, and
with all material agreements to which it is subject.
6.12 Insurance:
(a) Each Borrower will keep its respective insurable properties adequately
insured at all times, by financially sound and reputable insurers, with Lender
named as loss payee, without contribution, on all such policies maintained as
insurance against
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loss or damage to the Collateral (any insurance policies, to the extent same
insure the Collateral, herein the "Policies"), and maintain such other
insurance, to such extent and against such risks, including fire and other risks
insured against by extended coverage, without co-insurance provisions except as
Lender shall approve in writing, and with an endorsement providing Lender not
less than ten (10) days' prior written notice of cancellation or modification of
coverage, and on such other terms as are acceptable to Lender and customary with
companies in the same or similar business, and maintain in full force and effect
public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with the use of any
realty, Location or other real or personal property belonging to it, and
products liability insurance, in such amounts as are consistent with industry
practice and are satisfactory to Lender, and maintain such other insurance as
may be required by law. Each Borrower shall pay all premiums now or hereafter
becoming due or payable with respect to any of the above insurance prior to the
expiration date of the policy therefor. Each Borrower authorizes Lender to pay
for its account any of the foregoing which its fails to pay, and any such
payment by Lender shall constitute an item of the Borrowers' Obligations. Each
Borrower agrees to notify Lender in writing prior to any change in insurance
coverage which would cause such insurance to not meet the requirements of this
Agreement; to pay all premiums when due or payable; to provide Lender upon
demand copies of all insurance policies; to assign to Lender all right to
receive proceeds received under any of the Policies (provided Lender shall pay
to Borrowers any such proceeds collected in excess of the Obligations); to
direct all Policy insurers to pay all proceeds directly to Lender; and each
Borrower hereby authorizes Lender to endorse any draft for such proceeds.
(b) Without limiting the generality of the foregoing, the Borrowers shall
each provide and maintain the following coverages:
(1) Policies of fire and extended coverage "all risk" insurance
insuring, all equipment and all Inventory, all motor vehicles and also including
coverage for valuable papers and property in transit, providing full extended
coverage and insurance against vandalism and malicious mischief. Such insurance
under the Policies shall also name Lender as an additional insured and shall be
in an amount equal to the lesser of (a) the full amount of the Loans, or (b) 80%
of the full replacement value of the property insured without deduction for
depreciation, and such insurance policy shall also contain a replacement cost
endorsement with an inflation rider and shall at all times be in an amount
sufficient to prevent Lender from becoming a coinsurer;
(2) Comprehensive general liability insurance, including personal
injury and contractual liability and products liability;
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(3) Workers Compensation and Employer's Liability Insurance meeting
statutory obligations; and
(4) If the Locations are in an area designated in the Flood Disaster
Protection Act of 1973 (P.L. 93-234) as having "specific flood hazards", flood
insurance meeting the requirements of said Act.
6.13 Taxes and Assessments: Each Borrower will pay or cause to be paid,
when due, all taxes, assessments and charges or levies imposed upon any of its
property, or which it is required to withhold and pay over, except where
contested in good faith by appropriate proceedings, promptly commenced and
diligently conducted, with adequate reserves therefor having been set aside on
its books (but it shall, in any event, pay or cause to be paid all such taxes,
assessments, charges or levies forthwith whenever a lien against the Collateral
would arise, or when foreclosure on any such Lien that attaches appears
imminent).
6.14 Financial Covenants: Borrowers will maintain on a combined basis Net
Income, Tangible Net Worth and a Leverage Ratio of not less than the amounts set
forth at Schedule H for each time period set forth at Schedule H.
6.15 Intentionally Omitted.
6.16 Collection and Records of Accounts: Each Borrower will collect its
Accounts only in the ordinary course of business, and will keep accurate and
complete Records of its Accounts, consistent with sound business practices.
6.17 Litigation Notice: Each Borrower will give Lender immediate written
notice of any action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency which, if adversely determined,
would impair Borrowers' right or ability to carry on its business substantially
as now conducted or would materially affect its business, operations,
properties, assets or condition (financial or otherwise) or would materially
affect its ability to perform its obligations to the Lender under this Agreement
or any of the Loan Documents, and, if requested by Lender, deliver copies of all
nonprivileged documents relating thereto. Each Borrower will also notify Lender
immediately upon the indictment of such Borrower, and immediately upon the
indictment of any director or officer with respect to any matter relating to the
affairs of such Borrower.
6.18 Changes: Each Borrower will promptly notify Lender of any and all
proposed material changes in its business practices or properties and of any
changes in its officers or directors or, in ownership of such Borrower.
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6.19 Further Assurances: From time to time, upon the written reasonable
request of Lender, each Borrower will do, execute, acknowledge and deliver or
cause to be done, executed, acknowledged, and delivered, all such further acts,
deeds, instruments, transfers, or assurances as may be reasonably necessary to
consummate the transactions contemplated by this Agreement, the Note, or any
other Loan Documents.
6.20 Authorization To Accountants: Each Borrower hereby irrevocably
declares for the benefit of Lender its irrevocable release, consent,
authorization and instruction to all accountants and auditors employed by such
Borrower at any time while there are any sums owed to Lender during the term of
this Agreement, and until all of the Obligations have been fully paid and
discharged, to, after the occurrence of an Event of Default, exhibit and deliver
to Lender copies of such Borrower's financial statements, tax returns, trial
balances, workpapers or other accounting or tax records of any sort on which
such firm has reported (other than internal, confidential memoranda) which may
be in their possession.
6.21 Valuation of Inventory: Each Borrower will promptly notify Lender of
any event causing material loss or accounting write down in the value of its
Inventory.
6.22 Computer Reports: Each Borrower irrevocably empowers Lender, after
the occurrence of Default to have full access to and to have, at the Borrower's
expense, printouts and all information maintained by their outside computer
service company, if any, respecting any and all financial records now or
hereafter maintained by the same for such Borrower's account.
6.23 Places of Business: Location of Collateral and Records: Each Borrower
will notify Lender in writing thirty (30) days in advance of each change in
Chief Executive Office, and of each change in Location at which Inventory or any
Records of Accounts Receivable, Accounts, or other Collateral, is or will be
kept.
