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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended July 31, 1997
Commission File No. 0-6132
CANTEL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-1760285
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1135 Broad Street, Clifton, New Jersey 07013
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(973) 470-8700
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
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(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of registrant's capital stock held by non-affiliates
(based on shares held and the closing price quoted by NASDAQ on October 8,
1997): $14,674,436
Number of shares of common stock outstanding as of the close of the period
covered by this report: 4,166,322
Documents incorporated by reference: Definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934 in connection with the 1997 Annual Meeting of Stockholders of
Registrant.
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PART I
Item 1. BUSINESS.
GENERAL
The Company, through Carsen Group Inc., its wholly-owned Canadian
subsidiary ("Carsen" or "Canadian subsidiary"), is engaged in the marketing
and distribution of medical and infection control, scientific and consumer
products in Canada. The Company, through MediVators, Inc., its wholly-owned
United States subsidiary ("MediVators" or "United States subsidiary"), is
engaged in the manufacturing, marketing and distribution of infection control
products. The Company also provides servicing of the products it manufactures
and distributes. Unless the context otherwise requires, references herein to
the "Company" include Cantel Industries, Inc. ("Cantel") and its subsidiaries.
The medical and infection control products distributed by Carsen
consist of medical equipment, including flexible and rigid endoscopes,
endoscope disinfection equipment, medical sharps disposal systems, surgical
equipment and related accessories. The infection control products
manufactured and distributed by MediVators consist of endoscope disinfection
equipment and supplies and medical sharps disposal systems. The scientific
products distributed by Carsen consist of precision instruments, including
microscopes and related accessories and certain laboratory equipment and
related accessories; and industrial technology equipment, including
borescopes, fiberscopes, video image scopes and related accessories. The
consumer products distributed by Carsen consist of photographic and optical
equipment, including 35 mm., APS (advanced photo systems) and digital cameras
and binoculars, hand-held dictation equipment and related accessories.
Carsen distributes the majority of its medical, scientific, and
consumer products pursuant to an agreement with Olympus America Inc. (the
"Olympus Agreement"), a United States affiliate of Olympus Optical Co. Ltd.,
a Japanese corporation ("Olympus Optical"), under which the Company has been
granted exclusive distribution rights for certain Olympus products in Canada.
Most of such products are manufactured by Olympus Optical and its affiliates
in Japan and other foreign countries. Unless the context otherwise requires,
references herein to "Olympus" include Olympus America Inc. and Olympus
Optical, and their affiliates. Carsen, or its predecessor, has been
distributing Olympus products in Canada since 1949.
Carsen also distributes other products under separate distribution
agreements, including additional medical and infection control, scientific
and consumer products and accessories.
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MediVators' endoscope disinfection equipment is distributed in the
United States, Central and South America, the Caribbean and the West Indies
(excluding Bermuda) by Olympus pursuant to an agreement (the "MediVators
Agreement") under which Olympus has been granted exclusive distribution
rights in these territories. MediVators' endoscope disinfection equipment is
distributed in other countries under other exclusive distribution agreements.
MediVators' medical sharps disposal systems are distributed in the United
States and internationally pursuant to exclusive distribution agreements.
The following table gives information as to the percentage of
consolidated net sales accounted for by each operating segment during the
indicated periods.
Year Ended July 31,
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1997 1996 1995
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Medical, Infection Control
and Scientific Products:
Medical and Infection
Control Products......... 56.5% 54.4% 53.3%
Scientific Products......... 16.6 19.1 16.9
Product Service............. 11.4 12.5 11.8
Consumer Products............. 15.5 14.0 18.0
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100.0% 100.0% 100.0%
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Medical and Infection Control Products
Medical and Infection Control Products are the Company's major source of
revenue and profitability. This segment is comprised of the medical and
infection control equipment distributed by Carsen and infection control
equipment manufactured and sold by MediVators through its worldwide
distribution network.
Medical Equipment. Carsen's principal source of revenue is from the
distribution to hospitals throughout Canada of specialized endoscopes,
surgical equipment and related accessories, 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.
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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 high resolution
solid state image sensor that enables a picture to be transmitted
electronically to a monitor, which picture can be viewed by a group of
physicians and nurses as a medical procedure is being performed. The
flexible video endoscope comprises the majority of Carsen's flexible
endoscopy sales.
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
laparoscope, 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 laparoscope 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
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commonly used for urology, gynecology, orthopedics, and general surgery,
including minimally invasive surgery.
Carsen also distributes various specialized medical instruments and
accessories utilized in both rigid and flexible endoscopy including scissors,
graspers, forceps and other surgical accessories; ambulatory PH and motility
monitoring equipment (which is used for diagnosis of various gastrointestinal
and respiratory disorders); urodynamics monitoring equipment (which is used
for diagnosis of various urinary tract disorders); endoscope disinfection
equipment; insufflators (which deliver and monitor gas to expand abdominal
and other cavities); video monitors, recorders and printers; "cold" light
supplies (which provide light for endoscopy procedures); and carts, trolleys
and cleaners.
All of the endoscopes and certain other medical instruments and
accessories distributed by Carsen are manufactured by Olympus. Other medical
products distributed by Carsen are manufactured by Sandhill Scientific, Inc.
(ambulatory PH and motility monitoring equipment), Life-Tech, Inc.
(urodynamics monitoring equipment), Argus Medical Company Inc. (surgical
instruments), Sony of Canada Ltd. (video monitors, recorders and printers)
and MediVators (endoscope disinfection equipment and medical sharps disposal
systems).
Infection Control Equipment. MediVators' principal source of revenue is
from the manufacturing and distribution of endoscope disinfection equipment
and related accessories to hospitals through various distributors in the
United States and internationally.
MediVators' primary product is the DSD-91, which received FDA clearance
of its 510(k) premarket notification in March 1994, and is a microprocessor
controlled dual endoscope disinfection system. The DSD-91 will disinfect two
endoscopes at a time, can be used on a broad variety of endoscopes and is
programmable by the user. MediVators also manufactures a single scope
disinfection unit, the SSD, which is based upon the same design as the DSD-91.
Although endoscopes generally can be manually cleaned and disinfected,
there are many problems associated with such methods including the lack of
uniform cleaning procedures, personnel exposure to disinfectant fumes and
disinfectant residue levels in the endoscope. 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 the disinfecting process generally will be selected by hospital
personnel based on the object to be disinfected, the hospital facilities and
the disinfectants available.
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After manual cleaning, an endoscope is placed in the reservoir of the
DSD-91 disinfector which then disinfects the endoscope by pumping
disinfectant throughout the endoscope, including the endoscope's working
channels. The disinfector is a delivery system to ensure that the endoscope,
including the working channels, will be exposed to the disinfectant for the
recommended period of time. The disinfector is operated by medical personnel
such as gastrointestinal assistants. Minimal training is required to operate
the disinfector. MediVators believes that the use of its endoscope
disinfection equipment will result in more thorough disinfection.
MediVators believes its disinfection equipment offers several advantages
over manual immersion in disinfectants. The disinfectors are designed to
pump disinfectant through all working channels of the endoscope, thus
exposing all areas of the endoscope to the disinfectant. This process can
also inhibit the build up of residue in the working channels. In addition,
the entire disinfecting process can be completed with minimal participation
by the operator, freeing the operator for other tasks, reducing the exposure
of personnel to the chemicals used in the disinfection process and reducing
the risk of infectious diseases. The disinfectors also reduce the risk of
inconsistent manual disinfecting.
MediVators also manufactures and distributes medical sharps disposal
systems which provide for point-of-use destruction and decontamination of
most types of disposable medical sharps waste, such as syringes, scalpels,
razors and IV needles. Sales of sharps disposal systems were not significant
in fiscal 1997.
Scientific Products
The Scientific Products segment is comprised of the precision instruments
and the industrial technology equipment distributed by Carsen and
MediVators' MedFab custom plastics fabrication operation.
Precision Instruments. Carsen distributes Olympus microscopes and
complementary scientific equipment and accessories. Other precision
instruments distributed by the Company include Narishige U.S.A., Inc.
micromanipulators (which enable a viewer to manipulate objects being viewed
under a microscope); Media Cybernetics, Inc. high resolution image analysis
software and hardware; Tecan U.S. Inc. microplate readers, fluorometers and
washers (photometric measurement systems); and Sheldon Manufacturing, Inc.
incubators, warming ovens and water baths (temperature control instruments)
and anaerobic chambers (controlled atmosphere for bacteriology applications),
as well as optical accessories such as high contrast optics, objectives
(magnifying lenses) and reticules and video calipers (both of which measure
objects being viewed under a
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microscope). The products are used in numerous disciplines for the
microscopic study of objects and are sold directly to the end user.
The precision instruments distributed by Carsen are sold to hospitals for
cytology, pathology and histology purposes; government laboratories for
research and forensics; universities and other educational institutions for
research and teaching purposes; and private and industrial laboratories for
bio-technology, geology, pharmacology, metallography, quality control and
manufacturing applications.
Industrial Technology Equipment. Carsen distributes three types of
industrial technology equipment that are similar to endoscopes, but are
designed for a market known as remote visual inspection ("RVI".) RVI is the
application of endoscopic technology for industrial uses. These products
distributed by Carsen, most of which are manufactured by Olympus, consist of
rigid borescopes (devices that are similar to rigid endoscopes), which use a
series of relay lenses to transmit an image through a stainless steel
insertion tube; fiberscopes (devices that are similar to flexible
endoscopes), which use fiberoptic image carrying bundles to transmit images
through a flexible insertion tube; and video image scopes, which utilize a
small, high resolution solid state image sensor that enables a picture to be
transmitted electronically to a monitor.
Carsen also has a number of products under its own trademark, "Optiscan."
These products have been sourced from outside suppliers or designed by
Carsen. Most Optiscan products currently available complement or enhance the
Olympus RVI business. Optiscan products include IVS (integrated video
systems) video documentation products which integrate video camera, monitor
and VCR in one portable unit; ultra-thin quartz glass fiberscopes for
specialized applications, particularly in the nuclear power industry; and IAS
(Image Archiving System) which consists of specialized software enabling the
user to capture and archive high-resolution digital images. The IAS product
has medical, precision and industrial applications.
The industrial technology equipment distributed by Carsen is generally
purchased by large industrial companies engaged in the oil and gas,
aerospace, chemical, power generation, mining, forestry, semiconductor and
automotive industries, that require inspections of their machinery or
processes for research and development, measurement, maintenance or quality
control. Carsen also develops new applications for its products, which are
then customized by Carsen for such applications, based upon the nature of a
company's business.
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Product Service
Carsen operates a service organization at its Markham, Ontario facility
that provides warranty and out-of-warranty service and repairs for medical,
infection control and scientific products distributed by Carsen. These
products bear a product warranty that entitles the purchaser to warranty
repairs and service at a nominal or no charge during the warranty period.
Carsen, and not the manufacturer of the product, is responsible for the cost
of warranty repairs. The warranty period for these products is generally one
year. The customer pays Carsen on a time and materials basis for the
out-of-warranty service of these products.
MediVators provides a one year warranty for repairs and service of its
infection control products. Generally, warranty repairs and service related
to the endoscope disinfection equipment are performed by the distributor for
these products. Occasionally, MediVators performs out-of-warranty service of
its infection control products for which the customer pays MediVators on a
time and materials basis.
Consumer Products
Carsen distributes consumer products in Canada, comprised principally of
photographic and optical equipment. This equipment, most of which is
manufactured by Olympus, includes 35 mm. lens shutter cameras (also known as
"point and shoot" cameras), 35 mm. single lens reflex cameras, APS (advanced
photo systems) cameras, digital cameras, binoculars, light meters, and other
photographic products and accessories. Carsen also distributes Olympus
hand-held dictation equipment and accessories.
Two new camera systems, APS and digital, were introduced in fiscal 1997.
The APS camera models utilize an easier, drop-in cartridge system and offer a
selection of print formats. Digital cameras, unlike conventional 35 mm.
cameras, digitize and store images on a removable memory card inserted into
the camera. These stored, digitized images can be downloaded to a computer,
where images can then be enhanced, manipulated and printed.
Carsen distributes its consumer products primarily to independent
retailers, cooperative buying groups, large retail store chains and major
department stores. Carsen also distributes such products to government
agencies, school boards, the military, promotional sales organizations and
catalog houses and other end-users.
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Carsen operates a service organization at its Markham, Ontario facility,
as well as contracts with independent service centers throughout Canada to
provide warranty service for the consumer products distributed by Carsen.
Pursuant to the Olympus Agreement, Carsen is required to provide warranty
service for all Olympus cameras presented to Carsen for service, whether or
not such cameras were sold by Carsen. This obligation has not had a material
adverse effect on Carsen. Carsen generally provides a two year warranty for
35 mm. and APS cameras and a one year warranty for digital cameras and other
consumer products. Carsen also provides out-of-warranty service for its
consumer products.
Distribution Agreements
Olympus Agreement. The majority of Carsen's sales of medical, scientific
and consumer products have been made pursuant to the Olympus Agreement, under
which Olympus has granted Carsen the exclusive right to distribute the
covered Olympus products in Canada. All products sold by Carsen pursuant to
the agreement bear the "Olympus" trademark. The Olympus Agreement expires on
March 31, 2001. Carsen, or its predecessor, has been distributing Olympus
products in Canada since 1949.
During the term of the Olympus Agreement, Carsen has agreed that it will
not manufacture, distribute, sell or represent for sale in Canada any
products which are competitive with the Olympus products covered by the
Olympus Agreement.
The Olympus Agreement imposes minimum purchase obligations on Carsen with
respect to each of medical equipment, precision instruments, industrial
technology equipment and consumer products. The aggregate annual minimum
purchase obligations for all such products (excluding digital camera
products) are approximately $13.9 million, $15.5 million, $17.3 million and
$19.4 million during the contract years ending March 31, 1998, 1999, 2000 and
2001, respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the right to terminate the
Olympus Agreement with respect to each product group for which Carsen has
failed to meet the minimum purchase requirements. If Carsen fails to meet
such requirements for both precision instruments and industrial technology
equipment, or for medical equipment, then Olympus has the right to terminate
the entire Olympus Agreement. Olympus may also terminate the Olympus
Agreement if Carsen breaches its other obligations under the Olympus
Agreement.
MediVators Agreement. MediVators has a three year agreement with Olympus
which expires on April 30, 1999, under which Olympus was granted the
exclusive right to distribute certain endoscope disinfection equipment and
related accessories
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in the United States, Central and South America, the Caribbean, and the West
Indies (excluding Bermuda). All products sold by Olympus pursuant to this
agreement bear both the "Olympus" and "MediVators" trademarks.
This agreement imposes minimum purchase obligations on Olympus. Failure
to achieve the minimum purchase requirement in any contract year would give
MediVators the right to terminate the agreement.
Marketing
Carsen markets its products for each industry segment through separate,
dedicated sales forces comprised primarily of its own employees who are
compensated on a salary and commission basis.
MediVators sells its endoscope disinfection equipment and related
accessories, both in the United States and internationally, to distributors
which generally operate under exclusive distribution agreements. MediVators
generally sells its medical sharps disposal systems, both in the United
States and internationally, through either exclusive distribution agreements
or sales representatives.
Effect of Currency Fluctuations and Trade Barriers
A substantial portion of the Company's products are 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 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
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quality product service, particularly with respect to medical and infection
control products, the numerous customer contacts developed during its lengthy
service as a distributor of Olympus products and the distribution arrangement
for certain MediVators infection control products with Olympus, give the
Company a competitive advantage with respect to certain of its products.
Government Regulation
MediVators' products are subject to regulation by the United States Food
and Drug Administration ("FDA"), which regulates the testing, manufacturing,
packaging, distribution and marketing of medical devices in the United
States, including certain products manufactured by MediVators. Delays in FDA
review of proposed new products can significantly delay new product
introduction and may result in a product becoming "dated" or losing its
market opportunity before it can be introduced. Certain of MediVators'
products may be regulated by other governmental or private agencies,
including the Environmental Protection Agency ("EPA"), Underwriters Lab,
Inc., and comparable agencies in certain foreign countries. The FDA and
other agency clearances generally are required before MediVators can market
new products in the United States or make significant changes to existing
products. The FDA also has the authority to require a recall or modification
of products in the event of a defect.
The Medical Device Amendments of 1976 to the Food, Drug and Cosmetic Act,
amended in 1990 and 1997 (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 design and 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
inspections of medical device manufacturers and may issue reports or
citations where the manufacturer has failed to comply with appropriate
regulations and procedures. Compliance with the provisions of the Act and
the FDA's regulations is time-consuming and expensive. On March 18, 1996,
the FDA conducted a routine General Manufacturing Practices inspection and
MediVators was found to be in a general state of control and no FD-483
complaint was issued. Federal, state and foreign regulations regarding the
manufacture and sale of MediVators' products are subject to change.
MediVators cannot predict what impact, if any, such changes might have on its
business.
License Agreement
MediVators is a party to an exclusive worldwide license agreement with
the Mayo Foundation for Medical Education and Research (the "Mayo
Foundation") which grants MediVators a license
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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"). The License Agreement expires on December 31, 2005. Under the
License Agreement, MediVators must pay a royalty equal to five percent (5%)
of the net revenues received by MediVators from sales of the OTT Disinfector
and enhancements or improvements to the OTT Disinfector. Although MediVators
no longer sells the OTT Disinfector, it pays the Mayo Foundation a royalty on
revenues from sales of a successor line of disinfector product developed by
MediVators known as the DSD-91. This product does not utilize the patented
technology of the OTT Disinfector but did evolve from certain licensed
know-how related thereto.
Patents and Proprietary Rights
MediVators holds patents on certain of its medical sharps disposal
systems which it believes are of material importance to MediVators. However,
MediVators does not currently hold any patents with respect to its endoscope
disinfection equipment. Its current disinfector product, the DSD-91,
utilizes certain know-how developed by the Mayo Foundation pursuant to the
License Agreement, but has no patent protection.
Backlog
On October 8, 1997, the Company's consolidated backlog was approximately
$1,870,000, compared with approximately $860,000 on October 4, 1996.
Employees
As of October 8, 1997, the Company employed 150 persons. Of the
Company's employees, 101 are located in Canada and 49 are located in the
United States; 15 are executives and/or managers, 40 are engaged in sales, 8
are engaged in customer service, 26 are engaged in product service, 31 are
engaged in manufacturing, shipping and warehouse functions, 23 perform
various administrative functions and 7 are engaged in research and
development.
None of the Company's employees are represented by labor unions. The
Company considers its relations with its employees to be satisfactory.
Item 2. PROPERTIES.
Carsen leases a building, containing approximately 41,000 square feet,
located in Markham, Ontario. This facility is used for warehouse, service
and office space for Carsen. The lease expires in July 2000, subject to the
Company's option to renew for
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five years. The lease provides for monthly base rent of approximately
$10,000 for the remainder of the lease term.
MediVators leases approximately 27,500 square feet of commercial space,
located in Eagan, Minnesota. This facility is used for manufacturing,
warehouse and office space for MediVators. The lease expires on September
30, 2001, subject to the Company's option to renew for five years. The lease
provides for monthly base rent of approximately $13,000 for the next two
years and approximately $14,000 for the last two years.
The Company leases approximately 2,000 square feet of office space in
Clifton, New Jersey, for its executive offices. The lease, which expires in
January 2000, provides for monthly base rent of approximately $3,500.
The Company believes that its facilities are adequate for its current
needs.
Item 3. LEGAL PROCEEDINGS.
