<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1996
REGISTRATION NO. 33-64727
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CANTEL INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 504 22-1760285
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation)
</TABLE>
1135 BROAD STREET -- SUITE 203
CLIFTON, NEW JERSEY 07013
(201) 470-8700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------
JAMES P. REILLY
1135 BROAD STREET -- SUITE 203
CLIFTON, NEW JERSEY 07013
(201) 470-8700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Eric W. Nodiff, Esq. Gregory Freitag, Esq.
Dornbush Mensch Mandelstam & Fredrikson & Byron, P.A.
Schaeffer, LLP 900 Second Avenue South
747 Third Avenue 1100 International Center
New York, New York 10017 Minneapolis, Minnesota 55402
(212) 759-3300 (612) 347-7153
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME DUE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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ITEM OF FORM S-4 LOCATION OR CAPTION IN JOINT PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Cover Page; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information
3. Risk Factors, Ratio of Earnings to Fixed Charges,
and Other Information............................ Summary of Joint Proxy Statement/Prospectus; Table of
Contents
4. Terms of the Transaction.......................... Summary of Joint Proxy Statement/Prospectus; General
Information; Summary of Merger Agreement
5. Pro Forma Financial Information................... Unaudited Pro Forma Combined Condensed Financial Data
6. Material Contacts with the Company Being
Acquired......................................... Summary of Joint Proxy Statement/Prospectus
7. Additional Information Required For Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of Named Experts and Counsel............ Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification For Securities Act Liabilities... Not applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants....... Not Applicable
11. Incorporation of Certain Information by
Reference........................................ Not Applicable
12. Information With Respect to S-2 or S-3
Registrants...................................... Information with Respect to Cantel; Cantel Selected
Financial Data.
13. Incorporation of Certain Information by
Reference........................................ Incorporation of Certain Documents By Reference
14. Information With Respect to Registrants Other than
S-3 or S-2 Registrants........................... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies......... Not Applicable
16. Information with Respect to S-2 or S-3
Companies........................................ Information with Respect to MediVators; MediVators
Selected Financial Data
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................. Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION OR CAPTION IN JOINT PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to be Solicited.............................. Cover Page; Summary of Joint Proxy Statement/Prospectus;
Summary of Merger Agreement
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in an Exchange
Offer............................................ Not Applicable
</TABLE>
<PAGE>
CANTEL INDUSTRIES, INC.
1135 BROAD STREET
SUITE 203
CLIFTON, NEW JERSEY 07013
January , 1996
Dear Stockholder:
You are cordially invited to attend an Annual Meeting of the Stockholders of
Cantel Industries, Inc. ("Cantel") to be held on February , 1996 at 10:00 a.m.,
Eastern Standard Time (the "Annual Meeting").
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to adopt an Agreement and Plan of Merger (the "Merger Agreement") dated
as of November 14, 1995 among Cantel, Cantel Acquisition Corp. ("Newco"), a
newly formed Minnesota corporation which is a wholly-owned subsidiary of Cantel,
and MediVators, Inc. ("MediVators"), a Minnesota corporation pursuant to which
Newco will merge with and into MediVators, whereupon MediVators will become a
wholly-owned subsidiary of Cantel (the "Merger"). A copy of the Merger Agreement
is attached as Annex I to the accompanying Joint Proxy Statement/Prospectus.
Stockholders will also be voting for the election of three directors to Cantel's
Board of Directors and the appointment of independent auditors.
Enclosed are a Notice of Annual Meeting of Stockholders and a Joint Proxy
Statement/Prospectus that describes, among other things, the Merger, the
background to the transaction, the businesses of Cantel and MediVators and the
factors the Board of Directors of Cantel considered in approving the Merger.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION APPROVING THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF
ADOPTING THE MERGER AGREEMENT. In reaching this decision, the Board of Directors
considered many factors, including, but not limited to, the terms of the Merger
Agreement, the earnings, management, financial condition, business and future
prospects of Cantel, and the products, markets, earnings, management, cash flow
and financial condition of MediVators, and the future resources of the combined
companies.
A form of proxy solicited by the Board of Directors is enclosed for your
convenience. PLEASE PROMPTLY SIGN AND RETURN YOUR PROXY CARD IN THE ENVELOPE
PROVIDED WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. If you attend the Annual
Meeting, you may vote in person if you wish, even if you have previously
returned your proxy card.
I strongly support the Merger and join with the other members of the Board
of Directors in recommending the Merger to you. I urge you to vote in favor of
the adoption of the Merger Agreement.
Very truly yours,
James P. Reilly
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD.
<PAGE>
SUBJECT TO COMPLETION -- DATED JANUARY , 1996
CANTEL INDUSTRIES, INC.
1135 BROAD STREET -- SUITE 203
CLIFTON, NEW JERSEY 07013
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY , 1996
------------------------
To the Stockholders of
Cantel Industries, Inc.
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of Cantel
Industries, Inc. ("Cantel"), a Delaware corporation, will be held at ,
New York, New York, on February , 1996 at 10:00 a.m., Eastern Standard Time,
for the following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger dated as of November 14, 1995 (the "Merger Agreement") by and
among Cantel, Cantel Acquisition Corp. ("Newco"), a newly formed
Minnesota corporation which is wholly-owned by Cantel, and MediVators,
Inc. ("MediVators"), a Minnesota corporation. Pursuant to the Merger
Agreement, Cantel will acquire the business, properties and assets of
MediVators through the merger (the "Merger") of Newco with and into
MediVators. At the effective time of the Merger, each issued and
outstanding share of Series A Common Stock, par value $.01 per share, of
MediVators will be converted into .2571 shares of common stock, par value
$.10 per share, of Cantel ("Cantel Stock") and each issued and
outstanding share of Series B 10% Cumulative Redeemable Convertible
Common Stock, par value $.01 per share, of MediVators will be converted
into .7713 shares of Cantel Stock. Upon the effectiveness of the Merger,
the separate existence of Newco will cease and MediVators will be a
wholly-owned subsidiary of Cantel.
2. To elect three directors to Cantel's Board of Directors to hold office
until the Annual Meeting of Stockholders to be held after the fiscal year
ending July 31, 1998.
3. To consider the appointment of Ernst & Young LLP as Cantel's independent
auditors for the fiscal year ending July 31, 1996.
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on January , 1996 are
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
You are cordially invited to attend the Annual Meeting. If you do not plan
to be present, kindly fill in, date and sign the accompanying proxy exactly as
your name appears on your stock certificates and mail it promptly in the
enclosed return envelope to assure that your shares are represented and your
vote can be recorded. This may save Cantel the expense of further proxy
solicitation.
THE BOARD OF DIRECTORS OF CANTEL BELIEVES THE PROPOSED MERGER IS IN THE
BEST INTERESTS OF CANTEL AND ITS STOCKHOLDERS, AND RECOMMENDS THAT ITS
STOCKHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Darwin C. Dornbush,
SECRETARY
Date: January , 1996
<PAGE>
MEDIVATORS, INC.
CANNON PLAZA SOUTH
6352 320 STREET WAY
CANNON FALLS, MINNESOTA 55009
(612) 635-4721
January , 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders of
MediVators, Inc. ("MediVators") to be held on February , 1996 at 9:00 a.m.,
Central Standard Time (the "MediVators Special Meeting").
At the MediVators Special Meeting, you will be asked to consider and vote
upon a proposal to adopt an Agreement and Plan of Merger (the "Merger
Agreement") dated as of November 14, 1995 among Cantel Industries, Inc.
("Cantel"), a Delaware corporation, Cantel Acquisition Corp. ("Newco"), a newly
formed Minnesota corporation which is a wholly-owned subsidiary of Cantel, and
MediVators, pursuant to which Newco will merge with and into MediVators,
whereupon MediVators will become a wholly-owned subsidiary of Cantel (the
"Merger"). A copy of the Merger Agreement is attached as Annex I to the
accompanying Joint Proxy Statement/Prospectus.
Enclosed are a Notice of Special Meeting of Stockholders and a Joint Proxy
Statement/Prospectus that describes, among other things, the Merger, the
background to the transaction, the businesses of Cantel and MediVators and the
factors the Board of Directors of MediVators considered in approving the Merger.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION APPROVING THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF
ADOPTING THE MERGER AGREEMENT. In reaching this decision, the Board of Directors
considered many factors, including, but not limited to, the terms of the Merger
Agreement, the earnings, management, reputation, financial condition, business
and future prospects of Cantel, the earnings, cash flow and financial condition
of MediVators, and the future resources of the combined companies.
A form of proxy solicited by the Board of Directors is enclosed for your
convenience. PLEASE PROMPTLY SIGN AND RETURN YOUR PROXY CARD IN THE ENVELOPE
PROVIDED WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. If you attend the
MediVators Special Meeting, you may vote in person if you wish, even if you have
previously returned your proxy card.
If the Merger Agreement is adopted, promptly after the Merger a letter of
transmittal will be mailed to all holders of record of shares of MediVators
common stock to use in connection with surrendering their stock certificates.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD OR TO
THE EXCHANGE AGENT UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL, WHICH WILL
INCLUDE INSTRUCTIONS AS TO THE PROCEDURE TO BE USED IN SENDING YOUR STOCK
CERTIFICATES.
I strongly support the Merger and join with the other members of the Board
of Directors in recommending the Merger to you. I urge you to vote in favor of
adoption of the Merger Agreement.
Very truly yours,
Donald L. Sturtevant
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEDIVATORS SPECIAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE MEDIVATORS SPECIAL MEETING, YOU
ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE MEDIVATORS SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
SUBJECT TO COMPLETION -- DATED JANUARY , 1996
MEDIVATORS, INC.
CANNON PLAZA SOUTH
6352 320 STREET WAY
CANNON FALLS, MINNESOTA 55009
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY , 1996
------------------------
To the Stockholders of
MediVators, Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of MediVators,
Inc. ("MediVators"), a Minnesota corporation, will be held at , on
February , 1996 at 9:00 a.m., Central Standard Time, for the following
purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger dated as of November 14, 1995 (the "Merger Agreement") by and
among Cantel Industries, Inc. ("Cantel"), a Delaware corporation, Cantel
Acquisition Corp. ("Newco"), a newly formed Minnesota corporation which
is wholly-owned by Cantel, and MediVators. Pursuant to the Merger
Agreement, Cantel will acquire the business, properties and assets of
MediVators through the merger (the "Merger") of Newco with and into
MediVators. At the effective time of the Merger each issued and
outstanding share of Series A Common Stock, par value $.01 per share, of
MediVators will be converted into .2571 shares of common stock, par value
$.10 per share, of Cantel ("Cantel Stock") and each issued and
outstanding share of Series B 10% Cumulative Redeemable Convertible
Common Stock, par value $.01 per share, of MediVators will be converted
into .7713 shares of Cantel Stock. Upon the effectiveness of the Merger,
the specific existence of Newco will cease and MediVators will be a
wholly-owned subsidiary of Cantel.
2. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on January , 1996 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
Record and beneficial holders of shares of MediVators Common Stock are
entitled to dissent from the Merger, and to receive payment in cash for the fair
value of their shares in lieu of the consideration they would receive under the
Merger Agreement, if they comply with certain procedures specified in the
Minnesota Business Corporation Act and described in the accompanying Joint Proxy
Statement/ Prospectus. See "Rights of Dissenting Stockholders." A copy of
Sections 302A.471 and 302A.473 of said Act, relating to dissenters' rights, is
attached to the Joint Proxy Statement/Prospectus as ANNEX IV.
You are cordially invited to attend the Special Meeting. If you do not plan
to be present, kindly fill in, date and sign the accompanying proxy exactly as
your name appears on your stock certificates and mail it promptly in the
enclosed return envelope to assure that your shares are represented and your
vote can be recorded. This may save MediVators the expense of further proxy
solicitation.
THE BOARD OF DIRECTORS OF MEDIVATORS BELIEVES THE PROPOSED MERGER IS IN
THE BEST INTERESTS OF MEDIVATORS AND ITS STOCKHOLDERS, AND RECOMMENDS
THAT ITS STOCKHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Brenda Angelstad,
SECRETARY
Date: January , 1996
<PAGE>
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CANTEL INDUSTRIES, INC. MEDIVATORS, INC.
1135 BROAD STREET -- SUITE 203 CANNON PLAZA SOUTH
CLIFTON, NEW JERSEY 07013 6352 320 STREET WAY
CANNON FALLS, MINNESOTA 35009
</TABLE>
--------------------------
JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of Cantel Industries, Inc., a Delaware corporation ("Cantel") and MediVators,
Inc., a Minnesota corporation ("MediVators"), in connection with the
solicitation of proxies for use at an Annual Meeting of Stockholders of Cantel
(the "Cantel Meeting") and a Special Meeting of Stockholders of MediVators (the
"MediVators Meeting"), both to be held on February , 1996, and at any
adjournments thereof. At the Cantel Meeting, stockholders of Cantel will be
asked to vote (i) for the election of three directors to Cantel's Board of
Directors to hold office until the Annual Meeting of Stockholders to be held
after the fiscal year ending July 31, 1998, (ii) for the appointment of
independent auditors for the fiscal year ending July 31, 1996, and (iii) to
adopt an Agreement and Plan of Merger dated as of November 14, 1995 (the "Merger
Agreement") by and among Cantel, Cantel Acquisition Corp. ("Newco"), a
newly-formed Minnesota corporation which is wholly-owned by Cantel, and
MediVators. At the MediVators Meeting, stockholders of MediVators will be asked
to adopt the Merger Agreement.
Pursuant to the Merger Agreement, Cantel will acquire the business, property
and assets of MediVators through the merger (the "Merger") of Newco with and
into MediVators, which shall be the surviving corporation. At the effective time
of the Merger (the "Effective Time"), each issued and outstanding share of
Series A common stock, par value $.01 per share, of MediVators (the "Series A
Stock") will be converted into .2571 shares of Cantel common stock, par value
$.10 per share (the "Cantel Stock") and each issued and outstanding share of
Series B 10% Cumulative Redeemable Convertible Common Stock, par value $.01 per
share, of MediVators (the "Series B Stock") will be converted into .7713 shares
of Cantel Stock. The Series A Stock and Series B Stock are sometimes
collectively referred to as the "MediVators Stock." The issued and outstanding
shares of Cantel Stock will be unaffected by the Merger. Upon the effectiveness
of the Merger, the separate existence of Newco will cease and MediVators will
become a wholly-owned subsidiary of Cantel.
This document also constitutes a prospectus under the Securities Act of
1933, as amended (the "Securities Act") for the offering by Cantel pursuant to
the terms of the Merger Agreement of (i) approximately 997,158 shares of Cantel
Stock to be issued upon the conversion of MediVators Stock outstanding at the
Effective Time; (ii) approximately 225,990 shares of Cantel Stock that will be
reserved for issuance upon exercise of stock options outstanding at the
Effective Time under the MediVators 1993 Director Stock Option Plan and 1991
Stock Option and Compensation Plan (the "MediVators Option Plans") and
individually granted non-plan options and warrants (collectively, the
"MediVators Convertible Securities"); and (iii) such indeterminate number of
shares of Cantel Stock as may become issuable pursuant to the anti-dilution
provisions governing MediVators Convertible Securities. At the Effective Time,
and assuming no MediVators Convertible Securities or Cantel Convertible
Securities (as defined below) are exercised between the date hereof and the
Effective Time, the former holders of MediVators Stock, will own approximately
26.5% of the issued and outstanding Cantel Stock without giving effect to the
MediVators Convertible Securities or to options outstanding at the Effective
Time under the Cantel 1991 Employee Stock Option Plan, 1991 Directors' Stock
Option Plan, and 1981 Incentive Stock Option Plan (the "Cantel Option Plans"),
and individually granted non-plan options and warrants exercisable for Cantel
Stock (collectively, the "Cantel Convertible Securities"). See "Summary of Joint
Proxy Statement/Prospectus -- Exchange Ratio."
The affirmative vote of the holders of a majority of the outstanding shares
of each of Cantel Stock and MediVators Stock is required by law to adopt the
Merger Agreement and the Merger. However, it is a condition of Cantel's
obligation under the Merger Agreement that the number of MediVators Shares as to
which the holders thereof shall have given written notice of their election to
dissent in accordance with the Minnesota Business Corporation Act (the
"Minnesota Act") shall not exceed three percent (3%) of the number of shares of
MediVators Stock outstanding. Subject to the satisfaction or waiver of certain
conditions specified in the Merger Agreement, the Merger will be effected as
soon as practicable following adoption of the Merger Agreement and the Merger at
each of the Cantel Meeting and the MediVators Meeting. See "Terms of the Merger
- -- Conditions of the Merger." A copy of the Merger Agreement is set forth as
Annex I to this Joint Proxy Statement/Prospectus.
See "Risk Factors" for a discussion of certain risks related to the Merger.
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT
PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The date of this Joint Proxy Statement/Prospectus is January , 1996.
<PAGE>
AVAILABLE INFORMATION
A Registration Statement on Form S-4 (the "Registration Statement") under
the Securities Act has been filed with the Securities and Exchange Commission
(the "Commission"). As permitted by the rules and regulations of the Commission,
this document omits certain information, exhibits and undertakings contained in
the Registration Statement. Such additional information can be inspected at the
principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of the Registration Statement can be obtained from the
Commission at prescribed rates by writing to the Commission at such address. For
further information, reference is made to the Registration Statement including
the exhibits filed therewith.
Each of Cantel and Medivators is subject to the informational requirements
of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
its Northeast regional office, 7 World Trade Center, 13th Floor, New York, New
York 10048 or Chicago regional office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can also be obtained by mail
at prescribed rates. Requests should be directed to the Commission's public
reference section, 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Cantel's Annual Report on Form 10-K for the fiscal year ended July 31, 1995
(Commission File No. 0-6132) and Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995, and MediVators' Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 and Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1995, June 30, 1995, and September 30, 1995 (Commission
File No. 0-20039), in each case as filed with the Commission, are incorporated
herein by reference.
Each of Cantel and MediVators undertakes to provide, without charge, to each
person to whom this Joint Proxy Statement/Prospectus is delivered, including any
beneficial owner, upon written or oral request of such person, a copy of any and
all of the information that has been incorporated by reference herein by Cantel
or MediVators, as the case may be (except for exhibits thereto unless such
exhibits are specifically incorporated by reference into the information that
this Joint Proxy Statement/Prospectus incorporates).
------------------------
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS OF CANTEL
ARE AVAILABLE UPON REQUEST FROM JOANNA ALBRECHT, ASSISTANT SECRETARY, CANTEL
INDUSTRIES, INC., 1135 BROAD STREET, CLIFTON, NEW JERSEY 07013 (201-470-8700).
SUCH DOCUMENTS OF MEDIVATORS ARE AVAILABLE UPON REQUEST FROM BRENDA ANGELSTAD,
SECRETARY, MEDIVATORS, INC., CANNON PLAZA SOUTH, 6352 320 STREET WAY, CANNON
FALLS, MINNESOTA 55009 (507) 263-4721. IN ORDER TO INSURE TIMELY DELIVERY OF
SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [5 BUSINESS DAYS PRIOR TO
STOCKHOLDER MEETING DATE].
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CANTEL, NEWCO, OR MEDIVATORS.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS................................................................ 5
Introduction............................................................................................. 5
Parties to the Merger.................................................................................... 5
Meetings of Stockholders................................................................................. 5
Stock Ownership.......................................................................................... 5
Exchange Ratio........................................................................................... 6
Management and Operations of MediVators After the Merger................................................. 6
Certain Differences in the Rights of Stockholders........................................................ 6
Surrender of Certificates for MediVators Stock........................................................... 7
Reasons for the Merger................................................................................... 7
Certain Federal Income Tax Consequences.................................................................. 8
Accounting Treatment..................................................................................... 8
Dissenters' Rights....................................................................................... 8
Amendment, Waiver and Termination of the Merger Agreement................................................ 8
Comparative Per Share Data............................................................................... 9
RISK FACTORS............................................................................................... 10
SELECTED FINANCIAL DATA.................................................................................... 18
Cantel................................................................................................... 18
MediVators............................................................................................... 20
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA............................................. 22
STOCKHOLDER MEETINGS....................................................................................... 23
Cantel Meeting........................................................................................... 23
MediVators Meeting....................................................................................... 24
Solicitation of Proxies.................................................................................. 25
PROPOSAL 1 -- THE MERGER................................................................................... 25
TERMS OF THE MERGER........................................................................................ 25
General.................................................................................................. 25
Reasons for the Merger................................................................................... 25
Background of the Merger................................................................................. 27
Conversion of MediVators Stock in Merger; Assumption of Outstanding
Convertible Securities.................................................................................. 30
Procedure for Conversion of MediVators Stock............................................................. 31
The Surviving Corporation................................................................................ 31
Conduct of Business Pending the Merger................................................................... 31
Representations and Warranties........................................................................... 31
Conditions of the Merger................................................................................. 31
Amendment, Waiver, Termination........................................................................... 32
Effect of Termination.................................................................................... 32
Cantel Loans to MediVators............................................................................... 33
Expenses................................................................................................. 33
Resale of Cantel Stock by MediVators Affiliates.......................................................... 33
Interests of Certain Persons in the Merger............................................................... 33
COMPARISON OF CANTEL STOCK TO MEDIVATORS STOCK............................................................. 34
Description of Cantel Stock.............................................................................. 34
Description of MediVators Stock.......................................................................... 34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 35
ACCOUNTING TREATMENT....................................................................................... 37
</TABLE>
3
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
RIGHTS OF DISSENTING MEDIVATORS STOCKHOLDERS............................................................... 38
Procedure to Preserve Dissenters' Rights................................................................. 38
Procedures Following an Assertion of Dissenters' Rights.................................................. 39
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA...................................................... 41
Unaudited Pro Forma Combined Condensed Balance Sheet..................................................... 42
Unaudited Pro Forma Combined Condensed Statements of Operations.......................................... 43
Notes to Unaudited Pro Forma Combined Condensed Financial Statements..................................... 48
INFORMATION WITH RESPECT TO CANTEL......................................................................... 49
General.................................................................................................. 49
Price Range of Cantel Stock.............................................................................. 49
Employees................................................................................................ 50
Legal Proceedings........................................................................................ 51
INFORMATION WITH RESPECT TO MEDIVATORS..................................................................... 49
General.................................................................................................. 49
Price Range of MediVators Stock.......................................................................... 50
PROPOSAL 2 (FOR CANTEL STOCKHOLDERS ONLY) ELECTION OF DIRECTORS............................................ 51
COMMITTEES; MEETINGS OF THE BOARD OF DIRECTORS OF CANTEL................................................... 52
REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE AND THE STOCK OPTION COMMITTEE OF THE BOARD
OF DIRECTORS.............................................................................................. 52
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION................................................ 53
PERFORMANCE GRAPH.......................................................................................... 53
PROPOSAL 3 (FOR CANTEL STOCKHOLDERS ONLY) RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.............. 54
OTHER MATTERS.............................................................................................. 54
Submission of Cantel Stockholder Proposals............................................................... 54
Form 10-K and Form 10-KSB................................................................................ 54
LEGAL MATTERS.............................................................................................. 54
EXPERTS.................................................................................................... 54
ANNEXES:
I. Merger Agreement
II. Annual Report on Form 10-K of Cantel for the fiscal year ended July 31, 1995
Quarterly Report on Form 10-Q of Cantel for the quarter ended October 31, 1995
III. Annual Report on Form 10-KSB of MediVators for the fiscal year ended December 31, 1994
Quarterly Report on Form 10-QSB of MediVators for the quarter ended September 30, 1995
IV. Sections 302A.471 and 302A.473 of Minnesota General Corporation Act
</TABLE>
4
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SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
INTRODUCTION
The following is a summary of certain information contained in this Joint
Proxy Statement/ Prospectus. The Joint Proxy Statement/Prospectus relates, in
part, to the adoption of the Merger Agreement by the stockholders of Cantel and
MediVators pursuant to which Newco, a newly organized and wholly-owned
subsidiary of Cantel, will be merged into MediVators. The Joint Proxy Statement/
Prospectus also relates, in the case of the Cantel Meeting, to the election of
directors and the appointment of independent auditors. Upon the effectiveness of
the Merger, the separate existence of Newco will cease and MediVators will
become a wholly-owned subsidiary of Cantel. This summary is not intended to be a
complete statement of all material terms of the Merger and is qualified in its
entirety by reference to the more detailed information contained elsewhere in
this Joint Proxy Statement/Prospectus, the Annexes hereto, including the Merger
Agreement, a copy of which is attached as ANNEX I to this Joint Proxy
Statement/Prospectus.
PARTIES TO THE MERGER
CANTEL
Cantel, through its Canadian subsidiary, Carsen Group Inc. ("Carsen"),
markets and distributes medical equipment (including flexible and rigid
endoscopes), precision instruments (including microscopes and image analysis
systems) and industrial equipment (including remote visual inspection devices
and laser distance measurement equipment). Carsen also offers a range of
photographic equipment and business products. The principal executive offices of
Cantel are located at 1135 Broad Street, Suite 203, Clifton, New Jersey 07013
(Tel. No.: 201-470-8700).
MEDIVATORS
MediVators designs, manufactures and markets endoscope disinfection
equipment and supplies and medical waste disposal systems. Medivators also has
the exclusive distribution rights throughout the Western Hemisphere for a newly
developed chemical sterilant to be used in the sterilization of endoscopes and
surgical instruments. The principal executive offices of MediVators are located
at Cannon Plaza South, 6352 320 Street Way, Cannon Falls, Minnesota 55009 (Tel.
No.: 507-263-4721).
NEWCO
Newco is a Minnesota corporation recently formed by Cantel for the sole
purpose of facilitating the Merger. Newco is a wholly-owned subsidiary of Cantel
with no assets (other than those received in connection with its initial
capitalization) or liabilities. The principal executive offices of Newco are
located at 1135 Broad Street, Suite 203, Clifton, New Jersey 07013.
MEETINGS OF STOCKHOLDERS
The Cantel and MediVators Meetings will both be held on February , 1996,
at 10:00 a.m., Eastern Standard Time and 9:00 a.m. Central Standard Time,
respectively, for the purpose of considering the Merger. At the Cantel Meeting,
stockholders of Cantel will also be voting on the election of directors and the
appointment of independent auditors. Only stockholders of record of Cantel and
MediVators, respectively, at the close of business on January , 1996 (the
"Record Date") are entitled to notice of and to vote at the Cantel Meeting or
the MediVators Meeting, as the case may be. See "Stockholder Meetings."
STOCK OWNERSHIP
As of January , 1996, Cantel had outstanding (i) 2,768,193 shares of
Cantel Stock and (ii) Cantel Convertible Securities to purchase 757,104 shares,
consisting of warrants for the purchase of 239,164 shares of Cantel Stock and
options for the purchase of 517,940 shares of Cantel Stock. At that date,
executive officers and directors of Cantel beneficially owned 1,343,089 shares
of Cantel Stock (representing 48.5% of the total Cantel Stock entitled to vote
at the Cantel Meeting) and Cantel Convertible Securities to purchase 511,898
shares of Cantel Stock.
5
<PAGE>
As of January , 1996, MediVators had outstanding (i) 3,872,486 shares of
Series A Stock, (ii) 2,000 shares of Series B Stock, (iii) MediVators
Convertible Securities to purchase 840,150 shares of Series A Stock, consisting
of warrants for the purchase of 247,900 shares of Series A Stock, and options
for the purchase of 592,250 shares of Series A Stock, and (iv) MediVators
Convertible Securities to purchase 12,950 shares of Series B Stock, consisting
of warrants (the "Series B Warrants"). At that date, executive officers and
directors of MediVators beneficially owned 495,975 shares of MediVators Stock
(representing 12.8% of the total MediVators Stock entitled to vote at the
MediVators Meeting) and MediVators Convertible Securities to purchase 343,750
shares of MediVators Stock.
EXCHANGE RATIO
Pursuant to the Merger Agreement, Cantel will acquire the business, property
and assets of MediVators through the merger of Newco with and into MediVators
which, as the surviving corporation, will be a wholly-owned subsidiary of
Cantel. At the Effective Time, each issued and outstanding share of MediVators
Series A Stock will be converted into .2571 shares of Cantel Stock (the
"Exchange Ratio") and each issued and outstanding share of MediVators Series B
Stock will be converted into .7713 shares of Cantel Stock.
It is anticipated that an aggregate of approximately 997,158 shares of
Cantel Stock will be issued in the Merger at the Effective Time. In addition,
the MediVators Convertible Securities will become exercisable for a number of
shares of Cantel Stock equal to the product of (A) .2571 (.7713 in the case of
Series B Warrants) and (B) the number of shares of MediVators Stock into which
such MediVators Convertible Securities were exercisable for immediately prior to
the Effective Time. At the Effective Time, the former holders of the MediVators
Stock, without giving effect to any Cantel Convertible Securities or MediVators
Convertible Securities, will own approximately 26.5% of the issued and
outstanding Cantel Stock.
All of the Cantel Stock issuable upon the effectiveness of the Merger is
being registered under the Securities Act pursuant to the Registration Statement
of which this Joint Proxy Statement/Prospectus is a part.
The Merger will become effective as soon as practicable following the
adoption of the Merger Agreement at the Cantel Meeting and the MediVators
Meeting, upon the filing of an appropriate Certificate of Merger filed with the
Secretary of State of the State of Minnesota. The Merger is subject to the
satisfaction or waiver of certain conditions. See "Terms of the Merger --
Conditions of the Merger."
MANAGEMENT AND OPERATIONS OF MEDIVATORS AFTER THE MERGER
Immediately following the Merger, MediVators will be operated as a
wholly-owned subsidiary of Cantel. After the Merger the MediVators' Board will
consist of Donald L. Sturtevant and Curtis D. Luebke, currently executive
officers and directors of MediVators, and James P. Reilly, Craig A. Sheldon and
William J. Vella, currently executive officers and/or directors of Cantel or its
Canadian subsidiary. Mr. Sturtevant will enter into an employment agreement with
MediVators which will provide for his employment as President of MediVators for
a three year term to commence upon the expiration of his current employment
agreement in June 1996. Mr. Luebke will serve as a consultant to MediVators for
a two and one-half year term to commence upon the expiration of his current
employment agreement in June 1996.
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
The rights of stockholders of MediVators are currently governed by the
Minnesota Act, MediVators' Articles of Incorporation, as amended (the
"MediVators Articles"), and MediVators' restated By-laws (the "MediVators
By-laws"). Upon consummation of the Merger, MediVators stockholders will become
holders of Cantel Stock and their rights will be governed by the Delaware
General Corporation Law ("Delaware Law"), the Cantel Certificate of
Incorporation and Cantel's By-laws (the "Cantel By-laws"). See "Comparison of
Cantel Stock to MediVators Stock."
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SURRENDER OF CERTIFICATES FOR MEDIVATORS STOCK
Promptly following the Effective Time, letters of transmittal and
instructions for use in surrendering stock certificates which, immediately prior
to the Effective Time, represented MediVators Stock, will be delivered by
American Stock Transfer & Trust Company, as exchange agent, to former
stockholders of MediVators. STOCK CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL
SUCH LETTERS OF TRANSMITTAL AND INSTRUCTIONS HAVE BEEN RECEIVED. See "Terms of
the Merger -- Procedure for Conversion of MediVators Stock."
REASONS FOR THE MERGER
During the past few years, management of Cantel has been seeking to expand
Cantel's business operations, particularly its medical instruments business
which is the largest division of Cantel in terms of revenues and profitability.
As a result, Cantel has embarked on an acquisition strategy to acquire
businesses which complement Cantel's existing operations.
As part of its expansion strategy, Cantel is seeking to acquire companies
with operations in the United States, where Cantel currently has a substantial
net operating loss carryforward but no business operations (other than its
executive offices). Subject to certain conditions, Cantel's net operating loss
carryforward could be used to offset taxable income generated by an acquired
company in the United States. See "Certain Federal Income Tax Consequences."
In considering the merits of the Merger, Cantel's Board of Directors gave
substantial weight to the foregoing factors, particularly the synergy between
the businesses of Cantel and MediVators. Management believes that the
disinfector products of MediVators, which are utilized to disinfect endoscopes,
complement the endoscopes and related products currently distributed by Cantel
in Canada. Management also believes the infection control industry represents a
growth opportunity. In addition, the acquisition of MediVators gives Cantel its
desired business presence in the United States where it can utilize its net
operating loss carryforward. Furthermore, the business of MediVators represents
an opportunity for Cantel to expand into a non-distribution business whereby it
will design, manufacture and distribute proprietary products, some of which are
patented. Management of Cantel believes that this will reduce Cantel's current
dependence on third party suppliers. See "Risk Factors -- Dependence on
Principal Suppliers."
Cantel's Board of Directors believes that the Merger is an economical and
efficient means to expand its medical instruments business as compared with the
significant capital and time requirements that would be required for Cantel to
develop proprietary products such as those of MediVators. Such belief takes into
consideration the existing revenues, customer base, and ongoing business
operations of MediVators that would not be immediately present if Cantel were to
develop proprietary products on its own. Cantel's use of its common stock rather
than cash to consummate the acquisition, as well as its ability to utilize the
pooling of interests accounting treatment for the Merger, were other significant
factors considered by Cantel's Board of Directors in approving the Merger.
Although the Board of Directors of Cantel considered the Merger in light of all
of the factors discussed above, the Board did not quantify relative weights to
the specific factors considered.
In assessing the merits of the Merger, the Board of Directors of Cantel also
considered the following risks and disadvantages of the Merger: the significant
net losses, accumulated deficit, and negative cash flow of MediVators, and the
other risk factors attributable to MediVators' business discussed in "Risk
Factors" below, particularly MediVators' need for additional capital and current
lack of an effective sales and distribution network in the United States. See
"Risk Factors." Another disadvantage of the Merger taken into account by the
Board is the dilution of the existing stockholders' ownership of Cantel.
Cantel's Board of Directors determined that the benefits outweighed the
disadvantages and unanimously approved the terms of the Merger and recommends
that the Cantel stockholders adopt the Merger Agreement. See "Terms of the
Merger -- Background of the Merger."
In reaching its determination that the Merger is in the best interests of
the MediVators stockholders and unanimously recommending that the MediVators
stockholders adopt the Merger Agreement,
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MediVators' Board of Directors considered the following factors: the terms of
the Merger Agreement (which were negotiated on an arms-length basis between
Cantel and MediVators), the tax consequences of the Merger, that Cantel is a
larger, more diversified company which is engaged in the sale of medical
instruments as well as other businesses, Cantel's results of operations, balance
sheet and financial condition, MediVators' need for additional capital to
continue its operations, and the greater financial and marketing resources of
the combined entities. In particular, the Board considered the difficulties
experienced by MediVators in successfully marketing and selling its products and
believes that Cantel could provide added marketing, sales and distribution
capabilities. The Board also considered the Merger in light of prior offers
received from third parties to acquire specific assets or business segments of
MediVators (but not the company as a whole), all of which offers were rejected
as not being in the best interests of MediVators as a whole or its stockholders.
Also considered was the fact that the Merger would allow the stockholders of
MediVators to continue to have an equity interest in MediVators' business
following the Merger by reason of their ownership of shares of Cantel Stock.
The Board of Directors of MediVators also considered certain potential risks
and disadvantages of the Merger, primarily the loss of control to the majority
stockholders of Cantel, Cantel's reliance on its principal supplier, and
Cantel's lack of significant cash reserves available for future investment in
MediVators' businesses following consummation of the Merger. See "Risk Factors."
Notwithstanding the foregoing matters, in consideration of the potential
benefits of the Merger, MediVators' Special Committee of the Board of Directors
unanimously approved the Merger on November 8, 1995 which action was then
unanimously ratified by the full Board. See "Terms of the Merger -- Reasons for
the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended, and, as such, no gain or loss should be recognized by stockholders of
Cantel or MediVators as a result of the Merger (except to the extent of cash
received in lieu of fractional shares and cash received upon exercise of
dissenters' rights of appraisal). See "Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger will be accounted for by Cantel as a "pooling of interests" in
accordance with generally accepted accounting principles. Under this accounting
treatment, the assets, liabilities and retained earnings of Cantel and
MediVators are carried forward at their historical carrying amounts. Operating
results of Cantel and MediVators are combined for all periods prior to the
Effective Date, and previously issued financial statements are restated as
though Cantel and MediVators had always been combined.
DISSENTERS' RIGHTS
Holders of shares of MediVators Stock will be entitled to dissenters' rights
of appraisal under Minnesota law in connection with the Merger if such holders
follow the procedures required by Section 302A.471 of the Minnesota Act. Under
such rights of appraisal, a record or beneficial owner of shares of MediVators
Stock whose shares are not voted in favor of adoption of the Merger Agreement
will be entitled to receive the fair market value of his or her shares in cash
in lieu of the consideration contemplated by the Merger Agreement if he or she
complies with certain procedures specified in the Minnesota Act relating to
dissenters' rights. However, the Merger Agreement provides that Cantel need not
consummate the Merger if holders of three percent (3%) or more of the
outstanding shares of MediVators Stock exercise their dissenters' rights. See
"Rights of Dissenting MediVators Stockholders" and "Terms of the Merger --
Amendment, Waiver, Termination."
Holders of shares of Cantel Stock will not have any dissenters' rights of
appraisal.
AMENDMENT, WAIVER AND TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be amended by Cantel and MediVators by action taken
by or on behalf of their respective Boards, at any time prior to the Effective
Time of the Merger, except that
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after adoption of the Merger Agreement by the stockholders of each of Cantel and
MediVators, no amendment that under applicable law may not be made without the
approval of the stockholders of Cantel or MediVators may be made without such
approval. At any time prior to the Effective Time, Cantel and MediVators may (i)
extend the time for the performance of any of the obligations of the other party
under the Merger Agreement, (ii) waive any inaccuracies in the representations
and warranties of the other party contained in the Merger Agreement or (iii)
waive compliance by the other party with any of the agreements or conditions
contained therein. In addition, the Merger Agreement may be terminated at any
time prior to the Effective Date if certain conditions are not satisfied. See
"Terms of the Merger -- Amendment, Waiver, Termination."
COMPARATIVE PER SHARE DATA
The following tables set forth per share information as to results of
operations and book values of Cantel and MediVators on an historical basis,
Cantel and MediVators on a pro forma combined basis, and MediVators on an
equivalent pro forma basis, for the periods and as of the date indicated. The
pro forma combined data have been included for comparative purposes only and do
not purport to be indicative of the results of operations or financial position
which actually would have been obtained if the Merger and been effected at the
beginning of each of the periods or as of the date indicated or of the financial
position or results of operations which may be obtained in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JULY 31, OCTOBER 31,
------------------------------- --------------------
1995 1994 1993 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income (loss) from continuing operations per primary common
and common equivalent share:
Cantel historical............................................... $ .32 $ .31 $ (.54) $ .03 $ .02
Pro forma combined.............................................. $ (.21) $ (.07) $ (.86) $ (.01) $ (.08)
MediVators historical........................................... $ (.46) $ (.36) $ (.45) $ (.03) $ (.10)
MediVators equivalent pro forma................................. $ (1.80) $ (1.41) $ (1.74) $ (.13) $ (.38)
Net income (loss) from continuing operations per fully diluted
common and common equivalent share:
Cantel historical............................................... $ .32 $ .31 $ (.34) $ .03 $ .02
Pro forma combined.............................................. $ (.21) $ (.07) $ (.66) $ (.01) $ (.08)
MediVators historical........................................... $ (.46) $ (.36) $ (.45) $ (.03) $ (.10)
MediVators equivalent pro forma................................. $ (1.80) $ (1.41) $ (1.74) $ (.13) $ (.38)
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1995
-----------------
<S> <C>
Book value per outstanding common share:
Cantel historical.............................................................................. $ 2.37
Pro forma combined............................................................................. $ 2.24
MediVators historical.......................................................................... $ .53
MediVators equivalent pro forma................................................................ $ 2.07
</TABLE>
Cantel has not paid cash dividends on its Common Stock during the past five
years. See "Information with Respect to Cantel -- Price Range of Cantel Stock."
9
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RISK FACTORS
DEPENDENCE ON PRINCIPAL SUPPLIERS
The majority of Cantel's products are manufactured and supplied by Olympus
Optical Co. Ltd., a Japanese corporation and are sold by Cantel pursuant to a
distribution agreement with Olympus Optical's United States-based subsidiary,
Olympus America, Inc. ("Olympus"), which expires in March 1998. In addition,
Cantel generally does not have the right to manufacture, distribute or sell any
products which are competitive with the Olympus products covered by the
distribution agreement. Accordingly, the ability of Cantel to operate profitably
in the future will depend in large part on its ability to obtain adequate
quantities of products from Olympus at prices which allow Cantel to be
competitive. Although Olympus has generally filled Cantel's orders on a timely
basis, no assurance can be given that Cantel will be able to obtain sufficient
quantities of products, particularly those in great demand. A failure to obtain
such products could have a material adverse effect on Cantel. The distribution
agreement imposes minimum purchase and service obligations upon Cantel and
restricts Cantel from selling products competitive with those covered by the
agreement. Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the right to terminate the
agreement with respect to each product group for which Cantel has failed to meet
the minimum purchase requirements. If Cantel fails to meet such requirements for
both precision instruments and industrial technology equipment, or for medical
instruments, then Olympus has the right to terminate the entire agreement.
During the contract year ended March 31, 1995, Cantel failed to meet its minimum
purchase requirements for consumer products, which gave Olympus the right to
terminate the distribution agreement as to consumer products; however, Olympus
waived such default. If such a default occurs in the future there can be no
assurance that Olympus will continue to provide such a waiver. Any termination
of the distribution agreement or Cantel's right to distribute a product group
thereunder, or the failure of Olympus to renew the distribution agreement upon
its expiration, could have a material adverse effect on Cantel.
In May 1994, Cantel entered into a long-term agreement with Jenoptik
Technologie GmbH ("Jenoptik"), of Jena, Germany, for exclusive distribution of
Jenoptik's laser distance measurement, thermal imaging products and on-line
optical inspection and quality assurance systems in the United States, Canada
and Mexico. The Jenoptik agreement imposes minimum purchase obligations
commencing with the calendar year 1996 in the amount of DM 1,500,000. The
minimum purchase requirement for calendar 1997 will be the average of the
purchases during calendar years 1994, 1995 and 1996, and for each year
thereafter, 110% of the preceding year's minimum purchase requirement. Failure
to achieve the minimum purchase requirement in any year would give Jenoptik the
right to terminate the agreement. The agreement will be automatically extended
for a subsequent five year term commencing January 1, 2004 and every five years
thereafter, as long as Cantel continues to achieve the minimum purchase
requirements. Sales of Jenoptik products during calendar years 1994 and 1995
were not significant.
CUSTOMER ACCEPTANCE
Customer acceptance of Cantel's products is significantly dependent on the
ability of Olympus to continue to offer products which, with respect to Cantel's
consumer products, appeal to continually shifting consumer demands and, with
respect to most of Cantel's other products, meet the changing requirements of
its other customers, including hospitals, educational institutions, industrial
laboratories, government agencies and industrial corporations. Any change in the
level of customer acceptance of Cantel's products could have a material adverse
effect on Cantel.
FOREIGN OPERATIONS; CURRENCY FLUCTUATION
Substantially all of Cantel's operations are conducted in Canada through a
wholly-owned subsidiary. Substantially all of the products sold by Cantel in
Canada are imported from the United States, Europe, Japan and other Far Eastern
countries. Although there are currently no material restrictions on the
importation of Cantel's products, Cantel's business may be adversely affected by
risks associated with purchases from foreign suppliers, including foreign
regulatory approval requirements,
10
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economic and political instability, shipping delays, fluctuations in exchange
rates, and any trade barriers including custom duties, export quotas, tariff
increases or other import or export restrictions imposed in the future, all of
which could have a significant impact on Cantel's ability to distribute its
products on a competitive and timely basis. Furthermore, Cantel's Canadian
subsidiary purchases substantially all of its products in United States dollars
but sells its products in Canadian dollars. Therefore, a decrease in the value
of the Canadian dollar against the United States dollar between the time Cantel
accepts a purchase order from a customer and the time Cantel pays its supplier
could adversely affect Cantel. However, in an effort to lessen the impact of
foreign currency fluctuations as they relate to purchases of inventory, Cantel's
Canadian subsidiary currently enters into foreign exchange forward contracts to
purchase United States dollars to hedge against such currency fluctuations.
Cantel believes that its hedging program has successfully mitigated the effect
of adverse currency fluctuations that would have otherwise impacted the cost of
inventory purchases. However, management of Cantel has not quantified the
economic effect of its hedging program as it relates to its results of
operations. Moreover, such a decrease in the value of the Canadian dollar could
result in a corresponding reduction in the United States dollar value of
Cantel's assets that are denominated in Canadian dollars.
RELIANCE ON KEY PERSONNEL
The success of Cantel is dependent to a significant degree upon the efforts
of James P. Reilly, President and Chief Executive Officer, and William J. Vella,
Executive Vice President of Cantel's Canadian subsidiary, and the loss or
unavailability of either of them could have an adverse effect on Cantel. Neither
Mr. Reilly nor Mr. Vella are employed pursuant to written employment agreements.
MediVators is greatly dependent upon the services of Donald L. Sturtevant,
its President and Chief Executive Officer. Loss of the services of Mr.
Sturtevant could have an adverse effect on MediVators. Mr. Sturtevant is
employed pursuant to an employment agreement which expires in June 1996.
Although he is not contractually obligated to renew his employment agreement,
Mr. Sturtevant has agreed to enter into a new employment agreement with
MediVators upon consummation of the Merger that would take effect upon
termination of his current employment agreement. The execution of the new
agreement by Mr. Sturtevant is a condition to Cantel's obligation to consummate
the Merger. See "Terms of the Merger -- Interests of Certain Persons in the
Merger."
REDUCTION IN HEALTH CARE FUNDING
Canadian hospitals funded by provincial governments purchase substantially
all of the medical instruments distributed by Cantel. Cost control measures have
been proposed by various provincial governments that may decrease funding to the
hospitals and thereby decrease hospital spending. Due to these measures, certain
of which have been recently implemented, the purchasing practices of hospitals
may be significantly affected, generally causing the hospitals to be more
conservative in the purchase of medical instruments, and to place increasing
emphasis on maximizing the return on investment in new equipment. Although
Cantel believes that its medical instruments are cost effective, a reduction by
the provincial governments in the amount of funding for the types of products
distributed by Cantel has had, and may continue to have, a material adverse
effect on sales of Cantel's products to the hospitals. During the first six
months of the fiscal year ending July 31, 1996, management estimates that sales
of medical instruments will decline by approximately 15% as compared with sales
during the comparable prior year period. Although management of Cantel believes
that this decline is principally due to the cost control measures described
above, management is unable to predict the effect of such measures on future
sales.
NO CANTEL UNITED STATES OPERATIONS
Cantel currently only has operations in Canada. It will be necessary for
Cantel upon acquiring MediVators to expand the United States marketing and
distribution of MediVators products. There can be no assurance that such
expansion will occur.
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COMPETITION
CANTEL. Cantel distributes substantially all of its products in highly
competitive markets in which many products are available from several nationally
and internationally recognized competitors of Cantel. Many of such competitors
have greater financial and technical resources than Cantel and are
well-established, with reputations for success in the sale and service of their
products.
The markets for Cantel's medical products and precision instruments are
highly competitive. Cantel believes that competitive factors in sales of medical
products and precision instruments include price, product performance and
reliability of product service. Cantel's competitive position is also dependent
on the ability of the manufacturer of the products distributed by Cantel to keep
pace with technological advances in the field. Although Cantel knows of no
competitor that sells a broad range of both flexible and rigid endoscopes on a
national basis in Canada, there are several national or regional distributors of
rigid or flexible endoscopes that are functionally similar to those distributed
by Cantel, including Pentax, Ingram & Bell, Storz, and Circon ACMI. Cantel knows
of three principal manufacturers of precision instruments that sell products
that are generally of a similar range and quality as the Olympus products sold
by Cantel. Cantel believes that these competitors, including Leica, Nikon, and
Zeiss, generally sell their products through distribution networks which focus
their marketing efforts on a narrower customer base than that of Cantel.
The market for Cantel's industrial technology equipment is relatively new,
and while competition is not currently a major factor, Cantel cannot predict
future levels of competition in this area. The most notable competitor is
Flolite Industries, which distributes Welch Allyn equipment.
The sale of consumer products is highly competitive and is expected to
remain as competitive in the foreseeable future. Cantel competes with numerous
manufacturers with established international reputations, including Canon,
Minolta, Nikon, Fuji, and Pentax, that sell brand name products which are
functionally similar to the products sold by Cantel. Cantel believes that
competitive factors in sales of consumer products include technical features,
style and price. Failure of Cantel's suppliers of consumer products to keep pace
with new features and technological advances could adversely affect Cantel's
competitive position. Furthermore, these manufacturers distribute their products
through their own sales force and thus compete directly with Cantel. These
manufacturers often possess greater financial and technical resources than
Cantel and, as manufacturers, may have certain other competitive advantages over
Cantel. Moreover, Cantel faces significant competition in Canada from vendors in
the United States, many of which offer products at prices lower than those
charged by Cantel. Such vendors often market their products in Canada through
catalog and direct mail advertisements. In addition, Cantel encounters
competition from cross-border shopping by Canadians who can generally purchase
consumer products at lower prices in the United States than in Canada.
MEDIVATORS. The medical products industry is intensely competitive and is
characterized by rapid technological change, accompanying product obsolescence
and the introduction of competitive products offering improved features at lower
prices. Advances by MediVators' competitors or others could at any time require
MediVators to attempt to modify or change its products in order to compete
effectively.
MediVators believes its primary competitors in the sale of endoscope
disinfectors include Unitrol, Key Med, Lutz, Steris and Custom Ultrasonics. Some
of these companies are more established and have greater resources than
MediVators and, in addition to endoscope disinfectors, may sell a broader
variety of related products.
MediVators' medical waste disposal business competes with companies that
sell special devices for the destruction of sharps and companies that provide
products for the destruction and decontamination of other medical wastes.
Several companies offer products which either destroy or decontaminate
sharps waste near point-of-use. These approaches may range from grinding to
chemical baths. MediVators believes that none
12
<PAGE>
of these approaches currently include free-standing units which are capable of
destroying and decontaminating at point-of-use, and that such devices are
significantly more expensive than the DSI-107 system.
The products which are employed in the destruction and decontamination of
rigid plastics, sharps and other plastic medical disposables compete with the
DSI System 2000 Infectious Medical Waste Disposal System. They range from
grinders, to chemical baths, to incinerators, to dry heat and autoclaves.
MediVators knows of no competitive products which provide the performance
features of the DSI System 2000 Infectious Medical Waste Disposal System at a
comparable cost. MediVators believes those which are known to perform similar
functions are significantly greater in cost.
CHANGING TECHNOLOGY
The markets for certain products sold by each of Cantel and MediVators,
particularly endoscopes and microscopes in the case of Cantel and endoscope
disinfection equipment and medical waste disposal equipment in the case of
MediVators, are characterized by changing technology, new product introductions
and product enhancements, and evolving industry standards. The introduction or
enhancement of products embodying new technology or the emergence of new
industry standards could render existing products obsolete or result in short
product life cycles. Accordingly, the ability of Cantel and MediVators to
compete is in part dependent on their ability to continually offer enhanced and
improved products. Cantel's ability to offer such products is substantially
dependent on the efforts of its third party suppliers.
PRODUCT LIABILITY
Cantel may be exposed to product liability claims resulting from the use of
the products it distributes. Cantel maintains general liability insurance
policies that include product liability coverage of $5,000,000 Canadian dollars
in Canada. To date, there have been no material threatened or asserted claims
against Cantel and Cantel believes such insurance coverage is adequate for its
business. However, there can be no assurance that such insurance will be
sufficient to cover potential claims or that the present level of coverage will
continue to be available at a reasonable cost. A partially or completely
uninsured successful claim against Cantel could have a material adverse effect
on Cantel. Olympus has agreed to indemnify Cantel against any product liability
claims against Cantel related to Olympus products.
Likewise, MediVators faces the risk of product liability claims if the use
of its products results in adverse effects. While MediVators will continue to
attempt to take appropriate precautions, there can be no assurance that it will
avoid product liability exposure. MediVators maintains product liability
insurance of $1,000,000 in the United States; however, there can be no assurance
that such coverage will be adequate to cover any product liability claims.
LIMITATION OF TAX LOSS CARRYFORWARD BENEFITS; INCOME TAX CONSIDERATIONS
As of July 31, 1995, Cantel had net operating loss carryforwards for United
States income tax purposes ("NOLs") of approximately $10,789,000 which expire
through 2010. Under Section 382 of the Code, if Cantel undergoes an "ownership
change," its ability to use its pre-ownership change NOLs (NOLs accrued through
the date of the ownership change) would be limited annually to an amount equal
to the product of (i) the long-term tax-exempt rate for ownership changes
prescribed monthly by the Treasury Department and (ii) the value of Cantel's
outstanding stock immediately before the ownership change excluding certain
capital contributions (the "Section 382 Limitation"). Any allowable portion of
the pre-ownership change NOLs that is not used in a particular taxable year
following the ownership change could be carried forward to subsequent taxable
years until the NOLs expire, usually 15 years after they are generated.
Cantel believes that it is likely that an ownership change will not occur as
a result of the Merger and thus that the Section 382 Limitation should not apply
as a result of the Merger. However, there
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<PAGE>
can be no assurance that there will not be an ownership change as a result of
transactions that occur with respect to the Cantel Stock subsequent to the
Merger, which would result in the application of the Section 382 Limitation.
As of December 31, 1994, MediVators had NOLs of approximately $3,900,000
which expire through 2008. Upon consummation of the Merger, MediVators will
undergo an "ownership change" under Section 382 of the Code. Therefore, the
Section 382 Limitation discussed above will apply to MediVators' NOLs. The
Section 382 Limitation may be increased by certain recognized built-in gains if
MediVators possesses a net unrealized built-in gain at the date of the ownership
change.
In addition, Cantel and its Canadian subsidiary cannot file consolidated tax
returns, for Canadian or United States income tax purposes. Therefore, neither
net losses sustained by Cantel in the United States nor the NOLs can be used 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 Cantel in the
United States. In the past, this has resulted in the payment of income taxes by
Cantel in Canada, notwithstanding net losses sustained by Cantel in the United
States or on a consolidated basis. See "Certain Federal Income Tax
Consequences."
