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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
/X/ SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
/ / EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19293
BIO-DENTAL TECHNOLOGIES CORPORATION
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(Name of small business issuer in its charter)
California 84-1104386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11291 Sunrise Park Drive, Rancho Cordova, CA 95742
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number ( 916 ) 638-8147
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Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
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Common Stock NASDAQ
$ .01 Par Value
Securities registered under Section 12(g) of the Exchange Act: None
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(Title of Class)
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(Title of Class)
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Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
/ /
State issuer's revenue for its most recent fiscal year: $33,091,216
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
60 days prior to the date of filing. (See definition of affiliate in Rule 12b-2
of the Exchange Act.)
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
$18,057,814 as of May 31, 1996
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(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common Stock ($.01 par
value): 6,427,134 shares as of May 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The list documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990).
Transitional Small Business Disclosure Format (Check One):
Yes No X
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BIO-DENTAL TECHNOLOGIES CORPORATION
FORM 10-KSB (FOOTNOTE 1)
ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1996
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL.
Bio-Dental Technologies Corporation, formerly Springfield Capital
Corporation (hereinafter referred to as the "Company" or the "Registrant"), was
organized under the laws of the State of Colorado on April 5, 1988, to evaluate,
structure and complete a merger with or acquisition of private corporations,
partnerships or sole proprietorships. On July 13, 1990, the Company changed its
name from "Springfield Capital Corporation" to "Bio-Dental Technologies
Corporation," providing a name and image more accurately reflecting its business
plan.
(1) The material set forth in this Form 10-KSB and its accompanying exhibits
includes forward-looking statements and references to anticipated future events
and developments that are based on management's beliefs and expectations. There
is no assurance that such statements and references will prove to be correct.
Such statements and references are set forth herein in reliance upon numerous
assumptions that may or may not prove to be accurate or correct. The major
assumptions upon which these forward-looking statements and references are based
include the following: (1) the consummation of the proposed merger transaction
between the Company and Zila, Inc.; (2) the consummation of the Company's
proposed transaction with Young Innovations, Inc. ("Young"), which would involve
Young's cash buy-out of the Company's rights to receive future royalties from
Denticator International, Inc.; (3) the successful restructuring of the
operations of the Company's IDT operating subsidiary and the redirection of
IDT's marketing focus away from hardware-based comprehensive computer solutions
and towards the sale of practice management software systems and intra-oral
cameras; (4) the growing market demand for IDT's technology products; (5) the
improvements of operating margins on products sold by the Company's dental
products distribution unit, The Supply House; (6) the continued growth in sales
and market share of The Supply House; (7) the success of The Supply House in
obtaining additional contracts with managed dental care insurance companies and
in increasing its sales as a result of such contracts; (8) the obtaining of FDA
approval of Zila, Inc.'s oral cancer diagnostic product, OraTest; (9) the
successful realization of the anticipated market benefits of combining the
market appeal of the OraTest product with the strength of the Company's existing
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product distribution network; (10) the adequacy of available debt and equity
capital to fund inventories, receivables, product introduction and marketing;
(11) the Company's ability to settle the Wildwood litigation on terms favorable
to the Company; and (12) the retention of key management personnel following
consummation of the Company's proposed merger with Zila, Inc.
Formation and Disposition of Denticator International, Inc. Subsidiary.
In March 1991, the Company incorporated a wholly owned subsidiary, Denticator
International, Inc. ("DII") and transferred the Company's manufacturing
operations into DII in exchange for the issuance of a $600,282 note to the
Company with monthly principal payments of $10,005 plus interest at 150% of the
Company's cost of funds from April 1, 1994 through March 31, 1999. Interest only
payments were made from March 1991 through March 31, 1994. Effective with the
date of incorporation, the Company entered into a licensing agreement with DII
for the manufacture and sale of certain dental products owned by the Company.
Under this agreement DII pays the Company a monthly royalty equal to the greater
of $30,000 or 17% of net sales of DII. In addition, the agreement provides for
further royalties to be paid to the Company if DII achieves certain levels of
profitability.
On March 31, 1991, the Company sold all of the outstanding capital
stock of DII to DII's former operations manager, thus allowing the Company to
cease operating as a manufacturing concern, and to focus on its distribution
operations. The sales agreement incorporated the licensing agreement described
above. The details of this transaction are described in the Company's Form 8-K
dated March 31, 1991, which is hereby incorporated by this reference.
Effective April 1, 1994, the licensing agreement was amended. The terms
included herein reflect all amendments. In March 1999, DII has the option to
purchase the rights under this licensing agreement. The purchase price is equal
to the greater of 1.5 times average annual sales of DII during the period
covered by the amended agreement (April 1, 1994 - March 31, 1999) or six times
the average pre-tax income of DII after certain adjustments. The purchase price
will be reduced by 50% of the additional royalties paid by DII between April 1,
1994 and March 31, 1999.
In connection with the amendments to the licensing agreement, warrants
to purchase 50,000 shares of the Company's restricted common stock were issued
to DII at an exercise price of $4.00 per share. These warrants expire on March
31, 2004.
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Effective January 1995, DII increased the minimum royalty to the
Company to $43,000 per month in exchange for the Company waiving the provision
in the agreement whereby the Company could purchase products made by DII at
specified prices.
The Company's revenues are affected, in part, by the revenue levels and
successful operations of the Denticator product line, as operated and controlled
by DII.
On January 19, 1996, the Company entered into an agreement to defer
principal payments on the note payable from DII, beginning with the principal
payment due for the month of October 1995 and extending through September 1996.
The agreement expires September 30, 1996. Additionally, this agreement provides
a basic understanding between the Company and DII with respect to the proceeds
of any sale of DII which may occur prior to September 30, 1996.
On May 10, 1996, the Company executed a letter of intent which sets
forth a general understanding of a transaction by which Young Innovations Inc.
(Young) will purchase certain assets and liabilities of DII. If the transaction
contemplated by the letter of intent is consummated, it is expected the Company
would receive approximately $7.5 million in exchange for the cancellation of its
March 31, 1991, as amended, licensing agreement dated March 31, 1991, with DII.
Under the terms of the Young letter of intent any amounts owed and outstanding
to the Company by DII as of the closing date of this transaction would be
assumed by Young. Young would issue a credit to the Company against future
purchases (Product Credit) in an amount equal to, and payment in full for, all
accrued royalties, notes current and long term and accrued interest owed by DII
to the Company. The Product Credit would be usable by the Company for future
purchase of products from Young and any of its affiliates at prevailing prices
in effect at the time of the purchases. The Company, Young and DII currently are
engaged in negotiations of the final terms and conditions of the transaction
which is expected to close by the end of July 1996.
THE ACQUISITION OF SAN DIEGO DENTAL SUPPLY, INC. ("SDDS").
Acquisition of SDDS. On March 4, 1991, the Company purchased all of the
outstanding stock of SDDS of El Cajon, California, in exchange for the issuance
of 390,000 shares of the Company's restricted common stock. Subsequently, 37,500
of these shares were surrendered by the former shareholders in accordance with
specific terms of the agreement. The terms of this purchase, along with the
financial statements of SDDS, are set forth in the Company's Form 8-K filing
dated July 29, 1990, and filed in April, 1991, and hereby incorporated by this
reference.
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SDDS was incorporated under the laws of the State of California on
November 20, 1987. SDDS, which operated under the trade name "The Supply House",
was subsequently merged into Ryker Dental of Kentucky, Inc. ("Ryker"), as
described below, and the surviving entity (Ryker) continues to operate as "The
Supply House", a distributor of professional dental supplies and an authorized
dealer for several lines of dental products.
THE MERGER OF SAN DIEGO DENTAL SUPPLY, INC. INTO RYKER DENTAL OF
KENTUCKY, INC.
Merger of Ryker Dental of Kentucky. On January 3, 1994 (but effective
after the close of business on December 31, 1993), the Company acquired all of
the outstanding capital stock of Ryker Dental of Kentucky, Inc. ("Ryker")
pursuant to the merger ("Merger") of the Company's wholly-owned subsidiary, San
Diego Dental Supply, Inc. ("SDDS"), with and into Ryker with Ryker being the
surviving entity. Pursuant to the Merger, the Company issued an aggregate of
220,000 shares of its previously unissued restricted Common Stock to the
shareholders of Ryker in cancellation of the shares of Ryker Common Stock owned
by such shareholders. The Company became the sole shareholder of Ryker through
the conversion of each outstanding share of Common Stock of SDDS into one share
of Common Stock of Ryker. As part of the transaction, the Company retired
approximately $720,000 of Ryker's debt, thereby releasing the former
shareholders of Ryker from their personal guarantees on such debt. The Articles
of Merger were filed with the Secretary of State of Kentucky on January 3, 1994.
The transaction was accounted for as a purchase. The purchase price was
allocated to the fair value of Ryker's assets and liabilities and the excess of
$388,186 was allocated to goodwill. The goodwill is being amortized on the
straight line method over a period of twenty years, in accordance with the
Company's accounting policies. The depreciable assets acquired are being
depreciated over the remaining useful life on a straight line basis, in
accordance with the Company's accounting policies.
The two former shareholders of Ryker each entered into employment
agreements to continue managing Ryker for a period of three (3) years. As a part
of these employment agreements, each former shareholder received $40,000 in cash
bonuses over the first year of the agreement, in addition to an annual salary of
$80,000 each. Under the terms of the employment agreements, each shareholder may
also earn performance bonuses each year of up to $10,000 cash and options to
purchase 10,000 shares of the Company's common stock, exercisable at the fair
market value of the common stock on the date of the option grant. In addition,
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the two former shareholders of Ryker each received $60,000 cash as consideration
for entering into a non-competition agreement with the Company. These
non-competition agreements extend for a period of eighteen months following the
employee's termination of employment with the Company.
The assets of Ryker consist mainly of trade inventory and accounts
receivable. The amount of consideration given was determined by good-faith,
arms-length negotiations between the parties. The shareholders of Ryker were
Danny D. Ramsey and George Barton Mahan. As a result of the merger, Mr. Mahan
was appointed to the Company's Board of Directors in January 1994.
Ryker distributes professional dental supplies and equipment to dental
offices nationwide under the trade name, "The Supply House". In addition, Ryker
also sells large equipment, such as sterilizers, compressors, and dental lights
and chairs, previously not sold by the Company. Ryker also has an in-house
design department to assist dentists in the architectural design of their
offices.
Effective June 1994, the Company began to utilize Ryker's strategic
location as its eastern distribution center, saving the Company up to several
thousands of dollars per month in freight costs. Ryker also augments the
Company's existing product line, allowing the Company to offer a much broader
range of products to its customers nationwide.
Ryker now operates from two (2) leased facilities: one in Rancho
Cordova, California and one in Lexington, Kentucky, and has approximately
ninety-two (92) employees.
MANAGEMENT AGREEMENTS AND SUBSEQUENT ACQUISITION OF ORAL VISION,
INC.
Marketing Agreement with Oral-Vision, Inc. In August 1992, the Company
was granted exclusive U.S. marketing rights to the intra-oral camera
manufactured by Oral-Vision, Inc. ("Oral Vision") of New Albany, Indiana. The
agreement provided that the Company would receive a commission on all sales of
Oral-Vision cameras over a three year period.
The camera allows a patient to see into the recesses of his own mouth
to better understand the treatment plans being recommended by his dentist. The
goal of this tool is to enhance dentist-patient communication and to improve a
patient's understanding of his dental needs, thereby increasing his acceptance
of recommended treatment options. This greater acceptance leads to better
patient care and increased revenue
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levels for those dentists using the Oral-Vision intra-oral camera.
Management Agreement with Oral-Vision, Inc. Effective June 1, 1993, the
Marketing Agreement outlined above was replaced and superseded by a Management
Agreement under which Bio-Dental was hired by Oral Vision to manage the business
operations of Oral Vision.
Under the terms of this Management Agreement, Oral Vision agreed to pay
all expenses related to the business as well as financing any necessary
investment in inventory, accounts receivable, fixed assets, etc. All of the
assets remained with Oral Vision, while the Company was responsible for managing
those assets on Oral Vision's behalf.
The Company was paid a management fee by Oral Vision, on a monthly
basis, equal to one-half of Oral Vision's pre-tax income after reimbursing the
Company for any expenses incurred on Oral Vision's behalf. As discussed below,
the Company purchased all the assets and certain liabilities of Oral Vision
effective January 1, 1994. The Management Agreement was terminated on the
effective date of the purchase. Net revenues received prior to acquisition were
$502,209 in 1994.
Acquisition of Oral Vision Assets and Liabilities. On July 6, 1994, the
Company signed an agreement and purchased the assets and certain liabilities of
Oral Vision, Inc. The acquisition was effective as of January 1, 1994, as the
Company effectively maintained control of the operations, assets and liabilities
of Oral Vision, Inc. as of that date. In connection with this purchase, the
Company issued 272,727 shares of its previously unissued restricted common stock
to the sole shareholder of Oral Vision, Inc., Dr. William Oakes. The assets
acquired consist mainly of trade inventory and accounts receivable. As part of
the transaction, on July 6, 1994, the Company retired approximately $515,000 of
the assumed liabilities, thereby
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releasing certain security interests held by a vendor of Oral Vision, Inc.
The transaction has been accounted for as a purchase. The purchase
price was allocated to the fair value of Oral Vision's assets and liabilities
and the excess of $215,919 was allocated to goodwill. The goodwill is being
amortized on the straight line method over a period of twenty years, in
accordance with the Company's accounting policies. The assets and liabilities
are held in Integrated Dental Technologies, Inc. ("IDT") a wholly-owned
subsidiary of the Company formed for this purpose.
In addition, Dr. William Oakes agreed to remain with the Company under
the terms of a four year consulting agreement. Under the terms of the consulting
agreement, Dr. Oakes received $30,000 in the first year and will receive $75,000
per year for each of the following three years.
The Company expanded the scope of products offered through IDT beyond
the Oral Vision cameras to include such innovative technologies as filmless
x-ray systems, automated patient and periodontal charting systems, and
multi-media patient-education systems. Beginning in March 1995, IDT began
selling personal computer hardware to its customers.
The Company integrates all of these technologies through a proprietary
common-user interface developed by the Company. All of these modular
technologies were marketed via IDT's education-based seminar series and a
national outside sales force. These seminars are accredited for continuing
education credits by the American Dental Association and the Academy of General
Dentistry.
Effective January, 1996, the Company began a restructuring of its IDT
operations. This restructure reduced the emphasis on the integration of the
technologies discussed previously, including computer hardware and filmless
x-ray, and focused IDT's marketing and selling effort on the intra-oral camera
and software products offered by IDT. These products are believed to
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have the largest market potential and offer the highest gross margins of the
various products which made up the IDT product line. IDT's education-based
seminar series continued with emphasis on the use of the intra-oral camera and
related products.
Acquisition of Crown Systems Assets and Liabilities. On November 14,
1994, the Company signed an agreement and purchased the assets and certain
liabilities of Crown Systems, Inc. ("Crown"), effective November 1, 1994. In
connection with this purchase, the Company issued 47,501 shares of its
previously unissued restricted common stock to Crown. The assets acquired
consisted mainly of accounts receivable and dental practice management software
rights. As part of the transaction, the Company retired approximately $205,000
of assumed liabilities.
The transaction was accounted for as a purchase. The purchase price was
allocated to software rights and the fair value of Crown's assets and
liabilities. Software rights were valued at $287,985 and are being amortized on
the straight line method over a period of five years, in accordance with the
Company's accounting policies. The depreciable assets acquired will be
depreciated over the remaining useful life on a straight line basis, in
accordance with the Company's accounting policies. The assets and liabilities of
Crown are held in IDT.
Crown developed and marketed dental practice management software
systems and will continue to develop additional software for IDT. As part of the
transaction, the principals of Crown entered into one year employment agreements
and three year non-compete agreements with IDT.
Since the date of the acquisition, the former principals of Crown have
been instrumental in developing IDT's common user interface, which allowed for
the integration of all of IDT's technology based products.
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Current Operations - The Supply House. Ryker Dental of Kentucky, one of
the Company's operating subsidiaries, operates under the trade name "The Supply
House." The Supply House is a national distributor of professional dental
supplies, carrying brand names such as Eastman Kodak, Dentsply, Hu-Friedy,
Premier and 3M. Most of The Supply House's sales are through telemarketing and
direct mail, as opposed to deploying the more traditional outside sales force.
As a result, The Supply House believes it can operate more efficiently than its
major competitors.
There are estimated to be over 120,000 practicing dentists in the
United States. The annual market for dental supplies in the U.S. is
approximately $2.0 billion, representing approximately $16,000 per dentist.
Currently, the Company represents the products of over 400 dental
manufacturers. It is believed that these products constitute the vast majority
of supplies used in the day-to-day operations of a dental practice. For example,
the Company carries a broad line of dental alloys, x-ray film, composite filling
materials, impression materials, latex gloves, diamond and carbide cutting
instruments, anesthetics, asepsis and infection control products, operative,
hygiene and surgical instruments, and a variety of other widely used items.
Historically, the Company has carried only consumable supplies and very
small equipment, such as hand pieces. With the Ryker acquisition, the Company is
now distributing a select group of large items of dental equipment, such as
compressors, sterilizers, dental lights and chairs.
Traditionally, dentists have purchased their supplies from local
full-service supply companies, or from mail-order firms. The Supply House is
attempting to combine the level of service typically associated with the local
dealer with the convenience and competitive prices found with most mail-order
firms. The Supply House can do this partially as a result of the increased
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efficiencies brought about by telemarketing. Where a traditional outside sales
person might call on 10 to 15 accounts per day, a telemarketer can reach 50 to
70 offices. Additionally, telemarketing has been shown to significantly increase
the response to direct mail pieces (like catalogs), giving The Supply House a
decided advantage over mail order firms which do not follow-up by phone.
The Supply House's Competition. There are approximately 300 dental
supply dealers and mail order supply houses in the United States, some of which
have significantly greater financial resources than the Company. The Company's
sales make up less than 2% of the total market for dental supplies. The
Company's position with respect to its competitors is difficult to determine
since most of the companies are privately-held and do not disclose financial
information. However, the Company believes that approximately 50 percent of the
market is dominated by three (3) public companies: Patterson Dental, Sullivan
Dental, and Henry Schein.
Current Operations - IDT. Integrated Dental Technologies, Inc. ("IDT")
represents the Company's other wholly-owned operating subsidiary.
IDT was formed on the premise that there was a growing market demand
for integrated, computer-based technology dental systems, yet there was no
company prepared to deliver such a product. Through the fiscal year 1995
acquisitions of Crown Systems Inc. and Oral Vision Inc., and distribution
agreements for other key products, IDT developed a broad array of products
designed to enhance the efficiency and profitability of the dental practice.
These products included an intra-oral camera, filmless x-ray system,
patient and periodontal charting system, practice management computer system,
electronic claims processing, and multi-media patient education.
In addition, through some proprietary Windows(TM) software written by
IDT's own programmers, IDT integrated all of these technologies into one system,
thereby creating the first virtually "paperless" dental office.
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In addition to marketing the product, IDT also provided full
installation, training and support for both hardware and software elements of
the system.
While this market is reported to be one of the fastest growing segments
of the dental products industry, IDT found that the present market demand was
not sufficient to allow IDT to operate profitably with this type of product
offering. As a result of lower-than-expected sales coupled with higher marketing
and support costs, IDT incurred substantial losses during the fiscal year ending
March 31, 1996. Thus, in the fourth quarter of fiscal year 1996, IDT announced
its plan to restructure its operations to focus exclusively on the Company's
software and intra-oral camera products.
It is believed that the software and intra-oral camera products have
the largest existing market potential, are well positioned to compete in their
respective markets, and offer higher margins to the Company. As a part of this
restructuring, the Company discontinued its promotion and sales of computer
hardware, of the Schick filmless x-ray system, and fully-integrated "paperless"
systems.
This restructuring, which was phased in during the fourth quarter of
fiscal 1996, has allowed the Company to reduce its ongoing operating expenses
while focusing more attention on those products which the Company believes
currently have the broadest market appeal and offer the Company the greatest
margins.
The Company took a $271,631 restructuring charge in the fourth quarter
of fiscal 1996 to cover employee severance and other reserves for expenses
related to the business operations being phased out. As a result of the
restructuring, $307,331 of inventory was written off to cost of products sold
and the reserve for returned product was increased by $250,000. In addition, as
the Company introduced its new, upgraded camera system, a $312,026 inventory
reserve was taken against old intra-oral camera and related inventory. Total
restructuring charges, inventory writedowns and the reserve increases totaled
$1,140,988.
As previously mentioned, IDT ceased selling its own line of computer
hardware (although it still supports those existing customers who already have
IDT hardware in their office) as part of this restructuring.
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In an effort to continue to provide its customers with a
"one-stop-shop" for their computer needs, IDT entered into an agreement with
DELL Computer Corporation to provide a line of specially-configured computers
directly to IDT customers. DELL will also agree to support their hardware
through their contracted field-support organization during the full warranty
period.
SECURITIES ISSUANCES AND OTHER EVENTS.
In September of 1991, the Company initiated a private placement,
offering to sell a total of 600,000 units at $2.25 per unit, with each unit
consisting of one share of 7 3/4% Series A Participating Convertible Preferred
Stock and one Series A Redeemable Common Stock Purchase Warrant. The Company
sold 90,667 units under this private placement.
On October 1, 1991, the Company entered into a letter agreement with
Ladenburg, Thalmann & Co., Inc., a New York investment banking firm
("Ladenburg"). The Company retained Ladenburg to provide investment banking
advice and services. The term of the letter agreement extended through September
30, 1992. In lieu of Ladenburg's normal retainer, the Company agreed to issue to
Ladenburg a common stock purchase warrant, expiring on September 30, 1996,
providing Ladenburg the right to purchase 200,000 shares of the Company's common
stock at an exercise price of $3.50 per share. The exercise price was
subsequently adjusted to $3.11 per share pursuant to a ratchet anti-dilution
provision contained in the warrant, which was triggered by the issuance of the
ICP warrants described below. In April 1994, 96,333 shares of the Company's
common stock were issued to Ladenburg as a result of a cashless exercise of the
common stock purchase warrant, which reduced the purchase rights from 200,000
shares to 96,333 shares.
On January 6, 1992, the Company entered into a letter agreement with
Josephberg Grosz & Co., Inc., a New York investment banking firm ("JG"). The
Company retained JG to assist the Company in raising capital through a financing
transaction the nature of which was undecided at the time of the letter
agreement. As partial consideration for their services, JG received 12,000
shares of the Company's restricted common stock, which became "freely tradeable"
upon the effectiveness of the Company's Form S-1 registration statement on June
30, 1992 (described below).
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On May 1, 1992, the Company filed a registration statement on Form S-1
(which is incorporated herein by this reference) with the Securities and
Exchange Commission to register shares of common stock issued in an earlier
private placement, as well as other outstanding shares of the Company. The Form
S-1 registration statement, which was declared effective on June 30, 1992,
registered a total of 1,622,656 shares of the Company's common stock. The
registration significantly increased the total number of "freely tradeable"
shares of the Company's common stock outstanding.
On September 7, 1992, the Company issued 1,004,000 shares of
unregistered common stock to 34 investors (the "Investors") at a price of $1.50
per share in a private placement. In connection with the transaction, the
Company issued warrants for the purchase of 150,000 shares of common stock to
International Capital Partners, Inc., a Connecticut corporation ("ICP") and lead
member of the investor group. The transaction was pursuant to a Stock Purchase
Agreement, dated August 31, 1992, by and among the Company, ICP and the
Investors (the "Agreement").
The Agreement features a purchase price adjustment provision whereby
the Company agreed to adjust the purchase price retroactively by the issuance of
additional shares to the Investors upon the occurrence of certain events.
Specifically, a provision of this Agreement allowed for the issuance of 220,390
additional shares of common stock if certain earnings benchmarks were not
achieved in fiscal 1995. Due to the various strategic investments and other
factors cited earlier, these benchmarks were not, in fact, achieved. However,
since the 1995 earnings per share benchmark was achieved in fiscal 1994 (a full
year ahead of schedule), the Company requested a waiver to this additional
shares provision. The waiver request was denied and the Company issued the
additional 220,390 shares of common stock on October 17, 1995. The Agreement
gives to the Investors demand registration rights for up to 20% of their common
stock and all of their warrants (one time only), and piggyback registration
rights on the balance of their shares. The proceeds from the private placement
were used primarily to retire existing debt and to expand inventories to meet
increasing demand for the Company's products.
In May 1994, the Company offered to sell up to 300,000 shares of its
restricted common stock in a private placement. Sale of the stock was restricted
to non-"U.S. persons" within the
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meaning of Regulation S as promulgated by the United States Securities and
Exchange Commission. The placement was completed in June 1994 when the Company
issued 100,000 shares of restricted common stock, with net proceeds of
approximately $380,000, after commissions and other expenses. Certain transfer
restrictions apply to the shares.
On April 1, 1996, the Company issued two (2) Term Notes in a private
placement to two (2) institutional investors in connection with the borrowing of
$1,250,000. These Term Notes accrue interest at a rate of 12% per annum and
accrued interest is due and payable on September 30, 1996 and March 29, 1997.
The principal amounts of the Term Notes are due not later than March 29, 1997.
As additional consideration for the Term Notes, the Company issued warrants to
the Lenders which totaled 250,000 warrants at an exercise price of $3.03 and
50,000 warrants at an exercise price of $3.03 to International Capital Partners,
Inc. as part payment for the placement fee. For additional information on the
Term Notes and associated warrants, see the section on Debt Financing under Item
6 below (Management Discussion and Analysis of Financial Condition and Results
of Operations).
EMPLOYEES.
As of May 31, 1996, the Company and its operating subsidiaries employed
one hundred and twenty-four (124) people. Of these employees, three (3) are
executive officers and fifty (50) employees are involved in sales functions. The
accounting and administration departments employ forty-two (42) people, with
twenty-nine (29) employees in the purchasing and distribution departments. No
employees are represented by a labor union, nor are there any current labor
relations complaints on file with any agency.
ITEM 2. PROPERTIES.
The Company holds leases on three (3) separate facilities and is a
guarantor on a fourth lease. The Company leases 25,000 square feet of
office/warehouse space in a concrete building located at 11291 Sunrise Park
Drive, Rancho Cordova, California. The current lease rate for the Rancho Cordova
facility is $9,270 per month, and is constant for the duration of the lease. The
lease for the Rancho Cordova facility expires on November 30,
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<PAGE> 17
1996, however the Company has an option to renew the lease for two subsequent
five-year terms. The Company's executive offices are located in the Rancho
Cordova facility.
The Company leases 19,200 square feet in an office/warehouse complex at
172 Lisle Road, Lexington, Kentucky. The current lease rate is $2,800 per month,
and expires on October 31, 1998.
