<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM TO .
Commission file number 1-11064
BRITESMILE, INC.
...............................................
(Exact name of small business issuer as specified in its charter)
UTAH 87-0410364
...................... ...............
(State or other jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
Airport Business Center
200 Diplomat Drive, Suite 204
Lester, Pennsylvania 19113
...............................................
(Address of principal executive offices with Zip Code)
(610) 362-1111
..................
(Issuer's telephone number)
...............................................
(Former name, former address and former fiscal year, if changed since last
report)
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 [ ]
The number of shares of common stock of the Registrant outstanding as of
December 31, 1998 was 16,999,599.
1
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PART I - FINANCIAL INFORMATION
PAGE NO.
--------
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
Nine Months Ended December 31, 1998 and 1997
Three Months Ended December 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements
December 31, 1998 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of
Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBITS 14
2
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ITEM I. FINANCIAL STATEMENTS
BRITESMILE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Dec. 31, 1998
(Unaudited) March 31, 1998
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $10,019 $ 503
Accounts receivable, less allowance
of $ 270 and $ 190 at December 31, 1998
and March 31, 1998, respectively 3 531
Inventories -- 321
Prepaid expenses 419 59
Assets held for sale 1,300 1,668
------- ------
Total current assets 11,741 3,082
------- ------
Property and equipment, net 555 766
Investment in joint venture -- 175
Patent costs, net -- 426
Other assets 12 213
------- ------
Total assets $12,308 $4,662
======= ======
</TABLE>
SEE ACCOMPANYING NOTES.
3
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BRITESMILE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Dec. 31, 1998
(Unaudited) March 31, 1998
------------- --------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 80 $ 30
Accounts payable 1,458 723
Accrued expenses 903 1,038
Current portion of long-term debt 815 1,025
-------- --------
Total current liabilities 3,256 2,816
-------- --------
Long-term debt less current portion -- --
-------- --------
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 50,000,000
Issued and outstanding shares -
December 31, 1998 - 16,999,599
March 31, 1998 - 5,809,307 17 6
Additional paid-in capital 27,585 11,902
Accumulated deficit (18,550) (10,012)
Cumulative translation adjustment -- (50)
-------- --------
Total shareholders' equity 9,052 1,846
-------- --------
Total liabilities and shareholders' equity $ 12,308 $ 4,662
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
4
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BRITESMILE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine months ended Three months ended
----------------- ------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 501 $ 3,956 $ -- $ 851
Cost of products sold:
Product sales 423 2,751 -- 811
Inventory write-downs 418 -- -- --
---------- ---------- ----------- ----------
Total cost of products sold 841 2,751 -- 811
Gross margin (340) 1,205 -- 40
Selling and administrative expenses 2,625 2,946 1,485 1,127
Research and development expenses 2,922 640 1,525 326
Termination benefits, impairment charges
and asset write-downs 2,709 -- -- --
---------- ---------- ----------- ----------
(8,596) (2,381) (3,010) (1,413)
Other income (expense) 58 (27) 26 10
---------- ---------- ----------- ----------
Loss before income taxes (8,538) (2,408) (2,984) (1,403)
Income tax (expense) benefit -- -- -- --
---------- ---------- ----------- ----------
Net loss $ (8,538) $ (2,408) $ (2,984) $ (1,403)
========== ========== =========== ==========
Earnings (loss) per common share - $ (1.04) $ (.41) $ (.30) $ (.24)
basic and diluted
Weighted average shares outstanding -
basic and diluted 8,233,305 5,805,720 10,048,410 5,805,720
</TABLE>
SEE ACCOMPANYING NOTES.
5
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BRITESMILE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
-----------------
Dec. 31, Dec. 31,
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(8,538) $(2,408)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 95 271
Loss on sale of properties 101 --
Termination benefits, impairment charges and
asset write-downs 2,158 --
Cost recognized under stock option plan 681 --
Other 6 24
Changes in operating assets and liabilities:
Accounts receivable, inventory and prepaid expenses (201) 578
Other assets -- 49
Accounts payable and accrued liabilities 685 (40)
Income taxes payable -- 14
------ ------
Net cash used in operating activities (5,013) (1,512)
------ ------
INVESTING ACTIVITIES
Purchases of property and equipment (391) (590)
Patent costs (9) (43)
Proceeds from sale of properties 145 --
------ ------
Net cash used in investing activities (255) (633)
------ ------
FINANCING ACTIVITIES
Proceeds from issuance of debt -- 112
Payments on debt (229) (24)
Proceeds from sale of common stock 15,013 3,168
------ ------
Net cash provided by financing activities 14,784 3,256
------ ------
Net increase in cash and cash equivalents 9,516 1,111
Cash and cash equivalents at beginning of period 503 55
------ ------
Cash and cash equivalents at end of period $10,019 $ 1,166
====== ======
</TABLE>
SEE ACCOMPANYING NOTES.
