UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 2002
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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.)
150 Clove Road, Little Falls, New Jersey 07424
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(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code:(973) 890-7220
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.10 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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. / /
State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant (based on shares held and the closing price quoted by the New York Stock Exchange on October 3, 2002): $71,101,000
Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the close of business on October 3, 2002: 9,260,128
Documents incorporated by reference: Definitive proxy statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the 2002 Annual Meeting of Stockholders of Registrant.
PART I
ITEM 1. BUSINESS.
GENERAL
Cantel Medical Corp. (the "Company" or "Cantel") is a healthcare company providing infection prevention and control products, specialized medical device reprocessing systems and sterilants, diagnostic imaging and therapeutic medical equipment primarily focused on endoscopy, hollow fiber membrane filtration and separation technologies for medical and non-medical applications, and scientific instrumentation.
The Company's wholly-owned United States subsidiary Minntech Corporation ("Minntech"), which was acquired in September 2001, designs, develops, manufactures, markets and distributes disinfection/sterilization reprocessing systems, sterilants and other products for renal dialysis, and filtration and separation products for medical and non-medical applications. See "Acquisitions." The Company's other United States subsidiary MediVators, Inc. ("MediVators"), serves customers worldwide by designing, developing, manufacturing, marketing and distributing endoscope disinfection equipment and related accessories and supplies. MediVators has been consolidated into Minntech's existing facilities and will be legally merged into Minntech during November 2002. Minntech and MediVators are sometimes collectively referred to as the "United States subsidiaries." Through its wholly-owned Canadian subsidiary, Carsen Group Inc. ("Carsen" or "Canadian subsidiary"), Cantel markets and distributes medical equipment (including flexible endoscopes, endoscope disinfection equipment, surgical equipment including rigid endoscopes, and related accessories), 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.
Minntech distributes its products in the United States through its own distribution network and in many international markets through various third party distribution agreements. Minntech B.V., Minntech's Netherlands subsidiary, is the headquarters for its European operations. Minntech Japan K.K., Minntech's Japan subsidiary, and Minntech Singapore, a branch office of Minntech B.V., serve as Minntech's base in the Asia/Pacific market.
Carsen distributes the majority of its endoscopy and surgical products and a portion of its scientific products related to precision instruments pursuant to an agreement with Olympus America Inc. (the "Olympus Agreement"), and distributes a portion of its scientific products related to industrial technology equipment pursuant to an agreement with Olympus Industrial America Inc. (the "Olympus Industrial Agreement") (collectively the "Olympus Agreements"), both of which are United States affiliates 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., Olympus Industrial 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 endoscopy and surgical products, endoscope reprocessing products and scientific products and accessories.
All of MediVators' endoscope reprocessing products are 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 reprocessing products are distributed in other countries by various third parties under exclusive distribution agreements.
ACQUISITIONS
On September 7, 2001, the Company completed its acquisition of Minntech, a public company based in Plymouth, Minnesota, in a merger transaction. Minntech is included in the Company's results of operations for the portion of fiscal 2002 subsequent to its acquisition on September 7, 2001 and is excluded from the Company's results of operations for fiscal 2001 and 2000. The pro forma impact of the acquisition on the Company's results of operations are reflected in note 3 to the Company's Consolidated Financial Statements.
Under the terms of the Agreement and Plan of Merger, each share of Minntech was converted into the right to receive $10.50, consisting of $6.25 in cash, and a fraction of a share of Cantel common stock having a value of $4.25. With respect to the stock portion of the consideration, Cantel issued approximately 2,201,000 shares of common stock in the merger. The total consideration for the transaction, including transaction costs, was approximately $78,061,000 (including cash of $41,396,000, shares of Cantel common stock with a fair market value of $28,144,000, Cantel's existing
investment in Minntech of $725,000 and final transaction costs, including severance obligations, of approximately $7,796,000). The transaction was accounted for as a purchase.
In conjunction with the acquisition, on September 7, 2001 Cantel entered into new credit facilities to fund the financed portion of the cash consideration paid in the merger and costs associated with the merger, as well as to replace the Company's existing working capital credit facilities, as discussed in note 9 to the Company's Consolidated Financial Statements.
As a result of the acquisition of Minntech, the Company has added two new business segments, the Renal Systems Group (see Dialysis Products) and the Filtration and Separation Systems Group (see Filtration and Separation Products), both of which represent significant sources of revenue and profitability.
On November 1, 2001, the Company's Canadian subsidiary acquired substantially all of the assets, business and properties of Technimed Instruments Inc. and Technimed International Inc. (collectively "Technimed") for approximately $405,000, which included cash of approximately $241,000 and a note payable in three equal annual installments with a present value of approximately $164,000. This transaction was accounted for as a purchase.
Technimed was a private company based in Montreal, Canada which services medical equipment, including rigid endoscopes and hand-held surgical instrumentation.
OPERATING SEGMENTS
The following table gives information as to the percentage of consolidated net sales accounted for by each operating segment:
YEAR ENDED JULY 31,
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2002 2001 2000
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% % %
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Dialysis Products 45.3 - -
Endoscopy and Surgical 15.5 45.3 41.7
Products *
Endoscope Reprocessing
Products * 13.7 25.2 25.7
Filtration and Separation
Products 12.0 - -
Scientific Products 7.0 16.8 20.0
Product Service 7.3 14.3 14.4
Elimination of inter-
company sales of
Endoscope Reprocessing
Products (0.8) (1.6) (1.8)
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100.0 100.0 100.0
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* Endoscopy and Surgical Products was formerly described as Medical Products, and Endoscope Reprocessing Products was formerly described as Infection Control Products.
DIALYSIS PRODUCTS
CONCENTRATES
Minntech's renal dialysis treatment products include a line of acid and bicarbonate concentrates used by kidney dialysis centers to prepare dialysate, a chemical solution that draws waste products from the patient's blood through a dialyzer membrane during the hemodialysis treatment. The Company believes it provides the industry's most complete line of these concentrates in both liquid and powder form for use in virtually all types of kidney dialysis machines.
In April 2000, Minntech introduced the Renapak 2(TM), an innovative dry acid concentrate manufacturing system that produces on-demand hemodialysis concentrates in less than 30 minutes. This product eliminates substantial freight costs and storage space required for pre-mixed concentrates. Minntech manufactures and markets the powdered concentrate for the Renapak 2(TM), which features a convenient quality control and tracking system that allows users to "peel-and-stick" package labels directly into their concentrate
manufacturing documentation.
REPROCESSING OF MULTIPLE USE DIALYZERS
In response to government-mandated cost containment measures, in the late 1970s many United States dialysis centers began cleaning, disinfecting, and reusing dialyzers (artificial kidneys) in a process known as "dialyzer reuse" instead of discarding them after a single use. Approximately 80% of U.S. dialysis centers employ multiple-use dialyzers.
Dialyzer reuse is also widely practiced throughout most of Eastern Europe, the Middle East, Africa and the Asia/Pacific regions. Sales of reprocessing products have continued to grow in these markets. In order to further improve support of its Asia/Pacific distributors, Minntech maintains an Asia/Pacific representative office in Singapore.
The growth of dialyzer reuse in Western Europe has been limited. However, due to pending changes to the reimbursement system in several key markets, such as Germany, the Company believes that this situation should improve.
Minntech's dialyzer reprocessing products include the Renatron(R)II Automated Dialyzer Reprocessing System, the Renalog(R)III Data Management System and, the RenaClear(TM) Dialyzer Cleaning System, together with Renalin(R) Cold Sterilant and Renalin(R)100, both peracetic acid based sterilants that replace less environmentally friendly high-level disinfectants such as formaldehyde. Actril(R) Ready To Use Cold Sterilant, primarily used as a dialysis machine disinfectant, and Minncare(R) Cold Sterilant, utilized for water line disinfection, are also part of Minntech's liquid chemical germicide product line.
The Renatron(R) reprocessing system, first introduced in 1982, provides an automated method of rinsing, cleaning, sterilizing, and testing dialyzers for multiple use. The Renatron(R)II, the most current version of the product introduced in 1990, includes a bar-code reader, computer, and Renalog(R)III software system that provides dialysis centers with automated record keeping and data analysis capabilities. The Company believes its Renatron(R) system is faster, easier to use, and more efficient than competitive automated systems. The Company also believes that the Renatron(R) system is one of the top selling automated dialyzer reprocessing systems in the world.
In May 2001 Minntech introduced the Renaclear(TM) Dialyzer Cleaning System, the first dedicated automated dialyzer cleaning system. The system removes blood and organic debris from difficult-to-clean dialyzers before reprocessing, a process known
as "precleaning." Precleaning is common in dialysis units because the practice can help extend the useful clinical life of a dialyzer. When dialyzers are precleaned by hand, many dialysis facilities remove the dialyzer header caps (the end caps of a dialyzer) to more effectively rinse out heavy blood debris. However, opening the dialyzer in this fashion can increase the risk of contamination of the dialyzer components and damage to the membrane. The Renaclear(TM) system features a high-powered fluid injector that cleans dialyzer headers (the two internal ends of a dialyzer) without requiring removal of the header caps. The Renaclear(TM) Dialyzer Cleaning System is designed for use with peracetic acid-based Renaclear(TM) Disinfectant.
Minntech's Renalin(R) Cold Sterilant is a proprietary peracetic acid-based formula which effectively cleans, disinfects, and sterilizes dialyzers without the hazardous fumes and disposal problems related to older glutaraldehyde and formaldehyde reprocessing solutions. The Company believes Renalin(R) is the leading dialyzer reprocessing solution in the United States.
Renalin(R)100, a specially packaged formulation of Minntech's cold sterilant product, was introduced in January 2001. When used with a Renatron(R)II, converted for use with the Renatron(R)100 Series Conversion Kit, Renalin(R)100 requires no premixing, which automates the dilution process, reducing staff set-up time and exposure to vapors. In addition, Renalin(R)100 packaging reduces required storage space by 66% from traditional Renalin(R).
Minntech manufactures at its Netherlands facility a comprehensive product line of test strips to measure concentration levels of all Minntech-produced chemistries. These test strips ensure that the appropriate concentration of sterilant is maintained throughout the required contact period, in addition to verifying that all sterilant has been removed from the device or system prior to patient use.
ELECTRONICS
Minntech's major dialysis electronic products are the Sonalarm(R) Foam Detector, a device that detects air emboli, or bubbles in blood during hemodialysis; and the Minipump(TM) Hemodialysis Blood Pump, which circulates blood during hemodialysis. The Sonalarm(R) and the Minipump(TM) are sold to end-users and (in component form) to other manufacturers of blood processing equipment.
FILTRATION AND SEPARATION PRODUCTS
HEMOCONCENTRATORS
A hemoconcentrator is used by a perfusionist (a health care professional who operates heart-lung bypass equipment) to concentrate red blood cells and remove excess fluid from the bloodstream during open-heart surgery. Because the entire blood volume of the patient passes through the hemoconcentrator device during an open-heart procedure, the biocompatibility of the blood-contact components of the device is critical.
Since 1985 Minntech has manufactured and marketed a line of hemoconcentrators, and since 1994 the principal product has been its Hemocor HPH(R) hemoconcentrator. The hemoconcentrator line also features the Hemocor HPH(R) 700, an adult hemoconcentrator, and the Hemocor HPH(R) Mini, a hemoconcentrator designed specificalLy for pediatric and neonatal patients. Minntech currently offers a total of five hemoconcentrator devices to meet the clinical requirements of neonatal through large adult patients.
The entire line of Hemocor HPH(R) high performance hemoconcentrator products contains Minntech's proprietary polysulfone fiber. The Hemocor HPH(R) line also features a unique "no-rinse" design that allows it to be quickly and efficiently inserted into the bypass circuit at any time during an open-heart procedure.
HEMOFILTERS
The Renaflo(R) hemofilter is a device that performs hemofiltration in a slow, continuous blood filtration therapy used to control fluid overload and acute renal failure in unstable, critically ill patients that cannot tolerate the rapid filtration rates of conventional hemodialysis. The hemofilter removes water, waste products and toxins from the circulating blood of patients while conserving the cellular and protein content of the patient's blood. Minntech's hemofilter line features no-rinse, polysulfone fiber that requires minimal set-up time for healthcare professionals. The hemofilter is available in five different sizes to meet the clinical needs of neonatal through adult patients.
GAS AND WATER FILTRATION
In May 2000 Minntech introduced the FiberFlo(R) Membrane Degassing System, a high-performance hollow fiber module and customized housing for the addition or removal of gasses from liquid streams. The FiberFlo(R) Membrane Degassing System was developed for use in pharmaceutical manufacturing, laboratory, medical, and bioprocessing applications. The polypropylene hollow
fiber cartridge degas module features easy operation and maintenance, minimizes energy consumption, and can be used for CO(2) and O(2) removal, humidification, pH adjustment, oxygenation, and sparging of gases to solutions.
Minntech received 510(k) clearance from the United States Food and Drug Administration ("FDA") in March 1999 to market FiberFlo(R) Hollow Fiber Capsule Filters for medical applications. The FiberFlo(R) Hollow Fiber Capsule Filter line, which made its market debut in April 1998, is based on the same high performance hollow fiber technology used in Minntech's polysulfone FiberFlo(R) HF Cartridge Filter product line. Capsule filters are used in the cell and tissue engineering industry, bioprocessing, pharmaceutical manufacturing, food and beverage processing, cosmetic manufacturing, and electronics industries to filter spores, bacteria, and pyrogens from aqueous solutions and gases. FiberFlo(R) Capsule Filters are engineered for point-of-use applications that require very fine filtration. Their hollow fiber design provides a surface area that is up to six times larger than traditional pleated capsule filters on the market. The large surface area provides greater capacity and longer filter life for the customer. FiberFlo(R) Capsule Filters and Cartridge Filters are available in a variety of styles, sizes, and configurations to meet a comprehensive range of customer needs and applications.
FiberFlo(R) Cartridge Filters are used in high-purity industrial water systems to filter spores, bacteria, and pyrogens from the fluids. They are also used in medical device reprocessing to help health care facilities meet reprocessing water quality guidelines outlined by the American Association of Medical Instrumentation (AAMI). The cartridge filters feature large surface area and fine filtration advantages that are similar to Minntech's capsule filter line.
DISINFECTANTS AND OTHER
Minntech's Minncare(R) Cold Sterilant is a liquid sterilant product that is used to sanitize high-purity water treatment systems. Minncare(R) is based on Minntech's proprietary peracetic-acid sterilant technology, and is engineered to clean and disinfect reverse osmosis (RO) membranes and associated water distribution systems. Minntech has private label agreements for both Minncare(R) and Actril(R) sterilants with several other companies in the infection control industry. Minntech also offers a line of ancillary filtration products, including cleaning solutions, disinfectant test strips, and filtration housings and accessories.
ENDOSCOPY AND SURGICAL PRODUCTS
Carsen's principal source of revenue is from the marketing and 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 and its related accessories comprise 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); image processors (which process digitized endoscopic images); 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), and MediVators (endoscope disinfection equipment).
ENDOSCOPE REPROCESSING PRODUCTS
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 its distribution agreement with Olympus America Inc. in the United States and internationally through various foreign distributors.
MediVators' primary products are the DSD-91E and DSD-201, for which the original design and configuration utilized in both of these products received FDA 510(k) clearance in March 1994. The DSD-91E and DSD-201 are microprocessor controlled dual endoscope disinfection systems. Both systems will disinfect two endoscopes at a time, can be used on a broad variety of endoscopes and are programmable by the user. MediVators also manufactures the MV series which are less expensive single and dual endoscope disinfection units.
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.
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. 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. This process can also inhibit the build up of residue in the working channels. In addition, the entire disinfection 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 risks associated with inconsistent manual disinfecting.
In March 2001, MediVators introduced Rapicide(TM) high-level disinfectant and sterilant, which obtained FDA 510(k) clearance for a high-level disinfection claim of five minutes at 35 degrees Celsius. This disinfection contact time is currently the fastest available on any disinfectant product sold in the United States. The development of Rapicide(TM) adds an additional consumable to the MediVators' product line.
SCIENTIFIC PRODUCTS
The Scientific Products segment is comprised 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. and Sony of Canada Ltd. digital cameras for research microscopy; and optical accessories such as high contrast optics, objectives (magnifying lenses) and reticules and video calipers (both of which measure objects being viewed under a microscope).
The precision instruments distributed by Carsen are sold to hospitals for cytology, pathology and histology purposes; government laboratories for research and forensics; and private laboratories, universities and other educational institutions for research and teaching.
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 distributes microscopes to industrial laboratories for bio-technology, geology, pharmacology, metallography, quality control and manufacturing applications, and develops and distributes various specialized machine vision hardware and software, including related engineering services and accessories utilized in automated industrial applications.
PRODUCT SERVICE
The majority of the Company's product service revenue and profitability is generated by Carsen. 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 endoscopy, surgical, endoscopy reprocessing 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 endoscope reprocessing 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 endoscope reprocessing products for which the customer pays MediVators on a time and materials basis.
Minntech operates dialyzer reprocessing centers in Orlando and Boston that handle all aspects of dialyzer reprocessing, including compliance with regulatory requirements and record keeping. Dialyzer reprocessing services consist of the delivery of dialyzers from dialysis centers by Minntech personnel to the reprocessing center, where they are cleaned, tested, inspected, sterilized and returned to their facility within a twenty-four hour period. Dialyzer reprocessing has traditionally required hemodialysis providers to make a significant investment in dedicated staff, facilities and capital equipment. By outsourcing this service to Minntech, providers are able to focus resources on improved patient care.
DISTRIBUTION AGREEMENTS
OLYMPUS/CARSEN AGREEMENT. The majority of Carsen's sales of endoscopy and surgical products and scientific products related to precision instruments have been made pursuant to the Olympus Agreement, and the majority of Carsen's sales of scientific products related to industrial technology equipment have been made pursuant to the Olympus Industrial 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 agreements bear the trademark of Olympus or its affiliates. Both Olympus agreements expire 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. There are no minimum purchase requirements under the Olympus Industrial Agreement.
During the term of the Olympus Agreements 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 Agreements.
The Olympus Agreement imposes minimum purchase obligations on Carsen with respect to each of endoscopy and surgical products and precision instruments. The aggregate annual minimum purchase obligations for all such products are approximately $16.9 million and $18.8 million during the contract years ending March 31, 2003 and 2004, respectively.
The Olympus Agreements generally prohibit both Olympus and Carsen from hiring any employee of the other party for a period of one year after the conclusion of the employee's employment with such other party. This prohibition remains in effect during the term of the Olympus Agreements and the first year thereafter.
Subject to an allowance of a 10% shortfall from the minimum purchase requirements, if Carsen fails to meet such requirements for precision instruments, then Olympus has the option to terminate or restructure the Olympus Agreement as it pertains to precision instruments; if Carsen fails to meet such requirements for endoscopy and surgical products, 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 America Inc., which expires on August 1, 2003, under which Olympus is granted the exclusive right to distribute all of MediVators' endoscope reprocessing products and related accessories and supplies in the United States and Puerto Rico. MediVators also has a three-year agreement with Olympus Latin America which expires on July 21, 2005 under which Olympus is granted the exclusive right to distribute all of MediVators endoscope reprocessing products and related accessories and supplies in Latin America; to date such agreement has not produced significant levels of sales in Latin America. All equipment sold by Olympus pursuant to these agreements bear both the "Olympus" and "MediVators" trademarks.
The MediVators Agreement provides for minimum purchase projections. Failure by Olympus to achieve the minimum purchase projections in any contract year gives MediVators the option to terminate the MediVators Agreement. Net sales to Olympus accounted for 9.5%, 18.4%, and 15.8% of the Company's net sales in fiscal 2002, 2001 and 2000, 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 $1,026,000, net of adjustments related to estimated warranty claims and promotional program expenses payable to Carsen's customers. During fiscal 2001, Carsen also received additional consideration from Olympus under the Purchase Agreement, including amounts related to transition services provided by Carsen subsequent to July 31, 2000. Such consideration included (i) fixed cash amounts aggregating approximately $615,000 and (ii) $619,000, representing 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. No additional amounts are due from
Olympus under the Purchase Agreement.
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.
MARKETING
Minntech markets its products in the United States through a direct sales force and through distributors. Minntech B.V., Minntech's Netherlands subsidiary, is the base for its European operations. Minntech Japan K.K., Minntech's Japan subsidiary, and Minntech Singapore, a branch office of Minntech B.V., serve the Asia/Pacific market.
MediVators sells its endoscope reprocessing products in the United States under an exclusive distribution agreement with Olympus, and internationally through various foreign distributors.
Carsen markets its products for each business segment through separate, direct sales forces comprised of its own employees.
Most of the Company's direct sales forces are compensated on a salary and commission basis.
EFFECT OF CURRENCY FLUCTUATIONS AND TRADE BARRIERS
A portion of the Company's products are imported from the Far East and Western Europe, the Company's United States subsidiaries sell a portion of their products outside of the United States, and Minntech's Netherlands subsidiary sells a portion of its products outside of the European Union. Consequently, 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, Canada and the Netherlands.
Carsen imports a substantial portion of its products from the United States and pays for such 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 currency 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 rates of currency exchange between the United States and Canada had an adverse impact in fiscal 2002 compared with fiscal 2001, and in fiscal 2001 compared with fiscal
2000, upon the Company's results of operations and stockholders' equity, as described in Management's Discussion and Analysis of Financial Condition and Results of Operations.
Financial statements of the Netherlands subsidiary are translated using the accounting policies described in Note 2 to the Consolidated Financial Statements. Fluctuations in the rates of currency exchange between the European Union and the United States had an adverse impact in fiscal 2002 upon the Company's results of operations, as described in Management's Discussion and Analysis of Financial Condition and Results of Operations.
The functional currency of Minntech's Japan subsidiary is the Japanese yen. Changes in the value of the Japanese yen relative to the United States dollar since the acquisition of Minntech on September 7, 2001 did not have a significant impact upon either the Company's results of operations or the translation of the balance sheet, primarily due to the fact that the Company's Japanese subsidiary accounts for a relatively small portion of consolidated net sales, earnings and net assets.
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. 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 endoscopy and surgical and endoscope reprocessing products, the numerous customer contacts developed during its lengthy service as a distributor of Olympus products and the distribution arrangement for certain MediVators endoscope reprocessing products with Olympus, give the Company a competitive advantage with respect to certain of its products.
Two of Minntech's competitors (Fresenius Medical Care AG ("Fresenius") and HDC Medical, Inc.) have introduced peracetic acid-based dialyzer reprocessing germicides, entering a market previously dominated by Minntech's Renalin(R) Cold Sterilant product. However, Renalin(R) remains the only reprocessing chemical that has been validated for use with the Renatron(R) dialyzer reprocessing system and cleared for marketing as such under section 510(k) of the Federal Food, Drug and Cosmetic Act. Renalin(R) is also the only dialyzer reprocessing germicide that carries a sterilization claim in the United States market. Minntech has informed its Renatron(R) customers that it is unable to guarantee the integrity, reliability, and chemical interaction of alternative germicides with the Renatron(R) system. Minntech believes that this validation, coupled with Minntech's extensive dialyzer reprocessing education, administration, and technical support services, are strong competitive advantages for its product. However, the competitive price pressures introduced by these new germicides has adversely impacted Minntech's current dialyzer reprocessing chemical market share.
