<PAGE> 1
As filed with the Securities and Exchange Commission on June 24, 1996
Registration No. 33-______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under THE SECURITIES ACT OF 1933
AMERICAN DENTAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3845 38-2905258
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
</TABLE>
28411 NORTHWESTERN HIGHWAY, SUITE 1100, SOUTHFIELD, MICHIGAN 48034
(810) 353-5300
(Address, including zip code and telephone number, including area code of
Registrant's principal executive offices)
RAYMOND F. WINTER, (810) 353-5300, EXT. 626
SECRETARY AND GENERAL COUNSEL
28411 NORTHWESTERN HIGHWAY, SUITE 1100
SOUTHFIELD, MICHIGAN 48034-5541
(Name, address, including zip code and telephone number, including area code of
agent for service)
-----------------
Copies to:
JOHN E. VICKERS, III FRANK K. ZINN
TEXAS AIRSONICS, INC. DYKEMA GOSSETT PLLC
5555 BEAR LANE 400 RENAISSANCE CENTER
CORPUS CHRISTI, TEXAS 78705 DETROIT, MICHIGAN 48243-1504
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
effective time of the merger (the "Merger") of Texas Airsonics, Inc. ("Texas
Air") with and into a wholly-owned subsidiary of American Dental Technologies,
Inc. ("ADT") as described in the enclosed Joint Proxy Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
===================================================================================
Proposed
Amount Proposed Maximum Amount
Title of Each Class to be Maximum Aggregate of
of Securities Registered Offering Offering Registration
to be Registered (1) Price Per Share Price(2) Fee(3)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 11,881,856 N/A $2,988,963 $1,031
===================================================================================
</TABLE>
(1) Represents the number of shares of ADT Common Stock to be issued upon the
consummation of the Merger, based on the maximum number of shares of Common
Stock of Texas Air to be outstanding immediately prior to the Merger and the
maximum number of shares of ADT's Common Stock to be issued in connection with
the Merger, assuming the exercise of all warrants, all as provided in the
Restated Agreement and Plan of Reorganization attached as Annex A to the Joint
Proxy Statement/Prospectus.
(2) Estimated pursuant to Rule 457(f)(2) solely for the purpose of calculating
the registration fee based on the book value of Texas Air Common Stock on March
31, 1996.
(3) Pursuant to Section 14(g)(1)(B) of the Securities Exchange Act of 1934, as
amended, and Rule 457(b) under the Securities Act of 1933, as amended, the
registration fee has been reduced by the $670 fee already paid in connection
with the filing of the preliminary proxy material relating to the Merger and
the balance due of $361 is being paid herewith.
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
[Logo]
June 27, 1996
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
American Dental Technologies, Inc. ("ADT"), which will be held on July 29, 1996
at the Skyline Club, Mackinac Room, 2000 Town Center, Suite 2800, Southfield,
Michigan, commencing at 9:00 a.m., local time.
At this important meeting you will be asked to consider and vote to approve a
proposed merger and the issuance of common stock, par value $.01 per share, of
ADT ("ADT Common Stock") and warrants for ADT Common Stock, in exchange for
shares of common stock, no par value per share ("Texas Air Common Stock"), of
Texas Airsonics, Inc. ("Texas Air") pursuant to the Restated Agreement and Plan
of Reorganization dated as of November 22, 1995 (the "Agreement"), by and among
ADT, ADT Merger Corp., a wholly owned subsidiary of ADT ("Merger Sub"), and
Texas Air. Upon consummation of the transactions contemplated by the
Agreement, Texas Air will be merged with and into Merger Sub and become a
wholly owned subsidiary of ADT (the "Merger") and the stockholders of Texas Air
(other than stockholders of Texas Air who perfect their dissenters' rights in
the manner described in the enclosed Joint Proxy Statement/Prospectus) will
receive for each outstanding share of Texas Air Common Stock, 5.425 shares of
ADT Common Stock, together with a warrant to purchase 3.321 shares of ADT
Common Stock at a purchase price of $1.00 per share (subject to adjustment
depending upon the trading price of ADT's Common Stock prior to approval) for a
period commencing one year and one day and ending three years following the
effective date of the Merger. Cash payments will be made in lieu of any
fractional share. The accompanying Joint Proxy Statement/Prospectus provides
details of the proposed Merger and additional related information. You are
urged to read the Joint Proxy Statement/Prospectus carefully.
You will also be asked to consider and vote upon the election of directors to
the ADT Board of Directors, an amendment to ADT's certificate of incorporation
to increase the number of authorized shares of ADT Common Stock to facilitate
the Merger, and an amendment to ADT's Long-Term Incentive Plan to increase the
number of shares available under the plan to 2.5 million.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AS BEING FAIR TO, AND IN THE
BEST INTERESTS OF ADT. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AND THE ISSUANCE OF ADT COMMON STOCK AND MERGER WARRANTS IN EXCHANGE
FOR ALL THE SHARES OF TEXAS AIR COMMON STOCK PURSUANT TO THE AGREEMENT, AND FOR
APPROVAL OF THE ELECTION OF DIRECTORS, THE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION AND THE AMENDMENT TO THE LONG-TERM INCENTIVE PLAN.
The executive officers and directors of ADT and Texas Air together with certain
principal stockholders of ADT, beneficially own approximately 57% of the
outstanding shares of ADT Common Stock as of the ADT Record Date. Such persons
have advised ADT that they intend to vote all of the shares over which they
hold voting power in favor of the foregoing proposals. If such persons vote
their shares as indicated, the approval of all of the proposals presented for
vote at the annual meeting is assured.
It is important that your shares be represented at the Annual Meeting whether
or not you are personally able to attend. In order to insure that you will be
represented, we encourage you to complete and return the enclosed proxy card
promptly.
Sincerely,
William D. Myers Anthony D. Fiorillo
Chairman of the Board President and Chief Executive Officer
<PAGE> 3
AMERICAN DENTAL TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 29, 1996
To the Stockholders of
American Dental Technologies, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of American
Dental Technologies, Inc., a Delaware corporation ("ADT"), will be held on July
29, 1996 at the Skyline Club, Mackinac Room, 2000 Town Center, Suite 2800,
Southfield, Michigan, commencing at 9:00 a.m., local time, for the following
purposes:
(1) to consider and vote upon a proposal to issue shares of
common stock, par value $.01 per share, of ADT (the "ADT Common
Stock") in exchange for shares of common stock, no par value per share
("Texas Air Common Stock") of Texas Airsonics, Inc. ("Texas Air")
pursuant to the Restated Agreement and Plan of Reorganization, dated
as of November 22, 1995 (the "Agreement"), by and among ADT, ADT
Merger Corp., a wholly owned subsidiary of ADT ("Merger Sub"), and
Texas Air, pursuant to which, among other things; (a) Texas Air will
be merged with and into Merger Sub (the "Merger"), and (b) each share
of Texas Air Common Stock outstanding immediately prior to the
consummation of the Merger (other than shares held by stockholders of
Texas Air who perfect their dissenters' rights in the manner described
in the enclosed Joint Proxy Statement/Prospectus), will be converted
into the right to receive 5.425 shares of ADT Common Stock, together
with a warrant to purchase 3.321 shares of ADT Common Stock at a
purchase price of $1.00 per share (subject to adjustment depending
upon the trading price of ADT's Common Stock prior to approval) for a
period commencing one year and one day and ending three years
following the effective date of the Merger.
(2) to elect directors for terms of three years;
(3) to approve an amendment to the ADT certificate of
incorporation increasing the authorized ADT Common Stock from 25
million shares to 50 million shares;
(4) to approve an amendment to ADT's Long-Term Incentive Plan
increasing the number of shares issuable under the Plan to 2.5 million
shares;
(5) to transact such other business as may properly come before
the meeting or any adjournments thereof.
Only holders of record of ADT Common Stock at the close of business on
June 14, 1996 are entitled to notice of, and to vote at, the Annual Meeting or
any adjournments thereof.
<PAGE> 4
The Merger is more completely described in the accompanying Joint Proxy
Statement/Prospectus and the Agreement attached thereto as Annex A. The Joint
Proxy Statement/Prospectus and the Annexes thereto form a part of this Notice.
All stockholders, whether or not they expect to attend the meeting in person,
are requested to complete, sign, date and return the enclosed form of proxy in
the accompanying envelope (which requires no additional postage if mailed in
the United States). Your proxy will be revocable by filing with the Secretary
a written revocation or a proxy bearing a later date at any time prior to the
time it is voted, or by attending the meeting and voting there.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. RETURNING THE ENCLOSED
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON OR ATTEND THE ANNUAL
MEETING.
THE BOARD OF DIRECTORS OF ADT UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
ADT COMMON STOCK VOTE FOR APPROVAL OF EACH OF THE MATTERS LISTED ABOVE AND FOR
THE ELECTION OF EACH OF THE DIRECTORS NOMINATED.
By order of the Board of Directors,
Raymond F. Winter, Secretary
Southfield, Michigan
June 27, 1996
<PAGE> 5
[Logo]
June 27, 1996
Dear Stockholders:
A Special Meeting of Stockholders (the "Special Meeting") of Texas
Airsonics, Inc. ("Texas Air") will be held at the principal offices of Texas
Air at 5555 Bear Lane, Corpus Christi, Texas on July 27, 1996, at 9:00 a.m.,
local time.
At the Special Meeting, you will be asked to consider and vote to approve
the Restated Agreement and Plan of Reorganization and related Restated
Agreement of Merger (collectively the "Agreement"), providing for the merger of
Texas Air into ADT Merger Corp., a Texas corporation ("Merger Sub") and
wholly-owned subsidiary of American Dental Technologies, Inc., a Delaware
corporation ("ADT") (the "Merger").
Upon consummation of the Merger, Merger Sub will be the surviving
corporation and will change its name to Texas Airsonics, Inc. The separate
existence of Texas Air will cease. Each share of Texas Air common stock
("Texas Air Common Stock") outstanding immediately prior to the consummation of
the Merger (other than shares held by stockholders of Texas Air who perfect
their dissenters' rights in the manner described in the enclosed Joint Proxy
Statement/Prospectus), will be converted into the right to receive 5.425 shares
of ADT common stock, $.01 par value ("ADT Common Stock") together with a
warrant to purchase 3.321 shares of ADT Common Stock at a purchase price of
$1.00 per share (subject to adjustment depending upon the trading price of
ADT's Common Stock prior to approval) for a period commencing one year and one
day and ending three years following the effective date of the Merger (a
"Merger Warrant"). Based on this exchange ratio and the closing sale price of
ADT Common Stock on June 21, 1996 (which was $2.00) each share of Texas
Air Common Stock will be exchanged for approximately $10.85 worth of ADT
Common Stock, plus a Merger Warrant.
If the average closing price of ADT Common Stock for the 15 trading days
immediately preceding the date of the ADT annual stockholders' meeting
(currently scheduled for July 29, 1996) exceeds $2.00, then the exercise price
of the Merger Warrants will be increased by 50% of the amount obtained by
taking the average closing price of ADT Common Stock for such 15 day period and
deducting $2.00.
Just prior to consummation of the Merger, Texas Air will distribute
$10,000 and all of its patent rights for products not intended for ultimate use
in the dental field ("Patent Rights") to a Texas limited partnership recently
formed in connection with the Agreement (the "Partnership"). The Partnership
will be composed of Ben J. Gallant, Wayne A. Johnson II and Charles A. Nichols
as the general partners, and the other Texas Air stockholders (other than
stockholders who perfect their dissenters' rights in the manner described in
the enclosed Joint Proxy Statement/Prospectus) as limited partners. The
partners will hold partnership interests in the same relative proportion as
they hold Texas Air Common Stock as of the effective time of the Merger.
<PAGE> 6
The Patent Rights will be transferred to the Partnership subject to a
License Agreement to ADT providing for a royalty of eight percent (8%) on
industrial product revenues for six years, at which time all Patent Rights will
be conveyed to ADT. The License Agreement will terminate and the Patent Rights
will remain the property of the Partnership, if within three years from the
effective time of the Merger, ADT transfers, is acquired, merges or sells
substantially all of its dental business (including a merger with or
acquisition by another company).
If approved by the stockholders of Texas Air and ADT, the Merger will
become effective as soon as practical after such approval.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS ADVISABLE AND IN THE
BEST INTERESTS OF TEXAS AIR AND ITS STOCKHOLDERS AND, BY UNANIMOUS VOTE, HAS
RECOMMENDED THAT THE STOCKHOLDERS OF TEXAS AIR VOTE FOR APPROVAL OF THE MERGER.
In the material accompanying this letter, you will find a Notice of
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to
the actions to be taken by Texas Air stockholders at the Special Meeting, and a
proxy. The Joint Proxy Statement/Prospectus more fully describes the Merger
and includes information about Texas Air and ADT and the reasons for the
Merger.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Special Meeting, you may withdraw your proxy and vote in person if
you wish. It is important that your shares be represented and voted at the
Special Meeting.
Sincerely,
Ben J. Gallant, President
<PAGE> 7
TEXAS AIRSONICS, INC.
5555 BEAR LANE
CORPUS CHRISTI, TEXAS 78405
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 27, 1996
To the Stockholders of Texas Airsonics, Inc.
A Special Meeting of Stockholders of Texas Airsonics, Inc. ("Texas Air")
will be held on July 27, 1996, at 9:00 a.m. at the principal offices of Texas
Air at 5555 Bear Lane, Corpus Christi, Texas, for the following purpose.
To approve a Restated Agreement and Plan of Reorganization
between American Dental Technologies, Inc., a Delaware corporation
("ADT"); ADT Merger Corp., a Texas corporation and wholly owned
subsidiary of ADT ("Merger Sub"); and Texas Air, dated as of November
22, 1995, and related Restated Agreement of Merger between Texas Air
and Merger Sub (collectively the "Agreement"), (the "Merger"),
pursuant to which, among other things, (i) Merger Sub will be the
surviving corporation and change its name to Texas Airsonics, Inc.;
(ii) the separate existence of Texas Air will cease; (iii) each
outstanding share of Texas Air common stock ("Texas Air Common Stock")
(other than shares held by stockholders of Texas Air who perfect their
dissenters' rights in the manner described in the enclosed Joint Proxy
Statement/Prospectus) will be converted into 5.425 shares of ADT
common stock, together with a warrant to purchase 3.321 shares of ADT
common stock at a purchase price of $1.00 per share (subject to
adjustment depending upon the trading price of ADT's common stock
prior to approval of the Merger, as provided in the Agreement) for a
period commencing one year and one day and ending three years
following the effective date of the Merger; and (iv) Texas Air will
distribute $10,000 and all of its patent rights for products not
intended for ultimate use in the dental field ("Patent Rights") to a
Texas limited partnership composed of Ben J. Gallant, Wayne A. Johnson
II and Charles A. Nichols as the general partners, and the other Texas
Air stockholders (other than those who exercise their dissenters'
rights) as limited partners, subject to a license agreement with ADT
providing, among other things, a royalty equal to eight percent (8%)
of industrial product gross revenues to the Partnership for six (6)
years.
The Board of Texas Airsonics, Inc. has fixed the close of business on June
14, 1996 as the record date for determination of the holders of Texas Air
Common Stock entitled to vote at the Special Meeting. Approval of the Merger
requires the affirmative vote of the holders of at least two-thirds of the
outstanding shares of common stock of Texas Air at the close of business on the
record date.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS ADVISABLE AND IN THE
BEST INTERESTS OF TEXAS AIR AND ITS STOCKHOLDERS AND, BY UNANIMOUS VOTE OF THE
DIRECTORS, HAS RECOMMENDED THAT THE STOCKHOLDERS OF TEXAS AIR VOTE FOR THE
APPROVAL OF THE MERGER.
<PAGE> 8
The Merger and related matters are more fully described in the Agreement
attached to the accompanying Joint Proxy Statement/Prospectus.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Special Meeting, you may withdraw your proxy and vote in person if
you wish. It is important that your shares be represented and voted at the
Special Meeting.
By order of the Board of Directors,
Ben J. Gallant, Chairman
Corpus Christi, Texas
June 27, 1996
<PAGE> 9
AMERICAN DENTAL TECHNOLOGIES, INC.
and
TEXAS AIRSONICS, INC.
JOINT PROXY STATEMENT
AMERICAN DENTAL TECHNOLOGIES, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of common stock of American Dental Technologies, Inc., a Delaware
corporation ("ADT"), in connection with the solicitation of proxies by the
Board of Directors of ADT for use at the annual meeting of stockholders of ADT
to be held on July 29, 1996, at the Skyline Club, Mackinac Room, 2000 Town
Center, Suite 2800, Southfield, Michigan, commencing at 9:00 a.m., local time,
and at any adjournments or postponements thereof (the "ADT Annual Meeting").
At the ADT Annual Meeting, stockholders of record of ADT as of the close of
business on June 14, 1996, will consider and vote upon (i) a proposed merger
and the issuance of shares of common stock, par value $.01 per share, of ADT
(the "ADT Common Stock") and warrants to purchase ADT Common Stock pursuant to
an Agreement (as defined below); (ii) the election of Dr. William D. Myers and
Mr. Ben J. Gallant as directors of ADT to serve for a term expiring in 1999;
(iii) the approval of an amendment to ADT's certificate of incorporation
increasing the authorized ADT Common Stock from 25 million to 50 million
shares; and (iv) the approval of an amendment increasing the number of shares
issuable under ADT's Long-Term Incentive Plan from 1.5 million to 2.5 million
shares.
This Joint Proxy Statement/Prospectus is also being furnished to holders
of shares of common stock of Texas Airsonics, Inc., a Texas corporation ("Texas
Air"), in connection with the solicitation of proxies by the Board of Directors
of Texas Air for use at the special meeting of stockholders of Texas Air to be
held on July 27, 1996 at Texas Air's headquarters, located at 5555 Bear Lane,
Corpus Christi, Texas, commencing at 9:00 a.m., local time, and at any
adjournments or postponements thereof (the "Texas Air Special Meeting"). At
the Texas Air Special Meeting, stockholders of record of common stock, no par
value per share ("Texas Air Common Stock"), as of the close of business on June
14, 1996, will consider and vote upon the approval and adoption of transactions
proposed in a Restated Agreement and Plan of Reorganization, dated as of
November 22, 1995, among ADT, ADT Merger Corp., a wholly owned subsidiary of
ADT ("Merger Sub"), and Texas Air, and related Restated Agreement of Merger
between Texas Air and Merger Sub, dated as of November 22, 1995 (collectively,
the "Agreement"). Pursuant to the Agreement, Texas Air will be merged with and
into Merger Sub, Merger Sub will be the surviving corporation and change its
name to Texas Airsonics, Inc. (the "Merger"). Upon consummation of the Merger,
each outstanding share of Texas Air Common Stock (other than shares held by
stockholders of Texas Air who perfect their dissenters' rights in the manner
described in this Joint Proxy Statement/Prospectus) will be converted into the
right to receive 5.425 fully paid and nonassessable shares of ADT Common Stock,
together with a warrant to purchase 3.321 shares of ADT Common Stock at a
purchase price of $1.00 per share (subject to adjustment depending upon the
trading price of ADT's Common Stock prior to approval) for a period commencing
one year and one day and ending three years following the effective date of the
Merger (a "Merger Warrant"). No fractional shares will be issued in connection
with the Merger and cash will be paid in lieu thereof. See "The Agreement -
Conversion and Exchange of Texas Air Common Stock."
1
<PAGE> 10
The Boards of Directors of ADT and Texas Air know of no business that will
be presented for consideration at the meetings of stockholders of each,
respectively, other than the matters described in this Joint Proxy
Statement/Prospectus. If any other matters are presented at either of such
meetings, the proxies will be voted in accordance with the best judgment of the
proxy holders.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of ADT
with respect to up to 11,881,856 shares of ADT Common Stock to be issued in the
Merger in exchange for outstanding shares of Texas Air Common Stock, based upon
the number of shares of Texas Air Common Stock to be exchanged in the Merger,
assuming the exercise prior to their expiration on July 1, 1996 by Denics Co.
Ltd. ("Denics") of warrants to acquire 83,333 shares of Texas Air Common Stock.
All information contained in this Joint Proxy Statement/Prospectus relating to
ADT has been supplied by ADT and all information relating to Texas Air has been
supplied by Texas Air.
This Joint Proxy Statement/Prospectus is first being mailed to
stockholders of ADT and stockholders of Texas Air on or about June 27, 1996.
THE OFFERING OF ADT COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 19.
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JUNE 27, 1996.
2
<PAGE> 11
AVAILABLE INFORMATION
ADT is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and
other information filed by ADT with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street NW, Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, at prescribed rates. Whether or not the Merger is
consummated, ADT will continue to be required to file periodic reports, proxy
statements and other information with the Commission pursuant to the Exchange
Act. Texas Air is not a reporting company and does not intend to deliver
annual reports to its security holders.
ADT has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities to be issued to Texas Air stockholders pursuant to the Agreement.
This Joint Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement. The Registration Statement may be
obtained from the Commission's principal office in Washington, D.C. Statements
contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed or incorporated by reference as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
THIS JOINT PROXY STATEMENT/PROSPECTUS MAY INCLUDE INFORMATION FROM
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS ARE AVAILABLE UPON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, IN THE
CASE OF DOCUMENTS RELATING TO ADT, DIRECTED TO AMERICAN DENTAL TECHNOLOGIES,
INC., 28411 NORTHWESTERN HIGHWAY, SUITE 1100, SOUTHFIELD, MICHIGAN 48034-5541
(TELEPHONE NUMBER 810-353-5300), ATTENTION: SECRETARY; OR IN THE CASE OF
DOCUMENTS RELATING TO TEXAS AIR, DIRECTED TO TEXAS AIRSONICS, INC., 5555 BEAR
LANE, CORPUS CHRISTI, TEXAS 78405 (TELEPHONE NUMBER 512-289-1145), ATTENTION:
SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS, ANY REQUEST SHOULD
BE MADE BEFORE JULY 22, 1996.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THE JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ADT, TEXAS
AIR OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ADT OR
TEXAS AIR SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
3
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
AVAILABLE INFORMATION ................................ 3 Potential Inability to Integrate
TABLE OF CONTENTS .................................... 4 ADT and Texas Air ....................... 21
SUMMARY .............................................. 7 Conflicts of Interest ..................... 21
Business of ADT and Merger Sub ...................... 7 Limited Public Market and
Business of Texas Air ............................... 7 Volatility of ADT Common Stock .......... 21
The Merger .......................................... 7 Potential Adverse Effects of Future
Time, Place and Date of Annual Meeting Sales of ADT Common Stock ............... 21
Of Stockholders of ADT ............................ 8 Control of ADT by Affiliates .............. 21
Time, Place and Date of Special Meeting Fixed Exchange Ratio ...................... 22
of Stockholders of Texas Air ...................... 8 INTRODUCTION ................................ 22
ADT Vote Required, Quorum; .......................... Record Date; Voting Quorum ................ 23
Passage May Be Assured ............................ 8 Texas Air Proxies; Vote Required .......... 23
Texas Air Vote Required, Quorum ..................... 9 ADT Proxies; Vote Required
Certain Effects of the Merger........................ 9 Passage May Be Assured .................. 24
Background of the Merger ............................ 10 Dissenters' Rights ........................ 25
Recommendation of the ADT Board ..................... 10 THE MERGER AND RELATED
Opinion of ADT's Financial Advisor .................. 10 MATTERS ................................... 25
Recommendation of the Texas Air Board ............... 11 Background of the Merger .................. 25
Covenants ........................................... 11 Certain Effects of the Merger ............. 26
Representations and Warranties ...................... 11 ADT's Reasons for the Merger; Recom-
Conditions to Consummation of the Merger ............ 11 mendation of ADT's Board of Directors;
Amendments to the Agreement ......................... 12 Fairness to ADT Stockholders ............ 27
Termination of the Agreement ........................ 12 Opinion of ADT's Financial Advisor ........ 27
Conflicts of Interest ............................... 12 Net Present Value Analyses .............. 29
ADT Common Stock .................................... 13 Transactions in Common Stock ............ 29
ADT Dividends ....................................... 13 Comparable Companies and
Certain Federal Income Tax Consequences ............. 13 Comparable Transactions ............... 29
Federal and State Regulatory Requirements ........... 14 Texas Air's Reasons for the Merger;
Accounting Treatment ................................ 14 Recommendation of Texas Air's Board
Comparison of Stockholder Rights .................... 14 of Directors; Fairness to Texas Air
Appraisal/Dissenters' Rights ........................ 14 Stockholders ............................ 30
Amendment of the ADT Certificate of Incorporation.... 14 Conflicts of Interest ..................... 31
Election of Directors and Amendment of Dissenters' Rights ........................ 31
ADT's Long-Term Incentive Plan .................... 15 Certain Federal Income Tax
Risk Factors ........................................ 15 Consequences ............................ 34
ADT Market Prices ................................... 15 Accounting Treatment ...................... 35
Selected Financial Information ...................... 15 Federal Securities Law Consequences ....... 35
Unaudited Pro Forma Selected THE AGREEMENT ............................... 36
Combined Financial Data ........................... 17 General ................................... 36
Comparative Per Share Data .......................... 18 Effective Time ............................ 36
RISK FACTORS ......................................... 19 Conversion and Exchange of
Unprofitable History of ADT ......................... 19 Texas Air Common Stock .................. 36
Limited Liquidity and Capital Resources ............. 19 Conditions to Consummation of the
Limited Product Lines; Lack, of Established Markets.. 19 Merger .................................. 37
Regulatory Restrictions on ADT's Business ........... 19 Covenants ................................. 38
Enforcement of Patents; Potential Invalidity ........ 20 Representations and Warranties;
Highly Competitive Industry ......................... 20 Additional Agreements ................... 39
Dependence on Key Distributors ...................... 20 Management After the Merger ............... 39
Dependence on Key Personnel ......................... 20 Termination; Amendment; Waiver ............ 40
Potential Adverse Effects of Certain Ownership of Industrial Patent Rights ..... 40
ADT Anti-Takeover Protections ..................... 20 The Employment Agreement .................. 40
</TABLE>
4
<PAGE> 13
<TABLE>
<S>> <C> <C> <C>
PROPOSAL TO AMEND THE ADT CERTIFICATE PRINCIPAL STOCKHOLDERS OF ADT .............. 65
OF INCORPORATION TO INCREASE SECURITY OWNERSHIP OF ADT
AUTHORIZED COMMON STOCK ............................. 41 MANAGEMENT ............................... 66
COMPARATIVE MARKET PRICES COMPLIANCE WITH SECTION 16(A)
AND DIVIDENDS ....................................... 41 OF THE EXCHANGE ACT ...................... 67
ADT Common Stock .................................... 41 EXECUTIVE COMPENSATION ..................... 67
Texas Air Common Stock .............................. 42 Summary .................................. 67
UNAUDITED PRO FORMA CONDENSED Option Grants ............................ 68
COMBINED FINANCIAL STATEMENTS ....................... 42 Compensation Committee Report
INFORMATION ABOUT ADT ................................ 48 on 1995 Cancellation and
General Description of Business ..................... 48 Regrant of Options ..................... 69
Products ............................................ 48 Option Holdings .......................... 70
KCP Kinetic Cavity Preparation Systems ............ 48 Employment Agreements .................... 70
Nd:YAG Dental Lasers .............................. 49 Compensation of Directors ................ 71
PulseMaster ..................................... 49 CERTAIN RELATIONSHIPS AND
dLase 300 ....................................... 49 RELATED TRANSACTIONS ..................... 71
Marketing, Sales and Training ....................... 50 Texas Air ................................ 71
General ........................................... 50 ADL-Japan ................................ 72
Installation, Training and Service ................ 50 Stock, Loan and Other Transactions ....... 72
Support of Educational Activities ................. 50 PROPOSAL TO AMEND ADT'S
Competition ......................................... 51 LONG-TERM INCENTIVE PLAN ................. 73
Patents ............................................. 51 General .................................. 74
Laser ............................................. 52 Stock Option Grants ...................... 75
KCP ............................................... 52 Restricted Stock Grants and
Suppliers and Manufacturing ......................... 53 Performance Share Awards ............... 75
Research and Development ............................ 53 Termination; Change in Control ........... 75
Governmental Regulation ............................. 54 Federal Income Tax Consequences .......... 76
United States Regulatory Requirements ............. 54 Amendment ................................ 76
Foreign Regulatory Requirements ................... 55 INFORMATION ABOUT TEXAS AIR ................ 77
Product Liability Exposure .......................... 55 Introduction ............................. 77
Foreign Operations .................................. 55 Products ................................. 77
Employees ........................................... 55 KCP Kinetic Cavity
Description of Properties ........................... 55 Preparation Systems .................. 77
Legal Proceedings ................................... 55 Industrial Products .................... 77
Management's Discussion and Analysis of ADT'S Marketing and Sales ...................... 78
Financial Condition and Results of Operations ..... 56 Competition .............................. 79
Results of Operations for the Years Ended Dental Products ........................ 79
December 31, 1995, 1994 and 1993 ................ 56 Industrial Products .................... 79
Results of Operations for the Three Months Patents .................................. 79
Ended March 31, 1996 and 1995 ................... 58 United States Patents .................. 79
Proposed Business Combination ..................... 59 International Patents .................. 80
Liquidity and Capital Resources for the Years Suppliers ................................ 80
Ended December 31, 1995 and 1994 ................ 59 Manufacturing ............................ 80
Liquidity and Capital Resources for the Three Research and Development ................. 80
Months Ended March 31, 1996 and 1995 ............ 60 Governmental Regulation .................. 80
ELECTION OF DIRECTORS ................................ 62 Product Liability Exposure ............... 80
Nominees ............................................ 62 Employees ................................ 81
Possible Changes and Appointments to ADT's Legal Proceedings ........................ 81
Board of Directors ................................ 62 Principal Stockholders and
CURRENT DIRECTORS AND EXECUTIVE Management of Texas Air ................ 81
OFFICERS OF ADT ..................................... 63 Management's Discussion and Analysis
CERTAIN INFORMATION CONCERNING of Texas Air's Financial Condition
ADT'S BOARD OF DIRECTORS ............................ 65 and Results of Operations .............. 83
</TABLE>
5
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
Results of Operations for the Years Ended Provisions Affecting Control Share
December 31, 1995, 1994 and 1993 ................ 83 Acquisitions and Business
Results of Operations for the Three Months Combinations ......................... 90
Ended March 31, 1996 and 1995 .................... 83 Mergers, Sales of Assets and Other
Liquidity and Capital Resources for the Years Transactions ........................ 91
Ended December 31, 1995 and 1994 ................. 84 Stockholder Action Without a Meeting ... 92
Liquidity and Capital Resources for the Three Dissenters' Rights ..................... 92
Months Ended March 31, 1996 and 1995 ............. 85 Dividends, Stock Repurchases
INFORMATION ABOUT MERGER SUB .......................... 85 and Redemptions ...................... 93
DESCRIPTION OF CAPITAL STOCK OF ADT ................... 85 Pre-emptive Rights .................... 93
ADT Capital Stock .................................... 85 Limitation on Director Liability ....... 93
Common Stock ......................................... 86 Dissolution ............................ 94
Preferred Stock ...................................... 86 Conflict of Interest Transactions ...... 94
Certain Provisions of ADT's Certificate LEGAL MATTERS .............................. 95
of Incorporation .................................. 86 EXPERTS .................................... 95
Limitation of ADT Director Liability ................. 86 ACCOUNTANTS' REPRESENTATIVES ............... 95
Indemnification of Directors and Officers of ADT ..... 87 STOCKHOLDER PROPOSALS FOR
DESCRIPTION OF CAPITAL STOCK OF ADT'S 1997 ANNUAL MEETING ................ 95
TEXAS AIR; COMPARISON WITH RIGHTS INDEX TO FINANCIAL STATEMENTS .............. 96
OF ADT STOCKHOLDERS .................................. 87 ANNEX A - Restated Agreement and Plan
Texas Air Common Stock .............................. 87 of Reorganization dated as of November
Comparison of Stockholders' Rights ................... 87 22, 1995 (including the Restated
Amendment to Articles/Certificate of Incorporation.. 88 Agreement of Merger dated as of
Cumulative Voting .................................. 88 November 22, 1995, attached thereto)
Classified Board .................................. 88 ANNEX B - Opinion of Equity Partners, Ltd.