MEDIVATORS NET LOSSES; NEGATIVE CASH FLOW; NEED FOR ADDITIONAL CASH
MediVators had net losses of $736,420, $1,569,610 and $1,058,979 for the
years ended December 31, 1994, 1993 and 1992, respectively, and an accumulated
deficit of $5,895,745 as of September 30, 1995 and has incurred losses from
operations since its inception in 1985. During the nine months ended September
30, 1995, MediVators had a net loss of $1,566,996 (which includes a $903,000
write-down of certain inventory and related assets of MediVators' Disposal
Sciences, Inc. subsidiary) and experienced negative cash flow from operating
activities in the amount of $366,313. MediVators had $94,240 of cash and cash
equivalents as of September 30, 1995, and requires additional cash to fund its
future operations. The report of MediVators' independent accountants in the
Annual Report of MediVators on Form 10-KSB for the fiscal year ended December
31, 1994 contains an explanatory paragraph related to MediVators' ability to
continue as a going concern. The factors referenced in the accountants' opinion
include MediVators' recurring losses, use of significant cash in its operations,
and possible need for additional financing to fund operations. See Note 1 to the
financial statements of MediVators included in its Annual Report attached hereto
as ANNEX III.
In order to satisfy the cash requirements of MediVators before the Merger,
Cantel has agreed to loan MediVators up to $190,000 prior to the consummation of
the Merger. Subsequent to the Merger, estimated cash flow from MediVators'
operations may not be sufficient to meet its working capital needs for the next
twelve months, so that additional financing may be required from Cantel or other
sources. There can be no assurance that, if required, such financing will be
available on terms acceptable to Cantel and MediVators. See "Terms of the Merger
- -- Cantel Loans to MediVators."
RESEARCH AND DEVELOPMENT COSTS; NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
MediVators has incurred and is expected to continue to incur research and
development costs. Management estimates that research and development costs for
calendar 1995 were approximately $300,000. Management anticipates that research
and development costs during calendar 1996 will be similar to the amount
incurred during 1995. There can be no assurance that such research and
development will result in new products that will be successfully introduced to
the market.
GOVERNMENT REGULATION
MediVators' products are subject to extensive 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"). Comparable agencies in certain foreign
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<PAGE>
countries also regulate Medivators' activities. The FDA and other governmental
agency clearances generally are required before MediVators can market new
products 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. MediVators believes it is in material compliance
with the provisions of the Act and regulations under the Act. 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
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 waste laws and regulations, according to the Federal Office of
Technology Assessment. Finally, local regulations can dramatically impact the
location 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 remain 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 System 2000 Infectious Waste Disposal System and to request
permission to distribute in that jurisdiction.
PROPOSED DISTRIBUTION ARRANGEMENT
MediVators endoscope disinfector products are currently sold and marketed
through a network of independent distributors throughout the world. Cantel
intends to expand the sales, marketing and distribution effort of the products,
particularly in the United States, following the Merger. In this regard, Cantel
has engaged in preliminary discussions with a certain third party with respect
to the grant to such third party of exclusive distribution rights in the United
States and Central and South America for certain MediVators products. A
condition of Cantel's obligation to consummate the Merger is the execution of a
definitive distribution agreement with this third party covering such products.
No assurance can be given that the parties will reach agreement with respect to
such an arrangement or that any such agreement will be on terms favorable to
Cantel. Furthermore, if Cantel
15
<PAGE>
and this third party fail to enter into a definitive distribution agreement and
Cantel elects to consummate the Merger, it will be necessary for Cantel to
devote significant cash and other resources to expand and maintain the sales and
marketing force in the United States for the MediVators products. No assurance
can be given that Cantel will have sufficient resources available or that it
will be able to obtain financing from its senior lenders or other third parties
to finance such undertaking.
MANAGEMENT AND OPERATIONS OF ACQUIRED BUSINESS FOLLOWING THE MERGER
Following the Merger, Cantel will be subject to certain risks and
uncertainties which are characteristic of acquisitions, including the
assimilation and management of the acquired entity, the management of an
expanded operation, and the reaction of MediVators' employees to the Merger.
Cantel believes that these risks are mitigated by Cantel's existing relationship
with MediVators as a distributor of MediVators disinfection equipment in Canada,
and Cantel's intention to operate MediVators as a separate and distinct
operation of Cantel, utilizing MediVators' current facilities and retaining
certain employees, including its current President. Cantel is placing
significant reliance on Donald L. Sturtevant, the President of MediVators, who
has agreed to enter into a new employment agreement upon consummation of the
Merger. However, there can be no assurance that Mr. Sturtevant or any other
current employee of MediVators will remain available following the Merger. See
"-- Reliance on Key Personnel."
MEDIVATORS' COMMITMENTS AND CONTINGENCIES
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
revenues from sales of a successor line of disinfector products developed by
MediVators known as the DSD-91 and DSD-91E. These products do 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.
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.
In January 1992, MediVators, through its wholly owned subsidiary Disposal
Sciences, Inc. ("DSI"), acquired the assets of National Syringe Disposal, Inc.
("NSD"), including the DSI-100 compact sharps disposal system. MediVators paid
$524,584 in cash to or for the account of NSD and issued 125,844 shares of
MediVators Series A Stock to NSD. MediVators is obligated to pay NSD 20% of
DSI's pre-tax profits, if any, related to the acquisition of NSD, in the years
ending December 31, 1992 through 1996, up to an aggregate maximum payment of
$2,000,000, payable in cash or Series A Stock at the option of NSD. As DSI has
not achieved pre-tax profits in any year since the acquisition, no payments were
due to NSD based on operating results through December 31, 1995.
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<PAGE>
POTENTIAL ADVERSE EFFECT OF FUTURE ISSUANCES OF PREFERRED STOCK
Cantel's Certificate of Incorporation authorizes the issuance of up to
1,000,000 shares of preferred stock with such designations, rights, preferences
and privileges as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with such rates of dividends, redemption provisions,
liquidation preferences, voting rights, conversion privileges and such other
characteristics as the Board of Directors may deem necessary. While the Board of
Directors believes that the flexibility created by such authorization could be
advantageous to Cantel in promptly consummating desirable acquisitions or
financial transactions should favorable opportunities arise, if issued, the
preferred stock could discourage, delay or prevent a takeover of Cantel
(including takeovers in which Cantel stockholders would receive a premium for
their shares), make the removal of management of Cantel more difficult, or
otherwise dilute the rights of holders of Cantel Stock and depress the market
price of Cantel's securities.
WARRANTY SERVICE OF CONSUMER PRODUCTS
Pursuant to the distribution agreement between Cantel and Olympus, Cantel is
required to provide warranty service for all Olympus cameras presented to Cantel
for service, whether or not such cameras were sold by Cantel. To date, this
obligation has not had a material adverse effect on Cantel. Cantel generally
provides a two-year warranty for cameras and a one-year warranty for other
consumer products. Olympus Optical Co. Ltd., an affiliate of Olympus, reimburses
Cantel for warranty repairs on cameras not sold by Cantel.
MEDIVATORS' PATENTS AND PROPRIETARY RIGHTS
MediVators holds patents on certain of its medical waste disposal systems
which it believes are of material importance to MediVators. However, MediVators
does not currently hold any patents with respect to its disinfector products. It
holds a license to manufacture and sell the OTT Disinfector under a patent of
the Mayo Foundation, however MediVators no longer sells such product. Its
current disinfector products, the DSD 91 and DSD 91E, utilize certain know-how
developed by the Mayo Foundation pursuant to a license agreement, but have no
patent protection. There can be no assurance as to the breadth or degree of
protection which existing or future patents, if any, may afford MediVators, that
any patent applications will result in issued patents or that patents will not
be circumvented or invalidated. In addition, there can be no assurance that
existing patents or any future patents of MediVators will provide any meaningful
competitive advantage. Furthermore, there can be no assurance that any patent
will be upheld if legally challenged or that MediVators or Cantel will have the
financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation action.
REDUCED SALES OF CONSUMER PRODUCTS
Although net sales of Cantel's consumer products represented approximately
20%, 25%, and 27% of Cantel's net revenues from continuing operations during the
fiscal years ended July 31, 1995, 1994 and 1993, respectively, Cantel has
incurred operating losses in this segment for each of the past three fiscal
years. The lack of growth and profitability in the consumer products division
has resulted principally from lower demand for product. During fiscal 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. Cantel is undertaking steps to address the current
market conditions by restructuring this division's sales functions and marketing
strategies. Cantel has also discussed these issues with Olympus and suggested
strategies for making Olympus cameras more price competitive in Canada. However,
Cantel anticipates the continued reduction of national account business during
fiscal 1996 and there can be no assurance that Cantel's actions will reverse the
trend described above.
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<PAGE>
SELECTED FINANCIAL DATA
The following tables present selected historical financial data for Cantel
and MediVators.
CANTEL SELECTED 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 of Cantel incorporated by reference in this Joint
Proxy Statement/Prospectus. The statements of operations data and the balance
sheets data as of and for each of the fiscal years in the five year period ended
July 31, 1995 have been derived from the financial statements of Cantel which
have been audited by Ernst & Young LLP, independent auditors, whose report with
respect to the balance sheets as of July 31, 1995 and 1994 and for the
statements of operations for the three years ended July 31, 1995, 1994 and 1993,
appears in Cantel's Annual Report on Form 10-K for the year ended July 31, 1995,
which is incorporated in this Joint Proxy Statement/Prospectus by reference and
attached hereto as ANNEX II. The statements of operations data for the three
month periods ended October 31, 1995 and 1994, and the balance sheet data as of
October 31, 1995, have been derived from the unaudited financial statements of
Cantel, which appear in Cantel's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995, which is incorporated into this Joint Proxy
Statement/Prospectus by reference and attached hereto as ANNEX II. The
information presented below with respect to interim periods reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
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<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, OCTOBER 31,
----------------------------------------------------- --------------------
1995 1994 1993 1992 1991 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $ 31,079 $ 29,349 $ 28,633 $ 28,245 $ 24,672 $ 5,429 $ 6,313
Cost of sales......................... 21,056 19,790 19,557 18,558 15,967 3,755 4,361
Gross profit.......................... 10,023 9,559 9,076 9,687 8,705 1,674 1,952
Income (loss) from continuing
operations (1)....................... 2,481 2,601 1,432 2,242 2,041 (100) 260
Interest expense (2).................. 479 301 184 112 1,197 13 95
Income (loss) from continuing
operations before income taxes....... 2,002 2,300 1,248 2,130 844 (113) 165
Income taxes (2)...................... 1,001 1,054 1,160 1,051 880 (200) 104
Income (loss) from continuing
operations........................... 1,001 1,246 88 1,079 (36) 87 61
Income (loss) from discontinued
operations (3)....................... -- 562 (24) 763 639 -- --
Extraordinary gain on extinguishment
of debt (4).......................... -- 1,211 -- -- -- -- --
Net income............................ 1,001 3,019 64 1,842 603 87 61
Dividends on preferred stocks......... -- 314 1,185 890 419 -- --
Net income (loss) attributable to
common stock......................... 1,001 2,705 (1,121) 952 184 87 61
Earnings (loss) per common and common
equivalent share:
Primary:
Continuing operations............. $ .32 $ .31 $ (.54) $ .09 $ (.20) $ .03 $ .02
Discontinued operations........... -- .19 (.01) .33 .31 -- --
Extraordinary gain................ -- .40 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............... $ .32 $ .90 $ (.55) $ .42 $ .11 $ .03 $ .02
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fully diluted(5):
Continuing operations............. $ .32 $ .31 $ (.34) $ .22 $ (.20) $ .03 $ .02
Discontinued operations........... -- .18 (.01) .15 .30 -- --
Extraordinary gain................ -- .40 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............... $ .32 $ .89 $ (.35) $ .37 $ .10 $ .03 $ .02
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares:
Primary............................. 3,142 3,011 2,033 2,293 2,078 3,264 3,147
Fully diluted....................... 3,146 3,055 2,465 4,960 2,078 3,290 3,147
</TABLE>
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CONSOLIDATED BALANCE SHEETS DATA:
<TABLE>
<CAPTION>
JULY 31,
----------------------------------------------------- OCTOBER 31,
1995 1994 1993 1992 1991 1995
--------- --------- --------- --------- --------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total assets.............................. $17,399 $14,115 $17,480 $19,508 $19,977 $15,437
Current assets............................ 16,016 12,777 16,119 18,039 18,243 13,984
Working capital........................... 11,163 8,347 9,440 11,816 11,052 10,476
Current liabilities (6)................... 4,853 4,430 6,679 6,223 7,191 3,508
Long-term debt, less current
portion (6).............................. 6,087 4,327 7,989 9,761 10,901 5,279
Stockholders' equity...................... 6,368 5,188 2,521 3,150 1,458 6,554
Book value per outstanding common share... $ 2.30 $ 1.90 $ 1.02 $ 1.69 $ .78 $ 2.37
Common shares outstanding................. 2,768 2,735 2,466 1,864 1,864 2,768
</TABLE>
- ------------------------
(1) 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. Includes for fiscal 1991 a
restructuring gain of $50,000.
(2) Includes for the three months ended October 31, 1995 a recovery of prior
years' federal and provincial income taxes and withholding taxes of
approximately $175,000 and interest of approximately $98,000 arising from a
negotiated settlement with Revenue Canada of a prior year tax reassessment.
(3) Income (loss) from discontinued operations principally 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.
(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 Cantel Stock as of the beginning of the fiscal year.
(6) Current liabilities and long-term debt as of July 31, 1993, 1992 and 1991
include an aggregate of $1,388,000, $1,972,000 and $2,587,000, respectively,
of deferred interest benefit arising out of Cantel's debt restructuring
which was consummated in fiscal 1991.
MEDIVATORS SELECTED 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 of MediVators incorporated by reference in this
Joint Proxy Statement/Prospectus. The statements of operations data and balance
sheets data as of and for each of the fiscal years in the three year period
ended December 31, 1994 have been derived from the financial statements of
MediVators which have been audited by Price Waterhouse LLP, independent
accountants, whose report (which contains an explanatory paragraph related to
MediVators' ability to continue as a going concern) with respect to the balance
sheets as of December 31, 1994 and 1993 and for the statements of operations for
the two years ended December 31, 1994 and 1993, appears in MediVators Annual
Report on Form 10-KSB for the year ended December 31, 1994, which is
incorporated in this Joint Proxy Statement/Prospectus by reference and attached
hereto as ANNEX III. The statements of operations data and balance sheets data
as of and for each of the fiscal years in the two year period ended December 31,
1991 have been derived
20
<PAGE>
from the financial statements of MediVators which have been audited by other
independent accountants. The statement of operations data for the nine month
periods ended September 30, 1995 and 1994, and the balance sheet data as of
September 30, 1995, have been derived from the unaudited financial statements of
MediVators, which appear in MediVators' Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1995, which is incorporated in this Joint Proxy
Statement/ Prospectus by reference and attached hereto as ANNEX III. The
information presented below with respect to interim periods reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of financial position and the results of operations. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1994 1993 1992 1991 1990 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $ 3,310 $ 2,888 $ 2,014 $ 1,608 $ 1,519 $ 2,334 $ 2,199
Cost of sales......................... 2,203 1,934 1,226 686 637 1,404 1,525
Gross profit.......................... 1,107 954 788 922 882 930 674
Income (loss) from continuing
operations (1)....................... (744) (1,630) (1,129) (9) 57 (1,645) (772)
Other (income) expense................ (14) (35) 36 -- -- (70) 20
Interest expense (income)............. 6 (25) (106) (38) 73 (8) (25)
Net income (loss)..................... (736) (1,570) (1,059) 29 (16) (1,567) (767)
Earnings (loss) per common and common
equivalent share..................... $ (.22) $ (.55) $ (.37) $ .02 $ (.01) $ (.41) $ (.24)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares............. 3,309 2,846 2,846 1,506 1,347 3,846 3,193
</TABLE>
CONSOLIDATED BALANCE SHEETS DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1994 1993 1992 1991 1990 1995
--------- --------- --------- --------- --------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total assets.................................... $ 4,313 $ 3,430 $ 4,393 $ 4,905 $ 575 $ 2,644
Current assets.................................. 3,527 2,572 3,300 4,791 507 2,127
Working capital (deficit)....................... 2,772 2,078 2,888 4,559 (240) 1,577
Current liabilities............................. 755 494 412 232 747 550
Stockholders' equity (deficit).................. 3,558 2,936 3,976 4,673 (172) 2,094
Book value per outstanding common share (2)..... $ .93 $ .93 $ 1.40 $ 1.72 * $ .54
Common shares outstanding (2)................... 3,823 3,147 2,846 2,721 951 3,878
</TABLE>
- ------------------------
* Not meaningful
(1) Includes for the nine months ended September 30, 1995 a $903,000 write-down
of certain inventory and related assets of MediVators' Disposal Sciences,
Inc. subsidiary.
(2) Includes MediVators Series A Stock and MediVators Series B Stock (converted
at the rate of 3 shares of Series A Stock for each outstanding share of
Series B Stock).
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<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following tables set forth certain selected unaudited pro forma combined
condensed financial data for Cantel after giving effect to the Merger, as if it
had been consummated, with respect to statements of operations data, at the
beginning of each of the periods presented, or, with respect to balance sheet
data, as of the date presented. The following tables present such information as
if the Merger had been accounted for as a pooling of interests. The information
presented is derived from, should be read in conjunction with, and is qualified
in its entirety by reference to, the unaudited pro forma combined condensed
financial data and the notes thereto appearing elsewhere in this Joint Proxy
Statement/Prospectus and the separate historical financial statements and the
notes thereto incorporated by reference in this Joint Proxy Statement/Prospectus
and attached hereto as ANNEX II and ANNEX III. The selected unaudited pro forma
combined condensed financial data have been included for comparative purposes
only and do not purport to be indicative of the results of operations or
financial position which actually would have been obtained if the Merger had
been effected at the beginning of each of the periods or as of the date
indicated or of the financial position or results of operations which may be
obtained in the future. See "Selected Financial Data" and "Unaudited Pro Forma
Combined Condensed Financial Data."
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JULY 31, OCTOBER 31,
------------------------------- --------------------
1995 1994 1993 1995 1994
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................................. $ 34,073 $ 32,203 $ 31,188 $ 6,252 $ 6,969
Net loss from continuing operations attributable to common
stock.................................................... (788) (243) (2,369) (38) (317)
Earnings (loss) from continuing operations per common and
common equivalent share: (1)(2)
Primary................................................. $ (.21) $ (.07) $ (.86) $ (.01) $ (.08)
Fully Diluted (3)....................................... $ (.21) $ (.07) $ (.66) $ (.01) $ (.08)
Weighted average number of common and common equivalent
shares: (1)(2)
Primary................................................. 3,739 3,426 2,765 3,765 3,733
Fully Diluted (3)....................................... 3,739 3,426 3,197 3,765 3,733
</TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
OCTOBER 31,
1995
---------------
<S> <C>
Total assets................................................................................ $ 18,145
Current assets.............................................................................. 16,195
Working capital............................................................................. 11,844
Current liabilities......................................................................... 4,351
Long-term debt.............................................................................. 5,279
Stockholders' equity........................................................................ 8,419
Book value per outstanding common share..................................................... $ 2.24
Common shares outstanding................................................................... 3,765
</TABLE>
- ------------------------
(1) This calculation assumes the issuance to the MediVators' stockholders of
.2571 shares of Cantel Stock for each outstanding share of MediVators Series
A Stock, and .7713 shares of Cantel Stock for each outstanding share of
MediVators Series B Stock. Additionally, the calculation assumes that none
of the presently outstanding MediVators Convertible Securities have been
exercised. The outstanding MediVators Convertible Securities which are
considered common stock equivalents are not included in the computation of
primary or fully diluted earnings per share since they would be antidilutive
upon conversion into Cantel options and warrants.
(2) Reflects the elimination of Cantel convertible securities from the
calculation of weighted average shares outstanding for fiscal 1995 and 1994
and for the three months ended October 31, 1995 and 1994, since they are
antidilutive due to the combined net loss from continuing operations
attributable to common stock.
(3) 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 Cantel Stock as of the beginning of the fiscal year.
22
<PAGE>
STOCKHOLDER MEETINGS
CANTEL MEETING
The enclosed Cantel proxy is solicited by the Board of Directors of Cantel
for use at the Cantel Meeting, to be held on February , 1996 at 10:00 a.m.,
Eastern Standard Time, at , New York, New York, and at any and all
adjournments thereof. This Joint Proxy Statement/Prospectus and form of proxy
are being mailed to stockholders on or about January , 1996.
As of January , 1996, the record date fixed for the determination of
stockholders of Cantel entitled to notice of and to vote at the Meeting, there
were [2,768,193] outstanding shares of Cantel Stock, which is the only
outstanding class of voting securities of Cantel. Each outstanding share of
Cantel Stock is entitled to one vote on each matter to be voted upon.
Properly executed proxies will be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such proxies will
be voted FOR the adoption of the Merger Agreement, the election of each of the
three management nominees for election as directors to hold office until the
Annual Meeting of Stockholders to be held after the fiscal year ending July 31,
1998, and the appointment of Ernst & Young LLP as the independent auditors of
Cantel for the fiscal year ending July 31, 1996, as such matters are described
herein, and in accordance with the best judgment of the proxy holders with
respect to any other matters which may be properly submitted to the Cantel
Meeting.
The Board of Directors of Cantel does not intend to present at the Cantel
Meeting any matters other than those set forth in this Joint Proxy
Statement/Prospectus, nor does the Board know of any other matters which may
come before the Cantel Meeting. However, if any other matters are properly
presented, it is the intention of the persons named in the enclosed Cantel proxy
to vote it in accordance with their judgment.
Only stockholders of record at the close of business on January , 1996
will be entitled to vote at the Cantel Meeting or any adjournment or
adjournments thereof.
Any proxy given pursuant to this solicitation may be revoked at any time by
the stockholder giving it before it is exercised by delivery to the Secretary of
Cantel of a written notice of revocation bearing a date later than the proxy, by
submission of a later dated and properly executed proxy or by voting in person
at the Cantel Meeting. Attendance at the Cantel Meeting will not, in itself,
constitute a revocation of a proxy. Any written notice revoking a proxy with
respect to shares of Cantel Stock shall be sent to: Cantel Industries, Inc.,
1135 Broad Street, Suite 203, Clifton, New Jersey 07013, attention: Secretary.
Under the by-laws of Cantel, stockholders holding a majority of the shares
of Cantel Stock entitled to vote shall constitute a quorum at the Cantel
Meeting. Shares represented in person or by proxy as to any matter will be
counted toward the fulfillment of a quorum. Adoption of the Merger Agreement
requires the affirmative vote of the holders of a majority of the Cantel Stock
outstanding on the record date. The vote of a plurality of the votes cast in
person or by proxy is necessary for the election of directors. The affirmative
vote of a majority of the shares of Cantel Stock present in person or by proxy
is necessary for the approval of the appointment of independent auditors. The
directors and executive officers of Cantel, who collectively own an aggregate of
approximately 48.8% of the voting power of the Cantel Stock, have indicated an
intent to vote FOR the approval of the Merger, the election of management
nominees as directors, and the appointment of Ernst & Young LLP as the
independent auditors of Cantel.
Votes at the Meeting will be tabulated by an inspector of election (who may
be an employee of Cantel) appointed by Cantel or Cantel's transfer agent. As the
affirmative vote of a majority of the votes represented by Cantel Stock
outstanding as of the Record Date is required for the adoption of the Merger
Agreement, abstentions and "broker non-votes" will have the same effect as a
negative vote.
23
<PAGE>
Brokers holding shares for beneficial owners must vote those shares
according to the specific instructions they receive from beneficial owners. If
specific instructions are not received, brokers may vote those shares in their
discretion, depending on the type of proposal involved. Cantel believes that, in
accordance with New York Stock Exchange rules applicable to such voting by
brokers, brokers will not have discretionary authority to vote with respect to
shares of Cantel Stock as to which no instructions are received with respect to
the adoption of the Merger Agreement. Any such shares as to which brokers do not
receive instructions from beneficial owners are considered "broker non-votes."
MEDIVATORS MEETING
The enclosed MediVators proxy is solicited by the Board of Directors of
MediVators for use at the MediVators Meeting, to be held on February , 1996 at
9:00 a.m., Central Standard Time, at , and at any and all adjournments
thereof. This Joint Proxy Statement/Prospectus and form of proxy are being
mailed to stockholders on or about January , 1996.
As of January , 1996, the record date fixed for the determination of
stockholders of MediVators entitled to notice of and to vote at the Meeting,
there were 3,872,486 outstanding shares of MediVators Series A Stock and 2,000
outstanding shares of MediVators Series B Stock, which are the only outstanding
classes of voting securities of MediVators. Each share of MediVators Series A
Stock and Series B Stock is entitled to one vote, voting together with respect
to the adoption of the Merger Agreement.
Properly executed proxies will be voted in accordance with the instructions
indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL
BE VOTED FOR THE ADOPTION OF THE MERGER AGREEMENT.
The Board of Directors of MediVators does not intend to present at the
MediVators Meeting any matters other than those set forth in this Joint Proxy
Statement/Prospectus, nor does the Board know of any other matters which may
come before the MediVators Meeting. However, if any other matters are properly
presented, it is the intention of the persons named in the enclosed MediVators
proxy to vote it in accordance with their judgment.
Only stockholders of record at the close of business on January , 1996
will be entitled to vote at the MediVators Meeting or any adjournment or
adjournments thereof.
Any proxy given pursuant to this solicitation may be revoked at any time by
the stockholder giving it before it is exercised by delivery to the Secretary of
MediVators of a written notice of revocation bearing a date later than the
proxy, by submission of a later dated and properly executed proxy or by voting
in person at the MediVators Meeting. Attendance at the MediVators Meeting will
not, in itself, constitute a revocation of a proxy. Any written notice revoking
a proxy with respect to shares of either series of MediVators Stock shall be
sent to: MediVators, Inc., Cannon Plaza South, 6352 320 Street Way, Cannon
Falls, Minnesota 55009, attention: Secretary.
Under the by-laws of MediVators, stockholders holding a majority of the
shares of MediVators Stock entitled to vote shall constitute a quorum at the
MediVators Meeting. Shares represented in person or by proxy as to any matter
will be counted toward the fulfillment of a quorum. The affirmative vote of a
majority of the MediVators Stock outstanding on the record date present in
person or by proxy, voting together as a single class, is necessary for the
adoption of the Merger Agreement. The directors, executive officers and
affiliates of MediVators, who collectively own an aggregate of % of the
voting power of the MediVators Stock, have indicated an intent to vote FOR the
adoption of the Merger Agreement.
Votes at the Meeting will be tabulated by an inspector of election (who may
be an employee of MediVators) appointed by MediVators or MediVators' transfer
agent. As the affirmative vote of a majority of the votes represented by both
series of MediVators Stock outstanding as of the Record Date is required for the
adoption of the Merger Agreement, abstentions and "broker non-votes" will have
the same effect as a negative vote.
24
<PAGE>
Brokers holding shares for beneficial owners must vote those shares
according to the specific instructions they receive from beneficial owners. If
specific instructions are not received, brokers may generally vote those shares
in their discretion, depending on the type of proposal involved. However,
MediVators believes that, in accordance with New York Stock Exchange rules
applicable to such voting by brokers, brokers will not have discretionary
authority to vote with respect to shares of MediVators Stock as to which no
instructions are received with respect to the adoption of the Merger Agreement.
Any such shares as to which brokers do not receive instructions from beneficial
owners are considered "broker non-votes."
SOLICITATION OF PROXIES
Cantel and MediVators will each bear its own expenses in connection with the
solicitation of proxies hereunder. In addition to solicitation by mail,
arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxy material to beneficial owners, and Cantel or
MediVators, as the case may be, will, upon request, reimburse them for any
attendant expenses.
In order to ensure the presence of a quorum at the Cantel Meeting and the
MediVators Meeting, all stockholders are requested to sign and return promptly
the enclosed proxy in the postage paid envelope provided for that purpose. The
signing of the proxy will not prevent your attending the meeting and voting in
person if you wish to do so.
PROPOSAL 1 -- THE MERGER
TERMS OF THE MERGER
The following discussion is a summary of certain provisions of the Merger
Agreement, a copy of which is annexed hereto as ANNEX I and is incorporated
herein by reference, and of other agreements which were or are to be executed
and delivered in connection with the Merger. The information below is qualified
in its entirety by reference to the Merger Agreement.
GENERAL
As soon as practicable following the adoption of the Merger Agreement at the
Cantel Meeting and the MediVators Meeting, subject to the satisfaction or waiver
of certain other conditions, Newco will be merged with and into MediVators,
which will be the surviving corporation. The Effective Time will be the time
that a Certificate of Merger is filed with the Secretary of State of Minnesota.
As a result of the Merger, MediVators will become a wholly-owned subsidiary of
Cantel and the separate existence of Newco will cease. In connection with the
Merger, the outstanding shares of MediVators Stock will be converted into the
right to receive shares of Cantel Stock.
REASONS FOR THE MERGER
During the past few years, management of Cantel has been seeking to expand
Cantel's business operations, particularly its medical instruments business
which is the largest division of Cantel in terms of revenues and profitability.
As a result, Cantel has embarked on an acquisition strategy to acquire
businesses which complement Cantel's existing operations.
As part of its expansion strategy, Cantel is seeking to acquire companies
with operations in the United States, where Cantel currently has a substantial
net operating loss carryforward but no business operations (other than its
executive offices). Subject to certain conditions, Cantel's net operating loss
carryforward could be used to offset taxable income generated by an acquired
company in the United States. See "Certain Federal Income Tax Consequences."
In considering the merits of the Merger, Cantel's Board of Directors gave
substantial weight to the foregoing factors, particularly the synergy between
the business of Cantel and MediVators. Management believes that the disinfector
products of MediVators, which are utilized to disinfect endoscopes, complement
the endoscopes and related products currently distributed by Cantel in Canada.
Management also believes the infection control industry represents a growth
opportunity. In
25
<PAGE>
addition, the acquisition of MediVators gives Cantel its desired business
presence in the United States where it can utilize its net operating loss
carryforward. Furthermore, the business of MediVators represents an opportunity
for Cantel to expand into a non-distribution business whereby it will design,
manufacture and distribute proprietary products, some of which are patented.
Management of Cantel believes that this will reduce Cantel's current dependence
on third party suppliers. See "Risk Factors -- Dependence on Principal
Suppliers."
Cantel's Board of Directors believes that the Merger is an economical and
efficient means to expand its medical instruments business as compared with the
significant capital and time requirements that would be required for Cantel to
develop proprietary products such as those of MediVators. Such belief takes into
consideration the existing revenues, customer base, and ongoing business
operations of MediVators that would not be immediately present if Cantel were to
develop proprietary products on its own. Cantel's use of its common stock rather
than cash to consummate the acquisition, as well as its ability to utilize the
pooling of interests accounting treatment for the Merger, were other significant
factors considered by Cantel's Board of Directors in approving the Merger.
Although the Board of Directors of Cantel considered the Merger in light of all
of the factors discussed above, the Board did not quantify relative weights to
the specific factors considered.
In assessing the merits of the Merger, the Board of Directors of Cantel also
considered the following risks and disadvantages of the Merger: the significant
net losses, accumulated deficit, and negative cash flow of MediVators, and other
risk factors attributable to MediVators' business discussed in "Risk Factors"
above, particularly MediVators' need for additional capital and current lack of
an effective sales and distribution network in the United States. See "Risk
Factors." Another disadvantage of the Merger taken into account by the Board is
the dilution of the existing stockholders' ownership of Cantel. Cantel's Board
of Directors determined that the benefits outweighed the disadvantages and
unanimously approved the terms of the Merger and recommends that the Cantel
stockholders adopt the Merger Agreement. See "-- Background of the Merger."
In reaching its determination that the Merger is in the best interests of
the MediVators stockholders and unanimously recommending that the MediVators
stockholders adopt the Merger, MediVators' Board of Directors considered the
following factors: the terms of the Merger Agreement (which were negotiated on
an arms-length basis between Cantel and MediVators), the tax consequences of the
Merger, that Cantel is a larger, more diversified company which is engaged in
the sale of medical instruments as well as other businesses, Cantel's results of
operations, balance sheet and financial condition, MediVators' need for
additional capital to continue its operations, and the greater financial and
marketing resources of the combined entities. In particular, the Board
considered the difficulties experienced by MediVators in successfully marketing
and selling its products and believes that Cantel could provide added marketing,
sales and distribution capabilities. The Board also considered the Merger in
light of prior offers received from third parties to acquire specific assets or
business segments of MediVators (but not the company as a whole), all of which
offers were rejected as not being in the best interests of MediVators as a whole
or its stockholders. Also considered was the fact that the Merger would allow
the stockholders of MediVators to continue to have an equity interest in
MediVators' business following the Merger by reason of their ownership of shares
of Cantel Stock.
The Board of Directors of MediVators also considered certain potential risks
and disadvantages of the Merger, primarily the loss of control to the majority
stockholders of Cantel, Cantel's reliance on its principal supplier, and
Cantel's lack of significant cash reserves available for future investment in
MediVators' businesses following consummation of the Merger. See "Risk Factors."
Notwithstanding the foregoing matters, in consideration of the potential
benefits of the Merger, MediVators' Special Committee of the Board of Directors
unanimously approved the Merger on November 8, 1995, which action was then
unanimously ratified by the full Board.
26
<PAGE>
Alternatives to the Merger considered by the Board of Directors of
MediVators included the third party offers to purchase certain assets or
segments of MediVators referred to above and seeking to raise capital through a
private equity offering. However, the Board believes that the Merger represents
a better long-term opportunity for MediVators and its stockholders.
The terms of the Merger were negotiated on an arms-length basis, with no
benefits being conferred upon insiders of either company (other than in their
capacities as stockholders on the same basis provided to all other
stockholders). The most significant factors considered in negotiating the terms
were the market prices and marketability of Cantel Stock and MediVators Stock,
and the respective earnings, financial condition and prospects of Cantel and
MediVators.
The Boards of Directors of Cantel and MediVators believe the Merger is in
the best interests of their respective companies and stockholders, and
unanimously recommend that their stockholders vote FOR the approval of the
Merger Agreement.
BACKGROUND OF THE MERGER
Cantel, through its Canadian subsidiary, has been a distributor of certain
MediVators endoscope disinfection equipment in Canada since February 1, 1994. In
March 1995, Cantel and MediVators began general discussions regarding a possible
business combination between Cantel and MediVators. The first merger related
discussion between the parties was initiated by Cantel, which through its
relationship as a distributor of certain MediVators products, considered
MediVators as a possible acquisition candidate. However, at the time Cantel
initiated such discussion, MediVators was looking for possible acquirors and was
considering Cantel as such a party. Over the course of several meetings,
officers of Cantel and MediVators discussed the merits of a stock-for-stock
merger. Negotiations were conducted principally by James P. Reilly, President of
Cantel, and Donald L. Sturtevant, President of MediVators. The transaction was
negotiated and considered on an arms-length basis. At no time did such
representatives discuss or negotiate benefits to be received by officers,
directors, or other affiliates of MediVators other than those available to
stockholders of MediVators generally in their capacity as such and in connection
with the employment arrangements of Mr. Sturtevant and Curtis D. Luebke,
Chairman of MediVators. The terms of the employment agreement and consulting
agreement to be entered into by Messrs. Sturtevant and Luebke, respectively, in
connection with the Merger are discussed in "-- Interests of Certain Persons in
the Merger." The consideration to be paid to them under those agreements and the
other terms and conditions thereof are not more favorable than those provided
under their current employment agreements with MediVators.
On June 19, 1995, the President of Cantel advised the Board of Directors of
Cantel about the commencement of discussions with MediVators regarding a
possible business combination. During the next four months, the Chairman and
President of Cantel met regularly to discuss the progress of negotiations as
well as due diligence matters. They updated members of the Board during that
period principally by telephone conversations.
During June and July 1995, officers of MediVators updated the MediVators
Board concerning discussions with Cantel. On August 8, 1995, MediVators convened
a special meeting of its Board of Directors to discuss the potential merger. The
MediVators' Board of Directors reviewed MediVators' financial position and its
need for additional capital and to increase its distribution so as to become
profitable. After discussion by the MediVators Board it was determined that a
Special Committee be appointed to review the proposed Merger and determine if it
should be approved. The Special Committee, consisting of Gerald D. Van Eeckhout,
Thomas D. Mensing and Robert Cerza, the three non-management directors of
MediVators, was formed due to the Board's desire to have the Merger reviewed by
its independent members. This decision took account of potential conflicts of
interest that could arise out of the interests of the two management directors
of MediVators in the Merger, whose employment would continue following the
Merger. As discussed above, no consideration is being provided to such members
of management not available to all stockholders of MediVators in their
capacities as such. The Special Committee reviewed information concerning Cantel
and discussed the
27
<PAGE>
merits of a merger. After such discussion, basic terms for a letter of intent
were agreed to. The Special Committee directed the officers of MediVators to
negotiate the letter of intent and collect further due diligence information
concerning Cantel.
On August 17, 1995, Cantel and MediVators entered into a letter of intent
which specified the general terms of the proposed merger.
On August 22, 1995 the President of MediVators updated the Special Committee
as to the current status of negotiations and that due diligence by both parties
was continuing. The Special Committee assessed further information concerning
Cantel, but because there were still issues being discussed between Cantel and
MediVators no action to approve the merger was taken.
On October 10, 1995 the Special Committee of MediVators met to discuss the
status of discussions with Cantel and the due diligence process, and to review
the basic terms of the proposed Merger Agreement.
On October 13, 1995, the President of Cantel delivered information about
MediVators, including public reports containing audited annual and unaudited
quarterly financial statements filed with the Securities and Exchange
Commission, and product information, as well as a draft of the Merger Agreement,
to each member of the Cantel Board of Directors. The Board also received
unaudited pro forma combined condensed financial information for the fiscal
years ended July 31, 1995, 1994 and 1993 which were prepared by management of
Cantel and gave effect to the Merger on a pooling of interests accounting basis,
as well as pro forma projections for the fiscal year ending July 31, 1996. On
October 16, 1995, the Board of Cantel met at a regular meeting to discuss and
assess the proposed Merger. At the meeting, the Board reviewed the structure and
proposed terms of the Merger. They also reviewed MediVators' results of
operations for the last several years and its business prospects for the future.
In assessing the business prospects of MediVators, the Board of Cantel
considered (i) MediVators' current range of products, (ii) growth opportunities
in the infection control industry, (iii) current management of MediVators, (iv)
MediVators' research and development capabilities, and (v) the opportunity to
achieve higher sales and improved operating results by entering into a proposed
distribution arrangement with a certain third party.
Cantel's Board then discussed in detail the benefits and risks of the
Merger. See "-- Reasons for the Merger." The President advised the Board on the
status of Cantel's due diligence and indicated that further due diligence was
being conducted, particularly with respect to the carrying value of certain
assets related to MediVators' medical waste disposal operations, allowances
being provided for certain doubtful accounts receivable, and the working capital
needs of MediVators. In addition, management of Cantel was awaiting the
operating results of MediVators for its third quarter ended September 30, 1995.
The President of Cantel indicated that based on the results of its due diligence
and the third quarter results of MediVators, as well as an increase in the
market price of Cantel Stock, a change in the exchange ratio set forth in the
letter of intent might be warranted. After extensive discussions regarding the
Merger, the Board unanimously voted to approve the Merger and the terms and
provisions of the Merger Agreement in the form presented at the meeting. The
Board authorized the President to finalize negotiations with MediVators and to
make such further changes to the Merger Agreement as may be in the best
interests of Cantel and its stockholders.
Following the Cantel Board's approval of the Merger on October 16, 1995, the
only material provisions of the Merger Agreement to be modified were a change in
the exchange ratio and an agreement by Cantel to loan MediVators funds prior to
the Merger, both of which changes are discussed below. These were the only
material changes in the terms of the Merger following the signing of the letter
of intent.
On October 27, 1995 the Special Committee of MediVators met to obtain
further information as to the status of discussions with Cantel, the review of
drafts of the Merger Agreement, and the due diligence process. At such meeting
the President of MediVators conveyed to the Special Committee that Cantel was
concerned over the carrying value of certain assets related to MediVators'
medical
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waste disposal operations, allowances being taken for doubtful accounts
receivable, and the working capital needs of MediVators, and thereby the
exchange ratio for the Merger set forth in the letter of intent. After extensive
discussions regarding the Merger, the Merger Agreement, MediVators' financial
position and the value that may be provided to the stockholders as a result of
the Merger, the Special Committee determined that a subsequent meeting should be
held after Cantel had a chance to complete its due diligence with respect to the
financial matters of concern and to review the current operating results and
working capital needs of MediVators, and present a final proposal.
To address its concerns, Cantel conducted substantial additional due
diligence. This included a review of additional sales and customer information,
internal budgets and projections, prior years' audit work papers, a variety of
accounting analyses prepared by MediVators, and meetings at MediVators' offices
between Craig A. Sheldon, Cantel's Chief Accounting Officer, and various
representatives of MediVators. Based on the results of its due diligence, Cantel
proposed a reduction in the exchange ratio, subject to finalization of its due
diligence and a review of MediVators' third quarter operating results.
On October 31, 1995 the Special Committee of MediVators met once again and
were advised that the Merger Agreement was nearing completion, that its due
diligence review was substantially completed and that Cantel had presented a
revised proposal with respect to the exchange ratio. The Special Committee after
final review of the terms of the Merger Agreement and the reasons for going
forward with the Merger determined that the Merger would be beneficial to
MediVators; however, they were concerned they could not complete the Merger
pursuant to the terms of the Merger Agreement unless MediVators could raise
working capital that would be sufficient to complete the Merger. The Special
Committee instructed the officers of MediVators to review the alternatives for
such working capital financing and present proposals for consideration.
During the first week of November 1995, management of Cantel was provided
with the operating results of MediVators for its third quarter of 1995. In
addition, Cantel completed its due diligence related to its financial concerns
described above. Representatives of Cantel and MediVators had numerous
discussions and meeting regarding the foregoing matters as well as the working
capital needs of MediVators prior to the Merger. Management of Cantel proposed a
further reduction of the exchange ratio due to the significant shortfall in
anticipated sales levels and the greater than anticipated net loss of MediVators
during its third quarter of 1995, as well as revised sales projections prepared
by MediVators covering the next six months. The total of the two proposed
changes in the exchange ratio as a result of the due diligence processes
discussed above result in approximately 188,000 fewer shares of Cantel Stock
being issued in the Merger than originally contemplated under the letter of
intent. In addition, in order to satisfy the working capital needs of
MediVators, Cantel agreed to provide loans to MediVators up to an aggregate
principal amount of $190,000. Such loans are not contingent upon consummation of
the Merger. The terms and conditions of the loans were negotiated on an arm's
length basis and will provide for an annual interest rate of prime plus 2%,
payable beginning April 1, 1996 in nine (9) equal monthly installments of
principal and interest, and such other terms as are normal and customary for
loans of this type. The loans will be secured by all of MediVators' intangible
assets (e.g., patents, trademarks and contract rights) and certain equipment.
On November 8, 1995, the Special Committee reconvened and once again
reviewed the terms of the Merger and alternatives to finance MediVators through
the closing date of the Merger. The Special Committee was advised of Cantel's
commitment to provide loans to MediVators prior to the Merger as well as
Cantel's final proposal with respect to the exchange ratio. The Special
Committee discussed the final terms of the Merger, including Cantel's financing
proposal, as well as financing alternatives. The alternatives discussed included
asset-based bank financing with bridge financing provided by private investors.
The Special Committee then unanimously voted to approve the Merger and Merger
Agreement and to recommend to the full MediVators' Board that the Merger be
approved. A meeting of the full MediVators' Board was convened on such date and
by unanimous vote the actions of the Special Committee were ratified and it was
agreed to recommend to stockholders of MediVators that the Merger Agreement be
adopted at a special meeting of the stockholders.
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The Boards of Directors of both Cantel and MediVators considered the Merger
on an arms-length basis considering all of the factors discussed above and in
the preceding section (captioned "Reasons for the Merger"). The Boards used
their best business judgment in determining the fairness of the transaction to
stockholders from a financial point of view. Since the Merger does not involve
the participation by affiliated parties, neither Board engaged investment
bankers or other financial experts to determine such fairness.
After final changes to the Merger Agreement were negotiated and related due
diligence issues were satisfied, the Merger Agreement was signed on November 14,
1995 and a joint press release announcing the Merger was released on November
15, 1995.
On December 13, 1995, Cantel made an initial loan advance in the amount of
$75,000 to MediVators. See "Terms of the Merger -- Cantel Loans to Medivators."
The Board of Directors of Cantel ratified the final Merger Agreement and
authorized the loans to MediVators by unanimous written consent in January 1996.
CONVERSION OF MEDIVATORS STOCK IN MERGER; ASSUMPTION OF OUTSTANDING CONVERTIBLE
SECURITIES
Upon the consummation of the Merger, without any action on the part of the
holders thereof, each share of MediVators Series A Stock and Series B Stock
outstanding immediately prior to the Effective Time will be converted into .2571
shares and .7713 shares, respectively, of Cantel Stock (other than shares of
MediVators Stock as to which dissenters' rights under the Minnesota Act have
been properly perfected).
The Merger will affect the outstanding MediVators Convertible Securities
which are comprised of options granted under the MediVators Option Plans as well
as non-plan options and warrants. As of January , 1996, there were outstanding
under the MediVators Option Plans options to purchase an aggregate of 329,750
shares of Series A Stock at prices ranging from $1.625 to $2.125 per share.
MediVators also has outstanding non-plan options to purchase 262,500 shares of
Series A Stock at a price of $2.00 per share and outstanding warrants ("Series A
Warrants") to purchase 247,900 shares of Series A Stock at a price of $5.00 per
share. In addition, MediVators has outstanding warrants to purchase 12,950
shares of Series B Stock at a price of $7.56 per share (the "Series B
Warrants"). All MediVators Convertible Securities outstanding at the Effective
Date will be assumed by Cantel. Each MediVators Convertible Security outstanding
at the Effective Time shall thereafter entitle the holder thereof to acquire
such number of shares of Cantel Stock as such holder would have received had the
MediVators Convertible Security been exercised in full prior to the Effective
Time. Each of the MediVators Convertible Securities will be exercisable at a
price per share equal to a fraction, the numerator of which is the exercise
price per share of such MediVators Convertible Security in effect immediately
prior to the Effective Time and the denominator of which is .2571 (.7713 in the
case of Series B Warrants). Based on the foregoing, at the Effective Time, the
options constituting MediVators Convertible Securities will be exercisable for
152,267 shares of Cantel Stock at prices ranging from $6.32 to $8.265, the
Series A Warrants will be exercisable for 63,735 shares of Cantel Stock at a
price of $19.45 per share, and the Series B Warrants will be exercisable for
9,988 shares of Cantel Stock at a price of $9.80 per share.
The outstanding shares of Cantel Stock and the outstanding Cantel
Convertible Securities will be unaffected by the Merger. However, the equity
interest of Cantel stockholders will be diluted as a result of the Merger.
Stockholders are directed to the Unaudited Pro Forma Combined Condensed
Financial Data below which quantifies the effect of the Merger on stockholders'
equity as if the Merger had occurred at October 31, 1995. See "Unaudited Pro
Forma Combined Condensed Financial Data."
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PROCEDURE FOR CONVERSION OF MEDIVATORS STOCK
A letter of transmittal ("Transmittal Letter") and instructions will be
mailed to the holders of MediVators Stock for use in surrendering to American
Stock Transfer & Trust Company (the "Exchange Agent") stock certificates which,
immediately prior to the Effective Time, represented MediVators Stock. STOCK
CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE TRANSMITTAL LETTER AND
INSTRUCTIONS HAVE BEEN RECEIVED.
Each MediVators stockholder of record holding a stock certificate
("Certificate") which, immediately prior to the Effective Time, represented
MediVators Stock will be entitled to receive, upon proper surrender to the
Exchange Agent of such Certificate(s), together with a properly completed and
duly executed Transmittal Letter and any other required documents, the Cantel
Stock into which such MediVators Stock shall have been converted. Until so
surrendered, each Certificate shall be deemed for all corporate purposes to
evidence only the right to receive, upon proper surrender of such Certificate,
the Cantel Stock (and, if appropriate, cash for fractional shares) into which
the MediVators Stock represented thereby shall have been converted.
THE SURVIVING CORPORATION
Upon the consummation of the Merger, Newco will cease to exist as a separate
corporation and all of the business, assets, liabilities and obligations of
Newco will be merged with and into MediVators with MediVators remaining as the
Surviving Corporation. Pursuant to the Merger Agreement, at the Effective Time
(i) the Articles of Incorporation of MediVators shall be the Articles of
Incorporation of the Surviving Corporation and (ii) the By-laws of MediVators
shall be the By-laws of the Surviving Corporation. Immediately following the
Merger, MediVators will be operated as a wholly-owned subsidiary of Cantel.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Cantel and MediVators has agreed
that, prior to the Effective Time, it will carry on its respective businesses in
the ordinary course, use its reasonable best efforts to preserve intact its
present business organization and keep available the services of its present
officers and employees, keep in effect insurance policies in coverage amounts
not less than those in effect as of the date of the Merger Agreement, preserve
and protect its proprietary rights, and preserve its relationships with
customers, suppliers, licensors and other persons with which it has significant
business dealings.
REPRESENTATIONS AND WARRANTIES
In connection with the Merger Agreement, Cantel and Newco on the one hand,
and MediVators on the other hand, have made certain representations and
warranties to the other, customary in transactions such as the Merger with
respect to, among other things, their respective due organization and good
standing, the condition, financial and otherwise, of their respective
businesses, the accuracy of the information contained in the Registration
Statement and this Joint Proxy Statement/Prospectus or provided to the other in
connection with the Merger, and their proper authorization and authority to
enter into and perform their respective obligations under the Merger Agreement.
Such representations and warranties do not survive the closing of the Merger.
CONDITIONS OF THE MERGER
Consummation of the Merger is conditioned upon, among other things, (i)
adoption of the Merger Agreement by the stockholders of Cantel and MediVators in
accordance with the provisions of the Delaware Law and the Minnesota Act,
respectively, (ii) the effectiveness with the Securities and Exchange Commission
of the registration statement of Cantel on Form S-4 covering Cantel Stock to be
issued in connection with the Merger, (iii) receipt by Cantel from Ernst & Young
LLP, its independent auditors, of a letter regarding the appropriateness of
pooling of interests accounting treatment for the Merger under Accounting
Principles Board Opinion No. 16, provided that the Merger is closed in
accordance with the terms and conditions of the Merger Agreement, (iv) receipt
by Cantel from Price Waterhouse LLP, MediVator's independent accountants, of an
accountant's comfort letter and a
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"pooling letter" to the effect that subject to customary qualifications no event
has occurred with respect to MediVators which would preclude the Merger from
being treated as a pooling of interests for accounting purposes, (v) resignation
of certain directors of MediVators in accordance with the Merger Agreement, (vi)
Cantel having entered into a definitive distribution agreement with a certain
third party covering the distribution of MediVators endoscope disinfection
equipment and supplies in the United States, (vii) receipt of an opinion of
counsel as to the treatment of the Merger as a tax-free reorganization for
federal income tax purposes; (viii) each of the representations and warranties
of Cantel, Newco and MediVators contained in the Merger Agreement being true and
correct as of the Effective Date as though made on such date, (ix) performance
and compliance, in all material respects, of the covenants of Cantel and
MediVators contained in the Merger Agreement, and (x) holders of MediVators
Stock who own, in the aggregate, more than three percent (3%) of the outstanding
MediVators Stock, shall not have been given written notice of their election to
dissent in accordance with the Minnesota Act. See "Rights of Dissenting
Stockholders." The letters regarding pooling of interests accounting treatment
referred to in items (iii) and (iv) above have been received by Cantel. In the
event the Merger is not effected on or before March 1, 1996 because of the
failure of a party to satisfy a condition precedent, the Merger Agreement may be
terminated by the other party thereto.
AMENDMENT, WAIVER, TERMINATION
Cantel, Newco, and MediVators may amend the Merger Agreement at any time
before or after stockholder adoption of the Merger Agreement.
Cantel, Newco, and MediVators may extend the time for performance of any of
the obligations or other acts required of the other, including an extension of
the date for termination of the Merger Agreement and may waive, at any time
before or after adoption of the Merger Agreement by the stockholders of Cantel
or MediVators, any obligations of the other party or any of the conditions to
the Merger.
Notwithstanding the foregoing, neither the nature of the consideration to be
received by MediVators stockholders as a result of the Merger nor the Exchange
Ratio may be amended following stockholder adoption of the Merger Agreement
without further stockholder approval.
The Merger Agreement may be terminated at any time prior to the Effective
Date, (i) by mutual agreement of Cantel and MediVators; (ii) by either Cantel or
MediVators in the event any representation or warranty in the Merger Agreement
of the other is, or becomes, untrue or breached in any material respect, or the
other fails to comply with a material covenant contained in the Merger
Agreement, and any such misrepresentation or non-compliance is not cured, waived
or eliminated within ten days of receipt of notice thereof; (iii) in the event
conditions precedent to the terminating party's obligation under the Merger
Agreement have not been satisfied on or before March 1, 1996, (iv) by Cantel, if
it fails by January 31, 1996 to enter into a definitive distribution agreement
with a certain third party covering the distribution of MediVators endoscope
disinfection equipment and supplies in the United States; and (v) by MediVators,
if prior to the MediVators Special Meeting the Board of Directors of MediVators
determines, solely due to its fiduciary obligations, that it will not recommend
adoption of the Merger Agreement by the stockholders of MediVators and shall
have recommended a bona fide proposal for a transaction between MediVators and a
third party materially more favorable to the stockholders of MediVators from a
financial point of view than the Merger.
EFFECT OF TERMINATION
In the event the Merger Agreement is terminated pursuant to items (ii),
(iii) or (iv) above due to the intentional breach of a representation, warranty,
covenant or condition by the breaching party, then the nonbreaching party shall
be entitled to pursue, exercise and enforce any and all remedies, rights, powers
and privileges available at law or in equity; provided that the nonbreaching
party shall take all reasonable efforts to mitigate its damages on its discovery
of such breach. In the event the Merger Agreement is terminated pursuant to
items (ii), (iii) or (iv) above, but such termination is due to a breach of a
representation, warranty, covenant or condition that is not the result of an
action or inaction by the breaching party that could be reasonably anticipated
to cause the breach and the
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breaching party cannot reasonably correct the breach, then no party shall have
any right to pursue, exercise or enforce any remedy and all parties who are not
involved in an intentional breach of a representation, warranty, covenant or
condition shall be fully released and discharged from any and all obligations
under the Merger Agreement. In the event the Merger Agreement is terminated
pursuant to item (v) above, MediVators shall remit to Cantel, within 15 days
following such termination, the sum of $1,000,000. Said sum shall be the sole
obligation and liability of MediVators to Cantel payable in connection with such
termination.
CANTEL LOANS TO MEDIVATORS
Under the Merger Agreement, Cantel has agreed to loan to MediVators up to
$190,000 prior to consummation of the Merger. The terms of the loan were
negotiated on an arm's-length basis. Cantel made an initial loan advance of
$75,000 on December 13, 1995. Loans bear interest at the rate of 2% above the
United States prime rate of the National Bank of Canada publicly announced from
time to time and are secured by all of MediVators' intangible assets, including
without limitation patents, trademarks, service marks, manufacturing
specifications, designs, trade secrets, formulations, and rights of MediVators
under distribution and license agreements, as well as certain equipment of the
MedFab Division of MediVators. The loans are payable in nine equal monthly
installments of principal and interest commencing April 1, 1996. The proceeds of
the loans will be used to satisfy working capital needs of MediVators.
