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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, 1998
Commission File No. 0-6132
CANTEL INDUSTRIES, INC.
(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 9,
1998): $21,282,000
Number of shares of common stock outstanding as of the close of the period
covered by this report: 4,367,201
Documents incorporated by reference: None.
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PART I
Item 1. BUSINESS.
GENERAL
Cantel Industries, Inc. (the "Company" or "Cantel") is a healthcare
company concentrating in infection prevention and control products and
diagnostic equipment. Through its wholly-owned United States subsidiary,
MediVators, Inc., ("MediVators" or "United States subsidiary") Cantel serves
customers worldwide by designing, developing, manufacturing, marketing and
distributing innovative products for the infection prevention and control
industry. Through its wholly-owned Canadian subsidiary, Carsen Group Inc.,
("Carsen" or "Canadian subsidiary") Cantel markets and distributes medical
equipment (including flexible and rigid endoscopes), precision instruments
(including microscopes) and industrial equipment (including remote visual
inspection devices). In addition, Carsen distributes a full range of
photographic equipment and supplies. Cantel's subsidiaries also provide
servicing of their products. Unless the context otherwise requires, references
herein to the Company include 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, surgical equipment and related accessories. The
infection control products manufactured and distributed by MediVators consist of
endoscope disinfection equipment and related accessories and supplies. The
scientific products distributed by Carsen consist of precision instruments,
including microscopes and related accessories, certain laboratory equipment and
related accessories and image analysis software and hardware; 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, 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.
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Carsen also distributes other products under separate distribution
agreements, including additional medical and infection control, scientific and
consumer products and accessories.
Certain of 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. Endoscope disinfection equipment not included in this
agreement is sold by MediVators directly to customers in the United States.
MediVators' endoscope disinfection equipment is distributed in other countries
under other 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.
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Year Ended July 31,
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1998 1997 1996
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Medical, Infection Control
and Scientific Products:
Medical and Infection
Control Products ............. 50.8% 56.5% 54.4%
Scientific Products ............. 14.9 16.6 19.1
Product Service ................. 9.7 11.4 12.5
Consumer Products ................. 24.6 15.5 14.0
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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 the world's leading manufacturer 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 and treatment 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
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microscopic analysis). Many surgical procedures that formerly required a major
operation are now performed much more simply by endoscopy, which can often be
performed without general anesthesia.
A flexible endoscope generally consists of fiberoptic image and light
carrying bundles contained in a flexible tube, which can be inserted into
irregularly shaped organs of a patient's body, such as the large intestine. The
viewing end of a flexible fiberoptic endoscope contains an eyepiece and a
steering mechanism and is connected to an external light source, which permits a
surgeon to view inside a patient's body. The tip of a flexible endoscope
inserted into a patient's body contains a lens and, in most cases, depending on
the application, an outlet for air and water. Most flexible endoscopes also have
internal working channels which enable accessories such as biopsy forceps to be
passed to the tip. In an advanced version of the flexible endoscope, known as a
flexible video endoscope, the fiberoptic image bundle has been replaced by a
high resolution solid state image sensor that enables a live image to be
transmitted electronically to a monitor, which image 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 integration of a tiny telescopic lens, a light source
and a palm-size video camera, a rigid endoscope utilized for minimally invasive
surgery can transmit live 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 number of surgical procedures including gall bladder removal,
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,
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and large intestine (gastroenterology); upper airways and lungs (pneumology);
nose and throat (ENT); bladder, kidney and urinary tract (urology); and uterus
(gynecology). Rigid endoscopes are commonly used for urology, gynecology,
orthopedics, ENT, 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), Sony of Canada Ltd. (video monitors, recorders and
printers) and MediVators (endoscope disinfection equipment).
Infection Control Equipment. MediVators' principal source of revenue
is from the manufacturing and sale of endoscope disinfection equipment and
related accessories to hospitals and clinics through various distributors in the
United States and internationally.
MediVators' primary product is the DSD-91, which received FDA 510(k)
clearance in March 1994. The DSD-91 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 less expensive single and dual endoscope
disinfection units, the designs of which were acquired in March 1998 with the
acquisition of Chris Lutz Medical, Inc. ("Lutz Medical").
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 microbial contamination. The chemical disinfectant to be used in
the disinfecting process generally will be selected by hospital personnel based
on the
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object to be disinfected, the hospital facilities and the disinfectants
available.
After manual cleaning, an endoscope is placed in the reservoir of the
disinfector which then disinfects the endoscope by pumping disinfectant
throughout the endoscope, including the endoscope's working channels. The
disinfector ensures 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 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, resulting in more
thorough and consistent disinfection. 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.
In years prior to fiscal 1998, MediVators also manufactured and
distributed 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. There were no sales of
sharps disposal systems in fiscal 1998.
Scientific Products
The Scientific Products segment is comprised principally of the
precision instruments and the industrial technology equipment distributed by
Carsen.
Precision Instruments. Carsen distributes Olympus microscopes and
complementary scientific equipment and accessories. Other instruments
distributed by Carsen include Media Cybernetics, Inc. high resolution image
analysis software and hardware; Narishige U.S.A., Inc. micromanipulators (which
enable a viewer to manipulate objects being viewed under a microscope); Roper
Scientific, Inc. (Princeton Instruments, Inc. and Photometrics, Inc.) digital
cameras for research microscopy; 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
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(magnifying lenses) and reticules and video calipers (both of which measure
objects being viewed under a microscope).
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 the industrial market for use in remote visual inspection ("RVI".) RVI is
the application of endoscopic technology for industrial uses. The 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 charge or no charge during the warranty period.
Generally 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.
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
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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.
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 $15.5 million, $17.3 million and $19.4 million during the
contract years ending March 31, 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 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.
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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 also
utilizes commissioned sales agents in the United States to sell its Lutz Medical
endoscope disinfection units.
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. Additionally, Carsen pays
for a substantial portion of its products in United States dollars, and Carsen's
business could be materially and adversely affected by the imposition of trade
barriers, fluctuations in the rates of exchange, tariff increases and import and
export restrictions between the United States and Canada. During fiscal 1998,
fluctuations in the rates of exchange between the United States and Canada had
an adverse impact upon the Company's results of operations, as described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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
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advantages over the Company. The Company believes that the world-wide reputation
for the quality and innovation of its products among consumers, the Company's
reputation for providing quality product service, particularly with respect to
medical and infection control products, the numerous customer contacts developed
during its lengthy service as a distributor of Olympus products and the
distribution arrangement for certain MediVators infection control products with
Olympus, give the Company a competitive advantage with respect to certain of its
products.
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 inspects
medical device manufacturers for compliance with their Quality Systems
Requirements ("QSR's"). Manufacturers that fail to meet the QSR's may be issued
reports or citations for non-compliance. On September 15, 1998, MediVators
received a letter from the FDA confirming that the Company is currently
compliant.
In addition, the Company's disinfectors must meet the requirements of
the European Medical Device Directive ("MDD") for their sale into the European
Union. On September 23, 1998, MediVators received notice that its products have
been certified to meet the requirements of the International Standards
Organization (ISO) 9001 and the MDD. This certification allows MediVators to
affix the CE mark to its products and to freely distribute such products
throughout the European Union. Federal, state and foreign
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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 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 paid a royalty through
December 1997 equal to five percent (5%) of the net revenues received by
MediVators from sales of its disinfectors. The MediVators DSD-91 disinfector
does not utilize the patented technology of the OTT disinfector. Although
MediVators no longer sells the OTT Disinfector, it is currently negotiating with
the Mayo Foundation with respect to the payment of a nominal amount in exchange
for technical assistance by the Mayo Foundation in the continuing development of
new products.
Patents and Proprietary Rights
MediVators' current disinfector products, including the DSD-91 and the
disinfectors acquired from Lutz Medical, utilize certain know-how developed
within the Company but have no patent protection.
Backlog
On October 9, 1998, the Company's consolidated backlog was
approximately $1,560,000, compared with approximately $1,870,000 on October 8,
1997.
Employees
As of October 9, 1998, the Company employed 171 persons. Of the
Company's employees, 113 are located in Canada and 58 are located in the United
States; 18 are executives and/or managers, 48 are engaged in sales, 14 are
engaged in customer service, 31 are engaged in product service, 31 are engaged
in manufacturing, shipping and warehouse functions, 25 perform various
administrative functions and 4 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.
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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 five years. The lease provides for monthly base
rent of approximately $9,000 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 next year 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 for the
remainder of the lease term.
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 $26 million, as amended. Management of the Company
believes that Cantel was not engaged in the production, transportation or
dumping of industrial waste at any time. During October 1998, the Company
concluded an alternative dispute resolution process and agreed to a settlement
of this lawsuit with plaintiff in the amount of $64,000, the majority of which
will be covered by insurance.
In January 1998, a legal proceeding was commenced against MediVators
titled "Thomas Nyland, F/K/A Thomas Cecchi v. MediVators, Inc." in Minnesota
state court. The plaintiff, a former sales representative of MediVators, alleges
an unspecified amount due for lost commissions, breach of contract, and other
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ancillary claims. The Company has formally responded to this lawsuit and has
denied all of plaintiff's claims. Currently, both parties are conducting
discovery and no trial date has been set. Management believes that the claims
alleged in the lawsuit are unmeritorious and intends to vigorously defend itself
in this action, 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 1998.
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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.
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HIGH LOW
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<S> <C> <C>
Year Ended July 31, 1997
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First Quarter 8 7
Second Quarter 8 1/2 6 1/2
Third Quarter 9 3/4 5 3/4
Fourth Quarter 6 5
Year Ended July 31, 1998
- ------------------------
First Quarter 7 7/8 5 1/2
Second Quarter 7 3/4 6 1/2
Third Quarter 9 1/4 6 1/2
Fourth Quarter 9 1/4 8 1/2
</TABLE>
On October 9, 1998, the closing price of the Company's Common Stock
was $8.00 and the Company had 299 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.
16
<PAGE>
Consolidated Statements of Operations Data:
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales .............................. $ 40,009 $ 34,987 $ 29,792 $ 34,125 $ 32,204
Cost of sales .......................... 26,530 23,296 19,410 23,684 21,717
Gross profit ........................... 13,479 11,691 10,382 10,441 10,487
Income from continuing operations
before interest expense, income
taxes and extraordinary gain (1) ..... 3,210 2,671 1,216 700 1,276
Interest expense (2) ................... 179 143 258 492 283
Income from continuing operations
before income taxes .................. 3,031 2,528 958 208 993
Income taxes (2) ....................... 1,336 1,432 536 1,001 1,054
Income (loss) from continuing
operations ........................... 1,695 1,096 422 (793) (61)
Income from discontinued
operations (3) ....................... -- -- -- -- 562
Extraordinary gain on
extinguishment of debt (4) ........... -- -- -- -- 1,211
Net income (loss) ...................... 1,695 1,096 422 (793) 1,712
Dividends on preferred stocks .......... -- -- -- -- 314
Net income (loss) attributable
to common stock ...................... $ 1,695 $ 1,096 $ 422 $ (793) $ 1,398
Earnings per common share:
Basic:
Continuing operations ................ $ .40 $ .27 $ .11 $ (.21) $ (.11)
Discontinued operations .............. -- -- -- -- .17
Extraordinary gain ................... -- -- -- -- .35
-------- -------- -------- -------- --------
Net income (loss) .................. $ .40 $ .27 $ .11 $ (.21) $ .41
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted:
Continuing operations ................ $ .38 $ .25 $ .10 $ (.21) $ (.10)
Discontinued operations .............. -- -- -- -- .15
Extraordinary gain ................... -- -- -- -- .31
-------- -------- -------- -------- --------
Net income (loss) .................. $ .38 $ .25 $ .10 $ (.21) $ .36
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average number of common and
common equivalent shares:
Basic ................................ 4,240 4,073 3,790 3,739 3,426
Diluted .............................. 4,484 4,354 4,309 3,739 3,845
</TABLE>
17
<PAGE>
Consolidated Balance Sheet Data:
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
July 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total assets ............. $22,478 $18,602 $15,998 $19,823 $18,412
Current assets ........... 19,174 17,009 14,454 17,994 16,328
Current liabilities ...... 6,194 5,903 3,081 5,271 5,029
Working capital .......... 12,980 11,106 11,373 12,723 11,299
Long-term debt, less
current portion ........ 3,004 1,594 3,419 6,087 4,327
Stockholders' equity ..... 13,226 11,017 9,401 8,374 8,885
Book value per outstanding
common share ........... $ 3.03 $ 2.64 $ 2.42 $ 2.22 $ 2.39
Common shares
outstanding ............ 4,367 4,166 3,889 3,765 3,713
</TABLE>
- ----------
(1) Includes for fiscal 1996 costs of $486,000 associated with the MediVators
merger. Includes for fiscal 1995 a $903,000 write-down of certain inventory
and related assets of MediVators' Disposal Sciences, Inc. subsidiary.
(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 1994 an
interest charge of $34,000 representing interest on federal and provincial
income taxes and withholding taxes.
(3) In fiscal 1994, income from discontinued operations reflects the 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>
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 MediVators and Carsen. Reference is made hereafter to the impact on
the Company's results of operations of a weaker Canadian dollar against the
United States dollar during fiscal 1998 compared with fiscal 1997 (decrease in
value of approximately 4% based upon month-end exchange rates). There was no
significant impact upon the Company's results of operations for fiscal 1997
compared with fiscal 1996 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.
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
(Dollar amounts in thousands)
$ % $ % $ %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Medical and Infection
Control and Scientific
Products:
Medical and Infection
Control Products .......... $20,325 50.8 $19,771 56.5 $16,221 54.4
Scientific Products ........ 5,957 14.9 5,786 16.6 5,693 19.1
Product Service ............ 3,879 9.7 3,999 11.4 3,718 12.5
Consumer Products ............ 9,848 24.6 5,431 15.5 4,160 14.0
------- ----- ------- ----- ------- -----
$40,009 100.0 $34,987 100.0 $29,792 100.0
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
Fiscal 1998 compared with Fiscal 1997
Net sales increased by $5,022,000, or 14.4%, to $40,009,000 in fiscal
1998, from $34,987,000 in fiscal 1997. This increase was principally
attributable to the increased sales of Consumer Products and Medical and
Infection Control Products. Net sales were adversely impacted in fiscal 1998
compared with fiscal 1997 by approximately $1,457,000 due to the translation of
Carsen's net sales using a weaker Canadian dollar against the United States
dollar.
The increased sales of Consumer Products for fiscal 1998 was due
primarily to stronger demand from national accounts for certain 35 mm. camera
models, as well as the strong demand for an expanded line of digital cameras,
which were initially introduced during fiscal 1997.
19
<PAGE>
The increased sales of Medical and Infection Control Products was
primarily attributable to an increase in demand for infection control products
in the United States; continued expansion and improvement of the international
distribution of MediVators' infection control products; and the acquisition of
Lutz Medical during March 1998, which expanded MediVators' line of endoscope
disinfection products. Partially offsetting these increases was the decrease in
demand for medical products in Canada which was attributable to the lengthening
of the sales cycle for these products due to a change in hospital buying
practices.
Gross profit increased by $1,788,000, or 15.3%, to $13,479,000 in
fiscal 1998, from $11,691,000 in fiscal 1997. Gross profit was adversely
impacted in fiscal 1998 compared with fiscal 1997 by approximately $470,000 due
to the translation of Carsen's gross profit using a weaker Canadian dollar
against the United States dollar. The gross profit margin as a percentage of
sales increased to 33.7% in fiscal 1998, from 33.4% in fiscal 1997. The higher
gross profit margin for fiscal 1998 was primarily attributable to manufacturing
efficiencies achieved through increased sales and production volume of infection
control products, as well as sales mix associated with medical and infection
control products and endoscope repairs. Partially offsetting these increases in
margin were the increased sales of consumer products which generally have lower
profit margins.
Shipping and warehouse expenses increased by $101,000 to $691,000 for
fiscal 1998, from $590,000 for fiscal 1997. The increase was attributable to
variable freight and packaging costs.
Selling expenses as a percentage of net sales were 12.3% for fiscal
1998, compared with 12.6% for fiscal 1997. The decrease was attributable to the
impact of the increased sales against the fixed portion of these expenses,
partially offset by an increase in advertising costs of Carsen.
General and administrative expenses increased by $350,000 to
$3,790,000 for fiscal 1998, from $3,440,000 for fiscal 1997. The increase was
primarily attributable to increased personnel costs, including incentive
compensation, costs of ISO 9000 certification, professional fees and
amortization of the intangible assets acquired from Lutz Medical.
Research and development expenses increased by $260,000 to $849,000
for fiscal 1998, from $589,000 for fiscal 1997. This increase was substantially
due to the ongoing development of infection control products at MediVators.
Interest expense increased to $179,000 in fiscal 1998, from $143,000
in fiscal 1997. This increase was attributable to an increase in average
borrowings under both the Carsen revolving
20
<PAGE>
credit facility and the MediVators revolving credit facility during fiscal 1998.
Income before income taxes increased by $503,000 to $3,031,000 for
fiscal 1998, from $2,528,000 for fiscal 1997.
Income taxes consist primarily of taxes imposed on the Company's
Canadian operations. The effective tax rate on Canadian operations was 45.1% and
45.9% for fiscal 1998 and 1997, respectively. For fiscal 1997, the consolidated
effective tax rate is higher than the Canadian effective tax rate due to the
fact that losses generated by the United States operations could not be used to
offset income generated by the Canadian operations.
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 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 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 $1,309,000, or 12.6%, to $11,691,000 in
fiscal 1997, from $10,382,000 in fiscal 1996. The gross profit margin as a
percentage of sales decreased to 33.4% 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
21
<PAGE>
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 $166,000 to
$3,440,000 for fiscal 1997, from $3,274,000 for fiscal 1996. The increase was
primarily attributable to increased personnel costs, including 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 the ongoing development of infection control products at MediVators.
Costs associated with the MediVators 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 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 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 45.9% and 34.3% for
22
<PAGE>
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 United
States 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.
Liquidity and Capital Resources
At July 31, 1998, the Company's working capital was $12,980,000,
compared with $11,106,000 at July 31, 1997. This increase primarily reflects
increases in accounts receivable and insurance claim receivable and a decrease
in income taxes payable, partially offset by an increase in accounts payable.
Accounts receivable and accounts payable at July 31, 1998 reflect increased
sales and related product purchases during the months of June and July 1998.
Net cash used in operating activities was $1,027,000 for fiscal 1998,
compared with net cash provided by operating activities of $1,623,000 and
$2,133,000 for fiscal 1997 and 1996, respectively. In fiscal 1998, net cash used
in operating activities was primarily due to increases in accounts receivable,
inventories and other current assets, and a decrease in income taxes payable,
partially offset by net income from operations after adjusting for depreciation
and amortization and an increase in accounts payable and accrued expenses. In
fiscal 1997, net cash provided by operating activities was primarily due to net
income after adjusting for depreciation and amortization and increases in
accounts payable and accrued expenses and income taxes payable, partially offset
by increases in accounts receivable and inventories. In fiscal 1996, net cash
provided by operating activities was primarily due to net income after adjusting
for depreciation and amortization and a decrease in accounts receivable,
partially offset by a decrease in accounts payable and accrued expenses.
Net cash used in investing activities was $666,000, $373,000 and
$142,000 in fiscal 1998, 1997 and 1996, respectively, which was principally due
to capital expenditures and, for fiscal 1998, the acquisition of Lutz Medical,
as described in Note 3 to the Consolidated Financial Statements.
Net cash provided by financing activities was $1,530,000 in fiscal
1998, compared with net cash used in financing activities of $1,276,000 and
$2,108,000 in fiscal 1997 and 1996, respectively. These changes were principally
due to the fluctuations in
23
<PAGE>
outstanding borrowings under the Company's revolving credit facilities and
proceeds from the exercise of stock options and warrants.
The Company has two credit facilities, a $5,000,000 revolving credit
facility for Carsen and a $1,500,000 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, 1998 and 1997 are in Canadian dollars
and bear interest at rates ranging from the lender's Canadian prime rate to .75%
above the prime rate, depending upon Carsen's debt to equity ratio. At July 31,
1998, the lender's Canadian prime rate was 6.5% and Carsen's outstanding
borrowings bear interest at a rate of .25% above such prime rate. Subsequent to
July 31, 1998, the lender's prime rate increased to 7% and Carsen's outstanding
borrowings 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
$1,984,000 of borrowings outstanding under this facility at July 31, 1998.
Pursuant to the terms of the MediVators' revolving credit facility,
borrowings under such facility must be paid in full no later than August 31,
1999. 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, 1998. Subsequent to July 31,
1998, the lender's prime rate decreased to 8%. 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 $986,000 of borrowings
outstanding under this facility at July 31, 1998.
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.
During fiscal 1998, the value of the Canadian dollar declined
significantly compared to the value of the United States dollar. A further
decrease in the value of the Canadian dollar against the United States dollar
would 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 would 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
24
<PAGE>
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 9, 1998 aggregating $7,334,000 (United States dollars) to
hedge against possible declines in the value of the Canadian dollar which would
otherwise result in higher inventory costs. Such contracts represent the
Canadian subsidiary's projected purchases of inventories through December 1998.
The average exchange rate of the contracts open at October 9, 1998 was
$1.5339 Canadian dollar per United States dollar, or $.6519 United States dollar
per Canadian dollar. The exchange rate published by the Wall Street Journal on
October 9, 1998 was $1.5420 Canadian dollar per United States dollar, or $.6485
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 9, 1998, approximately
$2,547,000 was available under the credit facilities.
As of July 31, 1998, the Company had net operating loss carryforwards
for United States income tax purposes ("NOLs") of approximately $16,500,000
which will expire through July 31, 2013. Of this amount, approximately
$3,900,000 represents NOLs accumulated by MediVators prior to the MediVators
merger, which may only be used against the future earnings of MediVators and are
subject to annual limitations due to the ownership change.
In addition, the Company and its Canadian subsidiary cannot file
consolidated tax returns, for Canadian or United States income tax purposes.
Therefore, neither net losses sustained by the Company in the United States nor
the NOLs can be utilized to reduce Canadian federal or provincial income taxes
payable by the Canadian subsidiary on its taxable income, nor can losses
sustained by the Canadian subsidiary, if any, be used to offset taxable income
earned by the Company in the United States. This has resulted in the payment of
income taxes by the Company in Canada, notwithstanding net losses sustained, or
NOL's utilized by, the Company in the United States.
The Company has assessed the ability of its computerized information
systems to process transactions relating to years 2000 and beyond. While certain
modifications are required, the Company expects to achieve necessary
modifications on a timely basis at a cost of approximately $50,000, the majority
of which will be capital expenditures. There can be no assurance, however, that
the
25
<PAGE>
systems of other companies on which the Company relies, including major
suppliers and customers, will be timely converted, or that a failure to
successfully convert by another company, or a conversion that is incompatible
with the Company's systems, would not have an adverse impact on the Company's
operations. Management has requested a complete year 2000 assessment from all of
its major suppliers and customers, including Olympus, but has not yet received
indications from all of these parties as to whether or not they are year 2000
compliant.
Inflation has not significantly impacted the Company's operations.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. All forward-looking
statements involve risks and uncertainties, including, without limitation,
acceptance and demand of new products, the impact of competitive products and
pricing, the Company's ability to successfully integrate and operate acquired
and merged businesses and the risks associated with such businesses, the ability
of the Company's vendors and distributors to complete the necessary actions to
achieve a year 2000 conversion for its computer systems and applications, and
the risks detailed in the Company's filings and reports with the Securities and
Exchange Commission. Such statements are only predictions, and actual events or
results may differ materially from those projected.
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.