In November 1995, the Company was one of over 100 named defendants in the
lawsuit titled "Caldwell Trucking PRP Group v. ADT Automotive, Inc.,
including Cantel Industries, Inc." (Civ. No. 95-1690 (WGB) brought by nine
companies which settled a Comprehensive Environmental Response Compensation
and Liability Act claim by the United States Government and the State of New
Jersey for contribution to the remediation costs of an alleged hazardous
waste site in New Jersey. This lawsuit is currently pending in the United
States District Court for the District of New Jersey. The complaint, which
relates to alleged septic and/or industrial waste disposed of prior to 1984,
seeks total past and future remediation costs from the named defendants and
prior settling companies estimated at approximately $20 million, but does not
allege any specific offense against the Company at this time. Management of
the Company believes that Cantel was not engaged in the production,
transportation or dumping of industrial waste at any time. Currently, the
Company is participating in an alternative dispute resolution ("ADR")
process. The ADR process is expected to conclude during calendar 1998, with
proposed allocations to each ADR participant. Although the Company can make
no estimate of what its share, if any, of this total potential exposure could
be, based on its current knowledge and available information, management
believes that the claim will not have a material adverse effect on the
Company. Furthermore, notwithstanding the ADR process, the Company believes
that it has defenses to the suit and that it may have insurance covering such
claims in whole or in part.
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In February 1996, an arbitration proceeding was commenced against
MediVators titled "Pioneer Medical, Inc. vs. MediVators, Inc." The
plaintiff, a former sales representative of MediVators, alleges an
unspecified amount due for future sales of MediVators' products in the
plaintiff's former sales territory, as well as other ancillary claims and
punitive damages. MediVators has asserted a counterclaim of approximately
$25,000 for unpaid products sold to this former sales representative. An
arbitration hearing date is tentatively set for November 1997. Recently, the
plaintiff commenced a lawsuit against MediVators titled "Pioneer Medical,
Inc. vs. MediVators, Inc." in Connecticut State Court alleging claims that
appear to be identical to those in the arbitration matter. MediVators has not
yet had an opportunity to formally respond to this lawsuit. Management
believes that the claims alleged in both the arbitration matter and lawsuit
are unmeritorious and intends to vigorously defend itself in these actions,
and that the claims will not have a material adverse effect on the Company.
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 1997.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the NASDAQ National Market under the
symbol "CNTL." The following table sets forth, for the periods indicated,
the high and low bid prices for the Common Stock as reported by NASDAQ.
The Company has not paid any cash dividends on the Common Stock and a
change in this policy is not presently under consideration by the Board of
Directors.
HIGH LOW
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Year Ended July 31, 1996
First Quarter 10 1/4 5 7/8
Second Quarter 11 3/8 8 3/4
Third Quarter 10 1/2 6 3/4
Fourth Quarter 11 6 3/4
Year Ended July 31, 1997
First Quarter 8 7
Second Quarter 8 1/2 6 1/2
Third Quarter 9 3/4 5 3/4
Fourth Quarter 6 5
On October 8, 1997, the closing price of the Company's Common Stock was
$7.00 and the Company had 318 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.
- 15 -
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The financial data in the following table is qualified in its entirety
by, and should be read in conjunction with, the financial statements and
notes thereto and other information incorporated by reference in this Form
10-K. The Merger of Cantel and MediVators on March 15, 1996 has been
accounted for as a pooling of interests in accordance with generally accepted
accounting principles. Under this accounting treatment, the assets,
liabilities, stockholders' equity, results of operations and cash flows of
MediVators have been consolidated at their historical amounts for all periods
presented and the Company's previously issued financial statements are
restated as though MediVators had always been consolidated as a wholly-owned
subsidiary. For fiscal 1997, 1996, 1995 and 1994, the data below has been
extracted from the audited consolidated financial statements of the Company
as of and for each of the years ended July 31. For fiscal 1993, the data
below has been extracted from the audited consolidated financial statements
of Cantel as of and for the fiscal year ended July 31, 1993 and the audited
consolidated financial statements of MediVators as of and for calendar year
1993, except for the weighted average number of common and common equivalent
shares and the common shares outstanding which are combined as of July 31 of
that year.
- 16 -
<PAGE>
Consolidated Statements of Operations Data:
(Amounts in thousands, except per share data)
Year Ended July 31
------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -----------
Net sales................ $34,987 $29,792 $34,125 $32,204 $31,521
Cost of sales............ 23,329 19,433 23,704 21,737 21,491
Gross profit............. 11,658 10,359 10,421 10,467 10,030
Income (loss) from
continuing operations
before interest expense,
income taxes and
extraordinary
gain (1)............... 2,671 1,216 700 1,276 (162)
Interest expense (2)..... 143 258 492 283 159
Income (loss) from con-
tinuing operations
before income taxes.... 2,528 958 208 993 (321)
Income taxes (2)......... 1,432 536 1,001 1,054 1,160
Income (loss) from con-
tinuing operations..... 1,096 422 (793) (61) (1,481)
Income (loss) from
discontinued
operations (3)......... - - - 562 (24)
Extraordinary gain on
extinguishment
of debt (4)............ - - - 1,211 -
Net income (loss)........ 1,096 422 (793) 1,712 (1,505)
Dividends on preferred
stocks................. - - - 314 1,185
Net income (loss) attri-
butable to common stock 1,096 422 (793) 1,398 (2,690)
Earnings per common share:
Primary:
Continuing operations.. $ .25 $ .10 $(.21) $(.10) $(.96)
Discontinued operations - - - .15 (.01)
Extraordinary gain....... - - - .31 -
----- ------ ----- ------ ------
Net income (loss).... $ .25 $ .10 $(.21) $ .36 $(.97)
----- ------ ----- ----- ------
----- ------ ----- ----- ------
Fully diluted (5):
Continuing operations.. $ .25 $ .10 $(.21) $(.10) $(.83)
Discontinued operations - - - .15 (.01)
Extraordinary gain....... - - - .31 -
----- ------ ----- ----- ------
Net income (loss)........ $ .25 $ .10 $(.21) $ .36 $(.84)
----- ------ ----- ----- ------
----- ------ ----- ----- ------
Weighted average number
of common and common
equivalent shares:
Primary................. 4,354 4,309 3,739 3,845 2,765
Fully diluted............ 4,354 4,309 3,739 3,889 3,197
- 17 -
<PAGE>
Consolidated Balance Sheet Data:
(Amounts in thousands, except per share data)
July 31,
-------------------------------------------
1997 1996 1995 1994 1993
------ ------- ------- ------- -------
Total assets ............. $18,602 $15,998 $19,823 $18,412 $20,910
Current assets............ 17,009 14,454 17,994 16,328 18,691
Current liabilities (6)... 5,903 3,081 5,271 5,029 7,173
Working capital........... 11,106 11,373 12,723 11,299 11,518
Long-term debt, less
current portion(6)...... 1,594 3,419 6,087 4,327 7,989
Stockholders' equity...... 11,017 9,401 8,374 8,885 5,457
Book value per
outstanding common
share................... $2.64 $2.42 $2.22 $2.39 $1.71
Common shares
outstanding............. 4,166 3,889 3,765 3,713 3,198
- -----------------
(1) Includes for fiscal 1996, costs of $486,000 associated with the Merger.
Includes for fiscal 1995, a $903,000 write-down of certain inventory and
related assets of MediVators' Disposal Sciences, Inc. subsidiary.
Includes for fiscal 1993 a write-off of $135,000 in costs related to the
termination of a proposed private placement of securities.
(2) Includes for fiscal 1996, a recovery of prior years' federal and
provincial income taxes and withholding taxes of approximately $182,000
and interest of approximately $103,000 arising from a negotiated
settlement with Revenue Canada of a prior year tax reassessment.
Includes for fiscal 1993, an income tax charge of $413,000 related to
management's estimated cost to settle this reassessment. Includes for
fiscal 1994 and 1993, an interest charge of $34,000 and $120,000,
respectively, representing interest on the federal and provincial income
taxes and withholding taxes.
(3) Income (loss) from discontinued operations reflects the October 1993
sale of all of the assets, and the transfer of certain liabilities, of
the Seating Division previously owned by Cantel, to the German
manufacturer of the seating products, as well as the operating results
of the Seating Division in periods prior to the sale.
(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.
- 18 -
<PAGE>
(5) In fiscal 1993, includes the adding back of Cantel Series B Preferred
Stock dividends of $100,000 and Cantel Series B Preferred Stock
imputed dividends of $152,000 to reflect the conversion of the Series B
Preferred Stock into 600,000 shares of Common Stock as of the beginning of
the fiscal year.
(6) Current liabilities and long-term debt as of July 31, 1993 include an
aggregate of $1,388,000 of deferred interest benefit arising out of
Cantel's debt restructuring which was consummated in fiscal 1991.
- 19 -
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
The results of operations described hereafter reflect primarily the
results of Carsen and MediVators. There was no significant impact upon the
Company's results of operations for fiscal 1997 compared with fiscal 1996, or
fiscal 1996 compared with fiscal 1995, as a result of translating Canadian
dollars into United States dollars.
The following table gives information as to the net sales and the
percentage to the total net sales accounted for by each operating segment of
the Company.
Year Ended July 31,
----------------------------------------
1997 1996 1995
------- ------- -------
(Dollar amounts in thousands)
$ % $ % $ %
------- ----- ------- ----- ----- ---
Medical and Infection
Control and Scientific
Products:
Medical and
Infection Control
Products.............. $19,771 56.5 $16,221 54.4 $18,213 53.3
Scientific
Products.............. 5,786 16.6 5,693 19.1 5,756 16.9
Product Service......... 3,999 11.4 3,718 12.5 4,030 11.8
Consumer Products......... 5,431 15.5 4,160 14.0 6,126 18.0
-------- ----- ------- ------ ------ ------
$34,987 100.0 $29,792 100.0 $34,125 100.0
------- ----- ------- ------ ------- ------
------- ----- ------- ------ ------- ------
Fiscal 1997 compared with Fiscal 1996
Net sales increased by $5,195,000, or 17.4%, to $34,987,000 in fiscal
1997, from $29,792,000 in fiscal 1996. This increase was principally
attributable to the increased sales of Medical and Infection Control Products
and Consumer Products. The increased sales of Medical and Infection Control
Products was primarily attributable to an increase in demand for both medical
products and infection control products. This increase includes the full
year impact of the strategic alliance with Olympus America Inc. ("Olympus")
for the sale of MediVators' endoscope disinfection equipment, as described in
Note 7 to the Consolidated Financial Statements; expansion and improvement of
the international distribution of MediVators' infection control products; and
the improvement in economic conditions in Canada, where sales of medical
products during fiscal 1996 were adversely impacted by certain cost control
measures implemented by various provincial governments which decreased or
delayed funding to
- 20 -
<PAGE>
hospitals, thereby reducing hospital spending for capital equipment.
Net sales of Consumer Products in fiscal 1997 increased by
approximately 31% over fiscal 1996 and represented approximately 16% of the
Company's net sales during fiscal 1997, compared with 14% during fiscal 1996.
The increased sales of Consumer Products for fiscal 1997 were due primarily
to stronger demand from national accounts for certain 35 mm. camera models,
where price reductions received from Olympus on such models were partially
passed along to customers, as well as the demand for digital cameras, which
were introduced during fiscal 1997. As a result, there was a significant
reduction in the operating loss generated by Consumer Products during fiscal
1997.
Gross profit increased by $1,299,000, or 12.5%, to $11,658,000 in
fiscal 1997, from $10,359,000 in fiscal 1996. The gross profit margin as a
percentage of sales decreased to 33.3% in fiscal 1997, from 34.8% in fiscal
1996. The lower gross profit margin for fiscal 1997 was primarily
attributable to more competitive sales of medical products and the increased
sales of consumer products, which generally have lower profit margins.
Partially offsetting these decreases in margin were increased sales volume of
medical and infection control products, which generally have higher profit
margins, and a more efficient method of repairing endoscopes.
Shipping and warehouse expenses decreased by $89,000 to $590,000 for
fiscal 1997, from $679,000 for fiscal 1996. The decrease was attributable to
reductions in freight costs, rent and personnel costs.
Selling expenses as a percentage of net sales were 12.6% for fiscal
1997, compared with 14.6% for fiscal 1996. The decrease was attributable to
the impact of the increased sales against the fixed portion of these
expenses, as well as the elimination of certain variable selling expenses
previously associated with the domestic distribution of MediVators' endoscope
disinfection equipment.
General and administrative expenses increased by $156,000 to
$3,407,000 for fiscal 1997, from $3,251,000 for fiscal 1996. The increase
was primarily attributable to increased personnel costs, some of which
represent incentive compensation, professional fees and MediVators'
relocation expenses.
Research and development expenses increased by $215,000 to $589,000
for fiscal 1997, from $374,000 for fiscal 1996. This increase was
substantially due to planned new product development at MediVators.
- 21 -
<PAGE>
Costs associated with the Merger of $486,000 in fiscal 1996
represented expenses incurred in connection with the MediVators acquisition,
which was accounted for as a pooling of interests.
Interest expense decreased to $143,000 in fiscal 1997, from $258,000
in fiscal 1996. This decrease was attributable to a decrease in average
borrowings and lower average interest rates under the Carsen revolving credit
facility, partially offset by increased borrowings under the MediVators
revolving credit facility during fiscal 1997. Additionally, during fiscal
1996, there was a recovery of interest at Carsen of approximately $103,000
related to the tax reassessments described in Note 6 to the Consolidated
Financial Statements.
Income from operations before income taxes increased by $1,570,000 to
$2,528,000 for fiscal 1997, from $958,000 for fiscal 1996.
Income taxes consist primarily of foreign income taxes imposed on the
Company's Canadian operations and Canadian withholding taxes on dividends
remitted by Carsen to Cantel in the United States. The effective tax rate on
Canadian operations was 44.9% and 44.6% for fiscal 1997 and 1996,
respectively. However, the consolidated effective tax rate is higher due to
the fact that losses generated by the Company's combined U.S. operations
cannot be used to offset income generated by the Canadian operations. In
addition, income taxes for fiscal 1996 are net of a recovery of $182,000 of
taxes related to the tax reassessment described in Note 6 to the Consolidated
Financial Statements.
No tax benefits have been recognized on the Company's United States
operations as a result of the losses generated in fiscal 1997 and prior
years.
Fiscal 1996 compared with Fiscal 1995
Net sales decreased by $4,333,000, or 12.7%, to $29,792,000 in fiscal
1996, from $34,125,000 in fiscal 1995. This decrease was principally
attributable to the decreased sales of Medical and Infection Control Products
and Consumer Products. The decreased sales of Medical and Infection Control
Products in fiscal 1996 was primarily attributable to a decrease in demand
for medical products, offset in part by an increase in demand for infection
control products. The sales of medical equipment have been adversely
impacted in Canada by certain cost control measures implemented by various
provincial governments which decreased or delayed funding to hospitals,
thereby reducing hospital spending for capital equipment. The new
distribution agreement with Olympus America Inc. entered into by MediVators
on May 1, 1996, as described in Note 7 to the Consolidated Financial
Statements, had a limited effect on net sales of infection control products
during
- 22 -
<PAGE>
fiscal 1996. The decreased sales of Consumer Products resulted from lower
demand for product, primarily attributable to the loss of national account
business.
Although net sales of Consumer Products represented approximately
14%, 18%, and 23% of the Company's net sales during fiscal 1996, 1995 and
1994, respectively, Consumer Products has incurred operating losses for each
of the past three fiscal years. The lack of growth and profitability of
Consumer Products has resulted principally from lower demand for product.
During fiscal 1996 and 1995, the reduced demand and increased operating
losses were primarily attributable to the loss of national account business,
either through the total loss of customers or the reduction of orders. The
Company has undertaken steps to address the current market conditions by
restructuring the Consumer Products' sales functions and marketing
strategies. Additionally, in fiscal 1997, Olympus extended price reductions
on certain camera models in order to make Olympus cameras more price
competitive in Canada, where all other significant manufacturers of cameras
distribute on a direct basis.
Gross profit decreased by $62,000, or 0.6%, to $10,359,000 in fiscal
1996, from $10,421,000 in fiscal 1995. The gross profit margin as a
percentage of sales increased to 34.8% in fiscal 1996, from 30.5% in fiscal
1995. The higher gross profit margin was principally attributable to a
provision for slow-moving infection control inventory recorded in fiscal
1995, the sales mix in all divisions, the decreased sales of Consumer
Products which generally have lower profit margins and a more efficient
method of repairing endoscopes. These margin increases were partially offset
by price increases received from Olympus, a portion of which could not be
passed on through higher selling prices.
Shipping and warehouse expenses decreased by $107,000 to $679,000 for
fiscal 1996, from $786,000 for fiscal 1995. The decrease was attributable to
reductions in freight costs, rent and personnel costs.
Selling expenses as a percentage of net sales were 14.6% for fiscal
1996, compared with 14.8% for fiscal 1995. The impact of the reduced sales
against the fixed portion of these expenses was offset in part by a reduction
in fixed selling expenses.
General and administrative expenses decreased by $269,000 to
$3,251,000 for fiscal 1996, from $3,520,000 for fiscal 1995. The decrease
was primarily attributable to a cost reduction program implemented at Carsen,
as well the write-down of certain MediVators' assets to their estimated net
realizable value in fiscal 1995.
- 23 -
<PAGE>
Costs associated with the Merger of $486,000 in fiscal 1996
represented expenses incurred in connection with the MediVators acquisition,
which was accounted for as a pooling of interests.
Interest expense decreased to $258,000 in fiscal 1996, from $492,000
in fiscal 1995. This decrease is due to a recovery of interest of
approximately $103,000 related to the tax reassessments described in Note 6
to the Consolidated Financial Statements and a decrease in average borrowings
and lower average interest rates under the Canadian revolver.
Income from operations before income taxes increased by $750,000 to
$958,000 for fiscal 1996 from $208,000 for fiscal 1995.
Income taxes represent taxes imposed on the Company's Canadian
operations and Canadian withholding taxes on dividends remitted by Carsen to
Cantel in the United States. In addition, income taxes for fiscal 1996 are
net of a recovery of $182,000 of taxes related to the tax reassessment
described in Note 6 to the Consolidated Financial Statements.
No tax benefits have been recognized on the Company's United States
operations as a result of the losses generated in fiscal 1996 and prior
years.
Liquidity and Capital Resources
At July 31, 1997, the Company's working capital was $11,106,000,
compared with $11,373,000 at July 31, 1996. This decrease primarily reflects
increases in accounts payable and income taxes payable, partially offset by
increases in accounts receivable and inventories. Accounts receivable and
accounts payable at July 31, 1997 reflect increased sales and related product
purchases during the month of July 1997.
Net cash provided by operating activities was $1,623,000 for fiscal 1997
and $2,133,000 for fiscal 1996, compared with net cash used in operating
activities of $2,059,000 for fiscal 1995. In fiscal 1997, the net cash
provided by operating activities was primarily due to net income after
adjusting for depreciation and increases in accounts payable and accrued
expenses and income taxes payable, partially offset by increases in accounts
receivable and inventories. In fiscal 1996, the net cash provided by
operating activities was primarily due to net income after adjusting for
depreciation and a decrease in accounts receivable, partially offset by a
decrease in accounts payable and accrued expenses. The net cash used in
operating activities in fiscal 1995 was primarily due to a net loss after
adjusting for depreciation, an increase in accounts receivable and a decrease
in
- 24 -
<PAGE>
income taxes payable, partially offset by an increase in accounts payable and
accrued expenses.
Net cash used in investing activities was $373,000, $142,000 and
$134,000 in fiscal 1997, 1996 and 1995, respectively.
Net cash used in financing activities was $1,276,000 in fiscal 1997 and
$2,108,000 in fiscal 1996, compared with net cash provided by financing
activities of $1,495,000 in fiscal 1995. These changes were principally due
in fiscal 1997 and 1996 to the reduction of long-term debt, partially offset
by proceeds from the exercise of stock options and warrants, and in fiscal
1995 due to an increase in outstanding borrowings under the Canadian
revolving credit facility.
The Company has two credit facilities, a $5,000,000 revolving credit
facility for Carsen, and a $2,000,000 revolving credit facility for
MediVators.