EXPENSES
Pursuant to the Merger Agreement, whether or not the Merger is consummated,
Cantel and MediVators will each bear its own expenses in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement.
RESALE OF CANTEL STOCK BY MEDIVATORS AFFILIATES
The issuance of the Cantel Stock in the Merger to the stockholders of
MediVators is being registered under the Securities Act. Such Cantel Stock will
be freely transferable, except for shares thereof received by persons, including
directors and executive officers of MediVators who may be deemed to be
"affiliates" of MediVators, as such term is defined in Rule 145 under the
Securities Act. Rule 145 limits the amount of Cantel Stock that such persons may
sell during any three-month period and prescribes certain other restrictions on
resale. It is a condition to the consummation of the Merger that MediVators
shall have obtained from such persons a written undertaking to the effect that
no sale, transfer or other disposition will be made of any shares of the Cantel
Stock received in the Merger except in compliance with the provisions of Rule
145 under the Securities Act or in a manner otherwise in compliance with the
Securities Act.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
DONALD L. STURTEVANT. Under the Merger Agreement, Cantel has agreed that at
the closing of the Merger, Donald Sturtevant, who is currently President and
Chief Executive Officer of MediVators, will enter into a new employment
agreement with MediVators, to take effect on July 1, 1996 upon expiration of his
current employment agreement. Under the new employment agreement, Mr. Sturtevant
will remain employed by MediVators as President and Chief Executive Officer for
a three-year term. The base salary payable to Mr. Sturtevant will be $96,000,
$103,000 and $110,000 in years one, two and three, respectively, of the
employment term. He will also be entitled to an annual bonus, based upon
performance, to be determined by the Cantel Board of Directors. Mr. Sturtevant
will participate in employee benefit and stock option plans and will be granted
a five-year option to purchase 25,000 shares of Cantel Stock at the market price
on the effective date of the new employment agreement. In addition, MediVators
will remain obligated to purchase an insurance policy on Mr. Sturtevant's life
having a death benefit of $250,000 and naming his designee as the beneficiary.
CURTIS D. LUEBKE. Under the Merger Agreement, Cantel has agreed that at the
closing of the Merger, Curtis Luebke, who is currently Chairman of the Board of
MediVators, will enter into a consulting agreement with MediVators, to take
effect on July 1, 1996 upon expiration of his current
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employment agreement. Under the consulting agreement, Mr. Luebke will provide
part-time consulting services to MediVators for a two and one-half year term.
Mr. Luebke will be paid a fee at the rate of $40,000 per annum for his services.
COMPARISON OF CANTEL STOCK TO MEDIVATORS STOCK
DESCRIPTION OF CANTEL STOCK
Cantel is authorized to issue 7,500,000 shares of Common Stock, par value
$.10 per share (referred to herein as "Cantel Stock") and 1,000,000 shares of
Preferred Stock, par value $1.00 per share. As of January , 1996, 2,768,193
shares of Cantel Stock and no shares of Preferred Stock were outstanding.
COMMON STOCK
The holders of Cantel Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of Cantel Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of Cantel, the holders of Cantel Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Cantel Stock. Holders of shares of Cantel Stock, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Cantel Stock. All of the outstanding
shares of Cantel Stock are fully paid and nonassessable.
PREFERRED STOCK
Cantel is authorized to issue 1,000,000 shares of Preferred Stock, $1.00 par
value per share with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue shares of
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
Cantel Stock. In the event of issuance, the shares of Preferred Stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of Cantel. Cantel has no present intention to
issue any shares of its Preferred Stock.
DESCRIPTION OF MEDIVATORS STOCK
SERIES A STOCK
MediVators is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share. Holders of the Common Stock are entitled to dividends
when, as if and if declared by MediVators' Board of Directors out of funds
legally available therefor. The Board of Directors has the authority, in most
instances without further stockholder action, to designate and issue from time
to time one or more series of Common Stock, and the Board of Directors is
authorized to determine the designation and number of shares in each series and
to fix the dividend, redemption, liquidation, conversion and sinking or purchase
fund rights, if any, of each series. As of January , 1996, 3,872,486 shares of
Series A Common Stock ("Series A Stock") and 2,000 shares of Series B 10%
Cumulative Redeemable Convertible Common Stock ("Series B Stock") were
outstanding. The Series A Stock and Series B Stock are collectively referred to
as the "MediVators Stock."
The holders of the MediVators Stock are entitled to one vote per share,
voting together as a single class, on all matters to be voted upon by MediVators
stockholders. The holders of MediVators Stock do not have cumulative voting
rights. Therefore, holders with more than 50% of the shares of MediVators Stock
voting for the election of directors can elect all of the directors if they
choose to do so. Also, the
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stockholders of MediVators do not have preemptive rights to subscribe for
shares. The absence of preemptive rights could result in a dilution of the
interest of existing stockholders should additional shares of MediVators Stock
be issued.
Upon any liquidation or dissolution of MediVators, the holders of the
MediVators Stock will share ratably, in proportion to the number of shares held,
in the assets available for distribution after payment of all prior claims.
SERIES B STOCK
Each share of MediVators Series B Stock is convertible at any time into
three shares of MediVators Series A Stock plus two warrants (the "Warrants"),
each to purchase one share of Series A Stock at a price of $5.00 per share until
December 31, 1998. The following description of Series B Stock is applicable
only until such shares are converted into shares of Series A Stock and Warrants.
The Series A Stock that is issuable upon conversion of the Series B Stock and
upon exercise of the Warrants, is identical in all respects to the currently
outstanding Series A Stock.
A 10% annual dividend shall accumulate on the Series B Stock until the
issuance of the Series A Stock and Warrants upon conversion of the Series B
Stock or the earlier redemption of the Series B Stock, or the liquidation or
dissolution of MediVators. MediVators is not required to pay such dividends in
cash. Declared but unpaid dividends accumulate and are payable only in shares of
Series A Stock upon the conversion of the Series B Stock. Accumulated dividends
convert automatically into shares of Series A Stock upon the conversion of the
Series B Stock at a conversion price that is based upon the average daily high
and low sale price for Series A Stock in the public market over the 15 trading
days immediately preceding the date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to Cantel stockholders, Cantel, Newco, MediVators
stockholders and MediVators. The discussion is based on an opinion of Dornbush
Mensch Mandelstam & Schaeffer, LLP, counsel to Cantel. This discussion does not
address all aspects of federal income taxation that may be relevant to
particular stockholders and this discussion may not be applicable to
stockholders who are not citizens or residents of the United States, or to those
stockholders who acquired MediVators Stock as compensation or pursuant to the
exercise of options or rights received as compensation. This discussion does not
address foreign, state or local tax consequences of the Merger, nor does it
purport to address the federal income tax consequences of the Merger to special
classes of taxpayers (such as small business corporations that have elected to
be taxed under Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"), banks, mutual funds, insurance companies, financial institutions,
small business investment companies, regulated investment companies,
broker-dealers, or tax-exempt organizations). This discussion assumes that
MediVators' stockholders hold their MediVators Stock as capital assets within
the meaning of Section 1221 of the Code. This summary is based on the Code,
regulations of the United States Treasury promulgated and proposed thereunder,
judicial decisions and published administrative rulings and pronouncements of
the Internal Revenue Service (the "Service") as in effect on the date hereof.
Legislative, judicial or administrative changes or interpretations hereafter
enacted or promulgated could alter or modify the analysis and conclusions set
forth below. Any such changes or interpretations may be retroactive and could
affect significantly the federal income tax consequences discussed below.
NO RULINGS HAVE BEEN OR WILL BE REQUESTED FROM THE SERVICE WITH RESPECT TO
ANY OF THE TAX ASPECTS OF THE MERGER AND THE TAX OPINIONS TO BE PROVIDED BY
COUNSEL ARE NOT BINDING ON THE SERVICE. EACH STOCKHOLDER SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE
MERGER INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER
TAX LAWS.
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Dornbush Mensch Mandelstam & Schaeffer, LLP, counsel to Cantel has advised
that the Merger will, under current law, constitute a reorganization within the
meaning of Section 368(a)(1)(A) as a result of Section 368(a)(2)(E) of the Code,
and that Cantel, Newco, and MediVators will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
As a reorganization, the Merger will have the following federal income tax
consequences for Cantel, Cantel stockholders, Newco, MediVators stockholders and
MediVators:
1. No gain or loss will be recognized by stockholders of Cantel as a
result of the Merger.
2. No gain or loss will be recognized by Cantel as a result of the
Merger.
3. No gain or loss will be recognized by Newco as a result of the
Merger.
4. No gain or loss will be recognized by holders of MediVators Stock as
a result of the exchange of each such share for shares of Cantel Stock
pursuant to the Merger. The tax basis of the Cantel Stock received by each
stockholder of MediVators will equal the tax basis of such stockholder's
shares of MediVators Stock exchanged in the Merger. The holding period for
the shares of Cantel Stock received by each MediVators stockholder will
include that stockholder's holding period for the shares of MediVators Stock
exchanged in the Merger.
5. No gain or loss will be recognized by MediVators as a result of the
Merger.
Holders of incentive stock options or nonstatutory stock options to purchase
MediVators Stock issued in connection with, and as compensation for, such
holder's performance of personal services on behalf of or for the benefit of
MediVators or one of its subsidiaries will recognize no gain or loss as a result
of such options becoming options (with substantially identical terms) to acquire
Cantel Stock pursuant to the Merger.
Holders of MediVators Stock who receive cash in lieu of fractional shares or
who exercise their dissenters' rights will recognize gain or loss measured by
the difference between the amount received and their tax basis in the shares
surrendered.
Counsel's advice is based upon certain assumptions as of the Effective Time
of the Merger, including that:
(a) There is not at the Effective Time any plan or intention on the part
of the stockholders of MediVators to sell, exchange or otherwise dispose of
a number of shares of the Cantel Stock received in the Merger that would
reduce the ownership by such stockholders in Cantel to a number of shares
having a value, as of the Effective Time, which is less than 50% of the
value of all the former outstanding stock of MediVators held by such
stockholders as of the same date;
(b) Cantel has no plan or intention to sell or otherwise dispose of any
of MediVators' assets acquired in the Merger, except for dispositions made
in the ordinary course of business or for transfers described in Section
368(a)(2)(C) of the Code;
(c) Following the transaction, Cantel or one of the subsidiaries that it
controls within the meaning of Section 368(c) of the Code will continue the
historic business or businesses of MediVators or use a significant portion
of MediVators' historic business assets in a business or businesses; and
(d) All representations, warranties and statements made by Cantel and
MediVators, their management and stockholders in connection with the Merger,
including each representation made by Cantel, MediVators and MediVators'
stockholders that own 5% or more of the MediVators Stock, to Dornbush Mensch
Mandelstam & Schaeffer, LLP in connection with its opinions on tax matters,
are true and accurate at all relevant times and the conditions for closing
set forth in the Merger Agreement are satisfied.
As of July 31, 1995, Cantel had NOLs of approximately $10,789,000 which
expire through the year 2010. Under Section 382 of the Code, if Cantel undergoes
an "ownership change," its ability to
36
<PAGE>
use its pre-ownership change NOLs (NOLs accrued through the date of the
ownership change) would be limited annually to an amount equal to the product of
(i) the long-term tax-exempt rate for ownership changes prescribed monthly by
the Treasury Department and (ii) the value of Cantel's outstanding stock
immediately before the ownership change excluding certain capital contributions
(the "Section 382 Limitation"). Any allowable portion of the pre-ownership
change NOLs that is not used in a particular taxable year following the
ownership change could be carried forward to subsequent taxable years until the
NOLs expire, usually 15 years after they are generated.
An ownership change generally will occur if the percentage of the value of
Cantel's stock owned by one or more statutorily-defined "5-percent stockholders"
has increased by more than 50 percentage points over the lowest percentage of
that value owned by those 5-percent stockholders at any time during a "testing
period" (which is generally the shorter of the three-year period preceding the
ownership change or the period following the most recent prior ownership
change).
Cantel believes that it is likely that an ownership change will not occur as
a result of the Merger and thus that the Section 382 Limitation should not apply
as a result of the Merger. However, there can be no assurance that there will
not be an ownership change as a result of transactions that occur with respect
to the Cantel Stock subsequent to the Merger, which would result in the
application of the Section 382 Limitation.
Cantel is not currently able to file a consolidated income tax return with
its Canadian subsidiary. Therefore, none of the losses sustained by Cantel in
the United States can be used to reduce Canadian federal or provincial income
taxes payable by Cantel's Canadian subsidiary on its taxable income.
As of December 31, 1994, MediVators had NOLs for federal income tax purposes
of approximately $3,900,000 which expire through 2008. MediVators will undergo
an ownership change as a result of the Merger. As a result, MediVators' ability
to use its NOL will be limited annually in accordance with the Section 382
Limitation described above. The Section 382 Limitation may be increased by
certain recognized built-in gains if MediVators possesses a net unrealized
built-in gain at the date of the ownership change.
Assuming that Cantel and MediVators file a consolidated federal income tax
return for taxable periods subsequent to the Merger, the consolidated group will
be entitled to use the allowable MediVators NOLs and Cantel NOLs to offset any
taxable income generated by MediVators after the Merger. However, if MediVators
were to sell any assets within five years after the Merger, the resulting gain
(to the extent it is attributable to pre-Merger appreciation in value) cannot be
offset by any pre-Merger NOLs generated by Cantel.
The obligation of Cantel to consummate the Merger is subject to its receipt
of an opinion of its counsel, Dornbush Mensch Mandelstam & Schaeffer, LLP, given
on the basis of facts and representations set forth in such opinion, to the
effect that for federal income tax purposes no gain or loss will be recognized
by Cantel or MediVators as a result of the Merger, and that no gain or loss will
be recognized by stockholders of Cantel or by stockholders of MediVators on the
receipt of shares of Cantel Stock pursuant to the Merger. Said firm has
delivered said opinion, which will be reaffirmed at the closing of the Merger,
subject to the facts and representations set forth in the opinion remaining true
and correct at, and as if made on, the Effective Time of the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for by Cantel as a "pooling of interests" in
accordance with generally accepted accounting principles. Under this accounting
treatment, the assets, liabilities and retained earnings of Cantel and
MediVators are carried forward at their historical carrying amounts. Operating
results of Cantel and MediVators are combined for all periods prior to the
Effective Date, and previously issued financial statements are restated as
though Cantel and MediVators had always been combined.
37
<PAGE>
RIGHTS OF DISSENTING MEDIVATORS STOCKHOLDERS
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the Minnesota Act and is qualified in its entirety
by reference to the full text of Section 302A.471 and 302A.473 of the Minnesota
Act attached to this Joint Proxy Statement/Prospectus as ANNEX IV. Any
stockholder of MediVators who wishes to exercise such dissenters' rights or who
wishes to preserve his or her right to do so should review the following
discussion and ANNEX IV carefully because failure to timely and properly comply
with the procedures specified will result in the loss of dissenters' rights
under the Minnesota Act.
PROCEDURE TO PRESERVE DISSENTERS' RIGHTS
Under Minnesota law, any holder of MediVators Stock who follows the
procedures set forth in section 302A.473 of the Minnesota Act will be entitled
to receive payment in cash for the "fair value" of such stockholder's shares.
Under Section 302A.473 of the Minnesota Act, if a corporation calls a
stockholder meeting at which a plan of merger to which such corporation is a
party is to be voted upon, the notice of the meeting must inform each
stockholder of the right to dissent and must include a copy of sections 302A.471
and 302A.473 of the Minnesota Act and a brief description of the procedures to
be followed under such sections. This Joint Proxy Statement/Prospectus
constitutes such notice to the stockholders of MediVators and the applicable
statutory provisions of the Minnesota Act are attached to this Joint Proxy
Statement/Prospectus as ANNEX IV.
The Merger Agreement must be adopted by the holders of a majority of the
outstanding shares of MediVators Common Stock. A stockholder who wishes to
exercise dissenters' rights must file with MediVators before the vote on the
Merger Agreement a written notice of intent to demand the fair value of the
shares owned by such stockholder and must not vote his or her shares in favor of
the Merger Agreement.
The "fair value of the shares" means the value of the shares of MediVators
immediately before the Effective Date of the Merger.
After the proposed Merger has been approved by the MediVators Board and the
MediVators stockholders, MediVators must send a written notice to all
stockholders who have not voted their shares in favor of the Merger Agreement
and who have filed with MediVators before the vote on the Merger Agreement a
written notice of intent to demand the fair value of the shares owned by such
stockholder. The notice from MediVators must contain:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertified shares that will apply
after the demand for payment is received;
(3) a form to be used to certify the date on which the stockholder, or
the beneficial owner on whose behalf the stockholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) a copy of sections 302A.471 and 302A.473 of the Minnesota Act and a
brief description of the procedures to be followed under such sections.
In order to receive the fair market value of the shares, a dissenting
stockholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a stockholder
until the Merger takes effect.
A stockholder may not assert dissenters' rights as to less than all of the
shares registered in the name of the stockholder, unless the stockholder
dissents with respect to all the shares that are
38
<PAGE>
beneficially owned by another person but registered in the name of the
stockholder and discloses the name and address of each beneficial owner on whose
behalf the stockholder dissents. In that event, the rights of the dissenter will
be determined as if the shares as to which the stockholder has dissented and the
other shares were registered in the names of different stockholders.
A beneficial owner of shares who is not the stockholder may assert
dissenters' rights with respect to shares held on behalf of such beneficial
owner, and will be treated as a dissenting stockholder under the terms of
sections 302A.471 and 302A.473 of the Minnesota Act, if the beneficial owner
submits written consent of the stockholders holding such beneficial owner's
shares to MediVators at the time of or before the assertion of the rights.
PROCEDURES FOLLOWING AN ASSERTION OF DISSENTERS' RIGHTS
After the Merger takes effect, or after MediVators receives a valid demand
for payment, whichever is later, MediVators must remit to each dissenting
stockholder who has not voted his or her shares in favor of the proposed Merger
and has filed with MediVators before the vote on the proposed Merger a written
notice of intent to demand the fair value of the shares owned by such
stockholder, the amount MediVators estimates to be the fair value of the shares,
plus interest ("interest" commences five days after the effective date of the
Merger up to and including the date of payment, calculated at a rate provided
under Minnesota law for interest on verdicts and judgments), accompanied by:
(1) MediVators balance sheet and statement of operations for a fiscal
year ending not more than 16 months before the effective date of the Merger,
together with the latest available interim financial statements;
(2) An estimate by MediVators of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of sections 302A.471 and 302A.473 of the Minnesota Act, and a
brief description of the procedures to be followed in demanding supplemental
payment.
MediVators may withhold the above-described remittance from a person who was
not a stockholder on the date the Merger Agreement was first announced to the
public or who is dissenting on behalf of a person who was not a beneficial owner
on that date. If the dissenter has not voted his or her shares in favor of the
proposed Merger Agreement and has filed with MediVators before the vote on the
proposed Merger Agreement a written notice of intent to demand the fair value of
the shares owned by such stockholder, MediVators must forward to such dissenter
the materials described in the preceding paragraph, a statement of reason for
withholding the remittance, and an offer to pay to such dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. Such dissenter may decline the offer and demand payment of such
dissenter's own estimate of the fair value of the shares, plus interest, by
written notice to MediVators. Failure to do so entitles such dissenter only to
the amount offered. If such dissenter makes demand, the procedures, costs, fees
and expenses described below for petitioning the court shall apply.
If MediVators fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertified shares,
it must return all deposited certificates and cancel all transfer restrictions.
However, MediVators may require deposit or restrict transfer at a later time and
again give notice that contains:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the stockholder, or
the beneficial owner on whose behalf the stockholder dissents, acquired the
shares or an interest in them and to demand payment; and
39
<PAGE>
(4) A copy of sections 302A.471 and 302A.473 of the Minnesota Act and a
brief description of the procedures to be followed under such sections.
If a dissenter believes that the amount remitted by MediVators is less than
the fair value of the shares plus interest, the dissenter may give written
notice to MediVators of the dissenter's own estimate of the fair value of
shares, plus interest, within 30 days after MediVators mails the remittance, and
demand payment of the difference (a "Demand"). Otherwise, a dissenter is
entitled only to the amount remitted by MediVators.
If MediVators receives a Demand, it must, within 60 days after receiving the
Demand, either pay to the dissenter the amount demanded, or an amount agreed to
by the dissenter after discussion with MediVators, or file in court a petition
requesting that the court determine the fair value of the shares, plus interest.
The petition must be filed in Hennepin County, Minnesota. The petition must name
as parties all dissenters who made a Demand and who have not reached agreement
with MediVators. The jurisdiction of the court is plenary and exclusive. The
court may appoint appraisers, with powers and authorities the court deems
proper, to receive evidence on and recommend the amount of the fair value of the
shares. The court must determine whether the stockholder or stockholders in
question have fully complied with the requirements of section 302A.473 of the
Minnesota Act, and must determine the fair value of the shares, taking into
account any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by MediVators or by a dissenter. The fair value of the
shares as determined by the court is binding on all stockholders, wherever
located. A dissenter is entitled to judgment for the amount by which the fair
value of the shares as determined by the court, plus interest, exceeds the
amount, if any, remitted by MediVators, but shall not be liable to MediVators
for the amount, if any, by which the amount, if any, remitted to the dissenter
exceeds the fair value of the shares as determined by the court, plus interest.
The court must determine the costs and expenses of any appraisers of a
proceeding under the preceding paragraph, including the reasonable expenses and
compensation of any appraisers appointed by the court, and must assess those
costs and expenses against MediVators, except that the court may assess part or
all of those costs and expenses against a dissenter whose Demand is found to be
arbitrary, vexatious, or not in good faith.
If the court finds that MediVators has failed to comply substantially with
section 302A.473 of the Minnesota Act, the court may assess all fees and
expenses of any experts or attorneys as the court deems equitable. These fees
and expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be awarded
to a party injured by those actions.
The court may award, in its discretion, fees and expenses to an attorney for
the dissenters out of the amount awarded to the dissenters, if any.
40
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed statements of
operations for each of the years ended July 31, 1995, 1994 and 1993 and for the
three month periods ended October 31, 1995 and 1994 give effect to the Merger of
Cantel and MediVators as if under the pooling of interests method of accounting
and the assumptions and adjustments described in the accompanying notes to the
unaudited pro forma combined condensed financial statements. The following
unaudited pro forma combined condensed balance sheet gives effect to the
proposed Merger as if the Merger had occurred at October 31, 1995, and as if
under the pooling of interests method of accounting and the assumptions and
adjustments described in the accompanying notes to the unaudited pro forma
combined condensed financial statements.
The unaudited pro forma combined condensed financial statements have been
prepared by the management of Cantel based upon the historical financial
statements of Cantel and have been derived from the historical financial
statements of MediVators. These unaudited pro forma combined condensed financial
statements may not be indicative of the results that actually would have
occurred if the transaction had occurred as of the beginning of each of the
periods presented in the accompanying unaudited pro forma combined condensed
statements of operations. The unaudited pro forma combined condensed financial
statements should be read in conjunction with the financial statements of Cantel
and MediVators and related notes thereto, incorporated by reference in this
Joint Proxy Statement/Prospectus and attached hereto as ANNEX II and ANNEX III.
41
<PAGE>
CANTEL INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
OCTOBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------- GIVING EFFECT TO PRO FORMA
CANTEL MEDIVATORS THE MERGER COMBINED (H)
--------- ----------- ---------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 376 $ 139 $ 515
Accounts receivable, net............................... 4,632 596 $ (2)(C) 5,226
Inventories............................................ 7,952 1,423 9,375
Prepaid expenses and other current assets.............. 1,024 55 1,079
--------- ----------- ------ -------------
Total current assets..................................... 13,984 2,213 (2) 16,195
Property and equipment, net.............................. 453 451 904
Other assets............................................. 1,000 46 1,046
--------- ----------- ------ -------------
$ 15,437 $ 2,710 $ (2) $ 18,145
--------- ----------- ------ -------------
--------- ----------- ------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $ 2,330 $ 467 $ 198 (B)(C $ 2,995
Compensation payable................................... 688 108 796
Other accrued expenses................................. 490 70 560
--------- ----------- ------ -------------
Total current liabilities................................ 3,508 645 198 4,351
Long-term debt........................................... 5,279 5,279
Other long-term liabilities.............................. 96 96
Stockholders' equity:
Preferred Stock, $1.00 par value....................... -- --
Common Stock, $.10 par value........................... 277 100(A) 377
Series A Common Stock, $.01 par value.................. 39 (39)(A) --
Series B Common Stock, $.01 par value.................. -- --
Additional capital..................................... 8,539 7,957 (61)(A) 16,435
Deferred compensation.................................. (6) (6)
Accumulated deficit.................................... (1,100) (5,925) (200)(B) (7,225)
Cumulative foreign currency translation adjustment..... (1,162) (1,162)
--------- ----------- ------ -------------
Total stockholders' equity............................... 6,554 2,065 (200) 8,419
--------- ----------- ------ -------------
$ 15,437 $ 2,710 $ (2) $ 18,145
--------- ----------- ------ -------------
--------- ----------- ------ -------------
</TABLE>
42
<PAGE>
CANTEL INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------- GIVING EFFECT TO PRO FORMA
CANTEL MEDIVATORS THE MERGER (D) COMBINED (H)
--------- ----------- ----------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 31,079 $ 3,473 $ (479)(F) $ 34,073
Cost of sales.......................................... 21,056 2,154 (479)(F) 22,731
--------- ----------- ------- -------------
Gross profit........................................... 10,023 1,319 -- 11,342
Expenses:
Shipping and warehouse............................... 786 786
Selling.............................................. 4,265 716 4,981
General and administrative........................... 2,491 2,134 4,625
Research and development............................. 340 340
--------- ----------- ------- -------------
Total operating expenses............................... 7,542 3,190 -- 10,732
--------- ----------- ------- -------------
Income (loss) from continuing operations before other
(income) expense and income taxes..................... 2,481 (1,871) -- 610
Other (income) expense:
Interest expense..................................... 479 8 487
Other................................................ (90) (90)
--------- ----------- ------- -------------
479 (82) -- 397
--------- ----------- ------- -------------
Income (loss) from continuing operations before income
taxes................................................. 2,002 (1,789) -- 213
Income taxes........................................... 1,001 1,001
--------- ----------- ------- -------------
Net income (loss) from continuing operations........... $ 1,001 $ (1,789) $ -- $ (788)
--------- ----------- ------- -------------
--------- ----------- ------- -------------
Earnings (loss) per common share from continuing
operations:
Primary.............................................. $ .32 $ (.21)
--------- -------------
--------- -------------
Fully diluted........................................ $ .32 $ (.21)
--------- -------------
--------- -------------
Weighted average number of common and common equivalent
shares outstanding:
Primary.............................................. 3,142 597 (I)(J 3,739(E)
Fully diluted........................................ 3,146 593 (I)(J 3,739(E)
</TABLE>
43
<PAGE>
CANTEL INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
GIVING
HISTORICAL EFFECT
--------------------- TO THE PRO FORMA
CANTEL(K)(L) MEDIVATORS MERGER (D) COMBINED (H)
------- --------- ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $29,349 $ 2,949 $ (95)(F) $ 32,203
Cost of sales.................................... 19,790 2,005 (95)(F) 21,700
------- --------- ----------- ---------
Gross profit..................................... 9,559 944 -- 10,503
Expenses:
Shipping and warehouse......................... 719 719
Selling........................................ 4,016 464 4,480
General and administrative..................... 2,223 1,076 3,299
Research and development....................... 589 589
------- --------- ----------- ---------
Total operating expenses......................... 6,958 2,129 (--) 9,087
------- --------- ----------- ---------
Income (loss) from continuing operations before
other (income) expense and income taxes......... 2,601 (1,185) (--) 1,416
Other (income) expense:
Interest (income) expense...................... 301 (20) 281
Other.......................................... -- 10 10
------- --------- ----------- ---------
301 (10) -- 291
------- --------- ----------- ---------
Income (loss) from continuing operations before
income taxes.................................... 2,300 (1,175) -- 1,125
Income taxes..................................... 1,054 1,054
------- --------- ----------- ---------
Income (loss) from continuing operations......... 1,246 (1,175) -- 71
Dividends on preferred stock..................... 314 314
------- --------- ----------- ---------
Net income (loss) from continuing operations
attributable to common stock.................... $ 932 $ (1,175) $ -- $ (243)
------- --------- ----------- ---------
------- --------- ----------- ---------
Earnings (loss) per common share from continuing
operations:
Primary........................................ $ .31 $ (.07)
------- ---------
------- ---------
Fully diluted.................................. $ .31 $ (.07)
------- ---------
------- ---------
Weighted average number of common and common
equivalent shares outstanding:
Primary........................................ 3,011 415(I)(J) 3,426(E)
Fully diluted.................................. 3,055 371(I)(J) 3,426(E)
</TABLE>
44
<PAGE>
CANTEL INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------- GIVING EFFECT PRO FORMA
CANTEL(K) MEDIVATORS TO THE MERGER (D) COMBINED (H)
--------- ----------- ------------------ -----------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $ 28,633 $ 2,555 $ 31,188
Cost of sales..................................... 19,557 1,675 21,232
--------- ----------- ------- --------
Gross profit...................................... 9,076 880 $ -- 9,956
Expenses:
Shipping and warehouse.......................... 755 755
Selling......................................... 4,014 418 4,432
General and administrative...................... 2,875 1,093 3,968
Research and development........................ -- 730 730
--------- ----------- ------- --------
Total operating expenses.......................... 7,644 2,241 -- 9,885
--------- ----------- ------- --------
Income (loss) from continuing operations before
other (income) expense and income taxes.......... 1,432 (1,361) -- 71
Other (income) expense:
Interest (income) expense....................... 184 (85) 99
Other........................................... (4) (4)
--------- ----------- ------- --------
184 (89) -- 95
--------- ----------- ------- --------
Income (loss) from continuing operations before
income taxes..................................... 1,248 (1,272) -- (24)
Income taxes...................................... 1,160 -- -- 1,160
--------- ----------- ------- --------
Income (loss) from continuing operations.......... 88 (1,272) -- (1,184)
Dividends on preferred stock...................... 1,185 -- 1,185
--------- ----------- ------- --------
Net loss from continuing operations attributable
to common stock.................................. $ (1,097) $ (1,272) $ -- $ (2,369)
--------- ----------- ------- --------
--------- ----------- ------- --------
Earnings (loss) per common share from continuing
operations:
Primary......................................... $ (.54) $ (.86)
--------- --------
--------- --------
Fully diluted................................... $ (.34) $ (.66)
--------- --------
--------- --------
Weighted average number of common and common
equivalent shares outstanding:
Primary......................................... 2,033 732(I) 2,765(E)
Fully Diluted................................... 2,465 732(I) 3,197(E)(G)
</TABLE>
45
<PAGE>
CANTEL INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------- GIVING EFFECT TO PRO FORMA
CANTEL MEDIVATORS THE MERGER (D) COMBINED (M)
--------- ----------- ----------------- --------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................... $ 5,429 $ 864 $ (41)(F) $ 6,252
Cost of sales........................................... 3,755 553 (41)(F) 4,267
--------- ----------- ------- -------
Gross profit............................................ 1,674 311 -- 1,985
Expenses:
Shipping and warehouse................................ 193 193
Selling............................................... 933 168 1,101
General and administrative............................ 648 210 858
Research and development.............................. 59 59
--------- ----------- ------- -------
Total operating expenses................................ 1,774 437 -- 2,211
--------- ----------- ------- -------
Loss from continuing operations before other (income)
expense and income taxes............................... (100) (126) -- (226)
Other (income) expense:
Interest expense...................................... 13 -- 13
Other................................................. (1) (1)
--------- ----------- ------- -------
13 (1) -- 12
--------- ----------- ------- -------
Loss from continuing operations before income........... (113) (125) -- (238)
Income taxes............................................ (200) (200)
--------- ----------- ------- -------
Net income (loss) from continuing operations............ $ 87 $ (125) $ -- $ (38)
--------- ----------- ------- -------
--------- ----------- ------- -------
Earnings (loss) per common share from continuing
operations:
Primary............................................... $ .03 $ (.01)
--------- -------
--------- -------
Fully diluted......................................... $ .03 $ (.01)
--------- -------
--------- -------
Weighted average number of common and common equivalent
shares outstanding:
Primary............................................... 3,264 501 (I)(J 3,765(E)
Fully diluted......................................... 3,290 475 (I)(J 3,765(E)
</TABLE>
46
<PAGE>
CANTEL INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
GIVING
HISTORICAL EFFECT
--------------------- TO THE PRO FORMA
CANTEL MEDIVATORS MERGER (D) COMBINED (M)
------- --------- ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales....................................... $6,313 $ 752 $ (96)(F) $ 6,969
Cost of sales................................... 4,361 510 (96)(F) 4,775
------- --------- ----------- ---------
Gross profit.................................... 1,952 242 -- 2,194
Expenses:
Shipping and warehouse........................ 190 190
Selling....................................... 915 151 1,066
General and administrative.................... 587 364 951
Research and development...................... 108 108
------- --------- ----------- ---------
Total operating expenses........................ 1,692 623 (--) 2,315
------- --------- ----------- ---------
Income (loss) from continuing operations before
other (income) expense and income taxes........ 260 (381) (--) (121)
Other (income) expense:
Interest (income) expense..................... 95 (4) 91
Other......................................... -- 1 1
------- --------- ----------- ---------
95 (3) -- 92
------- --------- ----------- ---------
Income (loss) from continuing operations before
income taxes................................... 165 (378) -- (213)
Income taxes.................................... 104 104
------- --------- ----------- ---------
Net income (loss) from continuing operations.... $ 61 $ (378) $ -- $ (317)
------- --------- ----------- ---------
------- --------- ----------- ---------
Earnings (loss) per common share from continuing
operations:
Primary....................................... $ .02 $ (.08)
------- ---------
------- ---------
Fully diluted................................. $ .02 $ (.08)
------- ---------
------- ---------
Weighted average number of common and common
equivalent shares outstanding:
Primary....................................... 3,147 586(I)(J) 3,733(E)
Fully diluted................................. 3,147 586(I)(J) 3,733(E)
</TABLE>
47
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
- ------------------------
(A) To record 997,158 shares of Cantel Stock issued to MediVators stockholders.
(B) To record the anticipated direct costs associated with the Merger.
(C) To eliminate intercompany accounts receivable and accounts payable between
Cantel and MediVators.
(D) The Unaudited Pro Forma Combined Condensed Statements of Operations do not
include the anticipated direct costs associated with the Merger since they
are non-recurring items.
(E) Weighted average number of shares for the combined company consists of the
outstanding shares of Cantel, and outstanding shares of MediVators converted
into Cantel shares at the rate of .2571 shares of Cantel Stock for each
outstanding share of MediVators Series A Stock and .7713 shares of Cantel
Stock for each outstanding share of MediVators Series B Stock. The
outstanding MediVators Convertible Securities which are considered common
stock equivalents are not included in the computation of primary or fully
diluted earnings per share since they would be antidilutive upon conversion
into Cantel Convertible Securities.
(F) To eliminate intercompany sales between Cantel and MediVators.
(G) 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 Cantel Stock as of the beginning of the fiscal year.
(H) In order to effect the Unaudited Pro Forma Combined Condensed Statements of
Operations for the years ended July 31, 1995, 1994 and 1993 (Cantel
year-end), the operating results for Cantel and MediVators were combined for
the twelve month periods ended July 31.
(I) To reflect weighted average new Cantel shares issued in exchange for the
MediVators shares.
(J) To eliminate Cantel Convertible Securities from the calculation of weighted
average shares outstanding since they are antidilutive due to the combined
net loss from continuing operations attributable to common stock.
(K) Excluded from the Unaudited Pro Forma Combined Condensed Statement of
Operations was income from discontinued operations of $562,000 in fiscal
1994 and a loss from discontinued operations of $24,000 in fiscal 1993 which
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.
(L) Excluded from the Unaudited Pro Forma Combined Condensed Statement of
Operations was an extraordinary gain on the extinguishment of debt of
$1,211,000 in fiscal 1994 which reflects the recognition of the remaining
deferred interest benefit arising from Cantel's 1991 debt restructuring with
its lending banks and subordinated debenture holders.
(M) In order to effect the Unaudited Pro Forma Combined Condensed Balance Sheet
as of October 31, 1995 (Cantel quarter-end), the balance sheets of Cantel
and MediVators were combined as of October 31, 1995. In order to effect the
Unaudited Pro Forma Combined Condensed Statements of Operations for the
three month periods ended October 31, 1995 and 1994 (Cantel quarter-end),
the operating results for Cantel and MediVators were combined for the three
month periods ended October 31.
48
<PAGE>
INFORMATION WITH RESPECT TO CANTEL
GENERAL
This Joint Proxy Statement/Prospectus is accompanied by a copy of Cantel's
Annual Report on Form 10-K for the fiscal year ended July 31, 1995 and a copy of
Cantel's Quarterly Report on Form 10-Q for the quarter ended October 31, 1995,
both of which are attached hereto as ANNEX II. Such documents contain detailed
financial and other information about Cantel and are hereby incorporated by
reference in this Joint Proxy Statement/Prospectus as if set forth in full
herein.
PRICE RANGE OF CANTEL STOCK
Since March 18, 1994, Cantel Stock has been traded on the NASDAQ National
Market System under the symbol "CNTL." From August 17, 1992 through March 17,
1994, Cantel Stock traded on the NASDAQ Small Cap Market. The following table
sets forth, for the period indicated, the high and low closing prices for
Cantel's Stock from August 1, 1993 through , as reported by
NASDAQ:
<TABLE>
<CAPTION>
CLOSE
-------------
HIGH LOW
----- ---
<S> <C> <C>
FISCAL YEAR ENDED JULY 31, 1994
First Quarter....................................................................................... 41/2 3
Second Quarter...................................................................................... 51/2 33/4
Third Quarter....................................................................................... 51/2 4
Fourth Quarter...................................................................................... 61/4 43/4
FISCAL YEAR ENDED JULY 31, 1995
First Quarter....................................................................................... 7 45/16
Second Quarter...................................................................................... 63/4 31/4
Third Quarter....................................................................................... 61/2 41/2
Fourth Quarter...................................................................................... 73/4 51/2
FISCAL YEAR ENDING JULY 31, 1996
First Quarter....................................................................................... 101/4 57/8
Second Quarter*.....................................................................................
</TABLE>
- ------------------------
* Through January , 1996
As of January , 1996, the closing price of Cantel Stock was $ and
Cantel had approximately record holders of Cantel Stock. Cantel believes it
has approximately beneficial holders of its Cantel Stock. A number of such
holders of record are brokers and other institutions holding shares of Cantel
Stock in "street name" for more than one beneficial owner. On November 14, 1995,
the date preceding public announcement of the proposed Merger, the closing price
for Cantel Stock was $10.00 per share.
Cantel has not paid any dividends on Cantel Stock. Following the Merger,
Cantel does not intend to declare any dividends on Cantel Stock, but instead
intends to retain all earnings for use in and the development of its business.
INFORMATION WITH RESPECT TO MEDIVATORS
GENERAL
This Joint Proxy Statement/Prospectus is accompanied by a copy of
MediVators' Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994, and a copy of MediVators' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995, both of which are attached hereto as ANNEX III. Such
documents contain detailed financial and other information about MediVators and
are hereby incorporated by reference in this Joint Proxy Statement/Prospectus as
if set forth in full herein.
49
<PAGE>
The following documents filed by MediVators with the Commission are hereby
incorporated by reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994.
2. Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1995,
June 30, 1995, and September 30, 1995.
PRICE RANGE OF MEDIVATORS STOCK
MediVators Series A Stock is traded in the over-the-counter market on The
Nasdaq Small Cap Market under the symbol "MVAT." The Series B Stock is not
listed on any public trading market. The following table sets forth, for the
periods indicated, the high and low closing bid as reported by Nasdaq. The
quotations in the over-the-counter market reflect inter-dealer prices, without
retail markup, markdown or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 HIGH BID LOW BID
- ------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
First Quarter............................................................ 3 1/8 1 1/2
Second Quarter........................................................... 3 3/8 2 5/8
Third Quarter............................................................ 3 5/8 2 1/8
Fourth Quarter........................................................... 3 1/4 1 5/8
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------
<S> <C> <C>
First Quarter............................................................ 3 5/16 2
Second Quarter........................................................... 2 5/8 1 3/8
Third Quarter............................................................ 2 1/4 1 3/8
Fourth Quarter...........................................................
</TABLE>
As of January , 1996, the closing price of MediVators Series A Stock was
$ and MediVators had approximately record holders of Series A Stock.
MediVators has more than beneficial holders of its Series A Stock. A
number of such holders of record are brokers and other institutions holding
shares of Series A Stock in "street name" for more than one beneficial owner. On
January , 1996 there was one record holder of MediVators Series B Stock.
On November 14, 1995, the date preceding public announcement of the proposed
Merger, the high asked and low bid prices for Series A Stock were $2 1/4 and
$2 1/8, respectively.
MediVators has never paid cash dividends on MediVators Stock. MediVators
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future.
The Board of Directors of MediVators is required to declare, but is not
required to pay, an annual 10% dividend on the Series B Stock until the
conversion or earlier redemption of the Series B Stock or the liquidation or
dissolution of MediVators. Declared but unpaid dividends will accumulate and
will be payable only in shares of MediVators Series A Stock. On the Effective
Date of the Merger, the accumulated dividends will convert into shares of Series
A Stock at a conversion price that is based upon the average daily high and low
sale price for Series A Stock in the public market over the 15 trading days
immediately preceding the Effective Date. Such shares of Series A Stock will
simultaneously be converted under the Merger into shares of Cantel Stock on the
same basis as all other shares of Series A Stock outstanding on the Effective
Date.
EMPLOYEES
As of December 31, 1995, MediVators had 42 employees, comprised of four
executive officers or senior management employees, four in sales, 23 in
shipping, warehousing or manufacturing, seven in administration, two in research
and development, and two in customer service.
50
<PAGE>
LEGAL PROCEEDINGS
MediVators is not currently a party to any material litigation and at
December 31, 1994 was not a party to any material litigation.
PROPOSAL 2 ELECTION OF DIRECTORS
(FOR CANTEL STOCKHOLDERS ONLY)
Three directors of Cantel are to be elected at the Annual Meeting to serve
until the Annual Meeting of Stockholders to be held after the fiscal year ending
July 31, 1998 and until their respective successors have been duly elected and
qualified. Management has nominated Charles M. Diker, Alan J. Hirschfield and
Bruce Slovin for election as directors. Unless authority to vote for the
election of management's nominees is withheld, the enclosed proxy will be voted
for the election of Messrs. Diker, Hirschfield and Slovin. Each of the nominees
has consented to be named a nominee in the Joint Proxy Statement/Prospectus and
to serve as a director if elected. While management has no reason to believe
that any of the nominees will not be available as a candidate, should such
situation arise, proxies given to management will be voted for the election of
another person as a director.
<TABLE>
<CAPTION>
NOMINEES FOR THREE-YEAR TERM EXPIRING AT THE
ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD AFTER THE FISCAL YEAR ENDING DIRECTOR
JULY 31, 1998 AND THEIR PRINCIPAL OCCUPATIONS AGE SINCE
- ---------------------------------------------------------------------------------------- --- -----------
<S> <C> <C>
Charles M. Diker
Chairman of the Board of Cantel and Limited Partner of Weiss,
Peck & Greer........................................................................... 60 1985
Alan J. Hirschfield
Vice Chairman of the Board of Cantel, and Chairman and Co-Chief Executive Officer of
Data Broadcasting Corp................................................................. 60 1986
Bruce Slovin
President of McAndrews & Forbes Holding Company and President of Revlon Group Inc...... 59 1986
<CAPTION>
DIRECTORS WITH TERM EXPIRING AT THE
ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD AFTER THE FISCAL YEAR ENDING
JULY 31, 1996 AND THEIR PRINCIPAL OCCUPATIONS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
James P. Reilly
President and Chief Executive Officer of Cantel........................................ 55 1989
Robert L. Barbanell
President of Robert L. Barbanell Associates, Inc....................................... 65 1994
<CAPTION>
DIRECTORS WITH TERM EXPIRING AT THE
ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD AFTER THE FISCAL YEAR ENDING
JULY 31, 1997 AND THEIR PRINCIPAL OCCUPATIONS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Richard L. Bloch
President of Pinon Farm, Inc........................................................... 66 1988
Darwin C. Dornbush
Partner in the law firm of Dornbush Mensch Mandelstam & Schaeffer, LLP................. 65 1963
Morris W. Offit
Chief Executive Officer of OFFITBANK................................................... 58 1986
</TABLE>
Cantel's Annual Report on Form 10-K for the fiscal year ended July 31, 1995,
a copy of which is annexed hereto as ANNEX II, contains information regarding
the directors and executive officers of Cantel, including the nominees named
above, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions.
51
<PAGE>
COMMITTEES; MEETINGS OF THE BOARD OF DIRECTORS OF CANTEL
Cantel has an Audit Committee of the Board of Directors consisting of
Messrs. Barbanell, Dornbush and Slovin. The primary functions of the Audit
Committee are to review Cantel's financial statements, recommend the appointment
of Cantel's independent auditors and to review the overall scope of the audit.
The Audit Committee also meets with Cantel's financial management and its
independent auditors to satisfy itself of the adequacy of Cantel's internal
controls and to review the independent auditors' report. The Audit Committee
held three meetings during fiscal 1995. Cantel has a Compensation Committee of
the Board of Directors consisting of Messrs. Dornbush, Hirschfield and Slovin.
The primary functions of the Compensation Committee are the establishment of
compensation policies and to consider, and make recommendations to the Board
concerning, compensation and bonuses to Cantel's senior management. The
Compensation Committee did not hold any formal meetings during fiscal 1995. The
Board of Directors of Cantel held four meetings during the fiscal year ended
July 31, 1995, exclusive of actions taken by unanimous written consent. Except
for Mr. Offit, who did not attend three of the four Board Meetings, and Mr.
Slovin, who did not attend two of the three Audit Committee meetings, no
incumbent director attended fewer than 75% of the aggregate of (i) the total
number of meetings of the Board (held during the period for which he has been a
director) and (ii) the total number of meetings held by all committees of the
Board on which he served (during the periods that he served). Cantel does not
have a nominating committee.
DIRECTORS' COMPENSATION
Directors who are not officers of Cantel were paid director's fees of $500
per meeting attended, plus expenses.
REPORT ON EXECUTIVE COMPENSATION
BY THE COMPENSATION COMMITTEE
AND THE STOCK OPTION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of Cantel's Board of Directors (the "Compensation
Committee") is responsible for setting and administering the policies which
govern annual executive salaries, raises and bonuses. The Compensation Committee
is currently comprised of three members, all of whom are non-employee directors.
Executive compensation for the fiscal year ended July 31, 1995 consisted of
base salary for the Chief Executive Officer and the other executive officers of
Cantel named in the Compensation Table. None of these individuals received a
bonus in fiscal 1995. The policy of the Compensation Committee, in consultation
with the Chief Executive Officer, is to provide compensation to the Chief
Executive Officer and Cantel's other executive officers reflecting the
contribution of such executives to Cantel's growth in sales and earnings, the
implementation of strategic plans consistent with Cantel's long term objectives,
and the enhancement of shareholder value.
Mr. Reilly, the President and Chief Executive Officer of Cantel, served
Cantel pursuant to a written employment agreement from June 1989 through July
1992 and was compensated pursuant to the express terms of such agreement.
Although the agreement expired in accordance with its terms, the Compensation
Committee has agreed to compensate Mr. Reilly at the same base salary and bonus
formula as was in effect during the last year of the agreement.
Long term incentive compensation policy consists exclusively of the award of
stock options under the Employee Plan and, in the case of officers who serve as
directors of Cantel, non-discretionary annual option grants of 1,000 shares
under the Directors' Plan.
52
<PAGE>
The Stock Option Committee is responsible for the award of stock options.
Two non-employee directors, Alan J. Hirschfield and Bruce Slovin, currently
serve on the Stock Option Committee, which administers the granting of options
under the Employee Plan.
COMPENSATION COMMITTEE
Darwin C. Dornbush
Alan J. Hirschfield
Bruce Slovin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No officer of Cantel served on Cantel's compensation committee during its
last fiscal year. However, James P. Reilly, President and Chief Executive
Officer of Cantel, participated in deliberations concerning executive
compensation, except with respect to his own compensation.
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Cantel Stock for the last five fiscal years with the cumulative total return on
the Nasdaq Stock Market/U.S. Index and the Nasdaq Non-Financial Index over the
same period (assuming the investment of $100 in the Cantel Stock, the Nasdaq
Stock Market/U.S. and the Nasdaq Non-Financial Index on July 31, 1990, and the
reinvestment of all dividends).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CANTEL INDUSTRIES, INC. NASDAQ STOCK MARKET-US NASDAQ NON-FINANCIAL
<S> <C> <C> <C>
7/90 100 100 100
7/91 183 118 116
7/92 133 139 130
7/93 200 169 156
7/94 317 174 158
7/95 383 243 223
</TABLE>
53
<PAGE>
PROPOSAL 3 (FOR CANTEL STOCKHOLDERS ONLY)
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has audited the financial statements of Cantel
for each of the three fiscal years ended July 31, 1995. The Board of Directors
desires to continue the services of Ernst & Young LLP for the current fiscal
year ending July 31, l996. Accordingly, the Board of Directors will recommend to
the Meeting that the stockholders ratify the appointment by the Board of
Directors of the firm of Ernst & Young LLP to audit the financial statements of
Cantel for the current fiscal year. Representatives of that firm are expected to
be present at the Meeting, will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE
APPOINTMENT OF ERNST & YOUNG LLP.
OTHER MATTERS
SUBMISSION OF CANTEL STOCKHOLDERS' PROPOSALS
Stockholders are advised that any proposals they may wish to submit for
presentation at next year's Annual Meeting and inclusion in Cantel's proxy
statement and form of proxy for such meeting must be received by Cantel on or
before .
FORM 10-K
CANTEL'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JULY 31, 1995,
INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, IS INCLUDED AS ANNEX II TO THIS JOINT
PROXY STATEMENT/PROSPECTUS.
FORM 10-KSB
MEDIVATORS' ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER
31, 1994, INCLUDING THE FINANCIAL STATEMENTS, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, IS INCLUDED AS ANNEX III TO THIS JOINT PROXY
STATEMENT/PROSPECTUS.
LEGAL MATTERS
The legality of the Cantel Stock offered hereby is being passed upon for
Cantel by Dornbush Mensch Mandelstam & Schaeffer, LLP, 747 Third Avenue, New
York, New York 10017.
EXPERTS
The consolidated financial statements and financial statement schedule of
Cantel at July 31, 1995 and 1994 and for each of the three years in the period
ended July 31, 1995, included in this Joint Proxy Statement/Prospectus, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report, given upon the authority of such firm as experts in accounting and
auditing.
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-KSB of Medivators, Inc. for the year ended December 31,
1994 have been so included in reliance on the report (which contains an
explanatory paragraph relating to the Company's ability to continue as a going
concern) of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, subject to
various exceptions and limitations, Cantel may indemnify its directors or
officers if such director or officer is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of Cantel by reason of the fact that he is or was a director or
officer of Cantel, or is or was serving at the request of Cantel as a director
or officer of another corporation) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of Cantel, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful, except, in the case of
an action by or in the right of Cantel to procure a judgment in its favor, as to
any matter in which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty. Cantel is required to
indemnify its directors or officers to the extent that they have been successful
on the merits or otherwise in defense of any such action, suit or proceeding, or
in the defense of any claim, issue or matter therein, against expenses
(including attorneys' fees) actually and reasonably incurred by them in
connection therewith. In addition, Delaware law permits a corporation to limit
or eliminate the liability of a director to the corporation and its stockholders
for negligent breaches of such directors' fiduciary duties in certain
circumstances. Cantel's Certificate of Incorporation and By-laws provide for
indemnification and exculpation from liability to the full extent permitted by
the Delaware General Corporation Law. The foregoing statement is qualified in
its entirety by the detailed provisions of Sections 145 and 102 of the Delaware
General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibit Index
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
2. Agreement and Plan of Merger (Included as Annex 1 to Joint Proxy Statement/ Prospectus included in the
Registration Statement.)
5.* Opinion of Dornbush Mensch Mandelstam & Schaeffer, LLP.
8.* Opinion of Dornbush Mensch Mandelstam & Schaeffer, LLP with respect to tax matters.
10.1 Cantel's 1991 Employee Stock Option Plan, as amended. (Incorporated herein by reference to Exhibit 10(a)
to Cantel's 1991 Annual Report on Form 10-K (the "1991 10-K").)
10.2 Form of Stock Option Agreement under Cantel's 1991 Employee Stock Option Plan. (Incorporated herein by
reference to Exhibit 10(b) to Cantel's 1991 10-K.)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.3 Cantel's 1991 Directors' Stock Option Plan. (Incorporated herein by reference to Exhibit 10(c) to
Cantel's 1991 10-K.)
10.4 Form of Stock Option Agreement under the Cantel's 1991 Directors Stock Option Plan. (Incorporated herein
by reference to Exhibit 10(d) to Cantel's 1991 10-K.)
10.5 Stock Option Agreement, dated as of June 20, 1990, between the Cantel and James P. Reilly. (Incorporated
herein by reference to Exhibit 10(g) to Cantel's 1990 Annual Report on Form 10-K (the "1990 10-K").)
10.6 Stock Option Agreement, dated as of July 25, 1990 between the Cantel and James P. Reilly. (Incorporated
herein by reference to Exhibit 10(q) to Cantel's 1990 10-K.)
10.7 Agreement between Carsen Group Inc. and Olympus America, Inc., dated April 1, 1994. (Incorporated herein
by reference to Exhibit 10(g) to Cantel's 1994 Annual Report on Form 10-K (the "1994 10-K").)
10.8 Form of Cantel's Common Stock Purchase Warrants dated December 27, 1988. (Incorporated herein by
reference to Exhibit 10(t) to Cantel's 1989 Annual Report on Form 10-K (the "1989 10-K").)
10.9 Form of Cantel's Common Stock Purchase Warrants dated July 14, 1989. (Incorporated herein by reference
to Exhibit 10(w) to Cantel's 1989 10-K.)
10.10 Loan Agreement dated as of October 29, 1993 among Cantel, Carsen Group Inc. and National Bank of Canada.
(Incorporated herein by reference to Exhibit 10(v) to Cantel's 1993 Annual Report on Form 10-K.)
10.11 Agreement between Cantel Industries, Inc. and Jenoptik Technologie GmbH, dated May 1, 1994.
(Incorporated herein by reference to Exhibit 10(q) to Cantel's 1994 Annual Report on Form 10-K.)
