ZILA INC
S-4/A, 1996-09-12
PHARMACEUTICAL PREPARATIONS
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<PAGE>   1
   
  AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1996
                                                      REGISTRATION NO. 333-10107
    
                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549
   
                               AMENDMENT NO. 1
    
                                      TO
                                   FORM S-4
                            REGISTRATION STATEMENT
                                    Under
                          The Securities Act of 1933
                                      
                                  ZILA, INC.
            (Exact name of Registrant as specified in its charter)

           Delaware                      2834                    86-0619668
(State or other jurisdiction      (Primary Standard           (I.R.S. Employer
      of incorporation         Industrial Classification     Identification No.)
      or organization)                Code Number)

                     ------------------------------------

                                  ZILA, INC.
                            5227 NORTH 7TH STREET
                         PHOENIX, ARIZONA 85014-2800
                                (602) 266-6700
             (Address, including zip code, and telephone number,
                including area code, of registrant's principal
                              executive offices)
                                      
                               MR. JOSEPH HINES
                                  PRESIDENT
                                  ZILA, INC.
                            5227 NORTH 7TH STREET
                         PHOENIX, ARIZONA 85014-2800
                                (602) 266-6700
          (Name, address, including zip code, and telephone number,
                  including area code, of agent for service)
                                      
                               with copies to:
                                      
                            Christopher D. Johnson
                          Squire, Sanders & Dempsey
                     40 North Central Avenue, Suite 2700
                            Phoenix, Arizona 85004
                                (602) 528-4000
                                      
         APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective and the
Effective Time of the proposed merger of a wholly-owned subsidiary of the
Registrant with and into Bio-Dental Technologies Corporation as described in the
Merger Agreement dated August 8, 1996 attached as Appendix A to the Proxy
Statement/Prospectus forming a part of this Registration Statement.
<PAGE>   2
         If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.


                                       ii
<PAGE>   3
                         CALCULATION OF REGISTRATION FEE

   
<TABLE>
<CAPTION>
                                                                 PROPOSED             PROPOSED 
                                                                  MAXIMUM              MAXIMUM            AMOUNT OF
             TITLE OF EACH CLASS OF           AMOUNT TO BE     OFFERING PRICE         AGGREGATE         REGISTRATION
           SECURITIES TO BE REGISTERED        REGISTERED(1)     PER SHARE(2)       OFFERING PRICE(2)      FEE(2)(3)
                                                               
<S>                                           <C>              <C>                 <C>
      ==================================================================================================================
      Common Stock, $.001 par value             6,232,290          $7.125           $44,405,066           $15,312
      ==================================================================================================================
</TABLE>

(1)  Represents the maximum number of shares of common stock issuable upon the
     consummation of the merger (the "Merger") of Bio-Dental Technologies
     Corporation ("Bio-Dental") and Zila Merger Corporation ("Merger Sub"), a
     wholly owned subsidiary of Zila, Inc. ("Zila"), assuming the conversion
     pursuant to the Merger of (i) each of the 6,894,400 shares of common stock,
     $.01 par value, of Bio-Dental (the "Bio-Dental Common Stock") expected to
     be outstanding on the closing date for up to 0.825 shares of common stock,
     $.001 par value, of Zila (the "Zila Common Stock"); and (ii) each of the
     659,891 outstanding vested and unvested options to purchase Bio-Dental
     Common Stock for an option to purchase 0.825 shares of Zila Common Stock.
    

(2)  Estimated solely for purposes of calculating the registration fee based on
     the average of the closing bid and asked prices of the Zila Common Stock as
     reported by The Nasdaq SmallCap Market on August 8, 1996 ($7.125 per
     share).

   
(3)  A fee of $15,288 was previously paid by the Registrant in connection with
     the filing of the Registration Statement on August 14, 1996, and an
     additional $24 is being paid in connection with the filing of this
     Amendment No. 1 to the Registration Statement to reflect an increase in the
     number of shares of Zila Common Stock registered hereby from 6,222,584 to
     6,232,290.
    

                         -------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.


                                      iii
<PAGE>   4
                 CROSS REFERENCE SHEET SHOWING LOCATION IN PROXY
        STATEMENT/PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4

<TABLE>
<CAPTION>
                          FORM S-4 ITEM                                    PROXY STATEMENT/PROSPECTUS CAPTION
                          -------------                                    ----------------------------------
<S>                                                            <C>                           
  1.    Forepart of the Registration Statement
        and Outside Front Cover Page of
        Prospectus ......................................      Facing Page of Registration Statement; Outside Front
                                                               Cover Page of Prospectus

  2.    Inside Front and Outside Back Cover Pages
        of Prospectus....................................      Table of Contents; Available Information

  3.    Risk Factors, Ratio of Earnings to Fixed
        Charges and Other Information....................      Summary; Investment Considerations;  Annual
                                                               Report to Stockholders for the fiscal year ended July
                                                               31, 1995 and Quarterly Report on Form 10-Q for the
                                                               fiscal quarter ended April 30, 1996 of Zila delivered
                                                               to stockholders with Proxy Statement/Prospectus
                                                               included herein

  4.    Terms of the Transaction ........................      Summary; The Merger

  5.    Pro Forma Financial Information..................      Unaudited Pro Forma Financial Information

  6.    Material Contacts with the Company being
        Acquired ........................................      Not Applicable

  7.    Additional Information Required for
        Reoffering by Persons and Parties Deemed
        to be Underwriters ..............................      Not Applicable

  8.    Interests of Named Experts and Counsel...........      Experts; Legal Matters

  9.    Disclosure of Commission Position on
        Indemnification for Securities Act
        Liabilities......................................      Not Applicable

  10.   Information with Respect to S-3 Registrants......

                                                               Not Applicable

  11.   Incorporation of Certain Information by
        Reference........................................      Not Applicable

  12.   Information with Respect to S-2 or S-3
        Registrants......................................      The Merger; Summary; Unaudited Pro Forma
                                                               Financial Information; Market Price Information;
                                                               Annual Report to Stockholders for the fiscal year
                                                               ended July 31, 1995 and Quarterly Report on Form
                                                               10-Q for the fiscal quarter ended April 30, 1996 of
                                                               Zila, delivered to stockholders with Proxy
                                                               Statement/Prospectus included herein

  13.   Incorporation of Certain Information by
        Reference .......................................      Incorporation of Certain Documents by Reference
</TABLE>



                                      iv
<PAGE>   5
<TABLE>
<CAPTION>
                          FORM S-4 ITEM                                    PROXY STATEMENT/PROSPECTUS CAPTION
                          -------------                                    ----------------------------------
<S>                                                            <C>                           
  14.   Information with Respect to Registrants
        Other than S-3 or S-2 Registrants................      Not Applicable

  15.   Information with Respect to S-3 Companies
        .................................................      Not Applicable

  16.   Information with Respect to S-2 or S-3
        Companies .......................................      The Merger; Summary; Unaudited Pro Forma
                                                               Financial Information; Annual Report to
                                                               Stockholders for the fiscal year
                                                               ended March 31, 1996 of
                                                               Bio-Dental, delivered to
                                                               stockholders with Proxy
                                                               Statement/Prospectus included herein

  17.   Information with Respect to Companies
        Other Than S-3 or S-2 Companies..................      Not Applicable

  18.   Information if Proxies, Consents or
        Authorizations are to be Solicited...............      Summary; The Special Meeting; The Merger;
                                                               Directors and Executive Officers; Security
                                                               Ownership of Principal Stockholders and
                                                               Management

  19.   Information if Proxies, Consents or
        Authorizations are not to be Solicited in an
        Exchange Offer ..................................      Not Applicable
</TABLE>


                                       v
<PAGE>   6
                       BIO-DENTAL TECHNOLOGIES CORPORATION
                            11291 SUNRISE PARK DRIVE
                        RANCHO CORDOVA, CALIFORNIA 95742

                           NOTICE AND PROXY STATEMENT
                       FOR SPECIAL MEETING OF STOCKHOLDERS

   
                         TO BE HELD ON OCTOBER 25, 1996
    

                       -----------------------------------

To The Stockholders of
Bio-Dental Technologies Corporation:

   
         A Special Meeting of Stockholders (the "Special Meeting") of Bio-Dental
Technologies Corporation ("Bio-Dental") will be held at the Sheraton Sunrise
Hotel, 11211 Point East Drive, Rancho Cordova, California, on October 25, 1996,
beginning at 9:00 a.m. Pacific Standard Time.
    

         At the meeting you will be asked to consider and vote upon a proposal
relating to the merger (the "Merger") of Bio-Dental and Zila Merger Corporation
("Merger Sub"), a wholly owned subsidiary of Zila, Inc. ("Zila") pursuant to the
Merger Agreement dated August 8, 1996 (the "Merger Agreement"), among
Bio-Dental, Zila and Merger Sub, set forth as Appendix A to the enclosed Proxy
Statement/Prospectus, and to transact any other business that may properly come
before the meeting.

   
         If the Merger Agreement and the Merger are approved by the stockholders
of Bio-Dental and the Merger becomes effective, (i) Bio-Dental will become a
wholly owned subsidiary of Zila by merger of the Merger Sub with and into
Bio-Dental, (ii) the stockholders of Bio-Dental, by such merger, will become
stockholders of Zila, as each presently outstanding share of common stock, $.01
par value, of Bio-Dental (the "Bio-Dental Common Stock") will be converted into
a fraction of a share of the common stock, $.001 par value, of Zila (the "Zila
Common Stock") as determined pursuant to a formula set forth in the Proxy
Statement/Prospectus under the caption "THE MERGER--Conversion of Shares," (iii)
each outstanding option to purchase Bio-Dental Common Stock will be converted
into an option to purchase a number of shares of Zila Common Stock, at an
exercise price per share, determined pursuant to a formula set forth in the
Proxy Statement/Prospectus under the caption "THE MERGER--Bio-Dental Options,"
and (iv) the separate existence of the Merger Sub (except as may be continued by
operation of law) shall cease, and Bio-Dental shall continue as the surviving
corporation under the name "Bio-Dental Technologies Corporation" or such other
name as may be determined.
    

         Details of the proposed Merger and other important information
concerning Bio-Dental, Zila and the Merger Sub, including certain pro forma
financial information, appear in the accompanying Proxy Statement/Prospectus and
the materials delivered therewith. Please give this material your careful
consideration.
<PAGE>   7
   
         The Board of Directors has fixed the close of business on September 6,
1996 as the record date for the determination of stockholders entitled to
receive notice of and to vote at the Special Meeting or any adjournment thereof.
Shares of common stock can be voted at the Special Meeting only if the holder is
present at the Special Meeting in person or by valid proxy. Adoption and
approval of the Merger Agreement and approval of the Merger requires the
affirmative vote of a majority of the outstanding shares of Bio-Dental Common
Stock entitled to vote at the Special Meeting.
    

         THE BOARD OF DIRECTORS OF BIO-DENTAL RECOMMENDS THAT STOCKHOLDERS OF
BIO-DENTAL VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE
APPROVAL OF THE MERGER.

         Whether or not you plan to attend the Special Meeting, STOCKHOLDERS ARE
EARNESTLY REQUESTED TO DATE, SIGN AND MAIL THE ENCLOSED PROXY. A POSTAGE PAID
ENVELOPE IS PROVIDED FOR MAILING. If you attend the Special Meeting, you may
vote in person, even if you have returned your proxy card. We greatly appreciate
your assistance in this matter of great importance to the future of Bio-Dental
Technologies Corporation.

                                        By Order of the Board of Directors


                                        Curtis M. Rocca III, President


   
Rancho Cordova, California
September ___, 1996
    





                                       2
<PAGE>   8
                       BIO-DENTAL TECHNOLOGIES CORPORATION
                            11291 SUNRISE PARK DRIVE
                        RANCHO CORDOVA, CALIFORNIA 95742

   
                    NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
                         TO BE HELD ON OCTOBER 25, 1996
    

                       -----------------------------------

   
         Notice is hereby given that a Special Meeting of Stockholders (the
"Special Meeting") of Bio-Dental Technologies Corporation ("Bio-Dental") will be
held at the Sheraton Sunrise Hotel, 11211 Point East Drive, Rancho Cordova,
California, on October 25, 1996, beginning at 9:00 a.m. Pacific Standard Time,
for the following purposes:
    

         1. To consider and vote upon a proposal relating to the merger (the 
            "Merger") of Bio-Dental and Zila Merger Corporation ("Merger Sub"),
            a wholly owned subsidiary of Zila, Inc. ("Zila"), pursuant to the 
            Merger Agreement dated August 8, 1996 (the "Merger Agreement"),
            among Bio-Dental, Zila and Merger Sub, set forth as Appendix A to 
            the enclosed Proxy Statement/Prospectus; and

         2. To transact such other business as may properly come before the 
            Special Meeting. Management is presently aware of no other business
            to come before the Special Meeting.

   
         The Board of Directors has fixed the close of business on September 6,
1996 as the record date for the determination of stockholders entitled to
receive notice of and to vote at the Special Meeting or any adjournment thereof.
Shares of common stock can be voted at the Special Meeting only if the holder is
present at the Special Meeting in person or by valid proxy. Management of
Bio-Dental cordially invites you to attend the Special Meeting.
    

         Your attention is directed to the attached Proxy Statement/Prospectus
and the materials delivered therewith.

                                          By Order of the Board of Directors


                                          Curtis M. Rocca III, President

   
Rancho Cordova, California
September ____, 1996
    

                                    IMPORTANT

STOCKHOLDERS ARE EARNESTLY REQUESTED TO DATE, SIGN AND MAIL THE ENCLOSED PROXY.
A POSTAGE PAID ENVELOPE IS PROVIDED FOR MAILING.


                                       3
<PAGE>   9
                                TABLE OF CONTENTS

Available Information.........................................................3

Incorporation of Certain Documents by Reference...............................5

Documents that Accompany this Proxy Statement/Prospectus......................5

Summary.......................................................................7

         The Special Meeting..................................................7
         Proposed Merger......................................................7
         Parties to the Merger................................................8
         Reasons for the Merger...............................................8
         Opinion of Financial Advisor.........................................9
         Determinations of Boards of Directors................................9
         Potential Adverse Consequences of Merger.............................9
         Stockholder Approval................................................10
         Conditions to the Merger............................................10
         Dissenters' Rights..................................................11
         Solicitation of Proxies.............................................11
         Affiliate Agreements................................................11
         Nasdaq..............................................................12
         Options.............................................................12
         Market Price Information............................................12
                  Zila Common Stock..........................................12
                  Bio-Dental Common Stock....................................13
                  Dividends..................................................14
         Termination and Break-Up Fees.......................................14
         Accounting Treatment................................................14
         Merger Expenses.....................................................15
         Waivers and Amendments..............................................15
         Regulatory Matters..................................................15
         Post-Merger Management..............................................15
         Federal Income Tax Consequences.....................................16

Selected Financial Data......................................................17

Comparative Per Share Data...................................................20

Investment Considerations....................................................22

         No Assurance of Profitable Operations...............................22
         Litigation..........................................................22
         Competition; Research and Development...............................23
         Government Regulation...............................................23
         OraTest Approval....................................................24


                                        i
<PAGE>   10
         Combination of the Companies........................................24
         Dependence on Key Personnel.........................................25
         Dependence on Proprietary Rights....................................26
         Possible Claims Relating to Products................................26
         No Cash Dividends...................................................26
         Possible Volatility of Zila Common Stock Price......................26
         Market for Zila Common Stock........................................27
         Charter and Bylaw Provisions........................................27
         Warrants and Options................................................27
         Shares Eligible for Future Sale.....................................28
         Transaction Risks...................................................29
                  Certain Effects of the Merger..............................29
                  Corporate Governance of Zila Governed by
                    Different Law than Bio-Dental............................29
                  Potential Difficulty Implementing
                    Marketing Strategy.......................................29
                  Dilution...................................................29
                  Uncertainty of Market Value of
                    Zila Common Stock........................................30

Unaudited Pro Forma Financial Information....................................31

The Special Meeting..........................................................46

The Merger...................................................................47

         Introduction........................................................47
         Description of the Merger...........................................47
         Conversion of Shares................................................48
         Bio-Dental Options..................................................49
         Bio-Dental Warrants.................................................49
         Reasons for the Merger..............................................50
                  Combined Reasons for the Merger............................50
                  Zila's Reasons for the Merger..............................51
                  Bio-Dental's Reasons for the Merger........................53
         Potential Adverse Consequences of Merger............................54
         Opinion of Financial Advisor........................................54
         Stockholder Approval................................................55
         Dissenters' Rights..................................................55
         Capitalization of Zila..............................................58
                  Zila Common Stock..........................................58
                  Zila Preferred Stock.......................................58
                  Zila Warrants..............................................59
                  Zila Options...............................................59
                  Potential Anti-Takeover Effects............................59
                  Zila Common Stock Validly Issued...........................60
         Market Value of Common Stock........................................60


                                       ii
<PAGE>   11
         Post-Merger Board of Directors and Management.......................60
         Conditions to Consummation of the Merger............................60
         Termination and Break-Up Fees.......................................61
                  Termination................................................61
                  Break-Up Fees..............................................61
         Waiver and Amendments...............................................62
         Affiliates Agreements...............................................62
         Certain Differences Between Delaware and
           California Corporation Law........................................62
                  Cumulative Voting..........................................63
                  Stockholder Power to Call Special
                    Stockholder Meeting......................................63
                  Dissolution................................................63
                  Size of Board of Directors.................................64
                  Classified Board of Directors..............................64
                  Removal of Directors.......................................64
                  Actions by Written Consent of Stockholders.................65
                  Voting Requirements........................................65
                  Rights of Dissenting Stockholders..........................66
                  Inspection of Stockholders List............................66
                  Dividends..................................................67
                  Bylaws.....................................................67
                  Preemptive Rights..........................................67
                  Transactions Involving Officers or Directors...............68
                  Filling Vacancies on the Board of Directors................68
                  Limitation on Liability of Directors
                    and Indemnification......................................69
                  Business Combinations/Reorganizations......................70
                  Stockholder Derivative Suits...............................71
         Federal Income Tax Consequences of the Merger.......................71
         Accounting Treatment................................................73
         Affiliates' Restrictions on Sale of
           Zila Common Stock.................................................74
         Nasdaq..............................................................74
         Effect on Bio-Dental Common Stock Certificates......................74
         Effect on Assumed Options ..........................................75
         Fractional Shares...................................................75
         Certain Transactions Between Zila and Bio-Dental....................75
         Transfer Agent......................................................75

Directors and Executive Officers.............................................76

         Employment Arrangements.............................................79
         Key Employee Options................................................79

Bio-Dental Stock, Options, Warrants and Dividends............................80


                                       iii
<PAGE>   12
         Bio-Dental Common Stock.............................................80
         Bio-Dental Preferred Stock..........................................80
         Bio-Dental Warrants.................................................80
         Bio-Dental Options..................................................80

Security Ownership of Principal Stockholders and Management..................82

Experts......................................................................85

Legal Matters................................................................85

Appendix A -      Merger Agreement

   
Appendix B -      Sections 1300 through 1312 of the California General
                  Corporation Law
    


                                      iv
<PAGE>   13
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

   
                SUBJECT TO COMPLETION, DATED SEPTEMBER ___, 1996
    

                           PROXY STATEMENT/PROSPECTUS
                                 PROXY STATEMENT
                       BIO-DENTAL TECHNOLOGIES CORPORATION
                           (a California corporation)

   
           Special Meeting of Stockholders to be held October 25, 1996
    

                                   PROSPECTUS
                                   ZILA, INC.

                            (a Delaware corporation)

   
                        6,232,290 Shares of Common Stock
    

                       -----------------------------------

   
         This Proxy Statement/Prospectus (i) constitutes the Proxy Statement of
Bio-Dental Technologies Corporation, a California corporation ("Bio-Dental"), to
be used in soliciting proxies of its stockholders in connection with the
proposed merger (the "Merger") of Bio-Dental and Zila Merger Corporation
("Merger Sub"), a wholly owned subsidiary of Zila, Inc. ("Zila"); and (ii)
constitutes the Prospectus of Zila with respect to the securities to be issued
in connection with the Merger. Zila has filed a Registration Statement with the
Securities and Exchange Commission (the "Commission") covering up to 6,232,290
shares of its common stock, $.001 par value (the "Zila Common Stock"), to be
issued on conversion of all outstanding shares of common stock, $.01 par value,
of Bio-Dental (the "Bio-Dental Common Stock") into shares of Zila Common Stock
pursuant to the Merger and upon the exercise of options to purchase Bio-Dental
Common Stock which are converted into options to purchase Zila Common Stock
pursuant to the Merger.

         Upon consummation of the Merger: (i) Bio-Dental will become a wholly
owned subsidiary of Zila by merger of the Merger Sub with and into Bio-Dental,
(ii) the stockholders of Bio-Dental, by such merger, will become stockholders of
Zila, as each presently outstanding share of Bio-Dental Common Stock will be
converted into a fraction of a share of Zila Common Stock as determined pursuant
to a formula set forth under "THE MERGER--Conversion of Shares," (iii) each
outstanding option to purchase Bio-Dental Common Stock will be converted into an
option to purchase a number of shares of Zila Common Stock, at an exercise price
per share, determined pursuant to a formula set forth under "THE
MERGER--Bio-Dental Options," and (iv) the separate existence of the Merger Sub
(except as may be continued by operation of law) shall cease, and Bio-Dental
shall continue as the surviving corporation under the name "Bio-Dental
Technologies Corporation" or such other name as may be determined. See "THE
MERGER--Description of the Merger."

         The enclosed proxy is solicited by the Board of Directors of
Bio-Dental, in connection with Bio-Dental's Special Meeting of Stockholders (the
"Special Meeting") to be held on October 25, 1996. The proxy materials were
first mailed on or about September ___, 1996 to Bio-Dental's common stockholders
(the "Stockholders") of record at the close of business on 
    
<PAGE>   14
   
September 6, 1996 (the "Record Date"). Bio-Dental will bear the cost of
solicitation of proxies. In addition to the use of the mail, proxies may be
solicited by personal interview, telephone or telegraph.

         On September ___, 1996, the last trading day prior to the date of this
Proxy Statement/Prospectus, the last reported sale price for Zila Common Stock
was $______ per share and the last reported sale price for Bio-Dental Common
Stock was $______ per share.
    

          FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
           BY PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS."

                                 --------------


         THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
         SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
         COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
         STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
         OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
         CONTRARY IS A CRIMINAL OFFENSE.

                               --------------



   
      The date of this Proxy Statement/Prospectus is September ___, 1996.
    



                                       2
<PAGE>   15
NO PERSON HAS BEEN AUTHORIZED BY ZILA OR BIO-DENTAL TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY ZILA OR BIO-DENTAL. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS OR A
SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.

NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.

                              AVAILABLE INFORMATION

         Zila and Bio-Dental are both subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can also be obtained at prescribed rates
from the Public Reference section of the Commission at its principal office at
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Zila Common
Stock is listed on The Nasdaq SmallCap Market and the Bio-Dental Common Stock is
listed on The Nasdaq National Market, and similar information can be inspected
and copied at The Nasdaq Stock Market, 1735 K Street N.W., Washington D.C.
20006. It is expected that Zila will continue to be subject to the same SEC
informational requirements following the Merger. Zila intends to seek approval
for listing of the Zila Common Stock on The Nasdaq National Market effective on
or prior to the closing date of the Merger.

         Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Bio-Dental to approve and adopt the Merger
Agreement and the Merger constitutes an offering of the Zila Common Stock to be
issued in connection with the Merger. Accordingly, Zila has filed with the
Commission a Registration Statement on Form S-4 with respect to such offering
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Proxy Statement/Prospectus constitutes the prospectus that is a part of the
Registration Statement. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits 


                                       3
<PAGE>   16
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and related exhibits for further information
with respect to Zila and the securities offered hereby. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.


                                       4
<PAGE>   17


                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

   
         This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Zila and Bio-Dental hereby
undertake to provide without charge to each person to whom a Proxy
Statement/Prospectus is delivered upon written or oral request of any such
person, a copy of any document incorporated herein by reference (not including
exhibits to such documents unless such exhibits are specifically incorporated by
reference in the document which this Proxy Statement/Prospectus incorporates).
Requests for documents relating to Zila should be directed to Secretary, Zila,
Inc., 5227 North 7th Street, Phoenix, Arizona 85014-2800 (telephone (602)
266-6700), and requests for documents relating to Bio-Dental should be directed
to Secretary, Bio-Dental Technologies Corporation, 11291 Sunrise Park Drive,
Rancho Cordova, California 95742 (telephone (916) 638-8147). In order to ensure
timely delivery of such documents and information, any request should be made by
October 18, 1996.

         The following documents previously filed with the Commission by Zila
(File No. 0-17521) and Bio-Dental (File No. 0-19293) are incorporated by
reference into this Proxy Statement/Prospectus and made a part hereof: (a)
Zila's Annual Report on Form 10-K for the fiscal year ended July 31, 1995; (b)
Zila's Annual Report to Stockholders for the fiscal year ended July 31, 1995;
(c) Zila's Quarterly Report on Form 10-Q for the fiscal quarter ended October
31, 1995; (d) Zila's Quarterly Report on Form 10-Q for the fiscal quarter ended
January 31, 1996; (e) Zila's Current Reports on Form 8-K dated February 1, 1996,
April 30, 1996, June 3, 1996 and August 8, 1996; (f) Zila's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 30, 1996; (g) Bio-Dental's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1996; (h) Bio-Dental's
Annual Report to Stockholders for the fiscal year ended March 31, 1996; (i)
Bio-Dental's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996; and (j) Bio-Dental's Current Reports on Form 8-K dated June 7, 1996, July
22, 1996 and August 8, 1996.
    

         Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any subsequently filed report or document that is also
deemed to be incorporated by reference herein modifies or supersedes such a
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.

            DOCUMENTS THAT ACCOMPANY THIS PROXY STATEMENT/PROSPECTUS

         Copies of the following documents are being delivered with this Proxy
Statement/Prospectus: (a) Zila's Annual Report to Stockholders for the fiscal
year ended July 31, 1995; (b) Zila's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 30, 1996; and (c) Bio-Dental's Annual Report to
Stockholders for the fiscal year ended March 31, 1996.

         Any statement contained in any of the foregoing documents shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
subsequently filed document that is deemed to be 


                                       5
<PAGE>   18
incorporated herein modifies or supersedes such a statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus or other
materials delivered herewith.


                                       6
<PAGE>   19
                                     SUMMARY

         The following is a brief summary of certain information contained in
this Proxy Statement/Prospectus. This Summary does not purport to be complete
and is qualified in its entirety by reference to the remainder of this Proxy
Statement/Prospectus and the Appendices attached hereto. Stockholders of
Bio-Dental are urged to read this Proxy Statement/Prospectus and the Appendices
in their entirety.

THE SPECIAL MEETING

   
         This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of Bio-Dental Technologies Corporation, a
California corporation ("Bio-Dental"), of proxies to be used at the Special
Meeting of Stockholders of Bio-Dental to be held on October 25, 1996 (the
"Special Meeting"). At the Special Meeting, Bio-Dental's stockholders will
consider and vote on a proposal to approve and adopt a Merger Agreement dated
August 8, 1996 (the "Merger Agreement") among Bio-Dental, Zila and Merger Sub
and the Merger. See "THE SPECIAL MEETING."
    

PROPOSED MERGER

         Upon the Effective Date (as defined below) of the Merger: (i)
Bio-Dental will become a wholly owned subsidiary of Zila by merger of the Merger
Sub with and into Bio-Dental; (ii) the stockholders of Bio-Dental, by such
merger, will become stockholders of Zila, as each presently outstanding share of
common stock, $.01 par value, of Bio-Dental (the "Bio-Dental Common Stock") will
be converted into 0.825 shares of the common stock, $.001 par value, of Zila
(the "Zila Common Stock"); provided that if the average closing bid price for
Zila Common Stock as reported by The Nasdaq SmallCap Market during the ten
trading days ending on the trading day that is five trading days prior to the
Closing Date (the "Calculation Period") is less than $6.00 per share, each share
of Bio-Dental Common Stock will be converted into a number of shares of Zila
Common Stock that is equivalent in value to $4.95 as calculated based on the
average closing bid price for Zila Common Stock as reported by The Nasdaq
SmallCap Market during the Calculation Period, and provided further that if the
average closing bid price for Zila Common Stock as reported by The Nasdaq
SmallCap Market during the Calculation Period is greater than $7.75 per share,
each share of Bio-Dental Common Stock will be converted into the greater of (A)
0.75 shares of Zila Common Stock, or (B) a number of shares of Zila Common Stock
that is equivalent in value to $6.39 as calculated based on the average closing
bid price for Zila Common Stock as reported by The Nasdaq SmallCap Market during
the calculation period; (iii) each outstanding option to purchase Bio-Dental
Common Stock will be converted into an option to purchase a number of shares of
Zila Common Stock equal to the number of shares of Zila Common Stock which the
holder of such option would have received in the Merger in exchange for the
shares of Bio-Dental Common Stock subject to such option if such option had been
exercised immediately prior to the Effective Date, at an exercise price per
share determined by dividing the exercise price per share of Bio-Dental Common
Stock subject to such option, as in effect immediately prior to the Effective
Date, by a fraction the numerator of which is the number of shares of Zila
Common Stock subject to such option immediately after the Effective Date and the
denominator of which is the number of shares of Bio-Dental Common Stock subject
to such option immediately prior to the Effective Date and 


                                       7
<PAGE>   20
rounding the resulting per-share exercise price up to the nearest whole cent;
and (iv) the separate existence of the Merger Sub (except as may be continued by
operation of law) shall cease, and Bio-Dental shall continue as the surviving
corporation. The "Effective Date" shall be the date that the Articles of Merger
are filed with and approved by the Delaware Secretary of State and the
California Secretary of State. See "THE MERGER--Description of the Merger,"
"--Conversion of Shares" and "--Bio-Dental Options."

   
         Following the Merger, Zila will continue the present operations of
Bio-Dental under the name "Bio-Dental Technologies Corporation" or such other
name as may be determined. It is currently anticipated that the Merger will be
consummated promptly following the Special Meeting. See "THE MERGER--Description
of the Merger."
    

PARTIES TO THE MERGER

         Bio-Dental is a dental supply company which, through its wholly owned
subsidiaries, markets and distributes a broad range of professional dental
supplies and computer-based dental technology systems. The address of Bio-Dental
is 11291 Sunrise Park Drive, Rancho Cordova, California 95742, and the telephone
number is (916) 638-8147.

         Zila is a pharmaceutical company which, through its wholly owned
subsidiaries, markets and sells over-the-counter, non-prescription oral and
dermatological products in the United States and abroad. The address of Zila is
5227 North 7th Street, Phoenix, Arizona 85014-2800, and the telephone number is
(602) 266-6700.

REASONS FOR THE MERGER

         In the discussions that led to the signing of the Merger Agreement,
Zila and Bio-Dental identified a number of potential joint benefits resulting
from the Merger, as well as a number of benefits to Zila and Bio-Dental
individually. The potential benefits of the Merger accruing to both Zila and
Bio-Dental include: (i) improved sales performance as a result of greater
financial strength and stability; (ii) mutual benefits resulting from the
distribution of Zila's oral cancer diagnostic known as "OraTest" if FDA approval
is received; (iii) the combination of complementary businesses and resources;
(iv) improved competitive position through increased revenues and resources; (v)
enhanced ability to attract and retain skilled employees; (vi) cost savings
through economies of scale resulting from a combined company with greater
revenues and resources; and (vii) the elimination of redundancies which result
from the separate existence of two public companies and the achievement of cost
savings as a result. See "INVESTMENT CONSIDERATIONS--OraTest Approval" and "THE
MERGER--Reasons for the Merger--Combined Reasons for the Merger."

         In addition to the potential benefits described above, the Board of
Directors of Zila identified a number of potential benefits accruing to Zila
individually as a result of the Merger, including: (i) the opportunity to
utilize Bio-Dental's existing marketing and distribution resources; (ii) the
opportunity to increase the sales of Zila products to dental health care
professionals served by Bio-Dental; (iii) diversification of Zila's businesses
and product offerings; and (iv) cost savings through increased vertical
integration of Zila's business. The Board of Directors of Zila also considered a
number of other factors in its deliberations 


                                       8
<PAGE>   21
concerning the Merger. See "THE MERGER--Reasons for the Merger--Zila's Reasons
for the Merger."

         The Board of Directors of Bio-Dental also identified a number of
potential benefits accruing to Bio-Dental individually as a result of the
Merger, including: (i) the opportunity to use pull-through volume generated by
sales of Zila products to increase sales of other products offered by
Bio-Dental; and (ii) benefits resulting from becoming the exclusive United
States distributor of OraTest to dentists nationwide if FDA approval for the
sale of OraTest in the United States is granted. The Board of Directors of
Bio-Dental also considered a number of other factors in its deliberations
concerning the Merger. See "THE MERGER--Reasons for the Merger--Bio-Dental's
Reasons for the Merger."

         The potential benefits of the Merger to Zila and Bio-Dental depend to a
substantial degree upon the ability of Zila and Bio-Dental to market and
distribute OraTest in the United States. Zila has not yet received FDA approval
for the sale of OraTest in the United States, and there can be no assurance that
such approval will be received. If the FDA does not approve OraTest for sale in
the United States, it may be difficult or impossible for Zila and Bio-Dental to
realize many of the potential benefits of the Merger. See "INVESTMENT
CONSIDERATIONS--OraTest Approval" and "THE MERGER--Reasons for the Merger."

OPINION OF FINANCIAL ADVISOR

   
         Bio-Dental has engaged Cleary, Gull, Reiland & McDevitt as financial
advisor to render an opinion regarding the fairness from a financial point of
view of the consideration to be received by holders of Bio-Dental Common Stock
in the Merger. The Merger Agreement provides that the receipt of such opinion by
Bio-Dental is a condition precedent to Bio-Dental's obligation to consummate the
Merger. See "THE MERGER--Opinion of Financial Advisor."
    

DETERMINATIONS OF BOARDS OF DIRECTORS

         The Board of Directors of Zila has unanimously approved the Merger
Agreement and the Merger and has determined that the Merger is in the best
interests of Zila and its stockholders. The primary factors considered and
relied upon by the Board of Directors of Zila in reaching its determination are
described in "THE MERGER--Reasons for the Merger."

         The Board of Directors of Bio-Dental has unanimously approved the
Merger Agreement and the Merger and has determined that the Merger is in the
best interests of Bio-Dental and its stockholders. The Board of Directors of
Bio-Dental unanimously recommends approval and adoption of the Merger Agreement
and the Merger by the Bio-Dental stockholders. The primary factors considered
and relied upon by the Board of Directors of Bio-Dental in reaching its
determination and recommendation are described in "THE MERGER--Reasons for the
Merger."

POTENTIAL ADVERSE CONSEQUENCES OF MERGER

         Notwithstanding the belief of the Boards of Directors of Zila and
Bio-Dental regarding the potential benefits of the Merger, stockholders should
realize that there may be certain negative consequences of the Merger, including
the fact that the rights of holders of Zila 


                                       9
<PAGE>   22
Common Stock will differ in certain respects from the rights of holders of
Bio-Dental Common Stock. Such differences are due in large part to the fact that
Zila is a Delaware corporation governed by the Delaware General Corporation Law
and Bio-Dental is a California corporation governed by the California General
Corporation Law. See "THE MERGER----Certain Differences Between Delaware and
California Corporation Law." The integration of the businesses of Bio-Dental and
Zila will require substantial attention of the companies' management, and the
diversion of the attention of management from other aspects of the companies'
businesses, and any difficulties encountered in the implementation process,
could have an adverse impact on the businesses of Zila and Bio-Dental. In
addition, the issuance of Zila Common Stock in connection with the Merger will
have a dilutive effect on existing Zila Common Stock, and there is no assurance
that the Merger will result in sufficient revenue growth or other business
synergies to offset such dilutive effect. See "INVESTMENT
CONSIDERATIONS--Transaction Risks" and "THE MERGER--Potential Adverse
Consequences of Merger."

STOCKHOLDER APPROVAL

   
         The affirmative vote of the holders of a majority of the outstanding
shares of Bio-Dental Common Stock entitled to vote at the Special Meeting is
required for adoption of the Merger Agreement. The close of business on
September 6, 1996 has been fixed by Bio-Dental's Board of Directors as the
record date for determination of the holders of Bio-Dental Common Stock entitled
to notice of and to vote at the Special Meeting. On such date, there were
6,444,400 shares of Bio-Dental Common Stock outstanding and entitled to vote at
the Special Meeting.

        Bio-Dental's present directors and officers (and their affiliates)
control approximately 5.3 percent of the outstanding Bio-Dental Common Stock and
have agreed to vote such stock FOR approval of the Merger Agreement and the
Merger. See "THE MERGER--Affiliate Agreements."
    

CONDITIONS TO THE MERGER

         In addition to the requirement that the approval of the stockholders of
Bio-Dental be received, consummation of the Merger is subject to a number of
other conditions that, if not satisfied or waived, may cause the Merger not to
be consummated and the Merger Agreement to be terminated. Each party's
obligation to consummate the Merger is conditioned upon, among other things, the
accuracy of the other party's representations, the other party's performance of
its covenants, the absence of a material adverse change with respect to the
other party, favorable legal opinions (including opinions to the effect that the
Merger will be treated for federal income tax purposes as a tax-free
reorganization), and the absence of legal action preventing consummation of the
Merger.

         Zila's obligation to consummate the Merger will be further conditioned
upon (i) the receipt of a letter from Deloitte & Touche LLP that the Merger will
be treated as a "pooling of interests" for accounting purposes, and (ii) holders
of no more than 5 percent of the Bio-Dental Common Stock being eligible to
exercise dissenters' rights of appraisal under California law. See "THE
MERGER--Dissenters' Rights" and "--Accounting Treatment."


                                       10
<PAGE>   23
DISSENTERS' RIGHTS

         If the Merger Agreement is approved by the required vote of Bio-Dental
stockholders and is not abandoned or terminated, holders of Bio-Dental Common
Stock may, by complying with the California General Corporation Law (the
"CGCL"), Sections 1300 through 1312, be entitled to dissenters' rights as
described therein. However, it is a condition to Zila's obligation to consummate
the Merger that not more than 5 percent of the shares of Bio-Dental Common Stock
be eligible to exercise dissenters' rights. See "THE MERGER--Dissenters'
Rights."

SOLICITATION OF PROXIES

   
         Bio-Dental will bear the cost of solicitation of proxies on behalf of
the Board of Directors. In addition to soliciting proxies by mail, directors,
officers and employees of Bio-Dental, without receiving additional compensation
therefor, may solicit proxies by telephone, by telegram or in person.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of such solicitation materials to
the beneficial owners of shares held of record by such persons, and Bio-Dental
will reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith.
Bio-Dental has retained Corporate Investor Communications, Inc., a proxy
solicitation firm, to assist in the solicitation of proxies in connection with
the Special Meeting for a fee estimated at $10,000.
    

AFFILIATE AGREEMENTS

         To help ensure that the Merger will be accounted for as a "pooling of
interests," the executive officers and directors of Zila and Bio-Dental have
executed Affiliate Agreements that prohibit such persons from disposing of their
shares during the period commencing 30 days prior to the closing date of the
Merger (the "Closing Date") and ending when Zila first publicly releases its
quarterly financial statements which include at least 30 days of combined
financial results of Zila and Bio-Dental and, in the case of executive officers
and directors of Bio-Dental, require such persons to vote shares of Bio-Dental
Common Stock in favor of the Merger Agreement and the Merger. Pursuant to such
Affiliate Agreements, executive officers and directors of Bio-Dental have also
acknowledged the resale restrictions imposed by Rule 145 promulgated under the
Securities Act on shares received by them in the Merger. In addition, certain
stockholders of Bio-Dental will also sign agreements making certain
representations regarding the "continuity of interest" requirements for a
tax-free reorganization. See "--Federal Income Tax Consequences" and "THE
MERGER--Accounting Treatment."

NASDAQ

         Although Zila Common Stock is currently listed on The Nasdaq SmallCap
Market under the symbol "ZILA," Zila has applied for listing of Zila Common
Stock on The Nasdaq National Market and expects to receive approval for such
listing prior to or concurrently with consummation of the Merger. If such
approval is not timely received, the Zila Common Stock to be issued in the
Merger will be designated for trading on The Nasdaq SmallCap Market. The Zila
Common Stock will be freely transferable, subject to resale restrictions
contained in 


                                       11
<PAGE>   24
Affiliate Agreements between Zila and Bio-Dental and their respective affiliates
and as otherwise imposed on affiliates by Rule 145 under the Securities Act. See
"--Affiliate Agreements."

OPTIONS

         Upon consummation of the Merger, each outstanding option to purchase
Bio-Dental Common Stock will be converted into an option to purchase a number of
shares of Zila Common Stock, at an exercise price per share, determined pursuant
to a formula set forth in the Proxy Statement/Prospectus under the caption "THE
MERGER--Bio-Dental Options."

MARKET PRICE INFORMATION

         Information regarding the market for Zila Common Stock and Bio-Dental
Common Stock and related stockholder matters is set forth below. The following
table sets forth, for the fiscal periods shown, the high and low bid quotations
in dollars per share for Zila Common Stock as reported by The Nasdaq SmallCap
Market and the high and low sales prices for Bio-Dental Common Stock, as
reported by The Nasdaq National Market.

             Zila Common Stock

<TABLE>
<CAPTION>
                                                             High        Low
                                                             ----        ---
              Fiscal Year Ended July 31, 1994
              -------------------------------
<S>                                                        <C>        <C>
              First Quarter                                  3 1/2      2 7/16
              Second Quarter                                 3 11/16    2 15/16
              Third Quarter                                  4 9/16     3 1/4
              Fourth Quarter                                 4          2 7/16

              Fiscal Year Ended July 31, 1995
              -------------------------------
              First Quarter                                  4 1/4      3 7/16
              Second Quarter                                 3 5/8      2 7/8
              Third Quarter                                  3 11/16    2 13/16
              Fourth Quarter                                 4 3/8      3

              Fiscal Year Ended July 31, 1996
              -------------------------------
              First Quarter                                  4 1/2      3 3/4
              Second Quarter                                 5 7/8      3 3/4
              Third Quarter                                 10 1/4      3 5/8
              Fourth Quarter (through July 24, 1996)         9 1/8      6 3/8
</TABLE>


                                       12
<PAGE>   25
         The number of stockholder accounts of record of the Zila Common Stock
as of July 31, 1995 and July 24, 1996, was approximately 3,326 and 3,032,
respectively. There were no stockholders of record of Zila's preferred stock as
of July 24, 1996.

         Bio-Dental Common Stock

<TABLE>
<CAPTION>
                                                     High             Low
                                                     ----             ---
<S>                                                  <C>              <C> 
              Fiscal Year Ended March 31, 1995
              First Quarter                          5 7/8            3 3/4
              Second Quarter                         5 3/8            3 7/8
              Third Quarter                          4 1/4            2 3/4
              Fourth Quarter                         5 3/8            2 7/8

              Fiscal Year Ended March 31, 1996
              First Quarter                          4 3/4            3 1/8
              Second Quarter                         4 1/8            2 3/4
              Third Quarter                          3 7/8            2 3/8
              Fourth Quarter                         3 1/2            2 1/4
</TABLE>

         The number of stockholder accounts of record of the Bio-Dental Common
Stock as of March 31, 1995 and July 24, 1996 was approximately 910 and 846,
respectively. There were no stockholders of record of Bio-Dental's preferred
stock as of July 24, 1996.

         Dividends

         Zila has not paid dividends on the Zila Common Stock. It is the present
policy of Zila's Board of Directors to retain future earnings to finance the
growth and development of Zila's business. Any future dividends will be at the
discretion of Zila's Board of Directors and will depend upon the financial
condition, capital requirements, earnings and liquidity of Zila as well as other
factors Zila's Board of Directors may deem relevant. Bio-Dental will become a
wholly owned subsidiary of Zila following the Merger, and may from time to time
declare and pay dividends to Zila. Bio-Dental is not aware of any restrictions
at present on its ability to pay dividends.

TERMINATION AND BREAK-UP FEES

         The Merger Agreement may be terminated by mutual agreement of both
parties or by either party (i) as a result of a material breach by the other
party of any covenant or agreement set forth in the Merger Agreement; (ii) if
the timely satisfaction of any of its conditions for closing the Merger has
become impossible; (iii) if any of its closing conditions have not been
satisfied at the "Scheduled Closing Time" (as defined below); or (iv) if the
Closing has not taken place on or before the "Final Date" (as defined below).


                                       13
<PAGE>   26
         The term "Scheduled Closing Time" is defined in the Merger Agreement as
a date to be mutually agreed upon by Zila and Bio-Dental which shall be no later
than the third business day following the Special Meeting. The term "Final Date"
is defined in the Merger Agreement as March 15, 1997, except that if a
temporary, preliminary or permanent injunction or other order by any federal or
state court that would prohibit or otherwise restrain consummation of the Merger
is issued and in effect on such date, and such injunction has not become final
and nonappealable, either Bio-Dental or Zila may, by giving the other written
notice there of on or prior to March 15, 1997, extend the time for consummation
of the Merger up to and including the earlier of the date such injunction
becomes final and nonappealable or May 15, 1997, so long as Bio-Dental or Zila
shall, at its own expense, use its best efforts to have such injunction
dissolved.

         In the event of a termination by Bio-Dental of the Merger Agreement due
to the failure of certain closing conditions deemed by the parties to be within
Zila's reasonable control, Zila would be required to pay Bio-Dental the greater
of (i) the amount of Bio-Dental's documented out of pocket costs and expenses
incurred through the date of termination in connection with the Merger Agreement
and the transactions contemplated thereby, or (ii) $100,000. In the event of a
termination by Zila, due to the failure of any of certain conditions deemed by
the parties to be within Bio-Dental's reasonable control, Bio-Dental would be
required to pay Zila the greater of (i) the amount of Zila's documented out of
pocket costs and expenses incurred through the date of termination in connection
with the Merger Agreement and the transactions contemplated thereby, or (ii)
$100,000. In addition, Bio-Dental would be required to pay Zila the amount set
forth in the preceding sentence if Bio-Dental's stockholders fail to approve the
Merger by sufficient votes to preclude the possibility of more than 5 percent of
the shares of Bio-Dental Common Stock becoming dissenting shares and (i)
Bio-Dental's Board of Directors failed to recommend the Merger or withdrew its
recommendation or (ii) a third party announced its intention to acquire
Bio-Dental prior to the Bio-Dental stockholders' vote on the Merger. See "THE
MERGER--Termination and Break-Up Fees."

ACCOUNTING TREATMENT

         The Merger is intended to be treated as a pooling of interests for
accounting purposes. In connection with the Merger, Zila is to receive a letter
confirming such accounting treatment from Deloitte & Touche LLP, the
independent auditors for Zila. Zila's obligation to consumate the Merger is
conditioned upon, among other things, receipt of such letter. See "THE
MERGER--Accounting Treatment."

MERGER EXPENSES

   
         Zila and Bio-Dental estimate that they will incur direct transaction
costs of approximately $400,000 associated with the Merger. These nonrecurring
transaction costs will be charged to operations as incurred. See "UNAUDITED PRO
FORMA FINANCIAL INFORMATION" included elsewhere herein. Whether or not the
Merger is consummated, except as otherwise set forth herein, each party will
bear its own costs and expenses in connection with the Merger Agreement and the
transactions provided for therein.
    


                                       14
<PAGE>   27
WAIVERS AND AMENDMENTS

         At any time at or prior to consummation of the transactions
contemplated by the Merger Agreement, to the extent legally allowed, Zila or
Bio-Dental, without approval of the stockholders of either such company, may
waive compliance with any of the agreements or conditions contained in the
Merger Agreement for the benefit of that company. Neither Zila nor Bio-Dental
currently intends to waive compliance with any such agreements or conditions.

         The Merger Agreement may be amended by Zila and Bio-Dental at any time
before or after approval of the Bio-Dental stockholders, except that, after such
approval, no amendment may be made that requires the further approval of the
Bio-Dental stockholders under applicable law, unless such approval is obtained.

REGULATORY MATTERS

         Zila and Bio-Dental are not aware of any governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
the corporate laws of Delaware and California, the federal securities laws and
applicable securities and "blue sky" laws of the various states.

POST-MERGER MANAGEMENT

   
         Following the Merger, the business of Bio-Dental will be conducted by
Zila through Bio-Dental Technologies Corporation as a wholly-owned subsidiary of
Zila. In accordance with the Merger Agreement, Zila and Curtis M. Rocca III,
President and Chief Executive Officer of Bio-Dental, have agreed to terms
pursuant to which Mr. Rocca will be employed by Zila following consummation of
the Merger. See "DIRECTORS AND EXECUTIVE OFFICERS--Employment Arrangements." In
addition, two persons designated by Bio-Dental will be appointed to serve on
Zila's Board of Directors. In connection with the Merger, Zila will award
options to purchase Zila Common Stock to certain key employees and executive
officers of Bio-Dental as an incentive for such persons to remain employed by
the combined company following the Merger. See "THE MERGER--Post-Merger Board of
Directors and Management" and "DIRECTORS AND EXECUTIVE OFFICERS."
    

FEDERAL INCOME TAX CONSEQUENCES

   
         Neither Zila nor Bio-Dental has requested a ruling from the Internal
Revenue Service with respect to the Federal income tax consequences of the
Merger under the Internal Revenue Code of 1986, as amended (the "Code"). The
Merger is expected to be a tax-free reorganization for federal income tax
purposes, so that no gain or loss will be recognized by the Bio-Dental
stockholders on the exchange of Bio-Dental Common Stock for Zila Common Stock,
except to the extent that Bio-Dental stockholders receive cash upon exercise of
dissenters' rights. As a condition to Zila's and Bio-Dental's obligations to
consummate the Merger, Zila, Bio-Dental and Bio-Dental's shareholders are to
receive a legal opinion at the Effective Date from Zila's legal counsel that the
Merger will be treated as a tax-free reorganization for federal income tax
purposes. See "THE MERGER--Federal Income Tax Consequences of the Merger."
Because of the many factors which must be taken into account in determining
possible tax 
    

                                       15
<PAGE>   28
consequences of the Merger, stockholders and optionholders are
urged to consult their own tax advisors concerning the tax consequences to them
based upon their particular circumstances. See "THE MERGER--Federal Income Tax
Consequences of the Merger."


                                       16
<PAGE>   29
                             SELECTED FINANCIAL DATA

         The following tables set forth selected historical unaudited
consolidated financial data of Zila and Bio-Dental and unaudited combined pro
forma financial data giving effect to the Merger using the "pooling of
interests" method of accounting and reflecting the Assumed Exchange Ratio (as
defined in the accompanying notes) and the pro forma adjustments described in
the accompanying notes. The Assumed Exchange Ratio is used solely for purposes
of calculating the per share equivalent pro forma combined data set forth herein
and is not intended as a statement or estimate of the actual exchange ratio to
be applied in connection with the Merger. See "THE MERGER--Conversion of
Shares." The selected consolidated financial information for the five years
ended July 31, 1995 and March 31, 1996 for Zila and Bio-Dental, respectively,
has been derived from their respective historical financial statements and
should be read in conjunction with such consolidated financial statements and
the notes thereto included or incorporated by reference herein. The selected
historical financial data for Zila for the nine-month periods ended April 30,
1996 and 1995 have been obtained from Zila's consolidated unaudited financial
statements and include, in the opinion of Zila's management, all adjustments
necessary to present fairly the data for such periods. For purposes of the pro
forma operating data, Zila's consolidated financial statements for the fiscal
year ended July 31, 1995 and for the nine months ended April 30, 1996 and 1995,
have been combined with the Bio-Dental financial statements for the twelve
months ended June 30, 1995 and for the nine months ended March 31, 1996 and
1995, respectively, and Zila's consolidated financial statements for the fiscal
years ended July 31, 1994 and 1993 have been combined with the Bio-Dental
financial statements for the fiscal years ended March 31, 1994 and 1993,
respectively. No dividends have been declared or paid on Zila Common Stock or
Bio-Dental Common Stock. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
at the beginning of the periods indicated, nor is it necessarily indicative of
future operating results or financial position.

                                   ZILA, INC.
                   SELECTED HISTORICAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                   Nine-Month Period
                                    Ended April 30,                                  Year Ended July 31,
                                  ------------------           ----------------------------------------------------------------
                                  1996          1995           1995          1994           1993            1992           1991
                                  -----         -----          -----         -----          -----           -----          ----
<S>                            <C>            <C>           <C>            <C>            <C>            <C>             <C>       
OPERATING DATA:

Net sales....................  $ 4,383,896    $ 3,813,174   $ 5,147,667    $ 4,123,297    $ 4,977,714     $ 3,518,610    $3,984,460
Licensing fees and royalty
  revenue....................      834,253        175,955       290,955         66,613         63,643          83,254        66,140
Daleco buy-out charge........            0              0             0              0              0               0    (4,000,000)
Net income (loss)............       40,517       (605,417)     (862,920)      (995,205)       369,949        (239,345)   (3,683,589)
Net income (loss) per share..         0.00          (0.03)        (0.04)         (0.04)          0.02           (0.01)        (0.20)
Primary weighted average
  number of shares
  outstanding................   25,650,236     24,074,866    24,087,308     23,862,504     23,948,006      20,795,857    18,079,744
</TABLE>


                                       17
<PAGE>   30
<TABLE>
<CAPTION>
   
                                  As of April 30,                             As of July 31,
                                  ---------------   ----------------------------------------------------------------
                                      1996          1995            1994           1993            1992           1991
                                      -----         -----           -----          -----           -----          ----
BALANCE SHEET DATA:                               
<S>                                <C>           <C>            <C>            <C>             <C>             <C>       
Current assets.................... $ 2,841,287   $ 2,484,312    $ 2,555,766    $ 3,212,503     $ 2,172,418     $2,004,261
Current liabilities...............     654,819       643,775        592,841        370,940         340,851        358,300
Total assets......................   6,951,596     4,179,740      4,150,866      4,555,378       3,331,133      3,013,280
Long-term debt....................     406,348       412,502        421,275        429,069         435,993        442,588
Total liabilities.................   1,061,167     1,056,277      1,014,116        800,009         776,844        800,888
Shareholders' equity..............   5,890,429     3,123,463      3,136,750      3,755,369       2,554,289      2,212,392


                       BIO-DENTAL TECHNOLOGIES CORPORATION
                    SELECTED HISTORICAL FINANCIAL INFORMATION


                                    Three-Month Period
                                       Ended June 30                             Year ended March 31,
                                    -------------------        --------------------------------------------------------
                                    1996          1995         1996         1995          1994         1993        1992
                                    -----         -----        -----        -----         -----        -----       ----
<S>                                <C>          <C>          <C>          <C>           <C>         <C>         <C>       
OPERATING DATA:                   
Net sales                          $ 8,067,559  $ 7,980,208  $31,682,545  $29,916,578   $18,351,375 $ 8,468,230 $ 4,620,664
Royalty revenue...................     378,842      440,175    1,408,671    1,665,699     1,665,664   1,782,849     937,635
Net income (loss).................      29,412    (479,441)  (2,265,977)    (419,437)     1,553,953     968,877     148,284
Net income (loss) per share.......        0.00       (0.07)       (0.36)       (0.07)          0.27        0.20        0.03
Primary weighted average number of
 shares outstanding...............   6,900,002    6,451,603    6,285,471    6,118,295     5,864,417   4,923,648   4,189,812


                                    As of June 30,                              As of March 31,
                                    --------------  -----------------------------------------------------------
                                       1996          1996          1995          1994         1993         1992
                                       -----        -----          -----         -----        -----        ----
<S>                                  <C>           <C>            <C>           <C>          <C>         <C>        
BALANCE SHEET DATA:                
Current assets.................... $ 10,069,796  $ 8,626,608    $ 9,526,185   $ 8,455,436  $ 3,843,403 $ 1,410,388
Current liabilities...............    8,401,954    7,165,756      5,757,297     4,964,753    1,514,072   1,450,360
Total assets......................   12,397,202   10,996,592     12,512,119    10,934,568    5,278,103   2,914,337
Long-term debt....................      723,737        16,311       40,890     152,539
Total liabilities.................    8,401,954    7,165,756      6,481,034     4,981,064    1,554,962   1,602,899
Stockholders' equity..............    3,995,248    3,830,836      6,031,085     5,953,504    3,723,141   1,311,438
</TABLE>
    

                                       18
<PAGE>   31
               ZILA, INC. AND BIO-DENTAL TECHNOLOGIES CORPORATION
                   SELECTED PRO FORMA COMBINED FINANCIAL DATA


<TABLE>
<CAPTION>
                                           Pro Forma Combined Financial
                                             Data for the Nine-Month             Pro Forma Combined Financial Data for the
                                             Period Ended April 30,                         Year Ended July 31,
                                             -----------------------             --------------------- -------------------
                                             1996              1995              1995               1994              1993
                                             -----             -----             -----              -----             ----
<S>                                      <C>               <C>                <C>               <C>               <C>         
OPERATING DATA:

Net sales..............................  $ 28,086,233      $ 26,840,143       $ 36,154,844      $ 22,474,672      $ 13,445,944
Licensing fees and
  royalty revenue......................     1,803,019         1,435,798          1,990,973         1,732,277         1,846,492
Net income (loss)......................    (1,746,019)       (1,196,006)        (1,932,950)          558,748         1,338,826
Net income (loss) per
  share................................         (0.06)            (0.04)             (0.07)             0.02              0.05
Primary weighted
  average number of 
  common shares........................    30,867,113        29,148,074         29,166,156        28,700,648        28,010,016
</TABLE>
   


<TABLE>
<CAPTION>
                                       Pro Forma Combined
                                         Financial Data                    Pro Forma Combined Financial Data
                                        as of April 30,                             as of July 31,
                                       ------------------            --------------------------------------------
                                              1996                   1995                1994                1993
                                              -----                  -----               -----               ----
BALANCE SHEET DATA:
<S>                                       <C>                 <C>                 <C>                   <C>

Current assets.........................    $ 11,467,895        $ 12,424,144        $ 11,011,202          $ 7,055,906
Current liabilities....................       7,820,575           7,300,134           5,557,594            1,885,012
Total assets...........................      17,948,188          16,993,603          15,085,434            9,833,481
Long-term debt.........................         406,348           1,018,360             437,586              469,959
Total liabilities......................       8,226,923           8,318,494           5,995,180            2,354,971
Shareholders' equity...................       9,721,265           8,675,109           9,090,254            7,478,510
</TABLE>
    


         See "UNAUDITED PRO FORMA FINANCIAL INFORMATION" and accompanying notes
thereto.