6.24 Compliance with Obligations: Each Borrower will comply with and
perform its obligations under all other Loan Documents as fully as if such
obligations were set forth herein.
6.25 Visitation: Each Borrower shall permit such persons as the Lender may
designate to visit and inspect any of the properties of such Borrower and any
subsidiaries, to examine their respective books and records and take copies and
extracts therefrom and to discuss their affairs with the appropriate employees
at such times and as often as the Lender may reasonably request (not to exceed
four times per year prior to a Default), provided that unless there exists a
Default, such visitation shall be during regular business hours, with proper
notice, and, the Lender shall not unduly interfere with the operation of such
Borrower's business.
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6.26 Notice of Pension-Related Events: Promptly after either Borrower, or
any Controlled Group Member with respect to such Borrower, or any administrator
of a Plan:
(a) receives any notification referred to in subsections (1), (4) or (7)
of Section 9.1(k) hereof;
(b) has knowledge of (A) the occurrence of a "Reportable Event" (as
defined in Section 4043(b) of ERISA with respect to a Plan; (B) any event which
has occurred or any action which has been taken to amend or terminate a Plan as
referred to in subsections (2) and (6) of Section 9.1(k) hereof; (C) any event
which has occurred or any action which has been taken which could result in
complete withdrawal, partial withdrawal, or secondary liability for withdrawal
liability payments with respect to a Multiemployer Plan as referred to in
subsection (7) of Section 9.1(k) hereof; or (D) any action which has been taken
in furtherance of, any agreement which has been entered into for, or any
petition which has been filed with a United States district court for, the
appointment of a trustee for a Plan as referred to in subsection (3) of Section
9.1(k) hereof; or
(c) files a notice of intent to terminate a Plan with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation; or files with the Internal
Revenue Service a request pursuant to Section 412(d) of the Code for a variance
from the minimum funding standard for a Plan; or files a return with the
Internal Revenue Service with respect to the tax imposed under Section 497(a) of
the Code for failure to meet the minimum funding standards established under
Section 412 of the Code for a Plan;
then, such Borrower will furnish to the Lender a copy of any notice received,
request or petition filed, and agreement entered into; the most recent Annual
Report (Form 5500 Series) and attachments thereto for the Plan; the most recent
actuarial report for the Plan; any notice, return, or materials required to be
filed with the Internal Revenue Service in connection with the event, action, or
filing; and a written statement of the Chairman, President, chief financial
officer, or managing partner, of such Borrower, as the case may be, describing
the event or the action taken and the reasons therefor.
6.27 Notice of Material Proceedings: Promptly upon becoming aware thereof,
each Borrower shall give the Lender notice of the commencement, existence or
threat of any proceeding by or before any official body against or affecting
such Borrower or any Affiliate which, if adversely decided, would have a
material adverse effect on the business, operations, properties or financial
condition of such Borrower or on the ability of such Borrower to perform its
obligations under this Agreement or the Note or other Loan Documents.
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ARTICLE 7 - NEGATIVE COVENANTS OF THE BORROWERS
Each Borrower hereby covenants and agrees that, from the date of this
Agreement and so long as such Borrower shall be indebted to Lender hereunder or
under any of the Note, or any contingent reimbursement obligation or claim
thereunder remains outstanding, such Borrower will comply with the following
covenants, unless Lender shall consent otherwise in writing:
7.1 Amendments, Mergers, Acquisitions, Etc.: Neither Borrower will change
its name, enter into any merger or consolidation, acquire the stock, ownership,
equity, business, assets or franchises of any other Person, enter into any
reorganization or recapitalization, reclassify its capital stock or partnership
interests, as the case may be, or issue any additional shares of capital stock
or partnership interests, as the case may be, whether through the payment of
stock dividends, distributions or otherwise.
7.2 Sale of Assets: Neither Borrower will sell, transfer, lease or
otherwise dispose of all or (except in the ordinary course of business), any
material part of its assets. In the event of any such sale of assets, whether
such assets constitute Collateral or not, the proceeds of such sale shall be
applied to repayment of the Loans.
7.3 Liens: Neither Borrower will mortgage, pledge, grant or permit to
exist any Lien or Liens upon any of its assets, of any kind, now owned or
hereafter acquired, except for Permitted Liens and Liens in favor of Lender, or
hypothecate or grant a Lien on any its capital, net worth, equity accounts, or
any capital stock or partnership interests, as the case may be.
7.4 Disposition of Right to Income: Neither Borrower will sell, discount,
transfer, assign, factor, mortgage or otherwise dispose of or grant or permit to
exist any Lien or Liens in any of the Collateral (including, without limitation,
the Accounts), other than to Lender, except for Permitted Liens and sales of
Inventory and other assets in the ordinary course of business.
7.5 Guarantor: Neither Borrower will become liable, directly or
indirectly, as guarantor or otherwise, for any obligation of any other Person.
7.6 Indebtedness: Neither Borrower will incur, create, or assume any
Indebtedness, except: (i) the Loans; (ii) Indebtedness secured only by Permitted
Liens (including capital or operating leases); (iii) unsecured Indebtedness
incurred in the ordinary course of business; (iv) Indebtedness due under a
management agreement between MediVators and Guarantor reasonably approved by
Lender; and (v) Indebtedness arising from other intercompany
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transactions between Borrower and Guarantor, provided such transactions are on
terms reasonably satisfactory to Lender.
7.7 Capital Stock Repurchase: Neither Borrower will redeem, purchase, or
retire any of its capital stock.
7.8 Statements Not Misleading, Etc.: Neither Borrower will furnish Lender
any certificate or other document that will contain any untrue statement of
material fact or that will omit to state a material fact necessary to make it
not misleading in light of the circumstances under which it is furnished.
7.9 Payments to Employees: Neither Borrower will permit any transfers of
property or payments to any present or former Affiliate, shareholder, officer or
employee of a Borrower, or the successors, assigns or transferees of such
individuals except for (i) normal compensation reasonable in amount under the
circumstances (Lender having approved of compensation levels existing as of the
date of this Agreement as "reasonable" for these purposes), (ii) repayments of
loans or advances approved in writing by Lender, (iii) Dividends, and (iv)
payments of Indebtedness permitted under Subsections (iv) and (v) of Section
7.6.
