PRELIMINARY COPY
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. 2)
--
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Professional Dental Technologies, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11:
1) Title of each class of securities to which transaction
applies: ___________________________________________________
2) Aggregate number of securities to which transaction applies:
____________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing is calculated and state how it was
determined): ________________________________________________
4) Proposed maximum aggregate value of transaction: ____________
5) Total fee paid: _____________________________________________
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
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1) Amount Previously Paid: $130
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2) Form, Schedule or Registration Statement Number:
Rule 13E-3 Transaction Statement
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3) Filing Party: Professional Dental Technologies, Inc.
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William T. Evans, J. Robert Lemon, and Timothy A. Nolan
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4) Date Filed: April 22, 1999
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
633 LAWRENCE STREET
BATESVILLE, ARKANSAS 72501
(800) 228-5595
-----------------------------
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Professional Dental Technologies, Inc., to be held at the Company's facility at
70 Batesville Boulevard, Batesville, Arkansas, at 10:00 a.m. on
________________.
The attached Notice of Special Meeting and Proxy Statement describe the
business to be transacted and the proposal to be considered at the meeting. We
urge you to read carefully the description of the proposal and to vote for its
adoption.
Please mark, sign and date your proxy card today and return it in the
envelope provided, even if you plan to attend the Special Meeting. This will not
prevent you from voting in person, but will ensure that your vote is counted if
you are unable to attend.
Thank you for your support and interest in Professional Dental
Technologies, Inc., and we look forward to seeing you on ________________.
Sincerely,
Robert E. Christian
Secretary
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
633 LAWRENCE STREET
BATESVILLE, ARKANSAS 72501
(800) 228-5595
NOTICE OF SPECIAL MEETING
TO BE HELD ON ______________________
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Professional Dental Technologies, Inc. (the "Company") will be held at the
Company's facility at 70 Batesville Boulevard, Batesville, Arkansas, on
__________________, at 10:00 a.m., for the following purposes:
(1) To vote upon a proposed amendment to the Certificate of
Incorporation of the Company which would authorize the reduction
of the number of authorized shares of Common Stock from
30,000,000 to 3,000 and the increase of the par value per share
of Common Stock to $100.00 from $.01 by affecting a reverse split
of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), in the ratio of 10,000 shares to 1 share
(Proposal 1); and
(2) To transact any other business that may properly come before the
meeting.
Only stockholders of record at the close of business on ___________, 1999,
will be entitled to notice of and to vote at the meeting and any adjournment
thereof. Under the Nevada Revised Statutes, Title 7, Chapter 92A, Sections 300
to 500, inclusive, stockholders may assert dissenter's rights; said code
sections are included as part of the attached information for your review.
PLEASE FILL IN, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE
ENCLOSED STAMPED AND ADDRESSED ENVELOPE. NO MATTER HOW MANY OR HOW FEW SHARES
YOU OWN, YOUR VOTE IS IMPORTANT. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE MEETING, YOU MAY SUPERSEDE YOUR EXECUTED PROXY BY
INDICATING TO THE SECRETARY YOUR DESIRE TO VOTE IN PERSON.
By Order of the Board of Directors
ROBERT E. CHRISTIAN
Secretary
Batesville, Arkansas
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IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE COMPANY AT (800) 228-5595
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
633 LAWRENCE STREET
BATESVILLE, ARKANSAS 72501
(800) 228-5595
PROXY STATEMENT
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The solicitation of the enclosed proxy is made on behalf of the Board of
Directors of Professional Dental Technologies, Inc. (the "Company"), to be used
at the Special Meeting of the Company's stockholders to be held on
______________, at the Company's facility at 70 Batesville Boulevard,
Batesville, Arkansas, and at any adjournment thereof.
This proxy statement and an accompanying proxy card are being mailed to
stockholders on or about _________.
This proxy statement solicits stockholder approval of a proposal that
would authorize an amendment to the Company's Certificate of Incorporation
reducing the number of authorized shares of Common Stock from 30,000,000 to
3,000, and increasing the par value per share of Common Stock to $100.00 from
$.01 by effecting a reverse split of the Company's Common Stock. The Board
proposes a reverse split of the Common Stock in the ratio of 10,000 shares of
"Old Common Stock" to 1 share of "New Common Stock"; that is, each 10,000 shares
of Old Common Stock would be converted to one share of New Common Stock. As used
in this Proxy Statement, the term "Old Common Stock" refers to pre-split Common
Stock and "New Common Stock" refers to post-split Common Stock. Any fractional
shares of Common Stock resulting from the reverse stock split will be purchased
from the holders thereof at the rate of $6,500 per whole share of New Common
Stock.
The purpose of the reverse stock split and purchase of the resulting
fractional shares is to reduce the number of stockholders of record to fewer
than 300, thereby alleviating the Company's obligation to file reports under
Section 15(d) of the Securities and Exchange Act of 1934, making the Company a
private company. As a private company, the Company will no longer be able to
sell shares of Common Stock which are freely tradable, thereby limiting its
future access to equity capital.
As a result of the reverse stock split:
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o The Company will not be required to file periodic reports under the
federal securities laws;
o The Company will not have to provide stockholders with information now
available in the annual, quarterly and other reports required to be filed
by the Company with the Securities Exchange Commission;
o The Company's stock will be de-listed from the American Stock Exchange;
and
o Insider trading restrictions will no longer apply.
The effect of the reverse stock split on unaffiliated stockholders will be
as follows:
o Unaffiliated stockholders will not be entitled to inspect the books of
account and all financial records of the Company, to make extracts
therefrom, and to conduct an audit of such records in accordance with the
Nevada Revised Statutes Annotated, Section 78.257;
o Stockholders will no longer receive annual or quarterly reports from the
Company;
o Stockholders who retain whole shares of the Company will own shares for
which there is no liquid market; and
o Stockholders who will have all or a part of their holding liquidated as a
result of this transaction will receive a price per share of Old Common
Stock of $0.65. This compares to the current market price of the shares,
which is $0.5625 per share as of the date of this filing. This transaction
will involve no commissions or other transaction fees, as there would be
if a stockholder sold shares on the open market.
Under applicable Nevada law, this transaction does not require the
approval of a majority of the unaffiliated stockholders. The transaction
requires approval of a majority of all stock-holders, including both affiliated
and unaffiliated stockholders.
The expenses of solicitation of proxies in the enclosed form will be borne
by the Company. Solicitations may be made by mail, and by telephone or telegraph
by directors, officers and employees of the Company at nominal cost. Proxy
materials will also be distributed through brokers, custodians and other
nominees or fiduciaries to beneficial owners of stock. The Company expects to
reimburse such parties for their charges and expenses in connection therewith.
Each proxy that is properly executed and returned will be voted for or
against or withheld from voting on any ballot that may be called for in
accordance with the instructions contained in that proxy. IF NO INSTRUCTIONS ARE
GIVEN, SUCH PROXY WILL BE VOTED FOR THE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION. THE ACCOMPANYING PROXY CONFERS DISCRETIONARY AUTHORITY WITH
RESPECT TO AMENDMENTS OR VARIATIONS TO THE MATTERS IDENTIFIED IN THE NOTICE
CALLING THE MEETING OR OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING,
AND ACCORDINGLY, IN THE EVENT THERE ARE ANY SUCH AMENDMENTS OR VARIATIONS OR
OTHER MATTERS BROUGHT BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT
THEREOF, ALL PROXIES WILL BE VOTED
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IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES. Abstentions and
broker non-votes will count for purposes of establishing a quorum but will not
count as votes cast.
Any stockholder may revoke his proxy at any time prior to its exercise by
(i) attending the Special Meeting and voting in person, (ii) filing written
notice of revocation with the Secretary of the Company prior to the Special
Meeting, or (iii) duly executing and delivering a proxy bearing a later date to
the Secretary of the Company prior to the exercise of the proxy. Written notices
of revocation of a proxy should be addressed to: Professional Dental
Technologies, Inc., 633 Lawrence Street, Batesville, Arkansas 72501.
A quorum for the transaction of business at the Meeting consists of
holders of a majority of the outstanding shares of the Company's Common Stock
present in person or represented by proxy. In the event that less than a
majority of the outstanding shares are present at the Meeting, either in person
or by proxy, a majority of the shares so represented may vote to adjourn the
Meeting without further notice. Matters properly brought before the Meeting or
any adjournment thereof, must be approved by the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock present in person or by
proxy and entitled to vote at the Meeting or any adjournment thereof.
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF
All voting rights are vested exclusively in the holders of the Common
Stock of the Company. Each stockholder is entitled to one vote for each share of
Common Stock owned on all matters brought to a vote of the stockholders.
Stockholders of record as of the close of business on _____________, 1999, are
the only stockholders who will be entitled to notice of and to vote at the
meeting. The Company had 14,100,000 shares of Common Stock outstanding on
____________, 1999 the record date for this solicitation of proxies. The Company
has no other class of equity securities outstanding.
The following table sets forth as of May 31, 1999, the beneficial
ownership of the Company's Common Stock, $0.01 par value, by all persons known
by the Company to own, beneficially or of record, more than five percent of the
Company's Common stock, by each director of the Company, by each of the officers
named in the Executive Compensation Table and by all officers and directors as a
group:
Amount and Nature of Percent
Beneficial Ownership Shares Of Class
- -------------------- ------ --------
William T. Evans 5,078,178(1) 36.0%
P. O. Box 4129
Batesville, AR 72503
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(1) Includes 4,211,360 shares held by a trust principally for the benefit of Mr.
Evans. Also includes 716,718 shares held in trust for the benefit of Mr. Evans'
nephew for which he disclaims beneficial ownership. Mr. Nolan serves as trustee
for these trusts.
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J. Robert Lemon 4,904,242(2) 34.8%
P. O. Box 4129
Batesville, AR 72503
Robert E. Christian 310,400(3) 2.2%
P. O. Box 4129
Batesville, AR 72503
Timothy A. Nolan 5,238,478(4) 37.2%
P. O. Box 4129
Batesville, AR 72503
J. Philip Boesel, Jr. --- ---
5246 Tie Road
Panora, IA 50216
Michael S. Black --- ---
421 Broad Street
Lake Geneva, WI 53147
Frank H. Newton, III --- ---
P. O Box 4129
Batesville, AR 72503
Directors and Officers as a 10,603,220(5) 75.2%
group (8) persons
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(2) Includes 4,093,360 shares held by a trust principally for the benefit of Mr.
Lemon. Also includes 670,782 shares held in trust for the benefit of nephews and
nieces of Mr. Lemon for which he disclaims beneficial ownership.
(3) Mr. Christian serves as trustee for Mr. Nolan's trust, for which shares he
disclaims beneficial ownership.
(4) Includes 310,400 shares held by a trust for the benefit of Mr. Nolan; Mr.
Christian serves as trustee for this trust. Also includes 4,928,078 shares held
as trustee for Mr. Evans' trusts, for which Mr. Nolan disclaims beneficial
ownership.
(5) These shares are subject to a stockholders agreement. Pursuant to the
stockholders agreement, these shares will be voted to approve the transaction.
See MANAGEMENT AND ITS INTENTIONS, below.
<PAGE>
PROPOSAL 1: AMENDMENT TO THE CERTIFICATE OF INCORPORATION
On April 6, 1999, the Board of Directors adopted a resolution authorizing
the submission to the vote of the stockholders of the Company a proposed
amendment to the Certificate of Incorporation of the Company (the "Proposal")
under which the all outstanding shares of Common Stock will be subject to a
reverse stock split at the ratio of 10,000 shares to 1 share; that is, each
10,000 shares of Common Stock before the reverse stock split will become one
share of Common Stock after the reverse stock split. Any fractional shares of
Common Stock resulting from the reverse stock split will be purchased from the
holders thereof at the rate of $6,500 per share.
In determining the price to be paid for fractional shares of Common Stock
following the reverse stock split, the Board unanimously approved the
recommendation of a special committee of directors, which was based upon the
fairness opinion of the Economic and Financial Consulting Group, Inc.
All stockholders should carefully read the entire Proxy Statement which
accompanies this Proxy Statement for a more complete description of the
Proposal, the reverse stock split, the purchase of fractional shares of Common
Stock resulting from the reverse stock split and effects of such purchase. The
Proxy Statement also contains a description of the fairness opinion of the
Economic and Financial Consulting Group, Inc. and a copy of such opinion.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT
TO THE CERTIFICATE OF INCORPORATION.
The Proposal must be approved by the affirmative vote of a majority of all
the votes entitled to be cast on the matter. Holders of Common Stock are
entitled to cast one vote for each share of Common Stock. The Board of Directors
was advised by counsel that under the relevant provisions of the Nevada Revised
Statutes Annotated, Title 7, Chapter 78, Section 207, the reverse stock split
must be approved by a majority of all stockholders, including both affiliated
and unaffiliated stockholders. In light of the foregoing, the Board did not
consider requiring approval of the action by at least a majority of the
unaffiliated stockholders.
William T. Evans, J. Robert Lemon, and Timothy A. Nolan (the "Affiliated
Stockholders"), each of whom is an officer or Director of the Company (or both)
control in the aggregate sufficient votes to assure approval of the Proposal.
The Affiliated Stockholders have stated that they intend to vote in favor of the
Proposal authorizing the reverse stock split.
COMPLIANCE WITH SECTION 16 (A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC") and the
American Stock Exchange (the "AMEX"), the exchange on which the Company's Common
Stock is listed for trading. Executive officers, directors and greater than ten
percent shareholders (collectively, the "Reporting Persons") are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
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Based solely on review of the copies of such forms furnished to the
Company, and representations by the Reporting Persons, the Company believes that
during the fiscal year ended October 31, 1998, and all fiscal periods through
April 30, 1999, all Section 16(a) filing requirements applicable to the
Reporting Persons were met.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have presented at the Special
Meeting of Stockholders of the Company and included in the Company's Proxy
Statement and proxy to be used in connection with such meeting must be received
at the main office of the Company, 633 Lawrence Street, Batesville, Arkansas
72501, within a reasonable time before the proxy is to be released. If such
proposal is in compliance with all of the requirements of Rule 14a-8 of the
Securities Exchange Act of 1934, as amended, it will be included in the Proxy
Statement and set forth on the form of proxy issued for the Special Meeting of
Stockholders. It is urged that any such proposals be sent by certified mail,
return receipt requested. No such proposals were received before the release
date of this Proxy Statement.
OTHER MATTERS
Management is not aware of any business to come before the Special Meeting
other than those matters described above in this Proxy Statement. If other
matters should properly come before the Special Meeting, however, it is intended
that the proxies solicited hereby will be voted with respect to those other
matters in accordance with judgment of the persons voting the proxies.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
ENCLOSED WITH THIS PROXY STATEMENT ARE COPIES OF THE COMPANY'S ANNUAL
REPORT ON FORM 10KSB, WHICH INCLUDES THE INDEPENDENT AUDITORS' REPORT AND
AUDITED FINANCIAL STATEMENTS FOR THE COMPANY'S FISCAL YEARS ENDED OCTOBER 31,
1997 AND 1998, AND THE QUARTERLY REPORT ON FORM 10QSB FOR THE COMPANY'S MOST
RECENT FISCAL QUARTER, ENDED APRIL 30, 1999.
THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN
NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
By Order of the Board of Directors,
Robert E. Christian
Secretary
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<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUMMARY
The Board of Directors (the "Board") of Professional Dental Technologies,
Inc. (the "Company"), recommends to the Company's stockholders approval of a
proposal which would authorize an amendment to the Company's Certificate of
Incorporation reducing the number of authorized shares of Common Stock from
30,000,000 to 3,000 and increasing the par value per share of Common Stock to
$100.00 from $.01 by affecting a reverse split of the Company's Common Stock,
par value $.01 per share. The Board proposes a reverse split of the Common Stock
in the ratio of 10,000 shares of "Old Common Stock" to 1 share of "New Common
Stock"; that is, each 10,000 shares of Old Common Stock would be converted to
one share of New Common Stock. As used in this Proxy Statement, the term "Old
Common Stock" refers to pre-split Common Stock and "New Common Stock" refers to
post-split Common Stock. The par value of the New Common Stock would be adjusted
to $100 per share.
Any fractional shares of Common Stock resulting from the reverse stock
split will be purchased from the holders thereof at the rate of $6,500 per whole
share of New Common Stock.
A special meeting of the stockholders of the Company has been called by
the Board, _________________, at 10:00 a.m., for the purpose of considering and
voting upon the proposed amendment. The meeting will be held at the Company's
facility at 70 Batesville Boulevard, Batesville, Arkansas.