Within the dialysis industry manufacturers have been acquiring chains of dialysis treatment centers over the past several years. These manufacturers have a built-in customer base for their products. However, Minntech views its manufacturer-only status as a competitive market advantage. Minntech believes that many dialysis treatment providers do not want to purchase hemodialysis supplies from manufacturers who also provide dialysis service and are, in effect, their competitors.
Two of the Company's competitors (Gambro Healthcare, Inc. and Fresenius) have made public disclosures of their intent to increase the use of single-use dialyzers which, at some dialysis centers owned by these companies, could impact Minntech's Renatron reprocessing equipment at such centers. Presently, the utilization of single use dialyzers continues to be significantly more expensive than dialyzer reuse and, as such, the number of Minntech-supplied reuse programs is not expected to decrease significantly.
MARKET CONDITIONS
Minntech's ability to sell its products depends in part on the extent to which reimbursement for the cost of these products and related treatments are available to patients under domestic and foreign governmental health programs, private health insurance, managed care organizations, workers' compensation insurers, and other similar programs. Over the past decade, the cost of healthcare has risen significantly, and there have been numerous proposals by legislators, regulators, and third-party health care payors to curb these costs. In addition, certain health care providers are moving towards a managed care system in which the
providers contract to provide comprehensive health care for a fixed cost per person. Moreover, hospitals and other health care providers have become increasingly price competitive and, in some instances, have put pressure on medical suppliers to lower their prices.
GOVERNMENT REGULATION
Many of Minntech's and MediVators' products are subject to regulation by the FDA, which regulates the testing, manufacturing, packaging, distribution and marketing of medical devices in the United States. Certain of Minntech's and 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 Minntech or 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 January 2002 and November 2000 with no warning letters issued.
In addition, many of Minntech's and MediVators' products must meet the requirements of the European Medical Device Directive ("MDD") for their sale into the European Union. In June 2002, Minntech and MediVators were inspected and received notification that their products continue to meet these requirements. This certification allows Minntech and 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 Minntech's and MediVators' products are subject to change. Neither Minntech nor MediVators can predict what impact, if any, such changes might have on their business.
Carsen's endoscopy and surgical products and endoscope reprocessing products are subject to regulation by Health Canada - Therapeutic Products Directorate ("TPD"), 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"). TPD and other agency clearances generally are required before Carsen can market new medical products in Canada. TPD 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, as well as certain medical device licenses by product, as provided by TPD. In addition, Minntech and MediVators have received drug identification numbers and Carsen has applied to TPD for a drug establishment license which is required before Carsen can distribute Minntech's and MediVators' sterilant/disinfectant products in Canada.
PATENTS AND PROPRIETARY RIGHTS
Minntech holds rights under 60 patents worldwide covering its products or components thereof. At October 3, 2002, Minntech also had a total of 35 pending patent applications in the United States and in foreign countries. Minntech also holds rights under 248 trademark registrations worldwide and had 44 trademark applications pending as of October 3, 2002.
Minntech believes that patent protection is a significant factor in maintaining its market position, but the rapid changes of technology in reprocessing, hollow fiber membranes, dialysis, liquid and dry chemical sterilants and other areas in which Minntech competes may limit the value of Minntech's existing patents.
MediVators' current disinfector products, including the DSD-91E, DSD-201 and the MV Series tabletop systems, utilize certain know-how developed within the Company but have no patent protection. MediVators holds rights under five trademark registrations worldwide and had one trademark application pending as of October 3, 2002. In addition, MediVators holds rights under two patents and two pending patent applications covering its products or components thereof.
While patents have a presumption of validity under the law, the issuance of a patent is not conclusive as to its validity or the enforceable scope of its claims. Accordingly, there can be no assurance that the Company's existing patents will afford protection against competitors with similar inventions, nor can there be any assurance that the Company's patents will not be infringed. Competitors may also obtain patents that the Company
would need to license or design around. These factors also tend to limit the value of the Company's existing patents. Consequently, in certain instances, the Company may consider trade secret protection to be a more effective method of maintaining its proprietary positions.
BACKLOG
On October 3, 2002, the Company's consolidated backlog was approximately $954,000, compared with approximately $1,773,000 on October 5, 2001.
EMPLOYEES
As of October 3, 2002, the Company employed 541 persons. Of the Company's employees, 381 are located in the United States, 120 are located in Canada, 31 are located in Europe and 9 are located in the Far East; 26 are executives and/or managers, 103 are engaged in sales and marketing functions, 33 are engaged in customer service, 46 are engaged in product service, 245 are engaged in manufacturing, shipping and warehouse functions, 61 perform various administrative functions and 27 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.
Minntech owns three facilities located on adjacent sites, comprising a total of 16.5 acres of land in Plymouth, a suburb of Minneapolis, Minnesota. One facility is a 65,000 square-foot building, occupied by Minntech since 1977, which is used for manufacturing and warehousing operations. The second facility is a 110,000 square-foot building, representing Minntech's headquarters, including executive, administrative and sales staffs, and research operations. This building is also used for manufacturing and warehousing. The third facility is a 43,000 square-foot building adjacent to Minntech's headquarters and was purchased in February 2001. This building is used primarily for manufacturing and warehouse operations. Minntech also owns a 2.3 acre parcel of undeveloped land adjacent to its headquarters.
Additionally, Minntech owns a 21,000 square-foot building on a 4.4 acre site in Heerlen, The Netherlands. Occupancy commenced in April 1995. The facility serves as Minntech's European headquarters and is being used as a sales office, manufacturing facility and warehouse.
Minntech leases two facilities which serve as warehouse and distribution hubs for the dialysis business, including a 31,000 square-foot facility in Middletown, Pennsylvania and a 30,000 square-foot building in Jackson, Mississippi. Minntech's Columbia, South Carolina warehouse was closed in December 2001 with all products being consolidated in the Jackson, Mississippi facility. Minntech also leases a 22,000 square-foot facility located in Plymouth, Minnesota which serves as a warehouse. The leases for the Middletown, Jackson and Plymouth facilities provide for monthly base rent of approximately $14,000, $9,000 and $11,000, respectively.
Minntech leases three facilities in the United States for Minntech's dialyzer reprocessing centers. These centers include 2,300 square-feet in Edgewood, Florida; 3,500 square-feet in Boston, Massachusetts; and 3,200 square-feet in Atlanta, Georgia which is not presently being utilized. The leases for these facilities in Edgewood, Boston and Atlanta provide for monthly base rent of approximately $2,000, $4,000 and $2,000, respectively.
Minntech also leases a 300 square-foot office space in Tokyo, Japan and a 1,200 square-foot office space in Singapore. Both locations are being used as sales offices. Beginning September 2002, Minntech commenced a lease for 2,000 square-feet in Dronfield, England. The facility is being used as a sales office and service facility.
MediVators leased approximately 27,500 square feet of space located in Eagan, Minnesota which was used for manufacturing, warehouse and office space. The option to terminate the lease was exercised effective September 2002. All of MediVators' operations were consolidated into Minntech's existing facilities.
Carsen leases a building containing approximately 41,000 square feet located in Markham, Ontario which 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 4,000 square feet and 800 square feet, respectively.
The Company leases approximately 3,700 square feet of space located in Little Falls, New Jersey which is used for the Company's executive offices. 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.
On May 29, 2002, the Company held the Annual Meeting of Stockholders for the fiscal year ended July 31, 2001 to re-elect Charles M. Diker, Alan J. Hirschfield and Bruce Slovin as directors of the Company, to hold office until the Annual Meeting of Shareholders to be held after the fiscal year ending July 31, 2004. 8,244,996 votes were cast for and 101,101 votes were withheld in the election of Messrs. Diker and Slovin, and 8,031,889 votes were cast for and 314,208 votes were withheld in the election of Mr. Hirschfield.
Stockholders also approved an amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of Common Stock from 12,000,000 to 20,000,000. 8,016,490 votes were cast for, 319,260 votes were against, and 10,347 votes abstained in the approval of the amendment to the Company's Certificate of Incorporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of May 29, 2002, the Company's Common Stock trades on the New York Stock Exchange under the symbol "CMN." Previously, the Company's Common Stock traded on the NASDAQ National Market under the symbol "CNTL."
In May 2002, the Company issued 3,143,000 additional shares in connection with a three-for-two stock split effected in the form of a 50% stock dividend paid on May 14, 2002 to stockholders of record on May 7, 2002.
The following table sets forth, for the periods indicated, the high and low closing prices for the Common Stock as reported by the New York Stock Exchange or NASDAQ.
HIGH LOW
------- -------
YEAR ENDED JULY 31, 2002
First Quarter $ 16.76 $ 11.76
Second Quarter 16.33 12.55
Third Quarter 18.53 14.17
Fourth Quarter 19.50 14.54
YEAR ENDED JULY 31, 2001
First Quarter $ 6.92 $ 4.96
Second Quarter 7.92 5.25
Third Quarter 12.68 8.17
Fourth Quarter 19.50 10.53
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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 3, 2002, the closing price of the Company's Common Stock was $11.44 and the Company had 423 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. Minntech is reflected in the 2002 Consolidated Statement of Income Data for the portion of fiscal 2002 subsequent to its acquisition on September 7, 2001, and is not reflected in the results of operations for all other periods presented.
CONSOLIDATED STATEMENTS OF INCOME DATA(1):
(Amounts in thousands, except per share data)
Year Ended July 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Net sales.................. $ 119,994 $ 48,995 $ 41,297 $ 37,820 $ 30,389
Cost of sales(2)........... 73,518 29,979 25,569 24,530 19,392
Gross profit............... 46,476 19,016 15,728 13,290 10,997
Income from continuing
operations before
interest expense (income)
and income taxes(2)...... 13,306 6,965 5,141 3,867 3,104
Interest expense (income).. 2,176 (42) 225 271 179
Income from continuing
operations before
income taxes............ 11,130 7,007 4,916 3,596 2,925
Income taxes............... 3,978 2,851 2,085 1,936 1,287
Income from continuing
operations.............. 7,152 4,156 2,831 1,660 1,638
Income (loss) from
discontinued operations - 225 (147) (291) 57
--------- --------- --------- --------- ---------
Net income................. $ 7,152 $ 4,381 $ 2,684 $ 1,369 $ 1,695
========= ========= ========= ========= =========
Earnings per common share:
Basic:(2)(3)............
Continuing operations.. $ 0.81 $ 0.62 $ 0.43 $ 0.25 $ 0.26
Discontinued operations - 0.03 (0.02) (0.04) 0.01
--------- --------- --------- --------- ---------
Net income............. $ 0.81 $ 0.65 $ 0.41 $ 0.21 $ 0.27
========= ========= ========= ========= =========
Diluted: (2)(3)..........
Continuing operations . $ 0.74 $ 0.56 $ 0.42 $ 0.24 $ 0.24
Discontinued operations - 0.03 (0.02) (0.04) 0.01
--------- --------- --------- --------- ---------
Net income............. $ 0.74 $ 0.59 $ 0.40 $ 0.20 $ 0.25
========= ========= ========= ========= =========
Weighted average number
of common and common
equivalent shares:(3)
Basic.................. 8,882 6,707 6,618 6,592 6,360
Diluted................ 9,714 7,365 6,719 6,887 6,726
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CONSOLIDATED BALANCE SHEETS DATA:
(Amounts in thousands, except per share data)
July 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Total assets............... $ 107,814 $ 31,929 $ 24,955 $ 23,726 $ 21,475
Current assets............. 58,138 26,494 21,701 20,462 18,378
Current liabilities........ 20,314 9,825 7,570 7,521 5,191
Working capital............ 37,824 16,669 14,131 12,941 13,187
Long-term debt............. 25,750 - 125 1,567 3,004
Stockholders' equity....... 57,911 22,027 17,163 14,545 13,226
Book value per
outstanding common
share(3)................. $ 6.28 $ 3.22 $ 2.58 $ 2.18 $ 2.02
Common shares
outstanding(3)........... 9,221 6,839 6,658 6,661 6,551
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(2) Includes for fiscal 1999 costs of $467,000 associated with the discontinuance of MediVators' medical sharps disposal business, of which $452,000 pertained to an inventory write- off and was therefore recorded to cost of sales. The charge of $467,000 reduced basic and diluted earnings per share from continuing operations by $0.07. Without this charge, basic and diluted earnings per share from continuing operations for fiscal 1999, as adjusted, would have been $0.32 and $0.31, respectively.
(3) Per share and share amounts for fiscal 1998 through 2001 have been adjusted from amounts previously reported to reflect a three-for-two stock split effected in the form of a 50% stock dividend paid in May 2002. Such adjustments are consistent with the fiscal 2002 presentation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF CONTINUING OPERATIONS
The results of continuing operations reflect primarily the results of Minntech, MediVators and Carsen .
Reference is made to (i) the discontinuance of the Company's Consumer Products business, as more fully described in Item 1, "Business," and in note 8 to the Consolidated Financial Statements, (ii) the impact on the Company's results of operations of a weaker Canadian dollar against the United States dollar during fiscal 2002 compared with fiscal 2001 and during fiscal 2001 compared with fiscal 2000 (decrease in value of approximately 3% during each of the above periods), (iii) critical accounting policies of the Company, as more fully described in note 2 to the Consolidated Financial Statements, as well as elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, (iv) 3,143,000 additional shares issued in connection with a three-for-two stock split effected in the form of a 50% stock dividend paid to stockholders in May 2002, as more fully described in note 1 to the Consolidated Financial Statements, and (v) the Company's acquisition of Minntech in September 2001, as more fully described in Item 1, "Business," and in notes 3 and 9 to the Consolidated Financial Statements.
Minntech is reflected in the Company's results of operations for the portion of fiscal 2002 subsequent to its acquisition on September 7, 2001, and is not reflected in the results of operations for fiscal 2001 or fiscal 2000. The acquisition of Minntech has added two new operating segments to the Company, Dialysis Products and Filtration and Separation Products. Additionally, Minntech also contributes to the Company's Product Service operating segment. Discussion herein of the Company's pre-existing businesses refers to the operations of Cantel, Carsen and MediVators, but excluding the impact of the Minntech acquisition.
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,
---------------------------------------------------------------------
2002 2001 2000
---------------------------------------------------------------------
(Dollar amounts in thousands)
$ % $ % $ %
--------- ----- --------- ----- --------- -----
Dialysis Products $ 54,434 45.3 $ - - $ - -
Endoscopy and
Surgical Products * 18,636 15.5 22,209 45.3 17,216 41.7
Endoscope Reprocessing
Products * 16,419 13.7 12,348 25.2 10,641 25.7
Filtration and
Separation Products 14,377 12.0 - - - -
Scientific Products 8,344 7.0 8,214 16.8 8,254 20.0
Product Service 8,726 7.3 7,011 14.3 5,946 14.4
Elimination of inter-
company sales of
Endoscope Reprocessing
Products (942) (0.8) (787) (1.6) (760) (1.8)
--------- ----- --------- ----- --------- -----
$ 119,994 100.0 $ 48,995 100.0 $ 41,297 100.0
========= ===== ========= ===== ========= =====
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* Endoscopy and Surgical Products was formerly described as Medical Products, and Endoscope Reprocessing Products was formerly described as Infection Control Products.
FISCAL 2002 COMPARED WITH FISCAL 2001
Net sales increased by $70,999,000, or 144.9%, to $119,994,000 in fiscal 2002, from $48,995,000 in fiscal 2001. Net sales contributed by Minntech for fiscal 2002 were $71,938,000; without the Minntech acquisition, net sales of the Company's pre-existing businesses would have decreased by $939,000, or 1.9%, to $48,056,000 for fiscal 2002. Net sales were adversely impacted in fiscal 2002 compared with fiscal 2001 by approximately $1,113,000 due to the translation of Carsen's net sales using a weaker Canadian dollar against the United States dollar.
The decrease in sales of the Company's pre-existing businesses was attributable to the decreased sales of endoscopy and surgical products, partially offset by an increase in sales of endoscope reprocessing products and product service. The decrease in sales of endoscopy and surgical products was due to a decrease in demand, including the adverse impact of healthcare funding issues in Canada as well as intensified competition which the Company expects to continue. Healthcare funding in Canada is dependent upon governmental appropriations and the Company cannot ascertain what impact the funding situation will have on future
sales of endoscopy and surgical products and scientific products. The increase in sales of endoscope reprocessing products was primarily due to an increase in demand in the United States. The increase in sales of product service was primarily due to an increase in demand and marketshare in Canada.
The Company believes that it has the opportunity to continue increasing its marketshare in the endoscope reprocessing segment. The majority of its product service segment is located in Canada where the Company's marketshare in its flexible endoscope service business is substantial; therefore, growth opportunities for its existing service business may be limited without the addition of new product servicing opportunities.
Gross profit increased by $27,460,000, or 144.4%, to $46,476,000 in fiscal 2002, from $19,016,000 in fiscal 2001. Gross profit contributed by Minntech for fiscal 2002 was $29,059,000; without the impact of the Minntech acquisition, gross profit of the Company's pre-existing businesses would have decreased by $1,599,000, or 8.4%, to $17,417,000 for fiscal 2002.
Gross profit as a percentage of net sales was 38.7% in fiscal 2002, compared with 38.8% in fiscal 2001. During fiscal 2002, gross profit was adversely impacted by a $427,000 charge to cost of sales related to the sale of inventories which carried a step-up in value recorded as a result of purchase accounting; such charge reduced gross profit percentage by 0.4% for fiscal 2002. Minntech's gross profit as a percentage of net sales was 40.4% for fiscal 2002; without the impact of the Minntech acquisition, gross profit as a percentage of net sales for fiscal 2002 would have been 36.2%.
The lower gross profit percentage from the Company's pre-existing businesses for fiscal 2002, as compared with fiscal 2001, 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; a higher gross profit percentage in 2001 due to a buy-in of endoscopes prior to receiving a supplier price increase (such endoscopes were sold during fiscal 2001); increased competition in endoscopy and surgical products; and sales mix associated with endoscope reprocessing products and product service, including the increased manufacturing and warranty costs associated with the Company's new DSD-201 endoscope reprocessing unit.
Selling expenses as a percentage of net sales were 12.3%
for fiscal 2002, compared with 11.6% for fiscal 2001. Without the impact of the Minntech acquisition, selling expenses as a percentage of net sales would have been 13.4% for fiscal 2002. The increase in selling expenses as a percentage of net sales from the Company's pre-existing businesses was primarily attributable to lower than expected sales at Carsen, an increase in personnel at Carsen and expanded marketing efforts to support MediVators' domestic sales of endoscope reprocessing products.
General and administrative expenses increased by $9,150,000 to $14,560,000 for fiscal 2002, from $5,410,000 for fiscal 2001. General and administrative expenses incurred by Minntech for fiscal 2002 were $8,536,000; without the Minntech acquisition, general and administrative expenses of the Company's pre-existing businesses would have increased by $614,000 for fiscal 2002, principally due to the addition of business development personnel and related expenses and costs associated with the Company's listing of its Common Stock on the New York Stock Exchange.
Research and development expenses increased by $2,902,000 to $3,851,000 for fiscal 2002, from $949,000 for fiscal 2001. Research and development expenses incurred by Minntech for fiscal 2002 were $2,637,000; without the Minntech acquisition, research and development expenses of the Company's pre-existing businesses would have increased by $265,000 for fiscal 2002, principally due to costs related to MediVators' new endoscope reprocessing unit. The Company anticipates research and development expenses to increase in fiscal 2003 primarily due to costs associated with two specific projects; however, such increase is not expected to exceed 15.0% relative to the fiscal 2002 level of research and development expenses (assuming that Minntech had been included in the Company's results of operations for all of fiscal 2002).
Interest expense was $2,176,000 for fiscal 2002, compared with interest income of $42,000 for fiscal 2001. This change in interest was attributable to the Company's borrowings under its new credit facilities entered into during September 2001 to fund a portion of the Minntech acquisition.
Income from continuing operations before income taxes increased by $4,123,000, or 58.8%, to $11,130,000 for fiscal 2002, from $7,007,000 for fiscal 2001.
The consolidated effective tax rate on operations was 35.7% and 40.7% for fiscal 2002 and 2001, respectively. In conjunction with the purchase accounting for the acquisition of Minntech, Cantel eliminated the valuation allowances against its deferred tax assets related to the NOLs accumulated in the United States. Therefore, for all periods subsequent to September 7,
2001, the Company has provided in its results of operations income tax expense for its United States operations at the statutory tax rate; however, actual payment of U.S. federal income taxes will reflect the benefits of the utilization of the NOLs.
The Company's results of operations for fiscal 2002 also reflect income tax expense for its international subsidiaries at their respective statutory rates. Such international subsidiaries include the Company's subsidiaries in Canada, the Netherlands and Japan, which had effective tax rates during fiscal 2002 of approximately 38.7%, 26.5% and 44.8%, respectively. The operations of the Company's subsidiaries in the Netherlands and Japan were part of the Minntech acquisition and are therefore included in the Company's results of operations only since September 7, 2001.
For fiscal 2001, income taxes consist primarily of taxes imposed on the Company's Canadian subsidiary which had an effective tax rate of approximately 41.6%. The consolidated effective tax rate in fiscal 2001 was lower than the Canadian effective tax rate due to the fact that income generated by the United States operations was substantially offset by federal tax benefits resulting from the utilization of NOLs.
In fiscal 2003, the Company expects a reduction in its Canadian effective tax rate due to enacted reductions in both Canadian federal and provincial income tax rates. However, the Company's overall effective tax rate for fiscal 2003 is subject to the progressive tax rate structure in the Netherlands, as well as changes caused by the geographic mix of pretax income.
FISCAL 2001 COMPARED WITH FISCAL 2000
Net sales increased by $7,698,000, or 18.6%, to $48,995,000 in fiscal 2001, from $41,297,000 in fiscal 2000. Net sales were adversely impacted in fiscal 2001 compared with fiscal 2000 by approximately $1,381,000 due to the translation of Carsen's net sales using a weaker Canadian dollar against the United States dollar.
This increase in net sales was attributable to the increased sales of the Company's endoscopy and surgical products, endoscope reprocessing products and product service business segments. For fiscal 2001, the increased sales of endoscopy and surgical products were due primarily to an increase in demand, a portion of which was attributable to the introduction of new flexible endoscopy products, and selling price increases. The increased sales of endoscope reprocessing products were primarily attributable to an increase in demand for endoscope reprocessing products in the United States. The increased sales of product service were primarily attributable to an increase in demand and
selling price increases.
Gross profit increased by $3,288,000, or 20.9%, to $19,016,000 in fiscal 2001, from $15,728,000 in fiscal 2000. Gross profit was adversely impacted in fiscal 2001 compared with fiscal 2000 by approximately $509,000 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 net sales increased to 38.8% in fiscal 2001, from 38.1% in fiscal 2000. The higher gross profit percentage for fiscal 2001 was primarily attributable to a buy-in of endoscopes prior to receiving a supplier price increase, which endoscopes were sold during fiscal 2001; selling price increases in endoscopy and surgical products and product service; and favorable sales mix associated with product service and scientific products. Partially offsetting these increases in gross profit percentage was 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.