Change in Number of Directors ...................... 88 dated April 4, 1996
Newly Created Directorships and Vacancies .......... 89 ANNEX C - Section 5.11 through 5.13,
Removal of Directors ............................... 89 Texas Business Corporation Act,
Inspection of Books and Records .................... 89 as amended
Right to Call Special Meetings of Stockholders ..... 89
</TABLE>
6
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary
is qualified in its entirety by the more detailed information contained
elsewhere in this Joint Proxy Statement/Prospectus and in the Annexes hereto
and the documents referred to herein. Stockholders are urged to read this
Joint Proxy Statement/Prospectus and the Annexes hereto in their entirety.
BUSINESS OF ADT AND MERGER SUB
ADT develops, manufactures and markets high technology dental products
designed for general dentistry. ADT's primary products are KCP(R) cavity
preparation systems and PulseMaster(R) pulsed dental lasers. The KCP works
like a miniature precision sandblaster spraying away decay, usually without a
need for anesthesia. PulseMaster lasers allow dentists to treat gum disease
and perform other procedures with less need for anesthesia and little or no
bleeding. ADT markets its products primarily through independent distributors
and, to a lesser extent, through its own direct sales force.
Merger Sub is a recently formed Texas corporation which was organized for
the sole purpose of effecting the Merger.
ADT's and Merger Sub's principal offices are located at 28411 Northwestern
Highway, Suite 1100, Southfield, Michigan 48034-5541 (telephone: (810)
353-5300). See "Information About ADT -- General Description of Business" and
"Information About Merger Sub."
BUSINESS OF TEXAS AIR
Texas Air develops, manufactures and markets high precision micro abrasive
systems for dentistry and numerous industrial applications. Texas Air's
primary product lines are KCP cavity preparation systems for dentistry and air
abrasive jet machining ("AJM") systems for industrial applications.
Texas Air has the exclusive manufacturing rights for the KCP dental
systems worldwide, except for Japan and the Pacific Rim, through 2003. ADT is
the exclusive distributor of all KCP dental products manufactured by Texas Air
and has been Texas Air's primary customer since 1991. Texas Air's patented AJM
technology uniformly delivers a consistent stream of micro fine particles for
precision machining operations without heat, friction, shock or vibrations
associated with conventional machining devices. Texas Air sells its industrial
products through distributors, with some direct marketing.
Texas Air's principal executive offices are located at 5555 Bear Lane,
Corpus Christi, Texas 78405 (telephone: (512) 289-1145). See "Information
About Texas Air -- Introduction."
THE MERGER
ADT, Merger Sub and Texas Air have entered into the Agreement pursuant to
which Texas Air will be merged with and into Merger Sub, a wholly-owned
subsidiary of ADT. Each share of Texas Air Common Stock (other than shares
held by stockholders of Texas Air who perfect their dissenters' rights in the
manner described in this Joint Proxy Statement/Prospectus) which is issued and
outstanding at the Effective Time (as defined below) of the Merger, will be
converted into the right to receive 5.425 shares of ADT Common Stock and a
Merger Warrant to purchase 3.321 shares of ADT Common Stock at a purchase price
of $1.00 per share (subject to adjustment depending upon the trading price of
ADT's Common Stock prior to approval) for a period commencing one year and one
day and ending three years following the effective date of the Merger. ADT has
agreed to register for resale the shares issued upon exercise of the Merger
Warrants on behalf of the holders of such shares. See "The Merger and Related
Matters -- Federal Securities Law Consequences."
7
<PAGE> 16
In addition, pursuant to the Agreement, Texas Air will distribute $10,000
and certain patent rights for products not intended for ultimate use in the
dental field to a limited partnership, the partners of which will be the former
Texas Air stockholders who do not exercise dissenters' rights, which patent
rights will be subject to a license agreement with ADT. See "The Agreement --
Ownership of Industrial Patent Rights."
TIME, PLACE AND DATE OF ANNUAL MEETING OF STOCKHOLDERS OF ADT
The annual meeting of the stockholders of ADT (the "ADT Annual Meeting")
will be held on July 29, 1996 at 9:00 a.m., local time, at the Skyline Club,
Mackinac Room, 2000 Town Center, Suite 2800, Southfield, Michigan. Only
holders of record of ADT Common Stock at the close of business on June 14, 1996
(the "ADT Record Date"), will be entitled to notice of and to vote at the ADT
Annual Meeting. At such date there were 16,001,795 shares of ADT Common Stock
outstanding and entitled to vote. The purpose of the ADT Annual Meeting is to
consider and approve (a) the Merger and the issuance of shares of ADT Common
Stock and Merger Warrants; (b) the election of directors; (c) the amendment of
the ADT certificate of incorporation; (d) the amendment of the Long-Term
Incentive Plan; and (e) the transaction of such other business as may properly
come before the ADT Annual Meeting or any adjournments thereof. See
"Introduction."
TIME, PLACE AND DATE OF SPECIAL MEETING OF STOCKHOLDERS OF TEXAS AIR
The special meeting of the stockholders of Texas Air (the "Texas Air
Special Meeting") will be held on July 27, 1996 at 9:00 a.m., local time, at
Texas Air's headquarters located at 5555 Bear Lane, Corpus Christi, Texas.
Only holders of record of Texas Air Common Stock at the close of business on
June 14, 1996 (the "Texas Air Record Date"), will be entitled to notice of, and
to vote at, the Texas Air Special Meeting. At such date there were 2,106,871
shares of Texas Air Common Stock outstanding and entitled to vote. The purpose
of the Texas Air Special Meeting is to consider and act upon the proposal to
approve the Merger and adopt the Agreement. See "Introduction."
ADT VOTE REQUIRED, QUORUM; PASSAGE MAY BE ASSURED
Approval of the merger and the issuance of the shares of ADT Common Stock
and Merger Warrants requires the affirmative vote of the holders of a majority
of the shares of ADT Common Stock voted at the Annual Meeting on the matters.
The amendment to the certificate of incorporation requires the affirmative vote
of the holders of a majority of the shares of ADT Common Stock outstanding.
The election of the directors requires the approval of a plurality of the votes
cast at the Annual Meeting. Amendment of the Long-Term Incentive Plan requires
the affirmative vote of the holders of a majority of the shares of ADT Common
Stock present, or represented, and entitled to vote at the ADT Annual Meeting.
For purposes of determining the number of votes cast with respect to the
election of directors, only those cast "for" are included. Abstentions and
withheld votes are counted only for purposes of determining whether a quorum is
present at the Annual Meeting and broker non-votes are not counted. However,
abstentions will have the effect of a vote against the amendment of ADT's
certificate of incorporation and the amendment of ADT's Long-Term Incentive
Plan, and broker non-votes will have the effect of a vote against the amendment
of ADT's certificate of incorporation. The executive officers and directors of
ADT and Texas Air together with certain principal stockholders of ADT,
beneficially own approximately 57% of the outstanding shares of ADT Common
Stock as of the ADT Record Date. Such persons have advised ADT that they
intend to vote all of the shares over which they hold voting power in favor of
the foregoing proposals. If such persons vote their shares as indicated, the
approval of all of the proposals presented for vote at the Annual Meeting is
assured. A majority of the issued and outstanding shares of ADT Common Stock
entitled to vote, represented in person or by proxy, shall constitute a quorum
at the ADT Annual Meeting. See "Introduction - ADT Proxies, Vote Required;
Passage May Be Assured."
8
<PAGE> 17
TEXAS AIR VOTE REQUIRED, QUORUM
The affirmative vote of at least two-thirds of the outstanding shares of
Texas Air Common Stock is required to approve the Merger. Abstentions are
counted for quorum purposes. Abstentions will have the effect of a vote
against the Merger. The executive officers and directors and certain principal
stockholders of Texas Air beneficially own approximately 63% of Texas Air
Common Stock and have informed Texas Air that all such shares over which they
hold voting power will be voted for approval of the Merger. A majority of the
issued and outstanding shares of Texas Air Common Stock entitled to vote,
represented in person or by proxy, shall constitute a quorum at the Texas Air
Special Meeting. See "Introduction -- Texas Air Proxies, Vote Required."
CERTAIN EFFECTS OF THE MERGER
The Merger will become effective when a Certificate of Merger is issued by
the Texas Secretary of State ("Effective Time"), after Articles of Merger have
been filed. It is anticipated that such filing will be made as promptly as
practicable after the required stockholder approvals have been obtained and the
other conditions to the consummation of the Merger have been satisfied or
waived.
Upon consummation of the Merger, Texas Air will be merged with and into
Merger Sub, which will be the surviving corporation and change its name to
Texas Airsonics, Inc. The separate existence of Texas Air will cease.
At the Effective Time, each issued and outstanding share of Texas Air
Common Stock (other than shares held by stockholders of Texas Air who perfect
their dissenters' rights in the manner described in this Joint Proxy
Statement/Prospectus) will be converted into the right to receive 5.425 newly
issued shares of ADT Common Stock (the "Exchange Ratio") together with a Merger
Warrant to purchase 3.321 shares of ADT Common Stock at a purchase price of
$1.00 per share (subject to adjustment depending upon the trading price of
ADT's Common Stock prior to approval) for a period commencing one year and one
day and ending three years following the effective date of the Merger. On June
14, 1996, there were 2,106,871 shares of Texas Air Common Stock outstanding.
Denics Co., Ltd. ("Denics") owns warrants to purchase up to 83,333 shares
of Texas Air Common Stock ("Old Warrants") at a price of $6.00 for each share
of Texas Air Common Stock which will terminate on July 1, 1996. There are no
other outstanding warrants or options to purchase, or securities convertible
into, Texas Air Common Stock.
No fractional shares of ADT Common Stock will be issued in the Merger or
upon exercise of the Merger Warrants and in lieu of fractional shares of ADT
Common Stock, the persons entitled thereto will be paid cash. Promptly after
the Effective Time, ADT will forward a letter of transmittal to former
stockholders of Texas Air containing detailed instructions for the surrender of
certificates representing Texas Air Common Stock. See "The Agreement --
Effective Time," "Conversion and Exchange of Texas Air Common Stock" and
"Conditions to Consummation of the Merger."
STOCKHOLDERS OF TEXAS AIR SHOULD NOT SEND STOCK CERTIFICATES REPRESENTING THEIR
SHARES TO TEXAS AIR OR ADT PRIOR TO RECEIPT OF THE LETTER OF TRANSMITTAL.
Based upon the capitalization of Texas Air and ADT at June 14, 1996 and
the Exchange Ratio (without giving effect to the Old Warrants or the Merger
Warrants), the number of shares of ADT Common Stock outstanding after giving
effect to the Merger will be 27,431,570 and the holders of shares of Texas Air
Common Stock immediately prior to consummation of the Merger will own
approximately 42% of the outstanding shares of ADT Common Stock immediately
following consummation of the Merger. The principal stockholders (including
Denics), officers and directors of Texas Air currently own 1,823,077 shares of
ADT Common Stock or approximately 11% of the ADT Common Stock outstanding on
the Record Date and will own approximately 36% of ADT Common Stock immediately
following consummation of the Merger. The principal stockholders, officers and
directors of ADT and Texas Air together currently own approximately 57% of the
ADT Common Stock outstanding as of the Record Date and will own approximately
62% following consummation of the Merger. See "Information About Texas Air
9
<PAGE> 18
- -- Principal Stockholders and Management of Texas Air" and "Principal
Stockholders of ADT" and "Security Ownership of ADT Management."
BACKGROUND OF THE MERGER
General discussions between Anthony D. Fiorillo, President and Chief
Executive Officer of ADT, and Ben J. Gallant, President of Texas Air, regarding
a possible business combination of the companies have taken place from time to
time since 1993.
In July 1995, Mr. Fiorillo and Mr. Gallant renewed general discussions of
the benefits of a business combination of ADT and Texas Air. Following
additional discussions between Mr. Fiorillo and Mr. Gallant in the summer of
1995, formal discussions and meetings began on the merger structure and form of
merger agreement. On November 22, 1995, agreement was reached on unresolved
substantive issues and the Agreement was signed. On March 25 and May 9, 1996,
several changes to the Agreement were approved by the respective boards of
directors of the companies. See "The Merger and Related Matters -- Background
of the Merger."
RECOMMENDATION OF THE ADT BOARD
THE BOARD OF DIRECTORS OF ADT BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF ADT AND ITS STOCKHOLDERS, HAS APPROVED THE AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AND THE ISSUANCE OF ADT COMMON STOCK AND THE MERGER WARRANTS, THE ELECTION OF
DIRECTORS, THE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND THE LONG-TERM
INCENTIVE PLAN. In making this determination, the Board of Directors of ADT
has considered the factors described under the caption, "The Merger and Related
Matters -- ADT's Reasons for the Merger; Recommendation of ADT's Board of
Directors; Fairness to ADT's Stockholders."
OPINION OF ADT'S FINANCIAL ADVISOR
On October 17, 1995 and March 25, 1996, Equity Partners, Ltd. ("Equity"),
ADT's financial advisor in connection with the transactions contemplated by the
Agreement, gave a preliminary opinion (subsequently confirmed in writing on
April 4, 1996) to the Board of Directors of ADT that the financial terms of the
Merger are fair to the stockholders of ADT from a financial point of view. In
arriving at its opinion, Equity reviewed and analyzed, among other things,
certain historical business and financial information relating to ADT and Texas
Air, the business prospects of both companies, certain pro forma financial
statements of a merged company, the historical prices of and market for ADT
Common Stock, the historical prices of Texas Air Common Stock, the historical
prices and markets for other relevant companies, and such other matters that
Equity deemed to be generally relevant to the Merger. See "The Merger and
Related Matters -- Opinion of ADT's Financial Advisor." Equity noted, among
other things, that its opinion necessarily was based upon information provided
by others that was not independently verified. The full text of the written
opinion of Equity, which contains information as to the assumptions made,
matters considered and the scope of and limitations on the review undertaken by
Equity, is set forth as Annex B to this Joint Proxy Statement/Prospectus and
should be read in its entirety. See "The Merger and Related Matters -- Opinion
of ADT's Financial Advisor."
The consideration to be paid to the stockholders of Texas Air by ADT in
connection with the Merger was determined through negotiations between the
parties, and was not determined by Equity. No limitations were placed on
Equity by the Board of Directors of ADT with respect to the investigations made
or the procedures followed by Equity in preparing and rendering its opinion.
ADT selected Equity as its financial advisor on the basis of Equity's expertise
and reputation.
10
<PAGE> 19
Equity is a private investment banking firm with experience in evaluating
transactions similar to the Merger and is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions.
Equity will be reimbursed for reasonable expenses and ADT has paid Equity a fee
of $50,000. Equity has also received approximately $19,000 from Texas Air for
certain valuation services. See "The Merger and Related Matters -- Opinion of
ADT's Financial Advisor."
RECOMMENDATION OF THE TEXAS AIR BOARD
THE BOARD OF DIRECTORS OF TEXAS AIR BELIEVES THAT THE TERMS OF THE MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF THE TEXAS AIR STOCKHOLDERS, HAS
APPROVED THE AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
TEXAS AIR VOTE FOR APPROVAL OF THE MERGER. In making this determination, the
Board of Directors of Texas Air has considered the factors described under the
caption, "The Merger and Related Matters -- Texas Air's Reasons for the Merger;
Recommendation of Texas Air's Board of Directors; Fairness to Texas Air's
Stockholders." In connection with such recommendation, stockholders should
consider the matters discussed in "The Merger and Related Matters -- Conflicts
of Interest."
COVENANTS
Both ADT and Texas Air have agreed that prior to the Effective Time of the
Merger, unless the other party otherwise agrees, or as otherwise contemplated
by the Agreement, their respective businesses will be conducted only in the
ordinary course and neither will take certain actions, including without
limitation: (i) borrowing money; (ii) entering into transactions or making
commitments in excess of specified amounts; (iii) encumbering assets; (iv)
disposing of material assets; (v) issuing stock or other interests in ADT or
Texas Air (except for the issuance of shares pursuant to certain existing
agreements, options, warrants or employee benefit plans); (vi) declaring or
paying any dividends; or (vii) changing existing agreements with key employees,
consultants and others. See "The Agreement -- Covenants."
REPRESENTATIONS AND WARRANTIES
The Agreement contains certain representations and warranties of Texas
Air, ADT and Merger Sub, including without limitation, those concerning their
corporate organization, capitalization, financial statements, litigation,
information contained in this Joint Proxy Statement/Prospectus and other
matters. See "The Agreement -- Representations and Warranties; Additional
Agreements."
CONDITIONS TO CONSUMMATION OF THE MERGER
Under the Agreement, the obligations of ADT and Texas Air are subject to
the approval of the stockholders of Texas Air of the proposed Merger, the
approval of the stockholders of ADT of the Merger and the issuance of the
shares of ADT Common Stock and Merger Warrants, the approval and effectiveness
of the amendment to ADT's certificate of incorporation, an S-4 registration
statement becoming effective in accordance with the Securities Act of 1933 with
respect to the ADT Common Stock to be issued in the Merger and the satisfaction
at or before the Effective Time of certain other conditions or the waiver
thereof. Certain federal or state regulatory approvals or consents may be
required in connection with the Merger although their receipt is not a
condition to the Merger. ADT and Texas Air intend to pursue, as required,
regulatory approvals and consents, if any, although there can be no assurance
that such approvals or consents will be obtained or, if obtained, as to the
timing of their receipt. See "The Merger and Related Matters" and "The
Agreement -- Conditions to Consummation of the Merger."
11
<PAGE> 20
AMENDMENTS TO THE AGREEMENT
Any term of the Agreement may be amended or waived only in writing signed
by the party to be bound thereby, subject to applicable law.
TERMINATION OF THE AGREEMENT
The Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval by the stockholders of ADT or Texas Air, upon
the occurrence of certain events, including without limitation, the following:
(i) by mutual written consent of ADT and Texas Air; (ii) by either ADT or Texas
Air if the Merger has not been consummated by August 30, 1996; (iii) by ADT or
Texas Air if there is a material adverse change in the business or financial
condition of the other; and (iv) by ADT or Texas Air if there is a material
condition precedent which cannot be satisfied and is not waived. If the Merger
is not completed, ADT will pay Texas Air $700,000 over a reasonable period of
time which does not jeopardize the financial health of ADT. See "The Agreement
- -- Termination; Amendment; Waiver."
CONFLICTS OF INTEREST
In considering the recommendation of Texas Air's Board of Directors with
respect to the Merger and Agreement, stockholders should be aware that certain
members of Texas Air's Board of Directors and management have interests in the
Merger that are in addition to and potentially in conflict with the interests
of stockholders of Texas Air generally. The Board of Directors of Texas Air
was aware of these interests and considered them, among other matters, in
approving the Agreement.
Ben J. Gallant has executed an employment agreement with ADT which will
become effective upon the consummation of the Merger. The agreement provides
for, among other things, an annual base salary of $225,000 plus health benefits
for three years. Ben J. Gallant will be President and Chief Executive Officer
of the Texas Air subsidiary and a member of an ADT executive committee,
consisting of himself and Anthony D. Fiorillo, the President and Chief
Executive Officer of ADT, which will have the same power as the chief executive
officer of ADT. See "The Merger and Related Matters -- Conflicts of Interest"
and "The Agreement -- The Employment Agreement."
Certain directors and principal stockholders of Texas Air have indicated
they will vote to approve the Merger. These same persons will be nominated or
appointed to serve on ADT's Board of Directors. If the Merger is approved by
Texas Air stockholders, ADT has agreed to increase the size of its Board of
Directors to nine and to have Ben J. Gallant, John E. Vickers, III, Charles A.
Nichols and Wayne A. Johnson II elected or appointed as directors of ADT.
Messrs. Gallant, Vickers, Nichols and Johnson together, currently and after the
Merger, will own a significant amount of ADT Common Stock which they have
indicated will be voted in favor of these actions. In addition, William D.
Myers, the other directors, officers and certain principal stockholders of ADT,
have indicated they intend to vote their shares of ADT Common Stock for the
election of Ben J. Gallant and the directors have indicated their intent to
support the appointment of John E. Vickers, III, Charles A. Nichols and Wayne
A. Johnson II to the Board of Directors of ADT. The election of Ben J. Gallant
and the appointment of John E. Vickers, III, Charles A. Nichols and Wayne A.
Johnson II as directors of ADT is assured assuming such persons vote the shares
of ADT Common Stock beneficially owned by them as indicated. See "Principal
Stockholders of ADT" and "Information About Texas Air -- Principal Stockholders
and Management of Texas Air." William D. Myers and Ben J. Gallant executed a
voting agreement, dated February 23, 1996 (the "Voting Agreement"), which
requires each to vote their respective shares of ADT Common Stock for the
election of William D. Myers and Ben J. Gallant to the board of directors of
ADT for a period of three years following the Merger. See "The Agreement --
Management After the Merger." The election of Mr. Gallant will be effective
only if the Merger is consummated.
12
<PAGE> 21
Denics, one of the principal stockholders of Texas Air, is also a
principal stockholder of ADT. See "Information about Texas Air -- Principal
Stockholders and Management of Texas Air" and "Principal Stockholders of ADT."
ADT has an $800,000 balance outstanding on a note payable to Denics which is
being repaid in $200,000 annual principal installments in June each year.
Interest is payable semi-annually in June and December. In 1993, ADT granted
Denics territorial manufacturing rights for its products in Japan for ten years
and was provided a $3,000,000 non-refundable prepaid royalty for air abrasive
products to be made and sold in Japan. Denics is a significant customer of ADT
and has committed to purchase approximately $5.2 million of ADT products
between April 1, 1996 and March 31, 1997. ADT had accounts receivable from
Denics of $640,059 at December 31, 1995 and earned royalty payments for dental
laser units sold in Japan and certain Asian and Pacific markets, net of foreign
taxes, of $261,000 during the year ended December 31, 1995. See "Certain
Relationships and Related Transactions" and "Principal Stockholders of ADT."
For information about beneficial ownership of ADT Common Stock by Ben J.
Gallant and other directors, officers and principal stockholders of Texas Air
immediately after the Merger, see "Information About Texas Air -- Principal
Stockholders and Management of Texas Air."
ADT COMMON STOCK
ADT has authorized and issued only one class of common stock. The ADT
Common Stock to be issued in connection with the Merger is of the same class as
the ADT Common Stock presently quoted on the Nasdaq SmallCap Market. Each
share of ADT Common Stock is entitled to one vote and cumulative voting is not
permitted. See "Description of Capital Stock of ADT -- ADT Capital Stock."
The stockholders of ADT, excluding its officers, directors and principal
stockholders, currently own approximately 43% of the ADT Common Stock
outstanding as of the Record Date and will own approximately 38% of the
outstanding ADT Common Stock immediately following consummation of the Merger.
Assuming the exercise of all outstanding options and warrants to acquire ADT
Common Stock (including Merger Warrants to purchase up to 7,273,666 shares
which are not exercisable for one year and one day following the Merger,
employee stock options to purchase 627,825 shares which are not yet
exercisable, and warrants and employee stock options to purchase 6,422,813
shares) immediately following the Merger, such stockholders would own
approximately 34% of the outstanding ADT Common Stock.
ADT DIVIDENDS
ADT's Board of Directors has not declared and does not currently
contemplate declaring dividends on ADT Common Stock in the foreseeable future.
See "Summary -- Selected Financial Information" and "Comparative Market Prices
and Dividends."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, the Merger is intended to be a tax-free reorganization for
federal income tax purposes. If, as intended, the Merger is a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), the holders of Texas Air Common Stock who exchange Texas
Air Common Stock for ADT Common Stock in the Merger, will recognize no gain or
loss upon the exchange of shares of Texas Air Common Stock for shares of ADT
Common Stock. However, to the extent the holders receive Merger Warrants in
exchange for their Texas Air Stock, receive partnership interests in Texas
Airsonics, L.P., exercise dissenters' rights, or receive cash for fractional
shares, such holders may be subject to state and federal income tax on the
value of such Merger Warrants, the partnership interests and the cash received.
See "The Merger and Related Matters - Certain Federal Income Tax
Consequences."
13
<PAGE> 22
FEDERAL AND STATE REGULATORY REQUIREMENTS
ADT and Texas Air will comply with all applicable federal and state
securities laws, however they are unaware of any other federal or state
regulatory approvals or consents that are required in connection with the
Merger.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase for financial reporting purposes
if consummated in accordance with the Agreement. See "The Merger and Related
Matters -- Accounting Treatment."
COMPARISON OF STOCKHOLDER RIGHTS
Since Texas Air is organized under the Texas Business Corporation Act
("TBCA") and ADT is organized under the Delaware General Corporation Law
("DGCL"), certain differences between the rights of holders of Texas Air Common
Stock and the rights of holders of ADT Common Stock arise from various
provisions of the corporate laws of those states as well as from various
differences in the provisions of the respective charters and by-laws of Texas
Air and ADT. Such differences include differences with respect to the ability
of stockholders to amend the charter or by-laws, the election and removal of
directors, the vote required for certain extraordinary corporate transactions,
the protection available against unsolicited takeovers, the rights of
dissenting stockholders to seek an appraisal of their shares in connection with
certain corporate transactions, the obligations of the companies to indemnify
directors and officers, the ability of stockholders to act without a meeting
and the legal ability of the companies to pay dividends. See "Description of
Capital Stock of Texas Air; Comparison with Rights of ADT Stockholders."
APPRAISAL/DISSENTERS' RIGHTS
Holders of ADT Common Stock are not entitled to appraisal rights under the
DGCL in connection with the Merger because ADT is not a constituent corporation
in the Merger.
Holders of Texas Air Common Stock are entitled to dissenters' rights under
the TBCA in connection with the Merger. Certain provisions of the TBCA
regarding dissenters' rights are reproduced in full as Annex C. Failure to
follow any of the statutory procedures may result in a termination or waiver of
dissenters' rights. See "The Merger and Related Matters -- Dissenters'
Rights."
AMENDMENT OF THE ADT CERTIFICATE OF INCORPORATION
At the ADT Annual Meeting, the stockholders of ADT will be requested to
approve an amendment of the ADT certificate of incorporation ("Amendment").
The Amendment will increase the number of authorized shares of ADT Common Stock
from 25 million to 50 million shares. The primary purpose of the increase is
to authorize the shares of ADT Common Stock and the shares underlying the
Merger Warrants being issued to Texas Air upon consummation of the Merger.
Stockholder approval of the Amendment is a condition to consummation of the
Merger. The affirmative vote of the holders of a majority of the outstanding
shares of ADT Common Stock is required for the approval of the Amendment. The
executive officers and directors of ADT and Texas Air together with certain
principal stockholders of ADT beneficially own approximately 57% of the
outstanding ADT Common Stock. Such persons have advised ADT that they intend
to vote all of the shares over which they have voting power in favor of this
proposal. Consequently, if such persons vote as indicated, approval is
assured. The Amendment will not become effective unless the Merger is
consummated. See "Proposal to Amend the ADT Certificate of Incorporation to
Increase Authorized Common Stock."
14
<PAGE> 23
ELECTION OF DIRECTORS AND AMENDMENT OF ADT'S LONG-TERM INCENTIVE PLAN
Stockholders of ADT will also be asked, at the Annual Meeting, to vote on
the election of directors to ADT's Board of Directors and to approve an
amendment to ADT's Long-Term Incentive Plan. See "Election of Directors" and
"Proposal to Amend ADT's Long-Term Incentive Plan."
RISK FACTORS
In deciding how to vote their shares at the Texas Air Special Meeting and
ADT Annual Meeting, the following factors relating to ADT and the Merger, among
others, should be considered by holders of Texas Air Common Stock and ADT
Common Stock: (i) unprofitable history of ADT; (ii) limited liquidity and
capital resources; (iii) limited product lines; lack of established markets;
(iv) regulatory restrictions on ADT's business; (v) enforcement of patents;
potential invalidity; (vi) highly competitive industry; (vii) dependence on key
distributors; (viii) dependence on key personnel; (ix) potential adverse
effects of certain ADT anti-takeover protections; (x) potential inability to
integrate ADT and Texas Air; (xi) conflicts of interest; (xii) limited public
market and volatility of ADT common stock; (xiii) potential adverse effects of
future sales of ADT common stock; (xiv) control of ADT by affiliates; and (xv)
fixed exchange ratio. See "Risk Factors."