The Company also leases 1,500 square feet of office space located at
3935 Eagle Creek Parkway in Indianapolis, Indiana. The current lease rate is
$1,715 per month. The lease expired in September 1995, and continued on a month
to month basis pending evaluation of other suitable space. On May 31, 1996, IDT
entered into a three year lease for 2,000 square feet beginning July 15, 1996 in
an office complex at 6021-A West 71st Street, Indianapolis, Indiana. The current
lease rate is $1,783 per month, and expires on July 14, 1999. The Company is a
guarantor of this lease. The Company anticipates terminating its lease at 3935
Eagle Creek Parkway, Indianapolis, Indiana.
In addition, the Company is a guarantor of a lease obligation of its
former subsidiary, Denticator International, Inc. ("DII"). This guarantee will
terminate upon the sale of DII, should the sale occur. DII leases 6,400 square
feet of office/warehouse space in a one-story concrete building in Rancho
Cordova, California. The lease rate on this facility is $2,100 per month, and
remains fixed until its expiration in May 1997.
ITEM 3. LEGAL PROCEEDINGS.
Oral Vision, Inc. (still owned by Dr. Oakes) filed a claim against a
former consultant alleging breach of contract, misappropriation of trade
secrets, and other similar causes of action. Oral Vision, Inc. sought to secure
a judgment against this consultant and his affiliate companies. The Company has
subsequently been advised that the Consultant, and his resulting firm, have
since ceased operation. As a result, the Company, as the current owner of the
Oral Vision claim, agreed to settle the litigation in March of 1996 for $22,000
in cash payable to the Company. To date, however, no payments have been received
toward this settlement amount.
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<PAGE> 18
Also, in 1993 Oral Vision, Inc. received a letter from a product
manufacturer alleging that the Oral Vision product, which was manufactured for
Oral Vision by a sub-contractor, infringed upon one or more patents held by the
complaining product manufacturer. The Company is no longer marketing the camera
upon which this original complaint was alleged.
As reported earlier in the Company's Form 10-QSB for the quarter ended
September 30, 1995, dated November 13, 1995 and the Company's Form 10-QSB for
the quarter ended December 31, 1995, dated February 13, 1996, the Company was
been served with a lawsuit (the "Wildwood litigation") which was filed on July
6, 1995, in the California Superior Court, County of Sacramento, against the
Company, its transfer agent, OTR, Inc., and Mr. G. Michael Montross, a
shareholder of the Company (Wildwood Limited Partnership Oversight Committee, et
al, v. Bio-Dental Technologies Corporation, et al; Sacramento Superior Court No.
95A503733).
The Wildwood litigation alleges that in 1992, G. Michael Montross
pledged 200,000 shares of the Company's common stock owned by Mr. Montross to an
agent for the plaintiffs, to secure debts allegedly owing by Mr. Montross to the
plaintiffs. The lawsuit 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 the Company'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 Company's shares that their agent held as
security for Mr. Montross' debts. The Wildwood litigation seeks the recovery of
general and special damages from the defendants, or in the alternative, that the
200,000 shares in dispute be reissued in their 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 have obtained since October 16, 1992, estimated by the plaintiffs
at $1,250,000.
The Company has referred this matter to outside counsel with the
directions that counsel vigorously defend against the claims set forth in the
Wildwood litigation. The Company has filed an Answer, which denies all of the
material allegations of the Wildwood litigation and asserts various affirmative
defenses.
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<PAGE> 19
The Company and OTR have tendered the defense of this lawsuit to each other.
Both tenders have been denied. The parties to this lawsuit have been unable to
locate Mr. Montross and thus have been unable to serve him personally with any
of the pleadings in this matter. Mr. Montross has been served with the Company's
summonses and complaint by publication and a default was then entered against
him.
The Company 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. Specifically, the
Company alleges that its transfer agent, OTR, was negligent for not securing a
surety bond from Mr. Montross at the time Mr. Montross filed an affidavit of
loss claiming the certificates for the 200,000 shares had been lost or
destroyed. OTR has filed a Cross-Complaint against Mr. Montross and the Company
for Implied Indemnity, Contractual Indemnity, Negligence, Fraudulent
Misrepresentation, Conversion and Imposition of Constructive Trust. The Company
has filed an Answer which denies all of the material allegations of the
Cross-Complaint.
The Company has tendered the defense of this lawsuit to its insurance
carriers. The insurance carriers have denied coverage by claiming that one or
more policy exclusions apply. While the Company disagrees with the insurance
carriers' position, it does not appear likely that the insurance carriers will
become involved voluntarily in this litigation.
The Wildwood litigation was referred by the Court to non-binding
arbitration. After a brief hearing, the court-appointed arbitrator rendered a
decision unfavorable to the Company. In his ruling, the arbitrator found that
the Company was liable to the plaintiffs for either 200,000 shares of the
Company's stock or $1,250,000. The Company has now filed a request for Trial De
Novo, which has the effect of vacating the arbitration award.
Because formal discovery is at an early stage in this matter, the
Company is not in a position at this time to evaluate the merits of the various
claims.
On April 5, 1996, an action was filed whereby Ryker Dental of Kentucky,
Inc. dba The Supply House, and Curtis Rocca, along with Dr. Woody Oakes, Dr.
Travis McFee, and Excellence in Dentistry, Inc., were alleged to have written
and/or published
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<PAGE> 20
libelous statements about a dental management consulting group, the "Practice
Builder". This allegedly libelous letter was written by Mr. Rocca as a "Letter
to the Editor" to the dental newsletter published by Doctors Oakes and McFee.
This letter was written in response to the Practice Builder's
introduction of a multi-level marketing program designed to sell dental supplies
to dentists. Under this program, the Practice Builder made certain claims about
how much money a dentist would save on his supplies, along with how much money
he could make through downstream "commissions".
Mr. Rocca and the Company continue to believe that the statements made
in Mr. Rocca's letter are true, and the Company plans to defend this action
vigorously. In addition, the Company has been notified that, subject to a
reservation of rights, the defense of this action will be covered under the
Company's general liability insurance policy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the Company's fiscal year ended March 31, 1996.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock trades on The Nasdaq Stock Market under the
symbol "BDTC". The Company's market makers are Hill-Thompson Magid & Co.;Herzog,
Heine, Geduld, Inc.; Troster-Singer Corp.; Nash Weiss/Div of Shatkin Inv.; Ernst
& Company,; Wedbush Morgan Securities, Inc.; Sherwood Securities Corp.; Mayer &
Schweitzer, Inc.; Southwest Securities, Inc.; Sutro & Co. Inc.; Wien Securities
Corp.; and Knight Securities L.P.
The table below illustrates the stock's approximate high and low
trading prices, as determined by the bid and ask price for the securities
through August 1994 and by the high and low sales price from April 1994 through
March 1996. The source of the following information was the NASDAQ System.
Over-the-counter market quotations reflect inter-dealer prices, without retail
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<PAGE> 21
mark-up, mark-downs or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR 1994-95 FISCAL YEAR 1995-96
High Low Dividend High Low Dividend
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
Quarter 1 5.88 3.75 -0- 4.75 3.13 -0-
Quarter 2 5.38 3.88 -0- 4.13 2.75 -0-
Quarter 3 4.25 2.75 -0- 3.88 2.38 -0-
Quarter 4 5.38 2.88 -0- 3.50 2.25 -0-
</TABLE>
There were approximately 857 shareholders of record as of March 31,
1996.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Year Ended March 31, 1996 -- Results of Operations. Fiscal 1996
marked the second full year of operations of both Ryker Dental of Kentucky, Inc.
and Oral Vision, following the Company's acquisition of these entities effective
January 1, 1994. In addition, it was the first full year of operations following
the November 1, 1994 acquisition of Crown Systems, Inc.
For fiscal 1996, the Company's net revenues rose to $33,091,216, a 5
percent increase over revenues of $31,582,277 for fiscal 1995. The growth in net
revenues was attributable mainly to the ability of the Company's distribution
subsidiary, "The Supply House", to increase its average volume per customer.
Sales for The Supply House rose to $24,270,762, up 13 percent from
$21,550,535 last year. The Company's other operating subsidiary, Integrated
Dental Technologies ("IDT") experienced a decline in revenues from $8,366,043 in
fiscal 1995 to $7,441,783 this year. This decline in revenues resulted mainly as
a result of the Company's launch of the IDT "paperless" dental office. This
product offering, while very popular in concept, was met with little initial
demand. Previously, IDT had sold only dental practice management software
systems and intra-oral cameras on a stand-alone basis. When the Company began
focusing on these larger, "integrated" systems, sales of the individual
components declined.
In December 1995, the Company announced that it was discontinuing its
"paperless" dental office offering, and
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<PAGE> 22
returning to its previously-successful strategy of selling just intra-oral
cameras and dental practice management software packages.
The Company believes that these products represent the greatest market
opportunity for IDT for a number of reasons. Among these are: 1) these markets
are believed to be the most developed markets in the dental technology field at
this time, 2) the Company believes that IDT's products are well positioned to
compete in these markets, and 3) these products offer the highest gross margins
and lowest service costs. As a result of this strategic change in market
positioning and product focus, the Company should post significantly improved
results from IDT in fiscal 1997.
It is management's belief that the large dedication of both human and
financial resources devoted to IDT during the past year also had an adverse
effect on the operations of The Supply House. As a relatively small company,
much of the available resources were channeled toward addressing the many
challenges inherent in the IDT business strategy and operation. With IDT's
simpler product offerings and market strategy designed for fiscal 1997, the
Company believes that it should be able to turn more of its attention and
resources to continuing to grow The Supply House.
The Company has received three endorsements from Managed Dental Care
insurance companies wherein such insurance companies are endorsing the services
of The Supply House and IDT to its member dentists. Currently, these three
organizations represent nearly 18,000 dentists. Under the terms of these
endorsements, The Supply House is offering preferred pricing to dentists
associated with these insurance companies. Through the endorsements and the
attractive pricing offers, the Company hopes to rapidly expand its sales to
participating dentists. Managed care sales are expected to provide slightly
lower gross margins but the sales volume increase from these contracts
should improve the net income of The Supply House.
The Company has identified this niche as a growing area within
dentistry, and is actively seeking out additional relationships similar to those
which it has arranged thus far.
The Company believes that The Supply House's "Guaranteed Lowest Prices"
approach is ideally positioned to appeal to those dentists opting to participate
in a managed care environment.
In addition, the productivity-enhancing tools of IDT create an
additional opportunity for the dentist to more easily operate
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<PAGE> 23
his practice profitably under the lower-reimbursement policies of managed care.
Thus, the Company believes that it is well positioned to continue to
win additional contracts and endorsements as more dentists are forced to cut
costs and look for more cost-effective and efficient ways to run their practice.
Royalty revenues from Denticator International, Inc. ("DII") decreased
from $1,665,699 last year to $1,408,671 this fiscal year. This reduction came
mainly as a result of lower levels of profitability at DII, which had a
resulting effect on royalties payable to the Company. It is believed that the
lower profitability levels were due mainly to increased competition in the
marketplace, an expanded marketing budget, more favorable employee benefit
programs, and increased legal expenses.
Subsequent to the end of fiscal 1996, the Company signed a letter of
intent to sell its economic interest in the future royalty payments from DII to
Young Innovations, Inc. of Earth City, MO ("Young"). The terms of this
transaction call for the Company to receive approximately $7.5 million in cash
in lieu of future royalties. In addition, any monies owing to the Company from
DII at the time of the closing shall be converted to a "product credit" upon
which The Supply House can draw free product at a specified rate until depleted.
This product credit is expected to be approximately $1 million. The transaction
with Young is part of a larger transaction whereby Young will be acquiring the
assets and liabilities of DII. The transaction, expected to close in July 1996,
is subject to due diligence of both parties, as well as the parties' ability to
execute a mutually acceptable definitive agreement.
Cost of products sold rose from $21,252,851 in fiscal 1995 to
$23,926,770 this year. This 13 percent increase was directly attributable to
increased sales volume and, to a lesser degree, a change in the Company's mix of
products and services. Cost of products sold increased as a percentage of net
revenues, from 67 percent in fiscal 1995 to 72 percent this year. This increase
was a result of a variety of factors. Foremost among these were: 1) decreased
gross margins at The Supply House, 2) the changing product mix to include lower
margin items (filmless x-ray and computer hardware) at IDT, and 3) decreased
royalty revenues. Additionally, $307,331 of inventory was written off as a
result of the IDT restructuring program implemented during the fourth
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<PAGE> 24
quarter. Also, a reserve of $312,026 was established in recognition of a
potential degradation of inventory value of older model intra-oral camera
inventory, as the Company released its newer model camera. The inventory
writedown and the reserve were not included as "restructuring charges", but
rather were taken against cost of products sold.
The Company believes that newly-adopted pricing and product-mix
strategies adopted during the first quarter of fiscal 1997 should enable the
Company to reverse this trend toward lower gross margins.
Selling, general and administrative costs rose from $10,653,386 in
fiscal 1995, or 34 percent of revenues, to $11,829,832, or 36 percent of
revenues this year. While part of this increase is directly attributable to the
higher revenue level, the bulk of the increase related to the higher than
expected costs of marketing, selling and supporting the various products of IDT.
Particularly expensive to support were the Company's filmless x-ray and computer
hardware products. Since these products are no longer part of the revised IDT
product offerings for fiscal 1997, management believes that its selling, general
and administrative expenses , as a percentage of sales, should decline. In
addition, IDT's more focused marketing approach should further reduce sales and
marketing expense, as the Company will strive to communicate a more limited, yet
more direct, marketing message.
Operating expenses for The Supply House were slightly less than
expected, resulting partly from lower-than-anticipated sales, as well as
effective cost-containment methods invoked by the Company.
Additional expenses incurred this fiscal year, but not last year, were
$271,631 of restructuring charges taken by the Company related to the
restructuring of its IDT subsidiary. The restructuring charges are specifically
outlined as follows:
<TABLE>
<S> <C>
Writedown of other assets $90,002
Future contractual obligations 85,000
Employee severance 13,800
Other 82,829
</TABLE>
As mentioned earlier, management's decision to restructure its IDT
operation also resulted in an inventory writedown of
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<PAGE> 25
$307,331 and an increase to the reserve for returned product of $250,000. In
addition, a reserve of $312,026 was established in recognition of a potential
degradation in value of older model intra-oral cameras and related inventory.
The inventory writedown and the reserve for older cameras were charged against
cost of products sold. The reserve for returned product was charged against net
revenes. Total restructuring charges, inventory writedowns and the reserve
increase totaled $1,140,988.
Management decided to restructure its IDT operations largely as a
result of a change in marketing focus. Beginning in late fiscal 1995, IDT
endeavored to be the first Company in the United States to be able to provide a
dentist with a "paperless" dental office, combining such state-of-the-art dental
technologies as: 1) digital, filmless x-ray, 2) intra-oral camera, 3)
computerized patient charting, 4) multi-media patient education, and 5)
Windows(TM) based dental practice management software.
It was believed that there was a growing trend toward greater
automation of dental practices in the United States. However, while the Company
still believes this to be true, this trend was not sufficiently developed nor
large enough in scope to support the extensive marketing and support costs
necessary to bring a revolutionary new product like this to market.
IDT provided, and continues to provide, nationwide support for its
customers for any software or hardware products purchased from IDT. It quickly
became very expensive for IDT to provide this level of customer support to its
users on a nationwide basis.
As a result of these and other factors, in January 1996 the Company
decided to initiate the restructuring of its IDT operations in order to focus on
selling just intra-oral cameras and dental practice management software, as
outlined above. Management believes that this restructuring will enable IDT to
produce significantly more positive results as the Company focuses strictly on
those products which have large established markets, offer the Company
attractive profit margins, and are well positioned to compete in their
respective markets.
The restructuring was largely completed during the fourth quarter, and
the few remaining aspects should be fully executed during the first quarter of
fiscal 1997.
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<PAGE> 26
Interest and other income decreased from $203,130 last year to $81,849
this fiscal year. The majority of the decrease was due to the termination of
lease revenues from DII in March 1995, as scheduled. These lease charges were
billed to DII throughout all of last fiscal year but there were no lease charges
to DII in this fiscal year.
Interest expense increased from $127,185 last year to $231,722 this
fiscal year. The increase was due to the increased borrowings from the bank,
both on the line of credit and on a term note.
The Company reported a loss before taxes of ($3,563,977), compared to a
pre-tax loss of ($599,437) last year. This year's after tax loss was
($2,265,977), or ($0.36)per share, compared to a net loss of ($419,437), or
($0.07) per share, in fiscal 1995.
This loss resulted primarily from the poor financial performance of
IDT, although lower gross margins within The Supply House and higher interest
expense also contributed somewhat.
The Company believes that the strategic changes outlined above should
enable the Company to report significantly improved results in fiscal 1997.
Liquidity and Capital Resources. As of March 31, 1996, the Company held
total assets of $10,966,592. Of these, $8,626,608 (78%) consisted of cash,
accounts receivable, inventories, deferred income taxes and other current
assets. As of this same date, the Company had total liabilities of $7,165,756,
all being current liabilities. The Company's current ratio at March 31, 1996 was
1.20, down from 1.65 at the end of fiscal 1995. The debt to equity ratio was
1.87, up from 1.07 at the end of fiscal 1995. These ratios, specifically debt to
equity, were affected by the net loss for the year.
Cash and cash equivalents were $612,911 for fiscal 1996 compared to
$322,848 for fiscal 1995. Inventory decreased from $5,318,845 at March 31, 1995
to $3,667,161 at March 31, 1996. This decrease resulted primarily from the
Company's restructure of IDT and the write down of inventory value for
discontinued products and other inventory allowances in the fourth quarter of
fiscal 1996.
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<PAGE> 27
Accounts receivable decreased from $2,137,276 at March 31, 1995 to
$1,973,943 at March 31, 1996. This decrease resulted primarily from continued
focus on managing the Company's credit and collection efforts and higher credit
card sales for The Supply House during fiscal 1996.
Prepaid expenses and other current assets decreased from $471,931 for
fiscal 1995 to $272,197 for fiscal 1996. The decrease in prepaids and other
assets results from reduced direct mailing expenditures and marketing costs
associated with seminars, trade shows and other special events for IDT.
Deferred income taxes totaled $1,614,500 at March 31, 1996 compared to
$474,500 at March 31, 1995. The $1,140,000 increase relates to the tax benefit
resulting from the current year operating results. The tax benefit is expected
to be recognized by the Company as a result of the sale of DII in fiscal 1997.
Property and equipment was $717,152 at March 31, 1996 compared to
$888,410 at March 31, 1995. Additions to property and equipment before current
year depreciation were $172,424. Accumulated depreciation increased $306,891
during fiscal 1996.
Assets of business transferred under contractual arrangements decreased
from $490,518 at March 31, 1995 to $440,354 at March 31, 1996. The decrease
resulted from principal payments made by DII on the Company's note receivable.
Intangible assets were $1,227,862 at March 31, 1996, compared to
$1,354,852 at March 31, 1995. The net decrease of $126,990 resulted primarily
from the amortization of these assets during fiscal 1996. Software rights are
amortized using a five year amortization in accordance with the Company's
accounting policies.
Accounts payable and accrued expenses increased from $4,303,907 at
March 31, 1995 to $4,851,628 at March 31, 1996. The $547,721 increase results
from accruals (approximately $272,000) related to the IDT restructuring
initiated during the fourth quarter of fiscal 1996 with the remainder related to
increases in vendor accounts payable.
Notes payable at March 31, 1996 totaled $2,109,459, all classified as a
current liability. Total notes payable at March 31, 1995 were $2,034,000, of
which $1,311,770 was classified as a
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<PAGE> 28
current liability. The increase in the current portion of notes payable results
from a modification to the Company's bank agreements whereby the Term Note is
due September 30, 1996 compared to the previous maturity date of May 1, 1998.
Deferred revenues were $204,669 at March 31, 1996, compared to $125,035
at March 31, 1995. Deferred revenues represent prepaid customer support fees,
prepaid seminar fees from customers and customer deposits or pre-payments on
sales orders not yet delivered or completed. The $79,634 increase results
primarily from an increase in prepaid customer support fees related to IDT's
software products.
Total stockholders' equity at March 31, 1996 was $3,830,836, which
represents a decrease of $2,200,249 from March 31, 1995. Retained earnings
decreased $2,265,977 during fiscal 1996 as a result of operations. Common stock
and capital contributed in excess of par value increased $65,728 with the
increase resulting from the issuance of additional shares related to the Crown
Systems, Inc. acquisition in fiscal 1995, fiscal 1995 employee stock option
contribution, and the issuance of additional shares of common stock to lecturing
dentists pursuant to the acquisition agreement of Oral Vision, Inc.
In accordance with generally accepted accounting principles, the
balance sheet does not reflect the future interest and royalty income which
Bio-Dental contractually receives from DII, its former manufacturing subsidiary.
This royalty was a monthly minimum of $30,000 for the year ended March 31, 1994
and from April through December 1994. Effective January 1995, the monthly
minimum royalty payment increased to $43,000 per month. However, actual royalty
payments have continued to be higher than the minimum requirements.
If the Company were to repeatedly have losses similar to that which it
experienced in fiscal 1996, the Company could run into liquidity problems and
eventually have difficulty meeting its credit obligations. The Company believes,
however, that these levels of losses are unlikely to continue in fiscal 1997
and, in fact, believes that the Company will return to profitability in fiscal
1997.
Debt Financing. In December 1992, the Company secured a $1 million line
of credit from The Bank of California. In December 1993, the Company obtained an
increase to this line of credit
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<PAGE> 29
from $1 million to $1.5 million. In August 1994, the line was increased again,
from $1.5 million to $3 million. In addition to the line of credit, a $1 million
term note with the bank was secured in March 1995. In July 1995, the bank
amended certain covenants regarding tangible net worth, total indebtedness and
profitability requirements. The line expired on August 31, 1995. The bank
subsequently extended the agreement through November 19, 1995. Effective October
31, 1995, the bank modified the agreement and a Second Amended and Restated
Credit Agreement was executed with a February 29, 1996 expiration date.
The Second Amended and Restated Credit Agreement changed the interest
rate on both the line of credit and term loan to prime plus 1.25%, compared to
the previous rate of prime plus 0.75%. Since the Company's eligible inventory
and accounts receivable have never been sufficient to take full advantage of a
$3 million credit line, the maximum borrowing base on the line of credit was
reduced to $2.5 million, an amount more consistent with the Company's eligible
asset base.
The Second Amended and Restated Credit Agreement expired on February
29, 1996 and the Company and the bank subsequently executed a Replacement
Revolving Credit Note and Modification Agreement effective March 31, 1996. The
Modification Agreement amended the maximum borrowing base to $1,394,000 and the
interest rate on the line of credit and term note was changed to prime plus
2.5%, compared to the previous rate of prime plus 1.25%. The line of credit and
term note each expire September 30, 1996. In addition to monthly interest
payments on the line of credit and term note, monthly principal payments of
$27,777 are due on the term note.
On April 1, 1996, in accordance with the terms of the Modification
Agreement, the Company secured additional funding pursuant to an agreement to
borrow $1,250,000 from two institutional investors (Lenders). The Term Notes
accrue interest at the rate of 12% per annum and accrued interest is due and
payable on September 30, 1996 and March 29, 1997.
As additional consideration for the Term Notes, the Company issued
warrants to the Lenders which totaled 250,000 warrants at an exercise price of
$3.03 and 50,000 warrants at an exercise price of $3.03 to International Capital
Partners, Inc. as part payment for the placement fee. Under the terms of the
agreement,
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<PAGE> 30
the Company is required to repay the outstanding principal of the Term Notes and
accrued and unpaid interest before July 31, 1996 in order to avoid the issuance
of additional warrant shares, but in no event will the repayment occur later
than March 29, 1997. On June 7, 1996, the Company filed a Form 8-K (which is
incorporated herein by this reference) describing the details of these
subordinated loans.
The Company's debt agreements with The Bank of California contain
various covenants regarding working capital, net worth and total indebtedness
among other items, which became effective January 1, 1996 and thereafter.
Effective March 31, 1996, the Company was not in compliance with the covenant
regarding the maintenance of current assets in an amount not less than
$2,500,000 in excess of current liabilities. The Company's failure in the future
to comply with these covenants would constitute technical defaults under its
credit arrangements and the bank could theoretically exercise certain creditor
rights with the Company.
The Company has used its line of credit for working capital to finance
it operations, specifically in information systems and in IDT. The term loan
with the bank was used primarily to fund the retirement of existing debt
associated with the acquisitions of Ryker, Oral Vision and Crown Systems. The
balance outstanding on the line of credit as of March 31, 1996 was $1,394,000
and the balance on the note was $715,459. Because the subordinated Term Notes
were not funded until April 1, 1996, there was no balance on these notes
outstanding as of March 31, 1996.
Effect of Inflation and Price Increases on the Company's Operations. As
mentioned earlier, The Supply House experienced decreased gross margins in
fiscal 1996. This was due mostly to suppliers of The Supply House's products
increasing the costs of such products at a greater rate than The Supply House
could raise its selling prices, due to price competition in the marketplace and
the timing of its catalog release.
The Supply House estimates that price increases for products it sells
will average approximately 4 percent in fiscal 1997. The Supply House believes
that new pricing strategies adopted during the first quarter of fiscal 1997 will
address these anticipated cost increases and should enable The Supply House to
prevent a decrease in gross margins for its non-managed care sales. Managed care
sales are expected to provide slightly lower gross margins but the sales volume
increase from these contracts should improve the net income of The Supply House.
30
<PAGE> 31
The current rate of inflation is not believed to have any material
effect on the operations of the Company's IDT subsidiary.
The Year Ended March 31, 1995 -- Results of Operations. The year ended
March 31, 1995 represented the fourth full year of operations following the
Company's acquisition of SDDS and the disposition of DII. In addition, fiscal
1995 included one full year of operations of both Ryker Dental of Kentucky, Inc.
and Oral Vision, following the Company's acquisition of these entities effective
January 1, 1994. For fiscal 1995, the Company's net revenues rose to
$31,582,277, a 58% increase over revenues of $20,017,039 for fiscal 1994. The
growth in revenues was attributable mainly to the acquisitions of these two
entities, although revenues of previously existing distribution operations also
continued to grow.
Of the $11,600,000 increase in product sales, approximately $5,200,000
came as a result of Oral Vision (and the subsequent formation of IDT), while an
additional $4,000,000 came from the acquisition of Ryker. The remaining $2.4
million of revenue growth was internally generated by The Supply House, the
Company's dental products distribution subsidiary.
While these acquisitions provided substantial revenue growth, they were
not without their share of associated costs.
