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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, 1999
Commission File No. 0-6132
CANTEL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-1760285
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1135 BROAD STREET, CLIFTON, NEW JERSEY 07013
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(973) 470-8700
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Aggregate market value of registrant's capital stock held by non-affiliates
(based on shares held and the closing price quoted by NASDAQ on October 8,
1999): $11,681,179
Number of shares of common stock outstanding as of the close of
the period covered by this report: 4,440,545
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, as well as servicing medical 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. 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.
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, infection control, scientific and
consumer products and accessories.
All of MediVators' endoscope disinfection equipment is distributed
in the United States and Puerto Rico by Olympus pursuant to an agreement (the
"MediVators Agreement") under which Olympus has been granted exclusive
distribution rights in these territories. MediVators' endoscope disinfection
equipment is distributed in other countries under other exclusive distribution
agreements.
The following table gives information as to the percentage of
consolidated net sales accounted for by each operating segment during the
indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
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1999 1998 1997
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<S> <C> <C> <C>
Medical Products............ 33.7% 31.7% 42.7%
Infection Control
Products.................. 18.6 20.2 15.2
Scientific Products......... 13.7 14.9 16.6
Product Service............. 10.4 9.7 11.4
Consumer Products........... 25.1 24.6 15.5
Elimination of intercompany
sales of Infection
Control Products.......... (1.5) (1.1) (1.4)
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100.0% 100.0% 100.0%
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</TABLE>
MEDICAL AND INFECTION CONTROL PRODUCTS
Medical and Infection Control Products are the Company's major
source of revenue and profitability. These segments are 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
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perform a biopsy (removal of a small piece of tissue for microscopic analysis).
A flexible video endoscope consists of a high resolution solid state
image sensor contained in a flexible tube, which can be inserted into
irregularly shaped organs of a patient's body, such as the large intestine. The
control body of a flexible endoscope incorporates a steering mechanism and
contains working channels and is connected to an external light source and
processor, which permits a physician to view inside a patient's body. The
working tip of a flexible endoscope contains a lens and a solid state image
sensor 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. The solid state
image sensor enables a live image to be transmitted electronically to a monitor,
which image can be viewed by a physician and nurse 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.
Flexible endoscopes are commonly used for visualization of, and
diagnosing disorders in, the esophagus, stomach, duodenum, and large intestine
(gastroenterology); upper airways and lungs (pneumology); nose and throat (ENT);
bladder, kidney and urinary tract (urology); and uterus (gynecology). Rigid
endoscopes are commonly used for urology, gynecology, orthopedics, ENT and
general surgery, including minimally invasive surgery.
Carsen also distributes various specialized medical instruments and
accessories utilized in both flexible and rigid 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,
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recorders and printers), The Ruhof Corporation (enzymatic cleaners), MediSafe UK
Limited (fine lumen cleaners) 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 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
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process and reducing the risk of infectious diseases. The disinfectors also
reduce the risk of inconsistent manual disinfecting.
In prior years, MediVators also had a medical sharps disposal
business which provided 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 1999 or
1998, and insignificant sales prior to fiscal 1998. During July 1999, MediVators
discontinued this business and wrote-off its remaining net investment, as
described in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 (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
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(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 distributes 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 a 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.
PRODUCT SERVICE
Carsen operates service centers at its Markham, Ontario facility, as
well as in Montreal, Quebec and Vancouver, British Columbia that provide
warranty and out-of-warranty service and repairs for medical, infection control
and scientific products, a majority of which are distributed by Carsen. The
products distributed by Carsen 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 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. MediVators performs out-of-warranty service of its infection
control products for which the customer pays MediVators on a time and materials
basis.
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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. 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 also distributes Olympus hand-held dictation equipment and
accessories.
Carsen distributes its consumer products primarily to independent
retailers, cooperative buying groups, large retail store chains and major
department stores. Carsen also distributes such products to government agencies,
school boards, the military, promotional sales organizations and catalog houses
and other end-users.
Carsen operates a service organization at its Markham, Ontario
facility, as well as contracts with independent service centers throughout
Canada, to provide warranty service for the consumer products distributed by
Carsen. Pursuant to the Olympus Agreement, Carsen is required to provide
warranty service for all Olympus cameras presented to Carsen for service,
whether or not such cameras were sold by Carsen. The cost of warranty repairs on
cameras not sold by Carsen is reimbursed by Olympus. These warranty obligations
have 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.
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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 $17.3 million and $19.4 million during the contract years
ending March 31, 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 four year agreement with
Olympus which expires on August 1, 2003, under which Olympus was granted the
exclusive right to distribute all MediVators' endoscope disinfection equipment
and related accessories in the United States and Puerto Rico, including the
product line acquired from Lutz Medical in March 1998. All products sold by
Olympus pursuant to this agreement bear both the "Olympus" and "MediVators"
trademarks.
This agreement provides for minimum purchase projections.
Failure to achieve the minimum purchase projections in any contract year
could give MediVators the right to terminate the agreement.
MARKETING
Carsen markets its products for each business 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
operating under exclusive distribution agreements.
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
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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 1999 and 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 manufactured and distributed by the Company. In some areas, the
Company competes with manufacturers who distribute and service their own
products and have greater financial and technical resources than the Company
and, as manufacturers, may have certain other competitive advantages over the
Company. The Company believes that the world-wide reputation for the quality and
innovation of its products among consumers, the Company's reputation for
providing quality product service, particularly with respect to medical and
infection control products, the numerous customer contacts developed during its
lengthy service as a distributor of Olympus products and the distribution
arrangement for certain MediVators infection control products with Olympus, give
the Company a competitive advantage with respect to certain of its products.
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. 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.
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The Food, Drug and Cosmetic Act of 1938 and Safe Medical Device Act
of 1990, each as amended (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 Regulations
("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 acknowledging that the Company is compliant with the QSR'S.
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 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.
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BACKLOG
On October 8, 1999, the Company's consolidated backlog was
approximately $2,535,000, compared with approximately $1,560,000 on October 9,
1998.
EMPLOYEES
As of October 8, 1999, the Company employed 168 persons. Of the
Company's employees, 120 are located in Canada and 48 are located in the United
States; 18 are executives and/or managers, 49 are engaged in sales, 18 are
engaged in customer service, 26 are engaged in product service, 23 are engaged
in manufacturing, shipping and warehouse functions, 30 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.
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. 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. Additionally, Carsen leases space for two outside service
facilities in Montreal, Quebec and Vancouver, British Columbia containing
approximately 850 square feet and 750 square feet, respectively. The Montreal
facility lease expires in July 2004 and provides for monthly base rent of
approximately $400. The Vancouver facility lease expires in February 2003 and
provides for monthly base rent of approximately $425.
MediVators leases approximately 27,500 square feet of commercial
space, located in Eagan, Minnesota. This facility is used for manufacturing,
warehouse and office space. 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 $14,000.
The Company leases approximately 2,000 square feet of office space
in Clifton, New Jersey, for its executive offices. The lease, which expires in
January 2000, provides for monthly base rent of approximately $3,500.
The Company believes that its facilities are adequate for its
current needs.
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ITEM 3. LEGAL PROCEEDINGS.
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, and has obtained summary judgement dismissing
a portion of the claims. Currently, both parties are conducting discovery and a
trial date has been set for December 13, 1999. Management believes that the
remaining 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 1999.
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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.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
YEAR ENDED JULY 31, 1999
First Quarter 9 6 1/2
Second Quarter 8 1/4 5 1/2
Third Quarter 7 5 1/4
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 8, 1999, the closing price of the Company's Common Stock
was $4.8125 and the Company had 297 record holders of Common Stock. A number of
such holders of record are brokers and other institutions holding shares of
Common Stock in "street name" for more than one beneficial owner.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
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.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Net sales................$50,102 $40,009 $34,987 $29,792 $34,125
Cost of sales (1)........ 34,515 26,530 23,296 19,410 23,684
Gross profit............. 15,587 13,479 11,691 10,382 10,441
Income from operations
before interest
expense and income
taxes (2).............. 3,336 3,210 2,671 1,216 700
Interest expense (3)..... 271 179 143 258 492
Income from operations
before income taxes.... 3,065 3,031 2,528 958 208
Income taxes (3)......... 1,696 1,336 1,432 536 1,001
Net income (loss)........ 1,369 1,695 1,096 422 (793)
Earnings per common share:
Basic (2)(4)........... $ .31 $ .40 $ .27 $ .11 $(.21)
===== ===== ===== ===== ======
Diluted (2)(4)......... $ .30 $ .38 $ .25 $ .10 $(.21)
===== ===== ===== ===== ======
Weighted average number
of common and common
equivalent shares:
Basic.................. 4,394 4,240 4,073 3,790 3,739
Diluted................ 4,591 4,484 4,354 4,309 3,739
</TABLE>
- 15 -
<PAGE>
CONSOLIDATED BALANCE SHEET DATA:
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
JULY 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total assets ......... $25,039 $22,478 $18,602 $15,998 $19,823
Current assets........ 21,564 19,174 17,009 14,454 17,994
Current liabilities... 8,834 6,194 5,903 3,081 5,271
Working capital....... 12,730 12,980 11,106 11,373 12,723
Long-term debt, less..
current portion..... 1,567 3,004 1,594 3,419 6,087
Stockholders' equity.. 14,545 13,226 11,017 9,401 8,374
Book value per
outstanding common
share............... $3.28 $3.03 $2.64 $2.42 $2.22
Common shares
outstanding......... 4,441 4,367 4,166 3,889 3,765
</TABLE>
- ----------
(1) Includes for fiscal 1999 an inventory write-off of $452,000 associated
with the discontinuance of MediVators' medical sharps disposal business.
Includes for fiscal 1995 an inventory write-down of $758,000 associated
with the MediVators' medical sharps disposal business.
(2) Includes for fiscal 1999 costs of $467,000 associated with the
discontinuance of MediVators' medical sharps disposal business, as well as
costs of $74,000 associated with the termination of a proposed
acquisition. 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' medical sharps
disposal business.
(3) 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.
(4) In fiscal 1999, the charge of $467,000 associated with the discontinuance
of MediVators' medical sharps disposal business reduced basic and diluted
earnings per share by $0.11 and $0.10, respectively. Without this charge,
basic and diluted earnings per share for fiscal 1999, as adjusted, would
have been $0.42 and $0.40, respectively.
- 16 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The results of operations reflect primarily the results of Carsen
and MediVators. 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 1999 compared with fiscal 1998 (decrease in value of
approximately 6% based upon month-end exchange rates), and fiscal 1998 compared
with fiscal 1997 (decrease in value of approximately 4%).
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,
------------------------------------------------------
1999 1998 1997
------------------------------------------------------
(Dollar amounts in thousands)
$ % $ % $ %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Medical Products $16,887 33.7 $12,679 31.7 $14,927 42.7
Infection Control
Products 9,334 18.6 8,086 20.2 5,332 15.2
Scientific Products 6,868 13.7 5,957 14.9 5,786 16.6
Product Service 5,223 10.4 3,879 9.7 3,999 11.4
Consumer Products 12,557 25.1 9,848 24.6 5,431 15.5
Elimination of inter-
company sales of
Infection Control
Products (767) (1.5) (440) (1.1) (488) (1.4)
-------- -------- -------- -------- -------- --------
$50,102 100.0 $40,009 100.0 $34,987 100.0
======== ======== ======== ======== ======== ========
</TABLE>
FISCAL 1999 COMPARED WITH FISCAL 1998
Net sales increased by $10,093,000, or 25.2%, to $50,102,000 in
fiscal 1999, from $40,009,000 in fiscal 1998. This increase was attributable to
the increased sales of all business segments. Net sales were adversely impacted
in fiscal 1999 compared with fiscal 1998 by approximately $2,236,000 due to the
translation of Carsen's net sales using a weaker Canadian dollar against the
United States dollar.
For fiscal 1999, the increased sales of Medical Products in Canada
were principally due to an increase in demand, and to a lesser extent selling
price increases. The increased sales of Infection Control Products were
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 to a lesser extent
selling price increases. The increased sales of
- 17 -
<PAGE>
Scientific Products were primarily attributable to an increase in demand for
microscopes. The increased sales of Product Service were attributable to an
expansion of the Company's service business at Carsen and MediVators. The
increased sales of Consumer Products were due primarily to stronger demand from
national accounts for both 35 mm. and digital cameras.
Gross profit increased by $2,108,000, or 15.6%, to $15,587,000 in
fiscal 1999, from $13,479,000 in fiscal 1998. Gross profit was adversely
impacted in fiscal 1999 compared with fiscal 1998 by approximately $626,000 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 decreased to 31.1% in fiscal 1999, from 33.7% in fiscal 1998. The lower
gross profit margin for fiscal 1999 was primarily attributable to the adverse
impact of a weaker Canadian dollar relative to the United States dollar, since
the Company's Canadian subsidiary purchases substantially all of its products in
United States dollars and sells its products in Canadian dollars; the write-off
of inventory in the amount of $452,000 associated with the discontinuance of
MediVators' medical sharps disposal business; increased sales of consumer
products, which generally have lower gross profit margins; more competitive
sales of medical products; and an increase in cash discounts and volume rebates
associated with consumer products. The margin decrease was net of improvements
in gross margin attributable to favorable sales mix, selling price increases and
volume related manufacturing efficiencies associated with infection control
products.
Shipping and warehouse expenses increased by $34,000 to $725,000 for
fiscal 1999, from $691,000 for fiscal 1998. The increase was attributable to
variable freight costs associated with the increase in sales volume.
Selling expenses as a percentage of net sales were 12.5% for fiscal
1999, compared with 12.3% for fiscal 1998. The increase was attributable to an
increase in advertising and sales promotion costs associated with infection
control products and consumer products, higher personnel costs and commissions
associated with certain domestic sales of infection control products, partially
offset by the effect of the increased sales against the fixed portion of selling
expenses.
General and administrative expenses increased by $605,000 to
$4,395,000 for fiscal 1999, from $3,790,000 for fiscal 1998. The increase was
primarily attributable to professional fees, amortization of intangible assets
related to the acquisition of Lutz Medical in March 1998, and internal
regulatory department costs, including costs of ISO certification.
- 18 -
<PAGE>
Research and development expenses decreased by $60,000 to $789,000
for fiscal 1999, from $849,000 for fiscal 1998. This decrease was due to a
reduction in personnel costs and third party laboratory testing.
The Company incurred costs of $74,000 in fiscal 1999 related to
professional fees associated with the termination of a proposed acquisition.
Interest expense increased to $271,000 in fiscal 1999, from $179,000
in fiscal 1998. This increase was primarily attributable to an increase in
average borrowings outstanding during fiscal 1999 under the Company's revolving
credit facilities.
Income before income taxes increased by $34,000 to $3,065,000 for
fiscal 1999, from $3,031,000 for fiscal 1998. Without the write-off associated
with the discontinuance of MediVators' medical sharps disposal business, income
before income taxes would have increased by $501,000 to $3,532,000, or 17%, for
fiscal 1999.
Income taxes consist primarily of taxes imposed on the Company's
Canadian operations. The effective tax rate on Canadian operations was 46.2% and
45.1% for fiscal 1999 and 1998, respectively. For fiscal 1999, 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. The overall loss generated
by the Company's United States operations was attributable to Corporate
overhead, partially offset by net income at MediVators.
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 Infection Control
Products, partially offset by decreased sales of Medical 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 were 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. The increased sales of
Infection Control Products were primarily attributable to an increase in demand
for infection control products in the United States; continued expansion and
improvement of the international distribution of
- 19 -
<PAGE>
MediVators' infection control products; and the acquisition of Lutz Medical
during March 1998, which expanded MediVators' line of endoscope disinfection
products. The decreased sales of Medical Products in Canada were attributable to
the lengthening of the sales cycle for medical products due to a change in
hospital buying practices, thereby causing a decrease in demand.
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 at 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 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.
- 20 -
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999, the Company's working capital was $12,730,000,
compared with $12,980,000 at July 31, 1998. This decrease primarily reflects
increases in accounts payable and accrued expenses and a decrease in insurance
claim receivable, partially offset by an increase in accounts receivable.
Accounts receivable and accounts payable at July 31, 1999 reflect increased
sales and related product purchases during the months of June and July 1999.
Net cash provided by operating activities was $2,189,000 for fiscal
1999, compared with net cash used in operating activities of $1,027,000 for
fiscal 1998 and net cash provided by operating activities of $1,623,000 for
fiscal 1997. In fiscal 1999, net cash provided by operating activities was
primarily due to net income from operations after adjusting for depreciation and
amortization and the write-off associated with the medical sharps disposal
inventories, and an increase in accounts payable and accrued expenses, partially
offset by an increase in accounts receivable. In fiscal 1998, net cash used in
operating activities was primarily due to increases in accounts receivable,
inventories and other current assets, partially offset by net income 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 an increase in accounts payable and accrued expenses, partially
offset by increases in accounts receivable and inventories.
Net cash used in investing activities was $648,000, $666,000 and
$373,000 in fiscal 1999, 1998 and 1997, respectively, which was principally due
to capital expenditures and, for fiscal 1998, the acquisition of Lutz Medical.
Net cash used in financing activities was $1,500,000 in fiscal 1999,
compared with net cash provided by financing activities of $1,530,000 in fiscal
1998 and net cash used in financing activities of $1,276,000 in fiscal 1997.
These changes were principally due to the fluctuations in outstanding borrowings
under the Company's revolving credit facilities and proceeds from the exercise
of stock options and warrants and, in fiscal 1999, the repurchase of Common
Stock.
- 21 -
<PAGE>
The Company has two credit facilities, a $5,000,000 revolving credit
facility for Carsen expiring on December 31, 2002 and a $1,500,000 revolving
credit facility for MediVators expiring on August 1, 2000. Borrowings under the
Carsen revolving credit facility are in Canadian dollars and bear interest at
rates ranging from lender's Canadian prime rate to .75% above the prime rate,
depending upon Carsen's debt to equity ratio. Borrowings under the MediVators
revolving credit facility bear interest at the lender's prime rate plus 1%. The
prime rates associated with the Carsen and MediVators revolving credit
facilities were 6.25% and 8%, respectively, at July 31, 1999. Each of the credit
facilities provide for restrictions on available borrowings based primarily upon
percentages of eligible accounts receivable and inventories; requires the
subsidiary to meet certain financial covenants; is secured by substantially all
assets of the subsidiary; and is guaranteed by Cantel.
During fiscal 1999 compared with fiscal 1998, the average value of
the Canadian dollar declined 6% relative 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's results of operations
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 exchange hedging facility which is
available to be used to minimize future adverse currency fluctuations as they
relate to purchases of inventories. At October 8, 1999, Carsen had foreign
exchange forward contracts aggregating $5,000,000 (United States dollars), and
foreign exchange option contracts aggregating $5,000,000 (United States
dollars), to hedge against possible declines in the value of the Canadian dollar
which would otherwise result in higher inventory costs. Such contracts represent
a substantial portion of the Canadian subsidiary's projected purchases of
inventories through January 2000. The weighted average exchange rate of the
forward contracts open at October 8, 1999 was $1.4767 Canadian dollar per United
States dollar, or $.6772 United States dollar per Canadian dollar. The weighted
average range of the option contracts open at October 8, 1999 was $1.4801 to
$1.4190 Canadian dollar per United States dollar, or $.6756 to $.7047 United
States dollar per Canadian dollar. The exchange rate published by the Wall
Street Journal on October 8, 1999 was $1.4714 Canadian dollar per United States
dollar, or $.6796 United States dollar per Canadian dollar.
- 22 -
<PAGE>
For purposes of translating the balance sheet, at July 31, 1999
compared with July 31, 1998, the value of the Canadian dollar compared to the
value of the United States dollar was relatively constant. As a result, at July
31, 1999, the negative cumulative foreign currency translation adjustment was
reduced by $43,000 compared to July 31, 1998, thereby slightly increasing
stockholders' equity. However, since July 31, 1997, the net increase in the
negative cumulative foreign currency translation adjustment (due to the
conversion of Carsen's net assets using a weaker Canadian dollar) has reduced
stockholders' equity by $873,000.
The Company believes that its anticipated cash flow from operations
and the funds available under the revolving credit facilities will be sufficient
to satisfy the Company's cash operating requirements for the foreseeable future
based upon the current level of operations. At October 8, 1999, approximately
$3,271,000 was available under the credit facilities.
As of July 31, 1999, the Company had net operating loss
carryforwards for financial statement and domestic tax reporting purposes
("NOLs") of approximately $16,900,000 which will expire through July 31, 2014.
Of this amount, approximately $3,300,000 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 and most of which have already been
incurred. Only minor modifications remain to be completed, and the Company will
have fully completed all year 2000 modifications by December 1999. There can be
no assurance, however, that the 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
- 23 -
<PAGE>
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, the majority of
which have indicated that they are, or will be, 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 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK.
Foreign currency market risk: 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. Additionally, Carsen's
financial statements are translated using the accounting policies described in
Note 2 to the Consolidated Financial Statements. During fiscal 1999 and 1998,
fluctuations in the exchange rates between the United States and Canada had an
adverse impact upon the Company's results of operations and stockholders'
equity, as described in Management Discussion and Analysis of Financial
Condition and Results of Operations.
Interest rate market risk: The Company has two credit facilities for
which the interest rate on outstanding borrowings is variable. Therefore,
interest expense is affected by the general level of interest rates in the
United States and Canada.
- 24 -
<PAGE>
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.
- 25 -
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The current directors and executive officers of the Company are as
follows:
Name Age Position
- ---- --- --------
Charles M. Diker 64 Chairman of the Board and
Director
Alan J. Hirschfield 64 Vice Chairman of the Board,
Director and a member of the
Compensation Committee
Robert L. Barbanell 69 Director, Chairman of the Audit
Committee and a member of
the Compensation Committee
Darwin C. Dornbush, Esq. 69 Secretary and Director
Morris W. Offit 62 Director and a member of the
Audit Committee
James P. Reilly 59 President, Chief Executive
Officer and Director
John W. Rowe, M.D. 55 Director
Bruce Slovin 63 Director and a member of
the Audit Committee
Roy K. Malkin 53 President and Chief Executive
Officer of MediVators
Craig A. Sheldon 37 Vice President and Controller
William J. Vella 43 President and Chief Operating
Officer of Carsen
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.
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.
- 26 -
<PAGE>
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. Mr. Barbanell
is also Chairman of the Board and a director of Marine Drilling Companies, Inc.
(NYSE), 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 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. He
serves as a director of 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 Health since July 1998, President of the Mount Sinai Hospital
from July 1988 to July 1998, and President of the Mount Sinai School of Medicine
from July 1988 to July 1999. He also serves as a Professor of Medicine and of
Geriatrics at the Mount Sinai School of Medicine.
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 Kuala Healthcare, Inc.
(NASDAQ), a health care services company, Infu-Tech, Inc. (NASDAQ), a home
health care company, and M&F Worldwide Corp. (NYSE), a manufacturer of licorice
extract and flavorings.
Mr. Malkin has served as President and Chief Executive Officer of
MediVators since June 1999. From June 1984 until July 1994 and from November
1996 until May 1999, Mr. Malkin was President and Chief Executive Officer of RKM
Enterprises Ltd., a multi-national consulting group for the healthcare industry.
From July 1994 until October 1996, Mr. Malkin was employed by Steris
Corporation, most recently as Senior Vice President.
- 27 -
<PAGE>
Mr. Sheldon has served as Vice President and Controller of the
Company since November 1994. 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's
directors, executive officers, and any persons holding more than ten percent of
the Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in their ownership to the
Securities and Exchange Commission ("SEC"). Specific due dates have been
established by the SEC, and the Company is required to disclose in this Report
any failure to file by those dates. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their 1999 fiscal year
transactions and (ii) the written representations received from one or more of
such persons that no annual Form 5 reports were required to be filed for them
for the 1999 fiscal year, the Company believes that there has been compliance
with all Section 16(a) filing requirements applicable to such officers,
directors, and ten-percent beneficial owners for such fiscal year, except for
the following: (i) a single transaction (purchase of shares) of Charles M. Diker
was not included in a report filed for the month that such transaction occurred,
but was included in the following month's report; (ii) a report of a single
transaction (purchase of shares) of Bruce Slovin was filed late; and (iii) a
report of a single transaction (exercise of an option by delivery of shares) of
William J. Vella was filed late.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years ended July 31,
1999, 1998 and 1997, 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
$100,000 in salary and bonus during fiscal year 1999:
- 28 -
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
----------------------------------------------------
Long-Term
Compensation
Annual Compensation (1) Awards (2)
Name and Salary Bonus Options
Principal Position Year ($) ($) (#)
- ------------------ ---- ------ ------ -------
<S> <C> <C> <C> <C>
Charles M. Diker 1999 150,000 0 51,000
Chairman of the 1998 125,000 0 51,000
Company 1997 100,000 0 51,000
James P. Reilly(3) 1999 275,000 98,494 101,000
President and 1998 250,000 39,225 1,000
Chief Executive 1997 250,000 12,600 1,000
Officer of the
Company
Craig A. Sheldon 1999 109,000 18,000 6,000
Vice President 1998 97,500 15,000 5,000
and Controller 1997 88,125 10,000 5,000
of the Company
William J. Vella(4) 1999 144,997 69,668 10,000
President and 1998 133,447 16,500 10,000
Chief Operating 1997 122,060 10,150 6,000
Officer of
Carsen Group Inc.