26
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles M. Diker 63 Chairman of the Board and Director
Alan J. Hirschfield 63 Vice Chairman of the Board, Director and a
member of the Compensation Committee
Robert L. Barbanell 68 Director and Chairman of the Audit Committee
Darwin C. Dornbush, Esq. 68 Secretary, Director and a member of both
the Audit Committee and the Compensation
Committee
Morris W. Offit 61 Director
James P. Reilly 58 President, Chief Executive Officer and
Director
John W. Rowe, M.D. 54 Director
Bruce Slovin 62 Director and a member of the Audit Committee
Richard M. Rumble 40 President and Chief Executive Officer of
MediVators
Craig A. Sheldon 36 Vice President and Controller
William J. Vella 42 President and Chief Operating Officer of
Carsen
</TABLE>
Mr. Diker has served as Chairman of the Board of the Company since
April 1986. He is a private investor and a non-managing principal of Weiss, Peck
& Greer, an investment management company. Mr. Diker is also a director of AMF
Bowling, Inc. (NYSE), an owner and operator of bowling centers and a
manufacturer of bowling equipment, BeautiControl Cosmetics, Inc. (NASDAQ), a
manufacturer of cosmetics marketed by direct sales, International Specialty
Products (NYSE), a specialty chemical company, Data Broadcasting Corp. (NASDAQ),
a communication services and technology company, and Chyron Corporation (NYSE),
a supplier of graphics for the television industry.
27
<PAGE>
Mr. Hirschfield has served as Vice Chairman of the Board of the
Company since January 1988. Since July 1992, he has served as Co-Chairman and
Co-Chief Executive Officer of Data Broadcasting Corp. (NASDAQ), a communication
services and technology company. Mr. Hirschfield is also a director of Chyron
Corporation (NYSE), a supplier of graphics for the television industry.
Mr. Barbanell has served as President of Robert L. Barbanell
Associates, Inc., a financial consulting company, since July 1994. From
September 1981 to June 1994, Mr. Barbanell was employed in various capacities by
Bankers Trust New York Corporation, most recently as Managing Director of the
European Merchant Bank of Bankers Trust International PLC. Mr. Barbanell is also
Chairman of the Board and a director of Marine Drilling Companies, Inc.
(NASDAQ), a drilling contractor, a director of Kaye Group Inc. (NASDAQ), an
insurance brokerage and insurance underwriting company, and a director of Sentry
Technology Corporation (AMEX), a security products company.
Mr. Dornbush has served as Secretary of the Company since July 1990.
He has been a partner in the law firm of Dornbush Mensch Mandelstam & Schaeffer,
LLP, which has been general counsel to the Company, for more than the past five
years. Mr. Dornbush is also a director of Benihana, Inc. (NASDAQ), a company
which operates Japanese style restaurants.
Mr. Offit has served as Chief Executive Officer of OFFITBANK, a
limited purpose trust company chartered by the New York State Banking
Department, since July 1990. Mr. Offit is a Trustee of Johns Hopkins University
where he served as Chairman of the Board of Trustees from 1990 through 1996 and
a former partner of Salomon Brothers, Inc. He serves as a director of Mercantile
Bankshares Corp. (NASDAQ), a bank holding company, and Hasbro Inc. (AMEX), a toy
manufacturer.
Mr. Reilly has served as President and Chief Executive Officer of the
Company since June 1989. Mr. Reilly is a certified public accountant.
Dr. Rowe has served as President and Chief Executive Officer of Mount
Sinai-NYU Medical Center & Health Systems since July 1998, President of the
Mount Sinai Hospital from July 1988 to July 1998, and President of the Mount
Sinai School of Medicine since July 1988, where he also serves as a Professor of
Medicine and of Geriatrics. Prior to July 1988, Dr. Rowe was a Professor of
Medicine and the founding Director of the Division on Aging at Harvard Medical
School and Chief of Gerontology at Boston's Beth Israel Hospital. Dr. Rowe is
also Director of the MacArthur Foundation Research Network on Successful Aging
and a director of Global Pharmaceutical Corp. (NASDAQ), a manufacturer and
marketer of generic prescription pharmaceuticals.
28
<PAGE>
Mr. Slovin has served as President and a director of MacAndrews &
Forbes Holdings Inc. and Revlon Group, Inc., privately held industrial holding
companies, since 1985. Mr. Slovin is also a director of Koala Healthcare, Inc.
(NASDAQ), a health care services company, Meridian Sports Incorporated
(NASDAQ), a watersports company, Infu-Tech, Inc. (NASDAQ), a home health care
company, and M&F Worldwide Corp. (NYSE), a manufacturer of licorice extract
and flavorings.
Mr. Rumble has served as President and Chief Executive Officer of
MediVators since August 1997. From September 1983 until July 1997, Mr. Rumble
was employed by Minnesota Mining & Manufacturing, Inc., most recently as
Business Unit Manager of the Sterilization Assurance Business Unit of 3M's
Medical Surgical Market's Division.
Mr. Sheldon has served as Vice President and Controller of the Company
since November 1994. From November 1993 until October 1994, Mr. Sheldon was Vice
President and Controller of Imaging Technologies, Inc., a private software
development company. From January 1992 until October 1993, Mr. Sheldon was
Corporate Accounting Manager of Toys "R" Us, Inc. From September 1984 until
December 1991, Mr. Sheldon was employed as an audit manager by the accounting
firm of Ernst & Young LLP. Mr. Sheldon is a certified public accountant.
Mr. Vella has served as President and Chief Operating Officer of
Carsen since December 1996, as Executive Vice President from January 1995 until
November 1996, and prior thereto in various sales and sales management positions
since October 1981.
29
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years ended July 31,
1998, 1997 and 1996, compensation, including salary, bonuses, stock options and
certain other compensation, paid by the Company to the Chief Executive Officer
and to the other executive officers of the Company who received more than
$100,000 in salary and bonus during fiscal year 1998:
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------------------------
Long-Term
Compensation
Annual Compensation (1) Awards (2)
----------------------- ------------
Name and Salary Bonus Options
Principal Position Year ($) ($) (#)
- ---------------- ---- ------ ------ -------
<S> <C> <C> <C> <C>
Charles M. Diker 1998 125,000 0 51,000
Chairman of the Company 1997 100,000 0 51,000
1996 83,333 0 1,000
James P. Reilly 1998 250,000 39,225 1,000
President and Chief Executive 1997 250,000 12,600 1,000
Officer of the Company 1996 250,000 0 1,000
Richard M. Rumble(3) 1998 125,000 25,000 25,000
President and Chief Executive
Officer of MediVators
Craig A. Sheldon 1998 97,500 15,000 5,000
Vice President and Controller 1997 88,125 10,000 5,000
of the Company 1996 80,625 9,000 5,000
William J. Vella(4) 1998 133,447 1,500 10,000
President and Chief Operating 1997 122,060 10,150 6,000
Officer of Carsen Group Inc. 1996 118,438 7,360 15,000
</TABLE>
- ----------
30
<PAGE>
(1) The Company did not pay or provide other forms of annual compensation (such
as perquisites and other personal benefits) to the above-named executive
officers having a value exceeding the lesser of $50,000 or 10% of the total
annual salary and bonus reported for such officers.
(2) The Company has no long-term incentive compensation plan other than the
1991 Employee Stock Option Plan, the 1997 Employee Stock Option Plan, the
MediVators 1991 Stock Option Plan, and the 1991 Directors' Stock Option
Plan described herein and various individually granted options. The Company
does not award stock appreciation rights, restricted stock awards or
long-term incentive plan pay-outs.
(3) Mr. Rumble was employed by MediVators commencing in fiscal 1998. MediVators
entered into a three-year employment agreement with Mr. Rumble that took
effect on August 1, 1997. Mr. Rumble's employment provides for (i) a base
salary of $125,000, subject to annual increases of no less than 5%, (ii) a
discretionary bonus based upon factors including the performance of
MediVators, with a guaranteed minimum bonus of $25,000 during the initial
contract year; (iii) use of a Company owned or leased automobile; (iv)
MediVators to maintain a life insurance policy on the life of Mr. Rumble in
the face amount of $250,000, payable to his designated beneficiary; (v) the
Company to grant Mr. Rumble an option to purchase 25,000 shares of Common
Stock under the 1991 Employee Stock Option Plan; and (vi) Mr. Rumble to
participate in all benefit plans applicable generally to executive officers
of the Company.
(4) Mr. Vella was paid his salary and bonus in Canadian dollars. The dollar
amounts above have been translated from Canadian dollars to U.S. dollars
based upon an average exchange rate during the respective fiscal year.
Option Grants in Fiscal 1998
The following stock option information is furnished for the fiscal
year ended July 31, 1998 with respect to the Company's Chief Executive Officer
and the other executive officers of the Company named in the Compensation Table
above, for stock options granted during such fiscal year. Stock options were
granted without tandem stock appreciation rights.
31
<PAGE>
<TABLE>
<CAPTION>
% of Total
Number of Options Potential Realizable
Shares Granted to Value at Assumed
Underlying Employees Exercise Annual Rates of Stock
Options During the Price Per Expiration Price Appreciation
Name Granted Fiscal Year Share ($) Date for Option Term ($)(1)
---- ---------- ----------- --------- ---------- ----------------------
5% 10%
------ -------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Diker 50,000 (2) 38.3 7.00 10/15/07 570,113 907,810
1,000 (3) 0.8 8.75 7/30/08 14,253 22,695
James P. Reilly 1,000 (3) 0.8 8.75 7/30/08 14,253 22,695
Richard M. Rumble 25,000 (4) 19.2 5.50 7/31/02 175,489 221,445
Craig A. Sheldon 5,000 (6) 3.8 6.50 2/17/03 41,479 52,342
William J. Vella 6,000 (5) 4.6 5.50 7/31/02 42,117 53,147
4,000 (6) 3.1 6.50 2/17/03 33,183 41,873
</TABLE>
- ----------
(1) Represents the potential value of the options granted at assumed 5% and 10%
rates of compounded annual stock price appreciation from the date of grant
of such options.
(2) This option is a non-plan option and vests in three equal annual
installments, the first on the date of grant. The exercise price per share
of the option is the market value per share on the date of grant.
(3) These options were granted under the Company's 1991 Directors' Stock Option
Plan. The exercise price per share of the options is the market value per
share on the date of grant. The options are subject to vesting as follows:
50% of the total shares covered by the options vest on the first
anniversary of the date of grant and the remaining 50% vest on the second
anniversary of such date of grant.
(4) This option was granted under the Company's 1991 Employee Stock Option
Plan. The exercise price per share of the option is the market value per
share on the date of grant. The option is subject to vesting as follows:
33.3% of the total shares covered by the option vest on each of the first
three anniversaries of the date of grant.
(5) This option was granted under the Company's 1991 Employee Stock Option
Plan. The exercise price per share of the option is the market value per
share on the date of grant. The option is subject to vesting as follows:
25% of the total shares covered by the option vest on each of the first
four anniversaries of the date of the grant.
32
<PAGE>
(6) These options were granted under the Company's 1997 Employee Stock Option
Plan. The exercise price per share of the options is the market value per
share on the date of grant. The options are subject to vesting as follows:
25% of the total shares covered by the options vest on each of the first
four anniversaries of the date of the grant.
Aggregated Option Exercises in Fiscal 1998
and Fiscal Year-End Option Values
The following information is furnished for the fiscal year ended July
31, 1998 with respect to the Company's Chief Executive Officer and the other
executive officers of the Company named in the Compensation Table above, for
stock option exercises during such fiscal year.
<TABLE>
<CAPTION>
Number of Shares Value of
Underlying Unexercised Unexercised in-the-Money
Shares Options at 7/31/98 (#) Options at 7/31/98 ($)
Acquired on Value ---------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Non-Exercisable Exercisable Non-Exercisable
---- ------------ ------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Diker 0 0 58,501 51,499 116,321 82,866
James P. Reilly 0 0 195,315 1,500 1,345,018 1,625
Richard M. Rumble 0 0 8,334 16,666 27,089 54,161
Craig A. Sheldon 0 0 15,000 15,000 52,344 33,281
William J. Vella 2,500 11,875 17,000 21,000 35,563 32,063
</TABLE>
Stock Options
An aggregate of 250,000 shares of Common Stock is reserved for
issuance or available for grant under the Company's 1991 Employee Stock Option
Plan (the "1991 Employee Plan"). Options granted under the 1991 Employee Plan
are intended to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The 1991
Employee Plan is administered in all respects by a committee composed of at
least two non-employee members of the Company's Board of Directors who are
designated by the Board (the "Stock Option Committee"). The Stock Option
Committee may determine the employees to whom options are to be granted and the
number of shares subject to each option. Under the terms of the 1991 Employee
Plan, all employees of the Company or subsidiaries of the Company are eligible
for option grants. The option exercise price of options granted under the 1991
Employee Plan is fixed by the Stock Option Committee but must be no less than
100% of the fair market value of the shares of Common Stock subject to the
option at the time of grant, except that in the case of an employee who
possesses more than 10% of the total combined voting power of all classes of
stock of the Company (a "10% Holder"), the exercise price must be no less than
110% of said fair market value. Options may be exercised by the payment in full
in cash or by the tendering or cashless exchange of shares of
33
<PAGE>
Common Stock or of options to acquire shares of Common Stock having a fair
market value, as determined by the Stock Option Committee, equal to the option
exercise price. Options granted under the 1991 Employee Plan may not be
exercised more than ten years after the date of grant, five years in the case of
an incentive stock option granted to a 10% Holder. All options outstanding at
July 31, 1998, have a term of five years. At July 31, 1998, options to purchase
170,000 shares of Common Stock at prices between $4.25 and $8.75 per share were
outstanding under the 1991 Employee Plan, and 30,875 shares were available for
grant under the 1991 Employee Plan. No additional options will be granted under
the 1991 Employee Plan.
An aggregate of 200,000 shares of Common Stock is reserved for
issuance or available for grant under the Company's 1997 Employee Stock Option
Plan (the "1997 Employee Plan"). Options granted under the 1997 Employee Plan
are intended to qualify as incentive stock options within the meaning of Section
422 of the Code. The 1997 Employee Plan is administered in all respects by the
Stock Option Committee. The Stock Option Committee may determine the employees
to whom options are to be granted and the number of shares subject to each
option. Under the terms of the 1997 Employee Plan, all employees of the Company
or subsidiaries of the Company are eligible for option grants. The option
exercise price of options granted under the 1997 Employee Plan is fixed by the
Stock Option Committee but must be no less than 100% of the fair market value of
the shares of Common Stock subject to the option at the time of grant, except
that in the case of a 10% Holder, the exercise price must be no less than 110%
of said fair market value. Options may be exercised by the payment in full in
cash or by the tendering or cashless exchange of shares of Common Stock or of
options to acquire shares of Common Stock having a fair market value, as
determined by the Stock Option Committee, equal to the option exercise price.
Options granted under the 1997 Employee Plan may not be exercised more than ten
years after the date of grant, five years in the case of an incentive stock
option granted to a 10% Holder. All options outstanding at July 31, 1998, have a
term of five years. At July 31, 1998, options to purchase 32,500 shares of
Common Stock at prices between $6.50 and $8.75 per share were outstanding under
the 1997 Employee Plan, and 167,500 shares were available for grant under the
1997 Employee Plan.
An aggregate of 200,000 shares of Common Stock is reserved for
issuance or available for grant under the Company's 1991 Directors' Stock Option
Plan (the "Directors' Plan"). Options granted under the Directors' Plan do not
qualify as incentive stock options within the meaning of Section 422 of the
Code. The Directors' Plan provides for the automatic grant to each of the
Company's directors of options to purchase 1,000 shares of Common Stock on the
last business day of the Company's fiscal year. In addition, an option to
purchase 500 shares of Common Stock is granted automatically on the last
business day of each fiscal quarter to each director (exclusive of Messrs.
Diker, Reilly and Dornbush and any other
34
<PAGE>
director who serves as an officer or employee of the Company) provided that the
director attended any regularly scheduled meeting of the Board, if any, held
during such quarter. Each such option grant is at an exercise price equal to the
fair market value of the Common Stock on the date of grant and has a ten year
term. Mr. Dornbush, who is both an officer and director of the Company (and who
thereby does not receive said quarterly option grant), is granted a non-plan
option to purchase 500 shares of Common Stock on the last business day of each
fiscal quarter provided that Mr. Dornbush attended any regularly scheduled
meeting of the Board, if any, held during such quarter. The fiscal year options
are exercisable in two equal annual installments commencing on the first
anniversary of the grant thereof and the quarterly options, including the
non-plan options issued to Mr. Dornbush, are exercisable in full immediately. At
July 31, 1998, options to purchase 141,000 shares of Common Stock at prices
between $2.00 and $10.25 per share were outstanding under the Directors' Plan,
and 9,000 shares were available for grant under the Directors' Plan. In
addition, at July 31, 1998 Mr. Dornbush had non-plan options to purchase an
aggregate of 4,000 shares of Common Stock at prices between $5.50 and $8.75 per
share.
The Company also has outstanding options granted by MediVators prior
to the MediVators merger under the MediVators 1991 Stock Option Plan (the
"MediVators Plan") which became fully exercisable as a result of the MediVators
merger. At July 31, 1998, options to purchase 32,848 shares of Common Stock at
prices between $6.08 and $8.27 per share were outstanding under the MediVators
Plan. No additional options will be granted under the MediVators Plan.
In June 1990, Mr. Reilly was granted a ten year non-plan option to
purchase 139,815 shares of Common Stock at an exercise price of $1.75 per share.
This option is exercisable in full. In addition, in July 1990, Mr. Reilly was
granted a ten year non-plan option to purchase 50,000 shares at an exercise
price of $1.875 per share. This option is exercisable in full.
In December 1994, Mr. Barbanell was granted a five year non-plan
option to purchase 25,000 shares of Common Stock at an exercise price of $3.75
per share. This option is currently exercisable in full and expires in December
1999.
In October 1996, Mr. Diker was granted a ten year non-plan option to
purchase 50,000 shares of Common Stock at an exercise price of $7.375 per share.
This option is exercisable in three equal annual installments beginning October
1996. In addition, in October 1997, Mr. Diker was granted a ten year non-plan
option to purchase 50,000 shares of Common Stock at an exercise price of $7.00
per share. This option is exercisable in three equal annual installments
beginning October 1997.
35
<PAGE>
In October 1998, Dr. Rowe was granted a ten year non-plan option to
purchase 10,000 shares of Common Stock at an exercise price of $8.00 per share.
This option is exercisable in three equal annual installments beginning October
1998.
Report on Executive Compensation by the Compensation Committee of
the Board of Directors and the Stock Option Committee
The Compensation Committee of the Company's Board of Directors (the
"Committee") is responsible for setting and administering the policies which
govern annual executive compensation. The Committee is currently comprised of
two members, both of whom are non-employee directors.
Executive compensation for the fiscal year ended July 31, 1998
consisted of base salary plus an incentive bonus when earned. The policy of the
Committee, in consultation with the Chairman and the Chief Executive Officer, is
to provide compensation to the Chief Executive Officer and the Company's other
executive officers reflecting the contribution of such executives to the
Company's growth in sales and earnings, the implementation of strategic plans
consistent with the Company's long-term objectives, and the enhancement of
shareholder value.
Mr. Reilly, the President and Chief Executive Officer of the Company,
served the Company pursuant to a written employment agreement from June 1989
through June 1992 and was compensated pursuant to the express terms of such
agreement. Although the agreement expired in accordance with its terms, the
Committee has agreed to compensate Mr. Reilly at the same base salary and bonus
formula as was in effect during the last year of the agreement.
Long-term incentive compensation policy consists exclusively of the
award of stock options under the Company's 1991 Employee Stock Option Plan and
1997 Employee Stock Option Plan and, in the case of officers who serve as
directors of the Company, non-discretionary annual option grants of 1,000 shares
under the Company's 1991 Directors' Stock Option Plan.
The Stock Option Committee under the 1991 Employee Stock Option Plan
and the 1997 Employee Stock Option Plan is responsible for the award of stock
options. Two non-employee directors, Alan J. Hirschfield and Darwin C. Dornbush,
currently serve on the Stock Option Committee, which administers the granting of
options under the 1991 Employee Stock Option Plan and the 1997 Employee Stock
Option Plan.
Compensation Committee Interlocks and Insider Participation
No officer of the Company served on the Company's Compensation
Committee during its last fiscal year. James P. Reilly, the President and Chief
Executive Officer of the Company, however,
36
<PAGE>
participated in deliberations concerning executive compensation, except with
respect to the compensation of the Chairman of the Board and himself.
Item 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
Ownership of Securities
The following table sets forth stock ownership information as of
October 9, 1998 concerning (i) each director and persons nominated to become
directors of Cantel, (ii) each person (including any "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934) who is known by Cantel
to beneficially own more than five (5%) percent of the outstanding shares of
Cantel's Common Stock, (iii) the Chief Executive Officer and the other executive
officers named in the Summary Compensation Table above, and (iv) Cantel's
executive officers and directors as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percentage
of Beneficial Owners Position with the Company Ownership (1) of Class
-------------------- ------------------------- ------------- ----------
<S> <C> <C> <C>
Charles M. Diker Chairman of the Board and 856,967 (2) 19.2
One New York Plaza Director
New York, New York
Alan J. Hirschfield Vice Chairman of the Board 221,333 (3) 5.0
P.O. Box 7443 and Director
Jackson, Wyoming
Robert L. Barbanell Director 62,000 (4) 1.4
Darwin C. Dornbush, Esq. Secretary and Director 22,180 (5) .5
Morris W. Offit Director 54,000 (6) 1.2
James P. Reilly President and CEO and 221,648 (7) 4.9
Director
John W. Rowe, M.D. Director 3,334 (8) .1
Bruce Slovin Director 160,500 (9) 3.6
Richard M. Rumble President and CEO of 8,334 (10) .2
MediVators, Inc.
Craig A. Sheldon Vice President and 21,250 (11) .5
Controller
William J. Vella President and COO of 38,635 (12) .9
Carsen Group Inc.
All officers and 1,670,181 (13) 34.5
directors as a group
of 11 persons
</TABLE>
- ----------
37
<PAGE>
(1) Unless otherwise noted, Cantel believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days from
October 9, 1998 upon the exercise of options. Each beneficial owner's
percentage ownership is determined by assuming that options that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from October 9, 1998 have been exercised.
(2) Includes 91,834 shares which Mr. Diker may acquire pursuant to stock
options. Does not include an aggregate of 496,515 shares owned by (i) Mr.
Diker's wife, (ii) certain trusts for the benefit of Mr. Diker's children,
(iii) certain accounts with Weiss, Peck and Greer, an investment firm of
which Mr. Diker is a non-managing principal, over which accounts Mr. Diker
exercises investment discretion, (iv) the DicoGroup, Inc., a corporation of
which Mr. Diker serves as Chairman of the Board, and (v) a non-profit
corporation of which Mr. Diker and his wife are the principal officers and
directors. Mr. Diker disclaims beneficial ownership as to all of the
foregoing shares.
(3) Includes 25,000 shares which Mr. Hirschfield may acquire pursuant to stock
options.
(4) Includes 37,000 shares which Mr. Barbanell may acquire pursuant to stock
options. Does not include 2,500 shares owned by Mr. Barbanell's wife as to
which Mr. Barbanell disclaims beneficial ownership.
(5) Includes 12,500 shares which Mr. Dornbush may acquire pursuant to stock
options.
(6) Includes 22,000 shares which Mr. Offit may acquire pursuant to stock
options.
(7) Includes 195,315 shares which Mr. Reilly may acquire pursuant to stock
options.
(8) Includes 3,334 shares which Dr. Rowe may acquire pursuant to stock options.
(9) Includes 25,500 shares which Mr. Slovin may acquire pursuant to stock
options. Does not include an aggregate of 9,000 shares owned by (i) certain
trusts for the benefit of Mr. Slovin's children and (ii) a charitable
foundation established by Mr. Slovin. Mr. Slovin disclaims beneficial
ownership as to all of the foregoing shares.
38
<PAGE>
(10) Includes 8,334 shares which Mr. Rumble may acquire pursuant to stock
options.
(11) Includes 21,250 shares which Mr. Sheldon may acquire pursuant to stock
options.
(12) Includes 22,750 shares which Mr. Vella may acquire pursuant to stock
options.
(13) Includes 464,817 shares which may be acquired pursuant to stock options.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
39
<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, 1998.
1. Consolidated Financial Statements:
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of July 31, 1998 and 1997.
(iii) Consolidated Statements of Income for the years ended July
31, 1998, 1997 and 1996.
(iv) Consolidated Statements of Changes in Stockholders' Equity
for the years ended July 31, 1998, 1997 and 1996.
(v) Consolidated Statements of Cash Flows for the years ended
July 31, 1998, 1997 and 1996.