                                       19
<PAGE>   32
                           COMPARATIVE PER SHARE DATA

         The following table sets forth certain historical per share data of
Zila and Bio-Dental and combined per share data on an unaudited pro forma basis
after giving effect to the Merger on a pooling of interests basis of accounting.
This data should be read in conjunction with the selected financial data, the
pro forma combined condensed financial information and the separate historical
financial statements of Zila and Bio-Dental and notes thereto, incorporated by
reference herein or included elsewhere in this Proxy Statement/Prospectus. The
pro forma combined financial data are not necessarily indicative of the
operating results that would have been achieved had the Merger been consummated
as of the beginning of the periods presented and should not be construed as
representative of future operations.

   
<TABLE>
<CAPTION>
                                                    Nine Months Ended                 Year Ended
                                                       April 30,                        July 31,
                                                ---------------------     -------------------------------------
                                                 1996          1995         1995          1994          1993
                                                -----         -----        -----         -----         ----
<S>                                              <C>           <C>           <C>          <C>            <C>
Historical -- Zila:
  Income (loss) per share .....................  $ (0.00)      $ (0.03)      $ (0.04)     $ (0.04)       $ 0.02
Historical -- Bio-Dental:
  Income (loss) per share .....................    (0.28)        (0.10)        (0.17)        0.27          0.20
Pro forma combined income (loss)
 per share(2) .................................    (0.06)        (0.04)        (0.07)        0.02          0.05
  Per Zila share ..............................    (0.06)        (0.04)        (0.07)        0.02          0.05
  Equivalent per Bio-Dental share(3) ..........    (0.05)        (0.03)        (0.06)        0.02          0.04
</TABLE>
    
                                                  
<TABLE>
<CAPTION>
                                                                                   As of
                                                               -------------------------------------------
                                                               April 30, 1996                July 31, 1995
                                                               ---------------               -------------
<S>                                                                 <C>                          <C>   
Historical book value per share(1)

  Per Zila share ............................................       $ 0.24                       $ 0.13
  Per Bio-Dental share ......................................         0.60                         0.90
Pro forma combined book value per
 share(2) (4):

  Per Zila share ............................................         0.32                         0.30
  Equivalent per Bio-Dental share(3) ........................         0.26                         0.25
</TABLE>

(1)  The historical book value per share is computed, in the case of Zila, by
     dividing shareholders' equity by the number of shares of Zila Common Stock
     outstanding at the end of each period and, in the case of Bio-Dental, by
     dividing stockholders' equity by the number of shares of Bio-Dental Common
     Stock outstanding at the end of each period.


                                       20

<PAGE>   33
   
(2)  Zila and Bio-Dental estimate they will incur direct transaction costs of
     approximately $400,000 associated with the Merger, which will be charged to
     operations as incurred. These costs are not included in the pro forma
     combined income (loss) per share data. See "UNAUDITED PRO FORMA FINANCIAL
     INFORMATION" and accompanying notes thereto.
    

(3)  The per share equivalent pro forma combined data presentation is based upon
     an estimated ratio of shares of Bio-Dental Common Stock exchanged for
     shares of Zila Common Stock pursuant to the Merger Agreement. The adjusted
     share amounts are based on historical share amounts after giving effect to
     the pro forma adjustments described elsewhere herein and converting each
     share of Bio-Dental Common Stock into 0.825 shares of Zila Common Stock
     (the "Assumed Exchange Ratio"). The Assumed Exchange Ratio is used solely
     for purposes of calculating the per share equivalent pro forma combined
     data set forth herein and is not intended as a statement or estimate of the
     actual exchange ratio to be applied in connection with the Merger. As set
     forth in the Merger Agreement and described herein under "THE
     MERGER--Conversion of Shares," the actual exchange ratio will be based upon
     the average closing bid price for Zila Common Stock (as reported by The
     Nasdaq SmallCap Market) during the Calculation Period. To the extent the
     average closing bid price for Zila Common Stock (as reported by The Nasdaq
     SmallCap Market) during the calculation period is less than $6.00 per share
     or greater than $7.75 per share, the actual exchange ratio will differ from
     the Assumed Exchange Ratio, and the number of shares of Zila Common Stock
     issuable in connection with the Merger will increase or decrease according
     to the formula set forth in the Merger Agreement and described herein under
     "THE MERGER--Conversion of Shares."

(4) The Pro Forma Combined Book Value Per Share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding at the end of each period.


                                       21
<PAGE>   34
                            INVESTMENT CONSIDERATIONS

         Investment in the Zila Common Stock offered hereby involves certain
risks. In addition to other information included elsewhere in this Proxy
Statement/Prospectus, Bio-Dental stockholders should give careful consideration
to the following information before voting on the Merger.

NO ASSURANCE OF PROFITABLE OPERATIONS

         For the fiscal years ended July 31, 1995 and 1994, Zila had net losses
of $862,920 and $995,205, respectively, compared with net income of $369,949 for
the fiscal year ended July 31, 1993. Zila has had profitable operations in only
one of its last three fiscal years. For the fiscal years ended March 31, 1996
and 1995, Bio-Dental had net losses of $2,265,977 and $419,437, respectively.
Bio-Dental had profitable operations in only one of its last three fiscal years.
There can be no assurance that Zila or Bio-Dental will, in the future, return to
profitability or that Zila's plan for expanded operations of the combined
entities will be successful.

LITIGATION

         On April 13, 1994, Zila filed a complaint in the United States District
Court for the District of Arizona against the Colgate-Palmolive Company
("Colgate") (CIV No. 94-0756 PHX-CAM) alleging that Colgate's manufacture and
distribution of Orabase Gel infringes Zila's U.S. Patent No. 5,081,158 (the "158
Patent"), which covers Zila's non-prescription, film-forming, bioadhesive
medications. The complaint seeks to enjoin Colgate's manufacture and
distribution of Orabase Gel and requests an award of damages in an appropriate
amount. On May 27, 1994, Colgate filed its answer denying infringement and
asserting that the patent is invalid and unenforceable. Zila has received an
opinion of Drummond & Duckworth, its patent counsel, that the patent is valid
and enforceable and that Colgate is infringing. Zila intends to vigorously
prosecute its claims. If Zila is unsuccessful and a determination is made that
the patent is invalid and unenforceable, such a determination could have a
material adverse effect on Zila.

         On July 6, 1995, a complaint was filed in the California Superior
Court, County of Sacramento, against Bio-Dental, OTR, Inc., Bio-Dental's
transfer agent, and Mr. G. Michael Montross, a shareholder of Bio-Dental
(Sacramento Superior Court No. 95A503733). The complaint alleges that in 1992,
Mr. Montross pledged 200,000 shares of Bio-Dental Common Stock owned by him to
an agent for the plaintiffs to secure debts allegedly owing by Mr. Montross to
the plaintiffs. The complaint further alleges that Mr. Montross subsequently
executed a fraudulent affidavit of loss claiming that the certificates for the
200,000 shares had been lost or destroyed. Mr. Montross thereby achieved a
reissuance of such shares through Bio-Dental's transfer agent, OTR, Inc. The
plaintiffs allege that Mr. Montross subsequently defaulted on his debts to the
plaintiffs and that plaintiffs foreclosed on the shares of Bio-Dental Common
Stock that their agent purportedly held as security for Mr. Montross' debts. The
complaint seeks recovery of general and special damages from the defendants or,
in the alternative, that the 200,000 shares in dispute be reissued in
plaintiffs' names. Plaintiffs claim that they have lost security for more than
$320,000 in debts owed by Mr. Montross and have suffered damages in the amount
of the highest fair market value that the 200,000 shares of Bio-


                                       22

<PAGE>   35
   
Dental Common Stock have obtained since October 16, 1992, estimated by the
plaintiffs to be $1,250,000. Bio-Dental has referred this matter to outside
counsel with the direction that counsel vigorously defend against the claims set
forth in the complaint. Bio-Dental has filed an answer, which denies all of the
material allegations of the complaint and asserts various affirmative defenses.
Bio-Dental has also filed a cross-complaint for indemnity, negligence,
fraudulent misrepresentation, conversion, imposition of a constructive trust and
conspiracy against Mr. Montross, OTR, Inc. and the plaintiffs. OTR, Inc. has
filed a cross-complaint against Mr. Montross and Bio-Dental for implied
indemnity, contractual indemnity, negligence, fraudulent misrepresentation,
conversion and imposition of a constructive trust. Bio-Dental has filed an
answer which denies all of the material allegations of the cross-complaint. The
case was referred by the court to non-binding arbitration, and after a brief
hearing the court-appointed arbitrator on June 6, 1996 rendered a decision
unfavorable to Bio-Dental. Bio-Dental has filed a request for Trial de Novo,
which has the effect of vacating the arbitration decision. If Bio-Dental is
unsuccessful at trial and a determination is reached unfavorable to Bio-Dental,
such determination could have a material adverse effect on Bio-Dental or,
following the Merger, Zila.
    

COMPETITION; RESEARCH AND DEVELOPMENT

         The pharmaceutical industry is highly competitive. A number of
companies, many of which have greater financial resources, marketing
capabilities and research and development capacity than Zila, are actively
engaged in the development of products similar to those products produced and
marketed by Zila. Zila relies on outside sources for its on-going research and
development needs in much the same manner as Zila relies on outside sources for
manufacturing. The pharmaceutical industry is characterized by extensive and
on-going research efforts. Other companies may succeed in developing products
superior to those marketed by Zila. Such companies may even succeed in
developing a cure for herpes simplex virus, which would substantially reduce the
potential market for symptomatic treatments such as Zila's product ZILACTIN(R).

         Bio-Dental faces significant competition, primarily from various number
of dental supply dealers and mail order supply houses in the United States.
Bio-Dental also faces significant competition from providers of dental practice
management software and intra-oral camera systems. Many of the competing
providers of these products have significantly greater market share and
financial resources than Bio-Dental. In addition, new competitors may enter into
Bio-Dental's markets from time to time. It may be difficult for Bio-Dental to
maintain or increase sales volume and market share due to such competition.

GOVERNMENT REGULATION

         The approval and sale of pharmaceutical products is heavily regulated
by the Food and Drug Administration (the "FDA") and other federal and state
regulatory agencies. Such regulation encompasses pricing, safety and efficacy,
testing, advertising and promotion, labeling of pharmaceutical products and
other matters. Compliance with such regulations is both costly and time
consuming. In order to be legally marketed over-the-counter ("OTC"), a product
must either be the subject of a New Drug Application ("NDA") approved by the
FDA, be the subject of an applicable FDA monograph designating the product
generally recognized as safe and effective or, if no FDA monograph exists, the
FDA may designate a product as "grandfathered"


                                       23
<PAGE>   36
(i.e. the sale of such product is permissible because of the safe use of such
product or similar products prior to December 5, 1975). ZILACTIN(R) and its
family of products have been "grandfathered" and a letter has been received by
Zila from the FDA confirming that status. ZILACTIN(R) is currently being
marketed for the symptomatic relief of canker sores (oral mucosal ulcers or
lesions), cold sores, and fever blisters. ZILACTIN(TM)-L (for the treatment of
fever blisters and cold sores before they erupt) is also marketed as a
"grandfathered" product. Neither of these products may be marketed as a
treatment for genital herpes or herpes zoster (commonly known as "shingles")
without an effective new drug application. Depending principally on the time and
expense involved, NDAs seeking approval for marketing ZILACTIN(R) and/or
ZILACTIN(R)-L as topical applications for the treatment of shingles and genital
herpes may be filed by Zila. There can be no assurance that any NDA will be
filed with/or approved by the FDA. Any challenge by the FDA of Zila's sale of or
claims for ZILACTIN(R) would materially adversely affect the business and
prospects of Zila. Zila is also seeking FDA and European Union ("EU") approval
of OraTest, an oral cancer diagnostic. There can be no assurance that FDA or EU
approval of OraTest will be obtained. See "--OraTest Approval."

ORATEST APPROVAL

         One of the primary factors considered by the Boards of Directors of
Zila and Bio-Dental in connection with the Merger is the market potential for
Zila's oral cancer diagnostic known as "OraTest". See "THE MERGER--Reasons for
the Merger." Zila has received approval to market OraTest in Canada, the United
Kingdom and Australia and has commenced the approval process for OraTest
throughout the EU. Zila is also seeking FDA approval to market OraTest in the
United States.

         Zila has not yet received FDA approval for OraTest, and management is
unable at this time to determine whether such FDA approval may be forthcoming
or, if so, when OraTest may begin to be marketed in the United States. If the
FDA does not approve OraTest for the United States market, it could have a
material adverse effect on the business of Zila and, following the Merger,
Bio-Dental, and the market price for Zila Common Stock would likely be
materially adversely affected as well. In addition, Zila has made a significant
financial investment to secure FDA approval of OraTest and to prepare for the
introduction of OraTest to the United States market, and failure of the FDA to
approve OraTest would make it impossible for Zila to recoup this investment
through sales of OraTest in the United States. If FDA approval of OraTest is not
received, it would also make it difficult or impossible for Zila and Bio-Dental
to achieve many of the benefits of the Merger which are described herein.

COMBINATION OF THE COMPANIES

         The combination of the businesses of Zila and Bio-Dental will require
substantial dedication of management resources, which will temporarily distract
attention from the day-to-day businesses of the combined company. There can be
no assurance that the combination will be completed without disrupting Zila's
and Bio-Dental's businesses. Should Zila and Bio-Dental not be able to combine
their businesses in a timely and coordinated fashion, it could have a material
adverse impact on operating results. Moreover, the ability of the combined
company to retain key management, technical, sales and marketing personnel will
be critical to the 


                                       24
<PAGE>   37
'combined company's future operations. In addition, the anticipated combination
of the two companies may cause uncertainties, hesitation and possible
dissatisfaction among customers and potential customers of Zila or Bio-Dental.

   
         Zila and Bio-Dental estimate that they will incur direct transaction
costs of approximately $400,000 associated with the Merger. These non-recurring
transaction costs will be charged to operations as incurred. See "UNAUDITED PRO
FORMA FINANCIAL INFORMATION."
    

DEPENDENCE ON KEY PERSONNEL

         The operations of Zila depend to a great extent on the technical
expertise and management efforts of Mr. Joseph Hines, President of Zila, Mr.
Clarence Baudhuin, Executive Vice President of Zila, Mr. Edwin Pomerantz, Vice
President of Regulatory and Technical Affairs of Zila, Mr. Rocco J. Anselmo,
Executive Vice President and General Manager of Zila Pharmaceuticals, Inc., and
Ms. Janice L. Backus, Vice President and Corporate Secretary of Zila. The loss
of Messrs. Hines, Baudhuin, Pomerantz or Anselmo or Ms. Backus could materially
adversely affect Zila's business. Zila maintains key person life insurance
coverage on Messrs. Hines, Baudhuin and Pomerantz. The operations of Bio-Dental
depend to a great extent on the technical expertise and management efforts of
Mr. Curtis M. Rocca III, President and Chief Executive Officer of Bio-Dental,
Mr. Terry E. Bane, Chief Financial Officer of Bio-Dental, Mr. Timothy J. Purdy,
Treasurer of Bio-Dental, and certain other key officers and employees of
Bio-Dental. The loss of any of Messrs. Rocca, Bane, Purdy, or such other
officers and employees could materially adversely affect Bio-Dental's or,
following the Merger, Zila's business. Bio-Dental currently maintains key person
life insurance on Curtis M. Rocca III, President and Chief Executive Officer of
Bio-Dental. In accordance with the Merger Agreement, Zila and Curtis M. Rocca
III, President and Chief Executive Officer of Bio-Dental, have agreed to terms
pursuant to which Mr. Rocca will be employed by Zila following consummation of
the Merger. See "DIRECTORS AND EXECUTIVE OFFICERS--Employment Arrangements." In
connection with the Merger, Zila will grant to certain key employees and
executive officers of Bio-Dental (including Messrs. Rocca, Bane and Purdy)
options to purchase an aggregate of 320,000 shares of Zila Common Stock,
which vest after a period of one year following consummation of the Merger. See
"DIRECTORS AND EXECUTIVE OFFICERS."

         Zila's and Bio-Dental's future success will depend to a significant
degree upon continued contributions of the combined company's key management,
marketing, product development and operational personnel. The success of the
combined company will depend on its ability to retain and continue to attract
highly skilled personnel. Competition for employees in the pharmaceutical
industry is intense, and there can be no assurance that the combined company
will be able to attract and retain a sufficient number of qualified employees.
If the business of the combined company grows, it may be difficult for it to
hire, train and assimilate the new employees needed. In addition, it is possible
that the business changes or uncertainty brought about by the Merger may cause
key employees to leave Zila or Bio-Dental prior to the Merger or leave the
combined company following the Merger. The combined company's inability to
retain or attract key employees could have a material adverse effect on the
combined company's business and results of operations.


                                       25
<PAGE>   38
DEPENDENCE ON PROPRIETARY RIGHTS

         Zila and Bio-Dental rely on a combination of patent, copyright,
trademark and trade secret protection, nondisclosure agreements and licensing
arrangements to establish and protect their proprietary rights. Zila owns and
has exclusive licenses to a number of United States and foreign patents and
patent applications and intends to seek additional patent applications as it
deems appropriate. There can be no assurance that patents will issue from any of
these pending applications or, if patents do issue, that any claims allowed will
be sufficiently broad to cover Zila's products or to effectively limit
competition against Zila. In addition, there can be no assurance that any
patents that may be issued to Zila will not be challenged, invalidated or
circumvented, or that any rights granted thereunder would provide proprietary
protection to, or effectively limit competition against, Zila or the combined
company. Zila and Bio-Dental each have a number of trademarks. There can be no
assurance that litigation with respect to trademarks will not result from the
combined company's use of registered or common law marks, or that, if litigation
against the combined company were successful, any resulting loss of the right to
use a trademark would not reduce sales of the combined company's products in
addition to the possibility of a significant damages award. Although Zila
intends to defend the proprietary rights of the combined company following the
Merger, policing unauthorized use of proprietary technology and products is
difficult, and there can be no assurance that Zila's efforts will be successful.
In addition, the laws of certain foreign countries may not protect the
proprietary rights of the combined company to the same extent as do the laws of
the United States.

POSSIBLE CLAIMS RELATING TO PRODUCTS

         Zila could be exposed to possible claims for personal injury resulting
from allegedly defective products manufactured by third parties with which it
has entered into manufacturing agreements. Zila maintains product liability
insurance coverage for claims arising from the use of all its products. However,
there can be no assurance that Zila will not be subject to product liability
claims in excess of its insurance coverage. Any significant product liability
claims not within the scope of Zila's insurance coverage could have a material
adverse effect on Zila.

NO CASH DIVIDENDS

         Although Zila is not restricted in its ability to pay cash dividends,
Zila has never paid cash dividends on Zila Common Stock and does not contemplate
paying cash dividends in the foreseeable future.

POSSIBLE VOLATILITY OF ZILA COMMON STOCK PRICE

         The market price for Zila Common Stock has fluctuated significantly in
the past. Management of Zila believes that such fluctuations may have been
caused by announcements of new products, quarterly fluctuations in the results
of operations and other factors, including changes in conditions of the
pharmaceutical industry in general. Stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities issued by Zila and other pharmaceutical and health
care companies, often for reasons unrelated to the operating performance of the
specific companies. Zila anticipates that 

                                       26
<PAGE>   39
the market price for Zila Common Stock may continue to be volatile following the
Merger. In addition, the number of shares of Zila Common Stock issuable in
connection with the Merger is fixed and will not be adjusted based on changes in
the relative trading prices of Zila Common Stock and BioDental Common Stock,
unless the average closing bid price for Zila Common Stock as reported by The
Nasdaq SmallCap Market during the Calculation Period is less than $6.00 per
share or greater than $7.75 per share. If the average closing bid price for Zila
Common Stock as reported by The Nasdaq SmallCap Market during the Calculation
Period is less than $6.00 per share or greater than $7.75 per share, the number
of shares of Zila Common Stock issuable in connection with the Merger shall
increase or decrease according to the formula set forth under "THE
MERGER--Conversion of Shares." The trading price of Zila Common Stock at the
Effective Date may vary from the trading price of Zila Common Stock as of the
date hereof, or the date on which Bio-Dental stockholders vote on the Merger, as
a result in changes in the business, operations, financial results and prospects
of Zila or Bio-Dental, market assessments of the likelihood that the Merger will
be consummated and the timing thereof, general market and economic conditions,
and other factors. See "THE MERGER--Reasons for the Merger."

TRADING MARKET FOR ZILA COMMON STOCK

         Prior to consummation of the Merger, Zila Common Stock has been listed
on The Nasdaq SmallCap Market and Bio-Dental Common Stock has been listed on The
Nasdaq National Market. Although Zila intends to apply for listing of Zila
Common Stock on The Nasdaq National Market effective on or before the Effective
Date, there can be no assurance that approval for such listing will be received
or, if received, that Zila Common Stock will continue to be listed on The Nasdaq
National Market in the future. If approval for such listing is not received, the
result may be a more limited trading market for Zila Common Stock. There can be
no assurance that a trading market for Zila Common Stock will be sustained
following consummation of the Merger.

CHARTER AND BYLAW PROVISIONS

         Zila's Certificate of Incorporation, as amended, and Bylaws contain
provisions that limit or eliminate director liability for certain actions. These
provisions could, in some instances, prevent redress by stockholders for certain
actions taken by Zila's directors. See "THE MERGER-Capitalization of Zila" and
"--Certain Differences Between Delaware and California Corporation Law."

WARRANTS AND OPTIONS

         At July 24, 1996, 1,908,655 shares of Zila Common Stock are issuable
upon the exercise of outstanding options and warrants to purchase shares of Zila
Common Stock, including warrants to purchase 659,722 shares and options to
purchase 1,248,933 shares. In addition, each option to purchase Bio-Dental
Common Stock outstanding on the Effective Date will be converted into an option
to purchase a number of shares of Zila Common Stock, at an exercise price per
share, determined pursuant to a formula described herein under "THE
MERGER--Bio-Dental Options." In connection with the Merger, Zila also will issue
to certain key officers and employees of BioDental options to purchase an
aggregate of 320,000 shares of Zila Common 


                                       27
<PAGE>   40
Stock, which options will be contingent upon the grantee remaining employed by
Zila or a subsidiary of Zila for a period of one year following consummation of
the Merger. See "DIRECTORS AND EXECUTIVE OFFICERS--Key Employee Options." For
the life of such options, the option holders will have the opportunity to profit
from a rise in the price of Zila Common Stock, with a resulting dilution in the
interest of other holders of Zila Common Stock. The existence of such options
may adversely affect the terms on which Zila can obtain additional financing.
Further, the option holders can be expected to exercise their options at a time
when Zila would, in all likelihood, be able to obtain additional capital by an
offering of its unissued Zila Common Stock on terms more favorable to Zila than
those provided by such options. See "THE MERGER--Capitalization of Zila."

SHARES ELIGIBLE FOR FUTURE SALE

   
          Subject to upward or downward adjustment if the average closing bid
price for Zila Common Stock as reported by The Nasdaq SmallCap Market during the
Calculation Period is less than $6.00 per share or greater than $7.75 per share,
Zila will issue approximately 379,410 shares of Zila Common Stock upon the
exercise of assumed Bio-Dental options which were vested but not exercised as of
the Effective Date, and up to an additional approximately 165,000 shares of Zila
Common Stock will be issuable upon the future vesting and exercise of the
assumed unvested BioDental options (based on the estimated number of unvested
assumed Bio-Dental options that will be outstanding at the Effective Date). In
connection with the Merger, Zila also will issue to certain key officers and
employees of Bio-Dental options to purchase an aggregate of 320,000 shares of
Zila Common Stock, subject to the grantee remaining employed by Zila or a
subsidiary of Zila for a period of one year following consummation of the
Merger. See "DIRECTORS AND EXECUTIVE OFFICERS--Key Employee Options." In
general, the shares of Zila Common Stock issued in the Merger, other than to
Bio-Dental affiliates, will be freely tradable following the Merger. The shares
issued after the Effective Date upon the exercise of assumed Bio-Dental options
will be registered pursuant to a registration statement on Form S-8 under the
Securities Act to be filed by Zila promptly following consummation of the
Merger. The Merger Agreement also provides that the shares of Zila Common Stock
to be issued upon the exercise of options to be granted to key officers and
employees of Bio-Dental will be registered pursuant to a registration statement
on Form S-8 under the Securities Act. Certain persons who may be considered
affiliates of Zila or Bio-Dental, respectively, have agreed that they will not
transfer, sell, exchange, pledge or otherwise dispose of any Zila Common Stock
now held by such holders or received by them in the Merger from 30 days prior to
the Effective Date until the date Zila shall have publicly released financial
results for a period that includes at least 30 days combined operations of Zila
and Bio-Dental (the "Affiliate Expiration Date"). Immediately after the
Affiliate Expiration Date, these shares of Zila Common Stock will be eligible
for sale in the public markets, subject to compliance with Rules 144 and 145
under the Securities Act. In general, Rule 145, as currently in effect, imposes
restrictions on the manner in which affiliates of Bio-Dental may make resales of
Zila Common Stock and also on the number of shares of Zila Common Stock that
such affiliates, and others (including persons with whom the affiliates act in
concert), may sell within any three-month period. These restrictions will
generally apply for at least a period of two years after the Merger (or longer
if the person remains an affiliate of Zila). The sale of any of the foregoing
shares of Zila Common Stock may cause substantial fluctuations in the market
price of Zila Common Stock. See "THE MERGER--Affiliate Agreements."
    


                                       28
<PAGE>   41
TRANSACTION RISKS

         Certain Effects of the Merger

         Notwithstanding the belief of the Boards of Directors of Zila and
Bio-Dental as to the potential benefits to stockholders of the Merger,
stockholders should realize that there may be certain negative consequences of
the Merger. Stockholders should consider carefully certain effects of the
Merger, including the fact that the rights of holders of Zila Common Stock will
differ in certain respects from the rights of holders of Bio-Dental Common
Stock, which differences are due in large part to the fact that Zila is a
Delaware corporation governed by the Delaware General Corporation Law and
Bio-Dental is a California corporation governed by the California General
Corporation Law.

         Corporate Governance of Zila governed by Different Law than Bio-Dental

         As noted above, corporate governance issues relative to Zila will be
governed by Delaware law rather than California law, which governs Bio-Dental.
Consequences include the fact that: (i) Zila directors will be afforded somewhat
greater protection from personal liability for actions taken in their capacity
as directors than those available to Bio-Dental directors, (ii) officers of
Zila, unlike officers of Bio-Dental, will be afforded the same protection from
personal liability for actions taken in their corporate capacity as are extended
to directors; and (iii) Zila directors may be removed with or without cause by
the affirmative vote of a majority of shares of Zila Common Stock entitled to
vote at an election of directors, while Bio-Dental stockholders cannot remove a
director without cause (unless the entire Board of Directors is removed) if the
number of shares voted against removal would be sufficient to elect the director
under cumulative voting. See "THE MERGER--Potential Adverse Consequences of
Merger," "--Certain Differences Between Delaware and California Corporation
Law."

         Potential Difficulty in Implementing Marketing Strategy

         Growth of Zila's sales of pharmaceutical products will depend to a
large degree on Zila's ability to realize the benefits of the relationship with
Bio-Dental contemplated by the Merger and the integration of Bio-Dental with
Zila. Substantial attention and a high level of coordination from management of
both Zila and Bio-Dental will be required to realize the anticipated benefits of
the relationship. The diversion of the attention of Zila's management from other
aspects of Zila's business, and any difficulties encountered in the
implementation process, could have an adverse impact on the revenues and
operating results of Zila. There can be no assurance that the anticipated
benefits of the Merger will be realized or that the results of operations and
financial condition of Zila following the Merger will be superior to what would
have been achieved by Zila and Bio-Dental separately if the Merger had not been
consummated.

         Dilution

          The issuance of Zila Common Stock to stockholders of Bio-Dental Common
Stock pursuant to the Merger will have the effect of reducing Zila's earnings
per share, if any, unless and until Zila achieves revenue growth and other
business synergies sufficient to offset the effect of such issuance. There can
be no assurance that any such revenue growth or other business


                                       29
<PAGE>   42
synergies will be achieved. A reduction in Zila's income per share could result
in a decline in the market price of Zila Common Stock.

         Uncertainty of Market Value of Zila Common Stock

         Upon consummation of the Merger, each outstanding share of Bio-Dental
Common Stock will be converted into a fraction of a share of Zila Common Stock
as determined pursuant to a formula set forth under "THE MERGER--Conversion of
Shares." There can be no assurance that the value of the Zila Common Stock
received in the Merger by holders of Bio-Dental Common Stock will be equal to or
greater than the market value of the shares of Bio-Dental Common Stock that are
converted into Zila Common Stock at the Effective Date or at any time
thereafter.

                                       30
<PAGE>   43
                    UNAUDITED PRO FORMA FINANCIAL INFORMATION

         The following unaudited pro forma combined condensed financial
statements have been prepared to give effect to the Merger, using the pooling of
interests method of accounting.

         The unaudited pro forma combined condensed financial statements reflect
certain assumptions by management regarding the proposed Merger (e.g., that
share information used in the pro forma information approximates actual share
information at the Effective Date). No adjustments to the unaudited pro forma
combined condensed financial information have been made to account for different
possible results in connection with the foregoing, as management believes that
the impact on such information of the varying outcomes, individually or in the
aggregate, would not be materially different.

         The unaudited pro forma combined condensed balance sheet as of April
30, 1996, gives effect to the Merger as if it had occurred on April 30, 1996,
and combines the unaudited consolidated condensed balance sheet of Zila as of
April 30, 1996 and the consolidated condensed balance sheet of Bio-Dental as of
March 31, 1996.

         The unaudited pro forma combined condensed statements of operations (i)
combine the historical consolidated statements of operations of Zila for the
fiscal year ended July 31, 1995 and for the nine months ended April 30, 1996 and
1995 with the historical consolidated statements of operations for Bio-Dental
for the twelve months ended June 30, 1995 and for the nine months ended March
31, 1996 and 1995, respectively, and (ii) combine the historical consolidated
statements of operations of Zila for the fiscal years ended July 31, 1994 and
1993 with the historical consolidated statements of operations of Bio-Dental for
the fiscal years ended March 31, 1994 and 1993, respectively, in each case as if
the Merger had occurred at the beginning of the earliest period presented.

   
         Zila and Bio-Dental estimate that they will incur direct transaction
costs of approximately $400,000 associated with the Merger, which will be
charged to operations as incurred. This is a preliminary estimate only and is
therefore subject to change. There can be no assurance that Zila will not incur
additional charges to reflect costs associated with the Merger or that
management will be successful in its efforts to integrate the operations of the
two companies.
    

         Such unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the Merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined condensed financial statements
are based upon the respective historical consolidated financial statements of
Zila and Bio-Dental and should be read in conjunction with the respective
historical consolidated financial statements and notes thereto of Zila and
BioDental, incorporated by reference herein or included elsewhere in this Proxy
Statement/Prospectus, and do not incorporate any potential benefits from cost
savings or synergies of operations of the combined company.

         The following unaudited pro forma combined condensed financial
information is qualified in its entirety by, and should be read in conjunction
with, the audited financial statements,


                                       31
<PAGE>   44
including the notes thereto, of Zila that are contained in Zila's Annual Report
to Stockholders for the fiscal year ended July 31, 1995 and of Bio-Dental that
are contained in Bio-Dental's Annual Report to Stockholders for the fiscal year
ended March 31, 1996, and with the unaudited financial statements, including the
notes thereto, of Zila that are contained in Zila's Quarterly Report on Form
10-Q for the fiscal quarter ended April 30, 1996.


                                       32
<PAGE>   45
               ZILA, INC. AND BIO-DENTAL TECHNOLOGIES CORPORATION
              UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

      The Unaudited Pro Forma Combined Condensed Balance Sheet of Zila and
Bio-Dental as of April 30, 1996 set forth below gives effect to the Merger
accounted for under the pooling of interests accounting method, after giving
effect to an estimated number of shares to be exchanged (refer to Notes 1 and
4).

<TABLE>
<CAPTION>
                                                                                    April 30, 1996
                                                           -----------------------------------------------------------------
                                                                    Historical
                                                           -----------------------------                                    
                                                                                                                  Pro Forma
                                                              Zila            Bio-Dental       Adjustments        Combined
                                                           -----------       -----------       -----------       -----------
ASSETS
Current assets:
<S>                                                        <C>               <C>                                 <C>        
      Cash and cash equivalents .......................... $    71,024       $   612,911                         $   683,935
      Short-term investments .............................     703,384                                               703,384
      Trade accounts receivable,
            less allowances for doubtful accounts of
            $20,000 (Zila) and $138,544 (Bio-Dental)......     746,817         1,973,943                           2,720,760
      Licensing fee and royalty receivables...............     645,000           425,896                           1,070,896
      Inventories ........................................     450,935         3,667,161                           4,118,096
      Prepaid expenses and
           other assets ..................................     208,127           272,197                             480,324
      Current maturities of assets of
           business transferred under
           contractual arrangements ......................                        60,000                              60,000
      Related party receivables ..........................      16,000                                                16,000
      Deferred income taxes ..............................                     1,614,500                           1,614,500
                                                           -----------       -----------                          ----------
                Total current assets .....................   2,841,287         8,626,608                          11,467,895
Assets of business transferred under
      contractual arrangements ...........................                       380,354                             380,354
Property and equipment, net ..............................   1,051,467           717,152                           1,768,619
Deferred Patent and Licensing Costs, net .................   3,058,842                                             3,058,842
Intangibles and other assets .............................                     1,272,478                           1,272,478
                                                           -----------       -----------                         -----------
                Total assets ............................. $ 6,951,596       $10,996,592                         $17,948,188
                                                           ===========       ===========                         ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
      Short term borrowings .............................. $    82,290       $ 2,109,459                         $ 2,191,749
      Accounts payable ...................................     335,986         3,532,987                           3,868,973
      Accrued royalties ..................................      96,738                                                96,738
      Other accrued expenses .............................     104,542         1,318,641                           1,423,183
      Deferred revenue ...................................      24,878           204,669                             229,547
      Current portion of long-term
           debt ..........................................      10,385                                                10,385
                                                           -----------       -----------                         -----------
                Total current liabilities ................     654,819         7,165,756                           7,820,575
Long-term debt ...........................................     406,348           406,348
                                                           -----------       -----------                         -----------
                Total liabilities ........................   1,061,167         7,165,756                           8,226,923
                                                           -----------       -----------                         -----------
</TABLE>


                                       33
<PAGE>   46

<TABLE>
<CAPTION>
                                                                                         April 30, 1996
                                                          ------------------------------------------------------------------------
                                                                         Historical
                                                          --------------------------------
<S>                                                       <C>                 <C>                                     <C>         
Shareholders' equity
      Common stock ....................................         25,039              64,271             (58,969)             30,341
      Capital in excess of par value ..................     15,488,478           3,711,979              58,969          19,259,426
      Unrealized loss on securities ...................
           available-for-sale .........................        (31,324)                                                    (31,324)
      Retained earnings (deficit) .....................     (9,591,339)             54,586                              (9,536,753)
                                                          ------------        ------------                            ------------
                Total                                        5,890,854           3,830,836                               9,721,690
      Less common stock held by
           wholly-owned subsidiary (at cost) ..........           (425)                                                       (425)
                                                          ------------        ------------                            ------------
                Total shareholders' equity ............      5,890,429           3,830,836                               9,721,265
                                                          ------------        ------------                            ------------
                Total liabilities and shareholders' 
                equity ................................   $  6,951,596        $ 10,996,592                            $ 17,948,188
                                                          ============        ============                            ============
</TABLE>

          See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.

                                       34

<PAGE>   47
               ZILA, INC. AND BIO-DENTAL TECHNOLOGIES CORPORATION
                     UNAUDITED PRO FORMA COMBINED CONDENSED
                            STATEMENTS OF OPERATIONS

         The Unaudited Pro Forma Combined Statements of Operations set forth
below combine the results of Zila and Bio-Dental for each of the years in the
three-year period ended July 31, 1995, and for the nine-month periods ended
April 30, 1996 and 1995. These statements give effect to the Merger accounted
for under the pooling of interests accounting method, after giving effect to an
estimated number of shares to be exchanged (refer to Notes 1 and 4).


<TABLE>
<CAPTION>
                                                    For the Year Ended July 31, 1995
                                          ------------------------------------------------------
                                                   Historical
                                          --------------------------
                                                                                     Pro Forma
                                             Zila        Bio-Dental   Adjustments     Combined
                                          ------------  ------------  ------------  ------------     
<S>                                       <C>           <C>           <C>           <C> 
REVENUES:                                
   Net sales............................. $  5,147,667  $ 31,007,177                $ 36,154,844
   Licensing fees and                    
      royalty revenue....................      290,955     1,700,018                   1,990,973
                                          ------------  ------------                ------------
      Total revenues.....................    5,438,622    32,707,195                  38,145,817
                                          ------------  ------------                ------------
                                         
OPERATING COSTS AND                      
EXPENSES:                                
   Cost of products sold.................      840,377    22,492,747                  23,333,124
   Selling, general and                  
      administrative.....................    5,465,904    11,562,683                  17,028,587
                                          ------------  ------------                ------------
      Total operating costs              
      and expenses.......................    6,306,281    34,055,430                  40,361,711
                                          ------------  ------------                ------------
                                         
LOSS FROM OPERATIONS.....................     (867,659)   (1,348,235)                 (2,215,894)
                                          ------------  ------------                ------------
                                         
OTHER INCOME (EXPENSES):                 
   Interest and other income.............       49,542       186,259                     235,801
   Interest expense......................      (84,359)     (189,437)                   (273,796)
   Realized gain on short-term           
      investments........................        9,611                                     9,611
                                          ------------  ------------                ------------
      Total other expenses...............      (25,206)       (3,178)                    (28,384)
                                          ------------  ------------                ------------
                                         
LOSS BEFORE INCOME TAXES                 
AND CUMULATIVE EFFECT OF                 
ACCOUNTING CHANGE........................     (892,865)   (1,351,413)                 (2,244,278)
                                         
INCOME TAX BENEFIT.......................                   (281,383)                   (281,383)
                                          ------------  ------------                ------------
                                         
LOSS BEFORE CUMULATIVE                   
EFFECT OF ACCOUNTING                     
CHANGE...................................     (892,865)   (1,070,030)                 (1,962,895)
                                         
CUMULATIVE EFFECT OF                     
ACCOUNTING CHANGE........................       29,945                                    29,945
                                          ------------  ------------                ------------
                                         
NET LOSS................................. $   (862,920) $ (1,070,030)               $ (1,932,950)
                                          ============  ============                ============
</TABLE>

                                       35
<PAGE>   48
<TABLE>
<CAPTION>
                                                     For the Year Ended July 31, 1995
                                           ------------------------------------------------------
                                                    Historical
                                           --------------------------
                                                                                      Pro Forma
                                              Zila        Bio-Dental   Adjustments     Combined
                                           ------------  ------------  ------------  ------------     
<S>                                        <C>           <C>           <C>           <C> 
LOSS PER COMMON SHARE:                    
                                          
   Loss before cumulative effect of       
   accounting change.....................  $      (0.04) $      (0.17)               $      (0.07)
   Cumulative effect of accounting        
   change................................         (0.00)                                    (0.00)
                                           ------------  ------------                ------------     
                                          
NET LOSS PER COMMON                       
SHARE................                      $      (0.04) $      (0.17)               $      (0.07)
                                           ============  ============                ============     
                                          
WEIGHTED AVERAGE NUMBER                   
OF COMMON AND COMMON                      
EQUIVALENT SHARES                         
OUTSTANDING..............................    24,087,308     6,156,179    (1,077,331)   29,166,156
</TABLE>

         See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Information.

                                       36
<PAGE>   49
               ZILA, INC. AND BIO-DENTAL TECHNOLOGIES CORPORATION
                     UNAUDITED PRO FORMA COMBINED CONDENSED
   
                            STATEMENTS OF OPERATIONS
    
                                   (continued)

<TABLE>
<CAPTION>
                                                 For the Year Ended July 31, 1995
                                       ------------------------------------------------------
                                                Historical
                                       --------------------------
                                                                                  Pro Forma
                                          Zila        Bio-Dental   Adjustments     Combined
                                       ------------  ------------  ------------  ------------     
<S>                                    <C>           <C>           <C>           <C> 
REVENUES:                             
   Net sales........................   $  4,123,297  $ 18,351,375                $ 22,474,672
   Licensing fees and                 
      royalty revenue...............         66,613     1,665,664                   1,732,277
                                       ------------  ------------                ------------     
      Total revenues................      4,189,910    20,017,039                  24,206,949
                                       ------------  ------------                ------------     
                                      
OPERATING COSTS AND                   
EXPENSES:                             
   Cost of products sold............        678,530    12,703,618                  13,382,148
   Selling, general and               
      administrative................      4,460,645     5,268,028                   9,728,673
                                       ------------  ------------                ------------     
                                      
      Total operating costs           
      and expenses..................      5,139,175    17,971,646                  23,110,821
                                       ------------  ------------                ------------     
                                      
                                      
INCOME (LOSS) FROM                    
OPERATIONS..........................       (949,265)    2,045,393                   1,096,128
                                       ------------  ------------                ------------     
                                      
OTHER INCOME                          
(EXPENSES):                           
   Interest and other income........         58,173       191,576                     249,749
   Interest expense.................        (54,536)      (28,016)                    (82,552)
   Unrealized loss on short-term      
   investments......................        (29,945)                                  (29,945)
   Realized loss on short-term        
   investments......................        (19,632)                                  (19,632)
                                       ------------  ------------                ------------     
                                      
      Total other income              
      (expenses)....................        (45,940)      163,560                     117,620
                                       ------------  ------------                ------------     
                                      
INCOME (LOSS) BEFORE                  
INCOME TAXES........................       (995,205)    2,208,953                   1,213,748
                                      
INCOME TAX EXPENSE..................        655,000                                   655,000
                                       ------------  ------------                ------------     
                                      
NET INCOME (LOSS)...................   $   (995,205) $  1,553,953                $    558,748
                                       ============  ============                ============
                                      
NET INCOME (LOSS) PER                 
COMMON SHARE:                          $      (0.04) $       0.27                $       0.02
                                       ============  ============                ============
</TABLE>

                                       37
<PAGE>   50
<TABLE>
<CAPTION>
                                            For the Year Ended July 31, 1995
                                  ------------------------------------------------------
                                           Historical
                                  --------------------------
                                                                             Pro Forma
                                     Zila        Bio-Dental   Adjustments     Combined
                                  ------------  ------------  ------------  ------------     
<S>                               <C>           <C>           <C>           <C> 
WEIGHTED AVERAGE                 
NUMBER OF COMMON AND             
COMMON EQUIVALENT                
SHARES OUTSTANDING...............   23,862,504     5,864,417    (1,026,273)   28,700,648
</TABLE>

         See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Information.

                                       38
<PAGE>   51
               ZILA, INC. AND BIO-DENTAL TECHNOLOGIES CORPORATION
                     UNAUDITED PRO FORMA COMBINED CONDENSED
   
                            STATEMENTS OF OPERATIONS
    
                                   (continued)

   
<TABLE>
<CAPTION>
                                                For the Year Ended July 31, 1995
                                      ------------------------------------------------------
                                               Historical
                                      --------------------------
                                                                                 Pro Forma
                                         Zila        Bio-Dental   Adjustments     Combined
                                      ------------  ------------  ------------  ------------     
<S>                                   <C>           <C>           <C>           <C> 
REVENUES:                            
   Net sales........................  $  4,977,714  $  8,468,230                $ 13,445,944
   Licensing fees and                
      royalty revenue..............         63,643     1,782,849                   1,846,492
                                      ------------  ------------                ------------     
      Total revenues................     5,041,357    10,251,079                  15,292,436
                                      ------------  ------------                ------------     
                                     
                                     
OPERATING COSTS AND                  
EXPENSES:                            
   Cost of products sold............       844,534     6,171,875                   7,016,409
   Selling, general and              
      administrative................     3,812,888     2,664,368                   6,477,256
                                      ------------  ------------                ------------     
      Total operating costs          
      and expenses..................     4,657,422     8,836,243                  13,493,665
                                      ------------  ------------                ------------     
                                     
INCOME FROM                          
OPERATIONS..........................       383,935     1,414,836                   1,798,771
                                      ------------  ------------                ------------     
                                     
OTHER INCOME                         
(EXPENSES):                          
   Interest and other income........        38,558       226,295                     264,853
   Interest expense.................       (52,544)      (64,254)                   (116,798)
                                      ------------  ------------                ------------     
      Total other income             
      (expenses)....................       (13,986)      162,041                     148,055
                                      ------------  ------------                ------------     
                                     
INCOME BEFORE INCOME                 
TAXES AND                            
EXTRAORDINARY ITEM..................       369,949     1,576,877                   1,946,826
                                     
INCOME TAX EXPENSE..................                     637,000                     637,000
                                      ------------  ------------                ------------     
                                     
INCOME BEFORE                        
EXTRAORDINARY ITEM..................       369,949       939,877                   1,309,826
                                     
EXTRAORDINARY ITEM..................                      29,000                      29,000
                                      ------------  ------------                ------------     
                                     
NET INCOME..........................  $    369,949  $    968,877                $  1,338,826
                                      ============  ============                ============     
</TABLE>
    

                                       39
<PAGE>   52
<TABLE>
<CAPTION>
                                                For the Year Ended July 31, 1995
                                      ------------------------------------------------------
                                               Historical
                                      --------------------------
                                                                                 Pro Forma
                                         Zila        Bio-Dental   Adjustments     Combined
                                      ------------  ------------  ------------  ------------     
<S>                                   <C>           <C>           <C>           <C> 
INCOME PER COMMON                    
SHARE:                               
   Income before extraordinary       
   item.............................  $       0.02  $       0.19                $       0.05
                                     
   Extraordinary item...............                        0.01                        0.00
                                      ------------  ------------                ------------     
                                     
NET INCOME PER COMMON                
SHARE...............................  $       0.02  $       0.20                $       0.05
                                      ============  ============                ============
                                     
WEIGHTED AVERAGE                     
NUMBER OF COMMON AND                 
COMMON EQUIVALENT                    
SHARES OUTSTANDING..................    23,948,006     4,923,648      (861,638)   28,010,016
</TABLE>

         See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Information.

                                       40
<PAGE>   53

               ZILA, INC. AND BIO-DENTAL TECHNOLOGIES CORPORATION
                     UNAUDITED PRO FORMA COMBINED CONDENSED
   
                            STATEMENTS OF OPERATIONS
    
                                   (continued)

   
<TABLE>
<CAPTION>
                                                              For the Year Ended July 31, 1995
                                                    ------------------------------------------------------
                                                             Historical
                                                    --------------------------
                                                                                               Pro Forma
                                                       Zila        Bio-Dental   Adjustments     Combined
                                                    ------------  ------------  ------------  ------------     
<S>                                                 <C>           <C>           <C>           <C> 
REVENUES:
   Net sales........................                $  4,383,896  $ 23,702,337                $ 28,086,233
   Licensing fees and
      royalty revenue...............                     834,523       968,496                   1,803,019
                                                    ------------  ------------                ------------     
      Total revenues................                   5,218,419    24,670,833                  29,889,252
                                                    ------------  ------------                ------------     

OPERATING COSTS AND
EXPENSES:
   Cost of products sold............                     633,552    17,777,177                  18,410,729
   Selling, general and
      administrative................                   4,550,519     9,586,509                  14,137,028
   Restructuring....................                                   271,631                     271,631
                                                    ------------  ------------                ------------     
      Total operating costs
      and expenses..................                   5,184,071    27,635,317                  32,819,388
                                                    ------------  ------------                ------------     

INCOME (LOSS) FROM
OPERATIONS..........................                      34,348    (2,964,484)                 (2,930,136)
                                                    ------------  ------------                ------------     

OTHER INCOME
(EXPENSES):
   Interest and other income........                      46,515        42,403                      88,918
   Interest expense.................                     (39,149)     (162,455)                   (201,604)
   Realized loss on
      short-term investments........                      (1,197)                                   (1,197)
                                                    ------------  ------------                ------------     
      Total other income
      (expenses)....................                       6,169      (120,052)                   (113,883)
                                                    ------------  ------------                ------------     

INCOME (LOSS) BEFORE
INCOME TAXES........................                      40,517    (3,084,536)                 (3,044,019)

INCOME TAX BENEFIT..................                                (1,298,000)                 (1,298,000)
                                                    ------------  ------------                ------------     

NET INCOME (LOSS)...................                $     40,517  $ (1,786,536)               $ (1,746,019)
                                                    ============  ============                ============     

INCOME (LOSS) PER
COMMON SHARE........................                $       0.00  $      (0.28)               $      (0.06)
                                                    ============  ============                ============     

WEIGHTED AVERAGE
NUMBER OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING..................                  25,650,236     6,323,487    (1,106,610)   30,867,113
</TABLE>
    

         See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Information.
                                      
                                       41
<PAGE>   54
               ZILA, INC. AND BIO-DENTAL TECHNOLOGIES CORPORATION
   
         UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
    
                                   (continued)
   
<TABLE>
<CAPTION>
                                                For the Year Ended July 31, 1995
                                      ------------------------------------------------------
                                               Historical
                                      --------------------------
                                                                                 Pro Forma
                                         Zila        Bio-Dental   Adjustments     Combined
                                      ------------  ------------  ------------  ------------     
<S>                                   <C>           <C>           <C>           <C> 
REVENUES:                            
   Net sales........................  $  3,813,174  $ 23,026,969                $ 26,840,143
   Licensing fees and                
      royalty revenue...............       175,955     1,259,843                   1,435,798
                                      ------------  ------------                ------------     
      Total revenues................     3,989,129    24,286,812                  28,275,941
                                      ------------  ------------                ------------     
                                     
OPERATING COSTS AND                  
EXPENSES:                            
   Cost of products sold............       561,741    16,343,154                  16,904,895
   Selling, general and              
      administrative................     4,044,603     8,842,273                  12,886,876
                                      ------------  ------------                ------------     
      Total operating costs          
      and expenses..................     4,606,344    25,185,427                  29,791,771
                                      ------------  ------------                ------------     
                                     
LOSS FROM OPERATIONS................      (617,215)     (898,615)                 (1,515,830)
                                      ------------  ------------                ------------     
                                     
OTHER INCOME                         
(EXPENSES):                          
   Interest and other income........        44,188       146,813                     191,001
   Interest expense.................       (61,911)     (120,170)                   (182,081)
   Realized loss on short-term       
   investments......................          (424)                                     (424)
                                      ------------  ------------                ------------     
      Total other income             
      (expenses)....................       (18,147)       26,643                       8,496
                                      ------------  ------------                ------------     
                                     
LOSS BEFORE INCOME                   
TAXES AND CUMULATIVE                 
EFFECT OF ACCOUNTING                 
CHANGE..............................      (635,362)     (871,972)                 (1,507,334)
                                     
INCOME TAX BENEFIT..................                    (281,383)                   (281,383)
                                      ------------  ------------                ------------     
                                     
LOSS BEFORE                          
CUMULATIVE EFFECT OF                 
ACCOUNTING CHANGE...................      (635,362)     (590,589)                 (1,225,951)
                                     
CUMULATIVE EFFECT OF                 
ACCOUNTING CHANGE...................        29,945                                    29,945
                                      ------------  ------------                ------------     
                                     
NET LOSS............................  $   (605,417) $   (590,589)               $ (1,196,006)
                                      ============  ============                ============     
</TABLE>
    

                                       42
<PAGE>   55
<TABLE>
<CAPTION>
                                               For the Year Ended July 31, 1995
                                     ------------------------------------------------------
                                              Historical
                                     --------------------------
                                                                                Pro Forma
                                        Zila        Bio-Dental   Adjustments     Combined
                                     ------------  ------------  ------------  ------------     
<S>                                  <C>           <C>           <C>           <C> 
LOSS PER COMMON SHARE:              
                                    
   Loss before cumulative effect    
   of accounting                    
   change...........................        (0.03)        (0.10)                    (0.04)
   Cumulative effect of             
   accounting change................                                                  (0.00)
                                     ------------  ------------                ------------     
                                    
NET LOSS PER COMMON                 
SHARE............................... $      (0.03) $      (0.10)               $      (0.04)
                                     ============  ============                ============     
                                    
WEIGHTED AVERAGE                    
NUMBER OF COMMON AND                
COMMON EQUIVALENT                   
SHARES OUTSTANDING..................   24,074,866     6,149,343    (1,076,135)   29,148,074
</TABLE>

         See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Information.

                                       43
<PAGE>   56
                          NOTES TO UNAUDITED PRO FORMA
                     COMBINED CONDENSED FINANCIAL STATEMENTS

(1)      The per share equivalent pro forma combined data presentation is based
         upon an estimated ratio of shares of Bio-Dental Common Stock exchanged
         for shares of Zila Common Stock pursuant to the Merger Agreement. The
         adjusted share amounts are based on historical share amounts after
         giving effect to the pro forma adjustments described elsewhere herein
         and converting each share of Bio-Dental Common Stock into 0.825 shares
         of Zila Common Stock (the "Assumed Exchange Ratio"). The Assumed
         Exchange Ratio is used solely for purposes of calculating the per share
         equivalent pro forma combined data set forth herein and is not intended
         as a statement or estimate of the actual exchange ratio to be applied
         in connection with the Merger. As set forth in the Merger Agreement and
         described herein under "THE MERGER--Conversion of Shares," the actual
         exchange ratio will be based upon the average closing bid price for
         Zila Common Stock (as reported by The Nasdaq SmallCap Market) during
         the Calculation Period. To the extent the average closing bid price for
         Zila Common Stock (as reported by The Nasdaq SmallCap Market) during
         the calculation period is less than $6.00 per share or greater than
         $7.75 per share, the actual exchange ratio will differ from the Assumed
         Exchange Ratio, and the number of shares of Zila Common Stock issuable
         in connection with the Merger will increase or decrease according to
         the formula set forth in the Merger Agreement and described herein
         under "THE MERGER--Conversion of Shares."

(2)      The combination of Zila and Bio-Dental is to be accounted for using the
         pooling of interests method of accounting. Accordingly, the Unaudited
         Pro Forma Combined Condensed Financial Information combines the
         historical financial information of Zila and Bio-Dental for the
         following periods:

                  The unaudited pro forma combined condensed balance sheet as of
                  April 30, 1996, gives effect to the Merger as if it had
                  occurred on April 30, 1996, and combines the unaudited
                  consolidated condensed balance sheet of Zila as of April 30,
                  1996 and the consolidated condensed balance sheet of
                  Bio-Dental as of March 31, 1996.

   
                  The unaudited pro forma combined condensed statements of
                  operations (i) combine the historical consolidated statements
                  of operations of Zila for the fiscal year ended July 31, 1995
                  and for the nine months ended April 30, 1996 and 1995 with the
                  historical consolidated statements of operations of Bio-Dental
                  for the twelve months ended June 30, 1995 and for the nine
                  months ended March 31, 1996 and 1995, respectively, and (ii)
                  combine the historical consolidated statements of operations
                  of Zila for the fiscal years ended July 31, 1994 and 1993 with
                  the historical consolidated statements of operations of
                  Bio-Dental for the fiscal years ended March 31, 1994 and 1993,
                  respectively, in each case as if the Merger had occurred at
                  the beginning of the earliest period presented.

         As a result of conforming Bio-Dental's statement of operations to a
         twelve month period ended June 30, 1995, the three month period ended
         June 30, 1994 was excluded from 
    

                                       44
<PAGE>   57
   
         the pro forma condensed statements of operations. Revenues and net
         income for the period excluded were $7,295,465 and $171,152,
         respectively.
    

(3)      There were no material transactions between Zila and Bio-Dental during
         any of the periods presented.

(4)      Pro forma per share amounts are based on historical per share amounts
         after giving effect to the pro forma adjustments described elsewhere
         herein and converting each share of Bio-Dental Common Stock into 0.825
         shares of Zila Common Stock. See Note (1) above.