7.10 Disposition of Stock In and Indebtedness of Subsidiaries: Neither
Borrower will directly or indirectly sell, pledge or otherwise dispose of, or
part with control of, any shares of capital stock of a Borrower subsidiary (if
any) which is majority owned or controlled at any time hereafter ("Majority
Owned Subsidiary") or any Indebtedness of a Majority Owned Subsidiary
("indirect" disposition or issuance of share of capital stock includes but is
not limited to disposition or issuance of warrants, rights or options for, or
securities convertible into, such shares).
7.11 Regulation U: Neither Borrower shall use the proceeds of any Loans
hereunder directly or indirectly to purchase or carry any "margin stock" (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System) or to extend credit to others for the purpose of purchasing or carrying,
directly or indirectly, any such margin stock.
7.12 Lines of Business: Neither Borrower shall enter into a new line of
business or cease operations in any existing line of business without Lender's
consent.
7.13 Capital Expenditures. Borrowers will not make capital expenditures or
payments in the nature of capital expenditures in any fiscal year in the
aggregate in excess of $100,000 for the fiscal year ending July 31, 1996,
$150,000 for the fiscal year ending July 31, 1997 and $175,000 for the fiscal
year ending July 31, 1998.
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ARTICLE 8 - REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, each Borrower jointly and
severally makes the following continuing representations and warranties to
Lender, which shall be deemed renewed as of the date of each request for an
Advance, and deemed incorporated in each such request (the representations and
warranties in Section 8.1 shall also be deemed incorporated into each Borrowing
Base Certificate delivered to Lender with respect to the Accounts reflected in
such Borrowing Base Certificate):
8.1 Representations and Warranties as to Accounts Receivable: As to each
Account Receivable used as a base for borrowing hereunder (it being agreed that
Lender's recourse for a breach of the representations set forth in subparagraphs
(f) and (p) shall be limited to removing the Account Receivable from Eligible
Account Receivables):
(a) The Account Receivable arose from a bona fide outright sale of Goods
or services by a Borrower (and not consignments or "sale or return"
transactions) and, as to the sale of Goods, such Goods have been shipped to and
title to the Goods is vested with the respective Obligors or their designees;
(b) The Account Receivable is based on an enforceable order or contract
for Goods shipped and that the same will be delivered in accordance with such
order or contract;
(c) The title of Borrower to the Account Receivable is absolute and is not
subject to any prior assignment, claim, lien or security interest, except the
security interest of Lender;
(d) The amount shown as an Account Receivable on Borrower's books and on
any invoice or statement delivered to Lender is owing to Borrower and no partial
payment has been made thereon by anyone;
(e) The Account Receivable, or any portion thereof which is included in
the Borrowing Base, is not subject to any contra, credit, claim of reduction,
counterclaim, set-off, recoupment, or any claim for credit, allowances or
adjustments by the Obligor because of returned, inferior or damaged Goods or
unsatisfactory services, or for any other reason;
(f) The Account Receivable is not one as to which Lender has determined,
with notice to either Borrower, to be ineligible in whole or in part for the
following or similar reasons:
(1) payment terms not customary,
(2) credit weakness of the Obligor,
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(3) foreign country risks, including governmental regulation, war,
revolution, economic or social instability and the like,
(4) payment is to be made in foreign exchange,
(5) history of slow payments or disputes, or
(6) any questions as to the bona fide nature of the Obligor or its
undertaking to pay.
(g) To the extent the Account Receivable is reflected in the Borrowing
Base, the Obligor has not as of the date of the Borrowing Base Certificate
returned, or refused to retain, or asserted a right to return or refuse, any of
the Goods from the sale out of which the Account Receivable or portion thereof
arose;
(h) The Account Receivable is unpaid not more than ninety (90) days from
the invoice date unless the conditions of Section 8.1(m)(ii) below are met as to
such Account Receivable;
(i) The Account Receivable does not arise out of a contract with or order
from an Obligor which by its terms forbids or makes void or unenforceable the
assignment by Obligee to Lender of the Account arising with respect thereto;
(j) Neither Borrower has received and taken actions constituting
acceptance of any note, trade acceptance, draft or other instrument with respect
to or in payment for the Account Receivable (other than a check or checks, duly
endorsed, not postdated or payable other than to a Borrower, or subject to
conditions to payment, or containing any accord and satisfaction, and not
returned unpaid for any reason) nor any chattel paper with respect to the Goods
giving rise to the Account Receivable, and if any such instrument or chattel
paper is received, the applicable Borrower will immediately notify Lender in
writing and at the Lender's request, endorse or assign and deliver the same to
Lender;
(k) Neither any Borrower nor any Affiliate of a Borrower (other than
Carsen) is an Obligor with respect to the Account Receivable;
(l) The amount of each Account Receivable reported on a Periodic Recap as
an Eligible Account Receivable excludes as of the date of the Periodic Recap (i)
all partial or total payments received therefor, (ii) all chargeback billings,
(iii) all freight items and claims, (iv) all finance charges, late charges or
other service charges, (v) any retainages agreed to by the Obligee or asserted
by Obligor, (vi) reversals of credits previously given to the Obligor, or (vii)
credits received from any Obligor if the credit has been issued, aged or
outstanding ninety (90) days or more;
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(m) The Account Receivable does not represent a sale to a foreign Obligor
unless (i) the Obligor is Carsen, or (ii) an irrevocable, transferable
merchandise letter of credit, stipulating governance by the Uniform Customs and
Practices for Documentary Credits, and supporting the full obligation of the
Obligor, in form reasonably satisfactory to Lender, shall have been obtained and
collaterally assigned to Lender, on terms reasonably satisfactory to Lender;
(n) The Account Receivable does not represent progress or contract
billings, or proceeds of a consignment sale;
(o) The Obligor is not bankrupt or insolvent or the subject of
receivership proceedings, nor has made an assignment for benefit of creditors or
a composition with creditors;
(p) The Obligor is not a federal or state governmental or administrative
agency or entity; and
(q) The Account Receivable is not one which the Lender, reasonably deems
to be inadequately secured.