Pursuant to the terms of the Carsen revolving credit facility,
borrowings under such facility must be paid in full no later than December
31, 1999. Borrowings outstanding at July 31, 1997 and 1996 are in Canadian
dollars and bear interest at rates ranging from lender's Canadian prime rate
to .75% above the prime rate, depending upon Carsen's debt to equity ratio.
At July 31, 1997, the lender's Canadian prime rate was 4.75% and Carsen's
outstanding borrowings bear interest at such prime rate. Subsequent to July
31, 1997, the lender's prime rate increased to 5.25% and Carsen's outstanding
borrowings will bear interest at a rate of .25% above such 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.
There were $798,000 of borrowings outstanding under this facility at July 31,
1997.
Pursuant to the terms of the MediVators' revolving credit facility,
borrowings under such facility must be paid in full no later than December 3,
1998. Borrowings bear interest at 1.5% above the lender's United States
prime rate. The lender's prime rate was 8.5% at July 31, 1997. A commitment
fee on the unused portion of this facility is payable in arrears at a rate of
.5% per annum, with interest on borrowings payable monthly. There were
$755,000 of borrowings outstanding under this facility at July 31, 1997.
Each of the credit facilities provide for restrictions on available
borrowings based primarily upon percentages of eligible accounts receivable
and inventories; require the subsidiary to meet certain financial covenants;
are secured by substantially all assets of the subsidiary; and are guaranteed
by Cantel.
- 25 -
<PAGE>
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 result in a corresponding adverse change in the
United States dollar value of the Company's assets that are denominated in
Canadian dollars. Under the Carsen credit facility the Company's Canadian
subsidiary has a $15,000,000 (U.S. dollars) foreign exchange hedging facility
which is available to be used to minimize future adverse currency
fluctuations as they relate to purchases of inventories.
The Company's Canadian subsidiary had foreign exchange forward contracts
at October 8, 1997 aggregating $9,000,000 (U.S. dollars) to hedge against
possible declines in the value of the Canadian dollar which would otherwise
result in higher inventory costs. Such contracts represent the Canadian
subsidiary's projected purchases of inventories for the months of February
1998 through July 1998.
The average exchange rate of the contracts open at October 8, 1997 was
$1.3574 Canadian dollar per United States dollar, or $.7367 United States
dollar per Canadian dollar. The exchange rate published by the Wall Street
Journal on October 8, 1997 was $1.3723 Canadian dollar per United States
dollar, or $.7287 United States dollar per Canadian dollar.
The Company believes that its anticipated cash flow from operations and
the funds available under the revolving credit facilities will be sufficient
to satisfy the Company's cash operating requirements for the foreseeable
future based upon the current level of operations. At October 8, 1997,
approximately $5,500,000 was available under the credit facilities.
As of July 31, 1997, the Company had net operating loss carryforwards
for United States income tax purposes ("NOLs") of approximately $16,350,000
which will expire through July 31, 2012. Of this amount, approximately
$4,350,000 represents NOLs accumulated by MediVators prior to the Merger,
which may only be used against the future earnings of MediVators and are
subject to annual limitations due to the ownership change.
In addition, the Company and its Canadian subsidiary cannot file
consolidated tax returns, for Canadian or United States income tax purposes.
Therefore, neither net losses sustained by the Company in the United States
nor the NOLs can be utilized to reduce Canadian federal or provincial income
taxes payable by the Canadian subsidiary on its taxable income nor can losses
sustained by the Canadian subsidiary, if any, be used to offset taxable
income earned by the Company in the United States. This has resulted in the
payment of income taxes by the Company in
- 26 -
<PAGE>
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.
- 27 -
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 in
connection with the 1997 Annual Meeting of Stockholders of Registrant.
Item 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 in
connection with the 1997 Annual Meeting of Stockholders of Registrant.
Item 12. SECURITY OWNERSHIP OF
BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 in
connection with the 1997 Annual Meeting of Stockholders of Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 in
connection with the 1997 Annual Meeting of Stockholders of Registrant.
- 28 -
<PAGE>
PART IV
Item 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual
Report on Form 10-K for the fiscal year ended July 31, 1997.
1. Consolidated Financial Statements:
(i) Reports of Independent Auditors.
(ii) Consolidated Balance Sheets as of July 31, 1997 and
1996.
(iii) Consolidated Statements of Operations for the
years ended July 31, 1997, 1996 and 1995.
(iv) Consolidated Statements of Changes in Stockholders'
Equity for the years ended July 31, 1997, 1996 and 1995.
(v) Consolidated Statements of Cash Flows for the years
ended July 31, 1997, 1996 and 1995.
(vi) Notes to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedules:
(i) Schedule II - Valuation and Qualifying Accounts for
the years ended July 31, 1997, 1996 and 1995.
All other financial statement schedules are omitted since they are not
required, not applicable, or the information has been included in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits:
2 - Agreement and Plan of Merger dated as of November
14, 1995 by and among MediVators, Inc., Registrant and Cantel Acquisition
Corp. (Incorporated herein by reference to
- 29 -
<PAGE>
Annex I of Registrant's Registration Statement on Form S-4, Reg. No.
33-64727.)
3(a) - Registrant's Restated Certificate of Incorporation
dated July 20, 1978. (Incorporated herein by reference to Exhibit 3(a) to
Registrant's 1981 Annual Report on Form 10-K.)
3(b) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on February 16, 1982. (Incorporated
herein by reference to Exhibit 3(b) to Registrant's 1982 Annual Report on
Form 10-K.)
3(c) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on May 4, 1984. (Incorporated herein by
reference to Exhibit 3(c) to Registrant's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1984.)
3(d) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on August 19, 1986. (Incorporated herein
by reference to Exhibit 3(d) of Registrant's 1986 Annual Report on Form
10-K.)
3(e) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on December 12, 1986. (Incorporated
herein by reference to Exhibit 3(e) of Registrant's 1987 Annual Report on
Form 10-K [the "1987 10-K"].)
3(f) - Certificate of Amendment of Certificate of
Incorporation of Registrant, filed on April 3, 1987. (Incorporated herein by
reference to Exhibit 3(f) of Registrant's 1987 10-K.)
3(g) - Certificate of Change of Registrant, filed on July
12, 1988. (Incorporated herein by reference to Exhibit 3(g) of Registrant's
1988 Annual Report on Form 10-K.)
3(h) - Certificate of Amendment of Certificate of
Incorporation of Registrant filed on April 17, 1989. (Incorporated herein by
reference to Exhibit 3(h) to Registrant's 1989 Annual Report on Form 10-K
[the "1989 10-K"].)
3(i) - Registrant's By-Laws adopted June 1, 1976, as
amended through the date of this Report. (Incorporated herein by reference
to Exhibit 3(d) to Registrant's 1985 Annual Report on Form 10-K.)
- 30 -
<PAGE>
10(a) - Registrant's 1991 Employee Stock Option Plan, as
amended. (Incorporated herein by reference to Exhibit 10(a) to Registrant's
1991 Annual Report on Form 10-K [the "1991 10-K"].)
10(b) - Form of Stock Option Agreement under Registrant's
1991 Employee Stock Option Plan. (Incorporated herein by reference to
Exhibit 10(b) to Registrant's 1991 10-K.)
10(c) - Registrant's 1991 Directors' Stock Option Plan.
(Incorporated herein by reference to Exhibit 10(c) to Registrant's 1991
10-K.)
10(d) - Form of Stock Option Agreement under the
Registrant's 1991 Directors Stock Option Plan. (Incorporated herein by
reference to Exhibit 10(d) to Registrant's 1991 10-K.)
10(e) - Stock Option Agreement, dated as of June 20,
1990, between the Registrant and James P. Reilly. (Incorporated by reference
to Exhibit 10(g) to Registrant's 1990 Annual Report on Form 10-K [the "1990
10-K"].)
10(f) - Stock Option Agreement, dated as of July 25, 1990
between the Registrant and James P. Reilly. (Incorporated by reference to
Exhibit 10(q) to Registrant's 1990 10-K.)
10(g) - Agreement between Carsen Group Inc. and Olympus
America, Inc., dated April 1, 1994. (Incorporated by reference to Exhibit
10(g) to Registrant's 1994 Annual Report on Form 10-K [the "1994 10-K"].)
10(h) - Form of Registrant's Common Stock Purchase
Warrants dated December 27, 1988. (Incorporated herein by reference to
Exhibit 10(t) to Registrant's 1989 10-K.)
10(i) - Form of Registrant's Common Stock Purchase
Warrants dated July 14, 1989. (Incorporated herein by reference to Exhibit
10(w) to Registrant's 1989 10-K.)
10(j) - Loan Agreement dated as of October 29, 1993
among Registrant, Carsen Group Inc. and National Bank of Canada.
(Incorporated herein by reference to Exhibit 10(v) of Registrant's 1993
Annual Report on Form 10-K.)
10(k) - Stock Option Agreement, dated as of February 3,
1994, between the Registrant and Darwin C. Dornbush. (Incorporated herein by
reference to Exhibit 10(1) to Registrant's 1995 Annual Report on Form 10-K
[the "1995 10-K"].)
- 31 -
<PAGE>
10(l) - Stock Option Agreement, dated as of December 15,
1994, between the Registrant and Robert L. Barbanell. (Incorporated herein
by reference to Exhibit 10(m) of Registrant's 1995 10-K.)
10(m) - First Amendment to Loan Agreement, dated as of
August 28, 1995, among Registrant, Carsen Group Inc. and National Bank of
Canada. (Incorporated herein by reference to Exhibit 10(n) of Registrant's
1995 10-K.)
10(n) - Exclusive License Agreement by and between Mayo
Foundation for Medical Education and Research (formerly Mayo Medical
Resources) and MediVators regarding the OTT Disinfector dated April 1, 1986,
together with the First Amendment thereto dated May 26, 1988 and the Second
Amendment thereto dated as of January 1, 1990. (Incorporated herein by
reference to Exhibit 10A to MediVators' Registration Statement on Form S-18,
File No. 33-41859C.)
10(o) - MediVators' 1991 Stock Option and Compensation
Plan as amended. (Incorporated by reference to Exhibit 10P to MediVators'
Registration Statement on Form S-3, File No. 33-79764.)
10(p) - MediVators' 1993 Director Stock Option Plan.
(Incorporated by reference to Exhibit 10Q to MediVators' Registration
Statement on Form S-3, File No. 33-79764.)
10(q) - Loan and Security Agreement dated as of May 27,
1996 among MediVators, Inc., Disposal Sciences, Inc. and National Canada
Finance Corp. (Incorporated by reference to Exhibit 10(s) of Registrant's
1996 Annual Report on Form 10-K [the "1996 10-K"].)
10(r) - Stock Option Agreement, dated as of October 17,
1996 , between the Registrant and Charles M. Diker. (Incorporated by
reference to Exhibit 10(v) of Registrant's 1996 10-K.)
10(s) - Registrant's 1997 Employee Stock Option Plan.
10(t) - Form of Incentive Stock Option Agreement under
Registrant's 1997 Employee Stock Option Plan.
10(u) - Employment Agreement, dated as of December 23,
1996, between the Registrant and Edward E. Meltz.
10(v) - Employment Agreement, dated as of July 11, 1997,
between the Registrant and R.M. (Ric) Rumble.
- 32 -
<PAGE>
10(w) - Second Loan Amending Agreement, dated as of April
19, 1996, among Registrant, Carsen Group Inc. and National Bank of Canada.
10(x) - Third Loan Amending Agreement, dated as of March
7, 1997, among Registrant, Carsen Group Inc. and National Bank of Canada.
10(y) - First Amendment to Distribution Agreement between
Olympus America Inc. and Carsen Group Inc., dated as of August 26, 1997,
among Registrant and Olympus America Inc.
11 - Computation of Earnings per Share Data.
21 - Subsidiaries of Registrant.
24(a) - Consent of Ernst & Young LLP.
24(b) - Consent of Price Waterhouse LLP.
27 - Financial Data Schedule.
(b) Reports on Form 8-K: None.
- 33 -
<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 24, 1997 By: /s/ James P. Reilly
----------------------------
James P. Reilly, President
and Chief Executive Officer
(Principal Executive Officer
and Principal Financial
Officer)
By: /s/ Craig A. Sheldon
----------------------------
Craig A. Sheldon, Vice
President and Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Charles M. Diker Date: October 24, 1997
- ----------------------------
Charles M. Diker, a Director
and Chairman of the Board
/s/ James P. Reilly Date: October 24, 1997
- ----------------------------
James P. Reilly, a Director
and President
/s/ Robert L. Barbanell Date: October 24, 1997
- ----------------------------
Robert L. Barbanell, a Director
/s/ Richard L. Bloch Date: October 24, 1997
- ----------------------------
Richard L. Bloch, a Director
/s/ Darwin C. Dornbush Date: October 24, 1997
- ----------------------------
Darwin C. Dornbush, a Director
/s/ Alan J. Hirschfield Date: October 24, 1997
- ----------------------------
Alan J. Hirschfield, a Director
/s/ Morris W. Offit Date: October 24, 1997
- ----------------------------
Morris W. Offit, a Director
/s/ Bruce Slovin Date: October 24, 1997
- ----------------------------
Bruce Slovin, a Director
- 34 -
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
<PAGE>
CONTENTS
Reports of Independent Auditors.................................... 1
Financial Statements
Consolidated Balance Sheets........................................ 4
Consolidated Statements of Operations.............................. 5
Consolidated Statements of Changes in Stockholders' Equity......... 6
Consolidated Statements of Cash Flows.............................. 7
Notes to Consolidated Financial Statements......................... 8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders Cantel Industries, Inc.
We have audited the accompanying consolidated balance sheets of Cantel
Industries, Inc. as of July 31, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cantel Industries, Inc. at July 31, 1997 and 1996 and the consolidated results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We previously audited and reported on the consolidated statements of
operations, changes in stockholders' equity and cash flows of Cantel
Industries, Inc. for the year ended July 31, 1995, as well as the financial
statement schedule listed in the Index at Item 14(a), prior to their
restatement for the
<PAGE>
1996 pooling of interests as described in Note 3. The contribution of Cantel
Industries, Inc. to net sales and net income represented $31,079,000 and
$1,001,000 of the respective restated 1995 totals. Financial statements of
MediVators, Inc. included in the 1995 restated consolidated statements were
audited and reported on separately by other auditors. The report of the other
auditors who audited these statements appears elsewhere herein. We also have
audited, as to combination only, the accompanying consolidated statements of
operations, changes in stockholders' equity, and cash flows of Cantel
Industries, Inc. for the year ended July 31, 1995, after restatement for the
1996 pooling of interests; in our opinion, such consolidated financial
statements have been properly combined on the basis described in Note 3 to
the consolidated financial statements.
ERNST & YOUNG LLP
Princeton, New Jersey
September 19, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
MediVators, Inc.
In our opinion, the consolidated statements of operations, of stockholders'
equity and of cash flows for the year ended July 31, 1995 (not presented
separately herein) present fairly, in all material respects, the results of
operations and cash flows of MediVators, Inc. and its subsidiary for the year
ended July 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of MediVators, Inc. for any
period subsequent to July 31, 1995.
Price Waterhouse LLP
Minneapolis, Minnesota
May 3, 1996
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
ASSETS
Current assets:
Cash...................................................................................... $ 656 $ 682
Accounts receivable, net of allowance for doubtful accounts of $82 in 1997 and $132 in
1996.................................................................................... 6,984 5,268
Inventories............................................................................... 8,974 8,196
Prepaid expenses and other current assets................................................. 395 308
--------- ---------
Total current assets........................................................................ 17,009 14,454
Property and equipment, at cost:
Furniture and equipment................................................................... 1,797 1,796
Leasehold improvements.................................................................... 559 697
--------- ---------
2,356 2,493
Less accumulated depreciation and amortization............................................ (1,714) (1,884)
--------- ---------
642 609
Other assets, including goodwill of $167 in 1997 and 1996................................... 951 935
--------- ---------
$ 18,602 $ 15,998
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 3,732 $ 1,486
Compensation payable...................................................................... 909 722
Other accrued expenses.................................................................... 706 792
Income taxes payable...................................................................... 556 81
--------- ---------
Total current liabilities................................................................... 5,903 3,081
Long-term debt.............................................................................. 1,594 3,419
Deferred income taxes....................................................................... 88 97
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued...... -- --
Common Stock, $.10 par value per share; authorized 7,500,000 shares; issued and
outstanding, 1997--4,166,322 shares; 1996--3,888,695 shares............................. 417 389
Additional capital........................................................................ 17,609 17,088
Accumulated deficit....................................................................... (5,652) (6,748)
Cumulative foreign currency translation adjustment........................................ (1,357) (1,328)
--------- ---------
Total stockholders' equity.................................................................. 11,017 9,401
--------- ---------
$ 18,602 $ 15,998
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Net sales:
Product sales.................................................................. $ 30,988 $ 26,074 $ 30,095
Product service................................................................ 3,999 3,718 4,030
--------- --------- ---------
Total net sales.................................................................. 34,987 29,792 34,125
--------- --------- ---------
Cost of sales:
Product sales.................................................................. 20,834 17,081 21,222
Product service................................................................ 2,495 2,352 2,482
--------- --------- ---------
Total cost of sales 23,329 19,433 23,704
--------- --------- ---------
Gross profit..................................................................... 11,658 10,359 10,421
--------- --------- ---------
Expenses:
Shipping and warehouse......................................................... 590 679 786
Selling........................................................................ 4,401 4,353 5,037
General and administrative..................................................... 3,407 3,251 3,520
Research and development....................................................... 589 374 378
Costs associated with the Merger............................................... -- 486 --
--------- --------- ---------
Total operating expenses......................................................... 8,987 9,143 9,721
--------- --------- ---------
Income from operations before interest expense and income taxes.................. 2,671 1,216 700
Interest expense................................................................. 143 258 492
--------- --------- ---------
Income from operations before income taxes....................................... 2,528 958 208
Income taxes..................................................................... 1,432 536 1,001
--------- --------- ---------
Net income (loss)................................................................ $ 1,096 $ 422 $ (793)
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per common share:
Primary........................................................................ $ 0.25 $ 0.10 $ (0.21)
--------- --------- ---------
--------- --------- ---------
Fully diluted.................................................................. $ 0.25 $ 0.10 $ (0.21)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
5
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK FOREIGN TOTAL
----------------------- CURRENCY STOCK-
NUMBER OF ADDITIONAL ACCUMULATED TRANSLATION HOLDERS
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
---------- ----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994............................ 3,713,353 $ 371 $ 16,266 $ (6,377) $ (1,375) $ 8,885
Exercise of options into Common Stock........... 33,065 4 55 59
Dividends on MediVators stock before the
Merger........................................ 6,989 1 (1) --
Issuance of stock by MediVators before the
Merger........................................ 12,910 1 98 99
Expense related to grant of non-employee
options....................................... 6 6
Forfeiture of deferred compensation............. (964) --
Compensation expense............................ 4 4
Translation gain................................ 114 114
Net loss........................................ (793) (793)
---------- ----- ----------- ------------ ----------- ---------
Balance, July 31, 1995............................ 3,765,353 377 16,428 (7,170) (1,261) 8,374
Exercise of options into Common Stock........... 122,985 12 653 665
Dividends on MediVators stock before the
Merger........................................ 357 --
Compensation expense............................ 7 7
Translation loss................................ (67) (67)
Net income...................................... 422 422
---------- ----- ----------- ------------ ----------- ---------
Balance, July 31, 1996............................ 3,888,695 389 17,088 (6,748) (1,328) 9,401
Exercise of options and warrants into
Common stock.................................. 277,627 28 521 549
Translation loss................................ (29) (29)
Net income...................................... 1,096 1,096
---------- ----- ----------- ------------ ----------- ---------
Balance, July 31, 1997............................ 4,166,322 $ 417 $ 17,609 $ (5,652) $ (1,357) $ 11,017
---------- ----- ----------- ------------ ----------- ---------
---------- ----- ----------- ------------ ----------- ---------
</TABLE>
See accompanying notes.