In determining the price to be paid for fractional shares of Common Stock
following the reverse stock split, the Board and the Affiliated Stockholders
relied upon the recommendation of a special committee of directors as to the
fairness of the purchase price, and the opinion of Economic and Financial
Consulting Group, Inc. as to the fair value of the Common Stock. The opinion of
Economic and Financial Consulting Group, Inc., which describes the methodology
used in determining the fair value of the Common Stock, is discussed in greater
detail below, and a copy of the opinion is attached hereto as Exhibit 3.
The Company and the Affiliated Stockholders have prepared and filed with
the Securities and Exchange Commission Schedule 13E-3 in connection with the
proposed reverse stock split. Schedule 13E-3 details certain specific
information about the Company and the proposed reverse stock split. A copy of
Schedule 13E-3 is available from the Secretary of the Company, 633 Lawrence
Street, Batesville, Arkansas 72501, or may be obtained through the Securities
and Exchange Commission's website at http://www.sec.gov.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N. W., Washington, DC 20549. In addition, such reports, proxy
statements and other information may be electronically accessed at the
Commission's site on the World Wide Web located at http://www.sec.gov.
All stockholders should carefully read the entire Proxy Statement for a
more complete description of the Proposed Amendment, the reverse stock split,
the purchase of fractional shares of Common Stock resulting for the reverse
stock split, and the effects of such purchase.
<PAGE>
SPECIAL FACTORS
PURPOSE OF THE PROPOSED
REVERSE STOCK SPLIT
The purpose of the reverse stock split and purchase of the resulting
fractional shares is to reduce the number of stockholders of record to fewer
than 300, thereby alleviating the Company's obligation to file reports under
Section 15(d) of the Securities and Exchange Act of 1934. The Board of Directors
of the Company and the persons filing the 13E-3 Transaction Statement (Messrs.
Evans, Lemon and Nolan, who are the "Affiliated Stockholders") believe that such
action is in the best interests of the Company for the following reasons:
1. The market for the Company's Common Stock is relatively illiquid.
Approximately 85% of its outstanding shares are restricted as to sale by
a stockholders agreement that has been in force since 1989, which has
prevented these shares from ever being traded. The Board of Directors and
the Affiliated Stockholders considered both a secondary stock offering
and Rule 144 selling as methods of increasing the liquidity of the stock
in the market, but this action was not taken because of the combination
of low price of the stock and due to the adverse implications associated
with insider selling, which could very well have reduced share price even
further. It is management's view that, on balance, this would have had a
negative rather than a positive effect on the value of the shares.
2. The filing of periodic reports under Section 15(d) of the Securities and
Exchange Act of 1934 allows the Company's competitors to obtain
information concerning the Company's profit margins and operations which,
in the opinion of the Board and the Affiliated Stockholders, has or may
have an adverse effect on the Company's performance.
3. The out-of-pocket and internal costs to the Company associated with the
preparation and filing of the periodic reports when compared to the
limited number of stockholders is, in the opinion of the Board and the
Affiliated Stockholders, unwarranted. The Company estimates that, upon
termination of its obligation to file periodic reports with the
Securities and Exchange Commission, it will achieve savings within a
range of approximately $50,000 annually.
The Board and the Affiliated Stockholders propose to achieve their purpose
through a reverse stock split as they believe that this structure is the
simplest and most economical means of reducing the number of holders of the
Company's Common Stock below 300. In addition, the Board and the Affiliated
Stockholders believe that the reverse stock split and purchase of fractional
shares of New Common Stock will provide an easy and cost effective way for
shareholders with less than one share of New Common Stock to dispose of such
shares at a fair price without incurring brokerage commissions and other related
transaction costs. The Board and the Affiliated Stockholders believe that
implementing the reverse stock split at this time, thus terminating the
Company's obligation to file periodic reports with the SEC, will enhance the
Company's future performance.
The Company does not intend to list or register the New Common Stock on
any securities exchange. Completion of this transaction will result in the New
Common Stock becoming eligible for termination of registration pursuant to
Section 12 (g) (4) of the Securities Exchange Act of 1934. Registration of the
New Common Stock with the Securities and Exchange Commission will terminate
ninety (90) days after a certification is filed with the Securities and Exchange
Commission stating that the number of holders of record of the New Common Stock
has been reduced to less than 300 persons. The termination of registration will
<PAGE>
be deferred while the Securities and Exchange Commission, after notice and
opportunity for a hearing, determines that the certification is true.
Pursuant to the provisions of the Nevada Revised Statutes Annotated, Title
7, Chapter 78, Section 207, any proposed amendment to the Certificate of
Incorporation of the Company that affects an increase or decrease in the number
of authorized shares of a class of stock and that includes provisions pursuant
to which only money will be paid or scrip will be issued to stockholders, who
before the increase or decrease in the number of shares becomes effective, in
the aggregate hold 10 percent or more of the outstanding shares of the class,
and who would otherwise be entitled to receive fractional shares in exchange for
the cancellation of their outstanding shares, must be approved by the
stockholders of the Company by the affirmative vote of a majority of all the
votes entitled to be cast on the matter. Holders of Common Stock are entitled to
cast one vote for each share of Common Stock.
APPRAISAL RIGHTS AND
DISSENTERS RIGHTS
Under applicable Nevada law, shareholders of the Company will have
dissenters' rights with respect to this transaction. If dissenters' rights are
properly elected by a shareholder, the "fair value" of the dissenting
shareholder's shares will be determined by agreement of the Company and the
dissenting shareholder or, if no agreement is reached, by appraisal by order of
a court. Otherwise, appraisal rights are not provided under Nevada law or under
the Company's Certificate of Incorporation with respect to this transaction and
will not be voluntarily accorded by the Company to the shareholders.
Generally, under the provisions of the Nevada Revised Statutes Annotated
(hereinafter referred to as "NRS") Title 7, Chapter 78, Private Corporations
law, Section 207, a corporation may increase or decrease the number of shares of
a class and series, if any, of its capital stock and thereby correspondingly
increase or decrease the number of issued and outstanding shares of the same
class and series held by each stockholder by a resolution of the board of
directors. Notwithstanding the foregoing, in the event that a proposal to
increase or decrease the number of authorized shares of any class and series, if
any, that includes provisions pursuant to which only money will be paid or
script will be issued to stockholders who hold more than 10 percent of the
outstanding shares of the affected class or series and would otherwise be
entitled to receive fractions of shares in exchange for the cancellation of all
of their shares, the increase or decrease must be approved by the vote of
stockholders holding a majority of the voting power of the affected class and
series, unless the articles of incorporation provide for a greater proportion of
stockholders to approve the change in the number of shares.
Moreover, a proposed increase or decrease that includes provisions
pursuant to which only money will be paid or script will be issued to
stockholders who before the increase or decrease held one percent or more of the
outstanding shares of the affected class and series and would otherwise be
entitled to receive a fraction of a share, will be subject to the provisions of
NRS 92A.300 to 92A.500, Nevada's dissenting shareholder rights statutes. If the
proposal is subject to NRS 92A.300 to 91A.500 any stockholder may dissent in
accordance with those provisions and obtain payment of the fair value of the
fraction of a share to which the stockholder would otherwise be entitled.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTER'S RIGHTS UNDER THE NEVADA REVISED STATUTES ANNOTATED AND IS
QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF CHAPTER 92A.300 THROUGH 92A.500,
WHICH IS REPRINTED IN ITS ENTIRETY AS AN ATTACHMENT TO THIS PROXY STATEMENT AS
EXHIBIT 7, AND IS INCORPORATED HEREIN BY REFERENCE.
<PAGE>
Under the NRS, holders of shares of common stock who dissent to the
proposed transaction in accordance with the procedures set forth in Chapter 92A
will be entitled to receive payment in cash of the "fair value" of their
fractional shares. NRS 92A.320 defines "fair value" as the value of the
fractional share immediately before the effectuation of the reverse stock split,
excluding any appreciation or depreciation in anticipation of the reverse stock
split. Any stockholder who wishes to exercise such dissenter's rights, or who
wishes to preserve his right to do so, should review carefully the following
discussion and Exhibit 7, because failure to timely and properly comply with the
procedures specified will result in the loss of dissenter's rights under the
NRS. A person having beneficial interest in shares of common stock held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the holder of record to follow the steps summarized below
properly and in a timely manner to perfect any dissenter's rights the beneficial
owner may have.
A stockholder wishing to exercise his dissenter's rights must deliver to
the Secretary of the Company, ON OR BEFORE ________________, a written notice of
his intent to demand payment for his shares if the reverse stock split is
effectuated, and he must not vote his shares in favor of the proposed reverse
stock split. Written notice should be delivered to the Company at the following
address:
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
ATTENTION: SECRETARY
633 LAWRENCE STREET
BATESVILLE, ARKANSAS 72501
As provided in Chapter 92A: (i) failure of a holder of shares to make
written notification of his intent to assert dissenter's right (or a beneficial
owner of shares of common stock who fails to cause the record holder of such
shares of common stock to make notice of his intent to assert dissenter's
rights) within such time limit; or, (ii) the vote by the stockholder of his
shares for the reverse stock split will result in the loss of such holder's
ability to assert dissenter's rights and receive payments for his shares
pursuant to NRS 92A.300 to 92A.500.
If the reverse stock split is approved by a majority of stockholders, the
Company must, ON OR BEFORE ___________, deliver written notice to all
stockholders who exercised their dissenter's rights to the split which notice
shall be set forth (a) where the demand for payment must be sent and where and
when certificates for shares must be deposited; (b) inform the dissenters not
represented by certificates to which extent the transfer of the shares will be
restricted after demand for payment is received by the Company; (c) supply a
form for demanding payment by the dissenting shareholders that includes, among
other things, that the dissenter acquired beneficial ownership of the shares
prior to the date on which the reverse stock split was approved; (d) the date by
which the Company must receive the demand for payment which date may not be less
than 30 nor more than 60 days after the date of the notice is delivered; and (e)
be accompanied by a copy of NRS 92A.300 to 92A.500. Dissenting stockholders who
do not comply with all stipulations and meet all deadlines to be set forth in
the foregoing notice, including returning to the Company the dissenter's demand
for payment, will not be entitled to payment for their shares in accordance with
NRS 92A.300 to 92A.500. In lieu thereof the non-complying stockholders will
receive the consideration of $6,500 per share of New Common Stock for their
fractional shares.
Within 30 days of the Company's receipt of the dissenter's demand for
payment, the Company will pay the Company's estimate of the fair value of the
fractional shares plus accrued interest to the dissenting stockholder. The
stockholder will also receive from the Company a statement of the Company's
estimate of the fair value of the shares, an explanation of how interest was
calculated, and a statement of the dissenter's further rights to demand payment
<PAGE>
under the NRS. In accordance with the NRS, interest will be calculated from the
effective date of the reverse stock split until the date of payment at the
average rate paid by the Company on its principal debt or, if none, at a rate
that is fair and equitable.
If a demand for payment remains unsettled, the Company must commence a
proceeding in the District Court of the county where its registered office is
located within 60 days after receiving the demand containing the dissenting
stockholder's estimate of fair value of his shares, and petition the Court to
determine the fair value of the shares and accrued interest. All dissenters,
whether or not residents of Nevada, whose demands remain unsettled shall become
parties to the proceeding. The jurisdiction of the Court in which the proceeding
is commenced is exclusive. The Court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The dissenters have the same discovery rights as parties in other civil
proceedings. Each dissenter who is made a party to the proceeding is entitled to
a judgment for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the Company. If the
Company does not commence the proceeding within the 60-day period, it must pay
each dissenter whose demand remains unsettled the amount demanded by the
dissenter.
The costs of the legal proceeding, including the reasonable compensation
and costs of the appraisers, shall be determined by the Court and assessed
against the dissenters in amounts deemed equitable by the Court if the
dissenters acted arbitrarily or vexatiously or not in good faith in demanding
payment. The Court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the Court finds equitable.
FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 92A OF THE NRS FOR
PERFECTING DISSENTER'S RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. DISSENTERS
WILL RECEIVE FURTHER NOTICE REGARDING SPECIFIC DEADLINES AND REQUIRED ACTIONS.
EFFECT UPON THE COMPANY
The Board considered making a tender offer for shares of Common Stock as
an alternative to the reverse stock split. This alternative was viewed as
undependable as it was not certain that the Company would reduce the number of
its record stockholders to less than 300 (and if it did not, a reverse stock
split such as the one described herein would be required in order to complete
the "going private" transaction). Furthermore, since a tender offer would
require retaining a firm to solicit tenders and the reverse stock split would
not require such solicitation, the projected costs of a tender offer appeared
likely to be considerably higher than the costs expected to be incurred in
connection with the reverse stock split.
Upon consummation of the reverse stock split, the Company anticipates that
the number of record shareholders will be reduced from approximately 947 to less
than 50, and the Company will have achieved the objective of the reverse stock
split described above.
As a private company, the Company will no longer be able to sell shares of
Common Stock which are freely tradable, thereby limiting its future access to
equity capital.
As a result of the reduction in the number of shareholders of record to
less than 300, the Company intends to suspend its obligation to file periodic
reports with the Securities and Exchange Commission under Section 15(d) of the
Securities Exchange Act of 1934 by de-listing its Common Stock with the American
Stock Exchange. As of the date of the reverse stock split transaction, the
<PAGE>
Company has been advised by the American Stock Exchange that trading in the
Common Stock of the Company will be suspended pending its de-listing.
UPON CONSUMMATION OF THE REVERSE STOCK SPLIT, THE COMPANY WILL NO LONGER
BE SUBJECT TO THE GOING PRIVATE DISCLOSURE OBLIGATIONS OF EXCHANGE ACT RULE
13E-3. FURTHERMORE, THE COMPANY'S OFFICERS, DIRECTORS AND TEN PERCENT OWNERS OF
COMMON STOCK WILL NO LONGER BE SUBJECT TO THE SHORT-SWING PROFIT PROVISIONS OF
EXCHANGE ACT SECTION 16(B) ONCE THE RULE 13E-3 TRANSACTION HAS BEEN FINALIZED.
EFFECT UPON CERTAIN AFFILIATES
OF THE COMPANY
Set forth in the following table are the number of shares of Common Stock
currently owned or controlled by certain officers and/or directors of the
Company (the "Affiliated Stockholders"), the percentage of total shares
outstanding they control, the number of shares expected to be owned , and the
percentage of total shares expected to be outstanding following the proposed
reverse stock split.
<TABLE>
<CAPTION>
NAME AND TITLE SHARES CURRENTLY SHARES OWNED POST
OWNED SPLIT
NUMBER % NUMBER %
<S> <C> <C> <C> <C>
William T. Evans, President & CEO,
Director, Controlling Person 5,078,178 (1) 36.0 507 38.7
J. Robert Lemon, Director,
Controlling Person 4,904,242 (2) 34.8 490 37.4
Timothy A. Nolan, Director, Controlling
Person 5,238,478 (3) 37.2 522 39.8
</TABLE>
NOTES:
(1) Includes 4, 211,360 shares held by a trust principally for the
benefit of Mr. Evans. Also includes 716,718 shares held in
trust for the benefit of Mr. Evans' nephew for which he
disclaims beneficial ownership.
(2) Includes 4,093,360 shares held by a trust principally for the
benefit of Mr. Lemon. Also includes 670,782 shares held in
trust for the benefit of nephews and nieces of Mr. Lemon for
which he disclaims beneficial ownership.
(3) Includes 310,400 shares held by a trust for the benefit of Mr.
Nolan. Also includes 4,928,078 shares held as trustee for Mr.
Evans, for which Mr. Nolan disclaims beneficial ownership.
<PAGE>
Set forth in the following table are the net book value and net earnings
per share attributable to the Affiliated Stockholders, in terms of both dollar
amounts and percentages, before and after the proposed stock split.
<TABLE>
<CAPTION>
BOOK VALUE BOOK VALUE BASIC EARNINGS BASIC EARNINGS
PRE-SPLIT (1) POST-SPLIT (1) PRE-SPLIT (2) POST-SPLIT (2)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
% % % %
of Total of Total of Total of Total
Name Amount Amount Amount Amount Amount Amount Amount Amount
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William T. Evans $2,082,053 36.0 $2,000,521 38.7 $457,036 36.0 $466,830 38.7
J. Robert Lemon $2,010,739 34.8 $1,938,442 37.4 $441,382 34.8 $451,177 37.4
Timothy A. Nolan $2,259,003 37.2 $2,059,708 39.8 $471,463 37.2 $480,642 39.8
</TABLE>
NOTES:
(1) This amount represents the numbers of shares owned
multiplied by the book value per share as of October 31,
1998, the end of the most recent fiscal year of the
Company. Such amounts represent only the stockholder's pro
rata interest in the Company's book value and are not
payable to the stockholders of the Company in the ordinary
course of business.