8.2 Other Representations and Warranties:
(a) Each Borrower is a business corporation duly organized, validly
existing and in good standing under the Laws of its state of incorporation set
forth on Exhibit A, is in good standing in each other jurisdiction wherein it is
required to be qualified as a foreign corporation (as designated at Exhibit A),
has the shareholders, directors, officers and principal place of business as
designated at Exhibit A and has the lawful power to own its properties and to
engage in the businesses it conducts;
(b) The making, delivery and performance of this Agreement, the Note, and
the Loan Documents, or amendments thereof, will not immediately, or with the
passage of time, the giving of notice, or both:
(1) Violate the certificate of incorporation or by-law provisions of
either Borrower or violate any Laws or result in a default under any contract,
agreement, or instrument to which either Borrower is a party or by which
Borrower or its property is bound; or
(2) Terminate or give any party the right to terminate any contract,
agreement or instrument to which either Borrower is a party or by which its
properties may be bound or affected;
(3) Result in the creation or imposition of any Lien upon any of the
assets of a Borrower except in favor of the Lender;
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(c) Each Borrower has the corporate power and authority to enter into and
perform this Agreement, the Note, and the other Loan Documents, and to incur the
Obligations herein and therein provided for, and has taken all action necessary
to authorize the execution, delivery, and performance of the same;
(d) This Agreement, the Note, and the other Loan Documents, and the
Obligations of each Borrower, are and continue to be valid, binding, and
enforceable in accordance with their respective terms, subject to applicable
bankruptcy laws and general principles of equity;
(e) Except as described on Exhibit C attached hereto, neither Borrower is
a party to or, to its best knowledge, threatened with, any litigation, suit,
action, investigation, proceedings or controversy before any court,
administrative agency or other governmental authority which, if adversely
determined, would result, in any material adverse change in its business
operations, properties or assets or in its condition, financially or otherwise,
or in any way affect this Agreement or the transactions contemplated hereby, and
neither Borrower is aware that it is in violation of or in default with respect
to any judgment, order, writ, injunction, decree or rule of any court,
administrative agency or governmental instrumentality or in any material respect
under any regulation of any administrative agency or governmental
instrumentality;
(f) Each Borrower has good and marketable title to all of its assets,
subject to no Lien or other claim of any third person except for Permitted
Liens;
(g) Borrower has filed all federal, state, and local tax returns, and
other reports which it is required by Law to file prior to the date hereof and
which are material to the conduct of its businesses, has paid or caused to be
paid all taxes, assessments and other governmental charges that are due and
owing prior to the date hereof, and has made adequate provision for the payment
of such taxes, assessments or other charges accruing but not yet payable;
neither Borrower has any knowledge of any deficiency or additional assessment in
a materially important amount in connection with any taxes, assessments or
charges not provided for on its books;
(h) Neither Borrower has in effect any "Defined Benefit Pension Plans", as
defined in ERISA, or had any in effect at any previous date, and except as
previously disclosed to the Lender in writing, no Reportable Event or Prohibited
Transaction, as defined in ERISA, has occurred with respect to any Plan;
(i) All financial statements delivered by Borrowers to Lender including
any schedules and notes pertaining thereto have been prepared in accordance with
GAAP, and fully and fairly present the
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financial condition of the Borrowers at the dates thereof and the results of
operations for the periods covered thereby. There have been no material adverse
changes in the financial condition of the Borrowers from that reflected in said
financial statements;
(j) Each Borrower has complied in all material respects with all
applicable regulatory and other Laws with respect to: (1) the conduct of its
businesses; and (2) the use, maintenance, and operation of the real and personal
properties owned or leased by it in the conduct of its businesses; neither
Borrower, nor any Affiliate, is in violation of or subject to any contingent
liability under the provisions of ERISA, the Internal Revenue Code of 1986, as
amended, any applicable occupational or health or safety law, including but not
limited to (i) any restrictions, specifications or requirements pertaining to
products that the Borrower or any subsidiary manufacturers, process or sell or
pertaining to the services each performs, (ii) the conduct of its business and
(iii) the use, maintenance or operation of the real and personal properties
owned or possessed by it;
(k) No representation or warranty furnished pursuant hereto contains any
untrue statement of material fact or omits to state a material fact necessary to
make such representation or warranty not misleading in light of the
circumstances under which it was made;
(l) Each consent, approval or authorization of, or filing, registration or
qualifications with, any Person which is required to be obtained or effected by
a Borrower in connection with the execution and delivery of this Agreement, the
Note, and the other Loan Documents, or the undertaking or performance of any
obligation hereunder or thereunder, has been duly obtained or effected;
(m) Except as generally disclosed in Exhibit D or any other exhibit hereto
attached hereto, neither Borrower has any leases, contracts or commitments of
any kind, such as employment agreements, collective bargaining agreements,
powers of attorney, contracts for future purchase or delivery of goods or
rendering of services, bonus, pension and retirement plans, or accrued vacation
pay, insurance and welfare agreements, or any contingent or noncontingent
liability, which is or are material in amount, and all parties to all leases,
contracts and other commitments to which the Borrower is a party have complied
with the provisions of such leases, contracts and other commitments, no party is
in default under any thereof and no event has occurred which, but for the giving
of notice or the passage of time, or both, would constitute a default with
respect thereto;
(n) Neither Borrower has made any agreement or taken any action which may
cause anyone to become entitled to a commission or finder's fee, a result of the
making of the Loans;
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(o) Each Borrower has taken all necessary steps to preserve its corporate
existence and all of its franchises and licenses, and has complied with all
present regulatory and other Laws applicable to it in the operation of its
businesses, and with all material agreements to which it is subject;
(p) Neither Borrower will make any borrowing hereunder for the purpose of
buying or carrying any "margin stock," as such term is used in Regulation U of
the Board of Governors of the Federal Reserve System, as amended from time to
time. Neither Borrower nor any subsidiary own any "margin stock". Neither
Borrower is engaged in the business of extending credit to others for such
purpose, and no part of the proceeds of any borrowing hereunder will be used to
purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock";
(q) Each of Borrower's Locations, the current locations of all Inventory,
and the locations of each office at which each Borrower maintains Records
concerning Accounts Receivable or other Accounts, and other financial matters,
are solely as set forth on Exhibit E hereto;
(r) Attached hereto as Exhibit F is a schedule setting forth all
Indebtedness (other than trade Indebtedness incurred in the ordinary course of
business) of each Borrower where the principal amount of the Indebtedness or the
present value of all future payments with respect to the Indebtedness (in the
case of all other Indebtedness) exceeds $25,000;
(s) All Permitted Exceptions and Permitted Liens and all leases (whether
capital or operating leases) to which either Borrower or its assets are subject,
are listed on Exhibit G hereto.