ADT MARKET PRICES
ADT Common Stock is listed on the Nasdaq SmallCap Market and is expected to
continue to be so listed following the Merger. The information presented in
the table below represents closing per share prices quoted on the Nasdaq
SmallCap Market for ADT Common Stock on November 24, 1995, the last full
trading day prior to the public announcement that the Agreement had been
executed and on June 21, 1996, the last full trading day for which quotations
were available at the time of the printing of this Joint Proxy
Statement/Prospectus, as well as the "equivalent per share price" of Texas Air
Common Stock on such dates. There is no public trading market for Texas Air
Common Stock. The "equivalent per share price" of Texas Air Common Stock at
each specified date represents the closing per share sale price quoted on the
Nasdaq SmallCap Market for ADT Common Stock at such specified date multiplied
by the Exchange Ratio and does not include the value, if any, of the Merger
Warrants.
<TABLE>
<CAPTION>
Texas Air
ADT Common Equivalent Per
Stock Price Share Price
----------- --------------
<S> <C> <C>
November 24, 1995 $0.9375 $ 5.09
June 21, 1996 $2.00 $10.85
</TABLE>
For information relating to market prices of ADT Common Stock during the
current fiscal year and the past two fiscal years, see "Comparative Market
Prices and Dividends -- ADT Common Stock." Because the market price of ADT
Common Stock is subject to fluctuation, the value of the consideration that
holders of Texas Air Common Stock will receive in the Merger may increase or
decrease prior to consummation of the Merger. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT QUOTATIONS FOR ADT COMMON STOCK.
SELECTED FINANCIAL INFORMATION
The following selected financial data for ADT as of and for each of the
five years ended December 31, 1995, and for Texas Air as of and for each of the
three years ended December 31, 1995, are derived from the audited financial
statements of ADT and Texas Air, respectively. The selected financial data of
Texas Air as of and for the two years ended December 31, 1992 and for ADT and
Texas Air as of March 31, 1996 and for the three month periods ended March 31,
1996 and 1995 are derived from unaudited financial statements of Texas Air and
ADT, respectively. The unaudited financial statements of Texas Air as of and
for the years ended December 31, 1992 and 1991 and for ADT and Texas Air as of
March 31, 1996 and for the three month periods ended March 31, 1996 and 1995
included all adjustments, consisting of normal recurring accruals, which Texas
Air and ADT, respectively, considered necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for prior years and for the three months ended March 31, 1996 and 1995
15
<PAGE> 24
are not necessarily indicative of the results that may be expected for future
periods. The data should be read in conjunction with the ADT and Texas
Air financial statements, related notes and other financial information
included in this Joint Proxy Statement/Prospectus.
American Dental Technologies, Inc.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31 Year Ended December 31
1996 1995 1995 1994 1993 1992 1991
------ ------ ------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Net sales $5,254 $4,392 $13,325 $11,163 $10,681 $12,450 $28,288
Net income (loss) 448 176 (1,274) (4,181) (6,802)(1) (14,830) 55(2)
Net income (loss)
per common share $0.03 $0.01 $(0.08) $(0.31) $(0.79) $(1.98) $0.01
Weighted average number
of common and common
equivalent shares 17,258 14,876 15,346 13,462 8,566 7,487 6,769
Balance Sheet Data
(at period end):
Total assets $13,124 $12,984 $11,137 $12,371(3) $8,166 $20,413
Long-term obligations 3,651 3,664 4,030 3,413
Shareholders' equity (4) 2,280 1,832(5) 2,190(6) 3,661(7) 1,289 14,085
Working capital (deficit) (953)(8) (1,437)(8) 12 (320) (1,145) 11,990
</TABLE>
- -----------------
(1) Includes $2,000,000 litigation settlement expense.
(2) Prior to the June 1991 initial public offering, ADT had elected to be
treated as an S Corporation for income tax purposes. Accordingly,
substantially all income and losses flowed through ADT to its stockholders
for income tax purposes.
(3) Includes goodwill of $4,224,461 and other assets of $628,720 recorded in
connection with the acquisition of Incisive Technologies, Inc. on December
30, 1993.
(4) Other than S Corporation distributions in 1991, no dividends were paid
during the periods presented. However, $41,453 in accrued dividends on
the Series A convertible preferred stock has been recorded.
(5) Includes 888,888 shares of restricted common stock issued in a private
placement.
(6) Includes 2,999,000 shares of restricted ADT Common Stock issued in a
private placement.
(7) Includes 1,534,991 shares of ADT Common Stock issued in connection with
the acquisition of Incisive Technologies, Inc., the sale of $2,000,000 of
Series A preferred stock, and the conversion of $1,117,179 of notes
payable to related parties into 359,220 shares of ADT Common Stock.
(8) Includes $1,500,000 current note payable, proceeds of which were utilized
for a $1,410,000 non-current deposit related to litigation.
16
<PAGE> 25
Texas Airsonics, Inc.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31 Year Ended December 31
1996 1995 1995 1994 1993 1992 1991
-------------------- ------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net sales $1,409 $1,015 $4,391 $2,709 $3,695 $1,254 $870
Net income 236 227 45(1) 300 1,090 482 150
Balance Sheet Data
(at period end):
Total assets $5,593 $5,884 $2,777 $3,071 $1,628 $616
Long-term obligations 490 690 53 118 200
Stockholders' equity 2,989(4) 2,847(2) 2,213(3) 2,015 714 579
Working capital 2,447 2,555 1,602 1,058 368 542
</TABLE>
- ---------------
(1) After providing ADT $895,000 for shared research and development, legal,
and marketing expenses in 1995.
(2) Includes proceeds of $750,000 from the sale of 125,000 shares of Texas
Air Common Stock. Reflects cash dividends of $204,691, or $0.10 per share
in 1995.
(3) Includes proceeds of $250,000 from the sale of 27,777 shares of Texas Air
Common Stock. Reflects a 1994 cash dividend of $138,196, or $0.07 per
share and a non-cash dividend of 131,148 shares of ADT Common Stock, or 67
shares of ADT Common Stock for each 1,000 shares of Texas Air Common Stock
outstanding.
(4) Reflects a cash dividend of $94,700 or $0.045 per share declared in March
1996 and paid in April 1996.
UNAUDITED PRO FORMA SELECTED COMBINED FINANCIAL DATA
The following unaudited pro forma selected combined financial data should
be read in conjunction with the unaudited pro forma combined financial
statements and related notes included elsewhere in this Joint Proxy
Statement/Prospectus. See "Unaudited Pro Forma Condensed Combined Financial
Statements." The pro forma information is based on the historical financial
statements of ADT and Texas Air giving effect to the proposed Merger under the
purchase method of accounting. The pro forma operations data assumes the
Merger occurred on January 1, 1996 and January 1, 1995, respectively. The pro
forma balance sheet data assumes the Merger occurred on March 31, 1996 and
December 31, 1995, respectively. This pro forma information does not purport
to indicate the results of operations or financial position which would have
actually occurred if the Merger had been effected on the dates indicated or
which may be obtained in the future.
17
<PAGE> 26
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
PRO FORMA OPERATIONS DATA:
Total revenues $5,394,395 $14,053,537
Net income (loss) from continuing
operations 692,294 (1,957,756)
Net income (loss) from continuing
operations per common share $0.02 $(0.07)
Cash dividends per common share -- --
Weighted average number of
common and dilutive common
equivalent shares outstanding 30,037,588 26,776,491
PRO FORMA BALANCE SHEET DATA:
Total assets $20,846,450 $21,300,144
Long term obligations 4,141,704 4,354,993
Stockholders' equity 10,853,113 10,404,803
Working capital $1,483,020 $1,108,263
</TABLE>
COMPARATIVE PER SHARE DATA
The following sets forth the book value, cash dividend and income (loss)
from continuing operations per share of ADT Common Stock and Texas Air Common
Stock for the three months ended March 31,1996 and the year ended December 31,
1995, respectively. The pro forma combined information is based on the
historical financial statements of ADT and Texas Air for the three months ended
March 31, 1996 and the year ended December 31, 1995 adjusted to reflect the
proposed Merger under the purchase method of accounting.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Book Value Per Common Share:
Historical:
ADT $0.13 $0.12
Texas Air 1.42 1.42
Pro Forma Combined 0.36 0.39
Equivalent Pro Forma 1.96 2.11
Cash Dividends Declared Per Common Share:
Historical:
ADT $-- $--
Texas Air 0.04 0.10
Pro Forma Combined -- 0.01
Equivalent Pro Forma 0.02 0.04
Income (loss) From Continuing Operation
Per Average Common Share:
Historical:
ADT $0.03 $(0.08)
Texas Air 0.11 0.02
Pro Forma Combined 0.02 (0.07)
Equivalent Pro Forma 0.13 (0.40)
</TABLE>
18
<PAGE> 27
RISK FACTORS
In deciding how to vote their shares at the Texas Air Special Meeting and
ADT Annual Meeting, respectively, holders of shares should carefully consider
all of the information contained in this Joint Proxy Statement/Prospectus and,
in particular, the following factors:
UNPROFITABLE HISTORY OF ADT. For the past several years, ADT has
experienced significant losses. Net losses were $14,830,075 in 1992,
$6,802,452 in 1993, $4,181,610 in 1994 and $1,274,166 in 1995. Prior years
operating results were affected by various factors, including without
limitation, actual sales levels being lower than anticipated without
corresponding reductions in expenses, changes to product lines, disputes with
suppliers, ongoing litigation, changing suppliers, changing from direct to
distributor sales, competition, and obtaining regulatory approvals. There can
be no assurance that ADT will return to profitability. Future sales and
results of operations will depend on a number of factors, including maintaining
existing distributor relationships, broadening market acceptance of ADT's
products, increasing market share, obtaining additional regulatory approvals,
minimizing the effects of competition on sales volumes and prices, and
controlling costs. See "Summary -- Selected Financial Information" and
"Information About ADT -- Management's Discussion and Analysis of ADT's
Financial Condition and Results of Operations."
LIMITED LIQUIDITY AND CAPITAL RESOURCES. ADT has limited capital
resources and has been operating under severe cash flow constraints.
Unexpected sales reductions without a corresponding reduction in expenses or
inability to consummate the Merger with Texas Air would create a need for
additional working capital. ADT is continuing efforts to expand sales; to
control selling, general and administrative expenses; and to obtain additional
sources of financing by renegotiating existing debt and raising equity through
private placements. However, there can be no assurance that ADT will be able
to successfully address its potential short and long term cash needs. See
"Information About ADT -- Management's Discussion and Analysis of ADT's
Financial Condition and Results of Operations."
LIMITED PRODUCT LINES; LACK OF ESTABLISHED MARKETS. ADT's two primary
product lines are its dental air abrasive (KCP) products and its PulseMaster
dental laser systems. To date, KCPs and lasers have not been widely used in
dentistry and their use requires acceptance, education, training and expertise.
ADT's future sales are dependent on ADT's ability to continue to develop a
market for these products. There can be no assurance that such development
will be attained. See "Information About ADT - Marketing, Sales and Training."
REGULATORY RESTRICTIONS ON ADT'S BUSINESS. Marketing of ADT's dental
products in the United States, including the applications for which the
products may be used and the manner in which the products may be promoted, is
subject to substantial FDA regulation. The FDA has cleared marketing of ADT's
dental lasers in the United States only for intraoral soft tissue (gum)
applications. This limited clearance has required ADT to alter its marketing
programs in the United States from those used elsewhere in the world. ADT
believes that dental laser sales in the United States have been adversely
affected by the FDA's limited clearance. Pursuant to FDA regulations, ADT is
conducting clinical trials using its lasers for the treatment of certain kinds
of tooth decay, and anticipates requesting FDA clearance for such procedures in
mid 1996. However, until these and other studies are successfully completed,
FDA clearance to market its laser systems for hard tissue applications is
unlikely. Accordingly, ADT cannot predict when, if ever, such authorizations
will be obtained. If another company receives FDA authorization for hard
tissue applications prior to ADT, ADT's domestic laser business could be
materially adversely affected. Although ADT is not authorized to promote the
use of its products for unapproved uses in the United States, the FDA does not
regulate the actual use of dental devices by dentists, and dentists may be
using ADT's products for such uses. If the FDA determines that ADT's marketing
programs are promoting unapproved applications in the United States, the FDA
may seek administrative or legal action against ADT, which action, if
successful, could materially and adversely affect ADT's business. Such
compliance often involves difficult issues of interpretation, and there can be
no assurance that the FDA may not initiate such an action. See "Information
About ADT -- Governmental Regulations."
19
<PAGE> 28
ENFORCEMENT OF PATENTS; POTENTIAL INVALIDITY. There can be no assurance
that patent rights owned by ADT provide ADT with any competitive advantage.
Litigation is pending which challenges the validity of several issued air
abrasive patents. While ADT believes these patents are valid and is vigorously
defending the claims, if ADT's patents are ultimately held not to be valid,
ADT's competitive position could be materially adversely affected. ADT has
also initiated litigation asserting patent infringement of certain air abrasive
patents and is seeking money damages and injunctive relief from a former
supplier and several of that competitor's distributors. In general, patent
litigation can be time consuming and expensive. There can be no assurance that
ADT will have sufficient resources to enforce its patents. See "Information
About ADT -- Patents" and "Information About ADT -- Legal Proceedings."
HIGHLY COMPETITIVE INDUSTRY. The dental laser and air abrasive markets
are embryonic, have only recently begun developing, are subject to intense
competition, and are characterized by rapid technological change. ADT's
products currently compete with conventional treatment methods, as well as a
number of less expensive products marketed by others. ADT expects competition
to increase if other companies enter these emerging high technology markets,
particularly if lasers and air abrasive techniques gain acceptance among dental
practitioners. There can be no assurance such products or technologies will be
accepted by dental practitioners. Many of these competing companies may have
greater financial and other resources than ADT, which may place these companies
in a better position to develop, introduce and market new, improved or less
expensive products. "See Information About ADT -- Competition."
DEPENDENCE ON KEY DISTRIBUTORS. A significant portion of ADT's business
is generated by key distributors in each of ADT's primary markets. The failure
or inability of these key distributors to meet their purchase commitments or
the loss of existing business relationships with any of these distributors
could have a material adverse effect on ADT's business. See "Information About
ADT -- Marketing, Sales and Training" and "Certain Relationships and Related
Transactions."
DEPENDENCE ON KEY PERSONNEL. ADT depends to a considerable degree on a
limited number of key personnel. Many key responsibilities within ADT and its
subsidiaries have been and will be assigned to a relatively small number of
individuals. The loss of certain management or other key personnel could
adversely affect ADT's business. Many of these individuals are employed at
will or can terminate their employment by providing reasonable notice of
termination. The business of ADT depends, among other things, on the
successful retention and recruitment of qualified personnel. Competition for
such personnel is intense. There can be no assurance that ADT will be
successful in retaining its existing key personnel and in attracting and
retaining the personnel it may require in the future. See "Current Directors
and Executive Officers of ADT," "Executive Compensation -- Employment
Agreements."
POTENTIAL ADVERSE EFFECTS OF CERTAIN ADT ANTI-TAKEOVER PROTECTIONS. The
ADT Board of Directors has the authority to issue preferred stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
its stockholders. The rights of the holders of ADT Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of ADT. Further, certain provisions of Delaware law and ADT's
Certificate of Incorporation and by-laws could delay or make more difficult a
merger, tender offer or proxy contest involving ADT which is not approved by
its Board of Directors. While such provisions are intended to enable the ADT
Board of Directors to maximize stockholder value, they may have the effect of
discouraging takeovers which could be in the best interest of certain
stockholders. There is no assurance that such provisions will not have an
adverse effect on the market value of ADT Common Stock in the future. See
"Description of Capital Stock of ADT" and "Description of Capital Stock of
Texas Air; Comparison with Rights of ADT Stockholders -- Comparison of
Stockholders Rights."
20
<PAGE> 29
POTENTIAL INABILITY TO INTEGRATE ADT AND TEXAS AIR. Achieving the
anticipated benefits of the Merger will depend in part upon whether the
integration of the businesses of ADT and Texas Air can be achieved in an
efficient and effective manner. The combination of the two businesses will
require, among other things, partial integration of the companies' respective
product promotions and coordination of their sales and marketing and research
and development efforts. Furthermore, the combined companies will establish an
executive committee consisting of two members, Anthony D. Fiorillo as President
and Chief Executive Officer of ADT, and Ben J. Gallant as President and Chief
Executive Officer of Texas Air. The executive committee will have the same
power as the President and Chief Executive Officer of ADT and will report to
the ADT Board of Directors. There can be no assurance that integration of the
companies and their management will be accomplished successfully. Failure to
effectively accomplish the integration of the two companies' operations could
have a material adverse effect on ADT's results of operations and financial
condition. See "The Merger and Related Matters-- ADT's Reasons for the Merger;
Recommendations of ADT's Boards of Directors; Fairness to ADT Stockholders" and
"Texas Air's Reasons for the Merger; Recommendation of Texas Air's Boards of
Directors; Fairness to Texas Air Stockholders."
CONFLICTS OF INTEREST. Certain members of Texas Air's management and
Board of Directors have interests in the Merger that are in addition to and
potentially in conflict with the interests of stockholders of Texas Air
generally. Mr. Gallant will receive a three year employment agreement and
become a member of ADT's Executive Committee and Board of Directors. Messrs.
Vickers, Nichols and Johnson will become directors of ADT. The Board of
Directors of Texas Air was aware of these interests and considered them, among
other things, in approving the Agreement, the Merger, and the transactions
contemplated thereby. See "The Merger and Related Matters -- Conflicts of
Interest."
LIMITED PUBLIC MARKET AND VOLATILITY OF ADT COMMON STOCK. There has been
only a limited public market for ADT's Common Stock. ADT Common Stock is
currently traded on the Nasdaq SmallCap Market. Continued qualification to
trade on the Nasdaq SmallCap Market is subject to certain minimum stock price
levels and financial requirements. There can be no assurance that ADT will
continue to satisfy these requirements. In addition, from time to time, there
has been and there may again be significant volatility in the public market for
ADT's Common Stock and there can be no assurance that a stable or active market
for ADT's Common Stock will exist or be sustained following the Merger.
Although there are several companies which presently make a market in ADT
Common Stock, they are not obligated to do so, and there can be no assurance
that there will continue to be companies willing to make a market in ADT's
Common Stock. See "Comparative Market Prices and Dividends -- ADT Common
Stock."
POTENTIAL ADVERSE EFFECTS OF FUTURE SALES OF ADT COMMON STOCK. The sale
of large amounts of ADT Common Stock in the public market could adversely
affect the market price of ADT's Common Stock. In addition to the 11,429,775
shares of ADT Common Stock being issued to the Texas Air holders in the Merger,
approximately 11,245,000 previously issued restricted shares and 4,390,556
shares which are issuable upon exercise of outstanding warrants, may also be
eligible for sale or become available for sale in the public market in the
future pursuant to Rule 144 and/or Rule 145 under the Securities Act. In
addition, ADT has agreed to register for resale up to 7,273,666 shares to be
issued upon exercise of the Merger Warrants on behalf of the holders of such
shares. See "Principal Stockholders of ADT," "Security Ownership of ADT
Management," "Certain Relationships and Related Transactions" and "The Merger
and Related Matters -- Federal Securities Law Consequences."
CONTROL OF ADT BY AFFILIATES. Following the Merger, ADT's executive
officers, directors and principal stockholders will own approximately 62% of
ADT's outstanding Common Stock and will control ADT. Included within this
group is one of the founders of ADT, William D. Myers, and one of the founders
of Texas Air, Ben J. Gallant, who together will own approximately 26% of the
outstanding ADT Common Stock following the Merger. Dr. Myers and Mr. Gallant
are parties to a voting agreement regarding election of directors. In addition
to ADT Common Stock, these officers, directors and principal stockholders will
own, in the aggregate, warrants or options to acquire 10,938,263 additional
shares of ADT Common Stock at exercise prices ranging from $.50 to $1.6875 per
share exercisable at various times through 2006. See "Principal Stockholders
of ADT," "Security Ownership of ADT Management," "Executive Compensation --
Option Holdings," and "Information About Texas Air -- Principal Stockholders
and Management of Texas Air."
21
<PAGE> 30
FIXED EXCHANGE RATIO. Under the terms of the Agreement, each share of
Texas Air Common Stock issued and outstanding at the Effective Time (other than
shares held by stockholders of Texas Air who perfect their dissenters' rights
in the manner described in this Joint Proxy Statement/Prospectus) will be
converted into the right to receive 5.425 shares of ADT Common Stock and a
Merger Warrant to purchase 3.321 shares of ADT Common Stock at a purchase price
of $1.00 per share (subject to adjustment depending upon the trading price of
ADT's stock prior to approval) for a period commencing one year and one day and
ending three years following the effective date of the Merger. The Agreement
does not contain any provisions for adjustment of the Exchange Ratio based on
fluctuations in the price of ADT Common Stock. Accordingly, the value of the
consideration to be received by the stockholders of Texas Air upon completion
of the Merger may differ from the value of the Merger consideration on November
22, 1995, the date on which the Agreement was originally executed (when the
closing sale price of ADT Common Stock was $0.875). There can be no assurance
that the market price of ADT Common Stock on and after the Effective Time will
not be higher or lower than such price. See "Summary - Risk Factors -- Limited
Public Market and Volatility of ADT Common Stock" and "Comparative Market
Prices and Dividends."
INTRODUCTION
This Joint Proxy Statement/Prospectus is (i) furnished to stockholders of
Texas Air in connection with the solicitation of proxies by the Board of
Directors of Texas Air for use at the Texas Air Special Meeting to be held at
9:00 a.m. local time, on July 27, 1996 at Texas Air's headquarters located at
5555 Bear Lane, Corpus Christi, Texas, for the purpose of considering and
voting upon a proposal to approve the Merger and adopt the Agreement, and (ii)
furnished to stockholders of ADT in connection with the solicitation of proxies
by the Board of Directors of ADT for use at the ADT Annual Meeting to be held
at 9:00 a.m. local time, on July 29, 1996 at the Skyline Club, Mackinac Room,
2000 Town Center, Suite 2800, Southfield, Michigan, for the purpose of
considering and voting upon (a) the Merger and the issuance of ADT Common Stock
and Merger Warrants in connection with the Merger; (b) the election of
directors; (c) the amendment of the certificate of incorporation; and (d) the
amendment of the ADT Long-Term Incentive Plan. This Joint Proxy
Statement/Prospectus also constitutes the Prospectus of ADT with respect to the
shares of ADT Common Stock to be issued in connection with the Merger.
Pursuant to the Agreement, among other things, Texas Air will be merged
with and into Merger Sub and Merger Sub, a wholly-owned subsidiary of ADT, will
be the surviving corporation and change its name to Texas Airsonics, Inc. The
separate existence of Texas Air will cease. In the Merger, each outstanding
share of Texas Air Common Stock (other than shares held by stockholders of
Texas Air who perfect their dissenters' rights in the manner described in this
Joint Proxy Statement/Prospectus) will be converted into the right to receive
5.425 shares of ADT Common Stock together with a Merger Warrant to purchase
3.321 shares of ADT Common Stock at a purchase price of $1.00 per share
(subject to adjustment depending upon the trading price of ADT's Common Stock
prior to approval) for a period commencing one year and one day and ending
three years following the effective date of the Merger. A copy of the
Agreement is attached hereto as Annex A. On June 14, 1996, there were
2,106,871 shares of Texas Air Common Stock outstanding.
This Joint Proxy Statement/Prospectus contains certain information set
forth more fully in the Agreement and attachments included as Annex A, and is
qualified in its entirety by reference to such documents. In deciding whether
to vote for or against the proposal to approve the Merger and related matters,
each stockholder of ADT and Texas Air should carefully read all of these
documents.
22
<PAGE> 31
RECORD DATE; VOTING QUORUM
The Board of Directors of Texas Air has fixed the close of business on
June 14, 1996 for determination of holders of Texas Air Common Stock entitled
to notice of, and to vote at, the Texas Air Special Meeting. On that date,
2,106,871 shares of Texas Air Common Stock were issued and outstanding. Each
share of Texas Air Common Stock is entitled to one vote on all matters that
properly come before the Texas Air Special Meeting. The presence, in person or
by proxy, of not less than a majority of the total number of outstanding shares
of Texas Air Common Stock is necessary to constitute a quorum at the Texas Air
Special Meeting.
On June 14, 1996, 1,326,671 shares of Texas Air Common Stock
(approximately 63% of the Texas Air Common Stock outstanding) were owned by
Ben J. Gallant, Charles A. Nichols, Wayne A. Johnson II, John E. Vickers III,
Gary A. Chatham and Denics, principal stockholders, directors and/or executive
officers of Texas Air. All of such persons have indicated to Texas Air that
they intend to vote all shares of Texas Air Common Stock over which they have
voting power in favor of approval of the Merger and for adoption of the
Agreement.
The Board of Directors of ADT has fixed the close of business on June 14,
1996 (the "ADT Record Date") for determination of holders of ADT Common Stock
entitled to notice of, and to vote at, the ADT Annual Meeting. On that date,
16,001,795 shares of ADT Common Stock were issued and outstanding. Each share
of ADT Common Stock is entitled to one vote on all matters that properly come
before the ADT Annual Meeting. The presence, in person or by proxy, of not
less than a majority of the total number of outstanding shares of ADT Common
Stock is necessary to constitute a quorum at the ADT Annual Meeting.
On June 14, 1996, 9,098,592 shares of ADT Common Stock (approximately 57%
of the ADT Common Stock outstanding) were beneficially owned by ADT's officers
and directors, by William D. Maroney, Michael F. Radner, Denics, and by Texas
Air's directors and executive officers, as a group. All of such persons have
indicated to ADT that they intend to vote all shares of ADT Common Stock over
which they have voting power in favor of the Merger and the issuance of the
shares of ADT Common Stock and Merger Warrants, the election of directors, the
amendment to the certificate of incorporation and the amendment of the
Long-Term Incentive Plan. Consequently, if such persons vote as indicted,
approval of all the proposals is assured.
TEXAS AIR PROXIES; VOTE REQUIRED
Stockholders of Texas Air are requested to complete, sign, date and return
promptly the enclosed proxy in the postage paid envelope provided for this
purpose in order to assure that their shares are voted. Shares of Texas Air
Common Stock represented by properly executed proxies received by Texas Air
prior to or at the Texas Air Special Meeting will be voted in accordance with
the instructions contained thereon. SHARES OF TEXAS AIR COMMON STOCK
REPRESENTED BY PROXIES FOR WHICH NO INSTRUCTION IS GIVEN WILL BE VOTED FOR
APPROVAL OF THE MERGER AND ADOPTION OF THE AGREEMENT. The affirmative vote of
the holders of at least a two-thirds of the outstanding shares of Texas Air
Common Stock is necessary to approve the Merger and confirm the Agreement. A
proxy may be revoked at any time prior to the exercise of the authority granted
thereunder. Revocation may be accomplished by the granting of a later proxy
with respect to the same shares, by written notice of revocation to the
Secretary of Texas Air at any time prior to the vote on the Merger or by voting
the shares represented by the proxy in person at the Texas Air Special Meeting.
Mere attendance at the Texas Air Special Meeting will not in itself revoke a
proxy. Any written notice of revocation or subsequent proxy has to be
delivered to Texas Airsonics, Inc., 5555 Bear Lane, Corpus Christi, Texas
78405, Attention: John Vickers, Secretary, or hand delivered to the Secretary
of Texas Air at or before the taking of the vote at the Special Meeting.
23
<PAGE> 32
The Texas Air Board of Directors knows of no matters to be presented at
the Texas Air Special Meeting other than those described in this Joint Proxy
Statement/Prospectus.
Texas Air will bear the cost of solicitation of proxies from its
stockholders. In addition to solicitation by mail, officers and employees of
Texas Air, who will receive no compensation other than their regular salaries,
may solicit proxies in person, by telephone or otherwise.
TEXAS AIR'S BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS ADVISABLE AND
IN THE BEST INTERESTS OF TEXAS AIR AND ITS STOCKHOLDERS AND, BY UNANIMOUS
VOTE, HAS RECOMMENDED THAT THE STOCKHOLDERS OF TEXAS AIR VOTE FOR APPROVAL OF
THE MERGER. IN CONNECTION WITH SUCH RECOMMENDATION, STOCKHOLDERS SHOULD
CONSIDER THE MATTERS DISCUSSED IN "THE MERGER AND RELATED MATTERS - CONFLICTS
OF INTEREST."
ADT PROXIES; VOTE REQUIRED; PASSAGE MAY BE ASSURED
Stockholders of ADT are requested to complete, sign, date and return
promptly the enclosed proxy in the postage paid envelope provided for this
purpose in order to assure that their shares are voted. Shares of ADT Common
Stock represented by proxies received by ADT prior to or at the ADT Annual
Meeting will be voted in accordance with the instructions contained thereon.
SHARES OF ADT COMMON STOCK REPRESENTED BY PROXIES FOR WHICH NO INSTRUCTION IS
GIVEN WILL BE VOTED FOR (I) APPROVAL OF THE MERGER AND THE ISSUANCE OF SHARES
OF ADT COMMON STOCK AND MERGER WARRANTS IN CONNECTION WITH THE MERGER; (II)
ELECTION OF THE NOMINATED DIRECTORS; (III) AMENDMENT OF THE CERTIFICATE OF
INCORPORATION; AND (IV) AMENDMENT OF THE LONG-TERM INCENTIVE PLAN.
The executive officers and directors of ADT and Texas Air together with
certain principal stockholders of ADT, beneficially own approximately 57% of
the outstanding shares of ADT Common Stock as of the Record Date. Such persons
have informed ADT that all the shares over which they hold voting power will be
voted in favor of the foregoing proposals. Consequently, if such persons vote
as indicated, approval of all the proposals in assured.
The rules of the National Association of Securities Dealers, Inc.