10.12 Stock Option Agreement, dated as of February 3, 1994, between the Cantel and Darwin C. Dornbush.
(Incorporated herein by reference to Exhibit 10(l) to Cantel's 1995 Annual Report on Form 10-K (the
"1995 10-K").)
10.13 Stock Option Agreement, dated as of December 15, 1994, between the Cantel and Robert L. Barbanell.
(Incorporated herein by reference to Exhibit 10(m) to Cantel's 1995 10-K.)
10.14 Amendment to Loan Agreement, dated as of August 28, 1995, among Cantel, Carsen Group Inc. and National
Bank of Canada. (Incorporated herein by reference to Exhibit 10(n) to Cantel's 1995 10-K.)
13. Cantel's 1995 10-K (Included as Annex II to the Joint Proxy Statement/Prospectus included in the
Registration Statement.)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Dornbush Mensch Mandelstam & Schaeffer, LLP -- Included in Exhibit 5.
24. Power of Attorney -- set forth on the signature page of the Registration Statement.
</TABLE>
- ------------------------
* To be filed by amendment
(b) Financial Statement Schedule
<TABLE>
<C> <S>
1. Incorporated by reference to the financial statement schedule included in Cantel's
Annual Report on Form 10-K for the fiscal year ended July 31, 1995.
</TABLE>
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(a)
(A) The undersigned registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment
to this Registration Statement.
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Joint Proxy Statement/Prospectus any facts or
events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the registration
statement.
(B) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(C) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(D) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form. That every prospectus that is filed pursuant to this
paragraph (E) will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(E) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this form within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(F) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Clifton in the State of New Jersey, on
the 26th day of January, 1996.
CANTEL INDUSTRIES, INC.
By: ________/s/_JAMES P. REILLY_______
James P. Reilly, PRESIDENT
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles M. Diker, James P. Reilly and Darwin C.
Dornbush, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ---------------------------------- ---------------------
<C> <S> <C>
President, Chief Executive Officer
/s/JAMES P. REILLY and Director (Principal Executive
James P. Reilly Officer and Principal Financial January 26, 1996
Officer)
/s/CRAIG A. SHELDON Vice President and Controller
Craig A. Sheldon (Principal Accounting Officer) January 26, 1996
/s/CHARLES M. DIKER
Charles M. Diker Director January 26, 1996
*
Alan J. Hirschfield Director January 26, 1996
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ---------------------------------- ---------------------
<C> <S> <C>
*
Richard Bloch Director January 26, 1996
/s/DARWIN C. DORNBUSH
Darwin C. Dornbush Director January 26, 1996
*
Morris W. Offit Director January 26, 1996
*
Bruce Slovin Director January 26, 1996
*
Robert L. Barbanell Director January 26, 1996
*By: /s/JAMES P. REILLY
James P. Reilly
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
CANTEL INDUSTRIES, INC.
PROXY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned stockholder of CANTEL
INDUSTRIES, INC. (the "Company") hereby appoints Charles M. Diker and James P.
Reilly, and each of them, as proxies, with full power of substitution, to vote,
as designated below, on behalf of the undersigned the number of votes to which
the undersigned is entitled, at the Annual Meeting of Stockholders of the
Company, to be held on , February , 1996 at 10:00 a.m.
at , New York, New York, or at any adjournments
thereof:
(1) To adopt an Agreement and Plan of Merger dated as of November 14, 1995 by
and among the Company, MediVators, Inc., a Minnesota corporation, and Cantel
Acquisition Corp., a newly formed Minnesota corporation which is
wholly-owned by the Company.
FOR / / AGAINST / / ABSTAIN / /
(2) ELECTION OF DIRECTORS
NOMINEES:
CHARLES M. DIKER, ALAN J. HIRSCHFIELD and BRUCE SLOVIN
<TABLE>
<S> <C>
FOR ALL NOMINEES WITHHOLD AUTHORITY
/ / / /
</TABLE>
To withhold authority to vote for any individual nominee, write the
nominee's name in the space provided below.
- --------------------------------------------------------------------------------
(3) TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE CURRENT FISCAL YEAR ENDING JULY 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
(4) IN THEIR DISCRETION WITH RESPECT TO ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
<PAGE>
Unless a contrary direction is indicated, the shares represented by this
proxy will be voted FOR Proposal 1, FOR all nominees for directors named in the
Joint Proxy Statement/Prospectus enclosed herewith, and FOR Proposal 3; if
specific instructions are indicated, this proxy will be voted in accordance with
such instructions.
PLEASE VOTE, DATE AND SIGN THIS
PROXY AND RETURN IT AT ONCE,
WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING. YOU MAY VOTE IN PERSON
IF YOU DO ATTEND.
Dated: ____________________________
___________________________________
___________________________________
Signature(s)
NOTE: If signing for estates,
trusts or corporations, title
or capacity should be stated.
If shares are held jointly,
each holder should sign.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
MEDIVATORS, INC.
PROXY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned stockholder of
MEDIVATORS, INC. (the "Company") hereby appoints Donald L. Sturtevant, as
proxy, with full power of substitution, to vote, as designated below, on
behalf of the undersigned the number of votes to which the undersigned is
entitled, at the Special Meeting of Stockholders of the Company, to be held
on , February , 1996 at 9:00 a.m. at ,
Minnesota, or at any adjournments thereof:
(1) To adopt an Agreement and Plan of Merger dated as of November 14,
1995 by and among the Company, Cantel Industries, Inc., a Delaware
corporation, and Cantel Acquisition Corp., a newly formed Minnesota
corporation which is wholly-owned by Cantel.
FOR / / AGAINST / / ABSTAIN / /
(2) IN THEIR DISCRETION WITH RESPECT TO ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
<PAGE>
Unless a contrary direction is indicated, the shares represented by this
proxy will be voted FOR Proposal 1; if specific instructions are indicated, this
proxy will be voted in accordance with such instructions.
PLEASE VOTE, DATE AND SIGN THIS
PROXY AND RETURN IT AT ONCE,
WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING. YOU MAY VOTE IN PERSON
IF YOU DO ATTEND.
Dated: ____________________________
___________________________________
___________________________________
Signature(s)
NOTE: If signing for estates,
trusts or corporations, title
or capacity should be stated.
If shares are held jointly,
each holder should sign.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Cantel Selected
Financial Data" and "Experts" in the Registration Statement (Form S-4 No.
33-64727) and related Joint Proxy Statement/ Prospectus of Cantel Industries,
Inc. for the registration of 1,223,148 shares of its common stock and to the
incorporation by reference therein of our report dated September 20, 1995, with
respect to the consolidated financial statements and schedule of Cantel
Industries, Inc. included in its Annual Report on Form 10-K for the year ended
July 31, 1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Princeton, New Jersey
January 25, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Cantel
Industries, Inc. our report dated March 29, 1995 appearing on page 18 of
Medivators, Inc.'s Annual Report on Form 10-KSB for the year ended December 31,
1994. We also consent to the references to us under the headings "Experts" and
"Medivators Selected Financial Data" in such Prospectus. However, it should be
noted that Price Waterhouse LLP has not prepared or certified such "Medivators
Selected Financial Data".
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
January 23, 1996
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of November 14, 1995
by and among MEDIVATORS, INC., a Minnesota corporation ("MediVators"), CANTEL
INDUSTRIES, INC., a Delaware corporation ("Cantel") and CANTEL ACQUISITION
CORP., a Minnesota corporation, a wholly-owned subsidiary of Cantel ("Newco").
R E C I T A L S:
A. The Boards of Directors of MediVators and Cantel and the Board of
Directors and stockholder of Newco, respectively, deem it advisable and in the
best interests of MediVators, Cantel, and Newco, and their respective
stockholders that Cantel acquire the business and assets of MediVators through
the merger (the "Merger") of Newco with and into MediVators upon the terms and
subject to the conditions of this Agreement.
B. Cantel will prepare and file with the Securities and Exchange Commission
("SEC") a registration statement on Form S-4 under the Securities Act of 1933,
as amended, and the rules and regulations thereunder (the "Securities Act")
registering shares of Cantel common stock issuable or reserved for issuance as a
result of the Merger.
C. The Boards of Directors of MediVators, Cantel and Newco, respectively,
and the stockholders of Newco have approved and adopted this Agreement.
D. The Merger is intended to be treated as a tax-free reorganization and,
for accounting purposes, as a pooling of interests.
Accordingly, the Parties hereto hereby agree as follows:
1. DEFINITIONS:
1.1 DEFINED TERMS. As used in this Agreement, the following terms have
the following meanings:
"AGREEMENT": this Merger Agreement, as amended, supplemented or
otherwise modified from time to time.
"ARTICLES OF MERGER": has the meaning set forth in Section 2.2.
"CANTEL ANNUAL MEETING": has the meaning set forth in Section 8.7.
"CANTEL AUDITED FINANCIAL STATEMENTS": has the meaning set forth in
Section 6.15.
"CANTEL BALANCE SHEET": The unaudited consolidated balance sheet of
Cantel as at July 31, 1995, a copy of which has been delivered to
MediVators.
"CANTEL BALANCE SHEET DATE": July 31, 1995.
"CANTEL CONVERTIBLE SECURITIES": the Convertible Securities identified
on Schedule 6.5 which entitle the holder thereof to acquire Cantel Shares
upon the exercise thereof, subject to the terms and conditions set forth
therein.
"CANTEL REPORTS": has the meaning set forth in Section 6.15.
"CANTEL SHARES": shares of Common Stock, par value $.10 per share, of
Cantel.
"CANTEL UNAUDITED FINANCIAL STATEMENTS": has the meaning set forth in
Section 6.15.
"CAPITAL STOCK": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, and any
and all equivalent ownership interests in a partnership or other Person (other
than a corporation).
"CARSEN": Carsen Group Inc.
"CLOSING": has the meaning set forth in Section 4.1.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and rulings issued thereunder.
<PAGE>
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
agreement, instrument or other undertaking to which such Person is a party
or by which it or any of its property is bound.
"CONVERTED MEDIVATORS SHARES": has the meaning set forth in Section
3.1.5.
"CONVERTIBLE SECURITIES": options, warrants, subscriptions or other
commitments or rights of any nature to purchase, or securities convertible
into or exchangeable for, Capital Stock.
"DELAWARE LAW": the General Corporation Law of the State of Delaware.
"EFFECTIVE DATE": the date upon which the Effective Time occurs.
"EFFECTIVE TIME": has the meaning set forth in Section 2.2.
"ENVIRONMENTAL LAWS": any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority regulating, relating to or imposing
liability or standards of conduct concerning environmental protection matters,
including without limitation, Hazardous Materials, as now or may at any time
hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and rulings issued
thereunder.
"EXCHANGE ACT": the Securities Exchange Act of 1934, as amended from
time to time and the regulations and rulings issued thereunder.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or other
political subdivision thereof and any federal, state, county, local or
foreign entity or body exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government, including without
limitation the United States Food and Drug Administration ("FDA") and
Environmental Protection Agency ("EPA").
"HAZARDOUS MATERIALS": any (i) "hazardous substance," "pollutants," or
"contaminant" (as defined in Sections 101(14),(33) of the Comprehensive
Environmental Response Compensation Liability Act ("CERCLA") or the regulations
designated pursuant to Section 102 of CERCLA and found at 40 C.F.R. Section
302), including any element, compound, mixture, solutions, or substance that is
or may be designated pursuant to Section 102 of CERCLA; (ii) substance that is
or may be designated pursuant to Section 311(b)(2)(A) of the Federal Water
Pollution Control Act, as amended (33 U.S.C. SectionSection 1251, 1321(b)(2)(A)
("FWPCA"); (iii) hazardous waste having the characteristics identified under or
listed pursuant to Section 3001 of the Resource Conservation and Recovery Act,
as amended (42 U.S.C. SectionSection 6901, 6921) ("RCRA"); (iv) substance
containing petroleum, as that term is defined in Section 9001(8) of RCRA; (v)
toxic pollutant that is or may be listed under Section 307(a) of FWPCA; (vi)
hazardous air pollutant that is or may be listed under Section 112 of the Clean
Air Act, as amended (42 U.S.C. SectionSection 7401, 7412); (vii) asbestos,
asbestos-containing material, or urea formaldehyde or material that contains it;
and (viii) waste oil and other petroleum products.
"IRS": the Internal Revenue Service.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority
or other security interest or agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of the specified party and its Subsidiaries taken as
2
<PAGE>
a whole, (b) the ability of the party to perform its obligations under this
Agreement, or (c) the validity or enforceability of this Agreement or the rights
or remedies of the other party hereunder or thereunder; provided, however, that
the direct costs and expenses of this transaction, including without limitation
fees of attorneys, accountants and other such professionals, shall not be
considered in determining the existence of a Material Adverse Effect.
"MEDIVATORS BALANCE SHEET": the unaudited consolidated balance sheet of
MediVators as at June 30, 1995.
"MEDIVATORS BALANCE SHEET DATE": June 30, 1995.
"MEDIVATORS CONVERTIBLE SECURITIES": the Convertible Securities
identified on Schedule 5.5 which entitle the holder thereof to acquire
MediVators Shares upon the exercise thereof, subject to the terms and conditions
set forth therein.
"MEDIVATORS AUDITED FINANCIAL STATEMENTS": has the meaning set forth in
Section 5.15.
"MEDIVATORS REPORTS": has the meaning set forth in Section 5.15.
"MEDIVATORS SERIES A SHARES": shares of Series A Common Stock, par
value $.01 per share, of MediVators.
"MEDIVATORS SERIES B SHARES": shares of Series B 10% Cumulative
Redeemable Convertible Common Stock, par value $.01 per share, of
MediVators.
"MEDIVATORS SHARES": collectively, MediVators Series A Shares and
MediVators Series B Shares.
"MEDIVATORS SPECIAL MEETING": has the meaning set forth in Section 8.7.
"MEDIVATORS UNAUDITED FINANCIAL STATEMENTS": has the meaning set forth
in Section 5.15.
"MERGER": shall have the meaning set forth in Recital A.
"MINNESOTA LAW": the Business Corporation Act of the State of
Minnesota.
"NASDAQ": National Association of Securities Dealers, Inc. Automated
Quotation System.
"PERMITTED TRANSFEREE": as to any Person, such Person's successors by
law, and as to any individual, such individual's spouse and lineal
descendants (including by way of adoption).
"PERSON": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"PROXY STATEMENT": has the meaning set forth in Section 8.7.
"REQUIREMENT OF LAW": as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"S-4": the registration statement on Form S-4, including any amendments
or supplements thereto, to be filed with the SEC pursuant to Section 8.7.
"SEC": has the meaning set forth in Recital B.
"SECURITIES ACT": has the meaning set forth in Recital B.
"SIGNIFICANT EMPLOYEE": As to any Person, "significant employees" of
such Person as that term is defined in Regulation S-K of the Securities Act.
"STOCKHOLDER MEETINGS": has the meaning set forth in Section 8.7.
3
<PAGE>
"SUBSIDIARY": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time owned,
or the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. A Subsidiary, as to
any Person, shall include a partnership which has such Person or a Subsidiary of
such Person as a general partner of such partnership.
"SURVIVING CORPORATION": has the meaning set forth in Section 2.1.
"TANGIBLE PROPERTY": as to any Person, the plant, machinery, equipment,
leasehold improvements, vehicles, and structures of such Person and related
capitalized items and other tangible property material to the business of such
Person.
1.2 OTHER DEFINITIONAL PROVISIONS; INTERPRETATION.
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any certificate or
other agreement, instrument or document made or delivered pursuant
hereto.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section
and Schedule references are to this Agreement unless otherwise specified.
(c) The headings in this Agreement are included for convenience of
reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. THE MERGER.
2.1 THE MERGER AND ITS EFFECT. Subject to the terms and conditions of
this Agreement, at the Effective Time, Newco shall be merged with and into
MediVators, which shall be the surviving corporation (MediVators, as the party
to the Merger surviving the Merger, is sometimes hereinafter referred to as the
"Surviving Corporation"), in accordance with this Agreement and which shall
continue to be governed by the Laws of the State of Minnesota. Upon the
effectiveness of the Merger: (a) the separate corporate existence of Newco shall
cease; (b) the Surviving Corporation shall possess all of the rights,
privileges, powers, immunities, purposes and franchises, both public and
private, of each of MediVators and Newco; (c) all real and personal property,
tangible and intangible, of every kind and description belonging to MediVators
and Newco shall be vested in the Surviving Corporation without further act or
deed, and the title to any real estate or any interest therein vested in either
MediVators or Newco shall not revert or in any way be impaired by reason of the
Merger; (d) the Surviving Corporation shall be liable for all the obligations
and liabilities of each of MediVators and Newco and any claim existing or action
or proceeding pending by or against either MediVators or Newco may be enforced
as if the Merger had not taken place; and (e) neither the rights of creditors
nor any Liens upon the property of either MediVators or Newco shall be impaired
by the Merger.
2.2 EFFECTIVE TIME OF THE MERGER. Upon the satisfaction or waiver of
the conditions set forth in Sections 9 and 10 and the Closing of the Merger
in accordance with Section 4, the parties hereto shall cause an Articles of
Merger meeting the requirements of Section 302A.615 of the Minnesota Law (the
"Articles of Merger") to be properly executed and filed in accordance with the
terms of this Agreement and the applicable provisions of the Minnesota Law. The
Merger shall become effective at the time of the filing of the Articles of
Merger as provided above, or at such later time as the parties hereto have
theretofore agreed upon and designated in such filings as the effective time of
the Merger (the "Effective Time").
4
<PAGE>
2.3 ARTICLES OF INCORPORATION AND BY-LAWS OF SURVIVING
CORPORATION. From and after the Effective Time, the Articles of
Incorporation and By-laws of MediVators as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation and By-laws of the
Surviving Corporation until further amended.
2.4 DIRECTORS OF THE SURVIVING CORPORATION. At the Effective Time, the
directors of the Surviving Corporation shall be as follows:
William J. Vella
Curtis D. Luebke
James P. Reilly
Donald L. Sturtevant
Craig A. Sheldon
2.5 OFFICERS OF THE SURVIVING CORPORATION. At the Effective Time, the
officers of the Surviving Corporation shall be as follows:
<TABLE>
<CAPTION>
OFFICE NAME OF OFFICER
- ----------------------------------------------------- -------------------------
<S> <C>
President Donald L. Sturtevant
Vice President, Treasurer and Secretary Craig A. Sheldon
Vice President -- Sales and Marketing Jeffrey D. Eitreim
Vice President -- Research and Development James F. Drake
</TABLE>
Persons who are currently serving as officers and directors of
MediVators shall deliver resignations as officers and directors of MediVators
prior to the MediVators Special Meeting, such resignations to be effective at
the Effective Time.
2.6 FISCAL YEAR. Cantel and MediVators covenant and agree that
commencing at the Effective Time, the fiscal year of the Surviving
Corporation shall end on the 31st day of July.
3. CONVERSION OF SHARES ON THE MERGER EFFECTIVE DATE.
3.1 MANNER AND BASIS OF CONVERSION. Pursuant to the Merger, the manner
and basis of converting the Capital Stock of each of MediVators and Newco
into or for Capital Stock or other property of the Surviving Corporation or
Cantel shall be as follows:
3.1.1 Each share of Common Stock of Newco issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into one (1)
share of common stock of the Surviving Corporation.
3.1.2 Each of the MediVators Series A Shares issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into .2571 Cantel Shares.
3.1.3 Each of the MediVators Series B Shares issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into .7713 Cantel Shares.
3.1.4 As of the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, the MediVators Convertible
Securities which are set forth on Schedule 5.5 and remain outstanding at the
Effective Time shall, by virtue of the Merger, thereafter entitle the holder
thereof to acquire such number of Cantel Shares as such holder would have
received had such MediVators Convertible Security been exercised in full for
MediVators Shares immediately prior to the Effective Time. At the Effective
Time, the per share exercise price of each of such MediVators Convertible
Securities shall be adjusted by multiplying the then current per share exercise
price thereof by a fraction the numerator of which is 1 and the denominator of
which is .2571. As of the Effective Time, all stock option plans of MediVators
shall automatically terminate. In lieu of the foregoing, the parties may agree
prior to the Effective Date to convert all or some of the MediVators
5
<PAGE>
Convertible Securities into an option under an existing stock option plan of
Cantel (on terms consistent with those described in this paragraph) in which
case MediVators shall use its best efforts to cause the holders of MediVators
Convertible Securities to sign such option agreements with Cantel as may be
required to effect the foregoing.
3.1.5 The MediVators Shares to be converted into Cantel Shares
pursuant to Sections 3.1.2 and 3.1.3 are sometimes hereinafter referred to as
the "Converted MediVators Shares."
3.2 PROCEDURE FOR CONVERSION OF SHARE CERTIFICATES. As promptly as
possible on or after the Effective Date, a letter of transmittal
("Transmittal Letter") and instructions will be mailed or otherwise made
available for use in surrendering to American Stock Transfer and Trust Company
or other agent appointed by Cantel (the "Exchange Agent") stock certificates
which immediately prior to the Effective Time represented Converted MediVators
Shares. The Transmittal Letter will authorize the Exchange Agent to do all
things necessary to accomplish the exchange of such stock certificates for stock
certificates representing Cantel Shares. Each holder of record of a stock
certificate subject to conversion which prior to the Effective Time represented
Converted MediVators Shares will be entitled to receive, promptly upon proper
surrender thereof to the Exchange Agent together with a properly completed and
duly executed Transmittal Letter, and compliance with the terms of the
Transmittal Letter, certificates representing Cantel Shares as provided in
Sections 3.1.2 or 3.1.3, as the case may be. Until so surrendered, each
certificate representing Converted MediVators Shares shall be deemed for all
corporate purposes to evidence only the right to receive, upon proper surrender
together with a properly completed and duly executed Transmittal Letter,
certificates representing the Cantel Shares into which the shares represented
thereby shall have been converted, as set forth herein.
3.3 NO FRACTIONAL SHARES. No certificates or scrip for fractional
Cantel Shares will be issued in the Merger; no Cantel stock split or
dividend shall relate to any fractional share and no fractional share interest
shall entitle the owner thereof to vote or have any rights of a stockholder of
Cantel. In lieu of such fractional shares, any holder of Converted MediVators
Shares who would otherwise be entitled to receive a fractional Cantel Share
will, upon surrender of his or her certificate or certificates representing
Converted MediVators Shares outstanding immediately prior to the Effective Time,
be paid the cash value of such fractional Cantel Share which shall be equal to
the amount determined by multiplying such fraction by the closing price of
Cantel Shares on the NASDAQ National Market System on the first day preceding
the Effective Date on which Cantel Shares were traded on said market.
3.4 NO FURTHER TRANSACTIONS. The stock transfer books of MediVators
shall be closed as of the Effective Date and no further registrations of
transfers of MediVators Shares shall be made thereafter on the records of
MediVators.
3.5 RIGHTS OF HOLDERS OF MEDIVATORS SHARES. Each Cantel Share into
which Converted MediVators Shares shall be converted in the Merger shall be
deemed to have been issued on the Effective Date. No dividends which shall
accrue on any such newly-issued Cantel Shares shall be paid until the
certificate representing the applicable Converted MediVators Shares shall have
been surrendered as required by Section 3.2 above, but upon such surrender,
there shall be paid to the Person in whose name the certificates representing
such Cantel Shares shall be issued any dividends (without interest thereon)
which shall have become payable or as to which a record date has occurred with
respect to such Cantel Shares between the Effective Date and the time of such
surrender.
4. CLOSING.
4.1 The Merger shall be consummated at a closing (the "Closing") at the
offices of Cantel's counsel, Dornbush Mensch Mandelstam & Schaeffer, LLP
("DMM&S"), 747 Third Avenue, New York, New York 10017 or at such other place as
may be agreed by the parties. The Closing shall take place on the date following
the date that the Merger is approved by the stockholders of MediVators and
Cantel, as contemplated by Section 8.8, which shall be as soon as practicable
following the date that the S-4 (as
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hereinafter defined) is declared effective by the SEC (but not earlier than
permitted by applicable regulations of the SEC), or on such other date as may be
agreed by the parties. The Articles of Merger provided for by Section 2.2 shall
be filed in the office of the Secretary of State of the State of Minnesota, as
specified in said Section.
5. REPRESENTATIONS AND WARRANTIES OF MEDIVATORS. MediVators, which for
purposes of this Section 5 shall be deemed to include all Subsidiaries of
MediVators unless the context indicates otherwise, hereby represents and
warrants to Cantel that, except as disclosed on any Schedule:
5.1 ORGANIZATION OF MEDIVATORS. MediVators is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Minnesota and has the corporate power and lawful authority to own, lease and
operate its assets, properties and business and to carry on its businesses in
all material respects as now being conducted.
5.2 QUALIFICATION. MediVators is duly qualified as a foreign
corporation to transact business in the jurisdictions set forth in Schedule
5.2, which are the only jurisdictions where the nature of its business or the
ownership of its assets makes such qualification necessary, except where the
failure to so qualify would not have a Material Adverse Effect on MediVators.
5.3 AUTHORITY. MediVators has all requisite corporate power and
authority to execute, deliver and perform this Agreement and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of this Agreement and to consummate the transactions contemplated by this
Agreement, subject to adoption of this Agreement by MediVators' stockholders.
This Agreement has been duly executed and delivered by MediVators and, subject
to adoption of this Agreement by MediVators' stockholders, constitutes legal,
valid and binding obligations of MediVators enforceable against MediVators in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by principles governing the
availability of equitable remedies.
5.4 CAPITALIZATION. MediVators' authorized Capital Stock consists of:
(i) 10,000,000 Series A Shares, of which 3,866,086 shares were issued and
outstanding as of the date hereof (giving effect to the issuance of 20,000
shares to James Drake), and (ii) 500,000 Series B Shares, of which 2,000 Shares
were issued and outstanding as of the date hereof (subject to accrued and unpaid
stock dividends). No other class of Capital Stock of MediVators is authorized or
outstanding. All of the issued and outstanding MediVators Shares are duly
authorized and are legally and validly issued, fully paid and nonassessable.
5.5 MEDIVATORS CONVERTIBLE SECURITIES. Except as set forth in Schedule
5.5, (a) there are no outstanding Convertible Securities to acquire any
securities of MediVators or its Subsidiaries from MediVators or, to MediVators'
knowledge, from any of the stockholders of MediVators or its Subsidiaries,
except as contemplated by this Agreement in connection with the Merger; (b) no
shares of Capital Stock of MediVators are reserved or set aside as treasury
shares for any purpose and no stockholder of MediVators has preemptive rights;
and (c) there are no voting trusts or other agreements or understandings of
which MediVators has knowledge with respect to the voting of shares of any class
of Capital Stock of MediVators, except as contemplated by this Agreement.
5.6 SUBSIDIARIES. Except as set forth in Schedule 5.6, MediVators has
no Subsidiaries and neither MediVators nor any of its Subsidiaries is a
party to any partnership or joint venture agreement or arrangement or owns any
equity interest in any other corporation, partnership or other entity. Each
Subsidiary of MediVators is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation set forth on
Schedule 5.6 and is duly qualified to do business as a foreign corporation, and
in good standing in the states (listed in Schedule 5.6) in which it owns
property of the nature, or transacts business of the type, that would make such
qualification necessary. Each Subsidiary of MediVators has the power and lawful
authority to own, lease and
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operate its assets, properties and business and to carry on its business in all
material respects as now conducted. MediVators owns of record, free and clear of
all Liens, one hundred percent (100%) of the issued and outstanding Capital
Stock of its Subsidiaries.
5.7 ARTICLES OF INCORPORATION AND BY-LAWS. MediVators has made
available to Cantel true, correct and complete copies of the articles of
incorporation and by-laws of MediVators and each of its Subsidiaries, and all
amendments thereto as of the date hereof. Each Articles of Incorporation
delivered hereunder has been certified by the Secretary of State of the state of
incorporation.
5.8 NO CONFLICTS. Except as set forth in Schedule 5.8, neither the
execution and delivery of this Agreement, nor the consummation of any of the
transactions contemplated hereby, conflict with or will conflict with or has
resulted or will result in the breach of or violation of any of the terms or
conditions of, or constitute (or, with notice or lapse of time or both, would
constitute) a default or result in the acceleration of any material obligation
of MediVators under: (i) the certificate of incorporation or by-laws of
MediVators; or (ii) any Requirement of Law or Contractual Obligation of
MediVators and will not result in, or require, the creation or imposition of any
Lien on any of its properties or revenues pursuant to any such Requirement of
Law or Contractual Obligation.
5.9 NO MATERIAL ADVERSE CHANGE. Except as set forth in Schedule 5.9,
since the MediVators Balance Sheet Date, MediVators has conducted its
business in all material respects only in the ordinary and usual course and
there has been no material adverse change in the assets, liabilities,
properties, business or condition, financial or otherwise, of MediVators, and no
event or condition exists or has occurred which would, so far as reasonably can
be foreseen at this time, have a Material Adverse Effect, nor has there been any
damage, destruction or loss materially affecting the assets, properties,
business or condition of MediVators, whether or not covered by insurance.
5.10 TAX MATTERS. The total amounts set up as valuation allowances for
current and deferred taxes in the MediVators Unaudited Financial Statements
are, and the total amounts accrued on the books and records of MediVators for
the period commencing on the day following the MediVators Balance Sheet Date and
ending on the date of the Closing will be, adequate provisions, in accordance
with GAAP, for the payment of all federal, state, county, local, foreign and
other taxes, and all employment and payroll related taxes, and all import
duties, including any penalties or interest thereon, whether or not measured in
whole or in part by income, whether disputed or not, which are hereafter found
to be, or to have been, due with respect to the conduct of the business of
MediVators during all periods covered by the MediVators Unaudited Financial
Statements up to and through the MediVators Balance Sheet Date and during the
period subsequent thereto and up to and through the date of the Closing,
respectively. Except as would not have a Material Adverse Effect, MediVators has
timely filed, on or before the relevant due dates therefor (including any
extensions of time to file), all income tax, excise tax, sales tax, use tax,
gross receipts tax, franchise tax, employment and payroll related tax, property
tax and all other tax returns and reports which MediVators is required by law to
file, all of which were, to the knowledge of MediVators, properly prepared on a
reasonable basis. MediVators has paid or provided for all taxes shown to be due
on such returns and any amendments thereto. There are no unpaid deficiencies or
other assessments of tax, interest or penalties owed by MediVators. MediVators
will file when due all tax returns which are required to be filed by it on or
before the date of the Closing. Such returns shall be properly prepared on a
reasonable basis and in a manner consistent with prior returns. No federal or
state returns of MediVators relating to taxes measured in whole or in part by
net income have been audited, and, except as would not have a Material Adverse
Effect, no audit of any tax return of MediVators is in progress or, to the
knowledge of MediVators, threatened, and no waiver or agreement by MediVators is
in force for the extension of time for the assessment or payment of any tax. Any
extension of time for the filing of a tax return which is currently in effect
was properly obtained.
5.11 COMPLIANCE WITH LAWS. (a) MediVators is in compliance with, and
has not received notice from any Governmental Authority alleging a violation
by it of, any federal, state, county, local or foreign, statute, law, ordinance,
regulation or order (i) applicable to it or its business, including
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without limitation regulations promulgated by the FDA, EPA or OSHA or (ii) which
otherwise is applicable to it involving the manufacture, production, storage,
possession, sale, delivery or distribution of any of its products or services;
(b) MediVators has not received any directives or orders from any Governmental
Authority related to or affecting any of its products or facilities; (c)
MediVators has all licenses, permits, orders, authorizations, notifications and
approvals of any Governmental Authority (including without limitation,
notifications of the FDA under Section 510(k) under the Food, Drug and Cosmetics
Act, as amended (the "FDC Act")) material to the conduct of its business as
presently conducted (collectively, the "MediVators Permits"); and (d) all
material MediVators Permits, the loss of which could have a Material Adverse
Effect, are listed in Schedule 5.11 and are in full force and effect, no
violations are or have been recorded in respect of any MediVators Permit which
currently have or could have a Material Adverse Effect, and no proceeding is
pending, or, to the best knowledge of MediVators, threatened, to revoke or limit
any MediVators Permit, the loss of which could have a Material Adverse Effect.
MediVators has not marketed and is not currently marketing any device in
violation of the FDC Act and is in compliance, in all material respects, with
all manufacturing and quality assurance standards and other requirements under
the FDC Act and FDA regulations applicable to MediVators.
5.12 NO CONSENTS. Except for applicable requirements of the Securities
Act, the Exchange Act, NASDAQ, and state securities or blue sky laws, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority or any other Person is required in
connection with the execution, delivery or performance of this Agreement by
MediVators, the consummation by MediVators of any of the transactions
contemplated hereby or the receipt of the Cantel Shares by holders of the
MediVators Shares pursuant to this Agreement.
5.13 NO DEFAULTS UNDER LOAN AGREEMENTS. MediVators is not in default
under any Contractual Obligation relating to borrowed money to which it is a
party or by which it or its material assets or properties is bound, nor does any
condition exist which with notice or lapse of time or both would constitute such
default, and each such contract or other agreement relating to borrowed money is
in full force and effect. Exclusive of intercompany indebtedness, there is no
agreement, contract or instrument to which MediVators is a party and which
evidences, individually or, in the case of related transactions, collectively,
indebtedness of MediVators for money borrowed.
5.14 LITIGATION. Except as set forth in Schedule 5.14, MediVators is
not a party to, nor, to its knowledge, threatened with, any material
litigation or judicial, administrative or arbitration proceeding or
investigation. Except as set forth in Schedule 5.14, there is no dispute with
any Person under contract with MediVators which has a Material Adverse Effect on
MediVators, or is reasonably likely to have a Material Adverse Effect on
MediVators, and there is no present or to MediVators' knowledge, threatened
walkout, strike or any other similar occurrence.
5.15 PUBLIC REPORTS; COMPLIANCE.
(a) MediVators has heretofore delivered to Cantel a copy of its
Annual Reports on Form 10-K pursuant to Sections 13 or 15(d) of the
Exchange Act for the fiscal years ended December 31, 1994 and December
31, 1993, and all other registration statements and reports required to
be or otherwise filed by it since December 31, 1994 with the SEC pursuant
to the Securities Act or the Exchange Act (collectively, the "MediVators
Reports"). None of the MediVators Reports contained any untrue statement
of a material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading (in each case as of the date hereof). Included or incorporated
by reference in the MediVators Reports are, without limitation, the
consolidated balance sheets of MediVators as at December 31, 1994 and
December 31, 1993 and the related consolidated statements of operations,
cash flows, and changes in stockholders' equity for each of the
respective fiscal years then ended, certified by Price Waterhouse LLP,
whose opinions thereon are included therewith (the "MediVators Audited
Financial Statements") and the unaudited consolidated balance sheets of
MediVators as at June 30, 1995 and March 31, 1995,
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together with the related unaudited consolidated statements of operations
and cash flows for the periods reflected therein (the "MediVators
Unaudited Financial Statements"). The MediVators Audited Financial
Statements and the MediVators Unaudited Financial Statements were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated and fairly present
the consolidated financial position, results of operations, cash flows,
and changes in stockholders' equity of MediVators and its consolidated
Subsidiaries as at the respective dates and for the respective periods
stated therein in each case in accordance with generally accepted
accounting principles consistently applied.
(b) The MediVators Common Stock is registered under Section 12(g) the
Exchange Act, is quoted in the National Association of Securities Dealers
Automated Quotation System, and is currently subject to the periodic
reporting requirements of Section 13 or Section 15(d) of the Exchange
Act. MediVators has filed and will file all reports required to be filed
by it pursuant to the Exchange Act and the regulations promulgated
thereunder through the date hereof and the Closing. No such reports filed
by MediVators after the date hereof and prior to the Effective Date will
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading (in each case as of the date
filed).
5.16 AGREEMENTS. Schedule 5.16 lists or refers to all of the following
types of contracts and other agreements (whether oral or written) which are
not otherwise disclosed herein or in the MediVators Reports and which provide
for payments by or to MediVators in excess of $10,000 to which MediVators is a
party or by or to which it or its assets or properties are bound or subject: (i)
contracts and other agreements with any current or former officer, director,
employee, consultant or stockholder, including, without limitation, all
non-competition agreements with employees; (ii) agreements with any labor union
or association representing any employee; (iii) contracts and other agreements
for the sale of products or services; (iv) contracts and other agreements for
the purchase or acquisition of products, materials, supplies, equipment,
merchandise, or services; (v) contracts and other agreements for the sale of any
of its assets or properties or for the grant to any person of any preferential
rights to purchase any of its assets or properties other than in the ordinary
course of business; (vi) joint venture agreements relating to its assets,
properties or business or by or to which it or its assets or properties are
bound or subject; (vii) contracts or other agreements under which it agrees to
indemnify any person, to share tax liability of any person, or to refrain from
competing with any person; (viii) warehousing, distributorship, representative,
management, marketing, sales agency or advertising agreements; and (ix) any
other material contract or other agreement not made in the ordinary course of
business (other than those reflected in any other Schedule) including, without
limitation, all agreements with any finder, broker or financial consultant. All
of the contracts and other agreements set forth in Schedule 5.16 are (except as
set forth in said Schedule), to the knowledge of MediVators, in full force and
effect in accordance with their respective terms, and MediVators is not in
default, nor does any condition exist which with notice or lapse of time or both
would constitute a default by MediVators, in any material respect, under any of
them, nor, to the knowledge of MediVators, is any other party to any such
contract or other agreement in default in any material respect thereunder on the
date hereof. On the date hereof, MediVators is not a party to or bound by any
contracts or other agreements (other than those identified on a Schedule to this
Agreement) which it believes either individually or in the aggregate have a
Material Adverse Effect on MediVators.
5.17 REAL ESTATE. MediVators does not own any real property. Schedule
5.17 sets forth a list of: (i) all leases, subleases or other agreements
under which MediVators is lessor or lessee of any real property; (ii) all
options held by MediVators or Contractual Obligations on the part of MediVators
to purchase or acquire any interest in real property; and (iii) all options
granted by MediVators to sell or dispose of any interest in real property.
MediVators is the owner of record, the lessee or lessor under the leases or
holder of the options, as the case may be, as set forth in Schedule 5.17. Such
leases,
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subleases and other agreements are in full force and effect and, with respect to
MediVators' performance thereunder, no default, or event which, with notice or
lapse of time or both, would constitute a default, in any material respect by
MediVators, has occurred thereunder. MediVators' principal physical plants and
facilities are in good condition and repair, and are sufficient for the conduct
of MediVators' business as presently conducted. No condemnation proceeding is
pending or, to MediVators' knowledge, threatened which would preclude or
materially impair the use by the Surviving Corporation of any material property
leased to or from MediVators or owned by MediVators. MediVators has received no
notice that it is in violation of any material zoning regulation or requirement
relating to any material property leased to or from MediVators.
The real estate owned or leased by MediVators is in all material respects
free of unlawful contamination from any substance or material presently
identified as toxic or hazardous by any Environmental Laws and MediVators has
not caused or suffered to occur a material spillage or other discharge of any
Hazardous Materials or substance within the meaning of any Environmental Law or
otherwise conducted operations which could reasonably lead to the imposition of
any Lien upon any real property owned or leased by MediVators or any material
fine upon MediVators pursuant to any Environmental Law.
5.18 OFFICERS, DIRECTORS AND EMPLOYEES. Schedule 5.18 sets forth the
name and total compensation of each officer, director, employee and
consultant of MediVators. Except for employment agreements described in Schedule
5.16, MediVators is not a party to any Contractual Obligation which could
obligate MediVators to pay severance or other similar compensation to an
officer, director, employee or other Person solely as a result of the Merger or
other transactions contemplated hereunder.
5.19 ACCOUNTS RECEIVABLE. Except as set forth in Schedule 5.19, and
subject to reserves for bad debts as therein provided, all accounts
receivable reflected on the MediVators Balance Sheet and all accounts receivable
arising subsequent to the MediVators Balance Sheet Date have arisen in the
ordinary course of business, have been collected or, to the best knowledge of
MediVators, are collectible in the aggregate recorded amounts thereof in
accordance with their terms subject to reserves for bad debts which, to
MediVators' knowledge, are adequate, and are owned by MediVators free and clear
of any Lien. Schedule 5.19 lists as of September 30, 1995 all accounts
receivable of MediVators on an aging basis, which Schedule is true, correct and
complete.
5.20 TANGIBLE PROPERTY. MediVators has made available to Cantel a
depreciation schedule for the plant, machinery, equipment, leasehold
improvements, vehicles, structures, any related capitalized items and other
tangible property material to the business of MediVators and which is treated by
MediVators as depreciable or amortizable property ("MediVators Tangible
Property").
5.21 INTANGIBLE PROPERTY. MediVators owns or is licensed to use, in
each case free and clear of any Lien created by MediVators, all patents,
trademarks, trade names, service marks, copyrights, applications for any of the
foregoing, together with all other technology, know-how, tangible or intangible
proprietary information or material and formulae that are necessary and material
to the business of MediVators as currently conducted (the "MediVators
Intellectual Property"). Schedule 5.21 lists all patents, trademarks, trade
names, service marks, copyrights and applications included in the MediVators
Intellectual Property. Except as set forth in Schedule 5.21, MediVators has
received no notice of any claims by any person, (i) to the effect that the
manufacture, sale or use of any product or process as now used or offered by
MediVators infringes on any patents, (ii) against the use by MediVators of any
trademarks, trade names, technology, know-how or processes necessary and
material for the operation of the business of MediVators as currently conducted
or presently contemplated, or (iii) challenging or questioning the validity or
effectiveness of any of the MediVators Intellectual Property. MediVators has
provided Cantel with a true and complete copy of each patent that constitutes
MediVators Intellectual Property and each license or sublicense pursuant to
which MediVators is permitted to sell, distribute or otherwise use MediVators
Intellectual Property owned by third parties.
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5.22 PRODUCTS. MediVators has furnished Cantel with representative
information describing MediVators' products and services. MediVators has no
Contractual Obligations pursuant to which it is obligated to purchase inventory
or components and which is not terminable by MediVators without any material
payment or charge.
5.23 LIENS. MediVators owns outright and has good and marketable title
to all of its Tangible Property, including, without limitation, all of the
MediVators Tangible Property reflected on the MediVators Balance Sheet, in each
case free and clear of any Lien, except for: (i) immaterial MediVators Tangible
Property, (ii) assets and properties disposed of, or subject to purchase or
sales orders, in the ordinary course of business since the MediVators Balance
Sheet Date, (iii) Liens securing taxes, assessments, governmental charges or
levies, or the claims of materialmen, carriers, landlords and like persons,
which are not yet due and payable, (iv) minor Liens of a character which do not
substantially impair the assets or properties of MediVators or materially
detract from its business, and (v) as reflected in the MediVators Audited
Financial Statements.
5.24 ACCOUNTS PAYABLE. Schedule 5.24 lists as of September 30, 1995
all accounts payable of MediVators on an aging basis, which Schedule is
true, correct and complete. Prior to the Closing, MediVators will deliver to
Cantel a true, correct and complete schedule of MediVators' accounts payable as
at a date not more than 30 days prior to the Effective Date which sets forth all
accounts payable of MediVators.
5.25 LIABILITIES. As at the date of this Agreement, MediVators did not
have any material direct or indirect indebtedness or uninsured liability
accrued, absolute, or contingent (and likely of occurring) or otherwise,
including, without limitation, liabilities on account of taxes, other
governmental charges or lawsuits brought, whether or not of a kind required by
GAAP to be set forth, accrued, reserved for or reflected in a financial
statement ("MediVators Liabilities"), which were not adequately accrued,
reserved for or reflected in the MediVators Unaudited Financial Statements,
except MediVators Liabilities: (i) incurred since the MediVators Balance Sheet
Date in the ordinary course of business, (ii) incurred in connection with this
Agreement or (iii) of the type expressly referred to elsewhere in this Agreement
or in the MediVators Reports.
5.26 SUPPLIERS AND CUSTOMERS. To MediVators' knowledge, the
relationships of MediVators with its suppliers, licensors or sublicensors of
intellectual property rights and customers are reasonably good commercial or
other working relationships and no (i) supplier of products sold or utilized by
MediVators, the loss of which could have a Material Adverse Effect, or (ii)
customer who accounted for more than $100,000 of MediVators' sales of products
or services during the year ended December 31, 1994 or is reasonably expected to
account for more than $100,000 of such sales during the year ending December 31,
1995 or licensor or sublicensor of intellectual property to MediVators, has
cancelled or otherwise terminated, or threatened in writing or otherwise to
cancel or otherwise terminate, its relationship with MediVators.
5.27 EMPLOYEE BENEFIT PLANS. Schedule 5.27 sets forth a true and
complete list of all written and oral pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option, incentive compensation,
bonus, vacation, severance, sickness or disability, hospitalization, individual
and group health and accident insurance, individual and group life insurance and
other material employee benefit plans, programs, commitments or funding
arrangements maintained by MediVators or a Subsidiary of MediVators, to which
MediVators or such Subsidiary is a party, or under which MediVators or the
Subsidiary has any obligations, present or future (other than obligations to pay
current wages, salaries or sales commissions terminable on notice of 30 days or
less) in respect of, or which otherwise cover or benefit, any of the current or
former officers, employees or sales representatives (whether or not employees)
of MediVators, or their beneficiaries (hereinafter individually referred to as
"MediVators Employee Benefit Plan" and collectively referred to as "MediVators
Employee Benefit Plans"). MediVators has delivered or made available to Cantel
true and complete copies of all documents, as they may have been amended to the
date hereof, embodying the terms of the MediVators Employee Benefit Plans.
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Except for the MediVators Employee Benefit Plans identified in Schedule
5.27, there is no "employee pension benefit plan", "employee welfare benefit
plan" or "employee benefit plan" within the meaning of Sections 3(1), 3(2) and
3(3) of ERISA. No MediVators Employee Benefit Plan to which MediVators or any
ERISA Affiliate (as hereinafter defined) has maintained or contributed to is
subject to Title IV of ERISA or Section 412 of the Code. For purposes of this
Section 5.27, the term "ERISA Affiliate" shall mean any trade or business
(whether or not incorporated) which is under common control with MediVators,
within the meaning of Sections 414(b) and 414(c) of the Code or the regulations
promulgated thereunder.
MediVators does not maintain and has not maintained a plan which meets the
safe harbor requirements of Section 414(n)(5) of the Code and MediVators has not
made any representations (including oral representations) with respect to the
existence of such a plan to any customers, clients, employees or any other
person. MediVators does not maintain and has not maintained any "voluntary
employees' beneficiary association" within the meaning of Section 501(c)(9) of
the Code.
Except as set forth in Schedule 5.27, each MediVators Employee Benefit Plan
described in Schedule 5.27 is in full force and effect in accordance with its
terms and there are no material actions, suits or claims pending (other than
routine claims for benefits) or, to MediVators' knowledge, threatened, against
any MediVators Employee Benefit Plan or any fiduciary thereof and MediVators has
performed all material obligations required to be performed by it under, and is
not in default under or in violation of, any MediVators Employee Benefit Plan,
in any material respect, and MediVators is in compliance in all material
respects with the requirements prescribed by all statutes, laws, ordinances,
orders or governmental rules or regulations applicable to the MediVators
Employee Benefit Plans, including, without limitation, ERISA and the Code. With
respect to each MediVators Employee Benefit Plan, MediVators has delivered or
made available to Cantel true and complete copies of the following documents
where applicable: (i) the most recent annual report (Form 5500 series) and
accompanying schedules filed with the IRS, any financial statement and opinion
required by Section 103(a)(3) of ERISA; (ii) the most recent determination
letter issued by the IRS and any outstanding request for a determination letter;
(iii) the most recent summary plan description and all modifications; and (iv)
the text of each MediVators Employee Benefit Plan and of any trust, insurance or
annuity contract maintained in connection therewith. To the knowledge of
MediVators, neither MediVators nor any other "party-in-interest," as defined in
Section 3(14) of ERISA, has engaged in any "prohibited transaction," as defined
in Section 406 of ERISA, which could subject any MediVators Employee Benefit
Plan, MediVators or Cantel or any officer, director, partner or employee of
MediVators or Cantel or any fiduciary of any MediVators Employee Benefit Plan to
a material penalty or excise tax imposed under Section 502(i) of ERISA and
Section 4975 of the Code.
Except as set forth in Schedule 5.27, MediVators is not a party to any
agreement to provide nor does it have an obligation to provide (except pursuant
to Section 162(k) of the Code with respect to tax years beginning before January
1, 1989 and Section 4980B of the Code thereafter) any individual, or such
individual's spouse or dependent, with any benefit following his or her
retirement or termination of employment, nor his or her spouse, any dependent or
any beneficiary subsequent to his or her death, with retirement, medical or life
insurance or any benefit under any employee pension benefit plan and any
employee welfare benefit plan. MediVators has complied with all its obligations
under Section 162(k) and Section 4980B of the Code.
5.28 INSURANCE. Schedule 5.28 lists all material policies or binders
of fire, liability (including product liability), workmen's compensation,
vehicular, casualty, directors and officers liability, title or other insurance
held by or on behalf of MediVators (specifying the insurer, the policy number or
covering note number with respect to binders, the amount of coverage thereunder
and describing each pending claim thereunder other than routine claims for
coverage under MediVators' group medical plan insurance policy). Such policies
and binders are in full force and effect. To MediVators' knowledge, MediVators
has not failed to give any material notice or present any material claim under
any such policy or binder in a due and timely fashion. Except for claims set
forth in Schedule 5.28 and routine medical claims there are no outstanding
unpaid claims under any such policy or binder.
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MediVators has not received a notice of cancellation or non-renewal of any such
policy or binder and, to MediVators' knowledge, there is no material inaccuracy
in any application for any such policy or binder, failure to pay premiums when
due or other similar state of facts which would form the basis for termination
of any such insurance. Schedule 5.28 contains a brief description of MediVators'
general liability loss history under the policies of insurance therein listed.
5.29 OPERATIONS OF MEDIVATORS. Except as set forth in Schedule 5.29 or
disclosed in a MediVators Report, from December 31, 1994 through the date
hereof, MediVators has not (except as contemplated by, or disclosed in, this
Agreement):
(i) amended any certificate of incorporation or by-laws or merged
with or into or consolidated with any other Person, subdivided or in any
way reclassified any shares of its capital stock or changed or agreed to
change in any manner the rights of its outstanding Capital Stock or, in
any material manner, the character of its business;
(ii) issued or sold or purchased any MediVators Convertible
Securities (except for MediVators Convertible Securities described on
Schedule 5.5), or entered into any contracts or commitments to issue or
sell or purchase, any shares of its Capital Stock;
(iii) entered into or amended any material employment agreement,
entered into any agreement with any labor union or association
representing any material employee or entered into or amended any
material MediVators Employee Benefit Plan;
(iv) incurred any indebtedness for borrowed money;
(v) declared or paid any dividends or declared or made any
distributions of any kind in respect of shares of its Capital Stock other
than "upstream" dividends from Subsidiaries;
(vi) waived any right of material value of its business other than in
the ordinary course of its business;
(vii) made any significant change in its accounting methods or
practices or made any significant change in depreciation or amortization
policies or rates adopted by it from those reflected in the MediVators
Audited Financial Statements;
(viii) made any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any of MediVators'
officers, directors, or Significant Employees in excess of 5% in the
aggregate or any accrual for or commitment or agreement to make or pay
the same;
(ix) made any loan or advance to any of MediVators' officers,
directors, or Significant Employees in excess of $2,500 individually or
$10,000 in the aggregate, other than travel and petty cash advances made
in the ordinary course of business;
(x) made any payment or commitment to pay any severance or
termination pay to any of its officers, directors, or Significant
Employees;
(xi) entered into any lease (as lessor or lessee) or sold, abandoned
or made any other disposition of any of its material assets or
properties, or granted or suffered any Lien on any of its material assets
or properties;
(xii) entered into or amended any written contract or other agreement
pursuant to which it agrees to indemnify any party or to refrain from
competing with any party;
(xiii) except for inventory, supplies or equipment acquired in the
ordinary course of business, made any acquisition of all or any part of
the assets, properties, capital stock or business of any other entity
which is material to MediVators;
(xiv) entered into any transaction other than in the ordinary course of
business; or
(xv) sold, transferred, assigned or otherwise disposed of any assets,
property or portion of its business which is material to MediVators.
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5.30 POTENTIAL CONFLICTS OF INTEREST. Except as set forth in Schedule
5.30, to MediVators' knowledge, no officer or director of MediVators: (i)
owns, directly or indirectly, any interest in (excepting not more than 5% stock
holdings for investment purposes in securities of publicly held and traded
companies) or is an officer, director, employee or consultant of any entity
which is a competitor, lessor, lessee, customer or supplier of MediVators or
Cantel; (ii) has any interest, direct or indirect, in any material property or
assets of MediVators (except in his capacity as a stockholder of MediVators);
(iii) owns directly or indirectly, in whole or in part, any material copyright,
trademark, trade name, service mark, franchise, patent, invention, permit,
license or secret or confidential information of the nature requiring a license
for use by MediVators which MediVators is using or the use of which is necessary
for the business of MediVators; or (iv) has any material cause of action or
other claim whatsoever against, or owes any material amount to, MediVators,
except for claims in the ordinary course of business (such as for accrued
vacation pay, accrued benefits under MediVators Employee Benefit Plans, expense
advances and similar matters).
5.31 ABSENCE OF CERTAIN COMMERCIAL PRACTICES. Neither MediVators nor
any director, partner, officer, agent, employee, stockholder or other Person
acting on behalf of MediVators has (a) given or agreed to give any gift or
similar benefit of more than nominal value to any customer, supplier, or
governmental employee or official of any other Person who is or may be in a
position to help or hinder MediVators or assist MediVators in connection with
any proposed transaction, which gift or similar benefit, if not given in the
past, might have materially and adversely affected the business or prospects of
MediVators or (b) used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others. Neither MediVators nor any
director, partner, officer, agent, employee or other Person acting on behalf of
MediVators has accepted or received or made any unlawful contributions,
payments, gifts or expenditures.
5.32 FULL DISCLOSURE. None of the information supplied or to be
supplied by MediVators for inclusion in the documents to be prepared in
connection with the transactions contemplated by this Agreement including,
without limitation, (i) documents to be filed with the SEC, including the Proxy
Statement and the S-4, (ii) filings pursuant to any State securities and blue
sky laws, and (iii) filings made in connection with obtaining the approvals of
Governmental Authorities, will, in the case of the S-4 at the time the S-4 is
declared effective pursuant to the Securities Act, in the case of the Proxy
Statement at the time of the mailing thereof and of the MediVators Special
Meeting, and in the case of other documents at the time such documents are filed
with any federal or state regulatory authority and/or at the time they are
distributed to stockholders of either Cantel or MediVators, contain or will
contain any untrue statements of a material fact or omit to state any material
fact necessary in order to make the statements therein not misleading (or, in
the case of the Proxy Statement, in order to make the statements therein, in
light of the circumstances under which they were made, not misleading).