The growth in revenues from operations existing prior to the
acquisitions was somewhat affected by a number of start-up and non-recurring
events which occurred during the year. First, the Company's acquisition of Ryker
Dental Corporation in January, 1994 required a significant amount of resources
be dedicated to incorporating Ryker's method of operation within that of The
Supply House. In addition, the Company converted The Supply House (both
California and Kentucky operations), and later Integrated Dental Technologies
(IDT), to a completely new computer system.
The $5.2 million growth in IDT revenues was approximately $2 million
less than expected for fiscal 1995. The acquisition of Oral Vision, the
subsequent formation of IDT, and the significant efforts required to build the
IDT business unit caused management attention to be focused more on this
entity's product and organizational development rather than short-term
31
<PAGE> 32
revenue growth. In addition, the development of IDT's fully-integrated system
was not completed until after year-end. The Company believes that this shift in
sales focus to the integrated system, coupled with the inability of the Company
to deliver this system prior to year-end, also affected revenues.
All of these issues imposed a drain on the Company's management and
staff resources, which impeded the Company's attainment of its growth goals for
fiscal 1995. The Company believed that many of these issues had been resolved,
which would enable management to refocus its attention on revenue and earnings
growth.
As anticipated, royalty revenues from DII were virtually unchanged from
last year, indicating the stability of Denticator's position within the
marketplace and the relatively mature nature of this market. Royalty revenues
were $1,665,699 for 1995 compared to fiscal 1994's $1,665,664. The Company sold
DII in March 1991 in exchange for a royalty arrangement.
Cost of products sold rose from $12,703,618, or 69 percent of product
sales, in fiscal 1994 to $21,252,851, or 71 percent of product sales in fiscal
1995. The reduction in gross margin percent arose largely as a result of a delay
in the production of The Supply House's catalog, which forced the Company to
honor last year's pricing for several additional months, even after cost
increases had been imposed upon The Supply House from its suppliers. In
addition, during the first nine months of fiscal 1994 the Company earned
profit-sharing dollars associated with its role as the manager of Oral Vision,
Inc. These dollars earned were recorded as revenues with no costs associated
with them, thereby providing 100 percent gross margin on these dollars.
Subsequent to the acquisition of Oral Vision in January 1994, the Company
records all operational activity (revenues, cost of sales and expenses) and, as
such, gross margins were naturally reduced.
Selling, general and administrative expenses for the year totaled
$10,653,386, or 34% of net revenues, as compared to $5,123,874, or 26% of net
revenues, in 1994.
The increase in expenses came primarily as a result of two factors.
First, the acquisition of Ryker added the staff, facility and ongoing operations
associated with that
32
<PAGE> 33
organization. Secondly, the formation, development and marketing of the new IDT
business unit added a very large portion of this increased cost structure. Costs
associated with IDT were both start-up and recurring in nature. Included in the
start-up category are: 1) product development costs, 2) up-front marketing costs
associated with securing the distribution rights for IDT's filmless x-ray
system, 3) the recruiting, hiring and training of new lecturers as well as a
team of product sales representatives, 4) costs associated with the Company's
conversion to a more sophisticated computer system, 5) designing and
implementing a new series of educational seminars, and 6) the actual acquisition
of Oral Vision, Inc. and Crown Systems, Inc.
Recurring costs associated with IDT include: 1) company marketing and
promotion, 2) product marketing and sales activity, educational seminars and
symposiums, 3) technical support services, and 4) general administrative support
and overhead.
Operating costs and expenses for the year totaled $32,257,659, or 102%
of net revenues, as compared to $17,971,646, or 90% of net revenues, in 1994.
Many of the above factors which served to increase the Company's
expense structure had a corresponding effect on the Company's profitability.
For the fourth quarter ended March 31, 1995, the Company lost
approximately $(993,000), as compared to net earnings of $455,523 for the fourth
quarter ended March 31, 1994. In the fourth quarter of fiscal 1995 the Company
recorded certain adjustments, aggregating approximately $485,000, which were
required to adjust recorded accounts payable to agree to the actual amounts
payable. The adjustments were required because of the Company's prior failure to
recognize payable obligations at the time when products had been received and
were on hand, but the invoices from the product vendor had not yet been
processed. The result of this increased the net loss by approximately $291,000,
or $.05 per share, net of taxes.
The Company incurred a net loss of $(419,437) in fiscal 1995, as
compared to net earnings of $1,553,953 in the prior year.
33
<PAGE> 34
Total fiscal 1995 net loss per share was $(0.07) as compared to net
income per share of $0.27 for the year prior.
The decrease in profitability can be mainly attributed to the large
start up (and to a lesser degree, the ongoing operating) expenses of
Bio-Dental's new IDT subsidiary, as cited above.
To the best of Management's knowledge, IDT was the first company in the
United States to be able to provide a dentist with a complete, virtually
"paperless" dental office, combining such state-of-the-art dental technologies
as: 1) filmless x-ray, 2) intra-oral camera, 3) computerized charting, 4)
multi-media patient education, and 5) Windows(TM)-based practice management
software.
There is a growing trend toward automation of dental practices within
the United States. IDT was positioning itself to be the leader within the field
of integrating these new technologies into the dental practice. The Company
believed that each of the products represented in its IDT product line were, or
would be, among the highest quality products available in their respective
categories. System prices generally range from $4,000 for software only, to
around $100,000 for a ten-user system, completely networked into every operatory
within the dentist's practice.
IDT has nationwide support capabilities for both hardware and software
service such that one call to IDT should serve to resolve any user problem -
whether it be hardware or software related. The Company charges an annual
support fee for this service.
With regard to The Supply House, several non-recurring expenses caused
an increase in operating expenses here too. Most noteworthy of these are the
costs associated with integrating Ryker Dental into the operations of The Supply
House, and the
34
<PAGE> 35
computer conversions of both the California and Kentucky operations.
To a lesser degree, the Company's investment in the redesign of its
revised catalog format, featuring full-color photographs and expanded product
descriptions for virtually every product, also affected the year's expenses.
This new catalog design required significant one-time investments in
photography, design, and copy writing. The benefits of this re-design should be
realized for many years, yet the up-front development has been expensed (with
some allocation carried over through June 1995, the expiration date of the first
catalog).
In addition, virtually all of the start-up and development expenses
associated with IDT were similarly expensed. There are very few capitalized
development expenditures (other than those associated directly with the
acquisition of Oral Vision and Crown Systems) carried on the balance sheet.
Liquidity and Capital Resources. As of March 31, 1995, the Company held
total assets of $12,512,119. Of these, $9,526,185 (76%) consisted of cash,
accounts receivable, inventories, and other current assets. As of this same
date, the Company had total liabilities of $6,481,034, with $5,757,297 of these
being current liabilities. The Company's current ratio at March 31, 1995 was
1.65, down slightly from 1.70 at the end of fiscal 1994. The debt to equity
ratio was 1.07, up from 0.84 at the end of fiscal 1994. These ratios,
specifically debt to equity, were affected by the net loss for the year.
Cash and cash equivalents were $322,848 for fiscal 1995 compared to
$487,174 for fiscal 1994. Inventory increased from $4,869,402 at March 31, 1994
to $5,318,845 at March 31, 1995. This increase resulted primarily from the
Company's expansion of its product lines and to meet the higher level of sales
from fiscal 1994 to 1995.
Accounts receivable increased only slightly from $2,125,679 at March
31, 1994 to $2,137,276 at March 31, 1995. Considering the increase in revenues
of $11,565,238 from fiscal 1994 to fiscal 1995, this slight increase in accounts
receivable reflects the Company's success in managing its credit and collection
efforts.
35
<PAGE> 36
Prepaid expenses and other current assets increased from $274,740 for
fiscal 1994 to $471,931 for fiscal 1995. The majority of this $197,191 increase
results from marketing and direct mailing expenditures which will benefit future
periods.
Income taxes receivable was $565,720 as of March 31, 1995 compared to
$0 at March 31, 1994. The Company made estimated tax deposits based on interim
earnings in early fiscal 1995 and now expects a refund of $531,000. Also
included is a $34,720 overpayment on a prior year return.
Property and equipment was $888,410 at March 31, 1995 compared to
$680,922 at March 31, 1994. Additions to property and equipment before current
year depreciation were approximately $470,000, with approximately $250,000
expended for Ryker Dental and the remainder for IDT. Ryker continued to expand
its computer system which accounts for a majority of their capital expenditures.
IDT acquired certain assets of Crown Systems, Inc. and the development of the
business during the fiscal year required capital investment into computer
systems, furniture and equipment and leasehold improvements. Accumulated
depreciation increased $224,362 during fiscal 1995.
Assets of business transferred under contractual arrangements decreased
from $600,282 at March 31, 1994 to $490,518 at March 31, 1995. This decline
results from the receipt of principal payments made by DII on the Company's note
receivable.
Intangible assets were $1,354,852 at March 31, 1995, compared to
$1,123,822 at March 31, 1994. The net increase of $231,030 resulted primarily
from the November 1, 1994 acquisition of certain assets and liabilities of Crown
Systems, Inc. This acquisition included certain software rights totaling
$275,981. Software rights are amortized using a five year amortization in
accordance with the Company's accounting policies.
Deferred income taxes increased by $180,000 in fiscal 1995. This
increase relates to the tax benefit resulting from the current year operating
results.
Accounts payable and accrued expenses increased from $3,967,991 at
March 31, 1994 to $4,303,907 at March 31, 1995. The $335,916 increase results
from an increase of inventory
36
<PAGE> 37
attributable to the increased sales, and breadth of product line, and accrued
payroll and payroll related expenses for IDT as this business expanded during
fiscal 1995.
Notes payable at March 31, 1995 totaled $2,034,000, of which $1,311,770
was classified as a current liability. Total notes payable at March 31, 1994
were $600,679, of which the entire amount was current. The increase of
$1,433,321 relates to expanded operations of IDT during fiscal 1995 and the
working capital requirement to develop the business.
Deferred revenues were $125,035 at March 31, 1995, compared to $197,466
at March 31, 1994. Deferred revenues represent prepaid seminar fees from
customers and customer deposits or pre-payments on sales orders not yet
delivered or completed.
Total stockholders' equity at March 31, 1995 was $6,031,085, which
represents an increase of $77,581 from March 31, 1994. Retained earnings
decreased $419,437 during fiscal 1995 as a result of operations. However, common
stock and capital contributed in excess of par value increased $497,018 during
fiscal 1995. The majority of the increase came from a sale of the Company's
restricted common stock in a private placement.
In accordance with generally accepted accounting principles, the
balance sheet does not reflect the future interest and royalty income which
Bio-Dental contractually receives from DII, its former manufacturing subsidiary.
This royalty was a monthly minimum of $30,000 for the year ended March 31, 1994
and from April through December 1994. Effective January 1995, the monthly
minimum royalty payment increased to $43,000 per month. However, actual royalty
payments continued to be higher than the minimum requirements.
If the Company were to repeatedly have losses similar to that which it
experienced in the fourth quarter of fiscal 1995, the Company could run into
liquidity problems and eventually have difficulty meeting its credit
obligations.
Debt Financing. In December 1992, the Company secured a $1 million line
of credit from The Bank of California. In December 1993, this line was expanded
to $1.5 million and in August 1994, the line was expanded to $3 million. In
addition to the line of credit, a $1 million term note with the bank was secured
in March
37
<PAGE> 38
1995. The line expires August 25, 1995 and the note is due on May 1, 1998 with
monthly principal payments of $27,777 beginning June 1, 1995. The line and note
bear interest at prime plus 0.75% with an option at the Company's discretion to
allocate part of the line balance to a fixed rate for short periods of time. The
line and note are secured by the inventories, accounts receivable and various
other assets of the Company.
The Company has used this line of credit for working capital to finance
its growth, specifically in information systems and in IDT. The note was used
primarily to fund the retirement of existing debt associated with the
acquisitions of Ryker, Oral Vision and Crown Systems.
The Company's debt agreements contain various covenants regarding
working capital, net worth and profitability, among other items. At March 31,
1995, the Company was not in compliance with the covenants regarding
profitability and debt to tangible net worth ratio, but received a waiver and
modification on those covenants from The Bank of California on July 12, 1995.
The Bank of California also modified the tangible net worth and working capital
requirements on July 12, 1995.
Proposed Mergers, Acquisitions or Divestitures.
Denticator International, Inc. On May 10, 1996, the Company signed a
letter of intent with Young Innovations, Inc. which contemplates Young's buy out
of the Company's rights to receive royalties through March 1999 from Denticator
International, Inc. (DII) for a lump sum cash payment of $7.5 million.
Denticator, a former subsidiary of Bio-Dental, was sold in 1991, and since that
time Bio-Dental has been receiving royalties from Denticator. The Company
estimates that the $7.5 million payment approximates the net-present-value of
Bio-Dental's projected future royalties, including a scheduled lump-sum payment
that would have been due in April 1999.
The letter of intent is part of a transaction in which Denticator
International Inc., will be acquired by Young Innovations, Inc., located in
Earth City, Missouri. The transaction is subject to due diligence and other
contingencies and is scheduled to close by the end of July 1996.
38
<PAGE> 39
The sale of these royalty payments will significantly strengthen the
Company's balance sheet. The Company anticipates that the transaction will
eliminate all of its currently outstanding bank debt and notes payable, and
provide the Company with additional cash.
Zila, Inc. On May 31, 1996 The Company signed a letter of intent to
merge Bio-Dental into Zila, Inc. The transaction will involve the exchange of
Zila stock for all of Bio-Dental's outstanding stock. Zila's acquisition of
Bio-Dental is subject to a number of conditions, including satisfactory
completion of due diligence by both companies, execution of definitive
agreements, the ability to account for the transaction as a
pooling-of-interests, and the approval of Bio-Dental's shareholders.
The terms of the letter of intent call for Zila to exchange between
0.75 and 0.825 shares of its stock for each of Bio-Dental's 6.4 million shares,
with the actual rate to be based upon the average closing bid prices of Zila's
stock during the ten (10) day "calculation period" ending on the trading date
that is five trading days prior to the closing date. In no event, however, will
Zila issue less than $4.95 worth of its stock for each share of Bio-Dental.
If Zila's stock averages between $6 and $7.75 during the valuation
period, then the exchange rate will be 0.825:1. If Zila's stock averages over
$8.52, then the exchange rate shall be 0.75:1. If Zila's stock averages between
$7.75 and $8.25 during the valuation period, then Zila will issue that
fractional number of shares necessary to provide each Bio-Dental share with
$6.39 worth of Zila stock. If Zila's stock averages below $6.00 during the
valuation period, then Zila shall issue that number of shares necessary to
provide $4.95 per share of value for each share of Bio-Dental. The table below
illustrates the above information:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. ZILA SHARE PRICE $5.00 $ 6.00 $ 7.00 $ 7.75 $8.00 $8.25 $8.52 $9.00 $10.00 $11.00 $12.00
2. # SHARES ZILA FOR BDTC 0.99 0.825 0.825 0.825 .8 0.77 0.75 0.75 0.75 0.75 0.75
3. BDTC SHAREHOLDER GETS $4.95 $ 4.95 $ 5.78 $ 6.39 $6.39 $6.39 $6.39 6.75 $ 7.50 $ 8.25 $ 9.00
</TABLE>
Note
1. If Zila share price during valuation period averages these amounts.
2. BDTC shareholders receive these # shares of Zila for each BDTC share owned.
3. Equates to this dollar value for each BDTC share exchanged.
39
<PAGE> 40
Zila, headquartered in Phoenix, Arizona, markets a rapidly growing line
of non-prescription oral health care products, and is introducing what the
Company believes to be the first oral cancer diagnostic, OraTest(TM). FDA
approval to market OraTest in the U.S. is pending.
OraTest is a patented, inexpensive, highly accurate diagnostic adjunct
used to examine patients at high risk of oral cancer -- those 40 and over who
use tobacco or drink heavily. According to Zila, clinical studies have shown
OraTest to be highly sensitive for detecting squamous cell carcinoma. It is also
used to delineate sites for biopsy and surgery, and has proven to be a highly
effective smoking cessation counseling tool.
The Company will become the exclusive distributor of OraTest in the
U.S. when regulatory approval is granted. As the exclusive distributor of
OraTest, the Company anticipates that it will have the opportunity to
significantly expand its market share by cross-selling other dental supplies to
new OraTest customers.
Oral cancer is reportedly the eighth most common form of cancer in the
U.S. and Europe, with approximately 30,000 new cases diagnosed each year,
accounting for approximately 8,000 deaths.
OraTest is a simple solution that the patient gargles with, causing any
cancerous lesions to be stained an almost-florescent blue color so they can be
easily identified.
It is currently contemplated that management for both companies will
remain in place, and the Company does not believe that any material personnel
changes will occur as a result of this merger. Zila will continue to run their
existing operations out of Phoenix and Bio-Dental will continue to run its
operations out of its existing facilities. No definitive changes in employee
benefits have been identified.
It is anticipated that the merger will be consummated during the third
quarter of the current fiscal year following Bio-Dental
40
<PAGE> 41
Shareholder approval of the proposed merger. Until that time Bio-Dental, will
continue its normal business operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and reports of
independent certified public accountants thereon are attached hereto as
exhibits.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company continues to retain Grant Thornton as its independent
auditors.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
<TABLE>
<CAPTION>
Name Office Since
<S> <C> <C>
Curtis M. Rocca III President, Chief Executive
Officer, Director 1990
Timothy J. Purdy Treasurer, Director 1991
Terry E. Bane Chief Financial Officer 1995
Maxine A. Holland Secretary 1994
Joseph J. Battle, DDS Director 1991
James H. Ellis Director 1991
Douglas L. Ayer Director 1992
B. Mason Flemming, Jr. Director 1992
G. Barton Mahan Director 1994
</TABLE>
Directors are elected annually at the annual meeting of shareholders
and serve at the pleasure of the shareholders. The Company's executive officers
are appointed by the Board of Directors and serve at the discretion of the
Board. Any other officers are appointed by the Chief Executive Officer and serve
at his discretion.
No current officer or director of the Company has been involved in any
bankruptcy, criminal proceeding, or securities or commodities violation during
the past five (5) years.
41
<PAGE> 42
A brief summary of each officer and director is outlined below.
Curtis M. Rocca III.
Curtis M. Rocca III serves as the Company's President, Chief
Executive Officer and Director.
Mr. Rocca has been with the Company since March 1990 when he
was hired as Chief Operating Officer.
Prior to joining the Company, 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. During his 5 years with
Celebrity, Inc., Mr. Rocca helped build Celebrity, Inc.'s sales
from $600,000 per year to revenues in excess of $6 million per
year.
This substantial growth in revenues earned Celebrity, Inc. a spot on
the prestigious "Inc. 500" list of America's fastest growing private companies.
In addition, the company was named to Arthur Andersen's "Fast Track 25" list of
the most innovative and successful companies in Northern California.
Prior to joining Celebrity, Inc., Mr. Rocca was employed as a marketing
manager in Pacific Bell's Fast Track management program. It was here that he
obtained his training in professional telemarketing. Both Celebrity, Inc. and
the Company have increased sales by utilizing professional telephone sales
people selling to businesses.
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.
42
<PAGE> 43
Timothy J. Purdy.
Timothy J. Purdy currently serves as President of Ryker Dental of
Kentucky, Inc. and as Treasurer and Director of the Company. Mr. Purdy served as
the Chief Financial Officer for the Company from December 1990 through March
1995.
Prior to joining the Company, Mr. Purdy was the controller, treasurer,
and later, director of a NASDAQ listed natural resource company. From 1983 to
1986 Mr. Purdy was the chief financial officer of Sacramento Telematics, a group
of four California corporations involved in the telecommunications industry.
Prior to 1983, Mr. Purdy spent three years with the public accounting
firm of Arthur Young & Co. He is a certified public accountant and graduated
with honors from California State University, Sacramento, with a Bachelor of
Science degree in Accounting.
Terry E. Bane.
Terry E. Bane has served as the Company's Chief Financial Officer since
April 1995.
Prior to joining the Company, Mr. Bane was employed at Eskaton, a
multi-facility health care company. He spent fourteen years with Eskaton and
served as their Chief Financial Officer for the last ten years.
Prior to joining Eskaton, Mr. Bane worked with the public accounting
firm of Coopers & Lybrand. He is a certified public accountant and graduated
from California State University, Sacramento, with a Bachelor of Science degree
in Business (accounting concentration).
Maxine A. Holland.
Maxine Holland joined the Company in 1991 as an Executive Assistant and
in 1994 became the Company's Secretary.
Prior to joining Bio-Dental, Mrs. Holland worked in her family's
architectural graphics company. Mrs. Holland majored in Management at California
State University at Sonoma.
43
<PAGE> 44
Joseph J. Battle, DDS.
Dr. Battle has been a full-time practicing dentist for the past twenty
seven-years. Dr. Battle graduated from the University of Detroit School of
Dentistry and is currently a member of The Association of Medical Surgeons, The
International Association of Oral Implantologists, and the National Dental
Practitioners Association. In addition, Dr. Battle is a licensed real estate
broker and Chief of Dental Services for the 347 th General Hospital U.S. Army
reserves serving with a rank of Colonel.
James H. Ellis.
Mr. Ellis has been employed for seven years as Executive Director of
Interim Physician/Western Physician Registry, a permanent and temporary
placement service for physicians. For eight years prior to his association with
Interim Physicians Mr. Ellis was a partner of Mosher & Ellis, a personal
financial planning firm. Mr. Ellis is the uncle of Curtis M. Rocca III.
Douglas L. Ayer.
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.
B. Mason Flemming, Jr.
Mr. Flemming is Chairman of Flemming & Lessard, Inc., a private
investment banking firm with offices in San Francisco and La Jolla, California.
Prior to forming Flemming & Lessard, Inc. in 1989, Mr. Flemming was Executive
Vice President and Director of Robert C. Brown & Co., Inc., a financial services
company. Mr. Flemming currently serves on the Board of Directors of
44
<PAGE> 45
Specialty Foods, Inc., Tacoma, Washington, a food blender company.
G. Barton Mahan.
G. Barton Mahan has served as Vice President, Eastern Operations, for
Ryker Dental Corporation since the Company's acquisition of Ryker in January
1994.
Prior to joining the Company, Mr. Mahan served as President of Ryker
Dental Corporation, which he founded in 1986 along with four other partners.
Prior to that, Mr. Mahan was sales manager for Kentucky Dental Supply Company.
Mr. Mahan attended the University of Kentucky and currently serves as
Chairman of the Lexington Chamber of Commerce Council of Smaller Enterprises,
Vice Chairman of the University of Kentucky College of Dentistry Development
Council and is on the Board of Directors for Fifth Third Bank of Central
Kentucky and UK College of Dentistry Development Council.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Based on a review of Forms 3, 4 and 5 furnished to the Company during
its most recent fiscal year, the following officers, directors or beneficial
owners of more than ten (10) percent of the Company's registered securities
failed to file, on a timely basis, reports required by Section 16(a) of the
Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
No. of Late
Reports/Transactions
Name Position Form 3 Form 4
---- -------- --------------
<S> <C> <C>
Maxine A. Holland Secretary 1
</TABLE>
45
<PAGE> 46
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
---------------------
Annual Compensation Awards
---------------------------------------------
(a) (b) (c) (d) (g) (I)
All Other
Name and Principal Year Ended Options/ Compensa-
Position March 31, Salary($) Bonus($) SARs(#) tion($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Curtis M. Rocca III, 1996 132,213 0 0 0
CEO 1995 129,107 0 0 0
1994 124,200 25,000 0 0
Timothy J. Purdy, 1996 83,197 0 0 0
Treasurer 1995 72,974 0 0 0
1994 65,000 6,000 0 0
Terry E. Bane 1996 70,000 0 40,000 0
Chief Financial Officer 1995 0 0 0 0
1994 0 0 0 0
G. Barton Mahan 1996 84,158 0 10,000 0
V.P., Ryker Dental 1995 80,000 40,000 0 0
1994 20,000 0 0 60,000
Dan Ramsey 1996 81,358 0 10,000 0
Equipment Sales Mgr., 1995 80,000 40,000 0 0
Ryker Dental 1994 20,000 0 0 60,000
- --------------------------------------------------------------------------------
</TABLE>
Footnotes to Column (d):
In the fiscal year ended March 31, 1995, as part of the acquisition of
Ryker Dental, G. Barton Mahan and Dan Ramsey, the former shareholders of Ryker
Dental, each received $40,000 cash as consideration for their continued
employment with the Company.
Footnotes to Column (g):
In the fiscal year ended March 31, 1996, Terry E. Bane was granted
40,000 stock options at $4.75 per share of common stock. Vesting for these
options began as of March 31, 1996 and continues on a straight-line basis over
three years. As of March 31, 1996, 10,000 of these options had vested for Mr.
Bane.
46
<PAGE> 47
Footnotes to Column (g):
Mr. G. Barton Mahan and Mr. Dan Ramsey have each been granted 10,000 options
effective April 1, 1996. These options will vest on March 31, 1997 if the
Company achieves certain specific performance benchmarks for the year ended
March 31, 1997. These options will have an exercise price equal to the fair
market value of the common stock on the date of grant.
Footnotes to Column (I):
In January 1994, as part of the acquisition of Ryker Dental, G. Barton
Mahan and Dan Ramsey each received $60,000 cash as consideration for entering
into a non-competition agreement with the Company.
<TABLE>
<CAPTION>
Options/SAR Grants in Last Fiscal Year
Individual Grants
---------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Percent of Total
Options/SARs Market
Options/ Granted to Price on
SARs Employees in Exercise or Date Expiration
Name Granted($) Fiscal Year Base Price ($/sh) of Grant Date
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Curtis M. Rocca III, 0 0
CEO
Timothy J. Purdy, Treasurer 0 0
Terry E. Bane 40,000 46.5% $4.75 $4.13 5-10-05
Chief Financial Officer
G. Barton Mahan 0 0
V.P.,Ryker Dental
Dan Ramsey 0 0
Equipment Sales Mgr.,
Ryker Dental
---------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
- -------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Curtis M. Rocca III, 0 0 Exercisable 208,150 $332,673
CEO Unexercisable 0 0
Timothy J. Purdy, Treasurer 0 0 Exercisable 50,000 $119,500
Unexercisable 0 0
Terry E. Bane 0 0 Exercisable 10,000 0
Unexercisable 30,000 0
G. Barton Mahan 0 0 Exercisable 0 0
V.P., Ryker Dental Unexercisable 10,000 0
Dan Ramsey 0 0 Exercisable 0 0
Equipment Sales Mgr., Unexercisable 10,000 0
Ryker Dental
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Long Term Incentive Plans.
The Company does not have any Long-Term Incentive Plans.
Compensation of Directors.
Directors who are not employees of the Company will receive options to
purchase 5,000 shares of the Company's common stock per year. These options will
have an exercise price equal to the fair market value of the common stock at the
beginning of each term as a director (usually the day of the Annual Shareholders
Meeting).
Employment Contracts.