(2) This amount represents the numbers of shares owned
multiplied by the basic earnings per share of the Company
for the fiscal year ended October 31, 1998 (fully diluted
earnings per share is the same as basic earnings per
share). Such amounts represent only the stockholder's pro
rata interest (if any) in the Company's net earnings and
are not payable to the stockholders of the Company in the
ordinary course of business, other than as dividends. The
Company has never paid any dividends on its Common Stock.
The Affiliated Stockholders are expected to continue in their present
positions in the Company following the reverse stock split. None of these
persons will receive any consideration in connection with the reverse stock
split other than amounts received as a result of the purchase by the Company of
fractional shares of New Common Stock.
EFFECT UPON UNAFFILIATED
STOCKHOLDERS
Upon consummation of the reverse stock split and termination of the
Company's obligation to file periodic reports under the federal securities laws,
information now available to stockholders in the annual, quarterly and other
reports required to be filed by the Company with the Securities Exchange
Commission will not be provided to the Company's stockholders in the form
previously available or upon a periodic basis. Stockholders owning not less than
fifteen percent (15%) of the outstanding New Common Stock will retain the right
to inspect the books of account and all financial records of the Company, to
make extracts therefrom, and to conduct an audit of such records in accordance
<PAGE>
with the Nevada Revised Statutes Annotated, Section 78.257. Following the
reverse stock split, no unaffiliated stockholder will own fifteen percent (15%)
or more of the outstanding New Common Stock and accordingly, no unaffiliated
stockholder will be entitled to exercise the inspection rights afforded under
Nevada law. All unaffiliated stockholders will therefore lose access to
financial and other information the Company currently files with the Securities
Exchange Commission and provides to stockholders in its periodic reports.
As of the date of the reverse stock split, the American Stock Exchange
will suspend trading of the Company's Common Stock. As of that date, the
holdings of stockholders owning full shares of New Common Stock will become
illiquid. There can be no assurance that any market for such shares will be
available at that time or at any time in the future. The Company has no
obligation, nor does it have any present plans, to offer to commence a tender
offer for any of the remaining shares. As a result, any shareholder who would
hold whole shares following the reverse stock split must either hold those
shares indefinitely, sell those shares prior to the reverse stock split or
exercise dissenter's rights.
Following the reverse stock split, as is currently the case, the
Affiliated Stockholders will have absolute voting control of the Company's
affairs.
All owners of fractional shares of New Common Stock following the reverse
stock split will receive cash in lieu of such fractional shares at the rate of
$6,500 for each whole share of New Common Stock, pro rated as to the fractional
share held by each such owner. The Board and the Affiliated Stockholders believe
that the purchase price represents a fair price per share of the Company's
Common Stock. Furthermore, stockholders receiving cash in lieu of fractional
shares of New Common Stock will not have to pay any brokerage fees or
commissions in connection with such transaction.
Stockholders owning only fractional shares of New Common Stock following
the reverse stock split will receive cash in lieu of such fractional shares,
will cease to have any ownership interest in the Company, and will cease to
participate in future earnings and growth, if any, of the Company.
TAX TREATMENT OF PURCHASE
OF FRACTIONAL SHARES
Upon consummation of the reverse stock split, each 10,000 shares of Old
Common Stock issued and outstanding immediately prior to the effective time of
such split will be converted into one share of New Common Stock, and all
resulting fractional shares of New Common Stock will be purchased by the Company
at the price of $6,500 per share. The federal income tax consequences for any
particular stockholder may be affected by matters not discussed herein, and each
stockholder should consult his or her personal tax advisor in determining the
federal, state, and local income tax consequences of the reverse stock split and
purchase of fractional shares.
For those stockholders receiving New Common Stock from the consummation of
the reverse stock split, there will be no direct tax consequences except for the
reallocation to the stockholders' per share basis.
The purchase of fractional shares of New Common Stock by the Company will
be a taxable transaction for federal income tax purposes. Each holder of
fractional shares of New Common Stock purchased by the Company subsequent to the
reverse stock split will recognize gain or loss upon the purchase of that
stockholder's fractional share of New Common Stock equal to the difference, if
any, between (i) the amount of the cash payment received for the fractional
shares and (ii) the stockholder's tax basis in the fractional shares, so long as
the fractional shares were held as a capital asset of the stockholder. Any
subsequent gain or loss resulting from the disposition of New Common Stock may
<PAGE>
be treated as a capital gain or loss transaction. As indicated previously,
holders of New Common Stock are urged to consult their personal tax advisors as
to the tax consequences of the reverse stock split and purchase of fractional
shares under federal, state, local, and any other applicable laws.
The cash payments due to the holders of fractional shares of New Common
Stock (other than certain exempt entities and persons) will be subject to a
backup withholding tax at the rate of 31% under federal income tax law unless
certain requirements are met. Generally, the Company or its paying agent will be
required to deduct and withhold the tax on cash payments due at the effective
time of the purchase of fractional shares of New Common Stock subsequent to the
reverse stock split if (i) a stockholder fails to furnish a taxpayer
identification number ("TIN", the TIN of an individual is his or her Social
Security Number) to the paying agent or fails to certify under penalty of
perjury that such TIN is correct; (ii) the Internal Revenue Service ("IRS")
notifies the paying agent that the TIN furnished by the stockholder is
incorrect; (iii) the IRS notifies the paying agent that the stockholder has
failed to report interest, dividends, or original issue discount in the past; or
(iv) there has been a failure the stockholder to certify under penalty of
perjury that such stockholder is not subject to the backup withholding tax. Any
amounts withheld by the paying agent in collection of the backup withholding tax
will reduce the federal income tax liability of the stockholders from whom such
tax was withheld.
THE FAIRNESS OF THE TRANSACTION
The Board of Directors of the Company by unanimous vote on April 6, 1999,
with no member of the Board of Directors dissenting or abstaining from such
approval, adopted a resolution declaring the terms and conditions of the reverse
stock split and purchase of fractional shares to be advisable, and directing
that a proposed amendment to the Articles of Incorporation of the Company be
submitted to shareholders of the Company for consideration. The Affiliated
Stockholders believe that the proposed reverse stock split and subsequent
purchase of fractional shares are substantively and procedurally fair to
unaffiliated stockholders of the Company and concur in the recommendation of the
Board of Directors that stockholders of the Company approve the proposed
amendment to the Certificate of Incorporation of the Company to authorize the
reverse stock split. All material factors considered by the Special Committee,
the Board of Directors and the Affiliated Stockholders are presented herein.
The chain of events leading to the decision to engage in the reverse stock
split transaction are outlined in the paragraphs which follow:
o In November, 1997, with the Company's financial performance steadily
improving, the Board of Directors began to pursue a series of strategies
designed to enhance the value of the Company's Common Stock. The Company's
shares are listed on the American Stock Exchange ("Amex") under the "emerging
company" category, and as such the Company does not enjoy a full Amex
membership. With the completion of the 1997 fiscal year, the Company had met
all Amex requirements for a full listing, with the exception of the
requirement that its share price be a minimum of $3.00. The Board directed
management to seek a waiver of this requirement and pursue a full listing on
the Amex.
o In March, 1998, with the Amex having declined to grant a waiver of the
minimum share price requirement, the Board directed management to investigate
the feasibility of Rule 144 selling of shares by Affiliated Stockholders
and/or other insiders, or the possibility of a public offering of shares, for
the purpose of increasing the liquidity of the securities in the market.
o In June, 1998, informal discussions with prospective underwriters having
produced no mutually acceptable strategy for the public sale of shares, and
Rule 144 selling having been determined to be impractical due to the length
of time required to liquidate meaningful numbers of shares, as well as the
adverse implications associated with insider selling, the Board directed
management to consult with the Amex regarding the feasibility of a 1:5
<PAGE>
reverse stock split. The purpose of such a transaction being to increase the
share price of the stock to the $3.00 to $5.00 range, in order to meet the
Amex's minimum share price requirement, to make the shares marginable, and to
raise the price of the shares above the "penny stock" range.
o In October, 1998, consultations with the Amex having made it clear that
pursuing a 1:5 reverse stock split would result in the Company's shares being
de-listed for failure to meet the requirement regarding the minimum number of
shares in the public float, the Board directed management to investigate the
feasibility of taking the Company private.
o In February, 1999, having exhausted the possibility of increasing share price
through a 1:5 reverse split (without sacrificing its Amex listing); having
determined that Rule 144 selling or a public offering of its shares to
increase liquidity was impractical; and having determined that a full
membership on the Amex was not attainable, the Board unanimously decided to
consider a "going private" transaction.
A special committee of the Board of Directors of the Company was
established by the unanimous written consent of the Board, dated February 2,
1999 (the "Special Committee"). The Special Committee is comprised of J. Philip
Boesel, whose profession is investment banking, and Michael S. Black, a CPA,
both of whom are directors who are neither employees nor controlling persons of
either the Company or its affiliate, Life Plus International. The Special
Committee was asked to take such action as was necessary to find and retain an
appropriate firm to prepare a fairness opinion regarding the value of the
Company's common stock. On February 28, 1999 the Special Committee retained the
Economic and Financial Consulting Group, Inc. ("EFCG") to render its opinion as
to the fair value, from a financial point of view, of the Common Stock of the
Company.
EFCG delivered its written opinion on March 24, 1999. No restrictions were
imposed by the Special Committee or the Board of Directors of the Company upon
EFCG with respect to the investigations made or procedures followed by EFCG in
rendering its opinions.
The Special Committee was also charged with the responsibility of
recommending to the Board of Directors a fair price to pay for the fractional
shares resulting from the reverse stock split of the Common Stock. It met with
representatives of EFCG, discussions occurred and information was shared
concerning the methodologies employed in determining a fair value, and the
application of such methodologies to the Company's financial and market position
and future prospects. Based upon these deliberations and the written report of
EFCG, the Special Committee unanimously recommended to the Board of Directors of
the Company that $6,500 per share of New Common Stock resulting from the reverse
stock split would be a fair price (hereafter referred to as the "Purchase
Price").
The full text of EFCG's fairness opinion, which sets forth certain
assumptions made, certain procedures followed, and certain matters considered by
EFCG, is attached hereto as Exhibit 3. The Special Committee, the Board of
Directors and the Affiliated Stockholders adopted EFCG's fairness opinion
regarding the value of the Company's Common Stock and the methodology whereby
this value was determined.
Each of the Special Committee, the Board of Directors and the Affiliated
Stockholders individually made fairness determinations with regard to the
reverse stock split. In addition to considering the conclusion contained in the
EFCG report that the fair value of the Company's Common Stock lies in the range
$0.5709 to $0.7136, the Special Committee, the Board of Directors and the
Affiliated Stockholders independently considered certain additional factors
relating to the fairness of the transaction from a financial point of view.
These factors included a comparison of the purchase price for fractional shares
of the New Common Stock, which is equivalent to a value of $0.65 per share of
Old Common Stock, to: (i) the January 31, 1999 (end of first fiscal quarter)
book value per share of Old Common Stock, which was approximately $0.42 per
share; (ii) the historic market values of the Company's common stock, which
ranged between a high of $1.1875 and a low of $0.5625 during the period April 1,
<PAGE>
1998 and March 15, 1999, (iii) the current market value of the Company's Common
Stock, which was $0.625 as of April 5, 1999 (the last closing price prior to the
Board's vote to approve the transaction); and (iv) the liquidation value of the
Company's assets. The analyses of the Special Committee, the Board of Directors
and the Affiliated Stockholders are summarized below:
o The Special Committee, the Board of Directors and the Affiliated
Stockholders independently concurred with EFCG's conclusion that the fair
value of the shares lies in the range $0.5709 to $0.7136, based on a "going
concern" discounted cash flow valuation approach. They also concurred with
EFCG's conclusion that, of the available valuation methods, in general, and
for the Company specifically, discounted cash flow approaches are superior
to other valuation methodologies. See "Evaluation as a Going Concern" under
the heading REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS, below.
o The Special Committee, the Board of Directors and the Affiliated
Stockholders independently noted that six, three and one month average
closing stock prices on the American Stock Exchange were $0.68, $0.66 and
$0.66 respectively. In addition, they noted that on April 5, 1999, the last
closing price available prior to the vote approving the reverse stock split
transaction was $0.625. They concurred with the conclusion of EFCG that
average stock prices do not represent a definitive indicator of economic
value, given the relative illiquidity of the stock and the small average
daily trading volume. They further concurred with EFCG's opinion that
average stock price does represent a corroborative measure of value
determined using discounted future cash flows. Average stock prices were
therefore used in this manner. As opposed to using the 12-month high
closing price of $1.1875, which was recorded in April, 1998, the one, three
and six month average closing stock prices were used to corroborate the
discounted cash flow valuation because they represent market valuation
closer to the transaction date, and because, as averages, not spot prices,
they are more likely to be representative of the consensus of the market as
to the true value of the Common Stock.
o The Special Committee, the Board of Directors and the Affiliated Stockholders
independently noted that the January 31, 1999 (the end of the Company's first
fiscal quarter) book value per share of Old Common Stock was approximately
$0.42 per share; they further noted that this book value per share is
approximately 35% lower than the fair value, established herein, of $0.65 per
share. Since the book value per share measure is backward-looking and
reflective of past, rather than future performance, they concluded that book
value per share is not an appropriate valuation measure for a going concern.
o The Special Committee, the Board of Directors and the Affiliated Stockholders
independently determined that liquidation value, were the Company to be
liquidated, would necessarily be less than book value. As discussed above,
since book value was determined to be not appropriate, they determined that
liquidation value was not a relevant measure of the fairness of share value.
o The Special Committee, the Board of Directors and the Affiliated
Stockholders independently noted that no firm offers to purchase the
Company had ever been received, nor had the Company engaged in any previous
share purchase transactions which could be used by the Board in connection
with an assessment of the fairness of the share valuation. No such offers
were sought by the Board, nor did the Board direct the Special Committee to
solicit such offers.
o The Special Committee, the Board of Directors and the Affiliated
Stockholders independently concurred with the conclusion of EFCG that there
are currently no publicly traded comparable companies whose price/earnings
or similar ratios would be useful for valuation purposes, and that, even if
there were such companies, this method of valuation would be useful
primarily as a corroborative measure.
o In calculating the valuation range, EFCG relied on methodologies typically
used for valuing public companies, principally historical and current
market prices for the Company's outstanding equity securities. While the
Company wishes that the marketplace would have placed a higher value on the
Company's securities, it has not. The Company did not believe it was
appropriate, therefore, to ignore or minimize the impact on a fairness
analysis of market pricing data. In addition, the Company did not believe
that selling additional stock at this low price would cause the Company's
stock to trade at a higher price and therefore did not pursue a secondary
stock offering.
In reaching its decision to recommend $0.65 as the Purchase Price for a
share of the Old Common Stock, the Special Committee calculated the average of
the endpoints of the valuation range determined by EFCG ($0.5709 and $0.7136;
average $0.64225), and rounded to this to $0.65. They cross-checked this value
with historical and current closing market prices, as indicated above, which
<PAGE>
they deemed to have reasonably corroborated the discounted cash flow valuation
analysis. Based on the considerations listed above, the Special Committee
concluded that the Purchase Price was a fair value.
The Board of Directors and the Affiliated Stockholders concurred with, and
on April 6, 1999, voted unanimously in favor of this recommendation, noting that
the price of the shares at the close of trading on the previous day had been
$0.625.
In determining the fairness of the Purchase Price, the Board of Directors
and the Affiliated Stockholders did not assign any relative or specific weights
to the foregoing factors, other than as described above. Specifically, the Board
of Directors and the Affiliated Stockholders consider that their reliance upon
"going concern" discounted cash flow valuation methodologies as corroborated by
historical and current closing prices, supports its conclusion to set the
Purchase Price at $0.65 per share of Old Common Stock. They believe that their
decision not to consider book value or liquidation value, which would have
resulted in a lower share valuation, further supports their conclusion. The
absence of publicly traded comparable companies, firm offers to purchase the
Company, or previous stock repurchases by the Company, prevent these measures of
valuation from being considered. See REPORTS, OPINIONS, APPRAISALS AND CERTAIN
NEGOTIATIONS, below, and Exhibit 3, the Fairness Opinion of EFCG, for additional
discussions of the various valuation measures employed in determining the value
of shares.
Certain unaffiliated stockholders, those who own more than 10,000 shares
of Old Common Stock as of the date of the reverse stock split transaction, will
retain an interest in the Company after the transaction has been consummated.