   
(5)      On July 22, 1996, Bio-Dental disposed of its rights to receive royalty
         payments from Denticator International, Inc. ("DII"), a former
         subsidiary of Bio-Dental, in exchange for a $7.5 million cash payment.
         Prior to this transaction, Bio-Dental had been receiving royalty
         payments from DII pursuant to an Exclusive License Agreement, dated
         March 31, 1991 (the "DII License Agreement"), as amended by an
         Extension and Modification of Exclusive License Agreement, dated April
         1, 1994 (the "DII Modification"). On July 22, 1996, Young Innovations,
         Inc. ("Young") purchased substantially all of the assets and assumed
         certain liabilities of DII. As part of the Young transaction,
         Bio-Dental transferred and conveyed to DII all of its future royalty
         rights and interests under the DII License Agreement and the DII
         Modification for a lump sum payment of $7.5 million. Additionally,
         approximately $960,000 owed to Bio-Dental by DII at the time of the
         closing for accrued royalties, notes payable and accrued interest was
         converted to a "product credit" upon which Bio-Dental and its
         affiliates can draw free product from Young and its affiliates at a
         specified rate until depleted. Bio-Dental expects to utilize such
         product credit during the next two years. Approximately $1.3 million of
         the proceeds received by Bio-Dental was used to prepay all of the
         outstanding principal and accrued and unpaid interest on the term notes
         related to the Note and Warrant Purchase Agreement, dated March 29,
         1996, among Bio-Dental, the State of Oregon ZCG/PERS and the City of
         Stamford Fireman's Pension Fund. Approximately $2 million of the
         proceeds received by Bio-Dental was used to prepay all of the
         outstanding principal and accrued and unpaid interest on the Line of
         Credit Agreement, dated as of December 16, 1992, and the Commercial
         Loan Note, dated March 31, 1995, as amended, owed by Bio-Dental to The
         Bank of California.
    

                                       45
<PAGE>   58
                               THE SPECIAL MEETING

   
         This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the directors of Bio-Dental of proxies to be used at the Special
Meeting. The Special Meeting will be held at the Sheraton Sunrise Hotel, 11211
Point East Drive, Rancho Cordova, California. At the Special Meeting,
Bio-Dental's stockholders will consider and vote on a proposal to approve the
Merger Agreement and the Merger. See "THE MERGER."
    

         If the enclosed form of proxy is executed and returned, the shares
represented by it will be voted as directed on all matters properly coming
before the Special Meeting for a vote. The proxy may be revoked at any time
prior to its exercise by giving notice to Bio-Dental in writing or by attending
the Special Meeting and voting in person.

   
         Stockholders of Bio-Dental of record at the close of business on
September 6, 1996 will be entitled to vote at the Special Meeting. On that date,
Bio-Dental had outstanding and entitled to vote 6,444,400 shares of Bio-Dental
Common Stock.

         Each share of Bio-Dental Common Stock is entitled to one vote on all
matters that may properly come before the Special Meeting. The adoption of the
Merger Agreement described herein will require the affirmative vote of the
holders of a majority of the outstanding shares of Bio-Dental Common Stock.
Bio-Dental's present directors and officers (and their affiliates) control
approximately 5.3 percent of the outstanding Bio-Dental Common Stock, and have
agreed to vote such stock FOR approval of the Merger Agreement and the Merger.
See "THE MERGER--Affiliate Agreements."
    

         Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Bio-Dental, at or before the taking of the vote at
the Special Meeting, a written notice of revocation bearing a later date than
the proxy, (ii) duly executing a later-dated proxy relating to the same shares
and delivering it to the Secretary of Bio-Dental before the taking of the vote
at the Special Meeting, or (iii) attending the Special Meeting and voting in
person. ATTENDANCE AT THE SPECIAL MEETING WILL NOT, IN AND OF ITSELF, CONSTITUTE
REVOCATION OF A PROXY. Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Bio-Dental at 11291 Sunrise Park Drive,
Rancho Cordova, California 95742, Attention: Secretary, or hand-delivered to the
Secretary of Bio-Dental, at or before the taking of the vote at the Special
Meeting. Subject to any such revocation, all shares represented by properly
executed proxies that are received prior to the Special Meeting will be voted in
accordance with the directions on the proxy. If no direction is made, the proxy
will be voted FOR approval of the Merger Agreement and the Merger. Any
Bio-Dental stockholder who abstains from voting or whose broker abstains from
voting on such stockholder's behalf will, in effect, have voted against adoption
and approval of the Merger Agreement and the Merger.

   
         The approximate date on which this Proxy Statement/Prospectus and the
accompanying form of proxy are first being sent to stockholders is September
___, 1996.
    

                                       46
<PAGE>   59
                                   THE MERGER

INTRODUCTION

   
         The Board of Directors of Bio-Dental has approved and adopted a Merger
Agreement, a copy of which is attached hereto as Appendix A and incorporated
herein by reference. Consummation of the merger described below and related
transactions contemplated by the Merger Agreement (the "Merger") will result in
the merger of Bio-Dental and Merger Sub, and Bio-Dental will continue as the
surviving corporation under the name "Bio-Dental Technologies Corporation" or
such other name as may be determined.
    

         ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE MERGER WILL
AFFECT CERTAIN RIGHTS OF STOCKHOLDERS. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ CAREFULLY THIS ENTIRE PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO
BEFORE VOTING.

         THE BOARD OF DIRECTORS OF BIO-DENTAL HAS APPROVED THE MERGER AGREEMENT
AND THE MERGER AND RECOMMENDS A VOTE "FOR" THIS PROPOSAL TO ADOPT AND APPROVE
THE MERGER AGREEMENT AND THE MERGER. Stockholders are urged to retain this Proxy
Statement/Prospectus for future reference.

DESCRIPTION OF THE MERGER

         The following discussion is qualified in its entirety by reference to
the Merger Agreement set forth in Appendix A hereto.

   
         Upon consummation of the Merger: (i) Bio-Dental will become a wholly
owned subsidiary of Zila by merger of the Merger Sub with and into Bio-Dental,
(ii) the stockholders of Bio-Dental, by such merger, will become stockholders of
Zila, as each presently outstanding share of Bio-Dental Common Stock will be
converted into a fraction of a share of the Zila Common Stock as determined
pursuant to a formula set forth under "--Conversion of Shares," (iii) each
outstanding option to purchase Bio-Dental Common Stock will be converted into an
option to purchase a number of shares of Zila Common Stock, at an exercise price
per share, determined pursuant to a formula set forth under "--Bio-Dental
Options," and (iv) the separate existence of the Merger Sub (except as may be
continued by operation of law) shall cease, and Bio-Dental will continue as the
surviving corporation under the name "Bio-Dental Technologies Corporation" or
such other name as may be determined.
    

         Consummation of the Merger is subject to the prior satisfaction or
waiver of all conditions to the Merger set forth in the Merger Agreement. See
"--Conditions to Consummation of the Merger." Further, the Merger Agreement can
be abandoned, deferred or terminated on the terms and conditions set forth
therein. See "--Waivers and Amendments." If the Merger Agreement is duly
authorized and adopted by the requisite votes of stockholders and all other
conditions thereto are either satisfied or waived, and if the Merger Agreement
is not terminated, deferred or abandoned pursuant to the provisions thereof,
Articles of Merger will be filed with the Delaware Secretary of State and the
Secretary of State of California. The Merger will be 

                                       47
<PAGE>   60
effective immediately upon theaforementioned filings (the "Effective Date"). It
is currently anticipated that the Merger will be consummated promptly following
the Special Meeting.

         Following consummation of the Merger, it is expected that the business
and operations of Bio-Dental will be conducted substantially as they are
currently being conducted. Zila will, however, continuously evaluate the
business and operations of Bio-Dental, as well as the business and operations of
its other divisions and subsidiaries, and take such actions as it deems
appropriate under then existing circumstances.

CONVERSION OF SHARES

         Subject to the provisions set forth below regarding fractional shares
and dissenters' rights, at the Effective Date, each share of Bio-Dental Common
Stock issued and outstanding immediately prior to the Effective Date shall be
converted into and become a right to receive 0.825 shares of Zila Common Stock;
provided, however, that if the average closing bid price for Zila Common Stock
as reported by The Nasdaq SmallCap Market during the ten trading days ending on
the trading day that is five trading days prior to the Closing Date (the
"Calculation Period") is less than $6.00 per share, each share of Bio-Dental
Common Stock issued and outstanding immediately prior to the Effective Date
shall be converted into and become a right to receive a number of shares of Zila
Common Stock that is equivalent in value to $4.95 as calculated based on the
average closing bid price for Zila Common Stock as reported by The Nasdaq
SmallCap Market during the Calculation Period; provided further, however, that
if the average closing bid price for Zila Common Stock as reported by The Nasdaq
SmallCap Market during the Calculation Period is greater than $7.75 per share,
each share of Bio-Dental Common Stock issued and outstanding immediately prior
to the Effective Date shall automatically be canceled and extinguished and be
converted into and become a right to receive the greater of (i) 0.75 shares of
Zila Common Stock or (ii) a number of shares of Zila Common Stock that is
equivalent in value to $6.39 as calculated based on the average closing bid
price for Zila Common Stock as reported by The Nasdaq SmallCap Market during the
Calculation Period.

         Each share of the common stock of Merger Sub, par value $.001 per
share, issued and outstanding immediately prior to the Effective Date shall
automatically be converted into and become one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the surviving
corporation.

         If any shares of Bio-Dental Common Stock outstanding immediately prior
to the Effective Date are unvested or are subject to a repurchase option, risk
of forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with Bio-Dental or otherwise, then the shares of
Zila Common Stock issued in exchange for such shares of Bio-Dental Common Stock
will also be unvested and subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates representing such shares of
Zila Common Stock may accordingly be marked with appropriate legends.

         No fractional shares of Zila Common Stock shall be issued in connection
with the Merger, and no certificates for any such fractional shares shall be
issued. In lieu of such fractional shares, any fractional share interest in Zila
Common Stock to which a holder of Bio-Dental Common Stock would otherwise be
entitled in the Merger shall be rounded up to the

                                       48
<PAGE>   61
nearest whole share if such fraction is 0.5 or greater and shall be rounded down
to the nearest whole share if such fraction is less than 0.5, with no cash being
paid in exchange for any such fractional share interest.

BIO-DENTAL OPTIONS

         Upon consummation of the Merger, each option that is then outstanding
under Bio-Dental's 1992 Stock Option Plan, as amended in 1995 (the "Stock
Plan"), whether vested or unvested (a "Bio-Dental Option"), shall be assumed by
Zila in accordance with the terms of the Stock Plan and the stock option
agreement, if any, by which such Bio-Dental Option is evidenced. All rights with
respect to Bio-Dental Common Stock under outstanding Bio-Dental Options shall
thereupon be converted, subject to the provisions hereof, into rights with
respect to Zila Common Stock. From and after the Effective Date, (i) each
Bio-Dental Option assumed by Zila (collectively, the "Assumed Options") may be
exercised solely for shares of Zila Common Stock, (ii) the number of shares of
Zila Common Stock subject to each such Assumed Option held by such person shall
be equal to the number of shares of Zila Common Stock which the holder of such
Assumed Option would have received in the Merger in exchange for the shares of
Bio-Dental Common Stock subject to such Assumed Option if such Assumed Option
had been exercised immediately prior to the Effective Date, (iii) the per share
exercise price for the Zila Common Stock issuable upon exercise of each such
Assumed Option shall be determined by dividing the exercise price per share of
Bio-Dental Common Stock subject to such Assumed Option, as in effect immediately
prior to the Effective Date, by a fraction the numerator of which is the number
of shares of Zila Common Stock subject to such Assumed Option immediately after
the Effective Date and the denominator of which is the number of shares of
Bio-Dental Common Stock subject to such Assumed Option immediately prior to the
Effective Date and rounding the resulting exercise price up to the nearest whole
cent, and (iv) all restrictions on the exercise of each such Assumed Option
shall continue in full force and effect and the term, exercisability, vesting
schedule, status as an incentive or nonqualified option, and other provisions of
such Bio-Dental Option shall otherwise remain unchanged; provided, however, that
each such Assumed Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected by
Zila after the Effective Date.

   
          As of the Effective Date, approximately 460,000 shares of Bio-Dental
Common Stock will be subject to outstanding vested Bio-Dental Options and
approximately 200,000 shares of Bio-Dental Common Stock will be subject to
outstanding unvested Bio-Dental Options. The foregoing numbers are subject to
change based upon the vesting, exercise, termination or expiration of
Bio-Dental Options at or prior to the Effective Date. 
    

         Zila will use its best efforts to file a Registration Statement on Form
S-8 with the Commission within 30 days following consummation of the Merger with
respect to the issuance of shares of Zila Common Stock upon the exercise of
Assumed Options.

BIO-DENTAL WARRANTS

   
         Bio-Dental has from time to time issued warrants to purchase Bio-Dental
Common Stock (the "Bio-Dental Warrants") to various lenders, stockholders and
other third parties. As of July 
    

                                       49
<PAGE>   62
   
         24, 1996, the Bio-Dental Warrants entitled the holders thereof
to purchase an aggregate of 450,000 shares of Bio-Dental Common Stock.
Bio-Dental currently anticipates that all of the outstanding Bio-Dental
Warrants will be exercised in accordance with their terms prior to the
consumation of the Merger and shares of Bio-Dental Common Stock will be
acquired by the holders thereof upon exercise. All shares of Bio-Dental Common
Stock acquired upon the exercise of Bio-Dental Warrants prior to consummation
of the Merger will be converted into shares of Zila Common Stock in the same
manner as other shares of Bio-Dental Common Stock outstanding at the Effective
Date. See "--Conversion of Shares." 
    

REASONS FOR THE MERGER

         Combined Reasons for the Merger

        The Boards of Directors of Zila and Bio-Dental each considered that the
combined company would have the potential for competitive advantage and
improved financial performance. In the discussions that led to the signing of
the Merger Agreement, Zila and Bio-Dental identified a number of potential
joint benefits resulting from the Merger, as well as a number of benefits to
Zila and Bio-Dental individually. The potential benefits of the Merger accruing
to both Zila and Bio-Dental include:

         -        IMPROVED SALES PERFORMANCE. As a result of the greater
                  financial strength and stability of the combined company, the
                  Boards of Directors of Zila and Bio-Dental believe that the
                  combined company will be better positioned to be viewed as a
                  financially stable provider of dental supplies and technology.

         -        ORATEST DISTRIBUTION. If Zila receives FDA approval to market
                  OraTest in the United States, Bio-Dental's established
                  distribution network will allow the combined company to
                  efficiently implement a strategy for introducing and marketing
                  OraTest to the dental professionals who are existing
                  Bio-Dental customers throughout the United States. The Boards
                  of Directors of Zila and Bio-Dental believe the combined
                  company will be in a unique position to benefit through the
                  broad exposure of OraTest to a large, existing customer base
                  of practicing dentists and through additional sales volume for
                  other dental products which the sale of OraTest may generate.

         -        COMPLEMENTARY BUSINESSES. The Boards of Directors of Zila and
                  Bio-Dental believe that Zila's production of oral and
                  dermatological products, combined with Bio-Dental's
                  established marketing and distribution network, will enable
                  the combined company to more efficiently and effectively
                  promote the use of Zila products by practicing dentists who
                  are current customers of Bio-Dental and to cross sell other
                  products carried by Bio-Dental.

         -        IMPROVED COMPETITIVE POSITION. The Boards of Directors of Zila
                  and Bio-Dental believe that increased revenues and resources
                  will allow the combined company to meet increasing competitive
                  challenges from larger companies, accelerate the introduction
                  of new products, including OraTest, to the market, and promote
                  greater customer and market awareness.

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<PAGE>   63
         -        EMPLOYEE RECRUITMENT AND RETENTION. The Boards of Directors of
                  Zila and Bio-Dental believe that higher visibility, increased
                  financial strength and greater career opportunities will allow
                  the combined company to attract and retain a larger pool of
                  appropriately skilled and trained employees.

         -        ECONOMIES OF SCALE. The Boards of Directors of Zila and
                  Bio-Dental believe that the greater sales volume of the
                  combined company will allow the considerable start up and
                  support costs involved in the introduction of new products to
                  be shared across a broader product range.

         -        COST SAVINGS. The Boards of Directors of Zila and Bio-Dental
                  believe the combined company will achieve cost savings through
                  the elimination of redundancies resulting from the separate
                  existence of two public companies.

         -        STRATEGIC BUSINESS COMBINATIONS. The Boards of Directors of
                  Zila and Bio-Dental believe that the breadth of knowledge and
                  experience of the officers of the combined company, together
                  with the increased resources of the combined company, will
                  enable the combined company to more effectively identify and
                  consummate possible future strategic business combinations.

         In addition to the joint reasons discussed above, the Board of
Directors of each of Zila and Bio-Dental also considered separate reasons for
approving the Merger.

         Zila's Reasons for the Merger

         The potential benefits which the Board of Directors of Zila has
identified as accruing to Zila as a result of the Merger include the following:

         -        EXISTING MARKETING RESOURCES. The Board of Directors of Zila
                  believes that Bio-Dental's existing state-of-the-art, full
                  service marketing and distribution resources will allow Zila
                  to benefit through greater sales volume of new and existing
                  Zila products. In particular, the Merger will provide Zila
                  with the channels and resources to introduce OraTest to the
                  United States market upon receipt of FDA approval.

         -        SALES TO PROFESSIONALS. The Board of Directors of Zila
                  believes the Merger offers Zila an opportunity to utilize
                  Bio-Dental's customer base, which consists primarily of
                  practicing dentists, to increase sales of Zila's existing
                  non-prescription products to health care professionals.

         -        EXISTING BUSINESS RELATIONSHIPS. The Board of Directors of
                  Zila believes that Bio-Dental's established business
                  relationships with insurance companies and managed health care
                  providers will offer an excellent opportunity to gain support
                  for the introduction, marketing and distribution of OraTest in
                  the United States (upon receipt of FDA approval).

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<PAGE>   64
         -        DIVERSIFICATION OF BUSINESSES. The Board of Directors of Zila
                  believes that Bio-Dental's complementary business operations
                  and technology will enable Zila to diversify its own business
                  and product offerings.

         -        VERTICAL INTEGRATION. The Board of Directors of Zila believes
                  that the Merger will provide Zila with the opportunity to
                  realize cost savings as a result of the increased level of
                  vertical integration within its business operations.

         In the course of its deliberations, the Board of Directors of Zila
reviewed with Zila's management a number of other factors relevant to the
Merger. In particular, the Board of Directors of Zila considered, among other
things: (i) information concerning Zila's and Bio-Dental's respective
businesses, prospects, financial performance, financial conditions, business
plans, operations and product development schedules; (ii) the historic and
current public stock market price for Zila Common Stock and Bio-Dental Common
Stock; (iii) an analysis of the anticipated respective contributions to
revenues, operating profits and net profits of the combined company; (iv) the
compatibility of the Zila and Bio-Dental management teams; (v) Zila's strategic
objectives for the introduction and marketing of OraTest in the United States
upon receipt of FDA approval and for expanding the sales of its existing
products to health care professionals; (vi) the ability of the Merger to qualify
as a tax-free reorganization and to be treated as a "pooling of interests" for
accounting purposes; and (vii) reports from management, legal advisors and
accounting advisors on the results of Zila's due diligence investigation of
Bio-Dental.

         The Board of Directors of Zila also considered a number of potentially
negative factors in its deliberations concerning the Merger, including: (i) the
absence of profitability in certain of Bio-Dental's operating periods and the
significant losses incurred by Bio-Dental as recently as the fiscal year ended
March 31, 1996; (ii) the adverse revenue trend experienced by certain of
Bio-Dental's operations during its fiscal year ended March 31, 1996; (iii) the
possible dilutive effect of the issuance of Zila Common Stock in the Merger;
(iv) the risk that the public market price of Zila's stock might be adversely
effected by announcement of the Merger; (v) the costs expected to be incurred in
connection with the Merger, including transaction costs and the costs of
integrating the businesses of the combined companies; (vi) the risk that the
combined company's ability to increase or maintain revenues might be diminished
by intensified competition among suppliers of similar or related products; (vii)
the risk that the FDA may refuse to grant approval to market OraTest in the
United States; (viii) the risk that, despite the efforts of the combined
company, the services of key persons might not be retained; (ix) the risk that
other benefits sought to be obtained by the Merger might not be obtained; and
(x) other risks described herein under "INVESTMENT CONSIDERATIONS." The
officers, directors and affiliates of Zila do not have any interest different
from those of Zila stockholders in the Merger and, consequently, no such
interest was a factor in the deliberations of the Board of Directors of Zila
regarding the Merger.

         In view of the wide variety of factors, both positive and negative, it
considered, the Board of Directors of Zila did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered. After taking into consideration all of the factors set forth above,
the Board of Directors of Zila determined that the Merger was in the

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<PAGE>   65
best interests of Zila and its stockholders and that Zila should proceed with 
the Merger at the present time.

         Bio-Dental's Reasons for the Merger

         The potential benefits which the Board of Directors of Bio-Dental has
identified as accruing to Bio-Dental as a result of the Merger include the
following:

         -        PULL-THROUGH SALES VOLUME. The Board of Directors of
                  Bio-Dental believes that the introduction of Zila products
                  (particularly OraTest, upon receipt of FDA approval) into its
                  existing product line and the sale of such Zila products
                  through Bio-Dental's existing channels will result in
                  increased sales volume of other non-Zila supplies which are
                  marketed by Bio-Dental. In addition, the Board of Directors of
                  Bio-Dental believes that OraTest (upon receipt of FDA
                  approval) and Bio-Dental's intra-oral video camera system will
                  be complementary products and that the introduction of OraTest
                  to the United States market could have the potential to
                  increase sales of Bio-Dental's intra-oral video technology.

         -        EXCLUSIVE ORATEST DISTRIBUTOR. The Board of Directors of
                  Bio-Dental believes that if the FDA approves the sale of
                  OraTest in the United States, Bio-Dental will benefit from
                  the significant sales of the new product which are expected to
                  result. The potential benefits to Bio-Dental are enhanced by
                  the fact that the Merger will result in Bio-Dental becoming
                  the exclusive distributor of OraTest to dentists in the United
                  States, thereby expanding Bio-Dental's access to dental health
                  professionals nationwide.

         In evaluating the proposed Merger, the Board of Directors of Bio-Dental
considered and discussed a wide variety of factors relevant to the Merger. In
particular, the Board of Directors of Bio-Dental considered, among other things:
(i) information concerning Zila's and Bio-Dental's respective businesses,
prospects, financial performance, financial conditions, business plans,
operations and product development schedules; (ii) the historic and current
public stock market price for Zila Common Stock and Bio-Dental Common Stock;
(iii) an analysis of the anticipated respective contributions to revenues,
operating profits and net profits of the combined company; (iv) the
compatibility of the Zila and Bio-Dental management teams; (v) Bio-Dental's
strategic objectives for expanding the sales of its existing products; and (vi)
reports from management, legal advisors and accounting advisors on the results
of Bio-Dental's due diligence investigation of Zila.

         The Board of Directors of Bio-Dental also discussed each component of
the Merger Agreement and the Merger in light of its fairness to Bio-Dental's
stockholders, the impact of the Merger on current employees of and lenders to
Bio-Dental, the availability of liquidity to Bio-Dental's stockholders, and the
requirements for a tax-free transaction which could be accounted for as a
pooling of interests. In addition, the Board of Directors of Bio-Dental
considered (i) the advantages and disadvantages that the Merger would present to
Bio-Dental's achievement of its strategic objectives, (ii) available information
regarding the possible timing and scope of FDA approval of OraTest, (iii) the
breadth, validity and enforceability of Zila's existing patents and trademarks,
and (iv) the marketability of OraTest in the United States if FDA approval is

                                       53
<PAGE>   66
received. As part of the evaluation process, the Board of Directors of
Bio-Dental reviewed information about the business, operations and future
prospects of both Bio-Dental and Zila, including Zila's annual, quarterly and
other reports, registration statements and proxy statement filed by Zila with
the Commission. The Board of Directors of Bio-Dental considered whether any
potential acquiror might offer the same or similar benefits to Bio-Dental and
concluded that the Merger with Zila offered the best benefits available.

         The Board of Directors of Bio-Dental also considered the following
potentially negative factors: (i) the potential disruption of Bio-Dental's
business that might result from employee uncertainty and lack of focus following
announcement of the Merger and during the combination of the operations of
Bio-Dental and Zila; (ii) the possibility that the Merger might not be
consummated; (iii) the effects that public announcement of the Merger might have
on Bio-Dental's revenue and operating results and Bio-Dental's ability to
attract and retain key management, marketing and other personnel; (iv) the
possible effects of the public announcement of the Merger on the market price of
Bio-Dental Common Stock; (v) the risk that, despite the intentions and efforts
of the parties to reassure Bio-Dental's customers regarding the combined
company's intention to continue Bio-Dental's business operations and customer
support following the Merger, the announcement of the Merger could result in
decisions by certain customers to cancel or delay purchases of products from
Bio-Dental; (vi) the risk that the anticipated benefits of the Merger will not
be realized; and (vii) other risks described herein under "INVESTMENT
CONSIDERATIONS."

         After considering the foregoing factors, the Board of Directors of
Bio-Dental unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and recommended that the
stockholders of Bio-Dental approve and adopt the Merger Agreement and the
Merger. In view of the wide variety of factors considered, both positive and
negative, the Board of Directors of Bio-Dental did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered.

POTENTIAL ADVERSE CONSEQUENCES OF MERGER

         Notwithstanding the belief of the Board of Directors of Bio-Dental
regarding the potential benefits to Bio-Dental stockholders of the Merger,
stockholders should realize that there may be certain negative consequences of
the Merger. A number of potential adverse consequences are set forth under
"INVESTMENT CONSIDERATIONS." In addition, current holders of Bio-Dental Common
Stock may have rights as holders of Zila Common Stock following the Merger which
are less than the rights which they currently have as holders of Bio-Dental
Common Stock. See "THE MERGER--Certain Differences Between Delaware and
California Corporation Law." The Boards of Directors of Zila and Bio-Dental also
considered a number of potential negative consequences of the Merger in their
deliberations regarding the Merger, and any of these consequences could
potentially occur as a result of the Merger. See "THE MERGER--Reasons for the
Merger."

OPINION OF FINANCIAL ADVISOR

   
         Bio-Dental engaged Cleary, Gull, Reiland & McDevitt as financial
advisor to render an opinion as to the fairness to holders of Bio-Dental Common
Stock of the consideration to be 
    
                                       54
<PAGE>   67
   
received in the Merger. In consideration for rendering its fairness opinion,
Bio-Dental has agreed to pay such firm a fee of $60,000. The Merger Agreement
provides that the receipt of such opinion by Bio-Dental is a condition
precedent to Bio-Dental's obligation to consummate the Merger.
    

STOCKHOLDER APPROVAL

   
         The affirmative vote of the holders of a majority of the outstanding
shares of Bio-Dental Common Stock entitled to vote is required for adoption and
approval of the Merger Agreement and the Merger. The close of business on
September 6, 1996 has been fixed by Bio-Dental's Board of Directors as the
record date for determination of the holders of Bio-Dental Common Stock entitled
to notice of and to vote at the Special Meeting. On such date, there were
6,444,400 shares of Bio-Dental Common Stock outstanding and entitled to vote at
the Special Meeting.

         Bio-Dental's present directors and officers (and their affiliates)
control approximately 5.3 percent of the outstanding Bio-Dental Common Stock.
Such persons have entered into Affiliate Agreements pursuant to which they have
agreed, among other things, to vote such stock FOR approval of the Merger
Agreement and the Merger. See "THE MERGER--Affiliate Agreements."
    

DISSENTERS' RIGHTS

         If the Merger Agreement is approved by the required vote of Bio-Dental
stockholders and is not abandoned or terminated, holders of Bio-Dental Common
Stock may, by complying with Sections 1300 through 1312 of the CGCL, be entitled
to dissenters' rights as described therein. Zila's obligation to consummate the
Merger is conditioned on the fact that the holders of no more than an aggregate
of 5 percent of the outstanding shares of Bio-Dental Common Stock (on an
as-converted basis) are eligible to exercise dissenters' rights. The record
holders of the shares of Bio-Dental Common Stock that are eligible to, and do,
exercise their dissenters' rights with respect to the Merger are referred to
herein as "Dissenting Shareholders," and the shares of stock with respect to
which they exercise dissenters' rights are referred to herein as "Dissenting
Shares." If a Bio-Dental shareholder has a beneficial interest in shares of
Bio-Dental Common Stock that are held of record in the name of another person,
such as a broker or nominee, and such shareholder desires to perfect whatever
dissenters' rights such beneficial shareholder may have, such beneficial
shareholder must act promptly to cause the holder of record timely and properly
to follow the steps summarized below.

         It is a condition to Zila's obligation to consummate the Merger that
not more than 5 percent of the shares of Bio-Dental Common Stock be eligible to
be treated as Dissenting Shares at the time of the Merger.

   
         The following discussion is not a complete statement of the CGCL
relating to dissenters' rights, and is qualified in it entirety by reference to
Sections 1300 through 1312 of the CGCL attached to this Proxy
Statement/Prospectus as Appendix B and incorporated herein by reference. This
discussion and Sections 1300 through 1312 of the CGCL should be reviewed
carefully by
    
                                       55
<PAGE>   68
any holder who wishes to exercise statutory dissenters' rights or wishes to
preserve the right to do so, since failure to comply with the required
procedures will result in the loss of such rights.

         There are generally no dissenters' rights under the CGCL for shares
which are listed on any national securities exchange certified by the
Commissioner of Corporations or listed on the list of OTC margin stocks issued
by the Board of Governors of the Federal Reserve System, except that dissenters'
rights are available if (i) demands for payment are filed by 5 percent or more
of the outstanding shares of a class of securities, or (ii) shares issued in
connection with the proposed transaction are subject to restrictions on transfer
imposed by the corporation or by any law or regulation.

         Since The Nasdaq National Market is a national securities exchange that
is certified by the California Commissioner of Corporations, holders of
Bio-Dental Common Stock will not generally be eligible to exercise dissenters'
rights under the CGCL unless demands for payment are filed with respect to at
least 5 percent of the outstanding Bio-Dental Common Stock prior to the date on
which shareholders vote on the proposed Merger. As described above, one of the
conditions to the Merger is that no more than 5 percent of the outstanding
shares of Bio-Dental Common Stock are eligible to exercise dissenters' rights.
In addition, shares held by affiliates of Bio-Dental who are subject to certain
transfer restrictions will be entitled to exercise dissenters' rights.

         Shares of Bio-Dental Common Stock must satisfy each of the following
requirements to qualify as Dissenting Shares under the CGCL: (i) the shares of
Bio-Dental Common Stock must have been outstanding on the Record Date; (ii) the
holder of such shares must submit a written demand for payment prior to the
meeting at which shareholders vote on the proposed Merger, which shall be a
demand that Bio-Dental purchase such holder's shares of Bio-Dental Common Stock
for cash at their fair market value; (iii) the shares of Bio-Dental Common Stock
must have been voted against the Merger; and (iv) the holder of such shares of
Bio-Dental Common Stock must submit certificates for endorsement (as described
below). A vote by proxy or in person against the Merger does not in and of
itself constitute a demand for appraisal rights under the CGCL.

         Pursuant to Sections 1300 through 1312 of the CGCL, holders of
Dissenting Shares may require Bio-Dental to repurchase their Dissenting Shares
at a price equal to the fair market value of such shares determined as of the
day before the first announcement of the terms of the proposed Merger (May 31,
1996), excluding any appreciation or depreciation as a consequence of the
proposed Merger, but adjusted for any stock split, reverse stock split or stock
dividend that becomes effective thereafter.

         Prior to the date of the shareholders meeting at which the proposed
Merger is approved, a Dissenting Shareholder must demand that Bio-Dental
repurchase such shareholder's Dissenting Shares in a statement setting forth the
number and class of Dissenting Shares held of record by such Dissenting
Shareholder that the Dissenting Shareholder demands that Bio-Dental purchase,
and a statement of what the Dissenting Shareholder claims to be the fair market
value of the dissenting Shares as of the day before the announcement of the
proposed Merger. The statement of fair market value in such demand by the
Dissenting Shareholder constitutes an offer by the dissenting Shareholder to
sell the dissenting Shares at such a price within such 30-day period. 

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<PAGE>   69
Such holder must also submit to Bio-Dental or its transfer agent certificates
representing any dissenting Shares that the dissenting Shareholder demands
Bio-Dental purchase, so that such Dissenting Shares may either be stamped or
endorsed with the statement that the shares are Dissenting Shares or exchanged
for certificates of appropriate denomination so stamped or endorsed.

         If, upon the Dissenting Shareholder's surrender of the certificates
representing the Dissenting Shares, Bio-Dental and a Dissenting Shareholder
agree upon the price to be paid for the Dissenting Shares and agree that such
shares are Dissenting Shares, then the agreed price is required by law to be
paid to the Dissenting Shareholder within the later of 30 days after the date of
such agreement or 30 days after any statutory or contractual conditions to the
consummation of the merger are satisfied or waived.

         If Bio-Dental and a Dissenting Shareholder disagree as to the price for
such Dissenting Shares or disagree as to whether such shares are entitled to be
classified as Dissenting Shares, such holder has the right to bring an action in
California Superior Court, within six months after the date on which the notice
of the approval of the Merger by Bio-Dental shareholders is mailed, to resolve
such dispute. In such action, the court will determine whether the shares of
Bio-Dental Common Stock held by such shareholder are Dissenting Shares, the fair
market value of such shares of Bio-Dental Common Stock, or both. The CGCL
provides, among other things, that a Dissenting Shareholder may not withdraw the
demand for payment of the fair market value of Dissenting Shares unless
Bio-Dental consents to such request for withdrawal.

         Under Delaware Law, Zila stockholders are not entitled to vote upon, or
exercise dissenters' or appraisal rights with respect to, the Merger Agreement
or the Merger.

CAPITALIZATION OF ZILA

         Zila Common Stock

   
         Zila's authorized Common Stock consists of 50,000,000 shares of Common
Stock, $.001 par value. A total of 6,232,290 shares are reserved for issuance to
holders of Bio-Dental Common Stock and Assumed Options pursuant to the terms of
the Merger Agreement. These shares, when issued, will be fully paid and
nonassessable. Holders of Zila Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. At any
meeting of Zila stockholders, the presence, in person or by proxy, of the
holders of a majority of the outstanding Zila stock constitutes a quorum. Unless
otherwise provided by Delaware law, the affirmative vote of the majority of the
shares represented at any such meeting constitutes an act of Zila's
stockholders. Pursuant to Delaware law, Zila generally has the right to redeem
outstanding shares of common stock. No holder of Zila Common Stock has any
preemptive rights to additional shares of Zila's capital stock issued in the
future. Holders of Zila Common Stock will be entitled to receive dividends
ratably when, as and if declared by the Board of Directors in its discretion out
of funds legally available. See "MARKET PRICE INFORMATION." In the event of
liquidation, dissolution or winding up of Zila, the holders of Zila Common Stock
will be entitled to share ratably in all assets of Zila remaining after payments
of liabilities and liquidation preferences to the holders of any Zila Preferred
Stock then outstanding. See "--Capitalization of Zila." The holders of Zila
Common 
    

                                       57
<PAGE>   70
Stock will have no preemptive, conversion or other subscription rights and will
not be subject to further calls or assessments by Zila. There are no redemption
or sinking fund provisions applicable to the Zila Common Stock. The rights of
holders of Zila Common Stock will be subject to the rights of the holders of any
Zila Preferred Stock which may be outstanding at any time. Under Delaware law,
holders of Zila Common Stock are not entitled to vote upon, or exercise
dissenters' or appraisal rights with respect to, the Merger Agreement or the
Merger.


         Zila Preferred Stock

         Zila's authorized capital also includes 2,500,000 shares of preferred
stock, $.001 par value per share (the "Zila Preferred Stock"), none of which
shares are currently issued and outstanding. The Zila Preferred Stock is
issuable, from time to time, in one or more series, with such powers,
designations, preferences and relative participating, optional or other rights,
and qualifications, limitations or restrictions thereof, as stated and expressed
in a resolution or resolutions providing for the issuance of each such series
adopted by the Board of Directors of Zila. All shares of any one series of the
Zila Preferred Stock are required to be alike in every particular. Except to the
extent otherwise provided in the resolution or resolutions providing for the
issuance of any series of Zila Preferred Stock, the holders of shares of such
series will have no voting rights except as may be required by Delaware law.

         Zila Warrants

   
         Zila has issued warrants to various investors, stockholders, officers
and other third parties (the "Zila Warrants"). The Zila Warrants expire at
various dates through December 1999. At July 24, 1996, the Zila Warrants
entitled the holders thereof to purchase an aggregate of 659,722 shares of Zila
Common Stock at exercise prices ranging from $.60 to $3.13 per share.
    

         Zila Options

         Zila adopted a Stock Option Award Plan which became effective on
September 1, 1988, authorizing the Board of Directors to grant options to
employees and certain employee-directors to purchase up to 5,000,000 shares of
Zila Common Stock in the aggregate. These options are exercisable at any time up
to five to ten years from the date of grant at an exercise price no less than
the market value of Zila Common Stock on the date of grant. At July 24, 1996,
1,032,893 shares were available for grant under this plan.

         Zila adopted a Non-Employee Directors Stock Option Plan which became
effective on October 20, 1989, authorizing the Board of Directors to grant
options to non-employee members of Zila's Board of Directors to purchase up to
200,000 shares of Zila Common Stock in the aggregate in increments of 2,500
shares per director per year. These options are exercisable at any time up to
five years from the date of grant at an exercise price no less than the market
value of Zila Common Stock on the date of grant. At July 24, 1996, 112,500
shares were available for grant under this plan.

                                       58
<PAGE>   71
         At July 24, 1996, an aggregate of 1,248,933 shares of Zila Common Stock
were subject to outstanding options under Zila's Stock Option Award Plan and
Non-Employee Directors Stock Option Plan at exercise prices ranging from $1.31
to $4.75 per share.

         Upon consummation of the Merger, each outstanding option to purchase
Bio-Dental Common Stock will be converted into an option to purchase a number of
shares of Zila Common Stock, at an exercise price per share, determined pursuant
to a formula set forth under the caption "--Bio-Dental Options."

         Potential Anti-Takeover Effects

         Although it has no present intention to do so, the Board of Directors
of Zila could cause Zila to issue, in one or more transactions, shares of Zila
Preferred Stock or additional shares of Zila Common Stock or rights to purchase
such shares (within the limits imposed by applicable laws) in amounts which
could make more difficult and, therefore, less likely a takeover, proxy contest,
change in management of Zila or any other extraordinary corporate transaction
which might be opposed by the incumbent Board of Directors. Any issuance of Zila
Preferred Stock or of Zila Common Stock could have the effect of diluting the
earnings per share, book value per share and voting power of shares held by Zila
Common Stockholders.

         Zila Common Stock Validly Issued

         The Zila Common Stock to be issued pursuant to the Merger Agreement, as
well as the Zila Common Stock underlying the Assumed Options, will be validly
issued, fully paid and nonassessable upon issuance. The number of shares of Zila
Common Stock to be issued upon consummation of the Merger will be based upon the
number of shares of Bio-Dental Common Stock outstanding on the date of the
consummation of the Merger and the average closing bid price for Zila Common
Stock during the Calculation Period as reported by The Nasdaq SmallCap Market.
See "--Conversion of Shares." As of July 24, 1996, there were 25,772,144 shares
of Zila Common Stock outstanding.

MARKET VALUE OF COMMON STOCK

         On May 31, 1996 (the date immediately preceding public announcement of
the letter of intent relating to the proposed Merger), the last reported sale
price for Zila Common Stock, as reported by The Nasdaq SmallCap Market, was
$8.25 per share. On May 31, 1996, the last reported sale price for Bio-Dental
Common Stock, as reported by The Nasdaq National Market, was $4.13 per share.

POST-MERGER BOARD OF DIRECTORS AND MANAGEMENT

   
         Following the Merger, the business of Bio-Dental will be conducted by
Zila through Bio-Dental Technologies Corporation as a wholly-owned subsidiary
of Zila. In accordance with the Merger Agreement, Zila and Curtis M. Rocca III,
President and Chief Executive Officer of Bio-Dental, have agreed to terms
pursuant to which Mr. Rocca will be employed by Zila following consummation of
the Merger. See "DIRECTORS AND EXECUTIVE OFFICERS--Employment Arrangements." In
connection with the Merger, Zila will grant options to purchase up to a total 
    

                                       59
<PAGE>   72
of 320,000 shares of Zila Common Stock to certain key employees and executive
officers of Bio-Dental who remain employed by the combined company for a period
of one year following consummation of the Merger. In addition, two persons
designated by Bio-Dental will be appointed following consummation of the Merger
to serve on Zila's Board of Directors. It is currently anticipated that Mr.
Rocca and Douglas L. Ayer, both of whom currently serve on Bio-Dental's Board of
Directors, will be the persons designated by Bio-Dental to serve on Zila's Board
of Directors. See "DIRECTORS AND EXECUTIVE OFFICERS."

CONDITIONS TO CONSUMMATION OF THE MERGER

         In addition to the requirement that Bio-Dental's stockholders approve
the Merger, consummation of the Merger is subject to certain other conditions
which must be satisfied (or waived, if permitted) prior to the Merger. These
conditions include (a) receipt of the requisite approval of the Bio-Dental
stockholders; (b) performance by Bio-Dental, Zila and Merger Sub of their
respective obligations and agreements required to be performed prior to the
Merger under the Merger Agreement; (c) registration under the Securities Act of
1933, as amended, of the Zila Common Stock to be issued in the Merger, and the
registration, qualification or exemption therefrom of such securities under the
laws of each State deemed necessary or appropriate by Zila; (d) receipt of
approval from the NASD to Zila for the inclusion on Nasdaq of the Zila Common
Stock to be issued pursuant to the Merger; and (e) receipt of all orders,
consents or approvals, governmental or otherwise, which may be required or
advisable. It is anticipated that the Merger will be consummated promptly after
the Special Meeting, or as soon as practicable after the conditions to the
consummation of the Merger are satisfied.

         Zila's obligation to consummate the Merger will be further conditioned
upon (i) the receipt of a letter from Deloitte & Touche LLP that the Merger will
be treated as a "pooling of interests" for accounting purposes, (ii) holders of
no more than 5 percent of the Bio-Dental Common Stock being eligible to exercise
dissenters' rights of appraisal under California law, and (iii) the Merger
constituting a reorganization under Section 368(a) of the Code. See
"--Dissenters' Rights."

TERMINATION AND BREAK-UP FEES

         Termination

         The Merger Agreement may be terminated by mutual agreement of both
parties or by either party (i) as a result of a material breach by the other
party of any covenant or agreement set forth in the Merger Agreement; (ii) if
the timely satisfaction of any of its conditions for closing the Merger has
become impossible; (iii) if any of its closing conditions have not been
satisfied at the "Scheduled Closing Time" (as defined below); or (iv) if the
Closing has not taken place on or before the Final Date (as defined below).

         The term "Scheduled Closing Time" is defined in the Merger Agreement as
a date to be mutually agreed upon by Zila and Bio-Dental which shall be no later
than the third business day following the Special Meeting. The term "Final Date"
is defined in the Merger Agreement as March 15, 1997, except that if a
temporary, preliminary or permanent injunction or other order by any federal or
state court that would prohibit or otherwise restrain consummation of the 

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Merger is issued and in effect on such date, and such injunction has not become
final and nonappealable, either Bio-Dental or Zila may, by giving the other
written notice thereof on or prior to March 15, 1997, extend the time for
consummation of the Merger up to and including the earlier of the date such
injunction becomes final and nonappealable or May 15, 1997, so long as
Bio-Dental or Zila shall, at its own expense, use its best efforts to have such
injunction dissolved.

         Break-Up Fees

         In the event of a termination by Bio-Dental of the Merger Agreement due
to the failure of certain closing conditions deemed by the parties to be within
Zila's reasonable control, Zila would be required to pay Bio-Dental the greater
of (i) the amount of Bio-Dental's documented out of pocket costs and expenses
incurred through the date of termination in connection with the Merger Agreement
and the transactions contemplated thereby, or (ii) $100,000.

         In the event of a termination by Zila due to the failure of certain
closing conditions deemed by the parties to be within Bio-Dental's reasonable
control, Bio-Dental would be required to pay Zila the greater of (i) the amount
of Zila's documented out of pocket costs and expenses incurred through the date
of termination in connection with the Merger Agreement and the transactions
contemplated thereby, or (ii) $100,000. In addition, Bio-Dental would be
required to pay Zila the amount specified in the preceding sentence if
Bio-Dental's stockholders fail to approve the Merger by sufficient votes to
preclude the possibility of more than 5 percent of the shares of Bio-Dental
Common Stock becoming dissenting shares and (i) the Board of Directors of
Bio-Dental failed to recommend the Merger or withdrew its recommendation or (ii)
a third party announced its intention to acquire Bio-Dental prior to the vote
of the Bio-Dental stockholders on the Merger.

WAIVERS AND AMENDMENTS

         At any time at or prior to the consummation of the transactions
contemplated by the Merger Agreement, to the extent legally allowed, Zila or
Bio-Dental, without approval of the stockholders of either such company, may
waive compliance with any of the agreements or conditions contained in the
Merger Agreement for the benefit of that company. Neither Zila nor Bio-Dental
currently intends to waive compliance with any such agreements or conditions.

         The Merger Agreement may be amended by Zila and Bio-Dental at any time
before or after approval of the Bio-Dental stockholders, except that, after such
approval, no amendment may be made that by law requires the further approval of
the Bio-Dental stockholders unless such approval is obtained.

AFFILIATE AGREEMENTS

         To help ensure that the Merger will be treated as a "pooling of
interests" for accounting purposes, the executive officers and directors of Zila
and Bio-Dental have executed Affiliate Agreements that require such persons to
vote shares of Bio-Dental Common Stock in favor of the Merger and prohibit such
persons from disposing of their shares during the period commencing 30 days
prior to the Effective Date and ending when Zila publicly releases its 

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quarterly financial statements including at least 30 days of combined financial
results of Bio-Dental and Zila subsequent to the Effective Date. Pursuant to
such agreements, Bio-Dental affiliates have also acknowledged the resale
restrictions imposed by Rule 145 promulgated under the Securities Act on shares
received by them in the Merger. In addition, certain stockholders of Bio-Dental
will also sign agreements making certain representations pertaining to
"continuity of interest" requirements for a tax-free reorganization. See
"--Certain Federal Income Tax Matters."

CERTAIN DIFFERENCES BETWEEN DELAWARE AND CALIFORNIA CORPORATION LAW

        Zila is incorporated in the State of Delaware, and Bio-Dental is
incorporated in the State of California. Pursuant to the Merger, Merger Sub
will be merged with and into Bio-Dental and Bio-Dental will continue to be
governed by the CGCL. Zila will continue to be governed by the Delaware General
Corporation Law (the "DGCL") following the Merger. The rights of Zila's
stockholders are governed by its Certificate of Incorporation, as amended (the
"Zila Certificate of Incorporation"), its Bylaws (the "Zila Bylaws") and the
DGCL. The rights of Bio-Dental's stockholders are governed by its Articles of
Incorporation, as amended (the "Bio-Dental Articles"), its Bylaws (the
"Bio-Dental ByLaws") and the CGCL. After the Effective Date, the rights of
Bio-Dental stockholders who become Zila stockholders will be governed by the
Zila Certificate of Incorporation, Zila Bylaws and the DGCL. The following is a
summary comparison of certain differences between the rights of Zila
stockholders under the DGCL and the Zila Certificate of Incorporation and the
Zila Bylaws and the rights of Bio-Dental stockholders under the CGCL and the
Bio-Dental Articles and the Bio-Dental Bylaws. This summary does not purport to
be complete and is qualified in its entirety by reference to the corporate
statutes of Delaware and California and the corporate charters and bylaws of
Zila and Bio-Dental.


         Cumulative Voting

         In an election of directors under cumulative voting, each share of
stock normally having one vote is entitled to a number of votes equal to the
number of directors to be elected. A stockholder may then cast all such votes
for a single candidate or may allocate them among as many candidates as the
stockholder may choose (up to the number of directors to be elected). Without
cumulative voting, the holders of a majority of the shares present at an annual
meeting or any special meeting held to elect directors would have the power to
elect all the directors to be elected at that meeting, and no person could be
elected without the support of holders of a majority of the shares voting at
such meeting.

         Under the DGCL, cumulative voting in the election of directors is not
available unless specifically provided for in a corporation's certificate of
incorporation. The Zila Certificate of Incorporation does not provide for
cumulative voting. Under the CGCL, cumulative voting in the election of
directors is a right available to all stockholders of California corporations
unless a corporation is "listed" for trading and that corporation's articles of
incorporation specifically eliminate cumulative voting. The Bio-Dental Articles
eliminate cumulative voting.

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         Stockholder Power to Call Special Stockholders Meeting

         Under the DGCL, a special meeting of stockholders may be called by the
Board of Directors or any other person authorized to do so in the corporation's
certificate of incorporation or bylaws. The Zila Bylaws provide that special
meetings of stockholders may be called by the Board of Directors, the chairman
of the board or the president and shall be called by the chairman of the board
or the president at the request of the holders of not less than one-tenth of all
outstanding shares entitled to vote or as otherwise provided by the DGCL.

         Under the CGCL, a special meeting of stockholders may be called by the
Board of Directors, the chairman of the board, the president, the holders of
shares entitled to cast not less than 10 percent of the votes at such meeting
and such persons authorized to do so in a company's articles of incorporation or
bylaws. The Bio-Dental Bylaws require the president to call a special meeting
upon the request of not less than 35 percent of the outstanding shares entitled
to vote at the meeting.

         Dissolution

         Under the DGCL, a dissolution must be approved by stockholders holding
100 percent of the total voting power or the dissolution must be initiated by
the Board of Directors and approved by the holders of a majority of the
outstanding voting shares of the corporation. Under the CGCL, stockholders
holding 50 percent or more of the total voting power may authorize a
corporation's dissolution, and this right may not be modified by its articles of
incorporation.

         Size of Board of Directors

         The DGCL permits the Board of Directors of a Delaware corporation to
change the authorized number of directors by amendment to the corporation's
bylaws or in the manner provided in the bylaws, unless the number of directors
is fixed in the corporation's certificate of incorporation, in which case a
change in the number of directors may be made only by amendment to the
certificate of incorporation.

         The Zila Bylaws provide that the authorized number of directors of the
corporation shall be fixed from time to time by the Board of Directors of Zila.
The number of directors presently authorized is seven.

         Under the CGCL, although changes in the number of directors must in
general be approved by the stockholders, the Board of Directors of a California
corporation may fix the exact number of directors within a stated range set
forth in the corporation's articles of incorporation or bylaws, if the stated
range has been approved by the stockholders.

         The Bio-Dental Bylaws provide that the number of directors shall be not
less than one nor more than nine.

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         Classified Board of Directors

         A classified Board of Directors is one with respect to which a certain
number of the directors, but not necessarily all, are elected on a rotating
basis each year. The DGCL permits, but does not require, a Delaware corporation
to provide in its certificate of incorporation for a classified Board of
Directors, pursuant to which the directors can be divided into up to three
classes of directors with staggered terms of office, with only one class of
directors to be elected each year for a maximum term of three years.

         The Zila Certificate of Incorporation and Zila Bylaws currently do not
provide for a classified Board of Directors.

         Under the CGCL, generally directors must be elected annually, unless
the corporation is "listed." Under the CGCL, a listed corporation may have a
classified board of no fewer than six directors divided into two classes of
directors or a classified board of no fewer than nine directors divided into
three classes. The Bio-Dental Articles and Bio-Dental Bylaws do not provide for
a classified board.

         Removal of Directors

         Under the DGCL, any director or the entire Board of Directors of a
Delaware corporation with a classified Board of Directors may only be removed
with cause unless the certificate of incorporation provides otherwise. The Zila
Certificate of Incorporation provides that directors may be removed with or
without cause as provided by the DGCL as may be in effect from time to time.

         Under the CGCL, any director or the entire Board of Directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no director may be removed (unless
the entire Board of Directors is removed) if the number of shares voted against
the removal would be sufficient to elect the director under cumulative voting.

         Actions by Written Consent of Stockholders

         Under the DGCL, stockholders may execute an action by written consent
in lieu of a meeting of stockholders. The DGCL permits a corporation to
eliminate such actions by written consent in its certificate of incorporation.
Under the Zila Certificate of Incorporation, such actions by written consent are
not eliminated.

         Under the CGCL, unless otherwise provided in the articles of
incorporation, any action that may be taken at any annual or special meeting of
stockholders may be taken without a meeting by written consent of stockholders
having the requisite number of votes, subject to the requirement that ten days'
advance notice of such stockholder approval of certain types of transactions and
matters be given where all stockholders' consents are not solicited. The
Bio-Dental Articles do not limit the rights of stockholders to act by written
consent.

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         Voting Requirements

         Unless otherwise specified in a Delaware corporation's certificate of
incorporation, an amendment to the certificate of incorporation requires the
affirmative vote of a majority of the outstanding stock entitled to vote
thereon. Furthermore, under the DGCL, the holders of the outstanding shares of a
class are entitled to vote as a class upon any proposed amendment to the
certificate of incorporation, whether or not entitled to vote thereon by the
provisions of the corporation's certificate of incorporation, if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class, or alter
or change the powers, preferences or specific rights of the shares of such class
so as to adversely affect them.

         Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon. Under the CGCL, the holders of the outstanding shares of a class are
entitled to vote as a class if the proposed amendment would (i) increase or
decrease the aggregate number of authorized shares of such class, (ii) effect an
exchange, reclassification or cancellation of all or part of the shares of such
class, other than a stock split, (iii) effect an exchange, or create a right of
exchange, of all or part of the shares of another class into the shares of such
class, (iv) change the rights, preferences, privileges or restrictions of the
shares of such class, (v) create a new class of shares having rights,
preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares having
rights, preferences or privileges prior to the shares of such class, (vi) in the
case of preferred shares, divide the shares of any class into series having
different rights, preferences, privileges or restrictions or authorize the Board
of Directors to do so, or (vii) cancel or otherwise affect dividends on the
shares of such class which have accrued but have not been paid.

         Under both the DGCL and the CGCL, with certain exceptions, any merger,
consolidation or sale of all or substantially all of a corporation's assets must
be approved by the corporation's Board of Directors and a majority of the
outstanding shares entitled to vote. In addition, the CGCL, but not the DGCL,
requires such transactions, among others, to be approved by a majority of the
outstanding shares of each class of stock without regard to limitations on
voting rights.

         Rights of Dissenting Stockholders

         Generally, stockholders of a Delaware corporation who dissent from a
merger or consolidation of the corporation for which a stockholders' vote is
required are entitled to appraisal rights, requiring the surviving corporation
to purchase the dissenting shares at fair value. There are, however, generally
no statutory rights of appraisal with respect to stockholders of a Delaware
corporation whose shares of stock are either (i) listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or (ii)
held of record by more than 2,000 stockholders where such stockholders receive
only shares of stock of the corporation surviving or resulting from the merger
or consolidation (or cash in lieu of fractional interests therein).

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         Stockholders of a California corporation who dissent from a merger or
consolidation of the corporation are entitled to dissenters' rights in certain
circumstances. There are generally no dissenters' rights, however, for shares
which are listed on any national securities exchange certified by the
Commissioner of Corporations or listed on the list of OTC margin stocks issued
by the Board of Governors of the Federal Reserve System, except that dissenters'
rights are available if (i) demands for payment are filed by 5 percent or more
of the outstanding shares of a class of securities, or (ii) shares issued in
connection with the proposed transaction are subject to restrictions on transfer
imposed by the corporation or by any law or regulation. See "THE
MERGER--Dissenters' Rights."

         Inspection of Stockholders List

         Both the DGCL and the CGCL allow any stockholder to inspect the
stockholders list for a purpose reasonably related to such person's interest as
a stockholder. Additionally, the CGCL provides for an absolute right to inspect
and copy the corporation's stockholders list by a person or persons holding at
least 5 percent in the aggregate of the corporation's outstanding voting shares,
or any stockholder or stockholders holding 1 percent or more of such shares who
have filed a Schedule 14B with the Commission relating to the election of
directors (such schedule was repealed by the Commission in 1992). The DGCL does
not provide for any such absolute right of inspection.

         Dividends

         Subject to any restrictions contained in a corporation's certificate of
incorporation, the DGCL generally provides that a corporation may declare and
pay dividends out of surplus (defined as net assets minus stated capital) or,
when no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year. Dividends may not be
paid out of net profits if the capital of the corporation is less than the
amount of capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. Zila's Certificate of
Incorporation contains no restrictions on the declaration or payment of
dividends.

         The CGCL provides that a corporation may make a distribution to its
stockholders if: (i) the retained earnings of the corporation immediately prior
to the distribution equal or exceed the amount of the proposed distribution; or
(ii) immediately after giving effect to the distribution, (a) the sum of the
assets of the corporation (exclusive of goodwill, capitalized research and
development expenses and deterred charges) would be at least equal to 1-1/4
times its liabilities (not including deferred taxes, deferred income and other
deferred credits), and (b) the current assets of the corporation would be at
least equal to its current liabilities or, if the average of the earnings of the
corporation before taxes on income and before interest expense for the two
preceding fiscal years was less than the average of the interest expense of the
corporation for such fiscal years, at least equal to 1-1/4 times its current
liabilities. In addition, the corporation making the distribution must not be,
and must not as a result of the distribution become, likely to be unable to meet
its liabilities (except those whose payment is otherwise adequately provided
for) as they mature. Neither the Bio-Dental Articles nor its Bylaws contain any
presently applicable restrictions on the declaration or payment of dividends
(except that no dividends may be declared in excess of the amount which, under
state law, is legally available for dividends).

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         Bylaws

         Under the DGCL, the authority to adopt, amend, or repeal the bylaws of
a Delaware corporation is held exclusively by the stockholders unless such
authority is conferred upon the Board of Directors in the corporation's
certificate of incorporation. The Zila Certificate of Incorporation expressly
grants to its directors the power to make, alter, or repeal any bylaws. Under
the Zila Bylaws, the Zila Bylaws may be repealed, altered or amended by a vote
of a majority of Zila's outstanding stock or a majority of the Board of
Directors.