</TABLE>
- ----------
(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, the 1991 Directors' Stock Option Plan
and the 1998 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) In March 1999, the Company entered into a four year employment agreement
with James P. Reilly (the "Employment Agreement") that is effective as of
August 1, 1998. The Employment Agreement provides for (i) an annual base
salary of $275,000,
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<PAGE>
subject to annual increases equal to the greater of 5% or a cost of living
formula, (ii) annual incentive compensation equal to 6% of the increase in
the current fiscal year's pre-tax income over the highest pre-tax income
of any prior fiscal year commencing July 31, 1998, subject to adjustment
for specified events, (iii) bonuses of $65,000 payable upon each of the
execution of the Employment Agreement, August 1, 1999 and August 1, 2000,
(iv) participation in employee health, insurance and other benefit plans,
(v) maintenance by the Company of a life insurance policy on the life of
Mr. Reilly in the face amount of $500,000 payable to his designated
beneficiary, and (vi) use of a Company owned or leased automobile. In
addition, Mr. Reilly was granted a stock option under the Company's 1997
Employee Stock Option Plan to purchase 100,000 shares of Common Stock at
an exercise price equal to $6.00 (the fair market value of the shares on
the date of grant) and having a ten year term. The Employment Agreement
provides that if Mr. Reilly's employment is terminated for any reason,
including voluntary termination, death, disability or cause, prior to
August 1, 2000, he will be entitled to a severance payment of $65,000. If
the Employment Agreement expires and Mr. Reilly's employment is terminated
thereafter for any reason, Mr. Reilly will be entitled to a severance
payment equal to one year's base salary plus the amount of his bonus for
the most recently completed fiscal year (the "Severance Amount"). In the
event of a "Change In Control" (as defined in the Employment Agreement),
Mr. Reilly has a nine month option to terminate his employment and receive
a severance payment on a formula basis based on his average compensation
over the previous three years. If such termination is prior to August 1,
1999, severance is 2.5 times such average compensation. After August 1,
1999 such amount is reduced by 2.5% per month, but not below the Severance
Amount described above. The Employment Agreement contains a
non-competition provision applicable for two years following termination
of Mr. Reilly's employment. The Company has the right to terminate the
Agreement for death, disability and "cause" (as defined in the Employment
Agreement") and Mr. Reilly has the right to terminate the Employment
Agreement upon three month's notice.
(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.
On May 19, 1999, MediVators entered into an employment agreement with Roy
K. Malkin that expires on July 31, 2002. Mr. Malkin's employment provides for
(i) an annual base salary of $175,000, subject to annual increases equal to the
greater of 5% or a cost of living formula, (ii) annual incentive compensation
commencing July 31, 2000, equal to 5% of the increase in
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<PAGE>
MediVators' current fiscal year's pre-tax income over MediVators' highest
pre-tax income of any prior fiscal year, (iii) participation in employee health,
insurance and other benefit plans, (iv) maintenance by MediVators of a life
insurance policy on the life of Mr. Malkin in the face amount of $250,000
payable to his designated beneficiary, (v) use of a Company owned or leased
automobile and (vi) the Company to grant Mr. Malkin an option to purchase 50,000
shares of Common Stock under the 1997 Employee Stock Option Plan at an exercise
price equal to $5.25 (the fair market value of the shares on the date of grant).
Since Mr. Malkin was employed for only a portion of fiscal 1999, he is not
included in the Compensation Table above.
OPTION GRANTS IN FISCAL 1999
The following stock option information is furnished for the fiscal year
ended July 31, 1999 with respect to the Company's Chief Executive Officer and
the other executive officers of the Company named in the Compensation Table
above, for stock options granted during such fiscal year. Stock options were
granted without tandem stock appreciation rights.
<TABLE>
<CAPTION>
% of Total
Number of Options Potential Realizable
Shares Granted to Value at Assumed
Underlying Employees Exercise Annual Rates of Stock
Options During the Price Per Expiration Price Appreciation
Name Granted Fiscal Year Share ($) Date for Option Term ($)(1)
---- ---------- ----------- --------- ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5% 10%
------- ---------
Charles M. Diker 50,000 (2) 19.5 7.75 10/29/08 631,197 1,005,075
1,000 (3) 0.4 5.3125 7/30/09 8,654 13,779
James P. Reilly 1,000 (3) 0.4 5.3125 7/30/09 8,654 13,779
100,000 (4) 39.1 6.00 3/28/09 977,337 1,556,245
Craig A. Sheldon 6,000 (5) 2.3 6.50 2/24/04 49,775 62,810
William J. Vella 10,000 (5) 3.9 6.50 2/24/04 82,958 104,683
</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
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<PAGE>
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 1997 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 of 16,666
shares each in six equal annual installments, the first on the date of
grant, and the remaining four shares on 1/1/05.
(5) 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 1999
AND FISCAL YEAR-END OPTION VALUES
The following information is furnished for the fiscal year ended July 31,
1999 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 7/31/99 (#) Options at 7/31/99 ($)
Acquired on Value ---------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Non-Exercisable Exercisable Non-Exercisable
---- ------------ ------------ ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Diker 0 0 109,501 51,499 13,875 0
James P. Reilly 139,815 489,353 73,166 84,834 177,313 0
Craig A. Sheldon 0 0 22,500 13,500 15,938 0
William J. Vella 5,000 12,500 18,750 24,250 2,125 0
</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
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<PAGE>
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 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, 1999, have a
term of five years. At July 31, 1999, options to purchase 122,834 shares of
Common Stock at prices between $4.25 and $8.75 per share were outstanding under
the 1991 Employee Plan, and 68,791 shares were available for grant under the
1991 Employee Plan. No additional options will be granted under the 1991
Employee Plan.
An aggregate of 400,000 shares of Common Stock is reserved for issuance or
available for grant under the Company's 1997 Employee Stock Option Plan, as
amended (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, 1999, have a
term of five years, except for 100,000 options granted to Mr. Reilly under the
terms of his employment agreement, which have a term of ten years. At July 31,
1999, options to purchase 236,500 shares of Common Stock at prices between $5.25
and $8.75 per share were outstanding under the 1997 Employee Plan, and 163,500
shares were available for grant under the 1997 Employee Plan.
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<PAGE>
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
"1991 Directors' Plan"). Options granted under the 1991 Directors' Plan do not
qualify as incentive stock options within the meaning of Section 422 of the
Code. The 1991 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 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), was 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, 1999, options to purchase
133,500 shares of Common Stock at prices between $2.00 and $10.25 per share were
outstanding under the 1991 Directors' Plan, and 16,500 shares were available for
grant under the 1991 Directors' Plan. In addition, at July 31, 1999 Mr. Dornbush
had non-plan options to purchase an aggregate of 6,000 shares of Common Stock at
prices between $5.3125 and $8.75 per share. No additional options will be
granted under the 1991 Director's Plan, and no additional quarterly non-plan
options will be granted to Mr. Dornbush.
An aggregate of 200,000 shares of Common Stock is reserved for issuance or
available for grant under the Company's 1998 Directors' Stock Option Plan (the
"1998 Directors' Plan"). Options granted under the 1998 Directors' Plan do not
qualify as incentive stock options within the meaning of Section 422 of the
Code. The 1998 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
and Reilly and any other director who is a full-time 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. The
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<PAGE>
fiscal year options are exercisable in two equal annual installments commencing
on the first anniversary of the grant thereof and the quarterly options are
exercisable in full immediately. At July 31, 1999 there were no options to
purchase shares of Common Stock outstanding under the 1998 Directors' Plan, and
200,000 shares were available for grant under the 1998 Directors' Plan.
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, 1999, options to purchase 9,321 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 July 1990, Mr. Reilly was granted a ten year non-plan option to
purchase 50,000 shares of Common Stock at an exercise price of $1.875 per share.
This option is exercisable in full and expires in July 2000.
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 full. 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 full. In October 1998,
Mr. Diker was granted a ten-year non-plan option to purchase 50,000 shares of
Common Stock at an exercise price of $7.75 per share. This option is exercisable
in three equal annual installments beginning October 1998.
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. In March 1999, Dr. Rowe was granted a ten year non-plan option to purchase
10,000 shares of Common Stock at an exercise price of $6.375 per share. This
option is exercisable in three equal annual installments beginning March 1999.
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
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<PAGE>
policies which govern annual executive compensation. The Committee is currently
comprised of two members, Alan J. Hirschfield and Robert L. Barbanell, both of
whom are non-employee directors.
Executive compensation for the fiscal year ended July 31, 1999 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,
serves the Company pursuant to a four-year employment agreement effective as of
August 1, 1998 and is compensated pursuant to the express terms of such
agreement.
Long-term incentive compensation policy consists exclusively of the award
of stock options under the Company's 1991 Employee Plan and 1997 Employee 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' Plan and 1998 Directors' Plan.
The Stock Option Committee under the 1991 Employee Plan and the 1997
Employee Plan is responsible for the award of stock options. Two non-employee
directors, Alan J. Hirschfield and Robert L. Barbanell, currently serve on the
Stock Option Committee, which administers the granting of options under the 1991
Employee Plan and the 1997 Employee 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, participated in deliberations concerning
executive compensation, except with respect to the compensation of the Chairman
of the Board and himself.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF SECURITIES
The following table sets forth stock ownership information as of October
8, 1999 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 962,967 (2) 21.0
One New York Plaza Director
New York, New York
Alan J. Hirschfield Vice Chairman of the Board 223,833 (3) 5.0
P.O. Box 7443 and Director
Jackson, Wyoming
Robert L. Barbanell Director 64,500 (4) 1.4
Darwin C. Dornbush, Esq. Secretary and Director 25,180 (5) .6
Morris W. Offit Director 56,500 (6) 1.3
James P. Reilly President and CEO and 169,407 (7) 3.8
Director
John W. Rowe, M.D. Director 11,501 (8) .3
Bruce Slovin Director 178,500 (9) 4.0
Craig A. Sheldon Vice President and 25,000 (10) .6
Controller
William J. Vella President and COO of 43,203 (11) 1.0
Carsen Group Inc.
All officers and 1,760,591 (12) 36.3
directors as a group
of 11 persons
</TABLE>
- ----------
(1) Unless otherwise noted, Cantel believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from October 8, 1999 upon the exercise of options. Each
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<PAGE>
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 8, 1999 have
been exercised.
(2) Includes 142,834 shares which Mr. Diker may acquire pursuant to stock
options. Does not include an aggregate of 584,790 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 27,500 shares which Mr. Hirschfield may acquire pursuant to stock
options.
(4) Includes 39,500 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 15,500 shares which Mr. Dornbush may acquire pursuant to stock
options.
(6) Includes 24,500 shares which Mr. Offit may acquire pursuant to stock
options.
(7) Includes 73,166 shares which Mr. Reilly may acquire pursuant to stock
options. Does not include 69,907 shares owned by Mr. Reilly's wife as to
which Mr. Reilly disclaims beneficial ownership.
(8) Includes 11,501 shares which Dr. Rowe may acquire pursuant to stock
options.
(9) Includes 28,500 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.
(10) Includes 25,000 shares which Mr. Sheldon may acquire pursuant to stock
options.
(11) Includes 25,500 shares which Mr. Vella may acquire pursuant to stock
options.
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<PAGE>
(12) Includes 413,501 shares which may be acquired pursuant to stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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<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, 1999.
1. CONSOLIDATED FINANCIAL STATEMENTS:
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of July 31, 1999 and
1998.
(iii) Consolidated Statements of Income for the years ended
July 31, 1999, 1998 and 1997.
(iv) Consolidated Statements of Changes in Stockholders'
Equity for the years ended July 31, 1999, 1998 and 1997.
(v) Consolidated Statements of Cash Flows for the years ended
July 31, 1999, 1998 and 1997.
(vi) Notes to Consolidated Financial Statements.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
(i) Schedule II - Valuation and Qualifying Accounts for the
years ended July 31, 1999, 1998 and 1997.
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. (Incorporated herein by reference to Exhibit 2(a) to Registrant's 1998
Annual Report on Form 10-K [the "1998 10-K"].)
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<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.)
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<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 July 25, 1990 between
the Registrant and James P. Reilly. (Incorporated by reference to Exhibit 10(q)
to Registrant's 1990 Annual Report on Form 10-K.)
10(f) - 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(g) - 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(h) - 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(i) - 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(j) - 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(k) - 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(l) - Loan and Security Agreement dated as of May 27, 1996, among
MediVators, Inc., Disposal Sciences, Inc. and National Canada Finance Corp.
(Incorporated by reference to Exhibit 10(s) of Registrant's 1996 Annual Report
on Form 10-K [the "1996 10-K"].)
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<PAGE>
10(m) - 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(n) - 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(o) - 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(p) - 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(q) - 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(r) - 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(s) - First Amendment to Loan and Security Agreement dated as of
December 1, 1997, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada. (Incorporated by reference to Exhibit 10(u) of Registrant's 1998
10-K.)
10(t) - Second Amendment to Loan and Security Agreement dated as of
July 1, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National Bank
of Canada. (Incorporated by reference to Exhibit 10(v) of Registrant's 1998
10-K.)
10(u) - Third Amendment to Loan and Security Agreement dated as of
October 26, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada. (Incorporated by reference to Exhibit 10(w) of Registrant's 1998
10-K.)
10(v) - Stock Option Agreement, dated as of October 16, 1997,
between the Registrant and Charles M. Diker. (Incorporated by reference to
Exhibit 10(x) of Registrant's 1998 10-K.)
10(w) - Form of Non-Plan Stock Option Agreement between the
Registrant and Darwin C. Dornbush. (Incorporated by reference to Exhibit 10(y)
of Registrant's 1998 10-K.)
- 43 -
<PAGE>
10(x) - Stock Option Agreement, dated as of October 5, 1998,
between the Registrant and John W. Rowe. (Incorporated by reference to Exhibit
10(z) of Registrant's 1998 10-K.)
10(y) - Non-Competition Agreement, dated as of March 16, 1998,
between the Registrant, Christopher C. Lutz and Bonolyn L. Lutz. (Incorporated
by reference to Exhibit 10(aa) of Registrant's 1998 10-K.)
10(z) - Employment Agreement, dated as of May 19, 1999, between the
Registrant and Roy K. Malkin.
10(aa) - Employment Agreement, dated as of August 1, 1998, between
the Registrant and James P. Reilly.
10(bb) - Fourth Loan Amending Agreement, dated as of May 11, 1999,
among Registrant, Carsen Group Inc. and National Bank of Canada.
10(cc) - Fourth Amendment to Loan and Security Agreement dated as
of November 1, 1998, among MediVators, Inc., Disposal Sciences, Inc. and
National Bank of Canada.
10(dd) - Fifth Amendment to Loan and Security Agreement dated as of
October 1, 1999, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada.
10(ee) - Distributor Agreement dated as of August 1, 1999, among
MediVators, Inc. and Olympus America, Inc. - Endoscope Division.
10(ff) - Stock Option Agreement, dated as of October 30, 1998,
between the Registrant and Charles M. Diker.
10(gg) - Stock Option Agreement, dated as of March 10, 1999,
between the Registrant and John W. Rowe.
21 - Subsidiaries of Registrant.
24 - Consent of Ernst & Young LLP.
27 - 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 27, 1999 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 27, 1999
- ----------------------------
Charles M. Diker, a Director
and Chairman of the Board
/s/ JAMES P. REILLY Date: October 27, 1999
- ----------------------------
James P. Reilly, a Director
and President
/s/ ROBERT L. BARBANELL Date: October 27, 1999
- ----------------------------
Robert L. Barbanell, a Director
/s/ DARWIN C. DORNBUSH Date: October 27, 1999
- ----------------------------
Darwin C. Dornbush, a Director
/s/ ALAN J. HIRSCHFIELD Date: October 27, 1999
- ----------------------------
Alan J. Hirschfield, a Director
/s/ MORRIS W. OFFIT Date: October 27, 1999
- ----------------------------
Morris W. Offit, a Director
/s/ JOHN W. ROWE Date: October 27, 1999
- ----------------------------
John W. Rowe, a Director
/s/ BRUCE SLOVIN Date: October 27, 1999
Bruce Slovin, a Director
- 45 -
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
<PAGE>
CONTENTS
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
<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, 1999 and 1998 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, 1999. 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, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 1999, 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
MetroPark, New Jersey
September 22, 1999
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands, Except Share Data)
July 31,
1999 1998
ASSETS
Current assets:
Cash $ 534 $ 493
Accounts receivable, net of allowance for
doubtful accounts of $81 in 1999 and
$62 in 1998 11,208 8,446
Inventories 8,971 9,207
Insurance claim receivable - 563
Prepaid expenses and other current assets 851 465
-------- --------
Total current assets 21,564 19,174
Property and equipment, at cost:
Furniture and equipment 1,729 2,132
Leasehold improvements 438 619
-------- --------
2,167 2,751
Less accumulated depreciation and amortization (1,272) (1,910)
-------- --------
895 841
Intangible assets, net 1,666 1,823
Other assets 914 640
-------- --------
$25,039 $22,478
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 6,099 $ 4,148
Compensation payable 868 989
Other accrued expenses 1,321 893
Income taxes payable 546 164
-------- --------
Total current liabilities 8,834 6,194
Long-term debt 1,567 3,004
Deferred income taxes 93 54
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 1999
- 4,517,945 shares, outstanding 1999 - 4,440,545
shares; issued and outstanding 1998 - 4,367,201 shares 452 437
Additional capital 19,304 19,019
Accumulated deficit (2,588) (3,957)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment (2,230) (2,273)
Treasury Stock, 77,400 shares at cost (393) -
Total stockholders' equity 14,545 13,226
-------- --------
$25,039 $22,478
See accompanying notes.
2
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
Year Ended July 31,
1999 1998 1997
Net sales:
Product sales $44,879 $36,130 $30,988
Product service 5,223 3,879 3,999
------- ------- -------
Total net sales 50,102 40,009 34,987
------- ------- -------
Cost of sales:
Product sales 31,013 24,251 20,801
Product service 3,050 2,279 2,495
Write-off of medical sharps inventories 452 - -
------- ------- -------
Total cost of sales 34,515 26,530 23,296
------- ------- -------
Gross profit 15,587 13,479 11,691
------- ------- -------
Expenses:
Shipping and warehouse 725 691 590
Selling 6,268 4,939 4,401
General and administrative 4,395 3,790 3,440
Research and development 789 849 589
Costs associated with proposed acquisition 74 - -
------- ------- -------
Total operating expenses 12,251 10,269 9,020
------- ------- -------
Income before interest expense
and income taxes 3,336 3,210 2,671
Interest expense 271 179 143
------- ------- -------
Income before income taxes 3,065 3,031 2,528
Income taxes 1,696 1,336 1,432
------- ------- -------
Net income $ 1,369 $ 1,695 $ 1,096
======= ======= =======
Earnings per common share:
Basic $ 0.31 $ 0.40 $ 0.27
======= ======= =======
Diluted $ 0.30 $ 0.38 $ 0.25
======= ======= =======
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, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated Total
COMMON STOCK Other Treasury Stock-
Number of Additional Accumulated Comprehensive Stock, holders'
SHARES AMOUNT CAPITAL DEFICIT INCOME AT COST EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
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
Exercise of options 154,882 15 315 330
Repurchase of
Common Stock (77,400) (393) (393)
Escrow settlement
related to
Lutz Medical (4,138) (30) (30)
Translation adjustment 43 43
Net income 1,369 1,369
--------- --------- ---------- ----------- ----------- -------- --------
Balance, July 31, 1999 4,440,545 $452 $19,304 $(2,588) $(2,230) $(393) $14,545
========= ========= ========== =========== =========== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
Year Ended July 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,369 $1,695 $1,096
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 482 332 295
Write-off of medical sharps inventories 452 - -
Deferred income taxes 39 (28) (9)
Changes in assets and liabilities:
Accounts receivable (2,756) (1,928) (1,716)
Inventories (187) (794) (778)
Other current assets 178 (682) (87)
Accounts payable and accrued expenses 2,233 740 2,347
Income taxes payable 379 (362) 475
------- ------- -------
Net cash provided by (used in) operating
activities 2,189 (1,027) 1,623
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (362) (374) (296)
Acquisition of Lutz Medical - (315) -
Other, net (286) 23 (77)
------- ------- -------
Net cash used in investing activities (648) (666) (373)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under
credit facilities (1,409) 1,417 (1,866)
Capital lease obligations (28) (7) 41
Proceeds from exercise of stock options
and warrants 330 120 549
Purchases of treasury stock (393) - -
------- ------- -------
Net cash (used in) provided by financing
activities (1,500) 1,530 (1,276)
------- ------- -------
Increase (decrease) in cash 41 (163) (26)
Cash at beginning of year 493 656 682
------- ------- -------
Cash at end of year $ 534 $ 493 $ 656
======= ======= =======
See accompanying notes.
5
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1999, 1998 AND 1997
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") 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, as well as servicing medical equipment.
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 received full recovery
from its insurance companies during fiscal 1999.
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 is fixed and equals or exceeds 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 ($13,881,000 at
July 31, 1999) 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. Amortization
expense on intangible assets was $167,000 and $68,000 for fiscal 1999 and 1998,
respectively.
Goodwill with respect to Carsen of approximately $66,000 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.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
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, 2000. 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.
8
<PAGE>
3. COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "REPORTING COMPREHENSIVE INCOME", which
establishes standards for the reporting and disclosure of comprehensive income
and its components in the financial statements. The adoption of this Statement
had no impact on the Company's net income or stockholders' equity. The Company's
comprehensive income for the years ended July 31, 1999, 1998 and 1997 are set
forth in the following table:
Year Ended July 31,
1999 1998 1997
Net income $1,369,000 $1,695,000 $1,096,000
Other comprehensive income (loss):
Foreign currency translation
adjustment 43,000 (916,000) (29,000)
---------- ----------- -----------
Comprehensive income $1,412,000 $ 779,000 $1,067,000
========== =========== ===========
4. UNUSUAL CHARGES
During fiscal 1999, the Company discontinued MediVators' medical sharps disposal
business, which business had virtually no sales and was not significant to the
results of operations for the Company's Infection Control business in fiscal
1999, 1998 and 1997. In connection with this discontinued business, the Company
wrote-off its remaining net investment in the amount of $467,000, of which
$452,000 represented inventories and is included within cost of sales.
Additionally, the Company incurred costs of $74,000 in fiscal 1999 related to
professional fees associated with the termination of a proposed acquisition.
5. INVENTORIES
A summary of inventories is as follows:
July 31,
1999 1998
Parts $2,230,000 $2,407,000
Work-in-process 41,000 341,000
Finished Goods 6,700,000 6,459,000
Total $8,971,000 $9,207,000
========== ==========
6. FINANCING ARRANGEMENTS
The Company has two credit facilities, a $5,000,000 revolving credit facility
for Carsen expiring on December 31, 2002 and a $1,500,000 revolving credit
facility for MediVators expiring on August 1, 2000. Borrowings under the Carsen
revolving credit
9
<PAGE>
facility are in Canadian dollars and bear interest at rates ranging from
lender's Canadian prime rate to .75% above the prime rate, depending upon
Carsen's debt to equity ratio. Borrowings under the MediVators revolving credit
facility bear interest at the lender's prime rate plus 1%. The prime rates
associated with the Carsen and MediVators revolving credit facilities were 6.25%
and 8%, respectively, at July 31, 1999. Each of the credit facilities provide
for restrictions on available borrowings based primarily upon percentages of
eligible accounts receivable and inventories; requires the subsidiary to meet
certain financial covenants; is secured by substantially all assets of the
subsidiary; and is guaranteed by Cantel. There were $1,561,000 and $2,970,000 of
borrowings outstanding under these facilities at July 31, 1999 and 1998,
respectively.
7. INCOME TAXES
Deferred income taxes recorded in the consolidated balance sheets at July 31,
1999 and 1998 include deferred tax assets related to net operating loss
carryforwards ("NOLs") of $5,746,000 and $5,610,000, 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
$93,000 and $54,000, 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, 1999 and 1998 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 $16,900,000 at July 31, 1999, which expire through July
31, 2014. Of this amount, approximately $3,300,000 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. The NOLs presented are based upon the tax returns as filed and
are subject to examination by the Internal Revenue Service.
The provision (benefit) for income taxes consists of the following:
Year Ended July 31,
1999 1998 1997
------------------------------------------------------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
United
States $ 22,000 $ - $ 5,000 $ - $ 7,000 $ -
Canada 1,635,000 39,000 1,359,000 (28,000) 1,434,000 (9,000)
---------- --------- ---------- --------- ---------- --------
Total $1,657,000 $ 39,000 $1,364,000 $(28,000) $1,441,000 $(9,000)
========== ========= ========== ========= ========== ========
10
<PAGE>
The components of income (loss) before income taxes are as follows:
Year Ended July 31,
1999 1998 1997
United States $ (556,000) $ 79,000 $ (576,000)
Canada 3,621,000 2,952,000 3,104,000
----------- ---------- -----------
Total $3,065,000 $3,031,000 $2,528,000
=========== ========== ===========
The effective tax rate differs from the United States statutory tax rate (34%)
due to the following:
Year Ended July 31,
1999 1998 1997
Expected statutory tax expense $1,042,000 $1,031,000 $ 860,000
Canadian dividend withholding taxes 21,000 - 3,000
Differential attributable to
Canadian operations 443,000 327,000 370,000
Utilization of NOLs - (27,000) -
Benefit not recognized on
domestic operating losses 189,000 - 196,000
State and local taxes 1,000 5,000 3,000
---------- ----------- ----------
Total $1,696,000 $1,336,000 $1,432,000
========== =========== ==========
8. COMMITMENTS AND CONTINGENCIES
DISTRIBUTION AGREEMENTS
OLYMPUS AGREEMENT
The majority of Carsen's sales of medical, scientific and consumer products have
been made pursuant to an agreement (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.
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 $17.3 million and $19.4 million during the contract years
ending March 31, 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
11
<PAGE>
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 four year agreement with Olympus (the "MediVators Agreement")
which expires on August 1, 2003, under which Olympus was granted the exclusive
right to distribute all MediVators' endoscope disinfection equipment and related
accessories in the United States and Puerto Rico, including the product line
acquired from Lutz Medical in March 1998. All products sold by Olympus pursuant
to this agreement bear both the "Olympus" and "MediVators" trademarks.
This agreement provides for minimum purchase projections. Failure to
achieve the minimum purchase projections in any contract year could 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, 1999 and 1998, accounts receivable included bill and hold
receivables of approximately $314,000 and $904,000, respectively.
LICENSE AGREEMENT
MediVators is a party to an exclusive worldwide license agreement with the Mayo
Foundation for Medical Education and Research (the "Mayo Foundation") which
grants MediVators a license to manufacture and sell certain related patented
equipment known as the OTT Disinfector for flexible endoscopes ("OTT
Disinfector") and to use certain related proprietary know-how of the Mayo
Foundation (the "License Agreement"). The License Agreement expires 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.
12
<PAGE>
FOREIGN EXCHANGE CONTRACTS
The Company's Canadian subsidiary enters into foreign exchange forward contracts
and foreign exchange option contracts to purchase United States dollars to hedge
against currency fluctuations affecting purchases of inventory. Total
commitments for such foreign currency forward and option contracts amounted to
approximately $11,286,000 at July 31, 1999, and cover the majority of Carsen's
projected purchases of inventory through January 2000. The fair value of such
contracts at July 31, 1999, based upon current market quotes for contracts with
similar terms, approximated the carrying value of such contracts.