ARTICLE 9 - DEFAULT
9.1 Events of Default: The occurrence of any one or more of the following
shall constitute an Event of Default hereunder:
(a) Borrowers shall fail to pay when due and requested by Lender any
amount of principal or any amount of interest, or any reasonable fee, charge or
expense, payable hereunder or under the Note or other Loan Documents;
(b) Borrowers or Guarantor shall fail to pay when due, any Indebtedness
(not being reasonably disputed by Borrowers) for which the nonpayment exceeds
$100,000 or shall suffer to exist any other event of default under any material
agreement binding upon it or him provided, no Event of Default shall exist
unless such non-payment event of default has not been cured within 30 days of
notice by Lender;
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(c) Any financial statement, Periodic Recap, representation or warranty
made or furnished by any Borrower or its agents or Guarantor to Lender in
connection with this Agreement or its performance, or as an inducement to Lender
to enter into this Agreement or make any Advance, or in any separate statement
or document to be delivered hereunder to Lender, shall be false, incorrect, or
incomplete when made as to any material fact or facts, provided, if the adverse
effect of such false, incorrect or incomplete writing can be remedied by the
payment of monetary amounts, no event of default shall exist hereunder unless
such Borrower shall have failed to pay an amount sufficient to cure such default
within ten days of notice by Lender;
(d) Any Borrower or Guarantor shall admit its or his inability to pay, or
shall fail to pay, debts as they mature, or shall make an assignment for the
benefit of creditors;
(e) Proceedings in bankruptcy, or for reorganization of any Borrower or
for the readjustment of debts, under the Bankruptcy Code, as amended, or any
part thereof, or under any other Laws, whether state or federal, for the relief
of debtors, now or hereafter existing, shall be commenced by or against any
Borrower or Guarantor and if commenced against such Borrower or Guarantor shall
not be stayed or discharged within sixty (60) days of commencement;
(f) A receiver or trustee shall be appointed for any Borrower or Guarantor
or any substantial part of its assets, or any proceedings shall be instituted
for the dissolution or the full or partial liquidation of any Borrower and such
receiver or trustee shall not be discharged within sixty (60) days of initial
appointment, or such proceedings shall not be stayed or discharged within sixty
(60) days of their commencement, or any Borrower shall discontinue business or
materially change the nature of its business;
(g) Any Borrower or Guarantor shall suffer a final judgment for the
payment of money in excess of $100,000, and shall not discharge the same within
a period of thirty (30) days unless execution thereon is effectively stayed or
bonded pending further proceedings;
(h) A judgment creditor of any Borrower or Guarantor shall obtain
possession of or any attachment or other judicial process shall issue against,
any of the Collateral by any means, including, but without limitation, levy,
distraint, replevin or self-help or on a consensual basis, if such possession,
attachment, process, levy or distraint is, in Lender's reasonable opinion,
material or if such possession, attachment, process, levy or distraint shall not
have been finally stayed, enjoined or terminated within fifteen (15) days after
it was first obtained;
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(i) Any Borrower or any other Obligor or Affiliate of a Borrower shall
fail to observe or perform any other obligation to be observed or performed by
it hereunder or under any of the Notes, or other Loan Documents (giving effect
to applicable notice and cure periods), as the same may be amended;
(j) Any default by any Borrower or Guarantor or any other party with
respect to any other obligation to Lender or Bank under any Loan Document or
otherwise as to which any required notice has been given, any applicable grace
period has expired, and such default remains uncured and unwaived;
(k) Any one or more of the following events occurs which, in Lender's
reasonable opinion, when taken individually or collectively, have, or is or are
likely to have, a material, adverse effect on the financial condition or
business operations of Borrower and such event or circumstance continues for a
period of fifteen (15) days after written notice to cure is given by Lender:
(1) The PBGC notifies a Plan pursuant to Section 4042 of ERISA by
service of a complaint of its determination that an event described in Section
4042 (a) of ERISA has occurred, a Plan should be terminated, or a trustee should
be appointed for a Plan; or
(2) Any action is taken to terminate a Plan pursuant to its
provisions or the Plan administrator files with the PBGC a notice of intent to
terminate a Plan in accordance with Section 4041 of ERISA; or
(3) Any action is taken by a plan administrator to have a trustee
appointed for a Plan pursuant to Section 4042 of ERISA: or
(4) A return is filed with the Internal Revenue Service, or a Plan
is notified by the Secretary of the Treasury that a notice of deficiency under
Section 6212 of the Code has been mailed, with respect to the tax imposed under
Section 4971 (a) of the Code for failure to meet the minimum funding standards
established under Section 412 of the Code; or
(5) A Reportable Event occurs with respect to a Plan; or
(6) Any action is taken to amend a Plan to become an employee
benefit plan described in Section 4021(b)(1) of ERISA, causing a Plan
termination; or
(7) Any Borrower or a Controlled Group Member receives a notice of
liability or demand for payment on account of complete withdrawal under Section
4203 of ERISA, partial withdrawal under Section 4203 of ERISA or on account of
becoming secondarily liable for withdrawal liability payments under Section 4204
of ERISA (sale of assets);
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(l) Any Borrower, or any shareholder, director or officer of Borrower
shall be convicted of a felony;
(m) The commencement of dissolution or liquidation proceedings with
respect to any Borrower (other than proceedings commenced by third parties
stayed or dismissed within thirty (30) days of commencement) or a change in the
shareholder ownership of any Borrower; or
(n) There shall occur a default under or termination or modification of
the Olympus Agreement which in the reasonable opinion of Lender has a negative
effect on the value of Borrowers' business or economic position;
(o) There shall exist a default under or termination (other than a
termination in the ordinary course at maturity) of the credit relationship
between Bank and Carsen; or
(p) There shall be a material adverse change at any time in the financial
condition of any Borrower or Guarantor.