         Under the CGCL, a corporation's bylaws may be adopted, amended or
repealed either by the Board of Directors or the stockholders of the
corporation. The Bio-Dental Articles provide that the Board of Directors shall
have the power to make, alter, amend or repeal the bylaws of Bio-Dental.

         Preemptive Rights

         Stockholders of a Delaware corporation have only such preemptive rights
as may be provided in its certificate of incorporation. Zila's Certificate of
Incorporation does not grant any preemptive rights to its stockholders.

         Stockholders of a California corporation have such preemptive rights as
may be provided in the corporation's articles of incorporation. The Bio-Dental
Articles do not grant any preemptive rights to Bio-Dental stockholders. However,
case law in California has created a doctrine of "quasi- preemptive" rights in
appropriate circumstances, even when no such rights exist in the corporation's
articles of incorporation.

         Transactions Involving Officers or Directors

         A Delaware corporation may lend money to, or guarantee any obligation
incurred by, its officers or directors if, in the judgment of the Board of
Directors, such loan or guarantee may reasonably be expected to benefit the
corporation. With respect to any other contract or transaction between the
corporation and one or more of its directors or officers, such transactions are
neither void nor voidable if either (i) the director's or officer's interest is
made known to the disinterested directors or the stockholders of the
corporation, who thereafter approve the transaction in good faith, or (ii) the
contract or transaction is fair to the corporation as of the time it is approved
or ratified by either the Board of Directors, a committee thereof, or the
stockholders.

         Under the CGCL, any loan or guarantee to or for the benefit of a
director or officer of the corporation or its subsidiaries requires approval of
the stockholders unless such loan or guarantee is provided for under a plan
approved by stockholders owning a majority of the outstanding shares of the
corporation. In addition, the CGCL permits stockholders to approve a bylaw
authorizing the Board of Directors alone to approve a loan or guarantee to or on
behalf of an officer (whether or not a director) if the Board of Directors
determines that such a loan or guarantee may reasonably be expected to benefit
the corporation, which bylaw may be utilized to authorize officer loans and
guarantees if the corporation has 100 or more stockholders of record. The
stockholders of Bio-Dental have not approved such a bylaw provision.

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         The CGCL similarly states that any contract or transaction between a
corporation and (i) any of its directors or (ii) a second corporation of which a
director is also a director are not void or voidable if the material facts as to
the transaction and as to the director's interest are fully disclosed and the
disinterested directors or a majority of the disinterested stockholders
represented and voting at a duly held meeting approve or ratify the transaction
in good faith, or the person asserting the validity of the contract or
transaction sustains the burden of proving that the contract or transaction was
just and reasonable as to the corporation at the time it was authorized,
approved or ratified.

         Filling Vacancies on the Board of Directors

         Under the DGCL, vacancies on the Board of Directors and newly created
directorships may be filled by a majority of the directors then in office (even
though less than a quorum) unless (i) otherwise provided in the certificate of
incorporation or bylaws of the corporation or (ii) the certificate of
incorporation directs that a particular class is to elect such director, in
which case any other directors elected by such class, or a sole remaining
director, shall fill such vacancy. The Zila Bylaws provide that such vacancies
may be filled by a majority of the directors then in office, including any
director whose resignation becomes effective at a future time, provided that the
number of directors then in office is not less than a quorum, or by a sole
remaining director.

         Under the CGCL, any vacancy on the Board of Directors, other than one
created by removal of a director, may be filled by the Board of Directors. If
the number of directors is less than a quorum, a vacancy may be filled by the
unanimous written consent of the directors then in office, by the affirmative
vote of a majority of the directors at a meeting held pursuant to notice or
waivers of notice or by a sole remaining director. A vacancy created by removal
of a director may be filled by the Board of Directors only if so authorized by a
corporation's articles of incorporation or by a bylaw approved by the
corporation's stockholders. The Bio-Dental Bylaws authorize the remaining
directors, even if less than a quorum, to fill any vacancy occurring in the
Board of Directors.

         Limitation of Liability of Directors and Indemnification

         Under the DGCL, a corporation may include in its certificate of
incorporation a provision that would, subject to the limitations described
below, eliminate or limit directors' liability for monetary damages for breaches
of their fiduciary duty of care. Under the DGCL, a director's liability cannot
be eliminated or limited (i) for breaches of the duty of loyalty, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of unlawful dividends or
expenditure of funds for unlawful stock purchases or redemptions, or (iv) for
transactions from which such director derived an improper personal benefit. Zila
Certificate of Incorporation contains provisions limiting a director's liability
to the fullest extent permitted by the DGCL. Under Section 145 of the DGCL, Zila
also has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act. Zila's Bylaws provide that Zila will indemnify its directors and
executive officers and may indemnify other officers to the fullest extent
permitted by law. Under the Zila Bylaws, indemnified parties are entitled to
indemnification for negligence, gross negligence and otherwise to the fullest
extent permitted by 

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law. The Zila Bylaws also require Zila to advance litigation expenses in the
case of stockholder derivative actions or other actions, against an undertaking
by the indemnified party to repay such advances if it is ultimately determined
that the indemnified party is not entitled to indemnification.

         Under the CGCL, a corporation is permitted to adopt a provision in its
articles of incorporation eliminating the liability of a director to the
corporation or its stockholders for monetary damages for breach of the
director's fiduciary duty of care, provided such liability does not arise from
certain proscribed conduct, including intentional misconduct and transactions
pursuant to which the director received an improper personal benefit. The
Bio-Dental Articles provide that the liability of directors for monetary damages
shall be eliminated to the fullest extent permissible under California law. In
addition, under the CGCL, (i) a corporation has the power to indemnify a
director against expenses, judgments, fines and settlements if that person acts
in good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful, and (ii) a
corporation has the power to indemnify, with certain exceptions, any person who
is a party to any action by or in the right of the corporation, against expenses
actually and reasonably incurred by that person in connection with the defense
or settlement of the action if the person acted in good faith and in a manner
the person believed to be in the best interests of the corporation and its
stockholders.

         The indemnification authorized by the CGCL is not exclusive, and a
corporation may grant its directors, officers, employees or other agents certain
additional rights to indemnification. The Bio-Dental Articles and Bio-Dental
Bylaws allow the Board of Directors to indemnify directors, officers, employees,
fiduciaries and agents of Bio-Dental under certain circumstances, which may
exceed the indemnification expressly permitted by Section 317 of the CGCL.

         Business Combinations/Reorganizations

         A provision of the DGCL prohibits certain transactions between a
Delaware corporation and an "interested stockholder." An "interested
stockholder" for purposes of this DGCL provision is a stockholder that is
directly or indirectly a beneficial owner of 15 percent or more of the voting
power of the outstanding voting stock of a Delaware corporation (or its
affiliate or associate). This provision prohibits certain business combinations
between an interested stockholder and a corporation for a period of three years
after the date the interested stockholder acquired its stock unless (i) the
business combination is approved by the corporation's Board of Directors prior
to the stock acquisition date; (ii) the interested stockholder acquired at least
85 percent of the voting stock of the corporation in the transaction in which
such stockholder became an interested stockholder; or (iii) the business
combination is approved by a majority of the Board of Directors and the
affirmative vote of two-thirds of disinterested stockholders.

         Under the CGCL, there is no such comparable provision. However, the
CGCL does provide that, except where the fairness of the terms and conditions of
the transaction has been approved by the California Commissioner of Corporations
and except in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90 percent of the outstanding
shares of each class of the subsidiary's stock), if the surviving 

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corporation or its parent corporation owns, directly or indirectly, shares of
the target corporation representing more than 50 percent of the voting power of
the target corporation prior to the merger, the nonredeemable common stock of a
target corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the stockholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority stockholders, except where the majority stockholder already
owns 90 percent or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
stockholders.

         In addition, the CGCL requires that, in connection with certain
transactions between a corporation whose shares are held of record by 100 or
more persons and an "interested party," such interested party must deliver a
written opinion as to the fairness of the consideration to the stockholders of
the corporation. An "interested party" for purposes of this CGCL provision means
a person who is a party to the transaction and (i) directly or indirectly
controls the corporation, (ii) is an officer or director of the corporation, or
(iii) is an entity in which a material financial interest is held by any
director or executive officer of the corporation.

         Stockholder Derivative Suits

         Under the DGCL, a stockholder may only bring a derivative action on
behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. The CGCL provides that
a stockholder bringing a derivative action on behalf of the corporation need not
have been a stockholder at the time of the transaction in question, provided
that certain tests are met. The CGCL also provides that the corporation or the
defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff stockholder to furnish a security bond. Delaware does
not have a similar bonding requirement.

FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

         The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of
Bio-Dental Common Stock. This discussion is based on currently existing
provisions of the Code, the Treasury Regulations promulgated thereunder and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences to Zila, Bio-Dental or Bio-Dental's stockholders as described
herein.

   
         Bio-Dental stockholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular Bio-Dental stockholders in light of their particular circumstances,
such as stockholders who are dealers in securities, who are subject to the
alternative minimum tax provisions of the Code, who are foreign persons, or who
acquired their shares in connection with stock option or stock purchase plans or
in other compensatory transactions. In addition, the following discussion does
not address the tax consequences of the Merger under foreign, state or local tax
laws or the tax consequences of the exercise of Bio-Dental Options or any other
transactions effectuated prior to or after the Merger (whether or not such
transactions are in connection with the Merger). Accordingly, BIO-DENTAL
OPTIONHOLDERS AND STOCKHOLDERS ARE URGED TO CONSULT THEIR 
    

                                       70
<PAGE>   83
OWN TAX ADVISORS AS TO THE IFIC CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OR THE
MERGER IN THEIR PARTICULAR CIRCUMSTANCES.

         Neither Zila nor Bio-Dental has requested a ruling from the Internal
Revenue Service (the "IRS") with regard to any of the federal income tax
consequences of the Merger. It is a condition to consummation of the Merger that
Squire, Sanders & Dempsey, counsel to Zila, render an opinion (the "Tax
Opinion") addressed to Zila, Bio-Dental and Bio-Dental's shareholders that the
Merger will constitute a reorganization under Section 368(a) of the Code (a
"Reorganization"). Such Tax Opinion will be based on certain assumptions as well
as representations received from Zila, Bio-Dental and Merger Sub (including an
assumption, based on representations, concerning the "continuity of interest"
requirement discussed below) and are subject to the limitations discussed below.
Moreover, such Tax Opinion will not be binding on the IRS nor preclude the IRS
from adopting a contrary position. The discussion below assumes that the Merger
will qualify as a Reorganization, based upon such Tax Opinion.

         Subject to the limitations and qualifications referred to herein, and
as a result of the Merger's qualifying as a Reorganization, the following
federal income tax consequences should result:

                  (a)      No gain or loss will be recognized by the holders of
         Bio-Dental Common Stock upon the receipt of Zila Common Stock solely in
         exchange for such Bio-Dental Common Stock in the Merger (except to the
         extent of cash received as a result of exercising dissenters' rights).

                  (b)      The aggregate tax basis of the Zila Common Stock so
         received by Bio-Dental stockholders in the Merger (including any
         fractional share of Zila Common Stock not actually received) will be
         the same as the aggregate tax basis of the Bio-Dental Common Stock
         surrendered in exchange therefor.

                  (c)      The holding period of the Zila Common Stock so
         received by each Bio-Dental stockholder in the Merger will include the
         period for which the Bio-Dental Common Stock surrendered in exchange
         therefor was considered to be held, provided that the Bio-Dental Common
         Stock so surrendered is held as a capital asset at the Effective Date.

                  (d)      A stockholder of Bio-Dental who exercises dissenters'
         rights under any applicable law with respect to a share of Bio-Dental
         Common Stock and received payments for such stock in cash will
         recognize capital gain or loss (if such stock was held as a capital
         asset at the Effective Date) measured by the difference between the
         amount of cash received and the stockholder's basis in such share,
         provided such payment is neither essentially equivalent to a dividend
         within the meaning of Section 302 of the Code nor has the effect of a
         distribution of a dividend within the meaning of Section 356(a)(2) of
         the Code (collectively, a "Dividend Equivalent Transaction"). A sale of
         Bio-Dental Common Stock incident to an exercise of dissenters' rights
         will generally not be a Dividend Equivalent Transaction if, as a result
         of such exercise, the 

                                       71
<PAGE>   84
         dissenting stockholder owns no shares of Zila Common Stock (either
         actually or constructively within the meaning of Section 318 of the
         Code).

                  (e)      None of Zila, Bio-Dental or Merger Sub will recognize
         gain solely as a result of the Merger.

         The Tax Opinion is subject to certain assumptions and qualifications
and is based on the truth and accuracy of certain representations of Zila,
Bio-Dental, Merger Sub and certain Stockholders of Bio-Dental, including
representations in certain certificates delivered to counsel by the respective
managements of Zila, Bio-Dental and Merger Sub and certain stockholders of
Bio-Dental. Of particular importance are the assumptions and representations
relating to the "continuity of interest" requirement.

         To satisfy the "continuity of interest" requirement, Bio-Dental
stockholders must not, pursuant to a plan or intent existing at or prior to the
Effective Date, dispose of or transfer so much of either (i) their Bio-Dental
Common Stock in anticipation of the Merger or (ii) the Zila Common Stock to be
received in the Merger (collectively, "Planned Dispositions"), such that the
Bio-Dental stockholders, as a group, would no longer have a significant equity
interest in the Bio-Dental business being conducted by Zila after the Merger.
Bio-Dental stockholders will generally be regarded as having a significant
equity interest as long as the Zila Common Stock received in the Merger (after
taking into account Planned Dispositions), in the aggregate, represents a
substantial portion of the entire consideration received by the Bio-Dental
stockholders in the Merger. No assurance can be made that the "continuity of
interest" requirement will be satisfied, and if such requirement is not
satisfied, the Merger would not be treated as a Reorganization.

         A successful Internal Revenue Service challenge to the Reorganization
status of the Merger (as a result of a failure of the "continuity of interest"
requirement or otherwise) would result in significant tax consequences. A
Bio-Dental stockholder would recognize gain or loss with respect to each share
of Bio-Dental Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Date, of the Zila Common Stock received in exchange therefor. In such event, a
stockholder's aggregate basis in the Zila Common Stock so received would equal
its fair market value, and the stockholder's holding period for such stock would
begin the day after the Merger.

         The foregoing discussion is based on the existing provisions of the
Code, and existing judicial and administrative interpretations thereof, any of
which may be altered retroactively.

   
         THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND IS BASED UPON PRESENT LAW. EACH BIO-DENTAL STOCKHOLDER AND OPTIONHOLDER
SHOULD CONSULT A TAX ADVISOR AS TO THE SPECIFIC CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL LAW OR OTHER TAX LAWS.
    

                                       72
<PAGE>   85
ACCOUNTING TREATMENT

         The Merger is structured to qualify as a "pooling of interests" in
accordance with generally accepted accounting principles, Accounting Principles
Board Opinion No. 16 and all published rules, regulations and policies of the
Commission, and it is a condition to consummation of the Merger that it so
qualify. Under this accounting treatment, the recorded assets and liabilities
and the operating results of both Zila and Bio-Dental are carried forward to the
combined operations of the surviving corporation at their recorded amounts. No
recognition of goodwill in the combination is required of either party to the
Merger.

         To support the treatment of the Merger as a pooling of interests,
certain affiliates of Zila and Bio-Dental have entered into agreements imposing
certain resale limitations on their stock. See "-Affiliates Agreements" above.
It is a condition to each of Zila's and Bio-Dental's obligations to consummate
the Merger that, among other things, Zila receive a letter from Deloitte &
Touche LLP, its independent auditors, to the effect that the Merger will be
treated as a pooling of interests for accounting purposes.

AFFILIATES' RESTRICTIONS ON SALE OF ZILA COMMON STOCK

         The shares of Zila Common Stock to be issued in the Merger will have
been registered under the Securities Act pursuant to a Registration Statement on
Form S-4, thereby allowing such shares to be traded without restriction by all
former holders of Bio-Dental Common Stock who (i) are not deemed to be
"affiliates" of Bio-Dental at the time of the Bio-Dental Stockholders Meeting
(as "affiliates" is defined for purposes of Rule 145 under the Securities Act)
and (ii) who do not become "affiliates" of Zila after the Merger. Bio-Dental
stockholders who may be deemed "affiliates" of Bio-Dental will be so advised
prior to the Merger.

         The Merger Agreement requires Bio-Dental to use all commercially
reasonable efforts to cause its affiliates to enter into agreements not to make
any public sale of any Zila Common Stock received upon conversion of Bio-Dental
Common Stock in the Merger prior to the date Zila shall have publicly released
financial results for a period that includes at least 30 days of combined
operations of Bio-Dental and Zila, and thereafter not to make any sale of Zila
Common Stock received upon conversion of Bio-Dental Common Stock in the Merger,
except in compliance with Rule 145 under the Securities Act. See "--Affiliates
Agreements" above. In general, Rule 145, as currently in effect, imposes
restrictions on the manner in which such affiliates may make resales of Zila
Common Stock and also on the number of shares of Zila Common Stock that such
affiliates, and others (including persons with whom the affiliates act in
concert), may sell within any three-month period. These restrictions will
generally apply for at least a period of two years after the Merger (or longer
if the person remains an affiliate of Zila).

NASDAQ

          Although Zila Common Stock has been listed on The Nasdaq Small Cap
Market prior to the Merger, Zila intends to apply for listing of Zila Common
Stock on The Nasdaq National Market and expects to receive approval for such
listing prior to or concurrently with consummation of the Merger. There can be
no assurance, however, that such approval will be 


                                       73
<PAGE>   86
received or, if received, that Zila Common Stock will remain listed on The
Nasdaq National Market. If such approval is not timely received, the Zila Common
Stock to be issued in the Merger will be designated for trading on The Nasdaq
SmallCap Market under the symbol "ZILA." See "INVESTMENT CONSIDERATIONS--Market
for Zila Common Stock." The Zila Common Stock will be freely transferable,
subject to resale restrictions contained in Affiliate Agreements between Zila
and Bio-Dental and their respective affiliates and as otherwise imposed by
Rules 144 and 145 under the Securities Act. See "--Affiliate Agreements."

EFFECT ON BIO-DENTAL COMMON STOCK CERTIFICATES

         After the Effective Date, Bio-Dental stockholders will be entitled, but
not required, to surrender to Zila or its transfer agent the certificates
representing Bio-Dental Common Stock and to receive in exchange therefor
certificates representing Zila Common Stock. Until such surrender and exchange
is made, Bio-Dental Common Stock certificates shall be deemed, for all corporate
purposes, to evidence ownership of the shares of Zila Common Stock into which
such shares shall have been converted pursuant to the Merger.

   
EFFECT ON ASSUMED OPTIONS

         After the Effective Date, holders of Assumed Options representing the
right to purchase shares of Bio-Dental Common Stock will be entitled, but not
required, to surrender to Zila or its transfer agent such instruments
representing the Assumed Options and to receive in exchange therefor
certificates representing Zila options. Until such surrender and exchange is
made, instruments representing the Assumed Options shall be deemed, for all
corporate purposes, to evidence ownership of the Zila options into which such
instruments shall have been converted pursuant to the Merger. See "--Bio-Dental
Options."
    

FRACTIONAL SHARES

         Pursuant to the terms of the Merger Agreement, in no event shall Zila
issue fractional shares of Zila Common Stock upon conversion of the Bio-Dental
Common Stock into Zila Common Stock. Any fractional share interest in Zila
Common Stock to which a holder of Bio-Dental Common Stock would otherwise be
entitled pursuant to the Merger shall be rounded up to the nearest whole share
if such fraction is 0.5 or greater and shall be rounded down to the nearest
whole share if such fraction if less than 0.5, with no cash being paid in
exchange for any such fractional share interest. See "-Conversion of Shares."

CERTAIN TRANSACTIONS BETWEEN ZILA AND BIO-DENTAL

          Other than the Merger Agreement and the related transactions described
in this Proxy Statement/Prospectus, there has not been during the periods for
which financial statements of Zila and Bio-Dental are presented or incorporated
by reference herein any material contract, arrangement, understanding,
relationship, negotiation or transaction between Bio-Dental and Zila concerning
a merger, consolidation or acquisition, tender offer or other acquisition of
securities, election of directors, or sale or transfer of a material amount of
assets.


                                       74
<PAGE>   87
TRANSFER AGENT

         The Transfer Agent for Zila Common Stock is currently the American
Securities Transfer Company, whose address is 1825 Lawrence Street, Suite 144,
Denver, Colorado 80202-1817 and whose telephone number is (303) 234-5300.


                                       75
<PAGE>   88
                        DIRECTORS AND EXECUTIVE OFFICERS

         The following table sets forth the information regarding the directors
and executive officers of Zila following consummation of the Merger. The Merger
Agreement provides that two persons nominated by Bio-Dental will be appointed to
Zila's Board of Directors upon consummation of the Merger, and the following
table reflects Bio-Dental's current expectation that Curtis M. Rocca III and
Douglas L. Ayer will be such nominees.
   
<TABLE>
<CAPTION>
         Name                 Age(1)                 Position
         ----                 ------                 --------
 <S>                       <C>             <C>
Joseph Hines                  67           President, Chief Executive
                                           Officer and Director
                                       
Clarence J. Baudhuin(2)       67           Executive Vice President of
                                           Finance and Administration,
                                           Treasurer and Director
                                       
Edwin Pomerantz               66           Vice President - Regulatory &
                                           Technical Affairs
                                       
Rocco J. Anselmo              46           Vice President of Zila; President of
                                           Zila Pharmaceuticals, Inc.
                                       
Curtis M. Rocca III           33           Vice President and Director of Zila;
                                           President of Bio-Dental Technologies
                                           Corporation as a wholly-owned
                                           subsidiary of Zila
                                       
Janice L. Backus              47           Vice President and Secretary
                                       
Dr. James E. Tinnell(2)       59           Director
                                       
Carl A. Schroeder(2)          67           Director
                                       
H. Ray Cox(3)                 62           Director
                                       
Patrick M. Lonergan(3)        61           Director
                                       
Michael S. Lesser(3)          53           Director
                                       
Douglas L. Ayer               59           Director
</TABLE>
    
- ----------------------
(1) As of July 24, 1996
(2) Member of the Audit Committee

                                       76
<PAGE>   89
            (3) Member of the Compensation Committee

          Joseph Hines has served as President of Zila since 1983. From 1976
until 1983, Mr. Hines owned and operated Desert Valley Companies, Inc., a
management consulting firm headquartered in Phoenix, Arizona. From 1966 until
1976, Mr. Hines served as chief executive officer of several subsidiaries of
Dart Industries, formerly Rexall Drug and Chemical Company.

          Clarence J. Baudhuin has served Zila in his present capacity since
1983, except that Mr. Baudhuin also served as Secretary of Zila until April
1989. From May 1981 until July 1983, Mr. Baudhuin acted as Senior Vice President
of Finance for Mattel Toy Company. Prior to that time, Mr. Baudhuin was Senior
Vice President of the Chemical-Plastics Group of Dart Industries. Mr. Baudhuin
is a certified public accountant.

          Edwin Pomerantz joined Zila in March 1984 as Vice President of
Marketing. In 1995 his title was changed to Vice President - Regulatory &
Technical Affairs in order to better describe the duties performed by Mr.
Pomerantz. From 1975 until 1984, Mr. Pomerantz was a partner and halfowner of
Golden Memories, Inc., a company engaged in the photographic business. From 1975
to 1982, Mr. Pomerantz was Vice President for Family Record Plan, Inc., a
photography business. Prior to 1975, Mr. Pomerantz held senior marketing
management positions at Viviane Woodward Cosmetics, Chas. Pfizer & Company,
Inc., Avon Products, Inc., and Rexall Drug and Chemical Company.

         Rocco J. Anselmo has served as Executive Vice President and General
Manager of Zila Pharmaceuticals, Inc., a wholly-owned subsidiary of Zila, since
1993 and, upon consummation of the Merger, is expected to be appointed Vice
President of Zila and President of Zila Pharmaceuticals, Inc. From 1983 to 1993,
Mr. Anselmo held various positions with Oral-B Laboratories, Inc., most recently
as General Manager of Oral-B Labs International from 1991 to 1993. From 1972 to
1983, Mr. Anselmo held various sales and marketing positions with S.C. Johnson
and Sterling Drug Company.

   
          Curtis M. Rocca III currently serves as President, Chief Executive
Officer and Director of Bio-Dental and, upon consummation of the Merger, is
expected to be appointed Vice President and Director of Zila and President of
Bio-Dental Technologies Corporation as a wholly-owned subsidiary of Zila. Mr.
Rocca has been with Bio-Dental since March 1990 when he was hired as Chief
Operating Officer. Prior to joining Bio-Dental, Mr. Rocca was Executive Vice
President and Director of Celebrity, Inc. of Placerville, California. Celebrity,
Inc. is a manufacturer and distributor of automotive aftermarket accessories.
Prior to joining Celebrity, Inc., Mr. Rocca was employed as a marketing manager
in Pacific Bell's Fast Track management program. Mr. Rocca holds a B.A. degree
in economics from the University of California, Davis, where he graduated with
honors. Mr. Rocca currently serves as a director of Pacific Grain Products,
Inc., Woodland, California.

         Janice L. Backus has served as Vice President of Zila since December
1993 and as Secretary since April 1989. From 1983 until April 1989, Ms. Backus
acted as Assistant Secretary of Zila. Ms. Backus has also served as Assistant to
the President since 1983. Prior 
    


                                       77
<PAGE>   90
to joining Zila, Ms. Backus held administrative and secretarial positions with
the American Heart Association, Arizona Division, BX International and Century
Capital Corporation.

         Dr. James E. Tinnell graduated from the University of Arkansas School
of Medicine and has been engaged in private practice since 1965. Since 1979, Dr.
Tinnell has limited his professional practice to the treatment of herpes virus
patients at the Herpes Clinic in Las Vegas, Nevada. From 1974 until 1979, Dr.
Tinnell was the resident physician at a major hotel and casino in Las Vegas,
Nevada.

         Carl A. Schroeder is, and since September 1991 has been, the President
of Dixon Capital Corp. Between 1982 and September 1991, Mr. Schroeder was a
private business consultant. Mr. Schroeder was also a principal in certain
mining, drilling and farming operations from 1987 to 1992. From 1977 to 1982, he
served as Chief Financial Officer with a high technology division of the MEAD
Corporation. Mr. Schroeder received an engineering degree from MIT and an MBA
degree from Harvard Business School.

         H. Ray Cox is, and since August 1, 1991 has been, President and Chief
Executive Officer of Broadcast Development LLC in Phoenix, Arizona. From 1984 to
1991 he served as Senior Vice President of Corporate Affairs of The Circle K
Corporation in Phoenix, Arizona. Prior to that time, Mr. Cox served as President
of Cox Investor Relations from 1981 to 1984, as Senior Vice President of Charter
Media Company from 1979 to 1981, and as Executive Vice President of Combined
Communications Corporation from 1968 to 1979.

         Patrick M. Lonergan is the co-founder of Numark Laboratories, Inc. and
has served as its President since January 1989. Prior to co-founding Numark, Mr.
Lonergan was employed in various capacities by Johnson & Johnson Products Inc.,
or one of its affiliates, from 1973 through December 1989, most recently as Vice
President & General Manager.

   
          Michael S. Lesser is the founder of Lesser & Roffe Company, a business
development consulting company, and has served as its Chief Executive Officer
since 1990. Prior to founding Lesser & Roffe Company, Mr. Lesser served as
President of Ogilvy & Mather Co., Inc. from 1989 to 1990, as Chairman and Chief
Executive Officer of Lowe Marschalk Co., Inc. (a subsidiary of Interpublic) from
1980 to 1989, and as Executive Vice President and General Manager of Norcliff
Thayer, Inc. (a division of Revlon) from 1973 to 1979.
    

          Douglas L. Ayer currently serves as a member of the Board of Directors
of Bio-Dental and, following the Merger, is expected to be appointed a Director
of Zila. Mr. Ayer has served as President of International Capital Partners,
Inc. ("ICP") since July 1989. Prior to forming ICP, Mr. Ayer was Chairman and
CEO of Cametrics, Inc., a precision metal fabricating company, Executive Vice
President of Paine, Webber, Jackson and Curtis Inc. and a consultant with
McKinsey and Co., Inc. in New York and London. Mr. Ayer currently serves as a
director with Molded Container Corporation, Portland, Oregon; AmPro Corporation,
Melbourne, Florida; Biopool International, Ventura, California; Age Wave, Inc.,
Emeryville, California; Coffee People, Inc., Portland, Oregon; DES, Inc., Santa
Clara, California and Med Max, Inc., Detroit, Michigan.


                                       78
<PAGE>   91
          It is currently expected that following consummation of the Merger,
Terry E. Bane and Timothy J. Purdy will become employees of Zila and that Curtis
M. Rocca III will become an executive officer of Zila. Messrs. Rocca, Bane and
Purdy currently are executive officers of Bio-Dental. See "THE
MERGER--Post-Merger Board of Directors and Management."

EMPLOYMENT ARRANGEMENTS

   
         The Merger Agreement provides, as a condition to Zila's obligation to
consummate the Merger, that Zila will enter into employment arrangements with
Curtis M. Rocca III, currently President and Chief Executive Officer of
Bio-Dental, prior to the Closing Date on mutually acceptable terms. Zila and Mr.
Rocca have agreed upon the terms of Mr. Rocca's employment with Zila following
the Merger, and it is currently expected that, upon consummation of the Merger,
Mr. Rocca will be appointed Vice President and Director of Zila and President of
Bio-Dental Technologies Corporation as a wholly-owned subsidiary of Zila. Mr.
Rocca will receive an annual base salary of $150,000, will be eligible to
participate in Zila's Performance Bonus Plan, will be eligible to participate in
Zila's Stock Option Award Plan and will receive certain other perquisites and
personal benefits in accordance with Zila's existing compensation policies. See
"THE MERGER--Post-Merger Board of Directors and Management."
    

KEY EMPLOYEE OPTIONS

         Upon consummation of the Merger, Zila will award options to purchase a
total of 320,000 shares of Zila Common Stock (the "Key Employee Options") to
certain key employees and executive officers of Bio-Dental. The purpose of the
Key Employee Options is to provide an incentive for such employees and executive
officers of Bio-Dental to remain employed by Zila or a subsidiary of Zila
following the Merger. The Key Employee Options will vest on the date that is one
year following the Effective Date (subject to the grantee remaining employed by
Zila or a subsidiary of Zila for such one-year period) and will be exercisable
at any time thereafter for a period of nine years. The per share exercise price
of the Key Employee Options will be equal to the last reported sale price for
Zila Common Stock as reported by The Nasdaq SmallCap Market on the Effective
Date. The Key Employee Options will be issued under, and will be subject to the
terms and provisions of, Zila's existing Stock Options Award Plan. The executive
officers of Bio-Dental who will be granted Key Employee Options (and the number
of shares of Zila Common Stock subject to Key Employee Options to be awarded to
such person) are as follows: Curtis M. Rocca III (80,000 shares), Timothy J.
Purdy (40,000 shares), Terry E. Bane (40,000 shares) and Maxine Holland (32,000
shares).


                                       79
<PAGE>   92
                BIO-DENTAL STOCK, OPTIONS, WARRANTS AND DIVIDENDS

BIO-DENTAL COMMON STOCK

   
          Bio-Dental's authorized capital stock consists of 50,000,000 shares of
common stock, $.01 par value per share, and 1,000,000 shares of preferred stock,
$.01 par value per share. As of July 24, 1996, there were 6,427,134 shares of
Bio-Dental Common Stock outstanding and a total of 1,450,000 shares of
Bio-Dental were reserved for issuance upon the exercise of outstanding stock
options and warrants. As of the close of business on September 6, 1996 (the
record date for the Special Meeting), there were 6,444,400 shares of Bio-Dental
Common Stock outstanding. Holders of Bio-Dental Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders. At any meeting of Bio-Dental stockholders, the presence, in person
or by proxy, of the holders of a majority of the outstanding Bio-Dental stock
constitutes a quorum. Unless otherwise provided by California law, the
affirmative vote of the majority of the shares represented at any such meeting
constitutes an act of Bio-Dental's stockholders. Subject to the rights of any
preferred stockholders, each share of Bio-Dental Common Stock is entitled to
receive dividends at the discretion of Bio-Dental's Board of Directors and to
receive a share of BioDental's assets upon liquidation. See "THE MERGER--Certain
Differences Between Delaware and California Corporation Law."
    

BIO-DENTAL PREFERRED STOCK

         There are no shares of Bio-Dental's preferred stock, $.01 par value per
share, issued and outstanding.

BIO-DENTAL WARRANTS

   
         Bio-Dental has from time to time issued warrants to various lenders,
stockholders and other third parties (the "Bio-Dental Warrants"). The
Bio-Dental Warrants expire at various dates through March 29, 2001. At July 24,
1996, the Bio-Dental Warrants entitled the holders thereof to purchase an
aggregate of 450,000 shares of Bio-Dental Common Stock at exercise prices
ranging from $2.25 to $3.03 per share. Bio-Dental currently anticipates that
all of the Bio-Dental Warrants will be exercised in accordance with their
respective terms prior to the consumation of the Merger and shares of
Bio-Dental Common Stock will be acquired by the holders thereof upon exercise.
All shares of Bio-Dental Common Stock acquired upon the exercise of Bio-Dental
Warrants prior to consummation of the Merger will be converted into shares of
Zila Common Stock in the same manner as other shares of Bio-Dental Common Stock
outstanding at the Effective Date. See "THE MERGER--Conversion of Shares." 
    

BIO-DENTAL OPTIONS

          Bio-Dental adopted the Stock Plan which became effective in 1992 and
was amended in 1995, authorizing the Board of Directors to grant options to
employees and certain employee-directors to purchase up to 1,000,000 shares of
Bio-Dental Common Stock in the aggregate. These options are exercisable for a
period not to exceed ten years from the date of grant. At July 24, 1996, 334,609
shares were available for grant under the Stock Plan, and an aggregate 


                                       80
<PAGE>   93
of 665,391 shares of Bio-Dental Common Stock were subject to outstanding vested
and unvested options under the Stock Plan at exercise prices ranging from $0.10
to $5.06 per share.

         Upon consummation of the Merger, each outstanding Bio-Dental Option
will be converted into an option to purchase a number of shares of Zila Common
Stock, at an exercise price per share, determined pursuant to a formula set
forth under the caption "--Bio-Dental Options."


                                       81
<PAGE>   94
                  SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
                                 AND MANAGEMENT

   
          The following table sets forth, as of July 24, 1996, the number and
percentage of outstanding shares of Zila Common Stock beneficially owned by (a)
each person known by Zila to beneficially own more than 5 percent of such stock,
(b) each director of Zila, (c) each of the executive officers of Zila, and (d)
all directors and executive officers of Zila as a group.
    

<TABLE>
<CAPTION>
              NAME AND ADDRESS OF              SHARES BENEFICIALLY         PERCENT OF
                BENEFICIAL OWNER                     OWNED                COMMON STOCK
               ------------------                   -------               ------------
<S>                                                <C>                           <C> 
Joseph Hines(1)                                    1,266,972(2)                  5.0%
Clarence J. Baudhuin(1)                              947,318(3)                  3.7
Edwin Pomerantz(1)                                   405,213(4)                  1.6
Janice L. Backus(1)                                  250,610(5)                  1.0
Dr. James E. Tinnell(1)                              326,311(6)                  1.3
Carl Schroeder(1)                                     22,500(7)                  0.1
H. Ray Cox(1)                                         15,250(8)                  0.1
Patrick M. Lonergan(1)                                15,746(9)                  0.1
Michael S. Lesser(1)                                       0                       *
All officers and directors as a group              3,249,919                    12.5
(9 persons)
</TABLE>

- -----------------------------------

*         Represents less than one percent.

(1)       The address of this stockholder is c/o Zila, Inc., 5227 North 7th
          Street, Phoenix, Arizona 85014-2800.

(2)       Includes 361,969 shares of Common Stock which are subject to
          unexercised options that were exercisable on July 24, 1996 or within
          sixty days thereafter.

(3)       Includes 183,877 shares of Common Stock which are subject to
          unexercised options that were exercisable on July 24, 1996 or within
          sixty days thereafter and 9,000 shares of Common Stock held in trust
          for the benefit of Mr. Baudhuin's son.

(4)       Includes 146,747 shares of Common Stock which are subject to
          unexercised options that were exercisable on July 24, 1996 or within
          sixty days thereafter.


                                       82
<PAGE>   95

(5)       Includes 175,352 shares of Common Stock which are subject to
          unexercised options that were exercisable on July 24, 1996 or within
          sixty days thereafter.

(6)       Includes 12,500 shares of Common Stock which are subject to
          unexercised options that were exercisable on July 24, 1996 or within
          sixty days thereafter.

(7)       Includes 12,500 shares of Common Stock which are subject to
          unexercised options that were exercisable on July 24, 1996 or within
          sixty days thereafter.

(8)       Includes 250 shares of Common Stock held jointly with Mr. Cox's wife
          and 12,500 shares of Common Stock which are subject to unexercised
          options that were exercisable on July 24, 1996 or within sixty days
          thereafter.

(9)       Includes 10,000 shares of Common Stock which are subject to
          unexercised options that were exercisable on July 24, 1996 or within
          sixty days thereafter.

(10)      Includes the shares of Common Stock subject to the options to purchase
          described above and 915,445 shares of Common Stock which are subject
          to unexercised options that were exercisable on July 24, 1996 or
          within sixty days thereafter.


                                       83
<PAGE>   96
         The following table sets forth, as of July 24, 1996, the number and
percentage of outstanding shares of Bio-Dental Common Stock beneficially owned
by (a) each person known by Bio-Dental to beneficially own more than 5 percent
of such stock, (b) each director of Bio-Dental, (c) each of the executive
officers of Bio-Dental, and (d) all directors and executive officers of
Bio-Dental as a group.

<TABLE>
<CAPTION>
              NAME AND ADDRESS OF            SHARES BENEFICIALLY          PERCENT OF
                BENEFICIAL OWNER                    OWNED                COMMON STOCK
                ----------------                    -----                ------------
<S>                                                <C>                      <C>  
Zesiger Capital Group LLC                          445,683(2)                6.50%
320 Park Avenue
New York, NY 10022

Curtis M. Rocca III(1)                             396,600(3)                5.75
G. Barton Mahan(1)                                 110,000                   1.60
Timothy J. Purdy(1)                                 52,750(4)                0.76
Joseph J. Battle, D.D.S.(1)                         39,247(5)                0.57
B. Mason Flemming, Jr.(1)                           36,000(6)                0.52
James H. Ellis(1)                                   21,911(7)                0.32
Maxine Holland(1)                                   10,125(8)                0.15
Douglas L. Ayer(1)                                  15,000(9)                0.22
Terry E. Bane(1)                                    10,000(10)               0.15
All officers and directors as a group              691,633                  10.02
(9 persons)
</TABLE>

- -----------------------------------

*         Represents less than one percent.

(1)       The address of this stockholder is c/o Bio-Dental Technologies
          Corporation, 11291 Sunrise Park Drive, Rancho Cordova, California
          95742.

(2)       All 445,683 shares are held on behalf of individuals pursuant to an
          understanding whereby Zesiger Capital Group LLC has sole voting power
          over the shares, with the various individuals retaining sole
          investment power.

(3)       Includes 208,150 shares of Bio-Dental Common Stock which are subject
          to unexercised options that have vested pursuant to the Stock Plan.


                                       84
<PAGE>   97
(4)       Includes 50,000 shares of Bio-Dental Common Stock which are subject to
          unexercised options that have vested pursuant to the Stock Plan.

(5)       Includes 21,247 shares of Bio-Dental Common Stock which are subject to
          unexercised options that have vested pursuant to the Stock Plan.

(6)       Includes 15,000 shares of Bio-Dental Common Stock which are subject to
          unexercised options that have vested pursuant to the Stock Plan.

(7)       Includes 19,411 shares of Bio-Dental Common Stock which are subject to
          unexercised options that have vested pursuant to the Stock Plan.

(8)       Includes 10,125 shares of Bio-Dental Common Stock which are subject to
          unexercised options that have vested pursuant to the Stock Plan.

(9)       Includes 15,000 shares of Bio-Dental Common Stock which are subject to
          unexercised options that have vested pursuant to the Stock Plan.

(10)      Includes 10,000 shares of Bio-Dental Common Stock which are subject to
          unexercised options that have vested pursuant to the Stock Plan.

                                     EXPERTS

          The consolidated financial statements and the related financial
statement schedules incorporated in this Proxy Statement/Prospectus by reference
from Zila's Annual Report on Form 10-K for the year ended July 31, 1995, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

   
         The consolidated financial statements and schedules of Bio-Dental as of
March 31, 1996, and for each of the two years in the period ended March 31,
1996, included in Bio-Dental's Annual Report on Form 10-KSB, have been
incorporated by reference herein in reliance upon the reports of Grant Thornton
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
    

                                  LEGAL MATTERS

         Certain legal matters in connection with the Merger, including the
legality of the securities offered hereby, will be passed upon for Zila by
Squire, Sanders & Dempsey, 40 North Central Avenue, Phoenix, Arizona. Certain
legal matters in connection with the Merger will be passed upon for Bio-Dental
by The Law Offices of Craig K. Powell, 641 Fulton Avenue, Suite 130, Sacramento,
California.


                                       85
<PAGE>   98
                                  APPENDIX A
                                      
                                      
                                      
                               MERGER AGREEMENT
                                      
                                      
                                    among
                                      
                                  ZILA, INC.
                                      
                     BIO-DENTAL TECHNOLOGIES CORPORATION
                                      
                                     and
                                      
                           ZILA MERGER CORPORATION
                                      
                                      
                                      
                             Dated August 8, 1996
<PAGE>   99
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                
                                                                                
                                    ARTICLE 1                                   Page
                                   THE MERGER                                   ----
<S>                                                                              <C>
1.1      The Merger.............................................................  1
1.2      Effect of the Merger...................................................  2
1.3      Consummation of the Merger.............................................  2
1.4      Articles of Incorporation and Bylaws; Directors and Officers...........  3
1.5      Conversion of Securities...............................................  3
1.6      Closing of Company Transfer Books......................................  5
1.7      Exchange of Certificates...............................................  5
1.8      Dissenting Shares......................................................  7
1.9      Tax Consequences.......................................................  8
1.10     Accounting Treatment...................................................  8
1.11     Taking of Necessary Action; Further Action.............................  8
1.12     Employee Stock Options.................................................  9
1.13     Warrants............................................................... 11
                                                                                
                                    ARTICLE 2                                   
           REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUB          
                                                                                
2.1      Organization and Qualification......................................... 12
2.2      Authority Relative to This Agreement................................... 12
2.3      Capital Structure...................................................... 13
2.4      SEC Filings; Financial Statements...................................... 14
2.5      Valid Issuance......................................................... 15
2.6      Accuracy of Information................................................ 15
2.7      Title to Properties.................................................... 15
2.8      Accounts Receivable.................................................... 16
2.9      Employment Matters..................................................... 16
2.10     Affiliate Transactions................................................. 16
2.11     Compliance with Laws; Permits; Certain Operations...................... 17
2.12     Non-Contravention; Consents............................................ 18
2.13     Brokerage.............................................................. 19
2.14     No Material Adverse Changes............................................ 19
2.15     Legal Proceedings...................................................... 19
2.16     Board Approval......................................................... 19
2.17     Pooling of Interests................................................... 19
2.18     OraTest................................................................ 20
                                                                                
                                    ARTICLE 3                                   
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY                 
                                                                                
3.1      Organization and Qualification......................................... 21
</TABLE>
                                        i
<PAGE>   100
<TABLE>
                                                                             Page
                                                                             ----
<S>                                                                           <C>
3.2      Authority Relative to this Agreement................................ 22
3.3      Capitalization...................................................... 23
3.4      Commission Filings.................................................. 25
3.5      Financial Statements................................................ 26
3.6      Subsidiaries........................................................ 27
3.7      Absence of Undisclosed Liabilities.................................. 28
3.8      No Material Adverse Changes......................................... 28
3.9      Absence of Certain Developments..................................... 29
3.10     Title to Properties................................................. 32
3.11     Accounts Receivable................................................. 34
3.12     Inventories......................................................... 34
3.13     Tax Matters......................................................... 34
3.14     Contracts and Commitments........................................... 37
3.15     Proprietary Rights.................................................. 39
3.16     Litigation.......................................................... 40
3.17     Brokerage........................................................... 41
3.18     Employment Matters.................................................. 41
3.19     Employee Benefit Plans.............................................. 42
3.20     Insurance........................................................... 44
3.21     Affiliate Transactions.............................................. 45
3.22     Suppliers........................................................... 45
3.23     Officers and Directors; Bank Accounts............................... 46
3.24     Compliance with Laws; Permits; Certain Operations................... 46
3.25     Disclosure.......................................................... 47
3.26     Non-Contravention; Consents......................................... 47
3.27     Stockholder Vote Required........................................... 49
3.28     Board Approval...................................................... 49
3.29     Pooling of Interests................................................ 49
                                                                             
                                    ARTICLE 4                                
                     CONDUCT OF BUSINESS PENDING THE MERGER                  
                                                                             
4.1      Conduct of Business Pending the Merger.............................. 50
4.2      Notification; Updates to Disclosure Schedule........................ 54
4.3      Company Shareholder Approval........................................ 55
                                                                             
                                    ARTICLE 5                                
                              ADDITIONAL AGREEMENTS                          
                                                                             
5.1      Prospectus/Proxy Statement.......................................... 56
5.2      Action of Shareholders.............................................. 60
5.3      Accountant Comfort Letters.......................................... 60
5.4      Expenses............................................................ 63
5.5      Additional Agreements............................................... 63
5.6      No Negotiations, etc................................................ 64
5.7      Notification of Certain Matters..................................... 64
5.8      Access to Information; Confidentiality.............................. 65
</TABLE>
                                       ii
<PAGE>   101
<TABLE>
                                                                               Page
                                                                               ----
<S>                                                                             <C>
5.9      Shareholder Claims.................................................... 65
5.10     Consents.............................................................. 65
5.11     State Securities Law Compliance....................................... 66
5.12     Notification; Updates to Disclosure Letter............................ 66
5.13     Pooling of Interests.................................................. 67
5.14     Affiliate Agreements.................................................. 67
5.15     Commercially Reasonable Efforts....................................... 67
5.16     Tax Matters........................................................... 68
5.17     Key Employee Options.................................................. 68
5.18     Board of Directors.................................................... 69
                                                                               
                                    ARTICLE 6                                  
                                   CONDITIONS                                  
                                                                               
6.1      Conditions to Obligations of Each Party To Effect the Merger.......... 69
6.2      Additional Conditions to Obligation of the Company.................... 74
6.3      Additional Conditions to Obligations of Parent and the Merger Sub..... 76
                                                                               
                                    ARTICLE 7                                  
                        TERMINATION, AMENDMENT AND WAIVER                      
                                                                               
7.1      Termination........................................................... 80
7.2      Termination Procedures................................................ 82
7.3      Effect of Termination................................................. 82
7.4      Breakup Fee........................................................... 83
                                                                               
                                    ARTICLE 8                                  
                               GENERAL PROVISIONS                              
                                                                               
8.1      Amendment............................................................. 85
8.2      Waiver................................................................ 85
8.3      Public Statements..................................................... 86
8.4      Notices............................................................... 86
8.5      Interpretation........................................................ 87
8.6      Severability.......................................................... 87
8.7      Miscellaneous......................................................... 87
8.8      Non-survival of Representations and Warranties........................ 88
</TABLE>

Exhibit 1        Form of Amended Articles of Incorporation
Exhibit 2        Form of Amended Bylaws
Exhibit 3        Form of Affiliate Agreement (Company)
Exhibit 4        Form of Affiliate Agreement (Parent)
Exhibit 5        Affiliated Persons
Exhibit 6        Form of Representation Certificate (Parent)
Exhibit 7        Form of Representation Certificate (Company)
Exhibit 8        Form of Shareholder's Representation Certificate

                                       iii
<PAGE>   102
                                MERGER AGREEMENT

         MERGER AGREEMENT dated August 8, 1996 (this "Agreement"), by and among
Zila, Inc., a Delaware corporation ("Parent"), Zila Merger Corporation, a
Delaware corporation wholly owned directly by Parent (the "Merger Sub"), and
Bio-Dental Technologies Corporation, a California corporation (the "Company").

                                    RECITALS

         I. Parent and the Company are parties to a letter of intent dated May
22, 1996 (the "Letter of Intent"), which contemplates the merger described in
Article 1 (the "Merger").

         II. The respective boards of directors of the Merger Sub and the
Company have determined that it is advisable to consummate the Merger, as a
result of which all of the outstanding common stock, $.01 par value per share,
of the Company ("Company Common Stock") will be converted into shares of the
common stock, $.001 par value per share, of Parent ("Parent Common Stock") and
the Company will be wholly owned directly or indirectly by Parent; all on the
terms and subject to the conditions set forth in this Agreement.

         NOW, THEREFORE, the parties agree as follows:

                                    ARTICLE 1

                                   THE MERGER

         The respective boards of directors of Parent, the Merger Sub and the
Company have, by resolutions duly adopted, approved the following provisions of
this Article 1 as the plan of merger required by the laws of the states of
Delaware and California in connection with the Merger:

         1.1 The Merger. At the Effective Time (as defined in Section 1.3), in
accordance with this Agreement and applicable law, the Merger Sub shall be
merged with and into the Company, the separate existence of the Merger Sub
(except as may be continued by operation
<PAGE>   103
of law) shall cease, and the Company shall continue as the surviving corporation
under the name "Zila Dental Technologies Corporation" as provided in the Amended
Articles of Incorporation of the Company pursuant to Section 1.4 of this
Agreement. The Company, in its capacity as the corporation surviving the Merger,
sometimes is referred to herein as the "Surviving Corporation."

         1.2 Effect of the Merger. The Surviving Corporation shall possess all
the rights, privileges, immunities and franchises, of a public as well as of a
private nature, of each of the Merger Sub and the Company (collectively, the
"Constituent Corporations"); and all property, real, personal, and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
other choses in action, and all and every other interest of or belonging to or
due to each of the Constituent Corporations, shall be taken and deemed to be
transferred to and vested in the Surviving Corporation without further act or
deed; and the Surviving Corporation shall be responsible and liable for all
liabilities and obligations of each of the Constituent Corporations.

         1.3 Consummation of the Merger. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Squire, Sanders & Dempsey, 40 North Central Avenue, Phoenix, Arizona 85004 at
10:00 a.m. on a date to be mutually agreed upon by Parent and the Company, which
date shall be no later than the third business day after the Company
Shareholders Meeting (as hereinafter defined) (the "Scheduled Closing Time").
The date on which the Closing actually takes place is referred to in this
Agreement as the "Closing Date". On the Closing Date, the parties hereto will
cause articles of merger relating to the Merger to be delivered to the
Secretaries of State of the states of Delaware and California in such form as
required by, and executed in accordance with, the relevant provisions of
applicable law. The Merger shall be effective at such time as such articles

                                        2
<PAGE>   104
of merger are duly filed with and accepted by the Secretaries of State of the
states of Delaware and California in accordance with applicable law (the
"Effective Time").

         1.4 Articles of Incorporation and Bylaws; Directors and Officers. The
Articles of Incorporation and Bylaws of the Company, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation (except that
such Articles of Incorporation shall be amended as set forth in Exhibit 1
attached hereto) and Bylaws (except that such Bylaws shall be amended as set
forth in Exhibit 2 attached hereto) of the Surviving Corporation immediately
after the Effective Time and shall thereafter continue to be its Articles of
Incorporation and Bylaws until amended as provided therein and under the
applicable law. The directors of the Merger Sub holding office immediately prior
to the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time. The officers of the Company holding office
immediately prior to the Effective Time shall be the officers (holding the same
offices as they held with the Company) of the Surviving Corporation immediately
after the Effective Time.

         1.5 Conversion of Securities. Subject to Sections 1.7(b) and 1.8, at
the Effective Time, by virtue of the Merger and without any action on the part
of the Merger Sub, the Company or the holder of any of the following securities:

                  (a) Each share of Company Common Stock issued and outstanding
         immediately prior to the Effective Time (other than shares to be
         canceled pursuant to Section 1.5(b)) shall automatically be canceled
         and extinguished and be converted into and become a right to receive
         0.825 shares of Parent Common Stock; provided, however, that if the
         average closing bid price for Parent Common Stock as reported by the
         Nasdaq Small-Cap Market during the ten trading days ending on the
         trading day that is five trading days prior to the

                                        3
<PAGE>   105
         Closing Date (the "Calculation Period") is less than $6.00 per share,
         each share of Company Common Stock issued and outstanding immediately
         prior to the Effective Time shall automatically be canceled and
         extinguished and be converted into and become a right to receive a
         number of shares of Parent Common Stock that is equivalent in value to
         $4.95 as calculated based on the average closing bid price for Parent
         Common Stock as reported by the Nasdaq Small-Cap Market during the
         Calculation Period; provided further, however, that if the average
         closing bid price for Parent Common Stock as reported by the Nasdaq
         Small-Cap Market during the Calculation Period is greater than $7.75
         per share, each share of Company Common Stock issued and outstanding
         immediately prior to the Effective Time shall automatically be canceled
         and extinguished and be converted into and become a right to receive
         the greater of (i) 0.75 shares of Parent Common Stock or (ii) a number
         of shares of Parent Common Stock that is equivalent in value to $6.39
         as calculated based on the average closing bid price for Parent Common
         Stock as reported by the Nasdaq Small-Cap Market during the Calculation
         Period.

                  (b) Each share of Company Common Stock issued and outstanding
         immediately prior to the Effective Time and held in the treasury of the
         Company or owned by Parent or the Merger Sub shall automatically be
         canceled and extinguished and no payment shall be made with respect
         thereto.

                  (c) Each share of Merger Sub Common Stock, par value $.001 per
         share, issued and outstanding immediately prior to the Effective Time
         shall automatically be converted into and become one validly issued,
         fully paid and

                                        4
<PAGE>   106
         nonassessable share of common stock, par value $.01 per share, of the
         Surviving Corporation.

                  (d) If any shares of Company Common Stock outstanding
         immediately prior to the Effective Time are unvested or are subject to
         a repurchase option, risk of forfeiture or other condition under any
         applicable restricted stock purchase agreement or other agreement with
         the Company, then the shares of Parent Common Stock issued in exchange
         for such shares of Company Common Stock will also be unvested and
         subject to the same repurchase option, risk of forfeiture or other
         condition, and the certificates representing such shares of Parent
         Common Stock may accordingly be marked with appropriate legends.

         1.6 Closing of Company Transfer Books. At the Effective Time, holders
of certificates representing shares of Company Common Stock that were
outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed and no transfer of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time shall thereafter be
made. If, after the Effective Time, valid certificates previously representing
such shares are presented to the Surviving Corporation or the Disbursing Agent
(as defined in Section 1.7), they shall be exchanged as provided in Section 1.7.

         1.7      Exchange of Certificates.

                  (a) After the Effective Time, a disbursing agent to be
         designated by Parent (which may not be Parent or a subsidiary of
         Parent) shall act as disbursing agent (the "Disbursing Agent") in
         effecting the exchange of Parent Common Stock for certificates which,
         immediately prior to the Effective Time, represented shares of Company
         Common Stock. As soon as practicable after the Effective Time, the
         Disbursing Agent shall mail

                                        5
<PAGE>   107
         a transmittal form to each holder of certificates theretofore
         representing such shares advising such holder of the procedure for
         surrendering such certificates to the Disbursing Agent. If a
         certificate for Parent Common Stock issued pursuant to Section 1.5(a)
         is to be issued in the name of a person other than the person in whose
         name the certificates for shares surrendered for exchange are
         registered, it shall be a condition of the exchange that the person
         requesting such exchange shall pay to the Disbursing Agent any transfer
         or other taxes required by reason of the issuance of such certificate
         in the name of a person other than the registered owner of the
         certificates surrendered, or shall establish to the satisfaction of the
         Disbursing Agent that such tax has been paid or is not applicable.
         Notwithstanding the foregoing, neither the Disbursing Agent nor any
         party hereto shall be liable to a holder of certificates theretofore
         representing shares of Company Common Stock for any amount paid to a
         public official pursuant to any applicable abandoned property, escheat
         or similar law. Upon the surrender and exchange of a certificate
         theretofore representing shares of Company Common Stock, the holder
         shall be issued a certificate representing the number of shares of
         Parent Common Stock to which such person is entitled pursuant to
         Section 1.5(a) and the certificate theretofore representing shares of
         Company Common Stock shall forthwith be canceled. Until so surrendered
         and exchanged, each Certificate theretofore representing shares of
         Company Common Stock shall represent solely the right to receive the
         Parent Common Stock into which the shares it theretofore represented
         shall have been converted pursuant to Section 1.5(a), and the Surviving
         Corporation shall not be required to pay the holder thereof the Parent
         Common Stock to which such holder otherwise would be entitled; provided
         that procedures allowing for payment against lost or destroyed
         certificates against receipt of customary and appropriate
         certifications and indemnities shall be provided.

                                        6
<PAGE>   108
                  (b) No fractional shares of Parent Common Stock shall be
         issued in connection with the Merger, and no certificates for any such
         fractional shares shall be issued. In lieu of such fractional shares,
         any fractional share interest in Parent Common Stock which a holder of
         Company Common Stock would otherwise be entitled to receive in the
         Merger (after aggregating all fractional shares of Parent Common Stock
         that would otherwise be issuable to such holder) shall be rounded up to
         the nearest whole share if such fraction is 0.5 or greater and shall be
         rounded down to the nearest whole share if such fraction is less than
         0.5.