Selling expenses as a percentage of net sales were 11.6% for fiscal 2001, compared with 12.6% for fiscal 2000. The decrease in selling expenses as a percentage of net sales was primarily attributable to the effect of the increased sales against the fixed portion of selling expenses.
General and administrative expenses increased by $867,000 to $5,410,000 for fiscal 2001, from $4,543,000 for fiscal 2000. The increase reflects additional personnel and increases in incentive compensation, profit sharing contributions, rent and amortization of computer software.
Research and development expenses increased by $113,000 to $949,000 for fiscal 2001, from $836,000 for fiscal 2000. This increase was primarily due to additional personnel required for new products including the DSD-201 and Rapicide(TM).
Interest income was $42,000 in fiscal 2001, compared with interest expense of $225,000 in fiscal 2000. This change in interest was attributable to interest income earned on cash and cash equivalents during fiscal 2001, compared with interest expense on outstanding borrowings during fiscal 2000.
Income from continuing operations before income taxes increased by $2,091,000, or 42.5%, to $7,007,000 for fiscal 2001, from $4,916,000 for fiscal 2000.
Income taxes consist primarily of taxes imposed on the
Company's Canadian operations. The effective tax rate on Canadian operations was 41.6% and 43.9% for fiscal 2001 and 2000, respectively. For fiscal 2001 and 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 for federal income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2002, the Company's working capital was $37,824,000, compared with $16,669,000 at July 31, 2001. This increase in working capital was primarily due to the acquisition of Minntech.
Net cash provided by operating activities was $11,302,000, $1,342,000 and $4,668,000 for fiscal 2002, 2001 and 2000, respectively. In fiscal 2002, net cash provided by operating activities was primarily due to income from continuing operations after adjusting for depreciation and amortization and deferred income taxes, and decreases in accounts receivable and inventories, partially offset by decreases in accounts payable and accrued expenses and income taxes payable. In fiscal 2001, net cash provided by operating activities was primarily due to income from continuing operations after adjusting for depreciation and amortization, and an increase in income taxes payable, partially offset by increases in accounts receivable and inventories. In fiscal 2000, net cash provided by operating activities was primarily due to income from continuing operations after adjusting for depreciation and amortization and deferred income taxes, and decreases in inventories and accounts receivable.
Net cash used in investing activities was $31,541,000 in fiscal 2002, compared with net cash provided by investing activities of $1,135,000 in fiscal 2001 and net cash used in investing activities of $1,392,000 in fiscal 2000. In fiscal 2002, net cash used in investing activities was primarily for the acquisition of Minntech and capital expenditures. In fiscal 2001, net cash provided by investing activities was primarily due to proceeds from the discontinued operations, partially offset by purchases of available-for-sale securities, professional fees related to the Minntech acquisition (such fees are included within other, net) and capital expenditures. In fiscal 2000, net cash used in investing activities was primarily due to an increase in the net assets related to the discontinued operations and capital expenditures. During fiscal 2003, the Company anticipates an increase in the level of its capital expenditures, primarily at Minntech.
Net cash provided by financing activities was $27,754,000
in fiscal 2002 and $404,000 in fiscal 2001, compared with net cash used in financing activities of $1,641,000 in fiscal 2000. In fiscal 2002, net cash provided by financing activities was primarily attributable to borrowings under the Company's new credit facilities for the Minntech acquisition, net of related debt issuance costs, partially offset by repayments under these credit facilities. In fiscal 2001, net cash provided by financing activities was primarily due to proceeds from the exercise of stock options. In fiscal 2000, net cash used in financing activities was primarily due to net repayments under a prior credit facility.
At July 31, 2001, the Company had a credit facility which provided for
(i) a $2,500,000 revolving credit facility for Cantel and MediVators, (ii) a
$5,000,000 (United States dollars) revolving credit facility for Carsen and
(iii) a $12,500,000 acquisition facility available to Cantel and MediVators for
permitted acquisitions in the United States. At July 31, 2001, the Company had
no outstanding borrowings under this credit facility.
In conjunction with the acquisition of Minntech on September 7, 2001, the Company entered into new credit facilities to fund the financed portion of the cash consideration paid in the merger and costs associated with the merger, as well as to replace the Company's existing working capital credit facilities. The new credit facilities include (i) a $25,000,000 senior secured amortizing term loan facility from a consortium of U.S. lenders (the "Term Loan Facility") used by Cantel to finance a portion of the Minntech acquisition, (ii) a $17,500,000 senior secured revolving credit facility from the U.S. lenders (the "U.S. Revolving Credit Facility") used by Cantel to finance a portion of the Minntech acquisition as well as being available for future working capital requirements for the U.S. businesses of Cantel, including Minntech and MediVators (the "U.S. Borrowers") and (iii) a $5,000,000 (United States dollars) senior secured revolving credit facility for Carsen (the "Canadian Borrower") with a Canadian bank (the "Canadian Revolving Credit Facility") available for Carsen's future working capital requirements. Each of the Term Loan Facility, the U.S. Revolving Credit Facility and the Canadian Revolving Credit Facility (collectively the "Credit Facilities") expire on September 7, 2006.
Borrowings under the Credit Facilities bear interest at rates ranging from .75% to 2.00% above the lender's base rate, or at rates ranging from 2.00% to 3.25% above the London Interbank Offered Rate ("LIBOR"), depending upon the Company's consolidated ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). The base rates associated with the U.S. lenders and the Canadian lender were 4.75% and 4.50%, respectively, at October 3, 2002, and the LIBOR rates ranged from 1.66% to 1.80% at October 3, 2002. The margins applicable to the Company's
outstanding borrowings at October 3, 2002 are 1.5% above the lender's base rate and 2.75% above LIBOR. In order to protect its interest rate exposure, the Company entered into a three-year interest rate cap agreement expiring on September 7, 2004 covering $12,500,000 of borrowings under the Term Loan Facility, which caps LIBOR on this portion of outstanding borrowings at 4.50%. The Credit Facilities also provide for fees on the unused portion of such facilities at rates ranging from .30% to .50%, depending upon the Company's consolidated ratio of debt to EBITDA.
The Term Loan Facility and the U.S. Revolving Credit Facility provide for available borrowings based upon percentages of the U.S. Borrowers' eligible accounts receivable and inventories; require the U.S. Borrowers to meet certain financial covenants; are secured by substantially all assets of the U.S. Borrowers (including a pledge of the stock of Minntech and MediVators owned by Cantel and 65% of the outstanding shares of Carsen stock owned by Cantel); and are guaranteed by Minntech and MediVators. The Canadian Revolving Credit Facility provides for available borrowings based upon percentages of the Canadian Borrower's eligible accounts receivable and inventories; requires the Canadian Borrower to meet certain financial covenants; and is secured by substantially all assets of the Canadian Borrower.
On September 7, 2001, the Company borrowed $25,000,000 under the Term Loan Facility and $9,000,000 under the U.S. Revolving Credit Facility in connection with the acquisition of Minntech. At July 31, 2002, the Company had $28,500,000 outstanding under its Credit Facilities, including $23,500,000 under the Term Loan Facility. Subsequent to July 31, 2002, the Company repaid an additional $1,000,000 under its Credit Facilities; therefore, at October 3, 2002, the Company had $27,500,000 outstanding under its credit facilities, including $23,000,000 under the Term Loan Facility. Amounts repaid by the Company under the Term Loan Facility may not be re-borrowed.
Aggregate annual required maturities of the Credit Facilities over the next five years and thereafter are as follows:
Year Ending July 31,
2003 $ 2,750,000
2004 4,500,000
2005 6,500,000
2006 7,750,000
2007 7,000,000
Thereafter -
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Total $ 28,500,000
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The amount maturing in fiscal 2007 includes the remaining
$5,000,000 presently outstanding under the revolving credit facilities since such amount is required to be repaid prior to the expiration date of such facilities.
Aggregate future minimum rental commitments at July 31, 2002 under operating leases for property and equipment are as follows:
Year Ending July 31,
2003 $ 1,060,000
2004 779,000
2005 486,000
2006 97,000
2007 19,000
-----------
Total rental commitments $ 2,441,000
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The Company has determined that it will repatriate minimal amounts of existing and future accumulated profits from its international locations until existing NOLs are exhausted, which the Company has determined to be approximately through fiscal 2004. Notwithstanding this strategy, the Company believes that its current cash position, anticipated cash flows from operations, (including its U.S. operations) and the funds available under its revolving credit facilities will be sufficient to satisfy the Company's cash operating requirements for the foreseeable future based upon its existing operations, including the payment of remaining liabilities from the Minntech acquisition. At October 3, 2002, approximately $12,479,000 was available under the revolving credit facilities.
During fiscal 2002 compared with fiscal 2001, the average value of the Canadian dollar decreased by approximately 3% relative to the value of the United States dollar. Changes in the value of the Canadian dollar against the United States dollar affect the Company's results of operations because the Company's Canadian subsidiary purchases substantially all of its products in United States dollars and sells its products in Canadian dollars. Such 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 Canadian Revolving Credit Facility, Carsen has a $20,000,000 (United States dollars) foreign currency hedging facility which is available to hedge against the impact of such currency fluctuations on purchases of inventories. Total commitments for foreign currency forward contracts under this facility amounted to $6,774,000 (United States dollars) at October 3, 2002 and cover a portion of the Canadian subsidiary's projected purchases of inventories through February 2003. The weighted average exchange rate of the forward contracts open at October 3,
2002 was $1.5739 Canadian dollar per United States dollar, or $.6353 United States dollar per Canadian dollar. The exchange rate published by the Wall Street Journal on October 3, 2002 was $1.5921 Canadian dollar per United States dollar, or $.6281 United States dollar per Canadian dollar.
Since the acquisition of Minntech on September 7, 2001 until the end of fiscal 2002, the value of the euro increased by approximately 8% relative to the value of the United States dollar. Changes in the value of the euro against the United States dollar affect the Company's results of operations because a portion of the net assets of Minntech's Netherlands subsidiary are denominated and ultimately settled in United States dollars but must be converted into its functional euro currency. During the portion of fiscal 2002 subsequent to the Minntech acquisition, such strengthening of the euro relative to the United States dollar had an adverse impact upon the Company's results of operations. Such currency fluctuations also result in a change in the United States dollar value of the Company's assets that are denominated in euros.
In order to hedge against the impact of fluctuations in the value of the euro relative to the United States dollar, the Company enters into short-term contracts to purchase euros forward. There was one foreign currency forward contract amounting to EURO 4,500,000 at October 3, 2002 which covers a portion of the net assets of Minntech's Netherlands subsidiary which are denominated in United States dollars. Such contract expires on October 31, 2002. Under its Credit Facilities, such contracts to purchase euros may not exceed $12,000,0000 in an aggregate notional amount at any time.
Effective August 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, as amended, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133"). In accordance with SFAS 133, all of the Company's foreign currency forward contracts are designated as hedges. Recognition of gains and losses related to the Canadian hedges is deferred within other comprehensive income until settlement of the underlying commitments, and realized gains and losses are recorded within cost of sales upon settlement. Gains and losses related to the hedging contracts to buy euros forward is immediately realized within general and administrative expenses due to the short-term nature of such contracts.
For purposes of translating the balance sheet, at July 31, 2002 compared to September 7, 2001, the value of the euro increased by approximately 8% compared to the value of the United States dollar, thereby causing a decrease in the negative cumulative foreign currency translation adjustment during such period. Partially offsetting this change was a 3% decrease in the
value of the Canadian dollar relative to the value of the United States dollar at July 31, 2002 compared to July 31, 2001, which caused an increase to the negative cumulative foreign currency translation adjustment during fiscal 2002. The net impact of these currency movements was an overall decrease in the negative cumulative foreign currency translation adjustment during fiscal 2002 of $352,000, thereby increasing stockholders' equity.
Changes in the value of the Japanese yen relative to the United States dollar since the acquisition of Minntech on September 7, 2001 did not have a significant impact upon either the Company's results of operations or the translation of the balance sheet, primarily due to the fact that the Company's Japanese subsidiary accounts for a relatively small portion of consolidated net sales, earnings and net assets.
As of July 31, 2002, the Company had NOLs for domestic tax reporting purposes of approximately $13,076,000 which expire through July 31, 2021. The valuation allowance related to the Company's NOLs was reversed in connection with the purchase price allocation for the Minntech acquisition, based upon an assessment of the combined companies expected future results of operations.
In addition, the Company and its foreign subsidiaries cannot file consolidated tax returns for United States income tax purposes. Therefore, the Company's NOLs in the United States cannot be utilized to reduce federal or provincial income taxes payable by the foreign subsidiaries on their taxable income. This has resulted in the payment of income taxes by the Company in Canada and the Netherlands, notwithstanding NOLs utilized, or net losses sustained, by the Company in the United States.
Inflation has not significantly impacted the Company's operations.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company continually evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
REVENUE RECOGNITION
Revenue on product sales is recognized as products are shipped to customers or when title passes, net of provisions for sales allowances and similar items. Domestic sales of endoscope reprocessing equipment are of a bill and hold nature as more fully described in note 11 to the Consolidated Financial Statements. Revenue on service sales is recognized when repairs are completed and the products are shipped to customers.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable consist of amounts due to the Company from normal business activities. Allowances for doubtful accounts are reserves for the estimated loss from the inability of customers to make required payments. The Company uses historical experience as well as current market information in determining the estimate. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
INVENTORIES
Inventories consist of products which are sold in the ordinary course of the Company's business and are stated at the lower of cost (first-in, first-out) or market. In assessing the value of inventories, the Company must make estimates and judgments regarding reserves required for product obsolescence, aging of inventories and other issues potentially affecting the saleable condition of products. In performing such evaluations, the Company uses historical experience as well as current market information.
DEFERRED TAX ASSETS AND LIABILITIES
The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities also include items recorded in conjunction with the purchase accounting for business acquisitions. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing
temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized. Additionally, deferred tax liabilities are regularly reviewed to confirm that the amounts recorded are appropriately stated. All of such evaluations require significant management judgments.
LONG-LIVED ASSETS
Certain of the Company's identifiable intangible assets, such as
current technology and customer base, are amortized on the straight-line method
over their estimated useful lives. Additionally, the Company has recorded
goodwill and trademarks and tradenames, all of which have indefinite useful
lives and are therefore not amortized. These assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, and goodwill is reviewed for impairment at
least annually in accordance with Statement of Financial Accounting Standard No.
142, "GOODWILL AND OTHER INTANGIBLE ASSETS."
BUSINESS COMBINATIONS
During fiscal 2002, the Company's acquisition of Minntech required significant estimates and judgments related to the fair value of assets acquired and liabilities assumed. Certain of the liabilities are subjective in nature. These liabilities have been reflected in the purchase accounting based upon the most recent information available, and principally include certain state sales and use tax and state income tax exposures, as well as income tax liabilities related to the Company's foreign subsidiaries. The ultimate settlement of such liabilities may be for amounts which are different from the amounts presently recorded.
OTHER MATTERS
The Company does not have any off balance sheet financial arrangements.
FORWARD LOOKING STATEMENTS
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, 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: A portion of the Company's products are imported from the Far East and Western Europe, the Company's United States subsidiaries sell a portion of their products outside of the United States, and Minntech's Netherlands subsidiary sells a portion of its products outside of the European Union. Consequently, 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, Canada and the Netherlands.
Carsen imports a substantial portion of its products from the United States and pays for such 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 currency 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 rates of currency exchange between the United States and Canada had an adverse impact in fiscal 2002 compared with fiscal 2001, and in fiscal 2001 compared with fiscal 2000, upon the Company's results of operations and stockholders' equity, as described in Management Discussion and Analysis of Financial Condition and Results of Operations.
Financial statements of the Netherlands subsidiary are translated using the accounting policies described in Note 2 to the Consolidated Financial Statements. Fluctuations in the rates of currency exchange between the European Union and the United States had an adverse impact in fiscal 2002 upon the Company's results of operations, as described in Management's Discussion and Analysis of Financial Condition and Results of Operations.
The functional currency of Minntech's Japan subsidiary is the Japanese yen. Changes in the value of the Japanese yen relative to the United States dollar since the acquisition of Minntech on September 7, 2001 did not have a significant impact upon either the Company's results of operations or the translation of the balance sheet, primarily due to the fact that the Company's Japanese subsidiary accounts for a relatively small portion of consolidated net sales, earnings and net assets.
Interest rate market risk: The Company has two credit
facilities for which the interest rate on outstanding borrowings is variable. Therefore, interest expense is principally affected by the general level of interest rates in the United States and Canada. During fiscal 2002, all of the Company's outstanding borrowings were under its United States credit facilities. In order to protect its interest rate exposure, the Company has entered into a three-year interest rate cap expiring on September 7, 2004 covering $12,500,000 of borrowings under the Term Loan Facility, which caps LIBOR on this portion of outstanding borrowings at 4.50%. At July 31, 2002, the fair value of such interest rate cap is $52,000.
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.
Incorporated by reference to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the 2002 Annual Meeting of Stockholders of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the 2002 Annual Meeting of Stockholders of the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the 2002 Annual Meeting of Stockholders of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the 2002 Annual Meeting of Stockholders of the Registrant.
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, 2002.
1. CONSOLIDATED FINANCIAL STATEMENTS:
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of July 31, 2002 and 2001.
(iii) Consolidated Statements of Income for the years ended July 31, 2002, 2001 and 2000.
(iv) Consolidated Statements of Changes in Stockholders' Equity for the years ended July 31, 2002, 2001 and 2000.
(v) Consolidated Statements of Cash Flows for the years ended July 31, 2002, 2001 and 2000.
(vi) Notes to Consolidated Financial Statements.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
(i) Schedule II - Valuation and Qualifying Accounts for the years ended July 31, 2002, 2001 and 2000.
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 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 23, 2000 [ the "2000 8-K"]).
2(b) - Agreement and Plan of Merger dated as of May 30, 2001 by and among Cantel Medical Corp., Canopy Merger Corp. and
Minntech Corporation. (Incorporated by reference to Exhibit (2) of Registrant's Current Report on Form 8-K dated May 31, 2001.)
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. (Incorporated herein by reference to Exhibit 3(i) to Registrant's 2000 Annual Report on Form 10-K [the "2000 10-K"].)
3(j) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on April 5, 2000. (Incorporated herein by reference to Exhibit 3(j) to Registrant's 2000 10-K.)
3(k) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on September 6, 2001. (Incorporated herein by reference to Exhibit 3(k) to Registrant's 2001 Annual Report on Form 10-K [the "2001 10-K"].)
3(l) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on June 7, 2002.
3(m) - Registrant's By-Laws adopted April 24, 2002.
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) - Stock Option Agreement, dated as of October 17, 1996 , between the Registrant and Charles M. Diker. (Incorporated by reference to Exhibit 10(v) to Registrant's 1996 Annual Report on Form 10-K.)
10(g) - Registrant's 1997 Employee Stock Option Plan. (Incorporated by reference to Exhibit 10(s) to Registrant's 1997 Annual Report on Form 10-K [the "1997 10-K"].)
10(h) - Form of Incentive Stock Option Agreement under Registrant's 1997 Employee Stock Option Plan. (Incorporated by reference to Exhibit 10(t) to Registrant's 1997 10-K.)
10(i) - 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(j) - 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 Annual Report on Form 10-K [the "1998 10-K"].)
10(k) - Form of Non-Plan Stock Option Agreement between the Registrant and Darwin C. Dornbush. (Incorporated by reference to Exhibit 10(y) to Registrant's 1998 10-K.)
10(l) - Stock Option Agreement, dated as of October 5, 1998, between the Registrant and John W. Rowe. (Incorporated by reference to Exhibit 10(z) to Registrant's 1998 10-K.)
10(m) - 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(n) - Employment Agreement, dated as of November 1, 2001, between Minntech Corporation and Roy K. Malkin.
10(o) - Employment Agreement, dated as of November 1, 2001, between the Registrant and Craig A. Sheldon.
10(p) - Distributor Agreement dated as of August 1, 1999, among MediVators, Inc. and Olympus America Inc. - Endoscope Division. (Incorporated by reference to Exhibit 10(ee) to Registrant's 1999 Annual Report on Form 10-K [the "1999 10-K"].)
10(q) - Stock Option Agreement, dated as of October 30, 1998, between the Registrant and Charles M. Diker. (Incorporated by reference to Exhibit 10(ff) to Registrant's 1999 10-K.)
10(r) - Stock Option Agreement, dated as of March 10, 2000, between the Registrant and John W. Rowe. (Incorporated by reference to Exhibit 10(gg) to Registrant's 1999 10-K.)
10(s) - 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(t) - Registrant's 1998 Director's Stock Option Plan.
(Incorporated herein by reference to Exhibit 10(gg) to Registrant's 2000 10-K.)
10(u) - Form of Quarterly Stock Option Agreement under the Registrant's 1998 Directors Stock Option Plan. (Incorporated herein by reference to Exhibit 10(hh) to Registrant's 2000 10-K.)
10(v) - Form of Annual Stock Option Agreement under the Registrant's 1998 Directors Stock Option Plan. (Incorporated herein by reference to Exhibit 10(ii) to Registrant's 2000 10-K.)
10(w) - Stock Option Agreement, dated as of October 10, 2000, between the Registrant and Joseph M. Cohen. (Incorporated herein by reference to Exhibit 10(jj) to Registrant's 2000 10-K.)
10(x) - Employment Agreement, dated as of November 1, 2000, between the Registrant and Joseph L. Harris. (Incorporated herein by reference to Exhibit 10(a) to Registrant's April 30, 2001 Quarterly Report on Form 10-Q.)
10(y) - Stock Option Agreement, dated as of November 1, 2000 between the Registrant and Joseph L. Harris. (Incorporated herein by reference to Exhibit 4.2 to Registrant's Form S-8 dated March 19, 2001.)
10(z)- Credit Agreement dated as of September 7, 2001 among
Cantel Medical Corp., the Banks, Financial Institutions and Other Institutional
Lenders named therein, Fleet National Bank and PNC Bank, National Association.
(Incorporated herein by reference to Exhibit 10(aa) to Registrant's 2001 10-K.)
10(aa)- Loan Agreement dated as of September 7, 2001 between Carsen Group Inc. and National Bank of Canada. (Incorporated herein by reference to Exhibit 10(bb) to Registrant's 2001 10-K.)
10(bb)- Stock Option Agreement dated as of September 7, 2001 between the Registrant and Fred L. Shapiro. (Incorporated herein by reference to Exhibit 10(cc) to Registrant's 2001 10-K.)
10(cc) - Minntech Emeritus Director Consulting Plan. (Incorporated herein by reference to Exhibit 10 to Minntech's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.)
10(dd) - Amendment to Emeritus Director Consulting Plan effective September 26, 1996 (Incorporated herein by reference to Exhibit 10(b) to Minntech's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.)
10(ee) - Minntech Amended and Restated Supplemental Executive Retirement Plan effective April 1, 2000 (Incorporated herein by reference to Exhibit 10(m) to Minntech's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000 [the "Minntech July 2000 10-Q"].)
