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, 2000
Commission File No. 0-6132
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)
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Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X)
Aggregate market value of registrant's capital stock held by non-affiliates (based on shares held and the closing price quoted by NASDAQ on October 6, 2000): $22,010,680
Number of shares of common stock outstanding as of the close of the period covered by this report: 4,438,381
Documents incorporated by reference: None.
PART I
ITEM 1. BUSINESS.
GENERAL
Cantel Medical Corp. (the "Company" or "Cantel") is a healthcare
company concentrating primarily in infection prevention and control products and
diagnostic and therapeutic medical and scientific 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 high performance image analysis
hardware and software) and industrial equipment (including remote visual
inspection devices). Cantel's subsidiaries also provide technical maintenance
service for their own products, as well as for certain competitors' products.
Unless the context otherwise requires, references herein to the Company include
Cantel and its subsidiaries.
The medical and infection control products distributed by Carsen consist of medical equipment, including flexible and rigid endoscopes, endoscope disinfection equipment, surgical equipment and related accessories. The infection control products manufactured and distributed by MediVators consist of endoscope disinfection equipment and related accessories and supplies. The scientific products distributed by Carsen consist of precision instruments, including microscopes and related accessories, certain laboratory equipment and related accessories and image analysis software and hardware; and industrial technology equipment, including borescopes, fiberscopes, video image scopes and related accessories.
Carsen distributes the majority of its medical and scientific 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.
Carsen also distributes other products under separate distribution agreements, including additional medical, infection control and scientific 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.
Year Ended July 31,
---------------------------
2000 1999 1998
---------------------------
% % %
------- -------- --------
Medical Products 41.8 45.0 42.0
Infection Control
Products 26.7 24.9 26.8
Scientific Products 20.1 18.3 19.8
Product Service 13.3 13.9 12.9
Elimination of inter-
company sales of
Infection Control
Products (1.9) (2.1) (1.5)
------- -------- --------
100.0 100.0 100.0
======= ======== ========
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MEDICAL PRODUCTS AND INFECTION CONTROL PRODUCTS
Medical Products and Infection Control Products are the Company's major sources of revenue and profitability. These segments are comprised of the medical and infection control equipment distributed and serviced 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 flexible endoscopes and related products.
An endoscope is a device comprised of an optical imaging 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 digitally capture an image of certain organs and body tissue and, if necessary, to 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 and narrow 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, 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 and supplies 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.
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 basin 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 technicians and nurses, and requires minimal training to operate the disinfector.
MediVators believes its disinfection equipment offers several advantages over manual immersion in disinfectants. The disinfectors are designed to pump disinfectant through all working channels of the endoscope, thus exposing all areas of the endoscope to the disinfectant, resulting in more thorough and consistent disinfection. This process can also inhibit the build up of residue in the working channels. In addition, the entire disinfecting process can be completed with minimal participation by the operator, freeing the operator for other tasks, reducing the exposure of personnel to the chemicals used in the disinfection process and reducing the risk of infectious diseases. The disinfectors also reduce the risk of inconsistent manual disinfecting.
In 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. 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); Diagnostic Instruments, Inc., Sony of Canada Ltd. and Optikon 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 medical endoscopes, but are designed for the industrial market for use in remote visual inspection ("RVI"). RVI is the application of endoscopic technology for industrial uses. The products distributed by Carsen, most of which are manufactured by Olympus, consist of rigid borescopes (devices that are similar to rigid endoscopes), which use a series of relay lenses to transmit an image through a stainless steel insertion tube; fiberscopes (devices that are similar to flexible endoscopes), which use fiberoptic image carrying bundles to transmit images through a flexible insertion tube; and video image scopes, which utilize a small, high resolution solid state image sensor that enables a picture to be transmitted electronically to a monitor.
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.
DISTRIBUTION AGREEMENTS
OLYMPUS/CARSEN AGREEMENT. The majority of Carsen's sales of medical and scientific 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, as amended, expires on March 31, 2004. If Carsen fulfills its obligations under the Olympus Agreement, the parties will establish new minimum purchase requirements and extend the Olympus Agreement through March 31, 2006.
During the term of the Olympus Agreement and for one year thereafter, 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 and industrial technology equipment. The aggregate annual minimum purchase obligations for all such products are approximately $13.2 million, $17.0 million, $18.8 million and $21.0 million during the contract years ending March 31, 2001, 2002, 2003 and 2004, respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase requirements in certain situations, Olympus has the option to terminate or restructure 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 option to terminate or restructure the entire Olympus Agreement. Olympus may also terminate the Olympus Agreement if Carsen breaches its other obligations under the Olympus Agreement.
MEDIVATORS/OLYMPUS AGREEMENT. MediVators has a four year agreement with Olympus which expires on August 1, 2003, under which Olympus is granted the exclusive right to distribute all MediVators' endoscope disinfection equipment and related accessories and supplies in the United States and Puerto Rico. 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 option to terminate the agreement. Net sales to Olympus accounted for 15.9%, 12.7% and 15.6% of the Company's net sales in fiscal 2000, 1999 and 1998, respectively.
DISCONTINUED OPERATIONS
On October 6, 2000, Carsen closed a transaction under an Asset Purchase Agreement (the "Purchase Agreement") with Olympus pursuant to which Carsen terminated its consumer products business and sold its inventories of Olympus consumer products to Olympus. The transaction had an effective date of July 31, 2000.
The purchase price for the inventory was approximately $1,026,000, net of adjustments related to estimated warranty claims and promotional program expenses payable to Carsen's customers. Carsen will receive additional consideration from Olympus under the Purchase Agreement, including amounts related to transition services provided by Carsen subsequent to July 31, 2000. Such consideration includes (i) fixed cash amounts aggregating approximately $615,000 and (ii) twelve and one-half percent (12 1/2%) of Olympus' net sales of consumer products in Canada in excess of $8,000,000 during the period from August 1, 2000 through March 31, 2001. Such amounts are payable on various dates through April 30, 2001. Olympus also reimbursed Carsen for certain expenses related to the termination of Carsen's consumer products business.
The discontinuance of the Consumer Products business has been reflected as a discontinued operation and is presented separately in the Company's Consolidated Financial Statements for the year ended July 31, 2000. The Company's Consolidated Balance Sheet for the year ended July 31, 1999 and the Consolidated Statements of Income and Cash Flows for the years ended July 31, 1999 and 1998 have been restated to conform to the 2000 presentation.
MARKETING
Carsen markets its products for each business segment through separate, dedicated sales forces comprised 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 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. Fluctuations in the rates of exchange between the United States and Canada had a slightly positive impact in fiscal 2000, and an adverse impact in fiscal 1999, 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.
The Food, Drug and Cosmetic Act of 1938 and Safe Medical Device Act of 1990, each as amended, also require 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. The Company was inspected by the FDA in May 2000 and no serious deficiencies were noted.
In addition, the Company's disinfectors must meet the requirements of the European Medical Device Directive ("MDD") for their sale into the European Union. In May 2000, MediVators was inspected and received notification that its products continue to meet these requirements. 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.
Carsen's medical and infection control products are subject to regulation by Health Canada - Therapeutics Products Programme ("TPP"), which regulates the distribution and marketing of medical devices in Canada. Certain of Carsen's products may be regulated by other governmental or private agencies, including Canadian Standards Agency ("CSA"). TPP and other agency clearances generally are required before Carsen can market new medical products in Canada. TPP also has the authority to require a recall or modification in the event of defect. In order to market its medical products in Canada, Carsen is required to hold a Medical Device Establishment License provided by TPP.
PATENTS AND PROPRIETARY RIGHTS
MediVators' current disinfector products, including the DSD-91 and the MV/CLM Series tabletop systems, utilize certain know-how developed within the Company but have no patent protection.
BACKLOG
On October 6, 2000, the Company's consolidated backlog from continuing operations was approximately $1,119,000, compared with approximately $1,750,000 on October 8, 1999.
EMPLOYEES
As of October 6, 2000, the Company employed 161 persons. Of the Company's employees, 103 are located in Canada and 58 are located in the United States; 16 are executives and/or managers, 39 are engaged in sales, 10 are engaged in customer service, 28 are engaged in product service, 31 are engaged in manufacturing, shipping and warehouse functions, 30 perform various administrative functions and 7 are engaged in research and development.
None of the Company's employees are represented by labor unions. The Company considers its relations with its employees to be satisfactory.
ITEM 2. PROPERTIES.
Carsen leases a building containing approximately 41,000 square feet, located in Markham, Ontario. This facility is used for warehouse, service and office space. The lease expires in July 2005, subject to the Company's option to renew for five years. The lease provides for monthly base rent of approximately $12,000. 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 MediVators' option to renew for five years. The lease provides for monthly base rent of approximately $14,000.
The Company has entered into a lease commencing in November 2000 for its executive offices for approximately 3,700 square feet in Little Falls, New Jersey. The lease expires in November 2005, subject to the Company's option to renew for five years. The lease provides for monthly base rent of approximately $9,000.
The Company believes that its facilities are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2000.
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.
HIGH LOW
---- ---
YEAR ENDED JULY 31, 2000
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First Quarter $5 5/8 $4 3/4
Second Quarter 5 3/8 4 3/8
Third Quarter 6 3/4 5 1/16
Fourth Quarter $7 25/32 $5 21/64
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
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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.
On October 6, 2000, the closing price of the Company's Common Stock was $9.25 and the Company had 202 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.
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 INCOME DATA (1):
(Amounts in thousands, except per share data)
Year Ended July 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Net sales .................. $ 40,988 $ 37,545 $ 30,161 $ 29,556 $ 25,632
Cost of sales (2) .......... 24,747 23,823 18,727 19,123 16,023
Gross profit ............... 16,241 13,722 11,434 10,433 9,609
Income from continuing
operations before
interest expense and
income taxes (3) ....... 5,141 3,867 3,104 2,683 1,776
Interest expense (4) ....... 225 271 179 143 258
Income from continuing
operations before
income taxes .......... 4,916 3,596 2,925 2,540 1,518
Income taxes (4) ........... 2,085 1,936 1,287 1,438 793
Income from continuing
operations ............ 2,831 1,660 1,638 1,102 725
Income (loss) from
discontinued operations (147) (291) 57 (6) (303)
-------- -------- -------- -------- --------
Net income ............... $ 2,684 $ 1,369 $ 1,695 $ 1,096 $ 422
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Earnings per common share:
Basic: (5)
Continuing operations $ .64 $ .38 $ .39 $ .27 $ .19
Discontinued
operations ......... (.03) (.07) .01 -- (.08)
-------- -------- -------- -------- --------
Net income ........... $ .61 $ .31 $ .40 $ .27 $ 11
======== ======== ======== ======== ========
Diluted: (5) ...........
Continuing operations $ .63 $ .36 $ .37 $ .25 $ .17
Discontinued
operations ........... (.03) (.06) .01 -- (.07)
-------- -------- -------- -------- --------
Net income ........... $ .60 $ .30 $ .38 $ .25 $ .10
======== ======== ======== ======== ========
Weighted average number
of common and common
equivalent shares:
Basic .................. 4,412 4,394 4,240 4,073 3,790
Diluted ................ 4,479 4,591 4,484 4,354 4,309
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CONSOLIDATED BALANCE SHEETS DATA (1):
(Amounts in thousands, except per share data)
July 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- --------
Total assets ......... $24,955 $23,726 $21,475 $18,082 $15,718
Current assets ....... 21,701 20,462 18,378 16,709 14,426
Current liabilities .. 7,570 7,521 5,191 5,383 2,801
Working capital ...... 14,131 12,941 13,187 11,326 11,625
Long-term debt, less
current portion .... 125 1,567 3,004 1,594 3,419
Stockholders' equity . 17,163 14,545 13,226 11,017 9,401
Book value per
outstanding common
share .............. $ 3.87 $ 3.28 $ 3.03 $ 2.64 $ 2.42
Common shares
outstanding ........ 4,438 4,441 4,367 4,166 3,889
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(1) Consolidated statements of income and balance sheets data for fiscal 1996 through 1999 have been restated from amounts previously reported to reflect the Consumer Products business as a discontinued operation.