("NASD"), but not Delaware law, require that the issuance of the ADT Common
Stock and Merger Warrants in connection with the Merger be submitted for the
approval of the stockholders of ADT.
A proxy may be revoked at any time prior to the exercise of the authority
granted thereunder. Revocation may be accomplished by the granting of a later
proxy with respect to the same shares or by written notice to the Secretary of
ADT at any time prior to the vote at the ADT Annual Meeting. Mere attendance
at the ADT Annual Meeting will not in itself revoke a proxy.
The ADT Board of Directors knows of no matters to be presented at the ADT
Annual Meeting other than those described in this Joint Proxy
Statement/Prospectus. If other matters are properly brought before the ADT
Annual Meeting, it is the intention of the persons named in the proxies to vote
the shares to which such proxies relate in accordance with their best judgment.
ADT will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, officers and employees of
ADT, who will receive no compensation other than their regular salaries, may
solicit proxies by telephone, telegram or otherwise. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of shares of ADT Common Stock held of record by them will be
reimbursed for their reasonable expenses incurred in forwarding such material.
ADT will also engage Corporate Investor Communications, Inc. to solicit proxies
on its behalf at an estimated cost of approximately $15,000 plus out of pocket
expenses.
24
<PAGE> 33
ADT'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AS BEING FAIR TO, AND IN
THE BEST INTERESTS OF ADT. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER AND THE ISSUANCE OF ADT COMMON STOCK AND MERGER WARRANTS
IN EXCHANGE FOR ALL THE SHARES OF TEXAS AIR COMMON STOCK PURSUANT TO THE
AGREEMENT, AND FOR APPROVAL OF THE ELECTION OF DIRECTORS, THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION AND THE AMENDMENT TO THE LONG-TERM INCENTIVE PLAN.
DISSENTERS' RIGHTS
Stockholders of Texas Air who do not vote in favor of the Merger may,
under certain circumstances and by following procedures prescribed by the Texas
Business Corporation Act, exercise dissenters' rights and receive cash for
their shares. The failure of a dissenting stockholder of Texas Air to follow
the appropriate procedure may result in the termination or waiver of such
rights. See "The Merger and Related Matters -- Dissenters' Rights."
THE MERGER AND RELATED MATTERS
BACKGROUND OF THE MERGER
The terms of the Agreement are the result of negotiations between the
representatives of ADT and Texas Air. The following is a brief discussion of
the background of these negotiations.
During 1992, ADT acquired patents, patent applications and other
proprietary rights relating to air abrasive technology in dentistry from Texas
Air and, in February 1993, ADT acquired the manufacturing rights for all dental
air abrasive products from Texas Air and various patent rights from Ben J.
Gallant. ADT subcontracted the manufacturing back to Texas Air and has agreed
to purchase dental air abrasive products from Texas Air through 2003. Texas
Air is currently ADT's exclusive supplier of KCP products.
Since 1993, Anthony D. Fiorillo, President and Chief Executive Officer of
ADT, and Ben J. Gallant, President and Chief Executive Officer of Texas Air,
have informally discussed the possible business combination of ADT and Texas
Air. Although the benefits of combining the two companies were discussed
generally, no specifics of an actual combination were explored and no
substantive proposals were discussed prior to July 1995.
On July 31, 1995, Mr. Fiorillo and Mr. Gallant met for the purpose of
discussing a possible business combination, prompted in part by the increasing
competition in the industry. This meeting was arranged by Mr. Fiorillo because
ADT was experiencing competitive and economic pressures from other entrants
into the market. Mr. Fiorillo and Mr. Gallant had each independently concluded
that competitors could be dealt with more effectively if ADT and Texas Air were
combined and agreed discussions should continue. The Chief Executive Officers
met again on August 7, 1995 to discuss a proposal whereby ADT would acquire
Texas Air for consideration consisting of stock and warrants and signed a
non-binding letter of intent. Shortly thereafter, executive officers of both
companies, including Messrs. Fiorillo and Gallant; Diane Miller, ADT's Chief
Financial Officer; John Vickers, Texas Air's Chief Financial Officer; and their
legal representatives commenced a due diligence review at Texas Air's
headquarters in Corpus Christi, Texas and at ADT's headquarters in Southfield,
Michigan. Discussions continued between the chief executive and financial
officers of ADT and Texas Air concerning the amount of ADT Common Stock and
warrants to be issued and other terms of the proposed transaction. In August
1995, ADT engaged Equity Partners, Ltd. as its financial advisor to evaluate
the structure and the fairness of a possible combination with Texas Air.
Special meetings of the Boards of Directors were held on October 17 and
November 6, 1995 in the case of ADT, and October 8, 1995 in the case of Texas
Air, to consider the proposed merger and related transactions. During October
and November 1995, the same executive officers of ADT and Texas Air and their
legal and financial advisers conferred and discussed a number of unresolved
issues including the consideration to be received by the stockholders of Texas
Air in the proposed merger and the management structure of ADT. On November
22, 1995, the parties reached final agreement on terms within the authority
granted by their respective Boards of Directors and executed the Agreement.
25
<PAGE> 34
ADT and Texas Air announced the signing of the agreements for the Merger at
approximately 1:00 p.m. Eastern Daylight Time on November 27, 1995. After each
company's Board of Directors reviewed all material aspects of the proposed
merger and related transactions with its respective senior management and
financial and legal advisors, the Board of Directors of ADT and the Board of
Directors of Texas Air each approved the final terms of the Agreement, the
Merger and related transactions at meetings on March 25 and May 9, 1996.
Following such approvals, ADT executed an Employment Agreement with Ben J.
Gallant which becomes effective upon consummation of the Merger. See "The
Agreement."
Other entities were not evaluated by either company as potential business
partners nor were any firm proposals received from others.
CERTAIN EFFECTS OF THE MERGER
The Merger will become effective when a Certificate of Merger is issued by
the Texas Secretary of State ("Effective Time"), after Articles of Merger have
been filed with the Texas Secretary of State. It is anticipated that such
filing will be made as promptly as practicable after the required stockholder
approvals have been obtained and the other conditions to the consummation of
the Merger have been satisfied or waived.
At the Effective Time, each issued and outstanding share of Texas Air
Common Stock (other than shares held by stockholders of Texas Air who perfect
their dissenters' rights in the manner described in this Joint Proxy
Statement/Prospectus) will be converted into the right to receive 5.425 newly
issued shares of ADT Common Stock together with a Merger Warrant to purchase
3.321 shares of ADT Common Stock at a purchase price of $1.00 per share
(subject to adjustment depending upon the trading price of ADT's Common Stock
prior to approval) for a period commencing one year and one day and ending
three years following the Effective Time. ADT has agreed to register with the
Commission, the shares of ADT Common Stock underlying the Merger Warrants. On
June 14, 1996, there were 2,106,871 shares of Texas Air Common Stock
outstanding.
Denics Co., Ltd. ("Denics") owns warrants to purchase up to 83,333 shares
of Texas Air Common Stock ("Old Warrants") at a price of $6.00 for each share
of Texas Air Common Stock which will terminate on July 1, 1996. There are no
other outstanding warrants or options to purchase, or securities convertible
into, Texas Air Common Stock.
No fractional shares of ADT Common Stock will be issued in the Merger or
upon exercise of the Merger Warrants and, in lieu of a fractional share of ADT
Common Stock, the holders of Texas Air Common Stock will receive cash.
Promptly after the Effective Time, ADT will forward a letter of transmittal to
former stockholders of Texas Air containing detailed instructions for the
surrender of certificates representing Texas Air Common Stock. See "The
Agreement -- Effective Time -- Conversion and Exchange of Texas Air Common
Stock -- Conditions to Consummation of the Merger."
Based upon the capitalization of Texas Air and ADT at June 14, 1996 and
the Exchange Ratio (without giving effect to the Old Warrants or the exercise
of the Merger Warrants), the number of shares of ADT Common Stock outstanding
after giving effect to the Merger will be 27,431,570 and the holders of shares
of Texas Air Common Stock immediately prior to consummation of the Merger will
own approximately 42% of the outstanding shares of ADT Common Stock immediately
following consummation of the Merger. The principal stockholders (including
Denics), officers and directors of Texas Air currently own 1,823,077 shares of
ADT Common Stock or approximately 11% of the ADT Common Stock outstanding on
the Record Date and will own 9,847,740 shares or approximately 36% of ADT
Common Stock immediately following consummation of the Merger. The principal
stockholders, officers and directors of ADT and Texas Air together currently
own approximately 57% of the ADT Common Stock outstanding as of the Record Date
and will own approximately 62% following consummation of the Merger. See
"Information About Texas Air -- Principal Stockholders and Management of Texas
Air," "Principal Stockholders of ADT" and "Security Ownership of ADT
Management." If the Merger is consummated, stock purchase warrants to acquire
2.5 million shares of ADT Common Stock owned by Texas Air will be canceled.
See "Certain Relationships and Related Transactions -- Texas Air."
26
<PAGE> 35
ADT'S REASONS FOR THE MERGER; RECOMMENDATION OF ADT'S BOARD OF DIRECTORS;
FAIRNESS TO ADT STOCKHOLDERS
ADT's Board of Directors has unanimously approved the Agreement and the
Merger and believes that the Merger is in the best interests of ADT and its
stockholders. In making its determination with respect to the transaction, the
Board of Directors considered a number of factors. Among those factors was
historical information relating to the business, financial condition and
results of operations of ADT and Texas Air, the market prices and trading of
ADT Common Stock (See "Information About ADT -- General Description of
Business -- Management's Discussion and Analysis of ADT's Financial Condition
and Results of Operations," "Comparative Market Prices and Dividends,"
"Information About Texas Air -- Management's Discussion and Analysis of Texas
Air's Financial Condition and Results of Operations"); pro forma combined
financial information relating to the two companies (See "Unaudited Pro Forma
Condensed Combined Financial Statements"); the business and financial prospects
of ADT and Texas Air (including the prospects of ADT if it were to continue
doing business without acquiring Texas Air); the terms of the Agreement and the
Employment Agreement; (See Annex A); and the opinion of Equity Partners, Ltd.,
("Equity") that the financial terms of the Merger are fair to ADT and its
stockholders from a financial point of view; (see Annex B); various
information utilized by Equity in arriving at its opinion; and the existing
relationship with Texas Air. Based upon its review of this information, ADT's
Board of Directors concluded that the Merger would (i) permit ADT to terminate
a cost plus contract with Texas Air which presently extends through 2003 and
reduce ADT's cost of sales for KCP products; (ii) provide ADT control over the
KCP manufacturing process; (iii) make the cash resources of Texas Air available
to ADT and eliminate ADT's significant trade payable to Texas Air, thereby
increasing ADT's low level of working capital; and (iv) generate additional
cash by utilizing net operating loss carryforwards to offset future Texas Air
earnings, without diluting the interest of ADT's present stockholders. The
Board of Directors of ADT also believes the Merger will further ADT's short and
long term strategic objectives by increasing ADT's net worth and working
capital. The Merger is expected to result in a combined company with access to
the resources of both ADT and Texas Air which the Board believes will better
enable ADT to respond to competitive challenges posed by others in the emerging
dental high technology market.
The Board of Directors of ADT did not undertake a separate analysis of
each of these factors nor did the Board reach a separate conclusion with
respect to each such factor in its determination as to the fairness of the
terms of the Merger. The consideration of such factors resulted from
information relating to such factors being added to the collective business
knowledge, experience and understanding of the Board of Directors of ADT so as
to enable the Board of Directors of ADT to consider such information in its
deliberative process. In view of the above and the variety of factors
considered by the Board of Directors of ADT in reaching its conclusion as to
the fairness of the Merger, the Board of Directors of ADT did not find it
practical to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination as to the fairness of
the terms of the Merger.
THE BOARD OF DIRECTORS OF ADT HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF ADT AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AND THE ISSUANCE OF
THE SHARES ADT COMMON STOCK AND THE MERGER WARRANTS.
OPINION OF ADT'S FINANCIAL ADVISOR
ADT retained Equity to act as ADT's financial advisor in connection with
the Merger. As part of that engagement, ADT requested an opinion as to the
fairness from a financial point of view, of the terms of the Merger to the
holders of ADT Common Stock. No limitations were placed on Equity by ADT with
respect to the investigation made or the procedures followed by Equity in
preparing and rendering its opinion.
27
<PAGE> 36
At the October 17, 1995 and March 25, 1996 meetings of the Board of
Directors, Equity delivered preliminary opinions, which were subsequently
confirmed in writing on April 4, 1996, that the financial terms of the Merger
in the Agreement, are fair, from a financial point of view, to the stockholders
of ADT. Equity was not asked to, and did not recommend, the specific Merger
consideration. THE COMPLETE OPINION OF EQUITY IS ATTACHED AS ANNEX B AND IS
INCORPORATED HEREIN BY REFERENCE. SUCH OPINION SHOULD BE READ IN ITS ENTIRETY
FOR A DESCRIPTION OF THE MATTERS CONSIDERED, ASSUMPTIONS MADE, AND LIMITS OF
REVIEW BY EQUITY IN ARRIVING AT ITS OPINION.
In arriving at its opinion, Equity relied upon the accuracy and
completeness of all financial and other information provided or otherwise made
available to it, did not independently verify such information, and did not
make or obtain any independent evaluations or appraisals of the properties or
facilities of either ADT or Texas Air. With respect to financial projections,
Equity assumed that such projections reasonably reflected the best currently
available estimates and judgments of the respective managements of ADT and
Texas Air. Certain analyses performed by Equity in arriving at its fairness
opinion relied upon such projections and assumptions. In its opinion, Equity
noted that its opinion necessarily was based upon conditions existing as of the
date of its written opinion.
Equity's opinion states that for purposes of rendering its opinion with
respect to the Merger, it performed the following procedures: (1) read the
Agreement and Plan of Reorganization, related Agreement of Merger, as amended,
and related documents associated with the proposed transaction; (2) reviewed
ADT's June 1991 prospectus filed with the Securities and Exchange Commission;
(3) reviewed ADT's 1992, 1993, 1994 and 1995 financial statements and annual
reports to stockholders and/or applicable Form 10-K reports filed with the
Securities and Exchange Commission; (4) reviewed ADT's business plans prepared
by management for prior years, for 1995 and for the next five years (the latter
was prepared at the request of Equity and was not a document prepared in the
ordinary course of business by ADT); (5) reviewed ADT's most recent financial
statements, cash and debt position and updated financial projections; (6)
interviewed ADT's legal counsel, Mr. Raymond F. Winter, regarding the status of
existing ADT litigation and circumstances related to the recent issuance by ADT
of stock options and warrants to purchase ADT stock; (7) interviewed Mr. Anthony
D. Fiorillo, CEO and President of ADT, regarding current operations, current
financial position, competition, product and technology acceptance and
regulatory milestones and the rationale for the proposed acquisition; (8)
interviewed Ms. Diane Miller, CFO of ADT, regarding business plans, current and
projected financial position, pro forma post merger financial statements and
certain ownership concentration issues, as well as her opinion regarding the
rationale for the proposed acquisition, (9) interviewed an investment research
firm regarding the dental supply industry and the marketplace perception of ADT;
(10) reviewed investment research on firms in the dental supply business, in
particular Sullivan Dental Products, Inc. and Patterson Dental Co., both
publicly-traded dental supply houses; (11) reviewed the trading price range and
volume of ADT's Common Stock for the last several years, at the time of the
negotiation of the acquisition of Texas Air and for the periods subsequent to
the public announcement of the proposed acquisition; (12) performed net present
value analyses of ADT's five-year business plans prepared by senior ADT
management and related financial projections and compared that range of value,
less a control premium, to the trading range of ADT's Common Stock at the time
of the negotiation of the proposed transaction; (13) reviewed the pro forma post
merger financial projections prepared by senior ADT management, analyzed certain
aspects of those pro formas, reviewed additional financial projections and
considered the effect such pro forma financial performance would have on the
combined entities' trading value; (14) performed a valuation and study of Texas
Air utilizing historical financial statements of Texas Air and ADT's senior
management's projections of the expected purchases from Texas Air for the next
five years, Texas Air senior management's projections of industrial product
sales and margins, dental supply product manufacturing costs and other costs and
expenses for the next five years and historical transactions in Texas Air Common
Stock; (15) read certain agreements, including subsequent amendments thereto,
associated with certain existing Texas Air/ADT manufacturing rights and cost
plus supply contracts (which will terminate with the proposed transaction); and
(16) read the ADT Form S-4 registration statement intended to be filed with the
Securities and Exchange Commission covering the proposed acquisition and related
issuance of additional shares of ADT Common Stock, ADT financial information and
pro forma ADT financial information combined with Texas Air.
The following is a summary of all of the material financial analyses
conducted by Equity in connection with its opinion:
28
<PAGE> 37
Net Present Value Analyses. Equity calculated a range of net present
values (including the estimated terminal value) for ADT and Texas Air based upon
certain projections prepared by management of the respective companies. At the
request of Equity, members of each company's management prepared five year
projections on a conservative basis and on a "modest upside" basis and submitted
such projections to the other company's management for review and to conform the
level of KCP sales used in Texas Air's projections to the level used in ADT's
projections. The range of values for ADT was compared to the historical trading
range of ADT Common Stock plus a control premium. Based upon the net present
value analyses utilizing these projections, less a control premium, Equity
concluded that the indicated trading range for ADT Common Stock would be between
$.83 and $1.17 per share on a pre-Merger basis. The analyses with respect to
Texas Air indicated to Equity a value of approximately $5.22 to $6.17 per share,
including a control premium and a strategic premium, but not including any
cost-saving opportunities. Equity believes that the strategic premium was
warranted because the Merger (i) would permit ADT to terminate the current
cost-plus contract with Texas Air which, when terminated, will significantly
reduce ADT's cost of sales for KCP products; (ii) would permit ADT to take
control of the manufacturing process for the KCP products; (iii) would make
Texas Air's cash resources available to ADT and eliminate the need for ADT to,
among other things, pay its trade payable to Texas Air, both of which will
increase ADT's low level of working capital; and (iv) would permit ADT to
generate additional cash by utilizing net operating loss carryforwards to offset
future Texas Air earnings.
The values indicated by the net present value analyses were determined by
Equity for purposes of comparing the value of ADT to the value of Texas Air and
may not be representative of the expected values of ADT Common Stock and Texas
Air Common Stock. The projections on which the net present value analyses were
based were prepared by management of ADT and Texas Air at Equity's request for
purposes of its opinion. Such projections were prepared in accordance with
Equity's instructions and did not take into account all possible business
conditions or potential opportunities or difficulties which may appear as the
embryonic dental technology market develops. However, since the principal
portion of Texas Air's sales are to ADT, any changes affecting the market should
tend to move the respective values of each company in tandem with each other.
Therefore, Equity concluded that the exchange ratio indicated by the above
analyses should be representative of the values of ADT and Texas Air in relation
to each other even though the absolute values indicated by such analyses may not
be indicative of the expected values of ADT and Texas Air.
Transactions in Common Stock. Equity examined the historical trading price
range and volume for ADT Common Stock since ADT's initial public offering in
1991 and particularly during the last two years, noting that ADT's Common Stock
was thinly traded and the trading price was volatile. See "Risk Factors -
Limited Public Market and Volatility of ADT Common Stock" and "Comparative
Market Prices and Dividends." In addition, Equity reviewed representative
private transactions in ADT Common Stock (described under "Certain Relationships
and Related Transactions"), which suggested that a price of approximately $1.00
per share was indicative of the expected value of ADT Common Stock on a
marketable, minority holder basis. Equity also examined representative
transactions in Texas Air Common Stock, which suggested that $6.00 per share was
indicative of the expected value of Texas Air Common Stock on a non -
marketable, minority holder basis. For a description of these transactions, see
"Information About Texas Air - Management's Discussion and Analysis of Texas
Air's Financial Condition and Results of Operations - Liquidity and Capital
Resources for the Years Ended December 31, 1995 and 1994." The exchange ratio
indicated by these transactions would exceed six to one and supported Equity's
opinion.
Comparable Companies and Comparable Transactions. Due to the unique and
specialized nature of both ADT and Texas Air, their small size, ADT's history of
operating losses, and the fact that the process of receiving certain regulatory
approval and market acceptance necessary to fully utilize the technologies owned
by ADT and Texas Air is still underway, Equity determined that there were no
companies or transactions comparable enough to ADT and Texas Air to provide a
meaningful comparison. Equity did examine certain price-to-earnings multiples
with respect to two larger public companies (Sullivan Dental Products, Inc. and
Patterson Dental Co.) which are distributors of dental products, one of which is
a major customer of ADT. Applying the mid-range of price-to-earnings multiples
of 13 for Sullivan and 25 for Patterson to the financial statements of Texas
Air, and taking into account its belief that a manufacturing company (such as
the combined ADT/Texas Air) generally trades at a higher multiple than a
distributing company, Equity concluded that the Merger should not be dilutive
with respect to value to the shareholders of ADT and Texas Air.
Post-Merger Earnings Per Share. Equity also examined certain pro forma
financial projections of ADT and Texas Air on a combined post-Merger basis for
the next five years. These projections indicated generally that earnings per
share on a post-merger basis during such period are expected to be greater than
ADT's expected earnings per share on a stand alone basis, supporting Equity's
opinion regarding the fairness of the Merger to ADT's stockholders.
29
<PAGE> 38
The summary of the opinion and analyses set forth above does not purport
to be a complete description of the opinion and analyses of Equity. In
addition, Equity believes that such summary must be considered as a whole and
in conjunction with its complete opinion. Selecting portions of its analyses
without considering all analyses, or selecting portions of the above summary
without considering all factors and analyses considered by Equity, could create
an incomplete view of the process underlying the analyses and opinion. The
analyses performed by Equity were designed to assist Equity in formulating its
opinion regarding the exchange ratio and are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to
the value of ADT and Texas Air do not purport to be appraisals or to reflect
the prices at which the businesses may actually be sold.
Equity is a private investment banking firm. As part of its investment
banking business, Equity is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions.
ADT management selected Equity as its financial advisor primarily because
of Equity's reputation, expertise and the amount of the fee it proposed to
charge for its services. Equity was retained as financial advisor to ADT
pursuant to the terms of an engagement letter dated August 29, 1995. In
connection with such engagement, ADT has agreed to pay Equity a fee of $60,000.
Equity is also being reimbursed for reasonable expenses incurred by it in its
role as financial advisor and in connection with its fairness opinion. ADT has
agreed to indemnify Equity for certain liabilities, including liabilities under
federal securities laws. Equity has also been paid approximately $19,000 by
Texas Air for valuations of Texas Air performed at the joint request of Texas
Air, ADT and Ernst & Young LLP.
TEXAS AIR'S REASONS FOR THE MERGER; RECOMMENDATION OF TEXAS AIR'S BOARD OF
DIRECTORS; FAIRNESS TO TEXAS AIR STOCKHOLDERS
The Board of Directors of Texas Air has unanimously approved the Merger
and authorized execution of the Agreement and believes that the terms of the
Merger are fair to, and in the best interests of Texas Air and its
stockholders. Accordingly, the Board of Directors of Texas Air unanimously
recommends its approval and adoption by Texas Air stockholders.
After reviewing historical data relating to market prices and trading
volumes of ADT Common Stock and noting that Texas Air's stock is not publicly
traded, the Board of Directors of Texas Air believes the Merger will provide its
stockholders with greater liquidity for their equity interests by reason of
their receipt of registered and publicly traded shares of ADT Common Stock
while preserving the opportunity to participate in potential future growth of
the combined companies. After reviewing historical information relating to the
business, financial condition and results of operations of Texas Air and ADT
(see "Information About ADT -- General Description of Business -- Management's
Discussion and Analysis of ADT's Financial Condition and Results of Operations,"
"Comparative Market Prices and Dividends," Information About Texas Air --
Management's Discussion and Analysis of Texas Air's Financial Condition and
Results of Operations") and pro forma combined financial projections (See
"Unaudited Pro Forma Condensed Combined Financial Statements"), the Board of
Directors of Texas Air concluded the Merger will result in a financially
stronger combined company which will be able to compete more effectively in the
dental high technology market. The Board of Directors of Texas Air considers
the foregoing to be significant since competition seems to be increasing in such
markets and over 80% of Texas Air's sales are dependent upon ADT's ability to
compete effectively. The Board of Directors of Texas Air believes the combined
companies will be able to obtain a higher penetration of the market for dental
air abrasive products than might be obtained without the Merger. The Texas Air
Board of Directors believes the combined company will be able to deal more
effectively with existing and future potential vendors, distributors and users
of air abrasive dental products.
30
<PAGE> 39
The Board of Directors of Texas Air did not undertake a separate analysis
of each of these factors nor did the Board reach a separate conclusion with
respect to each such factor in its determination as to the fairness of the
terms of the Merger. The consideration of such factors resulted from
information relating to such factors being added to the collective business
knowledge, experience and understanding of the Board of Directors of Texas Air
so as to enable the Board of Directors of Texas Air to consider such
information in its deliberative process. In view of the above and the variety
of factors considered by the Board of Directors of Texas Air in reaching its
conclusion as to the fairness of the Merger, the Board of Directors of Texas
Air did not find it practical to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination as to the fairness of the terms of the Merger.
THE BOARD OF DIRECTORS OF TEXAS AIR BELIEVES THAT THE TERMS OF THE MERGER
ARE FAIR AND IN THE BEST INTERESTS OF TEXAS AIR AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AND
ADOPTION OF THE AGREEMENT. IN CONNECTION WITH THIS RECOMMENDATION,
STOCKHOLDERS SHOULD CONSIDER THE MATTERS DISCUSSED IN "CONFLICTS OF INTERESTS."
CONFLICTS OF INTEREST
In considering the recommendation of Texas Air's Board of Directors with
respect to the Merger and Agreement, stockholders should be aware that certain
members of Texas Air's Board of Directors and management have interests in the
Merger that are in addition to and potentially in conflict with the interests
of stockholders of Texas Air generally. The Board of Directors of Texas Air
was aware of these interests and considered them, among other matters, in
approving the Merger and the Agreement.
Ben J. Gallant and ADT have executed an employment agreement to become
effective July 1, 1996 (the "Employment Agreement") which provides that if the
Merger is completed, Ben J. Gallant will be employed as President and Chief
Executive Officer of Texas Air and as a member of the executive committee of
ADT. The term of the Employment Agreement is three years. Ben J. Gallant's
base compensation under the Employment Agreement will be $225,000 annually,
plus an automobile allowance and maintenance of a life insurance policy. Mr.
Gallant has also agreed not to compete with ADT during his employment and for
one year after termination. See "The Agreement -- The Employment Agreement."
A copy of the Employment Agreement is filed as an exhibit to the Registration
Statement and may be obtained in the manner set forth under "Available
Information." Mr. Gallant's existing rights to receive cash and consulting
fees pursuant to a February 1993 agreement with ADT will be unaffected by the
Merger. See "Certain Relationships and Related Transactions."
Certain directors and principal stockholders of Texas Air have indicated
they will vote to approve the Merger and are expected to be on ADT's Board of
Directors. Messrs. Gallant, Johnson, Nichols and Vickers will become directors
of ADT following approval of the Merger. See "Information About Texas Air --
Principal Stockholders and Management of Texas Air," "The Agreement --
Management After the Merger," "Election of Directors," "Summary -- Risk Factors
- -- Conflicts of Interest -- Control of ADT."
Denics is a principal stockholder of Texas Air and also of ADT. In
addition, Denics is one of ADT's primary customers. See "Information About
Texas Air -- Principal Stockholders and Management of Texas Air," "Principal
Stockholders of ADT" and "Certain Relationships and Related Transactions."
DISSENTERS' RIGHTS
The rights of Texas Air's dissenting stockholders are governed by Sections
5.11 through 5.13 of the Texas Business Corporation Act ("TBCA"). ADT
stockholders are not entitled to dissent from the Merger because ADT is not a
constituent corporation in the Merger. The following summary of applicable
provisions of Sections 5.11 - 5.13 is not intended to be a complete statement
of such provisions and is qualified in its entirety by reference to the full
text of the dissenters' rights provisions of the TBCA, which are included
herein as Annex C.
A holder of Texas Air's Common Stock as of the record date who files a
written objection to the Merger, who has not voted in favor of the Merger and
who has made a demand for compensation as provided under Sections 5.11 - 5.13,
is entitled under such provisions, as an alternative to receiving the
consideration offered in the Merger for his Texas Air Common Stock, to receive
31
<PAGE> 40
cash for his Texas Air Common Stock. The following is a summary of the
procedural steps that must be taken if dissenters' rights are to be validly
exercised.
Any stockholder of Texas Air may elect to exercise his right to dissent
from the Merger by filing with Texas Air, at the address set forth below, prior
to Texas Air's Special Meeting, a written objection to the Merger, setting out
that such stockholder's right to dissent will be exercised if the Merger is
effective and giving such stockholder's address for any notice.
If the Merger is effected and such stockholder has not voted in favor of
the Merger, Texas Air will, within ten days after the Merger is effected,
deliver or mail to such stockholder written notice that the Merger has been
effected, and such stockholder may, within ten days from the delivery or
mailing of such notice, make written demand on Texas Air for payment in cash of
the "fair market value" for such holder's shares of Texas Air Common Stock in
accordance with the dissenters' rights provisions of the TBCA.
The fair market value of any dissenting shares will be the value thereof
as of the day immediately preceding the Texas Air Special Meeting, excluding
any appreciation or depreciation in anticipation of the Merger. Such
stockholder demand must state the number of shares of Texas Air Common Stock
owned by the dissenting stockholder and the fair value of such shares as
estimated by such stockholder. Any stockholder failing to make demand within
the ten-day period will be bound by the Merger.
A dissenting stockholder's written objection to the Merger and demand for
payment must be in addition to and separate from any proxy or vote against the
Merger. Neither voting against, abstaining from voting, or the failure to vote
for the Merger will constitute the written notice required to be filed by a
dissenting Texas Air stockholder. Failure to vote against the Merger, however,
will not constitute a waiver of rights under Sections 5.11 - 5.13 provided that
the other statutory requirements have been met. A Texas Air stockholder voting
for the Merger will be deemed to have waived his dissenters' rights. A signed
proxy that is returned, but which does not contain instructions as to how it
should be voted, will be voted in favor of adoption and approval of the Merger
and will be deemed a waiver of dissenters' rights. Any proxy may be revoked
before it is voted by filing with the Secretary of Texas Air a written notice
of revocation or a duly executed proxy bearing a later date or by attending the
special meeting and voting in person.