For those stockholders who may not wish to remain a shareholder in a private
company, prior to the date established for the reverse stock split, these
stockholders will have ample opportunity to orderly dispose of a sufficient
number of shares on the open market to lower their total holding to less than
10,000 shares, guaranteeing that the balance of their holding will be liquidated
in the reverse stock split transaction.
Stockholders owning less than 10,000 shares of Old Common Stock will have
their holding in the Company liquidated as a result of the reverse stock split
transaction. This forced liquidation of shares is the primary disadvantage of
the reverse stock split transaction. Certain stockholders may believe that the
advantages of remaining a stockholder outweigh the disadvantages of illiquidity,
lack of visibility into Company operations and lack of control which are
inherent to holding a minority interest in a private company. They may therefore
wish to remain a stockholder in the Company. For these stockholders, there is an
available course of action.
Those stockholders wishing to retain an interest in the Company may do so
by accumulating at least 10,000 shares of Old Common Stock through open market
purchases prior to the date of the reverse stock split transaction. Any such
stockholder will own one share of New Common Stock of the Company for each
10,000 shares of Old Common Stock held, after the transaction is consummated. In
the event that shares on the open market are sold at a price lower than the
Purchase Price, unaffiliated stockholders who retain an interest in the Company
and choose to sell their shares on the open market may be disadvantaged.
The Board of Directors believes that there are no benefits of this
transaction that will disproportionately accrue to Affiliated Stockholders or
other "insiders". The reasons for taking the Company private are to eliminate
the adverse implications associated with remaining a public company.
Pursuant to the provisions of the Nevada Revised Statutes Annotated, Title
7, Chapter 78, Section 207, the reverse stock split transaction must be approved
by a majority of all stockholders, including both unaffiliated and affiliated
stockholders. On the advice of its legal counsel, the Company has structured
this transaction to be in full compliance with Nevada law, such that it will
require a majority vote of all stockholders. The Board and the Affiliated
Stockholders believe that for the reasons stated above that the transaction is
<PAGE>
fair. Because the Affiliated Stockholders own more than a majority of the
shares, such parties will be able to cause the reverse stock split to occur.
Accordingly, any unaffiliated stockholder who would wish to remain a stockholder
of the Company as a public company may be disadvantaged because the stockholder
will not be able to do so. Such stockholder, if any, would be entitled to
exercise dissenters' rights. See APPRAISAL RIGHTS AND DISSENTERS RIGHTS, above,
for a further discussion of the procedural fairness of this transaction.
OFFERS TO MERGE OR ACQUIRE
THE COMPANY
During the 18 month period preceding the date of this Proxy Statement the
Company has not received any firm offers from any unaffiliated person for (i)
the merger or consolidation of the Company into or with any person, (ii) the
sale or other transfer of all or any substantial part of the assets of the
Company, or (iii) securities of the Company which would enable the holder
thereof to exercise control of the Company. The Company, during this period, did
not solicit any third party offers to merge or acquire the Company, nor did it
authorize the Special Committee to do so.
REPORTS, OPINIONS, APPRAISALS AND
CERTAIN NEGOTIATIONS
On February 28, 1999, the Special Committee of the Board of Directors of
the Company retained the services of EFCG to perform a valuation of the
Company's Common Stock, from a financial point of view, to be used as part of
the process of establishing the price to be paid to the holders of fractional
shares of the New Common Stock following the reverse stock split.
The following information is provided with respect to the fairness opinion
provided by EFCG:
(1) EFCG performed a valuation analysis of the Company's common stock and
provided its opinion as to the value of the common stock, from a financial
point of view.
(2) EFCG is a regional firm providing multidisciplinary consulting
services. These services include, but are not limited to, corporate
finance, business valuation, financial advisory and litigation support.
(3) The Special Committee considered proposals from two advisory firms,
interviewed one and unanimously agreed to retain the services of EFCG.
(4) Other than the engagement of EFCG to provide the services described
above, there are no relationships between EFCG or its affiliates and the
Company or its affiliates which existed during the past two years or are
contemplated. The fee for EFCG's services is $15,000.
(5) EFCG provided to the Special Committee and the Board of Directors a
range of values with which to calculate the Purchase Price for the
fractional shares of New Common Stock. The Special Committee unanimously
recommended to the Board of Directors a price of $6,500 per share of New
Common Stock, and the Board of Directors unanimously adopted such
recommendation.
(6) The Company retained EFCG to perform a valuation analysis and to
provide its opinion as to the value of the Company's common stock, from a
financial point of view. On March 24,1999 EFCG delivered an opinion (the
"Fairness Opinion") to the Special Committee of the Board of Directors of
the Company. The Fairness Opinion was based upon economic, market and
other conditions in effect as of its date. No limitations were imposed by
the Board of Directors of the Company upon EFCG with respect to its
investigation or the procedures employed in rendering the Fairness
Opinion. The Fairness Opinion, which sets forth assumptions made, material
<PAGE>
reviewed, matters considered, and the limits of the review, is attached as
Exhibit 3 and is incorporated into this Schedule by reference.
The following is a summary of the Fairness Opinion. All material analyses
performed by EFCG are discussed and presented. Stockholders of the Company are
nonetheless urged to read the Fairness Opinion, which is attached as Exhibit 3,
in its entirety. EFCG has consented to the inclusion of its opinion in the 13E-3
Transaction Statement and in the Proxy Statement provided to stockholders of the
Company, and has reviewed and approved the following summary.
In reaching their conclusions, it was EFCG's opinion that in general, the
value of any asset, whether it be financial or real, should be equal to the
present value of the free cash flows accruing to the owner of the asset. Applied
to a business valuation, this methodology is premised on the assumption that a
buyer (shareholder) purchases a series of cash flows that would be generated
over time. For this reason, they concluded that in general, and for the Company
specifically, discounted cash flow approaches are far superior to other
valuation methodologies. Consequently, the discounted cash flow analysis was
used as the primary basis for the fair value determination, with other valuation
measures employed for corroboration.
In connection with the Fairness Opinion, EFCG reviewed, among other
things: (i) the proposed transaction; (ii) annual reports on form 10-K for the
fiscal years ended October 31, 1998, October 31, 1997, October 31, 1996, October
31, 1995, and October 31, 1994; (iii) quarterly reports on form 10-Q for the
periods ended January 31, 1999, July 31, 1998, April 30, 1998, January 31, 1997,
July 31, 1997, April 30, 1997, January 31, 1996, July 31, 1996, April 30, 1996,
January 31, 1995, July 31, 1995, April 30, 1995, January 31, 1994, July 31,
1994, and April 30, 1994; and (iv) projected financial results for fiscal years
1999 through 2004 provided by management of the Company and approved by the
Board of Directors of the Company. EFCG also held discussions with management of
the Company regarding its past and current business operations, financial
condition and future prospects and the performance of its common stock. EFCG
reviewed the reported price and trading activity of the Company's common stock,
analyzed other companies which manufacture and sell products within the dental
industry, the securities of which are publicly traded, and performed other such
other studies and analyses as EFCG deemed appropriate.
EFCG assumed and relied upon the accuracy and completeness of all
financial and other information reviewed for the purposes of the Fairness
Opinion, whether publicly available or provided to EFCG by the Company, and did
not independently verify any such information or make an independent evaluation
or appraisal of the assets or liabilities of the Company. The opinion of EFCG is
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to them as of March 8, 1999. The opinion of
EFCG is directed to the Special Committee of the Board of Directors of the
Company and does not constitute a recommendation to any stockholders of the
Company as to how the stockholder should vote at the stockholder's meeting held
in connection with the proposed transaction. Subsequent developments may affect
the conclusions reached in this opinion, and EFCG does not have any obligation
to update, revise or reaffirm this opinion.
The preparation of a fairness opinion involves determinations as to the
appropriate and relevant methods of financial analysis and, therefore, reference
should be made to the Fairness Opinion in its entirety and not to a summary
description. In performing its analysis, EFCG made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of the Company.
<PAGE>
EFCG considered several methods to evaluate the fair market value of the
Company's common stock. These methods are (i) the evaluation of the business as
a going concern utilizing discounted cash flow approaches to valuation; (ii)
current and historical market prices; (iii) net book value; (iv) liquidation
value; and (v) multiplier approaches based on comparisons to publicly traded
comparable companies. Although they examined all of these approaches to
valuation, they concluded that in general and for the Company specifically,
discounted cash flow approaches are far superior to other valuation
methodologies.
EVALUATION AS A GOING CONCERN: In general, the value of any asset, whether
it be financial or real, should be equal to the present value of the free cash
flows accruing to the owner of the asset. Applied to a business valuation, this
methodology is premised on the assumption that a buyer (shareholder) purchases a
series of cash flows that would be generated over time. Value is ascribed only
to cash flows that can ultimately be taken out of the business. Cash that is
generated but used to sustain the business (such as increases in working capital
and capital expenditures) creates no incremental value to the shareholder.
Valuations based on this premise must necessarily define an appropriate cash
flow and must also determine an appropriate discount factor to be used in
converting projected future magnitudes into present value terms.
Two measures of cash flow are widely accepted. The first measure of cash
flow, net cash flow to equity, is defined below:
Net Income (after taxes)
+ Depreciation and amortization
- Capital expenditures
- Changes in working capital
+ Net changes in long term debt
= Net cash flow to equity
The appropriate discount factor used to convert future magnitudes into
present value terms is dependent on which of the cash flow approaches, discussed
above, is utilized. When the focus is on net cash flow to equity, then the
appropriate discount factor would be a rate of return on equity. The starting
point for this analysis is a current relatively risk free rate of return such as
that available on long term government debt. To this basic rate an equity risk
premium reflecting the difference between large company stocks and long term
government bonds, adjusted for a particular company, is added. An additional
risk premium, based on size, would then be added to account for the extra risk
associated with smaller companies. Given these considerations the appropriate
rate of return on equity is calculated in accordance with the equation below:
ke = Rf + ((beta) x ERP) + SP
Where ke = Rate of return on equity.
Rf = Risk free rate of return which is assumed to be 5.75% based on the
current yield on long term government bonds as reported in the Wall Street
Journal, this date.
(beta)= A measure of a particular security's volatility (risk) as related
to the market in general. According to information contained in Ibbotson
Associates: INDUSTRY COST OF CAPITAL, an appropriate measure of (beta)
would amount to 0.95.
<PAGE>
ERP = equity risk premium which is assumed to be 7.8% based on information
contained in Ibbotson Associates: STOCKS, BONDS, BILLS AND INFLATION 1998
YEARBOOK (IBBOTSON).
SP = Size risk premium which is assumed to be 3.3 % based on IBBOTSON.
Performing the computation indicated by the formula above, the appropriate
rate of return on equity (ke) would be 16.46%.
An alternative approach to computing the appropriate rate of return on
equity involves the use of estimates of ke specific to the dental equipment and
supplies industry (SIC Code 3843) as reported in Ibbotson and Associates:
INDUSTRY COST OF Capital. The basic reported equity return, 14.23% (industry
composite return for an industry predominantly comprised of companies that would
be classified as low capitalization companies) should then be adjusted to
account for the size premium that would be appropriate for micro-capitalization
companies, 1.6% (micro-capitalization equity premium - low capitalization equity
premium), yielding a value of ke amounting to 15.83%.
EFCG then concluded that a conservative estimate of the appropriate equity
return for the Company would be in the range of 15.83% and 16.46%.
The second widely accepted measure of cash flow focuses on net cash flow
available to overall invested capital, equity plus debt, (free cash flows) is
defined below:
Earnings before interest and taxes (EBIT)
- Taxes on EBIT
+ Depreciation and amortization
- Capital expenditures
- Changes in working capital
= Net cash flow to overall invested capital
For valuations based on cash flows available to overall invested capital
(free cash flows), the appropriate discount factor would be a weighted average
cost of capital. The weighted average cost of capital can be described as the
average price a company must pay to attract both debt and equity to properly
capitalize the firm's operation and growth. The weighted average cost of capital
is defined by equation (2), below:
ka = (ke x we) + (kd(1-t) x wd)
Where ka = weighted average cost of capital
ke = rate of return on equity which is assumed to be in the range 15.83%
to 16.46% as discussed above.
we = Percentage of equity capital in the capital structure.
kd = rate of return on debt
t = company's effective income tax rate
wd = percentage of debt capital in the capital structure
<PAGE>
Performing the computation indicated by the equation above indicates an
average weighted average cost of capital for the years 1999-2004 in the range
12.67% to 13.14%. We have utilized an average for these years because the values
for we, wd and kd differ for each year in the projection period. The terminal
value of ka, utilized for year 2005 and subsequent years, is in the range 12.93%
to 13.42%, which represents the weighted average cost of capital for the year
2004.
Given the discussion of cash flows and discount factors, above, the basic
valuation of Pro-Dentec as a going concern (discounted cash flow analysis) is
described by the equation below:
5
Value = (SIGMA) Ct/(1+k)t + (Cf /(k-g))/(1+k)5 - current debt claims
t =0
Where Value = present value of projected future cash flows
Ct = Cash flow in year t
Cf = Normalized future cash flow
k = appropriate discount factor, either rate of return on equity (ke) or
weighted average cost of capital (ka).
g = projected growth in future cash flows which is assumed to be 2%. It
should be noted that any changes in inflation in future years would effect
k and g in the same direction so as to have little effect on the
computations.
Current debt claims = current outstanding debt of the company as of
October 31, 1998. Debt claims amounting to $2,736,000 are subtracted for
valuations focusing on free cash flows available to debt and equity, but
are ignored in valuations focusing on cash flows available to equity.
Value calculated in accordance with the equation above is converted into a
per share basis by dividing by 14,100,000 outstanding shares. Based on these
discounted cash flow analyses, EFCG has opined that the fair value of a share of
the common stock of the Company lies in the range $0.5709 and $0.7136.
CURRENT AND HISTORICAL MARKET PRICES: EFCG also examined current and
historical market prices and trading volume for the Company's common stock. They
concluded that stock prices would not necessarily be the best indicator of value
for the reasons indicated below. The "Efficient Markets Hypothesis" argues that
all publicly available information should at all points in time be fully
incorporated into the value of securities. Consequently, for most publicly
traded securities the current market price of common stock should reflect the
intrinsic value of discounted projected future cash flows based on information
available at the time. In the case of thinly traded securities, such as the
Company's, it would not necessarily be true that current stock price would
always be equal to intrinsic value. More specifically, while the shares of the
Company are publicly traded, they are closely held, are frequently not traded,
and when they do trade, tend to trade in small volume. Approximately 85% of the
shares are restricted as to sale by a formal shareholder agreement, and have
never been traded.
An additional point related to the use of current and historical stock
prices as indicators of value would involve the notion that, all other things
being equal, ownership interests which are not freely marketable are worth less
than the same shares if they were regularly traded. Consequently, any valuation
<PAGE>
based on current or historical stock prices would be subject to a significant
illiquidity discount.
While EFCG did not consider that in this instance stock prices represented
a definitive indicator of economic value, their calculation of average stock
price over the last 6 months and 3 months (ending March 15, 1999) indicated
values of $0.68 per share and $0.66 per share, respectively, which are
corroborative of the results obtained involving discounted future cash flows.
EFCG also considered book value per share and liquidation value as
indicators of value, as well as a ratio analysis of other publicly traded
comparable companies. Their conclusions regarding these indicators are
summarized as follows:
PUBLICLY TRADED COMPARABLE COMPANIES: In many instances multiplier
approaches based on price/earnings ratios or similar measures are used for
valuation purposes. This methodology entails identifying publicly traded
comparable companies and assuming that financial and valuation ratios would be
similar across companies. It should be stressed that the appropriate multiplier
utilized in these instances would essentially be the inverse of the rates of
return on equity (ke) or weighted average cost of capital (ka) utilized in the
discounted cash flow analysis. Consequently, this is a valuation technique that
is primarily corroborative in nature.
In an attempt to corroborate the findings reported above, EFCG examined a
number of publicly traded companies sharing some similarities with the Company.
They concluded that the Company is fairly unique in that it is relatively small,
is vertically integrated in the manufacturing and sale of its core products, and
sells its products in narrow dental market niches. There are some companies that
sell the same products, but also sell substantially different products;
consequently, it is difficult to disentangle the separate effects of the
relevant divisions. Other companies focus on either manufacturing or selling the
relevant products. Of those companies that are publicly traded, with a
substantial part of their business in the dental industry, and that both
manufacture and sell their products, relevant financial ratios provide little
guidance, since many of those companies have recently incurred losses, such that
calculations of Price/Earnings ratios are not meaningful. Further, those
companies do not produce and sell in the same narrow dental market niches that
the Company does. EFCG concluded that for purposes of valuing the Company's
common stock, there were no publicly traded comparable companies.