6
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................................... $ 1,096 $ 422 $ (793)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................. 295 367 573
Deferred income taxes.......................................................... (9) 7 26
Imputed interest............................................................... -- 5 21
Changes in assets and liabilities:
Accounts receivable.......................................................... (1,716) 3,124 (2,853)
Inventories.................................................................. (778) 260 115
Prepaid expenses and other current assets.................................... (87) 39 266
Accounts payable and accrued expenses........................................ 2,347 (1,808) 1,046
Income taxes payable......................................................... 475 (283) (460)
--------- --------- ---------
Net cash provided by (used in) operating activities.................................. 1,623 2,133 (2,059)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions of property and equipment.................................................. (296) (60) (214)
Other, net........................................................................... (77) (82) 80
--------- --------- ---------
Net cash used in investing activities................................................ (373) (142) (134)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under credit facilities.................................. (1,866) (2,668) 1,760
Capital lease obligations............................................................ 41 -- --
Deferred compensation payments....................................................... -- (105) (133)
Repayments of note payable........................................................... -- -- (240)
Proceeds from sale of MediVators' stock.............................................. -- -- 49
Proceeds from exercise of stock options and warrants................................. 549 665 59
--------- --------- ---------
Net cash (used in) provided by financing activities.................................. (1,276) (2,108) 1,495
--------- --------- ---------
Decrease in cash..................................................................... (26) (117) (698)
Cash at beginning of year............................................................ 682 799 1,497
--------- --------- ---------
Cash at end of year.................................................................. $ 656 $ 682 $ 799
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY
Common stock of MediVators issued in satisfaction of note payable.................... -- -- $ 50
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
7
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 1997, 1996 and 1995
1. BUSINESS DESCRIPTION
Cantel Industries, Inc. ("Cantel") has two wholly-owned subsidiaries
(collectively known as the "Company"). Its Canadian subsidiary, Carsen Group
Inc. ("Carsen" or "Canadian subsidiary") is engaged in the marketing,
distribution and service of medical and infection control, scientific and
consumer products in Canada. Its United States subsidiary, MediVators, Inc.
("MediVators" or "United States subsidiary") was acquired in March 1996 and
is engaged in the manufacturing, marketing, distribution and service of
infection control products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cantel
Industries, Inc. and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is generally recognized as products are shipped to customers, net of
provisions for sales allowances, warranties and similar items.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Assets and liabilities of Carsen are translated into United States dollars
at year-end exchange rates; income and expenses are translated using average
exchange rates during the year. The cumulative effect of the translation of
Carsen's financial statements is presented as a separate component of
stockholders' equity. Foreign exchange gains and losses related to the purchase
of inventories are included in cost of sales.
8
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are
capitalized, while maintenance and repair costs are expensed. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the respective accounts and any resulting gain or loss is
included in income. Depreciation and amortization are provided on either the
straight-line method or, for certain furniture and equipment at Carsen, the
declining balance method, over the estimated useful lives of the assets which
generally range from 3-7 years for furniture and equipment and the life of the
lease for leasehold improvements.
OTHER ASSETS
Inventories of sales samples which have not turned over within one year and
medical loaners available for customers are included in other assets and are
carried at the lower of cost or net realizable value.
STOCK BASED COMPENSATION
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), the Company has elected to follow Accounting Principal
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its stock option plans. Under APB 25,
no compensation expense is recognized at the time of option grant if the
exercise price of the Company's employee stock option equals the fair market
value of the underlying common stock on the date of grant.
INCOME TAXES
The Company accounts for income taxes by the liability method in accordance
with Statement of Financial Accounting Standards No. 109 (SFAS No. 109)
"Accounting for Income Taxes".
No income taxes have been provided on the undistributed earnings ($10,740,000
at July 31, 1997) of Carsen since the Company does not intend to repatriate
such earnings unless no additional United States taxes would result upon such
repatriation.
9
<PAGE>
GOODWILL
Goodwill with respect to Carsen is not being amortized since, in the opinion
of management, there has been no diminution of value since acquisition prior to
1970. The carrying value of the goodwill is reviewed if the facts and
circumstances suggest that it may be permanently impaired. Such review is based
upon the undiscounted expected future operating profit derived from such
business. In the event such result is less than the carrying value of the
goodwill, the carrying value of the goodwill is reduced to an amount that
reflects the expected future benefit.
EARNINGS PER COMMON SHARE
Primary earnings per common share are computed based upon the weighted
average number of common shares outstanding during the year plus the dilutive
effect of options and warrants using the treasury stock method and the average
market price for the period.
Fully diluted earnings per common share are computed based upon the weighted
average number of common shares outstanding during the year plus the dilutive
effect of options and warrants using the treasury stock method and the higher of
the period-end or average market price for the period.
The following average shares were used for the computation of primary and
fully diluted earnings per share:
YEAR ENDED JULY 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
Primary.................... 4,354,207 4,308,579 3,739,396
---------- ---------- ----------
---------- ---------- ----------
Fully Diluted.............. 4,354,207 4,308,579 3,739,396
---------- ---------- ----------
---------- ---------- ----------
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
10
<PAGE>
3. ACQUISITION OF MEDIVATORS
On March 15, 1996, the Company consummated a merger transaction with
MediVators, a Minnesota corporation, pursuant to an Agreement and Plan of
Merger under which MediVators became a wholly-owned subsidiary of the
Company, and the stockholders of MediVators received an equity interest of
approximately 26.5% in Cantel (without giving effect to outstanding options
and warrants to acquire stock of Cantel or MediVators) (the "Merger").
The Merger has been accounted for as a pooling of interests for accounting
purposes in accordance with generally accepted accounting principles. Under
this accounting treatment, the assets, liabilities, stockholders' equity,
results of operations and cash flows of MediVators have been consolidated at
their historical amounts for all periods presented and previously issued
financial statements of the Company are restated as though MediVators had
always been consolidated as a wholly-owned subsidiary.
A reconciliation of consolidated net sales and income (loss) from operations
to the respective amounts of each of Cantel and MediVators prior to the Merger
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Net sales:
Consolidated-post-Merger........................................................... $ 12,408,000 $ --
Cantel-pre-Merger.................................................................. 15,155,000 31,079,000
MediVators-pre-Merger.............................................................. 2,446,000 3,473,000
Effect of eliminating intercompany sales -pre-Merger............................... (217,000) (427,000)
------------- -------------
Total consolidated net sales......................................................... $ 29,792,000 $ 34,125,000
------------- -------------
------------- -------------
Income (loss) from operations:
Consolidated-post-Merger........................................................... $ 565,000 $ --
Cantel-pre-Merger.................................................................. 123,000 1,001,000
MediVators-pre-Merger.............................................................. (254,000) (1,768,000)
Effect of eliminating intercompany profit in inventory-pre-Merger.................... (12,000) (26,000)
------------- -------------
Total consolidated income (loss) from operations..................................... $ 422,000 $ (793,000)
------------- -------------
------------- -------------
</TABLE>
In fiscal 1995, a $903,000 provision was recorded to write-down to net
realizable value certain assets of MediVators' medical sharps disposal business,
the majority of which was slow moving inventory.
11
<PAGE>
4. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
JULY 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Parts................................................................................. $ 2,516,000 $ 1,958,000
Work-in-process....................................................................... 247,000 275,000
Finished Goods........................................................................ 6,211,000 5,963,000
------------ ------------
Total................................................................................. $ 8,974,000 $ 8,196,000
------------ ------------
------------ ------------
</TABLE>
5. FINANCING ARRANGEMENTS
The Company has two credit facilities, a $5,000,000 revolving credit
facility for Carsen, and a $2,000,000 revolving credit facility for MediVators.
Pursuant to the terms of the Carsen revolving credit facility, borrowings
under such facility must be paid in full no later than December 31, 1999.
Borrowings outstanding at July 31, 1997 and 1996 are in Canadian dollars and
bear interest at rates ranging from lender's Canadian prime rate to .75% above
the prime rate, depending upon Carsen's debt to equity ratio. At July 31, 1997,
the lender's Canadian prime rate was 4.75% and Carsen's outstanding borrowings
bear interest at such prime rate. Subsequent to July 31, 1997, the lender's
prime rate increased to 5.25% and Carsen's outstanding borrowings will bear
interest at a rate of .25% above lender's 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. There were $798,000 and
$3,419,000 of borrowings outstanding under this facility at July 31, 1997 and
1996, respectively.
Pursuant to the terms of the MediVators' revolving credit facility,
borrowings under such facility must be paid in full no later than December 3,
1998. Borrowings bear interest at 1.5% above the lender's United States prime
rate. The lender's prime rate was 8.5% at July 31, 1997. A commitment fee on
the unused portion of this facility is payable in arrears at a rate of .5%
per annum, with interest on borrowings payable monthly. There were $755,000
of borrowings outstanding under this facility at July 31, 1997 and no
borrowings outstanding at July 31, 1996.
Each of the credit facilities provide for restrictions on available
borrowings based primarily upon percentages of eligible accounts receivable
and inventories; require the subsidiary to meet certain financial covenants;
are secured by substantially all assets of the subsidiary; and are guaranteed
by Cantel.
12
<PAGE>
6. INCOME TAXES
During fiscal 1996, the Company negotiated a settlement with Revenue Canada
which related to a reassessment of federal and provincial income and withholding
taxes for the years 1990-1992 which had been paid by the Company under protest.
The settlement resulted in the recovery of federal and provincial income and
withholding taxes of approximately $182,000 and interest of approximately
$103,000.
Deferred income taxes recorded in the consolidated balance sheets at July
31, 1997 and 1996 include deferred tax assets related to net operating loss
carryforwards ("NOLs") of $5,559,000 and $5,232,000, 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
$88,000 and $97,000, 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, 1997 and 1996 that it was more likely than not that
a benefit will be realized.
For financial statement and domestic tax reporting purposes, the Company has
NOLs of approximately $16,350,000 at July 31, 1997, which expire through July
31, 2012. Of this amount, approximately $4,350,000 represents NOLs accumulated
by MediVators prior to the Merger, which may only be used against the future
earnings of MediVators and are subject to annual limitations due to the
ownership change. The NOLs presented are based upon the tax returns as filed and
are subject to examination by the Internal Revenue Service.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1997 1996 1995
----------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------------ --------- ---------- ----------- ---------- ---------
United States....................................... $ 7,000 $ -- $ 27,000 $ -- $ 14,000 $ --
Canada.............................................. 1,434,000 (9,000) 502,000 7,000 961,000 26,000
------------ --------- ---------- ----------- ---------- ---------
Total............................................... $ 1,441,000 $ (9,000) $ 529,000 $ 7,000 $ 975,000 $ 26,000
------------ --------- ---------- ----------- ---------- ---------
------------ --------- ---------- ----------- ---------- ---------
</TABLE>
13
<PAGE>
The components of income (loss) from operations before income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------
1997 1996 1995
------------ ----------- -------------
<S> <C> <C> <C>
United States........................................................... $ (576,000) $ (525,000) $ (2,072,000)
Canada.................................................................. 3,104,000 1,483,000 2,280,000
------------ ----------- -------------
Total................................................................... $ 2,528,000 $ 958,000 $ 208,000
------------ ----------- -------------
------------ ----------- -------------
The effective tax rate on operations differs from the United States
statutory tax rate (34%) due to the following:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------
1997 1996 1995
------------ ---------- ------------
<S> <C> <C> <C>
Expected statutory tax expense............................................ $ 860,000 $ 326,000 $ 71,000
Canadian dividend withholding taxes....................................... 3,000 22,000 12,000
Canadian tax settlement................................................... -- (182,000) --
Differential attributable to Canadian operations.......................... 370,000 187,000 212,000
Benefit not recognized on domestic operating losses....................... 196,000 178,000 704,000
State and local taxes..................................................... 3,000 5,000 2,000
------------ ---------- ------------
Total..................................................................... $ 1,432,000 $ 536,000 $ 1,001,000
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
DISTRIBUTION AGREEMENTS
OLYMPUS AGREEMENT
The majority of Carsen's sales of medical, scientific and consumer products have
been made pursuant to an agreement with Olympus America, Inc. ("Olympus") under
which Olympus has granted Carsen the exclusive right to distribute the covered
Olympus products in Canada. All products sold by Carsen pursuant to the
agreement bear the "Olympus" trademark. The Olympus Agreement expires on March
31, 2001.
During the term of the Olympus Agreement, Carsen has agreed that it will not
manufacture, distribute, sell or represent for sale in Canada any products which
are competitive with the Olympus products covered by the Olympus Agreement.
The Olympus Agreement imposes minimum purchase obligations on Carsen with
respect to each of medical equipment, precision instruments, industrial
technology equipment and consumer products. The aggregate annual minimum
purchase obligations for all such products (excluding digital camera products)
are approximately $13.9 million, $15.5 million, $17.3 million and $19.4 million
during the contract years ending March 31, 1998, 1999, 2000 and 2001,
respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the
14
<PAGE>
right to terminate the Olympus Agreement with respect to each product group
for which Carsen has failed to meet the minimum purchase requirements. If
Carsen fails to meet such requirements for both precision instruments and
industrial technology equipment, or for medical equipment, then Olympus has
the right to terminate the entire Olympus Agreement. Olympus may also
terminate the Olympus Agreement if Carsen breaches its other obligations
under the Olympus Agreement.
MEDIVATORS AGREEMENT
MediVators has a three year agreement with Olympus which expires on April 30,
1999, under which Olympus was granted the exclusive right to distribute certain
endoscope disinfection equipment and related accessories in the United States,
Central and South America, The Caribbean, and the West Indies (excluding
Bermuda). All products sold by Olympus pursuant to this agreement bear both the
"Olympus" and "MediVators" trademarks.
This agreement imposes minimum purchase obligations on Olympus. Failure to
achieve the minimum purchase requirement in any contract year would give
MediVators the right to terminate the agreement.
Sales to Olympus are recognized on a bill and hold basis based upon the receipt
of a written purchase order from Olympus, the completion date specified in the
order, the actual completion of the manufacturing process and the invoicing of
goods. At July 31, 1997 and 1996, accounts receivable included bill and hold
receivables of approximately $401,000 and $566,000, respectively.
LICENSE AGREEMENT
MediVators is a party to an exclusive worldwide license agreement with the Mayo
Foundation for Medical Education and Research (the "Mayo Foundation") which
grants MediVators a license to manufacture and sell certain related patented
equipment known as the OTT Disinfector for flexible endoscopes ("OTT
Disinfector") and to use certain related proprietary know-how of the Mayo
Foundation (the "License Agreement"). The License Agreement expires December 31,
2005. Under the License Agreement, MediVators must pay a royalty equal to five
percent (5%) of the net revenues received by MediVators from sales of the OTT
Disinfector and enhancements or improvements to the OTT Disinfector. Although
MediVators no longer sells the OTT Disinfector, it pays the Mayo Foundation a
royalty on revenue from sales of a successor line of disinfector product
developed by MediVators known as the DSD-91. This product does not utilize the
patented technology of the OTT Disinfector but did evolve from certain licensed
know-how related thereto.
15
<PAGE>
FOREIGN EXCHANGE CONTRACTS
The Company's Canadian subsidiary enters into foreign exchange forward
contracts to purchase United States dollars to hedge against currency
fluctuations affecting purchases of inventory. Total commitments for such
forward contracts amounted to approximately $5,459,000 at July 31, 1997, and
cover projected purchases of inventory for the months of July 1997 and May 1998
through July 1998. The fair value of such contracts at July 31, 1997, based upon
current market quotes for contracts with similar terms, approximated the
carrying value of such contracts.
LEASE OBLIGATIONS
Aggregate future minimum rental commitments at July 31, l997 under operating
leases for warehouse and office space are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
<S> <C>
1998 $ 322,000
1999 322,000
2000 300,000
2001 160,000
2002 26,000
----------
Total rental commitments............ $1,130,000
-----------
-----------
</TABLE>
Rent expense aggregated $324,000, $283,000 and $316,000 for fiscal 1997, 1996
and 1995, respectively. Of these amounts, approximately $17,000, $106,000 and
$106,000 in fiscal 1997, 1996 and 1995, respectively, was paid to a director
and former officer of MediVators who was the landlord of MediVators' former
manufacturing, warehouse and office facility.
LITIGATION
In November 1995, the Company was one of over 100 named defendants in the
lawsuit titled "Caldwell Trucking PRP Group v. ADT Automotive, Inc., including
Cantel Industries, Inc." (Civ. No. 95-1690 (WGB) brought by nine companies which
settled a Comprehensive Environmental Response Compensation and Liability Act
claim by the United States Government and the State of New Jersey for
contribution to the remediation costs of an alleged hazardous waste site in New
Jersey. This lawsuit is currently pending in the United States District Court
for the District of New Jersey. The complaint, which relates to alleged septic
and/or industrial waste disposed of prior to 1984, seeks total past and future
remediation costs from the named defendants and prior settling companies
estimated at approximately $20 million, but does not allege any specific offense
against the Company at this time. Management of the Company believes that Cantel
was not engaged in the production, transportation or dumping of industrial
16
<PAGE>
waste at any time. Currently, the Company is participating in an alternative
dispute resolution ("ADR") process. The ADR process is expected to conclude
during calendar 1998, with proposed allocations to each ADR participant.
Although the Company can make no estimate of what its share, if any, of this
total potential exposure could be, based on its current knowledge and
available information, management believes that the claim will not have a
material adverse effect on the Company. Furthermore, notwithstanding the ADR
process, the Company believes that it has defenses to the suit and that it
may have insurance covering such claims in whole or in part.
In February 1996, an arbitration proceeding was commenced against MediVators
titled "Pioneer Medical, Inc. vs. MediVators, Inc." The plaintiff, a former
sales representative of MediVators, alleges an unspecified amount due for future
sales of MediVators' products in the plaintiff's former sales territory, as well
as other ancillary claims and punitive damages. MediVators has asserted a
counterclaim of approximately $25,000 for unpaid products sold to this former
sales representative. An arbitration hearing date is tentatively set for
November 1997. Recently, the plaintiff commenced a lawsuit against MediVators
titled "Pioneer Medical, Inc. vs. MediVators, Inc." in Connecticut State Court
alleging claims that appear to be identical to those in the arbitration matter.
MediVators has not yet had an opportunity to formally respond to this lawsuit.
Management believes that the claims alleged in both the arbitration matter and
lawsuit are unmeritorious and intends to vigorously defend itself in these
actions, and that the claims will not have a material adverse effect on the
Company.
8. STOCKHOLDERS' EQUITY
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, typically 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, 1997, 70,625 shares were available
for grant under this plan.
The Company's 1991 Directors' Stock Option Plan provides for the granting of
options to directors to purchase up to 200,000 shares of its Common Stock.
Options under this plan may be granted to directors only. Under the plan,
options to purchase 1,000 shares are granted annually on the last business day
of the Company's fiscal year to each member of the Company's Board of Directors.
The annual options are exercisable, as to 50% of the number of shares, on the
first anniversary of the grant of such options and are exercisable
17
<PAGE>
for the balance of such shares on the second anniversary of the grant of such
options. On a quarterly basis, options to purchase 500 shares are granted to
each member of the Company's Board, except for employees of the Company, in
attendance at that quarter's Board of Directors meeting. The quarterly
options are exercisable immediately. The exercise price of each option is the
fair market value on the date the option is granted, and the options expire
ten years from the date of the grant. At July 31, 1997, 24,000 shares were
available for grant under this plan.
The Company also has outstanding non-plan options which have been granted at
the market price at the time of grant, are fully exercisable and expire up to a
maximum of ten years from the date of grant, and options granted by MediVators
prior to the Merger under the MediVators 1991 Stock Option Plan which became
fully exercisable as the result of the Merger. No future options will be granted
under the MediVators Stock Option Plan.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of SFAS No. 123, the Company
has elected to follow APB Opinion 25 and related interpretations in accounting
for its stock option plans and, accordingly, does not recognize compensation
expense. If the Company had elected to recognize compensation expense based on
the fair value of the options granted at grant date as prescribed by SFAS No.