Under an employment agreement entered into between the Company and
Curtis M. Rocca III, the Company's President and Chief Executive Officer,
effective April 1, 1993 for a period of two years, Mr. Rocca received an annual
salary in the first year
48
<PAGE> 49
of $120,000 and an automobile allowance of $4,200. In the second year Mr. Rocca
received an annual salary of $125,000 and an automobile allowance of $5,000.
Additionally Mr. Rocca received a bonus in the first year ended March 31, 1994
of $25,000. As the Company did not achieve its performance benchmarks for fiscal
1995 and 1996, Mr. Rocca received no bonus for these years.
While the term of Mr. Rocca's employment agreement expired in April
1995, Mr. Rocca continues to perform services and receive compensation in
accordance with the terms of the expired employment agreement.
The Company entered into employment agreements with Mr. G. Barton Mahan
and Mr. Dan Ramsey as part of the acquisition of Ryker Dental of Kentucky, Inc.
The agreements were for a three year period beginning January 1, 1994 and expire
on December 31, 1996. An annual salary of $80,000, for each Mr. G. Barton Mahan
and Mr. Dan Ramsey, is required under the terms of the contracts. If the
Company's subsidiary "The Supply House" attains specific sales and profit goals
as established by the Company's Board of Directors annually, performance-based
bonuses could be earned up to $10,000 cash and the granting of options to
acquire ten thousand (10,000) shares of the Company's common stock at the fair
market value of such shares on the date of grant. During the term of employment,
the employees shall each receive a monthly car allowance in an amount which is
the greater of $350 per month or the employee's expenses of operating a car
during based on the $.25 per mile for each mile actually driven for business
purposes. During the term of the agreements, the employees are also entitled to
all other benefits the Company provides to all other employees of the Company.
No other employees, officers or directors have employment agreements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) The following persons hold actual and/or beneficial ownership of
greater than 5% of the Company's common stock, $.01 par value.
49
<PAGE> 50
<TABLE>
<CAPTION>
Amount and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership(1) of Class
- ----- ------------------- ------------ --------
<S> <C> <C> <C>
Common Zesiger Capital Group LLC 1,367,017 (2) 20.17%
.01 320 Park Avenue
New York, NY 10022
Common Curtis M. Rocca, III 396,600 (3) 5.85%
.01 President, Chief
Executive Officer,
Director
</TABLE>
(b) Shares held by Management and Directors.
<TABLE>
<CAPTION>
Amount of
Title of Name and Title Beneficial Percent
Class of Beneficial Owner Ownership(1) of Class
- ----- ------------------- ------------ --------
<S> <C> <C> <C>
Common Curtis M. Rocca III, 396,600 shares(3) 5.85%
.01 par President, Chief
Executive Officer
Director
Common G. Barton Mahan, 110,000 shares 1.62%
.01 par Director
Common Timothy J. Purdy, 52,750 shares(4) 0.78%
.01 par Treasurer, Director
Common Joseph J. Battle, 51,247 shares(5) 0.76%
.01 par Director
Common B. Mason Flemming,Jr., 36,000 shares(6) 0.53%
.01 par Director
Common James H. Ellis, 21,911 shares(7) 0.32%
.01 par Director
Common Maxine Holland, 10,125 shares(8) 0.15%
.01 par Secretary
Common Douglas L. Ayer, 15,000 shares(9) 0.22%
.01 par Director
Common Terry E. Bane, 10,000 shares(10) 0.15%
.01 par Chief Financial Officer
Common All directors and officers 703,633 shares 10.38%
.01 par as group (9 persons)
</TABLE>
Notes.
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
owned by them, subject to community property laws where applicable.
(2) All 1,367,017 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. Because the
50
<PAGE> 51
individual beneficial owners for whom Zesiger Capital Group LLC holds
the shares have acted individually, and not under an agreement to act
as a group, in the acquisition and disposition of the shares, the
individuals appear not to be members of a "group," pursuant to Rules
13d-3 and 13-5 promulgated under the Securities Exchange Act of 1934,
as amended, for purposes of reporting the beneficial ownership of those
shares.
(3) Includes 188,450 shares owned of record by such person individually;
options to purchase 170,000 shares which have vested pursuant to the
Company's Stock Option Plan; options to purchase 38,150 shares pursuant
to the Employment Agreement by and between the Company and Mr. Rocca.
(4) Includes 2,750 shares owned of record by such person individually; and
options to purchase 50,000 shares which have vested pursuant to the
Company's Stock Option Plan.
(5) Includes 30,000 shares owned of record by such person individually; and
options to purchase 21,247 shares which have vested pursuant to the
Company's Stock Option Plan.
(6) Includes 21,000 shares owned of record by such person individually; and
options to purchase 15,000 shares which have vested pursuant to the
Company's Stock Option Plan.
(7) Includes 2,500 shares owned of record by such person individually; and
options to purchase 19,411 shares which have vested pursuant to the
Company's Stock Option Plan.
(8) Includes options to purchase 10,125 shares which have vested pursuant
to the Company's Stock Option Plan.
(9) Includes options to purchase 15,000 shares which have vested pursuant
to the Company's Stock Option Plan.
(10) Includes options to purchase 10,000 shares which have vested pursuant
to the Company's stock option plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has not been a party to any transaction, occurring during
the past two years, requiring disclosure pursuant to Item 404 of Regulation SB.
51
<PAGE> 52
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Except as otherwise indicated, all exhibits listed below have
previously been filed with, and are incorporated by this reference into
this Item 13 of Form 10-KSB from, the Company's Form S-1 Registration
Statement and Exhibits thereto under file No. 33-47617, as filed with
the SEC on May 1, 1992, the Company's Amendment No. 1 to Form S-1
Registration Statement and Exhibits thereto under file No. 33-47617, as
filed with the SEC on June 26, 1992, the Company's Form 10-KSB and
exhibits thereto for the year ended March 31, 1993, as filed with the
SEC on June 28, 1993, the Company's Form 10-KSB and exhibits thereto
for the year ended March 31, 1994, as filed with the SEC on July 12,
1994, the Company's Form 10-QSB and exhibits thereto for the quarter
ended December 31, 1994, as filed with the SEC on February 20, 1995,
the Company's Form 8-K and exhibits thereto dated January 3, 1994, as
filed with the SEC on January 13, 1994, the Company's Form 10-KSB and
exhibits thereto for the year ended March 31, 1995, as filed with the
SEC on July 12, 1995, the Company's Form 10-QSB and exhibits thereto
for the quarter ended December 31, 1995, as filed with the SEC on
February 13, 1996 and the Company's Form 8-K and exhibits thereto dated
March 29, 1996, as filed with the SEC on June 7, 1996. Exhibits marked
with an asterisk (*) are attached to this Form 10-KSB as exhibits.
<TABLE>
<S> <C>
2.1 Agreement for Purchase and Sale of Corporate Stock dated March
31, 1991 between the Registrant and Jose Mendoza regarding the
sale of Denticator International, Inc. including all
Clarifications and Exhibits thereto.
2.2 Plan and Agreement of Reorganization, dated March 4, 1991, by
and among the Registrant and the former shareholders of San
Diego Dental Supply, Inc. regarding the purchase of San Diego
Dental Supply, Inc.
3.1 The Registrant's Articles of Incorporation as amended.
3.2 The Registrant's merger documents adopting the Colorado
Corporation's Articles of
</TABLE>
52
<PAGE> 53
<TABLE>
<S> <C>
Incorporation as the surviving Articles subsequent to the
merger of the Registrant into a California Corporation of the
same name.
3.3 The Registrant's bylaws, as amended.
4.1 Certificate of Determination of Rights, Privileges and
Preferences of Security holders of the Registrant's Series A
Participating Convertible Preferred Stock.
4.2 Copy of Registrant's Series A Redeemable Common Stock Purchase
Warrant.
4.3 Draft of Ladenburg, Thalmann Common Stock Purchase Warrant.
10.1 Investment Banking Agreement, by and between the Registrant
and Ladenburg, Thalmann and Co., Inc., dated October 1, 1991.
10.2 Accord and Satisfaction and Settlement Agreement, dated March
31, 1991, between the Registrant and Mr. and Mrs. R. D.
Eversole.
10.3 Letter Agreement, by and between the Registrant and
Josephberg, Grosz and Co., Inc., dated January 6, 1992.
10.4 Employment Agreement, by and between the Company and Curtis M.
Rocca III, dated March 20, 1991.
10.5 Exclusive Licensing Agreement, dated March 31, 1991, by and
between the Registrant and Denticator International, Inc.
10.6 Agreement by and between the Registrant and Silverman, Heller
Associates, dated February 26, 1992, wherein the Registrant
engages Silverman, Heller Associates to perform certain
corporate and financial communications on behalf of the
Company.
</TABLE>
53
<PAGE> 54
<TABLE>
<S> <C>
10.7 Agreement by and between the Registrant and Riviera Finance
Corporation, dated March 20, 1991, relating to the Company's
$700,000 line of credit, including letter extending limit from
$500,000 to $700,000.
10.8 Facility Lease Agreement, dated March 15, 1988, by and between
Syndex Laboratories and D. Benvenuti, Jr. (assumed by the
Registrant) relating to the real property at 11277 Sunrise
Park Drive, Rancho Cordova, California 95742.
10.9 Facility Sublease Agreement, dated November 15, 1991, by and
between the Registrant and Oak & Brass Furniture, Inc.,
relating to the real property at 7550 Miramar Road, San Diego,
California 92126.
10.10 Facility Lease, by and between Denticator International, Inc.
and D. Benvenuti, Jr., dated February 23, 1991, which lease is
currently guaranteed by the Registrant.
10.11 The Registrant's Employee Stock Ownership Plan, as adopted by
the board on April 1, 1990.
10.12 Stock Purchase Agreement, dated August 31, 1992, by and among
the Company, ICP and the investors listed on Exhibit A of the
Stock Purchase Agreement (attached as Exhibit 6.1 to the
Company's Form 10-Q, filed with the SEC on November 14, 1992,
and incorporated herein by this reference).
10.13 Facility Lease Agreement, dated October 28, 1992, by and
between the Registrant and D. Benvenuti Company, Inc./Joseph
Wolf, relating to the real property at 11291 Sunrise Park
Drive, Rancho Cordova, California 95742.
10.14 Amendment to Facility Lease Agreement, dated May 5, 1993, by
and between the Registrant and D. Benvenuti Company,
Inc./Joseph Wolf, relating to the real property at 11291
Sunrise Park Drive, Rancho Cordova, California 95742.
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C>
10.15 Marketing Agreement, dated August 24, 1992, by and between The
Supply House, the Registrant's subsidiary, and Oral-Vision,
Inc., relating to the sale of Oral-Vision Intra-Oral Camera
Systems.
10.16 Credit Agreement, dated December 16, 1992, by and between the
Registrant and The Bank of California, relating to a
$1,000,000 line of credit established for the Registrant at
The Bank of California
10.17 Letter of Intent, dated April 5, 1993, by and between the
Registrant and Ryker Dental of Kentucky, Inc., relating to the
Registrant's intent to issue shares of its common stock as
part of a plan to merge the operations of its subsidiary, The
Supply House, with Ryker Dental of Kentucky, Inc.
10.18 Plan and Agreement of Merger and Exhibits thereto dated
November 29, 1993 by and among Ryker Dental of Kentucky, Inc.,
doing business as Ryker Dental Corporation, a Kentucky
corporation, G. Barton Mahan and Danny D. Ramsey, the only
shareholders of Ryker Dental, Bio-Dental Technologies
Corporation, a California corporation, and San Diego Dental
Supply, Inc., a California corporation and wholly-owned
subsidiary of Bio-Dental Technologies Corporation.
10.19 Employment Agreement, by and between the Company and Curtis M.
Rocca, III, dated April 1, 1993.
10.20 Credit Agreement, dated January 26, 1994, by and between the
Registrant and The Bank of California, relating to a
$1,500,000 line of credit established for the Registrant at
The Bank of California
10.21 Extension and Modification of Exclusive License Agreement,
dated April 1, 1994, by and between the Registrant and
Denticator International, Inc., a California corporation.
10.22 Plan and Agreement of Reorganization with Exhibits and
Schedules thereto, dated June 24, 1994, by and among Oral
Vision, Inc., Dr. William Oakes, Bio-Dental Technologies
Corporation, and Integrated Dental
</TABLE>
55
<PAGE> 56
<TABLE>
<S> <C>
Technologies, Inc. for the purchase of all assets and certain
liabilities of Oral Vision, Inc.
10.23 Plan and Agreement of Reorganization with Exhibits and
Scheduled thereto, dated November 1, 1994, by and among Crown
Systems, Inc., Joel E. Kozikowski, Christopher J. Bell, Brian
A. Smith, Bio-Dental Technologies Corporation and Integrated
Dental Technologies, Inc., for the purchase of all assets and
certain liabilities of Crown Systems, Inc.
10.24 Amended and Restated Credit Agreement, dated August 25, 1994,
and Amendments thereto, dated January 9, 1995 and March 31,
1995, by and among the Registrant, Ryker Dental of Kentucky,
Inc., Integrated Dental Technologies Inc., and the Bank of
California, relating to a $3,000,000 line of credit
established for the Registrant at the Bank of California.
10.25 C/D Rate Option Agreement, Eurodollar Rate Option Agreement,
and Base Rate Option Agreement, all dated October 14, 1994, by
and between the Registrant and the Bank of California,
relating to short-term, fixed-rate alternatives for the
$3,000,000 line of credit established for the Registrant at
the Bank of California.
10.26 Commercial Loan Note, dated March 31, 1995, by and between the
Registrant and the Bank of California relating to a $1,000,000
note payable from the Registrant to the Bank of California.
10.27 Amendment to Exclusive License Agreement dated January 1,
1995, by and between the Registrant and Denticator
International, Inc., wherein the Registrant and Denticator
International, Inc. agreed to amend their Exclusive License
Agreement dated April 1, 1991.
10.28 Second Amended and Restated Credit Agreement dated October 31,
1995, and Addendums thereto, dated October 26, 1995, by and
among the Registrant, Ryker Dental of Kentucky, Inc.,
Integrated Dental Technologies, Inc., and The Bank of
California, relating to a $2,500,000 line of credit
established for the Registrant at the Bank of California.
</TABLE>
56
<PAGE> 57
<TABLE>
<S> <C>
10.29 Commercial Loan Note, dated October 31, 1995, as defined in
the Second Amended and Restated Credit Agreement dated October
31, 1995 by and between the Registrant and the Bank of
California relating to a $854,344 note payable from Registrant
to the Bank of California.
10.30 C/D Eurodollar Rate Option Agreement, dated October 26, 1995,
by and between Registrant and the Bank of California, relating
to short-term, fixed-rate alternatives for the $2,500,000 line
of credit established for the Registrant at the Bank of
California.
10.31* Modification Agreement dated March 31, 1996 by and among the
Registrant, Integrated Dental Technologies, Inc. and Ryker
Dental of Kentucky, Inc. and The Bank of California, relating
to a $1,394,000 Revolving Credit Note and a $715,459 Term Note
payable from Registrant to The Bank of California.
10.32* Replacement Revolving Credit Note dated March 31, 1996 by and
among the Registrant and The Bank of California, relating to
the $1,394,000 Revolving Credit Note.
10.33* Subordination Agreement dated March 29, 1996 by and among the
Registrant, State of Oregon ZCG/PERS and City of Stamford
Fireman's Pension Fund and The Bank of California.
10.34* Letter of Intent dated January 19, 1996 by and among the
Registrant, Denticator International, Inc., and Jose L.
Mendoza, relating to an agreement to enter formal negotiations
to form an agreement for the sale of Denticator International,
Inc.
10.35* Letter of Understanding dated May 10, 1996 by and among the
Registrant, Young Innovations, Inc., Denticator International,
Inc., relating to the intention of Young Innovations, Inc. to
purchase certain assets and liabilities of Denticator
International, Inc.
</TABLE>
57
<PAGE> 58
<TABLE>
<S> <C>
10.36* Letter of Intent dated May 24, 1996 by and among the
Registrant and Zila, Inc. relating to a proposed merger
between the Registrant and Zila, Inc. wherein Zila, Inc. will
be the surviving entity.
10.37 Note and Warrant Purchase Agreement among the Registrant, the
State of Oregon ZCG/PERS ("Oregon") and the City of Stamford
Fireman's Pension Fund ("Stamford") dated March 29, 1996, and
all related material thereto, relating to $1,250,000 Notes
Payable from the Registrant to Oregon and Stamford and the
issuance of common stock purchase warrants to Oregon and
Stamford.
11.1* Statement Regarding Computation of Earnings Per Share.
16.1 Letter regarding change in certifying accountant.
21.1 List of Subsidiaries.
</TABLE>
58
<PAGE> 59
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIO-DENTAL TECHNOLOGIES
CORPORATION, a California
Corporation
Date: June , 1996. By /s/Curtis M. Rocca, III
---------------------------------
Curtis M. Rocca III,
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Date: June , 1996. /s/Curtis M. Rocca, III,
-----------------------------------------
CURTIS M. ROCCA III,
President, Chief Executive
Officer and Director
(principal executive officer)
Date: June , 1996. /s/Timothy J. Purdy,
-----------------------------------------
TIMOTHY J. PURDY, Treasurer
and Director
Date: June , 1996. /s/Terry E. Bane
------------------------------------------
TERRY E. BANE, Chief Financial
Officer (principal financial
officer and principal accounting
officer)
Date: June, 1996. /s/Douglas L. Ayer
------------------------------------------
Douglas L. Ayer, Director
Date: June , 1996. /s/Joseph J. Battle, DDS
------------------------------------------
Joseph J. Battle, DDS, Director
Date: June , 1996. /s/James H. Ellis
------------------------------------------
James H. Ellis, Director
Date: June , 1996. /s/B. Mason Flemming, Jr.
------------------------------------------
B. Mason Flemming, Jr., Director
Date: June , 1996. /s/G. Barton Mahan
------------------------------------------
G. Barton Mahan, Director
59
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Page
Exhibit Number Exhibit Number
<S> <C> <C>
10.31 Modification Agreement dated March 31,
1996 by and among the Registrant,
Integrated Dental Technologies, Inc.
and Ryker Dental of Kentucky, Inc. and
The Bank of California, relating to a
$1,394,000 Revolving Credit Note and a
$715,459 Term Note payable from
Registrant to The Bank of California.
10.32 Replacement Revolving Credit Note dated
March 31, 1996 by and among the
Registrant and The Bank of California,
relating to the $1,394,000 Revolving
Credit Note.
10.33 Subordination Agreement dated March 29,
1996 by and among the Registrant, State
of Oregon ZCG/PERS and City of Stamford
Fireman's Pension Fund and The Bank of
California.
10.34 Letter of Intent dated January 19, 1996
by and among the Registrant, Denticator
International, Inc., and Jose L.
Mendoza, relating to an agreement to
enter formal negotiations to form an
agreement for the sale of Denticator
International, Inc.
10.35 Letter of Understanding dated May 10,
1996 by and among the Registrant, Young
Innovations, Inc., Denticator
International, Inc., relating to the
intention of Young Innovations, Inc. to
purchase certain assets and liabilities
of Denticator International, Inc.
10.36 Letter of Intent dated May 24, 1996 by
and among the Registrant and Zila, Inc.
relating to a proposed merger between
</TABLE>
60
<PAGE> 61
<TABLE>
<S> <C>
the Registrant and Zila, Inc. wherein
Zila, Inc. will be the surviving
entity.
11.1 Statement Regarding Computation of
Earnings Per Share.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 62
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BIO-DENTAL TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
March 31, 1996
<PAGE> 63
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of BIO-DENTAL
TECHNOLOGIES CORPORATION AND SUBSIDIARIES as of March 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended March 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bio-Dental
Technologies Corporation and Subsidiaries as of March 31, 1996 and the
consolidated results of their operations and their consolidated cash flows for
the years ended March 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
Sacramento, California
June 14, 1996
<PAGE> 65
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets
Cash and cash equivalents $ 612,911
Accounts receivable, net (notes C and I) 1,973,943
Other receivables 425,896
Merchandise inventories (notes D and I) 3,667,161
Prepaid expenses and other current assets 272,197
Current maturities of assets of business transferred
under contractual arrangements (note K) 60,000
Deferred income taxes (note H) 1,614,500
-----------
Total current assets 8,626,608
Property and equipment, net (note E and I) 717,152
Other assets
Assets of business transferred under contractual
arrangements (note K) 380,354
Intangible assets, net (note F) 1,227,862
Other assets 44,616
-----------
Total other assets 1,652,832
-----------
$10,996,592
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses (note G) $ 4,851,628
Notes payable (note I) 2,109,459
Deferred revenue 204,669
-----------
Total current liabilities 7,165,756
Commitments and contingencies (notes J and S) --
Stockholders' equity
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued and outstanding --
Common stock, $.01 par value; authorized 50,000,000
shares; 6,427,134 issued and outstanding 64,271
Capital contributed in excess of par value 3,711,979
Retained earnings 54,586
-----------
Total stockholders' equity 3,830,836
-----------
$10,996,592
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 66
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Revenue from product sales $31,682,545 $29,916,578
Royalty revenue 1,408,671 1,665,699
----------- -----------
Net revenues 33,091,216 31,582,277
Operating costs and expenses
Cost of products sold 23,926,770 21,252,851
Selling, general, and administrative 11,829,832 10,653,386
Restructuring (note P) 271,631 --
Depreciation and amortization 477,087 351,422
----------- -----------
36,505,320 32,257,659
----------- -----------
Operating loss (3,414,104) (675,382)
Interest and other income 81,849 203,130
Interest expense (231,722) (127,185)
----------- -----------
Loss before provision for income taxes (3,563,977) (599,437)
Income tax benefit (note H) (1,298,000) (180,000)
----------- -----------
Net loss $(2,265,977) $ (419,437)
=========== ===========
Net loss per common share $ (0.36) $ (0.07)
=========== ===========
Weighted average common shares
outstanding (note B) 6,285,471 6,118,295
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 67
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balances, March 31, 1994 5,922,291 $ 59,223 $ 3,154,281 $ 2,740,000 $ 5,953,504
Issuance of shares to ESOP 7,619 76 11,067 -- 11,143
Exercise of warrants (cashless) 96,333 963 (963) -- --
Private placement, net of costs 100,000 1,000 394,804 -- 395,804
Issuance of shares to lecturers 8,571 86 19,413 -- 19,499
Purchase of Crown Systems, Inc. 36,191 362 70,210 -- 70,572
Net loss -- -- -- (419,437) (419,437)
----------- ----------- ----------- ----------- -----------
Balances, March 31, 1995 6,171,005 61,710 3,648,812 2,320,563 6,031,085
Issuance of shares to ESOP 8,000 80 18,120 -- 18,200
Exercise of stock options 5,000 50 6,850 -- 6,900
Issuance of shares per agreement (cashless) 220,390 2,204 (2,204) -- --
Issuance of shares to lecturers 11,429 114 18,458 -- 18,572
Purchase of Crown Systems, Inc. 11,310 113 21,943 -- 22,056
Net loss -- -- -- (2,265,977) (2,265,977)
----------- ----------- ----------- ----------- -----------
Balances, March 31, 1996 6,427,134 $ 64,271 $ 3,711,979 $ 54,586 $ 3,830,836
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 68
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,265,977) $ (419,437)
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 477,087 351,422
Compensation paid in stock 18,572 30,642
Changes in operating assets and liabilities:
Accounts receivable 163,333 10,920
Other receivables (13,631) (47,610)
Inventories 1,651,684 (449,443)
Prepaid expenses and other current assets 199,734 (197,191)
Deferred income taxes (1,298,000) (180,000)
Other assets 35,227 3,652
Accounts payable and accrued expenses 565,921 168,092
Deferred revenue 79,634 (72,431)
Income taxes receivable (payable) 723,720 (718,741)
----------- -----------
Net cash provided by (used in)
operating activities 337,304 (1,520,125)
----------- -----------
Cash flows from investing activities:
Additions to equipment (172,424) (471,721)
Increase in intangible assets -- (67,554)
Collection of note receivable 50,164 109,764
Proceeds from sale of equipment 10,752 --
----------- -----------
Net cash used in investing activities (111,508) (429,511)
----------- -----------
Cash flows from financing activities:
Net draws on line of credit 360,000 433,321
Proceeds from bank loan -- 1,000,000
Payments on bank loan (284,541) --
Payments on leases payable and long-term debt (18,092) (43,815)
Exercise of stock options 6,900 --
Sale of common stock -- 395,804
----------- -----------
Net cash provided by financing activities 64,267 1,785,310
----------- -----------
Net increase (decrease) in cash 290,063 (164,326)
Cash and cash equivalents, beginning of year 322,848 487,174
----------- -----------
Cash and cash equivalents, end of year $ 612,911 $ 322,848
=========== ===========
</TABLE>
(Continued)
F-7
<PAGE> 69
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended March 31,
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $232,000 $127,185
Income taxes 2,400 691,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING AND INVESTING ACTIVITIES:
Noncash aspects of acquisitions:
Fair value of assets acquired other than
cash and cash equivalents $ -- $273,399
Liabilities assumed -- 202,827
Stock issued - Crown -- 70,572
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 70
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
Bio-Dental Technologies Corporation (the Company) was incorporated April 5,
1988. The Company is a dental products marketing organization which sells
professional dental products nationally through the operations of two
wholly-owned subsidiaries. Ryker Dental of Kentucky, Inc., (Ryker) markets
consumable dental merchandise and supplies and equipment via telemarketing
and catalog sales under the trade name "The Supply House." The Company's
other subsidiary, Integrated Dental Technologies, Inc., (IDT) markets
high-technology dental products such as intra-oral cameras and practice
software to dentists.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
2. Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
4. Inventories
All Company inventories are valued at the lower of cost or market. The
Company utilizes a method which approximates first in - first out to
determine cost.
5. Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight line method over the estimated useful lives of the assets ranging
from two to ten years. Leasehold improvements are amortized over the lease
term or the estimated useful life, whichever is shorter.
F-9
<PAGE> 71
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. Intangible assets
Intangible assets consist of goodwill, software rights, organizational costs,
and covenants not to compete. All intangible assets are amortized on a
straight line basis. Organizational costs and goodwill are being amortized
over 20-40 years and covenants are amortized over the term of the agreement.
Software rights are being amortized over five years. On an ongoing basis,
management reviews the valuation and amortization of intangible assets. As
part of this review, the Company estimates the value and future benefits of
the cash flows generated by the related subsidiaries to determine whether
impairment has occurred.
7. Income taxes
The Company utilizes an asset and liability approach in accounting for income
taxes. This approach requires the recognition of the deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and tax basis of assets and
liabilities. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
8. Loss per share
Loss per share is based upon the weighted average number of common shares
outstanding.