(2) Includes for fiscal 1999 an inventory write-off of $452,000 associated with the discontinuance of MediVators' medical sharps disposal business.
(3) 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.
(4) 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.
(5) 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 from continuing operations by $0.10. Without this charge, basic and diluted earnings per share from continuing operations for fiscal 1999, as adjusted, would have been $0.48 and $0.46, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF CONTINUING OPERATIONS
Reference is made to the discontinuance of the Company's Consumer Products business, as more fully described in Item 1, "Business", and in note 6 to the Consolidated Financial Statements. The results of continuing operations reflect primarily the results of Carsen and MediVators. Reference is also made hereafter to the impact on the Company's results of operations of a stronger Canadian dollar against the United States dollar during fiscal 2000 compared with fiscal 1999 (increase in value of approximately 3% based upon month-end exchange rates), and a weaker Canadian dollar against the United States dollar during fiscal 1999 compared with fiscal 1998 (decrease in value of approximately 6%).
The following table gives information as to the net sales and the percentage to the total net sales accounted for by each operating segment of the Company.
Year Ended July 31,
-----------------------------------------------------------------------
2000 1999 1998
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(Dollar amounts in thousands)
$ % $ % $ %
-------- ------- -------- ------- -------- -------
Medical Products $ 17,114 41.8 $ 16,887 45.0 $ 12,679 42.0
Infection Control
Products 10,940 26.7 9,334 24.9 8,086 26.8
Scientific Products 8,231 20.1 6,868 18.3 5,957 19.8
Product Service 5,463 13.3 5,223 13.9 3,879 12.9
Elimination of inter-
company sales of
Infection Control
Products (760) (1.9) (767) (2.1) (440) (1.5)
-------- ------- -------- ------- -------- -------
$ 40,988 100.0 $ 37,545 100.0 $ 30,161 100.0
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FISCAL 2000 COMPARED WITH FISCAL 1999
Net sales increased by $3,443,000, or 9.2%, to $40,988,000 in fiscal 2000, from $37,545,000 in fiscal 1999. This increase was attributable to the increased sales of all business segments, with the largest increases attributable to Infection Control Products and Scientific Products. Net sales were positively impacted in fiscal 2000 compared with fiscal 1999 by approximately $801,000 due to the translation of Carsen's net sales using a stronger Canadian dollar against the United States dollar.
For fiscal 2000, the increased sales of Infection Control Products were primarily attributable to an increase in demand for infection control products in the United States, and to a lesser extent, continued expansion and improvement of the international distribution of MediVators' infection control products and selling price increases. The increased sales of Scientific Products were primarily attributable to an increase in demand for microscopes and related imaging equipment.
Gross profit increased by $2,519,000, or 18.4%, to $16,241,000 in fiscal 2000, from $13,722,000 in fiscal 1999. Gross profit was positively impacted in fiscal 2000 compared with fiscal 1999 by approximately $294,000 due to the translation of Carsen's gross profit using a stronger Canadian dollar against the United States dollar.
Gross profit as a percentage of sales increased to 39.6% in fiscal 2000, from 36.5% in fiscal 1999. The higher gross profit percentage for fiscal 2000 was primarily attributable to the positive impact of a stronger 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; favorable sales mix and manufacturing efficiencies associated with infection control products; favorable sales mix associated with Product Service; and the write-off in fiscal 1999 of inventory in the amount of $452,000 associated with the discontinuance of MediVators' medical sharps disposal business.
Shipping and warehouse expenses increased by $89,000 to $491,000 for fiscal 2000, from $402,000 for fiscal 1999. The increase was attributable to variable freight costs associated with the increase in sales volume.
Selling expenses as a percentage of net sales were 12.8% for fiscal 2000, compared with 12.5% for fiscal 1999. The increase was attributable to an increase in personnel to support the increase in volume at the Company's Canadian subsidiary.
General and administrative expenses increased by $646,000 to $4,543,000 for fiscal 2000, from $3,897,000 for fiscal 1999. The increase was primarily attributable to personnel costs, including incentive compensation, and professional fees.
Research and development expenses increased by $47,000 to $836,000 for fiscal 2000, from $789,000 for fiscal 1999. This increase was due to an increase in personnel costs and continuing engineering on existing products.
The Company incurred costs of $74,000 in fiscal 1999
related to professional fees associated with the termination of a proposed acquisition.
Interest expense decreased to $225,000 in fiscal 2000, from $271,000 in fiscal 1999. This decrease was attributable to a decrease in average outstanding borrowings during fiscal 2000 under the Company's revolving credit facilities, partially offset by an increase in average borrowing rates.
Income from continuing operations before income taxes increased by $1,320,000, or 36.7%, to $4,916,000 for fiscal 2000, from $3,596,000 for fiscal 1999. Without the write-off associated with the discontinuance of MediVators' medical sharps disposal business, income from continuing operations before income taxes would have increased by $853,000, or 21.0%, for fiscal 2000.
Income taxes consist primarily of taxes imposed on the Company's Canadian operations. The effective tax rate on Canadian operations was 43.9% and 46.1% for fiscal 2000 and 1999, respectively. For fiscal 2000, the consolidated effective tax rate is lower than the Canadian effective tax rate due to the fact that income generated by the United States operations is substantially offset by tax benefits resulting from the utilization of net operating loss carryforwards.
FISCAL 1999 COMPARED WITH FISCAL 1998
Net sales increased by $7,384,000, or 24.5%, to $37,545,000 in fiscal 1999, from $30,161,000 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 $1,507,000 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 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.
Gross profit increased by $2,288,000, or 20.0%, to $13,722,000 in fiscal 1999, from $11,434,000 in fiscal 1998. Gross
profit was adversely impacted in fiscal 1999 compared with fiscal 1998 by approximately $520,000 due to the translation of Carsen's gross profit using a weaker Canadian dollar against the United States dollar.
Gross profit as a percentage of sales decreased to 36.5% in fiscal 1999, from 37.9% in fiscal 1998. The lower gross profit percentage 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; and more competitive sales of medical products. The gross profit percentage decrease was net of improvements in gross profit percentage attributable to favorable sales mix, selling price increases and volume related manufacturing efficiencies associated with infection control products.
Shipping and warehouse expenses decreased by $18,000 to $402,000 for fiscal 1999, from $420,000 for fiscal 1998.
Selling expenses as a percentage of net sales were 12.5% for fiscal 1999, compared with 11.9% for fiscal 1998. The increase was attributable to an increase in advertising and sales promotion costs associated with infection control products and 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 $440,000 to $3,897,000 for fiscal 1999, from $3,457,000 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 increased internal regulatory costs, including costs of ISO certification.
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 2000 under the Company's revolving credit facilities.
Income from continuing operations before income taxes increased by $671,000, or 22.9%, to $3,596,000 for fiscal 1999, from $2,925,000 for fiscal 1998. Without the write-off associated with the discontinuance of MediVators' medical sharps disposal business, income from continuing operations before income taxes would have increased by $1,138,000, or 38.9%, to $4,063,000 for fiscal 1999.
Income taxes consist primarily of taxes imposed on the Company's Canadian operations. The effective tax rate on Canadian operations was 46.1% 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.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company's working capital was $14,131,000, compared with $12,941,000 at July 31, 1999. This increase primarily reflects increases in cash and cash equivalents and net assets related to discontinued business and a decrease in other accrued expenses, partially offset by a decrease in inventories.
Net cash provided by operating activities was $4,668,000 for fiscal 2000, compared with net cash provided by operating activities of $1,916,000 for fiscal 1999 and net cash used in operating activities of $320,000 for fiscal 1998. In fiscal 2000, net cash provided by operating activities was primarily due to net income from continuing operations after adjusting for depreciation and amortization and deferred income taxes, and decreases in inventories and accounts receivable. In fiscal 1999, net cash provided by operating activities was primarily due to net income from continuing 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 from continuing operations after adjusting for depreciation and amortization.
Net cash used in investing activities was $1,392,000, $375,000 and $1,373,000 in fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, net cash used in investing activities was primarily due to an increase in the net assets related to discontinued operations and capital expenditures. In fiscal 1999, net cash used in investing activities was primarily due to capital expenditures. In fiscal 1998, the net cash used in investing activities was primarily due to an increase in the net assets related to discontinued operations, capital expenditures and the acquisition of Lutz Medical.
Net cash used in financing activities was $1,641,000 in fiscal 2000, compared with net cash used in financing activities of $1,500,000 in fiscal 1999 and net cash provided by financing activities of $1,530,000 in fiscal 1998. These changes were principally due to the fluctuations in outstanding borrowings under the Company's revolving credit facilities, proceeds from the exercise of stock options and, in fiscal 2000 and 1999, purchases of Treasury Stock.
The Company has two credit facilities, a $5,000,000 (United States dollars) revolving credit facility for Carsen expiring on December 31, 2002 and a $1,500,000 revolving credit facility for MediVators expiring on August 1, 2001. 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. At July 31, 2000, such rate was .25% above the lender's prime rate. 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 7.50% and 9.50%, respectively, at July 31, 2000. Each of the credit facilities provides 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 $125,000 and $1,561,000 of borrowings outstanding under these facilities at July 31, 2000 and 1999, respectively.
During fiscal 2000 compared with fiscal 1999, the average value of the Canadian dollar increased by 3% relative to the value of the United States dollar. A change in the value of the Canadian dollar against the United States dollar affects 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 currency fluctuations also result in a corresponding 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 6, 2000, Carsen had foreign exchange forward contracts aggregating $4,630,000 (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 portion of the Canadian subsidiary's projected purchases of inventories through July 2001. The weighted average exchange rate of the forward contracts open at October 6, 2000 was $1.4605 Canadian dollar per United States dollar, or $.6847 United States dollar per Canadian dollar. The exchange rate published by the Wall Street Journal on October 6, 2000 was $1.4964 Canadian dollar per United States dollar, or $.6683 United States dollar per Canadian dollar.
For purposes of translating the balance sheet, at July 31, 2000 compared with July 31, 1999, the value of the Canadian dollar increased slightly compared to the value of the United States dollar. As a result, at July 31, 2000, the negative cumulative foreign currency translation adjustment was reduced by $133,000 compared to July 31, 1999, 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 $740,000.
The Company believes that its current cash position, anticipated cash flow from continuing operations, amounts to be received related to the discontinuance of the Company's Consumer Products business 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 6, 2000, approximately $6,043,000 was available under the credit facilities.
As of July 31, 2000, the Company had net operating loss carryforwards for financial statement and domestic tax reporting purposes ("NOLs") of approximately $15,886,000 which will expire through July 31, 2015. Of this amount, approximately $1,100,000 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, if any, 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.
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. Fluctuations in the exchange rates between the United States and Canada had a positive impact in fiscal 2000 and an adverse impact in fiscal 1999 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.
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.
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 65 Chairman of the Board and
Director
Alan J. Hirschfield 65 Vice Chairman of the Board,
Director and Chairman of the
Compensation Committee
Robert L. Barbanell 70 Director, Chairman of the Audit
Committee and a member of
the Compensation Committee
Joseph M. Cohen 63 Director
Darwin C. Dornbush, Esq. 70 Secretary and Director
Morris W. Offit 63 Director and a member of the
Audit Committee
James P. Reilly 60 President, Chief Executive
Officer and Director
John W. Rowe, M.D. 56 Director
Bruce Slovin 64 Director and a member of
the Audit Committee
Roy K. Malkin 54 President and Chief Executive
Officer of MediVators
Craig A. Sheldon 38 Vice President and Controller
William J. Vella 44 President and Chief Operating
Officer of Carsen
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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, International Specialty Products (NYSE), a specialty chemical 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. He is currently a private investor and consultant. From July 1992 to February 2000, Mr. Hirschfield served as Co-Chairman and Co-Chief Executive Officer of Data Broadcasting Corp. (NASDAQ), a communication services and technology company. Mr. Hirschfield is a director of Data Broadcasting Corp. as well as Chyron Corporation (NYSE), a supplier of graphics for the television industry and Jackpot, Inc. (NYSE), an internet venture investor and incubator company.