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
On August 12, 1998, Ion Laser Technology, Inc. changed its name to BriteSmile,
Inc. The unaudited, condensed consolidated financial statements of BriteSmile,
Inc. (the "Company") as of December 31, 1998 and for the nine months and three
months ended December 31, 1998 and 1997, were prepared by the Company without
audit in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-QSB and
rules promulgated by the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
all necessary adjustments to the financial statements have been made to present
fairly the financial position and results of operations and cash flows of the
Company. The results of operations for the periods presented are not
necessarily indicative of the results for the respective complete years. For
further information, refer to the consolidated financial statements and the
notes thereto included in the Company's annual report on Form 10-KSB for the
year ended March 31, 1998.
Earnings Per Share
- ------------------
Earnings per share is computed based on the weighted average number of shares of
common stock and common stock equivalent shares outstanding during each period.
Because the Company reported a net loss for each of the periods presented, all
common stock equivalents are anti-dilutive and accordingly have been excluded
from the earnings per share computations. As of the date of filing of this
report, the total number of shares of common stock of the Company issued and
outstanding is 16,999,599.
Reclassifications
- -----------------
Certain reclassifications, none of which affect net income, have been made to
the prior periods' amounts in order to conform to the current presentation.
2. TERMINATION BENEFITS, IMPAIRMENT CHARGES AND ASSET WRITE-DOWNS
In April 1998, the Company's Board of Directors and management decided to close
its Utah operating facility, discontinue all activities related to the Company's
industrial and scientific lines of business and move its headquarters to
Pennsylvania. As a result of the Company's decision to relocate its operations
to Pennsylvania and to focus exclusively in the dental whitening market, nearly
all of the Company's workforce of 63 employees in Utah was scheduled for
termination. A termination benefits liability of $200,000 was established and
charged to expense during the three month period ended June 30, 1998. As of
September 30, 1998, the Company had completed its termination plan and paid
benefits of approximately $200,000 to former employees. During the six months
ended September 30, 1998, the Company recorded charges of $2,927,000 to
recognize the discontinuation of its laser-based business and the Company's
exclusive focus on its new light-activated tooth whitening technology. These
charges include: the impairment and write-down of patents, accounts receivable,
inventory, and a joint venture related to discontinued technology, settlement of
canceled purchase commitments, and losses associated with the disposal of
property.
3. PRIVATE PLACEMENTS
In May 1998, the Company completed a private placement of 1,860,465 shares of
its common stock with a significant investor, resulting in proceeds to the
Company of $5,000,000. The Company completed another private placement, with
the same investor, in December 1998, issuing 9,302,326 shares of its common
stock in exchange for $10,000,000.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED BY THE COMPANY AND DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE
DISCUSSED BELOW IN THE SECTION ENTITLED "FORWARD-LOOKING STATEMENTS."
RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1998 (FISCAL 1999) VS. THIRD
QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1997 (FISCAL 1998)
In April 1998, the Company changed its strategic direction and focused its
resources on the dental whitening market. The Company had previously been
engaged in the manufacture and sale of industrial and scientific lasers, as well
as the sale of teeth whitening chemicals and laser-based teeth whitening
devices. As the Company focused its efforts on the dental whitening market and
the development of new teeth whitening technology, it discontinued the
production and sale of its laser-based device and both in-office and take-home
teeth whitening chemical products. Accordingly, the Company's sales and cost of
sales declined while research and development expenses increased. The Company's
historical operations are not indicative of future results.
In February 1999, the Company introduced a new Light-Activated Teeth Whitening
System (patents pending), including its new whitening device, the BriteSmile
2000, its new whitening gel, and new whitening process. The whitening service
is now available at the BriteSmile Professional Teeth Whitening Center in Walnut
Creek, California. Management anticipates opening four additional BriteSmile
Teeth Whitening Centers during the first six months of calendar 1999 in
California, and two Associated Teeth Whitening Centers within existing dental
practices in March, 1999. Each center is professionally operated by a licensed
dentist and offers the Company's new technology.
Net Sales
- ---------
The Company had no sales in the third quarter ended December 31, 1998. This
represents a decline from the same period in the prior year by $851,000 or 100%.
Sales for the nine month period ended December 31, 1998 declined from the same
period in the prior year by $3,455,000 or 87%. The decrease in sales was due to
the fact that the Company had no sales of its laser-based arc lamp teeth
whitening (LTW) system in the three and nine month periods ended December 31,
1998, and has discontinued all development work on the LTW system.
Additionally, the Company has discontinued sales of take-home and in-office
teeth whitening chemical products used with the LTW system.
Cost of Sales
- -------------
Cost of sales, exclusive of inventory write-downs, for the nine month period
ended December 31, 1998 increased to 84% of sales from 70% in the same period of
the prior year. The increase is attributable to termination of sales of higher
margin LTW systems, and increased warranty costs as a percentage of sales.