5.33 INCORPORATION OF SCHEDULES. The Parties recognize that there may
be some overlapping in the disclosure required pursuant to a number of the
representations and Schedules set forth above. Failure of disclosure in response
to one item shall not be deemed a default so long as disclosure is fairly
contained in the Schedules and the MediVators Reports taken as a whole.
6. REPRESENTATIONS AND WARRANTIES OF CANTEL.
Cantel, which for purposes of this Section 6 shall be deemed to include all
Subsidiaries of Cantel unless the context indicates otherwise, hereby represents
and warrants to MediVators that, except as disclosed on any Schedule:
6.1 ORGANIZATION OF CANTEL. Cantel is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and lawful authority to own, lease and
operate its assets, properties and business and to carry on its business in all
material respects as now conducted.
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6.2 QUALIFICATION. Cantel is duly qualified as a foreign corporation
to transact business in the jurisdictions set forth in Schedule 6.2, which
are the only jurisdictions where the nature of its business or the ownership of
its assets makes such qualification necessary, except where the failure to so
qualify would not have a Material Adverse Effect on Cantel.
6.3 AUTHORITY. Cantel has all requisite corporate power and authority
to execute, deliver and perform this Agreement, and has taken all necessary
corporate action to authorize the execution, delivery and performance by it of
this Agreement, and to consummate the transactions contemplated by this
Agreement subject to adoption of this Agreement by Cantel's stockholders. This
Agreement has been executed and delivered by Cantel and subject to adoption of
this Agreement by Cantel's stockholders constitutes legal, valid and binding
obligations of Cantel, enforceable against Cantel in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by principles governing the availability of equitable
remedies.
6.4 CAPITALIZATION. On the date hereof, Cantel's authorized Capital
Stock consists of 7,500,000 shares of Common Stock, par value $.10 per
share, of which 2,768,193 shares are issued and outstanding as of the date
hereof and 1,000,000 shares of Preferred Stock, par value $1.00 per share, none
of which is outstanding. Cantel has no treasury shares outstanding. No other
class of Capital Stock of Cantel is authorized or outstanding. All of the issued
and outstanding Cantel Shares are duly authorized and are legally and validly
issued, fully paid and nonassessable.
6.5 CANTEL CONVERTIBLE SECURITIES. Except as set forth in Schedule
6.5, (a) there are no outstanding Convertible Securities to acquire any
securities of Cantel or its Subsidiaries from Cantel or, to Cantel's knowledge,
from any of the stockholders of Cantel or its Subsidiaries except as
contemplated by this Agreement in connection with the Merger; (b) no shares of
Capital Stock of Cantel are reserved or set aside as treasury shares for any
purpose and no stockholder of Cantel has preemptive rights; and (c) there are no
voting trusts or other agreements or understandings of which Cantel has
knowledge with respect to the voting of shares of any class of Capital Stock of
Cantel, except as contemplated by this Agreement.
6.6 SUBSIDIARIES. Except as set forth in Schedule 6.6, Cantel has no
Subsidiaries and neither Cantel nor any of its Subsidiaries is a party to
any partnership or joint venture agreement or arrangement or owns any equity
interest in any other corporation, partnership or other entity. Each Subsidiary
of Cantel is a corporation duly organized, validly existing and in good standing
under the laws of the state or other jurisdiction of incorporation set forth on
Schedule 6.6 and is duly qualified to do business as a foreign corporation, and
in good standing in the jurisdictions (listed in Schedule 6.6) in which it owns
property of the nature, or transacts business of the type that would make such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect. Each Subsidiary of Cantel has the power and lawful
authority to own, lease and operate its assets, properties and business and to
carry on its business in all material respects as now conducted. Cantel owns of
record, free and clear of all Liens, one hundred percent (100%) of the issued
and outstanding Capital Stock of its Subsidiaries.
6.7 CERTIFICATE OF INCORPORATION AND BY-LAWS. Cantel has made
available to MediVators true, correct and complete copies of the certificate
of incorporation and by-laws, as amended, of Cantel and each of its Subsidiaries
and all amendments thereto as of the date hereof (comparable documents in the
case of Carsen). Each Certificate of Incorporation delivered hereunder has been
certified by the Secretary of State of the state of incorporation (or comparable
government official in the case of Carsen).
6.8 NO CONFLICTS. Neither the execution and delivery of this
Agreement, nor the consummation of any of the transactions contemplated
hereby, nor the issuance or delivery of the Cantel Shares pursuant to this
Agreement by Cantel conflict with or will conflict with or has resulted or will
result in the breach of or violation of any of the terms or conditions of, or
constitute (or, with notice or lapse of time or both, would constitute) a
default or result in the acceleration of any material
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obligation of Cantel under: (i) the certificate or articles of incorporation or
by-laws of Cantel or any of its Subsidiaries; or (ii) any Requirement of Law or
Contractual Obligation of Cantel and will not result in, or require, the
creation or imposition of any Lien on any of its properties or revenues pursuant
to any such Requirement of Law or Contractual Obligation.
6.9 NO MATERIAL ADVERSE CHANGE. Since the Cantel Balance Sheet Date,
Cantel has conducted its business in all material respects only in the
ordinary and usual course and there has been no material adverse change in the
assets, liabilities, properties, business or condition, financial or otherwise,
of Cantel, and no event or condition exists or has occurred which would, so far
as reasonably can be foreseen at this time, have a Material Adverse Effect, nor
has there been any damage, destruction or loss materially and adversely
affecting the assets, properties, business or condition of Cantel, whether or
not covered by insurance.
6.10 TAX MATTERS. Except as set forth in Schedule 6.10, the total
amounts set up as valuation allowances for current and deferred taxes in the
Cantel Unaudited Financial Statements (as hereinafter defined) are, and the
total amounts accrued on the books and records of Cantel for the period
commencing on the day following the Cantel Balance Sheet Date and ending on the
date of the Closing will be, adequate provisions, in accordance with GAAP, for
the payment of all federal, state, county, local, foreign and other taxes, and
all employment and payroll related taxes, and all import duties, including any
penalties or interest thereon, whether or not measured in whole or in part by
income, whether disputed or not, which are hereafter found to be, or to have
been, due with respect to the conduct of the business of Cantel during all
periods covered by the Cantel Unaudited Financial Statements up to and through
the Cantel Balance Sheet Date and during the period subsequent thereto and up to
and through the date of the Closing, respectively. Except as disclosed in
Schedule 6.10 or as would not have a Material Adverse Effect, Cantel has timely
filed, on or before the relevant due dates therefor (including any extensions of
time to file), all income tax, excise tax, sales tax, use tax, gross receipts
tax, franchise tax, employment and payroll related tax, property tax and all
other tax returns and reports which Cantel is required by law to file, all of
which were, to the knowledge of Cantel, properly prepared on a reasonable basis.
Except as disclosed in Schedule 6.10, Cantel has paid or provided for all taxes
shown to be due on such returns and any amendments thereto. Except as disclosed
in Schedule 6.10, there are no unpaid deficiencies or other assessments of tax,
interest or penalties owed by Cantel. Cantel will file when due all tax returns
which are required to be filed by it on or before the date of the Closing. Such
returns shall be properly prepared on a reasonable basis and in a manner
consistent with prior returns. Schedule 6.10 sets forth the latest years for
which federal or state returns of Cantel relating to taxes measured in whole or
in part by net income have been audited, and, except as set forth in Schedule
6.10 or as would not have a Material Adverse Effect, no audit of any tax return
of Cantel is in progress or, to the knowledge of Cantel, threatened, and no
waiver or agreement by Cantel is in force for the extension of time for the
assessment or payment of any tax. Any extension of time for the filing of a tax
return which is currently in effect was properly obtained.
6.11 COMPLIANCE WITH LAWS. (a) Cantel is in compliance with, and has
not received notice from any Governmental Authority alleging a violation by
it of, any federal, state, county, local or foreign, statute, law, ordinance,
regulation or order (i) applicable to it or its business, or (ii) which
otherwise is applicable to it involving the manufacture, production, storage,
possession, sale, delivery or distribution of any of its products or services;
(b) Cantel has not received any directives or orders from any Governmental
Authority related to or affecting any of its products or facilities; and (c)
Cantel has all licenses, permits, orders, authorizations and approvals of any
Governmental Authority material to the conduct of its businesses as presently
conducted (collectively, the "Cantel Permits"). There are no Cantel Permits, the
loss of which could have a Material Adverse Effect. All Cantel Permits are in
full force and effect, no violations are or have been recorded in respect of any
Cantel Permit which currently have or may have a Material Adverse Effect and no
proceeding is pending, or, to the best knowledge of Cantel, threatened, to
revoke or limit any Cantel Permit the loss of which could have a Material
Adverse Effect.
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6.12 NO CONSENTS. Except for applicable requirements of the Delaware
Law, the Securities Act, the Exchange Act, NASDAQ, and state securities or
blue sky laws, no consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority or any other Person is
required in connection with the execution, delivery or performance of this
Agreement by Cantel, the consummation by Cantel of any of the transactions
contemplated hereby or thereby or the issuance or delivery of Cantel Shares to
holders of MediVators Shares and MediVators Convertible Securities pursuant to
this Agreement.
6.13 NO DEFAULTS UNDER LOAN AGREEMENTS. Exclusive of intercompany
indebtedness and the loan agreement referred to in Schedule 6.13, there is
no agreement, contract or instrument to which Cantel is a party and which
evidences, individually or, in the case of related transactions, collectively,
indebtedness of Cantel for money borrowed. Cantel is not in default under any
Contractual Obligation relating to borrowed money to which it is a party or by
which it or its material assets or properties is bound, nor does any condition
exist which with notice or lapse of time or both would constitute such default,
and each such contract or other agreement relating to borrowed money is in full
force and effect.
6.14 LITIGATION. Except as set forth in Schedule 6.14, neither Cantel
nor any of its Subsidiaries is a party to, or, to its knowledge, threatened
with, any material litigation or judicial, administrative or arbitration
proceeding or investigation. Except as set forth in Schedule 6.14, there is no
dispute with any Person under contract with Cantel which has a Material Adverse
Effect on Cantel, or is reasonably likely to have a Material Adverse Effect on
Cantel, and there is no present or, to Cantel's knowledge, threatened walkout,
strike or any other similar occurrence.
6.15 PUBLIC REPORTS; COMPLIANCE.
(a) Cantel has heretofore delivered to MediVators a copy of its
Annual Reports on Form 10-K pursuant to Sections 13 or 15(d) of the
Exchange Act for the fiscal years ended July 31, 1994 and July 31, 1993,
and all other registration statements and reports required to be or
otherwise filed by it since July 31, 1994 with the SEC pursuant to the
Securities Act or the Exchange Act (collectively, the "Cantel Reports").
None of the Cantel Reports contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading (in
each case as of the date hereof). Included or incorporated by reference
in the Cantel Reports are, without limitation, the consolidated balance
sheets of Cantel as at July 31, 1994 and July 31, 1993 and the related
consolidated statements of operations, cash flows, and changes in
stockholders' equity for each of the respective fiscal years then ended,
certified by Ernst & Young LLP, whose opinions thereon are included
therewith (the "Cantel Audited Financial Statements") and the unaudited
consolidated balance sheets of Cantel as at April 30, 1995, January 31,
1995 and October 31, 1994, together with the related unaudited
consolidated statements of operations and cash flows for the periods
reflected therein (the "Cantel Unaudited Financial Statements"). The
Cantel Audited Financial Statements and the Cantel Unaudited Financial
Statements were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated and
fairly present the consolidated financial position, results of
operations, cash flows, and changes in stockholders' equity of Cantel and
its consolidated Subsidiaries as at the respective dates and for the
respective periods stated therein in each case in accordance with
generally accepted accounting principles consistently applied.
(b) The Cantel Common Stock is registered under Section 12(g) the
Exchange Act, is quoted in the National Association of Securities Dealers
Automated Quotation System, and is currently subject to the periodic
reporting requirements of Section 13 or Section 15(d) of the Exchange
Act. Cantel has filed and will file all reports required to be filed by
it pursuant to the Exchange Act and the regulations promulgated
thereunder through the date hereof and the Closing. No such reports filed
by Cantel after the date hereof and prior to the Effective
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Date will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading (in each case as of
the date filed).
6.16 AGREEMENTS. Schedule 6.16 lists or refers to all of the following
types of contracts and other agreements (whether oral or written) which are
not otherwise disclosed herein or in the Cantel Reports and which provide for
payments by or to Cantel in excess of $50,000 to which Cantel is a party or by
or to which it or its assets or properties are bound or subject: (i) contracts
and other agreements with any current or former officer, director, employee,
consultant or stockholder, including, without limitation, all non-competition
agreements with employees; (ii) agreements with any labor union or association
representing any employee; (iii) contracts and other agreements for the sale of
products or services; (iv) contracts and other agreements for the purchase or
acquisition of products, materials, supplies, equipment, merchandise, or
services; (v) contracts and other agreements for the sale of any of its assets
or properties or for the grant to any person of any preferential rights to
purchase any of its assets or properties other than in the ordinary course of
business; (vi) joint venture agreements relating to its assets, properties or
business or by or to which it or its assets or properties are bound or subject;
(vii) contracts or other agreements under which it agrees to indemnify any
person, to share tax liability of any person, or to refrain from competing with
any person; (viii) warehousing, distributorship, representative, management,
marketing, sales agency or advertising agreements; and (ix) any other material
contract or other agreement not made in the ordinary course of business (other
than those reflected in any other Schedule) including, without limitation, all
agreements with any finder, broker or financial consultant. All of the contracts
and other agreements set forth in Schedule 6.16 are (except as set forth in said
Schedule), to the knowledge of Cantel in full force and effect in accordance
with their respective terms, and Cantel is not in default, nor does any
condition exist which with notice or lapse of time or both would constitute a
default by Cantel, in any material respect, under any of them, nor, to the
knowledge of Cantel, is any other party to any such contract or other agreement
in default in any material respect thereunder on the date hereof. On the date
hereof, Cantel is not a party to or bound by any contracts or other agreements
(other than those identified on a Schedule to this Agreement) which it believes
either individually or in the aggregate have a Material Adverse Effect on
Cantel.
6.17 REAL ESTATE. Cantel does not own any real property. Schedule 6.17
sets forth a list of: (i) all leases, subleases or other agreements under
which Cantel is lessor or lessee of any real property; (ii) all options held by
Cantel or Contractual Obligations on the part of Cantel to purchase or acquire
any interest in real property; and (iii) all options granted by Cantel to sell
or dispose of any interest in real property. Cantel is the owner of record, the
lessee or lessor under the leases or holder of the options, as the case may be,
as set forth in Schedule 6.17. Such leases, subleases and other agreements are
in full force and effect and, with respect to Cantel's performance thereunder,
no default, or event which, with notice or lapse of time or both, would
constitute a default, in any material respect by Cantel, has occurred
thereunder. Cantel's principal physical plants and facilities are in good
condition and repair, and are sufficient for the conduct of Cantel's business as
presently conducted. No condemnation proceeding is pending or, to Cantel's
knowledge, threatened which would preclude or materially impair the use by the
Surviving Corporation of any material property leased to or from Cantel or owned
by Cantel. Cantel has received no notice that it is in violation of any material
zoning regulation or requirement relating to any material property leased to or
from Cantel.
The real estate owned or leased by Cantel is in all material respects free
of unlawful contamination from any substance or material presently identified as
toxic or hazardous by any Environmental Laws and Cantel has not caused or
suffered to occur a material spillage or other discharge of any Hazardous
Materials or substance within the meaning of any Environmental Law or otherwise
conducted operations which could reasonably lead to the imposition of any Lien
upon any real property owned or leased by Cantel or any material fine upon
Cantel pursuant to any Environmental Law.
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6.18 OFFICERS, DIRECTORS AND EMPLOYEES. Schedule 6.18 sets forth the
name and total compensation of each officer and director of Cantel, and each
employee and consultant of Cantel who is paid in excess of $50,000 per year.
Except for employment agreements described in Schedule 6.16, Cantel is not a
party to any Contractual Obligation which could obligate Cantel to pay severance
or other similar compensation to an officer, director, employee or other Person
solely as a result of the Merger or other transactions contemplated hereunder.
6.19 ACCOUNTS RECEIVABLE. Except as set forth in Schedule 6.19, and
subject to reserves for bad debts as therein provided, all accounts
receivable reflected on the Cantel Balance Sheet and all accounts receivable
arising subsequent to the Cantel Balance Sheet Date have arisen in the ordinary
course of business, have been collected or, to the best knowledge of Cantel, are
collectible in the aggregate recorded amounts thereof in accordance with their
terms subject to reserves for bad debts which, to Cantel's knowledge, are
adequate, and are owned by Cantel free and clear of any Lien. Schedule 6.19
lists as of September 30, 1995 all accounts receivable of Cantel on an aging
basis, which Schedule is true, correct and complete.
6.20 PRODUCTS. Cantel has furnished MediVators with representative
information describing Cantel products and services. Except as described on
Schedule 6.20, Cantel has no Contractual Obligations pursuant to which it is
obligated to purchase inventory or components and which is not terminable by
Cantel without any material payment or charge.
6.21 LIENS. Cantel owns outright and has good and marketable title to
all of its Tangible Property, including, without limitation, all of the
Cantel Tangible Property reflected on the Cantel Balance Sheet, in each case
free and clear of any Lien, except as set forth on Schedule 6.21 and except for:
(i) immaterial Cantel Tangible Property, (ii) assets and properties disposed of,
or subject to purchase or sales orders, in the ordinary course of business since
the Cantel Balance Sheet Date, (iii) Liens securing taxes, assessments,
governmental charges or levies, or the claims of materialmen, carriers,
landlords and like persons, which are not yet due and payable, (iv) minor Liens
of a character which do not substantially impair the assets or properties of
Cantel or materially detract from its business, and (v) as reflected in the
Cantel Audited Financial Statements.
6.22 ACCOUNTS PAYABLE. Schedule 6.22 lists as of September 30, 1995
all accounts payable of Cantel on an aging basis, which Schedule is true,
correct and complete. Prior to the Closing, Cantel will deliver to Medivators a
true, correct and complete schedule of Cantel's accounts payable as at a date
not more than 30 days prior to the Effective Date which sets forth all accounts
payable of Cantel.
6.23 LIABILITIES. As at the date of this Agreement, Cantel did not
have any material direct or indirect indebtedness or uninsured liability
accrued, absolute, or contingent (and likely of occurring) or otherwise,
including, without limitation, liabilities on account of taxes, other
governmental charges or lawsuits brought, whether or not of a kind required by
GAAP to be set forth, accrued, reserved for or reflected in a financial
statement ("Cantel Liabilities"), which were not adequately accrued, reserved
for or reflected in the Cantel Unaudited Financial Statements, except Cantel
Liabilities: (i) incurred since the Cantel Balance Sheet Date in the ordinary
course of business, (ii) incurred in connection with this Agreement or (iii) of
the type expressly referred to elsewhere in this Agreement or in the Cantel
Reports.
6.24 SUPPLIERS AND CUSTOMERS. Except as set forth on Schedule 6.24, to
Cantel's knowledge, the relationships of Cantel with its suppliers,
licensors or sublicensors of intellectual property rights and customers are
reasonably good commercial or other working relationships and no (i) supplier of
products sold or utilized by Cantel, the loss of which could have a Material
Adverse Effect, or (ii) customer who accounted for more than $100,000 of
Cantel's sales of products or services during the years ended July 31, 1994 or
1995 or licensor or sublicensor of intellectual property to Cantel has cancelled
or otherwise terminated, or threatened in writing or otherwise to cancel or
otherwise terminate, its relationship with Cantel.
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6.25 EMPLOYEE BENEFIT PLANS. Schedule 6.25 sets forth a true and
complete list of all written and oral pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option, incentive compensation,
bonus, vacation, severance, sickness or disability, hospitalization, individual
and group health and accident insurance, individual and group life insurance and
other material employee benefit plans, programs, commitments or funding
arrangements maintained by Cantel or a Subsidiary of Cantel, to which Cantel or
such Subsidiary is a party, or under which Cantel or the Subsidiary has any
obligations, present or future (other than obligations to pay current wages,
salaries or sales commissions terminable on notice of 30 days or less) in
respect of, or which otherwise cover or benefit, any of the current or former
officers, employees or sales representatives (whether or not employees) of
Cantel, or their beneficiaries (hereinafter individually referred to as "Cantel
Employee Benefit Plan" and collectively referred to as "Cantel Employee Benefit
Plans"). Cantel has delivered or made available to MediVators true and complete
copies of all documents, as they may have been amended to the date hereof,
embodying the terms of the Cantel Employee Benefit Plans.
Except for the Cantel Employee Benefit Plans identified in Schedule 6.25,
there is no "employee pension benefit plan", "employee welfare benefit plan" or
"employee benefit plan "within the meaning of Sections 3(1), 3(2) and 3(3) of
ERISA. No Cantel Employee Benefit Plan to which Cantel or any ERISA Affiliate
(as hereinafter defined) has maintained or contributed to is subject to Title IV
of ERISA or Section 412 of the Code. For purposes of this Section 6.25, the term
"ERISA Affiliate" shall mean any trade or business (whether or not incorporated)
which is under common control with Cantel, within the meaning of Sections 414(b)
and 414(c) of the Code or the regulations promulgated thereunder.
Cantel does not maintain and has not maintained a plan which meets the safe
harbor requirements of Section 414(n)(5) of the Code and Cantel has not made any
representations (including oral representations) with respect to the existence
of such a plan to any customers, clients, employees or any other person. Cantel
does not maintain and has not maintained any "voluntary employees' beneficiary
association" within the meaning of Section 501(c)(9) of the Code.
Except as set forth in Schedule 6.25, each Cantel Employee Benefit Plan
described in Schedule 6.25 is in full force and effect in accordance with its
terms and there are no material actions, suits or claims pending (other than
routine claims for benefits) or, to Cantel's knowledge, threatened, against any
Cantel Employee Benefit Plan or any fiduciary thereof and Cantel has performed
all material obligations required to be performed by it under, and is not in
default under or in violation of, any Cantel Employee Benefit Plan, in any
material respect, and Cantel is in compliance in all material respects with the
requirements prescribed by all statutes, laws, ordinances, orders or
governmental rules or regulations applicable to the Cantel Employee Benefit
Plans, including, without limitation, ERISA and the Code. With respect to each
Cantel Employee Benefit Plan, Cantel has delivered or made available to
MediVators true and complete copies of the following documents where applicable:
(i) the most recent annual report (Form 5500 series) and accompanying schedules
filed with the IRS, any financial statement and opinion required by Section
103(a)(3) of ERISA; (ii) the most recent determination letter issued by the IRS
and any outstanding request for a determination letter; (iii) the most recent
summary plan description and all modifications; and (iv) the text of each Cantel
Employee Benefit Plan and of any trust, insurance or annuity contract maintained
in connection therewith. To the knowledge of Cantel, neither Cantel nor any
other "party-in-interest," as defined in Section 3(14) of ERISA, has engaged in
any "prohibited transaction," as defined in Section 406 of ERISA, which could
subject any Cantel Employee Benefit Plan, Cantel or MediVators or any officer,
director, partner or employee of Cantel or MediVators or any fiduciary of any
Cantel Employee Benefit Plan to a material penalty or excise tax imposed under
Section 502(i) of ERISA and Section 4975 of the Code.
Except as set forth in Schedule 6.25, Cantel is not a party to any agreement
to provide nor does it have an obligation to provide (except pursuant to Section
162(k) of the Code with respect to tax years beginning before January 1, 1989
and Section 4980B of the Code thereafter) any individual, or such individual's
spouse or dependent, with any benefit following his or her retirement or
termination of employment, nor his or her spouse, any dependent or any
beneficiary subsequent to his or her death,
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with retirement, medical or life insurance or any benefit under any employee
pension benefit plan and any employee welfare benefit plan. Cantel has complied
with all its obligations under Section 162(k) and Section 4980B of the Code.
6.26 INSURANCE. Schedule 6.26 lists all material policies or binders
of fire, liability (including product liability), workmen's compensation,
vehicular, casualty, directors and officers liability, title or other insurance
held by or on behalf of Cantel (specifying the insurer, the policy number or
covering note number with respect to binders, the amount of coverage thereunder
and describing each pending claim thereunder other than routine claims for
coverage under Cantel's group medical plan insurance policy). Such policies and
binders are in full force and effect. To Cantel's knowledge, Cantel has not
failed to give any material notice or present any material claim under any such
policy or binder in a due and timely fashion. Except for claims set forth in
Schedule 6.26 and routine medical claims there are no outstanding unpaid claims
under any such policy or binder. Cantel has not received a notice of
cancellation or non-renewal of any such policy or binder and, to Cantel's
knowledge, there is no material inaccuracy in any application for any such
policy or binder, failure to pay premiums when due or other similar state of
facts which would form the basis for termination of any such insurance. Schedule
6.26 contains a brief description of Cantel's general liability loss history
under the policies of insurance therein listed.
6.27 OPERATIONS OF CANTEL. Except as set forth in Schedule 6.27 or
disclosed in a Cantel Report or in the draft Form 10-K of Cantel for the
fiscal year ended July 31, 1995 heretofore delivered to MediVators, from July
31, 1994 through the date hereof, Cantel has not (except as contemplated by, or
disclosed in, this Agreement):
(i) amended any certificate or articles of incorporation, by-laws,
partnership certificate or partnership agreement or merged with or into
or consolidated with any other Person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to
change in any manner the rights of its outstanding Capital Stock or, in
any material manner, the character of its business;
(ii) issued or sold or purchased any Cantel Convertible Securities,
or entered into any contracts or commitments to issue or sell or
purchase, any shares of its Capital Stock;
(iii) entered into or amended any material employment agreement,
entered into any agreement with any labor union or association
representing any material employee or entered into or amended any
material Cantel Employee Benefit Plan;
(iv) incurred any indebtedness for borrowed money (excluding
indebtedness incurred in the ordinary course of business);
(v) declared or paid any dividends or declared or made any
distributions of any kind in respect of shares of its Capital Stock other
than "upstream" dividends from Subsidiaries;
(vi) waived any right of material value of its business other than in
the ordinary course of its business;
(vii) made any significant change in its accounting methods or
practices or made any significant change in depreciation or amortization
policies or rates adopted by it from those reflected in the Cantel
Audited Financial Statements;
(viii) made any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any of Cantel's
officers, directors, or Significant Employees in excess of 5% in the
aggregate, or any accrual for or commitment or agreement to make or pay
the same;
(ix) made any loan or advance to any of Cantel's officers, directors,
or Significant Employees in excess of $2,500 individually, or $10,000 in
the aggregate, other than travel and petty cash advances made in the
ordinary course of business;
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(x) made any payment or commitment to pay any severance or
termination pay to any of its officers, directors, or Significant
Employees;
(xi) entered into any lease (as lessor or lessee), or sold, abandoned
or made any other disposition of any of its material assets or
properties, or granted or suffered any Lien on any of its material assets
or properties;
(xii) entered into or amended any written contract or other agreement
pursuant to which it agrees to indemnify any party or to refrain from
competing with any party;
(xiii) except for inventory, supplies or equipment acquired in the
ordinary course of business, made any acquisition of all or any part of
the assets, properties, capital stock or business of any other entity;
(xiv) entered into any transaction other than in the ordinary course of
business; or
(xv) sold, transferred, assigned or otherwise disposed of any assets,
property or portion of its business which is material to Cantel.
6.28 POTENTIAL CONFLICTS OF INTEREST. To Cantel's knowledge, no
officer or director of Cantel: (i) owns, directly or indirectly, any
interest in (excepting not more than 5% stock holdings for investment purposes
in securities of publicly held and traded companies) or is an officer, director,
employee or consultant of any entity which is a competitor, lessor, lessee,
customer or supplier of Cantel or MediVators; (ii) has any interest, direct or
indirect, in any material property or assets of Cantel (except in his capacity
as a stockholder of Cantel); (iii) owns directly or indirectly, in whole or in
part, any material copyright, trademark, trade name, service mark, franchise,
patent, invention, permit, license or secret or confidential information of the
nature requiring a license for use by Cantel which Cantel is using or the use of
which is necessary for the business of Cantel; or (iv) has any material cause of
action or other claim whatsoever against, or owes any material amount to,
Cantel, except for claims in the ordinary course of business (such as for
accrued vacation pay, accrued benefits under Cantel Employee Benefit Plans,
expense advances and similar matters).
6.29 ABSENCE OF CERTAIN COMMERCIAL PRACTICES. Neither Cantel nor any
director, partner, officer, agent, employee, stockholder or other Person
acting on behalf of Cantel has (a) given or agreed to give any gift or similar
benefit of more than nominal value to any customer, supplier, or governmental
employee or official of any other Person who is or may be in a position to help
or hinder Cantel or assist Cantel in connection with any proposed transaction,
which gift or similar benefit, if not given in the past, might have materially
and adversely affected the business or prospects of Cantel or (b) used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to government officials or others. Neither Cantel nor any director, partner,
officer, agent, employee or other Person acting on behalf of Cantel has accepted
or received or made any unlawful contributions, payments, gifts or expenditures.
6.30 FULL DISCLOSURE. None of the information supplied or to be
supplied by Cantel for inclusion in the documents to be prepared in
connection with the transactions contemplated by this Agreement including,
without limitation, (i) documents to be filed with the SEC, including the Proxy
Statement and the S-4, (ii) filings pursuant to any State securities and blue
sky laws, and (iii) filings made in connection with obtaining the approvals of
Governmental Authorities, will, in the case of the S-4 at the time the S-4 is
declared effective pursuant to the Securities Act, in the case of the Proxy
Statement at the time of the mailing thereof and of the Cantel Annual Meeting,
and in the case of other documents at the time such documents are filed with any
federal or state regulatory authority and/or at the time they are distributed to
stockholders of either Cantel or MediVators, contain or will contain any untrue
statements of a material fact or omit to state any material fact necessary in
order to make the statements therein not misleading (or, in the case of the
Proxy Statement, in order to make the statements therein, in light of the
circumstances under which they were made, not misleading).
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6.31 INCORPORATION OF SCHEDULES. The Parties recognize that there may
be some overlapping in the disclosure required pursuant to a number of the
representations and Schedules set forth above. Failure of disclosure in response
to one item shall not be deemed a default so long as disclosure is fairly
contained in the Schedules and the Cantel Reports taken as a whole.
7. REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco and Cantel hereby jointly and severally represent and warrant to
MediVators that:
7.1 AUTHORITY. Newco has all requisite corporate power and authority
to execute, deliver and perform this Agreement, and has taken all necessary
corporate action to authorize the execution, delivery and performance by it of
this Agreement, and to consummate the transactions contemplated by this
Agreement. This Agreement has been executed and delivered by Newco and
constitutes legal, valid and binding obligations of Newco, enforceable against
Newco in accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by principles governing the
availability of equitable remedies.
7.2 CAPITALIZATION. The authorized capital stock of Newco consists of
1,000 shares of Common Stock, no par value, of which 100 shares are issued
and outstanding. All of the issued and outstanding shares of Newco are owned by
Cantel. No options, warrants, notes or other securities of Newco are issued or
outstanding.
7.3 ABSENCE OF LIABILITIES. Newco is a newly-formed corporation
organized pursuant to this Agreement. Newco has no liabilities of any nature
whatsoever except to the extent arising out of this Agreement or the
transactions contemplated thereby.
8. COVENANTS AND AGREEMENTS.
The parties covenant and agree as follows (references to "MediVators" and
"Cantel" shall be deemed to include their respective Subsidiaries unless the
context otherwise requires):
8.1 CONDUCT OF BUSINESS. From the date hereof through the date of the
Closing, Cantel and MediVators shall conduct their respective businesses in
the ordinary course and in material compliance with all Requirements of Law to
which they are subject, and except in the ordinary course of business (i)
without the prior written consent of Cantel, MediVators will not undertake any
of the actions specified in Section 5.29 and (ii) without the prior written
consent of MediVators, Cantel will not undertake any of the actions specified in
Section 6.27. Neither Cantel nor MediVators shall unreasonably withhold or delay
its consent under this Section 8.1.
8.2 INSURANCE. From the date hereof through the date of the Closing,
each of MediVators and Cantel will use its best efforts to maintain in force
(including necessary renewals thereof) the insurance policies material to its
respective business or assets, except to the extent that they may be replaced
with equivalent policies appropriate to insure their respective assets,
properties and businesses to the same extent as currently insured at
commercially reasonable rates.
8.3 PRESERVATION OF BUSINESS. From the date hereof through the
Effective Date, each of MediVators and Cantel shall use its best efforts to
preserve its respective business organization intact, keep available the
services of its executive officers, maintain its relationships with its present
suppliers, licensors, sublicensors and customers and preserve its goodwill.
8.4 LITIGATION. Cantel and MediVators shall promptly notify each other
of any lawsuit, claims, proceedings or investigations which after the date
hereof are threatened or commenced against it or against any officer, director,
employee, affiliate or consultant of it, with respect to the transactions
contemplated hereby or which reasonably could be expected to have a Material
Adverse Effect.
8.5 CORPORATE EXAMINATION AND INVESTIGATIONS. Each party has afforded
and shall continue to afford to the other party, through its employees and
representatives, the opportunity to make
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such reasonable investigation of the property and plant of such party as are
reasonable and appropriate for transactions of the nature contemplated hereby.
In order that the parties may have full opportunity to make such business,
accounting, regulatory and legal review, examination or investigation, each
party shall furnish the representatives of the other during such period with all
such information as such representatives may reasonably request and cause its
officers, employees, consultants, accountants and attorneys to cooperate fully
with such representatives in connection with such review and examination and to
make full disclosure of all material facts affecting such party's financial
condition, regulatory affairs and business operations.
8.6 COOPERATION IN PREPARING APPLICATIONS. The parties agree that they
and each of them will assist and cooperate fully with each other in the
prompt preparation and filing of any applications, approvals, consents or
similar documents necessary or advisable in connection with the transactions
contemplated hereunder or under any qualifications under state securities laws,
which counsel for MediVators and counsel for Cantel shall agree are required for
the proper and effective consummation of the transactions provided for in this
Agreement.
8.7 REGISTRATION STATEMENT ON FORM S-4. As soon as practicable
hereafter, Cantel shall file with the SEC (i) a registration statement on
Form S-4 (the "S-4") covering the issuance of the Cantel Shares to holders of
Converted MediVators Shares in the Merger. Cantel shall use its best efforts to
cause the S-4, and each blue sky filing to become effective as soon as
practicable. The S-4 shall include a joint proxy statement (the "Proxy
Statement") with respect to a Special Meeting of Stockholders of MediVators (the
"MediVators Special Meeting") and an Annual Meeting of Stockholders of Cantel
(the "Cantel Annual Meeting") contemplated by Section 8.8 hereof. The MediVators
Special Meeting and the Cantel Annual Meeting are collectively referred to
herein as the "Stockholder Meetings." MediVators and Cantel agree to cooperate
in connection with the preparation and filing of the S-4. Without limiting the
generality of the foregoing, each of MediVators and Cantel agrees to furnish,
and to cause its independent public accountants and attorneys to furnish,
Cantel's and MediVators counsel and accountants, as the case may be, promptly
with such information as they may reasonably request in order to complete the
preparation and filing of the S-4, and any amendments thereto.
8.8 DISTRIBUTION OF PROXY STATEMENT; STOCKHOLDER MEETINGS. At the
earliest practicable date following the date that the S-4 and each blue sky
filing has been declared effective in every jurisdiction where such
effectiveness is required in the opinion of counsel to MediVators or Cantel,
each of MediVators and Cantel shall distribute the Proxy Statement to its
stockholders which gives notice of the Stockholder Meetings for the purposes of
adopting this Agreement and approving the Merger and considering such other
matters as may properly come before such meetings. The Stockholder Meetings
shall be held as soon as practicable (but in no event less than 30 or more than
60 days) following the date that the S-4 has been declared effective by the SEC.
8.9 CONFIDENTIALITY. MediVators and Cantel each will, and will each
cause their respective officers, directors, employees, auditors, attorneys,
financial advisors and other consultants to, hold in confidence all information
furnished to it by the other in connection with the transactions contemplated by
this Agreement and will not release or disclose such information to any other
person, except to its officers, directors, employees, auditors, attorneys,
financial advisors and other consultants who require such information in
connection with the transactions contemplated hereby and who have been informed
by it of the confidential nature of such information and directed by it to treat
such information confidentially, unless, in any such case, (i) disclosure is
compelled by judicial or administrative process or (ii) in the opinion of its
counsel, taking into account the requirements of law, disclosure should be made.
It is understood that each of MediVators and Cantel shall be deemed to have
satisfied their respective obligations to hold such information confidential if
it exercises the same care as it takes to preserve confidentiality for its own
similar information. If this Agreement is terminated in accordance with Section
12 hereof, such confidence shall be maintained, and each of MediVators and
Cantel will promptly return to the other or destroy all documents (including all
copies thereof) received by it containing such information. The foregoing
provisions of this Section 8.9 shall not apply to any information held or
obtained by either MediVators or Cantel that is (i) obtained from public or
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published information, (ii) received from a third party not known to it to be
under an obligation to the other to keep such information confidential, (iii)
which is or becomes known to the public (other than through a breach of this
Agreement), or (iv) which was independently developed by it.
8.10 AGREEMENT TO DEFEND. In the event any claim, action, suit,
investigation or other proceeding by any Governmental Authority or other
Person is commenced which questions the validity or legality of the proposed
Merger, or any of the other transactions contemplated hereby or seeks damages in
connection therewith, the parties agree to cooperate and use their best efforts
to defend against such claim, action, suit, investigation or other proceeding
and, if an injunction or other order of the type referred to in Sections 9.4 and
10.6 hereof is issued in any such action, suit or other proceeding, to use their
best efforts to have such injunction or other order lifted.
8.11 NO DISCLOSURE. Unless and until this Agreement shall have been
terminated by either MediVators or Cantel pursuant to Section 12 hereof,
neither Cantel nor MediVators, nor their respective officers or directors will,
except for such disclosure that Cantel or MediVators shall make in good faith
pursuant to the Exchange Act, disclose any proprietary, financial or other
information concerning either party or their respective operations or business,
or other transactions contemplated hereunder, not generally available to the
public to any Person.
8.12 ISSUANCE OF CAPITAL STOCK. Neither MediVators nor Cantel shall
issue, commit to issue, redeem or purchase, or amend the terms of, any of
its Capital Stock or Convertible Securities after the date hereof and prior to
the Effective Time except for the issuance of shares (i) upon exercise of
existing MediVators Convertible Securities or Cantel Convertible Securities,
(ii) as is required under the express terms of an existing stock option plan of
Cantel or MediVators, or (iii) as otherwise contemplated by this Merger.
8.13 NOTIFICATION OF CERTAIN EVENTS. Each of MediVators and Cantel
shall promptly be given notice by the other of any event, condition or
circumstance occurring from the date hereof through the Effective Time which
would constitute or which would, with the passage of time or giving of notice or
both, constitute a violation or breach of any representation or warranty
contained herein occurring with respect to the party required to give notice
pursuant to this Section.
8.14 LISTING OF SHARES. Prior to the Effective Time, Cantel shall use
its best efforts to list the Converted MediVators Shares for trading on the
NASDAQ National Market System commencing at the Effective Time in accordance
with NASDAQ rules and regulations.
8.15 AGREEMENTS OF AFFILIATES. MediVators shall use its best efforts
to cause each director, officer and other person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act) to deliver to Cantel on the
Effective Date a written agreement (the "Rule 145 Agreement"), in a form
approved by counsel for Cantel, providing that such Person will not sell,
pledge, transfer or otherwise dispose of the Cantel Shares to be received by
such Person in the Merger except in compliance with the applicable provisions of
the Securities Act. The Rule 145 Agreement shall include the same undertaking
made by MediVators under Section 8.18 below.
8.16 FURTHER ASSURANCES. Each of the parties shall execute such
documents and other papers and take such further action as may be reasonably
required or desirable to carry out the provisions of this Agreement and the
transactions contemplated hereby. Each party shall use its best efforts to
fulfill or obtain the fulfillment of the conditions to the Closing. In addition,
each of the parties agrees to execute and deliver at or prior to the Closing a
certificate containing such representations and warranties as legal counsel to
MediVators or Cantel may reasonably deem necessary or advisable to support or
substantiate the tax-free nature of the Merger.
8.17 NO SOLICITATION. Neither MediVators nor its officers, directors,
representatives or agents shall, directly or indirectly, solicit, initiate
or participate in discussions or negotiations with, or provide any information
to, any Person (other than Cantel) concerning, or enter into any agreement
providing for any merger, sale of material assets, sale of shares of capital
stock or similar transactions involving MediVators, provided that the Board of
Directors of MediVators may furnish information
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and may participate in such discussion or negotiations if required to satisfy
the Fiduciary Obligations (as hereinafter defined) of the Board of Directors of
MediVators. "Fiduciary Obligations" shall arise if (i) legal counsel to
MediVators advises the Board of Directors that the failure to provide such
information or participate in such discussions or negotiations could result in
the directors being in breach of their fiduciary duties or (ii) the Board of
Directors believes, in good faith, after consultation with its financial and
legal advisors, that such Person may make a bona fide proposal for a transaction
materially more favorable to the stockholders of MediVators from a financial
point of view than the transactions contemplated hereby (a "Higher Offer"). The
Board of Directors of MediVators will communicate to Cantel within one business
day of receipt the terms of any proposal received, or the fact that MediVators
has received inquiry with respect to, any such transactions.
8.18 TAX TREATMENT. MediVators and Cantel undertake and agree to take
no action which would cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code by virtue
of the application of Section 368(a)(2)(E) of the Code. Cantel agrees that it
will file no tax returns or otherwise take a position inconsistent with such tax
treatment.
8.19 REPORT OF EARNINGS. As soon as practicable after the Effective
Date, Cantel will file with the SEC either a Quarterly Report on Form 10-Q
or a Current Report on Form 8-K which contains financial results covering at
least one month of combined operations of Cantel and MediVators.
8.20 SUSPENSION OF REPORTING. As soon as practicable following the
Effective Time, Cantel shall file with the SEC a Form 15 or such other form
as may be applicable in order to suspend MediVators' duty to file reports under
Section 15(d) of the Exchange Act.
8.21 REGISTRATION STATEMENT ON FORM S-8. As soon as practicable
following the Effective Date, Cantel shall file a registration statement on
Form S-8 covering the issuance of Cantel Shares upon the exercise of MediVators
Convertible Securities identified on Schedule 5.5.
8.22 LOAN TO MEDIVATORS. Cantel agrees to loan to MediVators up to
$190,000 during the period between the date hereof and the Closing Date,
with advances being made on such dates as the parties may agree from time to
time during said period. The loans shall be evidenced by promissory notes in a
form acceptable to Cantel and shall bear interest at two percent above the prime
rate of the National Bank of Canada in effect from time to time. The loans shall
be secured by all of MediVators' right, title and interest in and to its
intellectual and other intangible property rights, including without limitation,
service marks, trademarks, patents, patent applications, manufacturing
specifications, designs, trade secrets, formulations, and rights of MediVators
under distribution agreements and license agreements. The loans shall also be
secured by such inventory and/or accounts receivable as the parties may agree at
the time of loan advances. Principal and interest on the loans shall be payable
in nine equal monthly installments commencing on March 1, 1996. Simultaneously
with the first loan advance, MediVators shall execute and deliver a security
agreement in a form acceptable to Cantel, which shall be consistent with the
terms of this Section 8.22.
9. CONDITIONS PRECEDENT TO THE OBLIGATION OF MEDIVATORS TO CLOSE.
The obligation of MediVators to consummate the Merger is subject to the
satisfaction, on or prior to the Closing, of the following conditions, any one
or more of which may be waived by MediVators in writing:
9.1 REPRESENTATIONS AND COVENANTS. The representations and warranties
of Cantel, which for purposes of this Section 9 shall be deemed to include
all Subsidiaries of Cantel unless the context indicates otherwise, contained in
this Agreement shall be true and complete in all material respects, except for
changes in the ordinary course of business and as contemplated by this
Agreement, on and as of the Effective Date with the same force and effect as
though made on and as of such date. Cantel
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shall have performed and complied in all material respects with all covenants
and agreements required by this Agreement to be performed or complied with by
Cantel on or prior to such date. Cantel shall have delivered to MediVators a
certificate, executed by its principal executive officer and principal financial
officer, dated such date to the foregoing effect.
9.2 OPINIONS OF COUNSEL TO CANTEL. MediVators shall have received, on
behalf of itself and the MediVators shareholders, the favorable opinion of
DMM&S, dated as of the Effective Date, addressed to MediVators in form and
substance reasonably satisfactory to MediVators and its counsel.
9.3 APPROVAL OF COUNSEL TO MEDIVATORS. All actions and proceedings
hereunder and all documents and other papers required to be delivered by
Cantel hereunder or in connection with the consummation of the transactions
contemplated hereby and all other related matters shall have been reasonably
approved in all material respects by F&B, as to their form.
9.4 LITIGATION. No action, suit or proceeding shall have been
instituted or threatened by any Governmental Authority and no order or award
shall have been entered (and not removed or stayed) by any court or Governmental
Authority, in either case to restrain or prevent the carrying out of the Merger,
or the use of the Proxy Statement or the S-4 in respect thereof or to seek
damages in connection with any of the transactions provided for herein or which
has or may have, in the reasonable opinion of MediVators, a Material Adverse
Effect on Cantel.
9.5 S-4 REGISTRATION STATEMENTS. The S-4 shall be effective under the
Securities Act, all necessary blue sky qualifications shall have been
obtained and are in full force and effect, and no stop order suspending the
effectiveness of the S-4 is in effect and no proceeding for such purpose is
pending before or threatened by the SEC.
9.6 ACCOUNTANTS' COMFORT LETTER. MediVators shall have received
letters addressed to MediVators from:
(a) Ernst & Young LLP, as independent accountants for Cantel for the
fiscal years ended July 31, 1993, 1994, and 1995, dated (i) the effective
date of the S-4, and (ii) the date of the Closing, in each case
substantially to the effect that:
(1) it is a firm of independent accountants with respect to
Cantel within the meaning of the Securities Act and the applicable
published rules and regulations thereunder;
(2) in its opinion the audited consolidated financial statements
of Cantel audited by it and included in the S-4 comply as to form in
all material respects with the applicable accounting requirements of
the Securities Act and the applicable published rules and regulations
thereunder with respect to registration statements on Form S-4;
(3) to the extent applicable, on the basis of specified
procedures, including a reading of the unaudited consolidated
financial statements of Cantel included in the S-4 and procedures
related to such unaudited financial statements as specified by the
American Institute of Certified Public Accountants for a review of
interim financial statements as described in SAS 71 and a reading of
the latest available unaudited consolidated financial statements of
Cantel (which interim financial statements shall be as of a date not
more than 45 days prior to the dates of such letters), inquiries of
officers of Cantel responsible for financial and accounting matters,
and a reading of the minutes of meetings of stockholders and the
Board of Directors of Cantel and other specified procedures and
inquiries, nothing has come to its attention which causes it to
believe that any unaudited consolidated financial statements included
in the S-4: (i) do not comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and
the published rules and regulations thereunder or (ii) require
material modifications for them to be in conformity with GAAP. Such
letter from Ernst & Young shall also cover such other matters
(including tables, statistics and other financial
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information and data included in the S-4, as MediVators may
reasonably request consistent with Section 634 of Statement on
Auditing Standards issued by the American Institute of Certified
Public Accountants.
9.7 EMPLOYMENT AGREEMENTS. Cantel shall have offered an employment or
consulting agreement ("Employment Agreement") to each of Donald Sturtevant
and Curtis Luebke containing the terms specified in Schedule 9.7. Cantel agrees
that neither Mr. Sturtevant nor Mr. Luebke will be deemed executive officers of
Cantel following the Merger.
10. CONDITIONS PRECEDENT TO THE OBLIGATION OF CANTEL TO CLOSE.
The obligation of Cantel to consummate the Merger is subject to the
satisfaction, on or prior to the Closing, of the following conditions, any one
or more of which may be waived in writing by Cantel:
10.1 REPRESENTATIONS AND COVENANTS. The representations and warranties
of MediVators, which for purposes of this Section 10 shall be deemed to
include all Subsidiaries of MediVators unless the context indicates otherwise,
contained in this Agreement shall be true and complete in all material respects,
except for changes in the ordinary course of business and as contemplated by
this Agreement, on and as of the Effective Date with the same force and effect
as though made on and as of such date. MediVators shall have performed and
complied with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to such date. MediVators shall have
delivered to Cantel a certificate, executed by its principal executive officer
and principal financial officer, dated such date to the foregoing effect.
10.2 STOCKHOLDER APPROVAL. The holders of Cantel Shares and the
holders of MediVators Shares shall have approved the Merger and this
Agreement in accordance with applicable provisions of the Delaware Law and the
Minnesota Law, respectively, and the number of MediVators Shares as to which the
holders thereof shall have given written notice of their election to dissent in
accordance with Minnesota Law shall not exceed three percent (3%) of the number
of MediVators Shares outstanding.
10.3 GOVERNMENTAL PERMITS AND APPROVALS. Any and all permits, licenses
and approvals from any Governmental Authority required for the lawful
consummation of the Merger shall have been obtained.
10.4 THIRD PARTY CONSENTS. All consents and approvals from parties to
any material contract or agreement with MediVators which may be required in
connection with the performance by MediVators of its obligations under this
Agreement shall have been obtained.
10.5 OPINIONS OF COUNSEL. Cantel shall have received, on behalf of
itself and the Cantel shareholders, (i) the favorable opinion of Fredrikson
& Byron, P.A. ("F&B"), dated as of the Effective Date, addressed to Cantel in
form and substance reasonably satisfactory to Cantel and counsel for Cantel and
(ii) the opinion of DMM&S substantially to the effect that on the basis of facts
and representations set forth or referred to in such opinion, for federal income
tax purposes, no gain or loss will be recognized by Cantel or MediVators as a
result of the Merger and that no gain or loss will be recognized.
10.6 LITIGATION. No action, suit or proceeding shall have been
instituted or threatened by any Governmental Authority and no order or award
shall have been entered (and not removed or stayed), by any court or
Governmental Authority, in either case to restrain or prevent the carrying out
of the Merger or the use of the Proxy Statement or the S-4 in respect thereof or
to seek damages in connection with the transactions provided for herein or which
has or may have, in the reasonable opinion of Cantel, a Material Adverse Effect
on MediVators.
10.7 APPROVAL OF COUNSEL TO CANTEL. All actions and proceedings
hereunder and all documents or other papers required to be delivered by
MediVators hereunder or in connection with the consummation of the transactions
contemplated hereby and all other related matters shall have been reasonably
approved in all material respects by DMM&S as to their form.
29
<PAGE>
10.8 ACCOUNTANTS' COMFORT LETTER. Cantel shall have received letters
addressed to Cantel from:
(a) Price Waterhouse LLP, as independent accountants for MediVators
for the fiscal years ended December 31, 1994 and 1993, dated (i) the
effective date of the S-4, and (ii) the date of the Closing, in each case
substantially to the effect that:
(1) it is a firm of independent accountants with respect to
MediVators within the meaning of the Securities Act and the
applicable published rules and regulations thereunder;
(2) in its opinion the audited consolidated financial statements
of MediVators audited by it and included in the S-4 comply as to form
in all material respects with the applicable accounting requirements
of the Securities Act and the applicable published rules and
regulations thereunder with respect to registration statements on
Form S-4;
(3) on the basis of specified procedures, including a reading of
the unaudited consolidated financial statements of MediVators
included in the S-4 and procedures related to such unaudited
financial statements as specified by the American Institute of
Certified Public Accountants for a review of interim financial
statements as described in SAS 71 and a reading of the latest
available unaudited consolidated financial statements of MediVators
(which interim financial statements shall be as of a date not more
than 45 days prior to the dates of such letters), inquiries of
officers of MediVators responsible for financial and accounting
matters, and a reading of the minutes of meetings of stockholders and
the Board of Directors of MediVators and other specified procedures
and inquiries, nothing has come to its attention which causes it to
believe that any unaudited consolidated financial statements included
in the S-4: (i) do not comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and
the published rules and regulations thereunder or (ii) require
material modifications for them to be in conformity with GAAP. Such
letter from Price Waterhouse LLP shall also cover such other matters
(including tables, statistics and other financial information and
data included in the S-4, as Cantel may reasonably request consistent
with Section 634 of Statement on Auditing Standards issued by the
American Institute of Certified Public Accountants.
10.9 RESIGNATION OF DIRECTORS AND OFFICERS. All directors and officers
of MediVators shall have submitted their resignations, effective as of the
Effective Time.
10.10 RULE 145 AGREEMENTS. Each of the Rule 145 Agreements required to
be delivered to Cantel under Section 8.15 have been so delivered.
10.11 S-4 REGISTRATION STATEMENTS. The S-4 shall be effective under
the Securities Act, all necessary blue sky qualifications shall have been
obtained and are in full force and effect, and no stop order suspending the
effectiveness of the S-4 is in effect and no proceeding for such purpose is
pending before or threatened by the SEC.
10.12 POOLING OF INTERESTS LETTER FROM ACCOUNTANTS. On or before
November 22, 1995, Cantel shall have received from each of Ernst & Young LLP
and Price Waterhouse LLP a letter dated the date hereof to the effect that the
transactions contemplated by this Agreement may be treated by Cantel as a
"pooling of interests" for accounting purposes and that the "risk period"
referred to in SEC Accounting Series Releases 130 and 135 commences on the
Effective Date. This condition shall be deemed waived or satisfied unless Cantel
shall have notified MediVators in writing by 4:00 p.m. New York City time on
November 27, 1995 that the condition has not been satisfied, in which case this
Agreement shall terminate and be of no further force or effect.
10.13 EMPLOYMENT AGREEMENTS. Donald Sturtevant and Curtis Luebke shall
each have entered into their respective Employment Agreement.
30
<PAGE>
10.14 DISTRIBUTION AGREEMENT. Cantel shall have entered into a
definitive, written distribution agreement with Corporation (or an
affiliated entity) covering the distribution of MediVators infection control
equipment in the United States (the " Distribution Agreement"). Cantel
undertakes to negotiate in good faith the terms of the Distribution
Agreement, including without limitation, the pricing of products, minimum sale
requirements, and length of the term. MediVators acknowledges that the execution
and delivery of the Distribution Agreement is of paramount importance to
Cantel in consummating the Merger. Therefore, the parties agree that if the
Distribution Agreement is not entered into by January 31, 1996 (or such
later date as Cantel may designate) for any reason whatsoever, Cantel shall have
the right in its sole discretion to terminate this Agreement pursuant to Section
12.1(e).
11. SURVIVAL OF COVENANTS AND AGREEMENTS OF THE PARTIES;
11.1 SURVIVAL. Except to the extent, if any, waived in writing by any
party at the Closing, the covenants and agreements contained in Sections
8.18 and 12 in this Agreement shall survive the Closing of the Merger. The
representations and warranties set forth in this Agreement shall not survive the
Closing of the Merger.