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, a director of Blue Dolphin Energy Company (NASDAQ), an oil and gas company, and a director of Sentry Technology Corporation (NASDAQ), a security products company.
Mr. Cohen has served as Chairman of JM Cohen & Co., L.L.C., a family investment group, since February 2000. From July 1998 until February 2000, Mr. Cohen was Chairman of SG Cowen Securities Corp., a securities firm. From June 1967 until July 1998, Mr. Cohen was Managing Partner and Chairman of Cowen & Company, a research and investment banking firm.
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 Wachovia company), 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 Wachovia Corporation (NYSE), a bank holding company.
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 CEO of Aetna US Healthcare since September 2000. From July 1998 until September 2000, Dr. Rowe was President and Chief Executive Officer of Mount Sinai NYU Health. From July 1988 until July 1998, Dr. Rowe was President of the Mount Sinai Hospital. From July 1988 until July 1999, Dr. Rowe was President of the Mount Sinai School of Medicine. 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 home 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.
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 2000 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 2000 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.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years ended July 31, 2000, 1999 and 1998, 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 $100,000 in salary and bonus during fiscal year 2000:
SUMMARY COMPENSATION TABLE
----------------------------------------------------
Long-Term
Compensation
Annual Compensation (1) Awards (2)
----------------------- ------------
Name and Salary Bonus Options
Principal Position Year ($) ($) (#)
------------------ ---- ------- ------ -------
Charles M. Diker 2000 150,000 0 1,000
Chairman of the 1999 150,000 0 51,000
Company 1998 125,000 0 51,000
James P. Reilly(3) 2000 288,750 141,967 1,000
President and 1999 275,000 98,494 101,000
Chief Executive 1998 250,000 39,225 1,000
Officer of the
Company
Roy K. Malkin (4) 2000 175,000 60,000 5,000
President and 1999 20,192 0 50,000
Chief Executive
Officer of
MediVators, Inc.
Craig A. Sheldon 2000 121,750 27,000 25,000
Vice President 1999 109,000 18,000 6,000
and Controller 1998 97,500 15,000 5,000
of the Company
William J. Vella(5) 2000 169,950 40,000 25,000
President and 1999 144,997 69,668 10,000
Chief Operating 1998 133,447 16,500 10,000
Officer of
Carsen Group Inc.
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(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, with the exception of a one-time relocation allowance provided to Mr. Malkin in the amount of $58,877 paid during fiscal 2000.
(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") which was effective as of August 1, 1998. The Employment Agreement provides for (i) an annual base salary of $275,000, 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. 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 based on his average compensation over the previous three years. If such termination was prior to August 1, 1999, severance would have been 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) In May 1999, MediVators entered into an employment agreement with Roy K. Malkin that expires on July 31, 2002. Mr. Malkin's employment agreement 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 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 $5.25 (the fair market value of the shares on the date of grant). Mr. Malkin was not employed by the Company prior to May 1999.
(5) Mr. Vella was paid his salary and bonus in Canadian dollars. The dollar amounts above have been translated from Canadian dollars to U.S. dollars based upon an average exchange rate during the respective fiscal year.
OPTION GRANTS IN FISCAL 2000
The following stock option information is furnished for the fiscal year ended July 31, 2000 with respect to the Company's Chief Executive Officer and the other executive officers of the Company named in the Compensation Table above, for stock options granted during such fiscal year. Stock options were granted without tandem stock appreciation rights.
% of Total
Number of Options Potential Realizable
Shares Granted to Value at Assumed
Underlying Employees Exercise Annual Rates of Stock
Options During the Price Per Expiration Price Appreciation
Name Granted Fiscal Year Share ($) Date for Option Term ($)(1)
---- ---------- ----------- --------- ---------- ----------------------
5% 10%
--------- -----------
Charles M. Diker 1,000 (2) 0.8 7.781 7/30/05 4,893 12,401
James P. Reilly 1,000 (2) 0.8 7.781 7/30/05 4,893 12,401
Roy K. Malkin 5,000 (3) 4.6 5.25 2/24/05 7,252 16,026
Craig A. Sheldon 25,000 (3) 19.3 5.25 2/24/05 36,262 80,129
William J. Vella 25,000 (3) 19.3 5.25 2/24/05 36,262 80,129
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(1) Represents the potential realizable value of the options granted at assumed 5% and 10% rates of compounded annual stock price appreciation from the date of grant of such options.
(2) These options were granted under the Company's 1991 Directors' Stock Option Plan. The exercise price per share of the options is the market value per share on the date of grant. The options are subject to vesting as follows: 50% of the total shares covered by the options vest on the first anniversary of the date of grant and the remaining 50% vest on the second anniversary of such date of grant.
(3) These options were granted under the Company's 1997 Employee Stock Option Plan. The exercise price per share of the options is the market value per share on the date of grant. The options are subject to vesting as follows: 25% of the total shares covered by the options vest on each of the first four anniversaries of the date of the grant.
AGGREGATED OPTION EXERCISES IN FISCAL 2000
AND FISCAL YEAR-END OPTION VALUES
The following information is furnished for the fiscal year ended July 31, 2000 with respect to the Company's Chief Executive Officer and the other executive officers of the Company named in the Compensation Table above, for stock option exercises during such fiscal year.
Number of Shares Value of
Underlying Unexercised Unexercised in-the-Money
Shares Options At 7/31/00 (#) Options At 7/31/00 ($)
Acquired On Value ---------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Non-exercisable Exercisable Non-exercisable
---- ------------ ------------ ----------- --------------- ----------- ---------------
Charles M. Diker 0 0 143,834 18,166 95,834 1,751
James P. Reilly 50,000 206,000 40,832 68,168 78,972 119,970
Roy K. Malkin 0 0 16,667 38,333 42,184 97,021
Craig A. Sheldon 1,775 444 12,750 33,250 6,647 72,750
William J. Vella 2,000 1,500 27,000 39,000 14,435 82,897
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STOCK OPTIONS
An aggregate of 250,000 shares of Common Stock is reserved for issuance or available for grant under the Company's 1991 Employee Stock Option Plan (the "1991 Employee Plan"). Options granted under the 1991 Employee Plan are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The 1991 Employee Plan is administered in all respects by a committee composed of at least two non-employee members of the Company's Board of Directors who are designated by the Board (the "Stock Option Committee"). The Stock Option Committee may determine the employees to whom options are to be granted and the number of shares subject to each option. Under the terms of the 1991 Employee Plan, all employees of the Company or subsidiaries of the Company are eligible for option grants. The option exercise price of options granted under the 1991 Employee Plan is fixed by the Stock Option Committee but must be no less than 100% of the fair market value of the shares of Common Stock subject to the option at the time of grant, except that in the case of an employee who possesses more than 10% of the total combined voting power of all classes of stock of the Company (a "10% Holder"), the exercise price must be no less than 110% of said fair market value. Options may be exercised by the payment in full in cash or by the tendering or cashless exchange of shares of 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, 2000 under the 1991 Employee Plan have a term of five years. At July 31, 2000, options to purchase 91,500 shares of Common Stock at prices between $5.50 and $8.75 per share were outstanding under the 1991 Employee Plan, and 95,850 shares were available for grant under the 1991 Employee Plan. No additional options will be granted under the 1991 Employee Plan.
An aggregate of 700,000 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 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, 2000 under the 1997 Employee Plan 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, 2000, options to purchase 340,750 shares of Common Stock at prices between $4.875 and $8.75 per share were outstanding under the 1997 Employee Plan, and 359,250 shares were available for grant under the 1997 Employee Plan.
An aggregate of 200,000 shares of Common Stock is reserved for issuance or available for grant under the Company's 1991 Directors' Stock Option Plan (the "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, 2000, 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, 2000 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. Options granted prior to July 31, 2000 have a ten year term and options granted on and after July 31, 2000 have a five year term. The fiscal year options are exercisable in two equal annual installments commencing on the first anniversary of the grant thereof and the quarterly options are exercisable in full immediately. At July 31, 2000 options to purchase 18,000 shares of Common Stock at prices between $5.125 and $7.781 per share were outstanding under the 1998 Directors' Plan, and 182,000 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, 2000, options to purchase 8,035 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 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. 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. 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. All of said options are exercisable in full.
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 full. 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.
In October 2000, Mr. Cohen was granted a five year non-plan option to purchase 10,000 shares of Common Stock at an exercise price of $8.38 per share. This option is exercisable in three equal annual installments beginning October 2000.
REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS AND THE STOCK OPTION COMMITTEE
The Compensation Committee of the Company's Board of Directors (the "Committee") is responsible for setting and administering the policies which govern annual executive compensation. The Committee is currently comprised of two members, Mr. Hirschfield, Chairman, and Mr. Barbanell, both of whom are non-employee directors.
Executive compensation for the fiscal year ended July 31, 2000 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.
Mr. Malkin, the President and Chief Executive Officer of MediVators, serves MediVators pursuant to an employment agreement which commenced on May 19, 1999 and expires on July 31, 2002, 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, Mr. Hirschfield and Mr. 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. Mr. 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.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF SECURITIES
The following table sets forth stock ownership information as of
October 6, 2000 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:
Amount and
Nature of
Name and Address Beneficial Percentage
of Beneficial Owners Position With the Company Ownership (1) of Class
-------------------- ------------------------- ------------- -----------
Charles M. Diker Chairman of the Board and 987,633 (2) 21.5
One New York Plaza Director
New York, New York
Alan J. Hirschfield Vice Chairman of the Board 226,833 (3) 5.1
P.O. Box 7443 and Director
Jackson, Wyoming
Robert L. Barbanell Director 48,269 (4) 1.1
Joseph M. Cohen Director -- --
Darwin C. Dornbush, Esq. Secretary and Director 28,180 (5) .6
Morris W. Offit Director 58,000 (6) 1.3
James P. Reilly President and CEO and 154,282 (7) 3.4
Director
John W. Rowe, M.D. Director 20,667 (8) .5
Bruce Slovin Director 181,000 (9) 4.0
Roy K. Malkin President and CEO of 16,667 (10) .4
MediVators, Inc.
Craig A. Sheldon Vice President and 15,775 (11) .4
Controller
William J. Vella President and COO of 48,003 (12) 1.1
Carsen Group Inc.
All officers and 1,785,309 (13) 36.9
directors as a group
of 12 persons
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(1) Unless otherwise noted, Cantel believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from October 6, 2000 upon the exercise of options. Each beneficial owner's percentage ownership is determined by assuming that options that are held by such person (but not
those held by any other person) and which are exercisable within 60 days from October 6, 2000 have been exercised.
(2) Includes 160,500 shares which Mr. Diker may acquire pursuant to stock
options. Does not include an aggregate of 581,090 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 30,500 shares which Mr. Hirschfield may acquire pursuant to stock options.
(4) Includes 17,500 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 18,500 shares which Mr. Dornbush may acquire pursuant to stock options.
(6) Includes 26,000 shares which Mr. Offit may acquire pursuant to stock options.
(7) Includes 40,832 shares which Mr. Reilly may acquire pursuant to stock options. Does not include 87,115 shares owned by Mr. Reilly's wife as to which Mr. Reilly disclaims beneficial ownership.
(8) Includes 20,667 shares which Dr. Rowe may acquire pursuant to stock options.
(9) Includes 31,000 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 16,667 shares which Mr. Malkin may acquire pursuant to stock options.
(11) Includes 14,000 shares which Mr. Sheldon may acquire pursuant to stock options.
(12) Includes 30,000 shares which Mr. Vella may acquire pursuant to stock options.
(13) Includes 406,166 shares which may be acquired pursuant to stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form 10-K for the fiscal year ended July 31, 2000.
1. CONSOLIDATED FINANCIAL STATEMENTS:
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of July 31, 2000 and 1999.