Selling & Administrative Expenses
- ---------------------------------
Selling and administrative expenses in the third quarter ended December 31, 1998
increased from the prior year by $358,000, primarily due to administrative and
marketing costs associated with the launch of BriteSmile Teeth Whitening
8
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Centers in calendar 1999. For the nine months ended December 31, 1998, selling
and administrative expenses decreased by $321,000 due to the reduction in
staffing and related costs associated with the Company's discontinued lines of
business and move from Salt Lake City, Utah to Lester, Pennsylvania.
Research & Development Expenses
- -------------------------------
Research and development expenses increased in the third quarter and nine months
ended December 31, 1998 from the same periods in the prior year by $1,199,000
and $2,282,000, respectively, due to the significant research and development
activities during these periods related to the Company's BriteSmile 2000
whitening device, whitening gel and whitening process. Management anticipates
that research and development expenditures will continue at rates comparable to
current spending levels through the remainder of fiscal 1999. Included in these
amounts is a non-cash expense of $520,000 representing stock options issued to
consultants supporting the Company's research and development efforts.
Termination Benefits, Impairment Charges and Asset Write-Downs
- --------------------------------------------------------------
In April 1998, the Company's Board of Directors and management decided to close
its Utah operating facility, discontinue all activities related to the
industrial and scientific laser lines of business, discontinue development and
sales of its laser-based LTW device - the arc lamp tooth whitening system, and
move its headquarters to Pennsylvania. As a result of the Company's decision to
relocate its operations to Pennsylvania and to focus exclusively on the tooth
whitening market, nearly all of the Company's 63 employees located in Utah were
scheduled for termination. A termination benefits liability of $200,000 was
established and charged to expense during the three month period ended June 30,
1998. At September 30, 1998, the Company completed its termination plan and
paid benefits of approximately $200,000 to former employees. In October 1998,
the Company discontinued sales of take-home and in-office tooth whitening
chemical products as a result of management's shift in focus to BriteSmile
Whitening Centers.
In addition to employee termination costs, the Company recorded other charges of
$2,927,000 in the six month period ending September 30, 1998. These charges
include the write-down of $418,000 of inventories classified as cost of products
sold, the impairment and write-down of patents and a joint venture related to
discontinued technology (assets which will provide limited or no future benefit
to the Company) for $657,000, settlement of canceled purchase commitments for
$402,000, write-down on assets available for sale to fair value for $367,000,
property write-downs and losses on sale of properties for $425,000, and $658,000
of charges related to uncollectable accounts receivable and accrued expenses
associated with discontinued product lines.
Income Taxes
- ------------
Due to its operating loss, the Company had no income tax expense during fiscal
1998 or for the three and nine month periods ending December 31, 1998.
Furthermore, no income tax benefit was recognized due to the uncertainty
associated with the Company's ability to realize its deferred assets, comprised
primarily of net operating loss carryforwards.
Inflation
- ---------
The Company actively strives to contain costs on parts from suppliers by
renegotiating purchase order contracts. Inflation has not been a major factor
in the past and is not seen as a major factor that will impact the Company's
operations in the immediate future.
Net Income (Loss)
- -----------------
The Company incurred net losses of $2,984,000 and $8,538,000 for the three and
nine month periods ending December 31, 1998, respectively. A portion of the net
losses are attributable to the employee termination benefits and the impairment
9
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charges and asset write-downs which together represented $3,127,000 of the net
losses incurred for the nine month period ended December 31, 1998. These
impairment charges are principally related to the Company's discontinuation of
several lines of business, and the closing of its Utah facility. The remainder
of the Company's net loss for the nine month period is attributable to decreases
in sales and increases in research and development costs related to the
Company's shift in focus from laser-based dental, scientific and industrial
products to development of its new LATW system, and the opening of BriteSmile
Teeth Whitening Centers in calendar 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing activities resulted in an increase in cash of
$14,784,000 during the nine month period ended December 31, 1998, due to the
$15,000,000 of equity capital raised in May and December,1998. This increase
was partially offset by the $5,013,000 of cash used by operating activities,
principally research and development expenses related to the Company's new LATW
technology as well as administrative expenses, marketing and capital
expenditures related to preparing for the launch of BriteSmile Teeth Whitening
Centers.
In this section, the term "Current Ratio" means current assets divided by
current liabilities. "Working Capital" means current assets less current
liabilities.