BOOK VALUE PER SHARE: The Company is engaged in a dynamic and
ever-changing dental market. EFCG stated that book value per share measures are
inherently backward-looking and reflective of past performance; that they are
not necessarily indicative of future performance. In dynamic markets proper
valuation of common stock should reflect expectations of FUTURE performance.
They noted that the Company's book value per share as of October 31, 1998 was
$0.41, which is significantly less than the Company's current and historical
prices. For these reasons EFCG concluded that use of book value per share in the
valuation of common stock is not appropriate.
LIQUIDATION VALUE: EFCG concluded that use of liquidation value is not
appropriate here for the following reasons. The Company is not in a business
posture where liquidation is remotely possible. Additionally, any liquidation
value would necessarily be below the book value, and as discussed above, book
value per share is not appropriate for valuation purposes here.
The Fairness Opinion relates only to whether the consideration to be
received by the holders of fractional shares of New Common Stock is fair from a
financial point of view and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote with respect
to the proposed transaction.
<PAGE>
The full text of EFCG's opinion is attached as Exhibit 3 to this
Statement. The Fairness Opinion shall be made available for inspection and
copying at the principal executive offices of the Company at 633 Lawrence
Street, Batesville, Arkansas, during its regular business hours by any
interested stockholder of the Company or his representative who has been so
designated in writing.
OTHER INFORMATION
BACKGROUND
The Company, a Nevada Corporation, is principally engaged in the business
of designing, manufacturing, and marketing products to dental professionals
relating to the diagnosis, treatment, and prevention of periodontal and other
oral diseases. The Company's executive offices are located at 633 Lawrence
Street, Batesville, Arkansas 72501; the telephone number is (870) 698-2300.
On April 6, 1999, the Board of Directors of the Company unanimously
adopted a resolution authorizing the submission to the vote of the stockholders
of the Company a proposal under which all outstanding shares of Old common Stock
will be subject to a reverse stock split at the ratio of 10,000 shares of Old
Common Stock to 1 share of New Common Stock. A copy of the resolution adopted by
the Board is attached to this Proxy Statement as Exhibit 2.
The Company expects to submit the proposal to the stockholders of the
Company at a special meeting expected to be held at 10:00 a.m. on
_____________________, at 70 Batesville Boulevard, Batesville, Arkansas.
The Company does not expect that any material change in the present
dividend rate or policy or indebtedness of the Company will occur as a result of
the reverse stock split. A change in the Company's capitalization will not occur
as a result of the change in par value of the New Common Stock.
PAYMENT OF PURCHASE PRICE
The purchase price of fractional shares of New Common Stock will be paid
from the operating cash balances of the Company, which, as of the end of the
Company's second fiscal quarter, April 30, 1999, stood at $1.55 million. The
reverse stock split transaction is expected to result in a use of cash in the
amount of $650,000 and a reduction in shareholders' equity in the same amount.
The Company anticipates that, as a result of the reverse stock split, there will
be approximately 100 aggregate fractional shares of the New Common Stock to be
purchased by the Company at a price of $6,500 per share of New Common Stock.
Such price per share was determined based upon the report of EFCG as to value of
the Common Stock of the Company as further described in this Proxy Statement.
<PAGE>
MANAGEMENT AND ITS INTENTIONS
The current directors and executive officers of the Company, along with
certain additional information about each, are as follows:
<TABLE>
<CAPTION>
Name Age Director Current
- ---- --- Since Positions Held
----- --------------
<S> <C> <C> <C>
William T. Evans 57 1987 President, Chief
Executive Officer & Director
Robert E. Christian 37 1988 Executive Vice President,
Secretary/Treasurer & Director
Frank H. Newton, III 59 --- Chief Operating Officer
Richard L. Land 53 --- Vice President, Controller
J. Robert Lemon 56 1987 Director
Timothy A. Nolan 45 1988 Director
J. Philip Boesel 66 1995 Director
Michael S. Black 47 1996 Director
</TABLE>
William T. Evans became President and Chief Executive Officer of the Company in
February, 1996. Previously, he was the Executive Vice President and Secretary,
and has been a Director since 1987. Mr. Evans was an officer of Dynavest
Partnership, the original licensee for the Rota-dent product, from 1981 until
its dissolution in December of 1992; and an officer of Multiway Associates, a
specialty nutrition company, since 1982. Mr. Evans is a cousin of Timothy A.
Nolan, a Director of the Company.
Robert E. Christian became Executive Vice President, Secretary and Treasurer of
the Company in February, 1996. Previously, he was the Senior Vice President and
Treasurer, and has been a Director since 1988. Mr. Christian has been Vice
President of Data Control and Computer Services for Multiway Associates, a
specialty nutrition company, since 1982.
Frank H. Newton, III has been Chief Operating Officer of the Company since
February, 1993. Prior to joining the Company, Mr. Newton was President and Chief
Operating Officer of Scott Instruments Corporation, Denton, Texas, since 1988,
and prior to that, President and Chief Executive Officer of AVM Systems, Inc.,
Fort Worth, Texas, for six years.
<PAGE>
Richard L. Land has been the Controller of the Company since June, 1996. He was
elected Vice President in March, 1997. Prior to that time, he served as
Controller of Darling Special Products, Inc., Caruthersville, Missouri, since
1990, and as General Accounting Manager of the Columbus Division of General Tire
and Rubber, Columbus, Mississippi, for four years. Mr. Land was awarded the CPA
Certificate by the state of Missouri in 1990.
J. Robert Lemon has been a director of the Company since 1987, and served as its
President from 1987 to 1996, when he resigned to devote full time to other
business interests. He continues to work with the Company as a consultant. Mr.
Lemon was an officer of Dynavest Partnership, the original licensee for the
Rota-dent product, from 1981 until its dissolution in December, 1992; and has
been an officer of Multiway Associates, a specialty nutrition company, since
1982.
Timothy A. Nolan has been a director of the Company since 1988. Mr. Nolan has
been Managing Director of Multiway Associates, a specialty nutrition company,
since 1987, and an officer and director of V. M. Nutri, Inc., a specialty
nutrition company, since 1989. He has been employed by V. M. Nutri since 1982.
Mr. Nolan is the cousin of William T. Evans.
J. Philip Boesel, Jr. has been a director of the Company since 1995. He was
formerly the First Vice President, Investment Banking of Kirkpatrick, Pettis,
Smith, Polian, Inc. from 1991 to 1996. Kirkpatrick Pettis is a subsidiary of
Mutual of Omaha. Prior to this Mr. Boesel was the President of Robert G.
Dickinson & Co., a regional investment banking firm, from 1971 through 1990,
when the company was sold. Mr. Boesel is a former Governor of the National
Association of Securities Dealers, and is currently a director of several
privately-held companies. He holds a B.B.A. degree from the University of
Wisconsin, and a Masters degree in Business from Michigan State University.
Michael S. Black has been a director of the Company since 1996. He is a partner
in the firm of Smith & Black, CPA's and Consultants, since 1988. He specializes
in the areas of corporate information systems and corporate income tax. Mr.
Black holds B.B.A degrees in Accounting and Finance from the University of
Wisconsin at Whitewater, and is a Certified Public Accountant.
No transactions in any shares of the Common Stock of the Company were
effected during the 60 days immediately preceding the date of this Proxy
Statement by the Company or by any of the persons named above.
Based upon inquiry by the Company, no executive officer, director, or
affiliate of the Company or any person listed above presently intends to tender
or sell any of the Company's Common Stock owned or held by such person, except
with respect to fractional shares of New Common Stock to be purchased by the
Company following the reverse stock split. Each of the persons has stated that
he presently intends to vote all shares of the Common Stock held by such person
and with respect to which such person holds proxies, in favor of the proposal.
None of the persons, to the Company's knowledge, has made a recommendation in
support of or opposed to the proposal, except for the recommendation in support
of the proposal made by the Board of Directors.
No officer, employee, class of employees, or corporate asset of the
Company (excluding corporate assets which are proposed to be used as
consideration for purchases of securities or payment of expenses as disclosed in
this Proxy Statement) has been or is proposed to be employed by the Company or
any affiliate in connection with the proposed reverse stock split as described
in this Proxy Statement.
<PAGE>
No person has been employed, retained, or is to be compensated by the
Company, or by any person on behalf of the Company, to make solicitations or
recommendations in connection with the proposed reverse stock split described in
this Proxy Statement.
There are no contracts, arrangements, understandings, or relationships
between the Company or the persons listed above and any other person in
connection with the proposed reverse stock split concerning the transfer or
voting of the Company's Common Stock, joint ventures, loan or option
arrangements, puts or calls, guaranties, or the giving or withholding of
proxies, consents, or other authorizations with the exception of the agreement
disclosed below:
Approximately 85% of the outstanding shares of the Company's common stock
are restricted as to transfer or sale by a shareholders agreement which was
signed in 1986. The shareholders agreement contains provisions which require the
following: (i) all decisions required to be made under the agreement shall be
made by a majority vote, with each shareholder having one vote for each share
owned by the shareholder; (ii) no shareholder may sell or transfer any of his or
her shares except in the proportion in which all of the shareholders sell or
transfer their shares; and (iii) all of the shares covered by the shareholders
agreement shall be voted as a block at all meetings of the shareholders of the
Company. The block of shares covered by the shareholders agreement will be voted
in favor of the Proposed Amendment.
THE COMPANY'S COMMON STOCK
As of May 31, 1999, 14,100,000 shares of the Common Stock were outstanding
and held of record by approximately 947 persons. The Common Stock of the Company
is traded in the Emerging Company Marketplace of the American Stock Exchange:
symbol "PRO.EC".
The following are the high and low prices of the Company's Common Stock as
published by the American Stock Exchange Emerging Company Marketplace:
QUARTER ENDED HIGH CLOSE LOW CLOSE
JULY 31, 1997 1 7/16 15/16
OCTOBER 31, 1997 1 3/16 3/4
JANUARY 31, 1998 1 3/16 3/4
APRIL 30, 1998 1 3/8 15/16
JULY 31, 1998 1 1/16 3/4
OCTOBER 31, 1998 15/16 11/16
JANUARY 31, 1999 3/4 9/16
APRIL 30, 1999 13/16 7/16
The Company has never paid cash dividends on its common Stock. Payment of
dividends on Common Stock is within the discretion of the Board and will depend,
among other factors, on earnings, capital requirements, and the operating
financial condition of the Company.
Neither the Company nor any of its affiliates has purchased any of the
securities of the Company since the commencement of the Company's second full
fiscal year preceding the date of this Statement, with the exception of the
following transaction: Mr. William T. Evans, President, Chief Executive Officer,
Director, and Controlling Person, purchased 10,000 shares of Common Stock in an
open market transaction on February 6, 1997 at a price of $1.25 per share.
<PAGE>
TERMS OF THE PROPOSED
REVERSE STOCK SPLIT
The Company proposes, subject to stockholder approval, to decrease the
number of shares of Common Stock outstanding by means of a reverse stock split
in the ratio of 10,000 shares of Old Common Stock to 1 share of New Common
Stock. The par value of the New Common Stock would be adjusted accordingly from
$.01 per share to $100.00 per share. If the proposal is approved by the
stockholders, as a result of the reverse stock split, the total authorized
shares of Common Stock will be reduced from 30,000,000 shares to 3,000 shares.
Following the reverse stock split, no fractional shares will be
authorized, and any fractional shares will be purchased from holders thereof at
the rate of $6,500 per share of New Common Stock. All holders of Common Stock
will be treated identically in connection with the reverse stock split, in that
all fractional shares of New Common Stock will be purchased at the rate of
$6,500 per share of New Common Stock.
Following the reverse stock split and purchase of resulting fractional
shares of New Common Stock, it is expected that the number of shareholders of
the Company's Common Stock will be reduced from approximately 947 (as of March
26, 1999) to less than 50. As a result of the reduction in number of
shareholders to less than 300, the Company intends to suspend its obligation to
file periodic reports with the SEC pursuant to section 15(d) of the Exchange Act
of 1934.
COSTS OF THE TRANSACTION
The following is a statement of all expenses incurred or estimated to be
incurred in connection with the going private transaction. The Company will be
responsible for paying any and all of such expenses.
Filing Fees $ 130
Legal Fees 25,000
Appraisal Fees 15,000
Solicitation Expense 5,000
Printing Costs 2,500
Total $ 47,630
All of the foregoing expenses, as well as the purchase price of fractional
shares of New Common Stock, will be paid from the available funds of the
Company.
ANTICIPATED APPROVAL OF THE
PROPOSED AMENDMENT
It is expected that the owners of more than the necessary majority of the
shares of Common Stock entitled to vote on the Proposed Amendment (including,
without limitation, all shares owned by the person listed on Exhibit 1 and any
shares controlled by them) will vote in favor of such amendment, and,
accordingly that such amendment will receive the necessary approval from the
stockholders entitle to vote on the question. Upon receipt of stockholder
approval, the Company expects to move quickly to implement the Proposed
Amendment and the reverse stock split authorized by such amendment.
<PAGE>
PROCEDURAL ISSUES OF
REVERSE STOCK SPLIT
Upon approval of the Proposed Amendment, each 10,000 shares of Old Common
Stock will be converted into 1 share of New Common Stock. Fractional shares of
New Common Stock will not be issued as a result of the reverse stock split.
Holders of Old Common Stock otherwise entitled to a fractional share of New
Common Stock following the reverse stock split will be paid cash in lieu of such
fractional shares at a Purchase Price equal to $6,500 per whole share of New
Common Stock. The reverse stock split will be come effective upon the filing of
the Certificate of Amendment to the Company's Certificate of Incorporation with
the Nevada Secretary of State. The filing of the Certificate of Amendment will
occur as soon as practicable on or after the approval of the Proposed Amendment.
The conversion of shares of Old Common Stock into New Common Stock will
occur upon the filing of the Certificate of Amendment with the Secretary of
State. As soon as practicable after such filing, each holder of Old Common Stock
will receive a letter of transmittal containing instructions for the surrender
of certificates representing shares of Old Common Stock in exchange for shares
of New Common Stock and cash (in the case of fractional shares of New Common
Stock) for which the shares represented by the certificates so surrendered are
exchangeable pursuant to the reverse stock split.
FOLLOWING THE REVERSE STOCK SPLIT, STOCKHOLDERS WILL RECEIVE, BY MAIL,
LETTERS OF TRANSMITTAL WITH WHICH STOCK CERTIFICATES FOR OLD COMMON STOCK SHOULD
BE RETURNED. STOCKHOLDERS SHOULD, THEREFORE, NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK
CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
TREATMENT OF STOCK OPTIONS UNDER
THE COMPANY'S OPTION PLAN
The Company has in place an incentive stock option plan (the "Plan"). The
maximum number of shares of common stock reserved for issuance under the Plan is
5,000,000, with the Board of Directors having the authority to grant such
options. As of October 31, 1998, options to purchase an aggregate of 1,296,000
shares of common stock were outstanding.
Outstanding options will be subject to the same treatment as outstanding
shares of common stock in regard to the proposed reverse stock split and
purchase of fractional shares: the options will be split in the ratio of 10,000
shares of Old Common Stock to 1 share of New Common Stock. Option certificates
will be reissued showing the adjusted number of option shares and the adjusted
exercise price, with all other provisions remaining unchanged. Option holders
will be paid cash for fractional option shares created by the reverse split,
based upon the difference between each option holder's exercise price and the
fair value established herein for the Old Common Stock, which is $0.65. Option
holders whose exercise price is greater than $0.65 will receive new option
certificates but no compensation for fractional shares created by the
transaction. The cost of redeeming such fractional option shares is estimated to
be $8,000.
FINANCIAL INFORMATION
Audited financial statements for fiscal years 1998 and 1997 filed with the
Company's most recent Annual Report on Form 10-KSB and the interim financial
statements for the quarter ending April 30, 1999, reported on Form 10-QSB under
Sections 13 and 15(d) of the Securities Exchange Act of 1934 are being delivered
with this document.
<PAGE>
The ratio of earnings to fixed charges for the fiscal years ending October
31, 1998 and 1997, was 4.34 and 1.91, respectively. The ratio of earnings to
fixed charges for the interim period ending April 30, 1999, was 9.53.
The book value per share as of the fiscal year ended October 31, 1998, was
$0.41.
Pro forma data disclosing the effect of the reverse stock split and
buyback of fractional shares on (1) the Company's balance sheets as of the most
recent quarter end is attached as Exhibit 4; and (2) the Company's statements of
income and earnings per share amounts for the most recent fiscal year end and
quarter end are attached as Exhibits 5 and 6.