         1.8 Dissenting Shares.

                  (a) Notwithstanding anything to the contrary contained in this
         Agreement, any shares of Company Common Stock that, as of the Effective
         Time, are or may become "dissenting shares" within the meaning of
         Section 1300(b) of the California General Corporation Law (the
         "California Law") shall not be converted into or represent the right to
         receive Parent Common Stock in accordance with Section 1.5, and the
         holder or holders of such shares shall be entitled only to such rights
         as may be granted to such holder or holders in Chapter 13 of the
         California Law; provided, however, that if the status of any such
         shares as "dissenting shares" shall not be perfected, or if any such
         shares shall lose their status as "dissenting shares," then, as of the
         later of the Effective Time or the time of the failure to perfect such
         status or the loss of such status, such shares shall automatically be
         converted into and shall represent only the right to receive (upon the
         surrender of the certificate or certificates representing such shares)
         Parent Common Stock in accordance with Section 1.5.

                  (b) The Company shall give Parent (i) prompt notice of any
         written demand received by the Company prior to the Effective Time to
         require the Company to purchase

                                        7
<PAGE>   109
         shares of capital stock of the Company pursuant to Chapter 13 of the
         California Law and of any other demand, notice or instrument delivered
         to the Company prior to the Effective Time pursuant to the California
         Law, and (ii) the opportunity to participate in all negotiations and
         proceedings with respect to any such demand, notice or instrument. The
         Company shall not make any payment or settlement offer prior to the
         Effective Time with respect to any such demand unless Parent shall have
         consented in writing to such payment or settlement offer.

         1.9 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). The parties to this
Agreement hereby adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations.

         1.10 Accounting Treatment. For accounting purposes, the Merger is
intended to be treated as a "pooling of interests."

         1.11 Taking of Necessary Action; Further Action. Parent and the Merger
Sub, on the one hand, and the Company, on the other hand, shall use all
reasonable efforts to take all such action (including without limitation action
to cause the satisfaction of the conditions of the other to effect the Merger)
as may be necessary or appropriate in order to effectuate the Merger as promptly
as possible. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation and Parent with full possession of all the rights,
privileges, immunities and franchises of the Constituent Corporations, the
officers and directors of the Surviving Corporation and Parent are fully
authorized in the name of the Constituent Corporations or otherwise to take, and
shall take, all such action.

                                        8
<PAGE>   110
         1.12 Employee Stock Options.

                  (a) At the Effective Time, each option that is then
         outstanding under the Company's 1992 Stock Option Plan, as amended in
         1995 (the "Stock Plan"), whether vested or unvested (a "Company
         Option"), shall be assumed by Parent in accordance with the terms (as
         in effect on the date hereof) of the Stock Plan and the stock option
         agreement, if any, by which such Company Option is evidenced. All
         rights with respect to Company Common Stock under outstanding Company
         Options shall thereupon be converted, subject to the provisions hereof,
         into rights with respect to Parent Common Stock. From and after the
         Effective Time, (i) each Company Option assumed by Parent
         (collectively, the "Assumed Options") may be exercised solely for
         shares of Parent Common Stock, (ii) the number of shares of Parent
         Common Stock subject to each such Assumed Option shall be equal to the
         number of shares of Parent Common Stock which the holder of such
         Assumed Option would have received pursuant to section 1.5 in exchange
         for the shares of Company Common Stock subject to such Assumed Option
         if such Assumed Option had been exercised immediately prior to the
         Effective Time, (iii) the per share exercise price for the Parent
         Common Stock issuable upon exercise of each such Assumed Option shall
         be determined by dividing the exercise price per share of Company
         Common Stock subject to such Assumed Option, as in effect immediately
         prior to the Effective Time, by a fraction the numerator of which is
         the number of shares of Parent Common Stock subject to such Assumed
         Option immediately after the Effective Time and the denominator of
         which is the number of shares of Company Common Stock subject to such
         Assumed Option immediately prior to the Effective Time, and rounding
         the resulting exercise price up to the nearest whole cent, and (iv) all
         restrictions on the exercise of each such Assumed Option shall continue
         in full force and effect and the

                                        9
<PAGE>   111
         term, exercisability, vesting schedule, status as an incentive or
         nonqualified option, and other provisions of such Company Option shall
         otherwise remain unchanged; provided, however, that each such Assumed
         Option shall, in accordance with its terms, be subject to further
         adjustment as appropriate to reflect any stock split, reverse stock
         split, stock dividend, recapitalization or other similar transaction
         effected by Parent after the Effective Time. The Company and Parent
         shall take all action that may be necessary (under the Stock Plan and
         otherwise) to effectuate the provisions of this Section 1.12.

                  (b) Parent will use its best efforts to cause the Parent
         Common Stock issuable upon exercise of the Assumed Options to be
         registered under the Securities Act of 1933, as amended (the
         "Securities Act"), on Form S-8 promulgated by the Securities and
         Exchange Commission (the "SEC") and to be registered or qualified (or
         to have established that an exemption from such registration or
         qualification is available) under the "blue sky" laws of all states in
         which the holders of Company Options reside, within 30 business days
         after the Effective Time, and Parent shall use its best efforts to
         maintain the effectiveness of such registration statement or
         registration statements for so long as such Assumed Options remain
         outstanding. With respect to any Company employee or director who
         subsequent to the Merger will be subject to the reporting requirements
         under Section 16(a) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act") with respect to the securities of Parent
         beneficially owned by such person, Parent shall administer the Assumed
         Options in a manner that complies with the disinterested administration
         requirements of Rule 16b-3 promulgated by the SEC under the Exchange
         Act. At or prior to the Effective Time, Parent will reserve a
         sufficient number of shares of Parent Common Stock for issuance upon
         exercise of the Assumed Options.

                                       10
<PAGE>   112
         1.13 Warrants. At the Effective Time, each warrant to purchase shares
of Company Common Stock that is then outstanding (the "Company Warrants") shall
be assumed by Parent in accordance with the terms (as in effect on the date
hereof) of the agreement or instrument by which such Company Warrant is
evidenced. All rights with respect to Company Common Stock under outstanding
Company Warrants shall thereupon be converted, subject to the provisions hereof,
into rights with respect to Parent Common Stock. From and after the Effective
Time, (i) each Company Warrant assumed by Parent (collectively, the "Assumed
Warrants") may be exercised solely for shares of Parent Common Stock, (ii) the
number of shares of Parent Common Stock subject to each such Assumed Warrant
shall be equal to the number of shares of Parent Common Stock which the holder
of such Assumed Warrant would have received pursuant to Section 1.5 in exchange
for the shares of Company Common Stock subject to such Assumed Warrant if such
Assumed Warrant had been exercised immediately prior to the Effective Time,
(iii) the per share exercise price for the Parent Common Stock issuable upon
exercise of each such Assumed Warrant shall be determined by dividing the
exercise price per share of Company Common Stock subject to such Assumed
Warrant, as in effect immediately prior to the Effective Time, by a fraction the
numerator of which is the number of shares of Parent Common Stock subject to
such Assumed Warrant immediately after the Effective Time and the denominator of
which is the number of shares of Company Common Stock subject to such Assumed
Warrant immediately prior to the Effective Time, and rounding the resulting
exercise price up to the nearest whole cent, and (iv) all restrictions on the
exercise of each such Assumed Warrant shall continue in full force and effect
and the term, exercisability, limitations, and other provisions of such Company
Warrant shall otherwise remain unchanged; provided, however, that each such
Assumed Warrant shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, reverse stock split, stock
dividend,

                                       11
<PAGE>   113
recapitalization or other similar transaction effected by Parent after the
Effective Time. The Company and Parent shall take all action that may be
necessary (under the agreements and instruments evidencing the Assumed Warrants
and otherwise) to effectuate the provisions of this Section 1.13.

                                    ARTICLE 2

           REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUB


         Parent and the Merger Sub hereby represent and warrant to the Company
that, except as otherwise disclosed in Parent's Annual Report on Form 10-K for
the fiscal year ended July 31, 1995 (the "Parent's Latest 10-K") or Parent's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1996 (the
"Parent's Latest 10-Q"):

         2.1 Organization and Qualification. Each of Parent and the Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite corporate power
to carry on its business as now conducted.

         2.2 Authority Relative to This Agreement. Each of Parent and the Merger
Sub has the requisite corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Agreement by Parent and the Merger Sub and the consummation by Parent and the
Merger Sub of the transactions contemplated hereby have been duly authorized by
Parent and by the Board of Directors and sole shareholder of the Merger Sub, and
no other corporate proceedings on the part of Parent or the Merger Sub are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by Parent and the Merger Sub and constitutes a
valid and binding obligation of each, enforceable in accordance with its terms.
Neither Parent nor the Merger Sub is subject to, or obligated under, any
provision of (a) its Certificate of Incorporation, Articles

                                       12
<PAGE>   114
of Incorporation or Bylaws, (b) any agreement, arrangement or understanding, (c)
any license, franchise or permit or (d) subject to compliance with the statutes
referred to in the next sentence, any law, regulation, order, judgment or
decree, which would be breached, or violated, or in respect of which a right of
termination or acceleration or any encumbrance on any of its or any of its
subsidiaries' assets would be created, by its execution, delivery and
performance of this Agreement and the consummation by it of the transactions
contemplated hereby, other than any such breaches or violations which will not,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Parent and its subsidiaries,
taken as a whole. Other than authorizations, consents and approvals of or
filings or registrations with the SEC, the Federal Trade Commission, the United
States Department of Justice and other applicable federal and state governmental
authorities, no authorization, consent or approval of, or filing with, any
public body, court or authority is necessary on the part of Parent or the Merger
Sub for the consummation by Parent and the Merger Sub of the transactions
contemplated by this Agreement, except for such authorizations, consents,
approvals and filings as to which the failure to obtain or make would not,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Parent and its subsidiaries,
taken as a whole.

         2.3 Capital Structure. The authorized capital stock of Parent consists
of 50,000,000 shares of Parent Common Stock and 2,500,000 shares of preferred
stock, $.001 per value. At the close of business on July 24, 1996, 25,772,144
shares of Parent Common Stock were issued and outstanding, no shares of Parent
Common Stock were held by Parent in its treasury and 42,546 shares of Parent
Common Stock were held by a wholly-owned subsidiary of Parent. As of the date
hereof, no shares of Parent's preferred stock, $.001 per value, were issued and
outstanding. All outstanding shares of Parent Common Stock are validly issued,
fully paid and

                                       13
<PAGE>   115
nonassessable and not subject to preemptive rights contained in Parent's charter
documents or in any contract or agreement to which Parent is a party. All
outstanding shares of the capital stock of each of Parent's subsidiaries are
validly issued, fully paid and nonassessable and are owned by Parent or one of
its subsidiaries free and clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances.

         2.4 SEC Filings; Financial Statements.

                  (a) Parent has delivered to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement (on
a form other than Form S-8) and definitive proxy statement filed by Parent with
the SEC between July 1, 1995 and the date of this Agreement (the "Parent SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Parent SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

                  (b) the audited financial statements and unaudited interim
financial statements of Parent included (or incorporated by reference) in the
Parent SEC Documents have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto), are accurate and complete in
all material respects and fairly present the consolidated financial position of
Parent as of the dates thereof and the consolidated results of Parent's
operations and the changes in Parent's consolidated financial position for the
periods then ended, in the case of the unaudited interim financial statements
subject to year-end audit adjustments which will not,

                                       14
<PAGE>   116
individually or in the aggregate, be material in magnitude. Such unaudited
interim financial statements reflect all adjustments necessary to present a fair
statement of the results for the interim periods presented.

         2.5 Valid Issuance. Subject to Section 1.5(d), the Parent Common Stock
to be issued in the Merger will be, when issued in accordance with the
provisions of this Agreement, validly issued, fully paid and nonassessable.

         2.6 Accuracy of Information. None of the information supplied or to be
supplied by Parent or Merger Sub for inclusion or incorporation by reference in
the Form S-4 (as hereinafter defined) and the Prospectus/Proxy Statement (as
hereinafter defined) will, at the time the S-4 is declared effective or at the
date the Prospectus/Proxy Statement is mailed, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they are made) not misleading.

         2.7 Title to Properties.

                  (a) Parent or one of Parent's subsidiaries owns good and
         marketable title to each of the tangible properties and tangible assets
         reflected on the balance sheet included in Parent's Latest 10-Q or
         acquired since the date thereof, free and clear of all material liens
         and encumbrances, except for (A) liens for current taxes not yet due
         and payable, (B) liens or mortgages described in Parent's Latest 10-Q,
         (C) the properties subject to the leases described in Parent's Latest
         10-Q, (D) liens securing indebtedness described in Parent's Latest 10-Q
         and (E) assets disposed of since the date of the balance sheet included
         in Parent's Latest 10-Q in the ordinary course of business.

                                       15
<PAGE>   117
                  (b) All of the buildings, machinery, equipment and other
         tangible assets necessary for the conduct of Parent's and its
         subsidiaries' businesses are in good condition and repair (except where
         the failure to be in such condition and repair, either individually or
         in the aggregate, would not have a material adverse effect on Parent or
         any subsidiary of Parent and except for ordinary wear and tear), and
         are usable in the ordinary course of business. Parent and its
         subsidiaries own, or lease under valid leases which afford peaceful and
         undisturbed possession of the subject matter of the lease, all
         buildings, machinery, equipment and other tangible assets necessary for
         the conduct of their businesses.

         2.8 Accounts Receivable. Parent's and its subsidiaries' notes and
accounts receivable recorded on the balance sheet included in Parent's Latest
10-Q and those arising since the date thereof are valid receivables (subject to
a reasonable allowance for doubtful accounts as set forth in Parent's Latest
10-Q) arising from bona fide transactions entered into in the ordinary course of
business and are current and collectible in full in accordance with their terms,
subject to no valid counterclaims or setoffs.

         2.9 Employment Matters. To the best knowledge of Parent, (i) no key
executive employee of Parent or any subsidiary of Parent, and no group of
Parent's or any subsidiary's employees, has any plans to terminate his or its
employment, (ii) Parent and the subsidiaries have complied with all laws
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the payment of social
security and other taxes, and (iii) Parent and its subsidiaries have no material
labor relations problems pending and their labor relations are satisfactory.

         2.10 Affiliate Transactions. Except as set forth in Parent's Latest
10-K or Parent's Latest 10-Q, no officer or director of Parent or any subsidiary
of Parent or any member of the

                                       16
<PAGE>   118
immediate family of any such officer or director, or any entity in which any of
such persons owns any beneficial interest (other than a publicly-held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than 5% of the stock of which is beneficially
owned by any of such persons) (collectively "Insiders"), (a) has any material
agreement with Parent or any subsidiary of Parent (other than normal employment
arrangements) or any material interest in any property, real, personal or mixed,
tangible or intangible, used in or pertaining to the business of Parent or any
subsidiary of Parent, or (b) has been indebted to Parent in amounts in excess of
$60,000 in the aggregate at any time (other than for purchases subject to usual
trade terms, for ordinary travel and expense payments and for other transactions
in the ordinary course of business). For purposes of the preceding sentence, the
members of the immediate family of an officer or director shall consist of the
spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law of such officer or director.

         2.11 Compliance with Laws; Permits; Certain Operations. Parent, each of
Parent's subsidiaries and their respective officers, directors, agents and
employees have complied in all material respects, and currently are in
compliance in all material respects, with all applicable laws and regulations of
foreign, federal, state and local governments and all agencies thereof which
affect the businesses or any owned or leased properties of Parent and its
subsidiaries and to which Parent or any of its subsidiaries may be subject, and
no claims have been filed against Parent or any of its subsidiaries alleging a
material violation of any such law or regulation. Parent and its Subsidiaries
hold all material permits, licenses, certificates and other authorizations of
foreign, federal, state and local governmental agencies required for the conduct
of their businesses. Parent has not received any notice or other communication
from any governmental authority regarding any actual or possible violation of,
or failure to comply with,

                                       17
<PAGE>   119
any legal requirement, except where failure to comply with such legal
requirement has not had and could not reasonably be expected to have a material
adverse effect on Parent.

         2.12 Non-Contravention; Consents. Neither the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):

                  (a) contravene, conflict with or result in a violation of (i)
         any of the provisions of Parent's or Merger Sub's certificate of
         incorporation or bylaws, or (ii) any resolution adopted by Parent's or
         Merger Sub's stockholders or board of directors or committee of such
         board of directors;

                  (b) contravene, conflict with or result in a violation of the
         terms or requirements of, or give any governmental authority the right
         to revoke, withdraw, suspend, cancel, terminate or modify, any material
         governmental authorization that is held by Parent or Merger Sub or that
         otherwise relates to Parent's business or to any of the assets owned or
         used by Parent;

                  (c) contravene, conflict with or result in a violation or
         breach of, or result in a default under, any provision of any material
         contract of Parent or Merger Sub, or give any Person the right to (i)
         declare a default or exercise any remedy under any such material
         contract, (ii) accelerate the maturity or performance of any such
         material contract, or (iii) cancel, terminate or modify any such
         material contract; or

                  (d) result in the imposition or creation of any lien or other
         encumbrance upon or with respect to any asset owned or used by Parent
         or Merger Sub (except for minor liens and encumbrances that will not,
         in any case or in the aggregate, materially detract

                                       18
<PAGE>   120
         from the value of the assets subject thereto or materially impair the
         operations of Parent or Merger Sub).

         2.13 Brokerage. There are no claims for investment banking fees,
brokerage commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Parent, Merger Sub or any other subsidiary of
Parent.

         2.14 No Material Adverse Changes. Since April 30, 1996, there has been
no material adverse change, and no event has occurred that will or that would
reasonably be expected to result in a material adverse change, in the
consolidated assets, financial condition, operating results, customer, employee,
supplier or franchise relations, business condition or prospects, or financing
arrangements of Parent.

         2.15 Legal Proceedings. There are no actions, suits, claims,
proceedings, orders or other investigations pending or threatened against Parent
that challenges or may have the effect or preventing, delaying, making illegal
or otherwise interfering with the Merger or any other transactions contemplated
by this Agreement or that could reasonably be expected to have a material
adverse effect on the business, properties, assets, condition (financial or
otherwise) or business prospects of Parent.

         2.16 Board Approval. The board of directors of Parent has unanimously
(i) approved this Agreement and the Merger and (ii) determined that the Merger
is in the best interests of the stockholders of Parent and is on terms that are
fair to Parent.

         2.17 Pooling of Interests. Parent is not aware of any event, condition,
fact or circumstance that to its knowledge could prevent the Merger from being
accounted for as a "pooling of interests" transaction for accounting purposes.

                                       19
<PAGE>   121
         2.18 OraTest. Based on information within the actual knowledge of any
Responsible Officer (as defined in Section 7.3) of Parent as of the date hereof:

                  (a) Parent believes all patents that have been issued relating
         to Parent's oral cancer diagnostic known as OraTest (collectively, the
         "OraTest Patents") are valid and enforceable;

                  (b) Parent is not aware of any products or processes for the
         detection of cancerous oral lesions which are currently available on
         the market or in development and which would compete with OraTest;

                  (c) Parent is not aware of any material adverse findings
         regarding the OraTest Patents, the status of FDA approval of OraTest or
         the marketability of OraTest that led to the decision of The Procter
         and Gamble Company to terminate its agreement with Parent to market and
         distribute OraTest;

                  (d) Parent believes that upon receipt of FDA approval, OraTest
         will be able to be marketed as a diagnostic adjunct in patients with
         oral lesions suspected or known to be malignant, to help in detection
         of all sites of oral cancer, definition of borders of cancerous lesions
         and selection of sites to be biopsied;

                  (e) Parent is not aware of any factor which could reasonably
         be expected to cause the FDA to deny Parent's application for approval
         of OraTest;

                  (f) Parent is not aware of any communications from the FDA
         indicating that the FDA will deny Parent's application for approval of
         OraTest;

                  (g) Parent's best good-faith estimate of the timing of receipt
         of FDA approval of OraTest, assuming the FDA grants such approval, is
         during the first calendar quarter of 1997; and

                                       20
<PAGE>   122
                  (h) Parent's written estimates of the market potential and
         estimated sales volume of OraTest which have been provided to the
         Company are Parent's best good-faith estimates thereof and are based on
         assumptions which Parent believes to be reasonable.

                                    ARTICLE 3

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby represents and warrants to Parent and the Merger Sub
that, except as otherwise disclosed in the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1996 (the "Company's Latest 10-K"):

         3.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has the requisite corporate and other power and authority
(including all licenses, permits and authorizations) to own and operate its
properties and to carry on its business as now conducted and presently proposed
to be conducted and to perform its obligations under all contracts, instruments,
notes or other binding commitments to which it is or may become a party or by
which it or its assets is or may become bound. The copies of the Company's
Articles of Incorporation and Bylaws which have been furnished by the Company to
Parent prior to the date of this Agreement reflect all amendments made thereto
through the date hereof and are correct and complete. The Company is qualified
to do business and is in good standing as a foreign corporation in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be qualified. Except as set forth under the caption "Other Names"
in a letter delivered to Parent by the Company simultaneously with the execution
and delivery of this Agreement (the "Disclosure Letter"), the Company has not
conducted any business under or

                                       21
<PAGE>   123
otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name, trade name or other name, other than the name "Bio-Dental
Technologies Corporation."

         3.2 Authority Relative to this Agreement. The Company has the requisite
corporate and other power and authority to enter into and perform this Agreement
and to carry out its obligations hereunder (it being understood that the
Company's obligations hereunder to effect the Merger is subject to the approval
of its shareholders as set forth in Section 3.27). The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company and, except for the approval of its shareholders as set
forth in Section 3.27, no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement and such transactions. This Agreement
has been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms.
Neither the Company nor any of its Subsidiaries (as defined in Section 3.6(b))
is subject to, or obligated under, any provision of (a) its Certificate of
Incorporation, Articles of Incorporation or Bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit or (d)
subject to compliance with any of the statutes referred to in the next sentence,
any law, regulation, order, judgment or decree, which would be breached or
violated, or in respect of which a right of termination or acceleration or any
encumbrance on any of its or any of its Subsidiaries' assets would be created,
by its execution, delivery and performance of this Agreement and the
consummation by it of the transactions contemplated hereby, and the Company has
not taken any action that is inconsistent in any material respect with any
resolution adopted by the Company's shareholders, its board of directors or any
committee of its board of directors. The books of account, stock records, minute
books and other records of the Company are accurate, up-to-date and complete in
all

                                       22
<PAGE>   124
material respects and have been maintained in accordance with prudent business
practices. Other than in connection with or in compliance with the provisions of
the California Law, the Exchange Act and the Hart-Scott-Rodino Antitrust
Improvements Act of 1978, as amended (the "Hart-Scott Act"), no authorization,
consent or approval of, or filing with, any public body, court or authority is
necessary on the part of the Company for the consummation by the Company of the
transactions contemplated by this Agreement.

         3.3 Capitalization.

                  (a) The authorized equity capitalization of the Company
         consists of 50,000,000 shares of Company Common Stock, 6,427,134 shares
         of which are issued and outstanding as of the date hereof, and
         1,000,000 shares of preferred stock, par value $.01 per share, none of
         which shares are issued and outstanding as of the date hereof. All of
         the issued and outstanding shares of Company Common Stock are validly
         issued, fully paid and nonassessable. The Company's capital structure
         as of the date hereof is disclosed to Parent under the caption
         "Capitalization" in the Disclosure Letter.

                  (b) The Company has reserved 1,000,000 shares of Company
         Common Stock for issuance under the Stock Plan, of which vested and
         unvested options to purchase 665,391 shares are outstanding as of the
         date of this Agreement. The Disclosure Letter, under the caption
         "Company Options," accurately sets forth, with respect to each Company
         Option that is outstanding as of the date of this Agreement: (i) the
         name of the holder of such Company Option; (ii) the total number of
         shares of Company Common Stock that are subject to such Company Option
         and the number of shares of Company Common Stock with respect to which
         such Company Option is immediately exercisable; (iii) the date on which
         such Company Option was granted and the term of such Company Option;
         (iv) the vesting schedule for such Company Option; (v) the exercise
         price per

                                       23
<PAGE>   125
         share of Company Common Stock purchasable under such Company Option;
         and (vi) whether such Company Option has been designated an "incentive
         stock option" as defined in Section 422 of the Code. The Disclosure
         Letter, under the caption "Company Warrants," accurately sets forth,
         with respect to each Company Warrant that is outstanding as of the date
         of this Agreement: (i) the name of the holder of such Company Warrant;
         (ii) the total number of shares of Company Common Stock that are
         subject to such Company Warrant; (iii) the date on which such Company
         Warrant was granted and the expiration date of such Company Warrant;
         (iv) the exercise price per share of Company Common Stock subject to
         such Company Warrant; and (v) a description of any registration or
         other rights granted to the holder of such Company Warrant.

                  (c) Except as specifically referred to in Sections 3.3(a) and
         (b) above, or as set forth in the Disclosure Letter, there is no: (i)
         outstanding subscription, option, call, warrant or right (whether or
         not currently exercisable) to acquire any shares of the capital stock
         or other securities of the Company; (ii) outstanding security,
         instrument or obligation that is or may become convertible into or
         exchangeable for any shares of the capital stock or other securities of
         the Company; (iii) contract or agreement under which the Company is or
         may become obligated to sell or otherwise issue any shares or its
         capital stock or any other securities; or (iv) condition or
         circumstance that may give rise to or provide a basis for the assertion
         of a claim by any person or entity to the effect that such person or
         entity is entitled to acquire or receive any shares of capital stock or
         other securities of the Company.

                  (d) All outstanding shares of Company Common Stock and all
         outstanding Company Options and Company Warrants have been issued and
         granted in compliance

                                       24
<PAGE>   126
         with (i) all applicable securities laws and other applicable laws and
         regulations, and (ii) all requirements set forth in applicable
         contracts and agreements.

                  (e) Except as set forth in the Disclosure Letter under the
         caption "Acquisition of Shares," the Company has never repurchased,
         redeemed or otherwise reacquired shares of capital stock or other
         securities of the Company. All securities so reacquired by the Company
         were reacquired in compliance with (i) the applicable provisions of the
         California Law and all other applicable laws and regulations, and (ii)
         all requirements set forth in applicable restricted stock purchase
         agreements and other applicable contracts and agreements.

                  (f) Except as set forth in the Disclosure Letter under the
         caption "Registration Rights," the Company is not under any obligation
         to register under the Securities Act any of its presently outstanding
         securities or any securities that may be subsequently issued, and no
         person or entity holds any right to participate in new issuances of
         securities by the Company.

                  (g) Except as set forth in the Disclosure Letter under the
         caption "Agreements Relating to Company Common Stock," the Company is
         not a party to or obligated under any agreement, arrangement or
         understanding, contingent or otherwise, (i) involving the repurchase or
         redemption of any amount of Company Common Stock, (ii) requiring the
         Company to issue any amount of Company Common Stock to any person at
         any time, or (iii) contemplating the issuance at any time of shares of
         Company Common Stock or other consideration to any person as a
         guarantee by the Company of a minimum market price for Company Common
         Stock.

         3.4 Commission Filings. The Company has heretofore delivered to Parent
copies of the Company's (a) Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1996,

                                       25
<PAGE>   127
(b) Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,
1995, (c) proxy statement relating to the Company's 1995 annual meeting of
shareholders, and (d) all other reports, registrations statements and other
documents filed by the Company with the SEC since January 1, 1993, in each case
as filed with the SEC (collectively, the "SEC Filings"), and the Company has
heretofore made available to Parent all other reports, registration statements
and other documents filed by the Company with the SEC under the Exchange Act or
the Securities Act since the Company's inception. Since June 30, 1992, the
Company has timely filed all reports, registration statements and other
documents required to be filed with the SEC under the rules and regulations of
the SEC, and all such reports, registration statements and other documents
complied as to form with the requirements of the Securities Act or the Exchange
Act, as the case may be. As of their respective dates, the reports, statements
and other documents referred to in the immediately preceding sentence did not
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

         3.5 Financial Statements. The audited financial statements and
unaudited interim financial statements of the Company and its Subsidiaries
included (or incorporated by reference) in the SEC Filings have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), are accurate and complete in all material respects and fairly present
the consolidated financial position of the Company and its Subsidiaries as of
the dates thereof and the consolidated results of their operations and the
changes in their consolidated financial position for the periods then ended, in
the case of the unaudited interim financial statements subject to year-end audit
adjustments which will not, individually or in the aggregate, be material

                                       26
<PAGE>   128
in magnitude. Such unaudited interim financial statements reflect all
adjustments necessary to present a fair statement of the results for the interim
periods presented.

         3.6 Subsidiaries.

                  (a) Except as set forth under the caption "Subsidiaries" in
         the Disclosure Letter, the Company does not own, beneficially or
         otherwise, any stock or other equity interest, partnership interest,
         joint venture interest, or any other security issued by any other
         corporation, organization or entity, and the Company has not agreed and
         is not obligated to make any future investment in or capital
         contribution to any such corporation, organization or entity. Except as
         set forth under the caption "Subsidiaries" in the Disclosure Letter,
         the Company owns all of the outstanding capital stock of each
         Subsidiary, free and clear of all liens, charges and encumbrances, and
         there are no subscription rights, warrants, options, conversion rights
         or agreements of any kind outstanding to purchase or otherwise acquire
         any shares of capital stock of any Subsidiary or any securities or
         obligations of any kind convertible into or exchangeable for any such
         shares of capital stock. Each Subsidiary is a corporation duly
         organized, validly existing and in good standing under the laws of its
         jurisdiction of incorporation, and has the requisite corporate and
         other power and authority (including all authorizations, licenses and
         permits) necessary to own and operate its properties and to carry on
         its business as now conducted and presently proposed to be conducted.
         The copies of the charter documents and bylaws of each Subsidiary which
         have been furnished by the Company to Parent prior to the date of this
         Agreement reflect all amendments made thereto through the date hereof
         and are correct and complete. Each Subsidiary is qualified to do
         business as a foreign corporation

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<PAGE>   129
         and is in good standing in all jurisdictions in which the nature of its
         business or its ownership of property requires it to be qualified.

                  (b) For purposes of this Agreement, the term "Subsidiary"
         means any corporation of which securities having a majority of the
         ordinary voting power in electing directors are, at the time of
         determination, owned by the Company directly or through another
         Subsidiary.

         3.7 Absence of Undisclosed Liabilities. Neither the Company nor any
Subsidiary has any obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due and
regardless of when asserted) arising out of transactions heretofore entered
into, or any action or inaction, or any state of facts existing, including taxes
with respect to or based upon transactions or events heretofore occurring,
except (a) obligations under contracts or commitments described in the
Disclosure Letter under the caption "Contracts," or under contracts and
commitments which are not required to be disclosed thereunder (but not
liabilities for breaches thereof), (b) liabilities reflected on the balance
sheet included in the Company's Latest 10-K, (c) liabilities which have arisen
after the date of the balance sheet included in the Company's Latest 10-K in the
ordinary course of business (none of which is a material uninsured liability for
breach of contract, breach of warranty, tort, infringement, claim or lawsuit),
and (d) liabilities otherwise disclosed in the Disclosure Letter.

         3.8 No Material Adverse Changes. Except as set forth under the caption
"Adverse Changes" in the Disclosure Letter, since March 31, 1996, there has been
no material adverse change, and no event has occurred that will or that would
reasonably be expected to result in a material adverse change, in the
consolidated assets, financial condition, operating results, customer, employee,
supplier or franchise relations, business condition or prospects, or financing
arrangements of the Company and its Subsidiaries, taken as a whole.

                                       28
<PAGE>   130
         3.9 Absence of Certain Developments. Except as set forth under the
caption "Developments" in the Disclosure Letter, since March 31, 1996, the
Company has not and, since the date of acquisition by the Company, each
Subsidiary has not:

                  (a) redeemed or purchased, directly or indirectly, any shares
         of its capital stock, or declared, accrued, set aside or paid any
         dividends or distributions with respect to any shares of its capital
         stock;

                  (b) other than upon the exercise of outstanding warrants or
         options, issued or sold any of its equity securities, securities
         convertible into or exchangeable for its equity securities, warrants,
         options or other rights to acquire its equity securities, or its bonds
         or other securities;

                  (c) borrowed any amount or incurred, guaranteed or become
         subject to any material liability, except current liabilities incurred
         in the ordinary course of business;

                  (d) discharged or satisfied any material lien or encumbrance
         or paid any material liability, other than current liabilities paid in
         the ordinary course of business;

                  (e) mortgaged, pledged or subjected to, or otherwise permitted
         to become subject to, any lien, charge or other encumbrance, any of the
         assets of the Company or any Subsidiary with a fair market value in
         excess of $50,000, except liens for current property taxes not yet due
         and payable and liens securing indebtedness of the Company under that
         certain Second Amended and Restated Credit Agreement dated October 31,
         1995, as amended by that certain Modification Agreement effective March
         31, 1996, by and among the Company, certain Subsidiaries of the Company
         and The Bank of California, relating to a

                                       29
<PAGE>   131
         $3,000,000 line of credit established for the Company at The Bank of
         California (the "Company Credit Facility");

                  (f) sold, assigned or transferred (including without
         limitation transfers to any employees, shareholders or affiliates of
         the Company or any Subsidiary) any tangible assets, except for fair
         value in the ordinary course of business, or canceled any debts or
         claims;

                  (g) sold, assigned or transferred (including without
         limitation transfers to any employees, shareholders or affiliates of
         the Company or any Subsidiary) any patents, trademarks, trade names,
         copyrights, trade secrets or other intangible assets, except for fair
         value in the ordinary course of business, or disclosed any proprietary
         confidential information to any person other than Parent or the Merger
         Sub;

                  (h) suffered any extraordinary loss or waived any rights of
         material value, whether or not in the ordinary course of business or
         consistent with past practice;

                  (i) taken any other action or entered into any other
         transaction other than in the ordinary course of business and in
         accordance with past custom and practice, or entered into any
         transaction with any Insider (as defined in Section 3.21);

                  (j) suffered any material theft, damage, destruction or loss
         of or to, or any material interruption in the use of, any property or
         properties owned or used by it, whether or not covered by insurance;

                  (k) made or granted any bonus or any wage, salary or
         compensation increase, or made or granted any increase in any employee
         benefit plan or

                                       30
<PAGE>   132
         arrangement, or amended or terminated any existing employee benefit
         plan or arrangement or adopted any new employee benefit plan or
         arrangement, with respect to any director, officer or consultant of the
         Company or, except in the ordinary course of the Company's business and
         consistent with the Company's historical compensation practices, any
         other employee or group of employees;

                  (l) amended or waived any of its rights under, or permitted
         the acceleration of vesting under, (i) any provision of its Stock Plan
         or (ii) any provision of any agreement evidencing any outstanding
         Company Option or Company Warrant;

                  (m) made any capital expenditures or commitments therefor
         (other than any such expenditures or commitments made in the ordinary
         course of business for leasehold improvements at, or the furnishing or
         equipping of, the facilities operated by the Company as of the date of
         this Agreement) that aggregate in excess of $60,000;

                  (n) made any loans or advances to, or guarantees for the
         benefit of, any persons that aggregate in excess of $50,000;

                  (o) effected or been a party to any acquisition transaction,
         recapitalization, reclassification of shares, stock split, reverse
         stock split or similar transaction;

                  (p) formed any subsidiary or acquired any equity interest or
         other interest in any other entity;

                  (q) written off as uncollectible, or established any reserve
         with respect to, any account receivable or other indebtedness in excess
         of a total of $50,000;

                  (r) changed any of its methods of accounting or accounting
         practices in any material respect;

                                       31
<PAGE>   133
                  (s) made any tax election;

                  (t) commenced or settled any legal proceeding;

                  (u) waived or agreed to waive any applicable statute of
         limitations or any similar statutory or judicial doctrine benefiting
         the Company or any Subsidiary;

                  (v) entered into any material transaction or taken any other
         material action outside the ordinary course of business or inconsistent
         with its past practices; or

                  (w) made charitable contributions or pledges which in the
         aggregate exceed $10,000.

         3.10 Title to Properties.

                  (a) The Company or one of the Subsidiaries owns good and
         marketable title to each the tangible properties and tangible assets
         reflected on the balance sheet included in the Company's Latest 10-K or
         acquired since the date thereof, free and clear of all liens and
         encumbrances, except for (A) liens for current taxes not yet due and
         payable, (B) liens set forth under the caption "Real Estate" in the
         Disclosure Letter, (C) the properties subject to the leases set forth
         under the caption "Leases" in the Disclosure Letter, (D) liens securing
         indebtedness of the Company under the Company Credit Facility and (E)
         assets disposed of since the date of the balance sheet included in the
         Company's Latest 10-K in the ordinary course of business.

                  (b) (i) the real estate described under the caption "Real
         Estate" in the Disclosure Letter and the demised leases described under
         the caption "Leases" in the Disclosure Letter constitutes all of the
         real estate used or occupied by the Company and the Subsidiaries (the
         "Real Estate") and (ii) the Real Estate has access, sufficient for the
         conduct of the Company's and the Subsidiaries'

                                       32
<PAGE>   134
         businesses as now conducted or as presently proposed to be conducted,
         to public roads and to all utilities, including electricity, sanitary
         and storm sewer, potable water, natural gas and other utilities, used
         in the operations of the Company and the Subsidiaries.

                  (c) The leases described under the caption "Leases" in the
         Disclosure Letter are in full force and effect, and the Company or one
         of the Subsidiaries, as the case may be, has a valid and existing
         leasehold interest under each such lease for the term set forth
         therein. The Company has delivered to Parent complete and accurate
         copies of each of the leases described under such caption and none of
         such leases has been modified in any respect, except to the extent that
         such modifications are disclosed by the copies delivered to Parent.
         Neither the Company nor any Subsidiary is in default, and no
         circumstances exist which could result in such default, under any of
         such leases; nor, to the knowledge of the Company or any Subsidiary, is
         any other party to any of such leases in default.

                  (d) All of the buildings, machinery, equipment and other
         tangible assets necessary for the conduct of the Company's and the
         Subsidiaries' businesses are in good condition and repair (except where
         the failure to be in such condition and repair, either individually or
         in the aggregate, would not have a material adverse effect on the
         Company or any Subsidiary and except for ordinary wear and tear), and
         are usable in the ordinary course of business. The Company and the
         Subsidiaries own, or lease under valid leases which afford peaceful and
         undisturbed possession of the subject matter of the lease, all
         buildings,

                                       33
<PAGE>   135
         machinery, equipment and other tangible assets necessary for the
         conduct of their businesses.

                  (e) Neither the Company nor any of the Subsidiaries is in
         violation of any applicable zoning ordinance or other law, regulation
         or requirement relating to the operation of any properties used in the
         operation of its business, including without limitation applicable
         environmental protection and occupational health and safety laws and
         regulations, and neither the Company nor any Subsidiary has received
         any notice of any such violation, or of the existence of any
         condemnation proceeding with respect to any properties owned or leased
         by the Company or any Subsidiary.

         3.11 Accounts Receivable. The Company's and the Subsidiaries' notes and
accounts receivable recorded on the balance sheet included in the Company's
Latest 10-K and those arising since the date thereof are valid receivables
(subject to a reasonable allowance for doubtful accounts as set forth in the
Company's Latest 10-K) arising from bona fide transactions entered into in the
ordinary course of business and are current and collectible in full in
accordance with their terms, subject to no valid counterclaims or setoffs.

         3.12 Inventories. Except as set forth under the caption "Inventory" in
the Disclosure Letter, the inventories of the Company and the Subsidiaries
recorded on the balance sheet included in the Company's Latest 10-K, and the
inventory created or purchased since the date thereof, consists of a quantity
and quality usable and salable in the ordinary course of business, is not
slow-moving as determined in accordance with past practices, obsolete or
damaged, is merchantable and fit for its particular use, and is not defective.

         3.13 Tax Matters. Except as set forth under the caption "Tax Matters"
in the Disclosure Letter,

                                       34
<PAGE>   136
                  (a) the Company and the Subsidiaries have timely filed all
         returns that are required to be filed by them with respect to any
         taxes, and all such returns have been accurately and completely
         prepared in compliance with all applicable legal requirements and are
         true, correct, and complete; all taxes due and payable by the Company
         and the Subsidiaries have been paid; the Company's and the
         Subsidiaries' provisions for taxes on the balance sheet included in the
         Company's Latest 10-K are sufficient for all accrued and unpaid taxes
         as of the date of such balance sheet; the Company and the Subsidiaries
         have paid all taxes due and payable by them or which they are obligated
         to withhold from amounts owing to any employee, creditor, or third
         party; neither the Company nor any Subsidiary has waived any statute of
         limitations in respect of taxes relating to any of their businesses or
         agreed to any extension of time with respect to a tax assessment or
         deficiency relating to any of their businesses; the assessment of any
         additional taxes relating to their businesses for periods for which
         returns have been filed is not expected, and no audit of the Company or
         any Subsidiary is ongoing, threatened, or anticipated; and there are no
         unresolved questions or claims concerning the tax liability of the
         Company or any Subsidiary;

                  (b) All material elections with respect to taxes of the
         Company and any Subsidiary are set forth in the "Tax Matters" section
         of the Disclosure Letter; neither the Company nor any Subsidiary (i)
         has consented at any time under Section 341(f) of the Code to have the
         provisions of Section 341(f) apply to any disposition of assets of the
         Company or any Subsidiary, (ii) has agreed, or is required, to make any
         adjustment under Section 481(a) of the Code by reason of a change in
         accounting method or otherwise that will affect the liability of the
         Company or any Subsidiary for taxes, (iii) has made an election, or is
         required, to treat any asset of the Company or any Subsidiary as owned
         by another

                                       35
<PAGE>   137
         person pursuant to the provisions of Section 168(f) of the Code or as
         tax-exempt bond financed property or tax-exempt use property within the
         meaning of Section 168 of the Code, or (iv) has made any of the
         foregoing elections or consents or is required to apply any of the
         foregoing rules under any comparable state, county, local, or foreign
         tax provision.

                  (c) Neither the Company nor any Subsidiary is or has ever been
         an includible corporation in an affiliated group of corporations,
         within the meaning of Section 1504 of the Code, other than in the
         affiliated group of which the Company is the common parent corporation;

                  (d) Neither the Company nor any Subsidiary is now or has ever
         been a party to any tax-sharing agreements or similar arrangements;

                  (e) Neither the Company nor any Subsidiary has made or become
         obligated to make, or will, as a result of any event connected with the
         Merger contemplated herein, make or become obligated to make, any
         "excess parachute payment," as defined in Section 280G of the Code
         (without regard to subsection (b)(4) thereof);

                  (f) There are no liens for taxes (other than for current taxes
         that are not yet due and payable or are being contested in good faith)
         upon the assets of the Company or any Subsidiary;

                  (g) All joint ventures, partnerships, or other arrangements or
         contracts to which the Company or any Subsidiary is a party and that
         could be treated as a partnership for federal income tax purposes are
         set forth under the caption "Tax Matters" in the Disclosure Letter;

                  (h) There are no outstanding balances of deferred gain or loss
         accounts related to deferred intercompany transactions or outstanding
         intercompany items related to intercompany transactions (as each such
         term is defined in Treas. Reg. Section 1.1502-13, as

                                       36
<PAGE>   138
         such regulation is or was applicable to the Company and the
         Subsidiaries in each relevant taxable period) between the Company and
         any Subsidiary or between any Subsidiaries; and

                  (i) There exists no excess loss account (as such item is
         defined in Treas. Reg. Section 1.1502-19) with respect to the stock of
         the Company or any Subsidiary.

For purposes of this Agreement, the terms "tax" and "taxes" shall include
income, gross receipts, excise, real and personal property, sales, franchise,
employment, and other taxes imposed by any federal, foreign, state, county,
municipal, local, or other governmental agency, including interest and penalties
relating to taxes and assessments in the nature of taxes.

         3.14     Contracts and Commitments.

                  (a) Except as set forth under the caption "Contracts" in the
         Disclosure Letter, neither the Company nor any Subsidiary is a party to
         any: (i) collective bargaining agreement or contract with any labor
         union; (ii) bonus, pension, profit sharing, retirement, or other form
         of deferred compensation plan; (iii) hospitalization insurance or
         similar plan or practice, whether formal or informal; (iv) contract for
         the employment of any officer, individual employee, or other person on
         a full-time or consulting basis or relative to severance pay for any
         such person; (v) agreement or indenture relating to the borrowing of
         money in excess of $100,000 or to mortgaging, pledging or otherwise
         placing a lien on any of the assets of the Company or any Subsidiary,
         other than agreements entered into by the Company and certain
         Subsidiaries in connection with the Company Credit Facility; (vi)
         guaranty of any obligation for borrowed money or otherwise, other than
         endorsements made for collection; (vii) lease or agreement under which
         it

                                       37
<PAGE>   139
         is lessor of, or permits any third party to hold or operate, any
         property, real or personal, for an annual rental in excess of $100,000;
         (viii) contract or group of related contracts with the same party for
         the purchase of products or services, under which the undelivered
         balance of such products and services has a purchase price in excess of
         $50,000; (ix) contract or group of related contracts with the same
         party for the sale of products or services under which the undelivered
         balance of such products or services has a sales price in excess of
         $50,000; (x) other contract or group of related contracts with the same
         party continuing over a period of more than six months from the date or
         dates thereof, either not terminable by it on 30 days' or less notice
         without penalty or involving more than $50,000; (xi) contract which
         prohibits either the Company or any Subsidiary from freely engaging in
         business anywhere in the world; (xii) contract relating to the
         distribution of the Company's or any Subsidiary's products; (xiii)
         franchise agreement; (xiv) contract, agreement or understanding with
         any shareholder who beneficially owns 5% or more of the Company Common
         Stock or with any officer, director or employee (other than for
         employment on customary terms); (xv) license agreement or agreement
         providing for the payment or receipt of royalties or other compensation
         by the Company or any Subsidiary in connection with the proprietary
         rights listed under the caption "Proprietary Rights" in the Disclosure
         Letter; or (xvi) other agreement material to the Company's or any
         Subsidiary's business or not entered into in the ordinary course of
         business.

                  (b) Except as specifically disclosed under the caption
         "Contracts" in the Disclosure Letter, (i) no contract or commitment
         required to be disclosed under such caption has been breached or
         canceled by the other party; (ii) since

                                       38
<PAGE>   140
         the date of the balance sheet included in the Company's Latest 10-K, no
         customer or supplier has indicated that it will stop or decrease the
         rate of business done with the Company or any Subsidiary, except for
         changes in the ordinary course of the Company's and the Subsidiaries'
         businesses; (iii) the Company and the Subsidiaries have performed all
         obligations required to be performed by them in connection with the
         contracts or commitments required to be disclosed under such caption
         and are not in receipt of any claim of default under any contract or
         commitment required to be disclosed under such caption; (iv) neither
         the Company nor any Subsidiary has any present expectation or intention
         of not fully performing any obligation pursuant to any contract or
         commitment or commitment set forth under such caption; and (v) neither
         the Company nor any Subsidiary has any knowledge of any breach or
         anticipated breach by any other party to any contract or commitment set
         forth under such caption.

                  (c) Prior to the date of this Agreement, Parent has been
         supplied with a true and correct copy of each written contract or
         commitment, and a written description of each oral contract or
         commitment, referred to under the caption "Contracts" in the Disclosure
         Letter, together with all amendments, waivers or other changes thereto.


         3.15 Proprietary Rights. Except as set forth under the caption
"Proprietary Rights" in the Disclosure Letter, there are no patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets or other proprietary rights owned by the Company or
any Subsidiary or necessary to the conduct of the Company's or any Subsidiary's
businesses as now conducted. The Company or a Subsidiary owns and possesses all
rights, titles and interest, or a valid license, in and to the proprietary
rights set forth under such caption. The

                                       39
<PAGE>   141
Disclosure Letter describes under such caption all proprietary rights which have
been licensed to third parties and all proprietary rights which are licensed
from third parties by the Company or any Subsidiary. The Company and the
Subsidiaries have taken all necessary action to protect the proprietary rights
set forth under such caption. Neither the Company nor any Subsidiary has
received any notice of, nor is it aware of any facts which indicate a likelihood
of, any infringement, misappropriation, or conflict from any third party with
respect to the proprietary rights which are listed under such caption; neither
the Company nor any Subsidiary has infringed, misappropriated or otherwise
conflicted with any proprietary rights of any third parties, nor is it aware of
any infringement, misappropriation or conflict which will occur in the continued
operation of the Company or any Subsidiary; and no claim by any third party
contesting the validity of any proprietary rights listed under such caption has
been made, is currently outstanding, or to the best knowledge of the Company or
any Subsidiary is threatened.

         3.16 Litigation. Except as set forth under the caption "Litigation" in
the Disclosure Letter, there are no actions, suits, claims, proceedings, orders
or investigations pending or threatened against the Company or any Subsidiary or
otherwise affecting any of their respective properties or assets, or that
challenges or may have the effect of preventing, delaying, making illegal or
otherwise interfering with the Merger or any other transactions contemplated by
this Agreement, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or that could reasonably be expected to
have a material adverse effect on the business, properties, assets, condition
(financial or otherwise) or business prospects of the Company and there is no
basis known to the Company or any Subsidiary for any of the foregoing. There is
no order, writ, injunction, judgment or decree:

                                       40
<PAGE>   142
                  (a) to which the Company or any Subsidiary or any of the
         assets owned or used by the Company or any Subsidiary is subject, or

                  (b) to which any officer or employee of the Company or any
         Subsidiary is subject that prohibits such officer or employee from
         engaging in or continuing any conduct, activity or practice relating to
         the Company's or any Subsidiary's business. Except as set forth under
         such caption, neither the Company nor any Subsidiary has received any
         opinion or legal advice to the effect that the Company or any
         Subsidiary is exposed from a legal standpoint to any liability or
         disadvantage which may be material to it or its prospects.

         3.17 Brokerage. There are no claims for investment banking fees,
brokerage commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Company or any Subsidiary. The Company
currently intends, however, to enter into an agreement or arrangement with a
qualified investment banking or financial advisory firm regarding the study of
and the rendering of an opinion with respect to the fairness of the Merger;
provided, that the Company hereby acknowledges and agrees that the terms and
conditions of any such agreement or arrangement (including, without limitation,
fees and expenses to be paid by the Company in connection therewith) shall be
reasonably acceptable to Parent.

         3.18 Employment Matters. To the best knowledge of the Company and the
Subsidiaries, (i) no key executive employee of the Company or any Subsidiary,
and no group of the Company's or any subsidiary's employees, has any plans to
terminate his or its employment, (ii) the Company and the Subsidiaries have
complied with all laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes, and (iii) the Company

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<PAGE>   143
and the Subsidiaries have no material labor relations problems pending and their
labor relations are satisfactory.

         3.19 Employee Benefit Plans.

         With respect to the employee benefits provided to employees and former
employees of the Company and the Subsidiaries:

                           (a) The Company and the Subsidiaries currently
                  maintain only the employee pension benefit plans, as defined
                  in Section 3(2) of the Employee Retirement Income Security Act
                  of 1974, as amended ("ERISA"), as are listed under the caption
                  "Employee Benefits" in the Disclosure Letter.

                           (b) The Company and the Subsidiaries currently
                  maintain only the employee welfare benefit plans, as defined
                  in Section 3(1) of ERISA (including but not limited to, life
                  insurance, medical, hospitalization, holiday, vacation,
                  disability dental and vision plans) as are listed under the
                  caption "Employee Benefits" in the Disclosure Letter (the
                  "Welfare Plans").

                           (c) The Company and the Subsidiaries currently
                  maintain, or have entered into, only the compensation programs
                  and/or employment arrangements, (including but not limited to,
                  incentive compensation, bonus, severance, sick pay, salary
                  continuation, deferred compensation, supplemental executive
                  compensation plans, and employment and consulting agreements)
                  as are listed under the caption "Employee Benefits" in the
                  Disclosure Letter (the "Compensation Programs").

                           (d) The Company and the Subsidiaries do not
                  contribute, and have not contributed within the last five
                  years, to any multiemployer plan, as defined by Section 3(37)
                  of ERISA.

                                       42
<PAGE>   144
                           (e) Each Pension Plan and Welfare Plan is in
                  compliance with ERISA; each Pension Plan which is intended to
                  be qualified under Section 401(a) of the Code has been
                  determined by the Internal Revenue Service to be so qualified
                  or a request for such determination has been timely filed with
                  the Internal Revenue Service (and to Company's knowledge
                  nothing has occurred between the date of the last such
                  determination and the Closing Date to cause the Internal
                  Revenue Service to revoke such determination).

                           (f) Any Pension Plan or any Welfare Plan designed to
                  satisfy the requirements of Section 125, Section 401, Section
                  401(k), Section 409, Section 501(c)(9), Section 4975(e)(7),
                  and/or Section 4980B of the Code, satisfies such section.

                           (g) No accumulated funding deficiency, as defined in
                  Section 302(a)(2) of ERISA, exists (whether or not waived)
                  with respect to any Pension Plan as of the date hereof.

                           (h) All amounts required to be paid by the Company
                  and or any Subsidiary with respect to each Pension Plan,
                  Welfare Plan and Compensation Program on or before the Closing
                  Date have been paid.

                           (i) None of the Pension Plans or the Company or any
                  party in interest or disqualified person has engaged in any
                  non-exempt "prohibited transactions" as defined in Section 406
                  of ERISA or Section 4975 of the Code.

                           (j) Except as disclosed under the caption "Employee
                  Benefits" in the Disclosure Letter, no Pension Plan or Welfare
                  Plan provides benefits, including without limitation death or
                  medical benefits (whether or not insured), with respect to
                  current or former employees beyond their retirement or other
                  termination of

                                       43
<PAGE>   145
                  service other than (i) coverage mandated by applicable law,
                  (ii) retirement benefits under a Pension Plan, (iii) death
                  benefits under a Welfare Plan, (iv) deferred compensation
                  accrued on the books of the Company or a Subsidiary, or (v)
                  benefits the full cost of which is borne by the current or
                  former employee (or his or her beneficiary).

                           (k) No "leased employee," as that term is defined in
                  Section 414(n) of the Code, performs services for the Company
                  or any Subsidiary.

                           (l) No liability has been, or is expected by the
                  Company or any Subsidiary to be, incurred by the Company or a
                  Subsidiary under Section 4062 of ERISA with respect to any
                  Pension Plan.

                           (m) No reportable event within the meaning of Title
                  IV of ERISA has occurred with respect to any Pension Plan.

                           (n) The Company has furnished Parent with correct and
                  complete copies of each Pension Plan, Welfare Plan, and
                  Compensation Program, together with any trust agreements,
                  summary plan descriptions, employee informational material,
                  financial statements relating thereto and participant
                  listings.

         3.20 Insurance. The Disclosure Letter, under the caption "Insurance,"
lists and briefly describes (including name of insurer, agent, coverage and
expiration date) each insurance policy maintained by, at the expense of or for
the benefit of the Company or any of the Subsidiaries with respect to its
properties and assets and describes any material claims made thereunder. All of
such insurance policies are in full force and effect and neither the Company nor
any Subsidiary is in default with respect to its obligations under any of such
insurance policies. Except as set forth in the Disclosure Letter under the
caption "Insurance," the Company is the sole beneficiary of each such policy.
The insurance coverage of the Company and the

                                       44
<PAGE>   146
Subsidiaries is customary for corporations of similar size engaged in similar
lines of businesses. The Company has not received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any claim
under any insurance policy or (c) material adjustment in the amount of premiums
payable with respect to any insurance policy.

         3.21 Affiliate Transactions. Except as set forth under the caption
"Affiliate Transactions" in the Disclosure Letter, no officer or director of the
Company or any Subsidiary or any member of the immediate family of any such
officer or director, or any entity in which any of such persons owns any
beneficial interest (other than a publicly-held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than 5% of the stock of which is beneficially owned by any of such persons)
(collectively "Insiders"), (a) has any agreement with the Company or any
Subsidiary (other than normal employment arrangements) or any interest in any
property, real, personal or mixed, tangible or intangible, used in or pertaining
to the business of the Company or any Subsidiary, (b) has been indebted to the
Company in amounts in excess of $10,000 in the aggregate at any time, (c) has at
any time competed, directly or indirectly, with the Company, or (d) has any
claim or right against the Company (other than rights under Company Options and
rights to receive compensation for services performed as an employee of the
Company). For purposes of the preceding sentence, the members of the immediate
family of an officer or director shall consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such officer or director.

         3.22 Suppliers. The Disclosure Letter, under the caption "Suppliers,"
lists the 10 largest suppliers of the Company and the Subsidiaries (on a
consolidated basis) for the 1996

                                       45
<PAGE>   147
fiscal year and sets forth opposite the name of each such supplier the total
amount of purchases from such supplier by the Company and the Subsidiaries
during the 1996 fiscal year.

         3.23 Officers and Directors; Bank Accounts. The Disclosure Letter,
under the caption "Officers and Directors," lists all officers and directors of
the Company and the Subsidiaries and, under the caption "Bank Accounts," lists
all of the Company's and the Subsidiaries' accounts at any bank or other
financial institution (designating each authorized signer).