(iii) Consolidated Statements of Income for the years ended July 31, 2000, 1999 and 1998.
(iv) Consolidated Statements of Changes in Stockholders' Equity for the years ended July 31, 2000, 1999 and 1998.
(v) Consolidated Statements of Cash Flows for the years ended July 31, 2000, 1999 and 1998.
(vi) Notes to Consolidated Financial Statements.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
(i) Schedule II - Valuation and Qualifying Accounts for the years ended July 31, 2000, 1999 and 1998.
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"].)
2(b) - Asset Purchase Agreement between Carsen Group Inc. and
Olympus America Inc. dated as of October 6, 2000, among Registrant, Carsen
Group Inc. and Olympus America Inc. (Incorporated by reference to Exhibit
(2) of Registrant's Current Report on Form 8-K dated October 6, 2000
("2000 8-K").
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) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on May 10, 1999.
3(j) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on April 5, 2000.
3(k) - Registrant's By-Laws adopted June 1, 1976, as amended through the date of this Report. (Incorporated herein by reference to Exhibit 3(d) to Registrant's 1985 Annual Report on Form 10-K.)
10(a) - Registrant's 1991 Employee Stock Option Plan, as amended. (Incorporated herein by reference to Exhibit 10(a) to Registrant's 1991 Annual Report on Form 10-K [the "1991 10-K"].)
10(b) - Form of Stock Option Agreement under Registrant's 1991 Employee Stock Option Plan. (Incorporated herein by reference to Exhibit 10(b) to Registrant's 1991 10-K.)
10(c) - Registrant's 1991 Directors' Stock Option Plan.
(Incorporated herein by reference to Exhibit 10(c) to Registrant's 1991 10-K.)
10(d) - Form of Stock Option Agreement under the Registrant's 1991 Directors Stock Option Plan. (Incorporated herein by reference to Exhibit 10(d) to Registrant's 1991 10-K.)
10(e) - 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(f) - 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(g) - 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 Annual Report on Form 10-K.)
10(h) - 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(i) - Loan and Security Agreement dated as of May 27, 1996, among MediVators, Inc., Disposal Sciences, Inc. and National Canada Finance Corp. (Incorporated by reference to Exhibit 10(s) of Registrant's 1996 Annual Report on Form 10-K [the "1996 10-K"].)
10(j) - 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(k) - 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(l) - 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(m) - 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(n) - 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(o) - 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(p) - 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(q) - 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(r) - 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(s) - 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(t) - 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.)
10(u) - 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(v) - 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(w) - Employment Agreement, dated as of May 19, 1999, between the Registrant and Roy K. Malkin. (Incorporated by reference to Exhibit 10(z) of Registrant's 1999 Annual Report on Form 10-K [the "1999 10-K"].)
10(x) - Employment Agreement, dated as of August 1, 1998, between the Registrant and James P. Reilly. (Incorporated by reference to Exhibit 10(aa) of Registrant's 1999 10-K.)
10(y) - Fourth Loan Amending Agreement, dated as of May 11, 1999, among Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated by reference to Exhibit 10(bb) of Registrant's 1999 10-K.)
10(z) - Fourth Amendment to Loan and Security Agreement dated as of November 1, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National Bank of Canada. (Incorporated by reference to Exhibit 10(cc) of Registrant's 1999 10-K.)
10(aa) - Fifth Amendment to Loan and Security Agreement dated as of October 1, 1999, among MediVators, Inc., Disposal Sciences, Inc. and National Bank of Canada. (Incorporated by reference to Exhibit 10(dd) of Registrant's 1999 10-K.)
10(bb) - Distributor Agreement dated as of August 1, 1999,
among MediVators, Inc. and Olympus America Inc. - Endoscope Division.
(Incorporated by reference to Exhibit 10(ee) of Registrant's 1999 10-K.)
10(cc) - Stock Option Agreement, dated as of October 30, 1998, between the Registrant and Charles M. Diker. (Incorporated by reference to Exhibit 10(ff) of Registrant's 1999 10-K.)
10(dd) - Stock Option Agreement, dated as of March 10, 2000, between the Registrant and John W. Rowe. (Incorporated by reference to Exhibit 10(gg) of Registrant's 1999 10-K.)
10(ee) - Second Amendment to Distribution Agreement between Olympus America Inc. and Carsen Group Inc. dated as of October 6, 2000, among Carsen Group Inc. and Olympus America Inc. (Incorporated by reference to Exhibit (1) of Registrant's 2000 8-K).
10(ff) - Sixth Amendment to Loan and Security Agreement dated as of February 1, 2000, among MediVators, Inc., Disposal Sciences, Inc. and National Bank of Canada.
10(gg) - Registrant's 1998 Director's Stock Option Plan.
10(hh) - Form of Quarterly Stock Option Agreement under the Registrant's 1998 Directors Stock Option Plan.
10(ii) - Form of Annual Stock Option Agreement under the Registrant's 1998 Directors Stock Option Plan.
10(jj) - Stock Option Agreement, dated as of October 10, 2000, between the Registrant and Joseph M. Cohen.
21 - Subsidiaries of Registrant.
24 - Consent of Ernst & Young LLP.
27 - Financial Data Schedule.
(b) REPORTS ON FORM 8-K: None.
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 MEDICAL CORP.
Date: October 27, 2000 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, 2000 ---------------------------- Charles M. Diker, a Director and Chairman of the Board /s/ James P. Reilly Date: October 27, 2000 ---------------------------- James P. Reilly, a Director and President /s/ Robert L. Barbanell Date: October 27, 2000 ---------------------------- Robert L. Barbanell, a Director /s/ Joseph M. Cohen Date: October 27, 2000 ---------------------------- Joseph M. Cohen, a Director /s/ Darwin C. Dornbush Date: October 27, 2000 ---------------------------- Darwin C. Dornbush, a Director /s/ Alan J. Hirschfield Date: October 27, 2000 ---------------------------- Alan J. Hirschfield, a Director /s/ Morris W. Offit Date: October 27, 2000 ---------------------------- Morris W. Offit, a Director /s/ John W. Rowe Date: October 27, 2000 ---------------------------- John W. Rowe, a Director /s/ Bruce Slovin Date: October 27, 2000 ---------------------------- Bruce Slovin, a Director |
CANTEL MEDICAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
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
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cantel Medical Corp.
We have audited the accompanying consolidated balance sheets of Cantel Medical Corp. as of July 31, 2000 and 1999 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, 2000. 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 auditing standards generally accepted in the United States. 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 Medical Corp. at July 31, 2000 and 1999 and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2000, in conformity with accounting principles generally accepted in the United States. 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 26, 2000
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CANTEL MEDICAL CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31,
2000 1999
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,169 $ 534
Accounts receivable, net of allowance for doubtful accounts
of $66 in 2000 and $40 in 1999 8,970 9,351
Inventories 6,992 7,481
Net assets related to discontinued business 3,095 2,245
Prepaid expenses and other current assets 475 851
------- -------
Total current assets 21,701 20,462
Property and equipment, at cost:
Furniture and equipment 2,107 1,729
Leasehold improvements 467 438
2,574 2,167
Less accumulated depreciation and amortization (1,673) (1,272)
901 895
Intangible assets, net 1,345 1,506
Other assets 1,008 863
------- -------
$24,955 $23,726
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,054 $ 4,786
Compensation payable 943 868
Other accrued expenses 979 1,321
Income taxes 594 546
Total current liabilities 7,570 7,521
Long-term debt 125 1,567
Deferred income taxes 97 93
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
12,000,000 shares; issued 2000 - 4,597,220 shares,
outstanding 2000 - 4,438,381 shares; issued 1999-
4,517,945 shares, outstanding 1999 - 4,440,445 shares 460 452
Additional capital 19,502 19,304
Retained earnings (deficit) 96 (2,588)
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation adjustment (2,097) (2,230)
Treasury Stock, 2000 - 158,839 shares at cost; 1999 -
77,400 shares at cost (798) (393)
------- -------
Total stockholders' equity 17,163 14,545
------- -------
$24,955 $23,726
======= =======
|
See accompanying notes.
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JULY 31,
2000 1999 1998
------- ------- -------
Net sales:
Product sales $35,525 $32,322 $26,282
Product service 5,463 5,223 3,879
------- ------- -------
Total net sales 40,988 37,545 30,161
------- ------- -------
Cost of sales:
Product sales 21,885 20,321 16,448
Product service 2,862 3,050 2,279
Write-off of medical sharps inventories - 452 -
------- ------- -------
Total cost of sales 24,747 23,823 18,727
------- ------- -------
Gross profit 16,241 13,722 11,434
Expenses:
Shipping and warehouse 491 402 420
Selling 5,230 4,693 3,604
General and administrative 4,543 3,897 3,457
Research and development 836 789 849
Costs associated with proposed acquisition - 74 -
------- ------- -------
Total operating expenses 11,100 9,855 8,330
------- ------- -------
Income from continuing operations before interest
expense and income taxes 5,141 3,867 3,104
Interest expense 225 271 179
------- ------- -------
Income from continuing operations before income taxes 4,916 3,596 2,925
Income taxes 2,085 1,936 1,287
------- ------- -------
Income from continuing operations 2,831 1,660 1,638
Income (loss) from discontinued operations (97) (291) 57
Loss on disposal of discontinued operations (50) - -
------- ------- -------
Net income $ 2,684 $ 1,369 $ 1,695
======= ======= =======
Earnings per common share:
Basic:
Continuing operations $ 0.64 $ 0.38 $ 0.39
Discontinued operations (0.03) (0.07) 0.01
------- ------- -------
Net income $ 0.61 $ 0.31 $ 0.40
======= ======= =======
Diluted:
Continuing operations $ 0.63 $ 0.36 $ 0.37
Discontinued operations (0.03) (0.06) 0.01
------- ------- -------
Net income $ 0.60 $ 0.30 $ 0.38
======= ======= =======
|
See accompanying notes.
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED JULY 31, 2000, 1999 AND 1998
COMMON STOCK
---------------------- ACCUMULATED TOTAL
NUMBER OF RETAINED OTHER TREASURY STOCK-
SHARES ADDITIONAL EARNINGS COMPREHENSIVE STOCK, HOLDERS'
OUTSTANDING AMOUNT CAPITAL (DEFICIT) INCOME (LOSS) AT COST EQUITY
----------- ------ ---------- ---------- --------------- -------- --------
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
Purchases of
Treasury 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
Exercise of options 42,336 8 198 (198) 8
Purchases of
Treasury Stock (44,500) (207) (207)
Translation adjustment 133 133
Net income 2,684 2,684
---------- ------ ---------- ---------- --------------- --------- -------
Balance, July 31, 2000 4,438,381 $ 460 $ 19,502 $ 96 $ (2,097) $ (798) $17,163
========== ====== ========== ========== =============== ========= =======
|
See accompanying notes.
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JULY 31,
2000 1999 1998
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 2,831 $ 1,660 $ 1,638
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities:
Income (loss) from discontinued operations (147) (291) 57
Depreciation and amortization of continuing operations 463 419 280
Depreciation and amortization of discontinued operations 87 63 52
Write-off of medical sharps inventories - 452 -
Deferred income taxes 256 39 (28)
Changes in assets and liabilities:
Accounts receivable 492 (2,672) (1,206)
Inventories 568 (249) (374)
Other current assets 379 178 (682)
Accounts payable and accrued expenses (68) 1,938 305
Income taxes (193) 379 (362)
------- ------- -------
Net cash provided by (used in) operating activities 4,668 1,916 (320)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (320) (272) (289)
Cash (used in) provided by discontinued operations (909) 179 (791)
Acquisition of Lutz Medical - - (315)
Other, net (163) (282) 22
------- ------- -------
Net cash used in investing activities (1,392) (375) (1,373)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under credit facilities (1,436) (1,409) 1,417
Capital lease obligations (6) (28) (7)
Proceeds from exercise of stock options 8 330 120
Purchases of Treasury Stock (207) (393) -
------- ------- -------
Net cash (used in) provided by financing activities (1,641) (1,500) 1,530
------- ------- -------
Increase (decrease) in cash 1,635 41 (163)
Cash at beginning of year 534 493 656
------- ------- -------
Cash at end of year $ 2,169 $ 534 $ 493
======= ======= =======
|
See accompanying notes.