(vi) Notes to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedules:
(i) Schedule II - Valuation and Qualifying Accounts for the years
ended July 31, 1998, 1997 and 1996.
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(a) - Asset Purchase Agreement dated as of March 16, 1998 by and
among Registrant, Chris Lutz Medical, Inc., Christopher C. Lutz and Bonolyn L.
Lutz.
40
<PAGE>
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.)
3(i) - Registrant's By-Laws adopted June 1, 1976, as amended through
the date of this Report. (Incorporated herein by reference to Exhibit 3(d) to
Registrant's 1985 Annual Report on Form 10-K.)
10(a) - Registrant's 1991 Employee Stock Option Plan, as amended.
(Incorporated herein by reference to Exhibit 10(a) to Registrant's 1991 Annual
Report on Form 10-K [the "1991 10-K"].)
10(b) - Form of Stock Option Agreement under Registrant's 1991
Employee Stock Option Plan. (Incorporated herein by reference to Exhibit 10(b)
to Registrant's 1991 10-K.)
41
<PAGE>
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.)
10(h) - 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(i) - 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 Annual Report on Form 10-K [the "1995
10-K"].)
10(j) - 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(k) - 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(l) - 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(m) - Loan and Security Agreement dated as of May 27, 1996, among
MediVators, Inc., Disposal Sciences, Inc. and National
42
<PAGE>
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(n) - 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(o) - Registrant's 1997 Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10(s) of Registrant's 1997 Annual Report on Form 10-K [the
"1997 10-K"].)
10(p) - Form of Incentive Stock Option Agreement under Registrant's
1997 Employee Stock Option Plan. (Incorporated by reference to Exhibit 10(t) of
the Registrant's 1997 10-K.)
10(q) - Employment Agreement, dated as of July 11, 1997, between the
Registrant and R.M. (Ric) Rumble. (Incorporated by reference to Exhibit 10(v) of
Registrant's 1997 10-K.)
10(r) - Second Loan Amending Agreement, dated as of April 19, 1996,
among Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated
by reference to Exhibit 10(w) of Registrant's 1997 10-K.)
10(s) - Third Loan Amending Agreement, dated as of March 7, 1997,
among Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated
by reference to Exhibit 10(x) of Registrant's 1997 10-K.)
10(t) - 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. (Incorporated by reference to Exhibit 10(y)
of Registrant's 1997 10-K.)
10(u) - First Amendment to Loan and Security Agreement dated as of
December 1, 1997, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada.
10(v) - Second Amendment to Loan and Security Agreement dated as of
July 1, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National Bank
of Canada.
10(w) - Third Amendment to Loan and Security Agreement dated as of
October 26, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada.
10(x) - Stock Option Agreement, dated as of October 16, 1997, between
the Registrant and Charles M. Diker.
10(y) - Form of Non-Plan Stock Option Agreement between the Registrant
and Darwin C. Dornbush.
43
<PAGE>
10(z) - Stock Option Agreement, dated as of October 5, 1998, between
the Registrant and John W. Rowe.
10(aa) - Non-Competition Agreement, dated as of March 16, 1998,
between the Registrant, Christopher C. Lutz and Bonolyn L. Lutz.
21 - Subsidiaries of Registrant.
24 - Consent of Ernst & Young LLP.
27(a) - Financial Data Schedule.
27(b) - Financial Data Schedule.
27(c) - Financial Data Schedule.
(b) Reports on Form 8-K: None.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANTEL INDUSTRIES, INC.
Date: October 28, 1998 By: /s/ James P. Reilly
-------------------------------
James P. Reilly, President
and Chief Executive Officer
(Principal Executive Officer
and Principal Financial
Officer)
By: /s/ Craig A. Sheldon
-------------------------------
Craig A. Sheldon, Vice
President and Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Charles M. Diker Date: October 28, 1998
- ----------------------------
Charles M. Diker, a Director
and Chairman of the Board
/s/ James P. Reilly Date: October 28, 1998
- ----------------------------
James P. Reilly, a Director
and President
/s/ Robert L. Barbanell Date: October 28, 1998
- ----------------------------
Robert L. Barbanell, a Director
/s/ Darwin C. Dornbush Date: October 28, 1998
- ----------------------------
Darwin C. Dornbush, a Director
/s/ Alan J. Hirschfield Date: October 28, 1998
- ----------------------------
Alan J. Hirschfield, a Director
/s/ Morris W. Offit Date: October 28, 1998
- ----------------------------
Morris W. Offit, a Director
/s/ John W. Rowe Date: October 28, 1998
- ----------------------------
John W. Rowe, a Director
/s/ Bruce Slovin Date: October 28, 1998
- ----------------------------
Bruce Slovin, a Director
45
<PAGE>
C A N T E L I N D U S T R I E S, I N C.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . 1
Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . 2
Consolidated Statements of Income . . . . . . . . . . 3
Consolidated Statements of Changes
in Stockholders' Equity . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . 6
</TABLE>
<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, 1998 and 1997 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended July 31, 1998. 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, 1998 and 1997 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 1998, 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.
/s/ ERNST & YOUNG LLP
Princeton, New Jersey
September 28, 1998
1
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
July 31,
1998 1997
-------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 493 $ 656
Accounts receivable, net of allowance for
doubtful accounts of $62 in 1998 and
$82 in 1997 8,446 6,984
Inventories 9,207 8,974
Insurance claim receivable 563 -
Prepaid expenses and other current assets 465 395
-------- -------
Total current assets 19,174 17,009
Property and equipment, at cost:
Furniture and equipment 2,132 2,009
Leasehold improvements 619 559
-------- -------
2,751 2,568
Less accumulated depreciation and amortization (1,910) (1,801)
841 767
Intangible assets, net 1,823 202
Other assets 640 624
-------- -------
$22,478 $18,602
-------- -------
-------- -------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,148 $ 3,732
Compensation payable 989 909
Other accrued expenses 893 706
Income taxes payable 164 556
-------- -------
Total current liabilities 6,194 5,903
Long-term debt 3,004 1,594
Deferred income taxes 54 88
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $1.00 per share;
authorized 1,000,000 shares; none issued - -
Common Stock, par value $.10 per share;
authorized 7,500,000 shares; issued and
outstanding, 1998 - 4,367,201 shares;
1997 - 4,166,322 shares 437 417
Additional capital 19,019 17,609
Accumulated deficit (3,957) (5,652)
Cumulative foreign currency translation
adjustment (2,273) (1,357)
-------- --------
Total stockholders' equity 13,226 11,017
-------- -------
$22,478 $18,602
-------- -------
-------- -------
</TABLE>
See accompanying notes.
2
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Net sales:
Product sales $36,130 $30,988 $26,074
Product service 3,879 3,999 3,718
------- ------- -------
Total net sales 40,009 34,987 29,792
------- ------- -------
Cost of sales:
Product sales 24,251 20,801 17,058
Product service 2,279 2,495 2,352
------- ------- -------
Total cost of sales 26,530 23,296 19,410
------- ------- -------
Gross profit 13,479 11,691 10,382
------- ------- -------
Expenses:
Shipping and warehouse 691 590 679
Selling 4,939 4,401 4,353
General and administrative 3,790 3,440 3,274
Research and development 849 589 374
Costs associated with the Merger - - 486
------- ------- -------
Total operating expenses 10,269 9,020 9,166
------- ------- -------
Income before interest expense
and income taxes 3,210 2,671 1,216
Interest expense 179 143 258
------- ------- -------
Income before income taxes 3,031 2,528 958
Income taxes 1,336 1,432 536
------- ------- -------
Net income $ 1,695 $ 1,096 $ 422
------- ------- -------
------- ------- -------
Earnings per common share:
Basic $ 0.40 $ 0.27 $ 0.11
------- ------- -------
------- ------- -------
Diluted $ 0.38 $ 0.25 $ 0.10
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes.
3
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar Amounts in Thousands, Except Share Data)
Years Ended July 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Cumulative
Foreign Total
Common Stock Currency Stock-
Number of Additional Accumulated Translation holders'
Shares Amount Capital Deficit Adjustment Equity
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1995 .. 3,765,353 $ 377 $ 16,428 $ (7,170) $ (1,261) $ 8,374
Exercise of options .... 122,985 12 653 665
Dividends on MediVators
stock before the Merger 357 --
Compensation expense ... 7 7
Translation adjustment . (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 .......... 277,627 28 521 549
Translation adjustment . (29) (29)
Net income ............. 1,096 1,096
---------- ---------- ---------- ---------- ---------- ----------
Balance, July 31, 1997 .. 4,166,322 417 17,609 (5,652) (1,357) 11,017
Exercise of options .... 20,189 2 118 120
Acquisition of
Lutz Medical .......... 180,690 18 1,292 1,310
Translation adjustment . (916) (916)
Net income ............. 1,695 1,695
---------- ---------- ---------- ---------- ---------- ----------
Balance, July 31, 1998 .. 4,367,201 $ 437 $ 19,019 $ (3,957) $ (2,273) $ 13,226
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
4
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $1,695 $1,096 $ 422
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 332 295 367
Deferred income taxes (28) (9) 7
Imputed interest - - 5
Changes in assets and liabilities:
Accounts receivable (1,928) (1,716) 3,124
Inventories (794) (778) 260
Other current assets (682) (87) 39
Accounts payable and accrued expenses 740 2,347 (1,808)
Income taxes payable (362) 475 (283)
------- ------- -------
Net cash (used in) provided by operating
activities (1,027) 1,623 2,133
------- ------- ------
Cash flows from investing activities
Capital expenditures (374) (296) (60)
Acquisition of Lutz Medical (315) - -
Other, net 23 (77) (82)
------- ------- -------
Net cash used in investing activities (666) (373) (142)
------- ------- -------
Cash flows from financing activities
Net borrowings (repayments) under
credit facilities 1,417 (1,866) (2,668)
Capital lease obligations (7) 41 -
Deferred compensation payments - - (105)
Proceeds from exercise of stock options
and warrants 120 549 665
------- ------- ------
Net cash provided by (used in) financing
activities 1,530 (1,276) (2,108)
------- ------- -------
Decrease in cash (163) (26) (117)
Cash at beginning of year 656 682 799
------- ------- ------
Cash at end of year $ 493 $ 656 $ 682
------- ------- ------
------- ------- ------
</TABLE>
See accompanying notes.
5
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 1998, 1997 and 1996
1. Business Description
Cantel Industries, Inc. ("Cantel") has two wholly-owned subsidiaries
(collectively known as the "Company"). 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. 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.
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 on product sales is generally recognized as products are shipped to
customers, net of provisions for sales allowances, warranties and similar items.
Revenue on service sales is recognized when repairs are completed and the
products are shipped to customers.
Translation of Foreign Currency Financial Statements
Assets and liabilities of Carsen are translated into United States dollars at
year-end exchange rates; sales 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.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
6
<PAGE>
Insurance Claim Receivable
Insurance claim receivable represents the net book value of inventories damaged
during a warehouse break-in at Carsen, for which Carsen anticipates full
recovery from its insurance companies.
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, 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 Statement of Financial Accounting Standards ("SFAS") 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 SFAS No. 109 "Accounting for Income Taxes" ("SFAS
No. 109").
No income taxes have been provided on the undistributed earnings ($12,360,000 at
July 31, 1998) of Carsen since the Company does not intend to repatriate such
earnings unless no additional United States taxes would result upon such
repatriation.
7
<PAGE>
Intangible Assets
In connection with the acquisition of Chris Lutz Medical, Inc. ("Lutz Medical")
during fiscal 1998, Cantel acquired intangible assets consisting primarily of
customer lists, intellectual property, a non-compete agreement and goodwill.
These intangible assets are being amortized on the straight-line method over the
estimated useful lives of the assets ranging from 3-20 years.
Goodwill with respect to Carsen of approximately $70,000 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 Company's intangible assets is reviewed if the facts
and circumstances suggest that they may be permanently impaired. Such review is
based upon the undiscounted expected future operating profit derived from such
businesses. In the event such result is less than the carrying value of the
intangible assets, the carrying value of the intangible assets is reduced to an
amount that reflects the expected future benefit.
Earnings Per Common Share
Basic earnings per common share are computed based upon the weighted average
number of common shares outstanding during the year.
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 average market
price for the year.
Earnings per common share for fiscal 1997 and fiscal 1996 have been restated in
accordance with SFAS No. 128 "Earnings Per Share", which standard has been
adopted by the Company effective January 1, 1998 and requires the presentation
of basic and diluted earnings per common share.
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.
Reclassifications
Certain items in the fiscal 1997 and 1996 financial statements have been
reclassified from statements previously presented to conform to the presentation
of the fiscal 1998 financial statements.
8
<PAGE>
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was issued. This
statement must be adopted by the Company in the first quarter of fiscal 1999.
Under provisions of this statement, the Company will be required to reflect
comprehensive income and its components to conform to these new requirements. As
a consequence of this change, certain reclassifications will be necessary to
previously reported amounts to achieve the required presentation of
comprehensive income. Implementation of this disclosure standard will not affect
financial position or results of operations.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", was issued, which is effective for fiscal years beginning
after December 15, 1997. This statement may require a change in the way the
Company's segments are presently reported; however, the extent of the change, if
any, has not been determined.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities",was issued, which is required to be adopted in years beginning after
June 15, 1999. Because of the Company's minimal use of hedging activities,
management does not anticipate that the adoption of this statement will have a
significant effect on the financial position or results of operations of the
Company.
3. Acquisitions
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 approximately 997,000 shares of Cantel Common Stock (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.
On March 16, 1998, the Company acquired substantially all of the assets and
business of Lutz Medical for a combination of 180,690 shares of Cantel Common
Stock, $315,000 of cash and the
9
<PAGE>
assumption of certain liabilities. The transaction has been treated as a
purchase for accounting purposes. The assets acquired and assumed liabilities
were as follow: current assets $260,000; fixed assets $12,000; goodwill
$703,000; other intangible assets $985,000; and current liabilities $335,000.
The operating results of Lutz Medical have been included in the Company's
financial statements since the date of acquisition. Pro forma consolidated
results of operations for fiscal 1998, assuming the Lutz Medical acquisition had
occurred on August 1, 1997, would not have been significantly different from
actual results; therefore, such pro forma information has not been presented.
Lutz Medical was a private company which designed, manufactured and marketed
infection control equipment and supplies used for disinfecting flexible
endoscopes.
4. Inventories
A summary of inventories is as follows:
<TABLE>
<CAPTION>
July 31,
1998 1997
-------------------------
<S> <C> <C>
Parts $2,407,000 $2,516,000
Work-in-process 341,000 247,000
Finished Goods 6,459,000 6,211,000
-------------------------
Total $9,207,000 $8,974,000
-------------------------
-------------------------
</TABLE>
5. Financing Arrangements
The Company has two credit facilities, a $5,000,000 revolving credit facility
for Carsen, and a $1,500,000 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, 1998 and 1997 are in Canadian dollars and bear interest
at rates ranging from the lender's Canadian prime rate to .75% above the prime
rate, depending upon Carsen's debt to equity ratio. At July 31, 1998, the
lender's Canadian prime rate was 6.5% and Carsen's outstanding borrowings bear
interest at a rate of .25% above such prime rate. Subsequent to July 31, 1998,
the lender's prime rate increased to 7% and Carsen's outstanding borrowings 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 $1,984,000 and $798,000 of
borrowings outstanding under this facility at July 31, 1998 and 1997,
respectively.
10
<PAGE>
Pursuant to the terms of the MediVators' revolving credit facility, borrowings
under such facility must be paid in full no later than August 31, 1999.
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, 1998. Subsequent to July 31, 1998,
the lender's prime rate decreased to 8%. 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 $986,000 and $755,000 of borrowings
outstanding under this facility at July 31, 1998 and 1997, respectively.
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.
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,
1998 and 1997 include deferred tax assets related to net operating loss
carryforwards ("NOLs") of $5,610,000 and $5,559,000, 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
$54,000 and $88,000, 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, 1998 and 1997 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 $16,500,000 at July 31, 1998, which expire through July
31, 2013. Of this amount, approximately $3,900,000 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.
11
<PAGE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
-----------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United
States $ 5,000 $ - $ 7,000 $ - $ 27,000 $ -
Canada 1,359,000 (28,000) 1,434,000 (9,000) 502,000 7,000
-----------------------------------------------------------------------------------
Total $1,364,000 $ (28,000) $1,441,000 $(9,000) $529,000 $ 7,000
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
United States $ 79,000 $ (576,000) $ (525,000)
Canada 2,952,000 3,104,000 1,483,000
-----------------------------------------------
Total $3,031,000 $2,528,000 $ 958,000
-----------------------------------------------
-----------------------------------------------
</TABLE>
The effective tax rate differs from the United States statutory tax rate (34%)
due to the following:
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Expected statutory tax expense $1,031,000 $ 860,000 $ 326,000
Canadian dividend withholding taxes - 3,000 22,000
Canadian tax settlement - - (182,000)
Differential attributable to
Canadian operations 327,000 370,000 187,000
Utilization of NOLs (27,000) - -
Benefit not recognized on
domestic operating losses - 196,000 178,000
State and local taxes 5,000 3,000 5,000
--------------------------------------
Total $1,336,000 $1,432,000 $ 536,000
--------------------------------------
--------------------------------------
</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 (the "Olympus 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.
12
<PAGE>
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 $15.5 million, $17.3 million and $19.4 million during the
contract years ending March 31, 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 (the "MediVators Agreement")
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, 1998 and 1997, accounts receivable included bill and hold
receivables of approximately $904,000 and $401,000, respectively.
13
<PAGE>
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 paid a royalty through December
1997 equal to five percent (5%) of the net revenues received by MediVators from
sales of its disinfectors. The MediVators DSD-91 disinfector does not utilize
the patented technology of the OTT disinfector. Although MediVators no longer
sells the OTT Disinfector, it is currently negotiating with the Mayo Foundation
with respect to the payment of a nominal amount in exchange for technical
assistance by the Mayo Foundation in the continuing development of new products.
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. There were no commitments for such forward
contracts outstanding at July 31, 1998.
Lease Obligations
Aggregate future minimum rental commitments at July 31, 1998 under operating
leases for property and equipment are as follows:
<TABLE>
<CAPTION>
Year Ending July 31,
<S> <C>
1999 $ 420,000
2000 368,000
2001 207,000
2002 32,000
2003 5,000
Thereafter -
----------
Total rental commitments $1,032,000
----------
----------
</TABLE>
Rent expense aggregated $459,000, $329,000 and $237,000 for fiscal 1998, 1997
and 1996, respectively.
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
14
<PAGE>
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 $26
million, as amended. Management of the Company believes that Cantel was not
engaged in the production, transportation or dumping of industrial waste at any
time. During October 1998, the Company concluded an alternative dispute
resolution process and agreed to a settlement of this lawsuit with plaintiff in
the amount of $64,000, the majority of which will be covered by insurance.
In January 1998, a legal proceeding was commenced against MediVators titled
"Thomas Nyland, F/K/A Thomas Cecchi v. MediVators, Inc." in Minnesota state
court. The plaintiff, a former sales representative of MediVators, alleges an
unspecified amount due for lost commissions, breach of contract, and other
ancillary claims. The Company has formally responded to this lawsuit and has
denied all of plaintiff's claims. Currently, both parties are conducting
discovery and no trial date has been set. Management believes that the claims
alleged in the lawsuit are unmeritorious and intends to vigorously defend itself
in this action, 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, 1998, 30,875 shares were available
for grant under this plan. No additional options will be granted under the 1991
Employee Option Plan.
The Company's 1997 Employee Stock Option Plan provides for the granting of
options to employees to purchase up to 200,000 shares of the Company's Common
Stock through October 15, 2007. 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, 1998, 167,500 shares were
available for grant under this plan.
15
<PAGE>
The Company's 1991 Directors' Stock Option Plan provides for the granting of
options to directors to purchase up to 200,000 shares of its Common Stock.
Options under this plan may be granted to directors only. Under the plan,
options to purchase 1,000 shares are granted annually on the last business day
of the Company's fiscal year to each member of the Company's Board of Directors.
The annual options are exercisable, as to 50% of the number of shares, on the
first anniversary of the grant of such options and are exercisable for the
balance of such shares on the second anniversary of the grant of such options.
On a quarterly basis, options to purchase 500 shares are granted to each member
of the Company's Board, except for employees of the Company, in attendance at
that quarter's Board of Directors meeting. The quarterly options are exercisable
immediately. 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, 1998, 9,000 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 additional options will be
granted under the MediVators Stock Option Plan.
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
diluted earnings per share would have been $1,339,000 and $0.30, respectively,
for fiscal 1998, $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
1998, 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 following assumptions: expected
dividend yield of 0%; expected stock price volatility ranging from .31 to .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 was $3.47 and $3.90 per share for fiscal 1998 and 1997,
respectively.
16
<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.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average
of Shares Exercise Price
--------- --------------
<S> <C> <C>
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
Granted 148,500 6.81
Canceled (45,191) 6.65
Exercised (21,842) 6.07
---------
Outstanding at July 31, 1998 695,163 $5.03
---------
---------
Exercisable at July 31, 1996 467,934 $3.87
---------
---------
Exercisable at July 31, 1997 462,363 $3.93
---------
---------
Exercisable at July 31, 1998 496,498 $4.20
---------
---------
</TABLE>
The following table summarizes additional information related to stock options
outstanding at July 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ---------------------------
Weighted
Average
Remaining Weighted Weighted
Number Contractual Average Number Average
Range of Outstanding Life Exercise Exercisable Exercise
Exercise prices at July 31, 1998 (Months) Price at July 31, 1998 Price
--------------- ---------------- ----------- -------- ----------------- -------
<S> <C> <C> <C> <C> <C>
$1.75 - $4.00 274,315 21 $2.17 274,315 $2.17
$4.25 - $6.8125 162,550 58 $5.59 104,384 $5.46
$7.00 - $10.25 258,298 71 $7.72 117,799 $7.83
------- -------
$1.75 - $10.25 695,163 48 $5.03 496,498 $4.20
------- -------
------- -------
</TABLE>
There were an aggregate of 74,739 warrants outstanding to purchase shares of
Common Stock at both July 31, 1998 and 1997 at prices ranging from $9.80 to
$19.45 per share.
17
<PAGE>
9. Net Income Per Common Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Numerator for basic
and diluted earnings
per share:
Net income $1,695,000 $1,096,000 $ 422,000
Denominator for basic
and diluted earnings
per share:
Denominator for basic
earnings per share -
weighted average number
of shares outstanding 4,240,023 4,073,304 3,789,777
Dilutive effect of options
and warrants using the
treasury stock method and
the average market price
for the year 243,862 280,903 518,802
---------- ---------- ----------
Denominator for diluted
earnings per share -
weighted average number
of shares and common
stock equivalents 4,483,885 4,354,207 4,308,579
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share $ 0.40 $ 0.27 $ 0.11
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per share $ 0.38 $ 0.25 $ 0.10
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
10. Retirement Plans
The Company has a 401(k) Savings and Retirement Plan (which commenced during
fiscal 1998) for the benefit of eligible United States employees. Contributions
by the Company are both discretionary and non-discretionary and are limited in
any year to the amount allowable by the Internal Revenue Service.
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.
18
<PAGE>
Aggregate contributions under these plans were $90,000, $47,000 and $26,000 for
fiscal 1998, 1997 and 1996, respectively.
11. Supplemental Income Statement and Cash Flow Information
Advertising costs charged to expenses were $357,000, $257,000 and $295,000 for
fiscal 1998, 1997 and 1996, respectively.
Interest paid was $189,000, $140,000 and $362,000 for fiscal 1998, 1997 and
1996, respectively.
Federal, state and foreign income tax payments were $1,798,000, $1,080,000 and
$784,000 for fiscal 1998, 1997 and 1996, respectively.
During fiscal 1998, 180,690 shares of Common Stock valued at $1,310,000 were
issued as part of the consideration paid for the Lutz Medical acquisition.