The Company's book value per share as of April 30, 1999, and October 31,
1998, taking into account the effect of the reverse stock split and buyback of
fractional shares was $4,338.93 and $3,945.80, respectively, per share of New
Common Stock.
LIST OF EXHIBITS
1. Identity and Background of Directors, Executive Officers, and Controlling
Persons of the Company.(filed herewith)
2. Proposed Amendment to the Company's Certificate of Incorporation.(filed
herewith)
3. Fairness Opinion of Economic and Financial Consulting Group, Inc.(filed
herewith)
4. Pro Forma Consolidated Balance Sheet as of April 30, 1999 and Notes.
(filed herewith)
5. Pro Forma Consolidated Statement of Income for the year ended October 31,
1998 and Notes.(filed herewith)
6. Pro Forma Consolidated Statement of Income for the quarter ended April 30,
1999 and Notes.(filed herewith)
7. Nevada Revised Statutes, Title 7, Chapter 92A.300 - 92A.500 (Dissenters'
Rights).(filed herewith)
8. Accountants' Reports.(1)
(1) Incorporated by reference from Registrant's Annual Report on Form 10-KSB,
filed January 29, 1999, included as an enclosure with this document.
<PAGE>
1) PROPOSED AMENDMENT:_________FOR the amendment __________AGAINST the amendment
listed below listed below
A proposed amendment to the Certificate of Incorporation of the Company which
would authorize the reduction of the number of authorized shares of Common Stock
from 30,000,000 to 3,000 and the increase of the par value per share of Common
Stock to $100.00 from $.01 by affecting a reverse split of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), in the ratio of 10,000
shares to 1 share.
IN RESPECT OF OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF, THIS PROXY SHALL BE VOTED AS THE BOARD OF DIRECTORS MAY
RECOMMEND.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THIS PROXY MAY BE REVOKED PRIOR TO ITS EXERCISE. THE PROXY, WHEN PROPERLY
EXERCISED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE SHAREHOLDER. IF NO
DIRECTION IS MADE, THE PROXY WILL BE VOTED "FOR" PROPOSAL 1. IF OTHER MATTERS
PROPERLY COME BEFORE SAID MEETING, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH
THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" PROPOSAL 1.
NOTE: PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
DATED:_____________________,1999
_________________________________
Signature of Shareholder
_________________________________
Signature of Shareholder
<PAGE>
<TABLE>
<CAPTION>
Professional Dental Technologies, Inc.
Exhibit 1
Identity and Background of Directors, Executive Officers,
and Controlling Persons of the Company
- ------------------------------------------------------------------------------------------------------------------------------------
OCCUPATION OR EMPLOYMENT
NAME POSITION PRESENT OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William T. Evans President President & Chief Executive Officer, Executive Vice President
1996 - Present Professional Dental Technologies, Inc. Professional Dental Technologies, Inc.
633 Lawrence Street 633 Lawrence Street
Secretary, 1987 - 1996 Batesville, Arkansas 72501 Batesville, Arkansas 72501
870-698-2300 870-698-2300
Director, 1987 - Present
Controlling Person
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Christian Secretary & Treasurer, Executive Vice President Senior Vice President
1996 - Present Professional Dental Technologies, Inc. Professional Dental Technologies, Inc.
633 Lawrence Street 633 Lawrence Street
Treasurer, 1988 - 1996 Batesville, Arkansas 72501 Batesville, Arkansas 72501
870-698-2300 870-698-2300
Director, 1988 - Present
- ------------------------------------------------------------------------------------------------------------------------------------
Frank H. Newton, III Chief Operating Officer, Chief Operating Officer Chief Operating Officer
1993 - Present Professional Dental Technologies, Inc. Professional Dental Technologies, Inc.
633 Lawrence Street 633 Lawrence Street
Batesville, Arkansas 72501 Batesville, Arkansas 72501
870-698-2300 870-698-2300
- ------------------------------------------------------------------------------------------------------------------------------------
Richard L. Land Vice President - Finance, Vice President - Finance Controller
1997 - Present Professional Dental Technologies, Inc. Professional Dental Technologies, Inc.
633 Lawrence Street 633 Lawrence Street
Batesville, Arkansas 72501 Batesville, Arkansas 72501
870-698-2300 870-698-2300
Controller
Darling Special Products, Inc.
P.O. Box 1000
Caruthersville, Missouri
573-333-2070
- ------------------------------------------------------------------------------------------------------------------------------------
J. Robert Lemon President Co-Founder President & Chief Executive Officer,
1987 - 1996 Life Plus International Professional Dental Technologies, Inc.
268 West Main Street 633 Lawrence Street
Director, 1987 - Present Batesville, Arkansas 72501 Batesville, Arkansas 72501
Controlling Person 870-698-2311 870-698-2300
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy A. Nolan Director, 1988 - Present Managing Director Managing Director
Multiway Associates Multiway Associates
268 West Main Street 268 West Main Street
Batesville, Arkansas 72501 Batesville, Arkansas 72501
870-698-2311 870-698-2311
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Professional Dental Technologies, Inc.
Exhibit 1, Page 2
Identity and Background of Directors, Executive Officers,
and Controlling Persons of the Company
- ------------------------------------------------------------------------------------------------------------------------------------
OCCUPATION OR EMPLOYMENT
NAME POSITION PRESENT OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
J. Philip Boesel, Jr. Director, 1995 - Present Retired First Vice President - Investment Banking
Kirkpatrick, Pettis, Smith, Polian, Inc.
1501 50th Street, Suite 350
West Des Moines, Iowa 50266
515-224-8520
- ------------------------------------------------------------------------------------------------------------------------------------
Michael S. Black Director, 1996 - Present Partner Partner
Smith & Black, CPA's & Consultants Smith & Black, CPA's & Consultants
421 Broad Street 421 Broad Street
Lake Geneva, Wisconsin 53147 Lake Geneva, Wisconsin 53147
414-248-9112 414-248-9112
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Professional Dental Technologies, Inc.
Exhibit 2
Proposed Amendment to the Company's Certificate
of Incorporation Adopted April 6, 1999
Article FOURTH of the Certificate of Incorporation of the Company is hereby
amended by:
Replacing the Article with the following:
FOURTH: The total authorized capital of this corporation is the sum of
Three Hundred Thousand Dollars ($300,000) comprised of Three Thousand
(3,000) common shares having a par value of One Hundred Dollars ($100).
There shall be only one class of shares of the corporation; to wit: Common.
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
FAIRNESS OPINION OF ECONOMIC AND FINANCIAL
CONSULTING GROUP, INC.
EXHIBIT 3
ECONOMIC AND FINANCIAL CONSULTING
GROUP, INC.
------------------------------------------------------------------------------
6 Richland Hills Cove . Conway, AR 72032 . (501) 327-5826
March 23, 1999
Mr. J. Philip Boesel
Chairman, Special Committee
The Board of Directors
Professional Dental Technologies, Inc.
RE: FAIRNESS OPINION
Dear Mr. Boesel:
You, as Chairman of the Special Committee of the Board of Directors of
Professional Dental Technologies, Inc. ("Pro-Dentec" or the "Company") have
requested that we provide a fairness opinion regarding the value of the common
stock of the Company. This valuation is to be used in structuring a transaction
involving the reverse split of the Common Stock of the Company, and the
subsequent repurchase by the Company of fractional shares created through this
transaction, as part of the process to take the Company private.
It is our opinion that the fair market value of the common stock of the Company
is in the range $0.5709 to $0.7136 per share. Our methodology utilized in
reaching this conclusion is described in detail in the attached opinion
document.
In connection with rendering this opinion, we have reviewed, among other things,
(i) the proposed transaction, (ii) historical operating results of the Company,
(iii) internally prepared projections concerning the future performance of the
Company, and (iv) the historical and current trading performance of the
Company's stock. We have held discussions with members of the management of the
Company regarding the past and current business operations as well as the future
prospects of the Company. We have reviewed industry specific data regarding the
<PAGE>
valuation of publicly traded companies in the dental market as well as other
such information as we consider appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion, whether publicly available or provided to us by representatives
of the Company, and we have not assumed any responsibility for independent
verification of such information. Based upon the forgoing and based upon other
such matters that we consider relevant, it is our opinion that the consideration
to be received by the shareholders of the Company as a result of the
transaction, as indicated above, is fair from a financial point of view as of
the date hereof.
Our opinion is necessarily based upon economic, market and other conditions as
in effect on, and the information made available to us as of March 8, 1999. Our
opinion is directed to the Special Committee of the Board of Directors of the
Company and does not constitute a recommendation to any stockholders of the
Company as to how the stockholder should vote at the stockholder's meeting held
in connection with the transaction. It is understood that subsequent
developments may affect the conclusions reached in this opinion and that we do
not have any obligation to update, revise or reaffirm this opinion.
Sincerely,
/s/ Ralph D. Scott, Jr.
- --------------------------
RALPH D. SCOTT, JR., Ph.D.
/s/ Keith Berry
- --------------------
S. KEITH BERRY, Ph.D.
<PAGE>
Professional Dental Technologies, Inc.
Fairness Opinion
This document is based upon information provided by Professional Dental
Technologies, Inc. ("Pro-Dentec") as well as sources deemed to be reliable. The
information set forth in this document is intended solely for use by the Board
of Directors of Pro-Dentec. Possession of this document, or a copy thereof, does
not carry with it the right of publication of all or part of it, nor may it be
used for any purposes by anyone but the Board of Directors of Pro-Dentec without
the previous written consent of the Economic and Financial Consulting Group,
Inc. ("EFCG"), or the Board of Directors of Pro-Dentec, and in any event only
with attribution to EFCG. The compensation received by EFCG from this engagement
is not dependent on the consummation of the transaction evaluated herein.
/s/ S. Keith Berry /s/ Ralph D. Scott
S. Keith Berry, Ph.D. Ralph D. Scott, Jr. Ph.D
<PAGE>
EXECUTIVE SUMMARY
The Economic and Financial Consulting Group, Inc. ("EFCG") has been retained by
Pro-Dentec ("the Company") to provide a fairness opinion regarding the value of
currently outstanding common stock. This opinion has been requested in
connection with a contemplated transaction which calls for the company to effect
a reverse split of its common stock in a ratio to be determined. Fractional
shares created in the transaction will be mandatorially redeemed by the company.
Based upon our analysis, the fair market value of the common stock of Pro-Dentec
is in the range $0.5709 to $0.7136 per share. The basis for our conclusion and
our methodology will be explained in detail below.
THE TRANSACTION
As of the date of this report, the major elements of the contemplated
transaction are to be as follows:
o The Company is contemplating a reverse split of its common stock in a ratio
to be determined.
o Shareholders holding fractional shares post split will have their
fractional shares repurchased by the company at a fair price.
DUE DILIGENCE REVIEW
As an integral part of determining the fair market value of Pro-Dentec's common
stock, EFCG conducted an extensive review of the material provided by the
Company, including its historical financial results and projections of future
operating results. In addition, EFCG conducted interviews with management on
location. In general our discussions with management centered on the following
issues:
o The history, nature and historical operating results of the business.
o The outlook for the Company's business, including assumptions used in
projecting future operating results.
o The historical trading performance of the Company's common stock.
VALUATION
EFCG has considered several methods to evaluate the fair market value of the
Company's common stock. These methods are (i) the evaluation of the business as
a going concern utilizing discounted cash flow approaches to valuation; (ii)
current and historical market prices; (iii) net book value; (iv) liquidation
<PAGE>
2
value; and (v) multiplier approaches based on comparisons to publicly traded
comparable companies. Although we have examined (and will discuss, below) all of
these approaches to valuation we believe, in general and for Pro-Dentec
specifically, that discounted cash flow approaches are far superior to other
valuation methodologies. The basis for this opinion is explained in detail in
our analysis below.
Valuation as a Going Concern (Discounted Cash Flow Approaches)
In general, the value of any asset, whether it be financial or real, should be
equal to the present value of the free cash flows accruing to the owner of the
asset. Applied to a business valuation this methodology is premised on the
assumption that a buyer (shareholder) purchases a series of cash flows that
would be generated over time. Value is ascribed only to cash flows that can
ultimately be taken out of the business. Cash that is generated but used to
sustain the business (such as increases in working capital and capital
expenditures) creates no incremental value to the shareholder. Valuations based
on this premise must necessarily define an appropriate cash flow and must also
determine an appropriate discount factor to be used in converting projected
future magnitudes into present value terms. Each of these components of the
valuation problem is discussed in detail below. Conclusions specific to the
value of Pro-Dentec as a going concern are summarized in Tables 3 through 6,
attached.
MEASURE OF CASH FLOW:
Two measures of cash flow are widely accepted. The first measure of cash flow,
net cash flow to equity, is defined below:
Net Income (after taxes)
+ Depreciation and amortization
- Capital expenditures
- Changes in working capital
+ Net changes in long term debt
= Net cash flow to equity
Historical and projected future financial data that would provide the basis for
the computation of values of this variable are summarized in Tables (1) and (2),
respectively. Tables (3) and (4) specifically demonstrate the computation of
projected future net cash flow to equity evaluated at constant purchasing power
as based on the projections provided by Pro-Dentec management. In Tables (3) and
(4) we have also scaled the Pro-Dentec future projections upward by a factor of
2% per annum to account for the effects of inflation. We believe that this is a
conservative estimate of future inflation given the current general (CPI)
inflation rate. We have also examined the historical behavior of the prices of
primary Pro-Dentec products and have ascertained that they have inflated at a
<PAGE>
3
rate significantly below the general inflation rate (primarily because of a
desire to maintain the relative position of product prices in a highly
competitive market). Consequently, the use of a 2% growth factor accounts for
real growth IN EXCESS OF the amounts projected by Pro-Dentec management.
<PAGE>
4
A second measure of cash flow focusing on net cash flow available to overall
invested capital, equity plus debt, is defined below:
Earnings before interest and taxes (EBIT)
- Taxes on EBIT
+ Depreciation and amortization
- Capital expenditures
- Changes in working capital
= Net cash flow to overall invested capital
Projected future values of this variable based on projections provided by
Professional Dental Technologies, Inc. management as contained in the data base
described by Table (2) are summarized in Tables (5) and (6). Those tables also
scale Pro-Dentec projections upward to account for the effects of inflation, as
discussed above.
DISCOUNT FACTOR:
The appropriate discount factor used to convert future magnitudes into present
value terms is dependent on which of the cash flow approaches, discussed above,
is ultimately utilized. If the focus is on net cash flow to equity, then the
appropriate discount factor would be a rate of return on equity. Table (7)
demonstrates the build-up of appropriate rates of return on equity. As the table
demonstrates, the starting point for this analysis is a current relatively risk
free rate of return such as that available on long term government debt. To this
basic rate an equity risk premium reflecting the difference between large
company stocks and long term government bonds, adjusted for a particular
company, is added. An additional risk premium, based on size, would then be
added to account for the extra risk associated with smaller companies. Given
these considerations the appropriate rate of return on equity is calculated in
accordance with equation (1), below:
(1) ke = Rf + ((beta) x ERP) + SP
Where ke = Rate of return on equity.
Rf = Risk free rate of return which is assumed to be 5.75% based on the
current yield on long term government bonds as reported in the Wall
Street Journal, this date.
(beta) = A measure of a particular security's volatility (risk) as related to
the market in general. According to information contained in Ibbotson
Associates: INDUSTRY COST OF CAPITAL, an appropriate measure of
(beta) would amount to 0.95.
ERP = equity risk premium which is assumed to be 7.8% based on information
contained in Ibbotson Associates: STOCKS, BONDS, BILLS AND INFLATION
1998 YEARBOOK (IBBOTSON).
<PAGE>
5
SP = Size risk premium which is assumed to be 3.3 % based on IBBOTSON.
Performing the computation indicated by equation (1), with the assumptions
above, indicates an appropriate rate of return on equity (ke) of 16.46%. It
should be noted that in our opinion this represents a conservative estimate of
ke because the SP that we have utilized represents the expected
micro-capitalization equity size premium as reported in IBBOTSON. This size
category contains companies with market capitalization of up to $261million
which would generally be considered to be significantly less risky than
Pro-Dentec which has market capitalization of less than $10 million.
An alternative approach would involve the use of estimates of ke specific to the
dental equipment and supplies industry (SIC Code 3843) as reported in Ibbotson
and Associates: INDUSTRY COST OF CAPITAL. The basic reported equity return,
14.23% (industry composite return for an industry predominantly comprised of
companies that would be classified as low capitalization companies) should then
be adjusted to account for the size premium that would be appropriate for
micro-capitalization companies, 1.6% (micro-capitalization equity premium - low
capitalization equity premium), to yield a value of ke amounting to 15.83%.