CANTEL MEDICAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
1. BUSINESS DESCRIPTION
Cantel Medical Corp. ("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 and scientific products in Canada. Effective July 31, 2000, Carsen discontinued its Consumer Products business and the results of Consumer Products have been presented as a discontinued operation, as described in note 6 to the Consolidated Financial Statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cantel Medical Corp. 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 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are capitalized, while maintenance and repair costs are expensed. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in income. Depreciation and amortization are provided on either the straight-line method or, for certain furniture and equipment, 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 ($15,895,000 at July 31, 2000) of Carsen since the Company does not intend to repatriate such earnings unless no additional United States taxes would result upon such repatriation.
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 $148,000, $167,000 and $68,000 for fiscal 2000, 1999 and 1998, respectively.
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.
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, 2000, 1999 and 1998 are set forth in the following table:
Year Ended July 31,
2000 1999 1998
-----------------------------------
Net income $2,684,000 $1,369,000 $1,695,000
Other comprehensive income (loss):
Foreign currency translation
adjustment 133,000 43,000 (916,000)
---------- ----------- -----------
Comprehensive income $2,817,000 $1,412,000 $ 779,000
========== =========== ============
|
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 and 1998. 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,
2000 1999
--------------------------
Parts $1,811,000 $2,112,000
Work-in-process - 41,000
Finished Goods 5,181,000 5,328,000
---------- ----------
Total $6,992,000 $7,481,000
========== ==========
|
6. DISCONTINUED OPERATIONS
On October 6, 2000, Carsen closed a transaction under an Asset Purchase Agreement (the "Purchase Agreement") with Olympus America Inc. ("Olympus") pursuant to which Carsen terminated its consumer products business and sold its inventories of Olympus consumer products to Olympus. The transaction had an effective date of July 31, 2000.
The purchase price for the inventory was approximately $1,026,000, net of adjustments related to estimated warranty claims and promotional program expenses payable to Carsen's customers. Carsen will receive additional consideration from Olympus under the Purchase Agreement, including amounts related to transition services provided by Carsen subsequent to July 31, 2000. Such consideration includes (i) fixed cash amounts aggregating approximately $615,000 and (ii) twelve and one-half percent (12 1/2%) of Olympus' net sales of consumer products in Canada in excess of $8,000,000 during the period from August 1, 2000 through March 31, 2001. Such amounts are payable on various dates through April 30, 2001. Olympus also reimbursed Carsen for certain expenses related to the termination of Carsen's consumer products business.
The discontinuance of the Consumer Products business has been reflected as a discontinued operation and is presented separately in the Company's Consolidated Financial Statements for the year ended July 31, 2000. The Company's Consolidated Balance Sheet for the year ended July 31, 1999 and the Consolidated Statements of Income and Cash Flows for the years ended July 31, 1999 and 1998 have been restated to conform to the 2000 presentation.
Operating results of the Consumer Products business are as follows:
Year Ended July 31,
2000 1999 1998
---------------------------------------
Net sales $15,825,000 $12,557,000 $ 9,848,000
============ ============ ============
Pretax operating income (loss) $ (164,000) $ (531,000) $ 106,000
Income tax expense (benefit) (67,000) (240,000) 49,000
------------ ------------ ------------
Income (loss) from
discontinued operations $ (97,000) $ (291,000) $ 57,000
============ ============ =============
|
For the year ended July 31, 2000, the loss on disposal of the Consumer Products business was $50,000, consisting of a pretax gain on disposal of $36,000 less related income taxes of $86,000. In determining the loss on disposal, the Company recorded additional consideration expected to be received of $758,000. Additional consideration may be realized based upon future net sales of the former Consumer Products business as stipulated in the Purchase Agreement.
The components of net assets related to discontinued business in the Consolidated Balance Sheets include the following:
July 31,
2000 1999
-----------------------
Trade accounts receivable, net of
allowance for doubtful accounts of
$99,000 in 2000 and $41,000 in 1999 $2,715,000 $1,856,000
Consideration due under Purchase
Agreement 1,989,000 --
Inventories 235,000 1,490,000
Intangible and other assets -- 211,000
Accounts payable (1,531,000) (1,257,000)
Accrued expenses (313,000) (55,000)
----------- -----------
Net assets related to
discontinued business $3,095,000 $2,245,000
=========== ===========
|
7. FINANCING ARRANGEMENTS
The Company has two credit facilities, a $5,000,000 (United States dollars) revolving credit facility for Carsen expiring on December 31, 2002 and a $1,500,000 revolving credit facility for MediVators expiring on August 1, 2001. 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. At July 31, 2000, such rate was .25% above the lender's prime rate. 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 7.50% and 9.50%, respectively, at July 31, 2000. Each of the credit facilities provides 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 $125,000 and $1,561,000 of borrowings outstanding under these facilities at July 31, 2000 and 1999, respectively.
8. INCOME TAXES
Deferred income taxes recorded in the consolidated balance sheets at July 31, 2000 and 1999 include deferred tax assets related to net operating loss carryforwards ("NOLs") of $5,401,000 and $5,746,000, respectively, which have been fully offset by valuation allowances, and deferred tax liabilities of $348,000 and $93,000, 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, 2000 and 1999 that it was more likely than not that a benefit will be realized.
For financial statement and domestic tax reporting purposes, the Company has NOLs of approximately $15,886,000 at July 31, 2000, which expire through July 31, 2015. Of this amount, approximately $1,100,000 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,
2000 1999 1998
-----------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
-----------------------------------------------------------------------
United
States $ 74,000 $ -- $ 22,000 $ -- $ 5,000 $ --
Canada 2,008,000 3,000 1,875,000 39,000 1,310,000 (28,000)
---------- --------- ---------- --------- ---------- ---------
Total $2,082,000 $ 3,000 $1,897,000 $ 39,000 $1,315,000 $(28,000)
========== ========= ========== ========= ========== =========
|
The components of income (loss) from continuing operations before income taxes are as follows:
Year Ended July 31,
2000 1999 1998
-------------------------------------------
United States $ 338,000 $ (556,000) $ 79,000
Canada 4,578,000 4,152,000 2,846,000
---------- ---------- ----------
Total $4,916,000 $3,596,000 $2,925,000
========== ========== ==========
|
The effective tax rate differs from the United States statutory tax rate (34%) due to the following:
Year Ended July 31,
2000 1999 1998
--------------------------------------
Expected statutory tax expense $1,671,000 $1,223,000 $ 994,000
Canadian dividend withholding 50,000 21,000 --
Differential attributable to
Canadian operations 454,000 502,000 315,000
Utilization of NOLs (100,000) -- (27,000)
Benefit not recognized on
domestic operating losses -- 189,000 --
State and local taxes 10,000 1,000 5,000
---------- ----------- ----------
Total $2,085,000 $1,936,000 $1,287,000
========== =========== ==========
|
9. COMMITMENTS AND CONTINGENCIES
DISTRIBUTION AGREEMENTS
OLYMPUS/CARSEN AGREEMENT
The majority of Carsen's sales of medical and scientific products have been made pursuant to an agreement (the "Olympus Agreement") with 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, as amended, expires on March 31, 2004. If Carsen fulfills its obligations under the Olympus Agreement, the parties will establish new minimum purchase requirements and extend the Olympus Agreement through March 31, 2006.
During the term of the Olympus Agreement and for one year thereafter, 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 and industrial technology equipment. The aggregate annual minimum purchase obligations for all such products are approximately $13.2 million, $17.0 million, $18.8 million and $21.0 million during the contract years ending March 31, 2001, 2002, 2003 and 2004, respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase requirements in certain situations, Olympus has the option to terminate or restructure 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 option to terminate or restructure the entire Olympus Agreement. Olympus may also terminate the Olympus Agreement if Carsen breaches its other obligations under the Olympus Agreement.
MEDIVATORS/OLYMPUS AGREEMENT
MediVators has a four year agreement with Olympus (the "MediVators Agreement") which expires on August 1, 2003, under which Olympus is granted the exclusive right to distribute all MediVators' endoscope disinfection equipment and related accessories and supplies in the United States and Puerto Rico. 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 option to terminate the agreement. Net sales to Olympus accounted for 15.9%, 12.7% and 15.6% of the Company's net sales in fiscal 2000, 1999 and 1998, respectively.
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, 2000 and 1999, accounts receivable included bill and hold receivables of approximately $897,000 and $314,000, respectively.
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 inventories. Total commitments for such foreign currency forward and option contracts amounted to approximately $11,112,000 at July 31, 2000, and cover a portion of Carsen's projected purchases of inventories through July 2001. The fair value of such contracts at July 31, 2000, 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, 2000 under operating leases for property and equipment are as follows:
Year Ending July 31,
2001 $ 410,000
2002 228,000
2003 189,000
2004 165,000
2005 149,000
Thereafter --
----------
Total rental commitments $1,141,000
==========
|
Rent expense aggregated $429,000, $440,000 and $459,000 for fiscal 2000, 1999 and 1998, respectively, which includes amounts previously allocated to the discontinued operations.
10. STOCKHOLDERS' EQUITY
The Company's 1991 Employee Stock Option Plan provides for the granting of options to employees to purchase up to 250,000 shares of the Company's Common Stock through January 2, 2001. Options under this plan are granted at no less than 100% of the market price at the time of the grant, typically become exercisable in four equal annual installments and expire up to a maximum of ten years from the date of the grant. At July 31, 2000, 95,850 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 700,000 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, 2000, 359,250 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, 2000, 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. Options granted prior to July 31, 2000 have a ten year term and options granted on or after July 31, 2000 have a five year term. At July 31, 2000, 182,000 shares were available for grant under this plan.
The Company also has outstanding non-plan options which have been granted at the market price at the time of grant 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, income and diluted earnings per share from continuing operations would have been $2,458,000 and $0.55, respectively, for fiscal 2000, $1,288,000 and $0.28, respectively, for fiscal 1999 and $1,282,000 and $0.29, respectively, for fiscal 1998. The pro forma effect on net income from continuing operations for these years may not be representative of the pro forma effect on net income from continuing operations in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to fiscal 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 .52; risk-free interest rate at date of grant ranging from 5.61% to 6.19%; and expected weighted average option lives of 1-10 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 in fiscal 2000, 1999 and 1998 was $2.65, $2.76 and $2.97 per share, 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.
A summary of stock option activity follows:
Weighted
Number Average
of Shares Exercise Price
--------- --------------
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
Granted 146,500 5.48
Canceled (52,595) 6.07
Exercised (79,275) 2.59
---------
Outstanding at July 31, 2000 767,785 $6.27
=========
Exercisable at July 31, 1998 496,498 $4.20
=========
Exercisable at July 31, 1999 426,365 $5.63
=========
Exercisable at July 31, 2000 449,827 $6.52
=========
|
The following table summarizes additional information related to stock options outstanding at July 31, 2000:
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, 2000 (Months) Price At July 31, 2000 Price
--------------- ---------------- ------------ -------- ---------------- ---------
$1.75 - $4.00 50,000 17 $2.69 50,000 $2.69
$4.25 - $6.8125 426,557 67 $5.69 153,848 $5.81
$7.00 - $10.25 291,228 62 $7.72 245,979 $7.74
------- -------
$1.75 - $10.25 767,785 62 $6.27 449,827 $6.52
======= =======
|
11. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended July 31,
2000 1999 1998
------------- ------------- -------------
Numerator for basic
and diluted earnings
per share:
Income from continuing
operations $ 2,831,000 $ 1,660,000 $ 1,638,000
Losses from discontinued
operations (147,000) (291,000) 57,000
------------- ------------- -------------
Net income $ 2,684,000 $ 1,369,000 $ 1,695,000
============= ============= =============
Denominator for basic
and diluted earnings
per share:
Denominator for basic
earnings per share -
weighted average number
of shares outstanding 4,411,805 4,394,406 4,240,023
Dilutive effect of options
and warrants using the
treasury stock method and
the average market price
for the year 67,676 196,934 243,862
------------- ------------- -------------
Denominator for diluted
earnings per share -
weighted average number
of shares and common
stock equivalents 4,479,481 4,591,340 4,483,885
============= ============= =============
Basic earnings per share:
Continuing operations $ 0.64 $ 0.38 $ 0.39
Discontinued operations (0.03) (0.07) 0.01
------------- ------------- -------------
Net income $ 0.61 $ 0.31 $ 0.40
============= ============= =============
Diluted earnings per share:
Continuing operations $ 0.63 $ 0.36 $ 0.37
Discontinued operations (0.03) (0.06) 0.01
------------- ------------- -------------
Net income $ 0.60 $ 0.30 $ 0.38
============= ============= =============
|
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 from continuing operations by $0.10. Without this charge, basic and diluted earnings per share from continuing operations for fiscal 1999, as adjusted, would have been $0.48 and $0.46, respectively.