123, net income and earnings per share would have been $847,000 and $0.19,
respectively, for fiscal 1997 and $316,000 and $0.07, respectively, for fiscal
1996. The pro forma effect on net income for 1997 and 1996 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1996.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option valuation model with the followings assumptions:
expected dividend yield of 0%; expected stock price volatility of .46; risk-free
interest rate at date of grant ranging from 5.18% to 6.59%; and expected
weighted average option lives of 4-10 years. The weighted average fair value of
options granted during 1997 was $3.90 per share.
18
<PAGE>
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at July 31, 1994........................................................... 550,165 $ 3.81
Granted.............................................................................. 119,309 4.97
Canceled............................................................................. (16,757) 3.85
Exercised............................................................................ (40,000) 2.49
---------- -----
Outstanding at July 31, 1995........................................................... 612,717 4.12
Granted.............................................................................. 96,000 8.32
Canceled............................................................................. (11,500) 4.18
Exercised............................................................................ (124,533) 5.47
---------- -----
Outstanding at July 31, 1996........................................................... 572,684 4.53
Granted.............................................................................. 139,000 6.69
Canceled............................................................................. (59,525) 8.09
Exercised............................................................................ (38,463) 4.94
---------- -----
Outstanding at July 31, 1997........................................................... 613,696 $ 4.77
---------- -----
---------- -----
Exercisable at July 31, 1995........................................................... 537,342 $ 2.72
---------- -----
---------- -----
Exercisable at July 31, 1996........................................................... 467,934 $ 3.87
---------- -----
---------- -----
Exercisable at July 31, 1997........................................................... 462,363 $ 3.93
---------- -----
---------- -----
</TABLE>
The following table summarizes additional information related to stock
options outstanding at July 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE NUMBER
REMAINING WEIGHTED EXERCISABLE WEIGHTED
NUMBER CONTRACTUAL AVERAGE 7/31/97 AVERAGE
RANGE OF OUTSTANDING LIFE EXERCISE -------------------- EXERCISE
EXERCISE PRICES AT 7/31/97 (MONTHS) PRICE AT PRICE
- ----------------- ----------- ----------- ----------- --------- -----------
$1.75 - $4.00 280,815 52 $ 2.20 280,815 $ 2.20
$4.25 - $6.8125 136,585 87 $ 5.51 109,335 $ 5.61
$7.375 - $10.25 196,296 69 $ 7.90 72,213 $ 8.15
$1.75 - $10.25 613,696 74 $ 4.77 462,363 $ 3.93
----------- ---------
----------- ---------
</TABLE>
19
<PAGE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of its employee stock options.
There were an aggregate of 74,739 and 352,469 warrants outstanding to
purchase shares of Common Stock at July 31, 1997 and 1996, respectively, at
prices ranging from $1.50 to $19.45 per share.
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.
Contributions under the Carsen plan were $47,000, $26,000 and $53,000 for
fiscal 1997, 1996 and 1995, respectively.
10. SUPPLEMENTAL INCOME STATEMENT AND CASH FLOW INFORMATION
Advertising costs charged to expenses were $257,000, $295,000 and $380,000
for fiscal 1997, 1996 and 1995, respectively.
Interest paid was $140,000, $362,000 and $488,000 for fiscal 1997, 1996 and
1995, respectively.
Federal, state and foreign income tax payments were $1,080,000, $784,000 and
$949,000 for fiscal 1997, 1996 and 1995 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 medical
and infection control, scientific and consumer products in Canada, and the
manufacturing, marketing, distribution and service of medical and infection
control products in the United States.
20
<PAGE>
The medical and infection control and scientific products distributed by the
Company consist of medical equipment, including flexible and rigid endoscopes,
endoscope disinfection equipment, medical sharps disposal systems, surgical
equipment and related accessories that are sold to hospitals; precision
instruments, including microscopes and related accessories that are sold to
educational institutions, hospitals and government and industrial laboratories;
and industrial technology equipment, including borescopes, fiberscopes and video
image scopes that are sold primarily to large industrial companies.
The consumer products distributed by the Company consist of photographic and
optical equipment, including 35 mm., APS (advanced photo systems) and digital
cameras and binoculars, hand-held dictation equipment and related accessories.
The consumer products are distributed mostly to independent retailers,
cooperative buying groups, large retail store chains and major department
stores.
(a) Information as to operations in different industries is summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- -------------
Net sales from operations:
Medical and infection control and scientific products:
Medical and infection control products.......................... $ 19,771,000 $ 16,221,000 $ 18,213,000
Scientific products............................................. 5,786,000 5,693,000 5,756,000
Product service................................................. 3,999,000 3,718,000 4,030,000
Consumer products............................................... 5,431,000 4,160,000 6,126,000
------------- ------------- -------------
Total............................................................... $ 34,987,000 $ 29,792,000 $ 34,125,000
------------- ------------- -------------
------------- ------------- -------------
Operating income (loss):
Medical and infection control and scientific products:
Medical and infection control products.......................... $ 2,626,000 $ 2,292,000 $ 949,000
Scientific products............................................. (22,000) (119,000) (28,000)
Product service................................................. 1,174,000 1,102,000 1,247,000
Consumer products............................................... (12,000) (560,000) (662,000)
------------- ------------- -------------
3,766,000 2,715,000 1,506,000
General corporate expenses.......................................... (1,095,000) (1,013,000) (806,000)
Costs associated with the Merger.................................... -- (486,000) --
Interest expense.................................................... (143,000) (258,000) (492,000)
------------- ------------- -------------
Income from operations before income taxes.......................... $ 2,528,000 $ 958,000 $ 208,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- -------------
Identifiable assets:
Medical and infection control and scientific products:
Medical and infection control products.......................... $ 10,226,000 $ 7,992,000 $ 10,368,000
Scientific products............................................. 3,774,000 3,798,000 4,285,000
Product service................................................. 1,432,000 1,176,000 1,500,000
Consumer products............................................... 2,300,000 2,129,000 2,664,000
General corporate............................................... 870,000 903,000 1,006,000
------------- ------------- -------------
Total............................................................... $ 18,602,000 $ 15,998,000 $ 19,823,000
------------- ------------- -------------
------------- ------------- -------------
Capital expenditures:
Medical and infection control and scientific products:
Medical and infection control products.......................... $ 258,000 $ 36,000 $ 181,000
Scientific products............................................. 13,000 7,000 3,000
Product service................................................. 10,000 5,000 10,000
Consumer products............................................... 14,000 5,000 14,000
General corporate............................................... 1,000 7,000 6,000
------------- ------------- -------------
Total............................................................... $ 296,000 $ 60,000 $ 214,000
------------- ------------- -------------
------------- ------------- -------------
Depreciation and amortization:
Medical and infection control and scientific products:
Medical and infection control products.......................... $ 146,000 $ 175,000 $ 392,000
Scientific products............................................. 100,000 143,000 134,000
Product service................................................. 18,000 21,000 17,000
Consumer products............................................... 25,000 23,000 26,000
General corporate............................................... 6,000 5,000 4,000
------------- ------------- -------------
Total............................................................... $ 295,000 $ 367,000 $ 573,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
22
<PAGE>
(b) Information as to geographic areas is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- -------------
Net sales from operations:
United States..................................................... $ 5,703,000 $ 4,646,000 $ 3,098,000
Canada............................................................ 29,284,000 25,146,000 31,027,000
------------- ------------- -------------
Total............................................................... $ 34,987,000 $ 29,792,000 $ 34,125,000
------------- ------------- -------------
------------- ------------- -------------
Operating income (loss):
United States..................................................... $ 117,000 $ 368,000 $ (1,725,000)
Canada............................................................ 3,649,000 2,347,000 3,231,000
------------- ------------- -------------
Total............................................................... $ 3,766,000 $ 2,715,000 $ 1,506,000
------------- ------------- -------------
------------- ------------- -------------
Total assets:
United States..................................................... $ 3,651,000 $ 3,180,000 $ 2,602,000
Canada............................................................ 14,951,000 12,818,000 17,221,000
------------- ------------- -------------
Total............................................................... $ 18,602,000 $ 15,998,000 $ 19,823,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
23
<PAGE>
CANTEL INDUSTRIES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended July 31, 1997....................................... $ 132,000 $ 4,000 $ 54,000 $ 82,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Year ended July 31, 1996....................................... $ 138,000 $ 34,000 $ 40,000 $ 132,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Year ended July 31, 1995....................................... $ 152,000 $ 105,000 $ 119,000 $ 138,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
<PAGE>
EXHIBIT 10(s)
1997 EMPLOYEE STOCK OPTION PLAN
OF
CANTEL INDUSTRIES, INC.
(As adopted by the Board of Directors as of October 16, 1997)
1. The Plan. This 1997 Employee Stock Option Plan (the "Plan") is
intended to encourage ownership of stock of Cantel Industries, Inc. (the
"Corporation") by specified employees of the Corporation and its subsidiaries
and to provide additional incentive for them to promote the success of the
business of the Corporation.
2. Stock Subject to the Plan. Subject to the provisions of
Paragraph 14 hereof, the total number of shares of Common Stock, par value $.10
per share, of the Corporation (the "Stock") which may be issued pursuant to
Incentive Stock Options, as defined by Section 422 of the Internal Revenue Code
("ISOs"), under the Plan (the "Options") shall be 200,000. Such shares of Stock
may be in whole or in part, either authorized and unissued shares or treasury
shares as the Board of Directors of the Corporation (the "Board") shall from
time to time determine. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares covered thereby
shall (unless the Plan shall have been terminated) again be available for
Options under the Plan.
3. Administration of the Plan. The Plan shall be administered by a
committee (the "Committee") composed of two or more non-employee members of the
Board which shall have plenary authority, in its discretion, to determine the
employees of the Corporation and its subsidiaries to whom Options shall be
granted ("Optionees"), the number of shares to be subject to each Option
(subject to the provisions of Paragraph 2), the option exercise price (the
"Exercise Price") (subject to the provisions of Paragraph 7), the vesting
schedule of each option and the other terms of each Option. The Board shall
have plenary authority, subject to the express provisions of the Plan, to
interpret the Plan, to prescribe, amend and rescind any rules and regulations
relating to the Plan and to take such other action in connection with the Plan
as it deems necessary or advisable. The interpretation and construction by the
Board of any provisions of the Plan or of any Option granted thereunder shall be
final and no member of the Board shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted thereunder by
the Committee.
<PAGE>
4. Employees Eligible for Options. All employees of the
Corporation or its subsidiaries shall be eligible for Options. In making the
determination as to employees to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties of the respective employees, their present and potential
contributions to the success of the Corporation and such other factors as it
shall deem relevant in connection with accomplishing the purpose of the Plan.
5. Term of Plan. The Plan shall terminate on, and no Options shall
be granted after October 15, 2007 provided that the Committee may at any time
terminate the Plan prior thereto.
6. Maximum Option Grant. With respect to an Option granted to an
individual that is intended to qualify as an ISO, the aggregate fair market
value (determined as of the time the Option is granted) of the Stock with
respect to which such Option and all other ISOs granted to the individual
(whether under this Plan or under any other stock option plan of the Corporation
or any of its subsidiaries) are exercisable for the first time during a calendar
year may not exceed $100,000.
7. Exercise Price. Each Option shall state the Exercise Price,
which shall be, in the case of ISOs, not less than 100% of the fair market value
of the Stock on the date of the granting of the Option, nor less than 110% in
the case of an ISO granted to an individual who, at the time the Option is
granted, is a 10% Holder (as hereinafter defined). The fair market value of
shares of Stock shall be determined by the Board and shall be (i) the closing
price of the Stock on the date of the granting of the Option as reported by
NASDAQ or any quotation reporting organizations, or (ii) if the Stock did not
trade on such date, the mean between the high bid and low asked prices.
8. Term of Options. The term of each Option granted under this
Plan shall be for a maximum of ten years from the date of granting thereof, and
a maximum of five years in the case of an ISO granted to a 10% Holder, but may
be for a lesser period or be subject to earlier termination as hereinafter
provided.
9. Exercise of Options. An Option may be exercised from time to
time as to any part or all of the Stock to which the Optionee shall then be
entitled, provided, however, that an Option may not be exercised (a) as to less
than 100 shares at any time (or for the remaining shares then purchasable under
the Option, if less than 100 shares), (b) prior to the expiration of at least
six months from the date of grant except in case of the death or
disability of the Optionee and (c) unless the Optionee shall have
2
<PAGE>
been in the continuous employ of the Corporation or its subsidiaries from the
date of the granting of the Option to the date of its exercise, except as
provided in Paragraphs 12 and 13. The Exercise Price shall be paid in full at
the time of the exercise of an Option (i) in cash or (ii) by the transfer to the
Corporation of shares of its Stock with a fair market value (as determined by
the Committee) equal to the purchase price of the Stock issuable upon exercise
of such Option. The holder of an Option shall not have any rights as a
stockholder with respect to the Stock issuable upon exercise of an Option until
certificates for such Stock shall have been delivered to him after the exercise
of the Option.
10. Non-transferability of Options. Except as provided in the
following sentence, an Option shall not be transferable otherwise than by will
or the laws of descent and distribution and is exercisable during the lifetime
of the employee only by him or his guardian or legal representative. The
Committee shall have discretionary authority to grant Options which will be
transferable to members of an Optionee's immediate family, including trusts for
the benefit of such family members and partnerships in which such family members
are the only partners. A transferred Option would be subject to all of the same
terms and conditions as if such Option had not been transferred.
11. Form of Option. Each Option granted pursuant to the Plan
shall be evidenced by an agreement (the "Option Agreement") which shall clearly
identify the status of the Options granted thereunder (i.e., an ISO ) and which
shall be in such form as the Committee shall from time to time approve. The
Option Agreement shall comply in all respects with the terms and conditions of
the Plan and may contain such additional provisions, including, without
limitation, restrictions upon the exercise of the Option, as the Committee shall
deem advisable.
12. Termination of Employment. In the event that the employment of
an Optionee shall be terminated (otherwise by reason of death), such Option
shall be exercisable (to the extent that such Option was exercisable at the time
of termination of his employment) at any time prior to the expiration of a
period of time not exceeding three months after such termination, but not more
than ten years (five years in the case of an ISO granted to a 10% Holder) after
the date on which such Option shall have been granted. Nothing in the Plan or
in the Option Agreement shall confer upon an Optionee any right to be continued
in the employee of the Corporation or its subsidiaries or interfere in any way
with the right of the Corporation or any subsidiary to terminate or otherwise
modify the terms of an Optionee's employment, provided, however, that a change
in an Optionee's duties or position shall not affect such Optionee's Option so
long as such Optionee is still an employee of the Corporation or one of its
subsidiaries.
3
<PAGE>
13. Death of Optionee. In the event of the death of an Optionee, any
unexercised portion of such Optionee's Option shall be exercisable (to the
extent that such Option was exercisable at the time of his death) at any time
prior to the expiration of a period not exceeding three months after his death
but not more than ten years (five years in the case of an ISO granted to a 10%
Holder) after the date on which such Option shall have been granted and only by
such person or persons to whom such deceased Optionee's rights shall pass under
such Optionee's will or by the laws of descent and distribution.
14. Adjustments Upon Changes in Capitalization. In the event of
changes in the outstanding Stock of the Corporation by reason of stock
dividends, splitups, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations or liquidations, the number
and class of shares or the amount of cash or other assets or securities
available upon the exercise of any Option granted hereunder and the maximum
number of shares as to which Options may be granted to an employee shall be
correspondingly adjusted, to the end that the Optionee's proportionate interest
in the Corporation, any successor thereto or in the cash, assets or other
securities into which shares are converted or exchanged shall be maintained to
the same extent, as near as may be practicable, as immediately before the
occurrence of any such event. All references in this Plan to "Stock" from and
after the occurrence of such event shall be deemed for all purposes of this Plan
to refer to such other class of shares or securities issuable upon the exercise
of Options granted pursuant hereto.
15. Shareholder and Stock Exchange Approval. This Plan is subject
to and no Options shall be exercisable hereunder until after the approval by the
holders of a majority of the Stock of the Corporation voting at a duly held
meeting of the stockholders of the Corporation within twelve months after the
date of the adoption of the Plan by the Board.
16. Amendment of the Plan. The Board shall have complete power and
authority to modify or amend the Plan (including the form of Option Agreement)
from time to time in such respects as it shall deem advisable; provided,
however, that the Board shall not, without the approval of the votes represented
by a majority of the outstanding Stock of the Corporation present or represented
at a meeting duly held in accordance with the applicable laws of the
Corporation's jurisdiction of incorporation and entitled to vote at a meeting of
stockholders or by the written consent of stockholders owning stock representing
a majority of the votes of the corporation's outstanding stock, (i) increase the
maximum number of shares which in the aggregate are subject to Options under the
Plan (except as provided by Paragraph 14), (ii) extend the term of the Plan or
the period during which Options may be granted or exercised, (iii) reduce the
Exercise Price, in the case of ISOs below 100% (110% in the case of an ISO
granted to a 10% Holder) of
4
<PAGE>
the fair market value of the Stock issuable upon exercise of Options at the time
of the granting thereof, other than to change the manner of determining the fair
market value thereof, (iv) increase the maximum number of shares of Stock for
which any employee may be granted Options under the Plan pursuant to Paragraph
6, (v) modify the requirements as to eligibility for participation in the Plan,
or (vi) amend the plan in any respect which would cause such options to no
longer qualify for ISO treatment pursuant to the Internal Revenue Code. No
termination or amendment of the Plan shall, without the consent of the
individual Optionee, adversely affect the rights of such Optionee under an
Option theretofore granted to him or under such Optionee's Option Agreement.
17. Taxes. The Corporation may make such provisions as it may deem
appropriate for the withholding of any taxes which it determines is required in
connection with any Options granted under the Plan. The Corporation may further
require notification from the Optionees upon any disposition of Stock acquired
pursuant to the exercise of Options granted hereunder.
18. Code References and Definitions. Whenever reference is made in
this Plan to a section of the Internal Revenue Code, the reference shall be to
said section as it is now in force or as it may hereafter be amended by any
amendment which is applicable to this Plan. The term "subsidiary" shall have
the meaning given to the term "subsidiary corporation" by Section 425(f) of the
Internal Revenue Code. The term "10% Holder" shall mean any person who, for
purposes of Section 422 of the Internal Revenue Code owns more than 10% of the
total combined voting power of all classes of stock of the employer corporation
or of any subsidiary corporation.
5
<PAGE>
Exhibit 10(t)
STOCK OPTION AGREEMENT made as of the ___ day of __________, by and
between CANTEL INDUSTRIES, INC., a Delaware corporation with principal
offices located at 1135 Broad Street, Clifton, New Jersey 07013, (the
"Company"), and ____________________ (the "Optionee").
-------------------------------------------
The Company has adopted the 1997 Employee Stock Option Plan (the "1997
Plan"), permitting the grant of incentive stock options (within the meaning of
Section 422 of the Internal Revenue Code) to employees of the Company or its
subsidiaries or any parent corporation of the Company. The Optionee, pursuant
to the 1997 Plan, is presently employed by the Company or one of its
subsidiaries. The Company is desirous of increasing the incentive of the
Optionee to exert his utmost efforts to improve the business and increase the
assets of the Company.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
Company, pursuant to the Plan, hereby grants the Optionee the option to acquire
shares of the common stock of the Company upon the following terms and
conditions:
1. GRANT OF OPTION. (a) The Company hereby grants to the Optionee
the right and option (the "Option") to purchase up to shares of
Common Stock, par value $.10 per share, of the Company (the "Shares"), to be
issued upon the exercise hereof,
<PAGE>
fully paid and non-assessable, during the following periods:
(i) No Shares may be purchased hereunder prior to ________________;
(ii) ________ Shares may be purchased commencing __________________;
________________;
(iii) an additional ____________ Shares may be purchased commencing
________________;
(iv) an additional ____________ Shares may be purchased commencing
________________; and
(v) an additional ____________ Shares may be purchased commencing
____________.
(b) The Option granted hereby shall expire and terminate at 5:00 p.m.
local time in New York, New York on _______________ (the "Expiration Date") at
which time the Optionee shall have no further right to purchase any Shares not
then purchased.