The Company's Current Ratio and Working Capital at December 31, 1998 and March
31, 1998 were as follows:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
<S> <C> <C>
Current Ratio 3.61 1.09
Working Capital $8,485,000 $266,000
</TABLE>
In May 1998, the Company completed a private placement of its common stock in
which it obtained proceeds of approximately $5,000,000. Again in December, 1998
the Company completed a private placement of its common stock obtaining proceeds
of $10,000,000. Both private placements were transacted with a significant
shareholder who currently owns 71.4% (assuming exercise of stock options held by
this shareholder) of the Company's common stock. At December 31, 1998, the
Company had outstanding purchase orders and commitments related to its LATW
technology of approximately $840,000, which the Company will be obligated to pay
over the next 12 months. In addition, the launch of the BriteSmile Teeth
Whitening Centers planned for calendar 1999 will consume significant resources
to finance capital and advertising expenditures.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This Standard will become effective for the
Company's 1999 fiscal year. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of general-
purpose financial statements. Management is currently assessing the impact of
implementation of this Standard on the consolidated financial statements of the
Company and does not believe that the implementation will have a material impact
on the Company's financial statements.
YEAR 2000
Many computer systems experience problems handling dates beyond the year 1999.
This is referred to widely as the "Year 2000" issue. As a result of the May
1998 closure of its Salt Lake City manufacturing facility and downsizing of its
operations, the potential impact of the Year 2000 issue on the Company is
greatly reduced. Additionally, the Company is in the process of upgrading its
primary financial and management systems, which upgrades are planned to be Year
2000 compliant. The Company continues to evaluate the Year 2000 exposures
10
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presented by its significant suppliers and other vendors whose systems may
impact the Company's operations. However, based on the significant reduction in
operations noted above, management believes that the Year 2000 issue will not
have a material impact on the Company's operations.
FORWARD-LOOKING STATEMENTS
The statements contained in this Report on Form 10-QSB that are not purely
historical are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 21E of the Securities
Exchange Act. These statements relate to the Company's expectations, hopes,
beliefs, anticipations, commitments, intentions, and strategies regarding the
future. They may be identified by the use of words or phrases such as
"believes," "expects," "anticipates," "should," "plans," "estimates," and
"potential," among others. Forward-looking statements include, but are not
limited to, statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations regarding the Company's financial
performance, revenue and expense levels in the future and the sufficiency of its
existing assets to fund future operations and capital spending needs. Actual
results could differ materially from the anticipated results or other
expectations expressed in such forward-looking statements. The Company believes
that many of the risks set forth here and in the Company's SEC filings are part
of doing business in the industry in which the Company operates and competes and
will likely be present in all periods reported. The forward-looking statements
contained in this Report are made as of the date of this Report and the Company
assumes no obligation to update them or to update the reasons why actual results
could differ from those projected in such forward-looking statements. Among
others, risks and uncertainties that may affect the business, financial
condition, performance, development, and results of operations of the Company
include:
. government regulation of the Company's products and teeth whitening
procedures;
. failure of the Company to generate, sustain or manage growth, including
failure to develop new products;
. the loss of product market share to competitors and/or development of new
or superior technologies by competitors;
. ongoing operating losses associated with the Company's abandonment of its
industrial and scientific laser product line and laser-based teeth whitening
technologies, in favor of development of new, light-activated teeth whitening
technologies;
. inability of the Company to secure additional financing, if necessary, to
complete research and development activities and to establish a broad base of
teeth whitening centers nationwide;
. unproven market for the Company's new whitening products, whitening
process, and "whitening center" concept; and
. lack of diversity of products.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no new legal proceedings involving the Company or any of its
directors, officers or affiliates, nor any material developments with respect to
pending legal proceedings, which are required to be discussed in this Report.
ITEM 2. CHANGES IN SECURITIES.
Pursuant to a Stock Purchase Agreement between the Company and LCO Investments
Limited dated December 7, 1998, the Company sold 9,302,326 shares of its Common
Stock (the "New Shares") to LCO for aggregate proceeds to the Company of
$10,000,000. The New Shares, together with LCO's other holdings of Common
Stock, constitute approximately 69% of the Company's issued and outstanding
Common Stock. See the Company's Current Report on Form 8-K dated December 8,
1998, as filed with the Securities and Exchange Commission on December 22, 1998.
<TABLE>
<CAPTION>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
<S> <C> <C>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION.
</TABLE>
On January 22, 1999, the Company announced that Bruce V. Wainright, D.D.S.,
P.A., has been appointed to the Company's Board of Directors. Dr. Wainright is
a leading cosmetic dentist currently in private practice in Raleigh, North
Carolina, and will be one of the first dentists to use the Company's new
BriteSmile 2000 Teeth Whitening Device and Gel.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Exhibit No. Description
----------- -----------
10.23 Employment Agreement dated as of January 22, 1999 between the
Company and Linda Oubre, President, Center Division of the
Company.
27.1 Financial Data Schedule for December 31, 1998 Form 10-QSB.
(B) REPORTS ON FORM 8-K
During the quarter for which this report is filed, the Company filed one
Current Report on Form 8-K dated December 7, 1998. Pursuant to Items 5 and
9 of the Report, the Company reported the closing of a Stock Purchase
Agreement dated as of December 7, 1998 between the Company and LCO
Investments Limited.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
BRITESMILE, INC.