12. Information as to Operations in Different Industries and
Foreign and Domestic Operations
Cantel is a healthcare company concentrating in infection prevention and control
products and diagnostic equipment. Through its United States subsidiary, Cantel
serves customers worldwide by designing, developing, manufacturing, marketing
and distributing innovative products for the infection prevention and control
industry. Through its Canadian subsidiary, Cantel markets and distributes
medical equipment (including flexible and rigid endoscopes), precision
instruments, (including microscopes) and industrial equipment (including remote
visual inspection devices). In addition, its Canadian subsidiary distributes a
full range of photographic equipment and supplies. Cantel's subsidiaries also
provide servicing of their products.
The medical and infection control and scientific products distributed by the
Company consist of medical equipment, including flexible and rigid endoscopes,
endoscope disinfection equipment, surgical equipment and related accessories
that are sold to hospitals; precision instruments, including microscopes and
related accessories that are sold to educational institutions, hospitals and
government and industrial laboratories; and industrial technology equipment,
including borescopes, fiberscopes 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, binoculars, hand-held dictation equipment and related accessories. The
consumer products are distributed mostly to independent retailers,
19
<PAGE>
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,
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Net sales:
Medical and infection control
and scientific products:
Medical and infection
control products $20,325,000 $19,771,000 $16,221,000
Scientific products 5,957,000 5,786,000 5,693,000
Product service 3,879,000 3,999,000 3,718,000
Consumer products 9,848,000 5,431,000 4,160,000
------------------------------------------------
Total $40,009,000 $34,987,000 $29,792,000
------------------------------------------------
------------------------------------------------
Operating income (loss):
Medical and infection control
and scientific products:
Medical and infection
control products $ 2,681,000 $ 2,626,000 $ 2,292,000
Scientific products 317,000 (22,000) (119,000)
Product service 1,173,000 1,174,000 1,102,000
Consumer products 106,000 (12,000) (560,000)
------------------------------------------------
4,277,000 3,766,000 2,715,000
General corporate expenses (1,067,000) (1,095,000) (1,013,000)
Costs associated with the
Merger - - (486,000)
Interest expense (179,000) (143,000) (258,000)
Income before income taxes $ 3,031,000 $ 2,528,000 $ 958,000
------------------------------------------------
------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Identifiable assets:
Medical and infection control
and scientific products:
Medical and infection
control products $12,512,000 $10,226,000 $ 7,992,000
Scientific products 4,154,000 3,774,000 3,798,000
Product service 1,458,000 1,432,000 1,176,000
Consumer products 3,610,000 2,300,000 2,129,000
General corporate 744,000 870,000 903,000
------------------------------------------
Total $22,478,000 $18,602,000 $15,998,000
------------------------------------------
------------------------------------------
Capital expenditures:
Medical and infection control
and scientific products:
Medical and infection
control products $ 172,000 $ 258,000 $ 36,000
Scientific products 82,000 13,000 7,000
Product service 34,000 10,000 5,000
Consumer products 85,000 14,000 5,000
General corporate 1,000 1,000 7,000
------------------------------------------
Total $ 374,000 $ 296,000 $ 60,000
------------------------------------------
------------------------------------------
Depreciation and amortization:
Medical and infection control
and scientific products:
Medical and infection
control products $ 197,000 $ 146,000 $ 175,000
Scientific products 58,000 100,000 143,000
Product service 20,000 18,000 21,000
Consumer products 52,000 25,000 23,000
General corporate 5,000 6,000 5,000
------------------------------------------
Total $ 332,000 $ 295,000 $ 367,000
------------------------------------------
------------------------------------------
</TABLE>
21
<PAGE>
(b) Information as to geographic areas is summarized below:
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $ 8,106,000 $ 5,703,000 $ 4,646,000
Canada 31,903,000 29,284,000 25,146,000
------------------------------------------
Total $40,009,000 $34,987,000 $29,792,000
------------------------------------------
------------------------------------------
Operating income:
United States $ 768,000 $ 117,000 $ 368,000
Canada 3,509,000 3,649,000 2,347,000
------------------------------------------
Total $ 4,277,000 $ 3,766,000 $ 2,715,000
------------------------------------------
------------------------------------------
Total assets:
United States $ 6,143,000 $ 3,651,000 $ 3,180,000
Canada 16,335,000 14,951,000 12,818,000
------------------------------------------
Total $22,478,000 $18,602,000 $15,998,000
------------------------------------------
------------------------------------------
</TABLE>
22
<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, 1998 $ 82,000 $ 42,000 $ 62,000 $ 62,000
------------------------------------------------------------------
------------------------------------------------------------------
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
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
23
<PAGE>
Exhibit 2(a)
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT made as of this 16th day of March, 1998
by and among CANTEL INDUSTRIES, INC., a Delaware corporation, maintaining its
principal offices at 1135 Broad Street, Suite 203, Clifton, New Jersey 07013
("Purchaser") and CHRIS LUTZ MEDICAL, INC., a California corporation,
maintaining its principal offices at 23011 Moulton Parkway, No. B-3, Laguna
Hills, California 92653 ("Seller") and CHRISTOPHER C. LUTZ and BONOLYN L. LUTZ,
residing at 31728 4th Avenue, South Laguna, California 92677 (collectively, the
"Stockholders").
P R E A M B L E
A. Seller desires to sell and Purchaser desires to purchase,
substantially all of Seller's assets, properties and rights of Seller's
endoscope reprocessing business (the "Business"), for the consideration and upon
all of the terms and conditions specified herein.
B. Christopher C. Lutz and Bonolyn L. Lutz, as trustees of The
Lutz Family Trust dated November 27, 1995, are the sole stockholders of Seller.
C. The Boards of Directors of Purchaser and Seller,
respectively, and the stockholders of Seller have approved and adopted this
Agreement.
D. The purchase and sale of the Assets pursuant to this
Agreement is intended to be treated as a tax-free reorganization under Section
368(a)(1)(C) of the Code.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto do mutually agree
as follows:
1. CERTAIN DEFINITIONS.
The following terms will have the meaning ascribed to
them below. Certain other terms are defined in the text.
1.1 "Adjustment": defined in Section 2.2.2.
1.2 "Agreement": means this Agreement, as amended,
supplemented or modified from time to time and all Schedules attached hereto.
<PAGE>
1.3 "Asset Valuation Schedule": defined in Section
2.2.2.
1.4 "Assets": means, except for the Excluded Assets,
all of the assets, properties and rights of the Business in existence on the
Closing Date, of every type and description, tangible and intangible, real,
personal and mixed, wherever located and whether or not reflected on the books
and records of Seller, including without limitation (in each case used in
connection with or otherwise related to the Business), all cash on hand and in
bank accounts, cash equivalents and investments; all accounts receivable; all
business claims; all purchase and sales orders and other contract rights,
including without limitation all unfilled orders to be received; all of Seller's
right, title and interest in and to brand names, corporate names, service marks,
trade names, trademarks, logos, names and slogans, including, without
limitation, "CLM" and "Chris Lutz Medical" and pending applications or
registrations therefor (the "Marks") and copyrights, patents, and rights,
licenses, processes and other intellectual property of, and relating to, the
Business; all trade secrets, business and marketing plans and manufacturing
know-how; all of Seller's goodwill; all documentation of Seller pertaining to
the Business including, without limitation, computer print-outs, accounting
records and systems, invoices, customer lists, credit records and information,
purchase and sales records and information, merchandise records, sales promotion
materials and other documents and items incidental to the Business; all
machinery, plant and equipment; all fixtures, furniture and furnishings; all
automobiles; all inventories, including all raw materials, work-in-process,
finished goods, demonstration and "loaner" units, goods in transit and goods
ordered; all drawings, designs, sketches, plans and other similar matters,
however evidenced; all supplies; all leasehold interests in equipment and
improvements of every kind and description thereon and all interests therein and
all rights of every kind or nature then owned or held by Seller and used in the
Business; all books and records, files and operating data relating to the
Assets; and all owned or leased computer software, hardware, peripherals and
related documentation and equipment; provided, however, that the Assets shall
not include (A) the minute books, corporate seal, tax returns, and stock records
of Seller, (B) the lease for Seller's Facilities, (C) agreements between Seller
and its employees, consultants and representatives other than the Manufacturer's
Representative Agreements referenced in Schedule 3.15 (which agreements are
included in the Assets and hereby assumed by Purchaser) and (D) any and all
assets related substantially to Seller's operations as an independent sales
representative for endoscopes and related endoscopy equipment sold by Pentax
Precision Instrument Corporation (all of the foregoing in (A) through (D) above
are collectively referred to as "Excluded Assets").
2
<PAGE>
1.5 "Assumed Contract Obligations": means the
continuing obligations of the Business arising subsequent to the Closing Date
under the contracts, leases, commitments, purchase orders and other agreements
listed on Schedule 3.15 hereto (subject to obtaining any requisite consents
thereunder); provided, however, that Purchaser assumes no liability or
obligation for Seller's defaults or its actions or omissions which, with notice
or lapse of time or both, would constitute defaults thereunder on or prior to
the Closing Date.
1.6 "Benefit Plan": defined in Section 3.25.
1.7 "Business": defined in Preamble, Paragraph A.
1.8 "Cantel Stock": defined in Section 2.2.1(b).
1.9 "Capital Stock": means any and all shares,
interests, participations or other equivalents (however designated) of capital
stock of a corporation, and any and all equivalent ownership interests in a
partnership or other Person (other than a corporation).
1.10 "Closing": means the consummation of the
transactions herein contemplated.
1.11 "Closing Date": means, as of the close of
business, the date hereof.
1.12 "Code": the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
1.13 "Consulting Agreement": means the Consulting
Agreement to be entered into by and between Purchaser and Christopher C. Lutz,
substantially in the form of Schedule 1.13.
1.14 "Contractual Obligation": means, as to any Person,
any provision of any agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is bound.
1.15 "Convertible Securities": means options, warrants,
subscriptions or other commitments or rights of any nature to purchase, or
securities convertible into or exchangeable for, Capital Stock.
1.16 "Environmental Laws": means any and all Federal,
state, local or municipal laws, rules, orders,
3
<PAGE>
regulations, statutes, ordinances, codes, decrees or requirements of any
Governmental Authority regulating, relating to or imposing liability or
standards of conduct concerning environmental protection matters, including
without limitation, Hazardous Materials, as now or may at any time hereafter be
in effect.
1.17 "ERISA": means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and the regulations and
rulings issued thereunder.
1.18 "Escrow": means the escrow established pursuant to
the Escrow Agreement.
1.19 "Escrow Agent": defined in Section 2.2.1(c).
1.20 "Escrow Agreement": defined in Section 2.2.1(c).
1.21 "GAAP": means generally accepted accounting
principles.
1.22 "Governmental Authority": means any nation or
government, any state or other political subdivision thereof and any Federal,
state, county, local or foreign entity or body exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation the United States Food and Drug
Administration ("FDA") and Environmental Protection Agency ("EPA").
1.23 "Hazardous Materials": means any (i) "hazardous
substance," "pollutants," or "contaminant" (as defined in Sections 101(14),(33)
of the Comprehensive Environmental Response Compensation Liability Act
("CERCLA") or the regulations designated pursuant to Section 102 of CERCLA and
found at 40 C.F.R. ss.302), including any element, compound, mixture, solutions,
or substance that is or may be designated pursuant to Section 102 of CERCLA;
(ii) substance that is or may be designated pursuant to Section 311(b)(2)(A) of
the Federal Water Pollution Control Act, as amended (33 U.S.C. ss.ss.1251,
1321(b)(2)(A) ("FWPCA"); (iii) hazardous waste having the characteristics
identified under or listed pursuant to Section 3001 of the Resource Conservation
and Recovery Act, as amended (42 U.S.C. ss.ss. 6901, 6921) ("RCRA"); (iv)
substance containing petroleum, as that term is defined in Section 9001(8) of
RCRA; (v) toxic pollutant that is or may be listed under Section 307(a) of
FWPCA; (vi) hazardous air pollutant that is or may be listed under Section 112
of the Clean Air Act, as amended (42 U.S.C. ss.ss. 7401, 7412); (vii) asbestos,
asbestos-containing material, or
4
<PAGE>
urea formaldehyde or material that contains it; and (viii) waste oil and other
petroleum products.
1.24 "IRS": means the Internal Revenue Service.
1.25 "Lien": means any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security interest or agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
1.26 "Market Value": means, with respect to a share of
Cantel Stock, the closing price of Cantel Stock on the Closing Date as reported
on the NASDAQ National Market or, if Cantel Stock does not trade on the Closing
Date, the closing price of Cantel Stock on the first date immediately preceding
the Closing Date that Cantel Stock traded. The Market Value of Cantel Stock on
the Closing Date is set forth on Schedule 1.26.
1.27 "Marks": defined in Section 1.4.
1.28 "Material Adverse Effect": means a material
adverse effect on (a) the business, operations, property, condition (financial
or otherwise) or prospects of the specified party and its Subsidiaries taken as
a whole, (b) the ability of the party to perform its obligations under this
Agreement, or (c) the validity or enforceability of this Agreement or the rights
or remedies of the other party hereunder or thereunder; provided, however, that
the direct costs and expenses of this transaction, including without limitation
fees of attorneys, accountants and other such professionals, shall not be
considered in determining the existence of a Material Adverse Effect.
1.29 "Person": means an individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
1.30 "Purchase Price": defined in Section 2.2.1.
1.31 "Requirement of Law": means, as to any Person, any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
5
<PAGE>
1.32 "Scheduled Assets": defined in Section 2.2.2.
1.33 "Seller Intellectual Property". defined in Section
3.22.
1.34 "Seller Liabilities": means, except for the
Assumed Contract Obligations, any and all obligations, payments and liabilities
of Seller (absolute, contingent or otherwise), whether existing now or in the
future, including, without limitation, any and all obligations, payments and
liabilities related to, arising out of, in connection with, or based upon the
following:
(a) accounts payable of Seller;
(b) pension or profit sharing plans or other
Benefit Plans or related trusts covering any of the past or present employees of
Seller, or for any violation of any law, rule, regulation or policy governing or
applicable to any pension or benefit plan covering past or present employees of
Seller or any funding deficiency with respect to, or any breach of or default
under the terms of, such plans, occurring prior to or existing on the Closing
Date;
(c) Federal, state, local or foreign income
taxes, payroll taxes, franchise taxes, sales and use taxes or other taxes
whatsoever with respect to Seller or the Business with respect to any period on
or prior to the Closing Date, or any interest, penalties or additions to tax
with respect thereto;
(d) indebtedness or other obligation of
Seller for borrowed money, and any guarantees by Seller of any indebtedness or
obligation of any other Person for borrowed money;
(e) any civil or criminal penalties or
liabilities or any payments in the nature thereof, or any damages or clean-up
costs, under any Federal, state, local or foreign law, rule, regulation or
policy governing environmental or occupational health and safety matters, or
founded upon a private right of action or third party claim in respect of
environmental or occupational health or safety matters, imposed upon, or sought
to be imposed upon, Seller, or Purchaser on account of any act or omission of
Seller, any of the directors, officers, employees or agents of Seller, or on
account of any state of facts or conditions existing on or prior to the Closing
Date;
(f) negligence, warranty, product liability
(strict liability or otherwise), fraudulent
6
<PAGE>
concealment, tort, or other claims in respect of Seller's products manufactured,
sold or delivered to customers on or prior to the Closing Date, including,
without limitation, monetary damages and repairs and replacements of products;
(g) employees of Seller (whether due prior
to or after the Closing), including, without limitation, salary, bonus,
commission, sick pay, vacation pay, severance pay, deferred and accrued
compensation, health care and pension benefits, and other compensation payable
under contract, benefit plan, or otherwise;
(h) the sale of the Assets hereunder,
including, without limitation, Seller's attorneys' fees;
(i) the operations of Seller and the
Business on or prior to the Closing Date, whether incurred in or outside of the
ordinary course of business;
(j) Excluded Assets or other assets of
Seller which are not being assumed by Purchaser pursuant to the provisions of
this Agreement; and
(k) the lawsuit described in Schedule 3.14;
and
(l) any act, event or occurrence, or a
failure to act, that constitutes or results in a breach of any representation,
warranty or covenant of Seller made herein.
1.35 "Seller's Facilities": means the facilities of
Seller located at 23011 Moulton Parkway, No. B-3, Laguna Hills, California.
1.36 "Subsidiary": means, as to any Person, a
corporation, partnership or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. A Subsidiary, as to any Person, shall include a partnership
which has such Person or a Subsidiary of such Person as a general partner of
such partnership.
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Other Definitional Provisions; Interpretation.
(a) Unless otherwise specified therein, all
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other agreement, instrument or document made or delivered
pursuant hereto.
(b) The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.
(c) The headings in this Agreement are
included for convenience of reference only and shall not in any way affect the
meaning or interpretation of this Agreement.
(d) The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms.
2. SALE AND PURCHASE.
2.1 Sale and Purchase of the Assets. Subject to and in
accordance with the terms and conditions contained in this Agreement, effective
as of the close of business on the date hereof, Purchaser hereby purchases,
acquires and accepts from Seller, and Seller hereby sells, assigns, transfers
and delivers to Purchaser, the Assets, free and clear of any and all liens,
claims, charges or encumbrances of any nature whatsoever, for the Purchase Price
specified in Section 2.2 below. Notwithstanding anything expressed or implied to
the contrary contained in this Agreement, Seller is not selling and Purchaser is
not purchasing the Excluded Assets.
2.2 Purchase Price.
2.2.1 The purchase price for the Assets (the
"Purchase Price") is $1,540,000. The Purchase Price shall be paid by Purchaser
as follows:
(a) the sum of $220,000 by certified
check and $10,000 by corporate check, payable to the order of Seller, delivered
to Seller at the Closing;
(b) 153,104 shares of Common Stock, par
value $.10 per share, of Purchaser (the "Cantel Stock"), which shares have a
Market Value as of the Closing Date of $1,110,000; and
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(c) 27,586 shares of Cantel Stock, which
shares have a Market Value as of the Closing Date of $200,000, delivered at the
Closing to an independent escrow agent jointly selected by the parties at the
Closing (the "Escrow Agent"), to be held in escrow pursuant to an escrow
agreement substantially in the form annexed hereto as Schedule 2.2.1 (the
"Escrow Agreement"). Shares of Cantel Stock held in escrow shall be owned
exclusively by Seller (with Seller having voting rights and the right to any and
all dividends with respect to the shares), subject to forfeiture solely in
accordance with the terms of the Escrow Agreement.
2.2.2 Seller has prepared prior to the
Closing Date, an asset valuation schedule (the "Asset Valuation Schedule") that
reflects the net value of the cash on hand and in bank accounts, cash
equivalents and investments, prepaid expenses, accounts receivable, inventories,
and fixed assets included in the Assets (the "Scheduled Assets"), which shall be
updated as of the Closing Date. Prior to the Closing Date, Seller has conducted
a physical inventory of the inventories included in the Assets, the results of
which shall be audited and reviewed by Purchaser within fifteen (15) days
following the Closing Date. Purchaser, Seller and their respective authorized
representatives, at their own expense, shall have the right to perform such
other audit and review procedures with respect to the preparation of the Asset
Valuation Schedule as they may determine is necessary. Seller hereby represents,
warrants and covenants to Purchaser that the Asset Valuation Schedule delivered
on the Closing Date shall, with respect to the Scheduled Assets, (i) be prepared
from the books and records of Seller and the physical inventory conducted by
Seller (subject to the audit and review of Purchaser), and (ii) be in accordance
with GAAP. In the event that there is a dispute as to the accuracy of the Asset
Valuation Schedule or in the manner in which the Asset Valuation Schedule was
prepared, any unresolved dispute shall be submitted for determination to a
nationally recognized accounting firm to be mutually selected by Seller and
Purchaser, and the determination by such accounting firm shall be made within 30
days following the submission to them of such dispute and shall be binding upon
Seller and Purchaser. Seller and Purchaser shall each bear 50% of the fees and
expenses of such accounting firm in resolving such dispute. In the event that
the value of the Scheduled Assets as of the Closing Date is determined to be
less than $311,000, an amount equal to the difference between $311,000 and the
valuation of the Scheduled Assets set forth on the Asset Valuation Schedule (the
"Adjustment") shall be paid to Purchaser through a withdrawal of shares of
Cantel Stock from the Escrow having an aggregate Market Value, as of the Closing
Date, equal to the Adjustment, pursuant to the terms of the Escrow Agreement. In
the event that the value of the Scheduled Assets as of the Closing Date is
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determined to be more than $311,000, Purchaser shall deliver to and deposit with
the Escrow Agent shares of Cantel Stock having a Market Value, as of the date
the Asset Valuation Schedule is finalized, equal to the amount by which the
valuation of the Scheduled Assets exceeds $311,000; provided, however, in no
event shall Purchaser be obligated to deliver additional shares hereunder having
a Market Value in excess of $64,000 pursuant to this sentence. The Asset
Valuation Schedule shall be deemed finalized on the date such Schedule is signed
by both Seller and Purchaser or, if contested, the date of a final determination
of the valuation of the Scheduled Assets by an accounting firm pursuant to this
Section 2.2.2.
2.2.3 Seller and Purchaser agree that upon
completion of, and based upon, the Asset Valuation Schedule (with respect to the
Scheduled Assets), Purchaser shall allocate the Purchase Price among the
following:
Cash and Cash Equivalents
Investments
Accounts Receivable
Inventories
Fixed Assets
Goodwill and Other Intangibles
Such allocation shall be set forth in a schedule signed by both parties and
attached to this Agreement as Schedule 2.2.3 and the parties hereto agree to
cooperate in the filing of all documents and instruments with taxing authorities
and agencies in the United States as may be necessary or desirable to give
effect to those allocations for tax purposes. The allocation shall comply with
the terms of Section 1060 of the Code.
2.3 Closing. The sale and purchase of the Assets, and
the payment of the Purchase Price contemplated thereby shall take place upon the
execution of this Agreement at the offices of Dornbush Mensch Mandelstam &
Schaeffer, LLP, 747 Third Avenue, New York, New York 10017.
2.4 Documents to be Delivered at Closing by Seller. At
the Closing, Seller shall deliver or cause to be delivered to Purchaser the
following in form and substance reasonably satisfactory to Purchaser:
2.4.1 Assignment, duly executed by Seller;
2.4.2 Bill of Sale, duly executed by Seller;
2.4.3 Such other duly executed instruments
of sale, assignment and conveyance, satisfactory in form and
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substance to Purchaser and its counsel, as may reasonably be requested by
Purchaser, conveying to Purchaser good and marketable title to the Assets, free
and clear of Liens;
2.4.4 Certified copies of resolutions of the
Board of Directors of Seller and the stockholders of Seller authorizing the
execution, delivery and performance by Seller and the stockholders of Seller of
this Agreement and the transactions contemplated hereby, certified by its
Secretary;
2.4.5 Escrow Agreement, duly executed by
Seller;
2.4.6 Consulting Agreement, duly executed by
Christopher C. Lutz;
2.4.7 Non-compete Agreement of Stockholders,
substantially in the form of Schedule 2.4.7, duly executed by the Stockholders;
2.4.7 A legal opinion of Seller's counsel;
and
2.4.8 Such other documents and instruments
as may reasonably be necessary or desirable to effectuate the transaction
provided for in this Agreement.
2.5 Documents to be Delivered at Closing by Purchaser.
At the Closing, Purchaser shall deliver or cause to be delivered to Seller the
portions of the Purchase Price specified in Sections 2.2.1(a) and (b), and shall
deliver or cause to be delivered to the Escrow Agent the portions of the
Purchase Price specified in Section 2.2.1(c). In addition, Purchaser shall
deliver or cause to be delivered to Seller the following in form and substance
reasonably satisfactory to Seller:
2.5.1 Certified copy of resolutions of the
Board of Directors of Purchaser authorizing the execution, delivery and
performance by Purchaser of this Agreement and the transactions contemplated
hereby, certified by its Secretary;
2.5.2 Escrow Agreement, duly executed by
Purchaser and the Escrow Agent;
2.5.3 Consulting Agreement, duly executed by
Purchaser;
2.5.4 A legal opinion of Purchaser's
counsel; and
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2.5.5 Such other documents and instruments
as may reasonably be necessary or desirable to effectuate the transaction
provided for in this Agreement.