10(ff) - Employment Agreement between Minntech and Paul E. Helms dated September 1, 1996, as amended April 1, 1997 (Incorporated herein by reference to Exhibit 10(r) to Minntech's July 2000 10-Q.)
10(gg) - Third Amendment to Distribution Agreement between Olympus America Inc. and Carsen Group Inc. dated as of April 1, 2001, among Carsen Group Inc. and Olympus America Inc.
10(hh) - 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.)
21 - Subsidiaries of Registrant.
23 - Consent of Ernst & Young LLP.
99.1 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed during the three months ended July 31, 2002.
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 29, 2002 By: /s/ James P. Reilly
--------------------
James P. Reilly, President and Chief
Executive Officer (Principal Executive
Officer)
By: /s/ Craig A. Sheldon
---------------------
Craig A. Sheldon, Vice President and
Chief Financial Officer (Principal
Financial and 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 29, 2002 ---------------------------- Charles M. Diker, a Director and Chairman of the Board /s/ Alan J. Hirschfield Date: October 29, 2002 ---------------------------- Alan J. Hirschfield, a Director and Vice Chairman of the Board /s/ Robert L. Barbanell Date: October 29, 2002 ---------------------------- Robert L. Barbanell, a Director /s/ Joseph M. Cohen Date: October 29, 2002 ---------------------------- Joseph M. Cohen, a Director /s/ Darwin C. Dornbush Date: October 29, 2002 ---------------------------- Darwin C. Dornbush, a Director /s/ Morris W. Offit Date: October 29, 2002 ---------------------------- Morris W. Offit, a Director /s/ James P. Reilly Date: October 29, 2002 ---------------------------- James P. Reilly, a Director and President /s/ John W. Rowe Date: October 29, 2002 ---------------------------- John W. Rowe, a Director /s/ Fred L. Shapiro Date: October 29, 2002 ---------------------------- Fred L. Shapiro, a Director /s/ Bruce Slovin Date: October 29, 2002 ---------------------------- Bruce Slovin, a Director |
CERTIFICATIONS
I, James P. Reilly, certify that:
1. I have reviewed this annual report on Form 10-K of Cantel Medical Corp;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
Date: October 29, 2002
By: /s/ James P. Reilly
-------------------
James P. Reilly, President and Chief
Executive Officer (Principal Executive
Officer)
|
I, Craig A. Sheldon, certify that:
1. I have reviewed this annual report on Form 10-K of Cantel Medical Corp;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
Date: October 29, 2002 By: /s/ Craig A. Sheldon --------------------- Craig A. Sheldon, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
CANTEL MEDICAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002
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, 2002 and 2001 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, 2002. 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, 2002 and 2001 and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2002, 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 20, 2002
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CANTEL MEDICAL CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31,
2002 2001
----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,565 $ 5,050
Available-for-sale securities - 1,057
Accounts receivable, net of allowance for doubtful accounts
of $1,041 in 2002 and $62 in 2001 23,054 11,768
Inventories 17,331 8,166
Deferred income taxes 3,670 49
Prepaid expenses and other current assets 1,518 404
--------- ---------
Total current assets 58,138 26,494
Property and equipment, at cost:
Land, building and improvements 13,206 -
Furniture and equipment 13,940 2,185
Leasehold improvements 533 541
--------- ---------
27,679 2,726
Less accumulated depreciation and amortization (4,695) (1,882)
--------- ---------
22,984 844
Intangible assets, net 7,788 622
Goodwill 16,376 585
Other assets 2,528 3,384
--------- ---------
$ 107,814 $ 31,929
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,750 $ -
Accounts payable 6,288 4,115
Compensation payable 2,722 1,337
Accrued expenses 6,347 2,562
Income taxes payable 2,207 1,811
--------- ---------
Total current liabilities 20,314 9,825
Long-term debt 25,750 -
Deferred income taxes 2,058 77
Other long-term liabilities 1,781
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
20,000,000 shares; issued 2002 - 9,491,118 shares, outstanding 2002 -
9,221,003 shares; issued 2001 - 7,099,738 shares, outstanding
2001 - 6,838,914 shares 949 710
Additional capital 48,740 20,003
Retained earnings 11,629 4,477
Accumulated other comprehensive loss (2,215) (2,143)
Treasury Stock, 2002 - 270,115 shares at cost;
2001 - 260,824 shares at cost (1,192) (1,020)
--------- ---------
Total stockholders' equity 57,911 22,027
--------- ---------
$ 107,814 $ 31,929
========= =========
|
See accompanying notes.
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JULY 31,
2002 2001 2000
--------- -------- --------
Net sales:
Product sales $ 111,268 $ 41,984 $ 35,351
Product service 8,726 7,011 5,946
--------- -------- --------
Total net sales 119,994 48,995 41,297
--------- -------- --------
Cost of sales:
Product sales 68,345 26,350 22,476
Product service 5,173 3,629 3,093
--------- -------- --------
Total cost of sales 73,518 29,979 25,569
--------- -------- --------
Gross profit 46,476 19,016 15,728
Expenses:
Selling 14,759 5,692 5,208
General and administrative 14,560 5,410 4,543
Research and development 3,851 949 836
--------- -------- --------
Total operating expenses 33,170 12,051 10,587
--------- -------- --------
Income from continuing operations before interest
expense (income) and income taxes 13,306 6,965 5,141
Interest expense (income) 2,176 (42) 225
--------- -------- --------
Income from continuing operations before income taxes 11,130 7,007 4,916
Income taxes 3,978 2,851 2,085
--------- -------- --------
Income from continuing operations 7,152 4,156 2,831
Loss from discontinued operations - - (97)
Gain (loss) on disposal of discontinued operations - 225 (50)
--------- -------- --------
Net income $ 7,152 $ 4,381 $ 2,684
========= ======== ========
Earnings per common share:
Basic:
Continuing operations $ 0.81 $ 0.62 $ 0.43
Discontinued operations - 0.03 (0.02)
--------- -------- --------
Net income $ 0.81 $ 0.65 $ 0.41
========= ======== ========
Diluted:
Continuing operations $ 0.74 $ 0.56 $ 0.42
Discontinued operations - 0.03 (0.02)
--------- -------- --------
Net income $ 0.74 $ 0.59 $ 0.40
========= ======== ========
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See accompanying notes.
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED JULY 31, 2002, 2001 AND 2000
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, 1999 6,660,818 $ 678 $ 19,078 $ (2,588) $ (2,230) $ (393) $ 14,545
Exercises of options 63,504 12 194 (198) 8
Purchases of
Treasury Stock (66,750) (207) (207)
Translation adjustment 133 133
Net income 2,684 2,684
----------- ---------- ---------- ---------- ------------- ----------- --------
Balance, July 31, 2000 6,657,572 690 19,272 96 (2,097) (798) 17,163
Exercises of options 181,342 20 731 (222) 529
Unrealized gain on
available-for-sale
securities 332 332
Unrealized gain on
currency hedging 31 31
Translation adjustment (409) (409)
Net income 4,381 4,381
----------- ---------- ---------- ---------- ------------- ----------- --------
Balance, July 31, 2001 6,838,914 710 20,003 4,477 (2,143) (1,020) 22,027
Exercises of options 181,245 19 812 (172) 659
Issuance for
Minntech acquisition 2,201,082 220 27,925 (332) 27,813
Stock-split fractional
share adjustment (238) -
Unrealized loss on
interest rate cap (121) (121)
Unrealized gain on
currency hedging 29 29
Translation adjustment 352 352
Net income 7,152 7,152
----------- ---------- ---------- ---------- ------------- ----------- --------
Balance, July 31, 2002 9,221,003 $ 949 $ 48,740 $ 11,629 $ (2,215) $ (1,192) $ 57,911
=========== ========== ========== ========== ============= =========== ========
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See accompanying notes.
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
YEAR ENDED JULY 31,
2002 2001 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 7,152 $ 4,156 $ 2,831
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Income (loss) from discontinued operations - 225 (147)
Depreciation and amortization of continuing operations 3,434 553 463
Depreciation and amortization of discontinued operations - - 87
Amortization of debt issuance costs 484 - -
Deferred income taxes 1,139 - 256
Changes in assets and liabilities:
Accounts receivable 1,078 (3,025) 492
Inventories 889 (1,350) 568
Prepaid expenses and other current assets 85 99 379
Accounts payable and accrued expenses (1,934) (489) (68)
Income taxes (1,025) 1,173 (193)
-------- -------- --------
Net cash provided by operating activities 11,302 1,342 4,668
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,590) (367) (320)
Purchases of available-for-sale securities - (725) -
Acquisition of Minntech, net of cash acquired (30,194) - -
Acquisition of Technimed (279) - -
Cash (used in) provided by discontinued operations (58) 773 (909)
Proceeds from transfer of discontinued operations - 2,350 -
Other, net 580 (896) (163)
-------- -------- --------
Net cash (used in) provided by investing activities (31,541) 1,135 (1,392)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings for Minntech acquisition, net of debt issuance costs 32,595 - -
Repayments under term loan facility (1,500) - -
Net repayments under revolving credit facilities (4,000) (125) (1,436)
Capital lease obligations - - (6)
Proceeds from exercises of stock options 659 529 8
Purchases of Treasury Stock - - (207)
-------- -------- --------
Net cash provided by (used in) financing activities 27,754 404 (1,641)
-------- -------- --------
Increase in cash and cash equivalents 7,515 2,881 1,635
Cash and cash equivalents at beginning of year 5,050 2,169 534
-------- -------- --------
Cash and cash equivalents at end of year $ 12,565 $ 5,050 $ 2,169
======== ======== ========
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See accompanying notes.
CANTEL MEDICAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2002, 2001 AND 2000
1. BUSINESS DESCRIPTION
Cantel Medical Corp. ("Cantel") had three wholly-owned operating subsidiaries (collectively known as the "Company") at July 31, 2002.
On September 7, 2001, the Company completed its acquisition of Minntech Corporation ("Minntech"), as more fully described in note 3 to the Consolidated Financial Statements. Minntech designs, develops, manufactures, markets and distributes disinfection/sterilization reprocessing systems, sterilants and other supplies for renal dialysis as well as filtration and separation and other products for medical and non-medical applications. The products are available through Minntech's distribution network in the United States and in many international markets.
MediVators, Inc. ("MediVators") designs, develops, manufactures, markets and distributes endoscope reprocessing products. Minntech and MediVators are sometimes collectively referred to as the "United States subsidiaries." Carsen Group Inc. ("Carsen" or "Canadian subsidiary") is engaged in the marketing, distribution and service of endoscopy and surgical, endoscope reprocessing 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 8 to the Consolidated Financial Statements.
In May 2002, the Company issued 3,143,000 additional shares in connection with a three-for-two stock split effected in the form of a 50% stock dividend paid on May 14, 2002 to stockholders of record on May 7, 2002. The effect of the stock split has been recognized retroactively in the stockholders' equity accounts in the Consolidated Balance Sheets and Consolidated Statements of Changes in Stockholders' Equity, and all share data in the Consolidated Statements of Income, Notes to Consolidated Financial Statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 intercompany transactions and balances have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue on product sales is recognized as products are shipped to customers or when title passes, net of provisions for sales allowances and similar items. Domestic sales of endoscope reprocessing equipment are of a bill and hold nature as more fully described in note 11 to the Consolidated Financial Statements. 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 the Company's foreign subsidiaries 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 the accounts of the foreign subsidiaries is presented as a component of accumulated other comprehensive loss. 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.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are carried at fair value, with the unrealized gain reported as a component of accumulated other comprehensive loss. Securities at July 31, 2001 consisted exclusively of Minntech common stock purchased for $725,000 during September 2000. The unrealized gain on such securities during fiscal 2001 was $332,000 and was eliminated during fiscal 2002 as a result of the Minntech acquisition. The elimination of this unrealized gain had no impact upon the Company's results of operations.
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 or amortization is removed from the respective accounts and any resulting gain or loss is included in income. Depreciation and amortization is 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 3-10 years for furniture and equipment, 5-32 years for buildings and improvements and the life of the lease for leasehold improvements. Depreciation and amortization expense related to property and equipment for fiscal 2002, 2001 and 2000 was $2,654,000, $410,000 and $402,000, respectively.
INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "BUSINESS COMBINATIONS"
("SFAS 141") and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS" ("SFAS
142"). SFAS 141 requires all business combinations initiated after June 30, 2001
to be accounted for using the purchase method. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives (but with no maximum life).
Upon adoption of SFAS 142, amortization of goodwill recorded for business
combinations consummated prior to July 1, 2001 will cease, and intangible assets
acquired prior to July 1, 2001 that do not meet the criteria for recognition
under SFAS 141 will be reclassified to goodwill. The amortization provisions of
SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001.
Companies are required to adopt SFAS 142 for fiscal years beginning after
December 15, 2001, but early adoption is permitted. The Company adopted SFAS 142
on August 1, 2001, which was the beginning of fiscal 2002.
Pursuant to SFAS 142, the Company performed a benchmark goodwill impairment assessment for the goodwill arising from the Minntech acquisition, as more fully described in note 3 to the Consolidated
Financial Statements. Goodwill amortization amounted to $35,000 during each of fiscal 2001 and 2000.
Intangible assets with finite lives, including technology, customer lists, patents and non-compete agreements, are stated at cost and amortized on a straight-line basis over their estimated useful lives of 2 to 20 years.
OTHER ASSETS
Debt issuance costs associated with the credit facilities for the Minntech merger are amortized to interest expense over the five-year life of the credit facilities, except for debt issuance costs related to an interest rate cap which are amortized over a three-year period, as more fully described in notes 6 and 9 to the Consolidated Financial Statements. As of July 31, 2002 and 2001, such debt issuance costs, net of related amortization, are included in other assets and amounted to $1,384,000 and $455,000, respectively. Additionally, other assets at July 31, 2001 included $1,828,000 of professional fees related to the Minntech acquisition; such amount was reclassified in conjunction with the purchase accounting.
Inventories of sales samples which have not turned over within one year and medical loaners available for customers are also included in other assets and are carried at the lower of cost or net realizable value.
LONG-LIVED ASSETS
The Company assesses potential impairments to its long-lived assets periodically in accordance with the provisions of SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" ("SFAS 121"). Long-lived assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows resulting from the use of these assets. When any such impairment exists, the related assets will be written down to fair value.
In August 2001, the FASB issued SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS" ("SFAS 144"), which establishes financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS 121. SFAS 144 addresses the accounting for a segment of a business accounted for as a discontinued operation which was not previously addressed by SFAS 121. In addition, SFAS 144 resolves significant implementation issues related to SFAS 121. The provisions of SFAS 144 are effective for fiscal years beginning after December 15,
2001. The Company believes that the adoption of SFAS 144 will have no significant impact on its financial reporting and related disclosures.
STOCK-BASED COMPENSATION
As permitted by 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.
ADVERTISING COSTS
The Company's policy is to expense advertising costs as they are incurred. Advertising costs charged to expenses were $146,000, $26,000 and $13,000 for fiscal 2002, 2001 and 2000, respectively.
INCOME TAXES
The Company accounts for income taxes by the liability method in accordance with SFAS No. 109 "ACCOUNTING FOR INCOME TAXES" ("SFAS 109"). SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities.
Approximately $5,112,000 of the undistributed earnings of the Company's foreign subsidiaries was considered to be indefinitely reinvested at July 31, 2002. Accordingly, no provision has been recorded for U.S. income taxes that might result from repatriation.
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 using the treasury stock method and the average market price for the year.
As described in note 1 to the Consolidated Financial Statements, the calculations of weighted average common shares and earnings per share for all periods presented reflect the May 2002 stock split.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain items in the July 31, 2001 and 2000 financial statements have been reclassified from amounts previously reported to conform to the presentation of the July 31, 2002 financial statements. These reclassifications include the reporting of warehouse and shipping expenses in cost of sales, and the operating segment classification of sales of MediVators parts from Endoscope Reprocessing Products to Product Service.
NEW ACCOUNTING PRONOUNCEMENT
In June 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OF DISPOSAL Activities" ("SFAS 146"). This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)." Under SFAS 146 companies recognize a cost associated with an exit or disposal activity when a liability has been incurred, while under EITF Issue No. 94-3 companies recognized costs once management implemented a plan to exit an activity. SFAS 146 also introduces discounting the liability associated with the exit or disposal activity for the time between the cost being incurred and when the liability is ultimately settled. SFAS 146 would not have had a material impact on the Company's fiscal 2002 financial position or results of operations.
3. ACQUISITIONS
MINNTECH
On September 7, 2001, the Company completed its acquisition of Minntech, a public company based in Plymouth, Minnesota, in a merger transaction. Minntech is a leader in the development, manufacturing, and marketing of disinfection/sterilization reprocessing systems and sterilants for renal dialysis as well as filtration and separation and other products for medical and non-medical applications. The products are available through
Minntech's distribution network in the United States and in many international markets.
Under the terms of the Agreement and Plan of Merger, each share of Minntech was converted into the right to receive $10.50, consisting of $6.25 in cash, and a fraction of a share of Cantel common stock having a value of $4.25. With respect to the stock portion of the consideration, Cantel issued approximately 2,201,000 shares of common stock in the merger. The total consideration for the transaction, including transaction costs, was approximately $78,061,000 (as adjusted for fractional shares, and included cash of $41,396,000, shares of Cantel common stock with a fair market value of $28,144,000, Cantel's existing investment in Minntech of $725,000 and final transaction costs, including severance obligations, of approximately $7,796,000). The transaction was accounted for as a purchase and in accordance with the provisions of SFAS 141. Minntech is reflected in the Company's results of operations for the portion of fiscal 2002 subsequent to its acquisition on September 7, 2001, and is not reflected in the results of operations for fiscal 2001 and 2000.
In conjunction with the acquisition, on September 7, 2001 Cantel entered into new credit facilities to fund the financed portion of the cash consideration paid in the merger and costs associated with the merger, as well as to replace the Company's existing working capital credit facilities, as discussed in note 9 to the Consolidated Financial Statements.
The purchase price was allocated to the assets acquired and assumed liabilities
as follows: cash and cash equivalents $17,395,000; accounts receivable
$12,342,000; inventories $10,205,000; prepaids and other current assets
$7,026,000; property and equipment $22,932,000; intangible assets $7,705,000;
other noncurrent assets $594,000; current liabilities $11,143,000; noncurrent
deferred income tax liabilities $6,430,000; and other long-term liabilities
$1,766,000. Intangible assets acquired of $7,705,000 included the following:
current technology $4,459,000 (14 year life), customer base $1,952,000 (7 year
life), trademarks and tradenames $1,015,000 (indefinite life) and
covenant-not-to-compete $279,000 (2 year life). The weighted average life of
these intangible assets (excluding such assets with an indefinite life) was
approximately 11.5 years. There were no in-process research and development
projects acquired in connection with the acquisition. Additionally, in
conjunction with the purchase price accounting, Cantel reversed the valuation
allowance associated with its deferred tax assets originating from net operating
loss carryforwards ("NOLs"), resulting in $3,583,000 of net deferred tax assets.
The excess purchase price of $15,618,000 was assigned to goodwill.
During July 2002, goodwill was increased from its preliminary allocation by $1,009,000, due primarily to increases in liabilities for state sales and use taxes and state income taxes, partially offset by an increase in deferred tax assets relating to NOLs. Such goodwill, all of which is non-deductible for income tax purposes, was allocated to the Company's operating segments as follows: Dialysis Products $9,074,000, Filtration and Separation Products $2,655,000 and Endoscope Reprocessing Products $3,889,000.
Certain of the assumed liabilities are subjective in nature. These liabilities have been reflected based upon the most recent information available, and principally include certain state sales and use tax and state income tax exposures and income tax liabilities related to the Company's foreign subsidiaries. The ultimate settlement of such liabilities may be for amounts which are different from the amounts presently recorded.
Selected unaudited pro forma consolidated statements of income data assuming that Minntech was included in the Company's results of operations as of the beginning of the years ended July 31, 2002 and 2001 is as follows:
Year Ended July 31,
2002 2001
--------------- ---------------
Net sales $ 127,819,000 $ 127,442,000
Income from continuing
operations 6,721,000 5,241,000
Earnings per share:
Basic $0.74 $0.59
Diluted $0.68 $0.55
Weighted average common shares:
Basic 9,105,000 8,909,000
Diluted 9,937,000 9,566,000
|
This pro forma information is provided for illustrative purposes only, and does not necessarily indicate what the operating results of the combined company might have been had the merger actually occurred at the beginning of each of these periods, nor does it necessarily indicate the combined company's future operating results. This information also does not reflect any cost savings from operating efficiencies or other improvements which may be achieved by combining the companies.
The results presented in the selected unaudited pro forma consolidated
statements of income data have been prepared using the following assumptions:
(i) cost of sales reflects a step-up in the
cost basis of Minntech's inventories; (ii) amortization of intangible assets and depreciation and amortization of property and equipment is based upon the final appraised fair values and estimated useful lives of such assets; (iii) in accordance with the provisions of SFAS 142, no amortization expense for the goodwill generated as a result of the merger has been reflected; (iv) interest expense on the senior bank debt at an effective interest rate of 7% per annum; and (v) calculation of the income tax effects of the pro forma adjustments.
Minntech's results of operations for the twelve months ended July 31, 2001 included charges of approximately $1,540,000 for sales and use taxes and $300,000 in legal and cosulting expenses associated with the merger. Without these charges and the related income taxes, pro forma consolidated income from continuing operations for fiscal 2001 would have been approxiamtely $6,345,000, and pro forma consolidated basic and diluted earnings per share would have been $0.71 and $0.66, respectively.
TECHNIMED
On November 1, 2001, the Company's Canadian subsidiary acquired substantially all of the assets, business and properties of Technimed Instruments Inc. and Technimed International Inc. (collectively "Technimed") for approximately $405,000, which included cash of approximately $241,000 and a note payable in three equal annual installments with a present value of approximately $164,000. This transaction was accounted for as a purchase and in accordance with the provisions of SFAS 141.
The purchase price was allocated to the assets acquired and assumed liabilities as follows: current assets $148,000; property and equipment $30,000; intangible assets $172,000; current liabilities $105,000; and long-term liabilities $12,000. The excess purchase price of $172,000 was assigned to goodwill. The acquisition and subsequent results of Technimed did not have a significant impact upon the Company's results of operations for fiscal 2002.
Technimed was a private company based in Montreal, Canada servicing medical equipment, including rigid endoscopes and hand-held surgical instrumentation.
4. COMPREHENSIVE INCOME
The Company's comprehensive income for the years ended July 31, 2002, 2001 and 2000 are set forth in the following table:
Year Ended July 31,
2002 2001 2000
-----------------------------------------------
Net income $ 7,152,000 $ 4,381,000 $ 2,684,000
Other comprehensive income (loss):
Unrealized gain on securities - 332,000 -
Unrealized loss on interest rate cap (121,000) - -
Unrealized gain on currency
hedging 29,000 31,000 -
Foreign currency translation
adjustment 352,000 (409,000) 133,000
------------- ------------- -------------
Comprehensive income $ 7,412,000 $ 4,335,000 $ 2,817,000
============= ============= =============
|
At July 31, 2001, the Company had an unrealized gain on securities of $332,000 which was eliminated during fiscal 2002 in connection with the Minntech acquisition purchase accounting. The elimination of this unrealized gain had no impact upon the Company's results of operations.