Under Sections 5.11 - 5.13, holders of record of Texas Air's Common Stock
are entitled to dissenters' rights as described above, and the procedures to
perfect such rights must be carried out by and in the name of holders of
record. Persons who are beneficial but not record owners of Texas Air Common
Stock and who wish to exercise dissenters' rights with respect to the Merger
should consult promptly with the record holders of their Texas Air Common Stock
as to the exercise of such rights. All written objections and demands for
payment should be addressed to Mr. John E. Vickers, III, Texas Airsonics, Inc.,
5555 Bear Lane, Corpus Christi, Texas 78405, and must be received before the
Texas Air Special Meeting or be delivered at such meeting prior to the vote
with respect to the Merger.
32
<PAGE> 41
Within 20 days after receipt by Texas Air of a demand for payment made by
a dissenting stockholder, Texas Air must deliver or mail to such dissenting
stockholder a written notice that will either (i) state that Texas Air accepts
the amount claimed in the demand and agrees to pay that amount within 90 days
after the Effective Time, and, in the case of shares of Texas Air Common Stock
represented by certificates, upon the surrender of the share certificates duly
endorsed, or (ii) contain an estimate by Texas Air of the fair value of such
shares, together with an offer to pay the amount of that estimate within 90
days after the Effective Time, upon receipt of notice within 60 days after that
date from the dissenting stockholder that such stockholder agrees to accept
that amount and upon the surrender of the share certificates duly endorsed. In
addition, within such 20 day period described above, each holder of
certificates representing shares of Texas Air Common Stock so demanding payment
shall submit such certificates to Texas Air for notation thereon that such
demand has been made. The failure of holders of certificates representing
shares of Texas Air Common Stock to do so will, at the option of Texas Air,
terminate such stockholder's rights under Sections 5.11 - 5.13 unless a court
of competent jurisdiction for good and sufficient cause shown shall otherwise
direct.
If, within 60 days after the Effective Time, the value of such shares is
agreed upon between the dissenting stockholder and Texas Air, payment therefor
will be made within 90 days after the Effective Time and, in the case of shares
represented by certificates, upon surrender of the certificates duly endorsed.
Upon payment of the agreed value, the dissenting stockholder will cease to have
any interest in the shares of Texas Air Common Stock or in Texas Air.
If, within 60 days after the Effective Time, the dissenting stockholder
and Texas Air do not agree, then the dissenting stockholder or Texas Air may,
within 60 days after the expiration of the initial 60-day period, file a
petition in any court of competent jurisdiction in the county in which the
principal office of Texas Air is located (Nueces County, Texas), asking for a
finding and determination of the fair value of such dissenting stockholder's
shares of Texas Air Common Stock. Texas Air stockholders should be prepared to
file a petition on their own behalf.
After the hearing on the petition, the court will determine the dissenting
stockholders who have complied with the provisions of the TBCA relating to
dissenters' rights and have become entitled to the valuation of and payment for
their shares of Texas Air Common Stock, and will appoint one or more qualified
appraisers to determine that value. The appraisers will have the power to
examine any of the books and records of Texas Air and will conduct such
investigation as they deem proper. The appraisers will afford interested
parties a reasonable opportunity to submit pertinent evidence as to the value
of the shares of Texas Air Common Stock.
The appraisers will determine the fair value of the shares of Texas Air
Common Stock held by the dissenting stockholders adjudged by the court to be
entitled to payment and will file their report of that value in the office of
the clerk of the court. All parties in interest will be entitled to file
exceptions to the appraisal report, which exceptions will be heard by the court
upon the law and the facts. The court will determine the fair value of the
shares of Texas Air Common Stock held by the Texas Air dissenting stockholders
entitled to payment therefor and will direct that payment of that value by
Merger Sub, as the surviving corporation in the Merger, together with interest
thereon beginning 91 days after the date on which the applicable corporate
action from which the stockholder elected to dissent was effected to the date
of such judgment, to the dissenting stockholders entitled thereto. The fair
value of such shares may be less than, greater than, or equal to the
consideration offered in the Merger. The court shall allow the appraisers a
reasonable fee as court costs and all court costs shall be allotted between the
parties in the manner that the court determines to be fair and equitable. Upon
payment of the judgment by Merger Sub. to such dissenting stockholders, the
Texas Air dissenting stockholders will cease to have any interest in those
shares of Texas Air Common Stock or in Texas Air.
33
<PAGE> 42
In the absence of fraud in the transaction, the remedy provided by
Sections 5.11 - 5.13 is the exclusive remedy for the recovery by the Texas Air
dissenting stockholders of the value of such stockholders' shares of Texas Air
Common Stock or money damages to such stockholder with respect to the Merger.
If Texas Air complies with the requirements of Sections 5.11 - 5.13, any
dissenting stockholder who fails to comply with the requirements of the
provisions of the TBCA relating to dissenters' rights will not be entitled to
bring suit for the recovery of the value of his or her shares of Texas Air
Common Stock or money damages to such stockholder with respect to the Merger.
Any stockholder who has demanded payment for his shares as described above
may withdraw such demand at any time before payment for his shares or before
any petition has been filed asking for a finding and determination of the fair
value of such shares, but no such demand may be withdrawn after such payment
has been made or, unless Texas Air shall consent thereto, after any such
petition has been filed. If, however, (i) such demand shall be withdrawn as
provided above; (ii) Texas Air terminates the stockholder's rights as provided
above; (iii) no petition asking for a finding and determination of fair value
of such shares by a court shall have been filed within the time period
described above; or (iv) after the hearing of a petition filed as described
above, the court shall determine that such stockholder is not entitled to the
relief as described above, then, in any such case, (a) such stockholder and all
persons claiming under him or her shall be conclusively presumed to have
approved and ratified the Merger from which he or she dissented and shall be
bound thereby; (b) the right of such stockholder to be paid the fair value of
his or her shares shall cease; and (c) his or her status as a stockholder shall
be restored, without prejudice to any corporate proceedings which may have been
taken during the interim, and such stockholder shall be entitled to receive any
dividends or other distributions made to holders of shares of Texas Air Common
Stock in the interim. If the Merger is approved, Texas Air's corporate
existence ends, and a stockholder's restoration would consist of having the
same rights to the Merger consideration provided to other Texas Air
stockholders who approved the Merger.
Any Texas Air stockholder contemplating the exercise of dissenter's rights
is urged to review carefully the provisions of the TBCA relating to dissenters'
rights, a copy of which is attached hereto as Annex C. Failure by a Texas Air
stockholder to follow precisely all the steps required by such provisions for
perfecting dissenters' rights will result in the loss of those rights.
Dissenters' rights are the exclusive remedy of a dissenting stockholder in the
absence of unlawful or fraudulent action by Texas Air with respect to its
stockholders.
THE ABOVE DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING TO
DISSENTERS' RIGHTS UNDER THE TBCA AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTIONS 5.11 - 5.13 OF THE TBCA, WHICH IS REPRINTED IN ITS ENTIRETY AS
ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax
consequences of the Merger to holders of Texas Air Common Stock who are
citizens or residents of the United States and who hold their shares of Texas
Air Common Stock as capital assets. It does not discuss all the tax
consequences that may be relevant to Texas Air stockholders who acquired their
shares of Texas Air Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation. In addition, the summary does not
discuss the application of any state, local, foreign or other tax rules to the
Merger.
John E. Vickers III, tax counsel, has advised Texas Air that the Merger
will constitute a reorganization for federal income tax purposes within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
34
<PAGE> 43
Mr. Vickers has advised that because the Merger will constitute a
reorganization, a Texas Air stockholder who exchanges his shares of Texas Air
Common Stock in the Merger for ADT Common Stock will not recognize gain or
loss, except that such stockholder must recognize gain only to the extent of
the lesser of his realized gain, or the fair market value of his cash received,
plus the fair market value of the Merger Warrants on the Effective Time, and
his partnership interest in Texas Airsonics, L.P. (the "boot consideration").
Any recognized gain will be treated either as a distribution in exchange for
stock or as a dividend distribution, determined in the manner described below.
If the gain recognized is treated as a distribution in exchange for stock, such
gain will be capital gain, and will be long-term capital gain if the Texas Air
stockholder has held his Texas Air Common Stock for more than one year at the
Effective Time of the Merger. If, however, the gain recognized is treated as a
dividend distribution, such gain will be taxed as ordinary income to the extent
of the accumulated earnings and profits of Texas Air. Whether the gain will be
treated as a distribution in exchange for stock or as a dividend distribution
will depend on whether the distribution has the effect of a dividend. Texas
Air will provide each stockholder a statement reflecting the fair market value
of the boot consideration received which will be based on a valuation opinion
from Equity. In general, for individual stockholders, the maximum tax rate
currently imposed on net long-term capital gain is 28% and the maximum tax rate
imposed on net short-term capital gain and ordinary income is 39.6%. The
maximum tax rate imposed on corporate stockholders currently is 39%.
THE FOREGOING DISCUSSION CONSTITUTES ONLY A GENERAL DISCUSSION OF THE
FEDERAL TAX CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICULAR FACTS
AND CIRCUMSTANCES OF EACH STOCKHOLDER OF TEXAS AIR. NO INFORMATION IS PROVIDED
HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF ANY, OF THE MERGER UNDER
APPLICABLE FOREIGN, STATE AND LOCAL LAWS. TEXAS AIR STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND
EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS AND THE
POSSIBLE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase for financial reporting purposes.
Under purchase accounting, ADT will allocate the total cost of acquiring the
Texas Air Common Stock to the assets and liabilities of Texas Air. Please also
see "The Agreement -- Ownership of Industrial Patent Rights." The pro forma
results of this accounting treatment are shown in the pro forma financial data
included under "Unaudited Pro Forma Condensed Combined Financial Statements."
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of ADT Common Stock received by Texas Air stockholders in the
Merger will be freely transferable, except that shares of ADT Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Texas Air prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of ADT) or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of Texas Air or ADT generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party. Rule 145 (or
Rule 144 in the case of persons who become affiliates of ADT) limits the amount
of ADT Common Stock that such persons may sell during any three-month period
and specifies certain other restrictions on resale. The Agreement requires
Texas Air to cause Ben J. Gallant, John E. Vickers, III, Charles A. Nichols,
Wayne A. Johnson II and each of its other affiliates, to execute a written
agreement to the effect that such person will not offer, sell, or otherwise
dispose of any of the shares of ADT Common Stock issued to such person in or
pursuant to the Merger except pursuant to an effective registration statement
or in compliance with Rule 145 or another exemption from the registration
requirements of the Securities Act.
35
<PAGE> 44
The Merger Warrants generally will not be transferable, except under the
laws of descent and distribution pursuant to a divorce decree, or with the
prior written consent of ADT. Shares acquired upon exercise of Merger Warrants
will be subject to restrictions on resale imposed by the Securities Act,
including the need for registration under the Securities Act or compliance with
Rule 144. ADT has agreed to file registration statements with the Commission
on September 1, 1997, May 15, 1998, November 15, 1998 and August 15, 1999 to
register shares of ADT Common Stock acquired upon exercise of Merger Warrants
at least ten days prior to such date for resale on behalf of the holders of
such shares and to cause each such registration statement to continue in effect
for at least two years. ADT's obligation to register shares on behalf of any
holder will be conditional upon ADT's receipt from such holder of certain
information requested by ADT and an undertaking by such holder to indemnify ADT
and its directors, officers and affiliates for certain liabilities incurred as
a result of ADT's reliance on such information and to temporarily cease making
sales of shares registered under such registration statement upon receipt of a
written notice from ADT under certain limited circumstances. ADT will not be
required to file a registration statement on a particular date if, on the
applicable filing date thereof, the number of shares to be registered by such
registration statement is less than 500,000 shares, if ADT is not eligible to
use Form S-3 in connection with such registration, and under certain other
limited circumstances.
THE AGREEMENT
GENERAL
The following description of the terms and conditions of the Agreement
does not purport to be complete and is qualified in its entirety by reference
to the Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as Annex A and incorporated herein by reference. All ADT
and Texas Air stockholders are urged to read the Agreement in its entirety.
The Agreement provides, among other things, for the merger of Texas Air
with and into Merger Sub in accordance with Texas law, and the conversion of
shares of Texas Air Common Stock into ADT Common Stock and Merger Warrants as
described in "Conversion and Exchange of Texas Air Common Stock" below. If the
Merger is consummated Texas Air's separate existence will cease.
EFFECTIVE TIME
Following approval of the Merger and subject to satisfaction or waiver of
the terms and conditions, including conditions to closing, contained in the
Agreement, the Merger will be effective when the Texas Secretary of State
issues a Certificate of Merger after Articles of Merger are filed with the
Texas Secretary of State in accordance with Texas law. The filing of the
Articles of Merger will be made as soon as practicable after the closing of the
transactions contemplated by the Agreement. It is currently contemplated that
the Effective Time will be July 31, 1996, or as soon thereafter as practicable,
assuming the conditions set forth in the Agreement are fully satisfied or
waived. See "The Agreement -- Conditions to Consummation of the Merger."
CONVERSION AND EXCHANGE OF TEXAS AIR COMMON STOCK
As of the Effective Time, by virtue of the Merger and without any action
on the part of any holder of Texas Air Common Stock the outstanding shares of
Texas Air Common Stock (other than dissenters' shares) will be converted into
5.425 shares of ADT Common Stock together with a Merger Warrant to purchase
3.321 shares of ADT Common Stock at a purchase price of $1.00 (subject to
adjustment depending upon the trading price of ADT's stock prior to approval)
for a period commencing one year and one day and ending three years following
the Effective Time. If the average closing price of ADT Common Stock as
reported by Nasdaq for the 15 trading days immediately preceding ADT's Annual
Meeting exceeds $2.00, then the exercise price of the Merger Warrants will be
increased by 50% of the amount obtained after taking the average closing price
of ADT's Common Stock for such 15 day period and subtracting $2.00.
36
<PAGE> 45
As of the Effective Time, each certificate evidencing Texas Air Common
Stock until surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the number of shares of ADT Common Stock and
Merger Warrants, which the holder of such certificate is entitled to receive
pursuant to the Merger.
Fractional shares of ADT Common Stock will not be issued in connection
with the Merger or upon exercise of the Merger Warrants. Instead, any
fractional share of ADT Common Stock to be received by a holder of Texas Air
Common Stock shall be converted to cash pursuant to the Agreement.
Promptly after the Effective Time, a letter of transmittal will be
furnished to the stockholders of Texas Air for use in exchanging their
certificates. The letter of transmittal will contain detailed instructions
with respect to surrender of certificates representing Texas Air Common Stock
and the distribution in exchange therefor of certificates representing ADT
Common Stock and Merger Warrants.
STOCKHOLDERS OF TEXAS AIR SHOULD NOT SEND STOCK CERTIFICATES REPRESENTING
THEIR SHARES TO TEXAS AIR OR ADT PRIOR TO RECEIPT OF THE LETTER OF TRANSMITTAL.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Texas Air, ADT and Merger Sub to consummate the Merger
are subject to the fulfillment prior to the Effective Time of the following
conditions: (i) the Merger shall have been duly approved by the holders of at
least two-thirds of the Texas Air Common Stock outstanding, and the Merger and
issuance of the ADT Common Stock and Merger Warrants shall have been duly
approved by the holders of a majority of the outstanding shares of ADT Common
Stock, in accordance with applicable law, (ii) the Registration Statement
containing this Joint Proxy Statement/Prospectus shall be effective under the
Securities Act and no "stop order" shall have been issued and no proceeding for
such purpose shall have been commenced; (iii) there shall be no order, decree
or ruling by any court or governmental agency or the threat thereof, or any
other circumstance, that would prohibit or render illegal the transactions
contemplated by the Agreement; and (iv) there shall have been obtained such
permits or authorization as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions
proposed to be taken.
The obligation of Texas Air to consummate the Merger is subject to a
number of additional conditions, including fulfillment or waiver at or prior to
the Effective Time of each of the following conditions, among others : (i) ADT
and Merger Sub shall have complied with and performed in all material respects
all of their respective agreements and obligations in the Agreement and related
documents required to be performed and complied with by them on or prior to the
Effective Time; (ii) the representations and warranties of ADT and Merger Sub
set forth in the Agreement shall be true and correct in all material respects
at and as of the Effective Time as if made at and as of such time, except as
otherwise set forth in the Agreement; (iii) Texas Air shall have received a
certificate of ADT, dated the Closing Date, signed by the President of ADT, to
the effect that to the knowledge of such officer, the conditions specified in
the foregoing subclauses (i) and (ii) have been fulfilled: (iv) there shall not
have been a material adverse change in the business or financial condition of
ADT or Merger Sub; (v) the proposed amendment to ADT's certificate of
incorporation shall have been approved by ADT's stockholders; and (vi) holders
of less than 50,000 shares of Texas Air Common Stock filing written objection
to the Merger as required to exercise dissenters' rights.
The respective obligations of ADT and Merger Sub to consummate the Merger
shall be subject to the fulfillment or waiver at or prior to the Effective Time
of each of the following conditions, among others: (i) Texas Air shall have
complied with and performed in all material respects all of its agreements and
obligations in the Agreement and related documents required to be performed and
complied with by it on or prior to the Effective Time; (ii) the representations
and warranties of Texas Air set forth in the Agreement shall be true and
correct in all material respects at and as of the Effective Time as if made at
and as of such time, except as otherwise set forth in the Agreement; (iii) ADT
shall have received a certificate of Texas Air, dated the Closing Date, signed
by the President of Texas Air, to the effect that to the knowledge of such
officer, the conditions specified in the foregoing subclauses (i) and (ii) have
been fulfilled; (iv) ADT shall have received on the effective date of the
37
<PAGE> 46
Registration Statement and at the Effective Time from Ernst & Young LLP, its
independent auditors, "comfort letters" in the form customarily provided in like
transactions; (v) there shall not have been any material adverse change in the
business or financial condition of Texas Air; (vi) no litigation or proceeding
shall be threatened or pending that could be reasonably expected to have a
material adverse effect on the present or future operations or financial
condition of Texas Air; (vii) ADT shall have received non-competition agreements
from certain Texas Air employees; and (viii) receipt by ADT of written
confirmation of Equity's fairness opinion as of the Effective Time.
At any time prior to the Effective Time, the parties may waive compliance
with any of the agreements or conditions contained in the Agreement which may
be legally waived.
COVENANTS
Each of ADT and Texas Air have agreed that prior to the Effective Time,
unless the other party otherwise agrees or as otherwise contemplated by the
Agreement, their respective businesses will be conducted only in the ordinary
course and neither will (a) borrow any money; (b) enter into any transaction
not in the ordinary course of business or enter into any transaction or make
any commitment involving an expense or capital expenditure in excess of $40,000
in the case of Texas Air or $100,000 in the case of ADT; (c) encumber or permit
to be encumbered any of its assets except in the ordinary course of its
business consistent with past practice and to an extent which is not material;
(d) dispose of any of its material assets except in the ordinary course of
business consistent with past practice; (e) enter into any material lease or
contract for the purchase or sale of any property, real or personal, tangible
or intangible, except in the ordinary course of business consistent with past
practice; (f) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date
of this Agreement, subject only to ordinary wear and tear; (g) except for
bonuses consistent with past practice, pay any bonus, royalty, increased salary
or special remuneration to any officer, employee or consultant or enter into
any new employment or consulting agreement with any such person or enter into
any agreement or plan of the type described in Subsection 2.15(e) of the
Agreement; (h) change accounting methods; (i) except for a distribution of ADT
Common Stock held by Texas Air or the proceeds from the sale thereof, declare,
set aside or pay any cash or stock dividend or other distribution in respect of
capital stock, or redeem or otherwise acquire any of its capital stock; (j)
amend or terminate any contract, agreement or license to which it is a party,
except those amended or terminated in the ordinary course of business,
consistent with past practice, and that are not material in amount or effect;
(k) lend any amount to any person or entity, other than advances for travel and
expenses that are incurred in the ordinary course of business consistent with
past practices, that are not material in amount and that are documented by
receipts for the claimed amounts; (l) guarantee or act as a surety for any
obligation except for the endorsement of checks and other negotiable
instruments in the ordinary course of business, consistent with past practice;
(m) waive or release any material right or claim, except in the ordinary course
of business, consistent with past practice; (n) except for shares and/or
warrants issued or to be issued pursuant to existing agreements, issue or sell
any shares of capital stock of any class, or any other securities or issue or
create any warrants, obligations, subscriptions, options, convertible
securities or other commitments to issue shares of capital stock; (o) split or
combine the outstanding shares of its capital stock or enter into any
recapitalization or reclassification affecting the number of outstanding shares
of its capital stock or affecting any other of its securities; (p) merge,
consolidate or reorganize with, or acquire, any entity; (q) amend its Articles
of Incorporation or Bylaws; (r) agree to any audit assessment by any tax
authority or file any federal or state income or franchise tax return unless
38
<PAGE> 47
copies of such returns have been delivered to ADT for its review prior to
filing; (s) license any of its technology or any intellectual property, except
in the ordinary course of business, consistent with past practice; (t) change
any insurance coverage; and (u) terminate the employment of any key employee.
REPRESENTATIONS AND WARRANTIES; ADDITIONAL AGREEMENTS
The Agreement contains various customary representations and warranties of
the parties. Texas Air has made representations, including representations
with respect to its respective organization and qualification, capitalization,
authority relative to the Agreement, subsidiaries, financial statements,
absence of certain changes or events, litigation, employee benefits plans and
compliance with certain laws. ADT has made representation, including
representations with respect to its respective organization and qualification,
capitalization, authority relative to the Agreement, litigation, compliance
with certain laws, filing of required information with the Commission, and
financial statements. Merger Sub has made representations regarding its
organization, capitalization and authority relative to the Agreement and
related documents.
Texas Air has agreed that it will not authorize any officer, director,
employee or affiliate of Texas Air or any other person on its behalf to,
directly or indirectly, solicit or encourage any offer from any party or
consider any inquiry or proposal received from any party other than ADT
concerning the possible disposition of all or any material portion of Texas
Air's business, assets, or capital stock by any means.
If the Merger is approved by both companies' stockholders, ADT has agreed
to increase the number of directors on its board of directors to nine and to
appoint four Texas Air nominees to fill four vacancies on the ADT Board.
Each of the parties to the Agreement has agreed to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Agreement.
MANAGEMENT AFTER THE MERGER
If the Merger is approved, the Board of Directors of ADT will consist of
four existing directors of ADT: William D. Myers, Anthony D. Fiorillo, J.
Bernard Machen and Bertrand R. Williams, Sr., and four nominees of Texas Air:
Ben J. Gallant, Wayne A. Johnson II, Charles A. Nichols and John E. Vickers
III. Subsequent to the Merger, a ninth director may be appointed but has not
yet been identified. In addition, William D. Myers and Ben J. Gallant have
executed a Voting Agreement dated February 23, 1996 providing generally for the
voting of their respective shares of ADT Common Stock for the election of
William D. Myers and Ben J. Gallant to the board of directors of ADT. The
Voting Agreement will terminate on the earlier of a mutual agreement to
terminate or immediately following the conclusion of the third annual meeting
of the stockholders of ADT after the Effective Time.
After the Merger, ADT will establish an executive committee consisting of
Anthony D. Fiorillo as President and Chief Executive Officer of ADT, and Ben J.
Gallant as President and Chief Executive Officer of Texas Air. The executive
committee will have the same power as the President and Chief Executive Officer
of ADT. Messrs. Fiorillo and Gallant will report to the ADT Board of
Directors. Deadlocks on management decisions by this committee will be decided
by the entire Board of Directors. See "Information About Texas Air --
Principal Stockholders and Management of Texas Air" and "Election of
Directors."
39
<PAGE> 48
TERMINATION; AMENDMENT; WAIVER
The Agreement may be terminated at any time prior to the Effective Time
(i) by mutual written consent of Texas Air and ADT; (ii) by either Texas Air or
ADT if the Merger shall not have been consummated by August 30, 1996; (iii) by
either Texas Air or ADT if there is a material adverse change in the business
or financial condition of Texas Air or ADT; (iv) by Texas Air if there is a
material condition precedent which cannot be satisfied and which has not been
waived by Texas Air; or (v) by ADT if there is a material condition precedent
which cannot be satisfied and which has not been waived by ADT. In the event
the Merger is not consummated for any reason, ADT has agreed to pay Texas Air
$700,000 over a reasonable period of time which does not jeopardize the
financial health of ADT. Texas Air may offset this obligation against any
amount owed by Texas Air to ADT.
Any term or provision of the Agreement may be amended, and the observance
of any term may be waived only in writing signed by the party to be bound
thereby. The waiver by a party of any breach or default will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
OWNERSHIP OF INDUSTRIAL PATENT RIGHTS
Pursuant to the Agreement, concurrently upon approval of the Merger,
ownership of all Texas Air patent rights not intended for use in the dental
field ("Industrial Patent Rights") will be transferred to Texas Airsonics, L.P.
("LP"), a Texas limited partnership. The general partners of LP are to be
Charles A. Nichols, Wayne A. Johnson II and Ben J. Gallant. The limited
partners will be all of the Texas Air stockholders (other than those who
exercise their dissenters rights). Each LP partner's ownership interest will
equal his (or her) relative stock ownership interest in Texas Air immediately
prior to approval of the Merger. At the Effective Time, LP will grant ADT an
exclusive license/assignment agreement for all Industrial Patent Rights owned
by LP in exchange for an eight percent royalty on the gross revenues from
industrial products for six years. At the end of six years, LP is required to
assign, transfer and convey to ADT complete title and ownership to all its
patent rights. However, if substantially all of ADT's dental business is
transferred, acquired or sold (including through merger with or acquisition by
another company) within three years of the Effective Time, the exclusive
license/assignment agreement will terminate and legal ownership of the
Industrial Patent Rights will remain with LP.
THE EMPLOYMENT AGREEMENT
ADT and Ben J. Gallant have entered into an Employment Agreement which
becomes effective upon consummation of the Merger. Pursuant to the Agreement,
Ben J. Gallant's current employment agreement with Texas Air will terminate at
the Effective Time.
The Employment Agreement provides that Ben J. Gallant will be employed as
the President and Chief Executive Officer of the Texas Air subsidiary and will
be a member of ADT's executive committee.
Ben J. Gallant's compensation under the Employment Agreement provides for
an annual base salary of $225,000, maintenance of a life insurance policy, an
automobile allowance and the right to those benefits under ADT's employee
benefit plans as are available to executive management.
The Employment Agreement has a term of three years, but may be terminated
at any time if Mr. Gallant commits a material criminal act, fraud, dishonesty,
or malfeasance with respect to ADT or his employment. In the event (i) his
employment is terminated without cause, (ii) his duties as the President and
Chief Executive Officer of the Texas Air subsidiary are materially changed, or
(iii) ADT liquidates, dissolves, merges with, or transfers substantially all of
its assets to a company which does not assume ADT's obligations under the
40
<PAGE> 49
Employment Agreement, Mr. Gallant will continue to be entitled to his base
salary and health coverage through the end of the term. Mr. Gallant has agreed
not to compete with ADT during his employment and after termination for a period
of one year.
Please also see "Certain Relationships and Related Matters -- Texas Air,"
which describes certain existing agreements between ADT and Mr. Gallant.
PROPOSAL TO AMEND THE ADT CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The proposed amendment to the ADT certificate of incorporation would
increase ADT's authorized Common Stock from 25 million to 50 million shares in
order to permit ADT to issue the shares to be issued pursuant to the Merger and
to have sufficient authorized shares to permit exercise of the Merger Warrants.
Any additional authorized shares would be available to the Board of Directors
for issuance without further stockholder approval (unless required by
applicable law, regulation or rule) and would provide the Board with the
flexibility needed to take advantage of financing opportunities. Such shares
could also be used for acquisitions, stock dividends and stock-based employee
benefit plans. Although there currently is no transaction contemplated other
than the Merger which would result in the issuance of the additional shares to
be authorized, ADT does consider from time to time proposals or transactions
involving the issuance of additional shares of Common Stock.
Article FOURTH of the ADT Certificate of Incorporation is proposed to be
amended in pertinent part as follows:
"FOURTH: The aggregate number of shares which the Company shall
have authority to issue is 60,000,000 to be divided into (a)
50,000,000 shares of Common Stock, par value $.01 per share,
and (b) 10,000,000 shares of Preferred Stock, par value $.01
per share.
The affirmative vote of the holders of a majority of the shares of ADT
Common Stock outstanding is required to adopt the proposed amendment to ADT's
certificate of incorporation. The executive officers and directors of ADT and
Texas Air together with certain principal stockholders of ADT beneficially own
approximately 57% of the outstanding ADT Common Stock. Such persons have
advised ADT that they intend to vote all of the shares over which they have
voting power in favor of this proposal. Consequently, if such persons vote as
indicated, approval is assured. If the proposed amendment to ADT's certificate
of incorporation is adopted by the stockholders, it will become effective upon
the filing of a certificate of amendment with the Secretary of State of
Delaware. The amendment will be filed and become effective only if the Merger
is consummated.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ADT STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
COMPARATIVE MARKET PRICES AND DIVIDENDS
ADT COMMON STOCK
ADT Common Stock was traded on The Nasdaq National Market until January
18, 1994 and thereafter on The Nasdaq SmallCap Market (Symbol: ADLI). The
following table sets forth certain information as to the high and low sales
prices per share of ADT Common Stock as reported by Nasdaq for each quarterly
period in 1994 and 1995 and for 1996 through June 21, 1996. On November 24,
1995, the last trading day prior to the announcement that the Agreement had
been executed, the closing sale price per share of ADT Common Stock, as
reported on The Nasdaq SmallCap Market was $0.9375. On June 21, 1996, the last
trading day for which quotations were available at the time of printing of this
Joint Proxy Statement/Prospectus, the closing sale price per share of ADT
Common Stock as reported on The Nasdaq SmallCap Market was $2.00.