In conclusion, we believe that a conservative estimate of the appropriate equity
return for Pro-Dentec would be in the range 15.83% to 16.46%. IBBOTSON and other
sources that we have relied on are generally considered to be extremely
authoritative in our discipline. These sources are widely utilized and quoted in
issues concerning the evaluation of risk premia and other financial issues.
For valuations based on cash flows available to overall invested capital (free
cash flows), the appropriate discount factor would be a weighted average cost of
capital. The weighted average cost of capital can be described as the average
price a company must pay to attract both debt and equity to properly capitalize
the firm's operation and growth. The weighted average cost of capital is defined
by equation (2), below:
(2) ka = (ke x we) + (kd(1-t) x wd)
Where ka = weighted average cost of capital
ke = rate of return on equity which is assumed to be in the range 15.83%
to 16.46% as discussed above.
we = Percentage of equity capital in the capital structure.
kd = rate of return on debt
<PAGE>
6
t= company's effective income tax rate
wd = percentage of debt capital in the capital structure
Performing the computation indicated by equation (2) indicates an average
weighted average cost of capital for the years 1999-2004 in the range 12.67% to
13.14%. We have utilized an average for these years because the values for we,
wd and kd differ for each year in the projection period as summarized in Tables
(8) and (9). The terminal value of ka, utilized for year 2005 and subsequent
years, is in the range 12.93% to 13.42%, which represents the weighted average
cost of capital for the year 2004.
VALUATION:
Given the discussion of cash flows and discount factors, above, the basic
valuation of Pro-Dentec as a going concern (discounted cash flow analysis) is
described by equation (3), below:
5 t 5
(3) Value = (SIGMA) Ct/(1+k) + (Cf /(k-g))/(1+k) - current debt claims
t = 0
Where Value = present value of projected future cash flows
Ct = Cash flow in year t as summarized for various scenarios in Tables
(3) through (6).
Cf = Normalized future cash flow as reported in Tables (3) through (6).
k = appropriate discount factor, either rate of return on equity (ke)
or weighted average cost of capital (ka).
g = projected growth in future cash flows which is assumed to be 2%. As
discussed above we believe that 2% would fully account for the
effects of inflation as well as real growth in excess of that
projected by Pro-Dentec management. It should be noted that any
changes in inflation in future years would effect k and g in the
same direction so as to have little effect on our computations.
Current debt claims = current outstanding debt of the company as of
October 31, 1998. Debt claims amounting to $2,736,000 are subtracted
for valuations focusing on free cash flows available to debt and
equity, but are ignored in valuations focusing on cash flows available
to equity.
<PAGE>
7
Value calculated in accordance with equation (3) is converted into a per share
basis by dividing by 14,100,000 outstanding shares. Our valuations are
summarized in Tables (3) through (6). Tables (3) and (4) focus on an equity
approach to valuation and indicate a value per share in the range $0.5709 to
$0.5943. Tables (5) and (6) focus on a free cash available to debt and equity
approach to valuation and indicate a value per share in the range $0.6686 to
$0.7136. It should be noted that the valuations that we have computed, based on
projected future cash flow information provided by Pro-Dentec management, are
considerably in excess of the valuations that could be derived based on the
historical performance of Pro-Dentec in the last 5 years as demonstrated by
Table (1).
CURRENT AND HISTORICAL MARKET PRICES
In financial theory and literature, the "Efficient Markets Hypothesis" argues
that all publicly available information should at all points in time be fully
incorporated into the value of securities. Consequently, for most publicly
traded securities the current market price of common stock should reflect the
intrinsic value of discounted projected future cash flows based on information
available at the time. In the case of thinly traded securities, such as
Pro-Dentec, it would not necessarily be true that current stock price would
always be equal to intrinsic value. More specifically, while the shares of
Pro-Dentec are publicly traded, they are closely held, are frequently not
traded, and when they do trade, tend to trade in small volume. Approximately 90%
of the shares are restricted as to sale by a formal shareholder agreement, and
have never been traded. Table (10), which illustrates trading volume over the
last 6 months, supports these points. Average daily trading volume of 1,659
shares for that period amounts to only 0.0118% of total outstanding shares.
Additionally, an examination of Table (10) and Chart (1) indicates that over the
last 6 months stock prices have fluctuated from a low of $0.56 per share to a
high of $0.88 per share. This represents a variation of prices in a range
covering 47.07% of average value over that period. Fluctuations are even more
significant when longer periods are analyzed. Given these facts it is our
opinion that current and historical stock prices would not necessarily be the
best indicator of future value in the case of Pro-Dentec.
Even though we have argued above that it is not clear that market price would be
an accurate indicator of the true intrinsic value of Pro-Dentec stock, a
calculation of average stock price over the last 3 months and 6 months indicates
values of $0.66 per share and $0.68 per share, respectively. While we do not
feel that these average stock prices represent definitive indicators of economic
value, the figures are certainly corroborative of our earlier results involving
discounted future cash flows.
<PAGE>
8
An additional point related to the use of current and historical stock prices as
indicators of value would involve the notion that, all other things being equal,
ownership interests which are not freely marketable are worth less than the same
shares if they were regularly traded. Consequently, any valuation based on
current or historical stock prices would be subject to a significant illiquidity
discount.
PUBLICLY TRADED COMPARABLE COMPANIES
In many instances multiplier approaches based on price/earnings ratios or
similar measures are used for valuation purposes. This methodology entails
identifying publicly traded comparable companies and assuming that financial and
valuation ratios would be similar across companies. It should be stressed that
the appropriate multiplier utilized in these instances would essentially be the
inverse of the rates of return on equity (ke) or weghted average cost of capital
(ka) utilized in the discounted cash flow analysis. Consequently, this is a
valuation technique that is primarily corroborative in nature.
In an attempt to corroborate our findings reported above we examined a number of
publicly traded companies sharing some similarities with Pro-Dentec. In our
analysis we found that Pro-Dentec is fairly unique in that it is relatively
small, is vertically integrated in the manufacturing and sale of its core
products, and sells its products in narrow dental market niches. There are some
companies that sell the same products, but also sell substantially different
products; consequently, it is difficult to disentangle the separate effects of
the relevant divisions. Other companies focus on either manufacturing or selling
the relevant products. Additionally, it should be noted that significant
discrepancies in size exist across many of these companies. Of those companies
that are publicly traded, with a substantial part of their business in the
dental industry, and that manufacture and sell their products, relevant
financial ratios provide little guidance. For example, many of those companies
have recently incurred losses, so that calculations of Price/Earnings ratios are
not meaningful. Further, those companies do not produce and sell in the same
narrow dental market niches that Pro-Dentec does. Consequently, we concluded
that for purposes of valuing Pro-Dentec's common stock, there were no publicly
traded comparable companies.
BOOK VALUE PER SHARE
Pro-Dentec is engaged in a dynamic and ever-changing dental market. Book value
per share measures are inherently backward-looking and reflective of past
performance; they are not necessarily indicative of future performance. In
dynamic markets proper valuation of common stock should reflect expectations of
FUTURE performance. Note also that Pro-Dentec's book value per share as of
October 31, 1998 was $0.41, which is significantly less than Pro-Dentec's
current and historical prices. For these reasons we concluded that use of book
value per share in the valuation of Pro-Dentec common stock is not appropriate.
LIQUIDATION VALUE
Usage of liquidation is not appropriate here. Pro-Dentec is not in a business
posture where liquidation is remotely possible. Additionally, any liquidation
value would necessarily be below the book value. As discussed above, book value
per share is not appropriate for valuation purposes here. Similarly, liquidation
value is not appropriate.
<PAGE>
9
VALUATION SUMMARY
Based on the analysis above, we conclude that the fair market value of the
Company's common stock lies within the range $0.5709 per share to $0.7136 per
share. Tables (3) - (6) document the computations used to derive this range
based on discounted cash flow approaches to valuation. As discussed above, we
believe that discounted cash flow approaches to valuation are, in general,
superior to other valuation techniques. That is especially true in the case on
Pro-Dentec where other valuation methodologies, discussed above, do not appear
to be appropriate.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
FIVE YEAR OPERATING HISTORY
($000's Except EPS)
YEAR
- --------------------------------------------------------------------------------------------------------------------
ITEM 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales 24,101 23,769 21,789 23,823 27,524
Cost of Goods 9,601 9,160 9,235 9,427 10,798
Gross Profit 14,500 14,519 12,554 14,396 16,726
Operating Expense 13,377 13,379 11,228 13,155 14,978
Operating Income 1,123 1,140 1,326 1,241 1,748
Other Income (Expense) (588) (957) (931) (485) 256
Profit Before Tax 535 183 395 756 2,004
Income Tax 234 72 137 293 784
Net Income 301 111 258 463 1,220
EPS 0.02 0.01 0.02 0.03 0.09
Average No. of Shares 14,988 14,476 14,104 14,100 14,100
....................................................................................................................
Cash 1,244 899 1,128 1,267 1,833
Current Assets 5,588 5,442 5,523 6,389 8,313
Net Fixed Assets 1,575 1,513 1,980 2,494 2,731
Total Assets 8,073 7,709 7,977 9,014 11,179
Current Liabilities 3,701 3,391 2,908 3,180 4,159
Long Term Debt 723 527 677 755 835
Net Worth (Shareholders Equity) 3,649 3,792 4,086 4,574 5,819
....................................................................................................................
Cash from Operations 497 644 1,415 1,138 915
Cash Invested (1,075) (1,068) (1,151) (280) (1,079)
Cash from Financing 594 72 (447) (319) 632
Net Cash Flow 11 (345) (183) 539 468
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
DISCOUNTED CASH FLOW ANALYSIS OF EQUITY CAPITAL ($000's)
COST OF EQUITY= 15.83%
LONG-TERM GROWTH RATE = 2.00%
NUMBER OF SHARES = 14,100,000
YEAR
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM 1999 2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 1,044 $ 1,280 $ 1,526 $ 1,619 $ 1,665 $ 1,688
Plus: Changes in Long-term Debt (315) 780 1,133 824 675 (552)
Plus: Deprec. and Amort. 701 727 763 852 964 1,141
Less: Change in Work. Cap. 318 (123) (106) (168) (120) (58)
Less: Capital Expenditures (600) (1,832) (2,230) (2,403) (2,322) (1,172)
..................................................................................................................................
Constant Dollar Cash Flow $ 1,148 $ 832 $ 1,086 $ 724 $ 862 $ 1,047
Current Dollar Cash Flow $ 1,148 $ 849 $ 1,130 $ 768 $ 933 $ 1,156
DISCOUNTED CASH FLOW $ 1,148 $ 733 $ 842 $ 494 $ 518 $ 554
- ----------------------------------------------------------------------------------------------------------------------------------
Current dollar normalized cash flow used for terminal value = $ 1,179
Sum of Discounted Free Cash Flows, 1999-2004 $ 4,290
Terminal Value $ 4,089
Total Equity Value $ 8,379
Equity Value per Share $ 0.5943
</TABLE>
<PAGE>
TABLE 4
<TABLE>
<CAPTION>
DISCOUNTED CASH FLOW ANALYSIS OF EQUITY CAPITAL ($000's)
COST OF EQUITY = 16.46%
LONG-TERM GROWTH RATE = 2.00%
NUMBER OF SHARES = 14,100,000
YEAR
- ----------------------------------------------------------------------------------------------------------------------------
ITEM 1999 2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 1,044 $1,280 $ 1,526 $1,619 $ 1,665 $ 1,688
Plus: Changes in Long-term Debt (315) 780 1,133 824 675 (552)
Plus: Deprec. and Amort. 701 727 763 852 964 1,141
Less: Change in Work. Cap. 318 (123) (106) (168) (120) (58)
Less: Capital Expenditures (600) (1,832) (2,230) (2,403) (2,322) (1,172)
- ----------------------------------------------------------------------------------------------------------------------------
Constant Dollar Cash Flow $ 1,148 $ 832 $ 1,086 $ 724 $ 862 $ 1,047
Current Dollar Cash Flow $ 1,148 $ 849 $ 1,130 $ 768 $ 933 $ 1,156
DISCOUNTED CASH FLOW $ 1,148 $ 729 $ 833 $ 486 $ 507 $ 540
- ----------------------------------------------------------------------------------------------------------------------------
Current dollar normalized cash flow used for terminal value = $1,179
Sum of Discounted Free Cash Flows, 1999-2004 $ 4,243
Terminal Value $ 3,806
Total Equity Value $ 8,049
Equity Value per Share $ 0.5709
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 5
DISCOUNTED CASH FLOW ANALYSIS OF INVESTED CAPITAL($000's)
COST OF EQUITY= 15.83%
WEIGHTED COST OF CAPITAL = 12.67%
LONG-TERM GROWTH RATE = 2.00%
NUMBER OF SHARES = 14,100,000
YEAR
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM 1999 2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EBIT $ 1,920 $ 2,229 $ 2,579 $ 2,753 $ 2,904 $ 2,943
Less:Taxes on EBIT (739) (853) (986) (1,053) (1,111) (1,126)
Plus: Deprec. and Amort. 701 727 763 852 964 1,141
Less: Change in Work. Cap. 318 (123) (106) (168) (120) (58)
Less: Capital Expenditures (600) (1,832) (2,230) (2,403) (2,322) (1,172)
..................................................................................................................................
Constant Dollar Cash Flow $ 1,600 $ 148 $ 20 $ (19) $ 315 $ 1,728
Current Dollar Cash Flow $ 1,600 $ 151 $ 21 $ (20) $ 341 $ 1,908
DISCOUNTED CASH FLOW $ 1,600 $ 134 $ 16 $ (14) $ 212 $ 1,051
- ----------------------------------------------------------------------------------------------------------------------------------
Current dollar normalized cash flow used for terminal value = $ 1,946
Sum of Discounted Cash Flows, 1999-2004 $ 2,998
Terminal Value $ 9,800
Total Value $ 12,798
Less Debt $ (2,736)
Total Equity Value $ 10,062
Equity Value per Share $ 0.7136
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
DISCOUNTED CASH FLOW ANALYSIS OF INVESTED CAPITAL($000's)
COST OF EQUITY= 16.46%
WEIGHTED COST OF CAPITAL = 13.14%
LONG-TERM GROWTH RATE = 2.00%
NUMBER OF SHARES = 14,100,000
YEAR
- ----------------------------------------------------------------------------------------------------------------------------
ITEM 1999 2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EBIT $1,920 $ 2,229 $ 2,579 $ 2,753 $2,904 $2,943
Less:Taxes on EBIT (739) (853) (986) (1,053) (1,111) (1,126)
Plus: Deprec. and Amort. 701 727 763 852 964 1,141
Less: Change in Work. Cap. 318 (123) (106) (168) (120) (58)
Less: Capital Expenditures (600) (1,832) (2,230) (2,403) (2,322) (1,172)
............................................................................................................................