5. INVENTORIES
A summary of inventories is as follows:
July 31,
2002 2001
------------ ------------
Raw materials and parts $ 6,661,000 $ 2,294,000
Work-in-process 1,581,000 -
Finished goods 9,089,000 5,872,000
------------ ------------
Total $ 17,331,000 $ 8,166,000
============ ============
|
6. FINANCIAL INSTRUMENTS
Effective August 1, 2000, the Company adopted SFAS No. 133, as amended, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133"). Because of the Company's minimal use of hedging activities, the adoption of this statement did not have a significant effect on the financial position or results of operations of the Company. SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the change in fair value of a derivative that is designated as a hedge will be immediately recognized in earnings. The adoption of SFAS 133 on August 1, 2000 did not have a material impact on operations; however, it resulted in a $107,000 gain being recorded in other comprehensive income. During fiscal 2001, this entire gain of $107,000 was included in income.
The Company's Canadian subsidiary purchases and pays for a substantial portion of its products in United States dollars and is therefore exposed to fluctuations in the rates of exchange between the United States dollar and Canadian dollar. In order to hedge against the impact of such currency fluctuations on the purchases of inventories, Carsen enters into foreign currency forward contracts on firm purchases of such inventories in United States dollars. Total commitments for such foreign currency forward contracts
amounted to $9,800,000 (United States dollars) at July 31, 2002 and cover a portion of Carsen's projected purchases of inventories through February 2003.
In addition, changes in the value of the euro against the United States dollar affect the Company's results of operations because a portion of the net assets of Minntech's Netherlands subsidiary are denominated and ultimately settled in United States dollars but must be converted into its functional euro currency. In order to hedge against the impact of fluctuations in the value of the euro relative to the United States dollar, the Company enters into short-term contracts to purchase euros forward. There was one such foreign currency forward contract amounting to (euro)4,500,000 at July 31, 2002 which covers a portion of the net assets of Minntech's Netherlands subsidiary which are denominated in United States dollars. Such contract expired on August 31, 2002. Under its credit facilities, such contracts to purchase euros may not exceed $12,000,000 in an aggregate notional amount at any time.
In accordance with SFAS 133, all of the Company's foreign currency forward contracts are designated as hedges. Recognition of gains and losses related to the Canadian hedges is deferred within other comprehensive income until settlement of the underlying commitments, and realized gains and losses are recorded within cost of sales upon settlement. Gains and losses related to the hedging contracts to buy euros forward is immediately realized within general and administrative expenses due to the short-term nature of such contracts. The Company does not hold any derivative financial instruments for speculative or trading purposes.
The Company entered into new credit facilities in September 2001, as more fully described in note 9, for which the interest rate on outstanding borrowings is variable. In order to protect its interest rate exposure, the Company entered into a three-year interest rate cap agreement expiring on September 7, 2004 which caps the London Interbank Offered Rate ("LIBOR") at 4.50% on $12,500,000 of the Company's borrowings. The cost of the interest rate cap, which is included in other assets, was $246,500 and is being amortized to interest expense over the three-year life of the agreement. The difference between its amortized cost and its fair value is recorded as an unrealized loss at July 31, 2002 and is included in other comprehensive income.
The fair value of the Company's interest rate cap agreement and Carsen's foreign currency forward contracts is based upon quoted market prices as provided by financial institutions which are counterparties to the agreements and is as follows:
July 31,
2002 2001
--------------------------
Interest rate cap agreement $ 52,000 $ -
Canadian foreign currency
forward contracts 60,000 31,000
|
As of July 31, 2002 and 2001, the carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short maturity of these instruments. The Company believes that as of July 31, 2002, the fair value of its long-term debt approximates the carrying value of those obligations based on the borrowing rates which are comparable to market interest rates.
7. INTANGIBLES AND GOODWILL
The Company's intangible assets which continue to be subject to amortization consist primarily of technology, customer lists, non-compete agreements and patents. These intangible assets are being amortized on the straight-line method over the estimated useful lives of the assets ranging from 2-20 years and have a weighted average amortization period of 11 years as of July 31, 2002. Amortization expense related to intangible assets was $780,000, $143,000 and $148,000 for fiscal 2002, 2001 and 2000, respectively. Intangible assets acquired in conjunction with the Minntech acquisition are more fully described in note 3 to the Consolidated Financial Statements. The Company's intangible assets that have indefinite useful lives and therefore are not amortized consist of trademarks and tradenames.
The Company's intangible assets consist of the following:
Year Ended July 31,
2002 2001
----------------------------
Intangible assets with
indefinite useful lives $ 1,015,000 $ -
Intangible assets with
finite lives 7,922,000 992,000
----------- ------------
Total 8,937,000 992,000
Less accumulated amortization
on intangibles with
finite lives (1,149,000) (370,000)
----------- ------------
Total $ 7,788,000 $ 622,000
=========== ============
17
|
|
|
Estimated annual amortization expense of the Company's intangible assets for the next five fiscal years is as follows:
Year Ending July 31, -------------------- 2003 $ 865,000 2004 740,000 2005 725,000 2006 725,000 2007 718,000 |
For fiscal 2002, goodwill increased by $15,791,000 primarily due to the acquisition of Minntech as more fully described in note 3 to the Consolidated Financial Statements. At the time of the Minntech acquisition a goodwill benchmark impairment study was performed. On August 1, 2002, such goodwill was reviewed for impairment by an independent appraiser using the methods prescribed in SFAS 142. Based upon such review, the Company concluded that there was no impairment of the goodwill.
8. 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 $1,026,000, net of adjustments related to estimated warranty claims and promotional program expenses payable to Carsen's customers. During fiscal 2001, Carsen also received additional consideration from Olympus under the Purchase Agreement, including amounts related to transition services provided by Carsen subsequent to July 31, 2000. Such consideration included (i) fixed cash amounts aggregating approximately $615,000 and (ii) $619,000, representing 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. No additional amounts are due from Olympus under the Purchase Agreement.
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.
Operating results of the Consumer Products business, including results related to the disposal of the business, were as follows:
Year Ended July 31,
2001 2000
----------------------------
Net sales $ - $ 15,825,000
=========== ============
Pretax operating loss $ - $ (164,000)
Income tax benefit - (67,000)
----------- ------------
Loss from discontinued
operations $ - $ (97,000)
=========== ============
Pretax gain on disposal $ 380,000 $ 36,000
Income tax expense 155,000 86,000
----------- ------------
Gain (loss) on disposal $ 225,000 $ (50,000)
=========== ============
|
At July 31, 2002 and 2001, remaining liabilities of the discontinued business were $34,000 and $96,000, respectively, and are included within accrued expenses.
9. FINANCING ARRANGEMENTS
At July 31, 2001, the Company had a credit facility which provided for (i) a
$2,500,000 revolving credit facility for Cantel and MediVators, (ii) a
$5,000,000 (United States dollars) revolving credit facility for Carsen, and
(iii) a $12,500,000 acquisition facility available to Cantel and MediVators for
permitted acquisitions in the United States. At July 31, 2001, the Company had
no outstanding borrowings under this credit facility.
In conjunction with the acquisition of Minntech on September 7, 2001, the Company entered into new credit facilities to fund the financed portion of the cash consideration paid in the merger and costs associated with the merger, as well as to replace the Company's existing working capital credit facilities. The new credit facilities include (i) a $25,000,000 senior secured amortizing term loan facility from a consortium of U.S. lenders (the "Term Loan Facility") used by Cantel to finance a portion of the Minntech acquisition, (ii) a $17,500,000 senior secured revolving credit facility from the U.S. lenders (the "U.S. Revolving Credit Facility") used by Cantel to finance a portion of the Minntech acquisition as well as being available for future working capital requirements for the U.S. businesses of Cantel, including Minntech and MediVators (the "U.S. Borrowers") and (iii) a $5,000,000 (United States dollars) senior secured revolving credit facility for Carsen (the "Canadian Borrower") with a Canadian bank (the "Canadian Revolving Credit Facility") available for Carsen's future working capital requirements. Each of the Term
Loan Facility, the U.S. Revolving Credit Facility and the Canadian Revolving Credit Facility (collectively the "Credit Facilities") expire on September 7, 2006.
Borrowings under the Credit Facilities bear interest at rates ranging from .75% to 2.00% above the lender's base rate, or at rates ranging from 2.00% to 3.25% above LIBOR, depending upon the Company's consolidated ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). The base rates associated with the U.S. lenders and the Canadian lender were 4.75% and 4.50%, respectively, at July 31, 2002, and the LIBOR rates ranged from 1.81% to 1.83% at July 31, 2002. The margins applicable to the Company's outstanding borrowings at July 31, 2002 are 1.5% above the lender's base rate and 2.75% above LIBOR. In order to protect its interest rate exposure, the Company entered into a three-year interest rate cap agreement expiring on September 7, 2004 covering $12,500,000 of borrowings under the Term Loan Facility, which caps LIBOR on this portion of outstanding borrowings at 4.50%. The Credit Facilities also provide for fees on the unused portion of such facilities at rates ranging from .30% to .50%, depending upon the Company's consolidated ratio of debt to EBITDA.
The Term Loan Facility and the U.S. Revolving Credit Facility provide for available borrowings based upon percentages of the U.S. Borrowers' eligible accounts receivable and inventories; require the U.S. Borrowers to meet certain financial covenants; are secured by substantially all assets of the U.S. Borrowers (including a pledge of the stock of Minntech and MediVators owned by Cantel and 65% of the outstanding shares of Carsen stock owned by Cantel); and are guaranteed by Minntech and MediVators. The Canadian Revolving Credit Facility provides for available borrowings based upon percentages of the Canadian Borrower's eligible accounts receivable and inventories; requires the Canadian Borrower to meet certain financial covenants; and is secured by substantially all assets of the Canadian Borrower.
On September 7, 2001, the Company borrowed $25,000,000 under the Term Loan Facility and $9,000,000 under the U.S. Revolving Credit Facility in connection with the acquisition of Minntech. At July 31, 2002, the Company had $28,500,000 outstanding under its Credit Facilities, including $23,500,000 under the Term Loan Facility. Amounts repaid by the Company under the Term Loan Facility may not be re-borrowed.
Aggregate annual required maturities of the Credit Facilities over the next five years and thereafter are as follows:
Year Ending July 31,
2003 $ 2,750,000
2004 4,500,000
2005 6,500,000
2006 7,750,000
2007 7,000,000
Thereafter -
-------------
Total $ 28,500,000
=============
|
The amount maturing in fiscal 2007 includes the remaining $5,000,000 presently outstanding under the revolving credit facilities since such amount is required to be repaid prior to the expiration date of such facilities.
10. INCOME TAXES
The provision for income taxes consists of the following:
Year Ended July 31,
2002 2001 2000
-------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
------------------------ ------------------------ ------------------------
United
States $ 222,000 $ 923,000 $ 200,000 $ - $ 74,000 $ -
Canada 1,755,000 (57,000) 2,651,000 - 2,008,000 3,000
Netherlands 861,000 - - - - -
Japan - 274,000 - - - -
----------- ----------- ----------- ----------- ----------- -----------
Total $ 2,838,000 $ 1,140,000 $ 2,851,000 $ - $ 2,082,000 $ 3,000
=========== =========== =========== =========== =========== ===========
|
The components of income from continuing operations before income taxes are as follows:
Year Ended July 31,
2002 2001 2000
------------------------------------------
United States $ 2,883,000 $ 630,000 $ 338,000
Canada 4,390,000 6,377,000 4,578,000
Netherlands 3,248,000 - -
Japan 609,000 - -
------------ ------------ ------------
Total $ 11,130,000 $ 7,007,000 $ 4,916,000
============ ============ ============
|
The effective tax rate differs from the United States statutory tax rate (34%) due to the following:
Year Ended July 31,
2002 2001 2000
--------------------------------------------
Expected statutory tax $ 3,784,000 $ 2,382,000 $ 1,671,000
Differential attributable to
foreign operations:
Canada 185,000 483,000 454,000
Netherlands (379,000) - -
Japan 67,000 - -
Utilization of NOLs - (152,000) (100,000)
State and local taxes 381,000 120,000 10,000
Extraterritorial income exclusion (76,000) - -
Other 16,000 18,000 50,000
------------ ------------ ------------
Total $ 3,978,000 $ 2,851,000 $ 2,085,000
============ ============ ============
|
Deferred income tax assets and liabilities are comprised of the following:
Year Ended July 31,
2002 2001
------------------------------
Current deferred tax assets:
Accrued expenses $ 1,921,000 $ 257,000
Inventories 1,175,000 33,000
Allowance for doubtful accounts 372,000 9,000
Foreign NOLs 149,000 -
Research and development
credit carryforward 53,000 -
Less: valuation allowance - (250,000)
------------- -------------
Current deferred tax assets $ 3,670,000 $ 49,000
============= =============
Non-current deferred tax assets:
Goodwill $ 352,000 $ -
Other long-term liabilities 1,056,000 -
Domestic NOLs 4,446,000 4,782,000
Less: valuation allowance - (4,782,000)
------------- -------------
5,854,000 -
------------- -------------
Non-current deferred tax liabilities:
Property and equipment (3,053,000) (77,000)
Intangible assets (2,622,000) -
Tax on unremitted foreign earnings (2,237,000) -
------------- -------------
(7,912,000) (77,000)
------------- -------------
Net non-current deferred tax liabilities $ (2,058,000) $ (77,000)
============= =============
|
Although deferred tax assets and liabilities have been adjusted for enacted changes in statutory tax rates, these adjustments were not significant since the Company's items of deferred tax are substantially in the United States where statutory tax rates are
unchanged. Such deferred tax items in the United States are reflected at a combined U.S. federal and state effective rate of 40%.
At July 31, 2001, the Company had deferred tax assets related to NOLs and cumulative temporary differences of $5,032,000 which was fully offset by a valuation allowance since the Company was not assured at that time that it was more likely than not that a benefit would be realized. However, the valuation allowance related to the Company's NOLs and cumulative temporary differences was eliminated in connection with the purchase accounting for the Minntech acquisition based upon an assessment of the combined companies expected future results of operations.
For domestic tax reporting purposes, the Company has NOLs of approximately $13,076,000 at July 31, 2002, which expire through July 31, 2021. The NOLs presented are based upon the tax returns as filed and are subject to examination by the Internal Revenue Service.
Approximately $5,112,000 of the undistributed earnings of the Company's foreign subsidiaries was considered to be indefinitely reinvested at July 31, 2002. Accordingly, no provision has been recorded for U.S. income taxes that might result from repatriation.
11. COMMITMENTS AND CONTINGENCIES
DISTRIBUTION AGREEMENTS
OLYMPUS/CARSEN AGREEMENT
The majority of Carsen's sales of endoscopy and surgical products and scientific products related to precision instruments have been made pursuant to an agreement with Olympus America Inc. (the "Olympus Agreement"), and the majority of Carsen's sales of scientific products related to industrial technology equipment have been made pursuant to an agreement with Olympus Industrial America Inc. (the "Olympus Industrial Agreement") (collectively the "Olympus Agreements"), 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 agreements bear the trademark of Olympus or its affiliates. Both Olympus agreements expire 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. There are no minimum purchase requirements under the Olympus Industrial Agreement.
During the term of the Olympus Agreements 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 Agreements.
The Olympus Agreement imposes minimum purchase obligations on Carsen with respect to each of endoscopy and surgical products and precision instruments. The aggregate annual minimum purchase obligations for all such products are approximately $16.9 million and $18.8 million during the contract years ending March 31, 2003 and 2004, respectively.
The Olympus Agreements generally prohibit both Olympus and Carsen from hiring any employee of the other party for a period of one year after the conclusion of the employee's employment with such other party. This prohibition remains in effect during the term of the Olympus Agreements and the first year thereafter.
Subject to an allowance of a 10% shortfall from the minimum purchase requirements, if Carsen fails to meet such requirements for precision instruments, then Olympus has the option to terminate or restructure the Olympus Agreement as it pertains to precision instruments; if Carsen fails to meet such requirements for endoscopy and surgical products, 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 America Inc., which expires on August 1, 2003, under which Olympus is granted the exclusive right to distribute all of MediVators' endoscope reprocessing products and related accessories and supplies in the United States and Puerto Rico (the "MediVators Agreement"). MediVators also has a three-year agreement with Olympus Latin America which expires on July 21, 2005 under which Olympus is granted the exclusive right to distribute all of MediVators endoscope reprocessing products and related accessories and supplies in Latin America; to date such agreement has not produced significant levels of sales in Latin America. All equipment sold by Olympus pursuant to these agreements bear both the "Olympus" and "MediVators" trademarks.
The MediVators Agreement provides for minimum purchase projections. Failure by Olympus to achieve the minimum purchase projections in any contract year gives MediVators the option to terminate the MediVators Agreement. Net sales to Olympus accounted for 9.5%, 18.4%, and 15.8% of the Company's net sales in fiscal 2002, 2001 and 2000, respectively.
Sales to Olympus of endoscope disinfection equipment 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, 2002 and 2001, accounts receivable included bill and hold receivables of approximately $1,659,000 and $867,000, respectively.
LEASE OBLIGATIONS
Aggregate future minimum rental commitments at July 31, 2002 under operating leases for property and equipment are as follows:
Year Ending July 31,
2003 $ 1,060,000
2004 779,000
2005 486,000
2006 97,000
2007 19,000
-----------
Total rental commitments $ 2,441,000
===========
|
Rent expense aggregated $1,310,000, $502,000 and $429,000 for fiscal 2002, 2001 and 2000, respectively, which includes amounts previously allocated to the discontinued operations.
12. STOCKHOLDERS' EQUITY
An aggregate of 375,000 shares of Common Stock was reserved for issuance or available for grant under the Company's 1991 Employee Stock Option Plan (the "1991 Employee Plan"), which expired in fiscal 2001. All options outstanding at July 31, 2001 under the 1991 Employee Plan have a term of five years and are exercisable in full. At July 31, 2002, options to purchase 1,875 shares of Common Stock were outstanding under the 1991 Employee Plan. No additional options will be granted under the 1991 Employee Plan.
An aggregate of 1,500,000 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"), through October 15, 2007. Options under the 1997 Employee 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, 2002, options to purchase 918,492 shares of Common Stock were outstanding under the 1997 Employee Plan and 381,075 shares were available for grant.
An aggregate of 300,000 shares of Common Stock was reserved for issuance or available for grant under the Company's 1991 Directors'
Stock Option Plan (the "1991 Directors' Plan"), which expired in fiscal 2001. All options outstanding at July 31, 2001 under the 1991 Directors' Plan have a term of ten years and are exercisable in full. At July 31, 2002, options to purchase 121,500 shares of Common Stock were outstanding under the 1991 Directors' Plan. No additional options will be granted under the 1991 Directors' Plan.
An aggregate of 300,000 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 under the 1998 Directors Plan are granted to directors only at no less than 100% of the market price at the time of grant. Under the plan, options to purchase 1,500 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 750 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. Options granted prior to July 31, 2000 have a term of ten years and options granted on or after July 31, 2000 have a term of five years. At July 31, 2002, options to purchase 91,500 shares of Common Stock were outstanding under the 1998 Directors' Plan and 208,500 shares were available for grant.
The Company also has outstanding 329,625 non-plan options at July 31, 2002 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.
In accordance with the provisions of SFAS 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 123, income and diluted earnings per share from continuing operations would have been $5,937,000 and $0.61, respectively, for fiscal 2002, $3,702,000 and $0.50, respectively, for fiscal 2001 and $2,458,000 and $0.37, respectively, for fiscal 2000. The pro forma effect on income from continuing operations for these years may not be representative of the pro forma effect on 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 .69; risk-free interest rate at date of grant ranging from 3.59% to 6.10%; 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 2002, 2001 and 2000 was $5.62, $7.29 and $2.65 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, 1999 1,129,733 $ 4.01
Granted 219,750 3.65
Canceled (78,892) 4.05
Exercised (118,913) 1.73
---------
Outstanding at July 31, 2000 1,151,678 4.18
Granted 272,250 6.73
Canceled (83,233) 5.29
Exercised (203,909) 3.69
---------
Outstanding at July 31, 2001 1,136,786 4.79
Granted 636,828 13.31
Canceled (120,087) 11.37
Exercised (190,535) 4.36
---------
Outstanding at July 31, 2002 1,462,992 $ 8.01
=========
Exercisable at July 31, 2000 674,741 $ 4.35
=========
Exercisable at July 31, 2001 666,222 $ 4.65
=========
Exercisable at July 31, 2002 798,973 $ 5.55
=========
|
The following table summarizes additional information related to stock options outstanding at July 31, 2002:
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, 2002 (Months) Price At July 31, 2002 Price
--------------- ---------------- ----------- -------- ---------------- --------------
$ 2.33 - $ 6.83 882,317 51 $ 4.55 729,973 $ 4.69
$ 7.75 - $ 12.32 433,425 50 $ 12.27 12,500 $ 10.57
$ 13.49 - $ 19.15 147,250 50 $ 16.24 56,500 $ 15.61
--------- --------
$ 2.33 - $ 19.15 1,462,992 51 $ 8.01 798,973 $ 5.55
========= ========
|
13. EARNINGS PER COMMON SHARE
Basic earnings per common share are computed based upon the weighted average number of common shares outstanding during the period.
Diluted earnings per common share are computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price for the period.
As described in note 1 to the Consolidated Financial Statements, the calculations of weighted average common shares and earnings per share for all periods presented reflect the May 2002 stock split.
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended July 31,
2002 2001 2000
------------- ------------- -------------
Numerator for basic and diluted
earnings per share:
Income from continuing
operations $ 7,152,000 $ 4,156,000 $ 2,831,000
Gain (loss) from
discontinued operations - 225,000 (147,000)
------------- ------------- -------------
Net income $ 7,152,000 $ 4,381,000 $ 2,684,000
============= ============= =============
Denominator for basic and
diluted earnings per share:
Denominator for basic
earnings per share
weighted average number
of shares outstanding 8,881,743 6,707,435 6,617,708
Dilutive effect of options
using the treasury stock
method and the average
market price for the
year 832,468 657,832 101,514
------------- ------------- -------------
Denominator for diluted
earnings per share
weighted average number
of shares and common
stock equivalents 9,714,211 7,365,267 6,719,222
============= ============= =============
Basic earnings per share:
Continuing operations $ 0.81 $ 0.62 $ 0.43
Discontinued operations - 0.03 (0.02)
------------- ------------- -------------
Net income $ 0.81 $ 0.65 $ 0.41
============= ============= =============
Diluted earnings per share:
Continuing operations $ 0.74 $ 0.56 $ 0.42
Discontinued operations - 0.03 (0.02)
------------- ------------- -------------
Net income $ 0.74 $ 0.59 $ 0.40
============= ============= =============
|
14. RETIREMENT PLANS
The Company has a 401(k) Savings and Retirement Plan 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 Canadian 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 $424,000, $232,000 and $181,000 for fiscal 2002, 2001 and 2000, respectively.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid was $1,619,000, $19,000 and $228,000 for fiscal 2002, 2001 and 2000, respectively.