LEASE OBLIGATIONS
Aggregate future minimum rental commitments at July 31, 1999 under operating
leases for property and equipment are as follows:
Year Ending July 31,
2000 $396,000
2001 231,000
2002 56,000
2003 22,000
2004 13,000
Total rental commitments $718,000
Rent expense aggregated $440,000, $459,000 and $329,000 for fiscal 1999, 1998
and 1997, respectively.
LITIGATION
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, and has obtained summary judgement dismissing
a portion of the claims. Currently, both parties are conducting discovery and a
trial date has been set for December 13, 1999. Management believes that the
remaining 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.
9. 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
13
<PAGE>
four equal annual installments and expire up to a maximum of ten years from the
date of the grant. At July 31, 1999, 68,791 shares were available for grant
under this plan. No additional options will be granted under the 1991 Employee
Stock Option Plan.
The Company's 1997 Employee Stock Option Plan, as amended, provides for the
granting of options to employees to purchase up to 400,000 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, 1999, 163,500
shares were available for grant under this plan.
The Company's 1991 Directors' Stock Option Plan provides for the granting of
options to directors to purchase up to 200,000 shares of its Common Stock.
Options under this plan may be granted to directors only. Under the plan,
options to purchase 1,000 shares are granted annually on the last business day
of the Company's fiscal year to each member of the Company's Board of Directors.
The annual options are exercisable, as to 50% of the number of shares, on the
first anniversary of the grant of such options and are exercisable for the
balance of such shares on the second anniversary of the grant of such options.
On a quarterly basis, options to purchase 500 shares are granted to each member
of the Company's Board, except for employees of the Company, in attendance at
that quarter's Board of Directors meeting. The quarterly options are exercisable
immediately. 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, 1999, 16,500 shares were available for grant under this
plan. No additional options will be granted under the 1991 Directors' Stock
Option Plan.
The Company's 1998 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, 1999, 200,000 shares were available for grant under this
plan.
14
<PAGE>
The Company also has outstanding non-plan options which have been granted at the
market price at the time of grant 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 $997,000 and $0.22, respectively, for
fiscal 1999, $1,339,000 and $0.30, respectively, for fiscal 1998 and $847,000
and $0.19, respectively, for fiscal 1997. The pro forma effect on net income for
1999, 1998 and 1997 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 5.71% to 6.19%; and
expected weighted average option lives of 4-10 years. Additionally, all options
were considered to be non-deductible for tax purposes in the valuation model.
The weighted average fair value of options granted was $3.11 and $3.47 per share
for fiscal 1999 and 1998, respectively.
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 and the
expected life. 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.
15
<PAGE>
A summary of stock option activity follows:
Weighted
Number Average
OF SHARES EXERCISE PRICE
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
Granted 305,000 6.36
Canceled (88,944) 6.20
Exercised (158,064) 2.23
---------
Outstanding at July 31, 1999 753,155 $6.02
=========
Exercisable at July 31, 1997 462,363 $3.93
=========
Exercisable at July 31, 1998 496,498 $4.20
=========
Exercisable at July 31, 1999 426,365 $5.63
=========
The following table summarizes additional information related to stock options
outstanding at July 31, 1999:
<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, 1999 (MONTHS) PRICE AT JULY 31, 1999 PRICE
<S> <C> <C> <C> <C> <C>
$1.75 - $4.00 125,000 17 $2.58 125,000 $2.58
$4.25 - $6.8125 338,927 77 $5.82 117,552 $5.56
$7.00 - $10.25 289,228 73 $7.74 183,813 $7.75
------- -------
$1.75 - $10.25 753,155 65 $6.02 426,365 $5.63
======= =======
</TABLE>
There were an aggregate of 74,739 warrants outstanding to purchase shares of
Common Stock at July 31, 1998 at prices ranging from $9.80 to $19.45 per share.
These warrants expired during fiscal 1999.
16
<PAGE>
10. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Year Ended July 31,
1999 1998 1997
Numerator for basic
and diluted earnings
per share:
Net income $1,369,000 $1,695,000 $1,096,000
========== ========== ==========
Denominator for basic
and diluted earnings
per share:
Denominator for basic
earnings per share -
weighted average number
of shares outstanding 4,394,406 4,240,023 4,073,304
Dilutive effect of options
and warrants using the
treasury stock method and
the average market price
for the year 196,934 243,862 280,903
---------- ---------- ----------
Denominator for diluted
earnings per share -
weighted average number
of shares and common
stock equivalents 4,591,340 4,483,885 4,354,207
========== ========== ==========
Basic earnings per share $ 0.31 $ 0.40 $ 0.27
========== ========== ==========
Diluted earnings per share $ 0.30 $ 0.38 $ 0.25
========== ========== ==========
In fiscal 1999, the charge of $467,000 associated with the discontinuance of
MediVators' medical sharps disposal business, as discussed in Note 4 to the
Consolidated Financial Statements, reduced basic and diluted earnings per share
by $0.11 and $0.10, respectively. Without this charge, basic and diluted
earnings per share for fiscal 1999, as adjusted, would have been $0.42 and
$0.40, respectively.
11. 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.
17
<PAGE>
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.
Aggregate contributions under these plans were $108,000, $90,000 and $47,000 for
fiscal 1999, 1998 and 1997, respectively.
12. SUPPLEMENTAL INCOME STATEMENT AND CASH FLOW INFORMATION
Advertising costs charged to expenses were $570,000, $357,000 and $257,000 for
fiscal 1999, 1998 and 1997, respectively.
Interest paid was $280,000, $189,000 and $140,000 for fiscal 1999, 1998 and
1997, respectively.
Federal, state and foreign income tax payments were $1,319,000, $1,798,000 and
$1,080,000 for fiscal 1999, 1998 and 1997, 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.
13. 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, as well as servicing medical 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.
The medical, 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.
18
<PAGE>
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, cooperative
buying groups, large retail store chains and major department stores.
In accordance with SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION", the Company has determined its reportable business
segments based upon an assessment of product types, organizational structure,
customers and internally prepared financial statements. The primary factors used
by management in analyzing segment performance are net sales and operating
income. No customer accounts for more than 10% of the Company's net sales for
the years presented.
(a) Information as to operations in different segments is summarized below:
Year Ended July 31,
1999 1998 1997
Net sales:
Medical Products $16,887,000 $12,679,000 $14,927,000
Infection Control
Products 9,334,000 8,086,000 5,332,000
Scientific Products 6,868,000 5,957,000 5,786,000
Product Service 5,223,000 3,879,000 3,999,000
Consumer Products 12,557,000 9,848,000 5,431,000
Elimination of inter-
company sales of
Infection Control
Products (767,000) (440,000) (488,000)
------------ ------------ ------------
Total $50,102,000 $40,009,000 $34,987,000
============ ============ ============
Operating income (loss):
Medical Products $ 3,038,000 $ 1,972,000 $ 2,348,000
Infection Control
Products (1) 412,000 707,000 277,000
Scientific Products 231,000 317,000 (22,000)
Product Service 1,600,000 1,173,000 1,174,000
Consumer Products (531,000) 106,000 (12,000)
Elimination of inter-
company operating
income (loss) of
Infection Control Products (25,000) 2,000 1,000
----------- ------------ ------------
4,725,000 4,277,000 3,766,000
General corporate expenses (1,389,000) (1,067,000) (1,095,000)
Interest expense (271,000) (179,000) (143,000)
------------ ------------ ------------
Income before income taxes $ 3,065,000 $ 3,031,000 $ 2,528,000
============ ============ ============
(1) Includes for fiscal 1999 costs of $467,000 associated with the
discontinuance of MediVators' medical sharps disposal business. Without this
write-off, fiscal 1999 operating income and income before income taxes for
Infection Control Products would have been $879,000 and $3,532,000,
respectively.
19
<PAGE>
Year Ended July 31,
1999 1998 1997
Identifiable assets:
Medical Products $ 9,507,000 $ 6,940,000 $ 7,169,000
Infection Control
Products 5,317,000 5,572,000 3,057,000
Scientific Products 4,865,000 4,154,000 3,774,000
Product Service 949,000 1,458,000 1,432,000
Consumer products 3,660,000 3,610,000 2,300,000
General corporate 741,000 744,000 870,000
----------- ----------- -----------
Total $25,039,000 $22,478,000 $18,602,000
=========== =========== ===========
Capital expenditures:
Medical Products $ 122,000 $ 109,000 $ 38,000
Infection Control
Products 66,000 63,000 220,000
Scientific Products 49,000 82,000 13,000
Product Service 35,000 34,000 10,000
Consumer Products 90,000 85,000 14,000
General corporate - 1,000 1,000
----------- ----------- -----------
Total $ 362,000 $ 374,000 $ 296,000
=========== =========== ===========
Depreciation and amortization:
Medical Products $ 85,000 $ 66,000 $ 68,000
Infection Control
Products 265,000 131,000 78,000
Scientific Products 41,000 58,000 100,000
Product Service 24,000 20,000 18,000
Consumer Products 63,000 52,000 25,000
General corporate 4,000 5,000 6,000
----------- ----------- -----------
Total $ 482,000 $ 332,000 $ 295,000
=========== =========== ===========
20
<PAGE>
(b) Information as to geographic areas is summarized below:
Year Ended July 31,
1999 1998 1997
Net sales:
United States $ 8,994,000 $ 8,106,000 $ 5,703,000
Canada 41,108,000 31,903,000 29,284,000
----------- ----------- -----------
Total $50,102,000 $40,009,000 $34,987,000
=========== =========== ===========
Operating income:
United States $ 484,000 $ 768,000 $ 117,000
Canada 4,241,000 3,509,000 3,649,000
----------- ----------- -----------
Total $ 4,725,000 $ 4,277,000 $ 3,766,000
=========== =========== ===========
Total assets:
United States $ 5,573,000 $ 6,143,000 $ 3,651,000
Canada 19,466,000 16,335,000 14,951,000
----------- ----------- -----------
Total $25,039,000 $22,478,000 $18,602,000
=========== =========== ===========
21
<PAGE>
CANTEL INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
Allowance for
doubtful accounts:
Year ended
July 31, 1999 $ 62,000 $ 61,000 $ 42,000 $ 81,000
==================================================
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
==================================================
22
<PAGE>
EXHIBIT 10(Z)
EMPLOYMENT AGREEMENT
AGREEMENT dated this 19th day of May, 1999, by and between MediVators,
INC., a Minnesota corporation (the "Company"), and ROY K. MALKIN (the
"Employee").
Introduction
Employee is being employed by the Company as an executive officer. The
parties desire to enter into an employment agreement and to set forth herein the
terms and conditions of Employee's employment by the Company. Accordingly, in
consideration of the mutual covenants and agreements set forth herein and the
mutual benefits to be derived here from, and intending to be legally bound
hereby, the Company and Employee agree as follows:
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is hereby agreed by and between the Company and Employee as follows:
1. Engagement and Term. The Company hereby employs Employee and Employee
hereby accepts such employment by the Company on the terms and conditions set
forth herein, for the period commencing on May 19, 1999 (the "Effective Date")
and ending, unless sooner terminated in accordance with the provisions of
Section 4 hereof, on July 31, 2002 (the "Employment Period"). As used in this
Agreement, the term "Contract Year" shall refer to each twelve-month period
during the Employment Period ending July 31; provided, however, that the
"Initial Contract Year" shall be deemed the period commencing on May 19, 1999
and ending on July 31, 2000.
<PAGE>
2. Scope of Duties. Employee shall be employed by the Company as its
President and Chief Executive Officer. In such capacities, Employee shall have
such authority, powers and duties customarily attendant upon such offices. If
elected or appointed, Employee shall also serve, without additional
compensation, in one or more offices and, if and when elected, as a director of
the Company or any subsidiary or affiliate of the Company, provided that his
duties and responsibilities are not inconsistent with those pertaining to his
position as stated above. Employee agrees to perform the duties associated with
his employment to the best of his abilities, and shall faithfully devote his
full business time and efforts so as to advance the best interests of the
Company. During the Employment Period, Employee shall not be engaged in any
other business activity, whether or not such business activity is pursued for
profit or other pecuniary advantage, unless otherwise approved in writing by the
Board of Directors of Cantel Industries, Inc. ("Cantel").
3. Compensation.
3.1 Basic Compensation. In respect of services to be performed by
Employee during the Employment Period, the Company agrees to pay Employee a base
salary ("Basic Compensation") at the rate of $175,000 per annum during the
Initial Contract Year, payable in accordance with the Company's customary
payroll practices for executive employees.
The Base Salary shall be increased annually by an amount
established by reference to the "Consumer Price Index for Urban Wage Earners and
- 2 -
<PAGE>
Clerical Workers, Minneapolis, Minnesota, all items - Series A-01" published by
the Bureau of Labor Statistics of the United States Department of Labor (the
"Consumer Price Index"). The base period shall be the month ended March 31, 1999
(the "Base Period"). If the Consumer Price Index for the month of March in any
year, commencing in 2000, is greater than the Consumer Price Index for the Base
Period, Base Salary shall be increased, commencing on August 1 of the next
Fiscal Year (the Company's Fiscal Year being the 12-month period ending July 31
of each year), to the amount obtained by multiplying Base Salary by a fraction,
the numerator of which is the Consumer Price Index for the month of March of the
year in which such determination is being made and the denominator of which is
the Consumer Price Index for the Base Period. Notwithstanding the foregoing, in
no event shall Employee receive, for any Fiscal Year, an increase in Base Salary
of less than five (5%) percent over the Base Salary, as adjusted, (continued
hereafter to be referred to simply as "Base Salary") for the previous Fiscal
Year.
3.2 Incentive Compensation. For each Fiscal Year of the Company
(each a "Subject Fiscal Year") during the Employment Period (commencing with the
Company's Fiscal Year ending July 31, 2000) the Employee shall be paid, as
additional compensation for his services, a bonus (the "Bonus") based on the
increase in profitability of the Company. The Bonus shall be equal to five
percent (5%) of the excess of Pretax Income (hereinafter defined) for the
Subject Fiscal Year over Pretax Income for the Test Year (as hereinafter
defined) multiplied by a number (i) the numerator of which shall be the number
of days during Subject Fiscal Year that
- 3 -
<PAGE>
Employee is employed hereunder and (ii) the denominator of which shall be 365,
but shall, in no event, exceed 100% of Employee's Base Salary for such Subject
Fiscal Year. The Bonus shall be payable not later than the 15th day of the
fourth month following the Subject Fiscal Year for which the Bonus is payable.
"Test Year" shall mean the Company's Fiscal Year, commencing with the Company's
Fiscal Year ending July 31, 1999, in which the Company has recorded its highest
Pretax Income of any such Fiscal Years.
"Pretax Income" shall mean, for any Fiscal Year, the income of
the Company and its consolidated subsidiaries from continuing operations
determined in accordance with generally accepted accounting principles from time
to time in effect ("GAAP") before provisions for income taxes and Employee's
Bonus pursuant to this Section 3.2. Pretax Income shall be adjusted to exclude
gains or losses from the sale or distribution of assets not in the Company's
ordinary course of business and gains or losses from transactions accounted for
as extraordinary events in accordance with GAAP.
3.3 Stock Options. The Company agrees to cause the grant to Employee
as of the Effective Date, an option (the "Option") to purchase Fifty Thousand
(50,000) shares of Common Stock, par value $.10 per share of Cantel. The Option
will be granted under Cantel's 1997 Employee Stock Option Plan (the "Plan")
pursuant to a separate option agreement in the form annexed hereto as Exhibit A.
The Option shall have a five year term, a three-year vesting schedule
(commencing on the first anniversary of the Effective Date), and an option
exercise price per share
- 4 -
<PAGE>
equal to the fair market value of Cantel's Common Stock on the Effective Date.
3.4 Discretionary Compensation. The Employee shall also be entitled
to such additional increases in Base Salary, bonuses and stock options as shall
be determined from time to time by the Board of Directors of Cantel.
3.5 Life Insurance. Provided that Employee is insurable at rates
that are comparable to those obtainable on other persons of similar age and
position in good health (if Employee is classified in a higher risk category, he
may elect to pay the excess premium cost to obtain the coverage), during the
Employment Period the Company shall procure and maintain term life insurance on
the life of Employee in the face amount of $250,000. Employee shall be the owner
of such life insurance policy and shall have the absolute right to designate the
beneficiaries thereunder. The Company shall pay all premiums for such life
insurance. Employee agrees to submit to all medical examinations, supply all
information and execute all documents required by insurance companies in
connection with the issuance of such policy.
3.6 Use of Automobile. During the Employment Period, Employee shall
be entitled to the use of an automobile leased or owned by the Company in
connection with the Company's business. The make and model of the automobile
shall be reasonably satisfactory to Employee, provided that the Company's
monthly payments in respect thereof (exclusive of the expenses referred to in
the following sentence) shall not exceed $500. Employee shall be entitled to
receive reimbursement for reasonable out-of-pocket expenses, including, without
limitation, cost of gas, oil, insurance and other costs incurred by Employee in
operating and maintaining the
- 5 -
<PAGE>
automobile; provided, however, that Employee shall be responsible for keeping
appropriate records regarding the use of said automobile, as instructed by the
Company or its accountants.
3.7 Other Benefits. During the Employment Period, Employee shall be
entitled to participate in (i) the Company's 401-K benefit plan and (ii) the
medical health insurance plan and all other health, insurance and other benefit
plans applicable generally to executive officers of the Company on the same
basis as such officers.
During the Employment Period, Employee will be entitled to
paid vacation (4 weeks) and holidays consistent with the Company's policy
applicable to executives generally. All vacations shall be scheduled at the
mutual convenience of the Company and the Employee.
4. Termination of Employment. The provisions of Section 1 of this
Agreement notwithstanding, the Company may terminate this Agreement and
Employee's employment hereunder in the manner and for the causes hereinafter set
forth, in which event the Company shall be under no further obligation to
Employee other than as specifically provided herein:
A. If Employee is absent from work or otherwise substantially
unable to assume his normal duties for a period of sixty (60) successive days or
an aggregate of ninety (90) business days during any consecutive twelve-month
period during the Employment Period because of physical or mental disability,
accident, illness, or any other cause other than vacation or approved leave of
absence, the Company may thereupon, or any time thereafter while such absence or
disability still
- 6 -
<PAGE>
exists, terminate the employment of Employee hereunder upon ten (10) days'
written notice to Employee.
B. In the event of the death of Employee, this Agreement shall
immediately terminate on the date thereof.
C. If Employee materially breaches or violates any material
term of his employment hereunder, or commits any criminal act or an act of
dishonesty or moral turpitude, in the reasonable judgment of Cantel's Board of
Directors, then the Company may, in addition to other rights and remedies
available at law or equity, immediately terminate this Agreement upon written
notice to Employee with the date of such notice being the termination date and
such termination being deemed for "cause". In the event Employee's employment is
terminated pursuant to this subparagraph C, then in such event, Employee shall
be entitled only to Basic Compensation through the date of termination, and the
Company shall have no further obligation under Section 3 of this Agreement.
D. In the event Employee's employment shall be terminated by
reason of the provisions of subparagraph A or B of this Section 4, then in such
event, the Company shall continue to pay to Employee, if living, or other person
or persons as Employee may from time to time designate in writing as the
beneficiary of such payments, the Basic Compensation in effect at the time which
such death or disability occurred during the three-month period following such
death or disability.
- 7 -
<PAGE>
5. Disclosure of Confidential Information, Assignment of Inventions,
AND COVENANT NOT TO COMPETE.
5.1 Confidential Information. Employee acknowledges that the
Company possesses confidential information, know-how, customer lists,
purchasing, merchandising and selling techniques and strategies, and other
information used in its operations of which Employee will obtain knowledge, and
that the Company will suffer serious and irreparable damage and harm if this
confidential information were disclosed to any other party or if Employee used
this information to compete against the Company. Accordingly, Employee hereby
agrees that except as required by Employee's duties to the Company, Employee,
without the consent of the Company's Board of Directors, shall not at any time
during or after the Employment Period disclose or use any secret or confidential
information of the Company, including, without limitation, such business
opportunities, customer lists, trade secrets, formulas, techniques and methods
of which Employee shall become informed during his employment, whether learned
by him as an employee of the Company, as a member of its Board of Directors or
otherwise, and whether or not developed by Employee, unless such information
shall be or becomes public knowledge other than as a result of Employee's direct
or indirect disclosure of the same.
5.2 Patent and Related Matters.
5.2.1 Employee will promptly disclose in writing to
the Company complete information concerning each and every invention,
discovery, improvement and idea (whether or not shown or described in writing
or reduced to
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practice), and device, design, apparatus, process, and work of authorship,
whether or not patentable, copyrightable or registerable, which is made,
developed, perfected, devised, conceived or first reduced to practice by
Employee, either solely or in collaboration with others, during the Employment
Period, whether or not during regular working hours (hereinafter collectively
referred to as the "Inventions"). Employee, to the extent that he has the legal
right to do so, hereby acknowledges that any and all of the Inventions are
property of the Company and hereby assigns and agrees to assign to the Company
any and all of Employee's right, title and interest in and to any and all of the
Inventions.
5.2.2 Limitation. It is further agreed and
Employee is hereby notified that the above agreement to assign the Inventions
to the Company does not apply to an Invention for which no equipment,
supplies, facility or confidential information of the Company was used and
which was developed entirely on Employee's own time, and
(i) which does not relate (a) directly to
the business of the Company or (b) to the Company's actual or demonstrably
anticipated research or development, or
(ii) which does not result from any work
performed
by Employee for the Company.
5.2.3 Assistance. Upon request and without further
compensation therefor, but at no expense to Employee, and whether during the
Employment Period or thereafter, Employee will do all lawful acts, including,
but not
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limited to, the execution of documents and instruments and the giving of
testimony, that in the opinion of the Company, its successors and assigns, may
be necessary or desirable in obtaining, sustaining, reissuing, extending or
enforcing United States and foreign copyrights and Letters Patent, including,
but not limited to, design patents, on any and all of the Inventions, and for
perfecting, affirming and recording the Company's complete ownership and title
thereto, and to cooperate otherwise in all proceedings and matters relating
thereto.
5.2.4 Records. Employee will keep complete, accurate
and authentic accounts, notes, data and records of all the Inventions in the
manner and form requested by the Company. Such accounts, notes, data and records
shall be the property of the Company, and upon its request, Employee will
promptly surrender the same to it.
Upon the termination of the Employment Period, Employee
agrees to deliver promptly to the Company all records, manuals, books, blank
forms, documents, letters, memoranda, notes, notebooks, reports, data, tables,
accounts, calculations and copies thereof, which are the property of the Company
or which relate in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and confidential information
of the Company, including, but not limited to, all documents which in whole or
in part contain any trade secrets or confidential information of the Company,
which in any of these cases are in his possession or under his control.
5.3 Non-Compete. Employee agrees that for a
period of
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one year following the termination of Employee's employment hereunder (the
"Non-Competition Period"), except as a result of the breach by the Company of
any material term or condition hereof, Employee will not, directly or
indirectly, alone or with others, individually or through or by a corporate or
other business entity in which he may be interested as a partner, shareholder,
joint venturer, officer, director, employee or otherwise, own, manage, control,
participate in, lend his name to, or render services to or for any business
within the continental United States which is competitive with that of the
Company or any of its affiliates, provided, however, that the foregoing shall
not be deemed to prevent the ownership by Employee of up to five percent of any
class of securities of any corporation which is regularly traded on any stock
exchange or over-the-counter market. For the purpose of this Agreement, a
business activity competitive with the business of the Company or any of its
affiliates shall include only the design, manufacture, marketing, sale, or
distribution of (i) endoscopes, (ii) endoscope disinfection or sterilization
equipment or supplies, (iii) medical waste disposal systems or (iv) infection
control equipment, products, supplies or systems (collectively "Products") which
are the same as or similar to or compete with, or have a usage allied to
Products being developed, marketed, sold or distributed by the Company or any of
its affiliates at any time during the last twelve months of Employee's
employment by the Company.
5.4 Non-interference. Employee further agrees
that during the Non-Competition Period he will not (i) induce or attempt to
induce any other employee of the Company or any of its affiliates to leave
the employ of the Company
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or affiliate, or in any way interfere with the relationship between the Company
(or any of its affiliates) and any other employee, or (ii) induce or attempt to
induce any customer, supplier, franchisee, licensee, distributor or other
business relation of the Company or any of its affiliates to cease doing
business with the Company or affiliate, or in any way interfere with the
relationship between any customer, franchisee or other business relation and the
Company and any of its affiliates without prior written consent of the Board of
Directors of Cantel.
5.5 Enforcement. If, at the time of enforcement
of any provisions of this Section, a court of competent jurisdiction holds
that the restrictions stated herein are unreasonable under the circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances will be substituted for
the stated period, scope or area. Employee agrees that the covenants made in
this Section shall be construed as an agreement independent of any other
provision of this Agreement, and shall survive the termination of this
Agreement.
6. Reimbursement of Expenses. The Company shall further pay
directly, or reimburse Employee, for all other reasonable and necessary expenses
and disbursements incurred by him for and on behalf of the Company in the
performance of his duties during the Employment Period upon submission of
vouchers or other evidence thereof in accordance with the Company's usual
policies of expense reimbursement.
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7. Miscellaneous Provisions.
7.1 Section headings are for convenience only and shall not be
deemed to govern, limit, modify or supersede the provisions of this Agreement.
7.2 This Agreement is entered into in the State of Minnesota
and shall be governed pursuant to the laws of the State of Minnesota. If any
provision of this Agreement shall be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable, the remaining provisions hereof shall
continue to be fully effective.
7.3 This Agreement contains the entire agreement of the
parties regarding this subject matter. There are no contemporaneous oral
agreements, and all prior understandings, agreements, negotiations and
representations are merged herein.
7.4 This Agreement may be modified only by means of a writing
signed by the party to be charged with such modification.
7.5 Notices or other communications required or permitted to
be given hereunder shall be in writing and shall be deemed duly given upon
receipt by the party to whom sent at the respective addresses set forth below or
to such other address as any party shall hereafter designate to the other in
writing delivered in accordance herewith:
If to MediVators:
MediVators, Inc.
2995 Lone Oak Circle
Suite 10
Eagan, Minnesota 55121
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With a copy to:
Cantel Industries, Inc.