Constant Dollar Cash Flow $1,600 $ 148 $ 20 $ (19) $ 315 $1,728
Current Dollar Cash Flow $1,600 $ 151 $ 21 $ (20) $ 341 $1,908
DISCOUNTED CASH FLOW $1,600 $ 133 $ 16 $ (14) $ 208 $1,029
- ----------------------------------------------------------------------------------------------------------------------------
Current dollar normalized cash flow used for terminal value = $ 1,946
Sum of Discounted Cash Flows, 1999-2004 $ 2,973
Terminal Value $ 9,190
Total Value $12,163
Less Debt $(2,736)
Total Equity Value $ 9,427
Equity Value per Share $0.6686
</TABLE>
<PAGE>
TABLE 8
WEIGHTED AVERAGE COST OF CAPITAL FOR TABLE 5
($000's)
Cost of Equity = 15.83%
Tax Rate = 38.3%
<TABLE>
<CAPTION>
YEAR
- ---------------------------------------------------------------------------------------------------------------------------
ITEM 1999 2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest 223 156 108 132 207 209
Debt 2,091 2,118 3,093 3,927 4,602 4,050
Cost of Debt 10.66% 7.37% 3.49% 3.36% 4.50% 5.16%
Common Equity 5,862 7,142 8,668 10,286 11,951 13,639
Debt + Common Equity 7,953 9,260 11,761 14,213 16,553 17,689
Debt Proportion 26.29% 22.87% 26.30% 27.63% 27.80% 22.90%
Equity Proportion 73.71% 77.13% 73.70% 72.37% 72.20% 77.10%
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Avg. Cost of Capital 13.40% 13.25% 12.23% 12.03% 12.20% 12.93%
- ---------------------------------------------------------------------------------------------------------------------------
Average WACC for Years 1999-2004 = 12.67%
</TABLE>
<PAGE>
TABLE 9
WEIGHTED AVERAGE COST OF CAPITAL FOR TABLE 6
($000's)
Cost of Equity= 16.46%
Tax Rate = 38.3%
<TABLE>
<CAPTION>
YEAR
- ---------------------------------------------------------------------------------------------------------------------------
ITEM 1999 2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest 223 156 108 132 207 209
Debt 2,091 2,118 3,093 3,927 4,602 4,050
Cost of Debt 10.66% 7.37% 3.49% 3.36% 4.50% 5.16%
Common Equity 5,862 7,142 8,668 10,286 11,951 13,639
Debt + Common Equity 7,953 9,260 11,761 14,213 16,553 17,689
Debt Proportion 26.29% 22.87% 26.30% 27.63% 27.80% 22.90%
Equity Proportion 73.71% 77.13% 73.70% 72.37% 72.20% 77.10%
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Avg. Cost of Capital 13.86% 13.73% 12.70% 12.49% 12.66% 13.42%
- ---------------------------------------------------------------------------------------------------------------------------
Average WACC for Years 1999-2004= 13.14%
</TABLE>
<PAGE>
Chart
Historical Common Stock Prices
[Line graph and bar graph containing stock prices of the Company from September
15, 1998 through March 10, 1999]
<PAGE>
<TABLE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1999
Exhibit 4
<CAPTION>
IN THOUSANDS
-----------------------------------------------
Reverse Split &
Buyback
As Reported Adjustments Pro Forma
-----------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,548 (650) $ 898
Certificates of deposit 209 209
Accounts recievable, net 2,523 2,523
Inventory 2,550 2,550
Advances to employees, officers and directors 70 70
Deferred income taxes 211 211
Other current assets 449 449
-----------------------------------------------
Total current assets 7,560 (650) 6,910
PROPERTY AND EQUIPMENT, NET 2,695 2,695
INVESTMENTS IN AND ADVANCES TO AFFILIATES - -
DEFERRED INCOME TAXES 122 122
OTHER ASSETS 9 9
-----------------------------------------------
TOTAL $ 10,386 $ (650) $ 9,736
===============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - line of credit $ 223 $ 223
Accounts payable - trade 1,065 1,065
Accrued payroll and payroll taxes 553 553
Accrued warranty costs 150 150
Other accrued liabilities 411 411
Current portion of long-term debt 461 461
Current portion of capital lease obligations 209 209
-----------------------------------------------
Total current liabilities 3,072 3,072
Long-Term Debt, Net of current portion 714 714
Captial Lease Obligations, Net of current portion 266 266
-----------------------------------------------
Total liabilities 4,052 4,052
STOCKHOLDERS' EQUITY:
Common stock, at par 141 (10) 131
Additional paid-in capital 316 316
Retained Earnings 5,877 (640) 5,237
-----------------------------------------------
Total stockholders' equity 6,334 (650) 5,684
TOTAL $ 10,386 $ (650) $ 9,736
===============================================
Common stock book value $6,334,000 (650,000) 5,684,000
Number of common shares outstanding 14,148,000 1,310
Book value per share $ 0.45 $ 4,338.93
</TABLE>
<PAGE>
Professional Dental Technologies, Inc.
Notes to Pro Forma Consolidated Balance Sheets
April 30, 1999
1. Reverse Split and Buyback Adjustments:
The pro forma balance sheets reflect the reduction in cash and cash
equivalents and the decrease in stockholders' equity of $650,000 (100
shares x $6,500/share) resulting from the buyback of estimated fractional
common shares after the 1-for-10,000 reverse common stock split (100
aggregate shares) at $6,500 per share, as if the buyback occurred at
October 31, 1998.
The estimate that 100 shares of New Common Stock will be redeemed in the
form of fractional shares was made by analyzing the lists of registered
stockholders and of non-objecting beneficial owners ("NOBO"), and by
estimating the holding of those objecting beneficial owners whose names and
number of shares owned do not appear on the NOBO list.
The pro forma book value per share reflects the lower common stock book
value and the lower number of common shares outstanding after the split and
buyback.
<PAGE>
<TABLE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
Pro Forma Consolidated Statement of Income
For the Year Ended October 31, 1998
Exhibit 5
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
-------------------------------------------------------------------
Reverse Split &
Buyback
As Reported Adjustments Pro Forma
----------------------------------------------------------
<S> <C> <C> <C>
SALES $ 27,524 $ - $ 27,524
-
COST OF GOODS SOLD 10,798 10,798
----------------------------------------------------------
Gross profit 16,726 16,726
OPERATING EXPENSES 14,978 14,978
----------------------------------------------------------
Income from operations 1,748 - 1,748
OTHER INCOME (EXPENSE):
Affiliate activity (69) (69)
Interest expense (281) (281)
Miscellaneous income (expense) 606 (29) 577
----------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,004 (29) 1,975
PROVISIONS FOR INCOME TAXES 784 (11) 773
----------------------------------------------------------
NET INCOME $ 1,220 $ (18) $ 1,202
==========================================================
WEIGHTED AVERAGE OF OUTSTANDING SHARES 14,148,000 (14,146,690) 1,310
BASIC EARNINGS PER SHARE $ 0.09 $ 920.77
==========================================================
DILUTED EARNINGS PER SHARE $ 0.09 $ 920.77
==========================================================
</TABLE>
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER ENDING APRIL 30, 1999
Exhibit 6
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
-------------------------------------------
Reverse Split &
Buyback
As Reported Adjustments Pro Forma
-------------------------------------------
SALES $ 7,383 $ 7,383
COST OF GOODS SOLD 3,063 3,063
-------------------------------------------
Gross profit 4,320 4,320
OPERATING EXPENSES 3,659 3,659
-------------------------------------------
Income from operations 661 661
OTHER INCOME (EXPENSE):
Affiliate activity (25) (25)
Interest expense (38) (38)
Miscellaneous income (expense) 25 (7) 18
-------------------------------------------
INCOME BEFORE INCOME TAXES 623 (7) 616
PROVISIONS FOR INCOME TAXES 245 (3) 242
-------------------------------------------
NET INCOME $ 378 $ (4) $ 362
===========================================
WEIGHTED AVERAGE OF OUTSTANDING
SHARES 14,148,000 (14,146,690) 1,310
BASIC EARNINGS PER SHARE $ 0.03 $276.34
===========================================
DILUTED EARNINGS PER SHARE $ 0.03 $276.34
===========================================
<PAGE>
Professional Dental Technologies, Inc.
Notes to Pro Forma Consolidated Statements of Income
April 30, 1999 and October 31, 1998
1. Reverse Split and Buyback Adjustments:
The pro forma statements of income reflect the reduction in interest
income, net of income taxes, to give effect to the $650,000 (100 shares
$6,500/share) reduction of cash and cash equivalents to acquire the
estimated fractional common shares outstanding after the 1-for-10,000
reverse common stock split at $6,500 per share, as if the reverse split
(100 aggregate shares) and buyback occurred at October 31, 1997.
The estimate that 100 shares of New Common Stock will be redeemed in the
form of fractional shares was made by analyzing the lists of registered
stockholders and of non-objecting beneficial owners ("NOBO"), and by
estimating the holding of these objecting beneficial owners whose names and
number of shares owned do not appear on the NOBO list.
The pro forma basic and diluted earnings per share reflect the lower net
income and the lower number of common shares outstanding after the reverse
stock split and buyback of fractional common shares at $6,500 per share.
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
EXHIBIT 7
NEVADA REVISED STATUTES
CHAPTER 92A.300 - 92A.500
RIGHTS OF DISSENTING OWNERS
WEST PUBLISHING CO.
Corporations 182.4(4) to 182.4(6), 584.
WESTLAW Topic No.101.
C.J.S. Corporations Sections 347 to 350,799 to 801.
NRS 92A.300 DEFINITIONS. As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "CORPORATE ACTION" DEFINED. "Corporate action" means the action of
a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "DISSENTER" DEFINED. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.410 to
92A.480, inclusive.
(Added to NRS by 1995, 2087)
NRS 92A.320 "FAIR VALUE" DEFINED. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of
the corporate action to which he objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
(Added to NRS by 1995, 2087)
NEVADA CASES.
DEFINITION. TERM "fair cash value" (now "fair value") as used in former NRS
78.510 (cf. NRS 92A.320 and 92A.380), relating to payment to dissident former
shareholders of merged corporation, meant intrinsic value of dissenting
shareholders' interests determined from assets and liabilities of corporation
considered in light of every factor bearing on value. Southdown, Inc. v.
McGinnis, 89Nev. 184, 510P.2d 636(1973)
NRS 92A.325 "STOCKHOLDER" DEFINED. "Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation.
<PAGE>
(Added to NRS by 1995, 2087)
NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "SUBJECT CORPORATION" DEFINED. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective
or the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 COMPUTATION OF INTEREST. Interest payable pursuant to NRS 92A.300
to 92A.500, inclusive, must be computed from the effective date of the action
until the date of payment, at the average rate currently paid by the entity on
its principal bank loans or, if it has no bank loans, at a rate that is fair
and equitable under all of the circumstances.
(Added to NRS by 1995, 2087)
NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with
any merger or exchange in which the domestic limited partnership is a
constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED- LIABILITY
COMPANY. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
1. Except as otherwise provided in subsection 2, and unless otherwise provided
in the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or
surviving corporations which did not occur before his resignation and is
thereby entitled to those rights, if any, which would have existed if there
had been no merger and the membership had been terminated or the member had
been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of
NRS to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
<PAGE>
NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND
TO OBTAIN PAYMENT FOR SHARES.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is a
party:
(1) If approval by the stockholders is required for the merger by NRS 92A.120
to 92A.160, inclusive, or the articles of incorporation and he is entitled to
vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with its parent
under NRS 92A. 180.
(b) Consummation of a plan of exchange to which the domestic corporation is a
party as the corporation whose subject owner's interests will be acquired, if
he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to the
event that the articles of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting stockholders are entitled to
dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to
him or the domestic corporation.
(Added to NRS by 1995, 2087)
WEST PUBLISHING CO.
Corporations 182.4(5).
WESTLAW Topic No.101.
C.J.S. Corporations Sections 348, 350.
NEVADA CASES.
DEFINITION. TERM "FAIR CASH VALUE" (NOW "FAIR VALUE") as used in former NRS
78.510 (cf. NR5 92A.320 and 92A.380), relating to payment to dissident former
shareholders of merged corporation, meant intrinsic value of dissenting
shareholders' interests determined from assets and liabilities of corporation
considered in light of every factor bearing on value. Southdown, Inc. v.
McGinnis, 89 Nev. 184, 510 P.2d 636 (1973)
FEDERAL AND OTHER CASES.
ADEQUATE REMEDY AT LAW FOR DISSENTING STOCKHOLDERS. STOCKHOLDERS in Nevada
corporation who opposed merger with another corporation could not invoke
equity powers of federal courts to block merger, in absence of fraud, because
they had adequate remedy at law under NCL Section 1640 (CF. NRS 92A.380) which
provides that dissenting stockholder may demand and receive "the fair cash
value of his shares." Skelly v. Dockweiler, 75 F. Supp. 11 (S.D. CAL. 1947)
NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES
OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
<PAGE>
1. There is no right of dissent with respect to a plan of merger or exchange
in favor of stockholders of any class or series which, at the record date
fixed to determine the stockholders entitled to receive notice of and to vote
at the meeting at which the plan of merger or exchange is to be acted on, were
either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of merger
or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of merger or
exchange, were either listed on a national securities exchange, included in
the national market system by the National Association of Securities Dealers,
Inc., or held of record by a least 2,000 holders of owner's interests of
record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A. 130.
(Added to NRS by 1995, 2088)
WEST PUBLISHING CO.
Corporations 584.
WESTLAW Topic No.101.
C.J.S. CORPORATIONS Sections 799 TO 801.
NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO
SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
1. A stockholder of record may assert dissenter's rights as to fewer than all
of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject
corporation in writing of the name and address of each person on whose behalf
he asserts dissenter's rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his
other shares were registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held on
his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
<PAGE>
NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
1. If a proposed corporate action creating dissenters' rights is submitted to
a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the
domestic corporation shall notify in writing all stockholders entitled to
assert dissenters' rights that the action was taken and send them the
dissenter's notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
1. If a proposed corporate action creating dissenters' rights is submitted to
a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed action
is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is not
entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089)
NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.
1. If a proposed corporate action creating dissenters' rights is authorized at
a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the f'ffst
announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
<PAGE>
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF STOCKHOLDER.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares before the
date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if any,
before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730)
NEVADA CASES.
DISSIDENT STOCKHOLDERS ENTITLED TO PREJUDGMENT INTEREST FROM DATE OF DEMAND.
IN PROCEEDING PURSUANT TO former NRS 78.510 (cf. NRS 92A.490) by dissident
former shareholders of merged Nevada CORPORATION TO RECOVER fair cash value of
their shares, former shareholders were entitled to recover prejudgment
interest on fair cash value from date of demand for payment because, under
former NRS 78.515 (cf. NRS 92A.440), they ceased to be shareholders and became
creditors on date of demand and, as creditors, were entitled to interest under
NRS 99.040. Fact that amount due had not yet been judicially determined was
immaterial. Southdown, Inc. v. McGinnis, 89 Nev. 184, 510 P.2d 636(1973),
cited, Tolotti v. Eikelberger, 90 Nev. 466, at 468,530 P.2d 106 (1974), Lake
Tahoe Sailboat Sales & Charter, Inc. v. Douglas County, 562 F. Supp. 523 (D.
Nev. 1983)
NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND
FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
1. The subject corporation may restrict the transfer of shares not represented
by a certificate from the date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
<PAGE>
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt
of a demand for payment, the subject corporation shall pay each dissenter who
complied with NRS 92A.440 the amount the subject corporation estimates to be
the fair value of his shares, plus accrued interest. The obligation of the
subject corporation under this subsection may be enforced by the district
court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered office
in this state, of the county where the dissenter resides or has its registered
office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS 92A.480;
and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.
1. A subject corporation may elect to withhold payment from a dissenter unless
he was the beneficial owner of the shares before the date set forth in the
dissenter's notice as the date of the first announcement to the news media or
to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares,
plus accrued interest, and shall offer to pay this amount to each dissenter
who agrees to accept it in full satisfaction of his demand. The subject
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated, and a
statement of the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
I. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value
of his shares and interest due, if he believes that the amount paid pursuant
to NRS 92A.460 or offered pursuant to NRS 92A.470 is less than the fair value
of his shares or that the interest due is incorrectly calculated.
<PAGE>
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition
the court to determine the fair value of the shares and accrued interest. If
the subject corporation does not commence the proceeding within the 60- day
period, it shall pay each dissenter whose demand remains unsettled the amount
demanded.
2. A subject corporation shall commence the proceeding in the district court
of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it
shall commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not residents
of Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of his after- acquired shares
for which the subject corporation elected to withhold payment pursuant to NRS
92A.470.
(Added to NRS by 1995, 2091)
WEST PUBLISHING CO.
Corporations 182.4(6).
WESTLAW Topic No.101.
C.J.S. Corporations Sections 349, 350.
NEVADA CASES.
FINDINGS OF APPRAISERS NOT DISTURBED UNLESS CLEARLY WRONG. ON APPEAL FROM
judgment confirming appraisal of stock of merged corporation in proceeding
under former NRS 78.510 (cf. NRS 92A.490) by dissident former shareholders to
recover value of their shares, findings of appraisers would not be disturbed
<PAGE>
unless clearly wrong. Southdown, Inc. v. McGinnis, 89 Nev. 184,510 P.2d
636(1973)
DISSIDENT STOCKHOLDERS ENTITLED TO PREJUDGMENT INTEREST FROM DATE OF DEMAND.
IN proceeding pursuant to former NRS 78.510 (cf. NRS 92A.490) by dissident
former shareholders of merged Nevada corporation to recover fair cash value of
their shares, former shareholders were entitled to recover prejudgment
interest on fair cash value from date of demand for payment because, under
former NRS 78.515 (cf. NRS 92A.440), they ceased to be shareholders and became
creditors on date of demand and, as creditors, were entitled to interest under
NRS 99.040. Fact that amount due had not yet been judicially determined was
immaterial. Southdown, Inc. v. McGinnis, 89 Nev. 184, 510 P.2d 636 (1973),
cited, Tolotti v. Eikelberger, 90 Nev. 466, at 468, 530 P.2d 106 (1974), Lake
Tahoe Sailboat Sales & Charter, Inc. v. Douglas County, 562 F. Supp. 523 (D.
Nov. 1983)
NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND
FEES.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced pursuant
to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68 or NRS
17.115.
(Added to NRS by 1995, 2092)