2.6 No Assumption of Seller Liabilities. Except for the
Assumed Contract Obligations, no liabilities, payments or obligations of Seller
or the Stockholders (absolute, contingent or otherwise) arising out of the
Business, the ownership or operation of any of the Assets, the consummation of
the transactions under this Agreement, or otherwise, are or shall be assumed by
Purchaser. Without limiting the generality of the foregoing, and regardless of
any liabilities that may be disclosed to Purchaser pursuant to Section 3 hereof,
or whether Purchaser may have knowledge of same, Purchaser shall not assume and
shall not be deemed to have assumed under this Agreement any Seller Liabilities.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller and the Stockholders hereby jointly and
severally represent and warrant to Purchaser that the following representations
and warranties are true and correct as of the Closing Date and acknowledges that
Purchaser is relying on such representations and warranties in connection with
its execution, delivery and performance of this Agreement:
3.1 Organization of Seller. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has the corporate power and lawful authority to own,
lease and operate its assets, properties and business and to carry on its
businesses in all material respects as now being conducted.
3.2 Qualification. Seller is duly qualified as a
foreign corporation to transact business in the jurisdictions set forth in
Schedule 3.2, which are the only jurisdictions where the nature of its business
or the ownership of its assets makes such qualification necessary, except where
the failure to so qualify would not have a Material Adverse Effect on Seller.
3.3 Authority. Seller has all requisite corporate power
and authority to execute, deliver and perform this Agreement and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of this Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by Seller and
constitutes legal, valid and binding obligations of Seller enforceable against
Seller in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar
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laws affecting creditors' rights generally or by principles governing the
availability of equitable remedies.
3.4 Capitalization. Seller's authorized Capital Stock
consists of 100,000 shares of Common Stock, all of which are issued and
outstanding as of the Closing Date. No other class of Capital Stock of Seller is
authorized or outstanding. All of the issued and outstanding Seller Shares are
duly authorized and are legally and validly issued, fully paid and
nonassessable. Schedule 3.4 lists all of the stockholders of Seller and the
number of shares owned by each such stockholder. Except as set forth in Schedule
3.4, (a) there are no outstanding Convertible Securities to acquire any
securities of Seller or its Subsidiaries from Seller or from any of the
stockholders of Seller or its Subsidiaries; (b) no shares of Capital Stock of
Seller are reserved or set aside as treasury shares for any purpose and no
stockholder of Seller has preemptive rights; and (c) there are no voting trusts
or other agreements or understandings with respect to the voting of shares of
any class of Capital Stock of Seller, except as contemplated by this Agreement.
3.5 Title to the Assets. The Assets constitute all of
the assets which are considered part of the Business and all of the assets
necessary to conduct the Business as presently conducted. Seller owns outright
and has good and marketable title to all of the Assets, in each case free and
clear of any Lien. Seller is transferring to Purchaser hereunder good, valid and
marketable title to the Assets, free and clear of any and all Liens.
3.6 Subsidiaries. Seller has no Subsidiaries and Seller
is not a party to any partnership or joint venture agreement or arrangement or
owns any equity interest in any other corporation, partnership or other entity.
3.7 Articles of Incorporation and By-laws. Seller has
made available to Purchaser a true, correct and complete copy of the Articles of
Incorporation and By-laws of Seller, and all amendments thereto as of the
Closing Date. The Articles of Incorporation delivered hereunder has been
certified by the Secretary of State of the State of California.
3.8 No Conflicts. Except as set forth in Schedule 3.8,
neither the execution and delivery of this Agreement, nor the consummation of
any of the transactions contemplated hereby, conflict with or will conflict with
or has resulted or will result in the breach of or violation of any of the terms
or conditions of, or constitute (or, with notice or lapse of time or both, would
constitute) a default or result in the acceleration of any material obligation
of Seller under:
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(i) the Articles of Incorporation or By-laws of Seller; or (ii) any Requirement
of Law or Contractual Obligation of Seller and will not result in, or require,
the creation or imposition of any Lien on any of its properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation or (iii)
interfere with or otherwise adversely affect the ability of Purchaser to utilize
the Assets after the Closing Date on substantially the same basis as is now
conducted by Seller.
3.9 No Material Adverse Change. Since January 1, 1998,
Seller has conducted its business in all material respects only in the ordinary
and usual course and there has been no material adverse change in the assets,
liabilities, properties, business or condition, financial or otherwise, of
Seller, and no event or condition exists or has occurred which may, so far as
reasonably can be foreseen at this time, have a Material Adverse Effect, nor has
there been any damage, destruction or loss materially affecting the assets,
properties, business or condition of Seller, whether or not covered by
insurance.
3.10 Tax Matters. Except as disclosed in Schedule 3.10,
Seller has timely filed, on or before the relevant due dates therefor (including
any extensions of time to file), all income tax, excise tax, sales tax, use tax,
gross receipts tax, franchise tax, employment and payroll related tax, property
tax and all other tax returns and reports which Seller is required by law to
file, all of which were, to the knowledge of Seller, properly prepared on a
reasonable basis. Except as disclosed in Schedule 3.10, Seller has paid or
provided for all taxes shown to be due on such returns and any amendments
thereto. Except as disclosed in Schedule 3.10, there are no unpaid deficiencies
or other assessments of tax, interest or penalties owed by Seller. No audit of
any tax return of Seller is in progress or, to the knowledge of Seller,
threatened.
3.11 Compliance with Laws. Except as set forth in
Schedule 3.11, (a) Seller has not received notice from any Governmental
Authority alleging a violation by it of, and Seller, to its knowledge, is in
compliance with, any Federal, state, county, local or foreign, statute, law,
ordinance, regulation or order (i) applicable to it or its business, including
without limitation regulations promulgated by the FDA, EPA or OSHA, or related
to CE (Central European) Markings, or (ii) which otherwise is applicable to it
involving the manufacture, production, storage, possession, sale, delivery or
distribution of any of its products or services; (b) Seller has not received any
directives or orders from any Governmental Authority related to or affecting any
of its products or facilities; (c) Seller has all licenses, permits, orders,
authorizations, notifications and approvals of any Governmental Authority
(including without
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limitation, notifications of the FDA under Section 510(k) under the Food, Drug
and Cosmetics Act, as amended (the "FDC Act")) material to the conduct of its
business as presently conducted (collectively, the "Seller Permits"); and (d)
all material Seller Permits, the loss of which could have a Material Adverse
Effect, are listed in Schedule 3.11 and are in full force and effect, no
violations are or have been recorded in respect of any Seller Permit which
currently have or could have a Material Adverse Effect, and no proceeding is
pending, or, to the best knowledge of Seller, threatened, to revoke or limit any
Seller Permit, the loss of which could have a Material Adverse Effect. Seller
has not marketed and is not currently marketing any device in violation of the
FDC Act and is in compliance, in all material respects, with all manufacturing
and quality assurance standards and other requirements under the FDC Act and FDA
regulations applicable to Seller.
3.12 No Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority or any other Person is required in connection with the execution,
delivery or performance of this Agreement by Seller, or the consummation by
Seller of any of the transactions contemplated hereby.
3.13 No Defaults Under Loan Agreements. Seller is not
in default under any Contractual Obligation relating to borrowed money to which
it is a party or by which it or its material assets or properties is bound, nor
does any condition exist which with notice or lapse of time or both would
constitute such default, and each such contract or other agreement relating to
borrowed money is in full force and effect. There is no agreement, contract or
instrument to which Seller is a party and which evidences, individually or, in
the case of related transactions, collectively, indebtedness of Seller for money
borrowed.
3.14 Litigation. Except as set forth in Schedule 3.14,
Seller is not a party to, nor, to its knowledge, threatened with, any material
litigation or judicial, administrative or arbitration proceeding or
investigation. Except as set forth in Schedule 3.14, there is no dispute with
any Person under contract with Seller which has a Material Adverse Effect on
Seller, or is reasonably likely to have a Material Adverse Effect on Seller, and
there is no present or to Seller's knowledge, threatened walkout, strike or any
other similar occurrence.
3.15 Agreements. Schedule 3.15 lists or refers to all
of the following types of contracts and other agreements (whether oral or
written) which are not otherwise disclosed herein which provide for payments by
or to Seller in excess of $5,000 to which Seller is a party or by or to which it
or its
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assets or properties are bound or subject: (i) contracts and other agreements
with any current or former officer, director, employee, consultant or
stockholder, including, without limitation, all non-competition agreements
with employees; (ii) agreements with any labor union or association
representing any employee; (iii) contracts and other agreements for the sale
of products or services; (iv) contracts and other agreements for the purchase
or acquisition of products, materials, supplies, equipment, merchandise, or
services; (v) contracts and other agreements for the sale of any of its
assets or properties or for the grant to any person of any preferential
rights to purchase any of its assets or properties other than in the ordinary
course of business; (vi) joint venture agreements relating to its assets,
properties or business or by or to which it or its assets or properties are
bound or subject; (vii) contracts or other agreements under which it agrees
to indemnify any person, to share tax liability of any person, or to refrain
from competing with any person; (viii) warehousing, distributorship,
representative, management, marketing, sales agency or advertising
agreements; (ix) any other material contract or other agreement not made in
the ordinary course of business (other than those reflected in any other
Schedule) including, without limitation, all agreements with any finder,
broker or financial consultant; and (x) all confidentiality agreements,
non-disclosure agreements, non-solicitation agreements or similar type
agreements. All of the contracts and other agreements set forth in Schedule
3.15 are (except as set forth in said Schedule), to the knowledge of Seller,
in full force and effect in accordance with their respective terms, and
Seller is not in default, nor does any condition exist which with notice or
lapse of time or both would constitute a default by Seller, in any material
respect, under any of them, nor, to the knowledge of Seller, is any other
party to any such contract or other agreement in default in any material
respect thereunder on the Closing Date. As of the Closing Date, Seller is not
a party to or bound by any contracts or other agreements (other than those
identified on a Schedule to this Agreement) which it believes either
individually or in the aggregate have a Material Adverse Effect on Seller.
3.16 Real Estate. Seller does not own any real
property. Schedule 3.16 sets forth a list of: (i) all leases, subleases or other
agreements under which Seller is lessor or lessee of any real property; (ii) all
options held by Seller or Contractual Obligations on the part of Seller to
purchase or acquire any interest in real property; and (iii) all options granted
by Seller to sell or dispose of any interest in real property. Seller is the
owner of record, the lessee or lessor under the leases or holder of the options,
as the case may be, as set forth in Schedule 3.16. Such leases, subleases and
other agreements are in full force and effect and, with respect to
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Seller's performance thereunder, no default, or event which, with notice or
lapse of time or both, would constitute a default, in any material respect by
Seller, has occurred thereunder.
The real estate leased by Seller, including, without
limitation, Seller's Facilities, is in all material respects free of unlawful
contamination from any substance or material presently identified as toxic or
hazardous by any Environmental Laws and Seller has not caused or suffered to
occur a material spillage or other discharge of any Hazardous Materials or
substance within the meaning of any Environmental Law or otherwise conducted
operations which could reasonably lead to the imposition of any Lien upon any
real property owned or leased by Seller or any material fine upon Seller
pursuant to any Environmental Law.
3.17 Officers, Directors and Employees. Schedule 3.17
sets forth the name and total compensation of each officer, director, employee
and consultant of Seller. Except for employment agreements described in Schedule
3.15, Seller is not a party to any Contractual Obligation which could obligate
Seller to pay severance or other similar compensation to an officer, director,
employee or other Person solely as a result of the transactions contemplated
under this Agreement.
3.18 Cash, Bank and Investment Accounts. Schedule 3.18
lists (i) the amount of all cash of Seller on hand, (ii) all cash equivalents of
Seller, (iii) all bank accounts (checking, savings and other) of Seller, with a
good faith estimate of the cash balances therein as of the Closing Date, and
(iv) all brokerage and other investment accounts of Seller, with a list of the
securities therein as of the Closing Date, which Schedule is true, correct and
complete (subject to non-material variations in the cash balances of the bank
accounts).
3.19 Accounts Receivable. Schedule 3.19 represents an
aged accounts receivable listing of Seller as of the Closing Date, which
Schedule is true, correct and complete. Except as set forth in Schedule 3.19,
and subject to reserves for bad debts as therein provided, all accounts
receivable reflected on Schedule 3.19 have arisen in the ordinary course of
business, have been collected or, to the best knowledge of Seller, are
collectible in the aggregate recorded amounts thereof in accordance with their
terms subject to reserves for bad debts which, to Seller's knowledge, are
adequate, and are owned by Seller free and clear of any Lien.
3.20 Accounts Payable; Liabilities. Schedule 3.20
represents an aged accounts payable listing of Seller as of the Closing Date, as
well as a listing of all other Seller Liabilities as of the Closing Date,
whether accrued,
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absolute, or contingent (and likely of occurring) or otherwise, including,
without limitation, amounts payable to employees, agents and representatives,
and liabilities on account of taxes, other governmental charges or lawsuits
brought, whether or not of a kind required by GAAP to be set forth, accrued,
reserved for or reflected in a financial statement, which Schedule is true,
correct and complete. Seller acknowledges that Purchaser is not assuming any
accounts payable or other Seller Liabilities, whether or not reflected on
Schedule 3.20.
3.21 Fixed Assets, Inventories and Depreciation
Schedules. Schedule 3.21 represents a listing of all fixed assets and
inventories as of the Closing Date that are included in the Assets (including
the value of the inventories), which Schedule is true, complete and correct.
Seller has made available to Purchaser a depreciation schedule for such fixed
assets. The inventories listed on Schedule 3.21 are usable and saleable in the
ordinary course of business as presently conducted by Seller, and are in
compliance with all applicable Requirements of Law. Such inventories have been
valued in accordance with GAAP.
3.22 Intellectual Property. Seller owns or is licensed
to use, in each case free and clear of any Lien, all patents, trademarks, trade
names, service marks, copyrights, applications for any of the foregoing,
together with all other technology, know-how, tangible or intangible proprietary
information or material and formulae that are necessary and material to the
Business as currently conducted (the "Seller Intellectual Property"). Schedule
3.22 lists all patents, trademarks, trade names, service marks, copyrights and
applications included in the Seller Intellectual Property. Except as set forth
in Schedule 3.22, Seller has received no notice of any claims by any person, (i)
to the effect that the manufacture, sale or use of any product or process as now
used or offered by Seller infringes on any patents, (ii) against the use by
Seller of any trademarks, trade names, technology, know-how or processes
necessary and material for the operation of the business of Seller as currently
conducted or presently contemplated, or (iii) challenging or questioning the
validity or effectiveness of any of the Seller Intellectual Property. Seller has
provided Purchaser with a true and complete copy of each patent that constitutes
Seller Intellectual Property and each license or sublicense pursuant to which
Seller is permitted to sell, distribute or otherwise use Seller Intellectual
Property owned by third parties.
3.23 Products. Seller has furnished Purchaser with
representative information describing Seller's products and services. Seller has
no Contractual Obligations pursuant to which it is obligated to purchase
inventory or components and
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which is not terminable by Seller without a material payment or charge.
3.24 Suppliers and Customers. To Seller's knowledge,
the relationships of Seller with its suppliers, representatives, agents,
licensors or sublicensors of intellectual property rights and customers are
reasonably good commercial or other working relationships and no (i) supplier of
products sold or utilized by Seller, the loss of which could have a Material
Adverse Effect, or (ii) customer who accounted for more than $50,000 of Seller's
sales of products or services during the year ended December 31, 1997 or is
reasonably expected to account for more than $50,000 of such sales during the
year ending December 31, 1998 or (iii) licensor or sublicensor of intellectual
property to Seller, has cancelled or otherwise terminated, or threatened in
writing or otherwise to cancel or otherwise terminate, its relationship with
Seller.
3.25 Benefit Plans. Schedule 3.25 sets forth a true and
complete list of all written and oral pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option, incentive compensation,
bonus, vacation, severance, sickness or disability, hospitalization, individual
and group health and accident insurance, individual and group life insurance and
other material employee benefit plans, programs, commitments or funding
arrangements maintained by Seller, to which Seller is a party, or under which
Seller has any obligations, present or future (other than obligations to pay
current wages, salaries or sales commissions terminable on notice of 30 days or
less) in respect of, or which otherwise cover or benefit, any of the current or
former officers, employees or sales representatives (whether or not employees)
of Seller, or their beneficiaries (hereinafter individually referred to as a
"Benefit Plan" and collectively referred to as "Benefit Plans"). Seller has
delivered or made available to Purchaser true and complete copies of all
documents, as they may have been amended through the Closing Date, embodying the
terms of the Benefit Plans.
Except for the Benefit Plans identified in Schedule
3.25, there is no "employee pension benefit plan", "employee welfare benefit
plan" or "employee benefit plan "within the meaning of Sections 3(1), 3(2) and
3(3) of ERISA. No Benefit Plan to which Seller or any ERISA Affiliate (as
hereinafter defined) has maintained or contributed to is subject to Title IV of
ERISA or Section 412 of the Code. For purposes of this Section 3.25, the term
"ERISA Affiliate" shall mean any trade or business (whether or not incorporated)
which is under common control with Seller, within the meaning of Sections 414(b)
and 414(c) of the Code or the regulations promulgated thereunder.
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Seller does not maintain and has not maintained a plan
which meets the safe harbor requirements of Section 414(n)(5) of the Code and
Seller has not made any representations (including oral representations) with
respect to the existence of such a plan to any customers, clients, employees or
any other person. Seller does not maintain and has not maintained any "voluntary
employees' beneficiary association" within the meaning of Section 501(c)(9) of
the Code.
Except as set forth in Schedule 3.25, each Benefit Plan
described in Schedule 3.25 is in full force and effect in accordance with its
terms and there are no material actions, suits or claims pending (other than
routine claims for benefits) or, to Seller's knowledge, threatened, against any
Benefit Plan or any fiduciary thereof and Seller has performed all material
obligations required to be performed by it under, and is not in default under or
in violation of, any Benefit Plan, in any material respect, and Seller is in
compliance in all material respects with the requirements prescribed by all
statutes, laws, ordinances, orders or governmental rules or regulations
applicable to the Benefit Plans, including, without limitation, ERISA and the
Code. With respect to each Benefit Plan, Seller has delivered or made available
to Purchaser true and complete copies of the following documents where
applicable: (i) the most recent annual report (Form 5500 series) and
accompanying schedules filed with the IRS, including any financial statement and
opinion required by Section 103(a)(3) of ERISA; (ii) the most recent
determination letter issued by the IRS and any outstanding request for a
determination letter; (iii) the most recent summary plan description and all
modifications; and (iv) the text of each Benefit Plan and of any trust,
insurance or annuity contract maintained in connection therewith. To the
knowledge of Seller, neither Seller nor any other "party-in-interest," as
defined in Section 3(14) of ERISA, has engaged in any "prohibited transaction,"
as defined in Section 406 of ERISA, which could subject any Benefit Plan, Seller
or Purchaser or any officer, director, partner or employee of Seller or
Purchaser or any fiduciary of any Benefit Plan to a material penalty or excise
tax imposed under Section 502(i) of ERISA and Section 4975 of the Code.
Except as set forth in Schedule 3.25, Seller is not a
party to any agreement to provide nor does it have an obligation to provide
(except pursuant to Section 162(k) of the Code with respect to tax years
beginning before January 1, 1989 and Section 4980B of the Code thereafter) any
individual, or such individual's spouse or dependent, with any benefit following
his or her retirement or termination of employment, nor his or her spouse, any
dependent or any beneficiary subsequent to his or her death, with retirement,
medical or life insurance or any benefit under any employee pension benefit plan
and any employee welfare
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benefit plan. Seller has complied with all its obligations under Section 162(k)
and Section 4980B of the Code.
3.26 Insurance. Schedule 3.26 lists all material
policies or binders of fire, liability (including product liability), workmen's
compensation, vehicular, casualty, directors and officers liability, title or
other insurance held by or on behalf of Seller (specifying the insurer, the
policy number or covering note number with respect to binders, the amount of
coverage thereunder and describing each pending claim thereunder other than
routine claims for coverage under Seller's group medical plan insurance policy).
Such policies and binders are in full force and effect. To Seller's knowledge,
Seller has not failed to give any material notice or present any material claim
under any such policy or binder in a due and timely fashion. Except for claims
set forth in Schedule 3.26 and routine medical claims there are no outstanding
unpaid claims under any such policy or binder. Seller has not received a notice
of cancellation or non-renewal of any such policy or binder and, to Seller's
knowledge, there is no material inaccuracy in any application for any such
policy or binder, failure to pay premiums when due or other similar state of
facts which would form the basis for termination of any such insurance. Schedule
3.26 contains a brief description of Seller's general liability loss history
under the policies of insurance therein listed.
3.27 Operations of Seller. Except as set forth in
Schedule 3.27, from January 1, 1997 through the Closing Date, Seller has not
(except as contemplated by, or disclosed in, this Agreement):
(i) amended its Articles of Incorporation or
By-laws or merged with or into or consolidated with any other Person, subdivided
or in any way reclassified any shares of its capital stock or changed or agreed
to change in any manner the rights of its outstanding Capital Stock or, in any
material manner, the character of its business;
(ii) issued or sold or purchased any
Convertible Securities, or entered into any contracts or commitments to issue or
sell or purchase, any shares of its Capital Stock;
(iii) entered into or amended any material
employment agreement, entered into any agreement with any labor union or
association representing any material employee or entered into or amended any
material Benefit Plan;
(iv) incurred any indebtedness for borrowed
money;
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(v) declared or paid any dividends or
declared or made any distributions of any kind in respect of shares of its
Capital Stock;
(vi) waived any right of material value of
its business other than in the ordinary course of its business;
(vii) made any significant change in its
accounting methods or practices or made any significant change in depreciation
or amortization policies or rates;
(viii) made any wage or salary increase or
bonus, or increase in any other direct or indirect compensation, for or to any
of Seller's officers, directors, or employees in excess of 5% in the aggregate
or any accrual for or commitment or agreement to make or pay the same;
(ix) made any loan or advance to any of
Seller's officers, directors, or employees in excess of $2,500 individually or
$10,000 in the aggregate, other than travel and petty cash advances made in the
ordinary course of business;
(x) made any payment or commitment to pay
any severance or termination pay to any of its officers, directors, or
employees;
(xi) entered into any lease (as lessor or
lessee) or sold, abandoned or made any other disposition of any of its material
assets or properties, or granted or suffered any Lien on any of its material
assets or properties;
(xii) entered into or amended any written
contract or other agreement pursuant to which it agrees to indemnify any party
or to refrain from competing with any party;
(xiii) except for inventories, supplies or
equipment acquired in the ordinary course of business, made any acquisition of
all or any part of the assets, properties, capital stock or business of any
other entity which is material to Seller;
(xiv) entered into any transaction other
than in the ordinary course of business; or
(xv) sold, transferred, assigned or
otherwise disposed of any assets, property or portion of its business which is
material to Seller.
3.28 Potential Conflicts of Interest. Except as set
forth in Schedule 3.28, to Seller's knowledge, no officer or director of Seller:
(i) owns, directly or indirectly, any
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interest in (excepting not more than 5% stock holdings for investment purposes
in securities of publicly held and traded companies) or is an officer, director,
employee or consultant of any entity which is a competitor, lessor, lessee,
customer or supplier of Seller or Purchaser; (ii) has any interest, direct or
indirect, in any material property or assets of Seller (except in his capacity
as a stockholder of Seller); (iii) owns directly or indirectly, in whole or in
part, any material copyright, trademark, trade name, service mark, franchise,
patent, invention, permit, license or secret or confidential information of the
nature requiring a license for use by Seller which Seller is using or the use of
which is necessary for the business of Seller; or (iv) has any material cause of
action or other claim whatsoever against, or owes any material amount to,
Seller, except for claims in the ordinary course of business (such as for
accrued vacation pay, accrued benefits under Seller Benefit Plans, expense
advances and similar matters).
3.29 Absence of Certain Commercial Practices. Neither
Seller nor any director, partner, officer, agent, employee, stockholder or other
Person acting on behalf of Seller has (a) given or agreed to give any gift or
similar benefit of more than nominal value to any customer, supplier, or
governmental employee or official of any other Person who is or may be in a
position to help or hinder Seller or assist Seller in connection with any
proposed transaction, which gift or similar benefit, if not given in the past,
might have materially and adversely affected the business or prospects of Seller
or (b) used any corporate or other funds for unlawful contributions, payments,
gifts, or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others. Neither Seller nor any director,
partner, officer, agent, employee or other Person acting on behalf of Seller has
accepted or received or made any unlawful contributions, payments, gifts or
expenditures.