2. EXERCISE PRICE. The exercise price of the Option shall be
_________ per Share, and shall be payable in cash or by certified check;
provided, however, that in lieu of payment in full in cash or by such check,
the exercise price (or balance thereof) may be paid in full or in part by the
delivery and transfer to the Company of Shares already owned by the Optionee
and having a fair market value (as determined by the Board of Directors in
its absolute discretion) equal to the cash exercise price (or balance
thereof) for the number of Shares as to which the Option is being exercised.
The Company shall pay all original issue or transfer taxes on the exercise of
the Option.
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<PAGE>
3. EXERCISE OF OPTION. The Optionee shall notify the Company by
registered or certified mail, return receipt requested, addressed to its
principal office, as to the number of Shares which he desires to purchase
under the Option, which notice shall be accompanied by payment of the Option
exercise price therefor as specified in Paragraph 2 above. As soon as
practicable after the receipt of such notice, the Company shall, at its
principal office or another mutually convenient location, tender to the
Optionee certificates issued in the Optionee's name evidencing the Shares
purchased by the Optionee hereunder.
4. CONDITIONS OF EXERCISE.
(a) The Optionee shall have the right to exercise the Option only
while he shall be in the full-time employ of the Company or any of its
subsidiaries, except that if the Optionee's employment shall be terminated for
any reason other than his death, the Option may be exercised at any time within
three (3) months after the date of termination but only to the extent that it
was exercisable upon such date of termination and in no event after the
Expiration Date. If the Optionee shall have terminated his employment within
one year of the date of the grant of the Option, the Option shall immediately
terminate.
(b) If the Optionee shall die while in the employ of the Company
or any of its subsidiaries, this Option may be exercised, to the extent
exercisable on the date of the Optionee's death, by his executor, administrator
or other person at the time
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<PAGE>
entitled by law to his rights under this Option, at any time within three (3)
months after such date of death, but in no event after the Expiration Date.
(c) Notwithstanding anything to the contrary contained herein,
the aggregate fair market value, determined at the time of option grant, of the
Shares with respect to which the Option, together with any other "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code
("ISO"), granted to the Optionee by the Company or any of its subsidiaries, may
be first exercised in any calendar year, cannot exceed $100,000 plus any "unused
carryover" from previous years. For purposes of this Agreement, "unused
carryover" means the amount, computed separately for each calendar year, by
which $100,000 exceeds the fair market value (determined at the time of grant)
of all ISO's granted to the Optionee by the Company and its subsidiaries that
first became exercisable and were in fact exercised by the Optionee in such
year, reduced by the amount that such carryover may have been used in prior
calendar years.
5. NON-ASSIGNABILITY OF OPTION. The Optionee may not give, grant,
sell, exchange, transfer legal title, pledge, assign or otherwise encumber or
dispose of the Option herein granted or any interest therein, otherwise than by
will or the laws of descent and distribution and, except as provided in
Paragraph 4(b) hereof, the Option shall be exercisable only be the Optionee.
6. THE SHARES AS INVESTMENT. By accepting the Option, the Optionee
agrees for himself, his heirs and legatees that any
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<PAGE>
and all Shares purchased upon the exercise thereof shall be acquired for
investment and not for distribution, and upon the issuance of any or all of
the Shares subject to the Option, the Optionee, or his heirs or legatees
receiving such Shares, shall deliver to the Company a representation in
writing that such Shares are being acquired in good faith for investment and
not for distribution. The Company may place a "stop transfer" order with
respect to such Shares with its transfer agent and may place an appropriate
restrictive legend on the certificate(s) evidencing such Shares.
7. RESTRICTION ON ISSUANCE OF SHARES. The Optionee shall, if so
requested by the Company, represent and agree, in writing and in such form as
the Company shall determine, that any securities purchased by the Optionee upon
the exercise of this Option are being purchased for investment and not with a
view to the distribution thereof, and shall make such other or additional
representations and agreements and furnish such information as the Company may
in its reasonable discretion deem necessary or desirable to assure compliance by
the Company, on terms acceptable to the Company, with provisions of the
Securities Act of 1933 and any other applicable legal requirements. If at any
time the Company shall reasonably determine that the listing, registration or
qualification of the Shares subject to this Option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental regulatory body, are necessary or desirable in connection with the
issuance or purchase
-5-
<PAGE>
of the Shares subject thereto, this Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Company. The Optionee shall have no rights against the Company if this Option
is not exercisable by virtue of the foregoing provision. The certificate
representing any securities issued pursuant to the exercise of this Option may,
at the discretion of the Company, bear a legend in substantially the following
form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933. The securities
have been acquired for investment and may not be pledged or
hypothecated and may not be sold or transferred in the absence of
an effective Registration Statement for the securities under the
Securities Act of 1933 or an opinion of counsel to the Company that
registration is not required under said Act. In the event that a
Registration Statement becomes effective covering the securities or
counsel to the Company delivers a written opinion that registration
is not required under said Act, this certificate may be exchanged
for a certificate free from this legend."
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Shares by reason
of stock dividends, split-ups, recapitalizations, mergers, consolidations,
combination, exchanges of shares, separations, reorganizations, liquidations
and the like, the number of Shares issuable upon the exercise of the Option
and the exercise price thereof shall be correspondingly adjusted by the
Company. No adjustment shall be made, however, with respect to stock
dividends or splits which do not exceed 5% in any fiscal year, cash dividends
or the issuance to the Company's shareholders of rights
-6-
<PAGE>
to subscribe for additional Shares or other securities.
(b) Any adjustment in the number of Shares shall
apply proportionately to only the then unexercised portion of the Option. If
fractional Shares would result from any such adjustment, the adjustment shall be
revised to the next higher whole number.
9. NO RIGHTS AS SHAREHOLDERS. The Optionee shall have no rights as a
shareholder in respect of the Shares as to which the Option shall not have been
exercised and payment made as herein provided.
10. EFFECT UPON EMPLOYMENT. This agreement does not give nor shall it
be construed as giving the Optionee any right to continued employment by the
Company or any of it subsidiaries.
11. CONFLICT BETWEEN OPTION AGREEMENT AND 1997 PLAN. In the event
there are any conflicts between this Agreement and the terms and conditions of
the 1997 Plan, the terms and conditions of the 1997 Plan shall control.
12. BINDING EFFECT. Except as herein otherwise expressly provided,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto, their legal representatives and assigns.
13. GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey applicable to agreements
made and to be performed wholly within the State of New Jersey.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CANTEL INDUSTRIES, INC.
By: ________________________________
James P. Reilly, President
________________________________
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<PAGE>
EXHIBIT 10(u)
THIS AGREEMENT made the 23rd day of December, 1996.
BETWEEN:
CARSEN GROUP INC.,
an Ontario corporation,
(hereinafter called "Carsen" or "the Employer")
- and -
EDWARD E. MELTZ, of the City of North York, in
the Municipality of Metropolitan Toronto, an
Executive, (hereinafter called the "Employee")
WHEREAS the Employee has been employed by Carsen since on or about the 1st
day of November, 1981 and the parties have decided to enter into a formal
employment agreement for their mutual benefit.
NOW THEREFORE the parties hereto have agreed that from and after January
1, 1997 the terms and conditions of their relationship shall be as follows:
1. EMPLOYMENT
The Employee is hereby employed by the Employer in the capacity of Chief
Executive Officer and Chief Financial Officer of Carsen and shall also hold the
office of Chairman of the Board of Directors of Carsen. The Employee agrees to
be bound by the terms and conditions of this agreement and in carrying out his
duties he agrees to comply with all reasonable instructions as may be given to
him from time to time by members of the Board of Directors of the Employer or by
the President of the Employer's parent company, Cantel Industries, Inc.
2. TERM OF EMPLOYMENT
The Employee shall be employed for a period of two years commencing the
1st day of January, 1997 provided, however, that the Employee shall have the
option of being employed for a third year with remuneration and benefits as
hereinafter set forth. The Employee shall send written notice of his intention
to exercise the option to the
<PAGE>
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Employer on or before the 1st day of August, 1998. The term of employment herein
shall be fully completed and ended without any further notice or action on the
part of either party on the 31St of December, 1998 or the 31st day of December,
1999 (in the event that the option to be employed for a third year has been
exercised by the Employee). When the employment herein has been fully completed
and ended and so long as the terms and conditions hereof have been observed and
performed by both parties to that date, then neither of the parties shall
thereafter have any obligation to or claim against the other.
3. REMUNERATION AND BENEFITS
i. In consideration of the performance by the Employee of the terms and
conditions of the within agreement:
(a) The Employer will pay to the Employee a Salary of $200,000.00
per annum, (subject to the normal statutory deductions)
payable in bi-weekly instalments in arrears for the first year
of the term of employment.
(b) The Employer will pay to the Employee a salary of $175,000.00
per annum, (subject to the normal statutory deductions)
payable in bi-weekly instalments in arrears for the second
year of the term of employment.
(c) The Employer will pay to the Employee in the event that the
Employee exercises his option for a third year of employment
the sum of $150,000.00 per annum, (subject to the normal
statutory deductions) payable in bi-weekly instalments in
arrears for the second year of the term of employment.
(d) The Employee will be entitled to participate in the Employer's
insurance benefit package and the Employer shall also make the
normal contributions to its deferred profit sharing plan for
and on behalf of the Employee.
(e) The Employee will be entitled to participate in an incentive
bonus program as set forth in Schedule "A" attached hereto.
(f) The Employee will be entitled to:
A. Eleven weeks of paid vacation time during the first year
of employment;
<PAGE>
-3-
B. Eighteen weeks of paid vacation time during the second
year of employment; and
C. In the event that the Employee is employed for a third
year, twenty-six weeks of paid vacation time.
Any paid vacation period shall not exceed three consecutive
weeks without the Employer's prior approval.
(g) The Employer shall reimburse the Employee for reasonable
business expenses incurred by the Employee for and on behalf
of Carsen. The reimbursement of such expenses shall be
approved by the President of the Employer's parent company,
Cantel Industries, Inc.
(h) All dollar amounts in the Agreement are Canadian dollars.
4. PROVISION OF AUTOMOBILE
During the term of his employment the Employee shall be provided with a
leased automobile and the Employer shall pay all of the operating costs of the
automobile. The Employer also agrees to transfer the lease of any such
automobile to the Employee at the end of the term of employment and the Employee
shall assume all of the terms and conditions of the said lease.
5. DISABILITY
In the event that the Employee shall by reason of sickness or accident be
prevented from performing his duties hereunder he shall be paid 50% of his
normal salary entitlement for a period of one hundred and twenty (120) days from
the date of commencement of such period of incapacity after which such salary
entitlement shall cease. Any other benefits provided for the Employee hereunder
shall continue for the one hundred and twenty (120) day period.
6. EXCLUSIVITY
During the term of his employment the Employee agrees to well and
faithfully serve the Employer and agrees that he will not during the term be
employed or engaged in any capacity in promoting, undertaking or carrying on any
other business.
<PAGE>
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7. SEVERABILITY
In the event that any provision of this agreement is found to be void,
invalid, illegal or unenforceable by a court of competent jurisdiction, such
finding will not affect any other provision of this agreement which will
continue to be in full force and effect.
8. NOTICES
Any notice required or permitted to be given to either party must be
delivered by hand or personally to the parties address last known to the other
party and will be deemed to be received on the date of hand delivery or personal
delivery to such address.
9. WAIVER
The waiver by either party of any breach or violation of any provision of
this agreement shall not operate or be construed as a waiver of any subsequent
breach or violation.
10. MODIFICATION OF AGREEMENT
Any modification of this agreement must be in writing and signed by the
Employer and the Employee or it shall have no effect and shall be void.
This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario.
IN WITNESS WHEREOF the parties hereto have hereunto affixed their
corporate hand and seal as of the date first above written.
CARSEN GROUP INC.
Per James P. Reilly
/s/ James P. Reilly
------------------------------
DIRECTOR
/s/ Edward E. Meltz
------------------------------
EDWARD E. MELTZ
<PAGE>
SCHEDULE "A"
The Employee shall be entitled to a bonus calculated as follows, subject to
paragraph D. below:
A. For Fiscal 1997
(i) 3% of the increase in Carsen's pre-tax income over the highest pre-tax
income of any previous fiscal year up to the amount of the budgeted pre-tax
income for fiscal 1997;
(ii) 6% of the excess of Carsen's pre-tax income over that budgeted for
fiscal 1997.
B. For Fiscal 1998
(i) 2% of the increase in Carsen's pre-tax income over the highest pre-tax
income of any previous fiscal year up to the amount of the budgeted pre-tax
income for fiscal 1998;
(ii) 4% of the excess of Carsen's pre-tax income over that budgeted for
fiscal 1998.
C. For Fiscal 1999
(i) 1 1/2% of the increase in Carsen's pre-tax income over the highest
pre-tax income of any previous fiscal year up to the amount of the budgeted
pre-tax income for fiscal 1999;
(ii) 3% of the excess of Carsen's pre-tax income over that budgeted for
fiscal 1999.
D. If the Employee does not elect to be employed for a third year, then any
bonus that might be payable for the period August 1, 1998 to December 31, 1998
shall be in the sole discretion of the Employer, and the Employee shall not be
entitled to any bonus for the period after December 31, 1998.
If the Employee elects to be employed for a third year, then the bonus to
the Employee for the period August 1, 1999 to December 31, 1999 shall be in the
sole discretion of the Employer.
E. For the purposes of calculating the incentive bonus herein, "pre-tax
income" shall be calculated exclusive of foreign exchange gains or losses,
interest on long term debt and corporate charges for management fees.
<PAGE>
EXHIBIT 10(v)
EMPLOYMENT AGREEMENT
AGREEMENT dated this 11th day of July, l997, by and between
MediVators, Inc., a Minnesota corporation (the "Company"), and R.M. (Ric) Rumble
(the "Employee").
Introduction
Employee is being employed by the Company as an executive officer.
The parties desire to enter into an employment agreement and to set forth herein
the terms and conditions of Employee's employment by the Company. Accordingly,
in consideration of the mutual covenants and agreements set forth herein and the
mutual benefits to be derived here from, and intending to be legally bound
hereby, the Company and Employee agree as follows:
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is hereby agreed by; and between the Company and Employee as
follows:
1. Engagement and Term. The Company hereby employs Employee and
Employee hereby accepts such employment by the Company on the terms and
conditions set forth herein, for the three-year period commencing on August 1,
1997 (the "Effective Date") and ending, unless sooner terminated in accordance
with the provisions of Section 4 hereof, on July 31, 2000 (the "Employment
Period"). As used in this Agreement, the term
<PAGE>
"Contract Year" shall refer to each twelve-month period during the Employment
Period ending July 31st; provided, however, that the "Initial Contract Year"
shall be deemed the period commencing on the Effective Date and ending on July
31, 1998.
2. Scope of Duties. Employee shall be employed by the Company as its
President and Chief Executive Officer. In such capacities, Employee shall have
such authority, powers and duties customarily attendant upon such offices. If
elected or appointed, employee shall also serve, without additional
compensation, in one or more offices and, if and when elected, as a director of
the Company or any subsidiary or affiliate of the Company, provided that his
duties and responsibilities are not inconsistent with those pertaining to his
position as stated above. Employee agrees to perform the duties associated with
his employment to the best of his abilities, and shall faithfully devote his
full business time and efforts so as to advance the best interests of the
Company. During the Employment Period, Employee shall not be engaged in any
other business activity, whether or not such business activity is pursued for
profit or other pecuniary advantage, unless otherwise approved in writing by the
Board of Directors of Cantel Industries, Inc. ("Cantel").
3. Compensation.
3.1 Basic Compensation. In respect of services to be performed
by Employee during the Employment Period, the
-2-
<PAGE>
Company agrees to pay Employee an annual base salary ("Basic Compensation") of
$125,000 during the Initial Contract Year, payable in accordance with the
Company's customary payroll practices for executive employees. The Basic
Compensation shall be increased each Contract Year thereafter by not less than
5% per year.
3.2 Incentive Bonus. Employee shall also be entitled to such
additional bonuses, if any, as shall be determined from time to time by the
Compensation Committee of the Board of Directors of Cantel, based upon the
performance of Employee and the Company. The Company will prepare a formal bonus
plan for fiscal 1998 during the quarter ending October 31, 1997. Employee,
regardless of whether earned under such bonus plan shall be paid a minimum
guaranteed bonus of $25,000 for the Initial Contract, Year. The guaranteed bonus
will be netted, against any bonus earned under the bonus plan. Bonus plans will
be developed by the Company for each of the Contract Years ending July 31, 1999
and July 31, 2000.
3.3 Stock Options. The Company agrees to cause the grant to
Employee as of the Effective Date of an option (the "Option") to purchase
Twenty-five Thousand (25,000) shares of Common Stock, par value $.10 per share
of Cantel. The Option will be granted under Cantel's 1991 Employee Stock Option
Plan (the "Plan") pursuant to a separate option agreement in the form annexed
hereto as Exhibit A. The Option shall have a five year
-3-
<PAGE>
term, a three-year vesting schedule (commencing on the first anniversary of the
Effective Date), and an option exercise price per share equal to the fair market
value of Cantel's Common Stock on the Effective Date.
3.4 Life Insurance. Provided that Employee is insurable at
rates that are comparable to those obtainable on other persons of similar age
and position in good health (if Employee is classified in a higher risk category
he may elect to pay the excess premium cost to obtain the coverage), during the
Employment Period the Company shall procure and maintain life insurance on the
life of Employee in the face amount of $250,000. Employee shall be the owner of
such life insurance policy and shall have the absolute right to designate the
beneficiaries thereunder. The type of policy (whether term, whole life, etc., or
combination of types) shall be in the sole discretion of the Company. The
Company shall pay all premiums for such life insurance. Employee agrees to
submit to all medical examinations, supply all information and execute all
documents required by insurance companies in connection with the issuance of
such policy.
3.5 Use of Automobile. During the Employment Period, Employee
shall at all times have the use of a Company-owned or leased automobile of style
and type selected by the Company, but comparable to the Chevrolet Tahoe being
furnished by the Company to Employee through May 1998.
-4-
<PAGE>
3.6 Other Benefits.
(a) During the Employment Period, Employee shall be
entitled to participate in (i) the Company's 401-k benefit plan and (ii) the
medical health insurance plan, dental insurance plan and all other health,
insurance and other benefit plans applicable generally to executive officers of
the Company on the same basis as such officers.
(b) During the Employment Period, Employee will be
entitled to paid vacations and holidays consistent with the Company's policy
applicable to executives generally. All vacations shall be scheduled at the
mutual convenience of the Company and Employee.
4. Term of Employment. The provisions of Section 1. of this
Agreement notwithstanding, the Company may terminate this Agreement and
Employee's employment hereunder in the manner and for the causes hereinafter set
forth, in which event the Company shall be under no further obligation to
Employee other than as specifically provided herein:
A. If Employee is absent from work or otherwise substantially
unable to assume his normal duties for an aggregate of ninety (90) business days
during any consecutive twelve-month period during the Employment Period because
of physical or mental disability, accident, illness, or any other cause other
than vacation or approved leave of absence, the Company may thereupon, or any
time thereafter while such absence or disability still
-5-
<PAGE>
exists, terminate the employment of Employee hereunder upon ten (10) days'
written notice to Employee.
B. In the event of the death of Employee, this Agreement shall
immediately terminate on the date thereof.