12. RETIREMENT PLANS
The Company has a 401(k) Savings and Retirement Plan (which commenced during fiscal 1998) for the benefit of eligible United States employees. Contributions by the Company are both discretionary and non-discretionary and are limited in any year to the amount allowable by the Internal Revenue Service.
Carsen has a profit-sharing plan for the benefit of eligible employees. Contributions by Carsen are discretionary and aggregate contributions are limited in any year to the amount allowable as a deduction in computing taxable income.
Aggregate contributions under these plans were $181,000, $108,000 and $90,000 for fiscal 2000, 1999 and 1998, respectively.
13. SUPPLEMENTAL INCOME STATEMENT AND CASH FLOW INFORMATION
Advertising costs charged to expenses were $13,000, $63,000 and $27,000 for fiscal 2000, 1999 and 1998, respectively.
Interest paid was $228,000, $280,000 and $189,000 for fiscal 2000, 1999 and 1998, respectively.
Income tax payments, which related principally to the Company's Canadian subsidiary, were $2,082,000, $1,319,000 and $1,798,000 for fiscal 2000, 1999 and 1998, 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.
14. INFORMATION AS TO OPERATIONS IN DIFFERENT INDUSTRIES AND FOREIGN AND DOMESTIC OPERATIONS
Cantel is a healthcare company concentrating primarily in infection prevention and control products and diagnostic and therapeutic 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 high
performance image analysis hardware) and industrial equipment (including remote visual inspection devices). Cantel's subsidiaries also provide technical maintenance services for their own products, as well as for certain competitors' products.
The medical, infection prevention and control and scientific products distributed by the Company consist of diagnostic and therapeutic 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 high performance image analysis hardware 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.
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.
(a) Information as to operating segments is summarized below:
Year Ended July 31,
2000 1999 1998
------------------------------------------
Net sales from continuing operations:
Medical Products $17,114,000 $16,887,000 $12,679,000
Infection Control Products 10,940,000 9,334,000 8,086,000
Scientific Products 8,231,000 6,868,000 5,957,000
Product Service 5,463,000 5,223,000 3,879,000
Elimination of inter-
company sales of
Infection Control Products (760,000) (767,000) (440,000)
----------- ----------- -----------
Total $40,988,000 $37,545,000 $30,161,000
=========== =========== ===========
Operating income from continuing operations:
Medical Products $ 2,909,000 $ 3,038,000 $ 1,972,000
Infection Control Products (1) 1,599,000 412,000 707,000
Scientific Products 531,000 231,000 317,000
Product Service 1,878,000 1,600,000 1,173,000
Elimination of intercompany
operating loss (income) of
Infection Control Products 1,000 (25,000) 2,000
----------- ----------- -----------
6,918,000 5,256,000 4,171,000
General corporate expenses (1,777,000) (1,389,000) (1,067,000)
Interest expense (225,000) (271,000) (179,000)
----------- ----------- -----------
Income from continuing operations
before income taxes(1) $ 4,916,000 $ 3,596,000 $ 2,925,000
=========== =========== ===========
|
(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 for Infection Control Products would have been $879,000 and income from continuing operations before income taxes would have been $4,063,000.
Year Ended July 31,
2000 1999 1998
------------------------------------------
Identifiable assets:
Medical Products $ 7,830,000 $ 8,637,000 $ 6,940,000
Infection Control Products 4,732,000 5,317,000 5,572,000
Scientific Products 5,226,000 4,865,000 4,154,000
Product Service 1,825,000 1,819,000 1,458,000
General corporate 2,247,000 843,000 837,000
----------- ----------- -----------
Continuing operations 21,860,000 21,481,000 18,961,000
Discontinued operations (1) 3,095,000 2,245,000 2,514,000
----------- ----------- -----------
Total $24,955,000 $23,726,000 $21,475,000
=========== =========== ===========
Capital expenditures:
Medical Products $ 83,000 $ 122,000 $ 109,000
Infection Control Products 135,000 66,000 63,000
Scientific Products 41,000 49,000 82,000
Product Service 25,000 35,000 34,000
General corporate 36,000 -- 1,000
----------- ----------- -----------
Continuing operations 320,000 272,000 289,000
Discontinued operations 76,000 90,000 85,000
----------- ----------- -----------
Total $ 396,000 $ 362,000 $ 374,000
=========== =========== ===========
Depreciation and amortization:
Medical Products $ 100,000 $ 85,000 $ 66,000
Infection Control Products 286,000 265,000 131,000
Scientific Products 40,000 41,000 58,000
Product Service 32,000 24,000 20,000
General corporate 5,000 4,000 5,000
----------- ----------- -----------
Continuing operations 463,000 419,000 280,000
Discontinued operations 87,000 63,000 52,000
----------- ----------- -----------
Total $ 550,000 $ 482,000 $ 332,000
=========== =========== ===========
|
(1) The amounts for fiscal 1999 and 1998 are shown net of current liabilities in order to conform to the fiscal 2000 balance sheet presentation.
(b) Information as to geographic areas is summarized below:
Year Ended July 31,
2000 1999 1998
---------------------------------------
Net sales from continuing operations:
United States $10,543,000 $ 8,994,000 $ 8,106,000
Canada 30,445,000 28,551,000 22,055,000
----------- ----------- -----------
Total $40,988,000 $37,545,000 $30,161,000
=========== =========== ===========
Operating income from continuing operations:
United States $ 1,779,000 $ 484,000 $ 768,000
Canada 5,139,000 4,772,000 3,403,000
----------- ----------- -----------
Total $ 6,918,000 $ 5,256,000 $ 4,171,000
=========== =========== ===========
Total assets:
United States $ 5,696,000 $ 5,573,000 $ 6,143,000
Canada (1) 19,259,000 18,153,000 15,332,000
----------- ----------- -----------
Total $24,955,000 $23,726,000 $21,475,000
=========== =========== ===========
|
(1) The amounts for fiscal 1999 and 1998 are shown net of current liabilities in order to conform to the fiscal 2000 balance sheet presentation.
CANTEL MEDICAL CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------------------------------------------------------------------------
BALANCE AT BALANCE
BEGINNING DEDUCTIONS AT END
OF PERIOD ADDITIONS (RECOVERIES) OF PERIOD
---------------------------------------------------
Allowance for
doubtful accounts:
Continuing operations:
Year ended
July 31, 2000 $ 40,000 $ 39,000 $ 13,000 $ 66,000
==================================================
Year ended
July 31, 1999 $ 40,000 $ 49,000 $ 49,000 $ 40,000
==================================================
Year ended
July 31, 1998 $ 65,000 $ 23,000 $ 48,000 $ 40,000
==================================================
Discontinued operations:
Year ended
July 31, 2000 $ 41,000 $ 81,000 $ 23,000 $ 99,000
==================================================
Year ended
July 31, 1999 $ 22,000 $ 12,000 $ (7,000) $ 41,000
==================================================
Year ended
July 31, 1998 $ 17,000 $ 19,000 $ 14,000 $ 22,000
==================================================
|
Exhibit 3(i)
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF CANTEL INDUSTRIES, INC.
We, James P. Reilly, President, and Darwin C. Dornbush, Secretary of Cantel Industries, Inc., a corporation existing under the laws of the State of Delaware, do hereby certify as follows:
FIRST: That the Certificate of Incorporation of said corporation has been amended as follows:
By striking out the first sentence of Article FOURTH, up to the colon, as it now exists and inserting in lieu and instead thereof the following:
"FOURTH: The total number of shares of all classes of stock that the Corporation shall have authority to issue is Thirteen Million (13,000,000), of which Twelve Million (12,000,000) shall be shares of Common Stock, par value $.10 per share, and One Million (1,000,000) shall be shares of Preferred Stock, par value $1.00 per share, and the voting powers, designations, preferences and relative, participating, optional or other special qualifications, limitations or restrictions thereof are as follows:"
SECOND: That such amendment has been duly adopted in accordance with the provisions of Section 242(b)(1) of the General Corporation Law of the State of Delaware by the affirmative vote of the holders of a majority of the outstanding common stock entitled to vote thereon at a meeting of holders of common stock.
IN WITNESS WHEREOF, we have signed this Certificate this 3rd day of May, 1999.
CANTEL INDUSTRIES, INC.
/s/ JAMES P. REILLY
-----------------------------
James P. Reilly, President
ATTEST: /s/ DARWIN C. DORNBUSH
-----------------------------
Darwin C. Dornbush, Secretary
|
Exhibit 3(j)
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF CANTEL INDUSTRIES, INC.
We, James P. Reilly, President, and Darwin C. Dornbush, Secretary of Cantel Industries, Inc., a corporation existing under the laws of the State of Delaware, do hereby certify as follows:
FIRST: That the Certificate of Incorporation of said corporation shall be amended as follows:
By striking out the whole of Article 1 thereof as it now exists and inserting in lieu thereof a new Article 1 to read in its entirety as follows:
"1. The name of the corporation is
CANTEL MEDICAL CORP."
SECOND: That such amendment has been duly adopted in accordance with the provisions of Section 242(b)(1) of the General Corporation Law of the State of Delaware by the affirmative vote of the holders of a majority of the outstanding common stock entitled to vote thereon at a meeting of holders of common stock.
THIRD: That such amendment shall be deemed effective as of 9:00 am, April 7, 2000.
IN WITNESS WHEREOF, we have signed this Certificate this 5th day of April, 2000.
CANTEL INDUSTRIES, INC.
/s/ JAMES P. REILLY
------------------------------
James P. Reilly, President
ATTEST: /s/ DARWIN C. DORNBUSH
------------------------------
Darwin C. Dornbush, Secretary
|
Exhibit 10(ff)
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND COLLATERAL DOCUMENTATION
This Agreement, entered as of the 1st day of February, 2000, 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, a Fourth Amendment dated as of November 1, 1998 and a Fifth Amendment dated as of October 1, 1999 is herein referred to as the "Loan Agreement". Lender is the successor in interest to NCFC under the Loan Agreement. Any capitalized terms utilized and not defined herein shall have the same meanings as are ascribed to them in the Loan Agreement.
2. The Borrowers have requested, and Lender has agreed to, the modification of certain terms of the Loan Documents in the manner herein provided.
Now therefore, in consideration of the foregoing, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:
SECTION 1. MODIFICATION OF LOAN AGREEMENT AND LOAN DOCUMENTS.
1.1 LOAN AGREEMENT AMENDMENTS. The Loan Agreement is hereby amended as follows:
(a) The last sentence of Section 2.1 is amended by deleting same in its entirety and substituting the following in its place and stead:
The entire outstanding balance of principal, and any accrued and unpaid
interest thereon, shall be due and payable and the Revolving Line of
Credit Loan shall terminate on the earlier of: (i) August 1, 2001, or
(ii) acceleration of the Obligations upon an Event of Default (the
earlier of such dates being the "Revolving Line of Credit Termination
Date").