1135 Broad Street
Suite 203
Clifton, New Jersey 07013
If to Employee:
Roy K. Malkin
10225 Ilsley Square
Concord, Ohio 44060
7.6 This Agreement shall inure to the benefit of, and shall be
binding upon, the Company, its successors and assigns, including, without
limitation, any entity that may acquire all or substantially all of the
Company's assets and business or into which the Company may be consolidated or
merged. This Agreement may not be assigned by Employee.
7.7 This Agreement may be executed in separate counterparts
and may be delivered by facsimile, each of which shall constitute the original
hereof.
IN WITNESS WHEREOF, the parties have set their hands as of the date
first above written.
MEDIVATORS, INC.
By: /s/ Craig A. Sheldon
Craig A. Sheldon, Vice President
/s/ Roy K. Malkin
Roy K. Malkin
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EXHIBIT 10 (AA)
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of August, 1998 by and between Cantel
Industries, Inc., a Delaware corporation (the "Company") and James P. Reilly
(the "Employee").
R E C I T A L :
The Company is desirous of continuing the employment of Employee, and
Employee is desirous of continuing his employment by the Company on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is hereby agreed by and between the Company and Employee as follows:
1. ENGAGEMENT AND TERM. The Company hereby employs Employee and Employee
hereby accepts such employment by the Company on the terms and conditions set
forth herein, for a period commencing on the date of this Agreement as set forth
above (the "Effective Date") and ending, unless sooner terminated in accordance
with the provisions of Section 5 hereof, on the fourth anniversary of such
Effective Date (the "Employment Period").
2. SCOPE OF DUTIES. Employee shall be employed by the Company as its
President and Chief Executive Officer. In such capacities, the Executive shall
have such authority, powers and duties customarily attendant upon such offices.
If elected or appointed, Employee shall also serve,
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without additional compensation, in one or more offices and as a director of the
Company or any subsidiary or affiliate of the Company, provided that his duties
and responsibilities are not inconsistent with those pertaining to his position
as stated above. Employee shall faithfully devote his full business time and
efforts so as to advance the best interests of the Company. During the
Employment Period, Employee shall not be engaged in any other business activity,
whether or not such business activity is pursued for profit or other pecuniary
advantage, unless the same is only incidental and is in no way, directly or
indirectly, competitive with, or opposed to the best interests of the Company.
The Company will use its best efforts to cause Employee to be reelected a
member of the Board of Directors of the Company during the Employment Period.
3. COMPENSATION.
3.1 BASE SALARY. During the Employment Period, the Company shall pay
Employee, as compensation for his services, a base salary (the "Base Salary") of
$275,000 per annum payable in arrears in substantially equal period installments
in accordance with the Company's regular payroll practices. Inasmuch as Employee
has not received salary at said $275,000 rate from August 1, 1998, the Company
will promptly make a lump sum payment to Employee equal to the amount he would
have received had salary at such rate been paid from August 1, 1998.
3.2 AUTOMATIC INCREASES IN BASE SALARY. The Base Salary shall be
increased annually by an amount established by reference to the "Consumer Price
Index for Urban Wage Earners and Clerical Workers, New York, New York, all items
- - Series A-01" published by the Bureau of Labor Statistics of the United States
Department of Labor (the "Consumer Price Index"). The base period shall be the
month ended March 31, 1998 (the "Base Period"). If the Consumer
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Price Index for the month of March in any year, commencing in 1999, is greater
than the Consumer Price Index for the Base Period, Base Salary shall be
increased, commencing on August 1 of the next Fiscal Year (the Company's Fiscal
Year being the 12-month period ending July 31 of each year), to the amount
obtained by multiplying Base Salary by a fraction, the numerator of which is the
Consumer Price Index for the month of March of the year in which such
determination is being made and the denominator of which is the Consumer Price
Index for the Base Period. Notwithstanding the foregoing, in no event shall
Employee receive, for any Fiscal Year, an increase in Base Salary of less than
five (5%) percent over the Base Salary as adjusted (continued hereafter to be
referred to simply as "Base Salary") payable for the previous Fiscal Year.
3.3 INCENTIVE COMPENSATION. For each Fiscal Year of the Company
(each a "Subject Fiscal Year") during the Employment Period (commencing with the
Company's Fiscal Year ending July 31, 1999) the Employee shall be paid, as
additional compensation for his services, a bonus (the "Bonus") based on the
profitability of the Company. The Bonus shall be equal to six percent (6%) of
the excess of Pretax Income (hereinafter defined) for the Subject Fiscal Year
over Pretax Income for the Test Year (as hereinafter defined) multiplied by a
number (i) the numerator of which shall be the number of days during Subject
Fiscal Year that Employee is employed hereunder and (ii) the denominator of
which shall be 365, but shall, in no event, exceed 100% of Employee's Base
Salary for such Subject Fiscal Year. The Bonus shall be payable not later than
the 15th day of the fourth month following the Subject Fiscal Year for which the
Bonus is payable.
3.3.1 "Test Year" shall mean the Company's Fiscal Year,
commencing with the Company's Fiscal Year ended July 31, 1998, in which
the Company has recorded its highest Pretax Income of any such Fiscal
Years.
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3.3.2 "Pretax Income" shall mean, for any Fiscal Year,
the income (positive or negative) of the Company and its consolidated
subsidiaries (or, if required by the context, of an entity acquired by the
Company) from continuing operations determined in accordance with
generally accepted accounting principles from time to time in effect
("GAAP") before provisions for income taxes and Executive's Bonus pursuant
to this Section 3.3. Pretax Income shall be adjusted to exclude gains or
losses from the sale or distribution of assets not in the Company's
ordinary course of business and gains or losses from transactions
accounted for as extraordinary events in accordance with GAAP. For any
Fiscal Year, "Pretax Income" shall be adjusted in accordance with the
provisions of Sections 3.3.3, 3.3.4, 3.3.5 and 3.3.6
3.3.3 With respect to any Subject Fiscal Year in which
the Company has made an acquisition accounted for on a "pooling of
interests" basis, Pretax Income for that Subject Fiscal Year shall include
only the percentage (the "Acquisition Percentage") of the Pretax Income of
the acquired company (the "Target") which is derived by dividing (i) the
number of days in the Subject Fiscal Year after and including the date of
the acquisition by (ii) 365. In such case, the Pretax Income of the
Company for the Test Year shall be adjusted by adding to such Pretax
Income, the Pretax Income of the Target for the Company's Fiscal Year next
preceding the year of such acquisition, multiplied by the Acquisition
Percentage. For purposes of this Section 3.3.3, the costs of such
acquisition shall be amortized over a period of thirty-six (36) months
commencing on the date of acquisition. An example of this computation is
annexed hereto as Exhibit A.
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3.3.4 With respect to any Subject Fiscal Year in which
the Company has made an acquisition accounted for on a "purchase" basis,
Pretax Income for such Subject Fiscal Year shall, in accordance with GAAP,
take into account the following: (i) the costs of funds used for such
acquisition and (ii) depreciation and amortization of the assets of the
Target (including any "Goodwill") on the basis of their valuation required
by "purchase" accounting. In addition, Pretax Income of the Company for
that Subject Fiscal Year shall include only the Acquisition Percentage of
the Pretax Income of the Target (but only if positive), and the Pretax
Income of the Company for the Test Year shall be adjusted by adding to
such Pretax Income, the Pretax Income of the Target (but only if positive)
for the Company's Fiscal Year next preceding the year of such acquisition,
multiplied by the Acquisition Percentage. In computing the Pretax Income
of the Target for such next preceding Fiscal Year, depreciation and
amortization expense of each depreciable and amortizable asset of the
Target (including Goodwill) shall be charged in such amounts as would have
been charged had the acquisition been consummated (and the assets
revalued) as of the same date in such Fiscal Year as was the effective
date of the "purchase" acquisition in the Subject Fiscal Year. An example
of this computation is annexed hereto as Exhibit B.
3.3.5 The provisions of Sections 3.3.3 and 3.3.4 to the
contrary notwithstanding, any acquisition consummated less than sixty (60)
days prior to the end of any Fiscal Year, and the expenses related
thereto, shall be disregarded for purposes of computing any Bonus for that
Fiscal Year.
3.3.6 None of the above adjustments are to be made to
Pretax Income with respect to any acquisition in the computation of Bonus
for any Subject Fiscal
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Year subsequent to the Fiscal Year in which the acquisition occurs (an
"Acquisition Year") except as follows:
3.3.6.1 The adjustment described in the last
sentence of Section 3.3.3 shall be made with respect of each
the Fiscal Years following an acquisition accounted for on a
pooling of interests basis; and
3.3.6.2 With respect to any acquisition made on a
purchase basis, if the Acquisition Year of such acquisition is
a potential Test Year for any subsequent Subject Fiscal Year,
the Pretax Income of such Fiscal Year shall be adjusted by
adding thereto the Pretax Income (but only if positive) of the
Target for the portion of such Acquisition Year which precedes
the date of such acquisition; and if any Fiscal Year PRIOR to
the Acquisition Year of such acquisition is a potential Test
Year for any subsequent Subject Fiscal Year, the Pretax Income
of such Fiscal Year shall be adjusted by adding thereto the
Pretax Income (but only if positive) of the Target for the
entire Acquisition Year, including the portions of the
Acquisition Year which are both before and after the effective
date of such acquisition (computed on the basis of the
Company's fiscal year, not the Target's fiscal year).
3.3.7 The provisions of Sections 3.3.3, 3.3.4, 3.3.5 and
3.3.6 are intended to express the general agreement of the parties with
respect to acquisitions. Both the Company and Employee acknowledge that
many acquisitions create factors which would make application of these
principles inequitable or difficult or impossible of computation, and
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agree to negotiate case by case adjustments in good faith.
3.4 ADDITIONAL BONUS. The Company agrees to pay Employee an
additional bonus in the amount of Sixty Five Thousand ($65,000) Dollars on each
of (i) the date of execution hereof, (ii) August 1, 1999 and (ii) August 1,
2000; PROVIDED that the Company's obligation to make any such payment is
contingent upon Employee's continued employment by the Company on the date of
such payment.
3.5 STOCK OPTIONS. The Company agrees to grant to Employee as of the
date of the execution of this Agreement, an option (the "Option") to purchase
100,000 shares of the Company's Common Stock, par value $.10 per share. The
Company acknowledges that such grant is a material inducement for Employee to
enter into this Agreement and essential to Employee for him to continue his
employment with the Company. The Option will be granted pursuant to a separate
option agreement entered into on the execution date of this Agreement, shall
have an option exercise price per share equal to the closing price for the
Company's Common Stock as reported by NASDAQ on the last trading day on which
such stock was traded next preceding the date of such execution, and shall have
a term of 10 years. The Option will consist entirely of "Incentive Stock
Options" ("ISO") as defined in the Internal Revenue Code. The Option shall
become exercisable in such number of approximately equal annual installments as
is the smallest number of installments so that the number of the shares as to
which the Option first becomes exercisable in each installment does not exceed
the $100,000 limitation for ISO's, with the first such installment becoming
exercisable by Employee on the date of such grant, and each succeeding
installment becoming exercisable by Employee on succeeding anniversaries of such
grant; PROVIDED, HOWEVER, that in the event that Employee's employment with the
Company shall terminate for any reason prior to the Option's
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becoming exercisable in its entirety, the Option shall automatically become
exercisable (and shall remain exercisable for at least a ninety-day period
following such termination of employment), without regard for the treatment of
the entirety of the Option as an ISO, as to 25,000 shares for each Fiscal Year
or fraction thereof that have elapsed between the Effective Date of this
Agreement and the date of such termination. The Option shall be subject to any
requirement of shareholder approval imposed by the National Association of
Securities Dealers, Inc. as a condition to the continued quotation of the
Company's Common Stock on NASDAQ (including the National Market System thereof).
The Company will have used its best efforts to obtain such shareholder approval,
if required, at the next annual meeting of the Company's shareholders following
the Effective Date hereof. Notwithstanding the foregoing, in the event of
Employee's termination as an employee of the Company, except as a result of the
breach of any material term or condition hereof by the Company, any portion of
the Option not then exercisable shall automatically expire.
3.6 DISCRETIONARY COMPENSATION. The Employee shall also be entitled
to such additional increases in Base Salary, bonuses and stock options as shall
be determined from time to time by the Board of Directors of the Company.
3.7 CERTAIN PAYMENTS UPON TERMINATION.
3.7.1 In the event that Employee shall leave the employment of
the Company for any reason, including voluntary termination, death, disability
or cause, prior to August 1, 1999, he shall be entitled to a special severance
payment of One Hundred and Thirty Thousand ($130,000) Dollars; and in the event
that Employee shall leave the employment of the Company for any reason on or
after August 1, 1999 but prior to August 1, 2000, he shall be entitled to a
special severance payment of Sixty-Five Thousand ($65,000) Dollars. Any payments
made pursuant to this Section
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3.7.1 shall be payable in a lump sum within fifteen (15) days after the date on
which Employees employment shall terminate and shall be in addition to any other
payments made to Employee under this Agreement. Employee shall be entitled to no
payments pursuant to this Section 3.7.1 in the event that his employment with
the Company terminates on or after August 1, 2000.
3.7.2 In the event that no new employment agreement is entered
into by the Company and Employee, and Employee's employment with the Company is
terminated for any reason after the expiration of the Employment Period,
Employee shall be entitled to severance pay, payable in a lump sum upon such
termination of employment, equal to (i) one year's Base Salary at the rate
payable immediately prior to such termination, plus (ii) the amount of Bonus
payable with respect the most recently completed Fiscal Year of the Company
computed pursuant to Section 3.3 hereof.
3.8 CHANGE IN CONTROL. In the event at any time after the Effective
Date, (i) a majority of the Board of Directors is composed of persons who are
not "Continuing Directors," as hereinafter defined, or (ii) Mr. Charles Diker
AND a total of three (3) other persons who were members of the Board of
Directors at December 31, 1998 have ceased to serve as members of the Board of
Directors, which events are defined to mean a "Change in Control," Employee
shall have the option, to be exercised within nine (9) months after such Change
of Control by written notice to the Company, to resign as an employee and
terminate this Agreement, effective as of such date specified in the notice of
exercise, which shall not be earlier than thirty (30) days nor later than sixty
(60) days after the date of such notice. Immediately upon such termination
Employee shall receive payment of a sum (the "Severance Payment") computed as
follows:
3.8.1 In the event Employee exercises his option to
terminate his employment pursuant to this Section 3.8 prior to the first
anniversary of this Agreement, the
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Severance Payment shall be Employee's Average Compensation (as hereinafter
defined) times two and one half (2 1/2).
3.8.2 In the event Employee exercises his option to
terminate this Agreement pursuant to Section 3.8 after the first
anniversary of this Agreement, the amount of Severance Payment computed
pursuant to Section 3.8.1 shall be reduced by two and one half (2.5%)
percent times the number of complete months which have elapsed at the time
of exercise of such option after such first anniversary; PROVIDED,
HOWEVER, that in no event shall such amount be less then would have been
paid Employee if the payment contemplated by Section 3.7.2 became payable
on the date of such exercise; and PROVIDED FURTHER, HOWEVER, that in no
event shall Employee receive payments under both Section 3.7.2 and this
Section 3.8.
3.8.3 The Severance Payment shall be made to Employee
not later than twenty (20) days after the date designated by the Employee
as the date upon which Employee's resignation as an employee and
termination of his Employment is to be effective. The Severance Payment
shall constitute liquidated damages and not a penalty, and Employee shall
not be obligated to seek employment to mitigate his damages; nor shall any
compensation the Employee receives from any party subsequent to such
termination be an offset to the amount of the Severance Payment.
3.8.4 "Continuing Directors" shall mean (i) the
directors of the Company at the close of business on December 31, 1998,
and (ii) any person who was or is elected (A) to succeed a Continuing
Director or (B) to become a director as a result of an increase in the
size of the Board, recommended, in each case, by a majority of the
Continuing
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Directors then on the Board.
3.8.5 "Average Compensation" shall mean the average of
Base Salary and Bonus (including any similar payments for periods prior to
the term of this Agreement, but excluding payments pursuant to Sections
3.4 and 3.7.1 and grants of stock options) paid by Company to Employee for
the three most recently completed Fiscal Years.
3.9 OTHER BENEFITS.
3.9.1 Employee shall be entitled to participate, at
Company expense, in the major medical health insurance plan, and all other
health, insurance or other benefit plans immediately applicable generally
to executive officers of the Company. Without limiting the generality of
the foregoing, the Company agrees to maintain term life insurance in the
principal amount of $500,000 for the benefit of the Employee during the
Employment Period.
3.9.2 During the Employment Period, Employee will be
entitled to paid vacation and holidays consistent with the Company's
policy applicable to executives generally. All vacations shall be
scheduled at the mutual convenience of the Company and the Employee.
3.9.3 During the Employment Period, Employee shall be
entitled to the use of an automobile leased or owned by the Company in
connection with the Company's business. The make and model of the
automobile shall be reasonably satisfactory to Employee, provided that the
Company's monthly payments in respect thereof (exclusive of the expenses
referred to in the following sentence) shall not exceed $700. Employee
shall be entitled to receive reimbursement for reasonable out-of-pocket
expenses, including, without limitation, cost of gas, oil, insurance and
other costs incurred by Employee in operating and
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maintaining the automobile; provided, however, that Employee shall be
responsible for keeping appropriate records regarding the use of said
automobile, as instructed by the Company or its accountants.
3.9.4 The Company will reimburse the Employee for
reasonable out-of-pocket expenses incurred in furtherance of the business
of the Company, including travel, entertainment and similar items, upon
the presentation of appropriate receipts of vouchers therefor.
4. DISCLOSURE OF CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE.
Employee acknowledges that the Company possesses confidential information,
know-how, customer lists, purchasing, merchandising and selling techniques and
strategies, and other information used in its operations of which Employee will
obtain knowledge, and that the Company will suffer serious and irreparable
damage and harm if this confidential information were disclosed to any other
party or if Employee used this information to compete against the Company.
Accordingly, Employee hereby agrees that except as required by Employee's duties
to the Company, Employee, without the consent of the Company's Board of
Directors, shall not at any time during or after the term of this contract
disclose or use any secret or confidential information of the Company,
including, without limitation, such business opportunities, customer lists,
trade secrets, formulas, techniques and methods of which Employee shall become
informed during his employment, whether learned by him as an Employee of the
Company, as a member of its Board of Directors of otherwise, and whether or not
developed by the Employee, unless such information shall be or become public
knowledge other than as a result of the Employee's direct or indirect disclosure
of the same.
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Employee further agrees that for a period of two (2) years following the
termination of Employee's employment with the Company, except as a result of the
breach by the Company of any material term or condition hereof, Employee will
not, directly or indirectly, alone or with others, individually or through or by
a corporate or other business entity in which he may be interested as a partner,
shareholder, joint venturer, officer or director or otherwise, engage in the
United States or Canada in any business which is competitive with that of the
Company or any of its subsidiaries, provided, however, that the foregoing shall
not be deemed to prevent the ownership by Employee of up to five percent of any
class of securities of any corporation which is regularly traded on any stock
exchange or over-the-counter market.
5. TERMINATION OF EMPLOYMENT. The provisions of Section 1 of this
Agreement notwithstanding, the Company or Employee may terminate this Agreement
and Employee's employment hereunder in the manner and for the causes hereinafter
set forth, in which event the Company shall be under no further obligation to
Employee other than as specifically provided herein:
5.1 If Employee is absent from work or otherwise substantially
unable to assume his normal duties for a period of sixty (60) successive days or
an aggregate of ninety (90) business days during any consecutive twelve-month
period during the Employment Period because of physical or mental disability,
accident, illness, or any other cause other than vacation or approved leave of
absence, the Company may thereupon, or any time thereafter while such absence or
disability still exists, terminate the employment of Employee hereunder upon ten
(10) days' written notice to
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Employee.
5.2 In the event of the death of Employee, this Agreement shall
immediately terminate on the date thereof.
5.3 If Employee materially breaches or violates any material term of
his employment hereunder, or commits any criminal act or an act of dishonesty or
moral turpitude, in the reasonable judgment of the Company's Board of Directors,
then the Company may, in addition to other rights and remedies available at law
or equity, immediately terminate this Agreement upon written notice to Employee
with the date of such notice being the termination date and such termination
being deemed for "cause."
5.4 Employee shall have the right to terminate his employment with
or without cause upon three (3) months' prior written notice to the Company.
6. MISCELLANEOUS PROVISIONS.
6.1 SECTION HEADINGS. Section headings are for convenience only and
shall not be deemed to govern, limit, modify or supersede the provisions of this
Agreement.
6.2 CHOICE OF LAWS. This Agreement is entered into in the State of
New York and shall be governed pursuant to the laws of the State of New York. If
any provision of this Agreement shall be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
6.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties regarding this subject matter. There are no contemporaneous oral
agreements and all prior understandings, agreements, negotiations and
representations are merged herein.
14
<PAGE>
6.4 AMENDMENT. This Agreement may be modified only by means of a
writing signed by the party to be charged with such modification.
6.5 NOTICES. Notices or other communications required or permitted
to be given hereunder shall be in writing and shall be deemed duly given upon
receipt by the party to whom sent at the respective addresses set forth below or
to such other address as any party shall hereafter designate to the other in
writing delivered in accordance herewith:
If to the Company:
Cantel Industries, Inc.
1135 Broad Street, Suite 203
Clifton, New Jersey 07103
If to Employee:
James P. Reilly
12 Mulberry Lane
Edison, New Jersey 08820
6.6 SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall inure
to the benefit of, and shall be binding upon, the Company, its successors and
assigns, including, without limitation, any entity that may acquire all or
substantially all of the Company's assets and business or into which the Company
may be consolidated or merged. This Agreement may not be assigned by Employee.
[Balance of Page Intentionally Left Blank]
15
<PAGE>
6.7 COUNTERPART EXECUTION. This Agreement may be executed in
separate counterparts, each of which shall constitute the original hereof.
IN WITNESS WHEREOF, the parties have set their hands as of the date first
above written.
CANTEL INDUSTRIES, INC.
Dated: March 29, 1999 By:/s/ Charles M. Diker
---------------------------
Charles M. Diker, Chairman
of the Board
Dated: March 29, 1999 /s/ James P. Reilly
------------------------------
James P. Reilly
16
<PAGE>
EXHIBIT A
Computation of Effect of a "Pooling of Interests" Acquisition
on
James P. Reilly Bonus Computation
------------------
1. ASSUMPTIONS
i. The Company's Pretax Income, without giving effect to any
acquisition, is as follows:
FY1998 FY1999 FY200
------ ------ -----
$3.0M $2.9M $3.2M
ii. An acquisition of Target is consummated November 1, 1999. Pretax
Income of Target is as follows:
FY1999 FY2000
------ ------
$0.8M $1.2M
Note that Target's financial results would need to be restated to be
on the Company's (July 31) Fiscal Year. Note also that the Company
operated Target's business for 273 days of FY2000, so the
Acquisition Percentage will be approximately 75%.
iii. Aggregate costs of the acquisition were $.4M. As these costs are to
be amortized over a 36 month period, and 1/4 (9 months) of this
period falls within the Subject Fiscal Year, $.1M is charged against
Pretax Income in the Subject Fiscal Year.
2. COMPUTATION
i. TEST YEAR PRETAX INCOME: The Test Year is FY1998, because that
Fiscal Year has the Higher Pretax Income. To the $3.0M Pretax Income
generated by the Company in that year is added $0.6M, being 75% (the
Acquisition Percentage) of the $0.8M Pretax Income generated by
Target in FY1999, the year next prior to the acquisition. Thus,
total adjusted Pretax Income for the Test Year is $3.6M.
ii. SUBJECT YEAR PRETAX INCOME: The Subject Year is FY2000, the Fiscal
Year in which the acquisition occurred and, by hypothesis, the year
for which the Bonus is being
A - 1
<PAGE>
computed. The $3.2M Pretax Income generated by the Company in that
year is reduced by $.1M (the acquisition costs attributed to that
year) to $3.1M, to which is added $0.9M, being 75% (the Acquisition
Percentage) of the $1.2M Pretax Income generated by Target in
FY2000, the year of the acquisition. Thus, total adjusted Pretax
Income for the Subject Year is $4.0M.
iii. COMPUTATION OF BONUS: The Bonus with respect to FY2000 will be
$24,000, being $4.0M (Subject Year Pretax Income, as adjusted) less
$3.6M (Test Year Pretax Income, as adjusted) or $0.4M, times 6%.
A - 2
<PAGE>
EXHIBIT B
Computation of Effect of a "Purchase" Acquisition
on
James P. Reilly Bonus Computation
------------------
1. ASSUMPTIONS
i. The Company's Pretax Income, without giving effect to any
acquisition, is as follows:
FY1998 FY1999 FY2000
------ ------ -----
$3.0M $2.9M $3.1M
ii. An acquisition of Target is consummated November 1, 1999. Pretax
Income of Target, without including the additional amortization and
depreciation expense mandated by "purchase" accounting is as
follows:
FY1999 FY2000
------ ------
$0.8M $1.2M
Note that Target's financial results would need to be restated to be
on the Company's (July 31) Fiscal Year. Note also that the Company
operated Target's business for 273 days of FY2000, so the
Acquisition Percentage will be approximately 75%.
iii. In FY2000 Target incurs an additional $0.3M of additional
Depreciation and Amortization Expense because the acquisition
requires the stepping up of the depreciable and amortizable basis of
certain assets. It is assumed that if the acquisition had been
consummated on the same date in FY1999, the depreciation and
amortization expense would have been increased by the same amount.
iv. A $0.2M interest expense is incurred in the Subject Fiscal Year as
interest on the funds borrowed for the acquisition.
B - 1
<PAGE>
2. COMPUTATION
i. TEST YEAR PRETAX INCOME: The Test Year is FY1998, because that
Fiscal Year has the higher Pretax Income. To the $3.0M Pretax Income
generated by the Company in that year is added $0.6M, being 75% (the
Acquisition Percentage) of the $0.8M Pretax Income generated by
Target in FY1999, the year next prior to the acquisition, less the
$0.3M of additional depreciation expense. Thus, total adjusted
Pretax Income for the Test Year is $3.3M.
ii. SUBJECT YEAR PRETAX INCOME: The Subject Year is FY2000, the Fiscal
Year in which the acquisition occurred and, by hypothesis, the year
for which the Bonus is being computed. To the $3.1M Pretax Income
generated by the Company in such Subject Fiscal Year is added $0.9M,
being 75% (the Acquisition Percentage) of the $1.2M Pretax Income
generated by Target in FY2000, the year of the acquisition. From
this total is subtracted the $0.3M of additional depreciation
expense and the $0.2M additional interest expense, making the
adjusted Pretax Income for the Subject Fiscal Year $3.5M.
iii. COMPUTATION OF BONUS: The Bonus with respect to FY2000 will be
$12,000, being $3.5M (Subject Year Pretax Income, as adjusted) less
$3.3M (Test Year Pretax Income, as adjusted) or $0.2M, times 6%.