STOCKHOLDERS OF TEXAS AIR AND ADT ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR
ADT COMMON STOCK.
41
<PAGE> 50
<TABLE>
<CAPTION>
CLOSING PRICE
HIGH LOW
------- -------
<S> <C> <C>
1994
First Quarter $3.125 $1.438
Second Quarter 2.000 0.750
Third Quarter 1.500 0.875
Fourth Quarter 0.875 0.4375
1995
First Quarter $0.625 $0.250
Second Quarter 1.6875 0.375
Third Quarter 1.125 0.750
Fourth Quarter 0.9375 0.5625
1996
First Quarter $2.0625 $1.375
Second Quarter
(through June 21, 1996) $2.3125 $1.500
</TABLE>
As of June 14, 1996, there were approximately 4,000 beneficial and record
holders of ADT Common Stock.
ADT has not paid cash dividends to stockholders since June 1991. The ADT
Board of Directors presently intends to retain all earnings to finance ADT's
operations and does not expect to authorize cash dividends in the foreseeable
future. Any payment of cash dividends in the future will be dependent upon
ADT's earnings, capital requirements and other factors considered relevant by
the ADT Board of Directors.
TEXAS AIR COMMON STOCK
Texas Air is a privately held Texas corporation. There has never been any
public trading market for Texas Air Common Stock. As of June 14, 1996, there
were 39 holders of record of the Texas Air Common Stock.
In March 1996, Texas Air declared a cash dividend of $.045 per share
payable by May 15, 1996. Texas Air declared and paid a cash dividend of $.10
per share in October 1995. In 1994, Texas Air declared and paid a cash
dividend of $.07 per share and distributed to its stockholders 131,148 shares
of ADT Common Stock, or the equivalent of another $.13 per share based on ADT's
closing sale price on the date of the distribution.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1995, the three month period ended
March 31, 1996 and the unaudited pro forma condensed combined balance sheets as
of December 31, 1995 and March 31, 1996, respectively, give effect to the
conversion of the outstanding shares of Texas Air Common Stock into shares of
ADT Common Stock at a conversion ratio of 5.425 shares of ADT Common Stock for
each outstanding share of Texas Air Common Stock as if the proposed Merger had
occurred on January 1, 1995 and January 1, 1996 and December 31, 1995 and March
31, 1996, respectively. The pro forma information is based on the financial
statements of ADT and Texas Air, giving effect to the proposed Merger under the
purchase method of accounting and the assumptions and adjustments described in
the accompanying notes to the pro forma financial statements.
42
<PAGE> 51
These unaudited pro forma condensed combined financial statements may not
be indicative of the results that actually would have occurred if the Merger
had been in effect on the dates indicated or which may be obtained in the
future. The unaudited pro forma condensed combined financial statements should
be read in conjunction with the audited financial statements for the year ended
December 31, 1995, the unaudited financial statements for the three months
ended March 31, 1996, and notes thereto of Texas Air and ADT which are included
herewith.
American Dental Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Pro Forma Pro Forma
ADT Texas Air Adjustments Combined
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $13,325,536 $4,391,001 $(3,663,000)(a) $14,053,537
Cost of sales 7,038,930 2,628,695 (3,371,800)(a) 6,354,065
58,240(g)
----------- ---------- ----------- -----------
Gross profit 6,286,606 1,762,306 (349,440) 7,699,472
Selling, general and administrative 6,956,223 1,455,949 393,242(d) 8,792,347
(13,067)(e)
Research and development 784,319 272,000 1,056,319
----------- ---------- ----------- -----------
Income (loss) from operations (1,453,936) 34,357 (729,615) (2,149,194)
Other income (expense):
Royalty income:
Related party 261,000 261,000
Other 30,806 30,806
Other income (1,621) 70,030 (52,150)(b) 16,259
Interest expense (110,415) (58,362) 52,150 (b) (116,627)
Gain on investment 33,194 (33,194)(f)
----------- ---------- ----------- -----------
Income (loss) before income taxes (1,274,166) 79,219 (762,809) (1,957,756)
Income tax 33,500 (33,500)(h)
----------- ---------- -----------
Net profit (loss) $(1,274,166) 45,719 (729,309) (1,957,756)
=========== ========== =========== ===========
Income (loss) from continuing
operations per common share $(0.08) $0.02 $(0.07)
=========== ========== ===========
Weighted average number of common
and dilutive common equivalent
shares outstanding 15,346,716 2,000,803 26,776,491
=========== ========== ===========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
43
<PAGE> 52
American Dental Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
---------------------------------
Pro Forma Pro Forma
ADT Texas Air Adjustments Combined
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $5,254,047 $1,409,628 $(1,269,280)(a) $5,394,395
Cost of sales 2,855,426 841,573 (1,260,280)(a) 2,447,947
11,228(g)
---------- --------- ----------- ----------
Gross profit 2,398,621 568,055 (20,228) 2,946,448
Selling, general
and administrative 1,669,058 214,476 98,311(d) 1,978,578
(3,267)(e)
Research and development 234,350 234,350
---------- --------- ----------- ----------
Income (loss) from operations 495,213 353,579 (115,272) 733,520
Other income (expense):
Other (4,640) 38,341 (32,664)(b) 1,037
Interest expense (42,263) (32,664) 32,664(b) (42,263)
---------- --------- ----------- ----------
Income before income taxes 448,310 359,256 (115,272) 692,294
Income tax 122,803 (122,803)(h)
---------- --------- ----------- ----------
Net income $448,310 $236,453 $ 7,531 $ 692,294
========== ========= =========== ==========
Income from continuing
operations per common share $ 0.03 $ 0.11 $ 0.02
========== ========= ==========
Weighted average number of
common and dilutive common
equivalent shares outstanding 17,258,826 2,106,871 30,037,588
========== ========= ==========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
44
<PAGE> 53
American Dental Technologies, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Pro Forma Pro Forma
ADT Texas Air Adjustments Combined
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 1,665,718 $ 724,831 $ (10,000)(e) $ 2,380,549
Accounts receivable 1,944,293 1,844,085 (1,771,910)(b) 2,016,468
Inventories 1,905,856 640,667 2,546,523
Prepaid expenses and other
current assets 534,074 192,786 (21,789)(b) 705,071
Loan receivable 1,500,000 (1,500,000)(b)
------------ ---------- ----------- ------------
Total current assets 6,049,941 4,902,369 (3,303,699) 7,648,611
Prepaid foreign taxes 225,000 225,000
Long-term deposits 1,410,267 500 1,410,767
Property and equipment, net 262,042 817,647 1,079,689
Intangible assets 5,037,446 163,510 (163,510)(e) 10,936,077
5,898,631(c)
------------ ---------- ----------- ------------
Total assets $ 12,984,696 $5,884,026 $ 2,431,422 $ 21,300,144
============ ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties $ 1,700,000 $(1,500,000)(b) $ 200,000
Note payable to bank $ 803,329 803,329
Accounts payable 3,723,922 1,465,051 (1,771,910)(b) 3,417,063
Compensation and employee benefits 346,668 346,668
Taxes other than income 607,177 35,292 642,469
Other accrued liabilities 1,109,464 43,144 (21,789)(b) 1,130,819
------------ ---------- ----------- ------------
Total current liabilities 7,487,231 2,346,816 (3,293,699) 6,540,348
Deferred royalty income from related party 3,000,000 3,000,000
Note payable to related party, less
current portion 600,000 600,000
Note payable, less current portion 690,000 690,000
Other non-current liabilities 64,993 64,993
Stockholders' equity:
Common stock 157,387 2,155,568 (2,041,270)(c) 271,685
Additional paid in capital 31,288,188 8,458,033(c) 39,746,221
Accumulated earnings (deficit) (29,613,103) 1,046,088 (872,578)(c) (29,613,103)
(173,510)(e)
Treasury stock (354,446) 354,446(c)
------------ ----------- ----------- ------------
Total stockholders' equity 1,832,472 2,847,210 5,725,121 10,404,803
------------ ---------- ----------- ------------
Total liabilities and stockholders' equity $ 12,984,696 $5,884,026 $ 2,431,422 $ 21,300,144
============ ========== =========== ============
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
45
<PAGE> 54
American Dental Technologies, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
<TABLE>
<CAPTION>
March 31, 1996
--------------
Pro Forma Pro Forma
ADT Texas Air Adjustments Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 1,146,490 $ 404,191 $ (10,000)(e) $ 1,540,681
Accounts receivable 3,291,466 2,017,470 (1,933,284)(b) 3,375,652
Inventories 1,381,223 507,545 1,888,768
Prepaid expenses and
other current assets 418,975 131,731 (21,154)(b) 529,552
Loan receivable 1,500,000 (1,500,000)(b)
----------- ---------- ---------- -----------
Total current assets 6,238,154 4,560,937 (3,464,438) 7,334,653
Prepaid foreign taxes 300,000 300,000
Long-term deposits 1,410,267 1,410,267
Property and equipment, net 217,953 806,629 1,024,582
Intangible assets 4,958,047 225,532 (160,243)(e) 10,776,948
5,753,612(c)
----------- ---------- ---------- -----------
Total assets $13,124,421 $5,593,098 $2,128,931 $20,846,450
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties $ 1,700,000 $ (1,500,000)(b) $ 200,000
Note payable $ 801,921 801,921
Accounts payable 3,881,185 1,170,795 (1,933,284)(b) 3,118,696
Compensation and employee benefits 335,260 335,260
Taxes other than income 611,127 611,127
Other accrued liabilities 664,363 141,420 (21,154)(b) 784,629
----------- ---------- ---------- -----------
Total current liabilities 7,191,935 2,114,136 (3,454,438) 5,851,633
Deferred royalty income from related party 3,000,000 3,000,000
Note payable to related party, less
current portion 600,000 600,000
Note payable, less current portion 490,000 490,000
Other non-current liabilities 51,704 51,704
Stockholders' equity:
Common stock 157,387 2,155,568 (2,041,270)(c) 271,685
Additional paid in capital 31,288,188 8,458,033(c) 39,746,221
Accumulated earnings (deficit) (29,164,793) 1,187,840 (1,017,597)(c) (29,164,793)
(170,243)(e)
Less treasury stock (354,446) 354,446(c)
----------- ---------- ---------- -----------
Total stockholders' equity 2,280,782 2,988,962 5,583,369 10,853,113
Total liabilities and
stockholders' equity $13,124,421 $5,593,098 $2,128,931 $20,846,450
=========== ========== ========== ===========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
46
<PAGE> 55
AMERICAN DENTAL TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1995 and the three months ended March 31, 1996 reflect
the acquisition of Texas Airsonics, Inc. (Texas Air) by American Dental
Technologies, Inc. as if it had occurred on January 1, 1995 and January 1,
1996, respectively. The unaudited pro forma condensed combined balance sheets
at December 31, 1995 and March 31, 1996 reflect the acquisition as if it
occurred on those dates.
This pro forma information does not purport to indicate the results of
operations or financial position which would have actually occurred if the
Merger had been effected on the dates indicated or which may be obtained in the
future.
PRO FORMA ADJUSTMENTS
The pro forma financial information reflects the acquisition of Texas Air as if
it was accounted for as a purchase, whereby all of the outstanding common stock
of Texas Air was acquired in exchange for 11,429,775 shares of ADT common stock
and merger warrants to purchase 6,996,919 additional shares of ADT common stock
at $1.00 per share (subject to adjustment depending upon the trading price of
ADT's common stock prior to approval). The common stock to be issued has been
valued at $0.75 per share in the pro forma financial statements, its average
market price for the five days preceding and five days following signing of the
agreement. The merger warrants to acquire common stock shares have no recorded
value in the pro forma financial statements, as their exercise price ($1.00)
exceeded the average market price of ADT's Common Stock ($0.75) and are not
exercisable until one year and one day following the Effective Time. The total
purchase price of $8,572,331 has been allocated for each of the dates presented
as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Assets acquired $ 5,422,855 $ 5,710,516
Liabilities acquired (2,604,136) (3,036,816)
Goodwill 5,753,612 5,898,631
----------- -----------
Purchase price $ 8,572,331 $ 8,572,331
=========== ===========
</TABLE>
The carrying value of the assets and liabilities of Texas Air approximates
their fair values and therefore have not been adjusted in the preceding pro
forma financial statements. The preceding unaudited pro forma condensed
combined financial statements include adjustments to increase (decrease) pro
forma combined net income (loss) from continuing operations available for
common shares or increase (decrease) pro forma combined stockholders' equity,
as follows:
(a) Elimination of intercompany net sales and cost of sales.
(b) Elimination of intercompany balances including the accounts payable and
accounts receivable; note payable, note receivable and related accrued
interest; and intercompany interest income and expense.
(c) Adjustment to record goodwill and apply purchase accounting, excluding
the effect of the exercise of warrants by Denics prior to the Merger which
would decrease goodwill by $160,938. Goodwill will be amortized on a
straight-line basis over 15 years.
(d) Amortization of the goodwill resulting from the Merger, excluding the
effect of the exercise of warrants by Denics prior to the Merger which
would decrease amortization by $10,729.
(e) Adjustment to eliminate Texas Air's intangible assets and related
amortization. The Texas Air intangible assets include certain patent
rights being transferred to an entity owned by the Texas Air stockholders.
(f) Elimination of gain on sale of investment in ADT Common Stock held by
Texas Air.
(g) Royalty on sale of industrial air abrasive products.
(h) Elimination of income tax expense due to pro forma loss or utilization of
income tax net operating loss carryforwards.
47
<PAGE> 56
INFORMATION ABOUT ADT
GENERAL DESCRIPTION OF BUSINESS
ADT develops, manufactures and markets high technology dental products
designed for general dentistry. ADT's primary products are KCP air abrasive
cavity preparation systems and pulsed dental lasers, primarily the PulseMaster
models. ADT was incorporated in November 1989 as a Delaware corporation and is
the successor by merger in January 1990 to several related companies formed
between 1986 and 1988 to develop and commercialize a low power pulsed dental
laser based on research by two of ADT's founders. ADT completed an initial
public offering in June 1991.
During the last several years, ADT has been strengthening its position in
the emerging dental high technology market and has become a more fully
integrated company. ADT owns numerous patents relating to pulsed dental
lasers. ADT acquired direct laser manufacturing and research and development
capabilities in December 1993 when it acquired Incisive Technologies, Inc.
("Incisive"). Incisive develops and manufactures the advanced PulseMaster line
of dental lasers at the San Carlos, California facility.
Since 1992, ADT has been acquiring manufacturing rights, patents, patent
applications and other proprietary rights relating to air abrasive technology
in dentistry from Texas Air, its exclusive supplier of the KCP. ADT has agreed
to purchase dental air abrasive products from Texas Air through 2003. Texas
Air develops and manufactures air abrasive products for dental and industrial
manufacturing markets. In late 1995, ADT and Texas Air entered into the
Agreement. If the Merger is completed, Texas Air will become a wholly owned
subsidiary of ADT.
ADT sells its products primarily through independent distributors. The
major markets have been Europe, certain Asian and Pacific countries, and the
United States. ADT utilizes two major distribution groups in Germany, Dental
Liga GmbH ("Dental Liga") and Orbis High Tech Dental GmbH ("OHT"). Since 1993,
ADT has had a business relationship with Denics Co., Ltd. ("Denics") for the
manufacture, sale and distribution of ADT products in Japan and certain Asian
and Pacific markets. Since July 1993, Patterson Dental Company of Minneapolis,
Minnesota ("Patterson"), has been ADT's primary distributor of the KCP in the
United States.
PRODUCTS
KCP Kinetic Cavity Preparation Systems
In the last quarter of 1994, ADT introduced a next generation kinetic
cavity preparation system, the KCP 1000 "whisperjet", which has become ADT's
primary air abrasive product. ADT had marketed the KCP 2000, which was
introduced in 1992. ADT's kinetic cavity preparation ("KCP") products remove
tooth decay and tooth structure, including enamel, by means of a narrow stream
of minute particles of alpha alumina propelled at high velocity by compressed
air and delivered to the tooth via a lightweight handpiece. The KCP shapes
restoration sites, removes old composites and modifies underlying hard tissue,
often eliminating the need for acid etching, while increasing bond strength.
It is also used for sealant preparations, stain removal and intraoral porcelain
removal and repair. The KCP can often be used in place of a drill and may be
used in many cases without anesthesia. The dentist controls the cutting speed
by selecting particle size (27 or 50 micron) and air pressure (80 psi to 160
psi) with touch pads on a control panel. The air abrasive stream is activated
by a foot pedal. The KCP is contained in a movable cabinet the size of a
medium suitcase and plugs into a standard electrical outlet.
The KCP is best used in conjunction with modern tooth-colored composite
restoration materials. It is not usually recommended for removing large
amalgam fillings. The precision of the KCP and the manner in which it prepares
surfaces for restorations allow for earlier treatment of decay and less
destruction of the tooth while restoring it. In many cases, the KCP may be
used without anesthesia, allowing a dentist to treat teeth in different
quadrants of the mouth during a single visit. This is generally not possible
when conventional instruments and anesthesia are used.
48
<PAGE> 57
The KCP is sold primarily in Europe, the United States, and certain Asian
and Pacific markets. The KCP represented approximately 49%, 31% and 64% of
ADT's total revenues in 1995, 1994 and 1993, respectively.
In August 1995, ADT began marketing a Plasma Arc Curing System ("PAC") as
an accessory to its KCP 1000. The PAC utilizes a high intensity light source
to rapidly cure composite fillings. Curing occurs in five to ten seconds, or
at least twice as fast as most conventional curing lights. The KCP 1000 PAC
combines an air abrasive cavity preparation system together with a composite
curing light in a single instrument. This allows dentists to efficiently
switch from cavity preparation to curing. ADT began filling orders for the KCP
1000 PAC during the fourth quarter of 1995.
Nd:YAG Dental Lasers
PulseMaster - The PulseMaster is ADT's primary laser product line.
PulseMasters are neodymium yttrium-aluminum-garnet (Nd:YAG) lasers that deliver
pulses of laser energy through a flexible fiber optic delivery system that can
reach into difficult recesses of the mouth. Depending upon the model,
PulseMasters can deliver a 100-microsecond energy pulse at rates varying from
10 to 200 times per second. Various models deliver a maximum of up to three,
six and ten watts of average power. Each PulseMaster is contained in a movable
cabinet the size of a medium suitcase, weighs approximately 85 pounds and plugs
into a standard electrical outlet. PulseMasters represented approximately 47%,
42% and 16% of ADT's total revenues in 1995, 1994 and 1993, respectively.
dLase 300 - The dLase 300, an earlier generation Nd:YAG laser, was
discontinued in 1994. ADT markets an upgrade for the dLase 300's already in
service. Utilizing new PulseMaster technology, the dLase 300 Plus upgrade
changes the dLase 300 to a laser with a pulse delivery rate of 10 to 80 pulses
per second and a maximum power output of five watts.
ADT's dental lasers, components and accessories are sold primarily in
Europe, certain Asian and Pacific markets, and the United States. Lasers
represented approximately 47%, 46% and 29% of ADT's total revenues during 1995,
1994 and 1993, respectively.
ADT believes one important feature of its Nd:YAG dental lasers is their
ability to help reduce the pain associated with the procedures for which they
are used. Additionally, because the laser is more precise than standard dental
instruments, its use results in less cellular destruction. The laser minimizes
bleeding during soft tissue surgery, creating a cleaner field in which to
operate and eliminating time-consuming removal of blood from the operative
site. The laser also reduces the risk of post-operative infection.
ADT's dental lasers are used for both soft tissue and hard tissue
applications. Soft tissue procedures include removing excess or diseased gum
tissue, contouring gums, performing biopsies, preparing gums for crown and
bridge impressions, trimming the gums to fit crowns and bridges, treating gum
disease and for hemostasis (control of bleeding). Hard tissue applications
include removing early decay from teeth, etching, removing stains, increasing
hardness of dentin, and desensitizing and anesthetizing teeth. ADT has not
received clearance from the U.S. Food & Drug Administration ("FDA") to market
dental lasers in the United States for any hard tissue application, but does
market these instruments in certain other countries for such purposes. See
"Information About ADT -- Governmental Regulation."
49
<PAGE> 58
MARKETING, SALES AND TRAINING
General
ADT markets its products to both general dental practitioners and certain
dental specialists primarily through independent distributors and, to a lesser
extent, through its own direct sales force. Primary markets have been and are
expected to be Europe, certain Asian and Pacific markets and the United States.
ADT's products are marketed in Europe through dental distribution groups
in various countries. Dental Liga, a major German dental distribution group
has been a major purchaser of ADT's products for several years. In February
1996, ADT finalized a two-year distribution agreement with OHT, one of the
largest dental distribution groups in Germany, to sell private label dental
lasers and KCP systems to OHT. OHT is expected to purchase approximately $3.6
million of products from ADT each year.
ADT's products are marketed in Japan and certain other Asian and Pacific
markets by Denics. In June 1993, ADT agreed with Denics to form a joint
venture for distribution of dental products which has been delayed until March
1997. However, Denics continues to market ADT's products and has placed an
order for approximately $5,000,000 in 1996.
Since July 1993, Patterson has been ADT's primary United States
distributor of the KCP. With 82 offices coast to coast, Patterson is the
largest dental distributor in the United States. Patterson uses its
distribution network to provide sales leads, shipping, installation and
technical service support for the KCP. ADT and Patterson work cooperatively to
develop prospects and close sales.
The loss of ADT's relationship with any of these distributors or the
failure of Denics to meet its purchase commitments, could have a material
adverse effect on ADT's business.
Installation, Training and Service
Because ADT's products represent new approaches to dentistry, installation
and training are considered to be significant aspects of its marketing efforts.
Shortly after any purchase, ADT, or the selling distributor, installs the
product, verifies that it is in proper working order and provides training.
ADT also encourages each purchaser to participate in ongoing continuing
education regarding the use of ADT's dental products and endeavors to share new
developments as soon as reliable scientific support has been established.
ADT or its suppliers generally provide warranty service for ADT's products
in the United States. To service its products, ADT has two full-time service
employees in the United States. It also has service arrangements with
independent distributors and equipment repair companies for products in other
markets. If such arrangements are unavailable, certain of ADT's sales
personnel are trained to make minor service repairs. To date, ADT has not
experienced significant service problems. Generally, the warranty for lasers
is one year on the dental laser system and 60 days on the optic fiber, and the
warranty for a KCP is one year.
Support of Educational Activities
Because ADT's products represent a new approach to dentistry, ADT believes
a substantial effort is required to educate dentists regarding the advantages
of its technology. During 1995, 1994 and 1993, ADT incurred approximately
$57,000, $254,350 and $56,000, respectively, to support educational activities
relating to the use of its products.
Dr. Terry Myers, ADT's Director of Education and Training, is the
executive director of The Institute for Advanced Dental Technologies, formerly
The Institute for Laser Dentistry (the "Institute"). The Institute was
originally founded to advance the professional understanding of laser
dentistry. Under the auspices of the Institute, Dr. Myers lectures at dental
meetings and institutions throughout the world and publishes professional
papers and articles. The Institute also supervises the training of clinical
instructors, provides clinical instructors to lead educational programs and
evaluates developments in dental technology.
50
<PAGE> 59
Important educational activities include the Institute's clinical training
seminars on the fundamentals of laser dentistry, educational courses on air
abrasive cavity preparation and enamel and dentin modification, and regional
continuing education programs on both dental laser and air abrasive
technologies. Generally the programs are open to any interested dental
professional, taught by practicing dentists and others qualified by the
Institute as instructors and held either in the instructors' dental offices or
at a local hotel. Programs may last as long as two and one-half days or just
for an evening. At a laser seminar, the instructor lectures on laser physics,
tissue interaction and safety, clinical applications and limitations, and
demonstrates clinical procedures that the individual clinical instructor
selects. At an air abrasive course, the instructor lectures on the advantages,
clinical applications and limitations of air abrasive technology in operative
dentistry, and demonstrates clinical procedures using the KCP. ADT supports
these programs by providing financial support to the Institute, soliciting
enrollments and assisting in the preparation of course materials. Following
the completion of the program, an ADT sales representative is typically
available to answer questions concerning ADT's products.
Another important activity is the Institute's involvement in the
formulation and adoption of nationally and internationally recognized dental
laser educational standards. The Institute works closely with the Academy of
Laser Dentistry (the "Academy"), a non-profit professional organization for the
advancement of dental lasers. The Institute is one of the few organizations
recognized by the Academy as qualified to conduct dental laser educational
courses recommended by the Academy.
The Institute is also designated as a nationally approved sponsor by the
Academy of General Dentistry. The formal continuing education programs of the
Institute are accepted by the Academy of General Dentistry for
Fellowship/Mastership credit. The current term of approval extends from
January 1, 1993 to September 30, 1996. In addition, the Institute is an
American Dental Association Continuing Education Recognition Program recognized
provider.
COMPETITION
In general, ADT's products are subject to intense competition, both from
other advanced dental technology companies and from makers of conventional
dental equipment. ADT believes there are approximately six to eight competing
companies which presently offer Nd:YAG, argon, erbium, holmium or CO2 lasers
for use in dentistry. In April 1993, ADT's former laser supplier announced
plans to manufacture and sell an air abrasive cavity preparation system for
less than the price of the KCP and began selling such a system in May 1994.
See "Information About ADT -- Legal Proceedings." In January 1995, another
company began selling an industrial type air abrasive system for use in
dentistry. Several other companies have announced plans to market dental air
abrasive systems. While ADT believes its products are competitive in terms of
capabilities, quality and price, competition has, and may in the future,
adversely affect ADT's business.
ADT's KCP, PAC and PulseMaster products must also compete with
conventional treatment methods using dental instruments or equipment which are
generally less expensive and with which dentists are more familiar.
Many of these competing manufacturers and suppliers may have greater
resources than ADT. ADT's competitive position is dependent upon its pricing
and marketing practices, its ability to make ongoing improvements in its
existing products, to develop new products, and to successfully promote the
treatment benefits of its products.
PATENTS
ADT believes its patents provide a competitive advantage in those
countries where they have been issued. In the United States, ADT has method
patents covering the majority of dental applications for which pulsed lasers
are used. ADT also believes its air abrasive technology patents and patent
rights provide a proprietary means to utilize that technology in dentistry.
For patents in force or applications on file on or before June 8, 1995, the
initial life of each patent is 17 years. For applications filed after June 8,
1995, the initial term of any patent issued is 20 years from the first
effective filing date of the application.
51
<PAGE> 60
Laser
ADT owns the following United States patents related to dental lasers.
These patents cover methods of performing dental procedures with a pulsed
laser, dental laser assembly systems, and a disposable dental laser handpiece.
<TABLE>
<CAPTION>
DESCRIPTION PATENT NUMBER ISSUE DATE
- ------------------------------------------------------- ------------- ----------
<S> <C> <C>
Removing stains and incipient carious lesions (decay) 4,521,194 06/04/85
Removing tooth decay and removing intraoral soft tissue 4,818,230 04/04/89
Performing root canal and apicoectomy procedures 4,940,411 07/10/90
Desensitizing and anesthetizing teeth 5,055,048 10/08/91
Etching dentin 5,122,060 06/16/92
Etching enamel 5,123,845 06/23/92
Sealing openings in roots of teeth 5,180,304 01/19/93
Dual dental laser assembly 5,207,576 05/04/93
Disposable dental laser handpiece 5,228,852 07/20/93
Sterilizing and closing accessory tooth canals 5,232,367 08/03/93
Holmium and Erbium doped lasers for dentistry 5,257,935 11/02/93
Merging hydroxyapitite to teeth or bone 5,275,564 01/04/94
Erbium doped YAG laser delivery system 5,310,344 05/10/94
Enlarging and shaping a root canal 5,324,200 06/28/94
Holmium and Erbium doped lasers for dentistry 5,342,198 08/30/94
Intracavity modulated pulsed laser with a variable
controllable modulation frequency 5,390,204 02/14/95
Dual wave length dental laser 5,507,739 04/16/96
</TABLE>
ADT has European, Australian and Canadian patents that cover holmium and
erbium doped lasers with wavelengths between two and three microns. The
European patent is effective in 10 European countries, including, Germany,
France, Italy, the United Kingdom, the Netherlands, Sweden, Switzerland,
Belgium, Austria and Luxembourg.
KCP
ADT has the following five United States patents related to dental air
abrasive systems and methods for using an air abrasive stream for dentistry
like that employed in the KCP cavity preparation system.
<TABLE>
<CAPTION>
Description Patent Number Issue Date
------------------------------------------------ ------------- ----------
<S> <C> <C>
Method for preparing tooth structure for bonding 5,275,561 1/01/94
Dental treatment system 5,330,354 7/19/94
Combination dental air abrasive and laser system 5,334,016 8/02/94
Dental air abrasive system 5,334,019 8/02/94
Dental treatment system 5,350,299 9/27/94
</TABLE>
52
<PAGE> 61
ADT also owns the exclusive rights to several United States patents
covering proprietary technology which may be utilized in dental air abrasive
cavity preparation systems, listed below:
<TABLE>
<CAPTION>
Description Patent Number Issue Date
---------------------------------------- ------------- ----------
<S> <C> <C>
Tube flow shut-off 4,635,897 01/13/87
Particle feed device with reserve supply 4,708,534 11/24/87
Abrasive jet machining 4,733,503 03/29/88
Abrasive jet machining 4,893,440 01/16/90
</TABLE>
SUPPLIERS AND MANUFACTURING
In April 1992, ADT entered into an agreement with Texas Air and Ben J.
Gallant to acquire all patents, patent applications, and other proprietary
rights relating to air abrasive technology applications in dentistry in
exchange for 166,120 shares of ADT restricted common stock and $340,000. In
February 1993, ADT acquired the exclusive manufacturing rights for all dental
air abrasive products from Texas Air in exchange for 165,975 shares of ADT
restricted common stock. ADT also obtained the rights to patents, patent
applications and other proprietary intellectual property from Ben J. Gallant,
the president of Texas Air, in exchange for $160,000 and shares of ADT
restricted common stock valued at $640,000. Subject to rights granted Denics,
ADT owns exclusive worldwide distribution and manufacturing rights for KCP
products. ADT has subcontracted to Texas Air, subject to performance, the
right to manufacture the KCP for ADT on a specified formula price basis until
2003. ADT is obligated to meet certain minimum purchase commitments through
1996. If the contemplated Merger with Texas Air is consummated, the
sub-contracting agreement will cease to exist and ADT's obligations thereunder
will terminate. ADT currently obtains KCP's exclusively from Texas Air and the
loss of ADT's relationship with Texas Air would have a material adverse effect
on the business of ADT.