3.30 Full Disclosure. None of the information of Seller
herein, or supplied by Seller for inclusion in the documents to be prepared in
connection with the transactions contemplated by this Agreement, contains or
will contain any untrue statements of a material fact or omit to state any
material fact necessary in order to make the statements therein not misleading.
3.31 Incorporation of Schedules. The Parties recognize
that there may be some overlapping in the disclosure required pursuant to a
number of the representations and Schedules set forth above. Failure of
disclosure in response to one item shall not be deemed a default so long as
disclosure is fairly contained in the Schedules taken as a whole.
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3.32 Securities Act Representations. Seller understands
that as of the Closing Date (i) the shares of Cantel Stock being issued to
Seller pursuant to Section 2.2.1 have not been registered under the Securities
Act of 1933, as amended (the "Act"), based upon an exemption from such
registration requirements; (ii) the Cantel Stock to be received is "restricted
securities," as said term is defined in Rule 144 of the General Rules and
Regulations promulgated under the Act; and (iii) the Cantel Stock to be received
may not be sold or otherwise transferred unless it has first been registered
under the Act and applicable state securities laws or an exemption from the
registration provisions of the Act and applicable state securities laws are
available with respect to the proposed sale or transfer.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to Seller as follows:
4.1 Organization of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and lawful authority to
own, lease and operate its assets, properties and business and to carry on its
businesses in all material respects as now being conducted.
4.2 Qualification. Purchaser is duly qualified as a
foreign corporation to transact business in the jurisdictions set forth in
Schedule 4.2, which are the only jurisdictions where the nature of its business
or the ownership of its assets makes such qualification necessary, except where
the failure to so qualify would not have a Material Adverse Effect on Seller.
4.3 Authority. Purchaser has all requisite corporate
power and authority to execute, deliver and perform this Agreement and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of this Agreement and to consummate the transactions
contemplated by this Agreement. This Agreement has been duly executed and
delivered by Purchaser and constitutes legal, valid and binding obligations of
Purchaser enforceable against Purchaser in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by principles governing the availability of equitable remedies.
4.4 No Conflicts. Neither the execution and delivery of
this Agreement, nor the consummation of any of the transactions contemplated
hereby by Purchaser, nor the issuance or delivery of the Cantel Stock pursuant
to this Agreement,
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conflict with or will conflict with or has resulted or will result in the breach
of or violation of any of the terms or conditions of, or constitute (or, with
notice or lapse of time or both, would constitute) a default or result in the
acceleration of any material obligation of Purchaser or any of its Subsidiaries
under: (i) the Certificate or Articles of Incorporation or By-laws of Purchaser
or any of its Subsidiaries; or (ii) any Requirement of Law or Contractual
Obligation of Purchaser or any of its Subsidiaries and will not result in, or
require, the creation or imposition of any Lien on any of their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation.
4.5 Public Reports; Cantel Stock.
(a) Purchaser has heretofore delivered
to Seller a copy of Purchaser's Annual Report on Form 10-K pursuant to Sections
13 or 15(d) of the Exchange Act for the fiscal year ended July 31, 1997 and
Purchaser's Quarterly Report on Form 10-Q for the quarter ended October 31,
1997.
(b) Cantel Stock is registered under
Section 12(g) the Exchange Act, is quoted in the National Association of
Securities Dealers Automated Quotation System, and is currently subject to the
periodic reporting requirements of Section 13 or Section 15(d) of the Exchange
Act.
4.6 Due Diligence. Without limiting the representations
or warranties of Seller and the Stockholders in any way whatsoever, Purchaser
hereby acknowledges that it engaged in such due diligence as in its sole
discretion it deemed necessary and appropriate.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding any right of Purchaser and Seller fully
to investigate the affairs of the other, Purchaser and Seller each have the
right to rely fully upon the representations, warranties, covenants and
agreements of the parties contained in this Agreement, all of which shall
survive the execution and delivery hereof and the Closing for a period of five
years, subject to Section 9.3. The expiration of any time for making claims or
maintaining causes of action for breach of representations and warranties under
this Agreement shall not affect any claim or cause of action made prior to the
date of such expiration.
6. CERTAIN ACTIONS AFTER THE CLOSING.
6.1 Delivery of Property Received by Seller or
Purchaser After Closing. From and after the Closing Date,
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Purchaser shall have the right and authority to collect, for the account of
Purchaser, all Assets which shall be transferred or are intended to be
transferred to Purchaser as provided in this Agreement, and to endorse with the
name of Seller any checks or drafts received on account thereof. Seller agrees
that it will transfer or deliver to Purchaser, promptly after the receipt
thereof, any cash or other property which Seller receives after the Closing Date
in respect of the Assets transferred or intended to be transferred to Purchaser
under this Agreement.
6.2 Product Liability Insurance. Seller agrees to
purchase and maintain in effect for four years following the Closing Date,
products liability insurance with an insurer reasonably acceptable to Purchaser
covering claims related to injuries or alleged injuries occurring prior to the
Closing resulting from, in connection with, or arising out of products of
Seller. Seller shall be solely responsible for the cost and expense of such
insurance. Such insurance shall have a minimum limitation of liability of
$1,000,000/$1,000,000 and shall name Purchaser and Purchaser's subsidiaries as
additional insured and loss payees. A certificate of such insurance (and each
renewal thereof) shall be provided to Purchaser, and will provide that such
insurance may be cancelled only upon thirty days' prior written notice to
Purchaser.
6.3 Removal of Liens. Seller agrees to assist Purchaser
and shall act in good faith in assisting Purchaser, all to the extent reasonably
requested by Purchaser, in the removal of any and all Liens whatsoever found to
exist on any Asset.
6.4 Employees. Seller acknowledges and agrees that
Purchaser does not intend, and shall not be obligated, to employ any employees
of Seller. Seller further acknowledges and agrees that Purchaser is not assuming
any obligation of Seller for unpaid amounts payable to Employees of Seller,
whether due currently or in the future, for salary, accrued bonuses, vacation
pay, sales commissions, severance and the like, all of which amounts shall
remain the obligations of Seller. Notwithstanding the foregoing, Seller agrees
that its employees shall be permitted to provide "transitional" consulting
services to Purchaser at Seller's Facilities following the Closing Date through
a date no later than May 16, 1998. Purchaser agrees to reimburse Seller for such
services in accordance with Schedule 6.4. In addition, Christopher C. Lutz shall
provide transitional consulting services to Purchaser pursuant to the Consulting
Agreement.
6.5 Obligation to Maintain Records. Purchaser agrees to
preserve the financial books and records forming part of the Assets in respect
of periods prior to the Closing and which Seller might require for its financial
statements and tax
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returns for a period of eight years after the Closing Date in the same manner as
it preserves its own records in respect of the business being acquired hereunder
and during such period will permit Seller and its authorized representatives
access thereto during normal business hours upon reasonable notice and to make
copies thereof at Seller's expense. Seller agrees to be subject to the same
obligations as Purchaser under this Section 6.5 with respect to Seller's
financial books and records which do not form a part of the Assets (but which
may relate, indirectly or otherwise, to the Assets).
6.6 Seller Liabilities. From and after the Closing
Date, Seller agrees to discharge when due the Seller Liabilities, except to the
extent contested in good faith with the obligee of any such liability.
6.7 Non-Competition; Non-Solicitation; Confidentiality.
Seller covenants and agrees that for a period ending five years after the
Closing Date, it shall not anywhere in the United States, Canada or another
country where Purchaser or any of its Subsidiaries is then conducting business,
directly or indirectly, as owner, partner, joint venturer, stockholder, broker,
agent, principal, trustee, licensor, or in any other capacity whatsoever (as
applicable) (i) engage in, become financially interested in, be employed by,
render any consultation or business advice to, or have any connection with, any
Person engaged in a similar business to, or which is otherwise competitive with,
the Business, (ii) interfere with, disrupt or attempt to disrupt any then
existing relationship, contractual or otherwise, with Purchaser (or any of its
Subsidiaries) and any of their respective customers, suppliers, employees,
agents or other Persons with whom it deals, (iii) solicit for employment,
attempt to employ or assist any other Person in employing or soliciting for
employment any employee or executive who is at that time, or was at any time
during the preceding year, employed by Purchaser (or any of its Subsidiaries),
(iv) influence or attempt to influence any of the customers of Purchaser (or any
of its subsidiaries) (including without limitation customers who prior to the
Closing were customers of Seller) to transfer their patronage from Purchaser (or
any of its Subsidiaries) to any other Person or (v) solicit business from any
customers to whom Purchaser (or any of its Subsidiaries) is then furnishing
products or services or to whom Seller has furnished products or services during
the two-year period immediately preceding the Closing Date, or from any
prospective customers who are currently or are then being actively solicited by
Purchaser (or any of its Subsidiaries). Seller shall not, without the previous
written consent of Purchaser, from and after the Closing, divulge, furnish or
make available to any third party any financial information or other information
with respect to the Business or Purchaser (or any of
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its Subsidiaries), other than to its professional advisors, or as compelled by
law or any applicable rule or policy of any securities commission, stock
exchange or like body.
6.8 Equitable Relief. Seller agrees that the remedy at
law for any breach of the covenants contained in Section 6.7 would be difficult
to ascertain and therefore, in the event of breach or threatened breach of any
such covenants, Purchaser and its Subsidiaries, in addition to any other remedy,
shall each have the right to enjoin Seller from any threatened or actual
activities in violation thereof and Seller hereby consents and agrees that
temporary and permanent injunctive relief may be granted in any proceedings
which may be brought to enforce any such covenants without the necessity of
proof of actual damages. If any portion of the restrictions set forth in Section
6.7 should, for any reason whatsoever, be declared invalid by a court of
competent jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected. Seller declares that the
territorial and time limitations set forth in Section 6.7 are reasonable and
properly required for the adequate protection of the Business being purchased by
Purchaser. In the event any such territorial or time limitation is deemed to be
unreasonable by a court of competent jurisdiction, the parties agree to the
reduction of the territorial or time limitation to the area or period which such
court shall deem reasonable.
6.9 Space Arrangement. Seller agrees that for the
period following the Closing Date through May 31, 1998. Purchaser will have the
right to use all of Seller's Facilities to operate the Business in the same
manner and fashion as such space is currently used by Seller. Purchaser will be
provided only with office building space and utilities services such as
electricity, telephones and faxes, but will not be provided with personnel or
other services except as provided in Section 6.4. The services hereunder will be
provided to Purchaser for a monthly rental of $3,200. At the Closing, Purchaser
shall pay Seller rent of $1,600 for the period ending March 31, 1998 and
thereafter, Purchaser shall pay Seller $3,200 on the first day of each of April
and May 1998 for the periods April 1 - April 30 and May 1 - May 31,
respectively. Purchaser shall bear the cost of its own office supplies and other
costs and expenses, including, but not limited to telephone, utilities, and the
like, while located at the premises. Nothing herein shall be deemed to mean that
Seller's employees are employees, agents or representatives of, or otherwise
associated in any way with, Purchaser.
6.10 Accounts Receivable. The accounts receivable of
Seller acquired by Purchaser hereunder are hereby guaranteed by Seller and,
after reasonable efforts by Purchaser are made to collect the accounts for a
period of 180 days
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following the Closing Date, all uncollected accounts receivables may be
reassigned by Purchaser to Seller and the face amount thereof shall be paid by
Seller to Purchaser from the Escrow in accordance with the Escrow Agreement or,
in the absence of adequate amounts in the Escrow, by Seller.
6.11 Product Warranty. Purchaser shall, at Seller's
sole cost and expense, use its best efforts to repair or replace, as
appropriate, all products returned to Purchaser pursuant to applicable
warranties made by Seller with respect to sales made prior to the Closing Date,
provided that (a) the payment obligation of Seller hereunder shall apply to only
direct costs of labor and parts for warranty services; (b) warranties shall run
for a period not exceeding 12 months from the date of shipment; (c) Purchaser
shall deliver quarterly reports to Seller indicating in reasonable detail the
warranty services and charges for such quarter; and (d) warranty charges shall
be paid to Purchaser from the Escrow in accordance with the Escrow Agreement or,
in the absence of adequate amounts in the Escrow, by Seller.
Purchaser agrees to maintain accurate books and
records with respect to warranty repairs hereunder. Seller, together with its
independent representatives and accountants, shall be entitled to audit such
books and records for purposes of verifying warranty charges imposed on
Seller hereunder. The cost of such audit shall be borne by Seller; provided
that if such audit discloses an overcharge by Purchaser on total warranty
charges of ten (10%) percent or more, the cost of such audit shall be borne
by Purchaser.
6.12 Liquidation of Seller. Promptly following the
Closing Date and in no event more than 90 days thereafter, Seller shall
liquidate any and all of its assets, if any, remaining after the closing of the
transaction contemplated hereunder.
6.13 Tax-free Reorganization. The parties acknowledge
and agree that the purchase and sale of the Assets hereunder is intended to be
treated as a tax-free reorganization under Section 368(a)(1)(C) of the Code. The
parties covenant and agree not to take or refrain from taking any actions that
are inconsistent with such treatment. Notwithstanding the foregoing, whether or
not the transaction is treated as a tax-free reorganization shall not affect the
validity and enforceability of this Agreement and the transactions contemplated
hereunder.
7. EXPENSES WITH RESPECT TO TRANSACTION.
Each party shall pay all fees, costs and expenses
incurred by such party in connection with this transaction, including, without
limitation, the fees and expenses of its and
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their attorneys, accountants and other Persons, and no portion thereof shall be
assumed or paid by any other party except as otherwise specifically provided
herein.
8. ABSENCE OF BROKER.
The parties each represent and warrant to the other
that the respective warrantor has not dealt with any Person who is or may be
entitled to a broker's commission, finders' fee, investment banker's fee or
similar payment from the other party for arranging these transactions or
introducing the parties to each other, except for Ken Hughes, a finder engaged
by Seller. Seller shall be solely responsible for all amounts due to such
finder. Each party shall indemnify and hold the other harmless from the claims
of any other broker or finder based upon the actions of such party. Such
indemnity shall include all loss, damage and expense including reasonable
attorneys' fees.
9. INDEMNITIES.
9.1 Seller's and Stockholders' Indemnity. Subject to
the limitations set forth in this Article 9, Seller and each of the Stockholders
shall jointly and severally indemnify, defend and hold harmless Purchaser and
Purchaser's Subsidiaries, and Purchaser's and Purchaser's Subsidiaries'
respective officers, directors, employees, agents, representatives and
shareholders from and against any losses, liabilities and damages incurred by
Purchaser (collectively "Damages") and costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) that are caused by, arise
out of or result from (i) any inaccuracy in or any material breach of any of the
representations, warranties, agreements or covenants made by Seller in this
Agreement, (ii) any and all Seller Liabilities, (iii) the liability of Purchaser
to third parties as a result of noncompliance with the Bulk Sales Act or any
similar statute as enacted in any jurisdiction in connection with the
transaction contemplated under this Agreement, or (iv) the agreement described
in Schedule 3.8.
9.2 Purchaser's Indemnity. Subject to the limitations
set forth in this Article 9, Purchaser shall indemnify, defend and hold harmless
Seller and Seller's respective officers, directors, employees, agents,
representatives and shareholders from and against any and all Damages and costs
and expenses (including, without limitation reasonable attorneys' fees and
expenses) that are caused by, arise out of or result from (i) the operations of
the Business after the Closing and (ii) any inaccuracy in or any material breach
of any of the representations, warranties, agreements, or covenants made by
Purchaser in this Agreement.
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9.3 Duration of Indemnities. The indemnities set forth
in Sections 9.1 and 9.2 shall survive the Closing Date and shall remain in
effect until the fifth anniversary of the Closing Date; provided, however, that
any such indemnities related to a product liability claim (i.e., any claim that
would be covered by the insurance described in Section 6.2) shall remain in
effect until the fourth anniversary of the Closing Date; and further provided,
however, that claims may be asserted under Section 9.1 or 9.2 with respect to
any obligation to indemnify which arises under Sections 3.5, 3.10, 3.11, 3.14,
3.16, 3.25, 9.1(ii) at any time on or before the date upon which the liability
to which any such claim may related is barred by all applicable statutes of
limitation. Any matter concerning a claim which has been asserted hereunder
which is pending or unresolved at the end of such period shall continue to be
governed by the terms and conditions of this Article 9 until finally terminated
or otherwise resolved.
9.4 Notification and Participation. If any claim, suit,
action or proceeding is commenced by any third party which might thereafter be
made the basis for a claim under this Article 9 by one party (the "Indemnitee")
against another (the "Indemnitor"), the Indemnitee shall notify the Indemnitor
in writing, providing reasonable detail of such claim, and shall tender the
defense thereof to the Indemnitor (prior to the time after which failure to make
such tender would materially adversely affect the ability of the Indemnitor to
conduct such defense). The Indemnitor may undertake such defense at its own
expense by notice to the Indemnitee not later than 10 business days after
receipt of a notice that the defense is tendered to it. Failure by the
Indemnitor so to notify the Indemnitee that it will undertake such defense shall
be a waiver of its right to undertake such defense. If the Indemnitor undertakes
any defense, the Indemnitee shall cooperate with the Indemnitor and its counsel
in such investigation and defense, and may thereafter participate therein at its
own expense, but the Indemnitor shall control such investigation and defense,
except that the Indemnitor shall not, without the prior consent of the
Indemnitee, voluntarily pay (prior to final judgment) or settle any such claim
or liability in any manner that includes the entry of any judicial or
administrative injunction or finding of violation of any law or governmental
regulation, or otherwise expressly requires the Indemnitee thereafter to take or
refrain from taking any action. If the Indemnitor does not undertake the defense
of such matter, the Indemnitee shall permit the Indemnitor, at its own expense,
to participate in the investigation and defense thereof, but the Indemnitee
shall control such investigation and defense. The Indemnitee shall not
voluntarily pay (prior to final judgment) or settle any claim or liability which
is to be indemnified pursuant to this Article 9, whether or not any suit, action
or proceeding has been commenced
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thereon, where the validity of such claim or liability is disputed in good faith
by the Indemnitor, until the Indemnitee has had a bona fide consultation with
the Indemnitor and consideration of the views, information and position of the
Indemnitor. If the Indemnitee pays or settles any such claim or liability prior
to final judgment thereon without consent of the Indemnitor, the right of the
Indemnitee to make any claim against the Indemnitor under this Agreement on
account of such claim or liability alleged by such third party shall be deemed
neither conclusively established nor conclusively denied.
10. NOTICES.
10.1 All notices required to be given under the terms
of this Agreement or which any of the parties may desire to give hereunder shall
be in writing and delivered personally or sent by registered or certified mail,
postage prepaid, addressed as follows:
10.1.1 As to Purchaser, addressed to it,
1135 Broad Street, Suite 203, Clifton, New Jersey 07013, Attention: James P.
Reilly, or such other address or addresses and to the attention of such other
Person or Persons as Purchaser may from time to time designate in writing to
Seller, with copies thereof addressed to Eric W. Nodiff, Esq., Dornbush Mensch
Mandelstam & Schaeffer, LLP, New York, New York 10017.
10.1.2 As to Seller or the Stockholders,
addressed to it, 31728 4th Avenue, South Laguna, California 92677, Attention:
Christopher C. Lutz or to such other address or to such other Persons as Seller
may from time to time designate in writing to Purchaser, with copies thereof
addressed to Amy Rypins, Esq., Lewis & Rypins, LLP, 445 Marine View Avenue,
Suite 260, Del Mar, California 92014.
10.2 Any notice given in accordance with this Section
10 shall be deemed to have been given when delivered personally or by telex or
telecopier or on the fifth business day next following the date upon which it
shall have been deposited in the United States mail, postage prepaid, registered
or certified mail, return receipt requested or sent by courier mail.
11. EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective when executed and
delivered by Purchaser, Seller and the Stockholders and shall be binding in all
respects upon the respective heirs, administrators, executors, successors and
permitted assigns of each of the parties hereto; provided, however, that no
party may assign this Agreement in whole or in part to any Person other
32
<PAGE>
than a wholly-owned subsidiary of such party without first obtaining the written
consent of all of the other parties, which consent shall not be unreasonably
withheld.
12. ADDITIONAL DOCUMENTS AND ACTS.
Each party agrees that he, she or it will at any time
and from time to time do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged and delivered, all such acts, deeds, assignments,
transfers, conveyances and assurances as may reasonably be requested by the
other party in order to carry out fully and effectuate the transactions herein
contemplated in accordance with the provisions hereof.
13. COMPLETENESS OF AGREEMENT.
This Agreement represents the entire contract between
the parties with respect to the subject matter hereof and shall not be modified
or affected by any offer, proposal, statement or representation, oral or
written, made by or for any party in connection with the negotiation of the
terms hereof. The Schedules hereto are incorporated herein by reference.
14. CAPTIONS.
The captions to the Articles contained in this
Agreement are for reference only, do not form a substantive part of this
Agreement and shall not restrict nor enlarge any substantive provision of this
Agreement.
15. APPLICABLE LAW.
This Agreement shall be construed in accordance with
the laws of the State of New York. Any action, suit or other proceeding
initiated by the Seller or the Stockholders, on the one hand, and Purchaser, on
the other hand, against the other under or in connection with this Agreement
shall be brought in any Federal or state court in the State of New York, as the
party bringing such action, suit or proceeding shall elect, having jurisdiction
over the subject matter thereof.
16. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts each of which shall be considered an original but all of which
shall constitute the Agreement by and among the parties.
33
<PAGE>
17. SEVERABILITY.
Should any term, provision or clause hereof, or of any
other agreement or document which is required by this Agreement, be held to be
invalid, such invalidity shall not affect any other provisions or clauses hereof
or thereof which can be given effect without such invalid provision, all of
which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
CANTEL INDUSTRIES, INC.
By: /s/ Craig Sheldon
----------------------------------
Craig Sheldon, Vice President
CHRIS LUTZ MEDICAL, INC.
By: /s/ Christopher C. Lutz
----------------------------------
Christopher C. Lutz, President
/s/ Christopher C. Lutz
----------------------------------
Christopher C. Lutz
/s/ Bonolyn L. Lutz
----------------------------------
Bonolyn L. Lutz
34
<PAGE>
SCHEDULE 1.13 - CONSULTING AGREEMENT
35
<PAGE>
SCHEDULE 1.26 - MARKET VALUE
The Market Value of a share of Cantel Stock on the Closing Date
is $7.25.
<PAGE>
SCHEDULE 2.2.1 - ESCROW AGREEMENT
<PAGE>
SCHEDULE 2.2.3 - ALLOCATION OF ASSETS
Cash and Cash Equivalents -
Investments -
Accounts Receivable -
Inventories -
Fixed Assets -
Goodwill and Other Intangibles -
<PAGE>
SCHEDULE 4.2 - QUALIFICATION
Cantel Industries, Inc. is qualified as a foreign corporation in
the State of New Jersey.
<PAGE>
Exhibit 10(u)
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND COLLATERAL DOCUMENTATION
This Agreement, entered as of the 1st day of December, 1997, by and
between NATIONAL BANK OF CANADA, a chartered bank constituted under the Bank
Act of Canada, with offices at 125 West 55th Street, New York, New York 10019
("Bank" or "Lender"), MEDIVATORS, INC., a Minnesota corporation with offices
at 2995 Lone Oak Circle, Eagan, Minnesota 55121 ("MediVators") and DISPOSAL
SCIENCES, INC., a Minnesota corporation, with offices at 2995 Lone Oak
Circle, Eagan, Minnesota 55121 ("Disposal").
RECITALS:
1. Borrowers are the "Borrowers" under a Loan and Security Agreement
dated May 22, 1996 with National Canada Finance Corp. ("NCFC"). The Loan and
Security Agreement, as heretofore amended, is herein referred to as the "Loan
Agreement". Lender is the successor in interest to NCFC under the Loan
Agreement. Any capitalized terms utilized and not defined herein shall have
the same meanings as are ascribed to them in the Loan Agreement.