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 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 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 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.
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.
/s/ Michael Hopman By: /s/ Roy K. Malkin
---------------------------- -------------------------------------
Michael Hopman Roy K. Malkin
|
ATTEST: DISPOSAL SCIENCES, INC.
/s/ Michael Hopman By: /s/ Roy K. Malkin
---------------------------- -------------------------------------
Michael Hopman Roy K. Malkin
|
NATIONAL BANK OF CANADA
By: /s/ John P. Leifer
-------------------------------------
John P. Leifer
Vice President
By: /s/ Timothy J. Smith
-------------------------------------
Timothy J. Smith
Vice President & Manager
|
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
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
Exhibit 10(gg)
1998 DIRECTORS' STOCK OPTION PLAN
OF
CANTEL INDUSTRIES, INC.
(As amended)
1. THE PLAN. The 1998 Directors' Stock Option Plan (the "Plan") is intended to strengthen the ability of Cantel Industries, Inc. (the "Corporation") to attract and retain the services of persons having the breadth of professional and business experience who, through their efforts and expertise, can make a significant contribution to the success of the Corporation's business by serving as members of the Corporation's Board of Directors and to provide additional incentive for such directors to continue to work for the best interests of the Corporation and its stockholders through ownership of its Common Stock, par value $.10 per share (the "Stock"). Accordingly, the Company will grant to each director (the "Optionee") an option (the "Option") to purchase shares of Stock on the terms and conditions hereinafter set forth.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 11 hereof, the total number of shares of Stock which may be issued pursuant to Options granted under the Plan shall be 200,000. Such shares of Stock may be, in whole or in part, either authorized and unissued shares or treasury shares as the Board of Directors of the Corporation (the "Board") shall from time to time determine. If an Option shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered thereby shall (unless the Plan shall have been terminated) again be available for Options under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a committee (the "Committee") composed of two or more non-employee members of the Board. The Committee shall have plenary authority, subject to the express provisions of the Plan, to interpret the Plan, to prescribe, amend and rescind any rules and regulations relating to the Plan and to take such other action in connection with the Plan as it deems necessary or advisable; provided, however, that the grant of Options under the Plan, the exercise price of such Options and the timing and manner in which such Options become exercisable shall not be subject to discretion by the Board but shall be governed by the terms of the Plan. The interpretation and construction by the Board of any provisions of the Plan or of any Option granted thereunder shall be final, and no member of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted thereunder.
4. DIRECTORS ELIGIBLE FOR OPTIONS; GRANT OF OPTIONS.
(a) Each director of the Corporation, whether or not an employee, shall be eligible for Options under this Plan.
(b) Subject to Section 12, an Option to purchase 1,000 shares of Stock shall automatically be granted under the Plan each year on the last business day of the Corporation's fiscal year, commencing with the fiscal year ending July 31, 1999, to each member of the Corporation's Board serving as such on said date. Each Option granted under this subsection B shall be exercisable as to 50% of the number of shares of Stock covered thereby on the first anniversary of the grant of such Option and shall become exercisable for the balance of shares of Stock covered thereby on the second anniversary of the grant of such Option. The exercise price of each Option granted under this subsection B shall be the
fair market value (as hereinafter defined) of Stock covered thereby on the date the Option is granted.
(c) Subject to Section 12, an Option to purchase 500 shares of Stock shall be automatically be granted on the last business day of each fiscal quarter, commencing with the quarter ending July 31, 1999, to each member of the Corporation's Board serving as such on said date provided that the member attended any regularly scheduled meeting of the Board, if any, which was held during such quarter (whether in person or by telephonic means). Notwithstanding the foregoing to the contrary, neither Messrs. Diker nor Reilly, nor any member of the Board who is an employee of the Corporation, shall be entitled to receive any quarterly Option grants in accordance with this subsection C. Each Option granted under this subsection C shall be exercisable immediately and the exercise price of each such Option shall be the fair market value (as hereinafter defined) of the Stock covered thereby on the date the Option is granted (the "Determination Date").
(d) For purposes of this Plan, the fair market value shall be:
(i) if the Stock is listed on a securities exchange, the closing price of the Stock on the largest principal securities exchange on the Determination Date, or, if there shall have been no sales on any such exchange on such Determination Date, the mean of the highest bid and lowest asked prices on such securities exchange on such Determination Date; or
(ii) if the Stock is not listed on a securities exchange, the closing price of the Stock on the National Market System of the National Association of Securities Dealers, Inc., Automated Quotation System ("NASDAQ"), or, if there shall have been no sales on such Determination Date on the NASDAQ National Market System, such closing price on the first date prior to the Determination Date that there was a sale on the NASDAQ Market system; or
(iii) if the Common Stock is not listed on a securities exchange or the NASDAQ National Market System, the mean of the highest bid and lowest asked prices of the Stock on the Determination Date as quoted in the NASDAQ System; or
(iv) if the Common Stock is not quoted in the NASDAQ System, the mean of the highest bid and lowest asked prices of the Stock on the Determination Date in the over-the- counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization.
5. TERM OF PLAN. The Plan shall terminate on, and no Options shall be granted after, December 1, 2008, provided that the Board may at any time terminate the Plan prior thereto.
6. TERM OF OPTIONS. The term of each Option granted under this Plan before July 31, 2000 shall be for a period of ten years from the date of granting thereof and the term of each Option granted under this Plan on or after July 31, 2000 shall be for a period of five years from the date of granting thereof.
7. EXERCISE OF OPTIONS. An Option may be exercised from time to time as to any part or all of the Stock to which the Optionee shall then be entitled, provided, however, that an Option may not be exercised as to less than 100 shares at any one time (or for the remaining shares then purchasable under the Option, if less than 100 shares). The purchase price of the Stock issuable upon exercise of an Option shall be paid in full at the time of the exercise thereof (i) in cash or (ii) by the transfer to the Corporation of shares of its Stock with a fair market value (as determined by the Board) equal to the purchase price of the Stock issuable upon exercise of such Option. The holder of an Option shall not have any rights as a
stockholder with respect to the Stock issuable upon exercise of an Option until certificates for such Stock shall have been delivered to him after the exercise of the Option.
8. NON-TRANSFERABILITY OF OPTIONS. An Option shall not be transferable otherwise than by will or the laws of descent and distribution and is exercisable during the lifetime of the Optionee only by him.
9. FORM OF OPTION. Each Option granted pursuant to the Plan shall be evidenced by an agreement (the "Option Agreement") which shall be in such form as the Board shall from time to time approve. The Option Agreement shall comply in all respects with the terms and conditions of the Plan.
10. TERMINATION OF BOARD MEMBERSHIP. In the event that an Optionee shall cease to be a member of the Board (whether by resignation, death or disability or otherwise), the Options of the Optionee granted pursuant to this Plan shall be exercisable (to the extent that such Options were exercisable at the time of termination of Board membership) at any time prior to the expiration of a period of time not exceeding three months after such termination by the Optionee (or, in the event such termination resulted from the Optionee's death, by the legal representative of the Optionee) and the balance of such Option, If any, shall be cancelled.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes in the outstanding Stock of the Corporation by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations of liquidations, the number and class of shares available under the Plan, the number and class of shares or the amount of cash or other assets or securities available upon the exercise of any Option granted hereunder and the number of shares as to which Options are to be granted to an Optionee shall be correspondingly adjusted, to the end that the Optionee's proportionate interest in the Corporation, any successor thereto or in the cash, assets or other securities into which shares are converted or exchanged shall be maintained to the same extent, as near as may be practicable, as immediately before the occurrence of any such event. All references in this Plan to "Stock" from and after the occurrence of such event shall be deemed for all purposes of the Plan to refer to such other class of shares or securities issuable upon the exercise of Options granted pursuant hereof.
12. STOCKHOLDER APPROVAL. This Plan is subject to, and no Options shall be exercisable hereunder, until the approval of this Plan by the Corporation's stockholders at the next annual meeting of stockholders.
13. AMENDMENT OF THE PLAN. The Board shall have complete power
and authority to modify or amend the Plan (including the form of Option
Agreement) from time to time in such respects as it shall deem advisable;
provided, however, that the Board shall not, without the approval of the votes
represented by a majority of the outstanding Stock of the Corporation present or
represented at a meeting duly held in accordance with the applicable laws of the
Corporation's jurisdiction of incorporation and entitled to vote at a meeting of
the stockholders or by the written consent of stockholders owning stock
representing a majority of the votes of the Corporation's outstanding Stock, (i)
increase the maximum number of shares which in the aggregate are subject to
Options under the Plan (except as provided by Paragraph 11, (ii) extend the term
of the Plan or the period during which Options may be granted or exercised,
(iii) reduce the Option exercise price below 100% of the fair market value of
the Stock issuable upon exercise of Options at the time of the granting thereof,
other than to change the manner of determining the fair market value thereof,
((iv) modify the requirements as to eligibility for participation
in the Plan. No termination or amendment of the Plan shall, without the consent of the individual Optionee, adversely affect the rights of such Optionee under an Option theretofore granted to him or under such Optionee's Option Agreement.
14. TAXES. The Corporation may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with any Options granted under the Plan. The Corporation may further require notification from the Optionee upon any disposition of Stock acquired
pursuant to the exercise of Options granted hereunder.
Exhibit 10(hh)
STOCK OPTION AGREEMENT made as of the __st day of _______ ____, by and between CANTEL MEDICAL CORP., a Delaware corporation with principal offices located at 1135 Broad Street, Clifton, New Jersey, 07013, (the "Company"), and ____________ (the "Optionee").
The Company has adopted the 1998 Directors' Stock Option Plan (the "Plan") which provides for the grant of stock options to directors of the Company. The Optionee is presently a director of the Company and, pursuant to the Plan, 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, pursuant to the Plan, hereby grants the Optionee the option to acquire shares of the Common Stock of the Company upon the following terms and conditions:
1. GRANT OF OPTION.
(a) The Company hereby grants to the Optionee the right and option (the "Option") to purchase at any time on or prior to the Expiration Date (as hereinafter defined), up to 500 shares of Common Stock (the "Shares"), to be issued upon the exercise hereof.
(b) The Option granted hereby shall expire and terminate at 5:00
p.m. local time in New York, New York on (______ __, ____) (the "Expiration
Date") at which time the Optionee shall have no further right to purchase any
Shares not then purchased.
2. EXERCISE PRICE. The exercise price of the Option shall be $_.__ per Share, and shall be payable in cash or by certified check; provided, however, that in lieu of payment in full in cash or by such check, the exercise price (or balance thereof) may be paid in full or in part by the delivery and transfer to the Company of Shares already owned by the Optionee and having a fair market value (as determined by the Board of Directors in its absolute discretion) equal to the cash exercise price (or balance thereof) for the number of Shares as to which the Option is being exercised. The Company shall pay all original issue or transfer taxes on the exercise of the Option.
3. EXERCISE OF OPTION. The Optionee shall notify the Company by registered or certified mail, return receipt requested, addressed to its principal office, as to the number of Shares which he desires to purchase under the Option, which notice shall be accompanied by payment of the Option exercise price therefor as specified in Paragraph 2 above. As soon as practicable after the receipt of such notice, the Company shall, at its principal office or another mutually convenient location, tender to the Optionee certificates issued in the Optionee's name evidencing the Shares purchased by the Optionee hereunder.
4. CONDITIONS OF EXERCISE. The Optionee (or his legal representative following the death of the Optionee) shall have the right to exercise the Option only while the Optionee is a director 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.