         3.24 Compliance with Laws; Permits; Certain Operations. The Company,
each of the Subsidiaries and their respective officers, directors, agents and
employees have complied in all respects, and currently are in compliance in all
respects, with all applicable laws and regulations of foreign, federal, state
and local governments and all agencies thereof which affect the businesses or
any owned or leased properties of the Company and the Subsidiaries and to which
the Company or any of the Subsidiaries may be subject, and no claims have been
filed against the Company or any of the Subsidiaries alleging a violation of any
such law or regulation, except as set forth in the Disclosure Letter under the
caption "Compliance." Neither the Company nor any Subsidiary has given or agreed
to give any money, gift or similar benefit (other than incidental gifts of
articles of nominal value, gifts and prizes awarded pursuant to promotional
programs approved by the Company's management and non-extraordinary
entertainment expenditures) to any actual or potential customer, supplier,
governmental employee or any other person in a position to assist or hinder the
Company or any of the Subsidiaries in connection with any actual or proposed
transaction. The Company and the Subsidiaries hold all of the permits, licenses,
certificates and other authorizations of foreign, federal, state and local
governmental agencies required for the conduct of their businesses. Without
limiting the generality of the foregoing, neither the Company nor any Subsidiary
has violated, or received a notice or charge asserting any violation of, the
Occupational Safety and Health Act of 1970

                                       46
<PAGE>   148
or any other state or federal acts or laws (including rules and regulations
thereunder) regulating or otherwise affecting employee health and safety or the
environment.

         3.25 Disclosure.

                  (a) Neither this Agreement nor any other agreement or
         instrument executed in connection with the transactions contemplated
         hereby nor any of the attachments or exhibits hereto nor the Disclosure
         Letter contains any untrue statement of a material fact or omits a
         material fact necessary to make the statements contained herein or
         therein, in light of the circumstances in which they were made, not
         misleading, and there is no fact which has not been disclosed in
         writing to Parent of which any officer or director of the Company or
         any Subsidiary is aware which materially affects adversely or could
         reasonably be anticipated to materially affect adversely the business,
         including operating results, assets, customer relations, employee
         relations and business prospects, of the Company and the Subsidiaries,
         taken as a whole.

                  (b) None of the information supplied or to be supplied by the
         Company for inclusion or incorporation by reference in the Form S-4 and
         the Prospectus/Proxy Statement will, at the time the S-4 is declared
         effective, at the date the Prospectus/Proxy Statement is mailed to the
         shareholders of the Company or at the time of the Company Shareholders
         Meeting, contain any untrue statement of a material fact or omit to
         state any material fact required to be stated therein or necessary to
         make the statements therein (in light of the circumstances under which
         they are made) not misleading.

         3.26 Non-Contravention; Consents. Except as set forth under the caption
"Consents" in the Disclosure Letter, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the

                                       47
<PAGE>   149
Merger or any of the other transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):

                  (a) contravene, conflict with or result in a violation of (i)
         any of the provisions of the Company's or any Subsidiary's Articles of
         Incorporation or Bylaws, or (ii) any resolution adopted by the
         Company's or any Subsidiary's shareholders, the Company's or any
         Subsidiary's board of directors or any committee of such board of
         directors;

                  (b) contravene, conflict with or result in a violation of, or
         give any governmental authority or other person or entity the right to
         challenge any of the transactions contemplated by this Agreement or to
         exercise any remedy or obtain any relief under, any legal requirement
         or any order, writ, injunction, judgment or decree to which the Company
         or any Subsidiary, or any of the assets owned or used by the Company or
         any Subsidiary, is subject;

                  (c) contravene, conflict with or result in a violation of any
         of the terms or requirements of, or give any governmental authority the
         right to revoke, withdraw, suspend, cancel, terminate or modify, any
         governmental permit or authorization that is held by the Company or any
         Subsidiary or that otherwise relates to the Company's business or to
         any of the assets owned or used by the Company or any Subsidiary;

                  (d) contravene, conflict with or result in a violation or
         breach of, or result in a default under, any provision of any contract
         or agreement to which the Company or any Subsidiary is a party, or give
         any person or entity the right to (i) declare a default or exercise any
         remedy under any such contract or agreement, (ii) accelerate the
         maturity or performance of any such contract or agreement, or (iii)
         cancel, terminate or modify any such contract or agreement; or

                                       48
<PAGE>   150
                  (e) result in the imposition or creation of any lien or other
         encumbrance upon or with respect to any asset owned or used by the
         Company or any Subsidiary (except for minor liens that will not, in any
         case or in the aggregate, materially detract from the value of the
         assets subject thereto or materially impair the operations of the
         Company).

Except as set forth under the caption "Consents" in the Disclosure Letter, the
Company is not and will not be required to make any filing with or give any
notice to, or to obtain any consent from, any person or entity in connection
with (x) the execution, delivery or performance of this Agreement or any of the
other agreements referred to in this Agreement, or (y) the consummation of the
Merger or any of the other transactions contemplated by this Agreement.

         3.27 Stockholder Vote Required. The affirmative vote of a majority of
the votes entitled to be cast by holders of the outstanding shares of Company
Common Stock (voting as a class) are the only votes of the holders of any class
or series of the Company's capital stock necessary to approve this Agreement and
the Merger under California Law.

         3.28 Board Approval. The board of directors of the Company has (i)
approved the Merger and the execution of this Agreement, (ii) determined that
the Merger is in the best interests of the shareholders of the Company and is on
terms that are fair to such shareholders, and (iii) recommended that holders of
Company Common Stock vote in favor of this Agreement and the Merger.

         3.29 Pooling of Interests. The Company is not aware of any event,
condition, fact or circumstance that to its knowledge could prevent the Merger
from being accounted for as a "pooling of interests" transaction for accounting
purposes.

                                       49
<PAGE>   151
                                    ARTICLE 4

                     CONDUCT OF BUSINESS PENDING THE MERGER

         4.1 Conduct of Business Pending the Merger. The Company covenants and
agrees that, prior to the Effective Time, unless Parent shall otherwise consent
in writing (which consent shall not be unreasonably withheld) or as otherwise
expressly contemplated or permitted by this Agreement:

                  (a) The businesses of the Company and the Subsidiaries shall
         be conducted only in, and the Company shall not take any action except
         in, the ordinary course, on an arms'-length basis and in accordance in
         all material respects with all applicable laws, rules and regulations
         and past custom and practice; and the Company and the Subsidiaries
         shall maintain their facilities in good condition and repair and in
         accordance with the Company's policies and procedures relating thereto
         as in effect prior to the execution of this Agreement;

                  (b) The Company shall not, directly or indirectly, do or
         permit to occur any of the following: (i) issue, sell, pledge, dispose
         of or encumber (or permit any of the Subsidiaries to issue, sell,
         pledge, dispose of or encumber) (A) any additional shares of, or any
         options, warrants, conversion privileges or rights of any kind to
         acquire any shares of, any of its capital stock, except for issuances
         upon the exercise of options or warrants outstanding on the date
         hereof, or (B) any of its assets, except for fair value in the ordinary
         course of business; (ii) amend or propose to amend its Articles of
         Incorporation, Certificate of Incorporation or Bylaws; (iii) split,
         combine or reclassify any outstanding shares of Company Common Stock or
         other securities of the Company, or declare, set aside or pay any
         dividend of other distribution payable in cash, stock, property

                                       50
<PAGE>   152
         or otherwise with respect to shares of Company Common Stock or other
         securities of the Company; (iv) redeem, purchase or acquire or offer to
         acquire any shares of Company Common Stock or other securities of the
         Company; (v) acquire (by merger, exchange, consolidation, acquisition
         of stock or assets or otherwise) any corporation, partnership, joint
         venture or other business organization or division or material assets
         thereof; (vi) incur or guarantee any indebtedness for borrowed money or
         issue any debt securities except the borrowing of working capital in
         the ordinary course of business and consistent with past practice or
         (vii) enter into or propose to enter into, or modify or propose to
         modify, any agreement, arrangement or understanding with respect to any
         of the matters set forth in this Section 4.1(b);

                  (c) The Company shall not (and shall not permit any Subsidiary
         to), directly or indirectly, (i) enter into or modify any contract,
         agreement or understanding with Curtis M. Rocca III, Terry E. Bane or
         Timothy J. Purdy; (ii) enter into or modify any employment, severance
         or similar agreements or arrangements with, or grant any bonuses,
         salary increases, severance or termination pay to, any officers or
         directors or consultants; (iii) make any capital expenditures,
         including any capitalizable lease obligations, other than expenditures
         necessary to maintain existing assets in good repair and other capital
         expenditures in amounts not exceeding $50,000 in the aggregate; or (iv)
         in the case of employees who are not officers or directors or
         consultants, grant or take any action with respect to the granting of
         any salary increases, severance or termination pay or increases in
         other benefits, other than grants or such actions as are in the
         ordinary course of the Company's business and are consistent with

                                       51
<PAGE>   153
         the Company's historic compensation practices, or grant or take any
         actions with respect to the granting of any bonuses;

                  (d) The Company shall not (and shall not permit any Subsidiary
         to) adopt or amend any bonus, profit sharing, compensation, stock
         option, pension, retirement, deferred compensation, employment or other
         employee benefit plan, trust, fund or group arrangement for the benefit
         or welfare of any employees or any bonus, profit sharing, compensation,
         stock option, pension, retirement, deferred compensation, employment or
         other employee benefit plan, agreement, trust, fund or arrangements for
         the benefit or welfare of any director;

                  (e) The Company shall use its best efforts to cause its and
         the Subsidiaries' current insurance (or reinsurance) policies not to be
         canceled or terminated or reduced in coverage amount or any of the
         coverage thereunder to lapse, unless simultaneously with such
         termination, cancellation, reduction in coverage amount or lapse,
         replacement policies providing coverage equal to or greater than the
         coverage under the canceled, terminated, reduced or lapsed policies for
         substantially similar premiums are in full force and effect;

                  (f) The Company and each Subsidiary (i) shall use its best
         efforts to preserve intact its business organization and good will,
         keep available the services of its officers and employees as a group
         and maintain satisfactory relationships with suppliers, distributors,
         customers and others having business relationships with it; (ii) shall
         confer at Parent's request (but in no event less frequently than
         weekly) with representatives of Parent to report on operational matters
         and the general status of ongoing operations; (iii) shall not take any
         action which would render, or which reasonably may be expected to
         render, any representation or

                                       52
<PAGE>   154
         warranty made by it in this Agreement or in any other agreement or
         instrument executed in connection with the transactions contemplated
         hereby untrue at, or at any time prior to, the Effective Time; (iv)
         shall notify Parent of any emergency or other change in the normal
         course of its business or in the operation of its properties and of any
         governmental or third party complaints, investigations or hearings (or
         communications indicating that the same may be contemplated) if such
         emergency, change, complaint, investigation or hearing would be
         material, individually or in the aggregate, to the business, operations
         or financial condition of the Company and the Subsidiaries or to the
         Company's, Parent's or the Merger Sub's ability to consummate the
         transactions contemplated by this Agreement; and (v) shall notify
         Parent if the Company shall discover that any representation or
         warranty made by it in this Agreement was when made, or has
         subsequently become, untrue;

                  (g) Neither the Company nor any Subsidiary shall change any of
         its methods of accounting or accounting practices in any material
         respect, and neither the Company nor any Subsidiary shall make any tax
         election;

                  (h) Neither the Company nor any Subsidiary will waive or agree
         to waive any applicable statute of limitations or any similar statutory
         or judicial doctrine benefiting the Company or any Subsidiary;

                  (i) Neither the Company nor any Subsidiary shall commence or
         settle any material legal action or proceeding, provided, that the
         Company may settle any legal actions or proceedings which were pending
         as of the date of the Company's Latest 10-K so long as the
         consideration paid or agreed to be paid by the Company in connection
         with such settlements does not exceed $10,000 in any

                                       53
<PAGE>   155
         individual case or $50,000 in the aggregate for all such settlements
         (in the case of cash settlements) or cause the number of shares of
         Company Common Stock issued and outstanding, after taking into account
         any shares issued or canceled in connection with such settlement, to
         exceed the number of shares of Company Common Stock issued and
         outstanding on the date of this Agreement;

                  (j) The Company shall cause its officers to report at Parent's
         request (but in no event less frequently than weekly) to Parent
         concerning the status of the Company's business; and

                  (k) Subject to the fiduciary obligations of its directors as
         advised by counsel, the Company shall not, except as required by law,
         call any meeting of its shareholders other than the meeting
         contemplated in Section 5.2.

         4.2      Notification; Updates to Disclosure Schedule.

                  (a) During the period subsequent to the execution of this
         agreement and prior to the Effective Time (the "Pre-Closing Period"),
         the Company shall promptly notify Parent in writing of:

                                  (i) the discovery by the Company of any event,
                  condition, fact or circumstance that occurred or existed on or
                  prior to the date of this Agreement and that caused or
                  constitutes an inaccuracy in or breach of any representation
                  or warranty made by the Company in this Agreement;

                                 (ii) any event, condition, fact or circumstance
                  that occurs, arises or exists after the date of this Agreement
                  and that would cause or constitute an inaccuracy in or breach
                  of any representation or warranty made by the Company in this
                  Agreement if (A) such representation or warranty had been made
                  as of the time of the occurrence, existence or discovery of
                  such event, condition, fact or

                                       54
<PAGE>   156
                  circumstance, or (B) such event, condition, fact or
                  circumstance had occurred, arisen or existed on or prior to
                  the date of this Agreement;

                                 (iii) any breach of any covenant or obligation
                  of the Company;

                  and

                                 (iv) any event, condition, fact or circumstance
                  that would make the timely satisfaction of any of the
                  conditions set forth in Sections 6.1, 6.2 or 6.3 impossible or
                  unlikely.

                  (b) If any event, condition, fact or circumstance that is
         required to be disclosed pursuant to Section 4.2(a) requires any change
         in the Disclosure Letter, or if any such event, condition, fact or
         circumstance would require such a change assuming the Disclosure Letter
         were dated as of the date of the occurrence, existence or discovery of
         such event, condition, fact or circumstance, then the Company shall
         promptly deliver to Parent an update to the Disclosure Letter
         specifying such change. No such update shall be deemed to supplement or
         amend the Disclosure Letter for the purpose of (i) determining the
         accuracy of any of the representations and warranties made by the
         Company in this Agreement, or (ii) determining whether any of the
         conditions set forth in Sections 6.1, 6.2 or 6.3 has been satisfied.

         4.3 Company Shareholder Approval.

                  (a) The Company will call a meeting of its shareholders (the
         "Company Shareholder Meeting"), to be held after the Form S-4 shall
         have been declared effective by the SEC, to submit this Agreement, the
         Merger and related matters for the consideration and approval of the
         Company's shareholders. Subject to the fiduciary obligations of the
         Company's directors, the Form S-4 will include a statement to the
         effect that the Company's board of directors has recommended that the
         Company's

                                       55
<PAGE>   157
         shareholders vote in favor of the Merger. The Company Shareholder
         Meeting will be called, held and conducted, and any proxies will be
         solicited, in compliance with applicable law. The Company shall, if and
         to the extent requested by Parent, subject to the fiduciary obligations
         of the directors of the Company as advised by counsel, use its best
         efforts to solicit from shareholders of the Company proxies in favor of
         such adoption and approval and shall take all other action necessary
         or, in the opinion of Parent, helpful to secure a vote of shareholders
         in favor of the Merger. At the Company Shareholder Meeting, the Company
         shall cause to be voted all shares of Company Common Stock with respect
         to which proxies in the form distributed by the Company shall have been
         given in favor of the Merger.

                                    ARTICLE 5

                              ADDITIONAL AGREEMENTS

         5.1      Prospectus/Proxy Statement.

                  (a) The Parent Common Stock to be issued in the Merger shall
         be registered under the Securities Act on the Form S-4. As promptly as
         practicable after the date of this Agreement, Parent and the Company
         shall prepare, and Parent shall file with the SEC, a Form S-4
         registration statement (the "Form S-4"), together with the
         Prospectus/Proxy Statement to be included therein (the
         "Prospectus/Proxy Statement") and any other documents required by the
         Securities Act or the Exchange Act in connection with the Merger. Each
         of Parent and the Company shall use its best efforts to respond
         promptly to any comments of the SEC on the Form S-4 and to have the
         Form S-4 declared effective under the Securities Act as promptly as
         practicable after such filing. Parent shall also take any action
         required to be taken under any applicable state securities or blue sky
         laws and regulations of the NASD to the extent applicable in

                                       56
<PAGE>   158
         connection with the issuance of the Parent Common Stock pursuant to the
         Merger and upon exercise of the Assumed Options and the Company
         Warrants after the Effective Time. Parent shall take shall take any
         reasonable action required to provide for the listing of Parent Common
         Stock on the Nasdaq National Market prior to or contemporaneously with
         the Effective Time. The Company shall promptly furnish to Parent all
         information concerning the Company and the Company's shareholders as
         may reasonably be required in connection with any action contemplated
         by this Section 5.1. Each of Parent and the Company will notify the
         other promptly of the receipt of any comments from the SEC or its staff
         and of any request by the SEC or its staff for amendments or
         supplements to the Form S-4 or the Prospectus/Proxy Statement or for
         additional information and will supply the other with copies of all
         correspondence with the SEC or its staff with respect to the Form S-4
         or the Prospectus/Proxy Statement. Whenever any event occurs which
         should be set forth in an amendment or supplement to the Form S-4 or
         the Prospectus/Proxy Statement, Parent or the Company, as the case may
         be, shall promptly inform the other of such occurrence and cooperate in
         filing with the SEC or its staff, and/or mailing to stockholders of
         Parent and shareholders of the Company, such amendment or supplement.

                  (b) The Company will mail to its shareholders in a timely
         manner, for the purpose of considering and voting upon the Merger at
         the Company Shareholder Meeting, the Prospectus/Proxy Statement that is
         contained in the Form S-4 at the time that it is declared effective or
         as subsequently amended or supplemented. The Company will promptly
         provide to Parent all information relating to its business or
         operations necessary for inclusion in the Prospectus/Proxy Statement to
         satisfy all requirements of applicable state and federal securities
         laws. None of the information relating to the

                                       57
<PAGE>   159
         Company or its officers and directors contained in any document,
         certificate or other writing furnished or to be furnished by the
         Company and included in (i) the Prospectus/Proxy Statement at the time
         the Proxy Statement is mailed or at the time of the Company Shareholder
         Meeting to vote on the Merger or at the Effective Time, as then amended
         or supplemented, or (ii) the Form S-4 at the time the Form S-4 becomes
         effective or at the Effective Time, as then amended or supplemented,
         will contain any untrue statement of a material fact or will omit to
         state any material fact required to be stated therein or necessary to
         make the statements therein, in light of the circumstances under which
         they were provided, not misleading or necessary to correct any
         statement that has become false or misleading in any earlier
         communication with respect to the solicitation of proxies for the
         Company's shareholder meeting.

                  (c) Parent will prepare and file the Prospectus/Proxy
         Statement with the SEC as promptly as practicable, and use its best
         reasonable efforts to cause the Form S-4 to become effective as soon
         after such filing as practicable. In this regard, Parent will advise
         the Company promptly of any comments, whether oral or written, received
         from the SEC with respect to the Form S-4 and will also advise the
         Company promptly as to the time at which the Form S-4 becomes effective
         and of the issuance by the SEC of any stop order suspending the
         effectiveness of the Form S-4 or the institution of any proceedings for
         such purpose and will use its reasonable best efforts to prevent the
         issuance of any stop order and to obtain as soon as possible the
         lifting thereof if issued. Until the Effective Time, Parent will advise
         the Company promptly of any requirement of the SEC for any amendment or
         supplement of the Form S-4 or for additional information, and will not
         at any time file any amendment of or supplement to the prospectus
         contained therein, or to the prospectus filled pursuant to Rule 424(b)
         of the

                                       58
<PAGE>   160
         Securities Act (the "Prospectus"), that shall not have been previously
         submitted to the Company a reasonable time prior to the proposed filing
         thereof or to which the Company shall reasonably object or that is not
         in compliance in all material respects with the Securities Act and the
         rules and regulations issued by the SEC thereunder. None of the
         information relating to Parent (or, to the best knowledge of Parent,
         any other person, contained in any document, certificate or other
         writing furnished or to be furnished by Parent) included in (i) the
         Prospectus/Proxy Statement at the time the Prospectus/Proxy Statement
         is mailed or at the Effective Time, as then amended or supplemented, or
         (ii) the Form S-4 at the time the Form S-4 becomes effective or at the
         Effective Time, as then amended or supplemented, will contain any
         untrue statement of a material fact or will omit to state any material
         fact required to be stated therein or necessary to make the statements
         therein, in light of the circumstances under which they were provided,
         not misleading or necessary to correct any statement that has become
         false or misleading in any earlier communication with respect to the
         solicitation of proxies for the Company's shareholder meeting. From and
         after the date the Form S-4 becomes effective and until the Effective
         Time, if any event known to Parent occurs as a result of which the
         Prospectus would include an untrue statement of a material fact or omit
         to state a material fact required to be stated therein or necessary to
         make the statements therein not misleading or if it is necessary at any
         time to amend the Form S-4 or the Prospectus to comply with the
         Securities Act, Parent will promptly notify the Company and will
         prepare an amended or supplemented Form S-4 or Prospectus, which will
         correct such statement or omission, and will use its reasonable best
         efforts to cause any such amendment to become effective as promptly as
         possible. The Prospectus/Proxy Statement as it relates to Parent will
         comply as to the form in all material respects with

                                       59
<PAGE>   161
         the requirements of the Exchange Act and the rules and regulations
         thereunder in effect at the time the Prospectus/Proxy Statement is
         mailed.


         5.2 Action of Shareholders. The Company shall take all action necessary
in accordance with the California Law and its Articles of Incorporation and
Bylaws to convene the Company Shareholder Meeting as promptly as practicable to
consider and vote upon this Agreement (including, without limitation, the plan
of merger contained herein) and the Merger.

         5.3 Accountant Comfort Letters.

                  (a) Prior to the date of this Agreement, the Company has
         delivered to Parent a letter from Grant Thornton LLP addressed to the
         Company and Parent and dated a date not more than one day (excluding
         Saturdays, Sundays and holidays) before the date of this Agreement,
         confirming that they are independent accountants within the meaning of
         the Exchange Act and the applicable published rules and regulations
         thereunder and stating to the effect that in their opinion the audited
         financial statements and financial statement schedules included in the
         Company's Latest 10-K and reported on by them comply as to form in all
         material respects with the applicable accounting requirements of the
         Exchange Act and the related published rules and regulations.

                  (b) In addition, prior to the date (the "Mailing Date") the
         Proxy Statement is mailed to the shareholders of the Company, the
         Company shall deliver to Parent a letter from Grant Thornton LLP
         addressed to the Company and Parent and dated a date not more than one
         day (excluding Saturdays, Sundays and holidays) before the Mailing
         Date, confirming that they are independent accountants within the
         meaning of the Exchange Act and the applicable published rules and
         regulations thereunder and stating to the effect that:

                                       60
<PAGE>   162
                                  (i) in their opinion the audited financial
                  statements and financial statement schedules included in the
                  Prospectus/Proxy Statement and reported on by them comply as
                  to form in all material respects with the applicable
                  accounting requirements of the Exchange Act and the related
                  published rules and regulations;

                                 (ii) on the basis of a reading of the amounts
                  included in the Prospectus/Proxy Statement in response to Item
                  301 of Regulation S-K and of the latest unaudited consolidated
                  financial statements made available by the Company and the
                  Subsidiaries and the latest unaudited financial statements
                  included in the Prospectus/Proxy Statement relating to the
                  Company and the Subsidiaries; carrying out certain specified
                  procedures (but not an examination in accordance with
                  generally accepted auditing standards) which would not
                  necessarily reveal matters of significance with respect to the
                  comments set forth in such letter; a reading of the minutes of
                  the meetings of the shareholders, directors and executive
                  committees of the Company and the Subsidiaries; and inquiries
                  of certain officials of the Company and the Subsidiaries who
                  have responsibility for financial and accounting matters of
                  the Company and the Subsidiaries as to transactions and events
                  subsequent to the date of the latest unaudited financial
                  statements included in the Prospectus/Proxy

                                       61
<PAGE>   163
                  Statement relating to the Company and the Subsidiaries,
                  nothing came to their attention which would cause them to
                  believe that:

                                    (A) the unaudited financial statements
                           included in the Prospectus/Proxy Statement of the
                           Company and the Subsidiaries do not comply as to form
                           in all material respects with applicable accounting
                           requirements of the Exchange Act and with the
                           published rules and regulations of the SEC with
                           respect to proxy statements; or that said unaudited
                           financial statements are not fairly presented in
                           conformity with generally accepted accounting
                           principles applied on a basis substantially
                           consistent with that of the audited financial
                           statements included in the Prospectus/Proxy Statement
                           and reported on by them; or

                                    (B) with respect to the period subsequent to
                           the date of the latest unaudited financial statements
                           included in the Prospectus/Proxy Statement relating
                           to the Company and the Subsidiaries, there were any
                           changes, at a specified date not more than five days
                           (excluding Saturdays, Sundays and holidays) prior to
                           the date of the letter, in the long-term debt of the
                           Company and the Subsidiaries or capital stock of the
                           Company or any decreases in the cash and cash
                           equivalents, marketable securities or shareholders'
                           equity of the Company and the Subsidiaries as
                           compared with the amounts shown on the unaudited
                           consolidated balance sheet included in the
                           Prospectus/Proxy Statement, or for the period from
                           the date of the latest unaudited financial statements
                           included in the Prospectus/Proxy Statement relating
                           to the Company and the Subsidiaries, to such
                           specified date there were any decreases, as compared
                           with the

                                       62
<PAGE>   164
                           corresponding period in the preceding year, in income
                           (loss) before extraordinary items, or in total or per
                           share amounts of net income (loss), of the Company
                           and the Subsidiaries, except in all instances for
                           changes or decreases set forth in such letter, in
                           which case the letter shall be accompanied by an
                           explanation by the Company as to the significance
                           thereof; and

                                (iii) they have performed certain other
                  specified procedures as a result of which they determined that
                  certain information of an accounting, financial or statistical
                  nature (which is limited to accounting, financial or
                  statistical information derived from the general accounting
                  records of the Company and the Subsidiaries) set forth in the
                  Prospectus/Proxy Statement as reasonably designated by Parent,
                  insofar as it relates to the Company and the Subsidiaries,
                  agrees with the accounting records of the Company and the
                  Subsidiaries, excluding any legal interpretation.

         5.4 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid in accordance
with the provisions of paragraph 11 of the Letter of Intent.

         5.5 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using reasonable efforts to obtain all necessary waivers, consents and
approvals and

                                       63
<PAGE>   165
to effect all necessary registrations and filings, including, but not limited
to, any required filings under the Hart-Scott Act and submissions of information
requested by governmental authorities.

         5.6 No Negotiations, etc. The Company shall not (nor shall it permit
any of the Subsidiaries to), directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage submission of any
inquiry, proposal or offer from any person or entity (including any of its or
their officers or employees) other than Parent relating to any liquidation,
dissolution, recapitalization, merger, consolidation or acquisition or purchase
of all or a material portion of the assets of, or any equity interest in, the
Company or any Subsidiary or other similar transaction or business combination
involving the Company or any Subsidiary, or, unless the Company's Board of
Directors receives a written opinion from the Company's outside counsel stating
that there would be a material risk of liability on the part of the members of
the Company's Board of Directors to the Company's shareholders for failure to do
so, participate in any discussions or negotiations regarding, or furnish to any
other person any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by, or consider, entertain or accept any proposal or offer from, any
other person or entity to do or seek any of the foregoing. The Company shall
promptly notify Parent and the Merger Sub if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is made and shall
promptly provide Parent with such information regarding such proposal, offer,
inquiry or contact as Parent may request.

         5.7 Notification of Certain Matters. Each party shall give prompt
notice to each other party of (a) the occurrence or failure to occur of any
event, conditions, fact or circumstance which occurrence or failure would be
likely to cause any representation or warranty on its part contained in this
Agreement to be untrue or inaccurate at, or at any time prior to, the Effective
Time, and (b) any material failure of such party, or any officer, director,
shareholder, employee

                                       64
<PAGE>   166
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.

         5.8 Access to Information; Confidentiality. Parent and its attorneys,
accountants, consultants and representatives shall continue to have access to
the books and records of the Company and such other information pertaining to
the business and assets of the Company as Parent shall reasonably request, and
the Company and its attorneys, accountants, consultants and representatives
shall continue to have access to the books and records of Parent and such other
information pertaining to the business and assets of Parent as the Company shall
reasonably request, and each of Parent and the Company shall provide the other
with reasonable access to its officers and other personnel, as provided in
paragraph 8 of the Letter of Intent. The terms of paragraph 10 of the Letter of
Intent shall apply, in the event of a termination of this Agreement, to
information obtained as a result of such access and assistance.

         5.9 Shareholder Claims. The Company shall not settle or compromise any
claim brought by any present, former or purported holder or owner of any
securities of the Company in connection with the Merger without the prior
written consent of Parent.

         5.10 Consents. As promptly as practicable after the execution of this
Agreement, each party to this Agreement (a) shall make all filings (if any) and
give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
consents (if any) required to be obtained (pursuant to any applicable law,
regulation, contract or agreement, or otherwise) by such party in connection
with the Merger and the other transactions contemplated by this Agreement.
Parent shall (upon request) promptly deliver to the Company a copy of each such
filing made, each such notice given and each such consent obtained by Parent or
Merger Sub during the period subsequent to the date hereof and prior to

                                       65
<PAGE>   167
the Effective Time; and the Company shall (upon request) promptly deliver to
Parent a copy of each such filing made, each such notice given and each such
consent obtained by the Company during the period subsequent to the date hereof
and prior to the Effective Time.

         5.11 State Securities Law Compliance. Parent shall use commercially
reasonable efforts to (a) qualify, prior to the Effective Time, the Parent
Common Stock to be issued pursuant to the Merger under state "blue sky" laws of
every jurisdiction of the United States in which (i) any registered shareholder
of the Company has an address on the records of the Company as of the date of
this agreement, and (ii) an exemption from the qualification requirements under
such laws is unavailable with respect to the issuance of Parent Common Stock in
the Merger, and (b) qualify, prior to the Effective Time, the Assumed Options
and Assumed Warrants under the state "blue sky" laws of every jurisdiction of
the United States in which (i) the records of the Company, as of the date of
this Agreement, indicate that a holder of such Assumed Options or Assumed
Warrants resides, and (ii) an exemption from the qualification requirements
under such laws is unavailable.

         5.12 Notification; Updates to Disclosure Letter. During the Pre-Closing
Period, Parent shall promptly notify the Company in writing of:

                                  (i) the discovery by Parent of any event,
                  condition, fact or circumstance that occurred or existed on or
                  prior to the date of this Agreement and that caused or
                  constituted an inaccuracy in or breach of any representation
                  or warranty made by Parent in this Agreement;

                                 (ii) any event, condition, fact or circumstance
                  that occurs, arises or exists after the date of this Agreement
                  and that would cause or constitute an inaccuracy in or breach
                  of any representation or warranty made by Parent in this
                  Agreement if (A) such representation or warranty had been made
                  as of the time

                                       66
<PAGE>   168
                  of the occurrence, existence or discovery of such event,
                  condition, fact or circumstance, or (B) such event, condition,
                  fact or circumstance had occurred, arisen or existed on or
                  prior to the date of this agreement;

                                 (iii) any breach of any covenant or obligation
                  of Parent; and

                                 (iv) any event, condition, fact or circumstance
                  that would make the timely satisfaction of any of the
                  conditions set forth in Sections 6.1, 6.2 or 6.3 impossible or
                  unlikely.

         5.13 Pooling of Interests. During the Pre-Closing Period, no party to
this Agreement shall take any action that could reasonably be expected to have
an adverse effect on the ability of Parent to account for the Merger as a
"pooling of interests."

         5.14 Affiliate Agreements. The Company shall use all commercially
reasonable efforts to cause each Company-Affiliated Person identified on Exhibit
5 (and any other Person that Parent notifies the Company may reasonably be
deemed to be an "Affiliate" of the Company for purposes of the Securities Act),
to execute and deliver to Parent, as promptly as practicable after the execution
of this Agreement, an Affiliate Agreement in the form of Exhibit 3. Parent shall
use all commercially reasonable efforts to cause each Parent-Affiliated Person
listed on Exhibit 5 and each other Person that could reasonably be deemed to be
an "Affiliate" of Parent for purposes of the Securities Act to execute and
deliver to Parent, as promptly as practical after execution of this Agreement,
an Affiliate Agreement in the form of Exhibit 4.

         5.15 Commercially Reasonable Efforts. During the Pre-Closing Period,
(a) the Company shall use all commercially reasonable efforts to cause the
conditions set forth in Sections 6.1 and 6.3 to be satisfied on a timely basis,
and (b) Parent and Merger Sub shall each use all commercially reasonable efforts
to cause the conditions set forth in Section 6.1 and 6.2 to be satisfied on a
timely basis.

                                       67
<PAGE>   169
         5.16 Tax Matters. Prior to the Closing, (a) Parent and the Company
shall execute and deliver to Squire, Sanders & Dempsey Representation
Certificates in substantially the forms of Exhibits 6 and 7 (which shall be used
in connection with the legal opinion contemplated by Section 6.1(s)), and (b)
each of the Company-Affiliated Persons listed on Exhibit 5 shall execute and
deliver to Squire, Sanders & Dempsey a Shareholders' Representation Certificate
in the form of Exhibit 8.

         5.17 Key Employee Options. On the Closing Date, subject to the
conditions and on the terms set forth below, certain key officers and employees
of the Company shall be awarded options (the "Key Employee Options") pursuant to
Parent's Stock Option Awards Plan to purchase the number of shares of Parent
Common Stock specified opposite each such person's name below:

<TABLE>
<CAPTION>
                Name                                 # of Shares
                ----                                 -----------
<S>                                                  <C>
         Curtis M. Rocca III                         80,000
         Timothy J. Purdy                            40,000
         Terry E. Bane                               40,000
         Maxine Holland                              32,000
         Michael Conroy                              16,000
         Rob Hickman                                 16,000
         Bryan Shields                               16,000
         Dave Taylor                                 16,000
         Cindy Alvey                                 16,000
         Bill Baker                                  16,000
         Brian Smith                                 16,000
         Joel Kozikowski                             16,000
</TABLE>

The Key Employee Options shall vest on the date that is one year after the
Closing Date (subject to the grantee remaining employed by Parent or a
subsidiary of Parent for such one-year period) and shall be exercisable at any
time thereafter for a period of nine years. The exercise price for all Key
Employee Options shall be the last reported sale price for Parent Common Stock
as

                                       68
<PAGE>   170
reported by the Nasdaq Small-Cap Market on the Closing Date. The Key Employee
Options shall be subject to and governed by the terms and provisions of Parent's
Stock Option Awards Plan, as from time to time amended and in effect. The Parent
Common Stock to be issued upon the exercise of Key Employee Options will be
registered under the Securities Act on Form S-8 promulgated by the SEC.

         5.18 Board of Directors. Contemporaneously with the consummation of the
Merger, two persons designated by the Company (the "Company Nominees") shall be
appointed to Parent's board of directors to serve until the first annual meeting
of shareholders of Parent to occur following consummation of the Merger. Parent
agrees, except to the extent Parent shall have a reasonable significant
objection at such time, to nominate and support the Company Nominees for
election to Parent's board of directors at the first annual meeting of
shareholders of Parent to occur following consummation of the Merger. If the
seat on Parent's board of directors held by either of the Company Nominees shall
become vacant for any reason during the period commencing with appointment of
the Company Nominees to Parent's board of directors upon consummation of the
Merger and ending on the date of the second annual meeting of shareholders of
Parent to occur following consummation of the Merger, Parent agrees, except to
the extent Parent shall have a reasonable significant objection at such time, to
appoint to Parent's board of directors to serve the remaining term of such
Company Nominee a person designated by the other Company Nominee.

                                    ARTICLE 6

                                   CONDITIONS

         6.1 Conditions to Obligations of Each Party To Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:

                                       69
<PAGE>   171
                  (a) this Agreement (including without limitation the plan of
         merger contained herein) and the Merger shall have been approved and
         adopted by the vote of the shareholders of the Company described in
         Section 3.27;

                  (b) any waiting period (and any extension thereof) applicable
         to the consummation of the Merger under the Hart-Scott Act shall have
         expired or been terminated;

                  (c) the Form S-4 shall have been declared effective by the SEC
         and no order or other declaration suspending the effectiveness of the
         S-4 shall have been issued or promulgated;

                  (d) the Prospectus/Proxy Statement shall not contain an untrue
         statement of a material fact and shall not omit any statement required
         to be contained therein or necessary to make any statement contained
         therein, in the light in which made, not misleading;

                  (e) there shall have been no law, statute, rule or regulation,
         domestic or foreign, enacted or promulgated which would make
         consummation of the Merger illegal;

                  (f) no injunction or other order entered by a United States
         (state or federal) court of competent jurisdiction shall have been
         issued and remain in effect which would prohibit consummation of the
         Merger;

                  (g) there shall not be threatened, instituted or pending any
         action or proceeding, before any court or governmental authority or
         agency, domestic or foreign, (i) challenging or seeking to make
         illegal, or to delay or otherwise directly or indirectly to restrain or
         prohibit, the consummation of the Merger, or seeking to obtain material
         damages in connection with the Merger, (ii) seeking

                                       70
<PAGE>   172
         to prohibit direct or indirect ownership or operation by Parent of all
         or a material portion of the business or assets of the Company and the
         Subsidiaries or of Parent and its subsidiaries, or to compel Parent or
         any of its subsidiaries or the Company or any of the Subsidiaries to
         dispose of or to hold separately all or a material portion of the
         business or assets of Parent and its subsidiaries or of the Company and
         the Subsidiaries, as a result of the Merger, (iii) seeking to impose or
         confirm limitations on the ability of Parent effectively to exercise
         directly or indirectly full rights of ownership of any shares of
         Company Common Stock on all matters properly presented to the Company's
         shareholders, (iv) seeking to require direct or indirect divestiture by
         Parent of any shares of Company Common Stock or any shares of the
         Surviving Corporation to be issued in the Merger, (v) seeking or
         causing any material diminution in the direct or indirect benefits
         expected to be derived by Parent a result of the transactions
         contemplated by this Agreement, (vi) invalidating or rendering
         unenforceable any material provision of this Agreement (including
         without limitation any of the exhibits or attachments hereto) or the
         Letter of Intent, (vii) which otherwise might materially adversely
         affect the Company and the Subsidiaries or Parent and its subsidiaries,
         or (viii) otherwise relating to the Letter of Intent or the Merger;

                  (h) there shall not be any action taken, or any injunction
         issued, or any order, statute, rule or regulation proposed, enacted,
         promulgated, issued or deemed applicable to the Merger by any federal,
         state or foreign court, government or governmental authority or agency,
         other than the application of the waiting period provisions of the
         Hart-Scott Act to the Merger, which may, directly or indirectly, result
         in any of the consequences referred to in (g) above;

                                       71
<PAGE>   173
                  (i) during the period prior to the Effective Time, no party to
         this Agreement shall take any action that could reasonably be expected
         to have an adverse effect on the ability of Parent to account for the
         Merger as a "pooling of interests;"

                  (j) there shall not have occurred (i) any general suspension
         of, or limitation on prices for, trading in securities on the Nasdaq
         Small-Cap Market or the Nasdaq National Market, (ii) a declaration of a
         banking moratorium or any suspension of payments in respect of banks in
         the United States or any limitation by United States authorities on the
         extension of credit by lending institutions, (iii) a commencement of
         war, armed hostilities or other international or national calamity
         directly or indirectly involving the United States, (iv) any limitation
         by any governmental authority on, or any other event which, in the sole
         judgment of Parent, might affect the extension of credit by banks or
         other lending institutions in the United States, or (v) in the case of
         any of the foregoing existing at the date hereof, a material
         acceleration or worsening thereof;

                  (k) the Company and the Subsidiaries shall have obtained each
         consent and approval necessary in order that the Merger and the
         transactions contemplated herein not constitute a breach or violation
         of, or result in a right of termination or acceleration or any
         encumbrance on any of the Company's or the Subsidiaries' assets
         pursuant to the provisions of, any agreement, arrangement or
         understanding or any license, franchise or permit;

                  (l) prior to the Closing, Parent and the Company shall execute
         and deliver to Squire, Sanders & Dempsey Representation Certificates in
         substantially the forms of Exhibits 6 and 7 (which will be used in
         connection with the legal

                                       72
<PAGE>   174
         opinion contemplated by Section 6.1(s)), and each of the
         Company-Affiliated Persons listed on Exhibit 5 shall execute and
         deliver to Squire, Sanders & Dempsey a Shareholder's Representation
         Certificate in the form of Exhibit 8;

                  (m) Parent and the Company shall have received Affiliate
         Agreements, in the form of Exhibit 3, executed by the
         Company-Affiliated Persons identified on Exhibit 5 and by any other
         person who Parent notifies the Company may be deemed to be an
         "Affiliate" of the Company for purposes of the Securities Act
         (collectively, the "Designated Persons"), and Affiliate Agreements, in
         the form of Exhibit 4, executed by the Parent-Affiliated Persons
         identified on Exhibit 5;

                  (n) there shall have been no damage, destruction or loss of or
         to any property or properties owned or used by the Company or any of
         the Subsidiaries, whether or not covered by insurance, which in the
         aggregate has a material adverse effect on the Company and the
         Subsidiaries, taken as a whole;

                  (o) the principal terms of this Agreement and the Merger shall
         have been approved and adopted by the Company's shareholders in
         accordance with all applicable laws and regulations and the Company's
         Articles of Incorporation and By-Laws;

                  (p) no party hereto shall have terminated this Agreement as
         permitted herein;

                  (q) the United States Food and Drug Administration shall not
         have issued a formal denial of Parent's application for approval of
         OraTest;

                  (r) Parent and the Company shall have received a letter from
         Grant Thornton LLP, dated as of the Closing Date, confirming that such
         firm is not aware of any fact or circumstance which could reasonably be
         interpreted as

                                       73
<PAGE>   175
         rendering the Merger ineligible for the "pooling-of-interests" method
         of accounting in accordance with generally accepted accounting
         principles, Accounting Principles Board Opinion No. 16 and all
         published rules, regulations and policies of the SEC; and

                  (s) Parent, the Company and the shareholders of the Company
         shall have received a legal opinion of Squire, Sanders & Dempsey, dated
         the Closing Date, to the effect that the Merger will constitute a
         reorganization within the meaning of Section 368 of the Code (it being
         understood that, in rendering such opinion, such counsel may rely upon
         the tax Representation Certificates and Shareholder's Certificates
         referred to in Section 6.1(l)).

         6.2 Additional Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is also subject to the following conditions:

                  (a) the representations and warranties of Parent and the
         Merger Sub set forth in Article 2 shall be true and correct in all
         material respects as of the Effective Time as if made at and as of the
         Effective Time, and each of Parent and the Merger Sub shall in all
         material respects have performed each obligation and agreement and
         complied with each covenant to be performed and complied with by it
         hereunder at or prior to the Effective Time;

                  (b) Parent shall have furnished to the Company a certificate
         in which Parent shall certify that Parent has no reason to believe that
         the conditions set forth in Section 6.2(a) have not been fulfilled;

                  (c) Parent shall have furnished to the Company (i) a copy of
         the text of the resolutions by which the corporate action on the part
         of Parent and the Merger Sub necessary to approve this Agreement and
         the Merger were taken, (iii)

                                       74
<PAGE>   176
         certificates executed on behalf of Parent and the Merger Sub by their
         respective corporate secretaries or one of their respective assistant
         corporate secretaries certifying to the Company, in each case, that
         such copy is a true, correct and complete copy of such resolutions and
         that such resolutions were duly adopted and have not been amended or
         rescinded, and (iii) an incumbency certificate executed on behalf of
         Parent and the Merger Sub by their respective corporate secretaries or
         one of their respective assistant corporate secretaries certifying, in
         each case, the signature and office of each officer executing this
         Agreement or any other agreement, certificate or other instrument
         executed pursuant hereto;

                  (d) the Company shall have received a letter addressed to the
         Company from Squire, Sanders & Dempsey, based on customary reliance and
         subject to customary qualifications, to the effect that:

                                 (i) Parent is a corporation validly existing
                  and in good standing under the laws of the State of Delaware.

                                 (ii) Merger Sub is a corporation validly
                  existing and in good standing under the laws of the State of
                  Delaware.

                                 (iii) Parent has the corporate power to
                  consummate the transactions on its part contemplated by this
                  Agreement. Parent has duly taken all requisite corporate
                  action to authorize this Agreement; and this Agreement has
                  been duly executed and delivered by Parent and constitutes the
                  valid and binding obligation of Parent.

                                 (iv) The Merger Sub has the corporate power to
                  consummate the transactions on its part contemplated by this

                                       75
<PAGE>   177
                  Agreement. The Merger Sub has duly taken all requisite
                  corporate action to authorize this Agreement and the articles
                  of merger contemplated in Section 1.3; and this Agreement and
                  such articles of merger have been duly executed and delivered
                  by the Merger Sub and constitute valid and binding obligations
                  of the Merger Sub; and

                  (e) a letter from a qualified investment banking or financial
         advisory firm confirming the fairness to the Company's shareholders
         from a financial point of view of the consideration to be paid in the
         Merger (the form of which letter shall have been received by the
         Company for inclusion in the Prospectus/Proxy Statement prior to the
         filing of the Prospectus/Proxy Statement with the SEC) shall have been
         delivered to the Company's Board of Directors prior to the Mailing Date
         and shall not have been subsequently withdrawn or amended.


         6.3 Additional Conditions to Obligations of Parent and the Merger Sub.
The obligations of Parent and the Merger Sub to effect the Merger are also
subject to the following conditions:

                  (a) the representations and warranties of the Company in this
         Agreement shall be true and correct in all material respects as of the
         Effective Time as if made at and as of the Effective Time, and the
         Company shall in all material respects have performed each obligation
         and agreement and complied with each covenant to be performed and
         complied with by it hereunder at or prior to the Effective Time;

                  (b) the Company shall have furnished to Parent a certificate
         in which Curtis M. Rocca III, Terry E. Bane and Timothy J. Purdy shall
         certify that an

                                       76
<PAGE>   178
         appropriate inquiry has been made of the executive officers and
         employees of the Company and the Subsidiaries having principal
         responsibilities for the matters as to which representations and
         warranties have been made by the Company in this Agreement and for the
         performance of the covenants of the Company set forth in this
         Agreement, and after completion of such inquiry, neither the Company
         nor any of the Subsidiaries nor any of the individuals executing such
         certificate has any reason to believe that the conditions set forth in
         Section 6.3(a) have not been fulfilled;

                  (c) the Company shall have furnished to Parent (i) a copy of
         the text of the resolutions by which the board of Directors and
         shareholders of the Company approved this Agreement (including, without
         limitation, the plan of merger contained herein) and the Merger; (ii) a
         certificate executed on behalf of the Company by its corporate
         secretary certifying to Parent that such copy is a true, correct and
         complete copy of such resolutions and that such resolutions were duly
         adopted and have not been amended or rescinded; and (iii) an incumbency
         certificate executed on behalf of the Company by its corporate
         secretary certifying the signature and office of each officer executing
         this Agreement or any other agreement, certificate or other instrument
         executed pursuant hereto;

                  (d) Parent shall have received a letter addressed to Parent
         from The Law Offices of Craig K. Powell, based on customary reliance
         and subject to customary qualifications, to the effect that:

                                  (i) The Company is a corporation validly
                  existing and in good standing under the laws of the State of
                  California.

                                       77
<PAGE>   179
                                  (ii) The authorized capital of the Company
                  consists of shares of capital stock, designated "Common
                  Stock," having a par value of $.01 per share, of which the
                  number of shares indicated in such letter are outstanding, all
                  of which were duly and validly issued and are fully paid and
                  non-assessable, and 1,000,000 shares of capital stock,
                  designated "Preferred Stock," having a par value of $.01 per
                  share, of which no shares are outstanding.

                                  (iii) Each of the Subsidiaries is a
                  corporation validly existing and in good standing under the
                  laws of its jurisdiction of incorporation.

                                  (iv) The Company owns all of the outstanding
                  capital stock of each of the Subsidiaries, free and clear of
                  any lien, claim or encumbrance.

                                  (v) The Company has the corporate power to
                  consummate the transactions on its part contemplated by this
                  Agreement; the Company has duly taken all requisite corporate
                  action to authorize this Agreement and the articles of merger
                  contemplated in Section 1.3; and this Agreement and such
                  articles of merger have been duly executed and delivered by
                  the Company and constitute valid and binding obligations of
                  the Company.

                                  (vi) No actions are required to be taken in
                  order to make the Merger effective which have not been taken
                  on or prior to the delivery of such letter except the delivery
                  of the

                                       78
<PAGE>   180
                  articles of merger contemplated in Section 1.3 to the
                  Secretary of State of the State of California, and the filing
                  thereof by the Secretary of State of the State of California,
                  in accordance with Chapter 11 of the California Law;

                  (e) Parent shall have received a letter from Grant Thornton
         LLP dated the date of the Effective Time bringing down to a date not
         more than three days (excluding Saturdays, Sundays and holidays) prior
         thereto the information specified in Section 5.3(b);

                  (f) Parent shall not have discovered any fact or circumstance
         existing as of the date of this Agreement which has not been publicly
         disclosed by the Company as of the date of this Agreement regarding the
         business, assets, properties, condition (financial or otherwise),
         results of operations or prospects of the Company and the Subsidiaries
         which is, individually or in the aggregate with other such facts and
         circumstances, materially adverse to the Company and the Subsidiaries
         taken as a whole, or to the value of the shares of Company Common
         Stock;

                  (g) Parent shall have received a letter from Deloitte & Touche
         LLP, dated as of the Closing Date, confirming that Parent may account
         for the Merger as a "pooling-of-interests" in accordance with generally
         accepted accounting principles, Accounting Principles Board Opinion No.
         16 and all published rules, regulations and policies of the SEC;

                  (h) the Company shall not have received written objections to
         the Merger pursuant to Chapter 13 of the California Act covering more
         than 5% of

                                       79
<PAGE>   181
         the shares of Company Common Stock outstanding immediately prior to the
         Effective Time;

                  (i) the Company shall have modified the Stock Plan to permit
         the Company Options to be assumed by Parent as contemplated by Section
         1.12 of this Agreement; and

                  (j) Curtis M. Rocca III shall have entered into employment
         arrangements with Parent in form and substance mutually acceptable to
         Parent and such person.

                                    ARTICLE 7

                        TERMINATION, AMENDMENT AND WAIVER

         7.1 Termination. Subject to Section 7.4, this Agreement may be
terminated prior to the Effective Time:

                  (a) by Parent if there has been a material breach by the
         Company or any of the Designated Persons of any covenant or agreement
         of the Company or any of the Designated Persons set forth in this
         Agreement or in any other agreement or instrument delivered to Parent,
         which breach has not been cured within 30 days of the date on which
         written notice of such breach was first given to the Company or which
         is not capable of being cured by the Scheduled Closing Time;

                  (b) by the Company if there has been a material breach by
         Parent of any covenant or agreement of Parent in this Agreement, which
         breach has not been cured within 30 days of the date on which written
         notice of such breach was first given to Parent or which is not capable
         of being cured by the Scheduled Closing Time;

                  (c) by Parent if Parent reasonably determines that the timely
         satisfaction of any condition set forth in Section 6.1 or 6.3 by the
         Scheduled Closing Time has become

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<PAGE>   182
         impossible (other than as a result of any failure on the part of Parent
         or Merger Sub to comply with or perform any covenant or obligation of
         Parent or Merger Sub set forth in this Agreement);

                  (d) by the Company if the Company reasonably determines that
         the timely satisfaction of any condition set forth in Section 6.1 or
         6.2 by the Scheduled Closing Time has become impossible (other than as
         a result of any failure on the part of the Company or any of the
         Designated Persons to comply with or perform any covenant or obligation
         set forth in this Agreement or in any other agreement or instrument
         delivered to Parent);

                  (e) by Parent at or after the Scheduled Closing Time if any
         condition set forth in Section 6.1 or 6.3 has not been satisfied by the
         Scheduled Closing Time (other than as a result of any failure on the
         part of Parent or Merger Sub to comply with or perform any covenant or
         obligation of Parent or Merger Sub set forth in this Agreement); or

                  (f) by the Company at or after the Scheduled Closing Time if
         any condition set forth in Section 6.1 or 6.2 has not been satisfied by
         the Scheduled Closing Time (other than as a result of any failure on
         the part of the Company or any of the Designated Persons to comply with
         or perform any covenant or obligation set forth in this Agreement or in
         any other agreement or instrument delivered to Parent);

                  (g) by Parent if the Closing has not taken place on or before
         the Final Date (other than as a result of any failure on the part of
         Parent to comply with or perform any covenant or obligation of Parent
         set forth in this Agreement);

                  (h) by the Company if the Closing has not taken place on or
         before the Final Date (other than as a failure on the part of the
         Company or any of the Designated

                                       81
<PAGE>   183
         Persons to comply with or perform any covenant or obligation set forth
         in this Agreement or in any other agreement or instrument delivered to
         Parent);

                  (i) by the mutual consent of Parent and the Company.

         As used herein, the Final Date shall be March 15, 1997, except that if
a temporary, preliminary or permanent injunction or other order by any Federal
or state court that would prohibit or otherwise restrain consummation of the
Merger shall have been issued and shall remain in effect on March 15, 1997, and
such injunction shall not have become final and nonappealable, either party, by
giving the other written notice thereof on or prior to March 15, 1997, may
extend the time for consummation of the Merger up to and including the earlier
of the date such injunction shall become final and nonappealable or May 15,
1997, so long as such party shall, at its own expense, use its best efforts to
have such injunction dissolved.

         7.2 Termination Procedures. If Parent wishes to terminate this
Agreement pursuant to Section 7.1(a), Section 7.1(c), Section 7.1(e) or Section
7.1(g), Parent shall deliver to the Company a written notice stating that Parent
is terminating this Agreement and setting forth a brief description of the basis
on which Parent is terminating this Agreement. If the Company wishes to
terminate this Agreement pursuant to Section 7.1(b), Section 7.1(d), Section
7.1(f) or Section 7.1(h), the Company shall deliver to Parent a written notice
stating that the Company is terminating this Agreement and setting forth a brief
description of the basis on which the Company is terminating this Agreement.

         7.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 7.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement or of any obligation or liability
arising pursuant to Section 7.4. If this Agreement is terminated pursuant to
Section 7.1

                                       82
<PAGE>   184
as a result of the inaccuracy of any representation or warranty of Parent or the
Merger Sub set forth in Article 2 or the inaccuracy of any representation or
warranty of the Company set forth in Article 3, the party making such inaccurate
representation or warranty shall be subject to liability for the termination of
this Agreement as a result thereof only if and to the extent that any
Responsible Officer (as defined below) of such party had actual knowledge of
such inaccuracy. For purposes hereof, "Responsible Officer" of any party shall
mean the chairman of the board of directors, the chief executive officer, the
chief operating officer, the chief financial officer, any executive vice
president, the treasurer or the secretary of such party.

         7.4 Breakup Fee.

                  (a) If the Company terminates this Agreement pursuant to
         Section 7.1(d), 7.1(f) or 7.1(h) by reason of the fact that any of the
         Closing conditions contained in Section 6.2(a) have not been met, or by
         reason of the failure of the Closing condition contained in Section
         6.1(k) under circumstances in which the acts of Parent or any of its
         affiliates, not consented to in writing by the Company, were done with
         the knowledge or reasonable expectation that they could reasonably be
         expected to cause and in fact did cause the failure of such condition;
         and in the circumstances of such termination, all of the Closing
         conditions contained in Section 6.2 would have otherwise been met,
         Parent shall pay to the Company within fifteen (15) business days after
         such termination in cash the greater of (i) the amount of the Company's
         documented out-of-pocket expenses incurred through the date of
         termination in connection with this Agreement and the transactions
         contemplated hereby (as evidenced by written notice accompanied by such
         documentation and delivered to Parent by the Company within ten (10)
         business days of such termination), and (ii) $100,000.

                                       83
<PAGE>   185
                  (b) If Parent terminates this Agreement pursuant to Section
         7.1(c), 7.1(e) or 7.1(g) by reason of the fact that any of the Closing
         conditions in Sections 6.1(k) or (l) or 6.3(a) have not been met, or
         the failure of the Closing condition contained in Section 6.3(h) under
         any of the following circumstances: (i) the Company has materially
         breached any covenant contained in Section 4.3 or the covenant in
         Section 5.15(a) as it pertains to the condition in Section 6.1(o), (ii)
         the Company's Board of Directors has withdrawn its recommendation to
         the Company's shareholders to approve the Merger, or (iii) any Person
         has publicly announced a proposed acquisition transaction with the
         Company as the party to be acquired conditioned upon abandonment of the
         Merger or the failure of the Company's shareholders to approve the
         Merger; or by reason of the failure of the Closing condition contained
         in Section 6.3(g) under circumstances in which the acts of the Company
         or any of its affiliates, not consented to in writing by Parent, were
         done with the knowledge that they could reasonably be expected to cause
         and did in fact cause the failure of such condition; and in the
         circumstances of such termination, all of the Closing conditions
         contained in Section 6.3 (except the condition contained in Section
         6.3(j)) would have otherwise been met, the Company shall pay to Parent
         within fifteen (15) business days after such termination in cash the
         greater of (i) the amount of Parent's documented out-of-pocket expenses
         incurred through the date of termination in connection with this
         Agreement and the transactions contemplated hereby (as evidenced by
         written notice accompanied by such documentation and delivered to the
         Company by Parent within ten (10) business days of such termination),
         and (ii) $100,000.

                                       84
<PAGE>   186
                                    ARTICLE 8

                               GENERAL PROVISIONS

         8.1 Amendment. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto; provided, however, that, after approval of
the Merger by the shareholders of the Company, no amendment may be made which
changes the amount into which each share of Company Common Stock will be
converted in the Merger or effects any change which would materially and
adversely affect the shareholders of the Company without the further approval of
the shareholders of the Company.