Date: February 16, 1999
/s/ Michael F. Bonner
------------------------
Michael F. Bonner
Chief Financial Officer
13
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 22, 1999, by and between
BRITESMILE, INC. (the "COMPANY"), a Utah corporation, and LINDA OUBRE (the
"EMPLOYEE").
W I T N E S S E T H:
-------------------
WHEREAS, upon the terms and subject to the conditions of this
Agreement, the Company desires to employ the Employee and the Employee desires
to accept employment by the Company;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and subject to the conditions of this
----------
Agreement, the Company hereby employs the Employee and the Employee hereby
accepts employment with the Company in the capacities hereinafter set forth.
2. Term of Employment. Unless earlier terminated pursuant to
------------------
Section 6 below, the term (the "TERM") of this Agreement shall commence on the
date hereof and shall continue in effect through June 30, 2000; provided,
however, that commencing on June 30, 2000 and each anniversary thereof the term
of this Agreement shall be extended for an additional year from June 30, 2000 or
such anniversary as the case may be unless not later than 30 days prior to such
automatic extension date the Company or the Employee shall have given notice
that such party does not want to extend the term of this Agreement in which case
the term of this Agreement shall end on June 30, 2000 or, if later, on the date
to which the term of this Agreement was last automatically extended.
3. Duties; Extent of Services.
--------------------------
(a) Duties. During the Term, the Employee shall serve in such
------
capacity and may be reasonably designated by the Chairman or Chief Executive
Officer (either such person the "CH/CEO") of the Company, initially as
President, Center Division of BriteSmile, Inc., and shall perform the duties,
undertake the responsibilities and exercise the authority reasonably required of
such an employee of the Company, and shall have such other powers and perform
such additional executive duties as may be assigned to her from time to time by
the CH/CEO. The Employee shall report to and carry out the lawful directions of
the CH/CEO.
(b) Extent of Services. Except for illness and permitted vacation
------------------
periods, during the Term the Employee shall (i) devote her full time and
attention during normal business hours to the businesses of the Company and its
subsidiaries and Affiliates (as defined herein);
<PAGE>
(ii) use her best efforts to promote the interests of the Company and its
subsidiaries and Affiliates; (iii) discharge such executive and administrative
duties not inconsistent with her position as may be assigned to her by the
CH/CEO; and (iv) serve, without additional compensation, as a director or
officer of the Company or any subsidiary of the Company if elected as such.
4. Compensation Benefits.
---------------------
(a) Salary. In consideration of the services rendered by the
------
Employee hereunder and provided that the Employee has substantially performed
all of her obligations provided for herein, the Company will pay to the Employee
a salary (the "BASE SALARY") at the following rates per year during the Term.
. $165,000 per annum from the date hereof through June 30, 1999;
and
. $175,000 per annum from July 1, 1999 through June 30, 2000.
The amount of Employee's Base Salary for the term, if any, of this Agreement
after June 30, 2000, will be subjected to the mutual agreement of the parties.
The Base Salary shall be paid in accordance with the Company's normal payroll
practice.
(b) Commencing with the Company's first fiscal year which begins
after the date hereof Employee shall also be eligible to receive bonus
compensation ("BONUS COMPENSATION") under such cash bonus plan as the Company
may adopt for its key executives generally. In the event that the Company does
not adopt a cash bonus plan for its key executives generally, such bonus
compensation shall be earned based upon the attainment of annual profitability
and management objectives relating to the Company's Center Division which
objectives shall be reasonably agreed upon by Employee and the Company within 30
days of the beginning of each period to which such Bonus Compensation relates.
(c) During the Term, the Employee shall be entitled (i) to vacation
time in accordance with the Company's policy from time to time in effect; (ii)
to participate in all employee insurance and other fringe benefit programs,
including, without limitation, life, health, dental and accident insurance plans
and long term disability now or hereafter maintained by the Company for senior
executive or other salaried personnel for which the Employee is eligible; and
(iii) to participate in a pension plan with terms similar to those applicable to
executives of the Company.
5. Options. In consideration of Employee's entering into and
-------
performing the Agreement, Employee will be granted by the Company options to
purchase 200,000 shares of the
-2-
<PAGE>
Company's Common Stock at $1.75 per share pursuant to a separate option
agreement under the Company's 1997 Stock Option and Incentive Plan (the "PLAN").
Such options shall have terms reasonably determined by the Company under the
Plan; provided Employee's right to purchase shares of the Company's stock
pursuant to such options shall vest as follows:
. the right to purchase 50,000 of such shares shall vest on the
date hereof;
. the right to purchase an additional 30,000 of such shares shall
vest on each of July 1, 1999, July 1, 2000, July 1, 2001, July 1,
2002 and July 1, 2003 if Executive has remained in the employ of
the Company from the date hereof to such date.