12. TERMINATION OF AGREEMENT.
12.1 PRIOR TO CLOSING. This Agreement may be terminated as follows:
(a) at any time prior to the Closing by mutual agreement of
MediVators and Cantel.
(b) at any time prior to the Closing by MediVators if any
representation or warranty of Cantel contained in this Agreement is or
becomes untrue or breached in any material respect or if Cantel fails to
comply in any material respect with any covenant contained herein, and
any such misrepresentation, noncompliance or breach is not cured, waived
or eliminated within 10 days following written notice thereof.
(c) at any time prior to the Closing by Cantel, if any representation
or warranty of MediVators contained in this Agreement is or becomes
untrue or breached in any material respect or if MediVators fails to
comply in any material respect with any covenant contained herein, and
any such misrepresentations, noncompliance or breach is not cured, waived
or eliminated within 10 days following written notice thereof.
(d) by MediVators if the conditions stated in Section 9 have not been
satisfied prior to March 1, 1996.
(e) by Cantel if the conditions stated in Section 10 have not been
satisfied prior to March 1, 1996 or, solely in the case of the condition
specified in Section 10.14, prior to February 1, 1996.
(f) by Medivators if, prior to the Medivators Special Meeting, the
Board of Directors of MediVators determines, solely due to its Fiduciary
Obligations, that it will not recommend acceptance of the Offer and
approval of the Merger by the stockholders of MediVators (or if such
recommendation is withdrawn) and shall have recommended a Higher Offer to
the stockholders of MediVators.
12.2 EFFECT OF TERMINATION. In the event this Agreement is terminated
pursuant to subparagraph (b), (c), (d), or (e) of Section 12.1 due to the
intentional breach of a representation, warranty, covenant or condition by the
breaching party, then the nonbreaching party shall be entitled to pursue,
exercise and enforce any and all remedies, rights, powers and privileges
available at law or in equity; provided that the nonbreaching party shall take
all reasonable efforts to mitigate its damages upon its discovery of such
breach. In the event this Agreement is terminated pursuant to subparagraph (b),
(c), (d), or (e) of Section 12.1, but such termination is due to a breach of a
representation, warranty, covenant or condition that is not the result of an
action or inaction by the breaching party that could be reasonably anticipated
to cause the breach and the breaching party cannot reasonably correct the
breach, then no party shall have any right to pursue, exercise or enforce any
remedy and all parties
31
<PAGE>
who are not involved in an intentional breach of a representation, warranty,
covenant or condition shall be fully released and discharged from any and all
obligations under this Agreement. In the event this Agreement is terminated
pursuant to subparagraph (f) of Section 12.1, MediVators shall pay to Cantel
within fifteen (15) days following the date of such termination, the sum of
$1,000,000 by certified or bank check. Said amount is designed to compensate
Cantel for the considerable resources expended in its due diligence on
MediVators, for its costs and expenses incurred in connection with the proposed
Merger, and as a material inducement for Cantel to enter into this Agreement.
13. MISCELLANEOUS.
13.1 BROKER. Each of the parties represents and warrants to the other
that no broker, finder or other financial consultant has acted on their or
its behalf in connection with the negotiation and execution of this Agreement.
Each such party agrees to indemnify and save the others harmless from any claim
or demand for commission or other compensation by any broker, finder, financial
consultant or similar agent not so disclosed claiming to have been employed by
or on behalf of such Party, and to bear the cost of legal expenses incurred in
defending against any such claim.
13.2 SCHEDULES. The Schedules to this Agreement are a part of this
Agreement as if set forth in full herein.
13.3 PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be issued without
advance approval of the form and substance thereof by MediVators and Cantel
subject to each party's right to make any such publicity release or announcement
reasonably required to comply with its obligations as a public company
including, without limitation, under the Exchange Act, the Securities Act or the
rules and regulations of the National Association of Securities Dealers.
13.4 NOTICES. Any notice or other communication required or which may
be given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed or telecopied or sent by certified, registered or express
mail, postage prepaid, and shall be deemed given when so delivered personally,
telegraphed, telexed or telecopied or if mailed, two days after the date of
mailing, as follows (or to such other address as any party may from time to time
specify in writing pursuant to the notice provisions hereof):
(i) if to MediVators to:
MediVators, Inc.
Cannon Plaza South
6352 320 Street Way
Cannon Falls, Minnesota 55009
Attention: Donald L. Sturtevant, President
Telecopier No.: (507) 263-0333
with a copy to:
Fredrikson & Byron, P.A.
900 Second Avenue South
1100 International Center
Minneapolis, Minnesota 55401
Attention: Gregory Freitag, Esq.
Telecopier No.: (612) 347-7077
32
<PAGE>
(ii) if to Cantel or Newco, to:
Cantel Industries, Inc.
1135 Broad Street
Suite 203
Clifton, N.J. 07013
Attention: James P. Reilly, President
Telecopier No.: (201) 471-0054
with a copy to:
Dornbush Mensch Mandelstam & Schaeffer, LLP
747 Third Avenue
New York, New York 10017
Attention: Eric W. Nodiff, Esq.
Telecopier No.: (212) 753-7673
13.5 ENTIRE AGREEMENT. This Agreement (including all Schedules hereto
and all agreements or covenants contained therein) contains the entire
agreement among the Parties with respect to the Merger, and all transactions
related thereto, and supersedes all prior agreements or understandings, written
or oral, with respect thereto.
13.6 WAIVERS AND AMENDMENTS. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions
hereof may be waived, only by a written instrument signed by the Parties or, in
the case of a waiver, signed by the Party waiving compliance. No delay on the
part of any Party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any Party of
any right, power or privilege hereunder, nor any single or partial exercise of
any right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
rights and remedies herein provided are cumulative and are not exclusive or any
rights or remedies that any Party may otherwise have at law or in equity.
13.7 EXPENSES. All expenses (including, without limitation, legal fees
and expenses, fees of brokers, advisors and investment bankers and fees and
expenses of accountants) incurred in connection with the transactions
contemplated hereby will be borne by the party incurring such expenses.
13.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey, without giving
effect to the choice of law principles thereof (except insofar as Minnesota law
shall govern the Merger and the corporate actions of MediVators and Cantel
contemplated hereby).
13.9 NO ASSIGNMENT. This Agreement is not assignable except by
operation of law.
13.10 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neither singular or plural, as the
identity of the person or persons may require.
13.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the corporate parties hereto on the date first
above written.
MEDIVATORS, INC.
By: _____/s/_DONALD L. STURTEVANT_____
Title: President
CANTEL INDUSTRIES, INC.
By: ________/s/_JAMES P. REILLY_______
Title: President
CANTEL ACQUISITION CORP.
By: ________/s/_JAMES P. REILLY_______
Title: President
34
<PAGE>
SCHEDULE 5.9
NO MATERIAL ADVERSE CHANGE
MediVators has continued to incur losses from operations, and expects such
losses to continue; provided, however, that the operating losses for the months
ended November 30, 1995, December 31, 1995, January 31, 1996, February 28, 1996
and March 31, 1996 shall not exceed $21,000, $60,000, $53,000, $55,000 and
$46,000, respectively. In addition, MediVators will not be able to fund its
operations through closing of the merger without an additional cash infusion;
provided, however, that prior to the Closing Date a cash infusion in excess of
$190,000 shall not be required.
35
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JULY 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-6132
------------------------
CANTEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-1760285
(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification no.)
1135 BROAD STREET,
CLIFTON, NEW JERSEY 07013
(Address of principal (Zip code)
executive offices)
</TABLE>
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
------------------------
(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. / /
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 6,
1995): $10,004,347
Number of shares of common stock outstanding as of the close of the period
covered by this report: 2,768,193
Documents incorporated by reference: None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 scientific products and consumer products in Canada, and
commencing in fiscal 1996 will be engaged in the marketing and distribution of
industrial technology equipment and medical equipment in the United States. The
Company also provides servicing of the products it distributes. Unless the
context otherwise requires, references herein to the "Company" include Cantel
Industries, Inc. ("Cantel") and Carsen.
The scientific products distributed by the Company consist of medical
instruments, including flexible and rigid endoscopes, endoscope
washers/disinfectors, and air cleaning equipment; surgical equipment and related
accessories; precision instruments, including microscopes and related
accessories; and industrial technology equipment, including borescopes,
fiberscopes, video image scopes, laser distance measurement and thermal imaging
products and on-line optical inspection and quality assurance systems. The
consumer products distributed by the Company consist of photographic and optical
equipment, including cameras, dark room equipment, and office equipment
including hand-held dictation equipment, paper shredders, and related
accessories.
The Company distributes the majority of its scientific products and consumer
products pursuant to an agreement with Olympus America Inc. (the "Olympus
Agreement"), a United States subsidiary 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. The Company, or its predecessor, has been distributing various
Olympus products in Canada since 1949.
During fiscal year 1994, the Company entered into a long-term agreement with
Jenoptik Technologie GmbH of Jena, Germany ("Jenoptik"), for exclusive
distribution of Jenoptik's laser distance measurement and thermal imaging
products and on-line optical inspection and quality assurance systems in the
United States, Canada and Mexico.
The Company also distributes other products under separate distribution
agreements, including endoscope washers/disinfectors, scientific equipment
accessories, shredders and accessory camera products.
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.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Scientific Products:
Medical Instruments............................................................ 51.2% 46.9% 45.9%
Precision Instruments.......................................................... 9.9 8.6 8.2
Industrial Technology Equipment................................................ 6.2 6.0 5.6
Product Service................................................................ 13.0 13.8 13.4
Consumer Products................................................................ 19.7 24.7 26.9
----- ----- -----
100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
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SCIENTIFIC PRODUCTS
The Scientific Products segment is the Company's major source of revenue and
profitability. This segment is comprised of the medical instruments, precision
instruments, industrial technology equipment and product service divisions.
MEDICAL INSTRUMENTS. The Company's principal source of revenue is from the
distribution of specialized endoscopes, surgical equipment and related
accessories and instruments to hospitals, 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.
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.
2
<PAGE>
The Company 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 washers/disinfectors,
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).
The Company believes it has achieved a considerable market share in Canada
for flexible endoscopes in certain segments, particularly gastrointestinal
endoscopy. The Company believes that growth in sales of medical instruments will
be achieved principally from rigid endoscopes and other products used in
surgical procedures, as well as from endoscope washers/disinfectors, air
cleaners, and related equipment used in the care and maintenance of endoscopes.
No assurance can be given that such growth will be attained.
All of the endoscopes and certain of the other medical instruments and
accessories distributed by the Company are manufactured by Olympus. Other
medical products distributed by the Company are manufactured by Synectics
Medical AB (ambulatory PH and motility monitoring equipment), F.M. Wiest GmbH &
Co. (insufflators), Sony of Canada Ltd. (monitors, mavigraphs and video
recorders), and MediVators Inc. (automated endoscope washers/disinfectors).
PRECISION INSTRUMENTS. The Company 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), and 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 the Company 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.
INDUSTRIAL TECHNOLOGY EQUIPMENT. The Company distributes three types of
industrial technology equipment that are similar to endoscopes, but are designed
for an emerging market known as remote visual inspection ("RVI"). RVI is the
application of medical endoscopic technology for industrial uses. These products
distributed by the Company, 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.
Other industrial technology equipment distributed by the Company, most of
which is manufactured by Jenoptik, consists of laser meters (devices that use
the travel time of laser pulses as a means of measurement) designed for
determining distances, vertical angles, target and station heights, as well as
speed; thermographic systems (devices that use infrared cameras to measure
thermal radiation) which are used as a basis for the analysis and diagnosis of
heat and temperature distribution; and on-line optical inspection and quality
assurance systems (optical image-processing systems operating on the principle
of coherent structural-zonal analysis) designed for inspection, identification
and classification, such as establishing object classes, detecting defects and
monitoring quality.
3
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The Company has recently introduced a number of products under its own
trademark, Optiscan. These products have been sourced from outside suppliers or
designed by the Company. Most Optiscan products currently available complement
or enhance our 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 our Olympus business is a software application, Optiscan PVM, developed by
the Company, 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 the Company is generally
purchased by large industrial companies engaged in the oil and gas, aerospace,
chemicals, 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. The
Company also develops new applications for its products, which are then
customized by the Company for such applications, based upon the nature of a
company's business. For example, the Company 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.
PRODUCT SERVICE -- SCIENTIFIC. The Company operates a service organization
at its Markham, Ontario facility that provides warranty and out-of-warranty
service and repairs for scientific products distributed by the Company.
Scientific products distributed by the Company bear a product warranty that
entitles the purchaser to warranty repairs and service at a nominal or no charge
during the warranty period. The Company, and not the manufacturer of the
product, is responsible for the cost of warranty repairs. The warranty period
for scientific products is generally one year for medical instruments and
industrial technology equipment and five years for precision instruments.
The Company also provides out-of-warranty service of scientific products for
which the customer pays the Company on a time and materials basis. Revenues from
the Product Service Division consist principally of out-of-warranty servicing of
endoscopes and other medical products, and comprise a significant percentage of
the Company's total net sales.
CONSUMER PRODUCTS
The Company 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, darkroom equipment and supplies,
camera luggage and other photographic products and accessories. The Company
distributes 25 models of the 35 mm. lens shutter cameras, 5 models of the 35 mm.
single lens reflex cameras and 6 models of binoculars. Cameras and accessories
manufactured by Olympus account for substantially all sales in the Consumer
Products Division. The Company also distributes Olympus
Pearlcorder-Registered Trademark- hand-held dictation equipment and two lines of
paper shredders.
The Company distributes its consumer products mostly to major department
stores, large retail store chains, independent retailers and cooperative buying
groups. The Company also distributes such products to government agencies,
school boards, the military, promotional sales organizations and catalog houses
and other end-users.
PRODUCT SERVICE -- CONSUMER. The Company 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 the Company. Pursuant to the Olympus Agreement, the Company is
required to provide warranty service for all Olympus cameras presented to the
Company for service, whether or not such cameras were sold by the Company. This
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obligation has not had a material adverse effect on the Company. The Company
generally provides a two year warranty for cameras and a one year warranty for
other consumer products. Beginning in fiscal year 1995, the Company now provides
out-of-warranty services for its consumer products.
DISTRIBUTION AGREEMENTS
OLYMPUS AGREEMENT. The majority of the Company's sales of scientific
products and consumer products have been made pursuant to the Olympus Agreement,
under which Olympus has granted the Company the exclusive right to distribute
the covered Olympus products in Canada. All products sold by the Company
pursuant to the agreement bear the "Olympus" trademark. The Olympus Agreement
expires on March 31, 1998.
During the term of the Olympus Agreement, the Company 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 the Company
with respect to each of medical instruments, precision instruments, industrial
technology equipment and consumer products. The aggregate annual minimum
purchase obligations for all such products are approximately $16.7 million,
$17.2 million and $18.5 million during the contract years ending March 31, 1996,
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 the Company has
failed to meet the minimum purchase requirements. If the Company fails to meet
such requirements for both precision instruments and industrial technology
equipment, or for medical instruments, then Olympus has the right to terminate
the entire Olympus Agreement. Olympus may also terminate the Olympus Agreement
if the Company breaches its other obligations under the Olympus Agreement, or if
the Company fails to meet any Olympus credit requirement for sale on open
account and does not provide Olympus with a letter of credit to secure the
Company's payment obligations after demand by Olympus. The Company has delivered
to Olympus a letter of credit to secure payment of the Company's first $500,000
of monthly purchases.
JENOPTIK AGREEMENT. On May 1, 1994, the Company entered into a long-term
agreement with Jenoptik, under which the Company was granted the exclusive right
to distribute the covered Jenoptik products in the United States, Canada and
Mexico. The agreement expires December 31, 2003.
During the term of the Jenoptik agreement, the Company has agreed that it
will not manufacture, distribute, sell or represent for sale in the territory
any products which are competitive with the products covered unless expressly
agreed in writing by Jenoptik.
The Jenoptik agreement imposes minimum purchase obligations commencing with
the calendar year 1996 in the amount of DM 1,500,000. The minimum purchase
requirement for calendar 1997 will be the average of the purchases during
calendar years 1994, 1995 and 1996, and for each year thereafter, 110% of the
preceding year's minimum purchase requirement. Failure to achieve the minimum
purchase requirement in any year would give Jenoptik the right to terminate the
agreement.
The agreement will be automatically extended for a subsequent five year term
commencing January 1, 2004 and every five years thereafter, as long as the
Company continues to achieve the minimum purchase requirements.
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
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$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 1995, 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
The Company markets its products through a sales organization comprised of
employees and independent sales representatives. Each industry segment 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.
EFFECT OF CURRENCY FLUCTUATIONS AND TRADE BARRIERS
Substantially all of the Company's products have been imported from the Far
East and Western Europe, and the Company'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
products, and the numerous customer contacts developed during its lengthy
service as a distributor of Olympus products, gives the Company a competitive
advantage with respect to certain of its product segments.
BACKLOG
On October 6, 1995, the Company's consolidated backlog was approximately
$1.2 million compared with approximately $1.0 million on October 21, 1994.
EMPLOYEES
As of October 6, 1995, the Company employed 111 persons. Of the Company's
employees, 107 are located in Canada and 4 are located in the United States; 10
are executives and/or division managers, 43 are engaged in sales, 7 are engaged
in customer service, 17 are engaged in product service, 9 are engaged in
shipping and warehouse functions, and 25 perform various administrative
functions.
None of the Company's employees is represented by labor unions. The Company
considers its relations with its employees to be satisfactory.
ITEM 2. PROPERTIES.
The Company 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 the Company's Canadian operations. 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 two years and approximately $10,000 for the last three years.
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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.
The Company is not a party to any material 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 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since March 18, 1994, the Company's Common Stock has been traded on the
NASDAQ National Market under the symbol "CNTL." From August 17, 1992 through
March 17, 1994, the Common Stock traded on the NASDAQ Small Cap Market. 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.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR ENDED JULY 31, 1994
First Quarter.............................................................. 41/2 3
Second Quarter............................................................. 51/2 33/4
Third Quarter.............................................................. 51/2 4
Fourth Quarter............................................................. 61/4 43/4
FISCAL YEAR ENDED JULY 31, 1995
First Quarter.............................................................. 7 45/16
Second Quarter............................................................. 63/4 31/4
Third Quarter.............................................................. 61/2 41/2
Fourth Quarter............................................................. 73/4 51/2
</TABLE>
On October 6, 1995, the closing price of the Company's Common Stock was
$8.75 and the Company had 249 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.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
CONSOLIDATED STATEMENTS -----------------------------------------------------
OF OPERATIONS DATA: 1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales...................................... $ 31,079 $ 29,349 $ 28,633 $ 28,245 $ 24,672
Cost of sales.................................. 21,056 19,790 19,557 18,558 15,967
Gross profit................................... 10,023 9,559 9,076 9,687 8,705
Income from continuing operations (1).......... 2,481 2,601 1,432 2,242 2,041
Interest expense............................... 479 301 184 112 1,197
Income from continuing operations before income
taxes......................................... 2,002 2,300 1,248 2,130 844
Income taxes................................... 1,001 1,054 1,160 1,051 880
Income (loss) from continuing operations....... 1,001 1,246 88 1,079 (36)
Income (loss) from discontinued operations..... -- 562 (24) 763 639
Extraordinary gain on extinguishment of debt... -- 1,211 -- -- --
Net income..................................... 1,001 3,019 64 1,842 603
Dividends on preferred stocks.................. -- 314 1,185 890 419
Net income (loss) attributable to common
stock......................................... 1,001 2,705 (1,121) 952 184
Earnings (loss) per common and common
equivalent shares:
Primary:
Continuing operations........................ $ .32 $ .31 $ (.54) $ .09 $ (.20)
Discontinued operations........................ -- .19 (.01) .33 .31
Extraordinary gain............................. -- .40 -- -- --
--------- --------- --------- --------- ---------
Net income (loss).............................. $ .32 $ .90 $ (.55) $ .42 $ .11
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fully diluted:
Continuing operations........................ $ .32 $ .31 $ (.34) $ .22 $ (.20)
Discontinued operations...................... -- .18 (.01) .15 .30
Extraordinary gain........................... -- .40 -- -- --
--------- --------- --------- --------- ---------
Net income (loss)........................ $ .32 $ .89 $ (.35) $ .37 $ .10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common and common
equivalent shares:
Primary...................................... 3,142 3,011 2,033 2,293 2,078
Fully diluted................................ 3,146 3,055 2,465 4,960 2,078
<CAPTION>
JULY 31,
-----------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total assets................................... $ 17,399 $ 14,115 $ 17,480 $ 19,508 $ 19,977
Current assets................................. 16,016 12,777 16,119 18,039 18,243
Working capital................................ 11,163 8,347 9,440 11,816 11,052
Current liabilities (2)........................ 4,853 4,430 6,679 6,223 7,191
Long-term debt, less current portion (2)....... 6,087 4,327 7,989 9,761 10,901
Stockholders' equity........................... 6,368 5,188 2,521 3,150 1,458
Book value per outstanding common share........ $ 2.30 $ 1.90 $ 1.02 $ 1.69 $ .78
Common shares outstanding...................... 2,768 2,735 2,466 1,864 1,864
</TABLE>
- ------------------------
(l) 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. Includes for fiscal 1991 a
restructuring gain of $50,000.
(2) Current liabilities and long-term debt as of July 31, 1993, 1992 and 1991
include an aggregate of $1,388,000, $1,972,000 and $2,587,000, respectively,
of deferred interest benefit arising out of the Company's debt restructuring
which was consummated in January 1991 (the "1991 Debt Restructuring"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 5 of Notes to Consolidated Financial Statements.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF CONTINUING OPERATIONS
Reference is made to the sale of the Company's Seating Division (see Item 1.
Business -- Discontinued Operations). The results of continuing operations
described hereafter reflect, for the most part, those results of the Company's
Canadian subsidiary. Reference is also made hereafter to the effects of a weaker
Canadian dollar against the United States dollar during fiscal 1995 and 1994, as
compared with fiscal 1994 and 1993 (decreases in value of approximately 2% and
5%, respectively). In order to more accurately analyze the results of
operations, some comparisons will be presented in Canadian dollars as well as
United States dollars.
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales in Canadian dollars increased by $3,211,000, or 8.1%, to
$42,721,000 in fiscal 1995, from $39,510,000 in fiscal 1994; however, when
translated into United States dollars, the net sales increased by $1,730,000, or
5.9%, to $31,079,000 in fiscal 1995 from $29,349,000 in fiscal 1994. This
increase was principally attributable to the increased sales of the Medical
Instruments, Precision Instruments and Industrial Technology Divisions,
resulting from increased demand for existing products; the introduction of new
products such as the MediVators endoscope disinfector and the Olympus B-Max
microscope; and increases in selling prices for certain products, which
increases were partially offset by decreased sales in the Consumer Products
Division, resulting from lower demand for consumer products.
Gross profit in Canadian dollars increased by $955,000, or 7.4%, to
$13,791,000 in fiscal 1995 from $12,836,000 in fiscal 1994; however, when
translated into United States dollars, the gross profit increased by $464,000,
or 4.9%, to $10,023,000 in fiscal 1995 from $9,559,000 in fiscal 1994. The gross
profit decreased as a percentage of net sales to 32.3% in fiscal 1995, from
32.6% in fiscal 1994. The lower gross profit margins for fiscal 1995 reflect the
reduction in the selling prices of certain camera models in the Consumer
Products Division 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 2.5% for
fiscal 1995, as compared with 2.4% 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 13.7% for fiscal 1995 and
1994. Although selling expenses as a percentage of net sales were increased as a
result of additional personnel costs in the sales and product management
functions and related travel expenses, this increase was offset due to higher
levels of sales as compared to the fixed portion of selling expenses, which
decreased selling expenses as a percentage of net sales.
General and administrative expenses increased by $268,000 to $2,491,000 for
fiscal 1995 from $2,223,000 for fiscal 1994. This increase was principally
attributable to higher personnel costs, including termination pay for several
employees, and an increase in professional fees, 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 $479,000 in fiscal 1995 as compared with
$301,000 in fiscal 1994. This increase principally reflects interest at market
rates on borrowings outstanding under the Company'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.
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<PAGE>
Income from continuing operations before income taxes and extraordinary gain
decreased by $298,000 to $2,002,000 for fiscal 1995 from $2,300,000 for fiscal
1994.
The provision 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.
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 stocks 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.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net sales in Canadian dollars increased by $3,487,000, or 9.7%, to
$39,510,000 in fiscal 1994, from $36,023,000 in fiscal 1993; however, when
translated into United States dollars, the net sales increased by $716,000, or
2.5%, to $29,349,000 in fiscal 1994 from $28,633,000 in fiscal 1993. This
increase was principally attributable to the increased sales of the Medical
Instruments, Precision Instruments and Industrial Technology Divisions,
resulting from the introduction of new products and/or increased demand for
existing products, which increases were partially offset by decreased sales in
the Consumer Products Division, resulting from lower demand for consumer
products.
Gross profit in Canadian dollars increased by $1,423,000, or 12.5%, to
$12,836,000 in fiscal 1994 from $11,413,000 in fiscal 1993; however, when
translated into United States dollars, the gross profit increased by $483,000,
or 5.3%, to $9,559,000 in fiscal 1994 from $9,076,000 in fiscal 1993. The gross
profit increased as a percentage of net sales to 32.6% in fiscal 1994, from
31.7% in fiscal 1993. The higher gross profit margins for fiscal 1994 reflect
the benefits of increased selling prices which were implemented during the
second quarter of fiscal 1993 and the foreign exchange hedging program initiated
in November 1993, partially offset by increased discounting in the Medical
Instruments and Precision Instruments Divisions to meet competitive pricing.
Shipping and warehouse expenses as a percentage of net sales were 2.4% for
fiscal 1994, as compared with 2.6% for fiscal 1993. This percentage decrease was
principally attributable to the reorganization of the warehouse operations which
resulted in lower labor and freight costs.
Selling expenses as a percentage of net sales were 13.7% for fiscal 1994, as
compared with 14.0% for fiscal 1993. This percentage decrease was principally
attributable to the increased sales as well as the cost savings resulting from
the restructuring of certain sales representatives' remuneration packages.
General and administrative expenses decreased by $652,000 to $2,223,000 for
fiscal 1994 from $2,875,000 for fiscal 1993. The decrease reflects certain
reductions in the Company's corporate overhead, resulting from the sale of the
Seating Division on October 29, 1993, and a reduction in foreign exchange losses
resulting principally from translating the Company's Canadian subsidiary's
United States dollar denominated loans into Canadian dollars at the period-end
exchange rates during
10
<PAGE>
the first quarter of fiscal 1994. On October 29, 1993, the Company began
borrowing in Canadian dollars under the revolving credit facility, which
eliminated future foreign exchange gains or losses related to bank borrowings.
Interest expense increased to $301,000 in fiscal 1994 as compared with
$184,000 in fiscal 1993. This increase principally reflects interest at market
rates on borrowings outstanding under the Company's revolving credit facility,
which was consummated on October 29, 1993. Prior to such date, 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
increased by $1,052,000 to $2,300,000 for fiscal 1994 from $1,248,000 for fiscal
1993.
The provision for income taxes in fiscal 1994 and 1993 represent taxes
imposed on the Company's Canadian operations and, in 1993, Canadian withholding
taxes on dividends remitted or deemed to have been remitted by Carsen to Cantel
in the United States.
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 disagrees with the position of Revenue Canada
and is pursuing its available remedies. However, the Company recorded a charge
of $413,000 in its income tax provision for the year ended July 31, 1993, which
represents 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 represent 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 taxes and withholding taxes
and the related interest thereon. The federal and provincial income taxes and
the withholding taxes and related interest thereon have been paid under protest.
No tax benefits have been recognized on the Company's United States
operations as a result of the losses generated in fiscal 1994 and prior years.
Income from discontinued operations of $562,000 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.
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 stocks 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, as compared with $867,000 of
non-cash imputed dividends on the Series A and B Preferred Stocks and cash
dividends of $218,000 on the Series A Preferred Stock for fiscal 1993. Fiscal
1993 also reflects a stock dividend on the Series B Preferred Stock of $100,000.
The non-cash dividends were imputed at rates which would increase the value
of such preferred stocks from the value recorded at the date of issuance to the
stated liquidation preference at the time each series of preferred stock became
convertible into the Company's Common Stock. During April 1993, all outstanding
shares of the Series B Preferred Stock were converted into shares of Common
Stock of the Company; therefore, there were no dividends on the Series B
Preferred Stock for fiscal 1994.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1995, the Company's working capital was $11,163,000 as compared
with $8,347,000 at July 31, 1994. This increase primarily reflects an increase
in accounts receivable and a decrease in income taxes payable, partially offset
by an increase in accounts payable, principally resulting from increased sales
in the fourth quarter of fiscal 1995. The significant increase in accounts
receivable at July 31, 1995 was partially due to customer "buy ins" of products
prior to price increases from the Company's principal supplier, which were being
passed along to customers in August 1995. The increase in working capital was
partially achieved through an increase in long-term debt, which increased from
$4,327,000 at July 31, 1994 to $6,087,000 at July 31, 1995.
Net cash used in operating activities was $1,628,000 for fiscal 1995, as
compared with net cash provided by operating activities of $1,404,000 for fiscal
1994. This change was primarily due to an increase in accounts receivable and
decreases in income from continuing operations and income taxes payable,
partially offset by an increase in accounts payable. Net cash used in investing
activities was $59,000 for fiscal 1995, as compared with net cash provided by
investing activities of $2,130,000 in fiscal 1994. This change principally
reflects proceeds from the sale of the Seating Division in fiscal 1994. Net cash
provided by financing activities was $1,686,000 in fiscal 1995, as compared with
net cash used in financing activities of $4,368,000 in fiscal 1994. This change
was principally due to refinancing and reduction of long-term debt in fiscal
1994, and an increase in borrowings under the revolving credit facility in
fiscal 1995.
The revolving credit facility, as amended, entered into during fiscal 1994
is comprised of a $7,500,000 revolving credit facility to the Company's Canadian
subsidiary. The maximum borrowing availability under this facility will decrease
annually over a three year period commencing January 1, 1996 and must be paid in
full no later than December 31, 1998. The Company is permitted to borrow an
amount up to (i) 75%-85% of certain eligible accounts receivable, depending on
the customer, and (ii) 50% of qualifying inventory, depending on the type of
goods in inventory; however, any trade letters of credit issued under the
Canadian revolver will reduce the maximum available borrowings by 50% of the
amount of such trade letters of credit, while any standby letters of credit,
including the $500,000 letter of credit issued to Olympus America Inc. during
November 1993, reduces the maximum available borrowings by the full amount of
such standby letters of credit. The Company has the right to borrow funds under
this facility in either United States dollars or Canadian dollars, a portion of
which may be drawn in the form of bankers acceptances. United States dollar
borrowings will bear interest at .5% above the lender's United States base rate,
and Canadian dollar borrowings will 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. Borrowings under this facility are guaranteed by Cantel and
secured by substantially all assets of the Company's Canadian subsidiary and
require the Canadian subsidiary to meet certain financial covenants, including a
minimum working capital ratio, a minimum interest coverage ratio, a maximum debt
to tangible net worth ratio, and an annual limitation on capital expenditures.
A further 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 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 credit facility, as amended, the Company's Canadian subsidiary has a foreign
exchange hedging arrangement of up to $15,000,000 (U.S. dollars) which could be
used to minimize future adverse currency fluctuations as they relate to
purchases of inventories.
The Company's Canadian subsidiary had forward exchange contracts at October
6, 1995 aggregating $9,000,000 (United States 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 February 29, 1996.
12
<PAGE>
The average exchange rate of the contracts open at October 6, 1995 is
$1.3686 Canadian dollar per United States dollar, or $.7307 United States dollar
per Canadian dollar. The exchange rate published by the Wall Street Journal on
October 24, 1995, was $1.3704 Canadian dollar per United States dollar, or
$.7297 United States dollar per Canadian dollar.
The Company believes that its anticipated cash flow from operations and the
funds available under the revolving credit facility will be sufficient to
satisfy the Company's cash operating requirements for the foreseeable future
based upon the current level of operations.
As of July 31, 1995, the Company had net operating loss carryforwards for
United States income tax purposes ("NOLs") of approximately $10,789,000 which
will expire through July 31, 2010.
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 used 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.
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.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Charles M. Diker 60 Chairman of the Board and Director
Vice Chairman of the Board, Director and a member of the Compensation
Alan J. Hirschfield 60 Committee
James P. Reilly 55 President, Chief Executive Officer and Director
Edward E. Meltz 62 Vice President
Secretary, Director and a member of both the Audit Committee and the
Darwin C. Dornbush 65 Compensation Committee
Richard L. Bloch 66 Director
Robert L. Barbanell 65 Director and a member of the Audit Committee
Morris W. Offit 58 Director
Director and a member of both the Audit Committee and the
Bruce Slovin 59 Compensation Committee
Craig A. Sheldon 33 Vice President
</TABLE>
Mr. Diker, who became Chairman of the Board of the Company in April 1986, is
a private investor and a non-managing principal of Weiss, Peck & Greer, an
investment management company. Mr. Diker is also a director of BeautiControl
Cosmetics, Inc. (OTC), a manufacturer of cosmetics marketed by direct sales,
International Specialty Products (NYSE), a specialty chemical company, Data
Broadcasting Corp. (OTC), a communication services and technology company, and
Chyron Corporation (NYSE), a supplier of graphics for the television industry.
Mr. Hirschfield has served as Vice Chairman of the Board of the Company
since January 1988. Since July 1992, he has served as Co-Chairman and Co-Chief
Executive Officer of Data Broadcasting Corp. (OTC), a communication services and
technology company. From October 1990 to July 1992, he served as Co-Chief
Executive Officer of FNN, Inc., the predecessor of Data Broadcasting Corp. From
April 1990 to December 1992, he served as a managing director of Wertheim
Schroder, Inc., an investment banking firm. Mr. Hirschfield is also a director
of Chyron Corporation (NYSE), a supplier of graphics for the television
industry.
Mr. Reilly has served as President and Chief Executive Officer of the
Company since June 1989. Mr. Reilly is a certified public accountant.
Mr. Dornbush, Secretary of the Company since July 1990, has been a partner
in the law firm of Dornbush Mensch Mandelstam & Schaeffer LLP, general counsel
to the Company, for more than the past five years.
Mr. Barbanell has served as President of Robert L. Barbanell Associates,
Inc., a financial consulting company, since July 1994. From September 1981 to
June 1994, Mr. Barbanell was employed in various capacities by Bankers Trust New
York Corporation, most recently as Managing Director of European Merchant Bank
of Bankers Trust International PLC. Mr. Barbanell is also a director of Marine
Drilling Companies, Inc. (NASDAQ), a drilling contractor, and Kaye Group Inc.
(NASDAQ), an insurance brokerage and insurance underwriting company.
Mr. Bloch has served as President of Pinon Farm, Inc., a horse training and
breeding farm, since its inception in 1982. From 1968 to October 1987, Mr. Bloch
served as President of the Phoenix Suns Basketball Club, a member of the
National Basketball Association. Mr. Bloch was Chairman of the
14
<PAGE>
Board of Governors of the National Basketball Association from 1985 to June
1987. He is a director of City National Bank of Beverly Hills, California
(NYSE), a bank holding company, and serves as Chairman of the Board of Columbus
Realty Trust (NYSE), a real estate investment trust.
Mr. Offit has served as Chief Executive Officer of OFFITBANK, a limited
purpose trust company chartered by the New York State Banking Department, since
July 1990. Prior thereto, Mr. Offit served as President of Offit Associates,
Inc., an investment counselling firm. Mr. Offit is Chairman of the Board of
Trustees of Johns Hopkins University and a former partner of Salomon Brothers,
Inc. He serves as a director of Mercantile Bankshares Corp. (OTC), a bank
holding company, and Hasbro Inc. (AMEX), a toy manufacturer.
Mr. Slovin has served as President and a director of MacAndrews & Forbes
Holdings Inc. and Revlon Group, Inc., privately held industrial holding
companies, since 1985. Mr. Slovin is also a director of Continental Health
Affiliates, Inc. (OTC), a health care services company; Oak Hill Sportswear
Corp. (OTC), a sportswear manufacturer; The Coleman Company, Inc. (NYSE), a
manufacturer of outdoor recreation products; Meridian Sports Incorporated (OTC),
a watersports company; Infu-Tech, Inc. (NASDAQ), a home health care company;
Mafco Consolidated Group, Inc. (NYSE), a manufacturer of cigars and licorice
extract and flavorings; and Power Control Technologies, Inc. (NYSE), a
manufacturer of machinery and hydraulics for the aerospace industry.
Mr. Meltz has been employed by the Company in various capacities since 1981,
most recently as a Vice President. From 1982 to January 1988, he served as Vice
President -- Finance, Treasurer and Chief Financial Officer of the Company. Mr.
Meltz currently serves as President of Carsen, where he has served as an
executive officer since 1982. Mr. Meltz is a chartered accountant.
Mr. Sheldon has been employed by the Company as Vice President and
Controller since November 1994. From November 1993 until October 1994, Mr.
Sheldon was Vice President and Controller of Imaging Technologies, Inc., a
private software development company. From January 1992 until October 1993, Mr.
Sheldon was Corporate Accounting Manager of Toys "R" Us, Inc. From September
1984 until December 1991, Mr. Sheldon was employed as an audit manager by the
accounting firm of Ernst & Young LLP. Mr. Sheldon is a certified public
accountant.
Mr. William J. Vella (age 39) has been employed by Carsen in various
capacities since October 1981. He has served as Executive Vice President of
Carsen since December 1994.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years ended July 31, 1995,
1994 and 1993, compensation, including salary, bonuses, stock options and
certain other compensation, paid by the Company to the Chief Executive Officer
and to the other executive officers of the Company who received more than
$100,000 in salary and bonus during fiscal year 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION (1) COMPENSATION
----------------------------------- AWARDS (2)
NAME AND SALARY BONUS ---------------
PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#)
- ----------------------------------------------------------------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
1995 250,000 0 1,000
1994 250,000 84,900 1,000
1993 250,000 0 1,000
James P. Reilly
President and Chief Executive
Officer of the Company
Edward E. Meltz 1995 157,242(3) 0 2,000
Vice President of the Company 1994 146,518(3) 23,100 2,500
and President of Carsen 1993 167,284(3) 0 4,000
1995 110,670(4) 0 2,000
1994 101,951(4) 24,316 5,000
1993 106,927(4) 10,906 5,000
William J. Vella
Executive Vice President of Carsen
</TABLE>
- ------------------------
(1) The Company did not pay or provide other forms of annual compensation (such
as perquisites) to the above-named executive officers having a value
exceeding the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such officers.
(2) The Company has no long term incentive compensation plan other than its
Employee Stock Option Plan and Directors' Stock Option Plan described herein
and various individually granted options. The Company does not award stock
appreciation rights, restricted stock awards or long term incentive plan
pay-outs.
(3) Mr. Meltz received a salary of $210,000 Canadian dollars in each of the last
three fiscal years and a bonus of $33,102 Canadian dollars in fiscal 1994.
(4) Mr. Vella received a salary of $152,620 Canadian dollars in fiscal 1995, a
salary of $137,215 and a bonus of $32,726 Canadian dollars in fiscal 1994,
and a salary of $134,420 and a bonus of $13,710 Canadian dollars in fiscal
1993.
OPTIONS GRANTED IN FISCAL 1995
The following information is furnished for the fiscal year ended July 31,
1995 with respect to the Company's Chief Executive Officer and the other
executive officers of the Company named in the Compensation Table above, for
stock options granted during such fiscal year. Stock options were granted
without tandem stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
% OF TOTAL PRICE
OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM
EMPLOYEES PRICE ($)(1)
OPTIONS DURING THE PER EXPIRATION -----------------
NAME GRANTED(#) FISCAL YEAR SHARE($) DATE 5% 10%
- ------------------------------ ----------- ----------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
James P. Reilly............... 1,000(2) 3.7 5.50 7/30/05 8,890 14,200
Edward E. Meltz............... 2,000(3) 7.4 4.25 12/4/99 10,800 13,640
William J. Vella.............. 2,000(3) 7.4 4.25 12/4/99 10,800 13,640
</TABLE>
- ------------------------
(1) Represents the potential value of the options granted at assumed 5% and 10%
rates of compounded annual stock price appreciation from the date of grant
of such options.
16
<PAGE>
(2) The options were granted under the Company's 1991 Directors' Stock Option
Plan. The exercise price per share of the options was the market value per
share on the date of grant. The options are subject to vesting as follows:
50% of the total shares covered by the options vest on the first anniversary
of the date of grant and the remaining 50% vest from and after the second
anniversary of such date of grant.
(3) The options were granted under the Company's 1991 Employee Stock Option
Plan. The exercise price per share of the options was the market value per
share on the date of grant. The options are subject to vesting as follows:
25% of the total shares covered by the options vest on each of the first
four anniversaries of the date of the grant.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR END OPTION VALUES
The following information is furnished for the fiscal year ended July 31,
1995 with respect to the Company's Chief Executive Officer and the other
executive officers of the Company named in the Compensation Table above, for
stock option exercises during such fiscal year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED UNEXERCISED IN THE MONEY
OPTIONS AT 7/31/95 (#) OPTIONS AT 7/31/95 ($)
SHARES ------------------------ ------------------------
ACQUIRED ON VALUE NON- NON-
NAME EXERCISE(#) REALIZED($) EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James P. Reilly.................. 0 0 192,315 1,500 711,216 250
Edward E. Meltz.................. 9,000 52,062 0 7,750 0 11,411
William J. Vella................. 10,000 52,500 5,500 9,500 8,525 13,575
</TABLE>
STOCK OPTIONS
An aggregate of 250,000 shares of Common Stock are reserved for issuance or
available for grant under the Company's 1991 Employee Stock Option Plan (the
"Employee Plan"). Options granted under the Employee Plan are intended to
qualify as incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). The Employee Plan is
administered in all respects by a committee composed of at least two
non-employee members of the Company's Board of Directors who are designated by
the Board (the "Stock Option Committee"). The Stock Option Committee may
determine the employees to whom options are to be granted and the number of
shares subject to each option. Under the terms of the Employee Plan, all
employees of the Company or subsidiaries of the Company are eligible for option
grants. The option exercise price of options granted under the Employee Plan is
fixed by the Stock Option Committee but must be no less than 100% of the fair
market value of the shares of Common Stock subject to the option at the time of
grant, except that in the case of an employee who possesses more than 10% of the
total combined voting power of all classes of stock of the Company (a "10%
Holder"), the exercise price must be no less than 110% of said fair market
value. Options may be exercised by the payment in full in cash or by the
tendering or cashless exchange of shares of Common Stock or of options to
acquire shares of Common Stock having a fair market value, as determined by the
Stock Option Committee, equal to the option exercise price. Options granted
under the Employee Plan may not be exercised more than ten years after the date
of grant, five years in the case of an incentive stock option granted to a 10%
Holder. All currently outstanding options have a term of five years. At July 31,
1995, options to purchase 64,250 shares of Common Stock at prices between $2.50
and $4.38 per share were outstanding under the Employee Plan, and 164,125 shares
were available for grant under the Employee Plan.
An aggregate of 200,000 shares of Common Stock are reserved for issuance or
available for grant under the Company's 1991 Directors' Stock Option Plan (the
"Directors' Plan"). Options granted under the Directors' Plan do not qualify as
incentive stock options within the meaning of Section 422A of the Code. The
Directors' Plan provides for the automatic grant to each of the Company's
directors of options to purchase 1,000 shares of Common Stock on the last
business day of the Company's fiscal year. In addition, an option to purchase
500 shares of Common Stock is granted automatically on the last business day of
each fiscal quarter to each director (exclusive of Messrs. Diker, Reilly and
17
<PAGE>
Dornbush and any other director who serves as an officer or employee of the
Company) provided that the director attended any regularly scheduled meeting of
the Board, if any, held during such quarter. Each such option grant is at an
exercise price equal to the fair market value of the Common Stock on the date of
grant and has a ten year term (but in no event more than three months following
the optionee's ceasing to serve as a director of the Company). The fiscal year
options are exercisable in two equal annual installments commencing on the first
anniversary of the grant thereof and the quarterly options are exercisable in
full immediately. At July 31, 1995, options to purchase 144,000 shares of Common
Stock at prices between $2.00 and $6.00 per share were outstanding under the
Directors' Plan, and 56,000 shares were available for grant under the Directors'
Plan.
In June 1991, the Company adopted the Employee Plan and terminated its 1981
Incentive Stock Option Plan (the "1981 Plan"), in order to have stock option
plans which comply with Rule 16b-3, as amended, under the Securities Exchange
Act of 1934. The termination of the prior plan did not affect the options then
outstanding under such plan.
At July 31, 1995, options to purchase up to an aggregate of 2,375 shares of
Common Stock at $1.25 per share were outstanding under the 1981 Plan.
In June 1990, Mr. Reilly was granted a ten-year non-plan option to purchase
139,815 shares of Common Stock at an exercise price of $1.75 per share. This
option is exercisable in full. In addition, in July 1990, Mr. Reilly was granted
a ten-year non-plan option to purchase 50,000 shares at an exercise price of
$1.875 per share. This option is exercisable in full.
In February 1994, Mr. Dornbush was granted a non-plan option to purchase
25,000 shares of Common Stock at an exercise price of $5.00 per share. This
option is currently exercisable in full and expires in February 1997.
In December 1994, Mr. Barbanell was granted a five-year non-plan option to
purchase 25,000 shares of Common Stock at an exercise price of $3.75 per share.
This option is exercisable in four equal quarterly installments commencing March
1995 through December 1995 when the option will be fully exercisable. The option
expires December 1999.
COMPENSATION POLICY
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") is responsible for setting and administering the
policies which govern annual executive salaries, raises and bonuses. The
Compensation Committee is currently comprised of three members, all of whom are
non-employee directors.
Executive compensation for the fiscal year ended July 31, 1995 consisted of
base salary for the Chief Executive Officer and the other executive officers of
the Company named in the Compensation Table. None of these individuals received
a bonus in fiscal 1995. The policy of the Compensation Committee, in
consultation with the Chief Executive Officer, is to provide compensation to the
Chief Executive Officer and the Company's other executive officers reflecting
the contribution of such executives to the Company's growth in sales and
earnings, the implementation of strategic plans consistent with the Company's
long term objectives, and the enhancement of shareholder value.
Mr. Reilly, the President and Chief Executive Officer of the Company, served
the Company pursuant to a written employment agreement from June 1989 through
July 1992 and was compensated pursuant to the express terms of such agreement.
Although the agreement expired in accordance with its terms, the Compensation
Committee has agreed to compensate Mr. Reilly at the same base salary and bonus
formula as was in effect during the last year of the agreement.
Long term incentive compensation policy consists exclusively of the award of
stock options under the Company's Employee Option Plan and, in the case of
officers who serve as directors of the Company, non-discretionary annual option
grants of 1,000 shares under the Company's 1991 Directors' Stock Option Plan.
18
<PAGE>
The Stock Option Committee is responsible for the award of stock options.
Two non-employee directors, Alan J. Hirschfield and Bruce Slavin, currently
serve on the Stock Option Committee, which administers the granting of options
under the Employee Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No officer of the Company served on the Company's Compensation Committee
during its last fiscal year. James P. Reilly, however, participated in
deliberations concerning executive compensation, except with respect to his own
compensation.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth stock ownership information as of October 6,
1995 concerning (i) each director and persons nominated to become directors of
Cantel, (ii) each person (including any "group" as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934) who is known by Cantel to beneficially
own more than five (5%) percent of the outstanding shares of Cantel's Common
Stock, (iii) the Chief Executive Officer and the other executive officers named
in the Compensation Table, and (iv) Cantel's executive officers and directors as
a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAMES AND ADDRESSES OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNERS POSITION WITH COMPANY OWNERSHIP(1) CLASS
- ---------------------------- ------------------------------------------------ ---------------------- -------------
<S> <C> <C> <C>
Charles M. Diker Chairman of the Board and Director 720,833(2) 25.5
One New York Plaza
New York, New York
Alan J. Hirschfield Vice Chairman of the Board and Director 213,833(3) 7.7
P.O. Box 7443
Jackson, Wyoming
Richard L. Bloch Director 358,500(4) 12.5
123 E. Marcy Street
Santa Fe, New Mexico
James P. Reilly President (CEO) and Director 215,648(5) 7.3
1135 Broad Street
Clifton, New Jersey
Bruce Slovin Director 156,000(6) 5.6
35 East 62nd Street
New York, New York
Morris W. Offit Director 48,000(7) 1.7
Darwin C. Dornbush Secretary and Director 31,680(8) 1.1
Robert L. Barbanell Director 46,750(9) 1.7
Edward E. Meltz Vice President 38,743(10) 1.4
William J. Vella Executive Vice President of Carsen 13,885(11) .5
All officers and 1,847,622(12) 56.6
directors as a
group of 11 persons
</TABLE>
- ------------------------
(1) Unless otherwise noted, Cantel believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from October 6, 1995 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from October 6, 1995 have been exercised.
19
<PAGE>
(2) Includes 55,500 shares which Mr. Diker may acquire pursuant to stock options
and warrants. Does not include an aggregate of 279,750 shares and warrants
to purchase 34,998 shares owned by (i) Mr. Diker's wife, (ii) certain trusts
for the benefit of Mr. Diker's children, (iii) certain accounts with Weiss,
Peck and Greer, an investment firm of which Mr. Diker is a non-managing
principal, over which accounts Mr. Diker exercises investment discretion,
(iv) the DicoGroup, Inc., a corporation of which Mr. Diker serves as
Chairman of the Board, and (v) a non-profit corporation of which Mr. Diker
and his wife are the principal officers and directors. Mr. Diker disclaims
beneficial ownership as to all of the foregoing shares.
(3) Includes 25,833 shares which Mr. Hirschfield may acquire pursuant to stock
options and warrants.
(4) Includes 102,500 shares which Mr. Bloch may acquire pursuant to stock
options and warrants.
(5) Includes 192,315 shares which Mr. Reilly may acquire pursuant to stock
options. Does not include 2,000 shares owned by Mr. Reilly's son as to which
Mr. Reilly disclaims beneficial ownership.
(6) Includes 42,000 shares which Mr. Slovin may acquire pursuant to stock
options and warrants. Does not include an aggregate of 5,000 shares owned by
certain trusts for the benefit of Mr. Slovin's children as to which Mr.
Slovin disclaims beneficial ownership.
(7) Includes 16,000 shares which Mr. Offit may acquire pursuant to stock
options.
(8) Includes 30,500 shares which Mr. Dornbush may acquire pursuant to stock
options.
(9) Includes 21,750 shares which Mr. Barbanell may acquire pursuant to stock
options. Does not include 2,500 shares owned by Mr. Barbanell's wife as to
which Mr. Barbanell disclaims beneficial ownership.
(10) Includes 500 shares which Mr. Meltz may acquire pursuant to stock options.
(11) Includes 6,000 shares which Mr. Vella may acquire pursuant to stock
options.
(12) Includes 496,648 shares which may be acquired pursuant to stock options and
warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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, 1995.
1. CONSOLIDATED FINANCIAL STATEMENTS:
(i) Report of Independent Auditors. (At page 40 of sequentially
numbered copy.)
(ii) Consolidated Balance Sheets as of July 31, 1995 and 1994. (At
page 41 of sequentially numbered copy.)
(iii) Consolidated Statements of Operations for the years ended July
31, 1995, 1994, and 1993. (At page 42 of sequentially numbered copy.)
(iv) Consolidated Statements of Changes in Stockholders' Equity for
the years ended July 31, 1995, 1994, and 1993. (At pages 43 and 44 of
sequentially numbered copy.)
(v) Consolidated Statements of Cash Flows for the years ended July
31, 1995, 1994, and 1993. (At page 45 of sequentially numbered copy.)
20
<PAGE>
(vi) Notes to Consolidated Financial Statements. (At pages 46 to 58 of
sequentially numbered copy.)
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
(i) Schedule II -- Valuation and Qualifying Accounts for the years
ended July 31, 1995, 1994, and 1993. (At page 59 of sequentially numbered
copy.)
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:
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.)
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.)
21
<PAGE>
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) -- Agreement between Cantel Industries, Inc. and Jenoptik
Technologie GmbH, dated May 1, 1994. (Incorporated herein by reference to
Exhibit 10(q) of Registrant's 1994 10-K.)
10(l) -- Stock Option Agreement, dated as of February 3, 1994, between
the Registrant and Darwin C. Dornbush. (At page 60 of sequentially numbered
copy.)
10(m) -- Stock Option Agreement, dated as of December 15, 1994, between
the Registrant and Robert L. Barbanell. (At page 66 of sequentially numbered
copy.)
10(n) -- Amendment to Loan Agreement, dated as of August 28, 1995, among
Registrant, Carsen Group Inc. and National Bank of Canada. (At page 72 of
sequentially numbered copy.)
11 -- Computation of Earnings per Share Data. (At page 88 of
sequentially numbered copy.)
22 -- Subsidiaries of Registrant. (At page 90 of sequentially numbered
copy.)
24 -- Consent of Ernst & Young LLP. (At page 91 of sequentially numbered
copy.)
27 -- Financial Data Schedule. (At page 92 of sequentially numbered
copy.)
(b) REPORTS ON FORM 8-K: None
22
<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 17, 1995 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:
<TABLE>
<C> <S>
/s/ CHARLES M. DIKER
- -------------------------------------------
Charles M. Diker, Date: October 17, 1995
A DIRECTOR AND CHAIRMAN OF THE BOARD
/s/ JAMES P. REILLY
- -------------------------------------------
James P. Reilly, Date: October 17, 1995
A DIRECTOR AND PRESIDENT
/s/ ROBERT L. BARBANELL
- -------------------------------------------
Robert L. Barbanell, Date: October 17, 1995
A DIRECTOR
/s/ RICHARD L. BLOCH
- -------------------------------------------
Richard L. Bloch, Date: October 17, 1995
A DIRECTOR
/s/ DARWIN C. DORNBUSH
- -------------------------------------------
Darwin C. Dornbush, Date: October 17, 1995
A DIRECTOR
/s/ ALAN J. HIRSCHFIELD
- -------------------------------------------
Alan J. Hirschfield, Date: October 17, 1995
A DIRECTOR
/s/ MORRIS W. OFFIT
- -------------------------------------------
Morris W. Offit, Date: October 17, 1995
A DIRECTOR
/s/ BRUCE SLOVIN
- -------------------------------------------
Bruce Slovin, Date: October 17, 1995
A DIRECTOR
</TABLE>
23
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995, 1994 AND 1993
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.......................................................... 1
Financial Statements
Consolidated Balance Sheets........................................................... 2
Consolidated Statements of Operations................................................. 3
Consolidated Statements of Changes in Stockholders' Equity............................ 4
Consolidated Statements of Cash Flows................................................. 6
Notes to Consolidated Financial Statements............................................ 7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cantel Industries, Inc.