         8.2 Waiver. At any time prior to the Effective Time, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto or (b) waive compliance with any of the agreement
of any other party or with any conditions to its own obligations, in each case
only to the extent such obligations, agreements and conditions are intended for
its benefit. No failure on the part of any party hereto to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
party hereto in exercising any power, right, privilege or remedy under this
agreement, shall operate as a waiver of such power, right, privilege or remedy,
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or future exercise thereof or of any other power,
right, privilege or remedy. No party hereto shall be deemed to have waived any
claim arising out of this Agreement, or any power, right, privilege or remedy
under this Agreement, unless the waiver of such claim, power, right, privilege
or remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party, and any such waiver shall not be applicable
or have any effect except in the specific instance in which it was given.

                                       85
<PAGE>   187
         8.3 Public Statements. Except as required by applicable law, no party
shall make any public announcement or statement with respect to the Merger, this
Agreement or any related transaction without the approval of the other parties,
which approval will not be unreasonably withheld. Moreover, each party agrees to
consult with the other parties prior to issuing any such public announcement or
statement.

         8.4 Notices. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by telex, by
telecopier, or by registered or certified mail (postage prepaid and return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by it by like notice):

         If to Parent or
           the Merger Sub:              Zila, Inc.
                                        5227 N. 7th Street
                                        Phoenix, Arizona  85014
                                        Telecopy:    (602) 234-2264
                                        Attn:  Joseph Hines

         With a copy to:                Squire, Sanders & Dempsey
                                        40 N. Central Avenue
                                        Phoenix, Arizona  85004
                                        Telecopy:    (602) 253-8129
                                        Attn:  Christopher D. Johnson

         If to the Company:             Bio-Dental Technologies Corporation
                                        11291 Sunrise Park Drive
                                        Rancho Cordova, California  95742
                                        Telecopy:     (916) 638-0116
                                        Attn:  Curtis M. Rocca III

         With a copy to:                The Law Offices of Craig K. Powell
                                        4678 Cabana Way
                                        Sacramento, California 95822
                                        Telecopy:     (916) 454-1180
                                        Attn:  Craig K. Powell

         All such notices and other communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the

                                       86
<PAGE>   188
mail, postage prepaid, if delivered by mail; when answered back, if telexed; and
when receipt acknowledged, if telecopied.

         8.5 Interpretation. When a reference is made in this Agreement to
subsidiaries of Parent, the word "subsidiary" means any "majority-owned
subsidiary" (as defined in Rule 12b-2 under the Exchange Act) of Parent;
provided, however, that the Company shall in no event and at no time be
considered a subsidiary of Parent for purposes of this Agreement. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. References to
Sections and Articles refer to sections and articles of this Agreement unless
otherwise stated. Words such as "herein," "hereinafter," "hereof," "hereto,"
"hereby" and "hereunder," and words of like import, unless the context requires
otherwise, refer to this Agreement (including the exhibits and attachments
hereto). As used in this Agreement, the masculine, feminine and neuter genders
shall be deemed to include the others if the context requires.

         8.6 Severability. If term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated and the parties shall negotiate
in good faith to modify this Agreement to preserve each party's anticipated
benefits under this Agreement.

         8.7 Miscellaneous. This Agreement (together with all other documents
and instruments referred to herein): (a) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties, with respect to the subject matter hereof; (b) is not
intended to confer upon any other person any rights or remedies hereunder; (c)
shall not be assigned by operation of law or otherwise, except that Parent and
the

                                       87
<PAGE>   189
Merger Sub may assign all or any portion of their rights under this Agreement to
any wholly owned subsidiary, but no such assignment shall relieve Parent and the
Merger Sub of their obligations hereunder, and except that this Agreement may be
assigned by operation of law to any corporation with or into which Parent may be
merged; and (d) shall be governed in all respects, including validity,
interpretation and effect, by the internal laws of the State of Arizona, without
giving effect to the principles of conflict of laws thereof; provided, however,
that the Letter of Intent shall remain in full force and effect notwithstanding
the execution and delivery of this Agreement and nothing in this Agreement shall
supersede any of the provisions of the Letter of Intent. This Agreement may be
executed in two or more counterparts which together shall constitute a single
agreement.

         8.8 Non-survival of Representations and Warranties. The representations
and warranties of the parties set forth herein shall terminate as of the
Effective Time.

                                       88
<PAGE>   190
                                MERGER AGREEMENT

                                 SIGNATURE PAGE

         IN WITNESS WHEREOF, Parent, the Merger Sub and the Company have caused
this Agreement to be executed on the date first written above by their
respective officers thereunder duly authorized.

                                   ZILA, INC.


                                   By ___________________________________

                                         Its ____________________________




                                   ZILA MERGER CORPORATION


                                   By ___________________________________

                                         Its ____________________________




                                   BIO-DENTAL TECHNOLOGIES CORPORATION


                                   By ___________________________________

                                         Its ____________________________




                                       89
<PAGE>   191
                                                                       EXHIBIT 1

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                      ZILA DENTAL TECHNOLOGIES CORPORATION

          1. The name of this Corporation is: ZILA DENTAL TECHNOLOGIES
CORPORATION.

          2. The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code (the "Code").

          3. The name and address in the State of California of the
Corporation's agent for service of process is:

                    Name:    Curtis M. Rocca III
                    Address: 11291 Sunrise Park Drive
                             Rancho Cordova, California 95741-1081

          4. The maximum number of shares which the Corporation shall have the
authority to issue is:

               (a)  50,000,000 (fifty million) shares of Common Stock having a
                    par value of $.01 per share; and

               (b)  1,000,000 (one million) shares of Preferred Stock having a
                    par value of $.01 per share.

               The Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any share of Preferred Stock.

          5. The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.

          6. The Corporation may, by action of its board of directors or
shareholders, authorize, by bylaw amendment, agreement or otherwise, the
indemnification of agents, as defined in Section 317 of the
<PAGE>   192
Code, in excess of that expressly permitted by Section 317 of the Code for
agents of the Corporation for breach of duty to the Corporation and its
shareholders; provided, however, that such an amendment or agreement may not
provide for indemnification of any agent for acts or omissions or transactions
from which a director may not be relieved of liability as set forth in the
exception to Section 204(a)(10) of the Code or as to circumstances under which
indemnity is expressly prohibited by Section 317 of the Code.


                                        2
<PAGE>   193
                                                                       EXHIBIT 2

                                 RESTATED BYLAWS

                                       OF

                      ZILA DENTAL TECHNOLOGIES CORPORATION

                                    ARTICLE I

                                     OFFICES

1.        Registered Office.

          The registered office of the Corporation required by the California
General Corporation Law to be maintained in California may be, but need not be,
identical with the Corporation's principal office, and the address of the
registered office may be changed from time to time by the Board of Directors.

2.       Other Offices.

          The Corporation may also have offices at such other places both within
and without the State of California as the Board of Directors may from time to
time determine or the business of the Corporation may require.

                                   ARTICLE II

                                  STOCKHOLDERS

1.       Annual Meeting.

          The annual meeting of the stockholders shall be held on such date as
the Board of Directors shall determine, for the purpose of electing Directors
and for the transaction of such other business as may properly come before the
meeting. If the election of Directors is not held on the day designated by the
Board of Directors for any annual meeting of the stockholders, or any
adjournment thereof, the Directors shall cause the election to be held at a
special meeting of the stockholders as soon thereafter as convenient.

2.       Special Meetings.

          Special meetings of the stockholders may be called for any purpose or
purposes at any time by the Board of Directors, Chairman of the Board or the
President, and shall be called by the Chairman of the Board or the President at
the request of the holders of not less than one-tenth (1/10) of all outstanding
stock of the Corporation entitled to vote at such meeting, or
<PAGE>   194
otherwise as provided by the California General Corporation Law and Section 12
of Article III of these Bylaws. Such request shall state the purpose or purposes
of the proposed meeting.

3.       Place of Meetings.

          Annual and special meetings of the stockholders shall be held at the
principal office of the Corporation, unless otherwise specified in the notice
calling any such meeting, or in the event of a waiver of notice of such meeting,
in such waiver of notice.

4.       Notice of Meeting.

          Written notice stating the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered to each stockholder of record entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting. Notice may be delivered either personally or by first
class, certified or registered mail, by an officer of the Corporation at the
direction of the person or persons calling the meeting. If mailed, notice shall
be deemed to be delivered when mailed to the stockholders at his or her address
as it appears on the stock transfer books of the Corporation. Notice need not be
given of an adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, provided that such adjournment is for
less than thirty (30) days and further provided that a new record date is not
fixed for the adjourned meeting, in either of which events, written notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at such meeting. At any adjourned meeting, any business may be transacted
which might have been transacted at the meeting as originally noticed. A written
waiver of notice, whether given before or after the meeting to which it relates,
shall be equivalent to the giving of notice of such meeting to the stockholder
or stockholders signing such waiver. Attendance of a stockholder at a meeting
shall constitute a waiver of notice of such meeting, except when the stockholder
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.

5.       Fixing Date for Determination of Stockholders Record.

         In order that the Corporation may determine the stockholders entitled
to notice of and to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any other change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix in advance a record date, which shall not be more than sixty
(60) nor less than ten (10) days prior to the date of such meeting or such
action, as the case may be. If the Board has not fixed a record date for
determining the stockholders entitled to notice of and to vote at a meeting of
stockholders, the record date shall be at close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. If
the Board has not fixed a record date for


                                        2
<PAGE>   195
determining the stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board is necessary, the
record date shall be the day on which the first written consent is expressed by
any stockholder. If the Board has not fixed a record date for determining
stockholders for any other purpose, the record date shall be at the close of
business on the day on which the Board adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.

6.       Record of Stockholders.

         The Secretary or other officer having charge of the stock transfer
books of the Corporation shall make, or cause to be made, at least ten (10) days
before every meeting of stockholders, a complete record of the stockholders
entitled to vote at a meeting of stockholders or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.

7.       Quorum and Manner of Acting.

         At any meeting of the stockholders, the presence, in person or by
proxy, of the holders of a majority of the outstanding stock entitled to vote
shall constitute a quorum. All shares represented and entitled to vote on any
single subject matter which may be brought before the meeting shall be counted
for quorum purposes. Only those shares entitled to vote on a particular subject
matter shall be counted for the purpose of voting on that subject matter.
Business may be conducted once a quorum is present and may continue to be
conducted until adjournment sine die, notwithstanding the withdrawal or
temporary absence of stockholders leaving less than a quorum. Except as
otherwise provided in the California General Corporation Law, the affirmative
vote of the holders of a majority of the shares of stock then represented at the
meeting and entitled to vote thereat shall be the act of the stockholders;
provided, however, that if the shares of stock so represented are less than the
number required to constitute a quorum, the affirmative vote must be such as
would constitute a majority if a quorum were present, except that the
affirmative vote of the holders of a majority of the shares of stock then
present is sufficient in all cases to adjourn a meeting.

8.       Voting of Shares of Stock.

          Each stockholder shall be entitled to one vote or corresponding
fraction thereof for each share of stock or fraction thereof standing in his,
her or its name on the books of the


                                        3
<PAGE>   196
Corporation on the record date. A stockholder may vote either in person or by
proxy executed in writing by the stockholder or by his, her or its duly
authorized attorney in fact, but no such proxy shall be voted or acted upon
after three (3) years from the date of its execution unless the proxy provides
for a longer period. Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of any
corporation to vote stock, including but not limited to its own stock, when held
by it in a fiduciary capacity. Shares of stock standing in the name of another
corporation may be voted by such officer, agent or proxy as the bylaws of such
other corporation may prescribe or, in the absence of such provision, as the
board of directors of such other corporation may determine. Unless demanded by a
stockholder present in person or by proxy at any meeting of the stockholders and
entitled to vote thereat, or unless so directed by the chairman of the meeting,
the vote thereat on any question need not be by ballot. If such demand or
direction is made, a vote by ballot shall be taken, and each ballot shall be
signed by the stockholder voting, or by his or her proxy, and shall state the
number of shares voted.

9.       Organization.

         At each meeting of the stockholders, the Chairman of the Board, or, if
he or she is absent therefrom, the President, or, if he or she is absent
therefrom, another officer of the Corporation chosen as chairman of such meeting
by stockholders holding a majority of the shares present in person or by proxy
and entitled to vote thereat, or, if all the officers of the Corporation are
absent therefrom, a stockholder of record so chosen, shall act as chairman of
the meeting and preside thereat. The Secretary, or, if he or she is absent from
the meeting or is required pursuant to the provisions of this Section 9 to act
as chairman of such meeting, the person (who shall be an Assistant Secretary, if
any and if present) whom the chairman of the meeting shall appoint shall act as
secretary of the meeting and keep the minutes thereof.

10.      Order of Business.

         The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but the order of business may be
changed by the vote of stockholders holding a majority of the shares present in
person or by proxy at such meeting and entitled to vote thereat.

11.      Voting.

         At all meetings of stockholders, each stockholder entitled to vote
thereat shall have the right to vote, in person or by proxy, and shall have, for
each share of stock registered in his, her or its name, the number of votes
provided by the Certificate of Incorporation in respect of stock of such class.
Stockholders shall not have cumulative voting rights with respect to the
election of Directors.


                                        4
<PAGE>   197
12.      Action By Stockholders Without a Meeting.

         Any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting, without notice and without a vote,
if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding stock having not less than the number of votes that would
have been necessary to authorize such action at a meeting at which all shares
entitled to vote were present and voted. Prompt notice of the taking of any such
action shall be given to any such stockholders entitled to vote who have not so
consented in writing.

                                   ARTICLE III

                               BOARD OF DIRECTORS

1.       General Powers.

          The business and affairs of the Corporation shall be managed by the
Board of Directors.

2.       Number, Term of Office and Qualifications.

          Subject to the requirements of the California General Corporation Law,
the number of members of the Board of Directors shall not be less than five (5)
nor more than nine (9), with the exact number to be fixed from time to time by
the Board of Directors. Notwithstanding the foregoing, the Board of Directors
may, by amendment to these Bylaws pursuant to the terms hereof, decrease the
number of members of the Board of Directors to less than the minimum stated
above or increase the number of members of the Board of Directors to more than
the maximum stated above. Each Director shall hold office until his or her
successor is duly elected or until his or her earlier death or resignation or
removal in the manner hereinafter provided. Directors need not be stockholders.

3.       Place of Meeting.

         The Board of Directors may hold its meetings at such place or places as
it may from time to time by resolution determine or as shall be designated in
any notices or waivers of notice thereof. Any such meeting, whether regular or
special, may be held by conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting in such manner shall constitute presence in
person at such meeting.

4.       Annual Meetings.

         As soon as practicable after each annual election of Directors and on
the same day, the Board of Directors shall meet for the purpose of organization
and the transaction of other business at the place where regular meetings of the
Board of Directors are held, and no notice of such meeting shall be necessary in
order to legally hold the meeting, provided that a quorum


                                        5
<PAGE>   198
is present. If such meeting is not held as provided above, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for a special meeting of the Board of Directors, or in the
event of waiver of notice as specified in the written waiver of notice.

5.       Regular Meetings.

         Regular meetings of the Board of Directors may be held without notice
at such times as the Board of Directors shall from time to time by resolution
determine.

6.       Special Meetings; Notice.

         Special meetings of the Board of Directors shall be held whenever
called by the Chairman of the Board or a majority of the Directors at the time
in office. Notice shall be given, in the manner hereinafter provided, of each
such special meeting, which notice shall state the time and place of such
meeting, but need not state the purposes thereof. Except as otherwise provided
in Section 7 of this Article III, notice of each such meeting shall be mailed to
each Director, addressed to him or her at his or her residence or usual place of
business, at least two (2) days before the day on which such meeting is to be
held, or shall be sent addressed to him or her at such place by telegraph,
cable, wireless or other form of recorded communication or delivered personally
or by telephone not later than the day before the day on which such meeting is
to be held. A written waiver of notice, whether given before or after the
meeting to which it relates, shall be equivalent to the giving of notice of such
meeting to the Director or Directors signing such waiver. Attendance of a
Director at a special meeting of the Board of Directors shall constitute a
waiver of notice of such meeting, except when he or she attends the meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.

7.       Quorum and Manner of Acting.

         A majority of the whole Board of Directors shall be present in person
at any meeting of the Board of Directors in order to constitute a quorum for the
transaction of business at such meeting, and except as otherwise specified in
these Bylaws, and except also as otherwise expressly provided by the California
General Corporation Law, the vote of a majority of the Directors present at any
such meeting at which a quorum is present shall be the act of the Board of
Directors. In the absence of a quorum from any such meeting, a majority of the
Directors present thereat may adjourn such meeting from time to time to another
time or place, without notice other than announcement at the meeting, until a
quorum shall be present thereat. The Directors shall act only as a Board and the
individual Directors shall have no power as such.

8.       Organization.

          At each meeting of the Board of Directors, the Chairman of the Board
of Directors, or, if he or she is absent therefrom, the President, or if he or
she is absent therefrom, a Director


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chosen by a majority of the Directors present thereat, shall act as chairman of
such meeting and preside thereat. The Secretary, or if he or she is absent, the
person (who shall be an Assistant Secretary, if any and if present) whom the
chairman of such meeting shall appoint, shall act as Secretary of such meeting
and keep the minutes thereof.

9.       Action by Directors Without a Meeting.

         Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, is signed by
all Directors and such consent is filed with the minutes of the proceedings of
the Board of Directors.

10.      Resignations.

         Any Director may resign at any time by giving written notice of his or
her resignation to the Corporation. Any such resignation shall take effect at
the time specified therein, or, if the time when it shall become effective is
not specified therein, it shall take effect immediately upon its receipt by the
Chairman of the Board, the President or the Secretary; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.

11.      Removal of Directors.

          Directors may be removed, with or without cause, as provided from time
to time by the California General Corporation Law as then in effect.

12.      Vacancies.

         Vacancies and newly created directorships resulting from any increase
in the authorized number of Directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the Directors
then in office, although less than a quorum, or by a sole remaining Director. If
at any time, by reason of death or resignation or other cause, the Corporation
has no Directors in office, then any officer or any stockholder or an executor,
administrator, trustee or guardian of a stockholder, may call a special meeting
of stockholders for the purpose of filling vacancies in the Board of Directors.
If one or more Directors shall resign from the Board of Directors, effective at
a future date, a majority of the Directors then in office, including those who
have so resigned, shall have the power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office as provided in this
section in the filling of other vacancies.


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<PAGE>   200
13.      Compensation.

         Unless otherwise expressly provided by resolution adopted by the Board
of Directors, no Director shall receive any compensation for his or her services
as a Director. The Board of Directors may at any time and from time to time by
resolution provide that the Directors shall be paid a fixed sum for attendance
at each meeting of the Board of Directors or a stated salary as Director. In
addition, the Board of Directors may at any time and from time to time by
resolution provide that Directors shall be paid their actual expenses, if any,
of attendance at each meeting of the Board of Directors. Nothing in this section
shall be construed as precluding any Director from serving the Corporation in
any other capacity and receiving compensation therefor, but the Board of
Directors may by resolution provide that any Director receiving compensation for
his or her services to the Corporation in any other capacity shall not receive
additional compensation for his or her services as a Director.

                                   ARTICLE IV

                                    OFFICERS

1.       Number.

         The Corporation shall have the following officers: a Chairman of the
Board (who shall be a Director), a President, a Vice President, a Secretary and
a Treasurer. At the discretion of the Board of Directors, the Corporation may
also have additional Vice Presidents, one or more Assistant Vice Presidents, one
or more Assistant Secretaries and one or more Assistant Treasurers. Any two or
more offices may be held by the same person.

2.       Election and Term of Office.

         The officers of the Corporation shall be elected annually by the Board
of Directors. Each such officer shall hold office until his or her successor is
duly elected or until his or her earlier death or resignation or removal in the
manner hereinafter provided.

3.       Agents.

         In addition to the officers mentioned in Section 1 of this Article IV,
the Board of Directors may appoint such agents as the Board of Directors may
deem necessary or advisable, each of which agents shall have such authority and
perform such duties as are provided in these Bylaws or as the Board of Directors
may from time to time determine. The Board of Directors may delegate to any
officer or to any committee the power to appoint or remove any such agents.


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4.       Removal.

         Any officer may be removed, with or without cause, at any time by
resolution adopted by a majority of the whole Board of Directors.

5.       Resignations.

         Any officer may resign at any time by giving written notice of his or
her resignation to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Any such resignation shall take effect at the times
specified therein, or, if the time when it shall become effective is not
specified therein, it shall take effect immediately upon its receipt by the
Board of Directors, the Chairman of the Board, the President or the Secretary;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.

6.       Vacancies.

         A vacancy in any office due to death, resignation, removal,
disqualification or any other cause may be filled for the unexpired portion of
the term thereof by the Board of Directors.

7.       Chairman of the Board.

         The Chairman of the Board shall be the chief executive officer of the
Corporation and shall have, subject to the control of the Board, general and
active supervision and direction over the business and affairs of the
Corporation and over its several officers. The Chairman of the Board shall: (a)
preside at all meetings of the stockholders and at all meetings of the Board;
(b) make a report of the state of the business of the Corporation at each annual
meeting of the stockholders; (c) see that all orders and resolutions of the
Board are carried into effect; (d) sign, with the Secretary or an Assistant
Secretary, certificates for stock of the Corporation; (e) have the right to
sign, execute and deliver in the name of the Corporation all deeds, mortgages,
bonds, contracts or other instruments authorized by the Board, except in cases
where the signing, execution or delivery thereof is expressly delegated by the
Board or by these Bylaws to some other officer or agent of the Corporation or
where any of them are required by law otherwise to be signed, executed or
delivered; and (f) have the right to cause the corporate seal, if any, to be
affixed to any instrument which requires it. In general, the Chairman of the
Board shall perform all duties incident to the office of the Chairman of the
Board and such other duties as from time to time may be assigned to him or her
by the Board.

8.       President.

         The President shall have, subject to the control of the Board and the
Chairman of the Board, general and active supervision and direction over the
business and affairs of the Corporation and over its several officers. At the
request of the Chairman of the Board, or in case of his or her absence or
inability to act, the President shall perform the duties of the Chairman of the
Board and, when so acting, shall have all the powers of, and be subject to all


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<PAGE>   202
the restrictions upon, the Chairman of the Board. He may sign, with the
Secretary or an Assistant Secretary, certificates for stock of the Corporation.
He may sign, execute and deliver in the name of the Corporation all deeds,
mortgages, bonds, contracts or other instruments authorized by the Board, except
in cases where the signing, execution or delivery thereof is expressly delegated
by the Board or by these Bylaws to some other officer or agent of the
Corporation or where any of them are required by law otherwise to be signed,
executed or delivered, and he may cause the corporate seal, if any, to be
affixed to any instrument which requires it. In general, the President shall
perform all duties incident to the office of the President and such other duties
as from time to time may be assigned to him or her by the Board or the Chairman
of the Board.

9.       Vice President.

         The Vice President and any additional Vice Presidents shall have such
powers and perform such duties as the Chairman of the Board, the President or
the Board of Directors may from time to time prescribe and shall perform such
other duties as may be prescribed by these Bylaws. At the request of the
President, or in case of his or her absence or inability to act, the Vice
President shall perform the duties of the President and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
President.

10.      Secretary.

         The Secretary shall: (a) record all the proceedings of the meetings of
the stockholders, the Board of Directors and the Executive Committee, if any, in
one or more books kept for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these Bylaws or as required by law; (c) be
the custodian of all contracts, deeds, documents, all other indicia of title to
properties owned by the Corporation and of its other corporate records (except
accounting records) and of the corporate seal, if any, and affix such seal to
all documents the execution of which on behalf of the Corporation under its seal
is duly authorized; (d) sign, with the Chairman of the Board, the President, the
Executive Vice President or a Vice President, certificates for stock of the
Corporation; (e) have charge, directly or through the transfer clerk or transfer
clerks, transfer agent or transfer agents and registrar or registrars appointed
as provided in Section 3 of Article VII of these Bylaws, of the issue, transfer
and registration of certificates for stock of the Corporation and of the records
thereof, such records to be kept in such manner as to show at any time the
amount of the stock of the Corporation issued and outstanding, the manner in
which and the time when such stock was paid for, the names, alphabetically
arranged, and the addresses of the holders of record thereof, the number of
shares held by each, and the time when each became a holder of record; (f) upon
request, exhibit or cause to be exhibited at all reasonable times to any
Director such records of the issue, transfer and registration of the
certificates for stock of the Corporation; (g) see that the books, reports,
statements, certificates and all other documents and records required by law are
properly kept and filed; and (h) see that the duties prescribed by Section 6 of
Article II of these Bylaws are performed. In general, the Secretary shall
perform all duties incident to the office of Secretary


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<PAGE>   203
and such other duties as from time to time may be assigned to him or her by the
Chairman of the Board, the President or the Board of Directors.

11.      Treasurer.

         If required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his or her duties in such sum and with such surety
or sureties as the Board of Directors shall determine. The Treasurer shall: (a)
have charge and custody of, and be responsible for, all funds, securities, notes
and valuable effects of the Corporation; (b) receive and give receipt for moneys
due and payable to the Corporation from any sources whatsoever; (c) deposit all
such moneys to the credit of the Corporation or otherwise as the Board of
Directors, the Chairman of the Board or the President shall direct in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article VI of these Bylaws; (d) cause such funds to be
disbursed by checks or drafts on the authorized depositories of the Corporation
signed as provided in Article VI of these Bylaws; (e) be responsible for the
accuracy of the amounts of, and cause to be preserved proper vouchers for, all
moneys so disbursed; (f) have the right to require from time to time reports or
statements giving such information as he or she may desire with respect to any
and all financial transactions of the Corporation from the officers or agents
transacting the same; (g) render to the Chairman of the Board, the President or
the Board, whenever they, respectively, shall request him or her so to do, an
account of the financial condition of the Corporation and of all his or her
transactions as Treasurer; and (h) upon request, exhibit or cause to be
exhibited at all reasonable times the cash books and other records to the
Chairman of the Board, the President or any of the Directors of the Corporation.
In general, the Treasurer shall perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Chairman of the Board, the President or the Board of Directors.

12.      Assistant Officers.

         Any persons elected as assistant officers shall assist in the
performance of the duties of the designated office and such other duties as
shall be assigned to them by any Vice President, the Secretary or the Treasurer,
as the case may be, or by the Board of Directors, the Chairman of the Board, or
the President.

                                    ARTICLE V

                                   COMMITTEES

1.       Executive Committee; How Constituted and Powers.

         The Board of Directors, by resolution adopted by a majority of the
whole Board of Directors, may designate one or more of the Directors then in
office, who shall include the Chairman of the Board, to constitute an Executive
Committee, which shall have and may exercise between meetings of the Board of
Directors all the delegable powers of the Board of


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<PAGE>   204
Directors to the extent not expressly prohibited by the California General
Corporation Law or by resolution of the Board of Directors. The Board may
designate one or more Directors as alternate members of the Committee who may
replace any absent or disqualified member at any meeting of the Committee. Each
member of the Executive Committee shall continue to be a member thereof only
during the pleasure of a majority of the whole Board of Directors.

2.       Executive Committee; Organization.

         The Chairman of the Board shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as secretary thereof. In case of
the absence from any meeting of the Chairman of the Board or the Secretary, the
Committee may appoint a chairman or secretary, as the case may be, of the
meeting.

3.       Executive Committee; Meetings.

         Regular meetings of the Executive Committee may be held without notice
on such days and at such places as shall be fixed by resolution adopted by a
majority of the Committee and communicated to all its members. Special meetings
of the Committee shall be held whenever called by the Chairman of the Board or a
majority of the members thereof then in office. Notice of each special meeting
of the Committee shall be given in the manner provided in Section 6 of Article
III of these Bylaws for special meetings of the Board of Directors. Notice of
any such meeting of the Executive Committee, however, need not be given to any
member of the Committee if waived by him or her in writing or by telegraph,
cable, wireless or other form of recorded communication either before or after
the meeting, or if he or she is present at such meetings, except when he or she
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Subject to the
provisions of this Article V, the Committee, by resolution adopted by a majority
of the whole Committee, shall fix its own rules of procedure and it shall keep a
record of its proceedings and report them to the board at the next regular
meeting thereof after such proceedings have been taken. All such proceedings
shall be subject to revision or alteration by the Board of Directors; provided,
however, that third parties shall not be prejudiced by any such revision or
alteration.

4.       Executive Committee; Quorum and Manner of Acting.

         A majority of the Executive Committee shall constitute a quorum for the
transaction of business, and, except as specified in Section 3 of this Article
V, the act of a majority of those present at a meeting thereof at which a quorum
is present shall be the act of the Committee. The members of the Committee shall
act only as a committee, and the individual members shall have no power as such.

5.       Other Committees.

         The Board of Directors, by resolution adopted by a majority of the
whole Board, may constitute other committees, which shall in each case consist
of one or more of the Directors


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<PAGE>   205
and, at the discretion of the Board of Directors, such officers who are not
Directors. The Board of Directors may designate one or more Directors or
officers who are not Directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee. Each
such committee shall have and may exercise such powers as the Board of Directors
may determine and specify in the respective resolutions appointing them;
provided, however, that (a) unless all of the members of any committee shall be
Directors, such committee shall not have authority to exercise any of the powers
of the Board of Directors in the management of the business and affairs of the
Corporation, and (b) if any committee shall have the power to determine the
amounts of the respective fixed salaries of the officers of the Corporation or
any of them, such committee shall consist of not less than three (3) members and
none of its members shall have any vote in the determination of the amount that
shall be paid to him or her as a fixed salary. A majority of all the members of
any such committee may fix its rules of procedure, determine its action and fix
the time and place of its meetings and specify what notice thereof, if any,
shall be given, unless the Board of Directors shall otherwise by resolution
provide.

6.       Resignations.

         Any member of the Executive Committee or any other committee may resign
therefrom at any time by giving written notice of his or her resignation to the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein, or if the time when it shall
become effective is not specified therein, it shall take effect immediately upon
its receipt by the Chairman of the Board, the President or the Secretary; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.

7.       Vacancies.

         Any vacancy in the Executive Committee or any other committee shall be
filled by the vote of a majority of the whole Board of Directors.

8.       Compensation.

         Unless otherwise expressly provided by resolution adopted by the Board
of Directors, no member of the Executive Committee or any other committee shall
receive any compensation for his or her services as a committee member. The
Board of Directors may at any time and from time to time by resolution provide
that committee members shall be paid a fixed sum for attendance at each
committee meeting or a stated salary as a committee member. In addition, the
Board of Directors may at any time and from time to time by resolution provide
that such committee members shall be paid their actual expenses, if any, of
attendance at each committee meeting. Nothing in this section shall be construed
as precluding any committee member from serving the Corporation in any other
capacity and receiving compensation therefor, but the Board of Directors may by
resolution provide that any committee member receiving compensation for


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<PAGE>   206
his or her services to the Corporation in any other capacity shall not receive
additional compensation for his or her services as a committee member.

9.       Dissolution of Committees; Removal of Committee Members.

         The Board of Directors, by resolution adopted by a majority of the
whole Board, may, with or without cause, dissolve the Executive Committee or any
other committee, and, with or without cause, remove any member thereof.

                                   ARTICLE VI

                                  MISCELLANEOUS

1.       Execution of Contracts.

         Except as otherwise required by law or by these Bylaws, any contract or
other instrument may be executed and delivered in the name of the Corporation
and on its behalf by the Chairman of the Board, the President, or any Vice
President. In addition, the Board of Directors may authorize any other officer
of officers or agent or agents to execute and deliver any contract or other
instrument in the name of the Corporation and on its behalf, and such authority
may be general or confined to specific instances as the Board of Directors may
by resolution determine.

2.       Attestation.

         Any Vice President, the Secretary, or any Assistant Secretary may
attest the execution of any instrument or document by the Chairman of the Board,
the President, or any other duly authorized officer or agent of the Corporation
and may affix the corporate seal, if any, in witness thereof, but neither such
attestation nor the affixing of a corporate seal shall be requisite to the
validity of any such document or instrument.

3.       Checks, Drafts.

         All checks, drafts, orders for the payment of money, bills of lading,
warehouse receipts, obligations, bills of exchange and insurance certificates
shall be signed or endorsed (except endorsements for collection for the account
of the Corporation or for deposit to its credit, which shall be governed by the
provisions of Section 5 of this Article VI) by such officer or officers or agent
or agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.

4.       Deposits.

         All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board of
Directors, the Chairman of the Board of Directors, or the President shall direct
in general or special accounts at such banks,


                                       14
<PAGE>   207
trust companies, savings and loan associations, or other depositories as the
Board of Directors may select or as may be selected by any officer or officers
or agent or agents of the Corporation to whom power in that respect has been
delegated by the Board of Directors. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation. The Board of Directors may make such special rules and
regulations with respect to such accounts, not inconsistent with the provisions
of these Bylaws, as it may deem expedient.

5.       Proxies in Respect of Stock or Other Securities of Other Corporations.

         Unless otherwise provided by resolution adopted by the Board of
Directors, the Chairman of the Board of Directors, the President, or any Vice
President may exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, including without limitation the right to
vote or consent with respect to such stock or other securities.

6.       Fiscal Year.

         The fiscal year of the Corporation shall begin on August 1 of each year
and shall end on the following July 31.

                                   ARTICLE VII

                                      STOCK

1.       Certificates.

         Every holder of stock in the Corporation shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman of the
Board of Directors, the President, or a Vice President and by the Secretary or
an Assistant Secretary. The signatures of such officers upon such certificate
may be facsimiles if the certificate is signed, manually or by facsimile
signature, by a transfer agent or registered by a registrar, other than the
Corporation itself or one of its employees. If any officer who has signed or
whose facsimile signature has been placed upon a certificate has ceased for any
reason to be such officer prior to issuance of the certificate, the certificate
may be issued with the same effect as if that person were such officer at the
date of issue. All certificates for stock of the Corporation shall be
consecutively numbered, shall state the number of shares represented thereby and
shall otherwise be in such form as shall be determined by the Board of
Directors, subject to such requirements as are imposed by the California General
Corporation Law. The names and addresses of the persons to whom the shares
represented by certificates are issued shall be entered on the stock transfer
books of the Corporation, together with the number of shares and the date of
issue, and in the case of cancellation, the date of cancellation. Certificates
surrendered to the Corporation for transfer shall be canceled, and no new
certificate shall be issued in exchange for such shares


                                       15
<PAGE>   208
until the original certificate has been canceled; except that in the case of a
lost, stolen, destroyed or mutilated certificate, a new certificate may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.

2.       Transfer of Stock.

         Transfers of shares of stock of the Corporation shall be made only on
the stock transfer books of the Corporation by the holder of record thereof or
by his or her legal representative or attorney in fact, who shall furnish proper
evidence of authority to transfer to the Secretary, or a transfer clerk or a
transfer agent, and upon surrender of the certificate or certificates for such
shares properly endorsed and payment of all taxes thereon. The person in whose
name shares of stock stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.

3.       Regulations.

         The Board of Directors may make such rules and regulations as it may
deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for stock of the Corporation. The
Board of Directors may appoint, or authorize any officer or officers or any
committee to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.

                                  ARTICLE VIII

                                    DIVIDENDS

         The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares of stock in the manner
and upon the terms and conditions provided in the California General Corporation
Law.

                                   ARTICLE IX

                                      SEAL

         A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of the Corporation. Nevertheless, if in any
instance a corporate seal is used, the same shall be in the form of a circle and
shall bear the full name of the Corporation and the year and state of
incorporation, or words and figures of similar import.


                                       16
<PAGE>   209
                                    ARTICLE X

                    INDEMNIFICATION OF DIRECTORS AND OFFICERS

1.       General.

         The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

2.       Derivative Actions.

         The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court having jurisdiction shall deem proper.

3.       Indemnification in Certain Cases.

         To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in


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<PAGE>   210
Sections 1 and 2 of this Article X, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.

4.       Procedure.

         Any indemnification under Sections 1 and 2 of this Article X (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such Sections 1 and 2. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders.

5.       Advances for Expenses.

         Expenses incurred by a director, officer, employee, or agent of the
Corporation in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall be ultimately
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article X.

6.       Rights Not-Exclusive.

         The indemnification and advancement of expenses provided by or granted
pursuant to, the other Sections of this Article X shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.

7.       Insurance.

         The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article X.


                                       18
<PAGE>   211
8.       Definition of Corporation.

         For the purposes of this Article X, references to "the Corporation"
include, in addition to the resulting corporation, all constituent corporations
(including any constituent of a constituent) absorbed in consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees and agents so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article X with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.

9.       Other Definitions.

         For purposes of this Article X, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
X.

10.      Continuation of Rights.

         The indemnification and advancement of expenses provided by, or granted
pursuant to this Article X shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person. No amendment to or repeal of
this Article X shall apply to or have any effect on, the rights of any director,
officer, employee or agent under this Article X which rights come into existence
by virtue of acts or omissions of such director, officer, employee or agent
occurring prior to such amendment or repeal.

                                   ARTICLE XI

                                   AMENDMENTS

         These Bylaws may be repealed, altered or amended by the affirmative
vote of the holders of a majority of the stock issued and outstanding and
entitled to vote at any meeting of Stockholders or by resolution duly adopted by
the affirmative vote of not less than a majority of the Directors in office at
any annual or regular meeting of the Board of Directors or at any special
meeting of the Board of Directors if notice of the proposed repeal, alteration
or amendment be contained in the notice of such special meeting, and new Bylaws
may be adopted, at any time only by the Board of Directors.

                                       19
<PAGE>   212
                                                                       EXHIBIT 3


                       FORM OF COMPANY AFFILIATE AGREEMENT

         This AFFILIATE AGREEMENT (this "Agreement") is being executed and
delivered by __________________ ("Affiliate") as of ________, 1996 in favor of
and for the benefit of ZILA, INC., a Delaware corporation ("Parent").

                                    RECITALS

         A. Affiliate is a shareholder [and an officer and director] of
Bio-Dental Technologies Corporation, a California corporation (the "Company").

         B. Parent, Zila Merger Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and the Company have entered into a
Merger Agreement dated as of August __, 1996 (the "Merger Agreement") providing
for the merger of Merger Sub with and into the Company (the "Merger"). The
Merger Agreement contemplates that, upon consummation of the Merger, all
outstanding shares of capital stock of the Company ("Company Common Stock") will
be converted into the right to receive shares of common stock of Parent ("Parent
Common Stock") pursuant to a formula set forth in the Merger Agreement. It is
accordingly contemplated that Affiliate will receive shares of Parent Common
Stock in the Merger.

         C. It is a condition of the Merger Agreement that Affiliate execute
this Agreement.

         D. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to them in the Merger Agreement.

                                    AGREEMENT

         1. ACCOUNTING TREATMENT. Affiliate understands and agrees that it is
intended that the Merger will be treated as a "pooling of interests" in
accordance with generally accepted accounting principles and the applicable
General Rules and Regulations published by the Securities and Exchange
Commission (the "SEC"). Affiliate further understands that Affiliate may be
deemed to be an "affiliate" of the Company: (a) for purposes of application of
the pooling-of-interests requirements and (b) within the meaning of Rule 145
("Rule 145") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), although nothing contained herein should be construed as an
admission of either such conclusion. Accordingly, the shares of Company Common
Stock held, and Parent Common Stock to be held, by Affiliate may only be
disposed of in conformity with the limitations described herein.

         2. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS. Affiliate
has been informed that the treatment of the Merger as a pooling of 


                                        1
<PAGE>   213
interests for financial accounting purposes is dependent upon the accuracy of
Affiliate's representations and warranties set forth herein, and upon
Affiliate's compliance with Affiliate's covenants set forth herein. Affiliate
understands that the representations, warranties and covenants of Affiliate set
forth herein will be relied upon by Parent, the Company and their respective
counsel and accounting firms.

         3.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF AFFILIATE. Affiliate
represents, warrants and covenants as follows:

              (A)  AUTHORITY. Affiliate has full power and authority to execute
this Agreement, to make the representations, warranties and covenants herein
contained and to perform Affiliate's obligations hereunder.

              (B)  SHARE OWNERSHIP. Exhibit A attached hereto accurately sets
forth all shares of Company Common Stock owned by Affiliate, including all
Company Common Stock as to which Affiliate has sole or shared voting or
investment power and all rights, options and warrants to acquire Company Common
Stock owned or held by Affiliate.

              (C)  RULE 145. Affiliate will not sell, transfer, exchange, pledge
or otherwise dispose of, or make any offer or agreement relating to any of the
foregoing with respect to, any shares of Parent Common Stock that Affiliate may
acquire upon conversion of Company Common Stock in the Merger, or any securities
that may be paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution therefor (all such
shares and other securities of Parent being herein sometimes collectively
referred to as "Restricted Securities"), or any option, right or other interest
with respect to any Restricted Securities, unless:

                   (i)   such transaction is permitted pursuant to Rule 145(c)
and 145(d) under the Securities Act;

                   (ii)  counsel representing Affiliate, which counsel is
reasonably satisfactory to Parent, shall have advised Parent in a written
opinion letter reasonably satisfactory to Parent and Parent's legal counsel, and
upon which Parent and its legal counsel may rely, that no registration under the
Securities Act would be required in connection with the proposed sale, transfer
or other disposition;

                   (iii) a registration statement under the Securities Act
covering the Parent Common Stock proposed to be sold, transferred or otherwise
disposed of, describing the manner and terms of the proposed sale, transfer or
other disposition, and containing a current prospectus, shall have been filed
with the SEC and made effective under the Securities Act; or

                   (iv)  an authorized representative of the SEC shall have
rendered written advice to Affiliate (sought by Affiliate or counsel to
Affiliate, with a copy thereof and all other related communications delivered to
Parent) to the effect that the SEC would take no 

                                        2
<PAGE>   214
action, or that the staff of the SEC would not recommend that the SEC take any
action, with respect to the proposed disposition if consummated.

              (D)  POOLING OF INTERESTS. Notwithstanding any other provision of
this Agreement to the contrary, Affiliate will not sell, transfer, exchange,
pledge or otherwise dispose of, or in any other way reduce Affiliate's risk of
ownership or investment in, or make any offer or agreement relating to any of
the foregoing with respect to, any Company Common Stock or any rights, options
or warrants to purchase Company Common Stock, or any Restricted Securities or
other securities of Parent:

                   (i)  during the thirty-day period immediately preceding the
Closing Date of the Merger; and

                   (ii) until such time after the Effective Time of the Merger
as Parent has publicly released a report including the combined financial
results of Parent and the Company for a period of at least thirty days of
combined operations of Parent and the Company within the meaning of Accounting
Series Release No. 130, as amended, of the SEC. Nothing in this paragraph will
be deemed to prohibit charitable contributions of such securities without
consideration to transferees who agree to all of the restrictions in this
Agreement.

         4.   LIMITED RESALES. Affiliate understands that, in addition to the
restrictions imposed under Section 3 of this Agreement, the provisions of Rule
145 limit Affiliate's public resales of Restricted Securities, in the manner set
forth in subsections (a), (b) and (c) below:

              (a)  Unless and until the restriction "cut-off" provisions of Rule
145(d)(2) or Rule 145(d)(3) set forth below become available, public resales of
Restricted Securities may only be made by Affiliate in compliance with the
requirements of Rule 145(d)(1). Rule 145(d)(1) permits such resales only: (i)
while Parent meets the public information requirements of Rule 144(c); (ii) in
brokers' transactions or in transactions with a market maker; and (iii) where
the aggregate number of Restricted Securities sold at any time together with all
sales of restricted Parent Common Stock sold for Affiliate's account during the
preceding three-month period does not exceed the greater of (A) 1% of the Parent
Common Stock outstanding or (B) the average weekly volume of trading in Parent
Common Stock on all national securities exchanges, or reported through the
automated quotation system of a registered securities association, during the
four calendar weeks preceding the date of receipt of the order to execute the
sale.

              (b)  Affiliate may make unrestricted resales of Restricted
Securities pursuant to Rule 145(d)(2) if: (i) Affiliate has beneficially owned
(within the meaning of Rule 144(d) under the Securities Act) the Restricted
Securities for at least two years after the Effective Time of the Merger; (ii)
Affiliate is not an affiliate of Parent; and (iii) Parent meets the public
information requirements of Rule 144(c).

              (c)  Affiliate may make unrestricted resales of Restricted
Securities pursuant to Rule 145(d)(3) if Affiliate has beneficially owned
(within the meaning of Rule 144(d) 


                                        3
<PAGE>   215
under the Securities Act) the Restricted Securities for at least three years and
is not, and has not been for at least three months, an affiliate of Parent.

              (d)  Parent acknowledges that the provisions of Section 3(c) of
this Agreement will be satisfied as to any sale by the undersigned of the
Restricted Securities pursuant to Rule 145(d), by a broker's letter and a letter
from the undersigned with respect to that sale stating that each of the
above-described requirements of Rule 145(d)(1) has been met or is inapplicable
by virtue of Rule 145(d)(2) or Rule 145(d)(3); provided, however, that Parent
has no reasonable basis to believe such sales were not made in compliance with
such provisions of Rule 145(d).

         5.   LEGENDS AND STOP TRANSFER. Affiliate also understands and agrees
that stop transfer instructions will be given to Parent's transfer agent with
respect to certificates evidencing the Restricted Securities and that there will
be placed on the certificates evidencing the Restricted Securities legends
stating in substance:

              "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
         SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
         IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
         AMENDED, AND THE OTHER CONDITIONS SPECIFIED IN THAT CERTAIN AFFILIATE
         AGREEMENT DATED AS OF ______, 1996 AMONG PARENT, THE COMPANY AND
         AFFILIATE, A COPY OF WHICH AFFILIATE AGREEMENT MAY BE INSPECTED BY THE
         HOLDER OF THIS CERTIFICATE AT THE OFFICES OF PARENT. PARENT WILL
         FURNISH, WITHOUT CHARGE, A COPY THEREOF TO THE HOLDER OF THIS
         CERTIFICATE UPON WRITTEN REQUEST THEREFOR."

After release of the report described in Section 3(d)(iii) hereof, certificates
evidencing Restricted Securities may be surrendered for cancellation and
reissuance with a legend referring only to the applicability of Rule 145(d)
restrictions.

         6.   AGREEMENT TO VOTE SHARES. At every meeting of the shareholders of
the Company called with respect to the Merger, and at any adjournment thereof,
and in every written consent solicited with respect to the Merger, Affiliate
shall vote all Company Common Stock owned or controlled by the undersigned in
favor of approval of the Merger and any matters that could reasonably be
expected to facilitate the Merger.

         7.   NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
sent by confirmed facsimile, sent by nationally recognized overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties as follows (or at such other address for a party as
shall be specified by like notice):


                                        4
<PAGE>   216
         IF TO PARENT:               Zila, Inc.
                                     5227 North 7th Street
                                     Phoenix, Arizona  85014
                                     Attn: Joseph Hines
                                     Facsimile No.: (602) 234-2264

         With a copy to:             Squire, Sanders & Dempsey
                                     40 North Central Avenue
                                     Phoenix, Arizona  85004
                                     Attn: Christopher D. Johnson
                                     Facsimile No: (602) 253-8129

         IF TO                At the address or facsimile set forth
         AFFILIATE:           beneath Affiliate's signature below.

              B.   SPECIFIC PERFORMANCE.  Affiliate agrees that irreparable
damages would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms, or were otherwise
breached. It is, accordingly, agreed that Parent shall be entitled to injunctive
relief to prevent breaches of the provisions of this Agreement, and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which Parent may be entitled at law or in equity.

         9.   TERMINATION. This Agreement shall be terminated and shall be or no
further force and effect if the Merger Agreement is validly terminated in
accordance with its terms without the Merger having occurred. The
representations, warranties, covenants and other provisions contained in this
Agreement shall survive the Merger.

         10.  SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any person, entity or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.

         11.  GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Arizona,
excluding that body of law pertaining to conflicts of laws.

         12.  WAIVER. No failure on the part of Parent to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
Parent in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. Parent shall not be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the

                                        5
<PAGE>   217
waiver of such claim, power, right, privilege or remedy is expressly set forth
in a written instrument duly executed and delivered on behalf of Parent, and any
such waiver shall not be applicable or have any effect except in the specific
instance in which it is given.

         13. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.

         14. FURTHER ASSURANCES. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.

         16. AMENDMENTS. This Agreement may not be amended, modified, altered,
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of Parent and Affiliate.

         17. BINDING NATURE. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of Parent and its
successors and assigns.

         18. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which the prevailing party may be entitled.

                                        6
<PAGE>   218
         IN WITNESS WHEREOF, Affiliate has caused this Agreement to be duly
executed on the day and year first above written.

                                       [AFFILIATE]

                                       Signature:


                                       _________________________________________

                                       Print Name:


                                       _________________________________________

                                       Title:


                                       _________________________________________
                                                    [if applicable]
 
                                       Address:


                                       _________________________________________
                                       _________________________________________
                                       _________________________________________
                                       Attention:_______________________________
                                       Facsimile No.:___________________________


                                        7
<PAGE>   219
                                    EXHIBIT A

Shares of Company Common Stock Beneficially Owned by Affiliate:


         _______________________________________________________________________




Options to purchase shares of Company Common Stock:


         _______________________________________________________________________





Warrants to purchase shares of Company Common Stock:


         _______________________________________________________________________
<PAGE>   220
                                                                       EXHIBIT 4


                       FORM OF PARENT AFFILIATE AGREEMENT

         This AFFILIATE AGREEMENT (this "Agreement") is being executed and
delivered by __________________________ ("Affiliate") as of ________, 1996 in
favor of and for the benefit of ZILA, INC., a Delaware corporation ("Parent").

                                    RECITALS

         A. Affiliate is a stockholder [and an officer and director] of Parent.

         B. Parent, Zila Merger Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and Bio-Dental Technologies
Corporation, a California corporation (the "Company"), have entered into a
Merger Agreement dated as of August __, 1996 (the "Merger Agreement") providing
for the merger of Merger Sub with and into the Company (the "Merger"). The
Merger Agreement contemplates that, upon consummation of the Merger, all
outstanding shares of capital stock of the Company will be converted into the
right to receive shares of common stock of Parent ("Parent Common Stock").

         C. It is a condition of the Merger Agreement that Affiliate execute
this Agreement.

         D. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to them in the Merger Agreement.

                                    AGREEMENT

         1. ACCOUNTING TREATMENT. Affiliate understands and agrees that it is
intended that the Merger will be treated as a "pooling of interests" in
accordance with generally accepted accounting principles and the applicable
General Rules and Regulations published by the Securities and Exchange
Commission (the "SEC"). Affiliate further understands that Affiliate may be
deemed to be an "affiliate" of Parent for purposes of application of the
pooling-of-interests requirements, although nothing contained herein should be
construed as an admission of either such conclusion. Accordingly, the shares of
Parent Common Stock that Affiliate holds, may only be disposed of in conformity
with the limitations described herein.

         2. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS. Affiliate
has been informed that the treatment of the Merger as a pooling of interests for
financial accounting purposes is dependent upon the accuracy of Affiliate's
representations and warranties set forth herein, and upon Affiliate's compliance
with Affiliate's covenants set forth herein. Affiliate understands that the
representations, warranties and covenants of Affiliate set forth herein will be
relied upon by Parent, the Company and their respective counsel and accounting
firms.

                                        1
<PAGE>   221
         3.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF AFFILIATE. Affiliate
represents, warrants and covenants as follows:

              (A)  AUTHORITY. Affiliate has full power and authority to execute
this Agreement, to make the representations, warranties and covenants herein
contained and to perform Affiliate's obligations hereunder.

              (B)  SHARE OWNERSHIP. Exhibit A attached hereto accurately sets
forth all shares of Parent Common Stock owned by Affiliate, including all Parent
Common Stock as to which Affiliate has sole or shared voting or investment power
and all rights, options and warrants to acquire Parent Common Stock owned or
held by Affiliate (collectively, the "Parent Securities").

              (C)  POOLING OF INTERESTS. Notwithstanding any other provision of
this Agreement to the contrary, Affiliate will not sell, transfer, exchange,
pledge or otherwise dispose of, or in any other way reduce Affiliate's risk of
ownership or investment in, or make any offer or agreement relating to any of
the foregoing with respect to, any Parent Securities:

                   (i)  during the thirty day period immediately preceding the
Closing Date of the Merger; and

                   (ii) until such time after the Effective Time of the Merger
as Parent has publicly released a report including the combined financial
results of Parent and the Company for a period of at least thirty days of
combined operations of Parent and the Company within the meaning of Accounting
Series Release No. 130, as amended, of the SEC. Nothing in this paragraph will
be deemed to prohibit charitable contributions of such securities without
consideration to transferees who agree to all of the restrictions in this
Agreement.

         4.   STOP TRANSFER. Affiliate also understands and agrees that stop
transfer instructions will be given to Parent's transfer agent with respect to
certificates evidencing the Parent Securities. After release of the report
described in Section 3(c)(ii) hereof, such stop transfer instructions will be
promptly removed.

         5.   NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
sent by confirmed facsimile, sent by nationally recognized overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties as follows (or at such other address for a party as
shall be specified by like notice):

         IF TO PARENT:            Zila, Inc.
                                  5227 North 7th Street
                                  Phoenix, Arizona  85014
                                  Attn: Joseph Hines
                                  Facsimile No.: (602) 234-2264


                                        2
<PAGE>   222
         With a copy to:          Squire, Sanders & Dempsey
                                  40 North Central Avenue
                                  Phoenix, Arizona  85004
                                  Attn: Christopher D. Johnson
                                  Facsimile No: (602) 253-8129

         IF TO            At the address or facsimile set forth
         AFFILIATE:       beneath Affiliate's signature below.

         6.   SPECIFIC PERFORMANCE. Affiliate agrees that irreparable damages
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms, or were otherwise breached.
It is, accordingly, agreed that Parent shall be entitled to injunctive relief to
prevent breaches of the provisions of this Agreement, and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which Parent may be entitled at law or in equity.

         7.   TERMINATION. This Agreement shall be terminated and shall be of no
further force and effect if the Merger Agreement is validly terminated in
accordance with its terms without the Merger having occurred. The
representations, warranties, covenants and other provisions contained in this
Agreement shall survive the Merger.

         8.   SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any person, entity or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.

         9.   GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Arizona,
excluding that body of law pertaining to conflicts of laws.

         10.  WAIVER. No failure on the part of Parent to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
Parent in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. Parent shall not be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of Parent; and any such waiver shall not be applicable or have any effect
except in the specific instance in which it is given.


                                        3
<PAGE>   223
         11. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.

         12. FURTHER ASSURANCES. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.

         13. ENTIRE AGREEMENT. This Agreement, the Merger Agreement and the
other agreements referred to in the Merger Agreement set forth the entire
understanding of Affiliate and Parent relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings between Affiliate
and Parent relating to the subject matter hereof and thereof.

         14. AMENDMENTS. This Agreement may not be amended, modified, altered,
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of Parent and Affiliate.

         15. BINDING NATURE. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of Parent and its
successors and assigns.

         16. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which the prevailing party may be entitled.

                                        4
<PAGE>   224
         IN WITNESS WHEREOF, Affiliate has caused this Agreement to be duly
executed on the day and year first above written.

                                       [AFFILIATE]

                                       Signature:


                                       _________________________________________

                                       Print Name:


                                       _________________________________________

                                       Title:


                                       _________________________________________
                                                    [if applicable]
 
                                       Address:


                                       _________________________________________
                                       _________________________________________
                                       _________________________________________
                                       Attention:_______________________________
                                       Facsimile No.:___________________________


                                        5
<PAGE>   225
                                    EXHIBIT A

Shares of Parent Common Stock Beneficially Owned by Affiliate:


         _______________________________________________________________________




Options to purchase shares of Parent Common Stock:


         _______________________________________________________________________




Warrants to purchase shares of Parent Common Stock:


         _______________________________________________________________________
<PAGE>   226
                                                                       EXHIBIT 5


                     PERSONS TO EXECUTE AFFILIATE AGREEMENTS


COMPANY-AFFILIATED PERSONS

         Curtis M. Rocca III
         G. Barton Mahan
         Timothy J. Purdy
         Joseph J. Battle, D.D.S.
         B. Mason Flemming, Jr.
         James H. Ellis
         Maxine Holland
         Douglas L. Ayer
         Terry E. Bane



PARENT-AFFILIATED PERSONS

         Joseph Hines
         Clarence J. Baudhuin
         Edwin Pomerantz
         Janice L. Backus
         Rocco J. Anselmo
         James E. Tinnell, M.D.
         Carl Schroeder
         H. Ray Cox
         Patrick M. Lonegran
         Michael S. Lesser
<PAGE>   227
                                                                       EXHIBIT 6

                           REPRESENTATION CERTIFICATE

                                       OF

                                   ZILA, INC.

                                       AND

                             ZILA MERGER CORPORATION


         ZILA, INC., a Delaware corporation ("Parent"), and ZILA MERGER
CORPORATION, a Delaware corporation ("Merger Sub") that is a wholly owned
subsidiary of Parent, each make the following representations to Squire, Sanders
& Dempsey for use in rendering its opinion concerning certain of the federal
income tax consequences of the merger of Merger Sub with and into BIO-DENTAL
TECHNOLOGIES CORPORATION, a California corporation (the "Company") (the
"Merger"), in exchange for Parent stock. Parent and Merger Sub each acknowledge
and agree that each of the following representations constitutes a material
representation to be relied upon by Squire, Sanders & Dempsey in rendering its
opinion, and that any material inaccuracy in any of the following
representations may nullify all or some of the conclusions stated in such
opinion.