6. Termination Provisions.
----------------------
(a) Termination for Cause. The Board may terminate the Employee's
---------------------
employment hereunder for Cause, as hereinafter defined, immediately upon written
notice to the Employee. For purposes of this Agreement, "CAUSE" shall mean (i)
embezzlement, theft or other misappropriation of any property of the Company or
any Affiliate, (ii) gross or willful misconduct resulting in substantial loss to
the Company or any Affiliate or substantial damage to the reputation of the
Company or any Affiliate, (iii) any act involving moral turpitude which results
in a conviction for a felony involving moral turpitude, fraud or
misrepresentation, (iv) gross neglect of her assigned duties to the Company or
any Affiliate, (v) gross breach of her fiduciary obligations to the Company or
any Affiliate, or (vi) any chemical dependence which materially affects the
performance of her duties and responsibilities to the Company or any Affiliate;
provided that in the case of the misconduct set forth in clauses (iv) and (vi)
- --------
above, such misconduct shall continue for a period of 30 days following written
notice thereof by the Company to the Employee. During the Term, the Employee
shall be entitled to only one such notice and right to cure for any single act
or event. If the Employee's employment is terminated for Cause, the Employee
shall be entitled to receive only the unpaid portion of the Salary then in
effect which has accrued to the date of termination and any other payments
generally available to departing employees of the Company (such as unused
vacation and personal days). The Employee shall not be entitled to receive any
severance payment with respect to such termination. For the purpose of this
Agreement, the term "AFFILIATE" means, with respect to the Company, any person
or entity which, directly or indirectly, controls, is controlled by or under
common control with the Company, with "CONTROL" to be based on the ownership of
50% or more of the voting securities (or their equivalent) of a particular
entity.
-3-
<PAGE>
(b) Termination By Reason of Permanent Disability. If at any time
---------------------------------------------
during the Term the Employee has been unable, as a result of physical or mental
illness or incapacity, to perform her duties hereunder for a period of four
consecutive months or for an aggregate of more than six months in any twelve
month period (a "PERMANENT DISABILITY"), the Employee's employment hereunder may
be terminated by the Board upon 30 days' written notice to the Employee. If the
Employee's employment is terminated by reason of Permanent Disability, the
Employee shall be entitled to receive only the unpaid portion of the Salary then
in effect which has accrued to the date of termination, plus any other payments
generally available to departing employees of the Company (such as unused
vacation and personal days), plus an amount equal to three months of Employee's
Salary. Such amount shall be paid within 30 days after such termination.
Notwithstanding the foregoing, if any Bonus Compensation is earned by the
Employee for the year in which such Permanent Disability occurs, Employee shall
be entitled to a pro rata portion of such Bonus Compensation based on the number
of days in the Company's fiscal year to which such Bonus Compensation relates
that have elapsed prior to Employees Permanent Disability.
(c) Termination By Reason of Death. The Employee's employment
------------------------------
hereunder shall automatically terminate on the date of her death. If the
Employee's employment is so terminated by her death, the Company shall pay to
the Employee's estate the unpaid portion of the Salary then in effect through
date of Employee's death plus an amount equal to three months of Employee's
Salary, plus any other payments generally available to departing employees of
the Company (such as unused vacation and personal days). Such amount shall be
paid within 30 days after the date of her death if a personal representative has
been appointed by the end of such 30-day period or, if a personal representative
has not been appointed by the end of such 30-day period, promptly after a
personal representative has been appointed. Notwithstanding the foregoing, if
any Bonus Compensation is earned by the Employee for the year in which such
death occurs, Employee shall be entitled to a pro rata portion of such Bonus
Compensation based on the number of days in the Company's fiscal year to which
such Bonus Compensation relates that have elapsed prior to the date of
Employee's death.
(d) Other Terminations. Anything herein contained to the contrary
------------------
notwithstanding, (i) the Board may terminate the Employee's employment hereunder
at any time for any reason without Cause; (ii) the Employee may terminate this
Agreement if her title is changed without her consent or if, without her
consent, her duties and responsibilities are materially reduced, in either case
if such change in title or reduction in duties or responsibilities is not cured
within 10 days after written notice from Employee to the Company and (iii) the
Employee may terminate this Agreement at any time prior to 30 days after written
notice from the Company that as a condition of continuing this Agreement the
Employee must relocate to an office more than 50 miles from the Company's
present office in Walnut Creek, California. If this Agreement is so terminated
by the Board pursuant to subclause (i) or is terminated by Employee
-4-
<PAGE>
pursuant to subclause (ii), the Employee shall be entitled to receive an amount
equal to six months of Employee's Salary. If this Agreement is so terminated by
the Employee pursuant to subclause (iii), the Employee shall be entitled to
receive an amount equal to three month's of Employee's salary. (The amount to
which Employee may become entitled is hereinafter referred to as the "SEVERANCE
AMOUNT".) The Severance Amount shall be in lieu of any other severance payment
to which Employee may be otherwise entitled under any other severance plan
maintained by the Company. The Severance Amount shall be paid in installments in
accordance with the Company's normal payroll practices as if the Employee were
still an employee of the Company. In addition, the Employee shall be entitled to
receive any other payments generally available to departing employees of the
Company (such as unused vacation and personal days, but not including payments
under any severance policy of the Company). Notwithstanding the foregoing, if
any Bonus Compensation is earned by the Employee for the year in which such
severance occurs, Employee shall be entitled to a pro rata portion of such Bonus
Compensation based on the number of days in the Company's fiscal year to which
such Bonus Compensation relates that have elapsed prior to the death of
Employee's termination. Anything herein to the contrary notwithstanding, the
Severance Amount shall be reduced by the amount, if any, of compensation earned
by Employee from any other employment performed by the Employee during the 6-
month period after the date of Employee's termination if Employee is terminated
pursuant to subclauses (i) or (ii) above and during the 3-month period after the
date of Employee's termination if Employee terminates this Agreement pursuant to
subclause (iii) above.