KCP products are manufactured from parts, components and subassemblies
obtained from a number of unaffiliated suppliers and/or fabricated internally
by Texas Air at its Corpus Christi, Texas facility. Although most of the parts
and components used in the KCP are available from multiple sources, Texas Air
presently obtains several parts and components from single sources. Lack of
availability of certain parts and components could result in production delays.
ADT manufactures dental lasers at its San Carlos, California facility.
Research and development, prototype production, testing activities, assembly,
manufacturing, and service take place at the San Carlos facility. ADT
manufactures its dental laser systems from parts, components and subassemblies
obtained from a number of unaffiliated suppliers. Although all the parts and
components used by ADT are available from multiple sources, ADT presently
obtains several parts and components from single sources to obtain quantity
discounts. Lack of availability of certain parts and components could result
in production delays.
RESEARCH AND DEVELOPMENT
Basic research and development related to ADT's dental products has in the
past been performed by suppliers under agreements with ADT and was partially
funded by ADT. The Incisive and Texas Air acquisitions provided and will
provide ADT direct development capabilities. In the future, ADT will generally
conduct its own research and development activities. ADT also continues to
work with various domestic and international dental schools and researchers to
analyze dental applications, product enhancements and complimentary products.
ADT's research and development expenditures for 1995, 1994 and 1993 were
$784,319, $1,194,468 and $274,102, respectively. ADT's current research and
development efforts are focused on new and expanded applications for the laser
and KCP in dentistry, enhanced laser technology, and potential complimentary
products for the dental market.
53
<PAGE> 62
GOVERNMENTAL REGULATION
ADT's products are subject to significant governmental regulation in the
United States and certain other countries. In order to conduct clinical tests
and to market products for therapeutic use, ADT must comply with procedures and
standards established by the FDA and comparable state and foreign regulatory
agencies. Changes in existing regulations or adoption of additional
regulations may adversely affect ADT's ability to market its existing products
or to market enhanced or new products.
United States Regulatory Requirements
The FDA grants clearance to market through two methods. One method is a
pre-market notification filing under Section 510(k) of the Food, Drug and
Cosmetic Act (the "Act"), in which applicants must prove that the device for
which clearance is sought is substantially equivalent to devices already
cleared by the FDA or devices in the market prior to enactment of the Medical
Device Amendments Act of 1976. A 510(k) clearance, if granted, commonly
requires about 180 days.
The other method of clearance is a pre-market approval ("PMA"). Under the
PMA method, the applicant normally must obtain an Investigational Device
Exemption ("IDE") or a waiver thereof before beginning the substantial clinical
testing on humans required to establish the safety and efficacy of the product.
Obtaining a PMA may take several years or may never be granted.
The Act also regulates the labeling, manufacturing practices, record
keeping and reporting of manufacturers and sellers of products subject to it.
The regulation of labeling extends to any promotional activities sponsored, or
marketing materials distributed, by or on behalf of the manufacturer or seller.
Generally, such regulation does not extend to legitimate scientific inquiry or
education, even if assisted by a manufacturer or seller. The distinction
between labeling under the Act and inquiry or education is often difficult to
determine. ADT believes it is in compliance with the Act. A determination by
the FDA that a manufacturer or seller is in violation of the Act may result in
administrative, civil, or criminal actions against it. Such actions, if
successful, may result in an agreement or order terminating applications,
delays in the processing of pending IDE, 510(k) and PMA applications, as well
as fines and civil penalties.
ADT is also subject to regulation under the Radiation Control for Health
and Safety Act administered by the FDA, which requires various warning labels
on each laser sold to an end-user. The FDA is empowered to seek fines and
other remedies for violations of the regulatory requirements.
FDA clearance to market the KCP for hard-tissue applications was granted
under a 510(k) application in late 1992. Since the instrument is intended only
for hard tissue procedures, no further need for clearance is anticipated.
Material changes to the KCP affecting safety or efficacy may, however, require
further FDA clearance. The FDA granted 510(k) clearance to market the
PulseMaster and dLase 300 dental lasers for soft-tissue procedures in December
1992 and May 1990, respectively.
ADT filed for and in 1994 received an IDE from the FDA to conduct clinical
trials using ADT's lasers for the treatment of certain kinds of tooth decay.
Depending upon the results of these clinical trials, ADT anticipates it will
file a PMA application by the third quarter of 1996. In February 1996, the
FDA's Dental Products Panel refused to approve a similar PMA application of a
competitor. When or whether the FDA will grant marketing clearance for such
procedures is unknown.
Certain of ADT's competitors have applied to the FDA to market Nd:YAG and
other lasers for various other hard tissue procedures. While the status of
these other PMA applications is unknown, ADT believes receipt of FDA clearance
for hard tissue procedures by competitors might adversely affect ADT's domestic
laser sales.
54
<PAGE> 63
Foreign Regulatory Requirements
The KCP has been granted Germany's TuV approval, which is recognized by
most European countries, and it may be sold in Germany and many other European
markets. Approval to market the device in Japan is being sought. ADT's dental
lasers comply with government regulations in most major countries in Europe,
Asia, the Pacific, and North and South America and are marketed for both hard
and soft tissue applications, except in Japan, where (as in the United States)
they have not been cleared for hard-tissue procedures. Additional foreign
authorizations to market the PulseMaster lasers and KCP are being sought where
needed. In some of ADT's markets, approvals are not difficult to obtain and in
others, no approval is required. Regulation of medical devices in other
countries varies between countries such as Japan, which has standards similar
to the FDA, to countries which have no regulations. Regulation of medical
devices in other countries is also subject to change and there can be no
assurance ADT will continue to be able to comply with such requirements.
PRODUCT LIABILITY EXPOSURE
ADT's business involves the inherent risk of product liability claims. If
such claims arise, they could have an adverse effect on ADT. ADT currently
maintains product liability insurance on a "claims made" basis with coverage
per occurrence and in the aggregate annually of $3,000,000 in North America and
$2,000,000 in all other areas. There is no assurance that such coverage will
be sufficient to protect ADT from all risks to which it may be subject or that
product liability insurance will be available at a reasonable cost, if at all,
in the future.
FOREIGN OPERATIONS
See "American Dental Technologies, Inc. Notes to Financial Statements,
Note 7."
EMPLOYEES
On March 25, 1996, ADT had 48 full-time employees and 3 part-time
employees. Of these employees, 19 were engaged in direct sales and marketing
activities and 12 in manufacturing activities. The remaining employees are in
finance, administration, customer service, and research and development. ADT
has no collective bargaining agreements with any unions and believes that its
overall relations with its employees are good.
DESCRIPTION OF PROPERTIES
ADT's principal executive offices are located at 28411 Northwestern
Highway, Suite 1100, Southfield, Michigan 48034, where the company has leased
approximately 5,000 square feet under a three-year lease which expires in April
1998. ADT's laser manufacturing facility is located at 125 Shoreway Road,
Suite 3000, San Carlos, California 94070, where ADT occupies approximately
8,700 square feet under a lease which expires in November 1997.
LEGAL PROCEEDINGS
Sunrise Technologies International, Inc. ("Sunrise"), ADT's former laser
supplier, initiated a lawsuit in the Alameda County Superior Court on October
18, 1993, claiming ADT breached the parties' February 1993 settlement agreement
by failing to accept and pay for certain dental lasers, claims which ADT
denied. On July 28, 1995, an Alameda Superior Court jury in Oakland
California, returned a $728,707 verdict against ADT. ADT had requested that
the jury award it money damages because Sunrise breached the settlement
agreement, engaged in unfair and deceptive business practices and interfered
with certain of ADT's business relationships. ADT believes the jury's
deliberations were adversely affected by a ruling which erroneously precluded
jury consideration of ADT's claims. On October 17, 1995 the trial judge denied
ADT's motion for a new trial. The trial judge also reduced Sunrise's request
for attorney fees and costs by 25% and awarded Sunrise $211,471 for such fees.
In November 1995, ADT deposited approximately $1,410,000 with the court to stay
execution and is vigorously pursuing an appeal. ADT is unable to estimate the
amount of any potential gain or loss that may ultimately result, if any.
55
<PAGE> 64
On May 2, 1994, Sunrise and Danville Engineering, Inc. ("Danville") filed
two lawsuits against ADT in the United States District Court for the Northern
District of California. One suit challenges four patents covering proprietary
air abrasive technology and the parties have agreed that the lawsuit will
likely be dismissed, without prejudice. The other suit challenges ADT's patent
on preparing tooth structure for bonding using an air abrasive stream. The
complaint seeks declaratory findings that Sunrise and Danville are not
infringing the patent and that the patent is invalid. ADT believes the patent
is valid and is vigorously defending the action. ADT has asserted that Sunrise
and Danville are infringing this bonding patent. Trial has been scheduled for
April 1997. While it cannot predict the outcome of this action, management
believes that the ultimate result will not have a material adverse effect on
ADT's business.
On October 14, 1994, ADT filed a lawsuit against Sunrise, Danville, Meer
Dental, Sullivan Dental Products, Inc. and Benco Dental Supply Co. (the
"defendants") in the United States District Court for the Eastern District of
Michigan, Southern Division. ADT asserts the defendants are infringing U.S.
patent number 5,330,354, an ADT patent that covers dental air abrasive systems,
like its KCP. In May 1994, the defendants began selling an air abrasive system
similar to the KCP. ADT is seeking money damages and an injunction to prevent
the defendants from selling infringing products. In May 1995, the case was
transferred to the United States District Court for the Northern District of
California and Benco Dental Supply Co. was dismissed from the case. The case
has been consolidated with the pending patent action referred to above. Trial
has been scheduled for April 1997. Discovery is incomplete and ADT is unable
to estimate the amount of potential gain or loss that may result, if any.
A lawsuit by Dr. Robert Cameron and certain other dentists alleging
misrepresentations as to the use of ADT's dLase 300 for certain dental
procedures pending in the United States District Court for the Eastern District
of Michigan, Southern Division, was settled in December 1995. In April 1996,
the case was dismissed with prejudice and ADT released from all claims. The
specific terms of the settlement are confidential.
Other cases have arisen in the normal course of business and are not
expected to have any material effect on ADT.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ADT'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information herein should be read and considered in conjunction with
ADT's financial statements and related notes which appear elsewhere in this
Joint Proxy Statement/Prospectus.
Results of Operations for the Years Ended December 31, 1995, 1994 and 1993
For the year ended December 31, 1995, ADT's net sales increased 19%
compared to 1994. Sales in 1994 increased 5% compared to 1993.
The sales increase in 1995 is due primarily to an approximately 95%
increase in the volume of KCPs sold compared to the same period for 1994 after
ADT introduced a new model air abrasive unit, the KCP 1000 whisperjet, in the
fourth quarter of 1994. ADT's laser product sales volumes increased 26% for
1995 over 1994, after ADT introduced a new lower cost laser in the fourth
quarter of 1994, the PulseMaster 600 LE. The increase in KCP and laser volumes
in 1995 was partially offset by a 14% decrease in the average price of lasers
sold.
56
<PAGE> 65
ADT's management believes that the sales growth and profitability
anticipated from its laser product line will require broader market acceptance
of laser products in general, increased market share, additional regulatory
approvals and additional cost reductions. ADT is continuing its efforts to
obtain additional regulatory approvals in the United States and Japan and to
increase ADT's market share to improve laser sales growth and to achieve
profitability in the laser product line.
In February 1996, ADT signed distribution agreements with two significant
distributors. Although there can be no assurances, ADT anticipates sales will
improve in 1996, primarily resulting from improved sales through these
distributors of the KCP 1000 whisperjet and the PulseMaster 600 LE laser in
Europe and the Pacific Rim. The foregoing statement is a "forward looking
statement" within the meaning of the Securities Exchange Act of 1934, as
amended, and is subject to uncertainties. Such uncertainties include, without
limitation, the failure of distributors to meet purchase commitments, the loss
of distributor relationships, the failure to receive necessary regulatory
approvals, and the negative effects of competition on prices and sales volumes.
The increase in net sales in 1994 is primarily due to a 99% increase in
the volume of lasers sold, primarily PulseMasters. PulseMaster sales in 1994
increased following regulatory approval in Germany in October 1993 and
distribution into the Asian and Pacific markets, which began in 1994. Until
regulatory approval for distribution in Germany was obtained in October 1993,
PulseMaster sales had been limited. The volume of PulseMaster sales increased
in 1994 due in part to a 20% reduction in the average selling price.
The overall sales increase in 1994 was partially offset by a 47% decline
in the volume of KCP's sold. The decrease in KCP sales resulted from
distributor inventory adjustments in the third and fourth quarters, primarily
in the United States, in anticipation of the introduction of ADT's next
generation air abrasive product, the KCP 1000 whisperjet. KCP sales were also
lower because a former supplier announced introduction of a competing air
abrasive system in April 1993, which came on the market in May 1994.
Gross profit as a percentage of net sales was 47% for the year ended
December 31, 1995, compared to 42% in 1994 and 43% in 1993. The increase in
gross profit as a percentage of sales for 1995 relates primarily to the reduced
cost of KCP's purchased from Texas Air. On September 30, 1994, ADT entered into
an agreement with Texas Air to extend the term of an existing manufacturing
rights agreement for air abrasive products. In exchange, Texas Air reduced its
price on products sold to ADT. Gross profit as a percentage of net sales for
1994 was lower than 1993 primarily because of a valuation adjustment of
approximately $600,000 related to the KCP 2000 inventory, which was offset
almost entirely by laser manufacturing margins attained through the acquisition
of Incisive in December 1993. Management expects that future sales of the KCP
2000 will not generate profits, due to the valuation adjustment. ADT also
decreased the average selling price on the PulseMaster by approximately 20% in
1994.
Selling, general and administrative expenses were $6,956,223 in 1995,
$7,959,631 in 1994, and $9,314,059 in 1993. The declines in 1995 and 1994 are
primarily due to reductions in: leased facilities; services from outside
professionals; insurance; and other general expenses. During 1995, ADT
incurred expenses of approximately $700,000 related to selling and marketing
incentive programs for the introduction of the new products. Pursuant to its
agreement, Texas Air shared research and development, legal, and marketing
expenses of approximately $895,000 in 1995. Part of the decrease in 1994 was
the reversal of a compensation expense recognized in 1993 related to a
rescinded common stock grant on March 28, 1994. Although expenses have been
reduced significantly, ADT remains committed to controlling costs.
Research and development expenses were $784,319 in 1995, $1,194,468 in
1994, and $274,102 in 1993. The decrease in 1995 primarily relates to a
sharing of such expenses with Texas Air. The increase in 1994 is primarily
related to development of new products by ADT's manufacturing subsidiary, which
generated 75% of the research and development expense during 1994. In
addition, in 1994 and 1995, ADT increased support for clinical research and
training in various areas of laser and air abrasive dentistry, which had been
reduced in 1993 as a cost savings measure.
57
<PAGE> 66
A securities class action settlement was entered into in December 1993 and
finalized in February 1994, following notice to the class members. Under the
terms of the settlement, ADT was not required to make any cash payment.
However, ADT issued 761,906 shares of ADT Common Stock to certain present and
former officers and directors named in the suit as reimbursement for $2,000,000
contributed to the settlement on behalf of ADT. ADT recognized $2,000,000 of
expense in the fourth quarter of 1993 related to the settlement.
Related party royalty income is derived from the sale of laser products by
Denics, ADT's distributor for Japan and certain Asian and Pacific markets.
Denics began manufacturing dental lasers in the third quarter of 1994, and
pursuant to its agreements, ADT earns a royalty when such units are sold.
Management is anticipating that in 1996, Denics will purchase products directly
from ADT rather than manufacturing them, which will result in a significant
reduction in royalty income, but will increase sales to the Pacific Rim market.
Interest expense was $110,415 in 1995, $49,518 in 1994 and $34,139 in
1993. The increase in 1995 is related to interest expense on the $1,500,000
note payable to Texas Air, with interest at prime (8.5% at December 31, 1995).
Results of Operations for the Three Months Ended March 31, 1996 and 1995
For the three month period ended March 31, 1996, ADT's net sales increased
20% compared to the same period in 1995. This increase in net sales is
primarily due to a 31% increase in the volume of KCP's sold and a 13% increase
in the volume of lasers sold. This was partially offset by an 11% decrease in
the average selling price for the KCP 1000 whisperjet.
Management believes that the sales growth and profitability anticipated
from its PulseMaster laser product line will require broader market acceptance
of laser products in general, increased market share, additional regulatory
approvals and additional cost reductions. ADT is continuing its efforts to
obtain additional regulatory approvals in the United States and Japan and to
increase ADT's market share to improve laser sales growth and to achieve
profitability in the laser product line.
In February 1996, ADT signed distribution agreements with two
significant distributors. Although there can be no assurances, ADT anticipates
sales will improve in 1996, primarily resulting from improved sales through
these distributors of the KCP 1000 whisperjet and the PulseMaster 600 LE laser
in Europe and the Pacific Rim. The foregoing statement is a "forward looking
statement" within the meaning of the Securities Exchange Act of 1934, as
amended, and is subject to uncertainties. Such uncertainties include, without
limitation, the failure of distributors to meet purchase commitments, the loss
of distributor relationships, the failure to receive necessary regulatory
approvals, and the negative effects of competition on prices and sales volumes.
Gross profit as a percentage of net sales for the three month period ended
March 31, 1996 was 46% compared to 50% for the same period in 1995. The
decrease in gross profit as a percentage of net sales is due to an increase in
sales of lower margin products and the decrease in the average selling price of
the KCP 1000 whisperjet.
Selling, general and administrative expenses decreased $256,000 or 13% for
the three months ended March 31, 1996 compared to the same period in 1995. The
decrease is primarily due to reductions in legal, bad debt and depreciation
expenses. Research and development expenses for the three months ended March
31, 1996 were consistent with the period ended March 31, 1995.
Related party royalty income is derived from the sale of products by
Denics Co., Ltd. ("Denics"), ADT's distributor in Japan and certain
Asian and Pacific markets. There was no related party royalty income for the
period ended March 31, 1996 because Denics purchased products directly from ADT.
Related party royalty income was $171,000 for the period ended March 31, 1995.
Denics manufactured dental lasers in the third quarter of 1994 through 1995,
and pursuant to its agreements, ADT earned a royalty on units sold in Japan and
certain Asian and Pacific markets. Management expects that during the
remainder of 1996, Denics will continue to purchase products
58
<PAGE> 67
directly from ADT rather than manufacturing them, which will result in a
significant reduction in royalty income, but sales and gross profits to the
Pacific Rim market will increase.
Proposed Business Combination
In November 1995, ADT entered into the Agreement with Texas Air, which
develops and manufactures air abrasive products for the dental and industrial
manufacturing markets. Texas Air is ADT's sole supplier of air abrasive
products and ADT's purchases from Texas Air represent a significant portion of
Texas Air's sales. If the Merger is approved, ADT will acquire all of Texas
Air's outstanding stock in exchange for 11,429,775 shares of ADT's Common Stock
and Merger Warrants to purchase 6,996,919 additional shares of ADT Common
Stock. ADT intends to account for the Merger as a purchase. Upon completion
of the Merger with Texas Air, ADT expects to benefit from improved gross
margins and cash flow from the manufacturing operations. The foregoing
statement is a "forward looking statement" within the meaning of the Securities
Exchange Act of 1934, as amended, and is subject to uncertainties. Such
uncertainties include, without limitation, ADT's ability to successfully
integrate Texas Air's business into ADT and to retain key personnel.
Liquidity and Capital Resources for the Years Ended December 31, 1995 and 1994
On August 7, 1995, ADT obtained a $1,500,000 note from Texas Air with
interest payable at prime (8.5% at December 31, 1995). Interest is due on a
quarterly basis and a principal payment of $200,000 is due May 1, 1996, with
the balance due on August 1, 1996. Approximately $1,410,000 of the loan was
deposited with the court in October 1995, to stay enforcement of a judgment
against ADT in the Alameda Superior Court, Oakland, California while ADT
pursues an appeal of the judgment. ADT's obligations are secured by a pledge
of all the company's assets.
In July 1995 ADT received $800,000 when it completed a private placement
transaction with Dr. William D. Myers, the Chairman of the Board, and two
principal stockholders. ADT issued these investors 888,888 shares of ADT
Common Stock together with non-transferable warrants to acquire 1,777,776
additional shares of ADT Common Stock at exercise prices ranging from $1.75 to
$2.00 per share, exercisable on or before July 7, 1998. Simultaneously, the
exercise date on existing ADT Common Stock purchase warrants held by these same
stockholders was extended from April 21, 1996 to April 21, 1998. In August
1995, ADT canceled existing Common Stock purchase warrants held by these same
stockholders at exercise prices ranging from $1.75 to $2.00 and reissued the
warrants at an exercise price of $1.00 per share.
ADT has a $1,000,000 note payable to Denics, with interest at 3% above the
discount rate in Japan (0.5% at December 31, 1995). As of December 31, 1995,
$800,000 was outstanding. Borrowings are being repaid in annual installments
of principal of $200,000 over a five year period which began in June 1995.
Borrowings are secured by an assignment of ADT's Japanese patent rights and
related technologies.
In September 1994, ADT entered into an agreement with Texas Air extending
the term of the exclusive manufacturing agreement for air abrasive products
through 2003, in exchange for Texas Air reducing its price on products sold to
ADT. Additionally, Texas Air increased ADT's credit limit to $1,500,000 for
purchases of inventory. At December 31, 1995, $792,000 was outstanding. ADT's
obligations to Texas Air are secured by a pledge of ADT's air abrasive patent
rights. ADT has a minimum purchase commitment of approximately $1,650,000 for
1996 and no purchase commitments thereafter.
59
<PAGE> 68
ADT's operating activities provided $124,255 in cash resources in 1995,
compared to $4,661,670 used in 1994. The difference in cash provided by
operations in 1995 compared to cash used by operations in 1994 is primarily due
to increased sales and improved results from operations. The increase in
accounts receivable in 1994 is due principally to sales of the new KCP 1000,
which began in November 1994. Finished goods inventory at December 31, 1995
was higher due to a large December order to be shipped in January 1996.
Overall, due to cash flow constraints from operations, ADT has closely
monitored inventory levels, significantly reduced its selling, general and
administrative expenses and managed its payments to suppliers and others
providing goods and services to ADT to preserve cash resources. Investing
activities in 1995 include use of approximately $1,410,000 as a deposit related
to litigation (see "Information About ADT -- Legal Proceedings").
ADT's deferred tax assets of $10,074,000 at December 31, 1995, including
the tax effects of $22,500,000 of net operating loss carryforwards ("NOL's"),
have been fully reserved. The NOL's expire from 2006 through 2010. Deferred
tax assets at December 31, 1995, represent the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes. The
NOL's and deductible temporary differences are both available to offset future
taxable income.
ADT has a working capital deficit of $1,437,290 at December 31, 1995
compared to working capital of $12,504 at December 31, 1994. The decrease in
working capital resulted from proceeds of the $1,500,000 note payable being
utilized for non-current assets, primarily deposits of $1,410,000 and prepaid
foreign taxes of $225,000.
Management believes it has taken steps to strengthen ADT's financial
position and improve its cash flow by entering into the Agreement to merge with
Texas Air and continuing efforts to expand sales; control selling, general and
administrative expenses; and obtain additional financing. Upon completion of
the Merger with Texas Air, ADT expects to benefit from improved gross margins
and cash flow from the manufacturing operations. The foregoing statement is a
"forward looking statement" within the meaning of the Securities Exchange Act
of 1934, as amended, and is subject to uncertainties. Such uncertainties
include, without limitation, ADT's ability to successfully integrate Texas
Air's business into ADT and to retain key personnel.
Sales thus far in 1996 are in line with ADT's business plan and management
expects that trend to continue. Although there can be no assurances, ADT
anticipates sales will improve in 1996, primarily resulting from sales of the
KCP 1000 whisperjet and the PulseMaster 600 LE laser. In February 1996, ADT
signed distribution agreements for lasers and KCP products with two significant
distributors. Purchases under these agreements are expected to aggregate
approximately $8,600,000 in 1996. Management expects the improved sales to be
primarily in Europe and the Pacific Rim. The foregoing statements in this
paragraph are "forward looking statements" within the meaning of the Securities
Exchange Act of 1934, as amended, and are subject to uncertainties. Such
uncertainties include, without limitation, the failure of distributors to meet
purchase commitments, the loss of distributor relationships, the failure to
receive necessary regulatory approvals and the negative effects of competition
on prices and sales volumes.
Liquidity and Capital Resources for the Three Months Ended March 31, 1996 and
1995
On August 7, 1995, ADT obtained a $1,500,000 note from Texas Air with
interest payable at prime (8.25% at March 31, 1996). Interest is due on a
quarterly basis and a principal payment of $200,000 is due May 1, 1996, with
the balance due on August 1, 1996, unless extended. Approximately $1,410,000
of the loan was deposited with the court in October 1995, to stay enforcement
of a judgment against ADT in the Alameda Superior Court, Oakland, California
while ADT pursues an appeal of the judgment. ADT's obligations are secured by
a pledge of all its assets.
60
<PAGE> 69
ADT has a $1,000,000 note payable to Denics, with interest at 3% above the
discount rate in Japan (0.5% at March 31, 1996). As of March 31, 1996,
$800,000 was outstanding. Borrowings are being repaid in annual principal
installments of $200,000 over a five year period which began in June 1995.
Borrowings are secured by an assignment of ADT's Japanese patents and related
technologies.
ADT's operating activities used $478,120 in cash resources during the
three month period ended March 31, 1996, compared to generating $348,081 in the
same period of 1995. The use of cash resources during the period ended March
31, 1996 is principally due to a $1,347,173 increase in accounts receivable
which resulted primarily from higher sales, and a reduction in other accrued
liabilities, primarily customer deposits of approximately $450,000; partially
offset by net income of $448,310 and a $524,633 decrease in inventories.
ADT has a working capital deficit of $953,781 at March 31, 1996 compared
to a working capital deficit of $1,437,290 at December 31, 1995. The
improvement in the deficit is a result of net income of $448,310 for the three
month period ended March 31, 1996. The deficit is due primarily to use of the
$1,500,000 note payable for non-current assets, primarily a deposit of
$1,410,000 and prepaid foreign taxes of $300,000.
Management believes it has taken steps to strengthen its financial
position and improve its cash flow by entering into an agreement to merge with
Texas Air and its continuing efforts to expand sales; control selling, general
and administrative expenses; and obtain additional financing. Upon completion
of the proposed merger with Texas Air, ADT expects to benefit from improved
gross margins and cash flow from the manufacturing operations. The foregoing
statement is a "forward looking statement" within the meaning of the Securities
Exchange Act of 1934, as amended, and is subject to uncertainties. Such
uncertainties include, without limitation, ADT's ability to successfully
integrate Texas Air's business into ADT and to retain key personnel.
Sales thus far in 1996 are in line with ADT's business plan and management
expects that trend to continue. Although there can be no assurances, ADT
anticipates sales will improve in 1996 compared to 1995, primarily resulting
from sales of the KCP 1000 whisperjet and the PulseMaster 600 LE laser. In
February 1996, ADT signed distribution agreements for lasers and KCP products
with two significant distributors. Purchases under these agreements are
expected to aggregate approximately $8,600,000 in 1996. The foregoing
statements in this paragraph are "forward looking statements" within the
meaning of the Securities Exchange Act of 1934, as amended, and are subject to
uncertainties. Such uncertainties include, without limitation, the failure of
distributors to meet purchase commitments, the loss of distributor
relationships, the failure to receive necessary regulatory approvals and the
negative effects of competition on prices and sales volumes.
ADT believes, based upon its current business plan and completion of the
proposed merger with Texas Air, that current cash resources and cash generated
through operations should be sufficient to meet ADT's anticipated liquidity
needs through 1996. However, unexpected sales reductions without a
corresponding reduction in expenses or termination of the proposed merger with
Texas Air, would create a need for additional working capital. ADT is
continuing to pursue additional sources of financing to address its potential
short and long-term cash needs, including without limitation, renegotiating
existing debt and raising equity through a private placement.
61
<PAGE> 70
ELECTION OF DIRECTORS
NOMINEES
ADT's Certificate of Incorporation divides the directors into three
classes, the terms of which expire as set forth below and in "Current Directors
and Executive Officers of ADT." At each annual meeting, the stockholders of
ADT elect to three-year terms directors to replace those directors whose terms
expire at that annual meeting. Directors elected to fill vacancies serve the
unexpired term remaining for directors being replaced. The term of office of
each director being elected at this Annual Meeting will continue until the
annual meeting specified below.
The Board recommends a vote FOR William D. Myers and Ben J. Gallant, the
nominees for election. THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY
WILL VOTE FOR THE ELECTION OF THE NOMINEES UNLESS ADT STOCKHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES. If any nominee at the time of election is unable
to serve, or otherwise is unavailable for election, and if other nominees are
designated, the persons named in such proxy will have discretionary authority
to vote or refrain from voting in accordance with their judgment on such other
nominees. If any nominees are substituted by the Board, the persons named in
the accompanying form of proxy intend to vote for such nominees. Management of
ADT is not aware of the existence of any circumstance which would render the
nominees named hereunder unavailable for election. The nominees are currently
directors of either ADT or Texas Air.