2. The Borrowers have requested, and Lender has agreed to, the
modification of certain terms of the Loan Documents in the manner herein
provided.
Now therefore, in consideration of the foregoing, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
<PAGE>
Section 1. Modification of Loan Agreement and Loan Documents.
1.1 Loan Agreement Amendments. The Loan Agreement is hereby amended as
follows:
(a) Section 1.1 and the Preamble are hereby amended by substituting
the following defined term for the existing defined term:
"Lender" means National Bank of Canada, a chartered bank constituted
under the Bank Act of Canada, and any successor or assignee thereto hereunder.
(b) Sections 2.1, 2.2 and 2.6 are amended to decrease for all
purposes the limit on Advances under the Revolving Line of Credit Loan from
$2,000,000 to $1,500,000.
(c) Articles 6, 7 and 8 are modified to approve Borrowers having
entered into the lease referenced at Exhibit D, #5 and to allow either
Borrower to enter up to three further lease agreements with a maximum
expenditure of $50,000 each.
(d) Section 7.13 is modified by deleting same and substituting the
following in its place and stead:
Section 7.13 Capital Expenditures. Borrower will not make
capital expenditures or payments in the nature of capital
expenditures in any fiscal year in the aggregate in excess of
$275,000 for the fiscal year ended July 31, 1997 and $300,000 for
the fiscal year ending July 31, 1998 (inclusive of expenditures for
research and development molds and tooling
2
<PAGE>
recorded as other assets and exclusive of fixed assets purchased
under the capital lease authorized under subparagraph (c) above).
(e) Exhibit H is modified by substituting therefor Exhibit H
annexed hereto.
(g) Any reference to National Canada Finance Corp. in any Loan
Document is hereby deemed amended by substituting National Bank of Canada for
National Canada Finance Corp.
1.2 Affirmation. Except as modified herein, the Loan Agreement and Loan
Documents shall remain in full force and effect.
Section 2. Waiver of Defaults.
2.1 Waiver of Past Defaults. Nothing contained herein and no action by
Lender shall be deemed to constitute a waiver of any Default under the Loan
Documents.
Section 3. Borrower Representations.
3.1 Corporate Authority. Borrowers have the authority to enter into and
perform their obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all requisite
corporate action of Borrowers. Each of the Borrower's Locations, the current
locations of all Inventory, and the locations of each office at which each
Borrower maintains Records concerning its Accounts Receivable or other
Accounts and General Intangibles, and other financial matters, are solely as
set forth on Exhibit E annexed hereto.
3
<PAGE>
3.2 Enforceability. This Agreement constitutes the legal valid and
binding obligations of Borrowers and is enforceable against Borrowers in
accordance with its terms.
3.3 No Conflict. The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by each Borrower do not
conflict with or result in any violation of each Borrower's Certificate of
Incorporation or by-laws or any statute, rule or regulation applicable to or
binding upon either Borrower. The execution, delivery and performance of this
Agreement will not conflict with or result in any violation of any provision
of any agreement, contract, instrument, order, writ, judgment, decree or
other undertaking to which any Borrower is a party or is obligated or by
which any Borrower's property is bound.
3.4 Authorization. The signatories executing this Agreement on behalf
of Borrowers have been authorized by Borrowers to so execute this Agreement
and the execution of this Agreement has been authorized by corporate
resolution of each Borrower.
3.5 Loan Agreement Representations. Borrowers hereby reaffirm all of
their representations and warranties set forth in Article 8 of the Loan
Agreement as of the date hereof, as modified with the substitution of
Exhibits C, D and E annexed hereto for such Exhibits annexed to the Loan
Agreement.
Section 4. General Provisions.
4.1 Reaffirmation of Indebtedness. Borrowers hereby acknowledge
principal indebtedness (plus interest accrued thereon) due to Bank as follows:
4
<PAGE>
Loan Principal Date
- ---- --------- ----
Revolving Line of $350,524.84 11/30/97
Credit Loan
Borrowers represent and warrant to Bank that they have no counterclaim,
defenses of offsets to any of its obligations under the Loan Agreement and
Loan Documents. Borrowers acknowledge that Bank has not by virtue of this
Agreement waived any right or remedy which it may possess by virtue of any
actions or defaults of Borrowers in conjunction with their obligations under
the Loan Documents.
4.2 Documents. By execution of this Agreement, Borrowers are
simultaneously modifying all Loan Documents, including any promissory notes
previously delivered by Borrowers, to conform to the terms of this Agreement,
and all of such Loan Documents shall be deemed so modified. The Loan
Documents shall otherwise remain in full force and effect.
4.3 Entire Agreement. This Agreement and the Loan Documents and the
instruments, agreements and certificates delivered simultaneously herewith,
if any, or referred to herein, constitute the entire agreement of the parties
with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements, whether written or oral, except as otherwise
provided herein.
4.4 Amendment. No provision of this Agreement may be waived or changed
orally, but only by instrument in writing, signed by the party against whom
enforcement of such change or waiver is sought.
5
<PAGE>
4.5 Notices. All notices and other communications hereunder shall be
in writing and shall be effective when delivered personally or when mailed by
certified or registered mail (return receipt requested) addressed a the
addresses set forth hereinabove or to such other addresses as a party may
designate to the other in writing.
4.6 Effective Date. This Agreement and the amendments provided for
herein shall take effect as of the date provided for herein or otherwise as
of the date of this Agreement set forth hereinabove.
4.7 Unenforceability. Any provision of this Agreement which is
prohibited or unenforceable shall be deemed severed from this Agreement
without invalidating the remaining provisions or affecting the validity or
enforceability of the remainder of this Agreement.
4.8 Counterpart Execution. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures thereto were upon
the same instrument.
4.9 Headings. The Section headings contained herein are for convenience
of reference only and are not intended to define, limit or describe the scope
or intent of any provision of this Agreement.
4.10 Third Parties. None of the obligations hereunder of any party
shall inure to or be enforceable by any party other than a party of this
Agreement.
6
<PAGE>
4.11 Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the successors in interest and the permitted assigns
of the parties hereto.
4.12 Default. Except as expressly set forth herein, Bank hereby
specifically reserves all of its rights and remedies under the Loan Agreement
and Loan Documents. If any Borrower fails to perform its obligations under
this Agreement, Borrowers shall be in default hereunder and said default
shall be a default under the Loan Documents.
4.13 Other Documents. Bank and Borrowers agree to execute any and all
other documents and to take such other actions as may be necessary to carry
out the terms of this Agreement. All other documents shall be in a form and
content acceptable to Bank.
4.14. Release and Covenant Not to Sue. Each Borrower for itself, its
partners, officers and directors, affiliates, successors and assigns, and all
others claiming by or through them, hereby covenant that they will not bring,
commence, prosecute or maintain any suit, action or proceeding, either at law
or in equity, in any court of the United States or of any State thereof,
arising up to the date of this Agreement under or by virtue of the Loan
Documents or with respect to the Loans in any manner or arising out of any
negotiations or communications entertained in connection with this Agreement.
Each Borrower, for itself, its partners, officers and directors, affiliates,
successors and assigns, and all other claiming by or through it, hereby fully
and forever release and discharge Bank, its officers, directors, agents
7
<PAGE>
and employees, affiliates, predecessors in interest, successors and assigns,
from any and all causes of action, whether sounding in contract or in tort,
or otherwise, and any and all liability, accrued or unaccrued, known or
unknown, fixed or contingent, on account of any and all claims, demands, and
causes of action for all losses, damages, expenses or liabilities to
Borrowers, their partners, officers and directors, affiliates, successors and
assigns, and all other claiming by or through them, arising up to the date of
this Agreement out of the Loan Documents or with respect to the Loans in any
manner or arising out of any negotiations or communications entertained in
connection with this Agreement. The parties acknowledge and agree that each
Borrower's release and covenant not to sue contained in this Section 4.14
does not apply to claims, actions and causes of action arising after the date
of this Agreement.
4.15 Waiver of Trial by Jury. EACH BORROWER HEREBY, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY, WAIVES ANY RIGHT SUCH BORROWER MAY HAVE OR HEREAFTER
ACQUIRE TO A TRIAL BY JURY IN RESPECT TO ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT. Each Borrower hereby certifies
that neither Bank nor any of its representatives, agents or counsel has
represented, expressly or otherwise, that Bank would not, in the event of any
such suit, action or proceeding seek to enforce this waiver of right to trial
by jury. Each Borrower acknowledges that it has made this waiver knowingly,
voluntarily and intentionally.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the date and year first above written.
ATTEST: MEDIVATORS, INC.
/s/ Lawrence J. Danielski By: /s/ Ric Rumble
- ------------------------------ --------------------------------
Lawrence J. Danielski Ric Rumble
Vice President and Controller President and CEO
ATTEST: DISPOSAL SCIENCES, INC.
/s/ Lawrence J. Danielski By: /s/ Ric Rumble
- ------------------------------ --------------------------------
Lawrence J. Danielski Ric Rumble
Vice President and Controller President and CEO
ATTEST: NATIONAL BANK OF CANADA
By: /s/ John P. Leifer
- ------------------------------ --------------------------------
John P. Leifer
Vice President
Attachments:
- -----------
Substituted Exhibits C, D, E and H
9
<PAGE>
EXHIBIT H
<TABLE>
<CAPTION>
Time Period/Test Date
- ---------------------
<S> <C>
Net Income (excluding intercompany
administrative charges) not less than:
4th quarter of fiscal year ended July 31, 1997............. $ (75,000)
Fiscal year ended July 31, 1997............................ 105,000
1st quarter of fiscal year ending July 31, 1998 ........... 50,000
1st six months of fiscal year ending July 31, 1998......... 160,000
1st nine months of fiscal year ending July 31, 1998........ 395,000
Fiscal year ending July 31, 1998........................... 675,000
Tangible Net Worth not less than:
July 31, 1997.............................................. $2,000,000
October 31, 1997........................................... 2,050,000
January 31, 1998........................................... 2,160,000
April 30, 1998............................................. 2,395,000
July 31, 1998.............................................. 2,675,000
Leverage Ratio not more than:
July 31, 1997.............................................. 0.8
October 31, 1997........................................... 0.7
January 31, 1998........................................... 0.7
April 30, 1998............................................. 0.6
July 31, 1998.............................................. 0.6
</TABLE>
<PAGE>
Exhibit 10(v)
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND COLLATERAL DOCUMENTATION
This Agreement, entered as of the 1st day of July, 1998, by and between
NATIONAL BANK OF CANADA, a chartered bank constituted under the Bank Act of
Canada, with offices at 125 West 55th Street, New York, New York 10019
("Bank" or "Lender"), MEDIVATORS, INC., a Minnesota corporation with offices
at 2995 Lone Oak Circle, Eagan, Minnesota 55121 ("MediVators") and DISPOSAL
SCIENCES, INC., a Minnesota corporation, with offices at 2995 Lone Oak
Circle, Eagan, Minnesota 55121 ("Disposal").
R E C I T A L S:
1. Borrowers are the "Borrowers" under a Loan and Security Agreement
dated May 22, 1996 with National Canada Finance Corp. ("NCFC"). The Loan and
Security Agreement, as amended by a First Amendment dated as of December 1,
1997 ("First Amendment"), is herein referred to as the "Loan Agreement".
Lender is the successor in interest of NCFC under the Loan Agreement. Any
capitalized terms utilized and not defined herein shall have the same
meanings as are ascribed to them in the Loan Agreement.
2. The Borrowers have requested, and Lender has agreed to, the
modification of certain terms of the Loan Documents in the manner herein
provided.
Now therefore, in consideration of the foregoing, and for other good
and valuable considerations the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
<PAGE>
Section 1. Modification of Loan Agreement and Loan Documents.
1.1 Loan Agreement Amendments. The Loan Agreement is hereby amended as
follows:
(a) The last sentence of Section 2.1 is amended by deleting same in its
entirety and substituting the following in its place and stead:
The entire outstanding balance of principal, and any accrued and unpaid
interest thereon, shall be due and payable and the Revolving Line of
Credit Loan shall terminate on the earlier of: (i) May 1, 1999, or
(ii) acceleration of the Obligations upon an Event of Default (the
earlier of such dates being the "Revolving Line of Credit Termination
Date").
(b) Section 7.1 is modified by adding thereto the following sentence:
Notwithstanding any provision in this Section 7.1 or in this Agreement
to the contrary, Borrower may undertake an acquisition of Chris Lutz
Medical, Inc. for consideration of $1,625,000 of which $1,310,000 will
be paid in the stock of Borrower's Affiliate, Cantel Industries, Inc.
1.2 Affirmation. Except as modified herein, the Loan Agreement and Loan
Documents shall remain in full force and effect.
Section 2. Waiver of Defaults.
2.1 Waiver of Past Defaults. The Borrower is in Default of its
Obligations under Section 6.14 (Leverage Ratio) for the nine month period
ended April 30, 1998. Lender hereby waives such Default consistent with the
financial statements heretofore provided by Borrower to Lender. Nothing
contained herein and no
2
<PAGE>
action by Lender shall be deemed to constitute a waiver of any other Default
under the Loan Documents.
Section 3. Borrower Representations.
3.1 Corporate Authority. Borrowers have the authority to enter into
and perform their obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all requisite
corporate action of Borrowers. Each of the Borrower's Locations, the current
locations of all Inventory, and the locations of each office at which each
Borrower maintains Records concerning its Accounts Receivable or other
Accounts and General Intangibles, and other financial matters, are solely as
set forth in Exhibit E annexed.
3.2 Enforceability. This Agreement constitutes the legal valid and
binding obligations of Borrowers and is enforceable against Borrowers in
accordance with its terms.
3.3 No Conflict. The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by each Borrower do not
conflict with or result in any violation of each Borrower's Certificate of
Incorporation or by-laws or any statute, rule or regulation applicable to or
binding upon either Borrower. The execution, delivery and performance of this
Agreement will not conflict with or result in any violation of any provision
of any agreement, contract, instrument, order, writ, judgment, decree or
other undertaking to which any Borrower is a party or is obligated or by
which any Borrower's property is bound.
3
<PAGE>
3.4 Authorization. The signatories executing this Agreement on behalf
of Borrowers have been authorized by Borrowers to so execute this Agreement
and the execution of this Agreement has been authorized by corporate
resolution of each Borrower.
3.5 Loan Agreement Representations. Borrowers hereby reaffirm all of
their representations and warranties set forth in Article 8 of the Loan
Agreement as of the date hereof, as modified with the substitution of
Exhibits A, C, D and E annexed hereto for such Exhibits annexed to the Loan
Agreement.
Section 4. General Provisions.
4.1 Reaffirmation of Indebtedness. Borrowers hereby acknowledge
principal indebtedness (plus interest accrued thereon) due to Bank as follows:
<TABLE>
<CAPTION>
Loan Principal Date
- ---- --------- ----
<S> <C> <C>
Revolving Line of $833,408.26 August 21, 1998
Credit Loan
</TABLE>
Borrowers represent and warrant to Bank that they have no counterclaim,
defenses or offsets to any of its obligations under the Loan Agreement and
Loan Documents. Borrowers acknowledge that Bank has not by virtue of this
Agreement waived any right or remedy which it may possess by virtue of any
actions or defaults of Borrowers in conjunction with their obligations under
the Loan Documents.
4.2 Documents. By execution of this Agreement, Borrowers are
simultaneously modifying all Loan Documents, including any promissory notes
previously delivered by Borrowers,
4
<PAGE>
to conform to the terms of this Agreement, and all of such Loan Documents
shall be deemed so modified. The Loan Documents shall otherwise remain in
full force and effect.
4.3 Entire Agreement. This Agreement and the Loan Documents and the
instruments, agreements and certificates delivered simultaneously herewith,
if any, or referred to herein, constitute the entire agreement of the
parties with respect to the subject matter hereof, and supersede all prior
and contemporaneous agreements, whether written or oral, except as otherwise
provided herein.
4.4 Amendment. No provision of this Agreement may be waived or changed
orally, but only by instrument in writing, signed by the party against whom
enforcement of such change or waiver is sought.
4.5 Notices. All notices and other communications hereunder shall be
in writing and shall be effective when delivered personally or when mailed by
certified or registered mail (return receipt requested) addressed at the
addresses set forth hereinabove or to such other addresses as a party may
designate to the other in writing.
4.6 Effective Date. This Agreement and the amendments provided for
herein shall take effect as of the date provided for herein or otherwise as
of the date of this Agreement set forth hereinabove.
4.7 Unenforceability. Any provision of this Agreement which is
prohibited or unenforceable shall be deemed severed from
5
<PAGE>
this Agreement without invalidating the remaining provisions or affecting the
validity or unenforceability of the remainder of this Agreement.
4.8 Counterpart Execution. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures thereto were upon
the same instrument.
4.9 Headings. The Section headings contained herein are for
convenience of reference only and are not intended to define, limit or
describe the scope or intent of any provision of this Agreement.
4.10 Third Parties. None of the obligations hereunder of any party
shall inure to or be enforceable by any party other than a party of
this Agreement.
4.11 Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the successors in interest and the permitted
assigns of the parties hereto.
4.12 Default. Except as expressly set forth herein, Bank hereby
specifically reserves all of its rights and remedies under the Loan Agreement
and Loan Documents. If any Borrower fails to perform its obligations under
this Agreement, Borrowers shall be in default hereunder and said default
shall be a default under the Loan Documents.
4.13 Other Documents. Bank and Borrowers agree to execute any and all
other documents and to take such other actions as may be necessary to carry
out the terms of this Agreement. All other documents shall be in a form and
content acceptable to Bank.
6
<PAGE>
4.14. Release and Covenant Not to Sue. Each Borrower for itself, its
partners, officers and directors, affiliates, successors and assigns, and all
others claiming by or through them, hereby covenant that they will not bring,
commence, prosecute or maintain any suit, action or proceeding, either at law
or in equity, in any court of the United States or of any State thereof,
arising up to the date of this Agreement under or by virtue of the Loan
Documents or with respect to the Loans in any manner or arising out of any
negotiations or communications entertained in connection with this Agreement.
Each Borrower, for itself, its partners, officers and directors, affiliates,
successors and assigns, and all other claiming by or through it, hereby fully
and forever release and discharge Bank, its officers, directors, agents and
employees, affiliates, predecessors in interest, successors and assigns, from
any and all causes of action, whether sounding in contract or in tort, or
otherwise, and any and all liability, accrued or unaccrued, known or unknown,
fixed or contingent, on account of any and all claims, demands, and causes of
action for all losses, damages, expenses or liabilities to Borrowers, their
partners, officers and directors, affiliates, successors and assigns, and all
others claiming by or through them, arising up to the date of this Agreement
out of the Loan Documents or with respect to the Loans in any manner or
arising our of any negotiations or communications entertained in connection
with this Agreement. The parties acknowledge and agree that each Borrower's
release and covenant not to sue contained in this Section 4.14 does
7
<PAGE>
not apply to claims, actions and causes of action arising after the date of
this Agreement.
4.15 Waiver of Trial by Jury. EACH BORROWER HEREBY, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY, WAIVES ANY RIGHT SUCH BORROWER MAY HAVE OR
HEREAFTER ACQUIRE TO A TRIAL BY JURY IN RESPECT TO ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. Each Borrower hereby
certifies that neither Bank nor any of its representatives, agents or counsel
has represented, expressly or otherwise, that Bank would not, in the event of
any such suit, action or proceeding seek to enforce this waiver of right to
trial by jury. Each Borrower acknowledges that it has made this waiver
knowingly, voluntarily and intentionally.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
ATTEST: MEDIVATORS, INC.
By: /s/ R. Rumble
- ----------------------------- -----------------------------
Ric Rumble
ATTEST: DISPOSAL SCIENCES, INC.
By: /s/ R. Rumble
- ----------------------------- -----------------------------
Ric Rumble
ATTEST: NATIONAL BANK OF CANADA
/s/ Timothy J. Smith By: /s/ John P. Leifer
- ------------------------------ -----------------------------
John P. Leifer
8
<PAGE>
EXHIBIT 10(W)
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND COLLATERAL DOCUMENTATION
This Agreement, entered as of the 26th day of October, 1998, by and
between NATIONAL BANK OF CANADA, a chartered bank constituted under the Bank
Act of Canada, with offices at 125 West 55th Street, New York, New York 10019
("Bank" or "Lender"), MEDIVATORS, INC., a Minnesota corporation with offices
at 2995 Lone Oak Circle, Eagan, Minnesota 55121 ("MediVators") and DISPOSAL
SCIENCES, INC., a Minnesota corporation, with offices at 2995 Lone Oak
Circle, Eagan, Minnesota 55121 ("Disposal").
R E C I T A L S:
1. Borrowers are the "Borrowers" under a Loan and Security Agreement
dated May 22, 1996 with National Canada Finance Corp. ("NCFC"). The Loan and
Security Agreement, as amended by a First Amendment dated as of December 1,
1997 ("First Amendment"), and a Second Amendment dated as of July 1, 1998 is
herein referred to as the "Loan Agreement". Lender is the successor in
interest to NCFC under the Loan Agreement. Any capitalized terms utilized and
not defined herein shall have the same meanings as are ascribed to them in
the Loan Agreement.
2. The Borrowers have requested, and Lender is considering the
modification of certain terms of the Loan Documents. The parties wish in the
interim to document modifications agreed upon at this time.
Now therefore, in consideration of the foregoing, and for other good
and valuable consideration the receipt and sufficiency
<PAGE>
of which are hereby acknowledged, the parties do hereby agree as follows:
SECTION 1. MODIFICATION OF LOAN AGREEMENT AND LOAN DOCUMENTS.
1.1 LOAN AGREEMENT AMENDMENTS. The Loan Agreement is hereby amended as
follows:
(a) The last sentence of Section 2.1 is amended by deleting same in its
entirety and substituting the following in its place and stead:
The entire outstanding balance of principal, and any accrued and
unpaid interest thereon, shall be due and payable and the Revolving
Line of Credit Loan shall terminate on the earlier of: (i) August 31,
1999, or (ii) acceleration of the Obligations upon an Event of Default
(the earlier of such dates being the "Revolving Line of Credit
Termination Date").
(b) Exhibit H is modified by changing the Leverage Ratio for July 31,
1998 to 0.86.
1.2 AFFIRMATION. Except as modified herein, the Loan Agreement and
Loan Documents shall remain in full force and effect.
SECTION 2. NO WAIVER OF DEFAULTS.
2.1 NO WAIVER OF PAST DEFAULTS. Nothing contained herein and no action
by Lender shall be deemed to constitute a waiver of any other Default under
the Loan Documents.
SECTION 3. BORROWER REPRESENTATIONS.
3.1 CORPORATE AUTHORITY. Borrowers have the authority to enter into
and perform their obligations under this Agreement. The execution, delivery
and performance of this Agreement has been
- 2 -
<PAGE>
duly authorized by all requisite corporate action of Borrowers. Each of the
Borrower's Locations, the current locations of all Inventory, and the
locations of each office at which each Borrower maintains Records concerning
its Accounts Receivable or other Accounts and General Intangibles, and other
financial matters, are solely as set forth in Exhibit E annexed.
3.2 ENFORCEABILITY. This Agreement constitutes the legal valid and
binding obligations of Borrowers and is enforceable against Borrowers in
accordance with its terms.
3.3 NO CONFLICT. The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by each Borrower do not
conflict with or result in any violation of each Borrower's Certificate of
Incorporation or by-laws or any statute, rule or regulation applicable to or
binding upon either Borrower. The execution, delivery and performance of this
Agreement will not conflict with or result in any violation of any provision
of any agreement, contract, instrument, order, writ, judgment, decree or
other undertaking to which any Borrower is a party or is obligated or by
which any Borrower's property is bound.
3.4 AUTHORIZATION. The signatories executing this Agreement on behalf
of Borrowers have been authorized by Borrowers to so execute this Agreement
and the execution of this Agreement has been authorized by corporate
resolution of each Borrower.
- 3 -
<PAGE>
SECTION 4. GENERAL PROVISIONS.
4.1 DOCUMENTS. By execution of this Agreement, Borrowers are
simultaneously modifying all Loan Documents, including any promissory notes
previously delivered by Borrowers, to conform to the terms of this Agreement,
and all of such Loan Documents shall be deemed so modified. The Loan
Documents shall otherwise remain in full force and effect.