C. If Employee materially breaches or violates any material
term of his employment hereunder, or commits any criminal act or an act of
dishonesty or moral turpitude, in, the reasonable judgment of Cantel's Board of
Directors, then the Company may, in addition to other rights and remedies
available at law or equity, immediately terminate this Agreement upon written
notice to Employee with the date of such notice being the termination date and
such termination being deemed for "cause."
D. In the event Employee's employment shall be terminated by
reason of the provisions of subparagraph A or B of this Section 4, then in such
event, the Company shall continue to pay to Employee, if living, or other person
or persons as Employee may from time to time designate in writing as the
beneficiary of such payments, the Basic Compensation in effect at
the time which such death or disability occurred during the three-month
period following such death or disability.
5. Disclosure of Confidential Information, Assignment of Inventions,
and Covenant Not to Compete.
5.1 Confidential Information. Employee acknowledges that the
Company possesses confidential information, know-how, customer lists,
purchasing, merchandising and selling
-6-
<PAGE>
techniques and strategies, and other information used in its operations of which
Employee will obtain knowledge, and that the Company will suffer serious and
irreparable damage and harm if this confidential information were disclosed to
any other party or if Employee used this information to compete against the
Company. Accordingly, Employee hereby agrees that except as required by
Employee's duties to the Company, Employee without the consent of the Company's
Board of Directors, shall not at any time during or after the Employment Period
disclose or use any secret or confidential information of the Company,
including, without limitation, such business opportunities, customer lists,
trade secrets, formulas, techniques and methods of which Employee shall become
informed during his employment, whether learned by him as an employee of the
Company, as a member of its Board of Directors or otherwise, and whether or not
developed by Employee, unless such information shall be or becomes public
knowledge other than as a result of Employee's direct or indirect disclosure of
the same.
5.2 Patent and Related Matters.
5.2.1 Employee will promptly disclose in writing to the
Company complete information concerning each and every invention, discovery,
improvement and idea (whether or not shown or described in writing or reduced to
practice), and device, design, apparatus, process, and work of authorship,
whether or not patentable, copyrightable or registerable, which
-7-
<PAGE>
is made, developed, perfected, devised, conceived or first reduced to practice
by Employee, either solely or in collaboration with others, during the
Employment Period, whether or not during regular working hours (hereinafter
collectively referred to as the "Inventions"). Employee, to the extent that he
has the legal right to do so, hereby acknowledges that any and all of the
Inventions are property of the Company and hereby assigns and agrees to assign
to the Company any and all of Employee's right, title and interest in and to any
and all of the Inventions.
5.2.2 Limitation. It is further agreed and Employee is
hereby notified that the above agreement to assign the Inventions to the Company
does not apply to an Invention for which no equipment, supplies, facility or
confidential information of the Company was used and which was developed
entirely on Employee's own time, and
(i) which does not relate (a) directly to the
business of the Company or (b) to the Company's actual or demonstrably
anticipated research or development, or
(ii) which does not result from any work performed
by Employee for the Company.
5.2.3 Assistance. Upon request and without further
compensation therefor, but at no expense to Employee, and whether during the
Employment Period or thereafter, Employee will do all lawful acts, including,
but not limited to, the execution
-8-
<PAGE>
of documents and instruments and the giving of testimony, that in the opinion of
the Company, its successors and assigns, may be necessary or desirable in
obtaining, sustaining, reissuing, extending or enforcing United States and
foreign copyrights and Letters Patent, including, but not limited to, design
patents, on any and all of the Inventions, and for perfecting, affirming and
recording the Company's complete ownership and title thereto, and to cooperate
otherwise in all proceedings and matters relating thereto.
5.2.4 Records. Employee will keep complete, accurate and
authentic accounts, notes, data and records of all the Inventions in the manner
and form registered by the Company. Such accounts, notes, data and records shall
be the property of the Company, and upon its request, Employee will promptly
surrender the same to it.
Upon the termination of the Employment Period, Employee agrees to
deliver promptly to the Company all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables,
accounts, calculations and copies thereof, which are the property of the Company
or which relate in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and confidential information
of the Company, including, but not limited to, all documents which in whole or
in part contain any trade secrets or confidential information of the Company,
which
-9-
<PAGE>
in any of these cases are in his possession or under his control.
5.3 Non-Compete. Employee agrees that for period of one year
following the termination of Employee's employment hereunder (the
"Non-Competition Period"), except as a result of the breach by the Company of
any material term or condition hereof, Employee will not, directly or
indirectly, alone or with others, individually or through or by a corporate or
other business entity in which he may be interested as a partner, shareholder,
joint venturer, officer, director, employee or otherwise, own, manage, control,
participate in, lend his name to, or render services to or for any business
within the continental United States which is competitive with that of the
Company or any of its affiliates, provided, however, that the foregoing shall
not be deemed to prevent the ownership by Employee of up to five percent of any
class of securities of any corporation which is regularly traded on any stock
exchange or over-the-counter market. For the purpose of this a Agreement,
business activity competitive with the business of the Company or any of its
affiliates shall include only the design, manufacture, marketing, sale, or
distribution of (i) endoscopes, (ii) endoscope disinfection or sterilization
equipment or supplies, (iii) medical waste disposal systems or (iv) infection
control equipment, products, supplies or systems (collectively "Products") which
are the same as or similar to or compete with,
-10-
<PAGE>
or have a usage allied to Products being developed, marketed, sold or
distributed by the Company or any of its affiliates at any time during last
twelve months of Employee's employment by the Company.
5.4 Non-interference. Employee further that during the,
Non-Competition Period he will not (i) induce or attempt to induce any other
employee of the Company or any of its affiliates to leave the employ of the
Company or affiliate, or in any way interfere with the relationship between the
Company (or any of its affiliates) and any other employee, or (ii) induce or
attempt to induce any customer, supplier, franchisee, licensee, distributor or
other business relation of the Company or any of its affiliates to cease doing
business with the Company or affiliate, or in any way interfere with the
relationship between any customer, franchisee or other business relation and the
Company and any of its affiliates without prior written consent of the Board of
Directors of Cantel.
5.5 Enforcement. If, at the time of enforcement of any
provisions of this section, a court of competent jurisdiction holds that the
restrictions stated herein are unreasonable under the circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances will be substituted for
the stated period, scope or area. Employee agrees that the covenants made in
this Section shall be construed as an agreement
-11-
<PAGE>
independent of any other provision of this Agreement, and shall survive the
termination of this Agreement.
6. Reimbursement of Expenses. The Company shall further pay
directly, or reimburse Employee, for all other reasonable and necessary expenses
and disbursements incurred by him for and on behalf of the Company in the
performance of his duties during the Employment Period upon submission of
vouchers or other evidence thereof in accordance with the Company's usual
policies of expense reimbursement.
7. Miscellaneous Provisions.
7.1 Section headings are for convenience only and shall not be
deemed to govern, limit, modify or supersede the provisions of this Agreement.
7.2 This Agreement is entered into in the State of Minnesota
and shall be governed pursuant to the laws of The State of Minnesota. If any
provision of this Agreement shall be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable, the remaining provisions hereof shall
continue to be fully effective.
7.3 This Agreement contains the entire agreement of the
parties regarding this subject matter. There are no contemporaneous oral
agreements, and all prior understandings, agreements, negotiations and
representations are merged herein.
-12-
<PAGE>
7.4 This Agreement may be modified only by means of a writing
signed by the party to be charged with such modification.
7.5 Notices or other communications required or permitted to
be given hereunder shall be in writing and shall be deemed duly given upon
receipt by the party to whom sent at the respective addresses set forth below or
to such other address as any party shall hereafter designate to the other in
writing delivered in accordance herewith:
If to Medivators:
MediVators, Inc.
2995 Lone Oak Circle
Suite 10
Eagan, MN 55121
With a copy to:
Cantel Industries, Inc.
1135 Broad Street
Suite 203
Clifton, New Jersey 07013
If to Employee:
R.M. (Ric) Rumble
415 Hidden Oaks Court
Mahtomedi, Minnesota 55115
7.6 This Agreement shall inure to the benefit of, and shall be
binding upon, the Company, its successors and assigns, including, without
limitation, any entity that may acquire all or substantially all of the
Company's assets and
-13-
<PAGE>
business or into which the Company may be consolidated or merged. This Agreement
may not be assigned by Employee.
7.7 This Agreement way be executed in separate counterparts
and may be delivered by facsimile, each of which shall constitute the original
hereof.
IN WITNESS WHEREOF, the parties have set their hands as of the date
first above written.
MEDIVATORS, INC.
By: /s/ Craig A. Sheldon
-----------------------------------
Craig A. Sheldon, Vice President
/s/ R.M. (Ric) Rumble
-----------------------------------
R.M. (Ric) Rumble
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<PAGE>
EXHIBIT 10(w)
CARSEN GROUP INC.
as Borrower
- and -
CANTEL INDUSTRIES, INC.
as Guarantor
- and -
NATIONAL BANK OF CANADA
as Lender
- --------------------------------------------------------------------------------
SECOND LOAN AMENDING AGREEMENT
- --------------------------------------------------------------------------------
Dated as of April 19, 1996
<PAGE>
-2-
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the mutual covenants herein contained and other good and valuable
consideration, the parties hereto agree as follows
ARTICLE I
INTERPRETATION
1.1 Defined Terms. In this Second Loan Amending Agreement and the recitals
hereto, unless there is something in the subject matter or context inconsistent
therewith or unless otherwise expressly provided:
"Second Loan Amending Agreement", "herein", "hereby", "hereof" and
similar expressions mean or refer to this Second Amending Agreement.
In this Second Loan Amending Agreement and the recitals hereto, unless there is
something in the subject matter or context inconsistent therewith, or unless so
stated to the contrary in this Second Loan Amending Agreement, the words and
expressions herein contained, which are defined in the Loan Agreement, shall
have the meanings given to such words and expressions in the Loan Agreement.
1.2 Interpretation not Affected by Headings, etc. The division of this Second
Loan Amending Agreement into Articles and Sections and the insertion of headings
are for convenience of reference only and shall not affect the Construction or
interpretation hereof.
ARTICLE II
AMENDMENT TO THE LOAN AGREEMENT
2.1 Amendments to Section 1.01 of the Original Loan Agreement. (1) The
definition of "Commitment" in Section 1.01 of the Original Loan Agreement, as
amended by Subsection 2(3) is hereby deleted in its entirety and the following
substituted therefor:
"Commitment" means, subject to any reduction made in accordance with
Section 2.16, (i) for the period from the Closing Date to December
31, 1997, up to U.S. $7,500,000 (or the Equivalent Cdn. $ Amount);
and (ii) for the period from January 1, 1998 to December 31, 1998,
up to such amount as may be requested by the Borrower and agreed to
by the Lender in its sole discretion.
<PAGE>
-3-
(2) The definition of "Foreign Exchange Hedging Arrangement" in Section 1.01 of
the Original Loan Agreement is hereby deleted in its entirety and the following
substituted therefor:
"Foreign Exchange Hedging Arrangement" means any agreement under
which the Lender provides foreign exchange rate protection in
respect of any currency (other than Canadian dollars).
(3) The definition of "Lending Limit" in Section 1.01 of the Original Loan
Agreement, as amended by Subsection 2(8) of the First Loan Amending Agreement,
is hereby deleted in its entirety and the following substituted therefor:
"Lending Limit" means, subject to any reduction made in accordance
with Section 2.16, (i) for the period from the Closing Date to
December 31, 1997, the lesser of U.S. $7,500,000 (or the Equivalent
Cdn. $ Amount) and the Margin Requirement; and (ii) for the period
from January 1, 1998 to December 31, 1998, subject to extension of
the Repayment Date, the lesser of (y) such amount as may be
requested by the Borrower and agreed to by the Lender in its sole
discretion, and (z) the Margin Requirement.
(4) The definition of "Margin Requirement" in Section 1.01 of the Original Loan
Agreement, as amended by Subsection 2(10) of the First Loan Amending Agreement,
is hereby deleted it in its entirety and the following substituted therefor:
"Margin Requirement" means the amount by which:
(A) the sum of:
(i) 85% of Division Eligible Accounts Receivable; and
(ii) 75% of Eligible Accounts Receivable; and
(iii) the lesser of (y) the sum of 85% of Division Eligible
Accounts Receivable and 75% of Eligible Accounts
Receivable and (z) 50% of Eligible Inventory, and 40% of
Division Sample Inventory to a maximum of, in the case
of Division Sample Inventory, $1,000,000 (reducing to
(i) 30% to a maximum of $750,000 from and after January
1, 1997; and (ii) 20% to a maximum of $500,000 from and
after January 1, 1998).
exceeds (B) the amount of liabilities owing by the Borrower
which are capable of comprising a lien or trust claim under
relevant
<PAGE>
-4-
legislation in respect of the assets of the Borrower ranking
or capable of ranking in priority to the Security.
(5) The definition of "Repayment Date" in Section 1.01 of the Original Loan
Agreement, as amended by subsection 2(12) of the First Loan Amending Agreement,
is hereby deleted and the following substituted therefor:
"Repayment Date" means, in respect of repayment of all
Accommodations made hereunder, December 31, 1997, or such other date
as determined pursuant to Section 8.06.
2.2 Amendment to Article II of the Original Loan Agreement. The Original Loan
Agreement is amended to add the following section, as part of Article II,
immediately following section 2.15 thereof:
Section 2.16. Reduction of Commitment and Lending Limit. The
Borrower may, at its election, permanently reduce the Commitment and
the Lending Limit by providing at least 30 Business Days' prior
notice in writing to the Lender, which notice shall set out the
amounts of the respective reductions, which amounts shall be in
integral multiples of U.S. $50,000.
2.3 Amendment to Section 6.03 of the Original Loan Agreement. Paragraph 6.03(1)
of the Original Loan Agreement is hereby deleted in its entirety.
2.4 Amendment to Schedule 3 to the Original Loan Agreement. Schedule 3 to the
Original Loan Agreement is hereby amended by deleting the paragraph set out next
to the asterisk, beneath the heading "Margin Requirement Calculations", and
substituting therefor the following:
* to a maximum of $1,000,000, reducing to (i) .30 to a maximum of $750,000 from
and after January 1, 1997; and (ii) .20 to a maximum of $500,000 from and after
January 1, 1998.
ARTICLE III
MISCELLANEOUS
3.1 Representations and Warranties; No Default. On and as of the date of
execution of this Second Loan Amending Agreement and after giving effect to this
Second Loan Amending Agreement, the Borrower and Cantel jointly and severally
(a) confirm, reaffirm and restate the representations and warranties set forth
in Article 5 of the Original Loan Agreement, as amended by the First Loan
Amending Agreement, except to the extent that such representations and
warranties relate solely to an earlier
<PAGE>
-5-
date in which case the Borrower and Cantel jointly and severally confirm,
reaffirm and restate such representations and warranties for such earlier date
in all material respects, provided that the references therein shall be deemed
to be to the Loan Agreement as amended by this Second Loan Amending Agreement;
and (b) represent that no Default or Event of Default has occurred and is
continuing.
3.2 Incorporation of the Loan Agreement. This Second Loan Amending Agreement is
supplemental to and shall henceforth be read in conjunction with the Loan
Agreement, and the Loan Agreement and this Second Loan Amending Agreement shall
henceforth have effect so far as practicable as if all the provisions thereof
and hereof were contained in one instrument.
3.3 Reference to and Effect on the Loan Agreement. On and after the date
hereof, each reference in the Loan Agreement to "this agreement", "hereunder",
"hereof", "herein" or words of like import, and each reference to the Loan
Agreement in any and all agreements, documents and instruments delivered by all
or any one or more of the parties thereto and any other Person shall mean and
refer to the Loan Agreement as amended hereby. Except as specifically amended
hereby, the Loan Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
3.4 Confirmation of Security. The Borrower hereby confirms that the Security
Documents to which it is a party continue to remain in full force and effect,
unamended, for the benefit of the Lender and continue to extend to all
liabilities of the Borrower under the Loan Agreement as amended hereby.
3.5 Confirmation of Guarantee. Cantel hereby confirms that the Letter of
Guarantee remains in full force and effect, unamended, for the benefit of the
Lender and continues to extend to all liabilities and obligations of the
Borrower under the Loan Agreement as amended hereby.
3.6 Confirmation of Postponement Agreement. Cantel hereby confirms that the
Postponement Agreement remains in full force and effect, unamended, for the
benefit of the Lender and continues to extend to all liabilities of the Borrower
under the Loan Agreement as amended hereby.
3.7 No Waiver. The execution, delivery and effectiveness of this Second Loan
Amending Agreement shall not operate as a waiver of any right, power or remedy
of the Lender under the Loan Agreement or any other agreements or instruments
delivered in connection therewith or pursuant thereto.
3.8 Expenses. The Borrower shall be obligated to reimburse the Lender for all
its reasonable costs and expenses (including without limitation, reasonable
legal expenses) incurred in connection with the preparation, execution and
delivery of this Second Loan Amending Agreement.
<PAGE>
-6-
3.9 Governing Law. This Second Loan Amending Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario and Canada
applicable therein and shall be treated in all respects as an Ontario contract.
3.10 Assignment. Subject to the restrictions on assignment and transfer
contained in the Loan Agreement, this Second loan Amending Agreement Shall enure
to the benefit of and be binding upon the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
3.11 Counterparts. This Second Loan Amending Agreement may be executed in any
number of counterparts with the same effect as if the parties hereto had all
signed the documents and each of such counterparts, when so executed, shall be
deemed to be an original and such counterparts together shall constitute one and
the same instrument, which shall be sufficiently evidenced by any such original
counterpart.
IN WITNESS WHEREOF the parties hereto have executed this Amending
Agreement as of the day and year first above written.
CARSEN GROUP INC.
Per: /s/ Edward E. Meltz
--------------------------
Name: EDWARD E. MELTZ
Title: PRESIDENT
CANTEL INDUSTRIES, INC.
Per: /s/ James P. Reilly
--------------------------
Name: James P. Reilly
Title: President
NATIONAL BANK OF CANADA
Per: /s/ William Crossland
--------------------------
Name: William Crossland
Title: Manager
Per: /s/ L. Shain
--------------------------
Name: L. Shain
Title: Vice President
<PAGE>
EXHIBIT 10(x)
CARSEN GROUP INC.
as Borrower
- and -
CANTEL INDUSTRIES, INC.
as Guarantor
- and -
NATIONAL BANK OF CANADA
as Lender
- --------------------------------------------------------------------------------
THIRD LOAN AMENDING AGREEMENT
- --------------------------------------------------------------------------------
Dated as of March 7, 1997
<PAGE>
THIRD LOAN AMENDING AGREEMENT dated as of March 7, 1997 among CARSEN
GROUP INC. (the "Borrower"), a corporation incorporated and subsisting under the
laws of Ontario, as borrower, CANTEL INDUSTRIES, INC. ("Cantel"), a corporation
incorporated and subsisting under the laws of Delaware and NATIONAL BANK OF
CANADA (the "Lender"), as lender.
WHEREAS the Borrower, the Lender and Cantel are parties to a loan
agreement dated as of October 29, 1993 (the "Original Loan Agreement")
pursuant to which the Lender agreed to make extensions of credit to the Borrower
on the terms and conditions contained therein and Cantel agreed to make certain
commitments with respect to the Borrower's obligations to the Lender;
AND WHEREAS the Borrower, the Lender and Cantel amended the Original
Loan Agreement pursuant to a First Loan Amending Agreement dated as of August
28, 1995 (the "First Loan Amending Agreement");
AND WHEREAS the Borrower, the Lender and Cantel further amended the
Original Loan Agreement pursuant to a Second Loan Amending Agreement dated as of
April 19, 1996 (the "Second Loan Amending Agreement") (the Original Loan
Agreement, as amended by the First Loan Amending Agreement and the Second Loan
Amending Agreement is hereinafter referred to as the "Loan Agreement");
AND WHEREAS Section 8.05 of the Loan Agreement provides, inter alia,
that no amendment or waiver of any provision of the Loan Agreement shall be
effective unless consented to in writing by the Lender;
AND WHEREAS the Borrower has requested that the Lender, inter alia,
(i) extend the Repayment Date to December 31, 1999; (ii) reduce the Commitment
to U.S. $5,000,000, and reduce the Lending Limit accordingly; (iii) amend the
interest rates applicable to both Canadian Dollar Advances and U.S. Dollar
Advances; and (iv) amend the Drawing Fee.