9. Financial instruments
The carrying amounts of financial instruments, including cash, accounts
receivable, accounts payable, assets of business transferred under
contractual arrangements, and notes payable approximated fair value as of
March 31, 1996 because of the relatively short maturity of these instruments.
F-10
<PAGE> 72
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. Stock-based compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. That opinion requires that compensation cost related to fixed
stock option plans be recognized only to the extent that the fair value of
the shares at the grant date exceeds the exercise price. Accordingly, the
Company recognizes no compensation expense for its stock option grants.
11. Future effect of recently issued accounting pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121).
SFAS 121 requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of that loss would be
based on the fair value of the assets. SFAS 121 also generally requires
long-lived assets and certain identifiable intangibles to be disposed of, to
be reported at the lower of the carrying amount or the fair value less cost
to sell. SFAS 121 is effective for the Company's 1997 fiscal year end. The
Company has made no assessment of the potential impact of adopting SFAS 121
at this time.
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at March 31, 1996:
<TABLE>
<S> <C>
Trade receivables $2,112,487
Less allowance for doubtful accounts 138,544
----------
Accounts receivable, net $1,973,943
==========
</TABLE>
Financial instruments which potentially subject the Company to credit risk
consist principally of trade receivables. The Company provides credit, in the
normal course of business, to dentists. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit
losses. IDT sales are generally transacted on a pre-approved, lease, credit
card, or prepaid basis, thereby minimizing credit risk.
F-11
<PAGE> 73
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE D - INVENTORY
Ryker inventory includes consumable dental products and supplies as well as
dental equipment. IDT inventory includes intra-oral cameras, their
components, filmless x-rays and computer hardware. Due to a restructuring
(note P), the Company will no longer sell the filmless x-ray or computer
hardware. As a result of this restructuring, a writedown of approximately
$300,000 has been made to the related inventory. An unrelated writedown of
approximately $300,000 has been made for potentially obsolete intra-oral
cameras. The writedown was due to the introduction of a new intra-oral
camera.
Inventory balances as of March 31, 1996 are as follows:
<TABLE>
<S> <C>
Ryker $2,770,574
IDT 896,587
----------
$3,667,161
==========
</TABLE>
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 1996:
<TABLE>
<S> <C>
Office furniture and equipment $1,398,161
Molds and dies 590,900
Leasehold improvements 90,145
Production and warehouse equipment 89,336
----------
2,168,542
Less accumulated depreciation and amortization 1,451,390
----------
$ 717,152
==========
</TABLE>
NOTE F - INTANGIBLE ASSETS
Intangible assets consist of the following at March 31, 1996:
<TABLE>
<S> <C>
Goodwill $ 969,637
Software rights 287,985
Organizational costs 113,626
Covenants not to compete 120,000
----------
1,491,248
Less accumulated amortization 263,386
----------
$1,227,862
==========
</TABLE>
F-12
<PAGE> 74
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE G - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at March 31,
1996:
<TABLE>
<S> <C>
Trade accounts payable $3,532,987
Accrued expenses 1,318,641
----------
Total $4,851,628
==========
</TABLE>
NOTE H - INCOME TAXES
The consolidated income tax benefit consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Current:
Federal $ -- $ --
State -- --
----------- ----------
-- --
----------- ----------
Deferred:
Federal (1,088,000) (124,200)
State (210,000) (55,800)
----------- ----------
(1,298,000) (180,000)
----------- ----------
$(1,298,000) $ (180,000)
=========== ==========
</TABLE>
The reconciliation of the federal statutory rate to the effective tax rate
is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Federal statutory rate (34.0)% (34.0)%
Adjustments:
State income taxes, net of federal benefit (6.0) (6.0)
Non-deductible meal, entertainment and
other expenses 6.0 10.0
Other (3.0) -
------ ------
Effective tax rate (37.0)% (30.0)%
====== ======
</TABLE>
F-13
<PAGE> 75
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE H - INCOME TAXES - CONTINUED
The components of the Company's deferred tax assets and liabilities at March
31, 1996 are shown below:
<TABLE>
<S> <C>
Current deferred tax assets:
Accrued vacation $ 28,000
Allowance for doubtful accounts 70,000
Product warranty allowance 114,000
Allowance for obsolete or discontinued inventory 404,000
Net operating loss carryforwards 1,006,500
----------
1,622,500
Non-current deferred tax liability:
Federal depreciation (8,000)
----------
Net deferred tax asset $1,614,500
==========
</TABLE>
At March 31, 1996, the Company had federal net operating loss carryforwards
of approximately $2,700,000 and state net operating loss carryforwards of
approximately $1,300,000. Approximately $300,000 of the net operating loss
carryforward is subject to a yearly maximum carryforward of $86,000. The
remaining balance is not subject to limitation. These carryforwards will
begin to expire in 2005, if not previously utilized.
NOTE I - BANK LOANS
At March 31, 1996, the Company had available a line of credit and a term note
with a bank. The line of credit and the note are collateralized by inventory,
accounts receivable and equipment of the Company.
F-14
<PAGE> 76
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE I - BANK LOANS - CONTINUED
Interest is payable monthly at the rates specified below. The line of credit
expires, and the note is due, on September 30, 1996.
<TABLE>
<S> <C>
Line of credit, variable rate of prime plus 2.5 percent
(10.75% as of March 31, 1996) $ 1,394,000
Note, variable rate of prime plus 2.5 percent
(10.75% as of March 31, 1996) 715,459
-----------
$ 2,109,459
===========
</TABLE>
Certain financial covenants with which the Company was not in compliance as
of March 31, 1996 were waived by the Bank until April 1, 1996. The bank has
the right to make all principal and interest on the loans immediately due and
payable as the result of noncompliance with the covenants. The Company's
future ability to comply with such covenants is uncertain. However, the
Company expects that the sale of Denticator International, Inc. (note K) will
result in compliance with the covenants.
NOTE J - OPERATING LEASE OBLIGATIONS
The Company leases its offices, warehouse facilities and certain equipment,
under operating leases which expire through 2000. Future minimum lease
payments under these noncancellable leases are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1997 $ 135,727
1998 49,507
1999 23,242
2000 1,214
2001 -
--------
$ 209,690
=========
</TABLE>
Rental expense for the years ended March 31, 1996 and 1995 totaled $152,338
and $170,936, respectively.
F-15
<PAGE> 77
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE K - ASSETS OF BUSINESS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS (NOTE
RECEIVABLE)
In March 1991, the Company incorporated a wholly owned subsidiary, Denticator
International, Inc. (DII) and transferred the Company's manufacturing
operations into DII in exchange for the issuance of a $600,282 note to the
Company with monthly principal payments of $10,005 plus interest at 150% of
the Company's cost of funds from April 1, 1994 through March 31, 1999.
Interest only payments were made from March 1991 through March 31, 1994.
Effective with the date of incorporation, the Company entered into a
licensing agreement with DII for the manufacture and sale of certain dental
products owned by the Company. Under this agreement, DII will pay the Company
a monthly royalty equal to the greater of $30,000 or 17% of net sales of DII.
In addition, the agreement provides for further royalties to be paid to the
Company if DII achieves certain levels of profitability.
On March 31, 1991, the Company sold all of the outstanding capital stock of
DII to DII's former operations manager. The sales agreement incorporated the
licensing agreement described above.
Effective April 1, 1994, the licensing agreement was amended. The terms
included herein reflect all amendments. In March 1999, DII has the option to
purchase the rights under this licensing agreement. The purchase price is
equal to the greater of 1.5 times average annual sales of DII during the
period covered by the amended agreement (April 1, 1994 - March 31, 1999) or
six times the average pre-tax income of DII after certain adjustments. The
purchase price will be reduced by 50% of the additional royalties paid by DII
between April 1, 1994 and March 31, 1999.
During the year ended March 31, 1995, the Company earned royalties under the
DII licensing agreement totaling $1,665,699, which is included in royalty
revenue, and interest on the note payable totaling $69,418, which is included
in interest and other income. DII paid the Company $58,652 in lease payments
for equipment leased by DII from the Company. Effective January 1995, DII
increased the minimum monthly royalty to the Company to $43,000 per month in
exchange for the Company waiving the provision in the agreement whereby the
Company could purchase products made by DII at specified prices. At March 31,
1995, DII owed $312,263 in royalties and interest to the Company. The Company
purchased products from DII amounting to $142,480 during the fiscal year and
owed DII $1,004 at March 31, 1995.
During the year ended March 31, 1996, the Company earned royalties under the
DII licensing agreement totaling $1,408,671, which is included in royalty
revenue, and interest on the note payable totaling $72,178, which is included
in interest and other income. At March 31, 1996 DII owed the Company $424,690
in royalties and interest. The Company purchased products from DII amounting
to $364,899 during the fiscal year and owed DII $2,741 at March 31, 1996.
F-16
<PAGE> 78
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE K - ASSETS OF BUSINESS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS (NOTE
RECEIVABLE) - CONTINUED
The Company continues to guarantee DII's lease for its office and warehouse
space due to the fact that DII was a wholly-owned subsidiary of the Company
at the time this contract was originated, and the lessor is unwilling to
release the guarantee.
On May 10, 1996 the Company signed a letter of intent to sell the DII
licensing agreement to Young Innovations, Inc. (Young) for approximately $7.5
million in cash. Young will also issue to the Company a credit against future
purchases in the amount equal to all accrued royalties and notes payable by
DII to the Company as payment for such items. As of the closing date, the
Company will cancel 50,000 Company stock options that are currently held by
DII. The transaction is subject to due diligence, and the obtaining of bank
financing by Young.
NOTE L - STOCK OPTION PLAN
The Company provided the following common stock options under their stock
plan to employees and directors:
<TABLE>
<CAPTION>
Number of Option
shares price
--------- ------------
<S> <C> <C>
Shares under option at March 31, 1994 567,808 $ .10 - 5.06
Granted 184,000 3.25 - 5.00
Exercised -- --
-------
Shares under option at March 31, 1995 751,808 .10 - 5.06
Granted 66,000 2.63 - 4.75
Exercised (5,000) 1.38
Forfeitures (46,667) 3.88 - 5.06
-------
Outstanding at March 31, 1996 766,141 .10 - 5.06
-------
Exercisable at March 31, 1996 423,516 $ .10 - 5.06
</TABLE>
All directors who are not employees of the Company are to receive options to
purchase 5,000 shares of common stock per year. These options are to have an
exercise price equal to the fair market value of the common stock at the
beginning of each term as a director (usually the day of the annual
shareholders meeting).
F-17
<PAGE> 79
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE L - STOCK OPTION PLAN - CONTINUED
As determined by the Board of Directors, certain options vest immediately
while other options have a vesting period that ranges from one to five years.
Options that have a vesting period greater than one year vest on a
straight-line basis during each year. Option expiration dates range from
September 25, 1997 through August 16, 2006. Currently 1,000,000 stock options
are authorized to be issued.
NOTE M - BENEFIT PLAN
The Company adopted an Employee Stock Ownership Plan (ESOP) during the fiscal
year ended March 31, 1991. The benefits allocated to each participant are in
direct proportion to that person's annual compensation. All employees who
meet the following criteria are eligible for benefits: (1) must be 18 years
of age or older; (2) must have worked at least 1,000 hours in the given plan
(fiscal) year; and (3) must be employed on the last day of the plan year. All
participants become fully vested after 5 years of continuous employment with
the Company.
Once vested, a person may receive benefits under the plan:
A) No later than 6 years from the date of termination of employment
with the Company; or
B) Upon reaching the age of 60.
NOTE N - ACQUISITION OF CROWN SYSTEMS ASSETS AND LIABILITIES
On November 14, 1994, the Company signed an agreement and purchased the
assets and certain liabilities of Crown Systems, Inc. (Crown), effective
November 1, 1994. In connection with this purchase, the Company issued 36,191
shares of its previously unissued restricted common stock to Crown. The
assets acquired consisted mainly of accounts receivable and dental practice
management software rights. As part of the transaction, the Company retired
approximately $205,000 of assumed liabilities. On October 25, 1995, the
Company issued an additional 11,310 shares of restricted common stock to the
previous owners of Crown due to a change in the calculated purchase price.
The transaction was accounted for as a purchase. The depreciable assets
acquired are being depreciated over their remaining useful lives on a
straight line basis, in accordance with the Company's accounting policies.
The software rights which were acquired are being amortized over a period of
five years. The assets and liabilities are held in Integrated Dental
Technologies, Inc., a wholly-owned subsidiary of the Company.
F-18
<PAGE> 80
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE N - ACQUISITION OF CROWN SYSTEMS ASSETS AND LIABILITIES - CONTINUED
Crown develops and markets dental practice management software systems and
will continue to develop additional software for IDT. As part of the
transaction, the principals of Crown entered into one year employment
agreements and three year non-compete agreements with IDT.
NOTE O - WARRANTS TO PURCHASE RESTRICTED COMMON STOCK
In connection with certain capital financing activities during the years
ended March 31, 1991 and 1992, the Company issued 350,000 stock purchase
warrants at $2.25 to $3.11 per share. As a result of a cashless exercise of
200,000 warrants, 96,333 shares were issued at $3.11 on April 20, 1994. The
remaining warrants expire in August 1997, unless sooner exercised.
Options to purchase 50,000 shares of the Company's restricted common stock
were issued to DII in connection with the amendments to the licensing
agreement, as described in note K. These options expire on the earlier of
March 31, 2004, or upon closing of the DII sale described in note K.
NOTE P - RESTRUCTURING
During the quarter ending March 31, 1996, the Company recorded a charge of
$271,631 for the restructuring of IDT. As a result of the restructuring, IDT
no longer sells computer hardware or filmless x-ray systems. Costs included
in the restructuring charge include contract costs and other costs. These
costs involve the use of estimates as described in note B. The Company
expects that the liabilities associated with such costs will be paid or
settled within the next fiscal year.
As a result of management's decision to restructure its operations,
approximately $300,000 of inventory was written off to cost of products sold
and management reserved approximately $250,000 for sales returns related to
these discontinued items. Total restructuring charges, inventory writedowns,
and return reserves amount to approximately $822,000.
F-19
<PAGE> 81
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE Q - ADDITIONAL FINANCING
On March 29, 1996, the Company signed term notes in the aggregate principal
amount of $1,250,000. As additional consideration for the term notes, the
Company issued 250,000 warrants to purchase the common stock of the Company
at an initial exercise price of $3.03 per share. In conjunction with the
transaction, the Company paid to a third-party, a placement fee of $100,000
and issued warrants to purchase 50,000 shares of the Company's stock at an
initial exercise price of $3.03 per share. The transaction was completed on
April 1, 1996, when the purchasers of the notes transferred cash to the
Company.
The notes bear interest at a rate of 12%. Accrued interest is due on
September 30, 1996 and March 31, 1997. Thereafter, interest is due on a
quarterly basis. Principal is due on the earliest of (i) March 29, 1997, or
(ii) the disposition of either or both of (A) the Company's Supply House
division or (B) the Company's royalty rights from Denticator, or (iii) a
disposition of the Company.
An additional 27,778 warrants to purchase Company stock at an initial
exercise price of $3.03 per share will be issued to the purchasers of the
notes on a monthly basis beginning July 31, 1996, for each month in which the
principal and accrued interest on the term notes is not repaid in full. The
purchase price and number of shares purchasable upon exercise of warrants may
be adjusted upon the occurrence of certain events. The maximum number of
warrants issued to the purchasers of the notes is 500,000. The warrants
expire on the earlier of (i) March 29, 2001, or (ii) the closing of a
consolidation or merger of the Company with or into another corporation or a
sale of all or substantially all of the assets of the Company.
NOTE R - PROPOSED MERGER
On May 31, 1996, the Company signed a letter of intent to merge into Zila,
Inc. (Zila), a marketer of non-prescription oral healthcare products. Zila
will exchange no less than 0.75 and no more than 0.825 shares of its common
stock for each share of the Company's common stock, with the final rate to be
based upon the price at which Zila's stock trades during the "calculation
period" preceding the close of the transaction. The transaction is subject to
the completion of due diligence by both parties, execution of a definitive
agreement, the ability to account for the transaction as a
pooling-of-interests, and Company shareholder approval.
F-20
<PAGE> 82
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996 and 1995
NOTE S - CONTINGENT LIABILITY
In July 1995, the Company was named as a defendant, along with the Company's
transfer agent and a shareholder of the Company (Shareholder), in a lawsuit.
The lawsuit alleges that the Company wrongfully failed to register 200,000
Company shares in the name of the plaintiffs which were pledged as security
by the Shareholder for a debt owed by the Shareholder to the plaintiffs.
The Company denies all of the material allegations of the lawsuit against it
and asserts various affirmative defenses. The Company will vigorously defend
against the claims set forth in the lawsuit. Nonetheless, there is a
reasonable possibility that the Company will sustain a loss in this matter,
estimated in a range from $320,000 to $1,250,000, or the re-issuance of
200,000 shares of the Company's common stock. However, because of the
inherent uncertainties associated with litigation and other factors, no
accrual for a loss contingency has been made in the financial statements for
the year ended March 31, 1996.
F-21
<PAGE> 1
EXHIBIT 10.31
MODIFICATION AGREEMENT
This Agreement is made as of March 31, 1996 between and among THE BANK OF
CALIFORNIA, N.A. ("Bank"), BIO-DENTAL TECHNOLOGIES CORPORATION ("Borrower"), and
INTEGRATED DENTAL TECHNOLOGY, INC. ("IDT") and RYKER DENTAL OF KENTUCKY ("RDK").
RECITALS
This Agreement is made and entered into in reliance on the accuracy of the
following recitals, which are acknowledged by Borrower, Guarantors and Bank to
be true and accurate:
A. BORROWER'S OBLIGATIONS TO BANK. Borrower is liable to Bank
(collectively "Liabilities") pursuant to the terms of that certain
Second Amended and Restated Credit Agreement dated as of October 31,
1995, as amended ("Credit Agreement") by and between Bank and Borrower
and as further evidenced (a) that certain Revolving Credit Note dated
effective as of October 31, 1995 in the maximum principal amount of
$2,500,000.00, as modified ("Revolving Note"), which Revolving Note
matured February 26, 1996, and (b) that certain Term Note dated
effective as of October 31, 1995, in the original principal amount of
$854,344.17, which Term Note matures May 1, 1998. As of March 20, 1996,
the outstanding principal balance under the Revolving Note was
$1,394,000.00, together with accrued and unpaid interest in the amount
of $7,357.22. As of March 20, 1996, the outstanding principal balance
under the Term Note was $715,459.17, together with accrued and unpaid
interest in the amount of $3,587.24. Borrower may have liabilities to
the Bank under other credit facilities; Bank and Borrower intend that
such other facilities shall not be affected by this Agreement and shall
remain in full force and effect in all respects. The Revolving Loan and
the Term Loan are hereinafter referred to collectively as the "Loans."
B. SECURITY FOR BORROWER OBLIGATIONS. To secure Borrower's obligations to
Bank, Borrower, IDT and RDK have each granted to Bank a security
interest in certain of their assets (collectively the "Collateral")
pursuant to (i) that certain Security Agreement - Accounts and
Inventory executed by Borrower and dated January 26, 1994 (the
"Borrower Security Agreement") (ii) that certain Security Agreement -
Equipment executed by Borrower and dated January 26, 1994, (iii) that
certain Security Agreement - Accounts and Inventory executed by IDT and
dated October 26, 1995, (iv) that certain Security Agreement -
Equipment executed by IDT and dated October 26, 1995, (v) that certain
Security Agreement - Accounts and Inventory executed by RDK and dated
October 26, 1995, and (vi) that certain Security Agreement - Equipment
executed by RDK and dated October 26,1995. In addition, to further
support the obligations of Borrower to Bank, Curtis M. Rocca, III, as
the insured party, and Borrower, as beneficiary, have assigned to Bank
certain life insurance pursuant to that certain Assignment of Life
Insurance Policy as Collateral dated "December 22", as acknowledged by
Kemper Life Insurance Companies by letter with attachments dated
January 19, 1993. The security agreements and life insurance assignment
identified above are hereinafter collectively referred to as the
"Security Agreements."
C. GUARANTIES. To induce Bank to make the Loans available to Borrower, IDT
and RDK (each A "Guarantor and collectively the "Guarantor" have each
executed and delivered to Bank a Continuing Guaranty each dated October
26, 1995, as amended, guaranteeing the payment and performance of
Borrower's obligations to Bank (each a "Guaranty" and collectively the
"Guaranties").
D. LOAN DOCUMENTS. The following documents evidence Borrower's obligations
to and relationship with Bank: this Agreement, the Notes, the Credit
Agreement, the Security Agreements, the Guaranties and,
<PAGE> 2
upon execution, the Replacement Revolving Credit Note, the
Subordination Agreement and the escrow assignment documents described
in Section 3.2 below. The documents described above, to-ether with any
other documents executed by or among the parties in connection with the
Liabilities, and any and all amendments and modifications thereto, are
referred to collectively in this Agreement as "Loan Documents". There
are no written or oral agreements concerning or affecting the
Liabilities between Borrower and/or Guarantors on the one hand and Bank
on the other, other than the Loan Documents. Unless otherwise defined
herein, all capitalized terms shall have the meanings assigned to them
in the Loan Documents.
E. DEFAULT. Based upon the information that Borrower has provided to Bank,
Bank is aware that Borrower is and has been in default under the Notes
as follows: (i) The Revolving Note matured on February 26, 1996, on
which date all sums outstanding thereunder were due and payable in
full, and Borrower has failed to pay these sums by said date. (ii)
Failure to pay sums owed under the Revolving Note is also an event of
default under the Term Note. (iii) In addition, Borrower has failed to
satisfy minimum Tangible Net Worth and minimum working capital
requirements established in the Credit Agreement. The foregoing
defaults are collectively referred to hereinafter as the "Designated
Defaults." Borrower and Guarantors each acknowledge that it has
received adequate and reasonable notice of the Designated Defaults from
Bank. Upon execution of this Agreement, Bank agrees to waive the
Designated Defaults identified in (iii) above, and Bank further agrees
that Borrower shall not be required to comply with these two financial
covenants, as modified by this Agreement, until April 1, 1996 and
thereafter. Borrower and Guarantor acknowledge that, except as
expressly provided above, Bank has not waived any of its rights with
respect to any breach by Borrower of any Loan Documents.
F. BANK'S DEFAULT RIGHTS. Because of the existence of the Designated
Defaults, Bank has no obligation to make any further Advances under the
Revolving Note and has advised the Borrower that no such Advances are
available until due execution of this Agreement. Bank also has the
current right to exercise any and all of its other rights and remedies
against Borrower, Guarantors or otherwise under applicable law and the
Loan Documents. Such remedies include, without limitation, the right to
charge interest at the post-default or postmaturity rate established in
the other Loan Documents and to foreclose upon the Collateral.
G. EXTENSION/MODIFICATION. At Borrower's and Guarantors' request, Bank is
willing to modify the Loan Documents as set forth herein, provided that
the conditions set forth herein are satisfied within the time periods
required under this Agreement. Borrower has represented to Bank that it
and Jose Mendoza are actively pursuing the sale of Denticator
International, Inc. ("Denticator"), a corporation wholly owned by
Mendoza. Borrower has represented to Bank that Borrower is
contractually entitled to certain of the proceeds of the sale of
Denticator, and that such sums will be paid to Borrower concurrently
with the completion of such sale. Borrower has represented to Bank that
Borrower will use such proceeds received by Borrower from the sale of
Denticator to repay the Liabilities in full.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
Bank, Borrower and Guarantor hereby agree as follows:
1. INCORPORATION OF RECITALS. Each of the above recitals is incorporated
herein and deemed to be the agreement of the Bank, Borrower and
Guarantors and is relied upon by each party to this Agreement in
agreeing to the terms of this Agreement.
2
<PAGE> 3
2. CONFIRMATION OF COLLATERAL. Borrower, IDT and RDK each respectively
grants and confirms that all obligations of Borrower to Bank are
secured by a perfected first-priority security interest in the
Collateral pledged by each pursuant to the respective Security
Agreements executed by each.
3. CONDITIONS PRECEDENT. Each of Borrower and Guarantors understands that
this Agreement shall not be effective and Bank shall have no obligation
to amend the terms of the Loan Documents as provided herein unless and
until each of the following conditions precedent has been satisfied not
later than the respective date set forth below:
3.1 On or before April 30, 1996, Borrower and Guarantors each shall
have executed and delivered to Bank this Agreement.
3.2 On or before April 30, 1996, Borrower shall have executed and
delivered to Bank a replacement for the Revolving Note in the maximum
principal amount of S1,394,000.00 (subject to Borrowing Base), in form
and substance satisfactory to Bank (the "Replacement Revolving Credit
Note").
3.3 On or before such time as Bank may require, Borrower shall have
taken any and all actions and executed and delivered to Bank any and
all documents necessary or appropriate in Bank's sole discretion to
effectuate this Agreement and the grant, perfection, and/or priority of
the Collateral; and
3.4 On or before April 30, 1996, Borrower shall have reimbursed Bank
for Bank's costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses (including the fees of Bank's
inside counsel), incurred in connection with the negotiation and
drafting of this Agreement and the transactions contemplated hereby;
4. ADDITIONAL CONDITIONS. No later than March 31, 1996, State of Oregon
ZCG/PERS and City of Stamford Fireman's Pension Fund (collectively, the
"Creditors") shall (a) lend the collective sum of $1,250,000.00 to
Borrower, such loan(s) to be evidenced by one or more promissory
note(s) made by Borrower and payable to Creditors, respectively (the
"Subordinated Note(s)"), (b) duly execute and deliver to Bank one or
more Subordination Agreement(s) in form and substance satisfactory to
Bank pursuant to which Creditors will subordinate Borrower's
obligations to Creditors to Borrower's obligations to Bank (the
"Subordination Agreement"), and (c) deliver the Subordinated Note(s) to
the Bank.
5. MODIFICATION OF LOAN DOCUMENTS. Borrower, Bank and the Guarantors agree
that the Loan Documents are hereby supplemented and modified as
follows, which modifications shall supersede and prevail over any
conflicting provisions of the Loan Documents:
5.1 Section 1.6 of the Credit Agreement is hereby modified by deleting
subsection (a) only, and by substituting the following therefor:
(a) ONE MILLION THREE HUNDRED NINETY-FOUR THOUSAND AND NO/100
DOLLARS ($1,394,000.00); or
5.2 Section 1.29 of the Credit Agreement is hereby deleted in its
entirety, and the following substituted therefor:
"1.29 "TERMINATION DATE" means the earlier of (a) September
30, 1996, for the Revolving Credit, (b) September 30, 1996,
for the Term Loan or (c) the date Bank may terminate making
Advances, C, accelerate the Term Loan and/or make all sums of
principal and interest under the Credit immediately due and
payable pursuant to the rights of Bank under Article Eight."