Income tax payments were $3,531,000, $1,905,000 and $2,082,000 for fiscal 2002, 2001 and 2000, respectively.
16. INFORMATION AS TO OPERATING SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS
Cantel is a healthcare company providing infection prevention and control products, specialized medical device reprocessing systems and sterilants, diagnostic imaging and therapeutic medical equipment primarily focused on endoscopy, hollow fiber membrane filtration and separation technologies for medical and non-medical applications, and scientific instrumentation. Through its United States subsidiaries, Minntech and MediVators, Cantel serves customers worldwide by designing, developing, manufacturing, marketing and distributing innovative products for the infection prevention and control industry, including disinfection/sterilization reprocessing systems, sterilants and other products for renal dialysis, filtration and separation products for medical and non-medical applications, and endoscope disinfection equipment. Through its Canadian subsidiary, Cantel markets and distributes surgical and endoscopy products (including flexible endoscopes, endoscope disinfection equipment, surgical equipment including rigid endoscopes, and related accessories), 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.
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.
The Company's segments are as follows: Dialysis Products, including disinfection/sterilization reprocessing equipment, sterilants, supplies, concentrates and electronic equipment for hemodialysis treatment of patients with acute kidney failure or chronic kidney failure associated with end-stage renal disease; Endoscopy and Surgical Products, including diagnostic and therapeutic medical equipment such as flexible and rigid endoscopes, surgical equipment and related accessories that are sold to hospitals; Endoscope Reprocessing Products, including endoscope disinfection equipment and related accessories and supplies that are sold to hospitals and clinics; Filtration and Separation Products, including hollow fiber filter devices and ancillary products for use in cardiosurgery as well as for high-purity fluid and gas filtration systems in the pharmaceutical, electronics, medical, and biotechnology industries; Scientific Products, including precision instruments such as 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 such as borescopes, fiberscopes and video image scopes that are sold primarily to large industrial companies; and Product Service, consisting of technical maintenance service on the Company's products and certain competitor's products.
The operating segments follow the same accounting policies used for the Company's consolidated financial statements as described in note 2.
(a) Information as to operating segments is summarized below:
Year Ended July 31,
2002 2001 2000
-----------------------------------------------------
Net sales from continuing
operations:
Dialysis Products $ 54,434,000 $ - $ -
Endoscopy and Surgical Products(1) 18,636,000 22,209,000 17,216,000
Endoscope Reprocessing Products(1) 16,419,000 12,348,000 10,641,000
Filtration and Separation
Products 14,377,000 - -
Scientific Products 8,344,000 8,214,000 8,254,000
Product Service 8,726,000 7,011,000 5,946,000
Elimination of inter-
company sales of
Endoscope Reprocessing
Products (942,000) (787,000) (760,000)
--------------- --------------- ---------------
Total $ 119,994,000 $ 48,995,000 $ 41,297,000
=============== =============== ===============
Operating income from continuing
operations:
Dialysis Products $ 6,439,000 $ - $ -
Endoscopy and Surgical Products(1) 2,440,000 4,277,000 2,909,000
Endoscope Reprocessing Products(1) 1,779,000 1,900,000 1,345,000
Filtration and Separation
Products 3,232,000 - -
Scientific Products 136,000 343,000 531,000
Product Service 2,158,000 2,519,000 2,132,000
Elimination of inter-
company operating
(loss) income of
Endoscope Reprocessing
Products (38,000) (14,000) 1,000
--------------- --------------- ---------------
16,146,000 9,025,000 6,918,000
General corporate expenses (2,840,000) (2,060,000) (1,777,000)
Interest (expense) income (2,176,000) 42,000 (225,000)
--------------- --------------- ---------------
Income from continuing
operations before income taxes $ 11,130,000 $ 7,007,000 $ 4,916,000
=============== =============== ===============
|
Year Ended July 31,
2002 2001 2000
------------------------------------------------
Identifiable assets:
Dialysis Products $ 48,067,000 $ - $ -
Endoscopy and Surgical Products(1) 7,514,000 11,242,000 7,830,000
Endoscope Reprocessing Products(1) 13,063,000 5,392,000 4,732,000
Filtration and Separation
Products 15,922,000 - -
Scientific Products 4,437,000 4,592,000 5,226,000
Product Service 4,292,000 2,129,000 1,825,000
General corporate, including
cash and cash equivalents 14,519,000 8,574,000 2,247,000
-------------- -------------- --------------
Continuing operations 107,814,000 31,929,000 21,860,000
Discontinued operations - - 3,095,000
-------------- -------------- --------------
Total $ 107,814,000 $ 31,929,000 $ 24,955,000
============== ============== ==============
Capital expenditures:
Dialysis Products $ 764,000 $ - $ -
Endoscopy and Surgical Products(1) 50,000 105,000 83,000
Endoscope Reprocessing Products(1) 199,000 135,000 135,000
Filtration and Separation Products 75,000 - -
Scientific Products 22,000 38,000 41,000
Product Service 267,000 27,000 25,000
General corporate 213,000 62,000 36,000
-------------- -------------- --------------
Continuing operations 1,590,000 367,000 320,000
Discontinued operations - - 76,000
-------------- -------------- --------------
Total $ 1,590,000 $ 367,000 $ 396,000
============== ============== ==============
Depreciation and amortization:
Dialysis Products $ 1,967,000 $ - $ -
Endoscopy and Surgical Products(1) 133,000 153,000 100,000
Endoscope Reprocessing Products(1) 324,000 286,000 286,000
Filtration and Separation
Products 728,000 - -
Scientific Products 59,000 56,000 40,000
Product Service 200,000 40,000 32,000
General corporate 23,000 18,000 5,000
-------------- -------------- --------------
Continuing operations 3,434,000 553,000 463,000
Discontinued operations - - 87,000
-------------- -------------- --------------
Total $ 3,434,000 $ 553,000 $ 550,000
============== ============== ==============
|
(1) Endoscopy and Surgical Products was formerly described as Medical Products, and Endoscope Reprocessing Products was formerly described as Infection Control Products.
(b) Information as to geographic areas (including net sales which represent the geographic area from which the Company derives its net sales from external customers) is summarized below:
Year Ended July 31,
2002 2001 2000
------------------------------------------------
Net sales from continuing
operations:
United States $ 72,668,000 $ 9,934,000 $ 8,147,000
Canada 34,093,000 36,274,000 30,568,000
Asia/Pacific 7,049,000 231,000 446,000
Europe/Africa/Middle East 5,079,000 2,556,000 2,136,000
Latin America/South America 1,105,000 - -
-------------- -------------- --------------
Total $ 119,994,000 $ 48,995,000 $ 41,297,000
============== ============== ==============
Total assets:
United States $ 75,020,000 $ 10,423,000 $ 5,696,000
Canada 19,257,000 21,506,000 19,259,000
Asia/Pacific 1,072,000 - -
Europe 12,465,000 - -
-------------- -------------- --------------
Total $ 107,814,000 $ 31,929,000 $ 24,955,000
============== ============== ==============
|
17. QUARTERLY RESULTS OF CONTINUING OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of continuing operations for years ended July 31, 2002 and 2001:
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------------
2002(1)
Net sales $ 21,165,000 $ 32,900,000 $ 33,196,000 $ 32,733,000
Income from continuing oper-
ations before interest
expense(income) and
income taxes $ 1,618,000 $ 4,099,000 $ 4,230,000 $ 3,359,000
Income from continuing
operations $ 770,000 $ 2,093,000 $ 2,314,000 $ 1,975,000
Earnings per share:(2)(3)
Basic $ 0.09 $ 0.23 $ 0.25 $ 0.22
Diluted $ 0.09 $ 0.21 $ 0.23 $ 0.20
2001(1)
Net sales $ 8,719,000 $ 12,651,000 $ 12,976,000 $ 14,649,000
Income from continuing oper-
ations before interest
expense(income) and
income taxes $ 1,107,000 $ 1,793,000 $ 1,834,000 $ 2,231,000
Income from continuing
operations $ 649,000 $ 988,000 $ 1,141,000 $ 1,378,000
Earnings per share:(3)
Basic $ 0.10 $ 0.15 $ 0.17 $ 0.20
Diluted $ 0.09 $ 0.14 $ 0.15 $ 0.18
|
(1) The Company's acquisition of Minntech is reflected in the results of continuing operations for the portion of fiscal 2002 subsequent to its acquisition on September 7, 2001, and is not reflected in the results of continuing operations for fiscal 2001.
(2) The summation of quarterly earnings per share does not equal fiscal 2002 earnings per share due to rounding.
(3) Earnings per share for the first and second quarters of fiscal 2002 and all four quarters of fiscal 2001 have been adjusted from amounts previously reported to reflect a three-for-two stock split effected in the form of a 50% stock dividend paid in May 2002. Such adjustments are consistent with the presentation of the third and fourth quarters of fiscal 2002.
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, 2002 $ 62,000 $ 1,278,000(1) $ 299,000 $ 1,041,000
============================================================
Year ended
July 31, 2001 $ 66,000 $ 9,000 $ 13,000 $ 62,000
============================================================
Year ended
July 31, 2000 $ 40,000 $ 39,000 $ 13,000 $ 66,000
============================================================
Discontinued operations:
Year ended
July 31, 2002 $ - $ - $ - $ -
============================================================
Year ended
July 31, 2001 $ 99,000 $ - $ 99,000 $ -
============================================================
Year ended
July 31, 2000 $ 41,000 $ 81,000 $ 23,000 $ 99,000
============================================================
|
(1) Includes $806,000 recorded in connection with the purchase accounting for the Minntech acquisition, and $472,000 charged to expense during fiscal 2002.
EXHIBIT 3(l)
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF CANTEL MEDICAL CORP.
We, James P. Reilly, President, and Darwin C. Dornbush, Secretary of Cantel Medical Corp., 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 Twenty-One Million (21,000,000), of which Twenty Million (20,000,000) shall be shares of Common Stock, par value $0.10 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 29th day of May, 2002.
CANTEL MEDICAL CORP.
/s/ James P. Reilly
-------------------
James P. Reilly, President
ATTEST: /s/ Darwin C. Dornbush
----------------------
Darwin C. Dornbush, Secretary
|
EXHIBIT 3(m)
CANTEL MEDICAL CORP.
(Delaware)
BY-LAWS
(As amended through April 24, 2002)
ARTICLE I
MEETING OF STOCKHOLDERS
Sec. 1. ANNUAL MEETING. The Annual Meeting of Stockholders shall be held at the principal office of the Corporation or such other place as the Board of Directors may select on such date and at such time as may be fixed by resolution of the Board of Directors. The Secretary shall serve personally, or by mail, a written notice thereof, addressed to each stockholder at his address as it appears on the stock book; but at any meeting at which all stockholders shall be present, or of which all stockholders not present have waived notice in writing, the giving of notice as above required may be dispensed with. Any annual meeting of stockholders may be postponed by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such annual meeting of stockholders.
Sec. 2. QUORUM. The presence, in person or by proxy, of the holders of a majority of the outstanding stock entitled to vote generally shall be necessary to constitute a quorum for the transaction of business, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such businesses. Whether or not a quorum is present, the Chairman of the meeting or a majority of the stockholders present in person or by proxy may adjourn the meeting from time to time. No notice of the time and place of adjourned meetings need be given except as required by law. The stockholders present in person or by proxy at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient stockholders to constitute the remaining stockholders less than a quorum.
Sec. 3. SPECIAL MEETINGS. Subject to the rights of the holders of any series of stock having a preference over the Common Stock as to dividends or upon liquidation ("Preferred Stock"), special meetings of stockholders, other than those regulated by statute, may only be called by a majority of the Directors. Notice of such meeting stating the purpose for which it is called shall be served personally or by mail, not less than 10 days nor more than 60 days before the date set for such meeting. If mailed, it shall be directed to a stockholder at his address as it appears on the stock book; but at any meeting at which all stockholders shall be present, or of which stockholders not present have waived notice in writing, the giving of notice as above described may be dispensed with. No business other than that specified in the call for the meeting shall be transacted at any special meeting of the stockholders. Any special meeting of stockholders may be postponed by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such special meeting of stockholders.
Sec. 4. VOTING. At all meetings of the stockholders, all questions, the manner of deciding which is not specifically regulated by statute, shall be determined by a majority vote of the shares entitled to vote on such matters present in person or by proxy, other than the election of directors, which shall be determined by a plurality of votes of the shares entitled to vote on the election of directors present in person or by proxy.
Sec. 5. CONDUCT OF MEETING. Unless otherwise determined by resolution of the Board of Directors, the Chairman of the Board (or, in the absence of the Chairman, the President) shall, or shall designate an appropriate officer of the Corporation to, call any annual or special meeting of stockholders to order, act as Chairman of any such meeting of the stockholders, determine the order of business of any such meeting, and determine the rules of order and procedure to be followed in the conduct of any such meeting.
Sec. 6. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this ByLaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this By-Law, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such positions) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the loth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above.
(C) GENERAL.
(1) Only such persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Certificate of Incorporation or these ByLaws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
Sec. 7. RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business or to any officer
or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
Sec. 8. INSPECTORS OF WRITTEN CONSENT. In the event of the delivery, in the manner provided by Section 7, to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation shall engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in accordance with Section 7 represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
Sec. 9. EFFECTIVENESS OF WRITTEN CONSENT. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date the earliest dated written consent was received in accordance with Section 7, a written consent or consents signed by a sufficient number of holders to take such action are delivered to the Corporation in the manner prescribed in Section 7.
Sec. 10. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. The inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.
ARTICLE II
DIRECTORS
Sec. 1. NUMBER. The affairs of this Corporation shall be managed by a board of three to eleven directors, as such number shall be fixed by resolution of the majority of the Board of Directors, who need not be stockholders of the Corporation and at least one of such directors shall be a citizen of the United States. Until otherwise determined by the Board of Directors, the exact number of directors shall be fixed at ten.
Sec. 2. HOW ELECTED. At each Annual Meeting of Stockholders, the persons receiving a plurality of the votes cast for the number of directors to be elected at such meeting shall be elected as directors.
Sec. 3. TERM OF OFFICE; VACANCIES. The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the number of directors may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum. Any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen, and until their successors shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting.
Sec. 4. DUTIES OF DIRECTORS. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these ByLaws required to be exercised or done by the stockholders.
Sec. 5. DIRECTORS' MEETINGS. Regular meetings of the Board of Directors shall be held immediately following the Annual Meeting of the Stockholders, and at such other times as the Board of Directors may determine. Special Meetings of the Board of Directors may be called by the President at any time, and shall be called by the President or the Secretary upon the written request of a majority of the directors.
Sec. 6. NOTICE OF MEETINGS. Notice of meetings, other than the regular Annual Meetings, shall be given to each director at his business or residence in writing by hand delivery, first-class or overnight mail or courier service, telegram, e-mail or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least two (2) days before such meeting. If by e-mail or facsimile transmission, telephone or hand delivery, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting. At any meeting at which every member of the Board of Directors shall be present, although held without notice, any business may be transacted which might have been transacted if the meeting had been duly called.
Sec. 7. QUORUM. At any meeting of the Board of Directors, a majority of the members of the Board shall constitute a quorum for the transaction of business; but in the event of a quorum not being present, a lesser number may adjourn the meeting to some future time, not more than 15 days later.
Sec. 8. VOTING. At all meetings of the Board of Directors, each director is to have one vote, irrespective of the number of shares of stock that he may hold.
Sec. 9. REMOVAL OF DIRECTORS. Any one or more of the directors may be removed either with or without cause, at any time by a vote of the stockholders holding two-thirds of the stock, at any Special Meeting called for the purpose.
ARTICLE III
OFFICERS
Sec. 1. NUMBER. The officers of this Corporation shall be:
1. Chairman of the Board of Directors; if one is elected by the Board of Directors.
2. President
3. One or more Vice Presidents
4. Secretary
5. Treasurer
The Board of Directors may appoint a Vice-Chairman, Controller, one or more Assistant Controllers, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers as it may from time to time determine. Two or more offices (other than those of President and Secretary) may be held by the same person.
Sec. 2. ELECTION. All officers of the Corporation shall be elected annually by the Board of Directors at its meeting held immediately after the Meeting of Stockholders, and shall hold office for the term of one year or until their successors are duly elected.
Sec. 3. DUTIES OF OFFICERS. The duties and powers of the officers of the Corporation shall be an follows:
CHAIRMAN OF THE BOARD
The Chairman of the Board of Directors shall be an executive officer of Corporation, preside at all meetings of the Board of Directors and Stockholders, and perform such other executive duties as the Board shall designate.
PRESIDENT
The President shall be the chief executive officer and the chief operating officer of the Corporation and shall have general charge of the business and affairs of the Corporation, subject, however, to the direction of the Board of Directors.
He shall present at each Annual Meeting of the Stockholders and Directors a report on the condition of the Corporation's business.
He shall appoint and remove, employ and discharge, and fix the compensation of all servants, agents, employees and clerks of the Corporation other than the duly appointed officers. He may sign and make all contracts, agreements, obligations, evidences of indebtedness and guarantees in the name of the Corporation unless otherwise resolved by the Board of Directors.
He may sign all notes, drafts or bills of exchange, warrants or other orders for the payment of money, unless otherwise resolved by the Board of Directors.
He shall perform all the duties incident to the position and office of President, and which are required by law.
VICE PRESIDENT
Each Vice President shall have such powers and duties as the Board of Directors may from time to time prescribe. During the absence and inability of both the Chairman of the Board and the President to render and perform their duties or exercise their powers, as set forth in these By-Laws or in the acts under which this Corporation is organized, the same shall be performed and exercised by the Vice President (or if there is more than one Vice President, then that one designated by the Board of Directors); and when so acting, he shall have all the powers and be subject to all the responsibilities hereby given to or imposed upon such Chairman of the Board and the President.
SECRETARY
The Secretary shall keep the minutes of the Meetings of the Board of Directors and of the Stockholders in appropriate books. He shall give and serve all notices of the Corporation, unless otherwise resolved by the Board of Directors.
He shall be custodian of the records and of the seal, and affix the latter when required, unless otherwise resolved by the Board of Directors.
He shall attend to all correspondence and perform all duties incident to the office of Secretary, subject, however, to the direction of the Board of Directors.
TREASURER
The Treasurer shall have the care and custody of and be responsible for all the funds and securities of the Corporation, and deposit all such funds in the name of the Corporation in such bank or banks, trust company or trust companies or safe deposit vaults as the Board of Directors may designate.
He shall sign, make and endorse in the name of the Corporation all checks, drafts, warrants and orders for the payment of money, and pay out and dispose of same and receipt therefor, under the direction of the President or the Board of Directors.
He shall exhibit at all reasonable times his books and accounts to any director or stockholder of the Corporation upon application at the office of the Corporation during business hours.
He shall render a statement of the condition of the finances of the Corporation at each regular meeting of the Board of Directors, and at such other times as shall be required of him, and a full financial report at the Annual meeting of Stockholders.
He shall keep at the office of the Corporation correct books of account of all its business and transactions and such other books of account as the Board of Directors may require.
He shall do and perform all duties incident to the office of Treasurer, subject, however, to the direction of the Board of Directors.
Sec. 4. BOND. Any officer, if required by the Board of Directors, shall give to the Corporation a bond or other such security for the faithful discharge of his duties as the Board may direct.
Sec. 5. VACANCIES, HOW FILLED. All vacancies in any office shall be filled by the Board of Directors without undue delay, at its regular meeting, or at a meeting specially called for that purpose.
Sec. 6. COMPENSATION OF OFFICERS. The officers shall receive such salary or compensation as may be determined by the Board of Directors.
Sec. 7. REMOVAL OF OFFICERS. The Board of Directors may remove any officer, by a majority vote, at any time with or without cause.
ARTICLE IV
SEAL
Sec. 1. SEAL. The corporate seal shall have enscribed thereon the words "Corporate Seal", the year of incorporation and around the margin thereof the words "Cantel Medical Corp. -- Delaware."
ARTICLE V
CERTIFICATES OF STOCK
Sec. 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock shall be numbered and registered in the order in which they are issued. They shall be bound in a book and shall be issued in consecutive order therefrom, and in the margin thereof shall be entered the name of the person owning the shares therein represented, with the number of shares and the date thereof. Such certificates shall exhibit the holder's name and the number of shares. They shall be signed by the President or Vice President and countersigned by the Secretary or Treasurer and sealed with the seal of the Corporation. In lieu of any of the aforesaid signatures of the officers of the Corporation or of its seal, facsimile signatures or seal may be used.
Sec. 2. TRANSFER OF STOCK. The stock of the Corporation shall be assignable and transferable on the books of the Corporation only by the person in whose name it appears on the books or his legal representatives. In case of transfer by attorney, the power of attorney, duly executed and acknowledged, shall be deposited with the Secretary. In all cases of transfer, the former certificate must be surrendered up and cancelled before a new certificate is issued unless other provision is made by resolution by the Board of Directors. Notwithstanding any provisions of these By-Laws to the contrary, the Corporation by resolution of the Board of Directors may appoint a transfer agent and/or registrar in connection with the issuance of its stock and the keeping of the records relating thereto, upon such terms and conditions as are deemed appropriate by said Board in its discretion.
ARTICLE VI
DIVIDENDS
Sec. 1. WHEN DECLARED. The Board of Directors may vote to declare cash dividends from the surplus profits of the Corporation whenever, in their opinion, the condition of the Corporation's affairs will render it expedient for such dividends to be declared.
ARTICLE VII
BILLS, NOTES, ETC.
Sec. 1. HOW MADE. All bills payable, notes, checks or other negotiable instruments of the Corporation shall be made in the name of the Corporation and shall be signed by the Chairman, President or an Executive Vice President and countersigned by the Secretary or Treasurer. No officer or agent of
the Corporation, either singly or jointly with others, shall have the power to make any bills payable, note, check, draft or warrant or other negotiable instrument, or endorse the same in the name of the Corporation, or contract or cause to be contracted any debt or liability in the name or on behalf of the Corporation, except as herein expressly prescribed and provided, unless authorized by a resolution of the Board of Directors.
ARTICLE VIII
INDEMNIFICATION AND INSURANCE
Sec. 1. INDEMNIFICATION AND INSURANCE.
(A) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or a person of whom he is the legal representative is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys, fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs, executors and administrators; provided, however, that except as provided in paragraph (C) of this By-Law, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this By-Law shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this By-Law or otherwise.
(B) To obtain indemnification under this By-Law, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this paragraph (B), a determination, if required by applicable law, with respect to the claimant's entitlement thereto shall be made as follows: (1) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the claimant for a determination by Independent Counsel, (i) by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board of Directors unless there shall have occurred within two years prior to the date of the commencement of the action, suit or proceeding for which indemnification is claimed a "Change of Control" (as defined below), in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board of Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.