9.2 Acceleration: Immediately and without notice upon the occurrence of an
Event of Default specified in subsection 9.1(e) or subsection 9.1(f), or in the
case of any other Event of Default at the option of Lender, upon notice by
Lender or its agent or attorney to the Borrowers, all Obligations, whether
hereunder or otherwise, including without limitation those evidenced by the
Note, shall immediately become due and payable, without further action or notice
of any kind.
9.3 Remedies: Upon the occurrence of an Event of Default Lender shall
have, in addition to the rights and remedies given it by this Agreement, the
Note, or any other of the Loan Documents, as amended, and the remaining
documents delivered pursuant hereto, all those allowed by all applicable Laws,
including, without limitation, the UCC.
Without limiting the generality of the foregoing, upon an Event of
Default, Lender may immediately, without demand for performance and without
other notice or demand whatsoever to the Borrowers (except as specifically
required by this Agreement or the documents delivered pursuant hereto or as
required by applicable Laws), sell at public or private sale or otherwise
realize upon, at any place designated by Lender in its sole discretion,
including any place of business of Lender or any of its affiliates, the whole
or, from time to time, any part of the Collateral, or any interest which the
Borrowers may have therein. The Borrowers shall, at Lender's request, subsequent
to an Event of Default, cooperate, assist and, as requested, supervise, and
cause their officers, directors, agents and employees to cooperate, assist and
supervise in any disposition of Collateral directed by Lender, including
transfers of Collateral to Lender or third party purchasers, as
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Lender, in its sole discretion may elect. After deducting from the proceeds of
sale or other disposition of the Collateral all expenses (including all expenses
for legal services), Lender shall apply such proceeds toward the satisfaction of
the Obligations, in such order as it shall determine. Any remainder of the
proceeds after satisfaction in full of the Obligations shall be distributed as
regulated by applicable Laws. At any such sale or other disposition, Lender may,
to the extent permissible under applicable Laws, purchase the whole or any part
of the Collateral, free from any right of redemption on the part of the
Borrowers, which right is hereby waived and released. Notice of any sale or
other disposition shall be given to the Borrowers at the address set forth on
Exhibit B or such other address as may from time to time be shown on Lender's
records at least ten (10) days before the time of any intended public sale or of
the time after which any intended private sale or other disposition of the
Collateral is to be made, which the Borrowers hereby agree shall be reasonable
notice of such sale or other disposition. Borrowers agree to assemble, or to
cause to be assembled, at the Borrowers' own expense, the Collateral at such
place or places as Lender shall designate. Without limiting the generality of
any of the rights and remedies conferred upon Lender under this Section, Lender
may, to the full extent permitted by applicable Laws do any or all of the
following:
(a) Enter upon any premises of each Borrower, exclude the Borrower
therefrom, and take immediate possession of the Collateral, either personally or
by means of a receiver appointed by a court of competent jurisdiction, or by
other lawful means;
(b) At Lender's option, use, operate, manage and control the Collateral in
any lawful manner;
(c) Collect and receive any or all rents, income, revenue, earnings,
issues, and profits (including the Accounts), and proceeds therefrom; and
(d) Maintain, repair, renovate, alter or remove the Collateral as Lender
may determine in its discretion.
9.4 Application of Proceeds: Borrowers hereby irrevocably waive the right
to direct the application of all payments, including proceeds of Collateral,
that may be received by Lender or for the benefit of Borrowers. The proceeds of
any sale or other disposition of all or any part of the Collateral, or any
interest which either Borrower may have therein, shall be applied by Lender in
the following order:
(a) First, to payment of all reasonable costs and expenses incurred by
Lender under any of the Loan Documents including without limitation all
reasonable costs and expenses relating to disposition of Collateral or
enforcement of the Borrowers' Obligations, and reasonable attorneys' fees,
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(b) Second, to the payment in full of (i) all accrued and unpaid interest
on, and, thereafter (ii) the unpaid principal balance of the Loans, the Note and
other Obligations, all in accordance with the terms of the Notes, this Agreement
and the other Loan Documents, and
(c) Third, to the payment in full of all other Obligations of the
Borrowers to Lender, and
(d) Fourth, to the Borrowers to the extent of any surplus.
The Borrowers shall remain jointly and severally liable to Lender for any
deficiency in payment of the Obligations to Lender after application of the
proceeds in accordance with this Section 9.4.
9.5 Jurisdiction: The Borrowers consent to the personal jurisdiction of
the Federal or State Courts located in the State of New York; if suit is filed
by any party to enforce, interpret or construe this Agreement.
9.6 Enforcement and Waiver by the Lender: Lender shall have the right at
all times to enforce the provisions of this Agreement and the documents
delivered pursuant hereto in strict accordance with the terms hereof and
thereof, notwithstanding any conduct or custom on the part of Lender in
refraining from so doing at any time or time. The failure of Lender at any time
or times to enforce its rights under such provisions, strictly in accordance
with the same, shall not be construed as having created a custom in any way or
manner contrary to specific provisions of this Agreement or as having in any way
or manner modified or waived the same. All rights and remedies of Lender are
cumulative and concurrent and the exercise of one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
ARTICLE 10 - MISCELLANEOUS
10.1 Interpretation: The provisions of this Agreement shall be in addition
to those of any letter of credit agreement, security agreement, note or other
evidence of liability now or hereafter at any time held by Lender, all of which
shall be construed as complementary and supplementary to each other to the
extent possible. Nothing herein contained shall prevent Lender from enforcing
any or all other agreements in accordance with their respective terms.
10.2 Further Assurances: From time to time, each Borrower will execute and
deliver to Lender such additional documents and will provide such additional
information as Lender may reasonably require, to carry out the terms of this
Agreement and be informed of such Borrower's status and affairs.