3
<PAGE> 4
5.3 Section 2.1 of the Credit Agreement is hereby deleted in its
entirety and the following substituted therefor:
"2.1 ADVANCES AND REVOLVING CREDIT NOTE. From time to time prior
to the Termination Date for the Revolving Credit, upon request by
Borrower, Bank has made and will continue to make Advances to
Borrower which, in the aggregate, shall not exceed at any time
the Borrowing Base, and which shall otherwise be subject to the
terms hereof. The Revolving Credit shall be evidenced by that
certain Revolving Credit Note, in form and substance satisfactory
to Bank, which shall be written in the maximum amount of
$1,394,000.00 and shall be repayable in accordance with the terms
thereof. The Revolving Credit Note shall replace and supersede
the Revolving Note for all purposes. Borrower may borrow, repay
and reborrow under the Revolving Credit, as Borrower may elect,
in minimum amounts of ONE THOUSAND AND NO/100 DOLL ARS
($1,000.00). Borrower shall pay to Bank all sums outstanding
under the Revolving Credit and due under this Agreement no later
than the Termination Date for the Revolving Credit."
5.4 Section 2.6 of the Credit Agreement is hereby amended by deleting
the words "the Prime Rate plus one and one-quarter percent (I - 1/4%)"
and by substituting "the Prime Rate plus two and one-half percent
(2.50%)" therefor.
5.5 Section 2.7 of the Credit Agreement is hereby amended by deleting
the words "the Prime Rate plus one and one-quarter percent (I - 1/4%)"
and by substituting 'the Prime Rate plus two and one-half percent
(2.500/o)" therefor.
5.6 Section 6. 1 (a) and (b) of the Credit Agreement are hereby deleted
in their entirety and the following substituted therefor:
"(a) Beginning January 1, 1996 and thereafter, maintain
current assets in an amount not less than $2,500,000.00;
(b) Beginning April 1, 1996 and thereafter, maintain a
Tangible Net Worth of at least $2,200,000.00; and not permit
Borrower's total indebtedness to exceed 2.75 times Borrower's
Tangible Net Worth."
5.7 Sections 63(a), (c), (d), (e), (f) and (g) of the Credit Agreement
are hereby modified by replacing the words "30 days" with the words "15
days" in each.
5.8 The Term Note is hereby modified by deleting the words "the Prime
Rate plus one and one-quarter percent (1-1/4%)" and by substituting the
words "the Prime Rate plus two and one-half percent (2.50%)" therefor.
5.9 The Term Note is hereby modified by deleting the second unnumbered
paragraph in its entirety, and by substituting the following therefor:
"Interest shall be payable on the first day of each consecutive
month, continuing through September 1, 1996. Principal shall be
payable in consecutive monthly installments of $27,777.00 each on
the first day of each consecutive month through September 1,
1996, plus a final installment equal to the entire unpaid
principal balance and all accrued and unpaid interest on
September 30, 1996."
5.10 The Borrower Security Agreement is hereby amended to provide
expressly that Collateral, as defined therein, includes all royalties
or other sums payable by Denticator to Borrower under the Exclusive
License Agreement. In this regard, sums owed and/or paid by Denticator
to Borrower under the
4
<PAGE> 5
Exclusive License Agreement are included within the meaning of the words
"royalties," "proceeds" and "Rights to Payment" in Section 1.3 of the Borrower
Security Agreement, and within the definition of "Rights to Payment" in Section
1. 1 3 of the Borrower Security Agreement. Borrower and Bank expressly agree
that this is not a modification to the Collateral supporting Borrower's
obligations to Bank, but is merely intended to clarify the nature of certain
items included within the definition of Collateral.
6. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement
each of Borrower and Guarantors hereby represents and warrants to Bank as
follows:
6.1 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT; SURVIVAL. All
representations and warranties contained in this Agreement and in any
and all of the other Loan Documents are true and correct as of the date
of this Agreement, and all such representations and warranties shall
survive the execution of this Agreement;
6.2 NO VIOLATION. The execution, delivery and performance by Borrower
and Guarantors of this Agreement and all documents contemplated
hereunder are within Borrower's and each powers, have been duly
authorized, and are not in conflict with Borrower's or any Guarantor's
articles of incorporation or bylaws, or the terms of any charter or
other organizational document of Borrower or any Guarantor; and all
such documents constitute valid and binding obligations of Borrower and
each respective Guarantor, enforceable in accordance with their terms.
In addition, such execution, delivery and performance by Borrower and
each Guarantor will not violate any law, rule or order of any court or
governmental agency or body to which Borrower or any Guarantor is
subject; and cannot (except as expressly provided or contemplated
herein) result in the creation or imposition of any lien, security
interest or encumbrance on any now owned or hereafter acquired property
of Borrower or any Guarantor;
6.3 NO BREACH. With the exception of the Designated Defaults, no event
has occurred or failed to occur that is, or, with notice or lapse of
time or both would constitute A default, an event of default, or a
breach or failure of any condition under any Loan Document;
6.4 UNCONDITIONAL OBLIGATION; NO DEFENSES. Each of the Notes represents
an unconditional, absolute, valid and enforceable obligation against
Borrower. Borrower has no claims or defenses against Bank or any other
person or entity which would or might affect (a) the enforceability of
any provisions of the Loan Documents or (b) the collectability of sums
advanced by Bank in connection with the Liabilities. Borrower
understands and acknowledges that the Bank is entering into this
Agreement in reliance upon, and in partial consideration for, this
acknowledgment and representation, and agrees that such reliance is
reasonable and appropriate.
7. BORROWER'S AND GUARANTORS' COVENANTS. Unless Bank otherwise consents in
writing during remaining term of the Notes, each of Borrower and Guarantors will
do the following:
7.1 Comply with all requirements of all Loan Documents to the extent
not inconsistent with this Agreement:
7.2 Not enter into any agreements with any of its other creditors that
might impair its ability to perform under this Agreement. Borrower
shall promptly provide the Bank copies of any and all such agreements
that Borrower may have entered into before the date of this Agreement
and any agreements with any other creditor that may constitute such an
agreement that Borrower may enter into during the term of the Notes.
7.3 Pay on a current basis all of its other creditors for indebtedness
incurred during the term of the Notes.
5
<PAGE> 6
7.4 Ensure that Bank is fully informed at all times of all matters
relating to the operation of Borrower's business, including any planned
changes in key personnel or manner of operating its business.
7.5 Take any and all actions of any kind or nature whatsoever, either
directly or indirectly, that are necessary to prevent Bank from
suffering a loss with respect to the Liabilities or being deprived of
the Collateral or of any rights or remedies of Bank with respect to the
Loan, the Loan Documents or this Agreement in the event of a default by
Borrower under this Agreement or any other Loan Documents (or the
ability to exercise such any rights or remedies.
8. ADDITIONAL EVENTS OF DEFAULT. In addition to the events of default set forth
in the Loan Documents, the occurrence of any of the following events of default
other than a Designated Default shall be an event of default and, at Bank's
option, may make all obligations of Borrower immediately due and payable, all
without demand, presentment or notice, all of which requirements Borrower hereby
waives:
8.1 SALE OF BUSINESS. The sale of part or all of Borrower, RDK, IDT
and/or Denticator, or the sale of a material part of the assets of any
of the foregoing;
8.2. FAILURE TO PERFORM. Failure to perform any of the obligations set
forth in this Agreement or in any other Loan Documents (as the same may
be modified by this Agreement);
8.3 REPRESENTATIONS AND WARRANTIES. Any representation or warranty of
Borrower or Guarantors herein or in any other Loan Document shall be
false, misleading or incorrect;
8.4 MATERIAL ADVERSE CHANGES. If there is any further substantial
impairment of the prospect of Borrower's satisfaction of its
obligations to Bank or substantial impairment of the value of the
Collateral or any substantial impairment of the priority of Bank's
security interest in or lien on any Collateral or if there is any
substantial impairment of the ability of any Guarantor to perform under
its respective Guaranty.
9. REMEDIES. Upon the occurrence of an event of default and at all times
thereafter, Bank, without the necessity of obtaining any prior approval of any
court, shall be entitled to (a) terminate all Advances under the Revolving Note;
(b) return any and all checks drawn against Borrower's account at Bank upon
payment of all checks issued prior to the occurrence of such event of default,
(c) apply all funds in Borrower's account at Bank to Liabilities; and (d)
exercise in respect of any Collateral it may hold all rights and remedies of a
secured creditor available to it under applicable laws, and Bank shall also be
entitled to exercise all rights and remedies available to Bank as a creditor
generally, including without limitation all remedies available to Bank under the
Loan Documents, as well as rights and remedies available to Bank at law or in
equity. All such rights and remedies shall be cumulative. No failure or delay on
the part of Bank in exercising any power, right or remedy under any of the Loan
Documents shall operate as a waiver thereof, and no single or partial exercise
of any such power, right or remedy shall preclude any further exercise thereof
or the exercise of any other party, right or remedy.
10. RELEASE. Borrower and each Guarantor each hereby, for itself, its
successors, heirs, executors, administrators and assigns, releases, acquits and
forever discharges Bank, its directors, officers, employees, agents, affiliates,
successors, administrators and assigns ("Released Parties") of and from any and
all claims, actions, causes of action, demands, rights, damages, costs, loss of
service, expenses and compensation whatsoever which Borrower or any Guarantor,
or both, might have because of anything done, omitted to be done, or allowed to
be done by any of Released Parties and in any way connected with the Liabilities
or this Agreement or the other Loan Documents as of the date of execution of
this Agreement, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, including
without limitation, any specific claim raised by Borrower and/or any Guarantor,
and also including without limitation any settlement negotiations and also
including without limitation, any damages
6
<PAGE> 7
and the consequences thereof resulting or to result from the events described,
referred to or inferred hereinabove ("Released Matters"). Borrower and each
Guarantor each further agrees never to commence, aid or participate in (except
to the extent required by order or legal process issued by a court or
governmental agency of competent jurisdiction) any legal action or other
proceeding based in whole or in part upon the foregoing. In furtherance of this
general release, Borrower and each Guarantor each acknowledges and waives the
benefits of California Civil Code section 1542 (and all similar ordinances and
statutory, regulatory, or judicially created laws or rules of any other
jurisdiction), which provides:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor."
Borrower and each Guarantor each agrees that this waiver and release is an
essential and material term of this Agreement and that the agreements in this
paragraph are intended to be in full satisfaction of any alleged injuries or
damages in connection with the Released Matters. Borrower and each Guarantor
each represents and warrants that it has not purported to convey, transfer or
assign any right, title or interest in any Released Matter to any other person
or entity and that the foregoing constitutes a Ml and complete release of the
Released Matters. Borrower and each Guarantor also understands that this release
shall apply to all unknown or unanticipated results of the transactions and
occurrences described above, as well as those known and anticipated. Borrower
and each Guarantor each has consulted with legal counsel prior to signing this
release, or had an opportunity to obtain such counsel and knowingly chose not to
do so, and executes such release voluntarily, with the intention of fully and
finally extinguishing all Released Matters.
11. DISPUTE RESOLUTION.
11.1 MANDATORY MEDIATION/ARBITRATION. Any controversy or claim between
or among the parties, their agents, employees and affiliates, including
but not limited to those arising out of or relating to this Agreement
or any related agreements or instruments ("Subject Documents"),
including without limitation any claim based on or arising from an
alleged tort, shall, at the option of any party, and at that party's
expense, be submitted to mediation, using either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation
Services, Inc. ("JAMS"). If mediation is not used, or if it is used and
it fails to resolve the dispute within 30 days from the date AAA or
JAMS is engaged, then the dispute shall be determined by arbitration in
accordance with the rules of either JAMS or AAA (at the option of the
party initiating the arbitration) and Title 9 of the U. S. Code,
notwithstanding any other choice of law provision in the Subject
Documents. All statutes of limitations or any waivers contained herein
which would otherwise be applicable shall apply to any arbitration
proceeding under this subparagraph 11.1. The parties agree that related
arbitration proceedings may be consolidated. The arbitrator shall
prepare written reasons for the award. Judgment upon the award rendered
may be entered in any court having jurisdiction. This subparagraph 11.1
shall apply only if, at the time of the proposed submission to AAA or
JAMS, none of the obligations to Bank described in or covered by any of
the Subject Documents are secured by real property collateral or, if so
secured, all parties consent to such submission.
11.2 JURY WAIVER/JUDICIAL REFERENCE. If the controversy or claim is not
submitted to arbitration as provided and limited in subparagraph I 1.
1, but becomes the subject of a judicial action, each party hereby
waives its respective right to trial by jury of the controversy or
claim. In addition, any party may elect to have all decisions of fact
and law determined by a referee appointed by the court in accordance
with applicable state reference procedures. The party requesting the
reference procedure shall ask AAA or JAMS to provide a panel of retired
judges and the court shall select the referee from the designated
panel. The referee shall prepare written findings of fact and
conclusions of law. Judgment upon the award rendered shall be entered
in the court in which such proceeding was commenced.
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<PAGE> 8
11.3 PROVISIONAL REMEDIES, SELF HELP, AND FORECLOSURE. No provision of,
or the exercise of any rights under, subparagraph I 1. I shall limit
the right of any party to exercise self help remedies such as setoff,
to foreclose against any real or personal property collateral, or to
obtain provisional or ancillary remedies such as injunctive relief or
the appointment of a receiver from a court having jurisdiction before,
during or after the pendency of any mediation or arbitration. At Bank's
option, foreclosure under a deed of trust or mortgage may be
accomplished either by exercise of power of sale under the deed of
trust or mortgage, or by judicial foreclosure. The institution and
maintenance of an action for judicial relief or pursuit of provisional
or ancillary remedies or exercise of self help remedies shall not
constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to mediation or arbitration.
11.4 CONFLICT. To the extent any provision of the dispute resolution
clause is different than the terms of this Agreement, the terms of this
dispute resolution clause shall prevail.
12. WAIVER OF STATUTE OF LIMITATIONS. Borrower and each Guarantor each shall not
plead the statute of limitations to any action brought by Bank with respect to
the Liabilities, Notes, Credit Agreement, Guaranties, Security Agreements and
any other Loan Document, and the Collateral, and hereby waives the statute of
limitations in respect of any and all sums due from it under the Notes.
13. CONFIRMATION OF GUARANTIES; UNCONDITIONAL OBLIGATIONS; WAIVER. Each
Guarantor reaffirms its obligations under its Guaranty and reaffirms and
restates each and every term, condition, and provision of its Guaranty. In
addition each, Guarantor hereby agrees that its obligations under its Guaranty
shall be unconditional, irrespective of (i) the absence of any attempt to
collect the Liabilities from Borrower or any other guarantor or other action to
enforce the same, (ii) the waiver or consent by Bank with respect to any
provision of any instrument evidencing the Liabilities, or any part thereof, or
any other agreement now or hereafter executed by Borrower and delivered to Bank,
(iii) Bank's election, in any proceeding instituted under Chapter 11 of Title 1
of the United States code (11 U.S.C. Section101 et seq.) (the "Bankruptcy
Code"), of the application of Section 111l(b)(2) of the Bankruptcy Code, (iv)
any borrowing or grant of a security interest by Borrower, as
debtor-in-possession, under Section 364 of the Bankruptcy Code, or (v) the
disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of
Bank's claim(s) for repayment of the Liabilities. Each Guarantor further
reaffirms that its obligations under its Guaranty are primary and are separate
and distinct from Borrower's obligations. Each Guarantor further represents and
warrants that it has no defenses or claims against Bank that would or might
affect the enforceability of its Guaranty and that its Guaranty remains in full
force and effect. Each Guarantor irrevocably and permanently (even if such
Guarantor pays said obligations in full) waives any and all rights of
subrogation, reimbursement indemnity, contribution or any other claim arising
from the existence of performance of its Guaranty which Guarantor may now or
hereafter have against Borrower or any other Person (or their respective
properties) directly or contingently liable for said obligations.
7
14. MISCELLANEOUS
14.1 AGREEMENT TO COOPERATE. All the parties hereto agree to and will
cooperate fully with each other in the performance of this Agreement
and the Loan Documents, including without limitation executing and
additional documents and instruments reasonable or necessary to the
full performance of this Agreement. Without limiting the generality of
the foregoing, Borrower agrees to execute such other and further
documents and instruments as Bank may request to implement the
provisions of this Agreement and to perfect and protect the liens and
security interests created by this Agreement, the Security Agreements
or the Guaranties or any other Loan Document.
14.2 BENEFIT OF AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto, their
respective successors and assigns. No other person or entity
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<PAGE> 9
shall be entitled to claim any right or benefit hereunder, including,
without limitation, the status of a third party beneficiary hereunder.
14.3 EFFECT OF AGREEMENT. Bank, Borrower and each Guarantor agree that
except as expressly provided herein, the Loan Documents shall remain in
full force and effect in accordance with their respective terms, and
this Agreement shall not be construed to:
14.3.1 Impair the validity, perfection or priority of any lien
or security interest securing Borrower's obligations to Bank;
14.3.2 Waive or impair any rights, powers or remedies of Bank
under the Loan Documents;
14.3.3 Constitute an agreement by Bank or require Bank to
grant forbearance periods or extend the term of the Credit
Agreement or the time for payment of any of Borrower's
obligations to Bank except as expressly provided herein, none
of which Bank agrees or has agreed to do, and all of which
matters are in Bank's sole and absolute discretion; or
14.3.4 Make any other loans or other extension of credit to
Borrower or any Guarantor.
In the event of any inconsistency between the terms of this
Agreement and any other Loan Document, this Agreement shall
govern. Borrower and each Guarantor each acknowledges that it
has consulted with counsel and with such other experts and
advisors as it has deemed necessary in connection with the
negotiation, execution and delivery of this Agreement, or has
had an opportunity to so consult and has knowingly chosen not
to do so. This Agreement shall be construed without regard to
any presumption or rule requiring that it be construed against
the party causing this Agreement or any part hereof to be
drafted. The headings used in this Agreement are for
convenience only and shall be disregarded in interpreting the
substantive provisions of this Agreement.
14.4 LIMITATION ON RELATIONSHIP. This Agreement and the other Loan
Documents shall not be deemed or construed to create a partnership,
tenancy in common, joint tenancy, joint venture, co-ownership or any
other relationship aside from a continuing debtor-creditor relationship
between Borrower and any Guarantor on the one hand and Bank on the
other.
14.5 INTEGRATION. This Agreement and the other Loan Documents are
intended by the parties as the final expression of their agreement and
therefore incorporate all negotiations of the parties hereto and are
the entire Agreement of the parties hereto. Borrower and each Guarantor
each acknowledges that it is relying on no written or oral agreement,
representation, warranty, or understanding of any kind made by Bank or
any employee or agent of Bank except for the agreements of Bank set
forth herein or in the other Loan Documents. Except as expressly set
forth in this Agreement, the other Loan Documents remain unchanged and
in full force and effect.
14.6 SEVERABILITY. In case any provision in this Agreement shall be
invalid, illegal or unenforceable, such provision shall be severable
from the remainder of this Agreement and the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
14.7 REVERSAL OF PAYMENTS. If Bank receives any payments or proceeds of
Collateral which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be paid to a
trustee, debtor-in-possession, receiver or any other party under any
bankruptcy law, common law, equitable cause or otherwise, then, to such
extent, the obligations or part thereof intended to be satisfied by
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such payments or proceeds shall be reserved and continue as if such
payments or proceeds had not been received by Bank.
14.8 MODIFICATION. This Agreement may not be amended, waived or
modified in any manner without the prior written consent of the party
against whom the amendment, waiver or modification is sought to be
enforced.
14.9 REIMBURSEMENT. Borrower shall reimburse Bank for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements (and fees and disbursements of Bank's in-house counsel)
expended or incurred by Bank in any arbitration, mediation, judicial
reference, legal action or otherwise in connection with (a) the
negotiation, preparation, amendment, interpretation and enforcement of
the Loan Documents, including without limitation during any workout,
attempted workout, and/or in connection with the rendering of legal
advice as to Bank's rights, remedies and obligations under the Loan
Documents, (b) collecting any sum which becomes due Bank under any Loan
Document, (c) any proceeding for declaratory relief, any counterclaim
to any proceeding, or any appeal, or (d) the protection, preservation
or enforcement of any rights of Bank. For the purposes of this section,
attorneys' fees shall include, without limitation, fees incurred in
connection with the following: (1) contempt proceedings; (2) discovery;
(3) any motion, proceeding or other activity of any kind in connection
with a bankruptcy proceeding or case arising out of or relating to any
petition under Title 11 of the United States Code, as the same shall be
in effect from time to time, or any similar law; (4) garnishment, levy,
and debtor and third party examinations; and (5) postjudgment motions
and proceedings of any kind, including without limitation any activity
taken to collect or enforce any judgment. All of such costs and
expenses shall bear interest from the time of demand at the rate then
in effect under the Notes.
14.10 APPLICABLE LAW; JURISDICTION. Except as otherwise provided
herein, this Agreement and all other Loan Documents and the rights and
obligations of the parties hereto shall be governed by the laws of the
State of California without regard to principles concerning choice of
law. In any action arising out of or connected with this Agreement,
Borrower and each Guarantor each hereby expressly consents to the
personal jurisdiction of any state or federal court located in the
State of California and also consents to service of process by any
means authorized by federal or governing state law.
14.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts which, when taken together, shall constitute but one
agreement.
14.12 SURVIVAL. All representations, warranties, covenants, agreements,
waivers and releases of Borrower and each Guarantor contained herein
shall survive the payment in full of Borrower's obligations to Bank.
14.13 NOTICES. Any notices required or contemplated under this
Agreement shall be provided as specified in Section 9.1 of the Credit
Agreement.
14.14 TRANSFER BY BANK. Bank reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of
Bank's rights and obligations under the Loan Documents. In that
connection, Bank may disclose all documents and information which Bank
may now or hereafter have relating to the Liabilities, Borrower or any
Guarantor or the business of any of the foregoing.
IN WITNESS WHEREOF, Bank, Borrower and each Guarantor have executed this
Agreement as of the date SET forth in the preamble.
"BORROWER" "BANK"
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BIO-DENTAL TECHNOLOGIES CORPORATION THE BANK OF CALIFORNIA, N.A.
By: By:
------------------------------------ ---------------------------
Title: Title:
---------------------------------- --------------------------
"GUARANTORS"
INTEGRATED DENTAL TECHNOLOGY, INC.
By:
------------------------------------
Title:
---------------------------------
RYKER DENTAL OF KENTUCKY
By:
------------------------------------
Title:
---------------------------------
11
<PAGE> 1
EXHIBIT 10.32
REPLACEMENT REVOLVING CREDIT NOTE
$1,394,000.00 March 31, 1996
(Subject to Borrowing Base)
Each signer of this Note ("Borrower") promises to pay to the order of The
Bank of California, N.A. ("Bank") at its office at 400 California Street,
San Francisco, CA 94014 or at such other place as Bank may designate in
writing, in lawful money of the United States of America, the principal sum
of ONE MILLION THREE HUNDRED NINETY FOUR THOUSAND DOLLARS ($1,394,000.00),
or so much thereof as may be advanced and outstanding under the Borrowing
Base, with interest on each Advance from the date it is disbursed until
maturity, whether scheduled or accelerated, at a fluctuating rate per annum
at all times equal to the rate Bank announces to be in effect from time to
time as its prime rate (the "Prime Rate") plus 2.50%. The Prime Rate is a
rate set by Bank based upon various factors including general economic and
market conditions, and is used as a reference point for pricing certain
loans. Bank may price its loans at, above, or below the Prime Rate.
During the term of this Note, Borrower may borrow, repay and reborrow as
Borrower may elect, in minimum amounts of ONE THOUSAND DOLLARS ($1,000.00)
and subject to all limitations, terms and conditions contained herein and in
that certain Second Amended and Restated Credit Agreement between Bank and
Borrower dated October 31, 1995, as amended from time to time ("Credit
Agreement"), provided however, that the outstanding principal balance of
this Note shall at no time exceed the amount available under the Borrowing
Base.
Interest shall be payable on the first day of each consecutive month and
continuing through the Termination Date, on which date all accrued interest
and principal remaining unpaid shall be due and payable in full.
Borrower hereby authorizes Bank to debit Borrower's account no. _________ at
Bank's Sacramento office for the payment of interest hereunder. Borrower
shall ensure that the balance of such account is adequate to fully pay all
such interest when due.
Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated,
at a fluctuating rate per annum at all times equal to the Prime Rate plus
5%, until paid in full, whether before or after judgment. Borrower shall pay
such interest on demand.
Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. Each change in the rate of
interest, charges or fees based on the Prime Rate shall become effective on
the date each Prime Rate change is announced within the Bank. In no event
shall Borrower be obligated to pay interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.
Each Advance shall be made as provided in the Credit Agreement. Advances may
be requested in writing, by telephone, telex or otherwise on behalf of
Borrower. Borrower recognizes and agrees that Bank cannot effectively
determine whether a specific request purportedly made by or on behalf of
Borrower is actually authorized or authentic. As it is in Borrower's best
interest that Bank advance funds in response to these forms of request,
Borrower assumes all risks regarding the validity, authenticity and due
authorization of any request purporting to be made by or on behalf of
Borrower. Borrower promises to repay any sums, with interest, that are
advanced by Bank pursuant to any request which Bank in good faith believes
to be authorized, or when the proceeds of any Advance are deposited to the
account of Borrower with Bank, regardless of whether any individual or
entity ("Person") other than Borrower may have authority to draw against
such account.
<PAGE> 2
This Note is the Revolving Credit Note defined in the Credit Agreement and
is governed by the terms thereof. Each capitalized term not otherwise
defined in this Note shall have the meaning set forth in the Credit
Agreement.
The occurrence of any Event of Default as defined in the Credit Agreement
shall (1) terminate any obligation of Bank to make or continue the Revolving
Credit; and shall, at Bank's option, (2) make all sums of interest,
principal and any other amounts owing under any Loan Documents immediately
due and payable (including without limitation the right to require cash
collateral for all issued and outstanding Commercial Letters of Credit,
Standby
Letters of Credit, and Acceptances) without notice of default presentment or
demand for payment, protest or notice of nonpayment or dishonor or any other
notices or demands; and (3) give Bank the right to exercise any other right
or remedy provided by contract or applicable law.
Borrower shall reimburse Bank for all costs and expenses, including without
limitation reasonable attorneys' fees, as set forth in the Credit Agreement.
This Note shall be governed by, and construed in accordance with, the laws
of the State of California.
BIO-DENTAL TECHNOLOGIES CORPORATION
By: _______________________________
Title: ___________________________
2
<PAGE> 1
EXHIBIT 10.33
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("Agreement") is entered into as of ______ 1996,
among BIO-DENTAL TECHNOLOGIES CORPORATION ("Borrower"), STATE OF OREGON ZCG/PERS
and CITY OF STAMFORD FIREMAN'S PENSION FUND (referred to both individually and
collectively as "Creditor"), and THE BANK OF CALIFORNIA, N.A. ("Bank").