7. RESTRICTION ON ISSUANCE OF SHARES. The Optionee shall, if so requested by the Company, represent and agree, in writing and in such form as the Company shall determine, that any securities purchased by the Optionee upon the exercise of this Option are being purchased for investment and not with a view to the distribution thereof, and shall make such other or additional representations and agreements and furnish such information as the Company may, in its reasonable discretion, deem necessary or desirable to assure compliance by the Company, on terms acceptable to the Company, with provisions of the Securities Act of 1933 and any other applicable legal requirements. If at any time the Company shall reasonably determine that the listing, registration or qualification of the Shares subject to this Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, are necessary or desirable in connection with the issuance or purchase of the Shares subject thereto, this Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. The Optionee shall have no rights against the Company if this Option is not exercisable by virtue of the foregoing provision. The certificate representing any securities issued pursuant to the exercise of this Option may, at the discretion of the Company, bear a legend in substantially the following form:
"The securities represented by this certificate have not been registered under the Securities Act of 1933. The securities have been acquired for investment and may not be pledged or hypothecatedand may not be sold or transferred in the absence of an effective Registration Statement for the securities under the Securities Act of 1933 or an opinion of counsel to the Company that registration is not required under said Act. In the event that a Registration Statement becomes effective covering the securities or counsel to the Company delivers a written opinion that registration is not required under said Act, this certificate may be exchanged for a certificate free from this legend."
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Shares by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combination, exchanges of shares, separations, reorganizations, liquidations, and the like, the number and class of Shares or the amount of cash or other assets or securities available upon the exercise of the Option and the exercise price thereof shall be correspondingly adjusted by the Company, to the end that the Optionee's proportionate interest in the Company, any successor thereto or in the cash, assets or other securities into which shares are converted or exchanged shall be maintained to the same extent, as near as may be practicable, as immediately before the occurrence of any such event.
(b) Any adjustment in the number of Shares shall apply proportionately to only the then unexercised portion of the Option. If fractional Shares would result from any such adjustment, the adjustment shall be revised to the next higher whole number.
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. CONFLICT BETWEEN OPTION AGREEMENT AND PLAN. In the event there are any conflicts between this Agreement and the terms and conditions of the Plan, the terms and conditions of the Plan shall control.
11. 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.
12. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed wholly within the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
CANTEL MEDICAL CORP.
Exhibit 10(ii)
STOCK OPTION AGREEMENT made as of the 31st day of July ____, by and between CANTEL MEDICAL CORP., a Delaware corporation with principal offices located at 1135 Broad Street, Clifton, New Jersey, 07013, (the "Company"), and ___________________ (the "Optionee").
The Company has adopted the 1998 Directors' Stock Option Plan (the "Plan") which provides for the grant of stock options to directors of the Company. The Optionee is presently a director of the Company and, pursuant to the Plan, 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, pursuant to the Plan, hereby grants the Optionee the option to acquire shares of the Common Stock of the Company upon the following terms and conditions:
1. GRANT OF OPTION. (a) The Company hereby grants to the Optionee the right and option (the "Option") to purchase up to 1,000 shares of Common Stock (the "Shares"), to be issued upon the exercise hereof, fully paid and non-assessable, during the following periods:
(i) No shares may be purchased hereunder prior to July 31, ____;
(ii) 500 shares may be purchased commencing July 31, ____; and
(iii) an additional 500 Shares may be purchased commencing July 31, ____.
(b) The Option granted hereby shall expire and terminate at 5:00
p.m. local time in New York, New York on July 30, ____ (the "Expiration Date")
at which time the Optionee shall have no further right to purchase any Shares
not then purchased.
2. EXERCISE PRICE. The exercise price of the Option shall be $_.__ per Share, and shall be payable in cash or by certified check; provided, however, that in lieu of payment in full in cash or by such check, the exercise price (or balance thereof) may be paid in full or in part by the delivery and transfer to the Company of Shares already owned by the Optionee and having a fair market value (as determined by the Board of Directors in its absolute discretion) equal to the cash exercise price (or balance thereof) for the number of Shares as to which the Option is being exercised. The Company shall pay all original issue or transfer taxes on the exercise of the Option.
3. EXERCISE OF OPTION. The Optionee shall notify the Company by registered or certified mail, return receipt requested, addressed to its principal office, as to the number of Shares which he desires to purchase under the Option, which notice shall be accompanied by payment of the Option exercise price therefor as specified in Paragraph 2 above.
As soon as practicable after the receipt of such notice, the Company shall, at its principal office or another mutually convenient location, tender to the Optionee certificates issued in the Optionee's name evidencing the Shares purchased by the Optionee hereunder.
4. CONDITIONS OF EXERCISE. The Optionee (or his legal representative following the death of the Optionee) shall have the right to exercise the Option only while the Optionee is a director 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.
7. RESTRICTION ON ISSUANCE OF SHARES. The Optionee shall, if so requested by the Company, represent and agree, in writing and in such form as the Company shall determine, that any securities purchased by the Optionee upon the exercise of this Option are being purchased for investment and not with a view to the distribution thereof, and shall make such other or additional representations and agreements and furnish such information as the Company may, in its reasonable discretion, deem necessary or desirable to assure compliance by the Company, on terms acceptable to the Company, with provisions of the Securities Act of 1933 and any other applicable legal requirements. If at any time the Company shall reasonably determine that the listing, registration or qualification of the Shares subject to this Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, are necessary or desirable in connection with the issuance or purchase of the Shares subject thereto, this Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. The Optionee shall
have no rights against the Company if this Option is not exercisable by virtue of the foregoing provision. The certificate representing any securities issued pursuant to the exercise of this Option may, at the discretion of the Company, bear a legend in substantially the following form:
"The securities represented by this certificate have not been registered under the Securities Act of 1933. The securities have been acquired for investment and may not be pledged or hypothecatedand may not be sold or transferred in the absence of an effective Registration Statement for the securities under the Securities Act of 1933 or an opinion of counsel to the Company that registration is not required under said Act. In the event that a Registration Statement becomes effective covering the securities or counsel to the Company delivers a written opinion that registration is not required under said Act, this certificate may be exchanged for a certificate free from this legend."
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Shares by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combination, exchanges of shares, separations, reorganizations, liquidations, and the like, the number and class of Shares or the amount of cash or other assets or securities available upon the exercise of the Option and the exercise price thereof shall be correspondingly adjusted by the Company, to the end that the Optionee's proportionate interest in the Company, any successor thereto or in the cash, assets or other securities into which shares are converted or exchanged shall be maintained to the same extent, as near as may be practicable, as immediately before the occurrence of any such event.
(b) Any adjustment in the number of Shares shall apply proportionately to only the then unexercised portion of the Option. If fractional Shares would result from any such adjustment, the adjustment shall be revised to the next higher whole number.
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. CONFLICT BETWEEN OPTION AGREEMENT AND PLAN. In the event there are any conflicts between this Agreement and the terms and conditions of the Plan, the terms and conditions of the Plan shall control.
11. 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.
12. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed wholly within the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
CANTEL MEDICAL CORP.
Exhibit 10(jj)
STOCK OPTION AGREEMENT made as of the 10th day of October 2000, by and between CANTEL MEDICAL CORP., a Delaware corporation with principal offices located at 1135 Broad Street, Clifton, New Jersey, 07013 (the "Company"), and JOSEPH M. COHEN, 410 East 57th Street, Apt. 14A, New York, New York 10022 (the "Optionee").
The Optionee is presently a director of the Company and is hereby granted an option to purchase shares of the Company's Common Stock, par value $.10 per share ("Common Stock"), on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company hereby grants the Optionee the option to acquire shares of the Common Stock of the Company upon the following terms and conditions:
1. GRANT OF OPTION.
(a) The Company hereby grants to the Optionee the right and option (the "Option") to purchase up to 10,000 shares of Common Stock (the "Shares"), to be issued upon the exercise hereof, fully paid and non-assessable, during the following periods:
(i) 3,334 Shares may be purchased commencing October 10, 2000;
(ii) an additional 3,333 Shares may be purchased commencing
October 10, 2001; and (iii) an additional 3,333 Shares may be
purchased commencing October 10, 2002.
(b) The Option granted hereby shall expire and
terminate at 5:00 p.m. local time in New York, New York on October 9, 2005 (the "Expiration Date") at which time the Optionee shall have no further right to purchase any Shares not then purchased.
2. EXERCISE PRICE. The exercise price of the Option shall be $8.38 per Share, and shall be payable in cash or by certified check; provided, however, that in lieu of payment in full in cash or by such check, the exercise price (or balance thereof) may be paid in full or in part by the delivery and transfer to the Company of Common Stock already owned by the Optionee and having a fair market value (as determined by the Board of Directors in its absolute discretion) equal to the cash exercise price (or balance thereof) for the number of Shares as to which the Option is being exercised. The Company shall pay all original issue or transfer taxes on the exercise of the Option.
3. EXERCISE OF OPTION. The Optionee shall notify the Company by registered or certified mail, return receipt requested, addressed to its principal office, as to the number of Shares which he desires to purchase under the Option, which notice shall be accompanied by payment of the Option exercise price therefor as specified in Paragraph 2 above. As soon as practicable after the receipt of such notice, the Company shall, at its principal office or another mutually convenient location, tender to the Optionee certificates issued in the Optionee's name evidencing the Shares purchased by the Optionee hereunder.
4. CONDITIONS OF EXERCISE. The Optionee (or his legal representative following the death of the Optionee) shall have the right to exercise the Option only while the Optionee is a director 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.
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:
"The securities represented by this certificate have not been registered under the Securities Act of 1933. The securities have been acquired for investment and may not be pledged or hypothecatedand may not be sold or transferred in the absence of an effective Registration Statement for the securities under the Securities Act of 1933 or an opinion of counsel to the Company that registration is not required under said Act. In the event that a Registration Statement becomes effective covering the securities or counsel to the Company delivers a written opinion that registration is not required under said Act, this certificate may be exchanged for a certificate free from this legend."
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event of changes in the outstanding Shares by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combination, exchanges of shares, separations, reorganizations, liquidations and the like, the number and class of Shares or the amount of cash or other assets or securities available upon the exercise of the Option and the exercise price thereof shall be correspondingly adjusted by the Company, to the end that the Optionee's proportionate interest in the Company, any successor thereto or in the cash, assets or other securities into which shares are converted or exchanged shall be maintained to the same extent, as near as may be practicable, as immediately before the occurrence of any such event.
(b) Any adjustment in the number of Shares shall apply proportionately to only the then unexercised portion of the Option. If fractional Shares would result from any such adjustment, the adjustment shall be revised to the next higher whole number.
(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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
CANTEL MEDICAL CORP.
By: /S/ JAMES P. REILLY
--------------------------
James P. Reilly, President
/S/ JOSEPH M. COHEN
--------------------------
Joseph M. Cohen
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EXHIBIT 21
CANTEL MEDICAL CORP.
SUBSIDIARIES OF REGISTRANT - JULY 31, 2000
Carsen Group Inc. (Amalgamated under the laws of
Ontario, Canada)
MediVators, Inc. (Incorporated under the laws of
Minnesota)
|
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 Medical Corp. (formerly 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 Medical Corp., of our report dated September 26, 2000, with respect to the consolidated financial statements and schedule of Cantel Medical Corp. included in this Annual Report on Form 10-K for the year ended July 31, 2000.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
October 27, 2000
|
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JULY 31, 2000 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JULY 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUL 31 2000 |
| PERIOD END | JUL 31 2000 |
| CASH | 2169000 |
| SECURITIES | 0 |
| RECEIVABLES | 8970000 |
| ALLOWANCES | 66000 |
| INVENTORY | 6992000 |
| CURRENT ASSETS | 21701000 |
| PP&E | 2574000 |
| DEPRECIATION | 1673000 |
| TOTAL ASSETS | 24955000 |
| CURRENT LIABILITIES | 7570000 |
| BONDS | 125000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 460000 |
| OTHER SE | 16703000 |
| TOTAL LIABILITY AND EQUITY | 24955000 |
| SALES | 35525000 |
| TOTAL REVENUES | 40988000 |
| CGS | 21885000 |
| TOTAL COSTS | 24747000 |
| OTHER EXPENSES | 11100000 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 225000 |
| INCOME PRETAX | 4916000 |
| INCOME TAX | 2085000 |
| INCOME CONTINUING | 2831000 |
| DISCONTINUED | (147000) |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 2684000 |
| EPS BASIC | 0.61 |
| EPS DILUTED | 0.60 |