(C) If a claim under paragraph (A) of this By-Law is not paid in full by the Corporation within thirty days after a written claim pursuant to paragraph (B) of this By-Law has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
(D) If a determination shall have been made pursuant to paragraph (B)
of this By-Law that the claimant is entitled to indemnification, the Corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to paragraph (C) of this By-Law.
(E) The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to paragraph (C) of this By-Law that the procedures and presumptions of this By-Law are not valid, binding and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this By-Law.
(F) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this By-Law shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote of stockholders or Disinterested Directors or otherwise. No repeal or modification of this By-Law shall in any way diminish or adversely affect the rights of any director, officer, employee or agent of the Corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.
(G) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing
such insurance, each such director or officer, and each such agent or employee to which rights to indemnification have been granted as provided in paragraph (H) of this By-Law, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this By-Law with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
(I) If any provision or provisions of this By-Law shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this By-Law (including, without limitation, each portion of any paragraph of this By-Law containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this By-Law (including, without limitation, each such portion of any paragraph of this By-Law containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
(i) For purposes of this By-Law:
(1) "Disinterested Director" means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.
(2) "Independent Counsel" means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimant's rights under this By-Law.
(3) "Change of Control" means:
(a) The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (i) the then
outstanding shares of common stock of the Corporation (the "Outstanding Common
Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not constitute
a Change of Control: (i) any acquisition directly from the Corporation, (ii) any
acquisition by the Corporation, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Corporation or any
corporation controlled by the Corporation or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c); or
(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding
any corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Corporation or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 30% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation.
(K) Any notice, request or other communication required or permitted to be given to the Corporation under this By-Law shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary.
ARTICLE IX
AMENDMENTS
Sec. 1. HOW AMENDED. These By-Laws may be altered, amended, repealed or added to by an affirmative vote of the stockholders representing a majority of the whole capital stock entitled to vote at an Annual Meeting or at a Special Meeting called for that purpose provided that written notice shall have been sent to each stockholder or mailed to him at his post office address of known, at least 10 days before the date fixed for such meeting. The notice shall set forth the alterations, amendments or changes which are proposed to be made in such By-Laws or in lieu thereof shall set forth a brief summary of the changes to be effected therein. If, however, all the stockholders shall be present at any regular or Special Meeting, these By-Laws may be amended by a unanimous vote without any previous notice. Notwithstanding the above, these By-Laws may be altered, amended, repealed or added to by the affirmative vote taken at a regular or Special Meeting of the Board of Directors.
ARTICLE X
MISCELLANEOUS
Sec. 1. VARIATIONS IN PRONOUNS. All pronouns and any variations thereof refer to the masculine, feminine or neither, and singular or plural, as the identity of the person or persons may require.
Sec. 2. FISCAL YEAR. The fiscal year of the Corporation shall start on such date as the Board of Directors shall from time to time prescribe.
EXHIBIT 10(n)
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of November, 2001, by and between MINNTECH CORPORATION, a Minnesota corporation (the "Company"), and ROY K. MALKIN (the "Employee").
INTRODUCTION
Employee is currently employed as President and Chief Executive Officer of the Company and MediVators, Inc. ("MediVators"), a wholly-owned subsidiary of Cantel Medical Corp. ("Cantel"). Cantel has recently acquired the Company, which is now a wholly-owned subsidiary of Cantel. Since the acquisition, Employee has served as President of both the Company and MediVators. Employee and the Company desire to enter into an employment agreement and to set forth herein the terms and conditions of Employee's employment by the Company. Such agreement will replace and supersede Employee's employment agreement with MediVators.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, it is hereby agreed by and between the Company and Employee as follows:
1. ENGAGEMENT AND TERM. The Company hereby employs Employee and Employee
hereby accepts such employment by the Company on the terms and conditions set
forth herein, for the period commencing on November 1, 2001 (the "Effective
Date") and ending, unless sooner terminated in accordance with the provisions of
Section 4 hereof, on October 31, 2004 (the "Employment Period"). As used in this
Agreement, the term "Contract Year" shall refer to each twelve-month period
during the Employment Period ending October 31. Employee and MediVators (by its
signature below) agree that the Employment Agreement between MediVators and
Employee dated May 19, 1999 is cancelled and superseded by this Agreement as of
the Effective Date without any further liability or obligation thereunder (other
than Section 5.1 thereof, which shall survive).
2. SCOPE OF DUTIES. Employee shall be employed by the Company as its President and Chief Executive Officer. In such capacities, Employee shall have such authority, powers and duties customarily attendant upon such offices. Employee will also continue to serve as President and Chief Executive Officer of MediVators without additional compensation. If elected or appointed, Employee shall also serve, without additional compensation, in one or more offices and, if and when elected, as a director of the Company or any subsidiary or affiliate of the Company, provided that his duties and responsibilities are not inconsistent with those pertaining to his position as stated above. Employee agrees to perform the duties associated with his employment to the best of his abilities, and shall faithfully devote his full business time and efforts so as to advance the best interests of the Company. During the Employment Period, Employee shall not be engaged in any other business activity, whether or not such business activity is pursued for profit or other pecuniary advantage, unless otherwise approved in writing by the Board of Directors of the Company.
3. COMPENSATION.
3.1 BASE SALARY. In respect of services to be performed by Employee during the Employment Period, the Company agrees to pay Employee a base salary ("Base Salary") at the rate of $250,000 per annum during the initial Contract Year, payable in accordance with the Company's customary payroll practices for executive employees.
The Base Salary shall be increased annually by an amount established by reference to the "Consumer Price Index for Urban Wage Earners and Clerical Workers, Minneapolis, Minnesota, all items "Series A-01" published by the Bureau of Labor Statistics of the United States Department of Labor (the "Consumer Price Index"). The base period shall be the month ended July 31, 2001 (the "Base Period"). If the Consumer Price Index for the month of July in any year, commencing in 2002, is greater than the Consumer Price Index for the Base Period, then the Base Salary shall be increased, commencing on November 1 of the next Contract Year, to the amount obtained by multiplying Base Salary by a fraction, the numerator of which is the Consumer Price Index for the month of July of the
year in which such determination is being made and the denominator of which is the Consumer Price Index for the Base Period. Notwithstanding the foregoing, in no event shall Employee receive, for any Contract Year, an increase in Base Salary of less than five (5%) percent over the Base Salary, as adjusted for the previous Contract Year.
3.2 INCENTIVE COMPENSATION. For each Fiscal Year of the Company during the Employment Period, the Employee shall be paid, as additional compensation for his services, a bonus (the "Bonus") based on the combined operating income of the Company and MediVators as follows:
3.2.1 The Bonus for the Fiscal Year ending July 31, 2002 shall be equal to five percent (5%) of the excess of the Combined EBIT (hereinafter defined) for such Fiscal Year over $8,500,000.
3.2.2 The Bonus for the Fiscal Year ending July 31, 2003
shall be equal to five percent (5%) of the excess of the Combined EBIT for such
Fiscal Year over the sum of (a) the greater of (x) $7,336,000 and (y) the
Company's EBIT for the 327 day period ending July 31, 2002 multiplied by 1.1162
(365/327) (such product referred to herein as "2002 Minntech Annualized EBIT")
PLUS (b) the greater of (x) $1,927,000 and (y) MediVators EBIT for the Fiscal
Year ending July 31, 2002 ("2002 MediVators EBIT").
3.2.3 The Bonus for the Fiscal Year ending July 31, 2004 shall be equal to five percent (5%) of the excess of the Combined EBIT for such Fiscal Year over the sum of (a) the greatest of (x) $7,336,000, (y) 2002 Minntech Annualized EBIT, and (x) the Company's EBIT for the Fiscal Year ending July 31, 2003 PLUS (b) the greater of (x) $1,927,000, (y) 2002 MediVators EBIT or (z) MediVators EBIT for the Fiscal Year ending July 31, 2003.
3.2.4 For the period commencing August 1, 2004 and ending October 31, 2004, the Board of Directors of the Company shall determine the amount of the Bonus in its sole discretion based on Employee's performance and such other factors that the Board deems appropriate.
3.2.5 "EBIT" of a corporation for any Fiscal Year shall mean operating income of the corporation and its consolidated subsidiaries for such Fiscal Year from continuing operations, determined in accordance with generally accepted accounting principles from time to time in effect, before provision for interest (income) expense, income taxes, intercompany management charges and provision for Employee's Bonus pursuant to this Section 3.2.
3.2.6 "Combined EBIT" for any Fiscal Year shall mean the sum of the Company's EBIT and MediVators EBIT for such Fiscal Year.
3.2.7 Notwithstanding anything in this Section 3.2 to the contrary, in the event Employee's employment with the Company is terminated prior to the end of a Fiscal Year, the Bonus for such Fiscal Year shall be equal to the Bonus determined pursuant to Section 3.2.1, 3.2.2 or 3.2.3, whichever is applicable, multiplied by a fraction (i) the numerator of which is the number of days during such Fiscal Year that Employee is employed hereunder and (ii) the denominator of which shall be 365.
3.2.8 The Bonus shall be payable by November 15th following the Fiscal Year for which the Bonus is payable.
3.3 DISCRETIONARY COMPENSATION. Employee shall also be entitled to such additional increases in Base Salary, bonuses and stock options as may be determined from time to time by the Compensation Committee of the Board of Directors of Cantel.
3.4 LIFE INSURANCE. Provided that Employee is insurable at rates that are comparable to those obtainable on other persons of similar age and position in good health (if Employee is classified in a higher risk category, he may elect to pay the excess premium cost to obtain the coverage), during the Employment Period the Company shall procure and maintain term life insurance on the life of Employee in the face amount of $250,000. Employee shall be the owner of such life insurance policy and shall have the absolute right to designate the beneficiaries thereunder. The Company shall pay all premiums for such life insurance. Employee agrees to submit to all medical examinations, supply all information and execute all documents required by insurance companies in connection with the issuance of such policy.
3.5 USE OF AUTOMOBILE. During the Employment Period, Employee shall be entitled to the use of an automobile leased or owned by the Company in connection with the Company's business. The make and model of the automobile shall be reasonably satisfactory to Employee, provided that the Company's monthly payments in respect thereof (exclusive of the expenses referred to in the following sentence) shall not exceed $700. In lieu of the foregoing, the Company may pay Employee an automobile allowance of $700 a month. Employee shall be entitled to receive reimbursement for reasonable out-of-pocket expenses, including, without limitation, cost of gas, oil, insurance and other costs incurred by Employee in operating and maintaining the automobile; provided, however, that Employee shall be responsible for keeping appropriate records regarding the use of said automobile, as instructed by the Company or its accountants.
3.6 OTHER BENEFITS.
3.6.1 During the Employment Period, Employee shall be entitled to participate, at Company expense (subject to applicable employee contribution requirements imposed by the Company from time to time on its employees generally), in the medical health insurance plan, and all other health, insurance and other benefit plans applicable generally to executive officers of the Company on the same basis as such officers. In addition, Employee shall be entitled to participate in the
Company's 401(k) benefit plan.
3.6.2 During the Employment Period, Employee will be entitled to paid vacation (four weeks) and holidays consistent with the Company's policy applicable to executives generally. All vacations shall be scheduled at the mutual convenience of the Company and Employee.
3.6.3 The Company will reimburse Employee for reasonable out-of-pocket expenses incurred in furtherance of the business of the Company, including travel, entertainment and similar items, upon the presentation of appropriate receipts or vouchers therefor, consistent with the Company's policy applicable to executives generally.
4. TERMINATION OF EMPLOYMENT. The provisions of Section 1 of this Agreement notwithstanding, this Agreement and Employee's employment hereunder may be terminated in the manner and for the causes hereinafter set forth, in which event the Company shall be under no further obligation to Employee other than as specifically provided herein:
4.1 If Employee is absent from work or otherwise substantially unable to assume his normal duties for a period of sixty (60) successive days or an aggregate of ninety (90) business days during any consecutive twelve-month period during the Employment Period because of physical or mental disability, accident, illness, or any other cause other than vacation or approved leave of absence, the Company may thereupon, or at any time thereafter while such absence or disability still exists, terminate the employment of Employee hereunder upon ten (10) days' written notice to Employee.
4.2 In the event of the death of Employee, this Agreement shall immediately terminate on the date thereof.
4.3 If Employee materially breaches or violates any material term of his employment hereunder, or commits any criminal act or an act of dishonesty or moral turpitude, in the reasonable judgment of Cantel's Board of Directors, then the Company may, in addition to other rights and remedies available at law or equity, immediately terminate this Agreement upon written notice to Employee with the date of such notice being the termination date and such termination being deemed for "cause."
4.4 Employee may terminate his employment under this Agreement upon not less than thirty (30) days' written notice to the Company if the Company, without Employee's consent, undergoes a "Change in Control" (as defined below). "Change in Control" shall mean (1) the acquisition of beneficial ownership, direct or indirect, of securities of the Company by any person (as that term is defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than Employee or a person approved by Employee, which when combined with all other securities of the Company beneficially owned, directly or indirectly, by that person, equals or exceeds 50% of the combined voting power of the Company's then outstanding securities or (2) at any time after the Effective Date, a majority of the Board of Directors is composed of persons who are not "Continuing Directors" as hereinafter defined. "Continuing Directors" as used herein shall mean (i) the directors of the Company at the close of business on the Effective Date, and (ii) any person who was or is elected (A) to succeed a Continuing Director or (B) to become a director as a result of an increase in the size of the board, recommended, in each case, by a majority of the Continuing Directors then on the Board. Any Termination Notice given by Employee hereunder must be given within ninety (90) days following the occurrence of the event giving rise to such termination.
4.5 In the event Employee's employment shall be terminated by reason of the provisions of Section 4.1 or 4.2, then in such event, the Company shall continue to pay to Employee, if living, or other person or persons as Employee may from time to time designate in writing as the beneficiary of such payments, the Basic Compensation in effect at the time which such death or disability occurred during the three-month period following such death or disability.
4.6 Upon termination of Employee's employment under Section 4.3, the Company shall have no further obligation under this Agreement to make any payments to Employee or to bestow any benefits on Employee after the termination date, other than payments and benefits accrued and due and payable to Employee prior to the termination date.
4.7 Upon termination of Employee's employment by Employee under
Section 4.4,
then in addition to payments and benefits accrued and due and payable to Employee prior to the termination date, the Company shall pay to Employee in a lump sum, within ten (10) days following the termination date, an amount equal to one hundred fifty percent (150%) of the Base Salary and Incentive Compensation paid or accrued by the Company to Employee with respect to the most recently completed Contract Year.
5. DISCLOSURE OF CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS, AND COVENANTS NOT TO COMPETE.
5.1 CONFIDENTIAL INFORMATION. Employee acknowledges that the Company (which term, for purposes of Section 5 shall be deemed to include Cantel, MediVators and other affiliates of the Company) possesses confidential information, know-how, customer lists, purchasing, merchandising and selling techniques and strategies, and other information used in its operations of which Employee has or will obtain knowledge, and that the Company will suffer serious and irreparable damages and harm if this confidential information were disclosed to any other party or if Employee used this information to compete against the Company. Accordingly, Employee hereby agrees that except as required by Employee's duties to the Company, Employee, without the consent of the Company's Board of Directors, shall not at any time during or after the Employment Period disclose or use any secret or confidential information of the Company, including, without limitation, such business opportunities, customer lists, trade secrets, formulas, techniques and methods of which Employee shall become informed during his employment, whether learned by him as an employee of the Company, as a member of its Board of Directors or otherwise, and whether or not developed by Employee, unless such information shall be or becomes public knowledge other than as a result of Employee's direct or indirect disclosure of the same.
5.2 PATENT AND RELATED MATTERS.
5.2.1 Employee will promptly disclose in writing to the Company complete information concerning each and every invention, discovery, improvement and idea (whether or not shown or described in writing or reduced to practice), and device, design, apparatus, process, and work of authorship, whether or not patentable, copyrightable or registerable, which is made, developed, perfected, devised, conceived or first reduced to practice by Employee, either solely or in collaboration with others, during the Employment Period, whether or not during regular working hours (hereinafter collectively referred to as the "Inventions"). Employee, to the extent that he has the legal right to do so, hereby acknowledges that any and all of the Inventions are property of the Company and hereby assigns and agrees to assign to the Company any and all of Employee's right, title and interest in and to any and all of the Inventions.
5.2.2 LIMITATION. It is further agreed and Employee is hereby notified that the above agreement to assign the Inventions to the Company does not apply to an Invention for which no equipment, supplies, facility or confidential information of the Company was used and which was developed entirely on Employee's own time, and
(i) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or
(ii) which does not result from any work performed by Employee for the Company.
5.2.3 ASSISTANCE. Upon request and without further compensation therefor, but at no expense to Employee, and whether during the Employment Period or thereafter, Employee will do all lawful acts, including, but not limited to, the execution of documents and instruments and the giving of testimony, that in the opinion of the Company, its successors and assigns, may be necessary or desirable in obtaining, sustaining, reissuing, extending or enforcing United States and foreign copyrights and Letters Patent, including, but not limited to, design patents, on any and all of the Inventions, and for perfecting, affirming and recording the Company's complete ownership and title thereto, and to cooperate otherwise in all proceedings and matters relating thereto.
5.2.4 RECORDS. Employee will keep complete, accurate and authentic accounts, notes, data and records of all the Inventions in the manner and form requested by the Company. Such accounts, notes, data and records shall be the property of the Company, and upon its request, Employee will promptly surrender the same to it.
Upon the termination of his employment hereunder, Employee agrees to deliver promptly to the Company all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, accounts, calculations and copies thereof, which are the property of the Company or which relate in any way to the business, products, practices or techniques of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.
5.3 NON-COMPETE. Employee agrees that for a period of twenty-four
(24) months following the termination of Employee's employment hereunder, except
as a result of the breach by the Company of any material term or condition
hereof, Employee will not, directly or indirectly, alone or with others,
individually or through or by a corporate or other business entity in which he
may be interested as a partner, shareholder, joint venturer, officer, director,
employee or otherwise, own, manage, control, participate in, lend his name to,
or render services to or for any business within the continental United States
or Canada which is competitive with that of the Company or any of its
affiliates, provided, however, that the foregoing shall not be deemed to prevent
the ownership by Employee of up to five (5%) percent of any class of securities
of any corporation which is regularly traded on any stock exchange or
over-the-counter market. For the purpose of this Agreement, a business activity
competitive with the business of the Company or any of its affiliates shall
include only the design, manufacture, marketing, sale, or distribution of (i)
endoscopes, (ii) endoscope disinfection or sterilization equipment or supplies,
(iii) infection control equipment, products, supplies or systems or (iv)
products or services for the dialysis, medical device reprocessing, or
filtration and separation markets (collectively "Products") which are the same
as or similar to or compete with, or have a usage allied to Products being
developed, marketed, sold or distributed by the Company or any of its affiliates
at any time during the last twelve months of Employee's employment by the
Company.
5.4 NON-INTERFERENCE. Employee further agrees that for a period of
two years following termination of Employee's employment hereunder, he will not
(i) induce or attempt to induce any other employee of the Company or any of its
affiliates to leave the employ of the Company or affiliate, or in any way
interfere with the relationship between the Company (or any of its affiliates)
and any other employee, or (ii) induce or attempt to induce any customer,
supplier, franchisee, licensee, distributor or other business relation of the
Company or any of its affiliates to cease doing business with the Company or
affiliate, or in any way interfere with the relationship between any customer,
franchisee or other business relation and the Company and any of its affiliates
without prior written consent of the Board of Directors of the Company.
5.5 ENFORCEMENT. If, at the time of enforcement of any provisions of this Section, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances will be substituted for the stated period, scope or area. Employee agrees that the covenants made in this Section shall be construed as an agreement independent of any other provision of this Agreement, and shall survive the termination of this Agreement.
6. MISCELLANEOUS PROVISIONS.
7.1 Section headings are for convenience only and shall not be deemed to govern, limit, modify or supersede the provisions of this Agreement.
7.2 This Agreement is entered into in the State of Minnesota and shall be governed pursuant to the laws of the State of Minnesota. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable, the remaining provisions hereof shall continue to be fully effective.
7.3 This Agreement contains the entire agreement of the parties regarding this subject matter. There are no contemporaneous oral agreements, and all prior understandings, agreements, negotiations and representations are merged herein.
7.4 This Agreement may be modified only by means of a writing signed by the party to be charged with such modification.
7.5 Notices or other communications required or permitted to be given hereunder shall be in writing and shall be deemed duly given upon receipt by the party to whom sent at the respective addresses set forth below or to such other address as any party shall hereafter designate to the other in writing delivered in accordance herewith:
If to Minntech:
Minntech Corporation
14605 28th Avenue North
Minneapolis, Minnesota 55447
With a copy to:
Cantel Medical Corp.
150 Clove Road
Little Falls, NJ 07424
If to Employee:
Roy K. Malkin
16652 Jackpine Trail
Lakeville, MN 55044
7.6 This Agreement shall inure to the benefit of, and shall be binding upon, the Company, its successors and assigns, including, without limitation, any entity that may acquire all or substantially all of the Company's assets and business or into which the Company may be consolidated or merged. This Agreement may not be assigned by Employee.
7.7 This Agreement may be executed in separate counterparts and may be delivered by facsimile, each of which shall constitute the original hereof.
IN WITNESS WHEREOF, the parties have set their hands as of the date first above written.
MINNTECH CORPORATION
By: /s/ Roy K. Malkin ------------------ /s/ Roy K. Malkin ----------------- Roy K. Malkin |
With respect to the last
sentence of Section 1:
MEDIVATORS, INC.
By: /s/ Roy K. Malkin
-----------------
|
EXHIBIT 10(o)
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of November, 2001, by and between CANTEL MEDICAL CORP., a Delaware corporation (the "Company"), and CRAIG A. SHELDON (the "Employee").
INTRODUCTION
Employee is currently employed as Vice President and Chief Financial Officer of the Company. Employee and the Company desire to enter into an employment agreement and to set forth herein the terms and conditions of Employee's employment by the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, it is hereby agreed by and between the Company and Employee as follows:
1. ENGAGEMENT AND TERM. The Company hereby employs Employee and Employee
hereby accepts such employment by the Company on the terms and conditions set
forth herein, for the period commencing on November 1, 2001 (the "Effective
Date") and ending, unless sooner terminated in accordance with the provisions of
Section 4 hereof, on October 31, 2004 (the "Employment Period"). As used in this
Agreement, the term "Contract Year" shall refer to each twelve-month period
during the Employment Period ending October 31.
2. SCOPE OF DUTIES. Employee shall be employed by the Company as its Vice President and Chief Financial Officer. In such capacities, Employee shall have such authority, powers and duties customarily attendant upon such offices. If elected or appointed, Employee shall also serve, without additional compensation, in one or more offices and, if and when elected, as a director of the Company or any subsidiary or affiliate of the Company, provided that his duties and responsibilities are not inconsistent with those pertaining to his position as stated above. Employee agrees to perform the duties associated with his employment to the best of his abilities, and shall faithfully devote his full business time and efforts so as to advance the best interests of the Company. During the Employment Period, Employee shall not be engaged in any other business activity, whether or not such business activity is pursued for profit or other pecuniary advantage, unless otherwise approved in writing by the Board of Directors of the Company.