1. SUBORDINATION. Borrower and Creditor acknowledge that the giving of this
Subordination is for Bank's benefit and is a material condition of Bank's
extending credit to Borrower. Creditor has derived or expects to derive material
financial advantages or other benefits commensurate in value to the obligations
being undertaken by Creditor hereunder.
2. INDEBTEDNESS SUBORDINATED. In consideration of the foregoing, add for other
valuable consideration. Creditor hereby subordinates all Borrower's Indebtedness
to Creditor ("Indebtedness to Creditor') to all Borrower's Indebtedness to Bank
("Indebtedness to Bank"). "Indebtedness" means all debts, obligations and
liabilities of Borrower to Bank or to Creditor, as the caw may be, whether
absolute or contingent, direct or indirect, liquidated or unliquidated, arising
in any manner, and whether Borrower may be liable individually or jointly, or
whether recovery, upon such debt may be or become unenforceable for any reason
and, without limiting the generality of the foregoing, shall include, for
purposes of Indebtedness to Bank, all of Borrower's outstanding business credit
card balances', and all renewals, extensions and modifications to any and all of
the foregoing.
3. NO ENFORCEMENT, PAYMENT, TRANSFER OR WAIVER. Without Bank's prior written
consent so long as any Indebtedness to Bank or any commitment of Bank to extend
credit to Borrower shall exist: (a) Creditor shall not enforce or apply any
security or other support now or hereafter existing for the Indebtedness to
Creditor or sue upon, collect, or receive payment of any such Indebtedness,
(b)Borrower shall not make any payments on the Indebtedness to Creditor, (c)
Creditor shall not sell, assign, transfer, endorse or grant security interests
in any Indebtedness to Creditor, subject to the terms and conditions of this
Agreement, (d) Creditor shall not participate or pin in any proceedings
described in Section 5, (e) Borrower shall not grant and Creditor shall not take
any lien or security on any of Borrower's property, and (f) no gift or loan
shall be made by Borrower to Creditor.
<PAGE> 2
4. ASSIGNMENT OF CREDITOR'S RIGHTS. Creditor hereby assigns all rights against
Borrower of any nature to Bank to secure the performance of this Agreement and
the payment of the Indebtedness to Bank. Creditor shall, and Bank is authorized
in the name of Creditor from time to time to, execute and file financing and
continuation statements and execute such other documents and take such other
action as Bank in its sole discretion deems necessary or advisable to perfect,
preserve or enforce its rights under this Agreement.
5. BANKRUPTCY/PROBATE OR BORROWER. In the event a petition or action for relief
shall be filed by or against Borrower under any bankruptcy, insolvency,
reorganization, moratorium, general assignment for the benefit of creditors or
creditor composition law, or any other law for the relief of or relating to
debtors, or in any probate proceeding, Bank's claim against the assets or estate
of Borrower shall be paid in full before any payment is made to Creditor,
whether such payment is in cash, securities or any other form of Proper or
rights. Bank may collect Creditor's claim directly from the receiver, trustee,
custodian, liquidator or representative of Borrower's estate in such proceeding.
Creditor and Borrower shall furnish all assignments, powers or other documents
requested by Bulk to facilitate such direct collection by Bank. Bank is hereby
authorized by Creditor to file a claim in any such on Creditor's, behalf, or
compel Creditor to file such claim. In any such proceeding or at any meeting of
creditors, Credit-or hereby grants to Bank an irrevocable proxy to vote its
claim and Bank is authorized to execute all documents necessary to the exercise
of this proxy.
6. CREDITOR AS TRUSTEE FOR BANK. Should Creditor receive any payment or
distribution in conflict with the provision, hereof, Creditor shall hold such
funds or property as trustee for Bank, and pay or transfer to Bank all such
funds or property promptly upon receipt on account of the Indebtedness to Bank.
7. EVIDENCE OF INDEBTEDNESS. All evidence of Indebtedness to Creditor shall
contain a statement referring to the existence of this Agreement. Borrower shall
provide Bank with die originals or copies of all such instruments of documents
existing on or after the date hereof
8. SUBORDINATION CONTINUING. This Agreement shall continue whether or not any
Indebtedness to Bank is outstanding at any time, provided a commitment to the
Borrower still exists.
9. DILIGENT INQUIRIES. Creditor assumes the responsibility for being and keeping
informed of the financial condition of 'Borrower and any other individual or
entity liable on or with respect to any of the Indebtedness to Creditor or Bank
and of all other
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<PAGE> 3
circumstances bearing upon the risk of nonpayment of the Indebtedness to
Creditor or Bank and confirms that Bank "I have no duty to advise Creditor of
any such information.
10. CREDITOR'S AUTHORIZATION. Creditor authorizes Bank, without notice, demand
or consent, and without affecting Creditor's liability under this Agreement,
from time to time, to (a) renew, compromise, extend, accelerate or otherwise
change the time for payment or the terms of the Indebtedness to Bank or any part
thereof, including changing the rate of interest thereon or the time for payment
thereof, (b) accept partial payments on the indebtedness, (c) extend credit to
Borrower on an unsecured basis or take security or other support for the
Indebtedness to Bank and exchange, enforce, waive or release any such security
or other support or any part thereof; (d) accept new or additional documents,
instrument or agreements relative to Indebtedness to Bank, (e) apply any
security or other support and direct the order or manner of sale or other
disposition of such property as Bank, in its sole discretion, may determine; and
(f) release or substitute any party liable on the Indebtedness to Bank, any
guarantor of the Indebtedness to Bank, or any other party providing support for
the Indebtedness to Bank.
11. BREACH OF AGREEMENT. If Borrower or Creditor breaches any provision of this
Agreement, Bank shall have the right to declare any or all Indebtedness to Bank
immediately due and payable, and pursue all of its rights and remedies under
contract or applicable law.
12. DISPUTE RESOLUTION
12.1 MANDATORY MEDIATION/ARBITRATION. Any controversy or claim between
or among the parties, their agents, employees and affiliates, including
but not limited to those arising out of or relating to this Agreement or
any related agreements or instruments ('Subject Documents), including
without limitation any claim based on or arising from an alleged tort,
shall, at the option of any party, and at that party's expense, be
submitted to mediation, using either the American Arbitration
Association ("AAA") or Judicial Arbitration and Mediation Services, Inc.
("JAMS"). If mediation is not used, or if it is used and it fails to
resolve the dispute within 30 days from the date AAA or JAMS is engaged,
then the dispute shall be determined by arbitration in accordance with
the rules of either JAMS or AAA (at the option of the party initiating
the arbitration) and Title 9 of the U. S. Code, notwithstanding any
other choice of law provision in the Subject Documents. All statutes of
limitations or any waivers contained herein which would otherwise be
applicable shall apply to any arbitration proceeding under this
subparagraph (a). The parties agree that related arbitration proceedings
may be consolidated. The Arbitrator shall prepare written reasons for
the award. Judgment upon the award
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<PAGE> 4
rendered may be entered in any court having jurisdiction. This
subparagraph 12.1 shall apply only if. at the time of the proposed
submission to AAA or JAMS, none of the obligations to Bunk described in
or covered by any of the Subject Documents arc seemed by real property
collateral or, if so secured, all parties consent to such submission.
12.2 JURY WAIVER/JUDICIAL REFERENCE. If the controversy or claim is not
submitted to arbitration as provided and limited in subparagraph 12. 1,
but becomes the subject of a judicial action, each party hereby waives
in respective right to trial by jury of the controversy or claim. In
addition, any party may elect to have all decisions of fact and law
determined by a referee appointed by the court in accordance with
applicable state reference procedures. The party requesting the
reference procedure shall ask AAA or JAMS to provide a panel of retired
judges. and the court shall select the referee from the designated
panel. The referee shall prepare written findings or fact and
conclusions of law. Judgment upon the award rendered
12.3 PROVISIONAL REMEDIES, SELF HELP, AND FORECLOSURE. No provision of,
or the exercise of any rights under, subparagraph 12.1 shall limit the
right of any party to exercise self help remedies such as setoff, to
foreclose against any real or personal property collateral, or to obtain
provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from a court having jurisdiction before,
during or after the pendency of any mediation or arbitration. At Bank's
option. foreclosure under a dead of trust or mortgage may be
accomplished either by exercise of power of sale under the deed of trust
or mortgage, or by judicial foreclosure. The institution and maintenance
of an action for judicial relief or pursuit of provisional or ancillary
remedies or the exercise of self help remedies shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to mediation or arbitration.
To the extent any provision of the dispute resolution clause is different than
the terms of this, Agreement; the terms of this dispute resolution clause shall
prevail.
13. MODIFICATION AND WAIVER. Any forbearance, failure or delay by Bank, in
exercising any right, power or remedy hereunder shall not be a waiver thereof,
and any single or partial exercise of any right, power or remedy, shall not
preclude the further exercise thereof, No waiver or consent shall be effective
unless it is in writing and signed by an officer of Bank. No waiver of a current
breach shall be deemed a waiver of a future breach.
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<PAGE> 5
14. MULTIPLE BORROWERS/CREDITORS. In all cases where there is more than one
Borrower, or when this Agreement is executed by more than one Creditor, the term
"Borrower' and the term "Creditor" shall mean all and any one or more of them,
and all terms appearing in the singular shall be deemed to have been used in the
plural where the context and construction so require. The term "Creditor" and
"Borrower" shall include each Creditor or Borrower, as the case may be. The
breach of any provision of this Agreement by any Borrower or any Creditor shall
be a breach by all Borrowers or Creditors.
15. JOINT AND SEVERAL. The obligations of Borrower and Creditor under this
Agreement are joint and several. Should more than one party sign this Agreement
as Borrower or Creditor, the obligations of each signer shall be joint and
several.
16. ASSIGNMENT. Neither Borrower nor Creditor may assign or transfer its
obligations hereunder without Bank's prior written consent. Bank reserves the
right to sell. assign or transfer its rights and duties under this Agreement, in
whole or in part, without notice to Borrower or Creditor. In that connection,
Bank may disclose all documents and information which Bank may have pertaining
to this Agreement, Borrower, Creditor or their businesses. This agreement
benefits Banks successors and assigns and binds Borrower's and Creditors heirs,
legatees, personal representatives, successors and assigns, Borrower and
Creditor each agrees not to assert against any assignee of Bank any claim or
defense it may have against Bank.
17. MISCELLANEOUS. Time is of the essence of this Agreement and all its
provisions. Borrower and Creditor will execute any additional agreements,
assignments, notices, filings or documents reasonably required by Bank to
effectuate this Agreement or to preserve and protect Bank's rights. This
Agreement shall be governed by the laws of the State of California Titles
preceding any paragraph of this agreement are for convenience only and are not a
part of this agreement All rights herein are cumulative and in addition to all
rights available under law or contract. Any notices or other communications
provided for or allowed hereunder shall be effective only when given by one of
the following a methods and addressed to the respective party at its address
given with the signatures at the end of this Agreement and shall be considered
to have been validly given (a) upon delivery, if delivered personally, or (b)
upon receipt, if mailed upon placement in the United States mail, first class
postage prepaid or if sent by overnight courier service of recognized standing
and (c) upon telephoned confirmation of receipt, if sent by telecopy or
facsimile. Unless separate notice is requested in writing by any Borrower or
Creditor, notice given to any Borrower or Creditor shall constitute,
respectively, notice to all Borrowers or Creditors. Should any oat or more
provisions of this Agreement be determined to be illegal or unenforceable, all
other provisions. nevertheless shall be
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<PAGE> 6
effective. Except for the documents and instruments referenced herein, this
agreement and any exhibits. schedules and addenda constitute the entire
agreement between Bank, Borrower and Creditor in connection with the subject
matter hereof. and supersede all prior understandings or agreements concerning
the subject matter hereof.
18. INDEMNIFICATION. Creditor shall pay and protect, defend and indemnify Bank
and Bank's employees, officers, directors, shareholders, affiliates,
correspondents, agents and representatives (other than Bank, collectively
"Agents") against, and hold Bank and each Agent harmless from, all claims,
actions, proceedings, liabilities, damages, losses, expenses (including without
limitation attorneys' fees and costs) and other amounts incurred by Bank and
each Agent, arising from the matters contemplated by this Agreement; provided
however, that this indemnification shall not apply to any of the foregoing
incurred solely as the result of Bank's or any Agent's gross negligence or
willful misconduct. This indemnification shall survive the payment and
satisfaction of all Indebtedness to Bank.
19. REIMBURSEMENT. Creditor shall reimburse Bank for all costs and expenses,
including without limitation reasonable attorneys' fees and disbursements (and
fees and disbursements of Bank's in-house counsel) expended or incurred by Bank
in any arbitration, mediation, judicial reference, legal action or otherwise in
connection with (a) the negotiation, preparation, amendment, interpretation and
enforcement of this Agreement, (b) any workout or attempted workout, (c) the
rendering of legal advice as to Bank's rights, remedies and obligations under
this Agreement, (d) collecting any sum which becomes due Bank under this
Agreement, (e) any proceeding for declaratory relief, counterclaim to any
proceeding, appeal, contempt proceeding, discovery, or post-judgment motions and
proceedings of any kind, including without limitation any action taken to
collect or enforce any judgment, (f) the protection, preservation or enforcement
of any rights of Bank, (g) any motion proceeding or other activity in connection
with a case under Title II of the United States Code or any similar law, or (h)
garnishment, levy and third party examinations.
6
<PAGE> 7
20. COPY. Borrower and Creditor each acknowledges receipt of a copy of this
Agreement.
IN WITNESS WHEREOF, Creditor, Borrower and Bank have duly executed this
Agreement as the date first written above.
STATE OF OREGON ZCG/PERS
By: __________________________
Title:_________________________
Address:
Zesiger Capital Group LLC
320 Park Avenue
New York, N.Y. 10022
CITY OF STAMFORD FIREMAN'S PENSION FUND
By:________________________
Title:______________________
Address:
Zesiger Capital Group LLC
320 Park Avenue
New York, N.Y. 10022
[SIGNATURES CONTINUE ON NEXT PAGE]
BIO-DENTAL TECHNOLOGIES CORPORATION
By:_______________________
Title:_____________________
7
<PAGE> 8
Address:
11277 Sunrise Park Drive
Rancho Cordova, CA 95742
THE BANK OF CALIFORNIA, N.A.
By:____________________________
Title:___________________________
Address:
400 California Street
San Francisco, CA 94104
LIMITED POWER OF ATTORNEY
The undersigned, as agent of the Oregon Investment Council, does by
these presents nominate, constitute and appoint Zesiger Capital Group LLC, 320
Park Avenue, New York, NY 10022, or any member manager thereof to be designated
by it, as a true and lawful attorney-in-fact of the State Treasurer of Oregon,
acting on behalf of the Oregon Public Employees' Retirement Fund ("The Fund"), a
trust fund, with full power and authority for the Fund and in the Fund's name,
to make, execute, deliver and acknowledge, any agreements, certificates,
representation letters, counterparts and documents, including without limitation
subscription documents, purchase agreements, registration rights agreements,
shareholders' agreements and documents of a similar nature, each containing such
agreements, representations, indemnification's, restrictions and other terms by
and for the Fund, as in the judgment of Zesiger Capital Group LLC may deem
necessary or appropriate to (1) affect the purchase on behalf of the Fund in
transactions not registered under the Securities Act of 1933, as amended
("private placement"), and (ii) subsequent to the purchase thereof, to
administer (including without limitation execution any amendments or consents
under any such agreements) or effect the sale of such private placements, as
duly authorized from time to time by the Oregon Investment Council.
This Limited Power of Attorney shall remain in full force and effect so
long as the Fund continues to be an advisory client of Zesiger Capital Group
LLC.
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has hereunto set his, or her or its
hand this ____ day of November, 1995.
_________________________
W. Dan Smith
Director, Investment Division
Oregon State Treasury
9
<PAGE> 10
City of Stamford Firemen's
Pension Fund
EXHIBIT C
LIMITED POWER OF ATTORNEY
The undersigned does by these present nominate, constitute and appoint
Zesiger Capital Group LLC, 320 Park Avenue, New York, NY 10022, any member
manager thereof to be designated by it, as his, her or its true and lawful
attorney-in-fact, with full power and authority for the undersigned, and in the
undersigned's name, to make, execute, deliver and acknowledge, any agreements,
certificates, representation letters, counterparts and documents, including
without limitation subscription documents, purchase agreements and documents of
a similar nature, each containing such agreements, representations,
indemnifications, restrictions and other terms by and for the undersigned, as in
the judgment of Zesiger Capital Group LLC may be necessary or appropriate to (i)
effect the purchase on behalf of the undersigned in transactions not registered
under the Securities Act of 1933, as amended ("private placement"), and (ii)
subsequent to the purchases thereof, to administer (including without limitation
executing any amendments or consents under any such agreements) or effect the
sale of such private placements.
This Power of Attorney shall remain in full force and effect so long as
the undersigned continues to be an advisory of Zesiger Capital Group LLC.
IN WITNESS WHEREOF, the undersigned has hereunto set his, her or its had
this ______ day of _____, 1995.
Stamford Firemen's Pension
Board
(Plan Administrator)
By:_________________________
Name:
Title:
10
<PAGE> 1
EXHIBIT 10.34
LETTER OF INTENT
Denticator International, Inc. (hereinafter DII), Jose L. Mendoza (hereinafter
JLM) and Bio-Dental Technologies Corporation (hereinafter BDTC) hereby agree to
enter into formal negotiations to form an agreement among the parties for the
sale of DII's Stock and the license between BDTC and DII to an unrelated
purchaser based upon the following:
1. All parties agree to bargain with good faith and fair dealing.
2. All parties agree to total disclosure of all terms and conditions that could
or will affect the final sales price in any way.
3. DII will surrender to BDTC the 50,000 BDTC options at the close of escrow and
the options will be canceled by BDTC.
4. Any and all offers must be submitted to JLM, DII and BDTC for consideration
and any offer must be approved by JLM, DII and BDTC before an offer is accepted.
Such approval must be in writing by each party.
5. As a result of the sale of DII and the cancellation of the licensing
agreement between DII and BDTC, BDTC will receive all consideration in excess of
the amounts paid to JLM as noted in this Letter of Intent.
6. Should the need arise, all parties agree to retain a neutral party to assist
in the completion of the sale. No neutral party shall be retained unless all
parties agree to all the terms and conditions concerning said retention. Costs
of said neutral party shall reduce the sales price for purposes of computing the
amount to be paid to Jose L. Mendoza under paragraph 22.
7. BDTC will have no continuing relationship of any kind with DII or the
purchaser of DII, it assigns or its successors other than as distributor which
operates in accordance with normal arms-length procedures. BDTC may purchase
product(s) from DII or the purchaser of DII, its assigns or it successors.
8. The purchaser of DII will pay all amounts and obligations owed to BDTC by DII
through escrow on the closing date. All amounts owed to BDTC by DII which are
not past due as of the closing date shall be 'added to the sales price for the
purpose of computing the amount to be paid to JLM under paragraph 12 of this
Letter of Intent. Royalty/consulting amounts not paid within 60 days from the
last day of the month to which the royalty/consulting payments apply will be
considered past due. For example, royalty/consulting payments due for the month
of January 1996 are considered past due if not paid to BDTC by March 31, 1996.
For purposes of the calculation of the past due amount owed, the past due amount
shall be reduced by the amount owed for product to DII by BDTC.
DII will make timely payments to BDTC in accordance with the Extension and
Modification of the Exclusive Licensing Agreement. RDTC will defer principal
payments on the Promissory Note dated March 31, 1991 from October 1995 through
September 1996. Any principal payments made by DII to BDTC to date for the
months of October 1995 through January 1996 will be applied by BDTC against the
royalty/consulting receivable from DII and the Promissory Note
<PAGE> 2
balance will be adjusted accordingly. DII agrees the following expenditures will
not be made without prior written authorization/approval from BDTC while
principal payments are being deferred:
- capital expenditures of any type;
- research and development of any type;
- debt of any type which does not exist on DII's balance sheet as of
September 30, 1995: A fluctuation in accounts payable will not be
considered an increase in debt;
- compensation increases or benefit increases to any DII employees
beyond planned annual cost of living adjustments (Exhibit B reflects
all pay raises given since October 1, 1995);
- no bonuses except those disclosed in Exhibit A.
9. DII agrees to prepare an operating budget to assist BDTC in projecting
anticipated cash flows.
10. Any and all sums paid or to be paid to JLM in excess of $120,000 per annum
by the purchaser, its assigns or successors shall be deemed to be an increase in
the sales price. The not present value of said excess shall be computed on a
monthly basis using a 10% discount factor for the period of time JLM receives
compensation in any form after the sale of DII from the purchaser, its assigns
or successors. The net present value shall be added to the sales price for
purposes of computing the amount to be paid to JLM under paragraph 12 of the
Letter of Intent. After Computing the amount due to JLM under paragraph 12, the
net present value of the amount in excess of $120,000 per annum shall reduce the
amount due JLM under paragraph 12. Compensation shall not include payments for
the benefit of JLM for health and dental insurance premiums or currently paid
automobile allowance. Increases in JLM's compensation package equal to the
compensation package received by the senior officer of BDTC (currently Curtis
Rocca) shall not be considered excess compensation. Unusual events that benefit
BDTC and therefore increase Curt Rocca's compensation, that are unrelated to DII
shall not be considered part of Curt Rocca's compensation package for purposes
Of this paragraph.
11. BDTC guarantees JLM, regardless of the sales price of DII, the sum of
$500,000 if the sale is agreed upon by June 30, 1996 and evidenced by an
executed sales agreement and the sale is finalized by September 30, 1996.
Otherwise the guarantee will be reduced by $100,000.
12. In addition to the minimum guarantee of paragraph 11, JLM will be
paid:
a. Five percent of the sales price up to eleven million dollars.
b. Twenty five percent of the sales price between eleven million
dollars and twelve million dollars.
2
<PAGE> 3
c. One half of the sales price above twelve million dollars.
The above amounts are not subject to right of claim, reduction or offset except
as provided in this agreement.
13. All patents developed by DII and JLM after April 1, 1991 shall be assigned
to JLM. To the extent the purchaser desires to utilize said patents, JLM
promises to grant the purchaser a royalty free license limited to dental
purposes only. JLM further agrees that all amounts paid by the purchaser for the
royalty free license shall be treated as part of the sales price of DII. Dental
purposes is defined as the maintenance and/or preservation of teeth; all
procedures involving the underlying bone structure and medical applications are
excluded from the definition of dental purposes. JLM reserves all other rights
in the patents.
14. BDTC DII and JLM acknowledge that each party may be required to make certain
representations and warranties to a prospective purchaser in connection with the
transaction contemplated by this Letter of Intent such as representations and
warranties as to the due authorization execution, delivery and enforceability of
a purchase agreement; good, valid and marketable title free of any adverse liens
relative to any assets or stock to be transferred by a party to a prospective
purchaser and other representations and warranties about such party's legal and
business affairs. BDTC agrees to provide all reasonable representations and
warranties required by a prospective purchaser relative to BDTC and DII and JLM
agree to provide all reasonable representations and warranties required by a
prospective purchaser with respect to DII and JLM. Each party shall be solely
responsible for all indemnity obligations relating to any breach of such party's
representations and warranties. At the closing of the transaction contemplated
by this Letter of Intent, BDTC, DII and JLM shall mutually release each other
from any and all claims, liabilities and other matters arising prior to the
closing.
15. Any controversy among the parties regarding the construction or application
of this letter of intent and any claim arising out of this letter of intent or
its breach, shall be submitted to arbitration upon the written request of one
party after the service of that request on the other parties.
BDTC shall appoint one person and DII and JLM shall jointly appoint one person
to hear arid determine the dispute. The cost of the arbitration shall be borne
by the losing party or in such proportions as the arbitrators shall decide.
16. This agreement shall terminate on October 1, 1996. Upon agreement of all
parties, it may be extended.
For: Bio-Dental Technologies Corporation
For: Denticator International, Inc.
For: Jose L. Mendoza
3
<PAGE> 1
EXHIBIT 10.35
May 10, 1996
Mr. Curtis M. Rocca III
Bio Dental Technologies Corp.
11291 Sunrise Park Drive
Rancho Cordova, CA 95742
Mr. Jose Mendoza
Denticator International Inc.
11330 Sunrise Park Drive
Rancho Cordova, CA 95742
Dear Mr. Rocca and Mr. Mendoza:
This letter will set forth the general understanding of a transaction by which
Young Innovations Inc. or any of its affiliated or associated companies,
(collectively, "Young") intends to purchase certain agreed assets and
liabilities of Denticator International Inc. (hereinafter referred to as
Denticator). It is understood and agreed that Young has not conducted a due
diligence investigation of Denticator and that its proposal regarding the
acquisition of certain of the Denticator assets and liabilities and this letter
were prepared based upon certain limited information furnished to Young by
Denticator and Bio Dental Technologies Corp. (hereinafter referred to as Bio
Dental) which Young has assumed to be accurate and upon which it has relied.
Subject to the conditions in this letter and the execution of final definitive
agreements, an acquisition company affiliate of Young (hereinafter called New
Denticator) will purchase certain agreed assets and liabilities of Denticator
from Denticator in accordance with the following.
1. The assets and liabilities of Denticator at the date of closing of the
transaction contemplated hereby (the "Closing Date") will include those at March
31, 1996 (unaudited) as set forth in Schedule A of this letter, subject to
conditions set forth in paragraphs 2, 4, and 5 immediately below, and will
include all intangible assets of Denticator including patents, contract rights,
tradenames (including the name Denticator), copyrights, secrecy and noncompete
agreements, and all other property, assets and agreements necessary for Young to
continue the business of Denticator without interruption immediately following
the Closing Date.
2. At the Closing Date, Denticator will have retired the entire amount of
current and long-term bank indebtedness, which at March 31, 1996 totaled
($21,823 + $32,000) $53,823.
3. Denticator will surrender to Bio Dental the 50,000 Bio Dental options at the
Closing date and the options will be canceled by Bio Dental.
4. At the Closing Date, the royalty contract (dated March 31, 1991) and all
amendments and/or modifications of said contract, between Denticator and Bio
Dental, will be canceled and/or completed and Denticator will be free to
transfer the right to the Denticator name and right to manufacture and
distribute all of its products free from any future royalties and free from any
other liabilities from said contract. Denticator, Jose Mendoza (hereinafter
referred to as Mendoza) and Bio Dental agree that the "Letter of Intent"
executed on January 19, 1996, shall be superseded by the agreements related to
this purchase agreement and shall be terminated on the closing date.