B - 2
<PAGE>
Exhibit 10(bb)
CARSEN GROUP INC.
as Borrower
and
CANTEL INDUSTRIES INC.
as Guarantor
and
NATIONAL BANK OF CANADA
as Lender
- --------------------------------------------------------------------------------
FOURTH LOAN AMENDING AGREEMENT
MAY 11, 1999
- --------------------------------------------------------------------------------
STIKEMAN, ELLIOTT
<PAGE>
FOURTH LOAN AMENDING AGREEMENT
Fourth Loan Amending Agreement dated May 11, 1999 between Carsen Group
Inc. (the "BORROWER"), Cantel Industries, Inc. ("CANTEL") and National Bank of
Canada, (the "LENDER").
RECITALS:
(1) The Borrower, Cantel and the Lender are parties to a loan agreement
dated October 29, 1993 (the "Original LOAN AGREEMENT") pursuant to
which the Lender has agreed to make certain extensions of credit to the
Borrower on the terms and conditions contained therein and Cantel
agreed to make certain commitments with respect to the Borrower's
obligations to the Lender;
(2) The Borrower, Cantel and the Lender amended the Original Loan Agreement
pursuant to loan amending agreements dated August 28, 1995, April 19,
1996 and March 7, 1997 (collectively, the "AMENDING AGREEMENTS") (the
Original Loan Agreement as amended by the Amending Agreements is
hereinafter referred to as the "LOAN AGREEMENT");
(3) Section 8.05 of the Loan Agreement provides, INTER ALIA, that no
amendment or waiver of any provision of the Loan Agreement shall be
effective unless consented to in writing by the Lender; and
(4) The Borrower has requested that the Lender, INTER ALIA, (i) extend the
Repayment Date to December 31, 2002; (i) provide for LIBOR Advances;
and (ii) amend the fees applicable to Letters of Credit, and the Lender
has agreed to permit such amendments to the Loan Agreement on the terms
and conditions set forth in this fourth amending agreement.
In consideration of the foregoing and the mutual agreements contained
herein (the receipt and adequacy of which are acknowledged), the parties agree
as follows:
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINED TERMS.
As used in this Agreement, the following terms have the following
meanings:
"FOURTH AMENDING AGREEMENT", "HEREIN", "HEREBY", "HEREOF" and similar
expressions mean or refer to this fourth loan amending agreement.
<PAGE>
-2-
SECTION 1.2 LOAN AGREEMENT.
Capitalized terms used in this amending agreement and not otherwise
defined have the meanings specified in the Loan Agreement.
SECTION 1.3 HEADINGS, ETC.
The division of this Fourth Amending Agreement into Articles and
Sections and the insertion of headings are for convenient reference only and are
not to affect its interpretation.
ARTICLE 2
AMENDMENTS TO THE LOAN AGREEMENT
SECTION 2.1 AMENDMENTS TO SECTION 1.01 OF THE LOAN AGREEMENT.
Section 1.1 of the Loan Agreement is amended effective as of this date
as follows:
(a) The definition of "ADVANCES" in Section 1.01 of the Loan Agreement
is deleted and the following is substituted:
"ADVANCES" means any advances under the Credit Facility and
"ADVANCE" means any one of such advances. Advances may be
denominated in Canadian Dollars (a "CANADIAN DOLLAR ADVANCE")
or in U.S. Dollars (a "U.S. DOLLAR ADVANCE"). A U.S. Dollar
Advance may be designated a "LIBOR RATE ADVANCE" or a "U.S.
BASE RATE ADVANCE". Each of a LIBOR Rate Advance, a Canadian
Dollar Advance and a U.S. Base Rate Advance is a "TYPE" of
Advance.
(b) After the definition of "Letter of Guarantee" and before the
definition of "Loan Documents", the following definitions are
added:
"LIBOR INTEREST PERIOD" means, for each LIBOR Rate Advance, a
period which commences (i) in the case of the initial LIBOR
Interest Period, on the date the Advance is made, and (ii) in
the case of any subsequent LIBOR Interest Period, on the last
day of the immediately preceding LIBOR Interest Period, and
which ends, in either case, on the day selected by the
Borrower in the applicable Notice of Borrowing or Notice of
Interest Rate Election. The duration of each LIBOR Interest
Period shall be 1, 2, 3 or 6 months (or such shorter or longer
period as may be approved by the Lender), unless the last day
of a LIBOR Interest Period would otherwise occur on a day
other than a Business Day, in which case the last day of such
LIBOR Interest Period shall be extended to occur on the next
Business Day, or if such
<PAGE>
-3-
extension would cause the last day of such LIBOR Interest
Period to occur in the next calendar month, the last day of
such LIBOR Interest Period shall occur on the preceding
Business Day.
"LIBOR RATE" means, for each LIBOR Interest Period for each
LIBOR Rate Advance, the annual rate of interest (expressed on
the basis of a 360-day year) equal to the average (rounded
upward to the nearest whole multiple of 1/16 of 1% per annum)
of the rates per annum which leading banks in the London
interbank markets are offering deposits in the relevant
currency and amount for a period equal to the relevant LIBOR
Interest Period, on the day which is two Business Days before
the first day of such LIBOR Interest Period.
(c) The definition of "REPAYMENT DATE" in Section 1.01 of the Loan
Agreement is deleted and the following is substituted:
"REPAYMENT DATE" means, in respect of repayment of all
Accommodations made hereunder, December 31, 2002.
SECTION 2.2 AMENDMENTS TO SECTION 2.01 OF THE LOAN AGREEMENT.
Section 2.01(2) of the Loan Agreement is amended effective as of this
date by adding after the first sentence of Section 2.01(2) the following
sentence:
"Notwithstanding the preceding sentence, each LIBOR Rate Advance shall
be in a minimum amount of U.S. $500,000 and in integral multiples of U.S.
$100,000."
SECTION 2.3 AMENDMENTS TO SECTION 2.03 OF THE LOAN AGREEMENT.
Section 2.03 of the Loan Agreement is deleted effective as of this date
and the following is substituted:
"(1) Each Advance shall initially be the Type of Advance specified in
the applicable Notice of Borrowing and shall bear interest at the rate
applicable to such Type of Advance, determined as provided in Sections
2.06, 2.07 and 2.07A until (i) in the case of a LIBOR Rate Advance, the
end of the initial LIBOR Interest Period specified in the Notice of
Borrowing, (ii) in the case of any other Type of Advance, the date on
which the Advance is repaid in full or is changed to another Type of
Advance pursuant to Section 2.03(3).
(2) Subject to availability, the Borrower may elect to (i) change any
Advance to another Type of Advance in accordance with Section 2.03(3) ,
(A) in the case of a Canadian Dollar Advance or a U.S. Base Rate
Advance, as of any Business Day, and (B) in the case of a LIBOR Rate
Advance, as of the last day of the LIBOR Interest Period applicable to
the LIBOR Rate Advance, or,
<PAGE>
-4-
(ii) continue any LIBOR Rate Advance for a further LIBOR Interest
Period beginning on the last day of the then current LIBOR Interest
Period in accordance with Section 2.03(3). If the Borrower elects to
change any Advance to another Type of Advance, the amount of the
Advance in the new currency shall be the Equivalent Cdn. $ Amount or
the Equivalent U.S. $ Amount, as the case may be, of the Advance in the
prior currency, determined as of the effective date of the change.
(3) Each election to change from one Type of Advance to another Type of
Advance or to continue a LIBOR Rate Advance for a further LIBOR
Interest Period shall be made on at least two Business Days' notice,
given, in each case, not later than 12:00 noon (Toronto time) by the
Borrower to the Lender. Each such notice (a "NOTICE OF INTEREST RATE
ELECTION") shall be in writing by the Borrower. In the event of a
conflict between the Lender's record of such Interest Rate Election
made by telephone and any written Interest Rate Election, the Lender's
record shall prevail and the Borrower hereby waives its rights, if any,
to dispute the terms of such record absent the existence of any
manifest error. If the Borrower fails to deliver a Notice of Interest
Rate Election to the Lender for any LIBOR Rate Advance as provided in
this Section 2.03(3), the LIBOR Rate Advance shall be converted (as of
the last day of the applicable LIBOR Interest Period) to and be
outstanding as a U.S. Base Rate Advance. The Borrower shall not select
a LIBOR Interest Period which conflicts with the definition of LIBOR
Interest Period in Section 1.01 or with the repayment pursuant to
Section 2.05.
(4) Each Interest Rate Election shall specify, with respect to the
outstanding Advances to which such Interest Rate Election applies the
new Type of Advance selected and the date on which such change is to be
made, and be substantially in the form of Schedule 7. Such conversion
or any such conversion under this Section 2.03 shall not constitute a
repayment under Section 2.05. Each Interest Rate Election shall be
irrevocable and binding upon the Borrower."
SECTION 2.4 AMENDMENTS TO SECTION 2.04 OF THE LOAN AGREEMENT.
Section 2.04 of the Loan Agreement is deleted effective as of this date
and the following is substituted:
"(1) If, at any time during the term of this Agreement, the Lender
acting in good faith determines (which determination shall be final,
conclusive and binding upon the Borrower) that:
(a) adequate and fair means do not exist for ascertaining the rate of
interest on a LIBOR Rate Advance;
<PAGE>
-5-
(b) the LIBOR Rate does not accurately reflect the effective cost to
the Lender of making, funding or maintaining a LIBOR Rate Advance
and the costs to the Lender are increased or the income receivable
by the Lender is reduced in respect of a LIBOR Rate Advance;
(c) the making, funding or maintaining of a LIBOR Rate Advance or a
portion thereof by the Lender has become impracticable by reason
of circumstances which materially and adversely affect the London
interbank market; or
(d) deposits of U.S. Dollars are not available to the Lender in the
London interbank market in sufficient amounts in the ordinary
course of business for the applicable Lender to make, fund or
maintain a LIBOR Rate Advance during the LIBOR Interest Rate
Period;
the Lender shall promptly notify the Borrower setting forth the basis
of that determination and the Borrower hereby instructs the Lender to
repay the affected LIBOR Rate Advance with the proceeds of a U.S. Base
Rate Advance in the amount of the LIBOR Rate Advance, to be drawn down
on the date of such repayment. The Lender shall not be required to make
any further LIBOR Rate Advance available under this Agreement so long
as any of the circumstances referred to in this 2.04(1) continue.
(2) If the Lender, acting reasonably, determines which determination
shall be final, conclusive and binding upon the Borrower, and notifies
the Borrower that (i) by reason of circumstances affecting financial
markets inside or outside of Canada, deposits of U.S. Dollars are
unavailable to the Lender, (ii) adequate and fair means do not exist
for ascertaining the applicable interest rate on the basis provided in
the definition of LIBOR Rate or U.S. Base Rate, as the case may be,
(iii) the making or continuation of any U.S. Dollar Advances has been
made impracticable or unlawful (y) by the occurrence of a contingency
(other than a mere increase in rates payable by the Lender to fund the
Advances) which materially and adversely affects the funding of the
Credit Facility at any interest rate computed on the basis of the LIBOR
Rate or the U.S. Base Rate, as the case may be, or (z) by reason of a
change since the date of this Agreement in any applicable law or
governmental regulation, guideline or order or in the interpretation
thereof by any Official Body affecting the Lender, or any relevant
financial market which results in the LIBOR Rate or the U.S. Base Rate,
as the case may be, no longer representing the effective cost to the
Lenders of deposits in such market for the relevant period, or (iv) any
change to present law, or any future law, regulation, order, treaty, or
official directive (whether or not having the force of law), or any
change therein or in the interpretation or application thereof by any
to its obligations in respect of U.S. Dollar Advances as contemplated
hereby, then:
<PAGE>
-6-
(a) The right of the Borrower to select U.S. Dollar Advances shall be
suspended until the Lender determines that the circumstances
causing the suspension no longer exist and the Lender so notifies
the Borrower;
(b) If a LIBOR Rate Advance is already outstanding at any time when
the right of the Borrower to select LIBOR Rate Advances is
suspended, it and all other LIBOR Rate Advances in the same
Borrowing shall become U.S. Base Rate Advances on the last day of
the then current Interest Period (or on such earlier date as may
be required to comply with any applicable law, rule, regulation,
judgment or order) or, if the Borrower does not have the right to
select U.S. Base Rate Advances at such time, the LIBOR Rate
Advance shall become a Canadian Dollar Advance on the last day of
the then current LIBOR Interest Period applicable to it (or on
such earlier date as may be required to comply with any applicable
law, rule, regulation, judgment or order) in a principal amount
equal to the Equivalent Cdn. $ Amount of the LIBOR Rate Advance
determined on the date on which the Advance becomes denominated in
Canadian Dollars; and
(c) If any U.S. Dollar Advance is already outstanding at any time when
the right of the Borrower to select U.S. Dollar Advances is
suspended, it and all other U.S. Dollar Advances included in the
same Borrowing shall become Canadian Dollar Advances (i) in the
case of a LIBOR Rate Advance, on the last day of the then current
LIBOR Interest Period (or on such earlier date as may be required
to comply with any applicable law, rule or regulation), and (ii)
in the case of a U.S. Base Rate Advance, immediately, in a
principal amount equal, in each case, to the Equivalent Cdn. $
Amount of the related U.S. Dollar Advance determined on the date
on which the Advance becomes denominated in Canadian Dollars.
SECTION 2.5 ADDITION OF SECTION 2.07A TO THE LOAN AGREEMENT.
After Section 2.07 and before Section 2.08, the following Section 2.07A
is added:
"SECTION 2.07A INTEREST ON LIBOR ADVANCES. Subject to Section 2.08, the
Borrower shall pay interest on the unpaid principal amount of each
LIBOR Advance made to it from the date of such LIBOR Advance until such
principal amount shall be repaid in full for every period commencing on
the tenth day following delivery of Quarterly Financial Statements (the
"Prior Financial Statements") by the Borrower and ending on the ninth
date following the next following delivery of Quarterly Financial
Statements by the Borrower, at a rate per annum determined as follows:
<PAGE>
-7-
(i) where the Borrower's Debt to Equity ratio, as indicated by the
Prior Financial Statements, is equal or more than 1.5:1, the
sum of the LIBOR Rate in effect from time to time plus 1.75%;
and
(ii) where the Borrower's Debt to Equity ratio, as indicated by the
Prior Financial Statements, is equal or more than 1:1 but less
than 1.5:1, the sum of the LIBOR Rate in effect from time to
time plus 1.5%; and
(iii) where the Borrower's Debt to Equity ratio, as indicated by the
Prior Financial Statements, is equal or more than 0.5:1 but
less than 1:1, the sum of the LIBOR Rate in effect from time
to time plus 1.25%; and
(iv) where the Borrower's Debt to Equity ratio, as indicated by the
Prior Financial Statements, is less than 0.5:1, the sum of the
LIBOR Rate in effect from time to time plus 1.00%,
in each case, calculated and payable (i) on the ninetieth day, if any,
of the LIBOR Interest Period, and (ii) on the last day of the LIBOR
Interest Period." Any amount of principal of or interest on any such
LIBOR Advance which is not paid when due (whether at stated maturity,
acceleration or otherwise) shall bear interest (both before and after
judgment), from the date on which such amount is due until such amount
is paid in full, payable on demand calculated and payable as provided
in Section 2.07.
SECTION 2.6 AMENDMENTS TO SECTION 2.07 OF THE LOAN AGREEMENT.
Section 2.07 of the Loan Agreement is amended effective as of this date
by replacing each reference in Section 2.07 to "U.S. Dollar Advance" with "U.S.
Base Rate Advance".
SECTION 2.7 AMENDMENTS TO SECTION 2.10 OF THE LOAN AGREEMENT.
Section 2.10 of the Loan Agreement is amended effective as of this date
by deleting the first sentence of Section 2.10(3) and substituting the
following:
"All computations of interest shall be made by the Lender (i)
if based on the Prime Rate or the U.S. Base Rate, on the basis
of a year of 365 or 366 days, as the case may be, or (ii) if
based on the LIBOR Rate, on the basis of a year of 360 days,
in each case for the actual number of dates (including the
first day but excluding the last day) occurring in the period
for which such interest is payable."
SECTION 2.8 AMENDMENTS TO SECTION 2.15 OF THE LOAN AGREEMENT.
Section 2.15 of the Loan Agreement is amended effective as of this date
by replacing "1.25%" in the third line with "1.00%".
<PAGE>
-8-
SECTION 2.9 AMENDMENTS TO SECTION 4.02 OF THE LOAN AGREEMENT.
Section 4.02 of the Loan Agreement is amended effective as of this date
by deleting clause 4.02(1)(iv) in its entirety.
SECTION 2.10 AMENDMENTS TO SECTION 7.01 OF THE LOAN AGREEMENT.
Section 7.01 of the Loan Agreement is amended effective as of this date
by deleting clause 7.01(o) in its entirety.
ARTICLE 3
MISCELLANEOUS
SECTION 3.1 REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
On and as of the date of the execution of this Fourth Amending
Agreement and after giving effect to this Fourth Amending Agreement, the
Borrower and Cantel, jointly and severally (i) confirm, reaffirm and restate the
representations and warranties set forth in Article 5 of the Loan Agreement,
except to the extent that such representations and warranties relate solely to
an earlier date in which case the Borrower and Cantel jointly and severally
confirm, reaffirm and restate such representations and warranties for such
earlier date in all material respects, provided that the references therein
shall be deemed to be the Loan Agreement as amended by this Fourth Amending
Agreement; and (ii) represent that no Default or Event of Default has occurred
and is continuing.
SECTION 3.2 INCORPORATION OF THE LOAN AGREEMENT.
This Fourth Amending Agreement is supplemental to and shall henceforth
be read in conjunction with the Loan Agreement, and the Loan Agreement and this
Fourth Amending Agreement shall henceforth have effect so far as practicable as
if all the provisions thereof and hereof were contained in one instrument.
SECTION 3.3 REFERENCE TO AND EFFECT ON THE LOAN AGREEMENT.
On and after this date, each reference in the Loan Agreement to "this
Agreement" and each reference to the Loan Agreement in the Loan Documents and
any and all other agreements, documents and instruments delivered by the Lender,
the Borrower or any other Person shall mean and be a reference to the Loan
Agreement as amended by this Fourth Amending Agreement. Except as specifically
amended by this Fourth Amending Agreement, the Loan Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
SECTION 3.4 CONFIRMATION OF SECURITY.
The Borrower hereby confirms that the Security Documents to which it is
a party continue to remain in full force and effect, unamended, for the benefit
of the Lender and continue to extend to all liabilities of the Borrower under
the Loan Agreement as amended hereby.
<PAGE>
-9-
SECTION 3.5 CONFIRMATION OF GUARANTEE.
Cantel hereby confirms that the Letter of Guarantee remains in full
force and effect, unamended, for the benefit of the Lender and continues to
extend to all liabilities and obligations of the Borrower under the Loan
Agreement as amended hereby.
SECTION 3.6 NO WAIVER, ETC.
The execution, delivery and effectiveness of this amending agreement
shall not, except as expressly provided, operate as a waiver of any right, power
or remedy of the Lender under any of the Loan Documents nor constitute a waiver
of any provision of any of the Loan Documents.
SECTION 3.7 EXPENSES.
The Borrower shall be obliged to reimburse the Lender for all its
reasonable costs and expenses (including without limitation, reasonable legal
expenses) incurred in connection with the preparation, execution and delivery of
this Fourth Amending Agreement.
SECTION 3.8 GOVERNING LAW.
This amending agreement shall be governed by and interpreted and
enforced in accordance with the laws of the Province of Ontario and the federal
laws of Canada applicable therein.
SECTION 3.9 ASSIGNMENT.
Subject to the restrictions on assignment and transfer contained in the
Loan Agreement, this Fourth Amending Agreement shall enure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
-10-
SECTION 3.10 COUNTERPARTS.
This amending agreement may be executed in any number of counterparts
and all of such counterparts taken together shall be deemed to constitute one
and the same instrument.
IN WITNESS WHEREOF the parties have executed this Amending Agreement.
CARSEN GROUP INC.
By: /s/ William J. Vella
--------------------------------
Name: William J. Vella
Title: President
CANTEL INDUSTRIES, INC.
By: /s/ James P. Reilly
--------------------------------
Name: James P. Reilly
Title: President
NATIONAL BANK OF CANADA
By: /s/ William Crossland /s/ Jon Clarke
--------------------------------------
Name: William Crossland Jon Clarke
Title: Sr. Manager Manager
<PAGE>
Exhibit 10(cc)
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND COLLATERL DOCUMENTATION
This Agreement, entered as of the 1st day of November, 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").
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 amended by a First Amendment dated as of December 1, 1997 ("First
Amendment"), a Second Amendment dated as of July 1, 1998 and a Third Amendment
dated as of October 26, 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 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
valuable consideration the receipt and sufficiency
<PAGE>
of which are hereby acknowledged, the parties do hereby agree as follows:
Section 1. MODIFICATION LOAN AGREEMENT AND LOAN DOCUMENTS.
1.1 LOAN AGREEMENT AMENDMENTS. The Loan Agreement is hereby amended a
follows:
(a) The definition of "Revolving Line of Credit Loan Rate" set forth in
Section 1.1 is amended by deleting same in its entirety and substituting the
following in its place and stead:
"REVOLVING LINE OF CREDIT LOAN RATE" means with respect to the Revolving
Line of Credit Loan a variable rate of 1% per annum in excess of the Prime
Rate in effect from time to time.
(b) 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 1, 2000, or (ii)
acceleration of the Obligation upon an Event of Default (the earlier of
such dates being the "Revolving Line of Credit Termination Date").
(c) Section 7.13 is modified by deleting same and substituting the
following in it place and stead:
SECTION 7.13 CAPITAL EPENDITURES. Borrower will not make capital
expenditures or payments in the nature of capital expenditures in any
fiscal year in the aggregate in excess of $300,000 (inclusive of
expenditures for research and development molds and tooling recorded as
other assets and exclusive of fixed assets purchased under the capital
lease
-2-
<PAGE>
authorized under the First Amendment to Loan and Security Agreement).
(d) Exhibit H is modified by substituting therefor Exhibit H annexed
hereto.
1.2 AFFIRMATION. Except as modified herein, the Loan Agreement and Loan
Documents shall remain in full force 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 REPRESENTATION.
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-
-3-
<PAGE>
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.
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-
<PAGE>
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 request) 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 herein or otherwise as of the date
of this Agreement set forth hereinabove.
4.6 UNENFORECEABILITY. 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.
-5-
<PAGE>
4.9 THIRD PARTIES. None of the obligations hereunder of any party shall
inure to or be enforeceable 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.
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 term of this Agreement. All other documents shall be in a form and content
acceptable to Bank.
4.13 WAIVER OF TRIAL 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.
-6-
<PAGE>
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 Controller By: /s/ Ric Rumble
- ------------------------------- -----------------------------
ATTEST: DISPOSAL SCIENCE, INC.
/s/ Michael Hopman Controller By: /s/ Ric Rumble
- ------------------------------- -----------------------------
ATTEST: NATIONAL BANK OF CANADA
/s/ Timothy J. Smith By: /s/ John P. Leifer
- ------------------------------- -----------------------------
-7-
<PAGE>
EXHIBIT H
- --------------------------------------------------------------------------------
TIME PERIOD/TEST DATE
Net Income (excluding intercompany administrative charges) not
less than:
Fiscal year ended July 31, 1998 675,000
1st quarter of fiscal year ending July 31, 1999 90,000
1st six months of fiscal year ending July 31, 1999 245,000
1st nine months of fiscal year ending July 31, 1999 445,000
Fiscal year ending July 31, 1999 730,000
1st quarter of fiscal year ending July 31, 2000 90,000
1st six months of fiscal year ending July 31, 2000 245,000
1st nine months of fiscal year ending July 31, 2000 445,000
Fiscal year ending July 31, 2000 730,000
Tangible Net Worth not less than:
July 31, 1998 $2,675,000
October 31, 1998 2,765,000
January 31, 1999 2,920,000
April 30, 1999 3,120,000
July 31, 1999 3,405,000
October 31, 1999 3,495,000
January 31, 2000 3,650,000
April 30, 2000 3,850,000
July 31, 2000 4,135,000
Leverage Ratio not more than:
July 31, 1998 0.86
October 31, 1998 0.85
January 31, 1999 0.85
April 30, 1999 0.80
July 31, 1999 0.80
October 31, 1999 0.75
January 31, 2000 0.75
April 30, 2000 0.70
July 31, 2000 0.70
<PAGE>
EXHIBIT E
LOCATIONS
All inventory, accounts receivable, machinery and equipment, and records related
to the same are located at the following address:
MediVators, Inc.
2995 Lone Oak Circle
Suite 10
Eagan, MN 55121
All inventories and certain other assets of the DS1 division are in the storage
at the following addresses:
North American Footwear, Inc.
2985 Lone Oak Circle
Eagan, MN 55121
Citi-Cargo & Storage
3575 Highway 13
Eagan, MN 55122
Additionally, certain records related to all of the above assets may be located
at the office of the Guarantor.
Cantel Industries, Inc.
1135 Broad Street - Suite 203
Clifton, NJ 07013
<PAGE>
Exhibit 10(dd)
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND COLLATERAL DOCUMENTATION
This Agreement, entered as of the 1st day of October, 1999, 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, a Second Amendment dated as of July 1, 1998, a Third Amendment
dated as of October 26, 1998 and a Fourth Amendment dated as of November 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 has agreed to, the
modification of certain terms of the Loan Documents in the manner herein
provided.
<PAGE>
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:
SECTION 1. MODIFICATION OF LOAN AGREEMENT AND LOAN
DOCUMENTS.
1.1 LOAN AGREEMENT AMENDMENTS. The Loan Agreement is
hereby amended as follows:
(a) Exhibit H is modified by substituting therefor Exhibit H annexed
hereto.
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 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
- 2 -
<PAGE>
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.
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
- 3 -
<PAGE>
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 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
- 4 -
<PAGE>
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.
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.