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10.3 Power to Execute Documents: Each Borrower hereby irrevocably (this
power being coupled with an interest) appoints, constitutes and names Lender, or
any of its attorneys or agents, the true and lawful attorney for such Borrower,
with full power of substitution, to do any or all of the following at any time
after the occurrence of an Event of Default (but this grant of authority shall
not negate any other grant of authority under this Agreement which may authorize
other actions, or similar actions under other circumstances):
(a) To receive, endorse, sign and deliver, in the name of the Borrower, or
in Lender's name, all checks, drafts, money orders and other instruments, for
the payment of moneys which are payable to such Borrower;
(b) To sign the names of such Borrower, and to receipt for such Borrower,
on any schedules, assignments, instruments, documents and UCC financing,
amending or continuation statements which such Borrower is obligated to give
Lender hereunder or any invoice, warehouse receipt, bill of lading or other
Document, Instrument or Chattel Paper, or any Accounts, Accounts Receivable,
statements therefor, drafts against Obligors or drawn or to be drawn under any
letters of credit, notices to Obligors, certificates or other documents to be
delivered or presented under letters of credit or schedules or assignments of
Accounts; and
(c) To take or bring at such Borrower's expense, in the name of such
Borrower, or Lender, all steps, actions and suits that Lender considers
necessary or desirable to effect collections of Accounts, to enforce payment of
any Account, to settle, compromise, sell, assign, discharge or release, in whole
or in part, any amounts owing on Accounts, to extend the time of payment of any
and all Accounts and to make allowances and adjustments with regard to Accounts;
and
(d) To do such other and further acts and deeds in the name of such
Borrower that Lender may deem necessary or desirable to enforce the rights of
such Borrower against third parties with respect to any Collateral.
10.4 Cost, Expenses, and Fees Paid and Payable to Lender: Each Borrower
agrees that all reasonable costs, expenses, and reasonable attorneys fees of, or
incidental to the custody, care, management, sale or collection of, or
realization upon, any of the Collateral or in any way relating to the care,
enforcement or protection of the Collateral or in the enforcement of any and all
rights of Lender either hereunder or under any applicable law or custom
excluding, all out of pocket costs incurred by Lender in conjunction with field
exams of Collateral (at a rate of $500 per man day per day plus expenses, but,
if a Default has not occurred, not to exceed $4,000 per year, plus reasonable
expenses, with such exams to take place as often as sixty days after Closing and
each
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ninety days thereafter) and location visitations shall become part of the
Obligations and entitled to the benefits of this Agreement as if an Advance had
been made hereunder upon the application of the Borrower, and Lender may at any
time after same is due apply to the payment of all such costs and expenses all
moneys of Collateral or other proceeds arising from the possession or
disposition of all or any portion of the Collateral.
10.5 Indemnification: Each Borrower shall jointly and severally pay, and
shall protect, indemnify and save harmless the Lender and Bank and their
officers, directors, shareholders, employees, contractors, attorneys, agents and
servants from and against any and all losses, liabilities (including liabilities
for penalties), actions, suits, judgments, demands, damages, costs or expenses
(including without limitation, reasonable attorneys' fees and expenses) of any
nature arising from or relating to this Agreement or any Loan, Advance, or any
action or omission of Lender or Bank in connection therewith, except for any
such losses, liabilities, actions, suits, judgments, demands, damages, costs or
expenses resulting from the negligence or willful misconduct of the Bank or
Lender. If any action, suit or proceeding arising from any of the foregoing is
brought against the Bank or Lender or any person indemnified or intended to be
indemnified pursuant to this Section, each Borrower, to the extent and in the
manner directed by the Lender, will jointly and severally resist and defend such
action, suit or proceeding or cause the same to be resisted and defended by
counsel designated by the Borrowers (which counsel shall be reasonably
satisfactory to the person or persons indemnified or intended to be
indemnified). The obligations of the Borrowers under this Section shall survive
the termination of this Agreement and the discharge of the Borrowers'
Obligations hereunder.
10.6 Notices: Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered by hand
or if sent by certified mail, postage prepaid, return receipt requested, as
follows, unless such address is changed by written notice hereunder:
If to the Borrowers: To their addresses designated on the
first page of this Agreement.
with a copy to: Eric W. Nodiff, Esq.
Dornbush Mensch Mandelstam &
Schaeffer, LLP
747 Third Avenue
New York, New York 10017
and
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Cantel Industries, Inc.
1135 Broad Street
Clifton, New Jersey 07013
Attention: Craig Sheldon, Vice President
and Controller
If to Lender: National Canada Finance Corp.
125 West 55th Street
New York, NY 10019
Attention: John Richter
with a copy to: National Canada Finance Corp.
85 Livingston Avenue
Roseland, N.J. 07068
Attention: Joseph Accardi
and John Leifer
Any notice hereunder shall be deemed to have been given five (5) days
after mailing thereof, or upon actual delivery to an agent of the recipient
party if by hand, to the other party at such party's then effective address
hereunder. Notices by Lender may be given on its behalf by its agent or
attorney.
10.7 Waiver and Release by the Borrowers: To the maximum extent permitted
by applicable Laws, the Borrowers waive demand, protest, presentment, and notice
of dishonor of all commercial paper at any time held by Lender on which the
Borrowers are in any way liable.
10.8 Applicable Law: The internal substantive laws of the State of New
York shall govern the construction of this Agreement and the rights and remedies
of the parties hereto without regard to any rules relating to conflict of laws
or choice of law.
10.9 Binding Effect, Assignment and Entire Agreement: This Agreement shall
inure to the benefit of, and shall be binding upon, the respective heirs,
executors, administrators, successors and permitted assigns of the parties
hereto. Neither Borrower has any right to assign any of its rights or
obligations hereunder without the prior written consent of Lender. This
Agreement, and the documents executed and delivered pursuant hereto, constitute
the entire agreement between the parties and supersede all prior commitments,
understandings and agreements, and may be amended only by a writing signed on
behalf of each party. If there is any inconsistency between the express terms of
this Agreement and the express terms of any other Loan Document, the terms of
this Agreement shall prevail.
10.10 Severability: If any provision of this Agreement shall be held
invalid under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement which can be given
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effect without the invalid provision. To this end, the provisions hereof are
severable.
10.11 Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.12 Waiver of Trial by Jury: EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT THE BORROWER MAY HAVE OR MAY HEREAFTER HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT. Each Borrower hereby certifies that neither
Lender nor any of its representatives, agents or counsel has represented,
expressly or otherwise, that Lender would not, in the event of any such suit,
action or proceeding, seek to enforce this waiver of right to trial by jury.