5. At the Closing Date, Young will pay to Bio Dental, subject to the limitations
set forth below, cash in the amount of $7,549,087 (see Schedule B), such amount
referred to hereinafter as the "Cash Purchase Price". Young will also issue a
credit against future purchases (hereinafter referred to as the 'Product
Credit"). Said Product Credit shall be in the amount equal to, and payment in
full, for all accrued
<PAGE> 2
royalties to Bio Dental and notes current and long term to Bio Dental as
reflected on the audited balance sheet of Denticator at the Closing Date. It is
contemplated that this amount will be approximately $953,581 (see Schedule B),
plus any additions, less any payments, made and/or incurred in the normal course
of business (as reflected in the Denticator financials dated March 31, 1996)
between March 31, 1996 and the closing date. Said Product Credit shall be usable
by Bio Dental, or any of its affiliates, for the future purchase of products
from Young and any of its affiliates, including New Denticator, at prevailing
prices in effect at the time of the purchases. Denticator will make timely
payment to Bio Dental in accordance with the Extension and Modification of the
Exclusive License Agreement through the closing date. However, it is expressly
agreed that Denticator may deviate from said license agreement for purposes of
retiring its debt to the Bank of California, per paragraph two (2) above.
6. At the Closing Date, Young will purchase Denticator's agreed assets and
assume its agreed liabilities as reflected on its audited balance sheet on the
Closing Date. For payment of said assets Young will pay to Denticator $50,000
and assume said liabilities. It is understood that these agreed assets and
liabilities will be substantially the same as those reflected on Schedule A,
except that the Bank of California debt shall have been retired per paragraph
two (2) and paragraph five (5) above.
7. At the Closing Date, Mendoza will enter into an employment agreement, at his
same compensation that he presently receives from Denticator and a noncompete
agreement which will be acceptable to both Young and Mendoza and will generally
follow the discussion held between Young and Mendoza. As part of said
employment, Young will enter into a stock option contract or stock bonus plan
with Mendoza, for the purchase of Young common stock, in the total amount of
$800,000 of said stock. Such stock option contract shall be exercisable by
Mendoza upon the meeting of certain financial performance goals of New
Denticator, as mutually agreed. As part of said stock option contract or stock
bonus plan, at the option of Mendoza, Young will repurchase for cash up to 40%
of the stock received by Mendoza under said stock option or bonus.
8. To assure the continuity of the management team, Young agrees, as part of
said employment agreement, per paragraph seven (7) above, to pay Mendoza an
amount equal to $305,000 in four equal three month installments, the first
payment being paid on the Closing Date.
9. It is the intention of Young that upon the purchase of the agreed assets and
liabilities by said New Denticator acquisition company, that said company will
be renamed Denticator International Co. and that Mendoza will be the president
and CEO, subject to the terms of the Mendoza employment contract. It is also the
intention of Young that said New Denticator will operate independently 'of Young
in its general business operations, however, there may be certain common and/or
joint practices such as banking, purchasing, accounting, planning and legal
functions.
10. In consideration for on going expenses of Young for incorporating the New
Denticator in its family of affiliates, New Denticator will pay annually to
Young the amount of $50,000 per year, subject to change upon mutual agreement.
The above provisions are not binding on Young, Bio Dental, or Denticator, in
that it is understood that all binding agreements concerning the transaction
described above will be contained in the definitive agreements executed by
Young, Denticator and Bio Dental. The following items are binding agreements of
the parties to this letter as evidenced by their respective signatures:
2
<PAGE> 3
A. Mendoza, Denticator and Bio Dental will fully cooperate with Young's due
diligence investigation of Denticator's assets, liabilities and operations.
B. Young agrees to keep confidential all information concerning Denticator, its
business operations and assets, the transaction contemplated by this letter of
intent and agrees not to discuss or disclose the terms set forth in this letter
with any other party, except that Young may share such information with its
financial and legal advisors.
C. Denticator and Bio Dental shall not directly or indirectly negotiate with or
solicit offers from any potential purchaser of Denticator. Bio Dental and
Denticator agree that under no circumstances will Bio Dental or Denticator
announce the transaction contemplated by this letter of intent or discuss the
terms set forth in this letter with any other potential purchaser, or agent of
such purchaser, provided, however, that in the event a definitive agreement has
not been entered into within sixty days from the signing of this letter of
intent, Denticator and Bio Dental's obligation under this paragraph will cease.
D. From the date of acceptance of this letter through the Closing Date or
termination of the agreements set forth in this letter, Denticator shall not
engage in any business activity or practice or enter into any transaction
outside the ordinary course of its business, or incur any of the following:
1. capital expenditures of any type;
2. research and development expenses of any type;
3. debt of any type which do not exist on the
Schedule A;
4. compensation increases or benefit increases to any
Denticator employees beyond planned annual cost of
living adjustments;
5. bonuses, except those included in the Managers
quarterly profit sharing plan.
E. All fees, costs and expenses incurred by Young with respect to its due
diligence investigations will be the sole responsibility of Young. All fees,
expenses and costs in regard to the negotiation and execution of the definitive
agreements and the consummation of the transactions contemplated by this letter
will be paid by the respective parties who incurred such costs.
F. Young, Denticator and Bio Dental recognize that time is of the essence and
will proceed without delay to close the transaction on or before June 30, 1996
or a mutually agreeable date as soon thereafter as possible. Young will
immediately begin its due diligence investigation and prepare a definitive
acquisition agreement incorporating the terms set forth above, and other terms
customary for agreements of this type, with the objective of entering into a
definitive agreement with Denticator and Bio Dental no later than 30 calendar
days from the date of the acceptance of this letter.
G. The terms of this letter represent all of the terms and conditions of Young
to Denticator, Mendoza and Bio Dental regarding the offer to purchase certain
assets and liabilities of Denticator and the Exclusive License Agreement as
extended and modified between Bio Dental and Denticator and the employment
agreement between Young and Mendoza. All parties agree to total disclosure among
the parties of all terms and conditions that may or will affect the transactions
in any way.
3
<PAGE> 4
H. Mendoza and Young understand that Bio Dental, as a public company, may be
required by state and/or federal securities laws to make a disclosure of this
Letter of Intent. In such case Bio Dental agrees to immediately notify Mendoza
and Young.
If the foregoing correctly states our present and mutual understandings, please
execute one copy of this letter and return the same by mail or facsimile (314)
3440021 to the undersigned on or before 12:01 PM, CDT May 13, 1996, after which
time this proposal will expire.
Very Truly yours,
George E. Richmond
Chairman and President
Young Innovations, Inc.
Curtis Rocca
President
Bio Dental Technologies Corporation
Jose Mendoza
President
Denticator International Inc.
4
<PAGE> 5
<TABLE>
<CAPTION>
SCHEDULE A
- ---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS AMOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PETTY CASH $ 200.00
CASH $ 64,383.70
ACCOUNTS RECEIVABLE $ 642,927.52
LESS. ALLOWANCE FOR TRADE REFUNDS $ (128.60)
LESS. ALLOWANCE FOR TRADE DISCOUNTS $ (7,963.20)
EMPLOYEE ADVANCES $ (2,625.13)
ADVANCE - PROFIT SHARING $ 1,200.00
DEFERRED COMPENSATION $ 11,835.00
RAW MATERIALS $ 109,114.73
FINISHED GOODS $ 49,599.61
INVENTORY OVERHEAD BURDEN $ 17,157.00
LESS: OBSOLETE INVENTORY $ (2,935.57)
PREPAID EXPENSES $ (3,423.58)
DEPOSITS $ 835.00
PREPAID INVENTORY $ 5,235.00
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $ 885,411.48 $885,411.48
FIXED ASSETS
FURNITURE & FIXTURES $ 12,217.55
LEASEHOLD IMPROVEMENTS $ 13,811.23
COMPUTER EQUIPMENT $ 55,577.38
WAREHOUSE EQUIPMENT $ 17,438.33
PRODUCTIION MACHINERY $ 279,173.87
ACCRUED DEPRECIATION - FURN. & FIXTURES $ (6,936.76)
ACCRUED DEPRECIATION - LEASEHOLD IMPR $ (4,087.23)
ACCRUED DEPRECIATION - COMPUTER EQUIP. $ (42,667.42)
ACCURED DEPRECIATION - WAREHOUSE EQUIP. $ (14,065.03)
ACCRUED DEPRECIATION - PRODUCTION MACH. $(118,893.01)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED ASSETS $ 191,568.91 $191,568.91
OTHER ASSETS
ORGANIZATIONAL COSTS $ 6,360.01
LESS: ACCUM. AMORT. ORGANIZATION COST $ (6,360.00)
INTANGIBLE ASSETS PATENTS $ 29,708.36
INTANGIBLE ASSETS ADA SEAL $ 4,000.00
INTANGIBLE ASSETS PATENTS REC. $ 14,513.85
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
SCHEDULE A
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AMORTIZATION INTANGIBLE ASSETS $(3,528.00)
AMORTIZATION PATENTS $(1,295.85)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS $43,398.37 $ 43,398.37
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,120,378.76
=============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES & EQUITY
CURRENT LIABILITIES AMOUNT
<S> <C> <C>
ACCOUNTS PAYABLE $ 202,500.06
ACCRUED ACCOUNTS PAYABLE $ 8,052.06
PROFIT SHARING PAYABLE $ 10,001.41
ACCRUED PAYROLL $ 33,918.00
ACCRUED VACATION PAY $ 20,604.58
TAX PAYABLE/RECEIVABLE, FED $ (145.00)
TAX PAYABLE/RECEIVABLE, STATE $ 695.00
SALES TAX PAYABLE $ 11.66
SALES INCENTIVES PAYABLE $ 20,000.00
CURRENT PORTION/BI0 DENTAL $ 60,028.20
CURRENT PORTION/TERM OTHER $ 21,823.36
ACCRUED ROYALTIES PAYABLE $ 459,403.48
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $ 836,892.81 $ 836,892.81
LONG-TERM LIABILITIES
NOTE PAYABLE - BIO DENTAL $ 380,325.93
NOTE PAYABLE BANK - OF CALIFORNIA $ 31,999.96
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LONG TERM LIABILITIES $ 412,325.89 $ 412,325.89
-------------
-------------
TOTAL LIABILITIES $1,249,218.70
=============
EQUITY
CAPITAL STOCK $ 200.00
RETAINED EARNINGS $(136,334.46)
RETAINED EARNINGS-CURRENT YEAR $ 7,294.52
----------------------------------------------------------
TOTAL EQUITY $(128,839.94) $ (128,839.94)
----------------------------------------------------------
-------------
TOTAL LIABILITIES AND EQUITY $1,120,378.76
=============
</TABLE>
6
<PAGE> 7
SCHEDULE B
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
DESCRIPTIONS AMOUNTS
- -------------------------------------------------------------------------------
<S> <C>
AGREED DENTICATOR EBITDA $1,700,000.00
LESS: INTEREST EXP $ (77,587.00)
- -------------------------------------------------------------------------------
NET EBTDA $1,622,413.00
===============================================================================
AGREED MULTIPLE 5.25
- -------------------------------------------------------------------------------
GROSS PURCHASE PRICE $8,517,668.00
LESS BANK AND BIO DENTAL DEBT $ (953,581.00)
- -------------------------------------------------------------------------------
SUBTOTAL $7,564,087.00
- -------------------------------------------------------------------------------
LESS: MENDOZA ADJUSTMENT $ (15,000.00)
- -------------------------------------------------------------------------------
TOTAL CASH PAYMENT $7,549,087.00
===============================================================================
</TABLE>
7
<PAGE> 1
EXHIBIT 10.36
[ZILA LETTERHEAD]
ZILA, INC.
May 24, 1996
CONFIDENTIAL
Mr. Curtis M. Rocca III
President
BioDental Technologies Corporation
11291 Sunrise Drive
Rancho Cordova, California 95742
RE: PROPOSED ACQUISITION OF BIODENTAL TECHNOLOGIES CORPORATION
("BDTC") BY ZILA, INC. ("ZILA")
Dear Curt:
This letter sets forth a proposal with respect to the principal terms
for the acquisition of all of the outstanding stock of BDTC by Zila (the
"Transaction"). If accepted by you, this letter will evidence the mutual
intention of BDTC and Zila to proceed diligently and in good faith to attempt
to negotiate the terms and conditions of a definitive written agreement
regarding the Transaction. Except for Sections 6 through 14 hereof, this letter
shall not constitute an agreement or binding obligation with respect to the
subject matter hereof, but shall only express the intent of the parties with
respect thereto. Any such agreement or binding obligation shall be evidenced
solely by a definitive agreement between BDTC and Zila (the "Agreement").
Subject to the foregoing, we propose the following:
1. The Transaction. Zila will acquire all of the outstanding stock
of BDTC (the "BDTC Stock"). Zila will issue 0.825 shares of Zila common stock
(the "Zila Stock") for each share of BDTC stock; provided that if the average
closing bid prices of the Zila 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 closing date (the "Calculation Period") is less than $6.00, Zila
<PAGE> 2
Mr. Curtis M. Rocca III
May 24, 1996
Page 2
shall pay for each share of BDTC Stock no less than $4.95 ($6.00 x 0.825) in
equivalent value of Zila Stock; provided further that if the average of the
closing bid prices of the Zila Stock as reported by the NASDAQ Small Cap Market
during the Calculation Period is greater than $7.75, Zila shall pay for each
share of BDTC Stock no more than $6.39 ($7.75 x 0.825) in equivalent value of
Zila Stock; provided however, that in no event will Zila issue less than 0.75
shares of Zila Stock for each share of BDTC Stock. On the closing date of the
Transaction there will be no more than 6,428,000 shares of BDTC Stock issued and
outstanding, plus any shares issued upon exercise of presently outstanding
options and warrants, and no more than 1,311,308 shares of BDTC Stock issuable
pursuant to options and warrants, less any shares issued upon exercise of
presently outstanding options and warrants. All shares of Zila Stock issued to
the holders of BDTC Stock will be registered with the Securities and Exchange
Commission ("SEC"), and at the closing date, such shares will not constitute
"restricted securities" under applicable federal and state securities laws.
2. Board Representation. On the closing date of the Transaction,
at least two persons nominated by BDTC will be appointed to serve on Zila's
Board of Directors.
3. Options. As of the date of this letter, BDTC has outstanding
employee stock options to purchase 861,308 shares of BDTC Stock. In the
Transaction, provision will be made to exchange each such option to purchase a
share of BDTC Stock for an option to purchase one share of registered Zila
Stock on the same terms as such BDTC option so long as the holder of the Zila
option remains employed by Zila for one year following the closing date of the
Transaction. If the holder of the Zila option terminates his or her employment
with Zila within one year of the closing date of the Transaction, then each
such Zila option shall be exercisable in accordance with its terms for 0.825
shares of Zila Stock. As of the date of this letter, BDTC also has outstanding
warrants to purchase 450,000 shares of BDTC Stock. In the Transaction, provision
will be made to exchange each such warrant for a warrant to purchase that
number of shares of Zila Stock which the holder of such warrant would have
received in the Transaction if such holder had exercised the warrant and
acquire BDTC Stock prior to the Transaction.
4. Employment Arrangements/Employees. On the closing date of the
Transaction, Zila will enter into employment arrangements with each of Curt
Rocca, Terry Bane and Tim Purdy on mutually acceptable terms and conditions.
All BDTC employees who are employed by Zila on the closing date of the
Transaction shall, for purposes of participating in Zila's employee stock
option plans, receive credit for each month of service to BDTC. Zila's
executive officers prior to the closing date of the Transaction will continue
in their respective positions after the closing date.
<PAGE> 3
Mr. Curtis M. Rocca III
May 24, 1996
Page 3
5. Payoff of BDTC's Debt. BDTC has entered into a letter of
intent to sell its economic interest in royalties due from Denticator
International, Inc., which, if consummated, will produce sale proceeds which
will be sufficient and will be used to pay off all of BDTC's bank debt. If such
letter of intent is abandoned or does not result in such sale prior to the
closing of the Transaction, then, at the closing, Zila will pay off all of
BDTC's bank debt and subordinated debt, which shall not exceed $3.5 million in
the aggregate.
6. Agreement. Commencing upon the execution hereof, and
continuing until the Termination Date (as hereinafter defined), the parties
will use their good faith efforts to attempt to negotiate the Agreement. The
Agreement shall contain provisions consistent with the intentions of the parties
set forth herein, together with customary covenants, conditions,
representations and warranties for a transaction of this type, and such other
terms and conditions as the parties shall determine to be mutually acceptable.
In the event that, for any reason, the Agreement is not executed prior to the
Termination Date, either party may terminate negotiations with respect to the
Transaction without liability to the other.
7. Term. This letter and the agreements of the parties hereto
shall expire on July 1, 1996, or such later date as the parties may mutually
agree (the "Termination Date").
8. Due Diligence; Access to Books, Records and Personnel. The
proposal set forth herein is subject to the satisfactory completion of your and
our respective due diligence investigations. During the term hereof, Zila and
its attorneys, accountants, consultants and representatives shall have access to
the books and records of BDTC and such other information pertaining to the
business and assets of BDTC as Zila shall reasonably request, and BDTC and its
attorneys, accountants, consultants and representatives shall have access to
the books and records of Zila and such other information pertaining to the
business and assets of Zila as BDTC shall reasonably request. Each of BDTC and
Zila shall provide the other with reasonable access to its officers and other
personnel for the purpose of conducting due diligence.
9. Conditions. The proposal contained herein is subject to (i)
execution of mutually acceptable definitive agreements; (ii) receipt of required
approvals of Zila's and BDTC's respective stockholders; (iii) compliance with
all applicable securities laws and regulations; (iv) the ability of Zila to
account for the Transaction under the "pooling-of-interests" method of
accounting; and (v) if necessary, approval of the transaction by BDTC's lender.
10. Confidentiality. During the course of negotiations and due
diligence, BDTC and Zila each from time to time may provide the other with
certain information regarding the business, operations and financial condition
of the other. Other than as described in subparagraph
<PAGE> 4
Mr. Curtis M. Rocca III
May 24, 1996
Page 4
(b) below, any information delivered by one party to the other in accordance
with this letter is referred to as the "Information." BDTC and Zila acknowledge
and agree that any Information provided to the other is proprietary and highly
confidential and that the unrestricted disclosure of any Information by one
party would result in substantial damage to the other, which damage would be
irreparable and extremely difficult to quantify. Accordingly, in consideration
of the furnishing of such information by BDTC and Zila to each other, BDTC and
Zila agree to maintain the confidentiality of any Information obtained from the
other, on the following terms and conditions:
(a) Each party hereto agrees that it will hold in strict confidence all
Information obtained from the other party in connection with or during the
course of any discussions or negotiations respecting the Transaction and will
use such Information only for the purposes of the discussions or negotiations
respecting the Transaction. Each party shall restrict access to the Information
to those officers, directors, employees, agents and representatives whose
duties require them to have access to the Information. Before disclosing any
Information to any such person, each party shall require such person to be
subject to the same restrictions and requirements respecting use, nondisclosure
and confidentiality as contained herein.
(b) It is understood and agreed that neither party has an obligation
to maintain confidential any information that:
(i) Such party can establish to have been known to it at the
time the information was disclosed;
(ii) Such party can establish to have been or become known to
the general public, other than as a result of a violation of this
letter or any other agreement with the other party; or
(iii) Such party can establish to have become known to it
from any independent third party who had the right to disclose such
information.
(c) Neither party nor any of its officers, directors, employees,
agents or representatives shall use any of the Information, directly or
indirectly, for competitive purposes or for any purpose other than in
connection with discussions and negotiations respecting the Transaction.
<PAGE> 5
Mr. Curtis M. Rocca III
May 24, 1996
Page 5
(d) Each party accepts full responsibility for any use or disclosure
of any Information by it or any of its officers, directors, employees, agents
or representatives in contravention of this letter.
(d) Neither party nor any of its officers, directors, employees,
agents or representatives may provide originals, copies or other reproductions
of any of the Information to any third party without the prior written consent
of the other party, except as required by law, legal process, rule, regulation
or regulatory authority. Any consent given by the other party may be
conditioned on the requirement that the party seeking consent obtain from the
third party a written agreement providing for the third party to be subject to
the same restrictions and requirements respecting use, nondisclosure and
confidentiality as contained in this letter.
(f) If either party or any of its officers, directors, employees,
agents or representatives is requested in any judicial or administrative
proceedings, or by any governmental or regulatory authority to disclose any
Information provided hereunder, that party will give the other written notice
of such request as promptly as practicable. If in the absence of a protective
order, that party or any of its officers, directors, employees, agents or
representatives are nonetheless compelled to disclose any Information, that
party may make such disclosure without liability hereunder provided that party
gives the other written notice of the Information to be disclosed as far in
advance of its disclosure as is practicable and uses its reasonable good faith
efforts to obtain reasonable assurance that confidential treatment will be
accorded to such Information.
(g) All Information will remain the property of the party providing
such Information. All documents provided by one party to the other or any one
or more of its officers, directors, employees, agents or representatives in
connection with any discussions or negotiations respecting the Transaction and
all copies or other reproductions of any and all of such documents, shall, at
the request of the party providing such documents, on or after the Termination
Date, be returned to such party, at the other party's cost and expense, and the
other party and its officers, directors, employees, agents or representatives
shall maintain strictly confidential all Information contained in the documents.
(h) Each party acknowledges and agrees that any violation of this
Section 9 would result in substantial and irreparable injury to the other
party, and that the other party would not have an adequate remedy at law with
respect to any such violation. Accordingly, each party agrees that, in the
event of any actual or threatened violation hereof, the other party shall have
the right and privilege to obtain, in addition to any other remedies that may
be available, equitable
<PAGE> 6
Mr. Curtis M. Rocca III
May 24, 1996
Page 6
relief, including temporary and permanent injunctive relief, to cease or
prevent any actual or threatened violation of any provision hereof.
11. Expenses. Except as otherwise provided in the Agreement, each
party shall bear its own expenses incurred in connection with the proposed
transaction.
12. Exclusivity. During the term hereof, BDTC and Zila each agree that
they will not directly or indirectly solicit, entertain or encourage inquiries
or proposals to enter into an agreement, or negotiate with any third party, to
sell or enter into any merger or consolidation with respect to each of their
respective businesses and/or assets; provided, however, that (a) BDTC shall be
permitted to seek a buyer for its economic interest in royalties due from
Denticator International, Inc.; and (b) nothing herein shall require BDTC to
take any action or refrain from taking any action with respect to any
unsolicited third party proposal if such action or inaction is likely to result
in the breach of the fiduciary duties of BDTC's officers and/or directors, as
determined in good faith by BDTC's legal counsel. Further, during the term
hereof, Zila will not directly or indirectly solicit, entertain or encourage
inquiries or proposals to enter into an agreement, or negotiate with any third
party, with regard to the distribution of OraTest in the United States, other
than as contemplated by the Transaction.
13. Communications. Except to the extent required by law, neither
BDTC nor Zila will make any public announcement or disclosure of the
Transaction or the existence or terms of the proposal set forth in this letter
without the prior approval of the other, which approval shall not be
unreasonably withheld or delayed. The parties agree to cooperate with each
other to make a joint release regarding the execution of this letter and the
proposed forms of the Transaction as soon as practicable after its acceptance
by BDTC.
14. General Provisions.
(a) To the extent this letter constitutes a binding agreement between
the parties, this letter shall be binding upon and inure to the benefit of
their respective successors.
(b) To the extent this letter constitutes a binding agreement between
the parties, this letter is the sole agreement of the parties as to the subject
matter hereof, and supersedes all prior agreements and understandings, written
or oral, between the parties as to such subject matter.
(c) either party may assign its rights or obligations under this
letter without the prior written consent of the other party hereto.
<PAGE> 7
Mr. Curtis M. Rocca III
May 24, 1996
Page 7
(d) This letter may not be amended or supplemented except by written
agreement of the parties hereto.
If the foregoing is acceptable, please sign, date and return the
enclosed copy of this letter.
ZILA, INC.
By: /s/ JOSEPH HINES
-----------------------------
Joseph Hines, President
ACCEPTED this 31st day of May , 1996:
--
BIODENTAL TECHNOLOGIES CORPORATION
By: /s/ C.M. ROCCA III
-------------------------------
Name: Curtis M. Rocca III
------------------------
Title: President
------------------------
<PAGE> 1
EXHIBIT 11.1
BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
COMPUTATION OF (LOSS) EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------
1996 1995
----------- ----------
<S> <C> <C>
(LOSS) EARNINGS:
Net (loss) earnings $(2,265,977) $ (419,437)
Preferred Stock dividend
----------- ----------
Net (loss) earnings applicable to common stock $(2,265,977) $ (419,437)
=========== ==========
SHARES:
Weighted average number of common shares
outstanding 6,285,471 6,118,295
Additional shares assuming conversion of:
Stock warrants 0(a) 0(a)
Stock options 0(b) 0(b)
----------- -----------
Average common shares and common share
equivalents outstanding 6,285,471 6,118,295
=========== ===========
(LOSS) EARNINGS PER COMMON SHARE:
Net (loss) earnings $ (0.36) $ (0.07)
=========== ===========
</TABLE>
(a) Warrants to acquire 150,000 shares of common stock at $2.25 per share
were outstanding at March 31, 1996 and 1995. Warrants to acquire 50,000
shares of common stock at $4.00 per share were outstanding at March 31,
1996 and 1995. Also, warrants to acquire 200,000 shares of common stock
at $3.11 per share were outstanding for part of the year ended March 31,
1995. The effects of these warrants were antidilutive at March 31, 1996
and 1995 and therefore are not included in the calculation of loss per
common share for the years ended March 31, 1996 and 1995.
(b) Options to acquire 430,516 and 378,808 shares of common stock at prices
ranging from $0.10 to $5.06 were outstanding at March 31, 1996 and March
31, 1995 respectively. The effects of these options were antidilutive at
March 31, 1996 and 1995 and therefore are not included in the
calculation of loss per common share for the years ended March 31, 1996
and 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000858752
<NAME> BIO-DENTAL TECHNOLOGIES CORP.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 612,911
<SECURITIES> 0
<RECEIVABLES> 2,112,487
<ALLOWANCES> 138,544
<INVENTORY> 3,667,161
<CURRENT-ASSETS> 8,626,608
<PP&E> 2,168,542
<DEPRECIATION> 1,451,390
<TOTAL-ASSETS> 10,996,592
<CURRENT-LIABILITIES> 7,165,756
<BONDS> 0
64,271
0
<COMMON> 0
<OTHER-SE> 3,766,565
<TOTAL-LIABILITY-AND-EQUITY> 10,996,592
<SALES> 31,682,545
<TOTAL-REVENUES> 33,091,216
<CGS> 23,926,770
<TOTAL-COSTS> 23,926,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 87,356
<INTEREST-EXPENSE> 231,722
<INCOME-PRETAX> (3,563,977)
<INCOME-TAX> (1,298,000)
<INCOME-CONTINUING> (2,265,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,265,977)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