We have audited the accompanying consolidated balance sheets of Cantel
Industries, Inc. as of July 31, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1995. Our audits 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cantel
Industries, Inc. at July 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 1995 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.
ERNST & YOUNG LLP
Princeton, New Jersey
September 20, 1995
1
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JULY 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash..................................................................................... $ 520 $ 521
Accounts receivable, net of allowance for doubtful accounts of $34 in 1995 and $52 in
1994.................................................................................... 7,961 4,710
Inventories (Notes 2 and 3).............................................................. 7,232 7,122
Prepaid expenses and other current assets................................................ 303 424
--------- ---------
Total current assets................................................................... 16,016 12,777
Property and equipment, at cost (Note 2):
Furniture and equipment.................................................................. 1,135 1,069
Leasehold improvements................................................................... 634 593
--------- ---------
1,769 1,662
Less accumulated depreciation and amortization........................................... 1,289 1,152
--------- ---------
480 510
Other assets, including goodwill of $167 in 1995 and $166 in 1994 (Note 2)................. 903 828
--------- ---------
$ 17,399 $ 14,115
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 3,147 $ 2,458
Compensation payable..................................................................... 849 690
Other accrued expenses................................................................... 493 458
Income taxes payable (Note 6)............................................................ 364 824
--------- ---------
Total current liabilities.............................................................. 4,853 4,430
Long-term debt (Note 5).................................................................... 6,087 4,327
Deferred income taxes (Note 6)............................................................. 91 63
Deferred compensation (Note 7)............................................................. -- 107
Commitments and contingencies (Note 7).....................................................
Stockholders' equity (Note 8):
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, 1995 -- 2,768,193 shares; 1994 -- 2,735,128 shares......................... 277 274
Additional capital....................................................................... 8,539 8,477
Accumulated deficit...................................................................... (1,187) (2,188)
Cumulative foreign currency translation adjustment (Note 2).............................. (1,261) (1,375)
--------- ---------
Total stockholders' equity............................................................. 6,368 5,188
--------- ---------
$ 17,399 $ 14,115
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
2
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales...................................................................... $ 31,079 $ 29,349 $ 28,633
Cost of sales.................................................................. 21,056 19,790 19,557
--------- --------- ---------
Gross profit................................................................... 10,023 9,559 9,076
Expenses:
Shipping and warehouse....................................................... 786 719 755
Selling...................................................................... 4,265 4,016 4,014
General and administrative................................................... 2,491 2,223 2,875
--------- --------- ---------
Total operating expenses................................................. 7,542 6,958 7,644
--------- --------- ---------
Income from continuing operations before interest expense, income taxes and
extraordinary gain............................................................ 2,481 2,601 1,432
Interest expense (Notes 5 and 6)............................................... 479 301 184
--------- --------- ---------
Income from continuing operations before income taxes and extraordinary gain... 2,002 2,300 1,248
Income taxes (Note 6):
Current...................................................................... 975 1,044 1,135
Deferred..................................................................... 26 10 25
--------- --------- ---------
Total income taxes....................................................... 1,001 1,054 1,160
--------- --------- ---------
Income from continuing operations before extraordinary gain.................... 1,001 1,246 88
Loss from discontinued operations (Note 4)..................................... -- (94) (24)
Income on disposal of discontinued operations (Note 4)......................... -- 656 --
--------- --------- ---------
Net income before extraordinary gain........................................... 1,001 1,808 64
Extraordinary gain on extinguishment of debt (Note 5).......................... -- 1,211 --
--------- --------- ---------
Net income..................................................................... 1,001 3,019 64
Dividends on preferred stocks (Notes 2 and 8).................................. -- 314 1,185
--------- --------- ---------
Net income (loss) attributable to common stock........................... $ 1,001 $ 2,705 $ (1,121)
--------- --------- ---------
--------- --------- ---------
Earnings per common share (Note 2):
Primary:
Continuing operations...................................................... $ 0.32 $ 0.31 $ (0.54)
Discontinued operations.................................................... -- 0.19 (0.01)
Extraordinary gain on extinguishment of debt............................... -- 0.40 --
--------- --------- ---------
Net income (loss)........................................................ $ 0.32 $ 0.90 $ (0.55)
--------- --------- ---------
--------- --------- ---------
Fully diluted:
Continuing operations........................................................ $ 0.32 $ 0.31 $ (0.34)
Discontinued operations...................................................... -- 0.18 (0.01)
Extraordinary gain on extinguishment of debt................................. -- 0.40 --
--------- --------- ---------
Net income (loss)........................................................ $ 0.32 $ 0.89 $ (0.35)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
3
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------------
SERIES A SERIES B COMMON STOCK
------------------------ ----------------------- ------------------------
NUMBER NUMBER NUMBER OF
OF SHARES AMOUNT OF SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1992......................... 1,000 $ 1 200,000 $ 200 1,864,199 $ 186
Issuance of stock dividend of Series B
Preferred Stock (Note 8).................... 10,000 10
Conversion of Series B Preferred Stock into
Common Stock (Note 8)....................... (210,000) (210) 600,000 60
Exercise of options into Common Stock........ 1,702 1
Translation loss.............................
Net income...................................
Cash dividends payable (Note 8)..............
Imputed dividends on Series A and Series B
Preferred Stocks (Note 8)...................
--
----------- ---------- ----------- ----------- -----
Balance, July 31, 1993......................... 1,000 1 -- -- 2,465,901 247
Repurchase and redemption of Series A
Preferred Stock (Note 8).................... (1,000) (1) 133,950 13
Exercise of options and warrants into Common
Stock....................................... 135,277 14
Translation loss.............................
Net income...................................
Cash dividends payable (Note 8)..............
Imputed dividends on Series A Preferred Stock
(Note 8)....................................
--
----------- ---------- ----------- ----------- -----
Balance, July 31, 1994......................... -- -- -- -- 2,735,128 274
Exercise of options into Common Stock........ 33,065 3
Expense related to grant of non-employee
options.....................................
Translation gain.............................
Net income...................................
--
----------- ---------- ----------- ----------- -----
Balance, July 31, 1995......................... -- -- -- -- 2,768,193 $ 277
--
--
----------- ---------- ----------- ----------- -----
----------- ---------- ----------- ----------- -----
</TABLE>
See accompanying notes.
4
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY TOTAL
ADDITIONAL ACCUMULATED TRANSLATION STOCKHOLDERS'
CAPITAL DEFICIT ADJUSTMENT EQUITY
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance, July 31, 1992...................................... $ 10,212 $ (6,989) $ (460) $ 3,150
Issuance of stock dividend of Series B Preferred Stock
(Note 8)................................................. 90 (100) --
Conversion of Series B Preferred Stock into Common Stock
(Note 8)................................................. 150 --
Exercise of options into Common Stock..................... 1
Translation loss.......................................... (476) (476)
Net income................................................ 64 64
Cash dividends payable (Note 8)........................... (218) (218)
Imputed dividends on Series A and Series B Preferred
Stocks (Note 8).......................................... 867 (867) --
----------- ------------ ----------- -------------
Balance, July 31, 1993...................................... 11,319 (8,110) (936) 2,521
Repurchase and redemption of Series A Preferred Stock
(Note 8)................................................. (3,256) 3,217 (27)
Exercise of options and warrants into Common Stock........ 209 223
Translation loss.......................................... (439) (439)
Net income................................................ 3,019 3,019
Cash dividends payable (Note 8)........................... (109) (109)
Imputed dividends on Series A Preferred Stock (Note 8).... 205 (205) --
----------- ------------ ----------- -------------
Balance, July 31, 1994...................................... 8,477 (2,188) (1,375) 5,188
Exercise of options into Common Stock..................... 56 59
Expense related to grant of non-employee options.......... 6 6
Translation gain.......................................... 114 114
Net income................................................ 1,001 1,001
----------- ------------ ----------- -------------
Balance, July 31, 1995...................................... $ 8,539 $ (1,187) $ (1,261) $ 6,368
----------- ------------ ----------- -------------
----------- ------------ ----------- -------------
</TABLE>
See accompanying notes.
5
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations............................................. $ 1,001 $ 1,246 $ 88
Adjustments to reconcile income from continuing operations to net cash (used
in) provided by operating activities:
Discontinued operations..................................................... -- (94) (24)
Depreciation and amortization of continuing operations...................... 136 124 133
Depreciation and amortization of discontinued operations.................... -- 13 39
Deferred income taxes....................................................... 26 10 23
Imputed interest............................................................ 21 37 47
Changes in assets and liabilities:
Accounts receivable....................................................... (3,251) 615 811
Inventories............................................................... (110) (53) (13)
Prepaid expenses and other current assets................................. 121 (99) 48
Accounts payable and accrued expenses..................................... 888 (545) (590)
Income taxes payable...................................................... (460) 150 377
---------- ---------- ---------
Net cash (used in) provided by operating activities..................... (1,628) 1,404 939
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions of property and equipment of continuing operations.................. (79) (58) (72)
Additions of property and equipment of discontinued operations................ -- (4) (10)
Cash provided by discontinued operations...................................... -- 88 1,475
Proceeds from sale of discontinued operations................................. -- 2,613 --
Other, net.................................................................... 20 (509) (457)
---------- ---------- ---------
Net cash (used in) provided by investing activities..................... (59) 2,130 936
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.................................................. 15,079 14,103 --
Repayment of long-term debt................................................... (13,319) (18,320) (1,339)
Repurchase of Series A Preferred Stock........................................ -- (207) --
Expenses associated with extinguishment of debt............................... -- (33) --
Deferred compensation payments................................................ (133) (134) (135)
Proceeds from exercise of stock options and warrants.......................... 59 223 --
---------- ---------- ---------
Net cash provided by (used in) financing activities..................... 1,686 (4,368) (1,474)
---------- ---------- ---------
(Decrease) increase in cash................................................... (1) (834) 401
Cash at beginning of year..................................................... 521 1,355 954
---------- ---------- ---------
Cash at end of year..................................................... $ 520 $ 521 $ 1,355
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes.
6
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
1. BUSINESS DESCRIPTION
Cantel Industries, Inc. ("Cantel") and its wholly-owned Canadian subsidiary,
Carsen Group Inc. ("Carsen" or "Canadian subsidiary") (collectively known as the
"Company") are engaged in the marketing, distribution and service of scientific
products and consumer products in Canada. On October 29, 1993, the Company
consummated the sale of all of the assets and transferred certain liabilities of
its Charvoz Seating Division ("Seating Division"), and the results of the
Seating Division have been presented as a discontinued operation, as described
in Note 4.
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.
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 the
subsidiary'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 into
Canadian dollars at the period-end exchange rate through October 29, 1993 are
included in general and administrative expenses ($103,000 and $499,000 for the
years ended July 31, 1994 and 1993, respectively).
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
declining-balance or straight-line methods over the estimated useful lives of
the assets.
OTHER ASSETS
Inventories of sales samples and medical loaners available for customers,
which have not turned over within one year, 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 in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109) "ACCOUNTING FOR INCOME
TAXES". SFAS No. 109 requires an asset and liability approach to accounting for
income taxes and establishes less restrictive criteria for recognizing deferred
tax assets. Deferred income tax assets and liabilities arise from differences
between the tax basis of an asset or liability and its reported amount in the
consolidated financial statements. Deferred tax balances are determined by using
the tax rates expected to be in effect when the taxes will actually be paid or
refunds received. Deferred income taxes are provided with respect to items of
income and expense which enter into the determination of taxable income in years
other than those in which they are recognized for financial reporting purposes.
7
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No income taxes have been provided on the undistributed earnings ($8,433,000
at July 31, 1995) 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
l970. 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 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 common stock
equivalents where dilutive. Primary earnings per common share for fiscal 1994
and 1993 have been calculated reflecting imputed dividends on the Series A and B
Preferred Stocks aggregating $205,000 and $867,000, respectively. Fiscal 1994
and 1993 also reflect cash dividends of $109,000 and $218,000, respectively, on
the Series A Preferred Stock and fiscal 1993 includes a Series B Preferred Stock
Dividend of $100,000.
Fully diluted earnings per common share are computed on the assumption that
the weighted average number of common shares outstanding during the year was
further increased by the exercise of those stock options and warrants for which
the year-end market price of Common Stock exceeded the average market price.
Fully diluted earnings per share for fiscal 1993 was computed reflecting imputed
dividends of $715,000 and cash dividends of $218,000 on the Series A Preferred
Stock and the assumed conversion, as of August 1, 1992, of the Series B
Preferred Stock into an aggregate of 600,000 shares of Common Stock. 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:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Primary........................................................ 3,142,339 3,011,226 2,033,080
----------- ----------- -----------
----------- ----------- -----------
Fully Diluted.................................................. 3,145,536 3,054,858 2,465,400
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made in the accompanying financial
statements for the years ended July 31, 1994 and 1993 to conform to the
presentation for the year ended July 31, 1995.
8
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
3. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Parts..................................................................... $ 1,148,000 $ 1,298,000
Samples................................................................... 1,685,000 1,713,000
Finished Goods............................................................ 4,399,000 4,111,000
------------- -------------
Total................................................................. $ 7,232,000 $ 7,122,000
------------- -------------
------------- -------------
</TABLE>
4. 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 (included in accounts receivable). 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 1995, dependent upon
the operating results of the Seating Division.
5. 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 with a Canadian bank. 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.
A summary of the Company's long-term debt is as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Revolving credit facility................................................. $ 6,087,000 $ 4,327,000
------------- -------------
------------- -------------
</TABLE>
The revolving credit facility entered into during fiscal 1994, as amended,
is comprised of a $7,500,000 revolving credit facility to the Company's Canadian
subsidiary. The maximum borrowing availability under this facility decreases
annually over a three year period commencing January 1, 1996 and must be paid in
full no later than December 31, 1998. The Company is permitted to borrow an
amount up to (i) 75% - 85% of certain eligible accounts receivable, depending on
the customer, and (ii) 50% of qualifying inventory, depending on the type of
goods in inventory; however, any trade letters of credit issued under this
facility will reduce the maximum available borrowings by 50% of the amount of
such trade letters of credit, while any standby letters of credit, including the
$500,000 letter of credit issued to Olympus America Inc. during November 1993,
reduces the maximum available borrowings by the full amount of such standby
letters of credit. The Company has the right to borrow funds under this facility
in either United States dollars or Canadian dollars, a portion of which may be
in the form of bankers acceptances. The borrowings outstanding at July 31, 1995
and 1994 are in Canadian dollars. United States dollar borrowings bear interest
at .5% above the lender's United States base rate, and Canadian dollar
borrowings bear interest at .75% above the lender's Canadian prime rate. The
lender's Canadian prime rate was 8.25% at July 31, 1995. A commitment fee on the
9
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
5. FINANCING ARRANGEMENTS (CONTINUED)
unused portion of this facility is payable in arrears at a rate of .25% per
annum, with interest on borrowings payable monthly. Borrowings under this
facility are guaranteed by Cantel and are secured by substantially all assets of
the Company's Canadian subsidiary and require the subsidiary to meet certain
financial covenants, including a minimum working capital ratio, a minimum
interest coverage ratio, a maximum debt to tangible net worth ratio, and an
annual limitation on capital expenditures.
6. 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 disagrees with the position of Revenue Canada and is pursuing
its available remedies. However, the Company recorded a charge of $413,000 in
its income tax provision for the year ended July 31, 1993, which represents
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 represents 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 have been paid under protest.
Deferred income taxes recorded in the consolidated balance sheet at July 31,
1995 and 1994 include deferred tax assets related to net operating loss
carryforwards of $3,668,000 and $3,545,000, 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 $91,000 and
$63,000, 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, 1995 and 1994, that it is more likely than not that a benefit will be
realized.
For financial statement and domestic tax reporting purposes, the Company has
net operating loss carryforwards of approximately $10,789,000 at July 31, 1995,
which expire through July 31, 2010. 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:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------------
1995 1994 1993
---------------------- ------------------------ ------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
----------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States............ $ 14,000 $ -- $ 2,000 $ -- $ 63,000 $ --
Canada................... 961,000 26,000 1,042,000 10,000 1,072,000 25,000
----------- --------- ------------- --------- ------------- ---------
Total................ $ 975,000 $ 26,000 $ 1,044,000 $ 10,000 $ 1,135,000 $ 25,000
----------- --------- ------------- --------- ------------- ---------
----------- --------- ------------- --------- ------------- ---------
</TABLE>
10
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
6. INCOME TAXES (CONTINUED)
The components of income (loss) from continuing operations before income
taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
United States.............................................. $ (278,000) $ (52,000) $ (149,000)
Canada..................................................... 2,280,000 2,352,000 1,397,000
------------- ------------- -------------
Total.................................................. $ 2,002,000 $ 2,300,000 $ 1,248,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The effective rate on continuing operations differs from the U.S. statutory
rate (34%) due to the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Expected statutory tax expense............................. $ 680,000 $ 782,000 $ 424,000
Canadian dividend withholding taxes........................ 12,000 -- 57,000
Canadian tax reassessment.................................. -- -- 413,000
Differential attributable to Canadian operations........... 212,000 252,000 199,000
Benefit not recognized on domestic operating losses........ 95,000 18,000 61,000
U.S. state and local taxes................................. 2,000 2,000 6,000
------------- ------------- -------------
Total.................................................. $ 1,001,000 $ 1,054,000 $ 1,160,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
Aggregate future minimum rental commitments at July 31, l995 under operating
leases for warehouse and office space are approximately $645,000 through the
year ended July 31, 2000.
Rent expense aggregated $210,000, $187,000 and $160,000 for the years ended
July 31, 1995, 1994 and 1993, respectively.
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 $9,000,000 at July 31, 1995, and cover projected
purchases of inventory through December 1995. The fair value of such contracts
at July 31, 1995, based upon current market quotes for contracts with similar
terms, approximated the carrying value of such contracts.
DISTRIBUTION AGREEMENT
The majority of the Company's sales of scientific products and consumer
products are made under a distribution agreement with Olympus America Inc.
("Olympus"). The distribution agreement, which expires in March 1998, imposes
minimum purchase and service obligations upon the Company and restricts the
Company from selling products competitive with those covered by the agreement
and gives the Company the exclusive right to distribute the covered Olympus
products in Canada.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the right to terminate the
agreement with respect to each product group (defined in the agreement as
medical instruments, precision instruments, industrial technology
11
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
equipment and consumer products) for which the Company has failed to meet the
minimum purchase requirements. If the Company fails to meet such requirements
for both precision instruments and industrial technology equipment, or for
medical instruments, then Olympus has the right to terminate the entire
agreement. Olympus may also terminate the agreement if the Company breaches
certain other obligations and requirements under the agreement, or if the
Company fails to meet any Olympus credit requirements for sale on open account
and does not provide Olympus with a letter of credit to secure the Company's
payment obligations after demand by Olympus. The Company has delivered to
Olympus a letter of credit to secure payment of the Company's first $500,000 of
monthly purchases.
DEFERRED COMPENSATION
Under an agreement with a former officer and director, the Company is
obligated to make payments on a monthly basis through April 1996, subject to
cost of living increases. The individual will receive approximately $105,000 in
fiscal 1996. The Company has recorded a liability for the present value of these
obligations.
8. STOCKHOLDERS' EQUITY
In connection with the Company's 1991 Debt Restructuring with its lending
banks and Subordinated Debenture holders, the Company issued shares of Series A
and Series B Preferred Stocks.
The Series A Preferred Stock, which was redeemed on October 29, 1993, had a
$6,000 per share liquidation preference and was senior to the Company's Common
Stock with respect to dividend and liquidation preference. Quarterly dividends
of $90 per share were due for the period from February 1, 1993 through the date
the stock was redeemed. Dividends were imputed at a rate of approximately 23% on
the Series A Preferred Stock from the date of issuance to the date of
redemption.
On October 29, 1993, the Company redeemed all 1,000 issued and outstanding
shares of the Series A Preferred Stock which were owned by the Company's lending
banks, 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 1995, dependent upon the operating results of the Seating
Division. The banks also received 133,950 shares of the Company's Common Stock.
Series B Preferred Stock had a $10 per share liquidation preference and was
senior to the Company's Common Stock with respect to dividend and liquidation
preference. The holders of the Series B Preferred Stock had the option to
convert such stock into the Company's Common Stock at a rate of exchange
determined by dividing the liquidation value of the Series B Preferred Stock by
the market price of the Common Stock. Dividends were imputed at a rate of
approximately 19% on the Series B Preferred Stock from the date of issuance
through the date of conversion.
During January 1993, the Company issued 10,000 shares of Series B Preferred
Stock valued at $100,000, which shares represented 5% of the liquidation
preference of the outstanding Series B Preferred Stock, as a dividend to the
holders of such stock. During April 1993, all 210,000 outstanding shares of the
Series B Preferred Stock were converted into an aggregate of 600,000 shares of
Common Stock at a conversion rate of $3.50 per share.
12
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
8. STOCKHOLDERS' EQUITY (CONTINUED)
At July 31, 1995 and 1994, respectively, there was an aggregate of 239,164
warrants outstanding to purchase shares of Common Stock at $1.50 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, 1995, 164,125 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 or officers of the Company, in
attendance at that quarter's Board of Directors meeting. The quarterly options
are exercisable immediately.
The exercise price of each option is the fair market value on the date the
option is granted. At July 31, 1995, 56,000 shares were available for grant
under this plan.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
JULY 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year..................................... 428,940 458,940 456,165
Granted............................................................ 83,500 60,000 45,500
Cancelled.......................................................... (12,000) (43,750) (36,600)
Exercised.......................................................... (40,000) (46,250) (6,125)
--------- --------- ---------
Outstanding at end of year........................................... 460,440 428,940 458,940
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year........................................... 385,065 375,690 369,440
--------- --------- ---------
--------- --------- ---------
Average price of options outstanding................................. $2.98 $2.65 $2.34
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. 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.
Operations were charged for contributions under the Carsen plan aggregating
$53,000, $40,000 and $39,000 for the years ended July 31, 1995, 1994 and 1993,
respectively.
10. SUPPLEMENTAL INCOME STATEMENT AND CASH FLOW INFORMATION
Advertising costs charged to expenses were $340,000, $441,000 and $530,000
for the years ended July 31, 1995, 1994 and 1993, respectively.
Interest paid was $460,000, $434,000 and $43,000 for the years ended July
31, 1995, 1994 and 1993, respectively.
13
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
10. SUPPLEMENTAL INCOME STATEMENT AND CASH FLOW INFORMATION (CONTINUED)
Federal, state and foreign income tax payments were $949,000, $835,000 and
$772,000 for the years ended July 31, 1995, 1994 and 1993, respectively.
11. INFORMATION AS TO OPERATIONS IN DIFFERENT INDUSTRIES AND FOREIGN AND
DOMESTIC OPERATIONS
The Company is engaged in the marketing, distribution and service of
scientific products and consumer products in Canada.
The scientific products distributed by the Company consist of medical
instruments, including flexible and rigid endoscopes, endoscope
washers/disinfectors and air cleaning equipment, 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, laser distance
measurement and thermal imaging products and on-line optical inspection and
quality assurance systems, 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, darkroom equipment and supplies, camera luggage, and other
photographic products and accessories. The Company also distributes hand-held
dictation equipment and two lines of paper shredders. The consumer products are
distributed mostly to major department stores, large retail store chains,
independent retailers and cooperative buying groups.
14
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
11. INFORMATION AS TO OPERATIONS IN DIFFERENT INDUSTRIES AND FOREIGN AND
DOMESTIC OPERATIONS (CONTINUED)
(a) Information as to continuing operations in different industries is
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales from continuing operations:
Scientific products:
Medical instruments................................ $ 15,912,000 $ 13,754,000 $ 13,147,000
Precision instruments.............................. 3,086,000 2,512,000 2,345,000
Industrial technology equipment.................... 1,925,000 1,765,000 1,597,000
Product service.................................... 4,030,000 4,059,000 3,827,000
Consumer products.................................... 6,126,000 7,259,000 7,717,000
-------------- -------------- --------------
Total............................................ $ 31,079,000 $ 29,349,000 $ 28,633,000
-------------- -------------- --------------
-------------- -------------- --------------
Operating income (loss) from continuing operations:
Scientific products:
Medical instruments................................ $ 2,595,000 $ 2,289,000 $ 1,981,000
Precision instruments.............................. 122,000 116,000 129,000
Industrial technology equipment.................... (15,000) 85,000 177,000
Product service.................................... 1,247,000 1,210,000 1,186,000
Consumer products.................................... (662,000) (309,000) (571,000)
-------------- -------------- --------------
Total............................................ 3,287,000 3,391,000 2,902,000
General corporate expenses............................. (806,000) (790,000) (1,470,000)
Interest expense....................................... (479,000) (301,000) (184,000)
-------------- -------------- --------------
Income from continuing operations before income taxes
and extraordinary gain................................ $ 2,002,000 $ 2,300,000 $ 1,248,000
-------------- -------------- --------------
-------------- -------------- --------------
Identifiable assets:
Scientific products:
Medical instruments................................ $ 8,706,000 $ 5,718,000 $ 6,303,000
Precision instruments.............................. 2,412,000 2,346,000 2,248,000
Industrial technology equipment.................... 1,390,000 797,000 604,000
Product service.................................... 1,500,000 1,564,000 1,486,000
Consumer products.................................... 2,664,000 2,722,000 2,955,000
-------------- -------------- --------------
16,672,000 13,147,000 13,596,000
General corporate.................................... 727,000 968,000 1,680,000
Discontinued operations.............................. -- -- 2,204,000
-------------- -------------- --------------
Total............................................ $ 17,399,000 $ 14,115,000 $ 17,480,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
15
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1995, 1994 AND 1993
11. INFORMATION AS TO OPERATIONS IN DIFFERENT INDUSTRIES AND FOREIGN AND
DOMESTIC OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Capital expenditures:
Scientific products:
Medical instruments.......................................... $ 38,000 $ 22,000 $ 30,000
Precision instruments........................................ 7,000 4,000 5,000
Industrial technology equipment.............................. 4,000 3,000 4,000
Product service.............................................. 10,000 7,000 9,000
Consumer products.............................................. 14,000 12,000 17,000
General corporate.............................................. 6,000 10,000 7,000
----------- ----------- -----------
Total from continuing operations................................. 79,000 58,000 72,000
Discontinued operations.......................................... -- 4,000 10,000
----------- ----------- -----------
Total...................................................... $ 79,000 $ 62,000 $ 82,000
----------- ----------- -----------
----------- ----------- -----------
Depreciation and amortization:
Scientific products:
Medical instruments.......................................... $ 68,000 $ 57,000 $ 56,000
Precision instruments........................................ 13,000 10,000 10,000
Industrial technology equipment.............................. 8,000 7,000 6,000
Product service.............................................. 17,000 17,000 26,000
Consumer products.............................................. 26,000 29,000 34,000
General corporate.............................................. 4,000 4,000 1,000
----------- ----------- -----------
Total from continuing operations................................. 136,000 124,000 133,000
Discontinued operations.......................................... -- 13,000 39,000
----------- ----------- -----------
Total...................................................... $ 136,000 $ 137,000 $ 172,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(b) Information as to geographic area is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales from continuing operations:
United States........................................ $ 52,000 $ -- $ --
Canada............................................... 31,027,000 29,349,000 28,633,000
-------------- -------------- --------------
Total............................................ $ 31,079,000 $ 29,349,000 $ 28,633,000
-------------- -------------- --------------
-------------- -------------- --------------
Operating income from continuing operations:
United States........................................ $ 30,000 $ 32,000 $ --
Canada............................................... 3,257,000 3,359,000 2,902,000
-------------- -------------- --------------
Total............................................ $ 3,287,000 $ 3,391,000 $ 2,902,000
-------------- -------------- --------------
-------------- -------------- --------------
Total assets:
United States........................................ $ 152,000 $ 349,000 $ 2,458,000
Canada............................................... 17,247,000 13,766,000 15,022,000
-------------- -------------- --------------
Total............................................ $ 17,399,000 $ 14,115,000 $ 17,480,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
16
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/ X / Quarterly Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarterly period ended October 31, 1995.
or
/ / Transition Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the transition period from to .
----- -----
Commission file number: 0-6132
CANTEL INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 22-1760285
- ------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1135 Broad Street, Clifton, New Jersey 07013
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code
(201) 470-8700
--------------
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
----- -----
Number of shares of Common Stock outstanding as of December 12, 1995: 2,768,193
<PAGE>
PART I - FINANCIAL INFORMATION
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (NOTE 1)
(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 376 $ 520
Accounts receivable, net 4,632 7,961
Inventories 7,952 7,232
Prepaid expenses and other current assets 1,024 303
------- -------
Total current assets 13,984 16,016
Property and equipment, at cost:
Furniture and equipment 841 1,135
Leasehold improvements 479 634
------- -------
1,320 1,769
Less accumulated depreciation and amortization 867 1,289
------- -------
453 480
Other assets 1,000 903
------- -------
$15,437 $17,399
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,330 $ 3,147
Compensation payable 688 849
Other accrued expenses 490 493
Income taxes payable - 364
------- -------
Total current liabilities 3,508 4,853
Long-term debt 5,279 6,087
Deferred income taxes 96 91
Stockholders' equity:
Preferred Stock, par value $1.00 per share;
authorized 1,000,000 shares; none issued - -
Common Stock, $.10 par value; authorized 7,500,000
shares; issued and outstanding October 31 -
2,768,193 shares; July 31 - 2,768,193 shares 277 277
Additional capital 8,539 8,539
Accumulated deficit (1,100) (1,187)
Cumulative foreign currency translation adjustment (1,162) (1,261)
------- -------
Total stockholders' equity 6,554 6,368
------- -------
$15,437 $17,399
------- -------
------- -------
</TABLE>
See accompanying notes.
1
<PAGE>
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1995 1994
------- -------
<S> <C> <C>
Net sales $ 5,429 $ 6,313
Cost of sales 3,755 4,361
------- -------
Gross profit 1,674 1,952
Expenses:
Shipping and warehouse 193 190
Selling 933 915
General and administrative 648 587
------- -------
Total operating expenses 1,774 1,692
------- -------
Income (loss) from continuing operations
before interest expense and income
taxes (100) 260
Interest expense 13 95
------- -------
Income (loss) from continuing operations
before income taxes (113) 165
Income taxes (200) 104
------- -------
Net income $ 87 $ 61
------- -------
------- -------
Earnings per common share:
Primary $ 0.03 $ 0.02
------- -------
------- -------
Fully diluted $ 0.03 $ 0.02
------- -------
------- -------
</TABLE>
See accompanying notes.
2
<PAGE>
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 87 $ 61
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation and amortization 38 30
Imputed interest 3 7
Deferred income taxes 5 -
Changes in assets and liabilities:
Accounts receivable 3,329 586
Inventories (720) 9
Prepaid expenses and other current assets (721) (96)
Accounts payable and accrued expenses (951) (1,003)
Income taxes payable (364) (824)
------ ------
Net cash provided by (used in) operating activities 706 (1,230)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Net disposals (additions) to property and equipment 7 (40)
Other, net (16) 46
------ ------
Net cash (used in) provided by investing activities (9) 6
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 4,244 4,049
Repayment of long-term debt (5,052) (3,204)
Deferred compensation payments (33) (32)
------ ------
Net cash (used in) provided by financing activities (841) 813
------ ------
Decrease in cash (144) (411)
Cash at beginning of period 520 521
------ ------
Cash at end of period $ 376 $ 110
------ ------
------ ------
</TABLE>
See accompanying notes.
3
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and the requirements of Form 10-Q and Rule 10.01 of
Regulation S-X. Accordingly, they do not include certain information and note
disclosures required by generally accepted accounting principles for annual
financial reporting and should be read in conjunction with the consolidated
financial statements and notes thereto included in Cantel Industries, Inc.'s
("Company") Annual Report on Form 10-K for the fiscal year ended July 31, 1995,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
The unaudited interim financial statements reflect all adjustments which
management considers necessary for a fair presentation of the results of
operations for these periods. The results of operations for the interim periods
are not necessarily indicative of the results for the full year.
The condensed consolidated balance sheet at July 31, 1995 was derived from
the audited consolidated balance sheet at that date.
Note 2. INCOME TAXES
Income taxes primarily consist of foreign income taxes provided on the
Company's Canadian operations. For the three months ended October 31, 1995,
income taxes include a benefit resulting from the loss from continuing
operations before income taxes at an effective rate of 43.9%, as well as a
recovery of prior years' federal and provincial income taxes and withholding
taxes. The effective tax rate on Canadian operations was 44.4% for the three
months ended October 31, 1994.
The recovery of prior years' federal and provincial income taxes and
withholding taxes related to a notice of reassessment received by the Company's
Canadian subsidiary during fiscal 1994, which 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 the Canadian subsidiary
during the taxable years 1990 to 1992 with respect to a purchasing fee charged
by Cantel for negotiating certain distribution agreements on behalf of the
Canadian subsidiary. In prior years, the Company recorded the full amount of
the reassessment, which aggregated approximately $413,000, in its provision for
income taxes, and the related
4
<PAGE>
interest, of approximately $154,000, as interest expense. During the three
months ended October 31, 1994, the full amount of the reassessment, including
interest, was paid under protest. During the three months ended October 31,
1995, the Company negotiated a settlement with Revenue Canada which resulted in
the recovery of federal and provincial income taxes and withholding taxes of
approximately $175,000 and interest of approximately $98,000. This tax refund
has not yet been received by the Company.
Note 3. EARNINGS PER COMMON SHARE
Primary earnings per common share are computed based upon the weighted
average number of common shares outstanding during the period plus common stock
equivalents where dilutive.
Fully diluted earnings per common share are computed on the assumption that
the weighted average number of common shares outstanding during the period was
further increased by the exercise of those stock options and warrants for which
the period-end market price of the Common Stock exceeded the average market
price.
The following average shares were used for the computation of primary and
fully diluted earnings per share (see Exhibit 11 for computation of Earnings per
Share):
<TABLE>
<CAPTION>
Three months ended
October 31,
1995 1994
--------- ---------
<S> <C> <C>
Primary 3,264,307 3,146,534
--------- ---------
--------- ---------
Fully diluted 3,290,399 3,146,534
--------- ---------
--------- ---------
</TABLE>
Note 4. FINANCING ARRANGEMENTS
The revolving credit facility entered into during fiscal 1994, as amended,
is comprised of a $7,500,000 revolving credit facility to the Company's Canadian
subsidiary. The maximum borrowing availability under this facility decreases
annually over a three year period commencing January 1, 1996 and must be paid in
full no later than December 31, 1998. The Company is permitted to borrow an
amount up to (i) 75%-85% of certain eligible accounts receivable, depending on
the customer, and (ii) 50% of qualifying inventory, depending on the type of
goods in inventory; however, any trade letters of credit issued under this
facility will reduce the maximum available borrowings by 50% of the amount of
such trade letters of credit, while any standby letters of credit, including the
$500,000 letter of credit issued to Olympus America Inc. during November 1993,
reduces the maximum available borrowings by the full
5
<PAGE>
amount of such standby letters of credit. The Company has the right to borrow
funds under this facility in either United States dollars or Canadian dollars, a
portion of which may be in the form of bankers acceptances. The borrowings
outstanding at October 31, 1995 and July 31, 1995 are in Canadian dollars.
United States dollar borrowings bear interest at .5% above the lender's United
States base rate, and Canadian dollar borrowings 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. Borrowings under this facility are guaranteed by
Cantel and secured by substantially all assets of the Company's Canadian
subsidiary and require the subsidiary to meet certain financial covenants,
including a minimum working capital ratio, a minimum interest coverage ratio, a
maximum debt to tangible net worth ratio, and an annual limitation on capital
expenditures.
Note 5. PROPOSED ACQUISITION OF MEDIVATORS, INC.
On November 14, 1995, the Company entered into an Agreement and Plan of
Merger which provides for the Company's acquisition of MediVators, Inc.
("MediVators") through a merger transaction. Upon consummation of the proposed
merger, MediVators will be a wholly-owned subsidiary of the Company and the
stockholders of MediVators will own approximately a 26.5% equity interest in
Cantel (without giving effect to outstanding options and warrants to acquire
stock of Cantel or MediVators). The transaction will be treated as a pooling of
interests for accounting purposes.
MediVators is a public company which designs, manufactures and markets
infection control equipment and supplies used for disinfecting flexible
endoscopes and medical waste disposal equipment. MediVators is currently a
supplier of endoscope washers/disinfectors to the Company.
The merger is subject to, among other things, the approval of the Company's
stockholders and MediVators' stockholders. No assurance can be given that such
conditions will be satisfied or that the merger will be consummated.
In connection with the proposed merger, the Company has filed a
Registration Statement on Form S-4 with the Securities and Exchange Commission,
which has not yet been declared effective, which will cover the issuance of the
Company's Common shares to the stockholders of MediVators in exchange for shares
of MediVators common stock. The issuance of shares of the Company's stock in
the merger will be made only by means of the prospectus included in the
Registration Statement.
6
<PAGE>
Historical financial information for MediVators' fiscal years ended
December 31, 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Total assets $4,313,000 $3,430,000 $4,393,000
Total stockholders'
equity $3,558,000 $2,936,000 $3,976,000
Net sales $3,310,000 $2,888,000 $2,014,000
Net loss from
continuing
operations $ (736,000) $(1,570,000) $(1,059,000)
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF CONTINUING OPERATIONS
The results of continuing operations described hereafter reflect, for the
most part, those results of the Company's wholly-owned Canadian subsidiary,
Carsen Group Inc. There was no significant impact upon the Company's results of
operations for the three months ended October 31, 1995, as compared to the three
months ended October 31, 1994, as a result of translating Canadian dollars into
United States dollars. In order to further analyze the results of operations,
certain comparisons will be presented in Canadian dollars as well as United
States dollars. The ensuing discussion should also be read in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
1995.
Net sales in Canadian dollars decreased by $1,268,000, or 14.8%, to
$7,304,000 for the three months ended October 31, 1995, from $8,572,000 for the
three months ended October 31, 1994; when translated into United States dollars,
the net sales decreased by $884,000, or 14.0%, to $5,429,000 for the three
months ended October 31, 1995, from $6,313,000 for the three months ended
October 31, 1994. This decrease was principally attributable to the decreased
sales of the Consumer Products Division resulting from lower demand for product,
primarily attributable to the loss of national account business. The Company is
in the process of addressing current market conditions by restructuring this
division's sales functions and marketing strategies. Partially offsetting the
decreased sales of the Consumer Products Division were increased sales in the
Scientific Products segment, principally within the Precision Instruments and
Industrial Technology Divisions. These sales increases resulted from increased
demand for new products such as the Olympus B-Max microscope, the restructuring
of the sales functions and the implementation of new marketing strategies in
these divisions, and increases in selling prices for certain products.
Gross profit in Canadian dollars decreased by $406,000, or 15.3%, to
$2,250,000 for the three months ended October 31, 1995, from $2,656,000 for the
three months ended October 31, 1994; when translated into United States dollars,
the gross profit decreased by $278,000, or 14.2%, to $1,674,000 for the three
months ended October 31, 1995, from $1,952,000 for the three months ended
October 31, 1994. The gross profit decreased as a percentage of net sales to
30.8% for the three months ended October 31, 1995, from 30.9% for the three
months ended October 31, 1994. The lower gross profit margin for the first
quarter of fiscal 1996 is principally attributable to price increases from a
major supplier, of which only a portion was passed along to customers; this
decrease was partially offset by an increase in gross margin
8
<PAGE>
attributable to the decreased sales of the Consumer Products Division which
generally have lower profit margins.
Shipping and warehouse expenses as a percentage of net sales increased to
3.6% for the three months ended October 31, 1995, from 3.0% for the three months
ended October 31, 1994. This percentage increase was principally attributable
to the decrease in sales, since most of the expenses in this category are of a
fixed nature.
Selling expenses as a percentage of net sales were 17.2% for the three
months ended October 31, 1995, as compared with 14.5% for the three months ended
October 31, 1994. This percentage increase was principally attributable to the
decrease in sales and an increase in the number of sales personnel.
General and administrative expenses increased by $61,000 to $648,000 for
the three months ended October 31, 1995 from $587,000 for the three months ended
October 31, 1994. This increase primarily reflects professional fees related to
the proposed acquisition of MediVators, Inc.
Interest expense decreased to $13,000 for the three months ended October
31, 1995, as compared with $95,000 for the three months ended October 31, 1994.
This decrease is due to a recovery of interest of approximately $98,000 related
to the tax reassessments described in Note 2 to the Condensed Consolidated
Financial Statements, partially offset by an increase in interest expense
attributable to an increase in interest rates and an increase in average
borrowings under the Canadian revolver.
Income (loss) from continuing operations before income taxes decreased by
$278,000 to a loss of $113,000 for the three months ended October 31, 1995 from
income of $165,000 for the three months ended October 31, 1994.
Income taxes represent taxes recoverable on the Company's Canadian
operations for the three months ended October 31, 1995, as well as a recovery of
taxes related to the tax reassessment described in Note 2 to the Condensed
Consolidated Financial Statements, and taxes imposed on the Canadian operations
for the three months ended October 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1995, the Company's working capital was $10,476,000, as
compared with $11,163,000 at July 31, 1995. This decrease primarily reflects
a reduction in accounts receivable, partially offset by increases in
inventories and other current assets, including income tax receivables and
prepaid income taxes of approximately $685,000, and a decrease in current
liabilities. Long-term debt decreased from $6,087,000 at July 31, 1995 to
$5,279,000 at October 31, 1995.
9
<PAGE>
Net cash provided by operating activities was $706,000 for the three
months ended October 31, 1995, as compared with net cash used in operating
activities of $1,230,000 for the three months ended October 31, 1994. This
change was primarily due to a decrease in accounts receivable, partially
offset by increases in inventories and other current assets, including income
tax receivables and prepaid income taxes, and decreases in current
liabilities. Net cash used in investing activities was $9,000 for the three
months ended October 31, 1995, as compared with net cash provided by
investing activities of $6,000 for the three months ended October 31, 1994.
Net cash used in financing activities was $841,000 for the three months ended
October 31, 1995, as compared with net cash provided by financing activities
of $813,000 for the three months ended October 31, 1994. This change
principally reflects borrowings and repayments under the revolving credit
facility.
The revolving credit facility entered into during fiscal 1994, as amended,
is comprised of a $7,500,000 revolving credit facility to the Company's Canadian
subsidiary. The maximum borrowing availability under this facility decreases
annually over a three year period commencing January 1, 1996 and must be paid in
full no later than December 31, 1998. The Company is permitted to borrow an
amount up to (i) 75%-85% of certain eligible accounts receivable, depending on
the customer, and (ii) 50% of qualifying inventory, depending on the type of
goods in inventory; however, any trade letters of credit issued under this
facility will reduce the maximum available borrowings by 50% of the amount of
such trade letters of credit, while any standby letters of credit, including the
$500,000 letter of credit issued to Olympus America Inc. during November 1993,
reduces the maximum available borrowings by the full amount of such standby
letters of credit. The Company has the right to borrow funds under this
facility in either United States dollars or Canadian dollars, a portion of which
may be in the form of bankers acceptances. The borrowings outstanding at
October 31, 1995 and July 31, 1995 are in Canadian dollars. United States
dollar borrowings bear interest at .5% above the lender's United States base
rate, and Canadian dollar borrowings 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. Borrowings under this facility are guaranteed by Cantel and
secured by substantially all assets of the Company's Canadian subsidiary and
require the subsidiary to meet certain financial covenants, including a minimum
working capital ratio, a minimum interest coverage ratio, a maximum debt to
tangible net worth ratio, and an annual limitation on capital expenditures.
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 Canadian dollars. Such adverse currency fluctuations
could also
10
<PAGE>
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 credit
facility, as amended, the Company's Canadian subsidiary has a foreign exchange
hedging arrangement of up to $15,000,000 (U.S. dollars) which could be used to
minimize future adverse currency fluctuations as they relate to purchases of
inventories.
The Company's Canadian subsidiary has forward exchange contracts at October
31, 1995 aggregating $7,500,000 (United States 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 February 29, 1996.
The average exchange rate of the contracts open at October 31, 1995 was
$1.3648 Canadian dollar per United States dollar, or $.7327 United States dollar
per Canadian dollar. The exchange rate published by the Wall Street Journal on
December 12, 1995, was $1.3774 Canadian dollar per United States dollar, or
$.7260 United States dollar per Canadian dollar.
The Company believes that its anticipated cash flow from operations and the
funds available under the credit facility will be sufficient to satisfy the
Company's cash operating requirements for the foreseeable future. At December
12, 1995, $1,673,000 was available under the credit facility.
Inflation has not significantly impacted the Company's operations.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no submission of matters to a vote during the quarter ended
October 31, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11, Computation of Earnings Per Share
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months
ended October 31, 1995.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANTEL INDUSTRIES, INC.
Date: December 14, 1995 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)
13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NO. 0-20039
------------------------
MEDIVATORS, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C>
MINNESOTA 41-1517173
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
CANNON PLAZA SOUTH,
6352 320TH STREET WAY,
CANNON FALLS, MINNESOTA
(Address of principal 55009
executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (507) 263-4721
------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, $0.01 par value.
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
Issuer's revenues for its most recent fiscal year: $3,309,524.
As of March 24, 1995, 3,849,836 shares of the Registrant's Series A Common
Stock and 2,000 shares of Series B 10% Cumulative Redeemable Convertible Common
Stock were outstanding. The aggregate market value of the Series A Common Stock
held by non-affiliates of the registrant on such date, based upon the last sale
price of the Series A Common Stock as reported by The Nasdaq Small Cap Market on
March 24, 1995, was approximately $7,699,672. For purposes of this computation,
affiliates of the registrant are deemed only to be the registrant's executive
officers and directors.
Transitional Small Business Disclosure Format (check one): Yes ____ No X
Portions of the Proxy Statement for the Annual Meeting of Shareholders of
the registrant, which will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrant's fiscal year, are incorporated
by reference in Part III of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
MediVators, Inc. ("MediVators" or the "Company") designs, manufactures and
markets endoscopic infection control equipment and medical waste disposal
equipment and related supplies. As of December 31, 1994, the Company had sold
approximately 990 endoscope disinfection systems. The Company's disinfection
systems are used for disinfecting flexible endoscopes which are slender,
tubular, fiber optic medical devices inserted into the body through the mouth or
rectum to allow visual examination of hollow organs such as the stomach and
colon. The endoscope market has been growing rapidly over the last five years as
a cost effective alternative to exploratory surgery. Endoscopes are now commonly
used in doctors' offices, hospitals and clinics and must be thoroughly cleaned
and disinfected after each use. As a result of the expanded use of endoscopes,
the U.S. Centers for Disease Control ("CDC"), the American Society for
Gastrointestinal Endoscopy and the Society of Gastrointestinal Nurses and
Associates, Inc. have adopted guidelines for endoscope disinfection. The
Company's disinfection systems are intended to enable users of flexible
endoscopes to comply with these guidelines.
MediVators' first endoscope disinfection system, the OTT Disinfector, was
developed by the Mayo Clinic and is manufactured and marketed by the Company
pursuant to an exclusive license granted by Mayo Foundation for Medical
Education and Research ("Mayo Foundation") which expires in 2005. The Company's
DSD-91, a microprocessor controlled dual scope disinfection system, received FAS
clearance on March 15, 1994.
In January 1992, MediVators, through a wholly-owned subsidiary, Disposal
Sciences, Inc. ("DSI") acquired the assets of National Syringe Disposal, Inc.,
which manufactured and marketed the DSI-100 compact sharps disposal system for
medical sharps such as syringes, scalpels and razors. The DSI-100 system
provides point-of-use destruction and decontamination of most types of
disposable medical sharps waste. The Company redesigned the DSI-100 into the
DSI-107 to improve capacity and reliability. The redesigned DSI-107 is primarily
suitable for low volume users such as medical offices.
DSI has completed development of the DSI System 2000 Infectious Medical
Waste Disposal System, a higher-volume system that is intended for hospital use.
The DSI System 2000 Infectious Medical Waste Disposal System is a centralized
disposal unit that will handle filled medical sharps collection devices and
rigid plastics.
MedFab, the Company's custom plastic machining and assembly division, began
operations in April 1992. MedFab has enabled the Company to lower its cost on
the plastic enclosures for its endoscope disinfection system and is contributing
to general revenues by performing work for third party customers.
ENDOSCOPE DISINFECTION MARKET
The number of endoscope procedures has increased dramatically in the last
decade due to the relative cost effectiveness as compared to exploratory
surgery. Originally designed for diagnostic procedures, the technology has
evolved to accomplish a number of therapeutic procedures. Endoscopes in current
use include gastroscopes (used to study the stomach), colonscopes (used to view
the colon and the large intestine), sigmoidoscopes (used to study the sigmoid
area of the large intestine and the rectum), duodenoscope (used to view the
duodenum, the first part of the small intestine), and bronchoscopes (used for
viewing the bronchial tubes).
As endoscopes have become more widely used, there has been increased
attention given to procedures for cleaning, disinfecting and sterilizing these
instruments between uses. "Cleaning" refers to the physical removal of organic
material or soil from objects and is designed to remove, rather than to kill,
micro-organisms. "Disinfection" refers to a process that uses germicidal
chemical agents designed to destroy the potential infection ability of
micro-organisms. "Sterilization" refers to the
2
<PAGE>
physical or chemical process used to eliminate virtually all viable microbes
from an object. Sterilization is typically carried out in a hospital using steam
under pressure, liquid or gaseous chemicals or dry heat. If an endoscope is not
properly cleaned, disinfected or sterilized between uses, there is an increased
likelihood that micro-organisms can be transmitted from one person to another.
In November 1985, the CDC published "CDC Guidelines for Handwashing and
Hospital Environmental Control, 1985" (the "CDC Guidelines"). These guidelines
recommended that "semi-critical items," or items, such as endoscopes, that come
in contact with intact mucous membranes but do not ordinarily penetrate body
surfaces, be subjected to a "high-level disinfection process." Such a process,
the CDC Guidelines reported, could be expected to destroy vegetative
micro-organisms. The CDC Guidelines noted that a "meticulous physical
precleaning, followed by an appropriate high-level disinfection treatment gives
the user a reasonable degree of assurance that the items are free of pathogens."
The CDC Guidelines also recommend that endoscopes such as laparoscopes
(endoscopes used to view the abdominal cavity), arthroscopes and other scopes
which enter normally sterile tissue should be subjected to a sterilization
procedure after each use, or at least to high level disinfection if
sterilization is not feasible.
Endoscopes can be manually cleaned and disinfected, however, there are many
problems with the uniformity of cleaning procedures, personnel exposure to
disinfectant fumes and disinfectant residue levels in the endoscope. The Company
believes that more thorough disinfection is achieved through the use of
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 will be selected by hospital personnel based on the object
to be disinfected, the hospital facilities and the disinfectants available.
DISINFECTION EQUIPMENT
The Company's currently-marketed products are the OTT Disinfector, which is
53 inches high, contained in a polyvinyl chloride plastic enclosure and is free
standing or can be mounted on a wall; and 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 wider variety of endoscopes
and is programmable by the user. The Company also has developed a new single
scope disinfection unit, the SSD, which is based upon the same design as the
DSD-91. The Company expects that the two new disinfectors will replace the OTT
Disinfector as the Company's primary product.
After cleaning, an endoscope is placed in the reservoir of the disinfector
which then disinfects the endoscope by pumping disinfectant throughout the
endoscope, including the endoscopes channels. The disinfector is a delivery
system to ensure that the endoscope, including the 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.
The Company believes the disinfectors offer several advantages over manual
immersion in disinfectants. The disinfectors are designed to pump disinfectant
through all 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 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 infectious diseases. The
disinfectors also reduce risk of inconsistent manual disinfecting.
The Company also sells disinfectors and disinfectors components to
international distributors, who manufacture and assemble disinfectors for sale
primarily in Canada and Europe. International sales comprised 26% and 30% of the
Company's sales in 1994 and 1993, respectively.
3
<PAGE>
RELATED DISINFECTION PRODUCTS
The Company is also marketing one other related disinfection product:
Sterapore Ultramicrofilter.
The Sterapore Ultramicrofilter is marketed primarily as an accessory to its
disinfectors for providing a pyrogen-free water rinse after each disinfection
cycle. CDC Guidelines promulgated by the Society of Gastroenterology Nurses and
Associates, Inc. recommended a sterile water rinse of endoscopes. The Company
imports the Sterapore Ultramicrofilter under an unwritten distribution
arrangement. Although the Company believes that its arrangement is an exclusive
one, the absence of a written distribution agreement means that the manufacturer
can terminate the Company as its distributor without notice or grant others the
right to distribute this product.
DISPOSAL SCIENCES, INC.
In January 1992, MediVators, through its wholly owned subsidiary DSI,
acquired the assets of National Syringe Disposal, Inc. ("NSD"), including the
DSI-100 compact sharps disposal system. The Company paid $524,584 in cash to or
for the account of NSD and issued 125,844 shares of the Company's Series A
Common Stock to NSD. The Company will pay NSD 20% of DSI's pre-tax profits, if
any, related to the acquisition of NSD, in the years ending December 31, 1992
through 1996, up to an aggregate maximum payment of $2,000,000, payable in cash
or Series A Common Stock at the option of NSD. No payments were due to NSD based
on results since acquisition through December 31, 1994.
The Company has redesigned the DSI-100 into the DSI-107 compact sharps
disposal system to increase capacity and improve reliability. The system
provides point-of-use destruction and decontamination of most types of
disposable medical sharps waste including syringes, scalpels, razors and IV
needles. The redesigned DSI-107 is primarily suitable for low volume users such
as medical offices. DSI is considering seeking alternative distribution routes
for the DSI-107, including distribution through the Company's network of
independent manufacturer's representatives, entering into a distribution
agreement with a third party, or the license sale of the DSI-107 product line to
a third party. DSI has not entered into any agreements relating to the DSI-107
to date.
DSI also has completed development of the DSI System 2000 Infectious Medical
Waste Disposal System, a higher-volume system that is intended for hospital use.
The DSI System 2000 Infectious Medical Waste Disposal System is a centralized
disposal unit that will handle filled medical sharps collection devices and
rigid plastics.
The most common approach to disposal of sharps waste is to put the waste in
a disposable container, aggregate and accumulate the material in a central
location, transport the material to an off-site location and incinerate or bury
the material. In contrast, the Company's approach is to destroy and
decontaminate the material at the point of use; thereby eliminating the
potential spread of infection which occurs during the accumulation and
aggregation process, the expense of disposable containers, and the expense and
liability associated with transportation and off-site destruction, and the
negative environmental impact.
The DSI-107 sharps disposal system is comprised of a portable and reusable
collection device and a process unit. The collection device is a hand held
plastic container into which sharps are deposited by the user, eliminating
unnecessary handling. Once full, the collection device is taken to the nearby
process unit and the sharps waste is emptied into the process unit, without
human contact, through an interlock mechanism between the collection device and
the process unit. Using grinding and a dry heat sterilization process, the
process unit produces, in approximately one hour, a sterile solid plastic
cylindrical-shaped "puck" from the sharps waste.