7. Covenants of the Employee.
-------------------------
(a) Non-Competition. Until (X) the end of the six months of the date
---------------
of the termination of the Employee's employment if Employee is terminated
pursuant to 6(d)(i) or (ii) above and (Y) the end of the third month of the date
of the termination of Employee's employment if Employee is terminated pursuant
to 6(d)(iii) above, and (Z) in the event the Employee is terminated for Cause,
the end of the then current Term in effect on the date of such termination, the
Employee shall not, directly or indirectly, engage in any business (a
"RESTRICTED BUSINESS") which manufactures or distributes a dental product line
similar to that of the Company's or be associated with any entity engaged in a
Restricted Business, whether as a director, officer, employee, agent,
consultant, partner, owner, independent contractor or otherwise. Employee's
covenants in subclauses (x) and (y) above are in consideration of payment of the
Severance Amount.
(b) Non-Solicitation of Employees of the Employer. Until the first
---------------------------------------------
anniversary of the date of the termination of the employment of the Employee
hereunder, the Employee shall not, and shall cause each business or entity with
which he shall become associated in any capacity not to, solicit for employment
or employ any person who is then, or
-5-
<PAGE>
who was at any time after the date four months prior to the date of such
termination, employed in a professional or managerial position by the Company,
its subsidiaries or Affiliates.
(c) Confidentiality. The Employee agrees and acknowledges that the
---------------
Confidential Information (as hereinafter defined) of the Company and its
subsidiaries and affiliates, is valuable, special and unique to their business;
that such business depends on such Confidential Information; and that the
Company wishes to protect such Confidential Information by keeping it
confidential for the use and benefit of the Company and its subsidiaries and
Affiliates. Based on the foregoing, the Employee agrees to undertake the
following obligations with respect to such Confidential Information:
(i) the Employee agrees to keep any and all Confidential
Information in trust for the use and benefit of the Company and its
subsidiaries and Affiliates;
(ii) the Employee agrees that, except as required by applicable
law or as authorized in writing by the Board, he will not at any time
during or after the termination of her employment hereunder, disclose,
directly or indirectly, any Confidential Information of the Company or
any of its subsidiaries or Affiliates;
(iii) the Employee agrees to take all reasonable steps necessary,
or reasonably requested by the Company, to ensure that all
Confidential Information is kept confidential for the use and benefit
of the Company and its subsidiaries and Affiliates; and
(iv) the Employee agrees that, upon termination of her
employment hereunder or at any other time the Company may in writing
so request, he will promptly deliver to the Company all materials
constituting Confidential Information (including all copies thereof)
that are in her possession or under her control. The Employee further
agrees, that if requested by the Company, to return any Confidential
Information pursuant to this subparagraph (iv), he will not make or
retain any copy or extract from such materials.
For purposes of paragraph (c) of this Section 7, "CONFIDENTIAL
INFORMATION" means any and all information developed by or for the Company or
any of its subsidiaries or Affiliates of which the Employee gains or has
acquired knowledge during or prior to the Term by reason of her employment with
the Company that is (A) not generally known in any industry in which the Company
or any of its subsidiaries or Affiliates is or may become engaged or (B) not
publicly available. Confidential Information includes, but is not limited to,
any and all information developed by or for the Company or any of its
subsidiaries or Affiliates concerning plans, marketing and sales methods,
customer lists, materials, processes, business forms,
-6-
<PAGE>
procedures, devices, plans for development of products, services or expansion
into new areas or markets, internal operations, and any trade secrets and
proprietary information of any type owned by the Company or any of its
subsidiaries or Affiliates, together with all written, graphic and other
materials relating to all or any part of the same.
8. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been given when delivered by hand, mailed
by first-class registered or certified mail, postage prepaid and return receipt
requested, or facsimilied or delivered by overnight courier addressed as
follows:
(i) If to the Company:
BriteSmile, Inc.