3. COMPENSATION.
3.1 BASE SALARY. In respect of services to be performed by Employee during the Employment Period, the Company agrees to pay Employee a base salary ("Base Salary") at the rate of $175,000 per annum during the initial Contract Year, payable in accordance with the Company's customary payroll practices for executive employees.
The Base Salary shall be increased annually by an amount established by reference to the "Consumer Price Index for Urban Wage Earners and Clerical Workers, New York, New York, all items "Series A-01" published by the Bureau of Labor Statistics of the United States Department of Labor (the "Consumer Price Index"). The base period shall be the month ended September 30, 2001 (the "Base Period"). If the Consumer Price Index for the month of September in any year, commencing in 2002, is greater than the Consumer Price Index for the Base Period, then the Base Salary shall be increased, commencing on November 1 of the next Contract Year, to the amount obtained by multiplying Base Salary by a fraction, the numerator of which is the Consumer Price Index for the month of September of the year in which shall determination is being made and the denominator of which is the
Consumer Price Index for the Base Period. Notwithstanding the foregoing, in no event shall Employee receive, for any Contract Year, an increase in Base Salary of less than five (5%) percent over the Base Salary, as adjusted for the previous Contract Year.
3.2 BONUS. Employee shall be entitled to an annual Bonus determined each year by the Compensation Committee of the Board of Directors of the Company based on Employee's performance and such other factors that the Committee deems appropriate.
3.3 DISCRETIONARY COMPENSATION. Employee shall also be entitled to such additional increases in Base Salary, bonuses and stock options as may be determined from time to time by the Compensation Committee of the Board of Directors of the Company.
3.4 LIFE INSURANCE. Provided that Employee is insurable at rates that are comparable to those obtainable on other persons of similar age and position in good health (if Employee is classified in a higher risk category, he may elect to pay the excess premium cost to obtain the coverage), during the Employment Period the Company shall procure and maintain term life insurance on the life of Employee in the face amount of $175,000. Employee shall be the owner of such life insurance policy and shall have the absolute right to designate the beneficiaries thereunder. The Company shall pay all premiums for such life insurance. Employee agrees to submit to all medical examinations, supply all information and execute all documents required by insurance companies in connection with the issuance of such policy.
3.5 USE OF AUTOMOBILE. During the Employment Period, Employee shall be entitled to the use of an automobile leased or owned by the Company in connection with the Company's business. The make and model of the automobile shall be reasonably satisfactory to Employee, provided that the Company's monthly payments in respect thereof (exclusive of the expenses referred to in the following sentence) shall not exceed $500. Employee shall be entitled to receive reimbursement for reasonable out-of-pocket expenses, including, without limitation, cost of gas, oil, insurance and other
costs incurred by Employee in operating and maintaining the automobile; provided, however, that Employee shall be responsible for keeping appropriate records regarding the use of said automobile, as instructed by the Company or its accountants.
3.6 OTHER BENEFITS.
3.6.1 During the Employment Period, Employee shall be entitled to participate, at Company expense (subject to applicable employee contribution requirements imposed by the Company from time to time on its employees generally), in the medical health insurance plan, and all other health, insurance and other benefit plans applicable generally to executive officers of the Company on the same basis as such officers. In addition, Employee shall be entitled to participate in the Company's 401(k) benefit plan.
3.6.2 During the Employment Period, Employee will be entitled to paid vacation (four weeks) and holidays consistent with the Company's policy applicable to executives generally. All vacations shall be scheduled at the mutual convenience of the Company and Employee.
3.6.3 The Company will reimburse Employee for reasonable out-of-pocket expenses incurred in furtherance of the business of the Company, including travel, entertainment and similar items, upon the presentation of appropriate receipts or vouchers therefor, consistent with the Company's policy applicable to executives generally.
4. TERMINATION OF EMPLOYMENT. The provisions of Section 1 of this Agreement notwithstanding, this Agreement and Employee's employment hereunder may be terminated in the manner and for the causes hereinafter set forth, in which event the Company shall be under no further obligation to Employee other than as specifically provided herein:
4.1 If Employee is absent from work or otherwise substantially
unable to assume his normal duties for a period of sixty (60) successive days or
an aggregate of ninety (90) business days during any consecutive twelve-month
period during the Employment Period because of physical or mental disability,
accident, illness, or any other cause other than vacation or approved leave of
absence, the Company may thereupon, or any time thereafter will such absence or
disability still exists, terminate the employment of Employee hereunder upon ten
(10) days' written notice to Employee.
4.2 In the event of the death of Employee, this Agreement shall immediately terminate on the date thereof.
4.3 If Employee materially breaches or violates any material term of his employment hereunder, or commits any criminal act or an act of dishonesty or moral turpitude, in the reasonable judgment of the Company's Board of Directors, then the Company may, in addition to other rights and remedies available at law or equity, immediately terminate this Agreement upon written notice to Employee with the date of such notice being the termination date and such termination being deemed for "cause."
4.4 Employee may terminate his employment under this Agreement upon not less than thirty (30) days' written notice to the Company if the Company, without Employee's consent, undergoes a "Change in Control" (as defined below). "Change in Control" shall mean (1) the acquisition of beneficial ownership, direct or indirect, of securities of the Company by any person (as that term is defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than Employee or a person approved by Employee, which when combined with all other securities of the Company beneficially owned, directly or indirectly, by that person, equals or exceeds 50% of the combined voting power of the Company's then outstanding securities or (2) at any time after the Effective Date, a majority of the Board of Directors is composed of persons who are not "Continuing Directors" as hereinafter defined. "Continuing Directors" as used herein shall mean (i) the directors of the Company at the close of business on the Effective Date, and (ii) any person who was or is elected (A) to succeed a
Continuing Director or (B) to become a director as a result of an increase in the size of the board, recommended, in each case, by a majority of the Continuing Directors then on the Board. Any Termination Notice given by Employee hereunder must be given within ninety (90) days following the occurrence of the event giving rise to such termination.
4.5 In the event Employee's employment shall be terminated by reason of the provisions of Section 4.1 or 4.2, then in such event, the Company shall continue to pay to Employee, if living, or other person or persons as Employee may from time to time designate in writing as the beneficiary of such payments, the Basic Compensation in effect at the time which such death or disability occurred during the three-month period following such death or disability.
4.6 Upon termination of Employee's employment under Section 4.3, the Company shall have no further obligation under this Agreement to make any payments to Employee or to bestow any benefits on Employee after the termination date, other than payments and benefits accrued and due and payable to Employee prior to the termination date.
4.7 Upon termination of Employee's employment by Employee under
Section 4.4, then in addition to payments and benefits accrued and due and
payable to Employee prior to the termination date, the Company shall pay to
Employee in a lump sum, within ten (10) days following the termination date, an
amount equal to one hundred fifty percent (150%) of the Base Salary and
Incentive Compensation paid by the Company to Employee for the most recently
completed Contract Year.
4.8 Upon termination of Employee's employment under Sections 4.1, 4.2 or 4.4, then in addition to the payments and benefits payable to Employee specified above, the Company agrees that for a period of ninety (90) days following such termination it will (i) in the case of termination under Section 4.1 or 4.4, continue Employee's coverage under the Company's medical health insurance plan provided under Section 3.6.1 above (directly or through the payment of all applicable amounts under COBRA) or, (ii) in the event of termination under Section 4.2, pay the cost of family coverage (for Employee's wife and children) under a medical health insurance plan having benefits similar to those in
effect under the Company's medical health insurance plan in effect at the time of termination.
5. DISCLOSURE OF CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS, AND COVENANTS NOT TO COMPETE.
5.1 CONFIDENTIAL INFORMATION. Employee acknowledges that the Company (which term, for purposes of Section 5 shall be deemed to include Carsen Group Inc., MediVators, Inc., Minntech Corporation, and other affiliates of the Company) possesses confidential information, know-how, customer lists, purchasing, merchandising and selling techniques and strategies, and other information used in its operations of which Employee has or will obtain knowledge, and that the Company will suffer serious and irreparable damages and harm if this confidential information were disclosed to any other party or if Employee used this information to compete against the Company. Accordingly, Employee hereby agrees that except as required by Employee's duties to the Company, Employee, without the consent of the Company's Board of Directors, shall not at any time during or after the Employment Period disclose or use any secret or confidential information of the Company, including, without limitation, such business opportunities, customer lists, trade secrets, formulas, techniques and methods of which Employee shall become informed during his employment, whether learned by him as an employee of the Company, as a member of its Board of Directors or otherwise, and whether or not developed by Employee, unless such information shall be or becomes public knowledge other than as a result of Employee's direct or indirect disclosure of the same.
5.2 PATENT AND RELATED MATTERS.
5.2.1 Employee will promptly disclose in writing to the Company complete information concerning each and every invention, discovery, improvement and idea (whether or not shown or described in writing or reduced to practice), and device, design, apparatus, process, and work of authorship, whether or not patentable, copyrightable or registerable, which is made, developed, perfected, devised, conceived or first reduced to practice by Employee, either solely or in collaboration with others, during the Employment Period, whether or not during regular working hours (hereinafter collectively referred to as the "Inventions"). Employee, to the extent that he has the legal right to do so, hereby acknowledges that any and all of the Inventions are property of the Company and hereby assigns and agrees to assign to the Company any and all of Employee's right, title and interest in and to any and all of the Inventions.
5.2.2 LIMITATION. It is further agreed and Employee is hereby notified that the above agreement to assign the Inventions to the Company does not apply to an Invention for which no equipment, supplies, facility or confidential information of the Company was used and which was developed entirely on Employee's own time, and
(i) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or
(ii) which does not result from any work performed by Employee for the Company.
5.2.3 ASSISTANCE. Upon request and without further compensation therefor, but at no expense to Employee, and whether during the Employment Period or thereafter, Employee will do all lawful acts, including, but not limited to, the execution of documents and instruments and the giving of testimony, that in the opinion of the Company, its successors and assigns, may be necessary or desirable in obtaining, sustaining, reissuing, extending or enforcing United States and foreign copyrights and Letters Patent, including, but not limited to, design patents, on any and all of the Inventions, and for perfecting, affirming and recording the Company's complete ownership and title thereto, and to cooperate otherwise in all proceedings and matters relating thereto.
5.2.4 RECORDS. Employee will keep complete, accurate and authentic accounts, notes, data and records of all the Inventions in the manner and form requested by the Company. Such accounts, notes, data and records shall be the property of the Company, and upon its request, Employee will promptly surrender the same to it.
Upon the termination of his employment hereunder, Employee agrees to deliver promptly to the Company all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, accounts, calculations and copies thereof, which are the property of the Company or which relate in any way to the business, products, practices or techniques of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.
5.3 NON-COMPETE. Employee agrees that for a period of twenty-four
(24) months following the termination of Employee's employment hereunder, except
as a result of the breach by the Company of any material term or condition
hereof, Employee will not, directly or indirectly, alone or with others,
individually or through or by a corporate or other business entity in which he
may be interested as a partner, shareholder, joint venturer, officer, director,
employee or otherwise, own, manage, control, participate in, lend his name to,
or render services to or for any business within the continental United States
or Canada which is competitive with that of the Company or any of its
affiliates, provided, however, that the foregoing shall not be deemed to prevent
the ownership by Employee of up to five (5%) percent of any class of securities
of any corporation which is regularly traded on any stock exchange or
over-the-counter market. For the purpose of this Agreement, a business activity
competitive with the business of the Company or any of its affiliates shall
include only the design, manufacture, marketing, sale, or distribution of (i)
endoscopes, (ii) endoscope disinfection or sterilization equipment or supplies,
(iii) infection control equipment, products, supplies or systems or (iv)
products or services for the dialysis, medical device reprocessing, or
filtration and separation markets (collectively "Products") which are the same
as or similar to or compete with, or have a usage allied to Products being
developed, marketed, sold or distributed by the Company or any of its affiliates
at any time during the last twelve months of Employee's employment by the
Company.
5.4 NON-INTERFERENCE. Employee further agrees that for a period of
two years following termination of Employee's employment hereunder, he will not
(i) induce or attempt to induce any other employee of the Company or any of its
affiliates to leave the employ of the Company or affiliate, or in any way
interfere with the relationship between the Company (or any of its affiliates)
and any other employee, or (ii) induce or attempt to induce any customer,
supplier, franchisee, licensee, distributor or other business relation of the
Company or any of its affiliates to cease doing business with the Company or
affiliate, or in any way interfere with the relationship between any customer,
franchisee or other business relation and the Company and any of its affiliates
without prior written consent of the Board of Directors of the Company.
5.5 ENFORCEMENT. If, at the time of enforcement of any provisions of this Section, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances will be substituted for the stated period, scope or area. Employee agrees that the covenants made in this Section shall be construed as an agreement independent of any other provision of this Agreement, and shall survive the termination of this Agreement.
6. MISCELLANEOUS PROVISIONS.
7.1 Section headings are for convenience only and shall not be deemed to govern, limit, modify or supersede the provisions of this Agreement.
7.2 This Agreement is entered into in the State of New Jersey and shall be governed pursuant to the laws of the State of New Jersey. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable, the remaining provisions hereof shall continue to be fully effective.
7.3 This Agreement contains the entire agreement of the parties regarding this subject matter. There are no contemporaneous oral agreements, and all prior understandings, agreements, negotiations and representations are merged herein.
7.4 This Agreement may be modified only by means of a writing signed by the party to be charged with such modification.
7.5 Notices or other communications required or permitted to be given hereunder shall be in writing and shall be deemed duly given upon receipt by the party to whom sent at the respective addresses set forth below or to such other address as any party shall hereafter designate to the other in writing delivered in accordance herewith:
If to the Company:
Cantel Medical Corp.
150 Clove Road
Little Falls, NJ 07424
If to Employee:
Craig A. Sheldon
4 Tower Hill Rd.
Morris Plains, NJ 07950
7.6 This Agreement shall inure to the benefit of, and shall be binding upon, the Company, its successors and assigns, including, without limitation, any entity that may acquire all or substantially all of the Company's assets and business or into which the Company may be consolidated or merged. This Agreement may not be assigned by Employee.
7.7 This Agreement may be executed in separate counterparts and may be delivered by facsimile, each of which shall constitute the original hereof.
IN WITNESS WHEREOF, the parties have set their hands as of the date first above written.
CANTEL MEDICAL CORP.
By: /s/ James P. Reilly
-------------------
/s/ Craig A. Sheldon
--------------------
Craig A. Sheldon
|
EXHIBIT 10(gg)
THIRD AMENDMENT TO DISTRIBUTION AGREEMENT
OLYMPUS AMERICA INC. AND CARSEN GROUP INC.
THIRD AMENDMENT ("Amendment") to Distribution Agreement ("Agreement") between OLYMPUS AMERICA INC., a New York, U.S.A. corporation having its principal office at Two Corporate Center Drive, Melville, New York, U.S.A. 11747-3157, and CARSEN GROUP INC., a Canadian corporation having its principal office at 151 Telson Road, Markham, Ontario, Canada L3R 1E7. Capitalized terms used but not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Agreement.
WHEREAS, Olympus and Carsen entered into the Agreement as of April 1, 1994; and
WHEREAS, by way of an initial amendment dated August 26, 1997 (the "Initial Amendment") Olympus and Carsen extended the Term of the Agreement until March 31, 2001 and otherwise amended the Agreement as set forth in the Initial Amendment; and
WHEREAS, by the way of a further amendment dated October 6, 2000 (the "Second Amendment", and together with the Initial Amendment, collectively, the "Prior Amendments") Olympus and Carsen extended the Term of the Agreement until March 31, 2004 and otherwise amended the Agreement as set forth in the Second Amendment; and
WHEREAS, Olympus and Carsen wish to further amend the Agreement and the Prior Amendments by, among other things, removing Industrial Products from the Agreement as hereinafter set forth;
NOW, THEREFORE, for good and adequate consideration, receipt of which is hereby acknowledged, the parties hereby agree as follows:
1. Section 1.6 (Industrial Products) and Schedule 1.6 (Industrial Products) of the Agreement shall be deleted in their entirety along with all related references to Section 1.6 and Schedule 1.6 throughout the Agreement.
2. Except for purposes of interpretation of this Amendment, the phrase
"INDUSTRIAL PRODUCTS" shall be deleted from Section 1.10 (Products), Section 3.4
(Marketing), Section 3.7 (Monthly Sales Activity and Inventory Report), Section
5.1 (Order Estimates), Section 5.3.1 (Minimum Purchase Requirements), and
Section 9.1.1 (Term) of the Agreement.
3. Section 5.3.3 of the Agreement shall be re-written as follows:
"5.3.3 IF FOR ANY REASON, INCLUDING BUT NOT LIMITED TO FAILURE TO
MEET OLYMPUS'S CREDIT REQUIREMENTS FOR CONTINUED SALE ON OPEN ACCOUNT, CARSEN
COMMITS AN MDPR FAILURE, IN ANY FISCAL PERIOD, FOR: (a) PRECISION PRODUCTS,
OLYMPUS MAY, UPON THIRTY (30) DAYS' WRITTEN NOTICE TO CARSEN WITHIN SIX (6)
MONTHS OF SUCH DEFAULT, TERMINATE THIS AGREEMENT WITH RESPECT TO PRECISION
PRODUCTS OR MAKE ANY OTHER ALTERNATIVE DISTRIBUTION ARRANGEMENTS (INCLUDING
WITHOUT LIMITATION APPOINTING ADDITIONAL DISTRIBUTORS FOR PRECISION PRODUCTS);
AND/OR (b) MEDICAL
PRODUCTS, OLYMPUS MAY, UPON THIRTY (30) DAYS' WRITTEN NOTICE TO CARSEN WITHIN SIX (6) MONTHS OF SUCH DEFAULT, (i) TERMINATE THIS AGREEMENT WITH RESPECT TO MEDICAL PRODUCTS, OR (ii) TERMINATE THIS AGREEMENT ENTIRELY, OR (iii) MAKE ANY OTHER ALTERNATIVE DISTRIBUTION ARRANGEMENTS (INCLUDING WITHOUT LIMITATION APPOINTING ADDITIONAL DISTRIBUTORS FOR MEDICAL PRODUCTS). NOTWITHSTANDING THE FOREGOING, CARSEN SHALL NOT BE LIABLE FOR DAMAGES IN THE EVENT OF AN MDPR FAILURE. IN THE EVENT OLYMPUS APPOINTS AN ADDITIONAL DISTRIBUTOR FOR ANY PRODUCT GROUP (AS SET FORTH ABOVE), THEN THE MINIMUM DOLLAR PURCHASE REQUIREMENTS FOR THAT PRODUCT GROUP WILL NO LONGER BE APPLICABLE."
4. Schedule 5.3 (Minimum Dollar Purchase Requirements) of the Agreement shall be amended by deleting the Industrial Product Minima. Moreover, the Industrial Product Minimum for the period from April 1, 2000 to March 31, 2001 (i.e., 133P), set forth in the Initial Amendment as $1,850,000, shall be reduced to $1,400,000.
5. Section 6.1 (Patents and Trademarks) of the Agreement shall be amended by deleting the phrase "AND IN ACCORD WITH THE INSTRUCTIONS ATTACHED HERETO AS EXHIBIT 6.1".
6. Section 9.1.1 (Term) shall be re-written as follows:
"THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL MARCH 31, 2004 (THE
"INITIAL TERM"). THE INITIAL TERM WILL BE EXTENDED BEYOND MARCH 31, 2004 FOR AN
ADDITIONAL TWO-YEAR PERIOD THROUGH MARCH 31, 2006 (THE "RENEWAL PERIOD" AND
TOGETHER WITH THE INITIAL TERM, COLLECTIVELY, THE "TERM"), PROVIDED THAT CARSEN
HAS NOT BREACHED THIS AGREEMENT IN ACCORDANCE WITH SECTION 9.1.2. MOREOVER, IF
CARSEN COMMITS AN MDPR FAILURE WITH RESPECT TO A PRODUCT GROUP IN ANY FISCAL
PERIOD OF THE INITIAL TERM, OLYMPUS SHALL HAVE THE RIGHT TO REMOVE SUCH PRODUCT
GROUP FROM THIS AGREEMENT FOR THE RENEWAL PERIOD OR MAKE ANY OTHER ALTERNATIVE
DISTRIBUTION ARRANGEMENTS WITH RESPECT TO SUCH PRODUCT GROUP (INCLUDING WITHOUT
LIMITATION APPOINTING ADDITIONAL DISTRIBUTORS) DURING THE RENEWAL PERIOD.
MINIMUM DOLLAR PURCHASE REQUIREMENTS FOR EACH YEAR OF THE POTENTIAL RENEWAL
PERIOD SHALL BE MUTUALLY AGREED-UPON, IN GOOD FAITH, BY THE PARTIES. EXCEPT AS
SET FORTH IN THE PRECEDING SENTENCES, NO ACT OF OR OMISSION BY OLYMPUS OR CARSEN
SHALL BE DEEMED TO RESULT IN ANY EXTENSION OF THIS AGREEMENT BEYOND THE INITIAL
TERM UNLESS OLYMPUS AND CARSEN AGREE, BY A WRITTEN INSTRUMENT EXECUTED BY AN
AUTHORIZED OFFICER OF EACH COMPANY, TO EXTEND THE INITIAL TERM."
7. Olympus's acceptance of Carsen's purchase orders or payments for Industrial Products after the execution date of this Amendment shall not operate as a renewal or novation of the Agreement with respect to Industrial Products.
8. This Amendment may be executed in counterparts, each of which when so executed shall be deemed to be an original and both of which when taken together shall constitute one and the same instrument.
9. As used in this Amendment, the term "Agreement" shall mean the Agreement as previously amended by the Initial Amendment and the Second Amendment.
Except as modified by this Amendment, the Agreement (as previously amended) remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Agreement as of the 1st day of April, 2001.
CARSEN GROUP INC. OLYMPUS AMERICA INC.
By: /s/ William Vella By: /s/ F. Mark Gumz
----------------- ----------------
Name: William Vella Name: F. Mark Gumz
Title: President Title: President and COO
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EXHIBIT 21
CANTEL MEDICAL CORP.
SUBSIDIARIES OF REGISTRANT
Carsen Group Inc. (Amalgamated under the laws of Ontario,
Canada)
MediVators, Inc. (Incorporated under the laws of Minnesota)
Minntech Corporation (Incorporated under the laws of Minnesota)
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EXHIBIT 23
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. and in the related Prospectus and to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-73446, 33-04495, 333-20819 and 333-57232) of Cantel Medical Corp., of our report dated September 20, 2002, 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, 2002.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
October 25, 2002
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Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cantel Medical Corp. (the "Company") on Form 10-K for the fiscal year ended July 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James P. Reilly, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James P. Reilly ---------------------------------------- James P. Reilly President and Chief Executive Officer October 29, 2002 |
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cantel Medical Corp. (the "Company") on Form 10-K for the fiscal year ended July 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Craig A. Sheldon, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Craig A. Sheldon -------------------- Craig A. Sheldon Vice President and Chief Financial Officer October 29, 2002 |