The DSI System 2000 Infectious Medical Waste Disposal System is a second
generation, higher capacity device, designed to dispose of medical sharps and
plastic medical disposable products. The sharps collection container is placed
directly into the DSI System 2000 Infectious Medical Waste
4
<PAGE>
Disposal System without emptying the container. The system decontaminates and
reduces the volume of the foregoing materials by about 80%. It is intended
primarily for medical waste management but may have commercial applications as
well.
The DSI System 2000 Infectious Medical Waste Disposal System was submitted
to independent labs for compliance testing to OSHA, EPA, Odor TUV, UL and cUL
standards. The system has successfully passed all testing. The system has also
received efficacy testing clearance in approximately 33 states to date.
CUSTOMERS AND MARKETING
DISINFECTION PRODUCTS. The Company believes that the primary customers for
its disinfection products are accredited hospitals. There are approximately
6,000 accredited hospitals in the United States according to the American
Hospital Association Guide to the Health Care Field.
The Company's products are marketed by independent manufacturers'
representatives throughout the United States, each of whom has an exclusive
territory and is trained on the Company's products. These representatives also
market products of other manufacturers. The Company has distribution agreements
with manufacturing representatives in Canada, Brazil, Australia, France, Italy,
Spain and the United Kingdom covering much of Western Europe.
The Company directs its marketing efforts toward gastrointestinal assistants
and infection control personnel at hospitals and clinics, as well as physicians
using endoscopes, including gastroenterologists, colon and rectal surgeons,
urologists and family practitioners.
During the year ended December 31, 1994 sales to one customer represented
11% of total sales. During the year ended December 31, 1993, sales to two
customers represented 20% of total sales. Total export sales, primarily to
European and Canadian customers, comprised 26% and 30% of the Company's total
sales during the years ended December 31, 1994 and 1993, respectively.
SHARPS DISPOSAL EQUIPMENT. DSI believes that the primary customers for the
DSI-107 sharps disposal system will be small hospitals, group medical practices,
non-hospital based healthcare facilities including nursing homes, surgical
centers, home healthcare facilities, dentist and correctional facilities. The
DSI System 2000 Infectious Medical Waste Disposal System is designed primarily
for use in hospitals.
COMPETITION
GENERAL. The medical products industry is intensely competitive and is
characterized by rapid technological change, accompanying product obsolescence
and the introduction of competitive products offering improved features at lower
prices. Advances by the Company's competitors or others could at any time
require the Company to attempt to modify or change its products in order to
compete effectively disinfection equipment.
DISINFECTION PRODUCTS. The Company believes its primary competitors in the
sale of endoscope disinfectors include Unitrol, Key Med, Inc., Olympus
Corporation (which is a principal manufacturer of endoscopes), Lutz, Steris
Corporation and Custom Ultrasonics. Some of these companies are more established
and have greater resources than the Company and, in addition to endoscope
disinfectors, may sell a broader variety of related products.
MEDICAL WASTE DISPOSAL SYSTEMS. DSI competes with companies that sell
special devices for the destruction of sharps and companies that provide
products for the destruction and decontamination of other medical wastes.
Several companies offer products which either destroy or decontaminate
sharps waste near point-of-use. These approaches may range from grinding to
chemical baths. The Company believes that none of these approaches currently
include free-standing units which are capable of destroying and decontaminating
at point-of-use, and that such devices are significantly more expensive than the
DSI-107 system.
5
<PAGE>
The products which are employed in the destruction and decontamination of
rigid plastics, sharps and other plastic medical disposables compete with the
DSI System 2000 Infectious Medical Waste Disposal System. They range from
grinders, to chemical baths, to incinerators, to dry heat and autoclaves. The
Company knows of no competitive products which provide the performance features
of the DSI System 2000 Infectious Medical Waste Disposal System at a comparable
cost. The Company believes those which are known to perform similar functions
are significantly greater in cost.
RESEARCH AND DEVELOPMENT
In 1994 the Company cut back on its research and development efforts. It
terminated the MediFlex operation in December 1993 and completed the design of
the DSI System 2000 Infectious Medical Waste Disposal System. Research and
development expenditures in 1994 were $305,442, compared to $955,549 in 1993 and
$332,291 in 1992.
The Company plans to continue research and development on its existing
product lines, but does not expect anything as large as the MediFlex project.
GOVERNMENT REGULATIONS
MEDICAL DEVICES. The United States Food and Drug Administration ("FDA"),
pursuant to the Medical Device Amendments of 1976 to the Food, Drug and Cosmetic
Act, amended in 1990 (the "Act"), and regulations thereunder, regulates the
testing, manufacturing, packaging, distribution and marketing of medical devices
in the United States, including the products manufactured by MediVators, Inc.
Comparable agencies in certain foreign countries also regulate the Company's
activities.
The FDA classifies medical devices intended for human use into three
categories, depending upon the degree of regulatory control deemed appropriate
with respect to each device. The Company's products are Class II and Class III
devices for which market approval can be obtained under Section 510(k)
procedures, which require demonstration of substantial equivalency to existing
products in the market. FDA regulations provide that a manufacturer may not
market a device until the FDA notifies the manufacturer that it has a 510(k)
notification. The FDA has the authority to require recall of products in the
event of a defect. In addition, the Company may voluntarily recall products if
necessary.
The Act also requires compliance with specific manufacturing and quality
assurance standards. The FDA has published regulations defining good
manufacturing practices to provide that each step of the manufacturing process
for any device is controlled to maximize the probability that the finished
product meets all quality and design specifications. 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. The Company believes it is in material compliance
with the provisions of the Act and regulations under the Act. The Company
maintains customer complaint files and conducts periodic audits to assure
compliance with the FDA regulations. The manufacturing and quality control
procedures are documented to ensure that production meets the required
standards. The Company actively participates in trade association efforts to
review, comment on, and affect the scope of proposed legislation. Federal, state
and foreign regulations regarding the manufacture and sale of the Company's
products are subject to change. The Company cannot predict what impact, if any,
such changes might have on its business.
In March 1994 the Company received FDA clearance of its 510(k) premarket
notification for DSD-91 Disinfector.
6
<PAGE>
In October 1989, the Company received a letter from the FDA in which the
Company was advised that 510(k) pre-market notifications had not been submitted
for the OTT Channel Sampling Kit or Sterapore Ultramicrofilter (sales of which
have not constituted a material part of the Company's revenues), and that
certain modifications made to the OTT Disinfector may require an additional
510(k) pre-market notification. The Company has been unable to determine whether
prior management responded to such letter or, if so, the content of such
response. The Company has not received any further notice from the FDA regarding
the issues raised in the 1989 letter. If the FDA were to determine that these
products were or are being sold without appropriate clearance, the FDA could
take enforcement action, including seizure of the product in question, seeking
an injunction against further sales of the subject product and seek substantial
civil or criminal penalties against the Company and its officers. Any such
enforcement action could have a material adverse effect on the Company.
MEDICAL WASTE. Regulations affecting the generation, handling and disposal
of infectious waste span many jurisdictions. These wastes are regulated as solid
or hazardous 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 of 1988, mandated that a federal program to track such
wastes be implemented by the United States Environmental Protection Agency.
Additionally, a substantial majority of states now have infectious waste laws
and regulations, according to the Federal Office of Technology Assessment.
Finally, local regulations can dramatically impact the location of disposal
facilities.
The Medical Waste Tracking Act required the Environmental Protection Agency
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
remain 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 disposal laws vary. Accordingly, DSI will be
required to present each individual governing body with the efficacy test
results of the DSI System 2000 Infectious Waste Disposal System and to request
permission to distribute in that jurisdiction.
LICENSE AGREEMENTS/PATENTS AND PROPRIETARY RIGHTS
OTT DISINFECTOR. The Company manufactures and sells the OTT Disinfector
pursuant to an exclusive worldwide license agreement with Mayo Foundation. Under
the license agreement, 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 related to the OTT Disinfector (the "Disinfector
License Agreement"), the Company must pay a royalty equal to five percent (5%)
of the net revenues received by the Company from sales of the OTT Disinfector
and enhancements or improvements to the OTT Disinfector. The Company intends to
pay the Mayo Foundation a royalty on revenues from sales of the DSD-91. Such
royalty payments are due quarterly, together with related reports of sales. The
Mayo Foundation has the right to terminate the Disinfector License Agreement if
the Company fails to pay minimum royalties of $75,000 per year.
The Disinfector License Agreement specifically excludes any warranty by Mayo
Foundation as to the validity or scope of its proprietary rights in the OTT
Disinfector. Any and all action taken to obtain
7
<PAGE>
patents or other intellectual property protection for the OTT Disinfector is the
Company's responsibility and any patent obtained inures to Mayo Foundation. Mayo
Foundation has obtained one U.S. patent related to certain features of the OTT
Disinfector, but there is no assurance that this patent will provide any
meaningful competitive advantage. Mayo Foundation has no obligation to defend
the validity or scope of such patent. Therefore, if any claim is brought by or
against the Company, the Company will have to defend the patent and may bear all
of the costs of doing so. There can be no assurance that such patent will be
upheld if legally challenged or that such patent will provide any protection
against competitor's products which, although not infringing upon such patent,
may be in direct competition with the OTT Disinfector. Further, there can be no
assurance that any patents which may be obtained in the future on any of the
Company's products will provide any significant protection or be of commercial
benefit to the Company or that their validity will not be challenged.
Under the Disinfector License Agreement, the Company is obligated to adhere
to a general marketing plan pursuant to which the Company is to emphasize sales
to key teaching or teaching affiliated hospitals in major markets, attend
meetings of endoscopy professions, monitor sales activities and performance of
sale representative, engage an international sales firm with representatives or
distributors in foreign markets and perform other marketing activities.
The Disinfector License Agreement provides that Mayo Foundation may
terminate such agreement if the Company 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 Mayo Foundation.
PATENTS
MediVators holds patents in the United States in certain of its products and
processes and has other patents pending. These patents expire between the years
2005 and 2012. Licenses held on patents for disinfectors are through the Mayo
Foundation for Medical Education and Research. The Company considers its patents
to be important but not indispensable to its business. Although the Company
generally seeks patent protection when possible, the Company relies to a greater
degree on the technical expertise and know-how of its personnel than on its
patents to maintain its competitive position. There is no assurance that any
patents held or secured by the Company will provide any protection or commercial
or competitive benefit to the Company. There is also no assurance that the
Company's products will not infringe upon patents held by others.
MANUFACTURING AND SUPPLIERS
The Company currently manufactures or assembles all its products, except the
Sterapore Ultramicrofilter, in Cannon Falls, Minnesota. The Company has certain
components and subassemblies manufactured by other firms. All final assembly,
testing, quality control and shipping is done at the Company's facility in
Cannon Falls. The Company also sells disinfector components to international
distributors for the manufacture and assembly of disinfectors for international
sale.
ITEM 2. PROPERTIES
The Company's manufacturing facility is located in approximately 28,000
square feet of office/ warehouse space in Cannon Falls, Minnesota. This space is
part of a building owned by Curtis D. Luebke, the Company's chairman of the
board. This facility is leased to the Company pursuant to an oral agreement on a
month-to-month basis at a monthly rental of $9,022, and remains at that amount
as of March 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders during the fourth
quarter of the fiscal year 1994.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Series A Common Stock is traded in the over-the-counter market
on The Nasdaq Small Cap Market under the symbol "MVAT". The Series B Common
Stock is not listed on any public trading market. The following table sets
forth, for the periods indicated, the high and low closing bid as reported by
Nasdaq. The quotations in the over-the-counter market reflect inter-dealer
prices, without retail markup, markdown or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
----------- -----------
<S> <C> <C>
1993
First Quarter............................................................ 3 1/2 2 5/8
Second Quarter........................................................... 2 5/8 1 3/4
Third Quarter............................................................ 2 3/8 2 1/8
Fourth Quarter........................................................... 2 3/8 2
1994
First Quarter............................................................ 3 2 1/16
Second Quarter........................................................... 3 1/4 2 1/2
Third Quarter............................................................ 3 3/8 2 1/8
Fourth Quarter........................................................... 3 1/8 1 5/8
1995
First Quarter (through March 24, 1995)................................... 3 1/4 1 7/8
</TABLE>
As of March 24, 1995, there were approximately 216 shareholders of Class A
Common Stock and 1 holder of Class B Common Stock of record, not including
shareholders who beneficially own Series A Common Stock held in nominee or
street name. The last reported sale price of the Series A Common on March 24,
1995 was $2.00.
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
SALES
In 1994, sales were $3,309,524, an increase of 15% over the prior year. The
increase in sales is largely attributable to initial sales of the DSI System
2000 Infectious Medical Waste Disposal System. Disinfector sales were relatively
stable.
<TABLE>
<CAPTION>
YEAR ENDED 1994 YEAR ENDED 1993
--------------- ---------------
<S> <C> <C>
MediVators, Inc............................................ $ 2,903,966 $ 2,887,214
Disposal Sciences, Inc..................................... 405,558 848
--------------- ---------------
Total Sales............................................ $ 3,309,524 $ 2,888,062
</TABLE>
In March 1995 the Company signed a distribution agreement with Sun Medical,
Inc. covering the DSI System 2000 Infectious Medical Waste Disposal System in
eleven western states.
GROSS MARGINS
Gross profit was $1,106,455 in 1994, or 33% of sales compared to $953,900 in
1993, which was 33% of sales. The profit margin remained stable.
9
<PAGE>
OPERATING EXPENSES
Selling, general and administrative expenses were $1,554,973 in 1994, or 47%
of sales, a decrease of 5% from 1993. This was a result of cost containment
measures by the Company and the elimination of the MediFlex operation.
The Company expects that expenses relating to the DSD-91 and the DSI System
2000 Infectious Medical Waste Disposal System may result in increased selling
expenses in 1995.
Research and development expense was $305,442 in 1994, a decrease of
$650,107 from 1993. This reduction is a result of the termination of the
MediFlex operation in 1993, and the completion of the DSI System 2000 Infectious
Medical Waste Disposal System.
NON-OPERATING INCOME (EXPENSE)
Interest (expense) was ($6,308) in 1994 compared to an interest income of
$24,816 in 1993. The drop in interest income resulted from having less cash
invested and interest expense on a note payable in 1994.
NET INCOME (LOSS)
The company had a net loss of ($736,420) or ($.22) per weighted average
common share outstanding in 1994 compared to a net loss of ($1,569,610) or
($.55) per weighted average common share outstanding in 1993. The decrease in
the net loss is primarily attributable to the termination of MediFlex research
and development activities.
1993 COMPARED WITH 1992
The Company had sales in 1993 of $2,888,062, a 43% increase over the prior
year. The increase in sales is largely attributable to sales to MedFab's third
party customers. Disinfector sales were relatively flat in 1993. The Company
attributes the lack of growth in disinfector sales primarily to its inability to
market the new generation DSD-91 dual scope disinfector in the United States
prior to FDA clearance. The Company received FDA clearance of the DSD-91
disinfector in March 1994.
Gross profit was $953,900 in 1993 or 33% of sales compared to $788,138 or
39% of sales in 1992. The decrease in gross profit margin is due to a larger
portion of the Company's sales being generated by MedFab's operation. MedFab's
products typically have a lower margin than the Company's other products. In
addition, the Company experienced lowered selling prices for the OTT Disinfector
in 1993, which contributed to the decrease in gross margin.
Selling, general and administrative expenses were $1,627,731 in 1993, an
increase of 3% over 1992.
Research and development expense was $955,549 in 1993, an increase of
$623,258 over the prior year. Research and development expenses in 1993 included
approximately $530,000 for development of the DSI System 2000 Infectious Medical
Waste Disposal System and the redesign of the DSI-107, approximately $307,000
for MediFlex research and development, and approximately $119,000 for additional
FDA-required testing on the DSD-91 disinfector.
Interest income was $24,816 in 1993 compared to an interest income of
$106,160 in 1992. The drop in interest income resulted from having less cash
invested.
The Company had a net loss of $(1,569,610) in 1993 compared to net loss of
($1,058,979) in the previous year. The net loss was primarily attributable to
the cost of funding the research and development activities of DSI and MediFlex,
and the Company's inability to market the DSD-91 disinfector in the United
States prior to FDA clearance.
CAPITAL RESOURCES AND LIQUIDITY
SERIES B 10% CUMULATIVE REDEEMABLE CONVERTIBLE COMMON STOCK
In November, 1993, and January 1994, the Company completed a private
placement of an aggregate 125,950 shares of Series B 10% Cumulative Redeemable
Convertible Common Stock (the "Series B Shares") at $6.30 per share, with net
proceeds to the Company of approximately $674,682.
10
<PAGE>
The Series B shares are convertible at any time at the option of the holder
into three shares of Series A Common Stock and two warrants, each to purchase
one share of Series A Common Stock at an exercise price of $5.00 per share until
December 31, 1998. The Series B shares have a liquidation preference of $6.30
per share and are entitled to vote with Series A Common Stock (one vote per
share). The Series B shares bear a 10% annual dividend until conversion, payable
solely in shares of Series A common stock; the dividend accumulates but is not
payable except upon conversion of the Series B shares.
During 1994 and through March 24, 1995, 123,950 Series B shares were
converted into an aggregate 399,032 shares of Series A Common Stock and Series B
Warrants exercisable for an aggregate 247,900 shares of Series A Common Stock.
The conversions were registered pursuant to a registration statement on Form S-3
that was declared effective by the SEC on July 19, 1994, and by the State of
Minnesota on August 31, 1994. As of March 24, 1995, an aggregate 2,000 Series B
Shares remained outstanding, which, plus then-accrued dividends, were
convertible into approximately 6,733 shares of Series A Common Stock and Series
B Warrants exercisable to purchase an aggregate 4,000 shares of Series A Common
Stock.
LIQUIDITY
At December 1, 1994, working capital was $2,772,467, an increase of $694,665
from December 31, 1993. The increase is due to the private placements in early
1994. The Company's working capital includes parts and components inventories in
support of products with limited sales history, primarily the DSI-107 product
line where formal distribution agreements are presently in process. Provisions
for excess or obsolete inventories are made based on management's assessment of
expected future demand. Management believes that such inventories are fully
recoverable based on expressions of customer interest during the pre-market
phase and distributors' estimates of potential product demand. In January 1995,
$50,001 of a $290,000 note payable was converted into an aggregate 23,810 shares
of common stock. The Company repaid the remaining $239,999 in March 1995.
The Company has experienced recurring losses from operations primarily as a
result of high research and development costs and delays in bringing certain
products to market. These matters have combined to strain liquidity and
financial resources available to the Company. While the Company had net working
capital of approximately $2.8 million and stockholders' equity of approximately
$3.6 million at December 31, 1994, available cash is limited and may not be
sufficient to fund ongoing obligations unless profitable operations are attained
or additional sources of financing are found. The report of the independent
public accountants on the Company's financial statements contains an explanatory
second paragraph regarding the Company's ability to continue as a going concern.
Wish FDA approval of the dual disinfector product line in March, 1994 and
the completion of product development of the DSI System 2000 Infectious Medical
Waste Disposal System in October, 1994, and the Company entering into domestic
and international distribution agreements for the DSI System 2000 in 1995, the
Company expects to reduce the amount of cash used in operating activities. The
Company's loss decreased in 1994 and, in the fourth quarter of 1994, the Company
reported results at approximately a break-even level. In the opinion of
management, the Company's improved operating results will increase the prospects
of attracting any additional sources of funds from investors or lenders that may
be required. The Company's ability to continue as a going concern is dependent
upon the Company's ability to reduce the amount of cash used in operating
activities to improve its liquidity and to obtain addtional debt or equity
financing. The Company continues to explore additional sources of financing with
potential investors and financial institutions, but there can be no assurance
that additional financing will be obtained. The issuance of additional equity
would have a dilutive effect on existing shareholders.
11
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Index to Financial Statements.............................................................................. 12
Report of Independent Accountants.......................................................................... 13
Consolidated Balance Sheet as of December 31, 1994 and 1993................................................ 14
Consolidated Statement of Operations for the years ended December 31, 1994 and 1993........................ 15
Statements of Stockholders' Equity for the years ended December 31, 1994 and 1993.......................... 16
Statements of Cash Flows for the years ended December 1994 and 1993........................................ 17
Notes to Consolidated Financial Statements................................................................. 18
</TABLE>
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
MediVators, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of MediVators,
Inc. and its subsidiary at December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and uses
significant cash in its operations; consequently the Company may need to seek
additional financing to continue to fund operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's evaluation of this situation is described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Price Waterhouse LLP
Minneapolis, Minnesota
March 29, 1995
13
<PAGE>
MEDIVATORS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS
1994 1993
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents....................................... $ 509,680 $ 391,326
Accounts receivable, net of allowance for doubtful accounts of
$7,500......................................................... 1,176,298 628,816
Inventories..................................................... 1,650,843 1,382,264
Prepaid expenses and other current assets....................... 190,234 169,219
----------- -----------
Total current assets.......................................... 3,527,055 2,571,625
----------- -----------
Property and equipment, net....................................... 643,371 665,912
Goodwill, net of accumulated amortization of $190,295 and $144,276
respectively..................................................... 96,183 144,275
Other assets...................................................... 46,162 48,174
----------- -----------
$ 4,312,771 $ 3,429,986
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to stockholder..................................... $ 290,000 $ --
Accounts payable................................................ 306,964 372,716
Accrued compensation............................................ 111,469 77,542
Accrued royalties............................................... 26,708 28,031
Other accrued expenses.......................................... 19,447 15,534
----------- -----------
Total current liabilities..................................... 754,588 493,823
----------- -----------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Series B 10% cumulative redeemable convertible common stock, par
value $.01; authorized 500,000 shares; issued and outstanding
21,500 and 100,100 shares, respectively........................ 114,829 522,667
Series A common stock, par value $.01; authorized 10,000,000
shares; issued and outstanding 3,758,850 and 2,846,494 shares,
respectively................................................... 37,588 28,465
Additional paid-in capital...................................... 7,744,515 5,999,860
Deferred compensation........................................... (10,000) (22,500)
Accumulated deficit............................................. (4,328,749) (3,592,329)
----------- -----------
3,558,183 2,936,163
----------- -----------
$ 4,312,771 $ 3,429,986
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
14
<PAGE>
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
Net sales.......................................................................... $ 3,309,524 $ 2,888,062
Cost of goods sold................................................................. 2,203,069 1,934,162
------------- --------------
Gross profit................................................................... 1,106,455 953,900
Selling, general and administrative................................................ 1,544,973 1,627,731
Research and development........................................................... 305,442 955,549
Other (income) expense............................................................. (13,848) 41,765
Interest expense (income).......................................................... 6,308 (24,816)
Minority interest in losses of subsidiary.......................................... (76,719)
------------- --------------
Net loss....................................................................... $ (736,420) $ (1,569,610)
------------- --------------
------------- --------------
Loss per common share.......................................................... $ (.22) $ (.55)
------------- --------------
------------- --------------
Weighted average common shares outstanding..................................... 3,308,694 2,846,494
------------- --------------
------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE>
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
SERIES B 10%
CUMULATIVE
REDEEMABLE
CONVERTIBLE SERIES A
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
--------- --------- --------- --------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992...................... 2,846,494 $ 28,465 $5,999,860 $ (30,000) $(2,022,719) $ 3,975,606
Sale of Series B common
stock (net of offering
costs
of $107,963)............ 100,100 $ 522,667 522,667
Compensation expense..... 7,500 7,500
Net loss................. (1,569,610) (1,569,610)
--------- --------- --------- --------- ---------- ------------- ------------ -----------
Balance, December 31,
1993...................... 100,100 522,667 2,846,494 28,465 5,999,860 (22,500) (3,592,329) 2,936,163
Sales of Series A common
stock (net of offering
costs
of $80,350)............. 580,500 5,805 1,195,620 1,201,425
Sale of Series B common
stock (net of offering
costs
of $10,840)............. 25,850 152,015 152,015
Conversion of Series B
common stock into
Series A common stock... (104,450) (559,853) 335,606 3,356 556,497
Compensation expense..... 5,000 5,000
Forfeiture of deferred
compensation............ (3,750) (38) (7,462) 7,500
Net loss................. (736,420) (736,420)
--------- --------- --------- --------- ---------- ------------- ------------ -----------
Balance, December 31
1994...................... 21,500 $ 114,829 3,758,850 $ 37,588 $7,744,515 $ (10,000) $(4,328,749) $ 3,558,183
--------- --------- --------- --------- ---------- ------------- ------------ -----------
--------- --------- --------- --------- ---------- ------------- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE>
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (736,420) $ (1,569,610)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation.................................................................. 213,174 207,152
Amortization.................................................................. 50,104 155,610
Minority interest in losses of subsidiary..................................... (76,719)
Changes in assets and liabilities:
Accounts receivable......................................................... (547,482) 20,826
Inventories................................................................. (268,579) (64,666)
Other current assets........................................................ (16,015) 72,219
Current liabilities......................................................... (29,235) 81,441
-------------- --------------
Net cash used in operating activities..................................... (1,334,453) (1,173,747)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (190,633) (45,512)
Decrease in certificates of deposit............................................. 1,037,220
-------------- --------------
Net cash (used in) provided by investing activities....................... (190,633) 991,708
-------------- --------------
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable.......................................... 290,000
Net proceeds from sale of Series B common stock................................. 152,015 522,667
Net proceeds from sale of Series A common stock................................. 1,201,425
-------------- --------------
Net cash provided by financing activities................................. 1,643,440 522,667
-------------- --------------
-------------- --------------
Increase in cash and cash equivalents............................................. 118,354 340,628
Cash and cash equivalents:
Beginning....................................................................... 391,326 50,698
-------------- --------------
Ending.......................................................................... $ 509,680 $ 391,326
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE>
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company manufactures and markets medical devices and related products
which are used for disinfecting flexible endoscopes, fabricates and assembles
various plastic assemblies and products, and manufactures and markets sharps
disposal equipment.
LIQUIDITY AND FINANCIAL RESOURCES
The Company has experienced recurring losses from operations primarily as a
result of high research and development costs and delays in bringing certain
products to market. These matters have combined to strain liquidity and
financial resources available to the Company.
While the Company has net working capital of approximately $2.8 million and
stockholders' equity of approximately $3.6 million at December 31, 1994,
available cash is limited and may not be sufficient to fund ongoing obligations
unless profitable operations are attained or additional sources of financing are
found.
With FDA approval of the dual disinfector product line in March, 1994 and
the completion of product development of the DSI 2000 sharps disposal system in
October, 1994, the Company expects to reduce the amount of cash used in
operating activities and ultimately generate positive cash flows. The Company's
loss decreased in 1994 and, in the fourth quarter of 1994, the Company reported
results at approximately a break-even level. In the opinion of management, the
Company's improved operating results will increase the prospects of attracting
any additional sources of funds from investors or lenders that may be required.
As a result, the Company believes that sufficient financial resources will be
available to continue as a going concern.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Intercompany balances and transactions are
eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid marketable securities with original
maturities of three months or less. Cash and cash equivalents include
certificates of deposit totalling $200,000 at December 31, 1994.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis. Provisions for excess or obsolete inventories are made based on
management's assessment of expected future demand for various products. As a
result of delays in bringing certain products to market, there is limited sales
history for such products and, accordingly, estimates of future demand involve a
high degree of judgment.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
GOODWILL
Goodwill represents the excess cost over the fair value of net assets
acquired in business combinations accounted for under the purchase method.
Goodwill is amortized on a straight-line basis over the periods estimated to be
benefitted, currently not exceeding five years. The recoverability of
unamortized goodwill is assessed on an ongoing basis by comparing undiscounted
future cash flows from operations to net book value.
18
<PAGE>
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
INCOME TAXES
Income taxes are accounted for by use of the liability method.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the Company's net loss by the
average number of Series A shares of common stock and common stock equivalents
outstanding during the year. Common stock equivalents consist of stock options,
warrants and Series B shares. Series B common stock is a senior security which
is considered to be a common stock equivalent and is only included in shares
outstanding in those periods where its inclusion would have a dilutive effect.
Common stock equivalents are not included in weighted average common shares in
periods in which their inclusion would be anti-dilutive.
POST-RETIREMENT BENEFITS
The Company does not currently provide post-retirement benefits.
NOTE 2 -- DISCONTINUED LINE OF BUSINESS
In October, 1992, the Company and certain individuals formed an 80% owned
subsidiary primarily involved in the development of diagnostic and therapeutic
endoscopic systems. In December, 1993, the operations of this business were
discontinued and the related assets and liabilities were liquidated. The
Company's share of losses, after offset of the minority shareholders' interest,
was $306,876 during the year ended December 31, 1993.
NOTE 3 -- INVENTORIES
Inventories at December 31 are comprised of the following:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Raw material.............................................................. $ 1,006,115 $ 796,015
Work-in-process........................................................... 258,721 78,397
Finished goods............................................................ 386,007 507,852
------------- -------------
$ 1,650,843 $ 1,382,264
------------- -------------
------------- -------------
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment is comprised as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Machinery and equipment................................................... $ 744,295 $ 603,641
Office equipment.......................................................... 218,465 196,930
Leasehold improvements.................................................... 204,992 200,501
Vehicles.................................................................. 88,552 65,103
------------- -------------
1,256,304 1,066,175
Less: Accumulated depreciation............................................ (612,933) (400,263)
------------- -------------
$ 643,371 $ 665,912
------------- -------------
------------- -------------
</TABLE>
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER
At December 31, 1994, the Company has a $290,000 note payable to a
corporation which is also a stockholder. The outstanding principal balance is
payable on April 1, 1995, bears interest at 10% and
19
<PAGE>
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER (CONTINUED)
is convertible, at the option of the holder, into 138,095 shares of Series A
common stock. In January, 1995 the stockholder converted $50,000 of the note
payable into 23,810 shares of Series A common stock.
NOTE 6 -- SERIES B 10% CUMULATIVE REDEEMABLE CONVERTIBLE COMMON STOCK
During 1993 and 1994, the Company issued a total of 100,100 and 25,850
shares, respectively, of Series B 10% cumulative redeemable convertible common
stock at $6.30 per share. The Series B shares are convertible at any time at the
option of the holder into three shares of Series A common stock and two
warrants, each to purchase one share of Series A common stock at an exercise
price of $5.00 per share until December 31, 1998.
The Series B shares have a liquidation perference of $6.30 per share and are
entitled to vote with a Series A common stock (one vote per share). The Series B
shares bear a 10% annual dividend until conversion, payable solely in shares of
Series A common stock; the dividend accumulates but will not be payable except
upon conversion of the Series B shares. At conversion of the Series B shares,
accumulated and unpaid dividends will convert automatically into additional
shares of Series A common stock at a conversion price based upon the fair market
value of the Series A shares immediately preceding the conversion date.
During 1994, 104,450 shares of Series B common stock, plus accumulated
dividends, were converted into 335,606 shares of Series A common stock and
associated warrants to purchase 208,900 Series A shares. In 1995, 19,500 Series
B shares, plus accumulated dividends, were converted into 63,421 shares of
Series A common stock and associated warrants to purchase 39,000 Series A
shares.
The Company, in its sole discretion, may redeem the Series B shares at a
redemption price of $7.00 per share provided that the Company's Series A common
stock has traded at a price in excess of $6.00 per share on 20 of the 30 trading
days immediately preceding the date of redemption notice. Holders of Series B
shares will have 30 days after notice of redemption to determine whether to
convert or redeem their shares.
NOTE 7 -- COMMON STOCK OPTIONS AND STOCK WARRANTS
The Company has a stock option plan (Plan) which permits granting of both
qualified and nonqualified Series A common stock options to employees. Under the
Plan, the Board of Directors is authorized to grant up to 550,000 shares of
Series A common stock and establish the terms and conditions of all stock
options granted. At December 31, 1994, a total of 316,500 stock options were
outstanding under the Plan. In addition to options granted under the Plan, the
Board of Directors has granted 262,500 non-qualified Series A common stock
options to certain employees. Options have been granted at an option price per
share equal to or greater than the fair value at the date of the grant. The
options generally vest over a three to five year period and expire after seven
to ten years.
20
<PAGE>
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER (CONTINUED)
The table below summarizes all stock option activity:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- ---------------
<S> <C> <C>
Outstanding at December 31, 1992.......................................... 417,750 $ 2.00 - $2.13
Granted................................................................. 85,000 $ 2.00 - $2.13
----------
Outstanding at December 31, 1993.......................................... 502,750 $ 2.00 - $2.13
Granted................................................................. 107,500 $1.63
Cancelled............................................................... (31,250) $ 2.00 - $2.13
----------
Outstanding at December 31, 1994.......................................... 579,000 $ 1.63 - $2.13
----------
----------
Exercisable at December 31, 1994.......................................... 422,375
----------
----------
</TABLE>
The Company has also granted warrants to purchase shares of Series A and
Series B common stock, at or above fair market value, to certain unrelated
entities. At December 31, 1994, outstanding common stock warrants are as
follows:
<TABLE>
<CAPTION>
PURCHASE
DESCRIPTION SHARES PRICE EXPIRATION DATE
- ------------------------------------------------------------ --------- ----------- -------------------
<S> <C> <C> <C>
Series A common stock....................................... 150,000 $ 4.20 September, 1995
Series A common stock....................................... 208,900 $ 5.00 December, 1998
Series B common stock....................................... 12,595 $ 7.56 January, 1999
</TABLE>
NOTE 8 -- INCOME TAXES
For purposes of the tax return, the Company has net operating loss
carryforwards of approximately $3,900,000 which expire in the years ending
December 31, 2000 through 2008. In the event of additional capital stock
issuances, these carryforwards may be subject to limitations pursuant to Section
382 of the Internal Revenue Code.
For financial reporting purposes, the Company has approximately $3,900,000
of available loss carryforwards and net temporary differences. At existing tax
rate the future benefit approximates $1,600,000. A valuation allowance has been
established for the entire net tax benefit associated with all carryforwards and
temporary differences at December 31, 1994 as their realization is not assured.
The composition of expected future tax benefits at December 31, 1994 is as
follows:
<TABLE>
<S> <C>
Loss carryforward...................................................... $ 1,441,000
Temporary differences:
Inventory -- obsolescence reserve.................................... 30,000
Inventory -- uniform capitalization.................................. 76,000
Depreciation and amortization........................................ (14,000)
Other, net........................................................... 67,000
-----------
1,600,000
Less: Valuation allowance.............................................. (1,600,000)
-----------
$ 0
-----------
-----------
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office and production facilities on a month-to-month
basis from an officer and stockholder. Total rent expense included in the
statement of operations for the years ended December 31, 1994 and 1993 was
approximately $108,000 and $100,000, respectively.
21
<PAGE>
MEDIVATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTE PAYABLE TO STOCKHOLDER (CONTINUED)
LICENSE AGREEMENT
Under the terms of an exclusive license agreement with the Mayo Foundation
for Medical Education and Research, the Company is required to pay royalties
associated with sales of disinfectors. The duration of the agreement is 15 years
from 1990, or the life of the related patent, whichever is greater. Minimum
royalty payments of $75,000 are required for each license year.
CONTINGENCY
In conjunction with the 1992 acquisition of a sharps disposal business, the
Company agreed to pay contingent consideration, not to exceed $2 million, based
on profits of the acquired company for the period from acquisition through 1996.
No contingent purchase consideration is due to the Seller based on results since
acquisition through December 31, 1994.
NOTE 10 -- SIGNIFICANT CUSTOMERS AND EXPORT SALES
During the year ended December 31, 1994, sales to one customer represented
11% of total sales. During the year ended December 31, 1993, sales to two
customers represented 20% of total sales. Total export sales, primarily to
European and Canadian customers, comprised 26% and 30% of the Company's total
sales during the years ended December 31, 1994 and 1993, respectively. Amounts
due from international customers comprised approximately 28% of accounts
receivable at December 31, 1994.
22
<PAGE>
PART III
ITEM 9. DIRECTORS; EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Items 9, 10, 11, and 12 are incorporated by reference to the Proxy Statement
for the Annual Meeting of Shareholders of the Company scheduled to be held in
June 1995.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The Financial Statements, notes thereto and Independent Auditor's Report
thereon are included in Part II, Item 7 of this report.
(a)(2) Exhibits
3A.Articles of Incorporation of the Company, as amended.
3B.By-Laws of the Company, incorporated herein by reference to Exhibit 3B to
the Company's Registration Statement on Form S-18, File No. 33-41859C.
4A.Certificate of Designation of Series B 10% Cumulative Redeemable
Convertible Voting Common Stock Setting Forth the Powers, Preferences,
Rights, Qualifications, Limitations, and Restrictions of Such Series of
Common Stock, incorporated herein by reference to Exhibit 4A to the
Company's report on Form 10-KSB for the fiscal year ended December 31,
1993.
10AExclusive License Agreement by and between Mayo Foundation for Medical
Education and Research (formerly Mayo Medical Resources) and the Company
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 the Company's Registration Statement on Form S-18, File
No. 33-41859C.
10BExclusive License Agreement by and between Mayo Foundation for Medical
Evaluation and Research and the Company regarding the OTT Culture Kit
dated as of June 8, 1988, together with the First Amendment thereto dated
as of January 1, 1990, incorporated herein by reference to Exhibit 10B to
the Company's Registration Statement on Form S-18, File No. 33-41859C.
10CExclusive License Agreement with Mayo Foundation for Medical Education
and Research and the Company regarding the OTT Storage Rack dated as of
June 8, 1988 and the First Amendment thereto dated as of January 1, 1990,
incorporated herein by reference to Exhibit 10C to the Company's
Registration Statement on Form S-18, File No. 33-41859C.
10DEmployment Agreement by and between Curtis D. Luebke and the Company
dated as of June 15, 1991, incorporated herein by reference to Exhibit
10D to the Company's Registration Statement on Form S-18, File No.
33-41859C.*
23
<PAGE>
10EEmployment Agreement by and between Donald L. Sturtevant and the Company
dated as of June 15, 1991, incorporated herein by reference to Exhibit
10E to the Company's Registration Statement on Form S-18, File No.
33-41859C.*
10FForm of Restricted Stock Agreement by and between the Company and each of
Gerald D. Van Eeckhout and Thomas D. Mensing dated as of July 19, 1991,
incorporated herein by reference to Exhibit 10F to the Company's
Registration Statement on Form S-18, File No. 33-41859C.*
10GForm of Stock Option Agreement by and between the Company and each of
Gerald D. Van Eeckhout and Thomas D. Mensing dated as of July 19, 1991,
incorporated herein by reference to Exhibit 10G to the Company's
Registration Statement on Form S-18, File No. 33-41859C.*
10HAsset Purchase Agreement by and among Disposal Sciences, Inc., a
Minnesota corporation which is a wholly-owned subsidiary of Company,
Company, and National Syringe Disposal Incorporated d/b/a Disposal
Sciences, Inc., a Colorado corporation, incorporated herein by reference
to Exhibit 2 to the Company's Current Report on Form 8-K dated January
21, 1992.
10IPlacement Agent Warrant to Purchase Series B Cumulative Convertible
Common Stock of MediVators, Inc., as of January 25, 1994, incorporated
herein by reference to Exhibit 10M to the Company's report on Form 10-KSB
for the fiscal year ended December 31, 1993.
10JPlacement Agency Agreement by and between the Company and Kennedy Mathews
Landis Healy & Pecora, Incorporated dated September 15, 1993,
incorporated herein by reference to Exhibit 10N to the Company's report
on Form 10-KSB for the fiscal year ended December 31, 1993.
10KCorporate Finance Consulting Agreement between the Company and Kennedy
Mathews Landis Healy & Pecora, Incorporated dated November 12, 1993,
incorporated herein by reference to Exhibit 10O to the Company's report
on Form 10-KSB for the fiscal year ended December 31, 1993.
10LConvertible Promissory Note in the principal amount of $290,000 dated
March 31, 1994, incorporated by reference to Exhibit 10P to the Company's
report on Form 10-QSB for the quarter ended March 31, 1994.
10MSecurity Agreement by and between MediVators, Inc. and Pharmaceutical
Innovators Ltd., dated March 31, 1994, incorporated by reference to
Exhibit 10Q to the Company's report on Form 10-QSB for the quarter ended
March 31, 1994.
10N1991 Stock Option and Compensation Plan as amended. Incorporated by
reference to Exhibit 10P to the Company's Registration Statement on Form
S-3, File No. 33-79764.
10O1993 Director Stock Option Plan. Incorporated by reference to Exhibit 10Q
to the Company's Registration Statement on Form S-3, File No. 33-79764.
21 List of Subsidiaries incorporated by reference to Exhibit 21 to the
Company's report on Form 10-KSB for the fiscal year ended December 31,
1993.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of fiscal
year 1994.
- ------------------------
* Management Compensatory Plan or Arrangement
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDIVATORS, INC.
REGISTRANT
By ______/s/_DONALD L. STURTEVANT_____
Donald L. Sturtevant
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Date: March 29, 1994
In accordance with Section 13 or 15(d) of the Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<C> <S> <C>
Chairman of the Board, Chief
CURTIS D. LUEBKE Financial Officer (Principal
Curtis D. Luebke Financial and Accounting Officer) March 29, 1995
and Director
Chief Executive Officer (Principal
DONALD L. STURTEVANT Executive Officer), President and March 29, 1995
Donald L. Sturtevant Director
GERALD D. VAN EECKHOUT
Gerald D. Van Eeckhout Director March 29, 1995
THOMAS D. MENSING
Thomas D. Mensing Director March 29, 1995
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-20039
------------------------
MEDIVATORS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C>
MINNESOTA 41-1517173
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
CANNON PLAZA SOUTH, HIGHWAY 52 SOUTH, CANNON FALLS, MN
55009
(Address of principal executive office and zip code)
</TABLE>
Issuer's telephone number, including area code: (507) 263-4721
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for at least the past 90 days. Yes
_X_ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At November 14, 1995 there were outstanding 3,872,486 shares of Series A
Common Stock, $0.01 par value, and 2,000 shares of Series B 10% Cumulative
Redeemable Convertible Common Stock, $0.01 par value.
Transitional Small Business Disclosure: Yes ____ No X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MEDIVATORS, INC.
FORM 10-QSB INDEX
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Part I: Financial Information
Financial Statements
Unaudited Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994............. 3
Item 1.
Unaudited Consolidated Statements of Operations for the Three Month Periods and Nine Month
Periods Ended September 30, 1995 and 1994..................................................... 4
Unaudited Consolidated Statements of Cash Flows for the Nine Month Period Ended September 30,
1995 and 1994................................................................................. 5
Notes to Unaudited Consolidated Financial Statements.......................................... 6
Management's Discussion and Analysis of Financial Condition and Results of Operations......... 7
Item 2.
Part II: Other Information............................................................................. 9
Item 1. Legal Proceedings............................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders...........................................
Item 6. Exhibits and Reports on Form 8-K.............................................................. 9
</TABLE>
<PAGE>
MEDIVATORS, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER DECEMBER
30, 31,
1995 1994
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents....................................... $ 94,240 $ 509,680
Accounts receivable, net of allowance for doubtful accounts of
$105,000 and $7,500, respectively.............................. 608,277 1,176,298
Inventories..................................................... 1,367,840 1,650,843
Prepaid expenses and other current assets....................... 56,973 190,234
----------- -----------
Total current assets.......................................... 2,127,330 3,527,055
----------- -----------
Property and equipment, net....................................... 470,438 643,371
Goodwill, net..................................................... 96,183
Other assets...................................................... 46,301 46,162
----------- -----------
$ 2,644,069 $ 4,312,771
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable.................................................... $ 290,000
Accounts payable................................................ $ 394,702 306,964
Accrued compensation............................................ 89,970 111,469
Accrued royalties............................................... 22,685 26,708
Other accrued expenses.......................................... 42,275 19,447
----------- -----------
Total current liabilities..................................... 549,632 754,588
----------- -----------
Commitments
STOCKHOLDERS' EQUITY:
Series B 10% cumulative redeemable convertible common stock, par
value $.01; authorized 500,000 shares; issued and outstanding
2,000 and 21,500 shares, respectively.......................... 10,310 114,829
Series A common stock, par value $.01; authorized 10,000,000
shares; issued and outstanding 3,872,486 and 3,758,850 shares,
respectively................................................... 38,725 37,588
Additional paid-in capital...................................... 7,947,397 7,744,515
Deferred compensation........................................... (6,250) (10,000)
Accumulated deficit............................................. (5,895,745) (4,328,749)
----------- -----------
2,094,437 3,558,183
----------- -----------
$ 2,644,069 $ 4,312,771
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1995 1994 1995 1994
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Net sales......................................... $ 786,590 $ 750,832 $ 2,333,730 $ 2,199,290
Cost of sales..................................... 505,609 535,888 1,404,043 1,525,309
--------------- ------------- --------------- -------------
Gross profit.................................. 280,981 214,944 929,687 673,981
--------------- ------------- --------------- -------------
Selling, general and administrative............... 1,547,884 523,322 2,333,274 1,195,357
Research and development.......................... 95,754 94,117 241,469 250,764
Other expense (income), net....................... (367) (3,494) (78,060) (5,432)
--------------- ------------- --------------- -------------
1,643,271 613,945 2,496,683 1,440,689
--------------- ------------- --------------- -------------
Net (loss).................................... $ (1,362,290) $ (399,001) $ (1,566,996) $ (766,708)
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Net (loss) per share.............................. $ (.35) $ (.12) $ (.41) $ (.24)
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Weighted average common shares outstanding........ 3,858,573 3,465,134 3,846,073 3,192,561
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
MEDIVATORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (1,566,996) $ (766,708)
Adjustments to reconcile net (loss) to net cash used by operating activities:
Depreciation and amortization................................................. 282,854 186,178
Gain of sale of investments................................................... (79,500)
Changes in assets and liabilities:
Accounts receivable......................................................... 568,021 (233,113)
Inventories................................................................. 283,003 (291,174)
Other assets and liabilities................................................ 146,305 (38,018)
-------------- --------------
Net cash used in operating activities..................................... (366,313) (1,142,835)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (10,128) (163,972)
Proceeds from sale of investment................................................ 151,500
-------------- --------------
Net cash used in investing activities..................................... 141,372 (163,972)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable.......................................... 290,000
Proceeds from sale of Series A common stock..................................... 49,500 1,203,300
Proceeds from sale of Series B common stock..................................... 152,015
Redemption of note payable...................................................... (239,999)
-------------- --------------
Net cash provided by financing activities................................. (190,499) 1,645,315
-------------- --------------
(Decrease) increase in cash............................................... (415,440) 338,508
Cash and cash equivalents:
Beginning....................................................................... 509,680 391,326
-------------- --------------
Ending.......................................................................... $ 94,240 $ 729,834
-------------- --------------
-------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY
Note payable converted to Series A common stock................................... $ 50,001
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MEDIVATORS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year 1995.
These statements should be read in conjunction with the audited financial
statements and related notes included in the Company's 10-KSB filed for the year
ended December 31, 1994.
6
<PAGE>
MEDIVATORS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
SALES
Revenues for the nine months ended September 30, 1995 were $2,333,730, a 6%
increase from the comparable period of 1994.
Revenues for the three months ended September 30, 1995 were $786,590, a 5%
increase from the comparable period of 1994.
The increase in revenues in the third quarter 1995 as compared to the third
quarter 1994 can be primarily attributable to an increased marketing effort on
the DSD-91 disinfector. Domestic sales of the disinfector line increased 8% and
international sales of the disinfector line increased 61%. MedFab sales remained
consistent with 1994 levels.
GROSS MARGINS
Gross margins for the nine months ended September 30, 1995 were 40%. This is
higher than the 31% gross margins for the comparable period in 1994.
Gross margins for the three months ended September 30, 1995 were 36%. This
is higher than the 29% gross margins for the comparable period in 1994.
The increase in margins is primarily attributable to higher selling prices
and cost efficiencies due to higher quantity production compared to 1994.
OPERATING EXPENSES
Operating expenses were $2,574,743, or 110% of sales, for the nine months
ended September 30, 1995, compared to operating expenses of $1,446,121, 66% of
sales, for the nine months ended September 30, 1994.
Operating expenses were $1,643,638, or 209% of sales, for the three months
ended September 30, 1995, compared to operating expenses of $617,439, or 82% of
sales, for the three months ended September 30, 1994.
The increase in operating expenses of $1,026,199 during the third quarter is
primarily attributable to certain non-recurring expenses related to the
Company's DSI products.
Strained financial resources resulted in an inability to develop effective
distribution channels for the Company's DSI products. As a result, the future
salability of these products is uncertain. During the third quarter, the Company
recorded additional provisions for slow-moving DSI inventory and wrote off DSI
related goodwill and other assets, which totalled approximately $903,000.
NON-OPERATING INCOME AND (EXPENSE)
Non-operating income for the nine months ended September 30, 1995 was
$78,060, compared with non-operating income of $5,432 for the comparable period
in 1994.
Non-operating income for the three months ended September 30, 1995 was $367
compared with non-operating income of $3,494 for the comparable period in 1994.
The increase in the non-operating income for the nine month period was due to
the gain on the sale of an investment in the second quarter 1995.
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MEDIVATORS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET INCOME (LOSS)
Net income (loss) for the nine months ended September 30, 1995 was
($1,566,996) or ($.41) per weighted average number of common shares outstanding
compared with ($766,708) or ($.24) per weighted average number of common shares
outstanding for the nine months ended September 30, 1994.
Net income (loss) for the three months ended September 30, 1995 was
($1,362,290) or ($.35) per weighted average number of common shares outstanding
compared with ($399,001) or ($.12) per weighted average number of common shares
outstanding for the three months ended September 30, 1994. Net loss was affected
as a result of certain non-recurring expenses related to the Company's DSI
products as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
At September 30, 1995, the Company had cash in the amount of $94,240, a
decrease of $415,440 over cash available at December 31, 1994. At September 30,
1995, working capital was $1,577,698, an decrease of $1,194,769 from December
31, 1994. The decrease in cash can be attributed to operating losses and the
repayment of the $290,000 convertible working capital loan. $50,001 was
converted into an aggregate 23,810 shares of Series A Common Stock and $239,999
was repaid in March 1995.
The Company has experienced, and continues to experience, recurring losses
from operations. The Company requires financing to continue future operations.
The Company has signed a merger agreement with Cantel Industries, Inc., whereby,
pursuant to the agreement, Cantel has agreed to provide up to $190,000 to the
Company on a secured loan basis at the prime rate plus two percent. The loan
must be repaid over nine amortized installments beginning March 1, 1996. Such
loan will provide cash for operations through the merger. If the merger is not
completed additional financing will be required. There can be no assurance that
such financing will be available, or, if available, will be on terms favorable
to the Company or its stockholders. The report of the independent public
accountants on the Company's financial statements for the year ended December
31, 1994 contained an explanatory second paragraph regarding the Company's
ability to continue as a going concern.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the Company's report on Form 10-KSB for the fiscal year ended December
31, 1994 for a description of pending legal proceedings. There were no material
developments in any pending legal proceedings in the quarter ended September 30,
1995.
ITEM 5. OTHER ITEMS
On November 15, 1995, MediVators, Inc. and Cantel Industries announced they
have entered into a merger agreement whereby Cantel will acquire MediVators.
Under the terms of the agreement, upon consummation of the merger, each share of
MediVators stock will be exchanged for .2571 shares of Cantel stock. When
consummated, the merger would result in the stockholders of MediVators owning
approximately 998,000 shares of Cantel stock, which represents approximately a
26 percent equity interest in Cantel.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on form 8-K Current Report were filed during the quarterly
period ended September 30, 1995.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MediVators, Inc.
(Registrant)
/s/ CURTIS D. LUEBKE
- --------------------------------------------------------------------------------
Curtis D. Luebke
Chairman of Board and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ DONALD L. STURTEVANT
- --------------------------------------------------------------------------------
Donald L. Sturtevant
Chief Executive Officer and President
(Principal Executive Officer)
Date: November 17, 1995
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SECTION 302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a)An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of
the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or
to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new
class or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does not
give rise to the right to obtain payment under this section;
(b)A sale, lease, transfer, or other disposition of all or substantially all
of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c)A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d)A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to vote on the plan; or
(e)Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting stockholders may obtain payment for their
shares.
SUBDIVISION 2. BENEFICIAL OWNERS.
(a)A shareholder shall not assert dissenters' rights as to less than all of
the shares registered in the name of the shareholder, unless the
shareholder dissents with respect to all the shares that are beneficially owned
by another person but registered in the name of the shareholder and discloses
the name and address of each beneficial owner on whose behalf the shareholder
dissents. In that event, the rights of the dissenter shall be determined as if
the shares as to which the shareholder has dissented and the other shares were
registered in the names of different shareholders.
(b)The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this section and section 302A.473, if the beneficial owner submits to
the corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
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SUBDIVISION 3. RIGHTS NOT TO APPLY. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
SUBDIVISION 4. OTHER RIGHTS. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
SECTION 302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
SUBDIVISION 1. DEFINITIONS.
(a)For purposes of this section, the terms defined in this subdivision have
the meanings given them.
(b)"Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or
the successor by merger of that issuer.
(c)"Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to
in section 302A.471, subdivision 1.
(d)"Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1,
up to and including the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
SUBDIVISION 2. NOTICE OF ACTION. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
SUBDIVISION 3. NOTICE OF DISSENT. If the proposed action must be approved
by the shareholders, a shareholder who wishes to exercise dissenter's rights
must file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
SUBDIVISION 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a)After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all
shareholders who have complied with subdivision 3 and to all shareholders
entitled to dissent if no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date
by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents,
acquired the shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b)In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days after
the notice required by paragraph (a) was given, but the dissenter retains all
other rights of a shareholder until the proposed action takes effect.
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SUBDIVISION 5. PAYMENT; RETURN OF SHARES.
(a)After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation
shall remit to each dissenting shareholder who has complied with subdivisions 3
and 4 the amount the corporation estimates to be the fair value of the shares,
plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date
of the corporate action, together with the latest available interim
financial statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b)The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented
from was first announced to the public or who is dissenting on behalf of a
person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c)If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
SUBDIVISION 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise a dissenter is entitled only to
the amount remitted by the corporation.
SUBDIVISION 7. PETITION; DETERMINATION. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last registered
office of the constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under subdivision 6 and who
have not reached agreement with the corporation. The corporation shall, after
filing the petition, serve all parties with a summons and copy of the petition
under the rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use,
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whether or not used by the corporation or by a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which the
fair value of the shares as determined by the court, plus interest, exceeds the
amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to the
dissenter under subdivision 5 exceeds the fair value of the shares as determined
by the court, plus interest.
SUBDIVISION 8. COSTS; FEES; EXPENSES.
(a)The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of those
costs and expenses against a dissenter whose action in demanding payment under
subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b)If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and
expenses of any experts or attorneys as the court deems equitable. These fees
and expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be awarded
to a party injured by those actions.
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