AND WHEREAS the Lender has agreed, subject to the terms and
conditions set out herein, to permit such amendments to the Loan Agreement;
AND WHEREAS Cantel wishes to confirm the continuing validity of the
Letter of Guarantee and its agreement with the terms and conditions of this
Second Loan Amending Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
the premises and the mutual covenants herein contained and other good and
valuable consideration, the parties hereto agree as follows:
<PAGE>
-2-
ARTICLE I
INTERPRETATION
1.1 Defined Terms. In this Third Loan Amending Agreement and the recitals
hereto, unless there is something in the subject matter or context inconsistent
therewith or unless otherwise expressly provided:
"Third Loan Amending Agreement", "herein", "hereby", "hereof" and
similar expressions mean or refer to this Third Loan Amending
Agreement.
In this Third Loan Amending Agreement and the recitals hereto, unless there is
something in the subject matter or context inconsistent therewith, or unless so
stated to the contrary in this Third Loan Amending Agreement, the words and
expressions herein contained, which are defined in the Loan Agreement, shall
have the meanings given to such words and expressions in the Loan Agreement.
1.2 Interpretation not Affected by Headings, etc. The division of this Third
Loan Amending Agreement into Articles and Sections and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation hereof.
ARTICLE II
AMENDMENTS TO THE LOAN AGREEMENT
2.1 Amendments to Section 1.01 of the Loan Agreement. (1) The definition of
"Quarterly Financial Statements" is hereby added to Section 1.01 of the Loan
Agreement as follows:
"Quarterly Financial Statements" means those monthly financial
statements delivered by the Borrower pursuant to Section 6.01 of the
Loan Agreement for any of the months of October, January, April or
July in any given year.
(2) The definition of "Commitment" in Section 1.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"Commitment" means, for the period commencing on January 10, 1997
and ending on the Repayment Date, U.S. $5,000,000, subject to any
<PAGE>
-3-
reduction made at the election of the Borrower in accordance with
the terms of this Loan Agreement.
(3) The definition of "Drawing Fee" in Section 1.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"Drawing Fee" means, with respect to each Draft drawn by the
Borrower hereunder and purchased by any Person on any Drawing Date,
an amount determined as follows:
(a) where such Draft is drawn on or after the date hereof and on
or before the ninth day following the Borrower's next delivery
of Quarterly Financial Statements to the Lender, an amount
equal to 1.25% of the aggregate Face Amount of such Draft; and
(b) thereafter, with respect to any Draft drawn on or after the
tenth day following a delivery of Quarterly Financial
Statements (the "Prior Financial Statements") by the Borrower
and on or before the ninth day following the next following
delivery of Quarterly Financial Statements by the Borrower, an
amount equal to:
(i) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal to or more
than 1.5:1, 1.75 % of the aggregate Face Amount of such
Draft; and
(ii) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal to or more
than 1:1 but less than 1.5:1, 1.5% of the aggregate Face
Amount of such Draft; and
(iii) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal to or more
than 0.5:1 but less than 1:1, 1.25% of the aggregate
Face Amount of such Draft; and
(iv) where the Borrower's Debt to Equity ratio is less than
0.5:1, as indicated by the Prior Financial Statements,
1% of the aggregate Face Amount of such Draft,
calculated on the basis of the term to maturity of such Draft and a
year of 365 days.
<PAGE>
-4-
(4) The definition of "Lending Limit" in Section 1.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"Lending Limit" means, subject to any reduction made at the election
of the Borrower in accordance with Section 2.23, (i) for the period
commencing on January 10, 1997 and ending on the Repayment Date, the
lesser of U.S. $5,000,000 (or the Equivalent Cdn. $ Amount) and the
Margin Requirement.
(5) The definition of "Repayment Date" in Section 1.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"Repayment Date" means, in respect of repayment of all
Accommodations made hereunder, December 31, 1999.
2.3 Amendment to Section 2.06 of the Loan Agreement. Section 2.06 of the Loan
Agreement is hereby deleted in its entirety and the following substituted
therefor:
"Subject to Section 2.08, the Borrower shall pay interest on the
unpaid principal amount of each Canadian Dollar Advance made to it
from the date of such Canadian Dollar Advance until such principal
amount shall be repaid in full, at a rate per annum determined as
follows:
(a) for the period commencing on the date hereof and ending on the
ninth day following the Borrower's next delivery of Quarterly
Financial Statements, at a rate equal to the Prime Rate in
effect from time to time plus 0.25% per annum; and
(b) thereafter, for every period commencing on the tenth day
following a delivery of Quarterly Financial Statements (the
"Prior Financial Statements") by the Borrower and ending on
the ninth day following the next following delivery of
Quarterly Financial Statements by the Borrower, at a rate per
annum determined as follows:
(i) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal or more than
1.5:1, the sum of the Prime Rate in effect from time to
time plus 0.75%; and
(ii) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal to or more
than 1:1
<PAGE>
-5-
but less than 1.5:1, the sum of the Prime Rate in effect
from time to time plus 0.5%; and
(iii) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal to or more
than 0.5:1 but less than 1:1, the sum of the Prime Rate
in effect from time to time plus 0.25%; and
(iv) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is less than 0.5:1,
the Prime Rate in effect from time to time,
in each case, calculated and payable (i) in arrears on the 26th day
of each month in each year; and (ii) when such Canadian Dollar
Advance becomes due and payable in full. Any amount of principal of
or interest on any such Canadian Dollar Advance which is not paid
when due (whether at stated maturity, by acceleration or otherwise)
shall bear interest both before and after judgment), from the date
on which such amount is due until such amount is paid in full,
payable on demand, at the same applicable rates per annum as
aforesaid;"
2.4 Amendment to Section 2.07 of the Loan Agreement. Section 2.07 of the Loan
Agreement is hereby deleted in its entirety and the following substituted
therefor:
"Subject to Section 2.08, the Borrower shall pay interest on the
unpaid principal amount of each U.S. Dollar Advance made to it from
the date of such U.S. Dollar Advance until such principal amount
shall be repaid in full, at a rate per annum determined as follows:
(a) for the period commencing on the date hereof and ending on the
ninth day following the Borrower's next delivery of Quarterly
Financial Statements, at a rate equal to the U.S. Base Rate in
effect from time to time plus 0.25% per annum; and
(b) thereafter, for every period commencing on the tenth day
following a delivery of Quarterly Financial Statements (the
"Prior Financial Statements") by the Borrower and ending on
the ninth day following the next following delivery of
Quarterly Financial Statements by the Borrower, at a rate
equal to:
(i) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal or more than
1.5:1,
<PAGE>
-6-
the sum of the U.S Base Rate in effect from time to time
plus 0.75%; and
(ii) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal to or more
than 1:1 but less than 1.5:1, the sum of the U.S. Base
Rate in effect from time to time plus 0.5%; and
(iii) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is equal to or more
than 0.5:1 but less than 1:1, the sum of the U.S. Base
Rate in effect from time to time plus 0.25 %; and
(iv) where the Borrower's Debt to Equity ratio, as indicated
by the Prior Financial Statements, is less than 0.5:1,
the U.S. Base Rate in effect from time to time,
in each case, calculated daily and payable (i) in arrears on the
26th day of each month in each year; and (ii) when such U.S. Dollar
Advance becomes due and payable in full. Any amount of principal of
or interest on any such U.S. Dollar Advance which is not paid when
due (whether at stated maturity, by acceleration or otherwise)
shall bear interest (both before and after judgment), from the date
on which such amount is due until such amount is paid in full,
payable on demand, at the same applicable rates per annum as
aforesaid;"
2.6 Amendment to Section 2.16 of the Loan Agreement. Section 2.16 of the Loan
Agreement, which was added to the Loan Agreement pursuant to Section 2.2 of the
Second Loan Amending Agreement, is hereby renumbered as Section 2.23 of the Loan
Agreement.
ARTICLE III
MISCELLANEOUS
3.1 Representations and Warranties; No Default. On and as of the date of
execution of this Third Loan Amending Agreement and after giving effect to this
Third Loan Amending Agreement, the Borrower and Cantel jointly and severally (a)
confirm, reaffirm and restate the representations and warranties set forth in
Article 5 of the Loan Agreement, except to the extent that such representations
and warranties relate solely to an earlier date in which case the Borrower and
Cantel jointly and severally confirm, reaffirm and restate such representations
and warranties for such earlier date in all material respects, provided that the
references therein shall be deemed to be to the Loan
<PAGE>
-7-
Agreement as amended by this Third Loan Amending Agreement; and (b) represent
that no Default or Event of Default has occurred and is continuing.
3.2 Incorporation of the Loan Agreement. This Third Loan Amending Agreement is
supplemental to and shall henceforth be read in conjunction with the Loan
Agreement, and the Loan Agreement and this Third Loan Amending Agreement shall
henceforth have effect so far as practicable as if all the provisions thereof
and hereof were contained in one instrument.
3.3 Reference to and Effect on the Loan Agreement. On and after the date hereof,
each reference in the Loan Agreement to "this agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference to the Loan Agreement in
any and all agreements, documents and instruments delivered by all or any one or
more of the parties thereto and any other Person shall mean and refer to the
Loan Agreement as amended hereby. Except as specifically amended hereby, the
Loan Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
3.4 Confirmation of Security. The Borrower hereby confirms that the Security
Documents to which it is a party continue to remain in full force and effect,
unamended, for the benefit of the Lender and continue to extend to all
liabilities of the Borrower under the Loan Agreement as amended hereby.
3.5 Confirmation of Guarantee. Cantel hereby confirms that the Letter of
Guarantee remains in full force and effect, unamended, for the benefit of the
Lender and continues to extend to all liabilities and obligations of the
Borrower under the Loan Agreement as amended hereby.
3.6 Confirmation of Postponement Agreement. Cantel hereby confirms that the
Postponement Agreement remains in full force and effect, unamended, for the
benefit of the Lender and continues to extend to all liabilities of the Borrower
under the Loan Agreement as amended hereby.
3.7 No Waiver. The execution, delivery and effectiveness of this Third Loan
Amending Agreement shall not operate as a waiver of any right, power or remedy
of the Lender under the Loan Agreement or any other agreements or instruments
delivered in connection therewith or pursuant thereto.
3.8 Expenses. The Borrower shall be obligated to reimburse the Lender for all
its reasonable costs and expenses (including without limitation, reasonable
legal expenses) incurred in connection with the preparation, execution and
delivery of this Third Loan Amending Agreement.
<PAGE>
-8-
3.9 Governing Law. This Third Loan Amending Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario and Canada
applicable therein and shall be treated in all respects as an Ontario contract.
3.10 Assignment. Subject to the restrictions on assignment and transfer
contained in the Loan Agreement, this Third Loan Amending Agreement shall enure
to the benefit of and be binding upon the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
3.11 Counterparts. This Third Loan Amending Agreement may be executed in any
number of counterparts with the same effect as if the parties hereto had all
signed the documents and each of such counterparts, when so executed, shall be
deemed to be an original and such counterparts together shall constitute one and
the same instrument, which shall be sufficiently evidenced by any such original
counterpart.
IN WITNESS WHEREOF the parties hereto have executed this Amending
Agreement as of the day and year first above written.
Per: /s/ Edward E. Meltz
--------------------------
Name: EDWARD E. MELTZ
Title: CHAIRMAN, CEO AND CFO
CANTEL INDUSTRIES, INC.
Per: /s/ James P. Reilly
--------------------------
Name: James P. Reilly
Title: PRESIDENT
NATIONAL BANK OF CANADA
Per: /s/ Jeffrey Burdon /s/ W. Crossland
-------------------------------------
Name: Jeffrey Burdon W. Crossland
Title: Mgr Sr Mgr
<PAGE>
EXHIBIT 10(y)
FIRST AMENDMENT TO DISTRIBUTION AGREEMENT
OLYMPUS AMERICA INC. AND CARSEN GROUP INC.
FIRST AMENDMENT ("Amendment") to Distribution Agreement ("Agreement") between
Olympus America Inc., a New York, U.S.A. corporation having its principal office
at Two Corporate Center Drive, Melville, New York, U.S.A. 11747-3157, and Carsen
Group Inc., a Canadian corporation having its principal office at 151 Telson
Road, Markham, Ontario, Canada L3R 1E7. Capitalized terms used but not otherwise
defined in this Amendment shall have the meanings ascribed to such terms in the
Agreement.
WHEREAS, Olympus and Carsen entered into the Agreement as of April 1, 1994;
WHEREAS, Olympus and Carsen wish to extend the Term and otherwise amend the
Agreement as is hereinafter set forth;
NOW, THEREFORE, for good and adequate consideration, receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. In the introductory paragraph and Section 10.4 (Notices), Olympus's address
is deleted and replaced with:
Two Corporate Center Drive
Melville, New York, U.S.A. 11747-3157
2. In Section 10.4 (Notices), Olympus's name shall be corrected to read:
Olympus America Inc.
3. Delete the text of Section 2.2 and replace it with the following:
"2.2 Consumer Products. Notwithstanding anything to the contrary
contained in Section 2.1 or elsewhere in this Agreement, (a) Olympus may
sell and service Consumer Products to and for Consumer Product retailers
with locations in the Territory but that are based in the United States
("U.S.-Based Retailers"), (b) Olympus shall be involved in the primary
planning, presentations, and negotiations to and with U.S.-Based
Retailers, (c) Olympus will use commercially reasonable efforts, based on
Olympus's evaluation of the particular circumstances, to promote to
U.S.-Based Retailers the purchase of Consumer Products within the
Territory from Carsen, and (d) Olympus will be involved in the primary
planning, presentations, and negotiations to and with Consumer Product
retailers with locations in the United States but that are based in the
Territory."
4. Delete the third sentence of Section 5.3.3 and replace it with the following:
"Notwithstanding the foregoing, should Carsen default with respect to the
Minimum Dollar Purchase Requirements for (a) both Industrial Products and
Precision Products, and/or (b) Medical Products, Olympus may terminate
this Agreement with respect to any
<PAGE>
such grouping or group or, in the alternative, terminate the entire
Agreement, upon thirty (30) days' notice within six (6) months of such
default."
5. In the last sentence of Section 5.3.3 and the first sentence of Section
5.3.4, insert the word "Dollar" after the word "Minimum".
6. In Sections 5.3.2, 5.3.3, 5.3.4, and 5.4.6, all references to "Product group"
shall, for purposes of Consumer Products only, be construed to mean each
sub-group within the Consumer Products group. As an example only, if Carsen
achieves Minimum Dollar Purchase Requirement for Photo & Binocular Consumer
Products but fails to achieve the Minimum Dollar Purchase Requirement for Audio
Consumer Products, Olympus will be entitled to either terminate the Agreement
with respect to Audio Consumer Products only or make any other alternative
distribution arrangement with respect to Audio Consumer Products only.
7. In Section 9.1.1 (Term), the Term will be extended by thirty-six (36) months,
and the Term will expire, unless terminated earlier in accordance with the terms
of the Agreement, on March 31, 2001.
8. Schedules 1.5, 1.6, 1.8, 1.9, and 5.3 are removed and replaced with the
respective revised schedules attached to this Amendment.
9. During the period commencing as of the date of this Amendment and ending on
March 31, 1998, Carsen and Olympus will discuss, in good faith, the manner in
which the sale, distribution, marketing, promotion, advertising, leasing, and
servicing of digital camera, optical storage, and other computer peripheral
Consumer Products shall be treated under the Agreement. The mutually agreed-
upon results of such discussions shall be reflected in a further amendment to
the Agreement.
10. Except as modified by this Amendment, the Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Agreement as
of the 26th day of AUGUST, 1997.
CARSEN GROUP INC. OLYMPUS AMERICA INC.
Per: /s/ Edward E. Meltz Per: /s/ Sidney Braginsky
-------------------------- --------------------------
Name: EDWARD E. MELTZ Name: Sidney Braginsky
Title: CHAIRMAN AND CHIEF Title: President
EXECUTIVE OFFICER
2
<PAGE>
CANTEL INDUSTRIES, INC.
Computation of Earnings per Share
Exhibit 11
<TABLE>
Year Ended July 31,
---------------------------------
1997 1996 1995
---------------------------------
<S> <C> <C> <C>
PRIMARY
Weighted average number of shares
outstanding 4,073,304 3,789,777 3,739,396
Dilutive effect of options and warrants
using the treasury stock method
and average market price for the period 280,903 518,802 -
---------- --------- ---------
Weighted average number of shares and
common stock equivalents 4,354,207 4,308,579 3,739,396
---------- --------- ---------
---------- --------- ---------
Net income (loss) $1,096,000 $ 422,000 $ (793,000)
---------- --------- ---------
---------- --------- ---------
Primary earnings (loss) per share $ 0.25 $ 0.10 $(0.21)
---------- --------- ---------
---------- --------- ---------
FULLY DILUTED
Weighted average number of shares
outstanding 4,073,304 3,789,777 3,739,396
Dilutive effect of options and warrants
using the treasury stock method
and the higher of the period-end or
average market price for the period 280,903 518,802 -
---------- --------- ---------
Weighted average number of shares and
common stock equivalents 4,354,207 4,308,579 3,739,396
---------- --------- ---------
---------- --------- ---------
Net income (loss) $1,096,000 $ 422,000 $ (793,000)
---------- --------- ---------
---------- --------- ---------
Fully diluted earnings (loss) per share: $ 0.25 $ 0.10 $(0.21)
---------- --------- ---------
---------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 21
CANTEL INDUSTRIES, INC.
Subsidiaries of Registrant - July 31, 1997
------------------------------------------------
Carsen Group Inc. (Amalgamated under the laws of Ontario, Canada)
MediVators, Inc. (Incorporated under the laws of Minnesota)
<PAGE>
EXHIBIT 24(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-73492) of Cantel Industries, Inc. and in the related Prospectus and
to the incorporation by reference in the Registration Statements (Form S-8 Nos.
33-73446, 33-04495 and 333-20819) of Cantel Industries, Inc., of our report
dated September 19, 1997, with respect to the consolidated financial statements
and schedule of Cantel Industries, Inc. included in this Annual Report on Form
10-K for the year ended July 31, 1997.
ERNST & YOUNG LLP
Princeton, New Jersey
October 24, 1997
<PAGE>
EXHIBIT 24(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-8 (Registration Nos.
33-73446, 33-04495 and 333-20819) of Cantel Industries, Inc. of our report dated
May 3, 1996 relating to the financial statements of MediVators, Inc. for the
year ended July 31, 1995 appearing in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
October 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 656,000
<SECURITIES> 0
<RECEIVABLES> 6,984,000
<ALLOWANCES> 82,000
<INVENTORY> 8,974,000
<CURRENT-ASSETS> 17,009,000
<PP&E> 2,356,000
<DEPRECIATION> 1,714,000
<TOTAL-ASSETS> 18,602,000
<CURRENT-LIABILITIES> 5,903,000
<BONDS> 1,594,000
0
0
<COMMON> 417,000
<OTHER-SE> 10,600,000
<TOTAL-LIABILITY-AND-EQUITY> 18,602,000
<SALES> 30,988,000
<TOTAL-REVENUES> 34,987,000
<CGS> 20,834,000
<TOTAL-COSTS> 23,329,000
<OTHER-EXPENSES> 8,987,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,000
<INCOME-PRETAX> 2,528,000
<INCOME-TAX> 1,432,000
<INCOME-CONTINUING> 1,096,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,096,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