- 5 -
<PAGE>
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 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/ Roy K. Malkin
- ---------------------------- ----------------------------
ATTEST: DISPOSAL SCIENCES, INC.
By /s/ Roy K. Malkin
- ---------------------------- ----------------------------
ATTEST: NATIONAL BANK OF CANADA
/s/ Timothy J. Smith By /s/ John P. Leifer
- ---------------------------- ----------------------------
VP & Mgr. Vice President
- 6 -
<PAGE>
EXHIBIT E
LOCATIONS
All inventory, accounts receivable, machinery and equipment, and records
related to the same are located at the following address:
MediVators, Inc.
2995 Lone Oak Circle
Suite 10
Eagan, MN 55121
All inventories and certain other assets of the DSI division are in storage
at the following address:
Citi-Cargo & Storage
3576 Highway 13
Eagan, MN 55122
Additionally, certain records related to all of the above assets may be
located at the office of the Guarantor.
Cantel Industries, Inc.
1135 Broad Street - Suite 203
Clifton, NJ 07013
<PAGE>
EXHIBIT H
TIME PERIOD/TEST DATE
- --------------------------------------
Net Income (excluding intercompany
administrative charges) not less than:
Fiscal year ended July 31, 1998 675,000
1st quarter of fiscal year ending July 31, 1999 90,000
1st six months of fiscal year ending July 31, 1999 245,000
1st nine months of fiscal year ending July 31, 1999 445,000
Fiscal year ending July 31, 1999 400,000
1st quarter of fiscal year ending July 31, 2000 90,000
1st six months of fiscal year ending July 31, 2000 245,000
1st nine months of fiscal year ending July 31, 2000 445,000
Fiscal year ending July 31, 2000 730,000
Tangible Net Worth not less than:
July 31, 1998 $2,675,000
October 31, 1998 2,765,000
January 31, 1999 2,920,000
April 30, 1999 3,120,000
July 31, 1999 2,938,000
October 31, 1999 3,028,000
January 31, 2000 3,183,000
April 30, 2000 3,383,000
July 31, 2000 3,668,000
Leverage Ratio not more than:
July 31, 1998 0.86
October 31, 1998 0.85
January 31, 1999 0.85
April 30, 1999 0.80
July 31, 1999 0.80
October 31, 1999 0.80
January 31, 2000 0.80
April 30, 2000 0.75
July 31, 2000 0.75
<PAGE>
Exhibit 10.ee
DISTRIBUTOR AGREEMENT
BETWEEN
OLYMPUS AMERICA INC.-ENDOSCOPE DIVISION
AND
MEDIVATORS, INC.
AUGUST 1, 1999
<PAGE>
DISTRIBUTOR AGREEMENT
AGREEMENT made as of the 1st day of August, 1999 by and between
MEDIVATORS, INC., a company organized and existing under the laws of the State
of Minnesota, having its principal office at 2995 Lone Oak Circle, Suite 10,
Eagan, Minnesota 55121-1431 (the "Company"), and OLYMPUS AMERICA INC.-ENDOSCOPE
DIVISION, a company organized and existing under the laws of the State of New
York, having its principal office at Two Corporate Center Drive, Melville, New
York 11747-3157 ("OAI").
W I T N E S S E T H:
WHEREAS, the Company develops, manufactures, and markets a line of
automatic endoscope disinfectors and other related products; and
WHEREAS, OAI is a recognized distributor and supplier of medical and
scientific equipment within the Territory defined in Section 1.20 and OAI wishes
to distribute, market, and service the Products defined in Section 1.15 on an
exclusive basis within the Territory; and
WHEREAS, OAI wishes to engage in the purchase of the Products from the
Company and the resale and service of the Products within the Territory and
wishes to be appointed by the Company as the exclusive distributor and
semi-exclusive (as set forth in Section 2.5) servicer of the Products within the
Territory; and
WHEREAS, the Company is willing to appoint OAI as the exclusive
distributor and semi-exclusive servicer of the Products within the Territory on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the parties agree as follows:
ARTICLE 1. DEFINITIONS.
1.1 "AFFILIATE" shall mean a corporation or other entity that controls, is
controlled by or is under common control with, the designated party. "CONTROL"
shall mean the ownership, directly or indirectly, through one or more
intermediaries, of at least 49% of the shares of stock entitled to vote for the
election of directors in the case of a corporation (or comparable
2
<PAGE>
officers or representatives of the particular entity), or at least 49% of the
interest in profits in the case of a business entity other than a corporation,
except that in any country of incorporation or registration where the maximum
permitted by law is less than 49%, such lower maximum permitted percentage shall
be substituted.
1.2 "AGREEMENT" shall mean this Distributor Agreement, including the
Recitals, Schedules, and Exhibits hereto, as it may be amended or supplemented
from time to time in accordance with its terms.
1.3 "AGREEMENT TERM" shall have the meaning set forth in Section 8.1.
1.4 "ANCILLARY PRODUCTS" shall mean the accessories, consumables, and
replacement and repair parts (each manufactured by or for the Company) to and of
the Disinfectors. A list of such accessories, consumables, and replacement and
repair parts (with corresponding prices for the initial year of the Agreement
Term) is attached hereto as SCHEDULE 1.4.
1.5 "BUSINESS DAY" shall mean any day which is not a Saturday, Sunday, or
bank holiday in the State of New York.
1.6 COMPLAINT(S)" shall mean any written, electronic, or oral
communication that alleges deficiencies related to the identity, quality,
durability, reliability, safety, effectiveness, or performance of a device after
it is released for distribution.
1.7 "DESIGN VALIDATION" shall mean establishing by objective evidence that
device specifications conform with user needs and intended use(s). (21 C.F.R.
Part 820.3(z)(2))
1.8 "DISINFECTOR(S)" shall mean, collectively, the Company's disinfector
products and all accompanying standard accessories, a list of which is attached
hereto as SCHEDULE 1.8.
1.9 "EQUIPMENT" shall mean Olympus brand endoscopy equipment.
1.10 "FDA" shall mean the United States Food & Drug Administration.
1.11 "INTELLECTUAL PROPERTY" shall have the meaning set forth in Section
7.6.
3
<PAGE>
0.12 "OAI ENHANCEMENTS" shall have the meaning set forth in
Section 3.16.
1.13 "POST-AGREEMENT PERIOD" shall mean the seven-year period (or shorter
period if OAI opts to cease its performance of its Product Customer Service
functions in accordance with Section 2.5) following the end of the Agreement
Term.
1.14 "PROCESS VALIDATION" shall mean confirmation by examination and
provision of objective evidence that the particular requirements for a specific
intended use can be consistently fulfilled. (21 C.F.R. Part 820.3(z))
1.15 "PRODUCTS" shall mean, collectively, the Disinfectors, the Ancillary
Products, and all instruction and service manuals, to be distributed, serviced,
and/or otherwise provided by OAI hereunder; and Product Changes.
1.16 "PRODUCT CHANGES" shall mean any material changes, improvements,
alterations, modifications, new applications, and additional specifications to
or of the Products or the Products' labeling.
1.17 "PRODUCT CUSTOMER SERVICE" shall have the meaning set forth in
Section 2.5.
1.18 "RECALL" shall have the meaning set forth in Section 3.10.
1.19 "SOP" shall mean Standard Operating Procedure.
1.20 "TERRITORY" shall mean the United States of America, and Puerto Rico.
1.21 VERIFICATION" shall mean confirmation by examination and provision of
objective evidence that specified requirements have been fulfilled. (21 C.F.R.
Part 820.3(aa)).
4
<PAGE>
ARTICLE 2. APPOINTMENT OF OAI; PRODUCT CUSTOMER SERVICE.
2.1 APPOINTMENT AND ACCEPTANCE.
(a) Subject to the terms of this Agreement, the Company, to the full
extent of its legal rights, hereby appoints OAI, and OAI hereby accepts
appointment, as the exclusive distributor and semi-exclusive (as set forth in
Section 2.5) servicer of the Products within the Territory during the Agreement
Term. The Company and/or the Company's Affiliates shall not sell the Products,
or products that are substantially similar to or competitive with the Products,
directly or indirectly within the Territory to any person or entity other than
OAI, or otherwise provide the Products to any other entity which it knows or has
reason to know will sell or service the Products within the Territory, provided
that OAI is not in default under this Agreement. Notwithstanding the immediately
preceding sentence, in the event the Company wishes to distribute an endoscope
disinfection product which is competitive with but not substantially similar to
the Disinfector in design, price, features, and quality (a "Competitive
Product"), the Company shall grant OAI the right of first negotiation and right
of first refusal to become the exclusive distributor of such Competitive
Product, on substantially the same terms and conditions as those contained in
this Agreement (subject to good faith negotiation with respect to pricing,
purchase projections, and Schedules). If the Company and OAI fail to enter into
a definitive agreement with respect to OAI's exclusive distribution of such
Competitive Product, then the Company shall be entitled to distribute the
Competitive Product, directly or via a third party (but only if the distribution
arrangement with such third party contains equivalent terms and conditions as
those offered to OAI therefor).
(b) The Company hereby unconditionally and irrevocably grants to OAI
and OAI's Affiliates, a royalty-free, fully paid-up right and license, including
the right to grant sublicenses, under the Company's Intellectual Property, to
use, market, demonstrate, promote, sell, rent, lease, service, distribute,
and/or otherwise dispose of (or have others do any of the foregoing on OAI's
behalf) the Products within the Territory. OAI shall (i) have the right to sell
and service the Products directly to and for end users or through
subdistributors, dealers, and subservicers (which subdistributors, dealers, and
subservicers will be subject to the Company's approval, which approval will not
be unreasonably withheld or delayed), (ii) determine all terms and conditions of
sale and service to its customers, subdistributors, dealers, and subservicers,
including but not limited to prices (except that OAI may not represent and
warrant the Products in a manner inconsistent with the way the Company
represents and warrants the Products unless OAI receives
5
<PAGE>
the Company's consent to do so, which consent shall not be unreasonably withheld
or delayed), (iii) not sell or service the Products outside of the Territory or
authorize its subdistributors, dealers, or subservicers to sell or service the
Products outside of the Territory, and (iv) not sell the Products to anyone OAI
knows or has reason to know will sell the Products outside of the Territory. In
the event OAI sells or services the Products through subdistributors, dealers,
and/or subservicers, OAI shall require that such subdistributors, dealers,
and/or subservicers, comply with the provisions of this Agreement pertinent to
subdistributors, dealers, and subservicers.
2.2 LEADS. The Company shall forward to OAI any and all sales and service
inquiries received from Product customers or potential Product customers in the
Territory.
2.3 OAI SALES OF SUBSTANTIALLY SIMILAR PRODUCTS. OAI shall not (by itself
or with others) market, sell, or distribute products within the Territory that
are substantially similar, in price, design, features, and quality, to the
Products, PROVIDED that the Company is not in default under this Agreement.
Notwithstanding the foregoing or anything contained in this Agreement to the
contrary, if, for any reason, the Company fails to use commercially reasonable
and duly qualified efforts to satisfy OAI's reasonable requests for Product
Changes, incorporation of OAI Enhancements, or new product development, OAI has
the right (by itself or with others) to market, sell or distribute changed or
improved new products (even if substantially similar to the Products). If OAI
exercises this right, OAI's distribution rights to the Products shall become
non-exclusive and the restrictions on both parties set forth in Section 2.1(a)
and 2.3 shall be removed.
2.4 EMPLOYEE SOLICITATION. During the Agreement Term and for a period of
one year thereafter, neither OAI nor the Company shall solicit for employment
the other party's employees, agents, or representatives, without the prior
written consent of such other party.
2.5 PRODUCT CUSTOMER SERVICE. OAI and the Company shall maintain a
coordinated and comprehensive customer service and support mechanism to respond
to (i) customer inquiries regarding the use, operation, and/or maintenance of
the Products, and (ii) customer Product service and repair requirements. Product
Customer Service shall include, without limitation, the following items:
(a) TELEPHONE SUPPORT. The telephone support to be provided by the
Company is set forth on SCHEDULE 2.5 attached hereto.
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(b) CLM DISINFECTORS (MODELS MRX, 5001, AND
5002V). OAI shall perform all pre-installation site
evaluation, installation, and in-service customer orientation
of and for the CLM Disinfectors (as identified on SCHEDULE
1.8). The Company shall be responsible for performing all
service and repair (in-warranty and out-of-warranty) on the
CLM Disinfectors. The Company's labor rate for out-of-warranty
service and repairs shall be no more than $125.00 per hour for
the initial year of the Agreement Term, with per annum
increases thereafter limited to 7 1/2%. In conjunction with
the service and repair of the CLM Disinfectors, a "hot swap"
program will be in place. The CLM Disinfector "hot swap"
program will entail, without limitation, disconnection and
shipment of the CLM Disinfector unit to be repaired,
installation of a loaner unit at the customer site, shipment
to and re-installation of the repaired unit at the customer
site after repair, and disconnection and shipment of the
loaner unit back to the Company. The Company and OAI will
coordinate their efforts equally with respect to this "hot
swap" program. The Company will reimburse OAI at OAI's per
hour labor rate set forth on SCHEDULE 7.9 attached hereto (two
hours maximum) per "hot swap" of a CLM Disinfector in which
OAI assists the Company. If OAI is unable to assist the
Company in the "hot swap" program, the Company and OAI will
mutually select a third-party to perform the service, and the
Company shall pay the third-party's fees up to the
aforementioned two hour maximum limit per "hot swap" (with the
customer to be billed for any additional third-party fees in
excess of such two hour limit). Notwithstanding anything
contained in this Section 2.5(b) to the contrary, if more than
20% of CLM Disinfector placements result in a "hot swap", the
Company shall reimburse OAI for all amounts incurred in excess
of the aforementioned two hour maximum limit.
(c) DSD SENSOR INSTALLATION/REPLACEMENT PROGRAM.
The Company (or a third-party service organization reasonably
acceptable to OAI and the Company) shall be responsible for
the performance of, and all costs and expenses related to, the
upgrade of the FS-4 sensor on the DSD-91E Disinfector. This
upgrade program will be
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performed at no charge to the customers or OAI and will not be
implemented until OAI has been fully informed of the execution
plan and target completion date.
(d) OAI FUNCTIONS. Except as set forth in Sections 2.5(b) and 7.9,
OAI shall be responsible for initial Disinfector pre-installation site
evaluation, installation, in-service customer orientation, OAI sales and service
training, and repair with respect to and of the Products marketed or sold by OAI
within the Territory. Notwithstanding the foregoing, OAI may require the Company
to perform complicated repairs of OLYMPUS DSD Disinfectors. During the
Post-Agreement Period, OAI shall have the right, at its option, to either (i)
continue to perform these OAI functions for all Product customers existing prior
to the end of the Agreement Term or (ii) cease performing these OAI functions,
PROVIDED that if OAI chooses to cease performance, it must notify the Company of
such decision at least 90 days' prior to the start of the next year of the
Post-Agreement Period.
ARTICLE 3. OBLIGATIONS OF THE COMPANY.
3.1 TESTING, VERIFICATION, DESIGN VALIDATION, AND PROCESS VALIDATION. The
Company shall provide complete documentation which demonstrates that those
Products which require pre-market notification ("510(k)") clearance by the FDA
have been so cleared. Such documentation shall include, without limitation,
specifications, performance testing, Verification protocols and test results,
Design Validation protocols and test results, and Process Validation protocols
and test results. For those Products deemed by the Company not to require 510(k)
clearance, the Company shall provide to OAI documentation to support the
decision not to file 510(k)s with the FDA. With respect to the Disinfectors, the
Company shall conduct Verification, Design Validation, and Process Validation
activities to ensure the performance of the Disinfector, including but not
limited to the ability of the Disinfector to perform high-level disinfection
and/or sterilization of the Equipment and to safely remove all residual cleaning
and disinfecting materials and sterilizing agents from the Equipment. Subject to
Article 10 (Confidential Information) and requirements of law, and in order to
make certain representations to the FDA, the Company shall, as and when
requested by OAI, provide OAI with the results of its testing, Verification,
Design Validation, and Process Validation efforts with respect to the Products.
The Company shall bear its own direct and indirect costs incurred in the
performance of its activities hereunder. The Company shall make all reasonable
modifications to the Products to render them compatible with the Equipment. OAI
shall have no obligation to render any Equipment compatible with the Products.
Within 30 days after the date of
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this Agreement, each of OAI and the Company shall identify for the other, in
writing, its primary personnel contacts regarding communication of testing,
Verification, Design Validation, and Process Validation issues.
3.2 OAI AUDITS. OAI shall have the right, at its cost and expense, to
perform periodic audits of the Company (not less than one per annum) with
respect to the Products and the quality systems related thereto (including but
not limited to Quality System Regulations, 21 C.F.R. Part 820) to (i) determine
compliance with the then current published Good Manufacturing Practices
promulgated by the FDA, (ii) review in-house bench servicing activities of the
Company, and (iii) assess progress made on corrective/preventive actions arising
from previous audits. Such audits shall be performed during normal business
hours and upon not less than ten days' prior notice to the Company. Audit
frequency shall be determined by OAI based upon, but not limited to, trend
analysis of Complaints, the proposed introduction of new products, and/or
substantial changes to the Company's suppliers and/or manufacturing processes.
The parties will cooperate with each other to arrange such visits at mutually
convenient times. In addition, upon not less than ten days' prior notice, OAI
personnel may periodically travel to the Company's facilities, at OAI's cost and
expense, to observe testing, Verification activities, Design Validation
activities, and Process Validation activities, receive information with respect
thereto, and ensure that the Products are being tested in accordance with Good
Laboratory Practices (21 C.F.R. Part 58). Should the audit results indicate that
corrective/preventive action is required by the Company, the Company shall use
its best efforts to effect corrective/preventive action(s) in a timely manner.
The progress and effectiveness of the corrective/preventive action(s) are
subject to re-audit by OAI as outlined above.
3.3 APPROVALS AND CLEARANCES. The Company shall ensure that the Products
are not sold to OAI before all required governmental or private approvals and
clearances, including without limitation compliance with UL and '510(k) of the
Food, Drug, and Cosmetic Act of 1938 and Safe Medical Device Act of 1990, each
as amended, for the sale, lease, distribution or marketing of the Products have
been obtained.
3.4 COMPLAINTS. The Company shall conduct a complete and documented
investigation and shall use its best efforts to fully resolve Complaints
regarding the Products (whether such Complaints are received by the Company
directly, or via OAI, OAI's Affiliates, or a third party) in accordance with the
requirements for Complaint handling as defined and promulgated by the FDA in the
then current published Good Manufacturing
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Practices (21 C.F.R. Part 820) or any other applicable law, rule, or regulation.
OAI shall promptly forward to the Company all such Product Complaints received
by OAI. Product Complaints received or generated by OAI shall be communicated by
OAI to the Company via telecopy and/or U.S. Mail. Any and all Medical Device
Reports (MDR) Reportable Events shall be filed with the FDA (with a copy to OAI)
by the Company in accordance with all applicable laws, rules, and regulations
(including but not limited to 21 C.F.R. Part 803). The Company shall give OAI
prompt notice of Product Complaints received by the Company directly or via
third parties. All such Complaint investigations shall be performed and
completed promptly but in no event later than 30 days from receipt of the
Complaint by the Company. If as a result of the Company's investigation a
Product Change is necessary, the Company will perform and document such Product
Change (i) in accordance with this Agreement, (ii) at no charge to OAI, and
(iii) in consultation with OAI. OAI shall have the right to review all Product
Changes and corrective actions resulting from a Complaint investigation. If OAI
reviews such Product Changes and/or corrective actions and reasonably determines
that such Product Changes and/or corrective actions will likely result in
incompatibility/ineffectiveness of the Product(s) with respect to the Equipment
and/or the compromise of the Products' safety, then OAI will give the Company
notice of such findings with an attendant 30 days to develop a plan to resolve
such incompatibility/ineffectiveness. If the Company fails to develop such a
plan during such 30-day period, OAI may, in addition to all other rights and
remedies at law or in equity or otherwise, unilaterally terminate this Agreement
and all pending purchase orders pursuant to Section 8.2(c), PROVIDED notice of
such termination is given within 30 days of the end of the 30-day plan
development period.
2.5 SPECIAL INVESTIGATIONS; INQUIRIES.
(a) If any government, health or other regulatory
authorities or private standards boards in the Territory require any
clinical or other investigations to be performed with respect to the
Products and the quality systems related thereto (including but not
limited to Quality System Regulations, 21 C.F.R. Part 820), and the
Company has not performed such investigations or if, for any reason,
such authorities will not accept the results of the Company's
investigations, then the Company shall use its best efforts in
promptly undertaking and completing such investigations. Each Party
agrees to notify the other of any formal or informal inquiries
relating to the Products by the FDA or any other regulatory agency,
any private standards board, or any state or Federal government.
Included in such notification shall be a
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copy of the Form 483 (in the case of an FDA inquiry) or other
similar document left by or subsequently sent by the inquirer.
(b) The Medical Device Directive notification requirements for Vigilance
Reporting specify that product performance or malfunction, regardless of
geographical location of occurrence, must be reviewed and/or reported to the
Company's Notified Body in a specified time period. Therefore, any outside
agency notification must be reported to the Company if related to injury,
Product performance or malfunction prior to or in parallel to any documentation
filings such as FDA Medical Device Reports. OAI shall notify the Company's
Regulatory Affairs Dept. via fax at (651) 405-1881 (or other fax number provided
to OAI in writing). The Company shall be required to acknowledge said
notification to OAI's Regulatory Affairs Dept. via fax at (516) 844-5554 (or
other fax number provided to the Company in writing).
3.6 PRODUCT CHANGES. The Company shall give OAI 90 days written notice of
any proposed Product Change not relating to or resulting from a Product
Complaint (as described in Section 3.4). The third to last and penultimate
sentences of Section 3.4 are incorporated into this Section 3.6 by reference.
The Company shall, prior to the implementation of a Product Change, promptly
obtain all approvals and clearances, if any, required to manufacture the
Product(s) and sell the Product(s) (as changed, modified, or added) within the
Territory. All Product Changes, regardless of whether initiated by OAI or the
Company, shall be implemented in accordance with an SOP which details a
procedure including, without limitation, Engineering Change Requests and
Engineering Change Orders. OAI and the Company shall consult with each other and
mutually decide whether a particular Product Change requires a Pre-market
Notification to the FDA, including without limitation a 510(k) or PMA
notification. A change of a supplier by the Company shall not constitute a
Product Change, PROVIDED that the Company has performed Process Validation and
Design Validation (in accordance with the FDA Guidance document, "Validation and
Documentation Inspection Guide" dated 1993) with respect to the new supplier and
the new materials supplied. Significant process changes are also subject to
Process Validation activities. OAI shall have the opportunity to review all
Design Validation and Process Validation protocols (for changes in supplier
and/or process) and test results prior to the implementation of same by the
Company. All Product Changes developed by the Company shall be owned by the
Company.
3.7 DOCUMENTATION & TRAINING. The Company shall furnish to OAI, without
additional charge and for the duration of the Agreement Term and for a period of
two years thereafter, the
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following:
(a) DOCUMENTATION. All technical information, documentation and test
data necessary to inventory, market, sell, ship, repair and maintain the
Products within the Territory. Such materials shall be consistent with similar
information furnished to other distributors of the Products and/or similar
products manufactured by the Company. The Company hereby grants to OAI a
fully-paid, non-transferable license for the Agreement Term to copy or otherwise
reproduce all or portions of the Company's brochures, or to incorporate portions
of the Company-copyrighted material in Product brochures or advertising material
composed by OAI, PROVIDED that (i) OAI shall submit such materials composed by
OAI which incorporate the Company-copyrighted material to the Company for prior
written approval, which approval shall not be unreasonably withheld or delayed,
and (ii) OAI uses such materials solely to fulfill its obligations under this
Agreement. Such reproduction will not apply to proprietary and confidential
information and will be subject to all applicable copyright laws. An SOP will be
developed, within 90 days after the date of this Agreement, which SOP shall
detail the process of documentation accumulation, storage, and transfer between
OAI and the Company.
(b) TRAINING. Periodic in-person training of OAI's sales, service
and customer support staff at a location selected by OAI. Field service training
will be detailed in a formal curriculum which must include, without limitation,
required testing and recertification intervals. Each of the Company and OAI will
bear the costs and expenses of its respective personnel in connection with such
training. Notwithstanding the foregoing, the Company shall hire and maintain, at
its sole cost and expense, a Technical Liaison (with a reasonable travel budget)
who will interact with appropriate OAI personnel.
3.8 NONINTERFERENCE. The Company covenants that it shall not interfere
with OAI's rights and obligations as the exclusive distributor and
semi-exclusive servicer of the Products as set forth in Article 2.
3.9 INSURANCE. Commencing on the first date of Product delivery until the
expiration of the pertinent statute of limitations, the Company shall maintain
product liability insurance with an insurance company in the amount of
$1,000,000, naming OAI as an additional insured, for any injury to persons or
property resulting from the manufacture, testing, demonstration, marketing,
sale, lease, rental, distribution or use of the Product. Copies of such policy
and any notices thereunder shall be forwarded to OAI along with 30 days' prior
notice of
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termination or cancellation of such policy.
3.10 RECALLS. In the event that any Product defect or regulatory or
governmental action requires a Product's recall, destruction, withholding from
the market, or other action (a "Recall"), the Company shall bear all costs and
expenses of such Recall. OAI shall reasonably assist the Company, at the
Company's cost and expense, in carrying out any such Recall. OAI shall bear the
costs and expenses of a Recall if such Recall is the direct result of any act or
omission to act attributable principally to OAI. If a Recall is the direct
result of acts or omissions to act attributable to both the Company and OAI, or
should it prove impossible to assign fault for such Recall, the Company and OAI
shall share the costs and expenses of such Recall equally.
3.11 ANCILLARY PRODUCTS.
(a) During the Agreement Term and the Post-Agreement Period, the
Company agrees to offer for sale to OAI all Ancillary Products for the
Disinfectors. During the Post-Agreement Period, OAI will only (i) sell or
provide Ancillary Products in connection with Product Customer Service to
Product customers existing prior to the end of the Agreement Term and (ii)
except as provided in the last sentence of Section 4.3, buy Ancillary Products
from the Company or the Company's dealer, distributor or reseller. If OAI ceases
performance of its Product Customer Service functions in accordance with the
last sentence of Section 2.5(e), the Company need not continue to offer the
Ancillary Products for sale to OAI.