Each Borrower acknowledges that its has made this waiver knowingly, voluntarily
and intentionally.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
under seal, as of the day and year first above written.
NATIONAL CANADA FINANCE CORP.
By: /s/ Joseph Accardi
------------------
Joseph Accardi,
Vice President
/s/ John Leifer
-----------------------------
John Leifer,
Vice President
Attest: MEDIVATORS, INC.
By: /s/ Craig Sheldon By: /s/ Donald L. Sturtevant
----------------- ---------------------
Craig Sheldon, Vice President, Donald L. Sturtevant,
Treasurer and Secretary President and Chief
Financial Officer
Attest: DISPOSAL SCIENCES, INC.
By: /s/ Craig Sheldon By: /s/ Donald L. Sturtevant
----------------- ---------------------
Craig Sheldon, Vice President, Donald L. Sturtevant,
Treasurer and Secretary President and Chief
Financial Officer
-42-
CANTEL INDUSTRIES, INC.
Computation of Earnings per Share
Exhibit 11
Year Ended July 31,
----------------------------------
PRIMARY 1996 1995 1994
---------- ---------- ----------
Weighted average number of shares
outstanding 3,789,777 3,739,396 3,426,489
Dilutive effect of options and warrants
using the treasury stock method
and average market price for the period 518,802 - 418,629
---------- ---------- ----------
Weighted average number of shares and
common stock equivalents assuming no
redemption or conversion of preferred
stock 4,308,579 3,739,396 3,845,118
========= ========= =========
Income (loss) from continuing operations
before extraordinary gain and dividends
on preferred stock $ 422,000 $ (793,000) $ (61,000)
Dividends on preferred stock - - (314,000)
---------- ---------- ----------
Income (loss) from continuing operations
before extraordinary gain assuming no
redemption or conversion of preferred
stock 422,000 (793,000) (375,000)
Discontinued operations - - 562,000
Extraordinary gain on extinguishment of
debt - - 1,211,000
---------- ---------- ----------
Net income (loss) attributable to
common stock $ 422,000 $ (793,000) $1,398,000
========== =========== ==========
Primary earnings per share assuming
no conversion or redemption of
preferred stock:
Continuing operations $0.10 $(0.21) $(0.10)
Discontinued operations - - 0.15
Extraordinary gain on extinguishment
of debt - - 0.31
----- ------ ------
Net income (loss) $0.10 $(0.21) $ 0.36
===== ====== ======
<PAGE>
CANTEL INDUSTRIES, INC.
Computation of Earnings per Share
Exhibit 11
Year Ended July 31,
-------------------------------
FULLY DILUTED 1996 1995 1994
--------- --------- -------
Weighted average number of shares
outstanding 3,789,777 3,739,396 3,426,489
Dilutive effect of options and warrants
using the treasury stock method
and the higher of the period-end or
average market price for the period 518,802 - 462,261
--------- --------- ---------
Weighted average number of shares and
common stock equivalents assuming no
redemption or conversion of preferred
stock 4,308,579 3,739,396 3,888,750
========= ========= =========
Income (loss) from continuing operations
before extraordinary gain and dividends
on preferred stock $ 422,000 $ (793,000) $ (61,000)
Dividends on preferred stock - - (314,000)
---------- ---------- ----------
Income (loss) from continuing operations
before extraordinary gain assuming no
redemption or conversion of preferred
stock 422,000 (793,000) (375,000)
Discontinued operations - - 562,000
Extraordinary gain on extinguishment of
debt - - 1,211,000
---------- --------- ---------
Net income (loss) attributable to
common stock $ 422,000 $ (793,000) $1,398,000
========== ========== ==========
Fully diluted earnings per share assuming
no redemption or conversion of
preferred stock:
Continuing operations $0.10 $(0.21) $(0.10)
Discontinued operations - - 0.15
Extraordinary gain on extinguishment
of debt - - 0.31
----- ----- ------
Net income (loss) $0.10 $(0.21) $ 0.36
===== ====== ======
EXHIBIT 21
CANTEL INDUSTRIES, INC.
Subsidiaries of Registrant - July 31, 1996
-----------------------------------------------------
Carsen Group Inc. (Amalgamated under the laws of
Ontario, Canada)
MediVators, Inc. (Incorporated under the laws of
Minnesota)
EXHIBIT 24(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-73492) of Cantel Industries, Inc. and in the related Prospectus and
to the incorporation by reference in the Registration Statements (Form S-8 Nos.
33-73446 and 33-04495) of Cantel Industries, Inc., of our report dated September
18, 1996, with respect to the consolidated financial statements and schedule of
Cantel Industries, Inc. included in this Annual Report on Form 10-K for the year
ended July 31, 1996.
ERNST & YOUNG LLP
Princeton, New Jersey
October 24, 1996
EXHIBIT 24(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (Registration No.
33-73492) and to the incorporation by reference in the Registration Statements
on Form S-8 (Registration Nos. 33-73446 and 33-04495) of Cantel Industries, Inc.
of our report dated May 3, 1996 relating to the financial statements of
MediVators, Inc. as of and for each of the two years in the period ended July
31, 1995 appearing in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
October 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 682,000
<SECURITIES> 0
<RECEIVABLES> 5,268,000
<ALLOWANCES> 132,000
<INVENTORY> 8,196,000
<CURRENT-ASSETS> 14,454,000
<PP&E> 2,493,000
<DEPRECIATION> 1,884,000
<TOTAL-ASSETS> 15,998,000
<CURRENT-LIABILITIES> 3,081,000
<BONDS> 3,419,000
0
0
<COMMON> 389,000
<OTHER-SE> 9,012,000
<TOTAL-LIABILITY-AND-EQUITY> 15,998,000
<SALES> 29,792,000
<TOTAL-REVENUES> 29,792,000
<CGS> 19,433,000
<TOTAL-COSTS> 19,433,000
<OTHER-EXPENSES> 9,143,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,000
<INCOME-PRETAX> 958,000
<INCOME-TAX> 536,000
<INCOME-CONTINUING> 422,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