200 Diplomat Drive, Suite 204
Lester, PA 19113
Telephone No.: 610-362-1111
Facsimile No.: 610-362-1130
Attention: Richard V. Trefz
with a copy to:
Durham, Evans, Jones & Pinegar, P.C.
Key Bank Towers, Suite 850
50 South Main Street
Salt Lake City, Utah 84144
Telephone No.: 801-538-2424
Facsimile No.: 801-538-2425
Attention: Jeffrey M. Jones, Esq.
and to:
Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022
Attention: Craigh Leonard, Esq.
Telephone No.: 212-207-1200
Facsimile No.: 212-750-9022
-7-
<PAGE>
(ii) If to the Employee:
Linda Oubre
673 Monaco Court
Walnut Creek, CA 94598
Telephone No.: 925-935-6940
or, in each case, at such other address as may from time to time be specified to
the other party in a notice similarly given.
9. Governing Law; Jurisdiction. The validity, interpretation,
---------------------------
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania applicable to contracts executed and to be
performed entirely within said State. Any judicial proceeding brought against
any of the parties to this Agreement or any dispute arising out of this
Agreement or any matter related hereto may be brought in the courts of the
Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts the jurisdiction of
said courts, and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement. The foregoing consent to jurisdiction shall
not be deemed to confer rights on any person other than the respective parties
to this Agreement.
10. Expenses. If a dispute arises out of or related to this
--------
Agreement, if either party to the Agreement brings legal action to enforce the
terms of the Agreement, the party who prevails in such legal action, whether
plaintiff or defendant, in addition to the remedy or relief obtained in such
legal action, shall be entitled to recover her or its expenses incurred in such
legal action, including without limitation, court costs and attorneys fees. A
party shall be deemed to have prevailed in such a legal action if such action is
concluded pursuant to a court order or final judgment in favor of such party
which is not subject to appeal, a settlement agreement or dismissal of the
principal claims.
11. Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties and their Affiliates relating to the subject matter hereof and
supersedes all prior agreements, representations, warranties and understandings,
written or oral, with respect thereto.
12. Severability. If any term or provision of this Agreement or the
------------
application thereof to any person, property or circumstance shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons, property or circumstances other than those
as to which it is invalid or unenforceable, shall not be affected
-8-
<PAGE>
thereby, and each term and provision of this Agreement shall remain valid and
enforceable to the fullest extent permitted by law.
13. Remedies.
--------
(a) Injunctive Relief. The Employee acknowledges and agrees
-----------------
that the covenants and obligations of the Employee contained in subsections (a),
(b) and (c) of Section 7 hereof relate to special, unique and extraordinary
matters and are reasonable and necessary to protect the legitimate interests of
the Company and its subsidiaries and Affiliates and that a breach of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies at law are not available. Therefore the
Employee agrees that the Company shall be entitled to an injunction, restraining
order, or other equitable relief from any court of competent jurisdiction,
restraining the Employee from any such breach.
(b) Remedies Cumulative. The Company's rights and remedies
-------------------
under this Section 15 are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity.
14. Withholding Taxes. The Company may deduct any federal, state or
-----------------
local withholding or other taxes from any payments to be made by the Company
hereunder in such amounts which the Company reasonably determine are required to
deduct under applicable law.
15. Amendments, Miscellaneous, Etc. Neither this Agreement nor any
------------------------------
term hereof may be changed, waived, discharged or terminated except by an
instrument in writing signed by the party against which such change, waiver,
discharge or termination is sought to be enforced. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
and all of which together shall constitute one and the same instrument. The
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
16. Survival. The covenants set forth in Section 7 of this Agreement
--------
shall survive and shall continue to be binding upon the parties notwithstanding
the termination of this Agreement for any reason whatsoever. The covenants set
forth in Section 7 of this Agreement shall be deemed and construed as separate
agreements independent of any other provision of this Agreement. The existence
of any claim or cause of action by the Employee against Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of any or all covenants.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first written above.
BRITESMILE, INC.
By /s/ Britesmile Inc.
---------------------------------
Name:
Title:
/s/ Linda Oubre
-----------------------------------
LINDA OUBRE
-10-
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,019,000
<SECURITIES> 0
<RECEIVABLES> 273,000
<ALLOWANCES> 270,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,741,000
<PP&E> 742,000
<DEPRECIATION> 187,000
<TOTAL-ASSETS> 12,308,000
<CURRENT-LIABILITIES> 3,256,000
<BONDS> 0
0
0
<COMMON> 17,000
<OTHER-SE> 9,035,000
<TOTAL-LIABILITY-AND-EQUITY> 9,052,000
<SALES> 501,000
<TOTAL-REVENUES> 501,000
<CGS> 841,000
<TOTAL-COSTS> 841,000
<OTHER-EXPENSES> 8,256,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,000
<INCOME-PRETAX> (8,538,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,538,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,538,000)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