4.2 ENTIRE AGREEMENT. This Agreement and the Loan Documents and the
instruments, agreements and certificates delivered simultaneously herewith,
if any, or referred to herein, constitute the entire agreement of the parties
with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements, whether written or oral, except as otherwise
provided herein.
4.3 AMENDMENT. No provision of this Agreement may be waived or changed
orally, but only by instrument in writing, signed by the party against whom
enforcement of such change or waiver is sought.
4.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be effective when delivered personally or when mailed by
certified or registered mail (return receipt requested) addressed at the
addresses set forth hereinabove or to such other addresses as a party may
designate to the other in writing.
4.5 EFFECTIVE DATE. This Agreement and the amendments provided for
herein shall take effect as of the date provided for
- 4 -
<PAGE>
herein or otherwise as of the date of this Agreement set forth hereinabove.
4.6 UNENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable shall be deemed severed from this Agreement
without invalidating the remaining provisions or affecting the validity or
enforceability of the remainder of this Agreement.
4.7 COUNTERPART EXECUTION. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures thereto were upon
the same instrument.
4.8 HEADINGS. The Section headings contained herein are for convenience
of reference only and are not intended to define, limit or describe the scope
or intent of any provision of this Agreement.
4.9 THIRD PARTIES. None of the obligations hereunder of any party shall
inure to or be enforceable by any party other than a party of this Agreement.
4.10 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the successors in interest and the permitted assigns
of the parties hereto.
4.11 DEFAULT. Except as expressly set forth herein, Bank hereby
specifically reserves all of its rights and remedies under the Loan Agreement
and Loan Documents. If any Borrower fails to perform its obligations under
this Agreement, Borrowers shall be in default hereunder and said default
shall be a default under the Loan Documents.
- 5 -
<PAGE>
4.12 OTHER DOCUMENTS. Bank and Borrowers agree to execute any and all
other documents and to take such other actions as may be necessary to carry
out the terms of this Agreement. All other documents shall be in a form and
content acceptable to Bank.
4.13 WAIVER OF TRIAL BY JURY. EACH BORROWER HEREBY, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY, WAIVES ANY RIGHT SUCH BORROWER MAY HAVE OR
HEREAFTER ACQUIRE TO A TRIAL BY JURY IN RESPECT TO ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. Each borrower hereby
certifies that neither Bank or any of its representatives, agents or counsel
has represented, expressly or otherwise, that Bank would not, in the event of
any such suit, action or proceeding seek to enforce this waiver of right to
trial by jury. Each Borrower acknowledges that it has made this waiver
knowingly, voluntarily and intentionally.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
ATTEST: MEDIVATORS, INC.
/s/ Michael Hopman By: /s/ Ric Rumble
- ---------------------------------- --------------------------------------
Michael Hopman Ric Rumble
ATTEST: DISPOSAL SCIENCES, INC.
/s/ Michael Hopman By: /s/ Ric Rumble
- ---------------------------------- --------------------------------------
Michael Hopman Ric Rumble
ATTEST: NATIONAL BANK OF CANADA
/s/ Timothy J. Smith By: /s/ John P. Leifer
- ---------------------------------- --------------------------------------
Timothy J. Smith John P. Leifer
- 6 -
<PAGE>
Exhibit 10(x)
STOCK OPTION AGREEMENT made as of the 16th day of October 1997,
by and between CANTEL INDUSTRIES, INC., a Delaware corporation with principal
offices located at 1135 Broad Street, Clifton, New Jersey, 07013 (the
"Company"), and CHARLES M. DIKER, One New York Plaza, New York, New York
10004 (the "Optionee").
------------------------------------------
The Optionee is presently a director and employee of the
Company and is hereby granted an option to purchase shares of the Company's
Common Stock, par value $.10 per share ("Common Stock"), on the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company 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 50,000 shares of Common Stock (the
"Shares"), to be issued upon the exercise hereof, fully paid and non-assessable,
during the following periods:
(i) 16,667 Shares may be purchased commencing October 16, 1997;
(ii) an additional 16,667 Shares may be purchased commencing
October 16, 1998; (iii) and an additional 16,666 Shares may be
purchased commencing October 16, 1999.
(b) The Option granted hereby shall expire and
<PAGE>
terminate at 5:00 p.m. local time in New York, New York on October 15, 2007 (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
$7.00 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 Common Stock already owned by the Optionee and having
a fair market value (as determined by the Board of Directors in its absolute
discretion) equal to the cash exercise price (or balance thereof) for the number
of Shares as to which the Option is being exercised. The Company shall pay all
original issue or transfer taxes on the exercise of the Option.
3. EXERCISE OF OPTION. The Optionee shall notify the Company
by registered or certified mail, return receipt requested, addressed to its
principal office, as to the number of Shares which he desires to purchase under
the Option, which notice shall be accompanied by payment of the Option exercise
price therefor as specified in Paragraph 2 above. As soon as practicable after
the receipt of such notice, the Company shall, at its principal office or
another mutually convenient location, tender to the Optionee certificates issued
in the Optionee's name evidencing the Shares purchased by the Optionee
hereunder.
2
<PAGE>
4. CONDITIONS OF EXERCISE. The Optionee (or his legal
representative following the death of the Optionee) shall have the right to
exercise the Option only while the Optionee is a director or employee of the
Company; provided, however, the Option may be exercised at any time within three
(3) months after the date the Optionee ceases to be a director or employee, but
only to the extent that it was exercisable upon such date of termination and in
no event after the Expiration Date.
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 hereof, the Option shall be exercisable only by the
Optionee.
6. THE SHARES AS INVESTMENT. By accepting the Option, the
Optionee agrees for himself, his heirs and legatees that any and all Shares
purchased upon the exercise thereof shall be acquired for investment and not for
distribution, and upon the issuance of any or all of the Shares subject to the
Option, the Optionee, or his heirs or legatees receiving such Shares, shall
deliver to the Company a representation in writing that such Shares are being
acquired in good faith for investment and not for distribution. The Company may
place a "stop transfer" order with respect to such Shares with its transfer
agent and may place an appropriate restrictive legend on the certificate(s)
evidencing such Shares.
3
<PAGE>
7. RESTRICTION OF 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 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:
4
<PAGE>
"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
hypothecatedand 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 and class of Shares or the amount of cash
or other assets or securities available upon the exercise of the Option and the
exercise price thereof shall be correspondingly adjusted by the Company, to the
end that the Optionee's proportionate interest in the Company, 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.
(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.
5
<PAGE>
(c) In case the Company is merged or consolidated with
another corporation, or the property or shares of the Company are acquired by
another corporation, or the Optionee is discharged other than for cause, the
exercise schedule set forth in paragraph 1 above shall be waived and all options
for the entire 50,000 shares of the Company's Common Stock shall be immediately
exercisable by the Optionee pursuant to paragraph 3 above.
For purposes of this paragraph (c), merger or
consolidation with another corporation or acquisition by another corporation
shall be defined as the acquisition by another corporation of more than forty
percent (40%) of any of the then outstanding stock, voting power, or assets of
the Company.
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. 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.
11. 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.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CANTEL INDUSTRIES,INC.
By: /s/ James P. Reilly
-------------------------------
James P. Reilly, President
/s/ Charles M. Diker
-------------------------------
Charles M. Diker
7
<PAGE>
Exhibit 10(y)
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 DARWIN C. DORNBUSH, 747 Third Avenue, New York, New York 10017
(the "Optionee").
------------------------------------------
The Optionee is presently a director of the Company and is
hereby granted an option to purchase shares of the Company's Common Stock, par
value $.10 per share ("Common Stock"), on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, receipt of which is hereby acknowledged, the
Company 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 at any time on or prior to the Expiration
Date (as hereinafter defined) up to 500 shares of Common Stock (the "Shares"),
to be issued upon the exercise hereof, fully paid and non-assessable.
(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.
<PAGE>
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 Common Stock already owned by the Optionee and having
a fair market value (as determined by the Board of Directors in its absolute
discretion) equal to the cash exercise price (or balance thereof) for the number
of Shares as to which the Option is being exercised. The Company shall pay all
original issue or transfer taxes on the exercise of the Option.
3. EXERCISE OF OPTION. The Optionee shall notify the Company
by registered or certified mail, return receipt requested, addressed to its
principal office, as to the number of Shares which he desires to purchase under
the Option, which notice shall be accompanied by payment of the Option exercise
price therefor as specified in Paragraph 2 above. As soon as practicable after
the receipt of such notice, the Company shall, at its principal office or
another mutually convenient location, tender to the Optionee certificates issued
in the Optionee's name evidencing the Shares purchased by the Optionee
hereunder.
4. CONDITIONS OF EXERCISE. The Optionee (or his legal
representative following the death of the Optionee) shall have the right to
exercise the Option only while the Optionee is a director or employee of the
Company; provided, however, the Option may be
-2-
<PAGE>
exercised at any time within three (3) months after the date the Optionee ceases
to be a director or employee, but only to the extent that it was exercisable
upon such date of termination and in no event after the Expiration Date.
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 hereof, the Option shall be exercisable only by the
Optionee.
6. THE SHARES AS INVESTMENT. By accepting the Option, the
Optionee agrees for himself, his heirs and legatees that any and all Shares
purchased upon the exercise thereof shall be acquired for investment and not for
distribution, and upon the issuance of any or all of the Shares subject to the
Option, the Optionee, or his heirs or legatees receiving such Shares, shall
deliver to the Company a representation in writing that such Shares are being
acquired in good faith for investment and not for distribution. The Company may
place a "stop transfer" order with respect to such Shares with its transfer
agent and may place an appropriate restrictive legend on the certificate(s)
evidencing such Shares.
7. RESTRICTION OF 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
-3-
<PAGE>
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 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
-4-
<PAGE>
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 and class of Shares or the amount of cash
or other assets or securities available upon the exercise of the Option and the
exercise price thereof shall be correspondingly adjusted by the Company, to the
end that the Optionee's proportionate interest in the Company, 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.
(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.
-5-
<PAGE>
10. 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.
11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey applicable to
agreements made and to be performed wholly within the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CANTEL INDUSTRIES,INC.
By:
----------------------------------
James P. Reilly, President
----------------------------------
Darwin C. Dornbush
-6-
<PAGE>
Exhibit 10(z)
STOCK OPTION AGREEMENT made as of the 5th day of October 1998,
by and between CANTEL INDUSTRIES, INC., a Delaware corporation with principal
offices located at 1135 Broad Street, Clifton, New Jersey, 07013 (the
"Company"), and JOHN W. ROWE, 300 Central Park West, Apt. 29/30G, New York, New
York 10024 (the "Optionee").
------------------------------------------
The Optionee is presently a director of the Company and is
hereby granted an option to purchase shares of the Company's Common Stock, par
value $.10 per share ("Common Stock"), on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, receipt of which is hereby acknowledged, the
Company 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 10,000 shares of Common Stock (the
"Shares"), to be issued upon the exercise hereof, fully paid and non-assessable,
during the following periods:
(i) 3,334 Shares may be purchased commencing October
5, 1998; (ii) an additional 3,333 Shares may be
purchased commencing October 5, 1999; and (iii) an
additional 3,333 Shares may be purchased commencing
October 5, 2000.
<PAGE>
(b) The Option granted hereby shall expire and terminate
at 5:00 p.m. local time in New York, New York on October 4, 2008 (the
"Expiration Date") at which time the Optionee shall have no further right to
purchase any Shares not then purchased.
2. EXERCISE PRICE. The exercise price of the Option shall be
$8.00 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 Common Stock already owned by the Optionee and having
a fair market value (as determined by the Board of Directors in its absolute
discretion) equal to the cash exercise price (or balance thereof) for the number
of Shares as to which the Option is being exercised. The Company shall pay all
original issue or transfer taxes on the exercise of the Option.
3. EXERCISE OF OPTION. The Optionee shall notify the Company
by registered or certified mail, return receipt requested, addressed to its
principal office, as to the number of Shares which he desires to purchase under
the Option, which notice shall be accompanied by payment of the Option exercise
price therefor as specified in Paragraph 2 above. As soon as practicable after
the receipt of such notice, the Company shall, at its principal office or
another mutually convenient location, tender to the Optionee certificates issued
in the Optionee's name evidencing the Shares purchased by the Optionee
hereunder.
-2-
<PAGE>
4. CONDITIONS OF EXERCISE. The Optionee (or his legal
representative following the death of the Optionee) shall have the right to
exercise the Option only while the Optionee is a director of the Company;
provided, however, the Option may be exercised at any time within three (3)
months after the date the Optionee ceases to be a director, but only to the
extent that it was exercisable upon such date of termination and in no event
after the Expiration Date.
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 hereof, the Option shall be exercisable only by the
Optionee.
6. THE SHARES AS INVESTMENT. By accepting the Option, the
Optionee agrees for himself, his heirs and legatees that any and all Shares
purchased upon the exercise thereof shall be acquired for investment and not for
distribution, and upon the issuance of any or all of the Shares subject to the
Option, the Optionee, or his heirs or legatees receiving such Shares, shall
deliver to the Company a representation in writing that such Shares are being
acquired in good faith for investment and not for distribution. The Company may
place a "stop transfer" order with respect to such Shares with its transfer
agent and may place an appropriate restrictive legend on the certificate(s)
evidencing such Shares.
-3-
<PAGE>
7. RESTRICTION OF 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 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:
-4-
<PAGE>
"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 hypothecatedand 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 and class of Shares or the amount of cash
or other assets or securities available upon the exercise of the Option and the
exercise price thereof shall be correspondingly adjusted by the Company, to the
end that the Optionee's proportionate interest in the Company, 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.
(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.
-5-
<PAGE>
(c) In case the Company is merged or consolidated with
another corporation, or the property or shares of the Company are acquired by
another corporation, or the Optionee is discharged other than for cause, the
exercise schedule set forth in paragraph 1 above shall be waived and all options
for the entire 10,000 shares of the Company's Common Stock shall be immediately
exercisable by the Optionee pursuant to paragraph 3 above.
For purposes of this paragraph (c), merger or
consolidation with another corporation or acquisition by another corporation
shall be defined as the acquisition by another corporation of more than forty
percent (40%) of any of the then outstanding stock, voting power, or assets of
the Company.
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. 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.
11. 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.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CANTEL INDUSTRIES,INC.
By: /s/ James P. Reilly
----------------------------------
James P. Reilly, President
/s/ John W. Rowe
----------------------------------
John W. Rowe
-7-
<PAGE>
Exhibit 10(aa)
NON-COMPETITION AGREEMENT made as of this 16th day of March, 1998 by and
among CANTEL INDUSTRIES, INC., a Delaware corporation, maintaining its
principal offices at 1135 Broad Street, Suite 203, Clifton, New Jersey 07013
("Purchaser") and CHRISTOPHER C. LUTZ and BONOLYN L. LUTZ, residing at 31728
4th Avenue, South Laguna, California 92677 (collectively, the "Stockholders")
RECITALS:
A. Purchaser and Chris Lutz Medical, Inc., a California corporation
("Seller") have entered into an Asset Purchase Agreement of even date
herewith (the "Purchase Agreement") providing for, among other things, the
sale of all or substantially all of the assets of Seller to Purchaser in
accordance with the terms and conditions set forth in the Purchase Agreement.
Unless otherwise defined herein, capitalized terms used herein shall have the
respective meanings assigned to them in the Purchase Agreement.
B. The Stockholders, who own one hundred (100%) percent of the issued
and outstanding stock of Seller, have agreed as an inducement and condition
to Purchaser entering into the Purchase Agreement, to enter into this
Non-competition Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Non-Competition and Confidentiality Covenant. In consideration of
the sum of $60,000 and other good and valuable consideration paid by
Purchaser to the Stockholders, receipt of which is hereby acknowledged,
Stockholders covenant and agree that for a period ending five years after the
Closing Date, he or she shall not anywhere in the United States, Canada or
another country where Purchaser or any of its Subsidiaries is then conducting
business, directly or indirectly, as owner, partner, joint venturer,
stockholder, broker, agent, principal, trustee, licensor, or in any other
capacity whatsoever (as applicable) (i) engage in, become financially
interested in, be employed by, render any consultation or business advice to,
or have any connection with, any Person engaged in a similar business to, or
which is otherwise competitive with, the Business, (ii) interfere with,
disrupt or attempt to disrupt any then existing relationship, contractual or
otherwise, with Purchaser (or any of its Subsidiaries) and any of their
respective customers, suppliers, employees, agents or other Persons with whom
it deals, (iii) solicit for employment, attempt to employ or assist any other
Person in employing or soliciting for employment any employee or executive
who is at that time, or was at any time
<PAGE>
during the preceding year, employed by Purchaser (or any of its
Subsidiaries), (iv) influence or attempt to influence any of the customers of
Purchaser (or any of its subsidiaries) (including without limitation
customers who prior to the Closing were customers of Seller) to transfer
their patronage from Purchaser (or any of its Subsidiaries) to any other
Person or (v) solicit business from any customers to whom Purchaser (or any
of its Subsidiaries) is then furnishing products or services or to whom
Seller has furnished products or services during the two-year period
immediately preceding the Closing Date, or from any prospective customers who
are currently or are then being actively solicited by Purchaser (or any of
its Subsidiaries). The Stockholders shall not, without the previous written
consent of Purchaser, from and after the Closing, divulge, furnish or make
available to any third party any financial information or other information
with respect to the Business or Purchaser (or any of its Subsidiaries), other
than to its professional advisors, or as compelled by law or any applicable
rule or policy of any securities commission, stock exchange or like body.
2. Equitable Relief. Each of the Stockholders agrees that the remedy at
law for any breach of the covenants contained in Section 1 above would be
difficult to ascertain and therefore, in the event of breach or threatened
breach of any such covenants, Purchaser and its Subsidiaries, in addition to
any other remedy, shall each have the right to enjoin each of the
Stockholders from any threatened or actual activities in violation thereof
and each of the Stockholders hereby consents and agrees that temporary and
permanent injunctive relief may be granted in any proceedings which may be
brought to enforce any such covenants without the necessity of proof of
actual damages. If any portion of the restrictions set forth in Section 1
above should, for any reason whatsoever, be declared invalid by a court of
competent jurisdiction, the validity or enforceability of the remainder of
such restrictions shall not thereby be adversely affected. Each of the
Stockholders declares that the territorial and time limitations set forth in
Section 1 above are reasonable and properly required for the adequate
protection of the Business being purchased by Purchaser. In the event any
such territorial or time limitation is deemed to be unreasonable by a court
of competent jurisdiction, the parties agree to the reduction of the
territorial or time limitation to the area or period which such court shall
deem reasonable.
3. Notices.
a. All notices required to be given under the terms of this
Agreement or which any of the parties may desire to give hereunder shall be
in writing and delivered personally or sent by registered or certified mail,
postage prepaid, addressed
<PAGE>
as follows:
b. As to Purchaser, addressed to it, 1135 Broad Street, Suite 203,
Clifton, New Jersey 07013, Attention: James P. Reilly, or such other address
or addresses and to the attention of such other Person or Persons as
Purchaser may from time to time designate in writing to Seller, with copies
thereof addressed to Eric W. Nodiff, Esq., Dornbush Mensch Mandelstam &
Schaeffer, LLP, New York, New York 10017.
c. As to the Stockholders, addressed to them, 31728 4th Avenue,
South Laguna, California 92677, Attention: Christopher C. Lutz or to such
other address or to such other Persons as Seller may from time to time
designate in writing to Purchaser, with copies thereof addressed to Amy
Rypins, Esq., Lewis & Rypins, LLP, 445 Marine View Avenue, Suite 260, Del
Mar, California 92014.
d. Any notice given in accordance with this Section 3 shall be
deemed to have been given when delivered personally or by telex or telecopier
or on the fifth business day next following the date upon which it shall have
been deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested or sent by courier mail.
4. Effectiveness of Agreement. This Agreement shall become effective
when executed and delivered by Purchaser and the Stockholders and shall be
binding in all respects upon the respective heirs, administrators, executors,
successors and permitted assigns of each of the parties hereto; provided,
however, that no party may assign this Agreement in whole or in part to any
Person other than a wholly-owned subsidiary of such party without first
obtaining the written consent of all of the other parties, which consent
shall not be unreasonably withheld.
5. Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of New York. Any action, suit or other proceeding
initiated by the Purchaser or the Stockholders against the other under or in
connection with this Agreement shall be brought in any Federal or state court
in the State of New York, as the party bringing such action, suit or
proceeding shall elect, having jurisdiction over the subject matter thereof.
6. Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be considered an original but all of which
shall constitute the Agreement by and among the parties.
<PAGE>
7. Severability. Should any term, provision or clause hereof, or of any
other agreement or document which is required by this Agreement, be held to
be invalid, such invalidity shall not affect any other provisions or clauses
hereof or thereof which can be given effect without such invalid provision,
all of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
CANTEL INDUSTRIES, INC.
By: /s/ Craig A. Sheldon
------------------------------
Craig Sheldon, Vice President
/s/ Christopher Lutz
------------------------------
Christopher C. Lutz
/s/ Christopher Lutz for Bonolyn L. Lutz
------------------------------
Bonolyn L. Lutz
<PAGE>
EXHIBIT 21
CANTEL INDUSTRIES, INC.
Subsidiaries of Registrant - July 31, 1998
-----------------------------------------------------
Carsen Group Inc. (Amalgamated under the laws of
Ontario, Canada)
MediVators, Inc. (Incorporated under the laws of
Minnesota)
<PAGE>
EXHIBIT 24
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 28, 1998, 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, 1998.
/s/ ERNST & YOUNG LLP
Princeton, New Jersey
October 26, 1998
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1998 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 493000
<SECURITIES> 0
<RECEIVABLES> 8446000
<ALLOWANCES> 62000
<INVENTORY> 9207000
<CURRENT-ASSETS> 19174000
<PP&E> 2751000
<DEPRECIATION> 1910000
<TOTAL-ASSETS> 22478000
<CURRENT-LIABILITIES> 6194000
<BONDS> 3004000
437000
0
<COMMON> 0
<OTHER-SE> 12789000
<TOTAL-LIABILITY-AND-EQUITY> 22478000
<SALES> 36130000
<TOTAL-REVENUES> 40009000
<CGS> 24251000
<TOTAL-COSTS> 26530000
<OTHER-EXPENSES> 10269000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179000
<INCOME-PRETAX> 3031000
<INCOME-TAX> 1336000
<INCOME-CONTINUING> 1695000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1695000
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.38
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<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
INCOME FOR THE YAR 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> 656000
<SECURITIES> 0
<RECEIVABLES> 6984000
<ALLOWANCES> 82000
<INVENTORY> 8974000
<CURRENT-ASSETS> 17009000
<PP&E> 2568000
<DEPRECIATION> 1801000
<TOTAL-ASSETS> 18602000
<CURRENT-LIABILITIES> 5903000
<BONDS> 1594000
417000
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<COMMON> 0
<OTHER-SE> 10600000
<TOTAL-LIABILITY-AND-EQUITY> 18602000
<SALES> 30988000
<TOTAL-REVENUES> 34987000
<CGS> 20801000
<TOTAL-COSTS> 23296000
<OTHER-EXPENSES> 9020000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143000
<INCOME-PRETAX> 2528000
<INCOME-TAX> 1432000
<INCOME-CONTINUING> 1096000
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<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.25
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 682000
<SECURITIES> 0
<RECEIVABLES> 5268000
<ALLOWANCES> 132000
<INVENTORY> 8196000
<CURRENT-ASSETS> 14454000
<PP&E> 2493000
<DEPRECIATION> 1884000
<TOTAL-ASSETS> 15998000
<CURRENT-LIABILITIES> 3081000
<BONDS> 3419000
389000
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<COMMON> 0
<OTHER-SE> 9012000
<TOTAL-LIABILITY-AND-EQUITY> 15998000
<SALES> 26074000
<TOTAL-REVENUES> 29792000
<CGS> 17058000
<TOTAL-COSTS> 19410000
<OTHER-EXPENSES> 9166000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258000
<INCOME-PRETAX> 958000
<INCOME-TAX> 536000
<INCOME-CONTINUING> 422000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