(b) During the Post-Agreement Period, the prices charged to OAI for
the Ancillary Products shall be as set forth on SCHEDULE 3.11 attached hereto.
(c) The Company shall use its best efforts to stock sufficient
inventory of Ancillary Products to support the Disinfector units delivered to
OAI's customers. If and when necessary, the Company shall use its best efforts
to ship Ancillary Products overnight, at OAI's cost (unless overnight shipment
is made necessary due to the fault of the Company), in the event OAI does not
have such Ancillary Product in stock. In the event the Company is unable to
supply such Ancillary Products and obtain another source of supply for OAI, then
such inability shall be considered noncompliance with this Section and the
Company shall use commercially reasonable efforts, with neither obligation nor
charge to OAI, to provide OAI with drawings and other documents required to
either manufacture or buy such Ancillary Products and the technical information
or any other rights necessary for OAI to manufacture or obtain such Ancillary
Products from other sources, together with a non-exclusive
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license to make or have made such Ancillary Products for the exclusive purpose
of supporting Product customers (and, once the Agreement Term has ended, only
Product customers existing prior to the end of the Agreement Term) within the
Territory. The technical information includes, by example and not by way of
limitation (i) manufacturing drawings and specifications of materials and parts
comprising the Ancillary Products and components thereof; (ii) manufacturing
drawings and specifications covering special tooling and operation thereof;
(iii) a detailed list of all commercially available accessories, consumables,
parts and components purchased by the Company on the open market, disclosing the
model/part number, name and location of the supplier and price lists for the
purchase thereof; and (iv) one complete copy of the source code used in the
preparation of any software licensed or otherwise acquired by OAI from the
Company, PROVIDED, HOWEVER, that such source code shall remain the property of
the Company (or third-party owner thereof) and shall be separately licensed to
OAI for OAI's possession and use exclusively for maintenance of OAI's customers.
The aforementioned drawings, documents, and technical information provided to
OAI (and all copies thereof) shall be returned to the Company once the Company
is able to supply the Ancillary Products.
3.12 PACKING AND MARKING. The Company shall pack and mark the Products in
accordance with applicable laws and regulations. The Company shall prominently
and permanently affix OAI's trade name, trademark, colors, and logo (the "OAI
Marks") and may permanently but less prominently (i.e., location, font, color)
affix the Company's trade name, trademark, and logo (the "Company Marks") on the
Products, all Product packaging, printed materials, labels, and tags as mutually
agreed between the parties. Any use by the Company of the OAI Marks or any trade
name, trademark, or logo which is similar to an OAI Mark, and the goodwill of
any business associated with such trade names, trademarks, or logos, shall inure
to the benefit of OAI. Upon termination or expiration of this Agreement, the
Company shall (i) not sell any product (including the Products) which is
packaged and/or marked in materials containing or with the OAI Marks and (ii)
immediately cease any use of the OAI Marks. Except as expressly set forth
herein, (a) the Company shall not have any right to use nor shall the Company
acquire any right, title, license, or other interest in the "OLYMPUS" name, or
any trade name, trademark, or logo belonging to OAI, including but not limited
to the OAI Marks, and (b) OAI shall not have any right to use nor shall OAI
acquire any right, title, license, or other interest in the "MEDIVATORS" name,
or any trade name, trademark, or logo belonging to the Company, including but
not limited to the Company Marks. The Company hereby grants to OAI the right and
license to use the Company Marks exclusively with respect to the Products and in
accordance with this Agreement.
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3.13 LABELING. The Company shall give OAI a reasonable opportunity to
review and approve all Product labeling contained on and distributed with the
Products and such labeling shall comply with all FDA rules and regulations
(including but not limited to 21 C.F.R. Part 801).
3.14 REPAIR HISTORY. In the event a repair to a Product is necessary, the
Company shall promptly provide OAI with the repair history of such Product, upon
OAI's request. Moreover, the Company shall provide OAI with written monthly
reports detailing the Company's Product Customer Service functions performed. In
addition, OAI will provide to the Company, upon the Company's request, the
repair history of Disinfector units sold during the term of the prior
Distributor Agreement between the parties dated March 12, 1996.
3.15 DEMONSTRATION AND TRAINING UNITS. During the Agreement Term, OAI will
have the right to purchase from the Company a reasonable number of Disinfector
demonstration and training units as OAI requires, at a price discounted by 30%
off of then-current list price. Such demonstration and training units will be
marked as such and will not be for re-sale.
2.16 PRODUCT DEVELOPMENT.
(a) The parties shall, within 30 days after the date of this Agreement,
form a multi-functional Product Development Committee which will identify
mutually agreed-upon new product opportunities and prioritize the application of
resources for endoscopy-related product improvements and/or the development of
next-generation endoscopy-related products.
(b) OAI and the Company shall exchange ideas and plans for a "Total GI
Endoscopy" suite (including but not limited to endo-therapy products,
endoscopes, and washers/disinfectors) with components which will interact with
each other and the EndoWorks(TM) computer system.
(c) The Company agrees to evaluate and use commercially reasonable efforts
to incorporate OAI's reasonably conceptualized and documented design changes
and/or enhancements to the Products ("OAI Enhancements"). Any increase or
reduction in the Company's manufacturing costs (labor and materials) resulting
from OAI Enhancements shall be reflected in reasonable price adjustments. Any
engineering/design costs and delivery dates for OAI Enhancements shall be quoted
to OAI for its approval and payment. Any related tooling purchased by OAI for
the Company's use in implementing OAI Enhancements shall be owned by OAI and
shall be used exclusively for the benefit of OAI. Any and all
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Intellectual Property relating to OAI Enhancements shall be owned by OAI and the
Company shall receive a non-exclusive license to use such OAI Enhancements on
the Products for the balance of the Agreement Term (on a royalty-free basis) and
for a period of nine months thereafter, PROVIDED that (i) use of such license
shall not cause the Company to compete with OAI or any OAI Affiliate during the
Agreement Term and (ii) the Company remits a mutually agreed-upon royalty (based
on the enhanced value of the affected product(s)) to OAI during the
aforementioned nine-month post-Agreement grace period. (The license during the
Agreement Term may be granted on a worldwide basis depending on OAI's evaluation
of its impact on OAI's Affiliates.) The Company shall not use the OAI
Enhancements for itself or for any other party for any purpose other than the
performance of its obligations hereunder. Product design changes and/or
enhancements conceived jointly by OAI and the Company shall be owned by OAI and
the Company jointly.
(d) OAI's audit rights set forth in Section 3.2 shall apply to this
Section as well.
3.17 QUALITY DISPUTE RESOLUTION. Within 60 days after the date of this
Agreement, OAI and the Company shall establish an SOP with respect to the
resolution of disputes that may arise between the parties in connection with the
regulatory and quality issues covered by Sections 3.1, 3.2. 3.3, 3.4, 3.5, 3.6,
3.7, 3.10, 3.13, 3.14, 4.4, 7.8(b), 7.8(c), and/or 7.10.
ARTICLE 4. OBLIGATIONS OF OAI.
4.1 PURCHASE PROJECTIONS. OAI projects that it will, during each year
of the Agreement Term, purchase the dollar volume of Products corresponding
to such year set forth on SCHEDULE 4.1 attached hereto, PROVIDED that OAI and
the Company develop (in a timely manner) the sales support infrastructure to
justify such purchase projections. If, at the end of an Agreement Term year,
it is determined that such year's purchase projection has not been met, the
Company may terminate this Agreement pursuant to Section 8.2(d) or modify
OAI's distribution rights to non-exclusive status. Such decision to terminate
or to remove exclusivity must be made within 60 days after the close of the
particular Agreement Term year. If during such 60-day period the Company
decides to terminate this Agreement or remove OAI's exclusivity, the Company
shall give OAI 30 days' prior written notice. During such 30-day notice
period, OAI shall have the right to cure the purchase projection shortfall,
and cancel the Company's decision to terminate or remove exclusivity, by
remitting to the Company the amount set forth in Section 8.2(d). Failure by
the Company to send such notice during such 60-day period shall mean OAI's
rights under Section 2.1 shall continue
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on an exclusive basis for at least the ensuing year of the Agreement Term. If
the Company elects to remove OAI's exclusivity in accordance with this Section
and OAI fails to revive the exclusivity as set forth in this Section 4.1, then
the restrictions on both parties set forth in Sections 2.1(a), 2.2, and 2.3 and
the foregoing purchase projections shall be canceled. Notwithstanding anything
contained herein to the contrary, the aforementioned purchase projections shall
not constitute a commitment by OAI to purchase such projected amount of Products
and OAI shall not have any liability whatsoever to the Company in the event such
projections are not satisfied.
4.2 SCOPE OF RESPONSIBILITY. During the Agreement Term, OAI shall, at its
own cost and expense, use commercially reasonable efforts to sell the Products
and perform its Product Customer Service obligations within the Territory. OAI
shall keep the Company reasonably informed, by means of the reports required by
Section 4.7, of market information and OAI's sales and marketing activities.
During the Agreement Term and the Post-Agreement Period, OAI shall not take any
action which would impair or diminish the reputation of the Company or the
Products. The parties agree that OAI's marketing, sale, or distribution of
changed or improved new products or products substantially similar to the
Products in accordance with the provisions of this Agreement, shall NOT
constitute impairment to or diminishment of the reputation of the Company or the
Products.
4.3 ALTERATION OF PRODUCTS. During the Agreement Term and the
Post-Agreement Period, OAI shall not alter, modify or substitute components of
the Products (except for Product Customer Service performed in the ordinary
course of business) or specifications relative thereto without the written
consent of the Company, which consent shall not be unreasonably withheld or
delayed. In effecting repairs on the Products, OAI shall use only Ancillary
Products purchased from or authorized by the Company. However, in the event of
an emergency, OAI may purchase Ancillary Products from a third-party retail
source.
4.4 RECONDITIONING DISINFECTORS UNITS. In the event a Disinfector unit is
returned by a customer due to OAI or customer administrative error (unrelated to
the Company), OAI shall bear the reasonable costs and expenses required to
disconnect, ship back, and/or recondition such Disinfector unit (collectively,
the "Reconditioning Expenses"). If a Disinfector unit is returned because the
customer elects not to purchase after an evaluation, OAI and the Company shall
bear the Reconditioning Expenses equally. (OAI shall inform the Company in
advance of placing a Disinfector unit for evaluation.) If a Disinfector unit is
returned because it has failed to perform in accordance with specifications
(e.g., component part failure), the Company shall
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bear the Reconditioning Expenses. Within six months after the date of this
Agreement, the parties will have formulated and begin implementation of SOPs
that deal specifically with the reconditioning of Disinfectors.
4.5 MARKETING. During the Agreement Term, OAI shall, at its own cost and
expense, use commercially reasonable efforts to market the Products in the
Territory. OAI shall attend major trade shows relating to the Products. OAI and
the Company shall meet semi-annually to review prior activity and to plot future
strategy.
4.6 INVENTORY. OAI shall maintain a working inventory of the Products
adequate, in OAI's sole and absolute discretion, to handle the reasonably
anticipated demand and to render satisfactory Product Customer Service to
Product customers.
4.7 MONTHLY SALES ACTIVITY AND INVENTORY REPORT. During the Agreement
Term, OAI shall submit to the Company by the 20th day of each month a written
Sales Activity and Inventory Report summarizing sales activity, Product Customer
Service activity (including repair history), and inventory status of the
Products for the prior month.
4.8 PROHIBITED SALES. During the Agreement Term and the Post-Agreement
Period, except as expressly agreed by the Company in writing, OAI shall not (i)
sell any Product for resale or for export out of the Territory; (ii) export any
Product from the Territory; or (iii) sell any Product to any person, firm or
company in the Territory which OAI knows or has reason to believe intends to
resell or export the Product out of the Territory.
4.9 INSURANCE. Commencing on the first date of Product delivery until the
expiration of the pertinent statute of limitations, OAI shall maintain
comprehensive general liability, automobile liability, and workers' compensation
insurance in the amount of $1,000,000 each, covering its activities hereunder as
a distributor and servicer of the Products. Evidence of such insurance shall be
provided to the Company upon reasonable request.
4.10 EQUIPMENT MODIFICATIONS. OAI will give the Company at least 90 days'
prior notice of modifications to the Equipment that will likely result in
incompatibility/ineffectiveness of the Products with respect to the Equipment.
The Company shall not be in default hereunder if it is unable to conform the
Products to such Equipment modifications.
4.11 SOLE REMEDY. Except as set forth in Section 9.3, the
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Company's sole remedy for the breach by OAI of any of the obligations contained
in this Article 4 shall be termination of this Agreement in accordance with
Section 8.2(b) or (d), as the case may be.
ARTICLE 5. PURCHASE ORDERS.
5.1 GENERAL. During the Agreement Term and, with respect to the Ancillary
Products, during the Post-Agreement Period as well, the Company agrees to sell
the Products to OAI and OAI may purchase the Products from the Company (if OAI
submits a purchase order therefor) and such purchases shall be governed by, in
accordance with, and subject to the terms and conditions of this Agreement. On
or about the date of this Agreement, OAI shall provide the Company with a
purchase order for the initial three months of the Agreement Term. Beginning
with the second month of the Agreement Term, in each month of the Agreement Term
OAI shall provide the Company with (a) a purchase order for the third month
following such month and (b) if OAI so elects, increased purchase orders for the
ensuing two months following such month.
5.2 DISINFECTOR INVENTORY AND DELIVERY. Upon submission by OAI of purchase
orders (in accordance with Section 5.5) for Disinfector units, the Company
shall, within 30 days, have such Disinfector units physically available in a
segregated OAI inventory (not commingled with other product inventory of the
Company) at the Company's principal shipping facility. Such segregated OAI
inventory shall be maintained by the Company at no charge to OAI. Upon receipt
of shipping instructions by the Company from OAI, the Company shall, within five
Business Days, ship the Disinfector units from the segregated OAI inventory to
the OAI customer(s) within the Territory designated by such shipping
instructions, provided that OAI has sufficient inventory to cover the order. OAI
shall bear the initial shipping costs incurred in delivering brand new or
newly-ordered reconditioned Disinfector units to OAI customers. OAI will also
bear the shipping costs incurred in delivering replacement units to customers
which are needed due to OAI administrative or customer error. OAI may cancel
shipping instructions and, at its option, either arrange for pick-up and
shipment or receive a credit for Disinfector units whose delivery is more than
ten days past due. The Company shall provide OAI with a written monthly
inventory report (with a copy to OAI's Vice President of Operations at the
address set forth in Section 11.4) listing the Disinfector units located in the
segregated section of the Company's principal shipping facility.
5.3 ANCILLARY PRODUCT DELIVERY. Upon submission by OAI of a purchase order
(in accordance with Section 5.5) for Ancillary
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Products, the Company shall, within 30 days, deliver such Ancillary
Products to OAI or the OAI customer(s) within the Territory, as designated by
OAI on the purchase order. OAI shall bear the shipping costs incurred by the
Company in delivering the Ancillary Products to OAI or OAI's customers. If
delivery of such purchase order is more than 30 days past due, OAI may, at its
option, either (i) cancel the purchase order for Ancillary Products or (ii)
elect to proceed with the solution set forth in Section 3.11(c). If OAI or OAI's
customer finds any quantity deficiency in the Ancillary Product units, OAI may,
at its option, (i) require the Company to immediately deliver the difference by
air freight at the Company's expense, or (ii) reduce the purchase price
specified in the related purchase order accordingly. If OAI or OAI's customer
finds an over-shipment of Ancillary Product units, OAI and/or the OAI customer
may store the excess units or return the excess units to the Company, both at
the Company's risk and expense.
5.4 TITLE; RISK OF LOSS. Title to and risk of loss for the Products sold
to OAI shall pass to OAI upon (i) placement of the Disinfector units into the
segregated OAI inventory at the Company's principal shipping facility (with
respect to the Disinfectors), and (ii) receipt of the Ancillary Products by the
carrier selected by OAI to deliver the Ancillary Products to OAI or OAI's
customers.
5.5 CONDITIONS OF SALE. The order terms and conditions set forth in this
Agreement shall govern all orders made under this Agreement, and any standard
printed order forms or other documents of either party (such as those contained
on a quotation, proposal, purchase order, or invoice) shall have no force or
effect with respect to such orders unless such form or document specifically
states that it is an amendment to this Agreement and is signed by an authorized
signatory of each party. Notwithstanding the foregoing, OAI's purchase order may
indicate the following terms which shall govern: Product quantity, delivery
destination and schedule, and a reference to the applicable pricing. OAI shall
have no obligation to purchase until it submits a purchase order to the Company.
An OAI purchase order shall be deemed accepted by the Company unless OAI is
notified to the contrary in writing by the Company within seven days of the
Company's receipt of such purchase order from OAI. An appropriate
policy/procedure will be developed to handle special requests.
5.6 PRICE.
(a) PRICING. During the first year of the Agreement Term, the price
to be charged to OAI for (i) the Disinfector shall be fixed as set forth in
SCHEDULE 1.8 attached hereto, and (ii) the Ancillary Products shall be fixed as
set forth in
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SCHEDULE 1.4 attached hereto. During each of the second, third and fourth years
of the Agreement Term, the Company may only increase the prices for the Products
once by no greater than ten percent (10%) per Agreement Term year, UNLESS the
cost of a major component increases sufficiently to warrant a price increase
above the foregoing 10% limit. In the event the Company wishes to increase
prices by more than the 10% limit due to a major component increase, the Company
shall substantiate and justify such increase to OAI in writing, and OAI will
then have the option to locate the component from a third-party at a lower price
for the Company's purchase of such third-party component in order to reduce or
eliminate the price increase to OAI. Price increases due to mutually agreed-upon
Product additions and/or enhancements will not be limited by the foregoing 10%
limit. Any permitted annual price increases must be communicated to OAI during
the 60 days immediately prior to the start of the Agreement Term year and shall
take effect on the first day of such Agreement Term year. Product pricing shall
only be adjusted in accordance with this Section 5.6(a) unless otherwise agreed
by the parties. Instruction manuals shall be included in the price of the
Products. OAI shall be free to set its own Product prices charged to its
subdistributors, dealers, and customers.
(b) PAYMENT. OAI shall pay for Disinfector units no later than 30
days from (i) placement by the Company of the Disinfector units in OAI inventory
AND (ii) the date of the corresponding invoice. OAI shall pay for all Ancillary
Products received and not rejected (within ten days) by OAI or OAI customers no
later than 30 days from the date of the Company's invoice corresponding to such
Ancillary Products received and not rejected (within ten days). All payments
overdue by more than ten Business Days shall generate a one and one-half percent
(1 1/2%) late payment penalty (or the highest rate permitted by law if less than
one and one-half percent (1 1/2%) per month) for each month such payment is
overdue.
5.7 UPON TERMINATION. Unless OAI decides that it does not want a purchase
order or shipping instruction filled, any purchase order/shipping instruction
submitted by OAI but not shipped by the Company prior to the date that notice of
termination is delivered hereunder or the date that this Agreement otherwise
expires, shall be timely delivered to OAI's segregated inventory at the
Company's principal shipping facility or the destination points designated by
OAI (as the case may be), PROVIDED that such termination did not arise from
OAI's default.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF OAI.
OAI hereby covenants, represents and warrants to the Company, its successors and
permitted assigns that:
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6.1 DUE ORGANIZATION. OAI is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and has
the full power and authority to conduct all activities conducted by it under
this Agreement.
6.2 AUTHORIZATION TO EXECUTE. The person executing this Agreement on
behalf of OAI has been duly authorized to do so by all requisite corporate and
other action of OAI, and this Agreement has been duly executed and delivered to
the Company by such person.
6.3 VALIDITY OF AGREEMENT. This Agreement is the legal, valid and binding
obligation of OAI, enforceable in accordance with its terms.
6.4 NO CONFLICT. To the knowledge of OAI, the execution, delivery and
performance of this Agreement by OAI does not and will not conflict with or
result in a breach of any agreement, instrument or understanding, oral or
written, to which OAI is a party. There is no litigation, arbitration or
administrative proceeding pending or threatened which would, in any event,
conflict with or result in a breach of this Agreement or interfere with OAI's
obligations hereunder.
6.5 COMPLIANCE. OAI shall ensure that, in marketing and selling the
Products, it shall (i) comply with all applicable laws and regulations and (ii)
not engage in any deceptive or misleading practices.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby covenants, represents and warrants to OAI, its successors and
permitted assigns, and to OAI's customers that:
7.1 DUE ORGANIZATION. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Minnesota, and has
the full power and authority to conduct all activities conducted by it under
this Agreement.
7.2 AUTHORIZATION TO EXECUTE. The person executing this Agreement on
behalf of the Company has been duly authorized to do so by all requisite
corporate and other action of the Company, and this Agreement has been duly
executed and delivered to OAI by such person.
7.3 VALIDITY OF AGREEMENT. This Agreement is the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
7.4 NO CONFLICT. To the knowledge of the Company, the
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execution, delivery and performance of this Agreement by the Company does not
and will not conflict with or result in a breach of any agreement, instrument or
understanding, oral or written, to which the Company is a party. There is no
litigation, arbitration or administrative proceeding pending or threatened which
would, in any event, conflict with or result in a breach of this Agreement or
interfere with the Company's obligations hereunder.
7.5 RIGHT TO USE TECHNOLOGY. The Company has the legally enforceable right
to use all technology contained within or related to the Products, whether
patented or unpatented, for the purposes specified in this Agreement, and such
use of such technology does not violate any agreement, instrument or
understanding, oral or written, to which the Company is a party.
7.6 WARRANTY OF NON-INFRINGEMENT. The Products do not incorporate or
infringe upon any copyright, patent, trademark, service mark, trade name, trade
secret, idea, process, know-how, development, invention, or any other form of
intellectual property (collectively "Intellectual Property") not owned by or
licensed to the Company. The Company will promptly notify OAI of any alleged or
actual infringement by the Company of any Intellectual Property relating to the
Products or their manufacture. Nothing in this Agreement shall be deemed to
confer upon either OAI or the Company any right, title, interest, or license,
express or implied, to or in any of the other party's current or future
Intellectual Property or in the goodwill now or hereafter associated therewith.
7.7 RIGHT TO SELL FOR RESALE; ABILITY TO DELIVER. The Company has the
right to sell the Products to OAI for resale by OAI in the Territory. The
Company has and will have the ability to timely deliver all of the Product units
ordered by OAI during the Agreement Term and Post-Agreement Period. The Company
shall not be liable for any indirect, special, incidental or consequential
damages (including but not limited to lost profits, lost investments, and lost
business opportunities) resulting from its failure to timely deliver any
Product.
7.8 PRODUCT QUALITY.
(a) The Products to be sold to OAI hereunder shall (i) meet their
respective published specifications during the warranty periods set forth in
Section 7.9(b) and (ii) be new and free from defects in design, materials, and
workmanship.
(b) The Company shall possess a Quality System (as defined in
current Good Manufacturing Practices) that adheres to all applicable laws, rules
and regulations, including without limitation the practices and regulations of
the FDA (including
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but not limited to current Good Manufacturing Practices as expressed in 21
C.F.R. Part 820 and Pre-Market Notification Procedures of 21 C.F.R. Part 807,
Subpart E). In addition, the Company shall hire and maintain sufficient
personnel devoted substantially to process quality control.
(c) Within 30 days after the date of this Agreement, OAI and the
Company shall form a Continual Quality Improvement (CQI) Task Force. The CQI
Task Force will meet or teleconference at least monthly to review and/or
establish Product quality, parts handling and delivery, and quantifiable Product
quality improvement goals and corresponding timelines. The success of the CQI
Task Force will be measured using Customer Satisfaction Index Data.
7.9 PRODUCT WARRANTY.
(a) Subject to the "hot swap" program set forth in Section 2.5(b),
with respect to each Product unit sold to OAI and delivered to an OAI customer,
the Company shall, at no charge to OAI for parts, labor, and material, replace
or render fully operational any non-conforming or defective Product part or
material by reason of the breach by the Company of the warranty set forth in
Section 7.8(a), within ten days after receipt by the Company of the
non-conforming or defective Product part or material. The Company shall, within
the aforementioned ten-day period plus an additional ten days, reasonably
determine whether the Product part or material is non-conforming or defective,
and whether it is covered by this warranty. OAI shall reimburse the Company for
the cost of any replacement or repair part delivered by the Company in place of
a Product part or material which, within the combined twenty-day period referred
to in the preceding sentence, is reasonably determined by the Company not to be
(i) non-conforming or defective or (ii) covered by this warranty; PROVIDED, that
the Company returns to OAI the Product part or material initially sent by OAI.
OAI will perform the labor itself or via a third-party service provider with the
cost billed back to the Company at OAI's per hour labor rate set forth on
SCHEDULE 7.9 attached hereto, for all labor associated with the repair or
replacement of defective or non-conforming Product parts. Notwithstanding the
foregoing, the LABOR cost for a DSD Disinfector in-warranty service call that is
not due to a defective or non-conforming Product part shall be borne by OAI.
(b) Except as otherwise agreed in writing by the parties, the
warranty period for all (i) Disinfectors shall be the earlier of (x) twelve
months after the date the Disinfector unit is installed at the OAI customer's
facility or (y) 15 months after the shipment date; (ii) Ancillary Products shall
be 90 days commencing on the date of use by the customer; and (iii) replacement
DSD printers shall be six months commencing on the
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date of use by the customer.
(c) Notwithstanding the foregoing, in the event of failure by the
Company to repair or replace non-conforming or defective Product parts, material
or units under warranty within the respective time periods set forth in Section
7.9(a), (i) OAI may, at its sole and absolute discretion after informing the
Company of its intentions, make such corrections or replace such Product parts,
material, or units and charge the Company for the cost incurred by OAI in doing
so and (ii) the Company shall reimburse OAI for any and all reasonable
additional costs and expenses incurred by OAI as a result of such failure to
repair or replace, which costs and expenses would not have been incurred if not
for such failure to repair or replace. Failure of the Company to repair or
replace within 30 days, shall entitle OAI to a full refund for the affected
Product unit(s), provided the affected Product units are returned to the Company
in a timely fashion. The foregoing reimbursement plan shall continue until the
non-conforming Product parts, material, or units are repaired, replaced, or
refunded.