         The specific representations made are as follows:

1.       Except for payments made to dissenting shareholders in accordance with
         applicable law, the only consideration received by Company shareholders
         in the Merger will be voting common stock of Parent. The fair market
         value of the Parent stock received by each Company shareholder will be
         approximately equal to the fair market value of the Company stock
         surrendered in the Merger.

2.       To the best of the knowledge of the management of Parent and Merger
         Sub, there is no plan or intention by the shareholders of the Company
         to sell, exchange, or otherwise dispose of a number of shares of Parent
         stock received in the Merger that would reduce the Company
         shareholders' ownership of Parent stock to a number of shares having a
         value, as of the date of the Merger, of less than 50 percent of the
         value of all of the
<PAGE>   228
         formerly outstanding stock of the Company as of the same date. For
         purposes of this representation, shares of Company stock exchanged for
         cash or other property or surrendered by dissenters will be treated as
         outstanding Company stock on the date of the Merger. Moreover, shares
         of Company stock and shares of Parent stock held by Company
         shareholders and otherwise sold, redeemed, or disposed of prior or
         subsequent to the Merger will be considered in making this
         representation.

3.       Following the Merger, the Company will hold at least 90 percent of the
         fair market value of its net assets and at least 70 percent of the fair
         market value of its gross assets and at least 90 percent of the fair
         market value of Merger Sub's net assets and at least 70 percent of the
         fair market value of Merger Sub's gross assets held immediately prior
         to the Merger. For purposes of this representation, amounts paid by the
         Company or Merger Sub to dissenters, amounts paid by the Company or
         Merger Sub to shareholders who receive cash or other property, amounts
         used by the Company or Merger Sub to pay reorganization expenses, and
         all redemptions and distributions (except for regular, normal
         dividends) made by the Company will be included as assets of the
         Company or Merger Sub, respectively, immediately prior to the Merger.

4.       Prior to the Merger, Parent will be in control of Merger Sub, as
         "control" is defined in section 368(c) of the Internal Revenue Code of
         1986, as amended (the "Code").

5.       The Company has no plan or intention to issue additional shares of its
         stock that would result in Parent losing control of the Company, as
         "control" is defined in section 368(c) of the Code.

6.       Parent has no plan or intention to reacquire any of its stock issued in
         the Merger.

7.       Parent has no plan or intention to liquidate the Company; to merge the
         Company with or into another corporation; to sell or otherwise dispose
         of the stock of the Company except for transfers of stock to
         corporations controlled by Parent, as "control" is defined in section
         368(c) of the Code; or to cause the Company to sell or otherwise
         dispose of any of its assets or of any of the assets acquired from
         Merger Sub, except for dispositions made in the ordinary course of
         business or transfers of assets to a corporation controlled by the
         Company, as "control" is defined in section 368(c) of the Code.

8.       Any liabilities of Merger Sub assumed by the Company and any 
         liabilities to which the transferred assets of Merger Sub are subject
         were incurred by Merger Sub in the ordinary course of its business.

9.       Following the Merger, the Company will continue its historic business
         or use a significant portion of its historic business assets in a
         business.


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<PAGE>   229
10.      Parent and Merger Sub will pay their respective expenses, if any,
         incurred in connection with the Merger and will not pay any such
         expenses on behalf of the Company or its shareholders.

11.      There is no intercorporate indebtedness existing between Parent and the
         Company or between Merger Sub and the Company that was issued,
         acquired, or will be settled at a discount.

12.      In the Merger, shares of Company stock representing control of the 
         Company, as "control" is defined in section 368(c) of the Code, will be
         exchanged solely for voting stock of Parent. No shares of Company stock
         will be redeemed or otherwise exchanged for cash or other property
         originating with or supplied by Parent, nor will Parent reimburse the
         Company directly or indirectly for any cash or other property paid to
         shareholders of the Company in redemption of their stock or otherwise.
         Further, no liabilities of the Company or the Company's shareholders
         will be assumed by Parent, nor will any of the Company stock be subject
         to any liabilities.

13.      The Company will pay its dissenting shareholders the value of their
         stock out of its own funds. No funds will be supplied for that purpose,
         directly or indirectly, by Parent or by Merger Sub, nor will Parent or
         Merger Sub directly or indirectly reimburse the Company for any
         payments to dissenters.

14.      None of the compensation received by any shareholder-employees of the
         Company will be separate consideration for or allocable to any of their
         Company stock; none of the shares of Parent stock received by any such
         shareholder-employee will be separate consideration for or allocable to
         any employment agreement; and the compensation paid to any such
         shareholder-employee will be for services actually rendered and will be
         commensurate with amounts paid to third parties for similar services
         bargained for at arm's length.

15.      At the time of the Merger, the Company will not have outstanding any
         warrants, options, convertible securities, or any other type of right
         pursuant to which any person could acquire stock in the Company that,
         if exercised or converted, would affect Parent's acquisition or
         retention of control of the Company, as "control" is defined in section
         368(c) of the Code.

16.      Parent does not own, nor has it owned during the past five years, any
         shares of the stock of the Company.

17.      No two parties to the Merger are investment companies as defined in
         sections 368(a)(2)(F)(iii) and (iv) of the Code.


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<PAGE>   230
18.      On the date of the Merger, the fair market value of the assets of the
         Company will exceed the sum of its liabilities, plus the amount of
         liabilities, if any, to which the assets are subject.

19.      Merger Sub is a newly formed Delaware corporation created for the 
         purpose of effecting the Merger.

         IN WITNESS WHEREOF, Parent and Merger Sub, each acting by an authorized
officer and with full corporate authority, have executed and delivered this
representation certificate to Squire, Sanders & Dempsey as of the date written
below.


ZILA, INC.


By: ______________________________________


Title: ___________________________________


Date: ____________________________________



ZILA MERGER CORPORATION


By: ______________________________________


Title: ___________________________________


Date: ____________________________________


                                        4
<PAGE>   231
                                                                       EXHIBIT 7


                           REPRESENTATION CERTIFICATE

                                       OF

                       BIO-DENTAL TECHNOLOGIES CORPORATION


         BIO-DENTAL TECHNOLOGIES CORPORATION, a California corporation (the
"Company"), makes the following representations to Squire, Sanders & Dempsey for
use in rendering its opinion concerning certain of the federal income tax
consequences of the merger of ZILA MERGER CORPORATION, a Delaware corporation
("Merger Sub") that is a wholly owned subsidiary of ZILA, INC. ("Parent"), with
and into the Company (the "Merger"), in exchange for stock of Parent. The
Company acknowledges and agrees that each of the following representations
constitutes a material representation to be relied upon by Squire, Sanders &
Dempsey in rendering its opinion, and that any material inaccuracy in any of the
following representations may nullify all or some of the conclusions stated in
such opinion.

         The specific representations made are as follows:

1.       Except for payments made to dissenting shareholders in accordance with
         applicable law, the only consideration received by Company shareholders
         in the Merger will be voting common stock of Parent. The fair market
         value of the Parent stock received by each Company shareholder will be
         approximately equal to the fair market value of the Company stock
         surrendered in the Merger.

2.       There is no plan or intention by the shareholders of the Company who
         own five percent or more of the Company stock, and, to the best of the
         knowledge of the management of the Company, there is no plan or
         intention on the part of the remaining shareholders of the Company to
         sell, exchange, or otherwise dispose of a number of shares of Parent
         stock received in the Merger that would reduce the Company
         shareholders' ownership of Parent stock to a number of shares having a
         value, as of the date of the Merger, of less than 50 percent of the
         value of all of the formerly outstanding stock of the Company as of the
         same date. For purposes of this representation, shares of Company stock
         exchanged for cash or other property or surrendered by dissenters will
         be treated as outstanding Company stock on the date of the Merger.
         Moreover, shares of Company stock and shares of Parent stock held by
         Company shareholders and otherwise sold,
<PAGE>   232
         redeemed, or disposed of prior or subsequent to the Merger will be
         considered in making this representation.

3.       Following the Merger, the Company will hold at least 90 percent of the
         fair market value of its net assets and at least 70 percent of the fair
         market value of its gross assets and at least 90 percent of the fair
         market value of Merger Sub's net assets and at least 70 percent of the
         fair market value of Merger Sub's gross assets held immediately prior
         to the Merger. For purposes of this representation, amounts paid by the
         Company or Merger Sub to dissenters, amounts paid by the Company or
         Merger Sub to shareholders who receive cash or other property, amounts
         used by the Company or Merger Sub to pay reorganization expenses, and
         all redemptions and distributions (except for regular, normal
         dividends) made by the Company will be included as assets of the
         Company or Merger Sub, respectively, immediately prior to the Merger.

4.       The Company has no plan or intention to issue additional shares of its
         stock that would result in Parent losing control of the Company, as
         "control" is defined in section 368(c) of the Internal Revenue Code of
         1986, as amended (the "Code").

5.       Following the Merger, the Company will continue its historic business
         or use a significant portion of its historic business assets in a
         business.

6.       The Company and the shareholders of the Company will pay their
         respective expenses, if any, incurred in connection with the Merger,
         and neither Parent, Merger Sub, nor the Company will pay any such
         expenses for Company shareholders.

7.       The Company will pay its dissenting shareholders the value of their
         stock out of the Company's own funds. No funds will be supplied for
         that purpose, directly or indirectly, by the Parent or Merger Sub, nor
         will Parent or Merger Sub directly or indirectly reimburse the Company
         for any payments to dissenters.

8.       There is no intercorporate indebtedness existing between Parent and the
         Company or between Merger Sub and the Company that was issued,
         acquired, or will be settled at a discount.

9.       In the Merger, shares of Company stock representing control of the
         Company, as "control" is defined in section 368(c) of the Code, will be
         exchanged solely for voting stock of Parent. No shares of Company stock
         will be redeemed by the Company or otherwise exchanged for cash or
         other property originating with or supplied by Parent, nor will Parent
         reimburse the Company directly or indirectly for any cash or other
         property paid to shareholders of the Company in redemption of their
         stock or otherwise. Further, no liabilities of the Company or the
         Company's shareholders will be assumed by Parent, nor will any of the
         Company stock be subject to any liabilities.

10.      At the time of the Merger, the Company will not have outstanding any
         warrants, options, convertible securities, or any other type of right
         pursuant to which any person could acquire stock in the Company that,
         if exercised or converted, would affect Parent's

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<PAGE>   233
         acquisition or retention of control of the Company, as "control" is
         defined in section 368(c) of the Code.

11.      None of the compensation received by any shareholder-employees of the
         Comapny will be separate consideration for or allocable to any of their
         Company stock; none of the shares of Parent stock received by any such
         shareholder-employee will be separate consideration for or allocable to
         any employment agreement; and the compensation paid to any such
         shareholder-employee will be for services actually rendered and will be
         commensurate with amounts paid to third parties for similar services
         bargained for at arm's length.

12.      To the best of the knowledge of the management of the Company, Parent
         does not own, nor has it owned during the past five years, any shares
         of the stock of the Company.

13.      No two parties to the Merger are investment companies as defined in 
         sections 368(a)(2)(F)(iii) and (iv) of the Code.

14.      On the date of the Merger, the fair market value of the assets of the
         Company will exceed the sum of its liabilities, plus the amount of
         liabilities, if any, to which the assets are subject.

15.      The Company is not under the jurisdiction of a court in a Title 11 or
         similar case within the meaning of section 368(a)(3)(A) of the Code.

         IN WITNESS WHEREOF, the Company, acting by an authorized officer and
with full corporate authority, has executed and delivered this representation
certificate to Squire, Sanders & Dempsey as of the date written below.


                                       BIO-DENTAL TECHNOLOGIES CORPORATION


                                       By  _____________________________________


                                       Title: __________________________________


                                       Date: ___________________________________


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<PAGE>   234
                                                                       EXHIBIT 8


                    SHAREHOLDER'S REPRESENTATION CERTIFICATE


         I understand that Squire, Sanders & Dempsey has been asked to render
its opinion as to certain of the federal income tax consequences of a proposed
transaction (the "Merger") between ZILA MERGER CORPORATION, a Delaware
corporation ("Merger Sub") that is a wholly owned subsidiary of ZILA, INC., a
Delaware corporation ("Parent"), and BIO-DENTAL TECHNOLOGIES CORPORATION, a
California corporation (the "Company"). The terms of the Merger are set forth in
the Merger Agreement dated as of August __, 1996.

         In connection with Squire, Sanders & Dempsey's undertaking to render
such opinion, I have been asked, as a shareholder of the Company, to furnish the
following representations of fact upon which Squire, Sanders & Dempsey may rely
for that purpose.

1.       I have no plan or intention to sell, exchange, or otherwise dispose of
         any shares of the Parent received by me in connection with the Merger;
         however, this representation is not intended as a promise that I will
         not sell such shares at some point in the future.

2.       I will pay my expenses, if any, incurred in connection with the Merger
         and I will not be reimbursed for any such expenses by either Parent,
         Merger Sub, or the Company.




Date:                                  _________________________________________
                                             [Name]
<PAGE>   235
                                   APPENDIX B
   
    

                           Sections 1300 through 1312
                                     of the
                       California General Corporation Law

SECTION 1300.  SHAREHOLDER IN SHORT-FORM MERGER; PURCHASE AT FAIR
MARKET VALUE; "DISSENTING SHARES"; "DISSENTING SHAREHOLDER"

               (a) If the approval of the outstanding shares (Section 152) of a
          corporation is required for a reorganization under subdivisions (a)
          and (b) or subdivision (e) or (f) of Section 1201, each shareholder of
          the corporation entitled to vote on the transaction and each
          shareholder of a subsidiary corporation in a short-form merger may, by
          complying with this chapter, require the corporation in which the
          shareholder holds shares to purchase for cash at their fair market
          value the shares owned by the shareholder which are dissenting shares
          as defined in subdivision (b). The fair market value shall be
          determined as of the day before the first announcement of the terms of
          the proposed reorganization or short-form merger, excluding any
          appreciation or depreciation in consequence of the proposed action,
          but adjusted for any stock split, reverse stock split, or share
          dividend which becomes effective thereafter.

               (b) As used in this chapter, "dissenting shares" means shares
          which come within all of the following descriptions:

                    (1) Which were not immediately prior to the reorganization
               or short-form merger either (A) listed on any national securities
               exchange certified by the Commissioner of Corporations under
               subdivision (o) of Section 25100 or (B) listed on the list of OTC
               margin stocks issued by the Board of Governors of the Federal
               Reserve System, and the notice of meeting of shareholders to act
               upon the reorganization summarizes this section and Sections
               1301, 1302, 1303 and 1304; provided, however, that this provision
               does not apply to any shares with respect to which there exists
               any restriction on transfer imposed by the corporation or by any
               law or regulation; and provided, further, that this provision
               does not apply to any class of shares described in subparagraph
               (A) or (B) if demands for payment are filed with respect to 5
               percent or more of the outstanding shares of that class.

                    (2) Which were outstanding on the date for the determination
               of shareholders entitled to vote on the reorganization and (A)
               were not voted in favor of the reorganization or, (B) if
               described in subparagraph (A) or (B) of paragraph (1) (without
               regard to the provisos in that paragraph), were voted against the
               reorganization, or which were held of record on the effective
               date of a short-form merger; provided, however, that subparagraph
               (A) rather than subparagraph (B) of this paragraph applies in any
               case where the approval required by Section 1201 is sought by
               written consent rather than at a meeting.


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<PAGE>   236
                    (3) Which the dissenting shareholder has demanded that the
               corporation purchase at their fair market value, in accordance
               with Section 1301.

                    (4) Which the dissenting shareholder has submitted for
               endorsement, in accordance with Section 1302.

               (c) As used in this chapter, "dissenting shareholder" means the
          record holder of dissenting shares and includes a transferee of
          record.

SECTION 1301.  NOTICE TO HOLDER OF DISSENTING SHARES OF REORGANIZATION
APPROVAL; DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND

               (a) If, in the case of a reorganization, any shareholders of a
          corporation have a right under Section 1300, subject to compliance
          with paragraphs (3) and (4) of subdivision (b) thereof, to require the
          corporation to purchase their shares for cash, such corporation shall
          mail to each such shareholder a notice of the approval of the
          reorganization by its outstanding shares (Section 152) within 10 days
          after the date of such approval, accompanied by a copy of Sections
          1300, 1302, 1303, 1304 and this section, a statement of the price
          determined by the corporation to represent the fair market value of
          the dissenting shares, and a brief description of the procedure to be
          followed if the shareholder desires to exercise the shareholder's
          right under such sections. The statement of price constitutes an offer
          by the corporation to purchase at the price stated any dissenting
          shares as defined in subdivision (b) of Section 1300, unless they lose
          their status as dissenting shares under Section 1309.

               (b) Any shareholder who has a right to require the corporation to
          purchase the shareholder's shares for cash under Section 1300, subject
          to compliance with paragraphs (3) and (4) of subdivision (b) thereof,
          and who desires the corporation to purchase such shares shall make
          written demand upon the corporation for the purchase of such shares
          and payment to the shareholder in cash of their fair market value. The
          demand is not effective for any purpose unless it is received by the
          corporation or any transfer agent thereof (1) in the case of shares
          described in clause (i) or (ii) of paragraph (1) of subdivision (b) of
          Section 1300 (without regard to the provisos in that paragraph), not
          later than the date of the shareholders' meeting to vote upon the
          reorganization, or (2) in any other case within 30 days after the date
          on which the notice of the approval by the outstanding shares pursuant
          to subdivision (a) or the notice pursuant to subdivision (i) of
          Section 1110 was mailed to the shareholder.

               (c) The demand shall state the number and class of the shares
          held of record by the shareholder which the shareholder demands that
          the corporation purchase and shall contain a statement of what such
          shareholder claims to be the fair market value of those shares as of
          the day before the announcement of the proposed reorganization or
          short-form merger. The statement of fair market value constitutes an
          offer by the shareholder to sell the shares at such price.


                                        2
<PAGE>   237
SECTION 1302.  STAMPING OR ENDORSING DISSENTING SHARES

               Within 30 days after the date on which notice of the approval by
          the outstanding shares or the notice pursuant to subdivision (i) of
          Section 1110 was mailed to the shareholder, the shareholder shall
          submit to the corporation at its principal office or at the office of
          any transfer agent thereof, (a) if the shares are certificated
          securities, the shareholder's certificates representing any shares
          which the shareholder demands that the corporation purchase, to be
          stamped or endorsed with a statement that the shares are dissenting
          shares or to be exchanged for certificates of appropriate denomination
          so stamped or endorsed or (b) if the shares are uncertificated
          securities, written notice of the number of shares which the
          shareholder demands that the corporation purchase. Upon subsequent
          transfers of the dissenting shares on the books of the corporation,
          the new certificates, initial transaction statement, and other written
          statements issued therefor shall bear a like statement, together with
          the name of the original dissenting holder of the shares.

SECTION 1303.  DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH
INTEREST THEREON; WHEN PRICE TO BE PAID

               (a) If the corporation and the shareholder agree that the shares
          are dissenting shares and agree upon the price of the shares, the
          dissenting shareholder is entitled to the agreed price with interest
          thereon at the legal rate on judgments from the date of the agreement.
          Any agreements fixing the fair market value of any dissenting shares
          as between the corporation and the holders thereof shall be filed with
          the secretary of the corporation.

               (b) Subject to the provisions of Section 1306, payment of the
          fair market value of dissenting shares shall be made within 30 days
          after the amount thereof has been agreed or within 30 days after any
          statutory or contractual conditions to the reorganization are
          satisfied, whichever is later, and in the case of certificated
          securities, subject to surrender of the certificates therefor, unless
          provided otherwise by agreement.

SECTION 1304.  ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE
DISSENTING SHARES OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH;
JOINDER OF SHAREHOLDERS; CONSOLIDATION OF ACTIONS; DETERMINATION OF
ISSUES; APPOINTMENT OF APPRAISERS

               (a) If the corporation denies that the shares are dissenting
          shares, or the corporation and the shareholder fail to agree upon the
          fair market value of the shares, then the shareholder demanding
          purchase of such shares as dissenting shares or any interested
          corporation, within six months after the date on which notice of the
          approval by the outstanding shares (Section 152) or notice pursuant to
          subdivision (i) of Section 1110 was mailed to the shareholder, but not
          thereafter, may file a complaint in the superior court of the proper
          county praying the court to determine whether the shares are
          dissenting


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<PAGE>   238
          shares or the fair market value of the dissenting shares or
          both or may intervene in any action pending on such a complaint.

               (b) Two or more dissenting shareholders may join as plaintiffs or
          be joined as defendants in any such action and two or more such
          actions may be consolidated.

               (c) On the trial of the action, the court shall determine the
          issues. If the status of the shares as dissenting shares is in issue,
          the court shall first determine that issue. If the fair market value
          of the dissenting shares is in issue, the court shall determine, or
          shall appoint one or more impartial appraisers to determine, the fair
          market value of the shares.

SECTION 1305.  DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF
REPORT; DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT, AND
PAYMENT; APPEAL; COSTS OF ACTION

               (a) If the court appoints an appraiser or appraisers, they shall
          proceed forthwith to determine the fair market value per share. Within
          the time fixed by the court, the appraisers, or a majority of them,
          shall make and file a report in the office of the clerk of the court.
          Thereupon, on the motion of any party, the report shall be submitted
          to the court and considered on such evidence as the court considers
          relevant. If the court finds the report reasonable, the court may
          confirm it.

               (b) If a majority of the appraisers appointed fail to make and
          file a report within 10 days from the date of their appointment or
          within such further time as may be allowed by the court or the report
          is not confirmed by the court, the court shall determine the fair
          market value of the dissenting shares.

               (c) Subject to the provisions of Section 1306, judgment shall be
          rendered against the corporation for payment of an amount equal to the
          fair market value of each dissenting share multiplied by the number of
          dissenting shares which any dissenting shareholder who is a party, or
          who has intervened, is entitled to require the corporation to
          purchase, with interest thereon at the legal rate from the date on
          which judgment was entered.

               (d) Any such judgment shall be payable forthwith with respect to
          uncertificated securities and, with respect to certificated
          securities, only upon the endorsement and delivery to the corporation
          of the certificates for the shares described in the judgment. Any
          party may appeal from the judgment.

               (e) The costs of the action, including reasonable compensation to
          the appraisers to be fixed by the court, shall be assessed or
          apportioned as the court considers equitable, but, if the appraisal
          exceeds the price offered by the corporation, the corporation shall
          pay the costs (including in the discretion of the court attorneys'
          fees, fees of expert witnesses and interest at the legal rate on
          judgments from the date of compliance with Sections 1300, 1301 and
          1302 if the value awarded by the court for the shares is more 


                                        4
<PAGE>   239
          than 125 percent of the price offered by the corporation under 
          subdivision (a) of Section 1301).

SECTION 1306.  PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF
FAIR MARKET VALUE; EFFECT

               To the extent that the provisions of Chapter 5 prevent the
          payment to any holders of dissenting shares of their fair market
          value, they shall become creditors of the corporation for the amount
          thereof together with interest at the legal rate on judgments until
          the date of payment, but subordinate to all other creditors in any
          liquidation proceeding, such debt to be payable when permissible under
          the provisions of Chapter 5.

SECTION 1307.  DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES

               Cash dividends declared and paid by the corporation upon the
          dissenting shares after the date of approval of the reorganization by
          the outstanding shares (Section 152) and prior to payment for the
          shares by the corporation shall be credited against the total amount
          to be paid by the corporation therefor.

SECTION 1308.  RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF
DEMAND FOR PAYMENT

               Except as expressly limited in this chapter, holders of
          dissenting shares continue to have all the rights and privileges
          incident to their shares, until the fair market value of their shares
          is agreed upon or determined. A dissenting shareholder may not
          withdraw a demand for payment unless the corporation consents thereto.

SECTION 1309.  WHEN DISSENTING SHARES LOSE THEIR STATUS

               Dissenting shares lose their status as dissenting shares and the
          holders thereof cease to be dissenting shareholders and cease to be
          entitled to require the corporation to purchase their shares upon the
          happening of any of the following:

               (a) The corporation abandons the reorganization. Upon abandonment
          of the reorganization, the corporation shall pay on demand to any
          dissenting shareholder who has initiated proceedings in good faith
          under this chapter all necessary expenses incurred in such proceedings
          and reasonable attorneys' fees.

               (b) The shares are transferred prior to their submission for
          endorsement in accordance with Section 1302 or are surrendered for
          conversion into shares of another class in accordance with the
          articles.


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<PAGE>   240
               (c) The dissenting shareholder and the corporation do not agree
          upon the status of the shares as dissenting shares or upon the
          purchase price of the shares, and neither files a complaint or
          intervenes in a pending action as provided in Section 1304, within six
          months after the date on which notice of the approval by the
          outstanding shares or notice pursuant to subdivision (i) of Section
          1110 was mailed to the shareholder.

               (d) The dissenting shareholder, with the consent of the
          corporation, withdraws the shareholder's demand for purchase of the
          dissenting shares.

SECTION 1310.  SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION
PENDING LITIGATION

               If litigation is instituted to test the sufficiency or regularity
          of the votes of the shareholders in authorizing a reorganization, any
          proceedings under Sections 1304 and 1305 shall be suspended until
          final determination of such litigation.

SECTION 1311.  SHARES TO WHICH CHAPTER INAPPLICABLE

               This chapter, except Section 1312, does not apply to classes of
         shares whose terms and provisions specifically set forth the amount to
         be paid in respect to such shares in the event of a reorganization or
         merger.

SECTION 1312.  ATTACK ON VALIDITY OF REORGANIZATION OR SHORT-FORM
MERGER; RIGHTS OF SHAREHOLDERS; BURDEN OF PROOF

               (a) No shareholder of a corporation who has a right under this
          chapter to demand payment of cash for the shares held by the
          shareholder shall have any right at law or in equity to attack the
          validity of the reorganization or short-form merger, or to have the
          reorganization or short-form merger set aside or rescinded, except in
          an action to test whether the number of shares required to authorize
          or approve the reorganization have been legally voted in favor
          thereof; but any holder of shares of a class whose terms and
          provisions specifically set forth the amount to be paid in respect to
          them in the event of a reorganization or short-form merger is entitled
          to payment in accordance with those terms and provisions or, if the
          principal terms of the reorganization are approved pursuant to
          subdivision (b) of Section 1202, is entitled to payment in accordance
          with the terms and provisions of the approved reorganization.

               (b) If one of the parties to a reorganization or short-form
          merger is directly or indirectly controlled by, or under common
          control with, another party to the reorganization or short-form
          merger, subdivision (a) shall not apply to any shareholder of such
          party who has not demanded payment of cash for such shareholder's
          shares pursuant to this chapter; but if the shareholder institutes any
          action to attack the validity of the reorganization or short-form
          merger or to have the reorganization or short-form merger set aside or
          rescinded, the shareholder shall not thereafter have any right to


                                        6
<PAGE>   241
          demand payment of cash for the shareholder's shares pursuant to this
          chapter. The court in any action attacking the validity of the
          reorganization or short-form merger or to have the reorganization or
          short-form merger set aside or rescinded shall not restrain or enjoin
          the consummation of the transaction except upon 10 days' prior notice
          to the corporation and upon a determination by the court that clearly
          no other remedy will adequately protect the complaining shareholder or
          the class of shareholders of which such shareholder is a member.

               (c) If one of the parties to a reorganization or short-form
          merger is directly or indirectly controlled by, or under common
          control with, another party to the reorganization or short-form
          merger, in any action to attack the validity of the reorganization or
          short-form merger or to have the reorganization or short-form merger
          set aside or rescinded, (1) a party to a reorganization or short-form
          merger which controls another party to the reorganization or
          short-form merger shall have the burden of proving that the
          transaction is just and reasonable as to the shareholders of the
          controlled party, and (2) a person who controls two or more parties to
          a reorganization shall have the burden of proving that the transaction
          is just and reasonable as to the shareholders of any party so
          controlled.


                                        7
<PAGE>   242
                                     PART II

                   INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20.       INDEMNIFICATION OF DIRECTORS AND OFFICERS.

         Article XI of Zila's Certificate of Incorporation limits, to the full
extent permitted by Delaware law, directors' personal liability to Zila or its
stockholders for monetary damages for breach of fiduciary duty. Section 102 of
the Delaware General Corporation Law, as amended, enables a corporation to
eliminate or limit personal liability of members of its board of directors for
violations of their fiduciary duty of care. However, Delaware law does not
permit the elimination of a director's liability for breaching his duty of
loyalty, failing to act in good faith, engaging in intentional misconduct,
knowingly violating a law, unlawfully paying a dividend or approving a stock
repurchase or obtaining an improper personal benefit. The limitations of
liability provided by the statute continues after a director has ceased to
occupy such position. The statute has no effect on the availability of equitable
remedies, such as an injunction or rescission, for breach of fiduciary duty. See
Exhibit 3-A to this Registration Statement.

         Article X of Zila's Bylaws requires indemnification of directors and
officers of Zila to the full extent permitted by Delaware law for claims against
them in their official capacities, including stockholders' derivative actions.
Article X requires that Zila advance expenses incurred in the defense of such
claims and continue the right of indemnification for persons who have ceased to
be directors or officers, and permits Zila to enter into indemnification
agreements with its directors and officers. See Exhibit 3-B to this Registration
Statement.

         Section 145 of the Delaware General Corporation Law, as amended,
applies to Zila and provides for the indemnification of officers and directors
in specified instances. It permits a corporation, pursuant to a bylaw provision
in an indemnity contract, to pay an officer's or director's litigation expenses
in advance of a proceeding's final disposition, and provides that rights arising
under an indemnity agreement or bylaw provision may continue as to a person who
has ceased to be a director or officer.

         Article XI of the Certificate of Incorporation of Zila (the "Zila
Certificate") limits, to the full extent permitted by Delaware law, directors'
and officers' personal liability to Zila or its stockholders for damages for
breach of fiduciary duty, except for liability for (i) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (ii) unlawfully paying a dividend or authorizing the repurchase of stock,
(iii) for any breach of the director's duty to loyalty to Zila or its
stockholders or (iv) for any transaction from which the director derived on
improper personal benefit. The limitation of liability provided by the Zila
Certificate and the Delaware statute continues after a director or officer has
ceased to occupy such position. Neither the Zila Certificate nor the Delaware
statute has any effect on the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.


                                      II-1
<PAGE>   243
         The above discussion is qualified in its entirety by reference to
Zila's Certificate of Incorporation and Bylaws. See Exhibits 3-A and 3-B to this
Registration Statement.


                                      II-2
<PAGE>   244
ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

         (a)  EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT                                                               METHOD
NUMBER                    DESCRIPTION OF EXHIBIT                     OF FILING
- ------                    ----------------------                     ---------
<S>         <C>                                                     <C> 
   2          Merger Agreement dated August 8, 1996 among                *
              Zila, Inc., Bio-Dental Technologies Corporation     
              and Zila Merger Corporation                         
                                                                  
  3-A         Certificate of Incorporation,                              A
              as amended                                          
                                                                  
  3-B         Bylaws                                                     A
                                                                  
  4-A         Specimen Common Stock Certificate                          A
                                                                  
  4-C         Specimen Warrant Certificate                               B
                                                                  
   5          Legal Opinion of Squire, Sanders & Dempsey                **
                                                                  
   8          Form of Tax Opinion of Squire, Sanders & Dempsey          **

 10-A         Zila Marketing Agreement, dated June 1, 1992,              C
              among Daleco Zila Partners II, L.P., Zila, Inc.     
              and Daleco Capital Corporation (with exhibits)      
                                                                  
 10-B         Assignment and Royalty Agreement dated                     D
              December 31, 1991 between Zila, Inc. and            
              Crossing Research Associates                        
                                                                  
10-C(1)       Assignment and Royalty Agreement dated                     D
              December 31, 1991 between Zila, Inc. and            
              CTM Associates, Inc.                                
                                                                  
10-C(2)       First Amendment to Assignment and Royalty                  E
              Agreement dated as of October 1, 1992 between       
              Zila, Inc. and CTM Associates, Inc.                 
                                                                  
10-C(3)       Second Amendment to Assignment and Royalty                 E
              Agreement dated as of July 1, 1994 between          
              Zila, Inc. and CTM Associates, Inc.                 
</TABLE>

                                      II-3
<PAGE>   245

<TABLE>
<CAPTION>
EXHIBIT                                                                  METHOD
NUMBER                           DESCRIPTION OF EXHIBIT                 OF FILING
- ------                           ----------------------                 ---------
<S>         <C>                                                          <C>
 10-D         Revolving Line of Credit Loan Agreement                       D
              dated April 8, 1991 between Zila, Inc. and The          
              Valley National Bank of Arizona                         
                                                                      
10-E(1)       Stock Option Award Plan, as amended                           F
                                                                      
10-E(2)       Non-Employee Directors Stock Option Plan, as                  F
              amended                                                 
                                                                      
 10-F         License Agreement dated February 5, 1990                      G
              between Zila Pharmaceuticals, Inc. and Bausch           
              and Lomb Ireland                                        
                                                                      
 10-G         Purchase Agreement dated June 12, 1991                        H
              between Zila, Inc. and AGF (Assurances                  
                                                                      
              Generales De France)                                    
                                                                      
 10-H         Purchase Agreement dated June 12, 1991                        H
              between Zila, Inc. and France B.B.L                     
                                                                      
 10-I         Purchase Agreement dated June 12, 1991                        H
              between Zila, Inc. and Preservatrice Fonciere           
              Assurance                                               
                                                                      
 10-J         Manufacturing and Distribution Agreement                      I
              dated March 12, 1993 between Zila, Inc. and             
              Germiphene Corporation                                  
                                                                      
 10-K         Agreement dated November 26, 1993 between                     J
              Cheseborough Ponds USA Co. and Zila                     
              Pharmaceuticals, Inc.                                   
                                                                      
 10-L         Second Amendment to Assignment and Royalty                    J
              Agreement dated December 1, 1993 between                
              Zila, Inc. and Crossing Research Associates             
                                                                      
 10-M         Agreement dated January 24, 1994 between                      K
              Daleco Zila Partners II L.P., a California limited      
              partnership, and Zila, Inc.                             
</TABLE>


                                      II-4
<PAGE>   246
<TABLE>
<CAPTION>
EXHIBIT                                                                    METHOD
NUMBER                           DESCRIPTION OF EXHIBIT                  OF FILING
- ------                           ----------------------                  ---------
<S>           <C>                                                        <C>
 10-N         Employment Agreement dated February 10,                         E
              1992 between Zila, Inc. and Joseph Hines            
                                                                  
 10-O         Employment Agreement dated February 10,                         E
              1992 between Zila, Inc. and Clarence J.             
              Baudhuin                                            
                                                                  
 10-P         Employment Agreement dated February 10,                         E
              1992 between Zila, Inc. and Edwin Pomerantz         
                                                                  
  11          Statement re: Computation of Net                                L
              Income (Loss) Per Common Share                      
                                                                  
  21          Subsidiaries of Registrant                                      L
                                                                  
 23-A         Consent of Deloitte & Touche LLP                               **
                                                                  
 23-B         Consent of Grant Thornton LLP                                  **
                                                                  
 23-C         Consents of Counsel                                        Included in
                                                                      Exhibits 5 and 8
                                                                  
  24          Powers of Attorney                                     See Signature Page
</TABLE>
- ---------------------------------
     *    See Appendix A to the Proxy Statement/Prospectus which is a part of
          this Registration Statement

     **   Filed herewith

     ***  Previously filed as an exhibit to this Registration Statement

     A    Incorporated by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended July 31, 1988, as amended

     B    Incorporated by reference to Exhibit 4-C of Amendment No. 2 to Form
          S-4 Registration Statement No. 33-19647

     C    Incorporated by reference to Exhibit 10-A of the Registrant's Annual
          Report on Form 10-K for the fiscal year ended July 31, 1992, as
          amended

     D    Incorporated by reference to Form S-3 Registration Statement No.
          33-46239


                                      II-5
<PAGE>   247
     E    Incorporated by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended July 31, 1994

     F    Incorporated by reference to the Registrant's Quarterly Report on Form
          10-Q for the quarterly period ended January 31, 1996

     G    Incorporated by reference to Exhibit 10-C to Post-Effective Amendment
          No. 3 to Form S-1 Registration Statement No. 33-27739

     H    Incorporated by reference to Form S-3 Registration Statement No.
          33-27416

     I    Incorporated by reference to Exhibit 10-L of the Registrant's Annual
          Report on Form 10-K for the fiscal year ended July 31, 1993, as
          amended

     J    Incorporated by reference to the Registrant's Quarterly Report on Form
          10-Q for the fiscal quarter ended October 31, 1993

     K    Incorporated by reference to Exhibit 10-A of the Registrant's
          Quarterly Report on Form 10-Q for the fiscal quarter ended January 31,
          1994

     L    Incorporated by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended July 31, 1995

          (b) FINANCIAL STATEMENT SCHEDULES.

         The applicable financial statement schedules are contained in Zila's
Annual Report to Stockholders for the fiscal year ended July 31, 1995 that
accompanies the Proxy Statement/Prospectus included in this registration
statement, and such financial statement schedules are incorporated herein by
reference.

          (c) ITEM 4(B) INFORMATION.

   
               Not applicable.
    


                                      II-6
<PAGE>   248
ITEM 22.  UNDERTAKINGS

     (a) The undersigned Registrant hereby undertakes:

          (1)  To file, during any period in which offers or sales are being
               made, a post-effective amendment to this registration statement;

               (i)  To include any prospectus required by Section 10(a)(3) of
                    the Securities Act of 1933;

               (ii) To reflect in the prospectus any facts or events arising
                    after the effective date of the registration statement (or
                    the most recent post-effective amendment thereof) which,
                    individually or in the aggregate, represent a fundamental
                    change in the information set forth in the registration
                    statement. Notwithstanding the foregoing, any increase or
                    decrease in volume of securities offered (if the total
                    dollar value of securities offered would not exceed that
                    which was registered) and any deviation from the low or high
                    and of the estimated maximum offering range may be reflected
                    in the form of prospectus filed with the Commission pursuant
                    to Rule 424(b) if, in the aggregate, the changes in volume
                    and price represent no more than 20 percent change in the
                    maximum aggregate offering price set forth in the
                    "Calculation of Registration Fee" table in the effective
                    registration statement.

               (iii) To include any material information with respect to the
                    plan of distribution not previously disclosed in the
                    registration statement or any material change to such
                    information in the registration statement;

          (2)  That, for the purpose of determining any liability under the
               Securities Act of 1933, each such post-effective amendment shall
               be deemed to be a new registration statement relating to the
               securities offered therein, and the offering of such securities
               at that time shall be deemed to be the initial bona fide offering
               thereof.

          (3)  To remove from registration by means of a post-effective
               amendment any of the securities being registered which remain
               unsold at the termination of the offering.

          (4)  If the Registrant is a foreign private issuer, to file a
               post-effective amendment to the registration statement to include
               any financial statements required by Rule 3-19 at the start of
               any delayed offering or throughout a continuous offering.
               Financial statements and information otherwise required by
               Section 10(a)(3) of the Act need not be furnished, provided, that
               the Registrant includes in the prospectus, by means of a
               post-effective amendment, financial, financial statements
               required pursuant to this


                                      II-7
<PAGE>   249
               paragraph (a)(4) and other information necessary to ensure that
               all other information in the prospectus is at least as current as
               the date of those financial statements. Notwithstanding the
               foregoing, with respect to registration statements on Form F-3, a
               post-effective amendment need not be filed to include financial
               statements and information required by Section 10(a)(3) of the
               Act or Rule 3-19 if such financial statements and information are
               contained in periodic reports filed with or furnished to the
               Commission by the Registrant pursuant to section 13 or section
               15(d) of the Securities Exchange Act of 1934 that are
               incorporated by reference in the Form F-3.

     (b)  The undersigned Registrant hereby undertakes as follows: that prior to
          any public reoffering of the securities registered hereunder through
          use of a prospectus which is part of this registration statement, by
          any person or party who is deemed to be an underwriter within the
          meaning of Rule 145(c), the issuer undertakes that such reoffering
          prospectus will contain the information called for by the applicable
          registration form with respect to reofferings by persons who may be
          deemed underwriters, in addition to the information called for by the
          other Items of the applicable form.

     (c)  The Registrant undertakes that every prospectus (i) that is filed
          pursuant to paragraph (1) immediately preceding, or (ii) that purports
          to meet the requirements of section 10(a)(3) of the Act and is used in
          connection with an offering of securities subject to Rule 415, will be
          filed as a part of an amendment to the registration statement and will
          not be used until such amendment is effective, and that, for purposes
          of determining any liability under the Securities Act of 1933, each
          such post-effective amendment shall be deemed to be a new registration
          statement relating to the securities offered therein, and the offering
          of such securities at that time shall be deemed to be the initial bona
          fide offering thereof.

     (d)  The undersigned Registrant hereby undertakes that, for purposes of
          determining any liability under the Securities Act of 1933, each
          filing the Registrant's annual report pursuant to Section 13(a) or
          Section 15(d) of the Securities Exchange Act of 1934 (and, where
          applicable, each filing of an employee benefit plan's annual report
          pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
          is incorporated by reference in the registration statement shall be
          deemed to be a new registration statement relating to the securities
          offered therein, and the offering of such securities at that time
          shall be deemed to be the initial bona fide offering thereof.

     (e)  Insofar as indemnification for liabilities arising under the
          Securities Act of 1933 may be permitted to directors, officers and
          controlling persons of the Registrant pursuant to the foregoing
          provisions, or otherwise, the Registrant has been advised that in the
          opinion of the Securities and Exchange Commission such indemnification
          is against the public policy as expressed in the Act and is,
          therefore, unenforceable. In the event that a claim for
          indemnification against such liabilities (other than the payment by
          the Registrant of expenses incurred or paid by a director, officer or
          controlling 


                                      II-8
<PAGE>   250
          person of the Registrant in the successful
          defense of any action, suit or proceeding) is asserted by such
          director, officer or controlling person in connection with the
          securities being registered, the Registrant will, unless in the
          opinion of its counsel the matter has been settled by controlling
          precedent, submit to a court of appropriate jurisdiction the question
          whether such indemnification by it is against public policy as
          expressed in the Act and will be governed by the final adjudication of
          such issue.

     (f)  The undersigned Registrant hereby undertakes to respond to requests
          for information that is incorporated by reference into the prospectus
          pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
          business day of receipt of such request, and to send the incorporated
          documents by first class mail or other equally prompt means. This
          includes information contained in documents filed subsequent to the
          effective date of the registration statement through the date of
          responding to the request.

     (g)  The undersigned Registrant hereby undertakes to supply by means of a
          post-effective amendment all information concerning a transaction, and
          the company being acquired involved therein, that was not the subject
          of and included in the registration statement when it became
          effective.


                                      II-9
<PAGE>   251
                                   SIGNATURES

   
          Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Phoenix and State of Arizona on September 11, 1996.
    

                                   ZILA, INC.,
                                   a Delaware corporation

                                   By /s/ Joseph Hines
                                     -------------------------------------------
                                      Joseph Hines
                                      Chairman of the Board, President and Chief
                                      Executive Officer

          Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.

   
<TABLE>
<CAPTION>
SIGNATURE                             TITLE                                         DATE
- ---------                             -----                                         ----
<S>                                   <C>                                           <C> 
 /s/ Joseph Hines                     Chairman of the Board, President,             September 11, 1996
- ------------------------------------- Chief Executive Officer
Joseph Hines                          

 /s/ Clarence J. Baudhuin             Executive Vice President of Finance           September 11, 1996
- ------------------------------------- and Administration, Treasurer and
Clarence J. Baudhuin                  Director

                 *                    Director                                      September 11, 1996
- -------------------------------------
James E. Tinnell
                  *                   Director                                      September 11, 1996
- -------------------------------------
Patrick M. Lonergan
                                      Director
- -------------------------------------
Carl A. Schroeder
                  *                   Director                                      September 11, 1996
- -------------------------------------
H. Ray Cox
                  *                   Director                                      September 11, 1996
- -------------------------------------
Michael S. Lesser
                                                                                    September 11, 1996
*By  /s/ Joseph Hines
   ---------------------------------
         Joseph Hines
         Attorney-in-Fact
</TABLE>
    
                                       S-1
<PAGE>   252
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT                                                                METHOD
NUMBER                           DESCRIPTION OF EXHIBIT              OF FILING
- ------                           ----------------------              ---------
 <S>        <C>                                                    <C>
   2          Merger Agreement dated August 8, 1996 among                 *
              Zila, Inc., Bio-Dental Technologies Corporation      
              and Zila Merger Corporation                          
                                                                   
  3-A         Certificate of Incorporation,                               A
              as amended                                           
                                                                   
  3-B         Bylaws                                                      A
                                                                   
  4-A         Specimen Common Stock Certificate                           A
                                                                   
  4-C         Specimen Warrant Certificate                                B
                                                                   
   5          Legal Opinion of Squire, Sanders & Dempsey                 **
                                                                   
   8          Form of Tax Opinion of Squire, Sanders & Dempsey           **
                                                                   
 10-A         Zila Marketing Agreement, dated June 1, 1992,               C
              among Daleco Zila Partners II, L.P., Zila, Inc.      
              and Daleco Capital Corporation (with exhibits)       
                                                                   
 10-B         Assignment and Royalty Agreement dated                      D
              December 31, 1991 between Zila, Inc. and             
              Crossing Research Associates                         
                                                                   
10-C(1)       Assignment and Royalty Agreement dated                      D
              December 31, 1991 between Zila, Inc. and             
              CTM Associates, Inc.                                 
                                                                   
10-C(2)       First Amendment to Assignment and Royalty                   E
              Agreement dated as of October 1, 1992 between        
              Zila, Inc. and CTM Associates, Inc.                  
                                                                   
10-C(3)       Second Amendment to Assignment and Royalty                  E
              Agreement dated as of July 1, 1994 between           
              Zila, Inc. and CTM Associates, Inc.                  
</TABLE>


                                        i
<PAGE>   253
<TABLE>
<CAPTION>
EXHIBIT                                                                     METHOD
NUMBER                           DESCRIPTION OF EXHIBIT                   OF FILING
- ------                           ----------------------                   ---------
 <S>         <C>                                                          <C>
 10-D         Revolving Line of Credit Loan Agreement                          D
              dated April 8, 1991 between Zila, Inc. and The            
              Valley National Bank of Arizona                           
                                                                        
10-E(1)       Stock Option Award Plan, as amended                              F
                                                                        
10-E(2)       Non-Employee Directors Stock Option Plan, as                     F
              amended                                                   
                                                                        
 10-F         License Agreement dated February 5, 1990                         G
              between Zila Pharmaceuticals, Inc. and Bausch             
              and Lomb Ireland                                          
                                                                        
 10-G         Purchase Agreement dated June 12, 1991                           H
              between Zila, Inc. and AGF (Assurances                    
              Generales De France)                                      
                                                                        
 10-H         Purchase Agreement dated June 12, 1991                           H
              between Zila, Inc. and France B.B.L                       
                                                                        
 10-I         Purchase Agreement dated June 12, 1991                           H
              between Zila, Inc. and Preservatrice Fonciere             
              Assurance                                                 
                                                                        
 10-J         Manufacturing and Distribution Agreement                         I
              dated March 12, 1993 between Zila, Inc. and               
              Germiphene Corporation                                    
                                                                        
 10-K         Agreement dated November 26, 1993 between                        J
              Cheseborough Ponds USA Co. and Zila                       
              Pharmaceuticals, Inc.                                     
                                                                        
 10-L         Second Amendment to Assignment and Royalty                       J
              Agreement dated December 1, 1993 between                  
              Zila, Inc. and Crossing Research Associates               
                                                                        
 10-M         Agreement dated January 24, 1994 between                         K
              Daleco Zila Partners II L.P., a California limited        
              partnership, and Zila, Inc.                               
</TABLE>


                                       ii
<PAGE>   254
<TABLE>
<CAPTION>
EXHIBIT                                                                     METHOD
NUMBER                           DESCRIPTION OF EXHIBIT                   OF FILING
- ------                           ----------------------                   ---------
 <S>         <C>                                                           <C>
 10-N         Employment Agreement dated February 10,                          E
              1992 between Zila, Inc. and Joseph Hines            
                                                                  
 10-O         Employment Agreement dated February 10,                          E
              1992 between Zila, Inc. and Clarence J.             
              Baudhuin                                            
                                                                  
 10-P         Employment Agreement dated February 10,                          E
              1992 between Zila, Inc. and Edwin Pomerantz         
                                                                  
  11          Statement re: Computation of Net                                 L
              Income (Loss) Per Common Share                      
                                                                  
  21          Subsidiaries of Registrant                                       L
                                                                  
 23-A         Consent of Deloitte & Touche LLP                                **
                                                                  
 23-B         Consent of Grant Thornton LLP                                   **
                                                                  
 23-C         Consents of Counsel                                         Included in
                                                                       Exhibits 5 and 8
                                                                  
  24          Powers of Attorney                                      See Signature Page
</TABLE>

- ---------------------------------

     *    See Appendix A to the Proxy Statement/Prospectus which is a part of
          this Registration Statement

     **   Filed herewith

     ***  Previously filed as an exhibit to this Registration Statement

     A    Incorporated by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended July 31, 1988, as amended

     B    Incorporated by reference to Exhibit 4-C of Amendment No. 2 to Form
          S-4 Registration Statement No. 33-19647

     C    Incorporated by reference to Exhibit 10-A of the Registrant's Annual
          Report on Form 10-K for the fiscal year ended July 31, 1992, as
          amended

     D    Incorporated by reference to Form S-3 Registration Statement No.
          33-46239


                                       iii
<PAGE>   255
     E    Incorporated by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended July 31, 1994

     F    Incorporated by reference to the Registrant's Quarterly Report on Form
          10-Q for the quarterly period ended January 31, 1996

     G    Incorporated by reference to Exhibit 10-C to Post-Effective Amendment
          No. 3 to Form S-1 Registration Statement No. 33-27739

     H    Incorporated by reference to Form S-3 Registration Statement No.
          33-27416

     I    Incorporated by reference to Exhibit 10-L of the Registrant's Annual
          Report on Form 10-K for the fiscal year ended July 31, 1993, as
          amended

     J    Incorporated by reference to the Registrant's Quarterly Report on Form
          10-Q for the fiscal quarter ended October 31, 1993

     K    Incorporated by reference to Exhibit 10-A of the Registrant's
          Quarterly Report on Form 10-Q for the fiscal quarter ended January 31,
          1994

     L    Incorporated by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended July 31, 1995


                                       iv

<PAGE>   1
                                                                      EXHIBIT 5


SQUIRE, SANDERS & DEMPSEY
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Telephone: 602-528-4000
FAX: 602-253-8129


                              September 11, 1996

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

                Re:     Zila, Inc.

Ladies and Gentlemen:

        We have acted as counsel to Zila, Inc., a Delaware corporation (the
"Company"), in connection with its Registration Statement on Form S-4 (the
"Registration Statement") filed under the Securities Act of 1933 relating to
the registration of 6,232,290 shares of its Common Stock, $.001 par value (the
"Shares"), issuable in connection with the merger contemplated by the Merger
Agreement dated August 8, 1996 (the "Merger Agreement") among the Company, Zila
Merger Corporation and Bio-Dental Technologies Corporation.

        In that connection, we have examined such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes
of this opinion, including the Certificate of Incorporation, as amended, and
the Bylaws of the Company.

        Based upon the foregoing, we are of the opinion that:

        1.      The Company has been duly organized and is validly existing as
a corporation under the laws of the State of Delaware.

        2.      The Shares, when issued in accordance with the terms of the
Merger Agreement, will be validly issued, fully paid and nonassessable.

        We hereby consent to the use of this opinion as an exhibit to the
Registration Statement.

                          SQUIRE, SANDERS & DEMPSEY

<PAGE>   1
                                                                       EXHIBIT 8

                            [FORM OF TAX OPINION]


SQUIRE, SANDERS & DEMPSEY
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Telephone: 602-528-4000
FAX: 602-253-8129


Zila, Inc.                            Bio-Dental Technologies Corporation
5227 North 7th Street                 and Its Shareholders
Phoenix, Arizona  85014               11291 Sunrise Park Drive
                                      Rancho Cordova, California  95742


        Re:  Merger of Zila Merger Corporation with and into
             Bio-Dental Technologies Corporation

Gentlemen:

        Pursuant to section 6.3(e) of the Merger Agreement dated August 8,
1996, by and among Zila, Inc. ("Zila"), Zila Merger Corporation, a newly formed
and wholly owned subsidiary of Zila ("Merger Sub"), and Bio-Dental Technologies
Corporation ("Bio-Dental") (the "Merger Agreement"), our opinion has been
requested with respect to certain of the federal income tax consequences of the
merger of Merger Sub with and into Bio-Dental (the "Merger").  Under the terms
of the Merger Agreement, the shareholders of Bio-Dental will receive shares of
Zila voting common stock.

                              Documents Examined

        In connection with the rendering of our opinion, we have examined the
following:

        1.      The Merger Agreement;

        2.      The Registration Statement on Form S-4 under the Securities Act
of 1933 filed by Zila with respect to the Zila common stock to be issued in
connection with the Merger (the "Registration Statement");

        3.      The Representation Certificates of Zila, Merger Sub,
Bio-Dental, and certain shareholders of Bio-Dental; and

        4.      Such other documents, records, and matters of law as we have
deemed necessary or appropriate in connection with rendering this opinion.
<PAGE>   2
        In our review and examination of the foregoing, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or duplicate copies thereof.  We have further
assumed that the execution and delivery of any of the foregoing have been duly
authorized by all necessary corporate actions in order to make the foregoing
valid and legally binding obligations of the parties, enforceable in accordance
with their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in general
from time to time in effect and the exercise by courts of equity powers or
their application of principles of public policy.

                             Factual Assumptions

        In rendering this opinion, we have made the following assumptions as to
factual matters.

        1.      The representations and warranties of the parties contained in
the documents listed in the section entitled Documents Examined that may be
deemed material to this opinion are all true in all material respects as of the
date hereof;

        2.      The representations as to factual matters of Bio-Dental, Merger
Sub, and Zila contained in one or more Representation Certificates are all true
in all material respects as of the date hereof;

        3.      The Merger, and all transactions related thereto or
contemplated by the Merger Agreement and the Registration Statement, shall be
consummated in accordance with the terms and conditions of the applicable
documents; and

        4.      The Merger will qualify as a merger under applicable state
corporation law.

                            Limitations on Opinion

        The following limitations apply with respect to this opinion:

        1.      This opinion is based upon the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
Regulations promulgated thereunder (including proposed Treasury regulations),
and the interpretations thereof by the Internal Revenue Service and those
courts having jurisdiction over such matters as of the date hereof, all of
which are subject to change either prospectively or retrospectively.  No
opinion is rendered with respect to the effect, if any, of any pending or
future legislation or administrative regulation or ruling that may have a
bearing on any of the foregoing.
<PAGE>   3
        2.      We have not been asked to render an opinion with respect to any
federal income tax matters except those set forth below, nor have we been asked
to render an opinion with respect to any state or local tax consequences of the
Merger.  Accordingly, this opinion should not be construed as applying in any
manner to any tax aspect of the Merger other than as set forth below.

        3.      All factual assumptions set forth above are material to all
opinions herein rendered and have been relied upon by us in rendering all such
opinions.  Any material inaccuracy in any one or more of the assumed facts may
nullify all or some of the conclusions stated in such opinion.

                                   Opinion

        Based upon and subject to the foregoing, it is our opinion that:

        1.      The merger of Merger Sub with and into Bio-Dental will
constitute a reorganization within the meaning of sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.

        2.      No gain or loss will be recognized by Zila or Bio-Dental as a
consequence of the Merger.

        3.      No gain or loss will be recognized by the shareholders of
Bio-Dental on the exchange of their shares of Bio-Dental common stock for any
shares of Zila common stock (except for any gain or loss attributable to any
cash received pursuant to the exercise of statutory dissenters' rights).

        4.      The federal income tax basis of the Zila common stock received
by the shareholders of Bio-Dental for their shares of Bio-Dental common stock
will be the same as the federal income tax basis of the Bio-Dental common stock
surrendered in exchange therefor.

        5.      The holding period for the Zila common stock received by the
shareholders of Bio-Dental in exchange for their shares of Bio-Dental common
stock will include the period for which the Bio-Dental common stock exchanged
therefor was held, provided that the exchanged Bio-Dental common stock was held
as a capital asset by such shareholder on the date of the exchange.

        We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

                           Respectfully submitted,
                                      
                           SQUIRE, SANDERS & DEMPSEY

<PAGE>   1
                                                                    EXHIBIT 23-A



INDEPENDENT AUDITORS' CONSENT

   
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-10107 of Zila, Inc. on Form S-4 of our report
dated October 12, 1995, appearing in the Annual Report on Form 10-K of 
Zila, Inc. for the year ended July 31, 1995, and to the reference to us under 
the heading "Experts" in the Prospectus, which is a part of this Registration 
Statement.
    


Deloitte & Touche LLP

Phoenix, Arizona
   
September 11, 1996
    

<PAGE>   1
                                                                    EXHIBIT 23-B


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

   
We have issued our report dated June 14, 1996, accompanying the consolidated
financial statements of Bio-Dental Technologies Corporation and Subsidiaries
appearing in the Annual Report on Form 10-KSB for the year ended March 31, 1996
which is incorporated by reference in this Registration Statement and Proxy
Statement/Prospectus. We consent to the incorporation by reference the
aforementioned report in the Registration Statement and the Proxy
Statement/Prospectus, and to the use of our name as it appears under the caption
"Experts".
    


Grant Thornton LLP

Sacramento, California
   
September 11, 1996
    


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