(d) OAI must receive prior written authorization from the Company
prior to returning entire Disinfector units or Major Defect parts to the
Company. Such written authorization shall not be unreasonably withheld or
delayed. OAI must package, in a commercially reasonable fashion, the Disinfector
units and Major Defect parts to be returned to the Company. Shipping costs
incurred by OAI and risk of loss upon return of Product parts, material, or
authorized Disinfector units to the Company for repair or replacement (in
accordance with this Section 7.9) shall be borne by the Company. Shipping costs
incurred by the Company and risk of loss upon delivery of the repaired or
replacement Product parts, material, or Disinfector units to OAI shall be borne
by the Company. The parties shall create SOPs which outline Product part
procurement and Returned Goods Authorization procedures.
(e) Inspection, testing, acceptance, or use (or failure to do the
same) of the Products on any occasion shall not affect OAI's rights and the
Company's obligations under this Agreement or any other rights or remedies
available to OAI whether at law, in equity, or otherwise, and such warranties,
rights, and remedies shall survive such inspection, testing, acceptance, and
use.
(f) The foregoing warranty shall not limit or exclude OAI's other
remedies hereunder, at law, or in equity. Notwithstanding the preceding
sentence, in no event shall the Company be liable for indirect, incidental,
consequential, or special damages, including but not limited to damages for lost
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profits, lost investments, or lost business opportunities.
7.10 COMPLIANCE. The Company has ensured and shall continue to ensure
that, in manufacturing and selling the Products to OAI, it shall (i) comply with
all applicable laws and regulations, (ii) not engage in any deceptive or
misleading practices, and (iii) obtain and maintain all required governmental
and private approvals and clearances (including without limitation compliance
with UL, '510(k) of the Food, Drug, and Cosmetic Act of 1938, as amended, and
the Safe Medical Devices Act of 1990, as amended).
7.11 PRICE WARRANTY. The Company warrants that the prices referenced in
Section 5.6(a) and SCHEDULES 1.4 AND 1.8 shall be complete and no additional
charges of any kind (except for shipping costs) shall be added without OAI's
prior written consent. Examples of additional charges include, but shall not be
limited to, packaging, labeling, (re)stocking, storage, insurance, boxing, or
crating.
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ARTICLE 8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall remain in full force and effect commencing
on the date first above written and expiring on the fourth (4th) anniversary
therefrom (the "Agreement Term") unless earlier terminated pursuant to Section
8.2. Notwithstanding the foregoing, the Agreement Term may be suspended pursuant
to the provisions of Section 11.1 of this Agreement.
8.2 EVENTS OF TERMINATION. This Agreement may be terminated, without
limiting any party's rights to other remedies, as follows:
(a) Upon ten days' written notice by either party (the "Terminating
Party") to the other party (the "Breaching Party"):
(i) if the Breaching Party has not performed or has
materially breached its obligations hereunder and if
such nonperformance or breach is incapable of cure; or
(ii) if any proceeding in bankruptcy, reorganization or
arrangement for the appointment of a receiver or a
trustee to take possession of the Breaching Party's
assets or any similar proceeding under the law for
relief of creditors shall be instituted by or against
the Breaching Party; or
(iii) if the Breaching Party shall make an assignment for the
benefit of its creditors; or
(iv) if the Breaching Party sells or otherwise transfers,
singly or in the aggregate, 25% or more of its ownership
or assets without the prior written consent of the
Terminating Party; or
(v) in accordance with Section 11.1 (FORCE MAJEURE).
The Breaching Party immediately shall notify the Terminating Party
in writing of the occurrence of any event of the type described in
clauses (a)(ii), (iii), and (iv).
(b) By the Terminating Party upon the expiration of 30
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days (or such additional period as the Terminating Party may authorize) after
the Breaching Party's receipt of written notice of its material breach or
non-performance of its obligations hereunder and if such breach or
non-performance is capable of cure and has not been cured.
(c) By OAI upon 30 days' prior written notice to
the Company of the rejection of a Product Change or corrective
action in accordance with Section 3.4.
(d) By the Company upon 30 days' prior written notice to OAI of
OAI's failure to meet an annual purchase projection in accordance with Section
4.1. However, OAI shall have the right, at its option, to remit to the Company
the portion of such Agreement Term year's purchase projection shortfall
attributable to the Company's documented gross profit (i.e., Product pricing set
forth in Section 5.6(a) LESS cost of goods sold) during such 30-day notice
period and thus cure and revive the Agreement.
(e) By OAI, without cause and without liability, upon nine months'
prior written notice to the Company, PROVIDED that during such nine-month
period, OAI will continue to purchase the Products from the Company at a volume
equal to or exceeding the average purchases for the six-month period prior to
the date of the written termination notice. If OAI elects to terminate this
Agreement in accordance with this Section 8.2(e), then the restrictions on both
parties set forth in Sections 2.1(a), 2.2, and 2.3 shall be canceled.
8.3 RIGHTS AND OBLIGATIONS UPON TERMINATION. Upon expiration or earlier
termination of this Agreement, OAI shall have the right to (i) sell all Product
units ordered by OAI customers, (ii) within 30 days of the date of termination,
sell all Product units in OAI inventory (whether at OAI's or the Company's
facility), and (iii) provide ongoing Product Customer Service to its customers
in accordance with this Agreement.
8.4 TERMINATION OR EXPIRATION DAMAGES. Notwithstanding anything contained
in this Agreement to the contrary, neither OAI nor the Company shall be liable
to the other, or to any other business entity or subdistributor, solely by
reason of the expiration or termination of this Agreement regardless of the
rationale for or propriety of any termination or expiration. The exculpation
from liability shall be for any losses or damages of any kind whatsoever,
including, but not limited to, direct, indirect, special, consequential or
incidental damages sustained by reason of such termination, including but not
limited to, any claim for loss of compensation or profits or for loss of
prospective compensation or prospective profits in respect of
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sales of any of the Products or on account of any expenditures, investments,
leases, capital improvements or any other commitments made by either party in
connection with their respective businesses made in reliance upon or by virtue
of this Agreement or otherwise.
8.5 SURVIVAL. Sections 2.4, 2.5, 3.4, 3.5, 3.7, 3.9, 3.10, 3.11, 3.12, 4.2
(last two sentences only), 4.3, 4.8, 4.9, 4.11, 5.1, 5.2 (but only with respect
to purchase orders submitted prior to the end of the Agreement Term), 5.3, 5.4,
5.5, 5.6(b), 5.7, 6.3, 6.4, 6.5, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8(a), 7.9, 7.10,
7.11, 8.3, 8.4, and 8.5, and Articles 9, 10, and 11 (except Section 11.6)
hereof, shall survive the expiration or earlier termination of this Agreement.
In certain Sections, the survival period will be limited to the duration of the
post-Agreement Term time-frame set forth in such Sections.
ARTICLE 9. INDEMNIFICATION.
9.1 COMPANY INFRINGEMENT INDEMNITY.
(a) Should any aspect of any Product become the subject of any
third-party Intellectual Property infringement claim, action, or proceeding, the
Company shall, at its option and expense, use its best efforts to (i) obtain a
license that would permit OAI to exercise all rights granted to it under this
Agreement or (ii) modify the Product to make it non-infringing. During the
period of time in which the Company is pursuing the foregoing remedies, OAI may
suspend purchases of the Product from the Company without any liability
whatsoever. Notwithstanding the foregoing, should the Company fail to accomplish
either one of the foregoing remedies within 60 days, OAI's remedies shall be
limited to (x) the indemnification received from the Company pursuant to this
Article 9, (y) the right, in OAI's sole and absolute discretion, to terminate
this Agreement without any liability whatsoever, and (z) require the Company to
repurchase (at the price paid by OAI plus shipping costs) any portion of or all
ordered Product units and OAI's inventory of Products.
(b) In addition to its obligations under subsection (a) above and
provided that the Company receives prompt written notice of any Intellectual
Property infringement claim, action, or proceeding that arises out of, results
from, or relates to a Product, the Company shall at all times defend, indemnify,
and hold harmless OAI, its successors and permitted assigns, and any of its
officers, directors, employees, representatives, and/or agents, or each of them,
from and against any and all claims, liabilities, losses, costs, damages, and
expenses including but not limited to (i) the damages, losses, costs, and
expenses payable to the third party claiming Intellectual Property infringement,
(ii) all of OAI's reasonable attorneys' fees and
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disbursements, settlement costs, judgments, court costs and expenses incurred by
OAI (attorneys' fees and disbursements only in the event the Company fails to
defend), (iii) reimbursement for the cost of Product that can no longer be sold,
and (iv) any other direct losses, costs, expenses, and damages incurred by OAI
arising out of or resulting from any Intellectual Property infringement claim,
action, or proceeding between OAI and any third party. OAI shall give the
Company prompt notice upon learning of an Intellectual Property infringement
claim, action, or proceeding and provide to the Company, at the Company's
expense, reasonable assistance in connection with a third party Intellectual
Property infringement claim, action, or proceeding. The failure of OAI to give
prompt notice shall not result in the loss of indemnification unless the Company
shall have been materially prejudiced thereby.
(c) OAI shall not be entitled to the foregoing Intellectual Property
infringement indemnity from the Company to the extent that the Intellectual
Property infringement claim, action, or proceeding arises or results solely from
changes to the Product made by OAI without the authorization of the Company.
9.2 COMPANY PRODUCT LIABILITY AND OTHER DAMAGE INDEMNITY.
(a) The Company shall at all times defend, indemnify, and hold
harmless OAI, its successors and permitted assigns and any of its officers,
directors, employees, representatives, and/or agents, or each of them, from and
against any and all claims, liabilities, losses, costs, damages, and expenses,
including but not limited to all of OAI's reasonable attorneys' fees and
disbursements, settlement costs, judgments, court costs and expenses (attorneys'
fees and disbursements only in the event the Company fails to defend); incurred
by OAI in any action or proceeding between OAI and any third party arising out
of or resulting from (i) a defect or alleged defect in a Product, including
without limitation defects relating to manufacturing, improper testing, or
design, or any breach of warranty regarding the Product or any component
thereof, (ii) misrepresentations made in connection with the promotion,
marketing, sale, distribution, use, safety, or efficacy of the Product based
upon information supplied to OAI by the Company, (iii) the contents of any
labeling, inserts, instruction manuals, or related documentation prepared by the
Company or based upon information supplied to OAI by the Company, or (iv) a
Product Recall. OAI shall provide to the Company, at the Company's expense,
reasonable assistance in connection with a third party action or proceeding of
the kind described in this Section 9.2(a). In no event shall the Company be
liable for indirect, incidental, consequential, or special damages, including
but not limited to damages for lost profits, lost investments, or lost business
opportunities.
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(b) OAI shall not be entitled to the foregoing indemnity from the
Company to the extent that the claim, action, or proceeding arises or results
solely from (i) unauthorized representations made by OAI regarding the Product
which are different than or in addition to the representations made by the
Company to OAI, (ii) changes to the Product made by OAI without the
authorization of the Company, or (iii) claims regarding the material
compatibility of the Equipment after being treated with the Product, PROVIDED
the Product is not defective and has not been modified by the Company without
OAI's knowledge and prior written consent.
9.3 OAI PRODUCT LIABILITY AND OTHER DAMAGE INDEMNITY.
(a) OAI shall at all times defend, indemnify, and hold harmless the
Company, its successors and permitted assigns and any of its officers,
directors, employees, representatives, and/or agents, or each of them, from and
against any and all claims, liabilities, losses, costs, damages, and expenses,
including but not limited to all of the Company's reasonable attorneys' fees and
disbursements, settlement costs, judgments, court costs and expenses (attorneys'
fees and disbursements only in the event OAI fails to defend); incurred by the
Company in any action or proceeding between the Company and any third party
arising out of or resulting from (i) misrepresentations by OAI made in
connection with the promotion, marketing, sale, distribution, use, safety, or
efficacy of the Products or (ii) the unauthorized contents of any literature,
marketing materials, or related materials prepared solely by OAI or (iii)
modifications made to the Products by OAI that were not authorized by this
Agreement or not otherwise authorized by the Company. The Company shall provide
to OAI, at OAI's expense, reasonable assistance in connection with a third party
action or proceeding of the kind described in this Section 9.3(a). In no event
shall OAI be liable for indirect, incidental, consequential, or special damages,
including but not limited to damages for lost profits, lost investments, or lost
business opportunities.
(b) The Company shall not be entitled to the foregoing indemnity
from OAI to the extent that the claim, action, or proceeding arises or results
solely from (i) a defect or alleged defect in a Product, including without
limitation defects relating to manufacturing, improper testing, or design, or
any breach of warranty regarding the Product or any component thereof (except a
defect resulting from an unauthorized Product modification made by OAI), (ii)
misrepresentations made in connection with the promotion, marketing, sale,
distribution, use, safety, or efficacy of the Product based upon information
supplied to OAI by the Company, (iii) the contents of any
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labeling, inserts, instruction manuals, or related documentation prepared by the
Company or based upon information supplied to OAI by the Company, or (iv) a
Product Recall.
ARTICLE 10. CONFIDENTIAL INFORMATION.
OAI and the Company each recognizes that documents marked "CONFIDENTIAL"
or "PROPRIETARY" and disclosed by one party to the other hereunder is of
proprietary value to the disclosing party and are to be considered highly
confidential ("Confidential Information"). Each party agrees not to disclose
such Confidential Information to others (except its employees who reasonably
require the Confidential Information for the purposes hereof and who are bound
to it by a like obligation of confidentiality), or to use it for purposes
outside this Agreement, without the express prior written consent of the other
party ( which consent shall not be unreasonably withheld), EXCEPT that neither
party shall be prevented from disclosing that portion of Confidential
Information received from the other which (i) can be demonstrated by written
records to be known to the recipient at the time of receipt; (ii) was
subsequently otherwise legally acquired by such party from a third party having
an independent right to disclose the information; (iii) is now or later becomes
publicly known without breach of this Agreement by either party; (iv) is
required to be disclosed by order of a court, administrative agency, or other
governmental body, PROVIDED that the recipient has given reasonable advance
notice to allow the disclosing party the opportunity to seek a protective order
or otherwise prevent or limit such disclosure; or (v) is or has been
independently developed by employees of the recipient without reference to the
Confidential Information. Each party's obligation of confidentiality shall be in
force during the Agreement Term and any extension thereof and shall extend for a
period of two (2) years from the expiration or early termination of this
Agreement.
Neither OAI nor the Company shall (i) use or communicate any research results
without the other party's express written consent, and then only for the
purposes expressly set forth in such consent, (ii) disseminate any advertisement
or other printed material with respect to the Products and the Equipment,
without the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed, or (iii) disclose the exhibits and schedules
to this Agreement to any third party; unless such use, communication,
production, dissemination, or disclosure is required under operation of law (in
which case the affected party shall be notified in writing in advance and given
an opportunity to seek a protective order). Requests for consent under this
Article 10 must either be granted or rejected within five Business Days.
32
<PAGE>
ARTICLE 11. MISCELLANEOUS.
11.1 FORCE MAJEURE. Each party hereto shall be excused from the
performance of its obligations hereunder in the event such performance is
prevented by FORCE MAJEURE, and such excuse shall continue for so long as the
condition constituting such FORCE MAJEURE and any consequences resulting from
such condition continues. In addition, in the event the condition constituting
the FORCE MAJEURE causes a substantial inability by either party hereto to
manufacture, deliver, sell or otherwise distribute, as the case may be, the
Products, the Agreement Term may be suspended for the period of such inability,
but not to exceed six months. If the inability goes beyond such six-month
period, either party may terminate this Agreement in accordance with Section
8.2(a). For the purposes of this Agreement, FORCE MAJEURE shall mean causes
beyond either party's control including acts of God; war, riot or civil
commotion; damage to or destruction of production facilities or materials by
fire, earthquake, storm or other disaster; strikes or other labor disturbances;
epidemic; failure or default of public utilities or common carriers; and other
similar acts. Compliance with laws or government regulations shall not
constitute a FORCE MAJEURE event.
11.2 REPRESENTATIONS; RELATIONSHIP. No party is authorized on behalf of
the other party to make any statements, claims, representations or warranties or
to act on behalf of the other party with respect to the Products, or otherwise,
except as specifically authorized by this Agreement or in a writing signed by
both parties. The relationship created between the Company and OAI by this
Agreement shall be that of manufacturer and seller. Neither OAI nor the Company
shall be deemed an agent, representative, partner, joint venturer, or employee
of the other party. Neither the Company nor OAI shall have the right to enter
into any contracts or commitments or to make any representations or warranties,
whether express or implied, in the name of or on behalf of the other party, or
to bind the other party in any respect whatsoever, unless agreed to in writing
or expressly permitted in this Agreement.
11.3 ASSIGNMENT; BINDING EFFECT.
(a) Neither party to this Agreement may assign all or any part of
its rights and obligations under this Agreement, except to an Affiliate, without
the prior written consent of the other party. No permitted assignment by any
party pursuant to this Section 11.3(a) shall result in any additional expense to
the other party. Any purported assignment in contravention of this Section
11.3(a) shall, at the option of the non-assigning party, be null and void and of
no effect.
33
<PAGE>
(b) Except as otherwise provided above, this Agreement will be
binding upon and inure to the benefit of the successors and permitted assigns of
the parties.
(c) Notwithstanding anything contained in this Agreement to the
contrary, all obligations of and restrictions on the parties set forth in this
Agreement shall not be deemed obligations of and restrictions on any of the
parties' respective Affiliates, EXCEPT if this Agreement is assigned to an
Affiliate pursuant to Section 11.3(a).
11.4 NOTICES. Any notice, consent, or other communication required or
permitted to be given to either party under this Agreement shall be given in
writing and shall be delivered (i) by hand, or (ii) by registered or certified
mail, postage prepaid and return receipt requested, or (iii) by confirmed
facsimile transmission; addressed to each party at the following address or such
other address as may be designated by such party by notice pursuant to this
Section 11.4:
To the Company: MediVators, Inc.
2995 Lone Oak Circle
Suite 10
Eagan, Minnesota 55121-1431
Fax: 651-405-1881
ATTENTION: President
with a copy to: (a) Dornbush Mensch Mandelstam
& Schaeffer, LLP
747 Third Avenue
New York, New York 10017
Fax: 212-753-7673
ATTENTION: Eric W. Nodiff, Esq.
and
(b) Cantel Industries, Inc.
1135 Broad Street, Suite 203
Clifton, New Jersey 07013
Fax: 973-471-0054
ATTENTION: President
To OAI: Olympus America Inc.-Endoscope Division
Two Corporate Center Drive
Melville, New York 11747-3157
Fax: 516-844-5442
ATTENTION: Division Manager and, by
separate copy, General Counsel (Fax: 516-844-5296)
Any notice, consent, or other communication given in conformity with this
Section 11.4 shall be deemed effective when received by
34
<PAGE>
the addressee, if delivered by hand or facsimile transmission, and seven days
after mailing, if mailed. Notwithstanding the foregoing, all notice, consent, or
other communication copies sent hereunder to Cantel Industries, Inc. shall be
sent as a courtesy and failure by OAI to send notice, consent, or other
communication to Cantel Industries, Inc. shall not be deemed or construed as
defective notice, consent, or other communication hereunder.
11.5 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and any
other documents or instruments related hereto and all transactions hereunder
shall be deemed to have been made within and under the laws of the State of New
York, including the Uniform Commercial Code of the State of New York, and for
all purposes shall be governed by and construed in accordance with the laws of
the State of New York without regard to the conflict of laws rules thereof. The
parties expressly agree that any controversy, dispute or claim with respect to
any provision of this Agreement shall be adjudicated exclusively by a court of
competent jurisdiction within Suffolk County, the State of New York, or the
Federal District Court for the Eastern District of New York, applying New York
law without regard to the rules of conflicts of law and the Company and OAI
waive any objections either may have and consent to the personal jurisdiction
and the designation of a forum or venue of the courts set forth herein,
including without limitation waiving a motion to change or transfer venue.
Notwithstanding the foregoing, either party may, in any jurisdiction, seek to
enforce, collect, or take any other action to effectuate a judgment, order, or
decree obtained from a court in Suffolk County, State of New York or the Federal
District Court for the Eastern District of New York.
11.6 EXECUTION OF ADDITIONAL DOCUMENTS. Each party hereto agrees to
execute and deliver such documents as may be necessary or desirable to carry out
the provisions of this Agreement.
11.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and OAI with respect to the subject matter hereof. All prior
or contemporaneous agreements, proposals, understandings, representations, and
communications with respect to the subject matter hereof, whether written or
oral, between or involving the Company and OAI hereby are cancelled and
superseded, including without limitation the Distributor Agreement between the
parties dated March 12, 1996. Notwithstanding the foregoing, such Distributor
Agreement shall continue to apply to Products and their corresponding orders
shipped by the Company to OAI prior to August 1, 1999. Pending purchase orders
placed but not shipped prior to August 1, 1999 shall be governed by this
Agreement and not the 1996 Distributor Agreement. This Agreement may be amended
or modified only in a
35
<PAGE>
writing executed by both parties which states that it is an amendment or
modification to this Agreement.
11.8 SEVERABILITY. If any provision or part thereof of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions or parts thereof of this Agreement shall continue in
full force without being impaired or invalidated in any way, to the maximum
extent possible consistent with the intent of the parties in entering into this
Agreement.
11.9 TAXES. Each party shall be responsible for payment of its own taxes.
11.10 COUNTERPARTS. This Agreement may be executed in duplicate
counterparts, each of which when so executed shall be deemed to be an original
and both of which when taken together shall constitute one and the same
instrument.
11.11 NO WAIVER. No waiver of any right under this Agreement shall be
deemed effective unless contained in a writing signed by the party charged with
such waiver, and no waiver of any breach or failure to perform shall be deemed
to be a waiver of any future breach or failure to perform or of any other
provisions of this Agreement.
11.12 HEADINGS. The headings contained herein are for reference only and
are not a part of this Agreement and shall not be used in connection with the
interpretation of this Agreement.
11.13 RIGHTS AND REMEDIES CUMULATIVE; DIRECT DAMAGES. All rights and
remedies hereunder are cumulative and may be enforced separately or concurrently
and from time to time, unless otherwise specifically stated herein. The
enforcement of any particular remedy shall not constitute an election of
remedies, and no remedy is exclusive unless specifically stated herein. Except
with respect to Section 9.1 and Article 10, neither party shall be liable under
this Agreement for any indirect, special, incidental, or consequential damages
of any kind, including but not limited to damages for lost profits, lost
investments, or lost business opportunities (collectively, "Consequential
Damages"). Except with respect to Section 9.1 and Article 10, OAI and the
Company hereby agree that direct damages shall not include or contain
Consequential Damages.
11.14 CONTRACT INTERPRETATION. Each party hereto acknowledges that it has
had ample opportunity to review and comment on this Agreement. This Agreement
shall be read and interpreted according to its plain meaning and an ambiguity
shall
36
<PAGE>
not be construed against either party. It is expressly agreed by the parties
that the judicial rule of construction that a document should be more strictly
construed against the draftsperson thereof shall NOT apply to any provision of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
MEDIVATORS, INC.
By: /s/ ROY MALKIN
-----------------------------
Name: Roy Malkin
Title: President
OLYMPUS AMERICA INC.
ENDOSCOPE DIVISION
By: /s/ LOUIS COSENTINO
-----------------------------
Name: Louis Cosentino
Title: Vice President & Division Manager
37
<PAGE>
Exhibit 10(ff)
STOCK OPTION AGREEMENT made as of the 30th 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 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 30, 1998; (ii) an
additional 16,667 Shares may be purchased commencing October 30,
1999; (iii) and an additional 16,666 Shares may be purchased
commencing October 30, 2000.
(b) The Option granted hereby shall expire and
terminate at 5:00 p.m. local time in New York, New York on October
<PAGE>
29, 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 $7.75
per Share, and shall be payable in cash or by certified check; provided,
however, that in lieu of payment in full in cash or by such check, the exercise
price (or balance thereof) may be paid in full or in part by the delivery and
transfer to the 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
hypothecated and may not be sold or transferred in the absence of
an effective Registration Statement for the securities under the
Securities Act of 1933 or an opinion of counsel to the Company
that registration is not required under said Act. In the event
that a Registration Statement becomes effective covering the
securities or counsel to the Company delivers a written opinion
that registration is not required under said Act, this
certificate may be exchanged for a certificate free from this
legend."
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Shares by
reason of stock dividends, split-ups, recapitalizations, mergers,
consolidations, combination, exchanges of shares, separations, reorganizations,
liquidations and the like, the number 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
<PAGE>
Exhibit 10(gg)
STOCK OPTION AGREEMENT made as of the 10th day of March 1999, 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 March 10, 1999; (ii) an
additional 3,333 Shares may be purchased commencing March 10, 2000;
and (iii) an additional 3,333 Shares may be purchased commencing
March 10, 2001.
(b) The Option granted hereby shall expire and
<PAGE>
terminate at 5:00 p.m. local time in New York, New York on March 9, 2009 (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
$6.375 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
hypothecated and may not be sold or transferred in the absence of
an effective Registration Statement for the securities under the
Securities Act of 1933 or an opinion of counsel to the Company
that registration is not required under said Act. In the event
that a Registration Statement becomes effective covering the
securities or counsel to the Company delivers a written opinion
that registration is not required under said Act, this
certificate may be exchanged for a certificate free from this
legend."
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Shares by reason
of stock dividends, split-ups, recapitalizations, mergers, consolidations,
combination, exchanges of shares, separations, reorganizations, liquidations and
the like, the number 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 21
CANTEL INDUSTRIES, INC.
SUBSIDIARIES OF REGISTRANT - JULY 31, 1999
-----------------------------------------------------
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 22, 1999, 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, 1999.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
October 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1999 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 534,000
<SECURITIES> 0
<RECEIVABLES> 11,208,000
<ALLOWANCES> 81,000
<INVENTORY> 8,971,000
<CURRENT-ASSETS> 21,564,000
<PP&E> 2,167,000
<DEPRECIATION> 1,272,000
<TOTAL-ASSETS> 25,039,000
<CURRENT-LIABILITIES> 8,834,000
<BONDS> 1,567,000
0
0
<COMMON> 452,000
<OTHER-SE> 14,093,000
<TOTAL-LIABILITY-AND-EQUITY> 25,039,000
<SALES> 44,879,000
<TOTAL-REVENUES> 50,102,000
<CGS> 31,013,000
<TOTAL-COSTS> 34,515,000
<OTHER-EXPENSES> 12,251,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271,000
<INCOME-PRETAX> 3,065,000
<INCOME-TAX> 1,696,000
<INCOME-CONTINUING> 1,369,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,369,000
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.30
</TABLE>