<TABLE>
<CAPTION>
NOMINEES FOR DIRECTORS - WITH TERMS EXPIRING IN 1999 Year First
Name, Principal, Occupation, Business Experience Became
During the Last Five Years and Other Current Directorships Age Director
---------------------------------------------------------- --- ----------
<S> <C> <C>
WILLIAM D. MYERS, M.D., Incumbent/Nominee - Dr. Myers is one of
the founders of ADT and a co-inventor of the dLase 300. He has
been Chairman of the Board of ADT since January 1990. Dr. Myers
has been a practicing ophthalmologist for more than 20 years and
is the founder and director of the Michigan Eyecare Institute. 54 1990
BEN J. GALLANT, Nominee - Mr. Gallant, a founder of Texas Air, has
served as a director and chairman of the board since that
company's inception in 1982. He was elected president and chief
executive officer in 1991, when Texas Air relocated its
headquarters from New Jersey to Corpus Christi, Texas. Prior to
their sale to Texas Air in 1993, Mr. Gallant held numerous patents
and patents pending for air abrasive jet machining ("AJM")
technology. He is chiefly responsible for the design and
development of ADT's KCP line and Texas Air's industrial product
lines. In 1974, using AJM technology, he developed the
"ProphyJet." The ProphyJet and related technology was
subsequently acquired by Dentsply, Inc. which markets the
ProphyJet worldwide for dental prophylaxis. Until its sale in
1992, he also owned Dynamic Chemicals International, Inc., a
private chemical manufacturing and distribution company based in
Corpus Christi, Texas. 62
</TABLE>
POSSIBLE CHANGES AND APPOINTMENTS TO ADT'S BOARD OF DIRECTORS
ADT's Board of Directors (the "Board") currently consists of six
directorships, two of which will be vacant as a result of resignations
occurring in 1996. If the Merger is not approved, only Dr. William D. Myers
will stand for election and any vacancies will be filled by Board appointment.
The executive officers and directors of ADT and Texas Air together with certain
principal stockholders of ADT beneficially own approximately 57% of the
outstanding ADT Common Stock. Such persons have advised ADT that they intend
to vote all of the shares over which they have voting power in favor of the
election of Mr. Gallant. Consequently, if such persons vote as indicated,
approval is assured. Assuming the Merger is approved by the stockholders, the
Board will be increased to nine members and it is anticipated the persons named
below will be appointed by the Board to fill vacancies or, in the case of Mr.
Gallant, to stand for election at the stockholders' meeting. Mr. Gallant has
been nominated to serve as a director for a term expiring in 1999. The three
persons described below would be appointed to fill the remaining vacancies. A
ninth director may be appointed later but has not yet been identified. See
"The Agreement -- Management After the Merger."
62
<PAGE> 71
Wayne A. Johnson, II, age 47. Mr. Johnson has served as a director of Texas
Air since 1984. Mr. Johnson is presently engaged in the private practice of
law. From August 1994 to December 1995, Mr. Johnson served as a director and
as vice president and general counsel of Racer Components, Inc. and Automotive
Digital Systems, Inc., manufacturers and marketers of automotive specialty
equipment. From October 1992 until August 1994, Mr. Johnson was operational
manager and marketing director of King Sports, Inc., a broad based sports
marketing company focusing primarily on the auto racing industry. In April
1992, Mr. Johnson formed and until September 1992, served as president and a
director of Attorney's Cooperative Advertising, Inc., a television direct
response marketing company. Mr. Johnson served as vice president-marketing of
The Beneke Company, Inc., a public insurance adjusting firm from January 1991
until March 1992. In 1989, Mr. Johnson left his Dallas, Texas law firm to
pursue business and investment interests.
Charles A. Nichols, age 71. Mr. Nichols was one of the founders of Texas Air
and has served as a director since its inception in 1982. He presently serves
as treasurer for Texas Air. Mr. Nichols is a pharmacist by profession and the
owner of several businesses in the Corpus Christi, Texas area, including
Southside Pharmacy, Inc., where he has been the President since 1954.
John E. Vickers III, age 49. Mr. Vickers has served as Texas Air's chief
financial officer and legal counsel since June 1993. He also has various
operating responsibilities. From December 1991 until September 1994, Mr.
Vickers was of counsel to the law firm of Novak, Vickers and Burt. Mr. Vickers
has been engaged in the practice of law since 1972.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF ADT
The following table sets forth information concerning each of the current
executive officers of ADT who are elected to serve at the discretion of the
Board of Directors and for each of ADT's current directors.
<TABLE>
<CAPTION>
Date of Election
Name Age Position to Present Position
- -------------------- --- ---------------------------------- -------------------
<S> <C> <C> <C>
Anthony D. Fiorillo 59 President, Chief Executive Officer
& Director (Term expires in 1997) May 1992
Diane M. Miller 34 Chief Financial Officer December 1993
Johannes Homolko 44 Director of European Operations February 1993
Terry D. Myers 48 Director of Education and Training November 1993
Thomas M. Waugh 51 Vice President - Operations January 1995
Raymond F. Winter 50 Secretary January 1993
William D. Myers 54 Chairman of the Board of Directors
(Term expires in 1996) January 1990
J. Bernard Machen 51 Director (Term expires in 1998) November 1992
Kenneth C. Merrill 66 Director (Term expires in 1998) May 1990
Bertrand R. Williams 67 Director (Term expires in 1997) January 1990
</TABLE>
ANTHONY D. FIORILLO -- Mr. Fiorillo has served as President, Chief
Operating Officer and a director of ADT since May 1992, and as its Chief
Executive Officer since July 1992. Prior to joining ADT, Mr. Fiorillo had
served since 1989 as president of the North American Division of the Diagnostic
Business Group for Miles, Inc., a worldwide medical equipment manufacturer, and
was responsible for all marketing, sales, service, distribution, finance, and
administrative functions for that business operation.
63
<PAGE> 72
DIANE M. MILLER -- Ms. Miller is a certified public accountant who was
elected Chief Financial Officer in December 1993. She had been the Controller
of ADT since March 1992. Prior to joining ADT, Ms. Miller spent eight years
with the accounting firm of Ernst & Young, most recently as an audit manager.
JOHANNES HOMOLKO -- Mr. Homolko joined ADT in July of 1991 as Marketing
and Communications Manager for Germany. In July 1992, Mr. Homolko became
Director of Marketing worldwide. He is currently Director of European
Operations. From 1988 until he joined ADT, Mr. Homolko was a senior product
manager for the Vacutainer Division of Becton, Dickinson and Co., a worldwide
health care manufacturer and provider of health care products, and was
responsible in Europe for three major product lines.
TERRY D. MYERS, D.D.S. -- Dr. Myers has been a dentist for more than 20
years. He is one of the founders of ADT and a co-inventor of the dLase 300.
Dr. Myers became Director of Education and Training in November 1993. He has
been the executive director of The Institute for Advanced Dental Technologies
since it was founded in 1990. Directly and through the Institute, he develops
and leads clinical education and training seminars, lectures at dental meetings
and at institutions and publishes professional papers, articles and video tapes
relating to laser and air abrasive dentistry.
THOMAS M. WAUGH - Mr. Waugh was appointed Vice President - Operations in
January 1995. Mr. Waugh had been vice president - operations of ADT's wholly
owned subsidiary, Incisive Technologies, Inc., from May 1993 until its merger
into ADT in December 1994. From February 1992 to April 1993, Mr. Waugh was the
director of operations at Incisive. From July 1989 to February 1992, Mr. Waugh
was a new product project director for Surface Science Instruments, Inc. He
was responsible for development of a new chemical analysis instrument for the
surface science industries.
RAYMOND F. WINTER -- Mr. Winter became Secretary of ADT in January 1993.
Mr. Winter has been in-house general counsel to ADT since May 1991. Mr. Winter
was a partner in the law firm of Goldsmith & Winter from October 1990 until its
dissolution in December 1993 and before that was a partner in the law firm of
Goldsmith, Yaker, Goldsmith & Winter. Mr. Winter has been engaged in the
practice of law for more than 25 years.
WILLIAM D. MYERS, M.D. - Dr. Myers is one of the founders of ADT and a
co-inventor of the dLase 300. He has been Chairman of the Board of ADT since
January 1990. Dr. Myers has been a practicing ophthalmologist for more than 20
years and is the founder and director of the Michigan Eyecare Institute.
J. BERNARD MACHEN, D.D.S. - Since September 1995, Dr. Machen has been the
Provost and Executive Vice President for Academic Affairs for the University of
Michigan. Dr. Machen was the Dean of the School of Dentistry at the University
of Michigan from 1989 until August 1995.
KENNETH C. MERRILL - Mr. Merrill has been retired since May 1991. Between
October 1987 and his retirement, Mr. Merrill was the president of Ford Motor
Credit Company.
BERTRAND R. WILLIAMS, SR. - Mr. Williams is a principal, and since
February 1995, has been the chief executive officer of Global Focus Marketing
and Distribution ("GFMD"). GFMD sells specialized clinical laboratory,
research and industrial equipment. Prior to founding GFMD, Mr. Williams had
been the chief executive officer of Rupp & Bowman Company, a maker of high
technology medical equipment and diagnostics for more than 30 years. Since
1981, he has also been chairman of the board and chief executive officer of
Immuno Concepts, Inc., a manufacturer of immuno-diagnostic and virology
products in Sacramento, California. In June 1994, Rupp & Bowman Company
commenced bankruptcy proceedings pursuant to Chapter 11 of the federal
Bankruptcy Code to reorganize its business. In February 1995, that action,
which is pending in the United States Bankruptcy Court in Dallas, Texas, was
converted to a proceeding under Chapter 7 of the federal Bankruptcy Code. In
January 1994, Mr. Williams commenced bankruptcy proceedings under Chapter 7 of
the federal Bankruptcy Code against Integrated Clinical Systems, a private
corporation of which Mr. Williams has been the chairman of the board of
directors since December 1991. That action is proceeding under Chapter 11 of
the federal Bankruptcy Code in the United States Bankruptcy Court,
Indianapolis, Indiana.
64
<PAGE> 73
CERTAIN INFORMATION CONCERNING ADT'S BOARD OF DIRECTORS
During 1995, there were 12 Board meetings held. Each director attended
75% or more of the total number of meetings of the Board and committees of
which he was a member in 1995.
ADT's Board presently has a Compensation Committee and an Audit Committee.
The members of each committee serve without additional compensation. ADT's
Board does not have a nominating committee or a committee serving a similar
function.
The Compensation Committee held two meetings in 1995. The members of the
Compensation Committee, none of whom are employees of ADT, are William D.
Myers, Kenneth C. Merrill and Bertrand R. Williams, Sr. The functions of this
Committee are to establish and administer ADT's executive compensation plans
and the compensation of executive management.
The Audit Committee of the Board held two meetings during 1995. The
members of the Audit Committee, neither of whom are employees of ADT, are
Bertrand R. Williams, Sr. and Kenneth C. Merrill. The functions of the Audit
Committee include reviewing the adequacy of ADT's system of internal controls
and accounting practices; reviewing the scope of the annual audit performed by
the ADT's independent auditors, Ernst & Young LLP, prior to commencement of the
audit; and reviewing ADT's annual audited financial statements.
PRINCIPAL STOCKHOLDERS OF ADT
The following table sets forth certain information regarding the ownership
of ADT's Common Stock as of June 14, 1996, except as otherwise indicated, by
each person who is known by ADT to own beneficially 5% or more of the ADT's
outstanding shares of Common Stock (each, a "5% Owner").
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES (1) CLASS (2)
-------------------------------- ---------- ----------
<S> <C> <C>
William D. Myers, M.D. (3)
29877 Telegraph Road
Southfield, Michigan 48034 4,711,469 27.1
William D. Maroney (4)
28411 Northwestern Hwy., # 1100
Southfield, Michigan 48034 3,253,182 18.5
Texas Airsonics, Inc. (5)
5555 Bear Lane
Corpus Christi, TX 78405 3,445,832 18.6
Michael F. Radner
28411 Northwestern Hwy., # 1100
Southfield, Michigan 48034 2,705,529 15.8
Denics Co., Ltd.
Yotsuya Y's Bldg.
7-6 Honshio-cho
Shinjuku-ku Tokyo 160 Japan 860,240 5.4
</TABLE>
- ---------------
65
<PAGE> 74
(1) The column sets forth shares of ADT Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule 13d-3 of
the SEC, including shares of ADT Common Stock that may be acquired upon
the exercise of stock options or common stock purchase warrants that are
presently exercisable or become exercisable within 60 days as follows:
William D. Myers - 1,381,126 shares; William D. Maroney - 1,611,110
shares; and Michael F. Radner - 1,139,125 shares. Each of the persons
named in the table has sole voting and investment power with respect to
all shares beneficially owned by them, except as described in the
following footnotes.
(2) Except as noted below, for purposes of calculating the percentage of ADT
Common Stock beneficially owned, the shares issuable to each person under
stock options or common stock purchase warrants exercisable within 60 days
are considered outstanding and added to the shares of Common Stock
actually outstanding.
(3) Includes 1,496,287 shares of ADT Common Stock and 922,222 common stock
purchase warrants owned jointly with and/or individually by his spouse.
(4) Includes 1,265,436 shares of ADT Common Stock and 1,611,110 common stock
purchase warrants owned by his spouse.
(5) Includes 743,049, 165,975, 27,288, and 9,520 shares owned individually by
Texas Air's officers and directors, Ben J. Gallant, John W. Vickers III,
Charles A. Nichols, and Wayne A. Johnson II, respectively and warrants for
2,500,000 shares of ADT Common Stock issued to Texas Air that will be
terminated if the Merger is consummated.
SECURITY OWNERSHIP OF ADT MANAGEMENT
The following table sets forth as of June 14, 1996, certain information
with respect to the beneficial ownership of ADT Common Stock by each current
director of ADT, each of the executive officers named in the Summary
Compensation Table under "Executive Compensation," and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES (a) CLASS (b)
------------------------------------ ------------ ----------
<S> <C> <C>
William D. Myers 4,711,469(c) 27.1
Anthony D. Fiorillo 571,666 3.5
Michael J. Yessik (d) 279,016 1.7
Kenneth C. Merrill 92,653 *
Bertrand R. Williams, Sr. 34,458 *
J. Bernard Machen 1,875 *
Terry D. Myers 570,082(e) 3.5
Johannes Homolko 87,656 *
All executive officers and directors
as a group (11 persons) 6,649,181 35.8
</TABLE>
- ---------------
* Less than one percent.
(a) The column sets forth shares of ADT Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule 13d-3 of
the SEC, including shares of ADT Common Stock that may be acquired upon
the exercise of stock options or common stock purchase warrants that are
presently exercisable or become exercisable within 60 days as follows:
Dr. William Myers - 1,381,126 shares; Mr. Fiorillo - 566,666 shares; Dr.
Yessik - 90,000 shares; Mr. Merrill - 18,125 shares; Mr. Williams - 3,125
shares; Dr. Machen - 1,875 shares; Dr. Terry Myers - 137,564 shares; Mr.
Homolko - 87,656 shares; all executive officers and directors as a group -
2,565,137 shares. Each of the persons named in the table has sole voting
and investment power with respect to all shares beneficially owned by
them, except as described below.
(b) For purposes of calculating the percentage of ADT Common Stock
beneficially owned, the shares issuable to such person under stock options
66
<PAGE> 75
or common stock purchase warrants exercisable within 60 days are considered
outstanding and added to the shares of Common Stock actually outstanding.
(c) Includes 1,496,287 shares of ADT Common Stock and 922,222 common stock
purchase warrants owned jointly with and/or individually by his spouse.
(d) Dr. Yessik resigned from ADT effective March 31, 1996 to pursue other
business interests. His departure is amicable and he will continue to
provide consulting services as requested.
(e) Includes 417,133 shares of ADT Common Stock owned by his spouse.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3, 4, 5 and amendments thereto
furnished to ADT, its officers, directors, ten percent owners and other
reporting persons timely filed reports for 1995 as required by Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). ADT is
unaware of any failures to file required reports for 1995.
EXECUTIVE COMPENSATION
SUMMARY
The following table provides a summary of compensation paid or accrued by
ADT and its subsidiaries during 1995, 1994 and 1993 to or on behalf of ADT's
Chief Executive Officer and each of the other executive officers, as of
December 31, 1995 who earned in excess of $100,000 in 1995 (the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-----------------------------
Annual Securities All Other
Name and Compensation Restricted Underlying Compensation
Principal Position Year Salary($) Stock ($)(a) Option/SARs (#) ($)
- ------------------------------- ---- ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Anthony D. Fiorillo 1995 220,389 -- -- 23,428(b)
Chief Executive Officer, Chief 1994 287,662 -- 500,000 66,975
Operating Officer and President 1993 207,500 1,156,250(c) 100,000 21,765
Michael J. Yessik 1995 153,204 -- 125,000 --
Senior 1994 152,350 -- 75,000(e) --
Vice President(d) 1993 149,600 -- 25,000(e) --
Johannes Homolko 1995 214,225 -- 89,976 --
Director of European 1994 136,003 -- 24,976(e) --
Operations 1993 103,957 -- 89,600(e)(f) --
Terry D. Myers 1995 129,829 -- 140,000 --
Director of Education 1994 120,136 -- 25,309(e) --
and Training 1993 106,075 -- 99,691(e) --
</TABLE>
- ---------------
67
<PAGE> 76
(a) None of the Named Officers have ever been awarded restricted stock other
than Mr. Fiorillo and his award was rescinded, see (c) below.
(b) Includes automobile allowances of $9,000 and life insurance premiums of
$14,428 paid by ADT.
(c) Determined by multiplying the number of shares awarded (250,000) by the
closing price of the ADT Common Stock on April 14, 1993 (date of award)
reported by The Nasdaq Stock Market. On March 28, 1994, ADT, with Mr.
Fiorillo's consent, rescinded the award of 250,000 shares of restricted
stock. Concurrently, ADT granted Mr. Fiorillo options for 250,000 shares
of ADT Common Stock.
(d) Resigned as an executive officer on January 1, 1996, effective March 31,
1996.
(e) All of these shares were canceled prior to exercise in connection with
the grant of replacement options in 1995. See "Options/SAR Grants in Last
Fiscal Year."
(f) 39,600 shares were canceled prior to exercise in connection with the
grant of replacement options in 1993.
OPTION GRANTS
The following table sets forth information concerning the grant of stock
options under ADT's Non-Qualified Stock Option Plan and/or Long-Term Incentive
Plan during 1995 to the Named Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise of
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
------------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Anthony D. Fiorillo none none none none
Michael J. Yessik 25,000(a) 2.3 0.50 05/01/2005
25,000(b) 2.3 1.00 12/31/2003
75,000(c) 7.0 1.00 05/24/2004
Terry D. Myers 15,000(a) 1.4 0.50 05/01/2005
50,000(d) 4.7 1.00 01/22/2002
39,691(e) 3.7 1.00 11/03/2002
10,000(f) 0.9 1.00 12/20/2003
25,309(c) 2.4 1.00 05/24/2004
Johannes Homolko 15,000(a) 1.4 .50 05/01/2005
400(g) -- 1.00 03/18/2002
10,000(h) 0.9 1.00 06/12/2002
39,600(i) 3.7 1.00 06/14/2003
24,976(c) 2.3 1.00 05/24/2004
</TABLE>
- ---------------
(a) These options granted under the Non-Qualified Stock Option Plan on May 1,
1995 become exercisable in equal installments of 20% each on May 1 and
November 1, 1995, May 1 and November 1, 1996 and May 1, 1997,
respectively, if the grantee remains employed by or is a consultant to
ADT.
68
<PAGE> 77
(b) Repriced options granted under the Long-Term Incentive Plan replacing
options with an exercise price of $2.315 per share originally granted
December 31, 1993, which were canceled. These options all became
exercisable on December 31, 1993.
(c) Repriced options granted under the Long-Term Incentive Plan replacing
options with an exercise price of $2.00 per share originally granted May
24, 1994, which were canceled. These options become exercisable in equal
annual installments on January 1, 1995, 1996 and 1997, respectively, if
the grantee remains employed by or is a consultant to ADT.
(d) Repriced options granted under the Non-Qualified Stock Option Plan
replacing options with an exercise price of $2.625 per share originally
granted January 22, 1992, which were canceled. These options became
exercisable in equal installments of 50% each on January 22, 1993 and
1994, respectively.
(e) Repriced options granted under the Non-Qualified Stock Option Plan
replacing options with an exercise price of $2.625 per share originally
granted November 3, 1992, which were canceled. These options all became
exercisable on November 3, 1992.
(f) Repriced options granted under the Long-Term Incentive Plan replacing
options with an exercise price of $2.625 per share originally granted
December 20, 1993. These options all became exercisable on December 20,
1992.
(g) Repriced options granted under the Non-Qualified Stock Option Plan
replacing options with an exercise price of $2.625 per share originally
granted March 18, 1992. These options all became exercisable on March 19,
1993.
(h) Repriced options granted under the Non-Qualified Stock Option Plan
replacing options with an exercise price of $2.625 per share originally
granted June 12, 1992. These options become exercisable in installments
of 1,000, 2,000, 3,000 and 4,000 shares on June 12, 1993, 1994, 1995 and
1996, respectively, if the grantee remains employed by ADT.
(i) Repriced options granted under the Long-Terms Incentive Plan replacing
options with an exercise price of $2.625 per share originally granted June
14, 1993. These options became exercisable in equal installments of 20%
each on December 14, 1993, June 14 and December 14, 1994 and 1995,
respectively.
COMPENSATION COMMITTEE REPORT ON 1995 CANCELLATION AND REGRANT OF OPTIONS
On May 1, 1995, ADT's Compensation Committee (the "Committee") approved
the cancellation and regrant of all existing employee options (other than those
of the Chief Executive Officer) originally granted under ADT's stock option
plans with exercise prices ranging between $1.50 and $2.625 per share, the fair
market value of the ADT Common Stock when granted. Each repriced option has an
exercise price of $1.00 per share, a term of ten years from the original grant
date, and becomes exercisable on the same terms as the canceled option.
The Committee approved the cancellation/regrants because it believes
equity interests are a significant factor in ADT's ability to attract and
retain key employees who are critical to ADT's long-range success. The
Committee noted that ADT's ability to provide cash compensation has been and
continues to be limited. In addition, the Committee reviewed the historical
market prices of ADT's Common Stock as reported by Nasdaq and the fair market
value of ADT's Common Stock at the time of the proposed regrants. Rewarding
past efforts, increasing the likelihood of employee equity participation and
providing meaningful incentives for future performance continue to be important
goals. Accordingly, the Committee approved this regrant program to better
accomplish these goals.
William D. Myers, Chairperson Bertrand R. Williams, Sr. Kenneth C. Merrill
69
<PAGE> 78
OPTION HOLDINGS
The following table provides information with respect to the unexercised
options held as of the end of 1995 by the Named Officers. The Named Officers
did not exercise any options during 1995.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options/SARs at Fiscal In-the-Money Options/SARs
Year End (#) At Fiscal Year End ($)(a)
-------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
-------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Anthony D. Fiorillo 433,332 166,668 -0- -0-
Terry D. Myers 114,127 25,873 $1,125 $1,688
Michael J. Yessik(b) 60,000 65,000 $1,875 $2,813
Johannes Homolko 60,325 29,651 $1,125 $1,688
</TABLE>
- ---------------
(a) Value was determined by multiplying the number of shares subject to the
option by the difference between the closing price of ADT Common Stock on
December 29, 1995 on The Nasdaq Stock SmallCap Market and the option
exercise price.
(b) Dr. Yessik's options will continue for as long as he provides consulting
services and for one year thereafter.
EMPLOYMENT AGREEMENTS
Mr. Fiorillo entered into an employment agreement on April 28, 1992 to act
as ADT's President, Chief Operating Officer and Chief Executive Officer at an
annual salary of $200,000, which may be increased at the discretion of the
Board based upon performance. Effective June 1, 1995, Mr. Fiorillo's annual
salary was increased to $225,000. Mr. Fiorillo's agreement entitles him to
participate in ADT's management bonus plan and other employee benefit
arrangements, and also provides, at ADT expense, a vehicle allowance, a life
insurance policy and certain expense reimbursements. The agreement may be
terminated at any time by either party, although Mr. Fiorillo will be entitled
to continue receiving his salary and health insurance coverage for two years
after termination if (i) Mr. Fiorillo's employment is terminated without cause
before he reaches age 65; (ii) Mr. Fiorillo terminates employment because ADT
has not continued his term of office as President, Chief Operating Officer and
Chief Executive Officer, has materially changed his duties, has breached the
employment agreement or has liquidated, dissolved, or merged with or
transferred substantially all of its assets to a corporation which does not
assume ADT's obligations under the employment agreement. Mr. Fiorillo has
agreed not to compete with ADT for two years after termination of the
agreement.
Dr. Yessik entered into an employment agreement on January 1, 1994 to act
as President of ADT's Incisive subsidiary at an annual salary of $120,000, plus
quarterly commissions on products sold by ADT and its subsidiaries. Effective
January 1, 1995, that agreement was terminated and replaced with an agreement
designating Dr. Yessik a Vice President of ADT, increasing his annual salary to
$150,000 and eliminating all commission compensation. Dr. Yessik's agreement
entitled him to participate in all employee benefit arrangements generally
available to ADT's managerial employees and provided for certain expense
reimbursements. The agreement was terminable by Dr. Yessik or ADT upon 90 days
notice. On January 1, 1996, Dr. Yessik notified ADT that he was resigning,
effective March 31, 1996. Dr. Yessik has agreed not to compete with ADT for
one year after his departure. Dr. Yessik's departure was amicable and he has
agreed to provide consulting services to ADT.
70
<PAGE> 79
Mr. Homolko provides services as the Director of European Operations to
ADT through an arrangement with MDV, a French company, at an annual fee of
690,000 French Francs (approximately $140,000). He also is entitled to
quarterly commissions if certain operating margins are achieved in Europe. Mr.
Homolko also participates in ADT's management bonus plan and other employee
benefit arrangements and receives deferred compensation through participation
in a German pension program. This arrangement may be terminated at any time by
either party, however, Mr. Homolko is entitled to six months notice of
termination and full compensation during the termination period. Mr. Homolko
has agreed not to compete with ADT for one year after notice of termination.
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of ADT are entitled to a fee
of $500 for each Board meeting attended. In addition, such directors receive
an annual option grant to purchase 1,250 shares of Common Stock at an exercise
price equal to the market value per share on the date of grant. Such options
become exercisable in equal annual installments over four years as long as the
optionee remains a director and expire ten years after the date of grant. In
September 1995, two directors accepted a total 18,857 shares of ADT Common
Stock in lieu of their accrued fees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TEXAS AIR
On February 12, 1993, ADT acquired the manufacturing rights for all dental
air abrasive products from Texas Air in exchange for 165,975 shares of
restricted ADT Common Stock and entered into a subcontract with Texas Air to
manufacture such products for ADT. ADT also obtained the rights to patents,
patent applications and other proprietary intellectual property from Ben J.
Gallant, the President of Texas Air, in exchange for $160,000 to be paid in
four annual installments of $40,000 commencing April 1994 and $640,000 of
restricted common stock to be issued in four annual installments. The number
of shares to be issued each year is based upon the average market value of
ADT's Common Stock during the last five trading days immediately prior to April
18th for each of the four years in the period ending April 18, 1996. To date,
Mr. Gallant has received 705,666 shares of ADT Common Stock pursuant to this
arrangement. ADT also pays a monthly consulting fee of $8,333 under the
February 1993 agreement to Mr. Gallant for technical advice on manufacturing,
product safety, product serviceability, field testing and warranty
satisfaction. This consulting arrangement terminates in June 1996 or upon his
death, disability or failure to provide the requested services.
On September 30, 1994, ADT amended its sub-contract manufacturing
agreement for air abrasive products with Texas Air to extend the term of that
agreement through December 2003. In exchange, Texas Air reduced its price on
the products being sold to ADT; increased ADT's accounts payable credit limit
to $1.5 million; and agreed to share research and development, legal, and
marketing costs related to air abrasive products. At December 31, 1995,
$792,000 was outstanding for accounts payable and Texas Air's share of research
and development, legal, and marketing costs was $895,000. ADT's obligations to
Texas Air are secured by a pledge of ADT's air abrasive patent rights. ADT has
minimum purchase commitments of approximately $1,650,000 for 1996, and no
purchase commitments thereafter. In consideration of the price reductions,
credit limit increase and the agreements between the parties, on November 1,
1994, ADT issued Texas Air warrants to purchase 1,000,000 shares of ADT Common
Stock at $2.00 per share, exercisable through October 31, 1996 and Texas Air
became a 5% Owner. In August 1995, ADT extended the exercise period of these
warrants to August 1, 1998. If the Merger is consummated, the manufacturing
agreement and these warrants to purchase 1,000,000 shares of ADT Common Stock
will be canceled.
On August 7, 1995, ADT obtained a $1,500,000 loan from Texas Air with
interest payable at prime. Interest is due on a quarterly basis and a
principal payment of $200,000 is due May 1, 1996, with the balance due on
August 1, 1996, unless extended. Approximately $1,410,000 of these loan
proceeds have been deposited with the court to stay enforcement of a judgment
against ADT in the Alameda Superior Court, Oakland, California, pending an
appeal (see "Information About ADT -- Legal Proceedings"). ADT's obligations
to Texas Air are secured by a pledge of all ADT's assets. Simultaneously, ADT
granted Texas Air warrants to acquire up to 1,500,000 shares of ADT Common
Stock at an exercise price of $1.00 per share, exercisable any time between
71
<PAGE> 80
January 1, 1996 and August 1, 1998. These warrants to acquire 1,500,000 shares
of ADT Common Stock will terminate if the Merger is consummated. See "The
Merger and Related Matters" for a description of the proposed Merger.
ADT's purchases of KCP units and related parts from Texas Air were
$3,663,000, $1,852,000 and $3,367,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
ADL - JAPAN
Prior to March 1993, distribution rights for ADT's dental products in
Japan were owned by American Dental Laser - Japan, Inc. ("ADL-Japan"), a
corporation owned by Daniel S. Goldsmith (a former executive officer and 5%
Owner of ADT), Walter J. Goldsmith (a former executive officer of ADT) and
members of Daniel Goldsmith's immediate family (the "Goldsmiths"). In March
1993, ADT acquired ADL-Japan from the Goldsmiths for $35,000 plus future
contingent payments over 10 years equal to 27% of ADT's net profit from
Japanese sales to a maximum of $3,128,000, together with a commission on the
sale of ADT's products in Japan equal to 13% of ADT's net profit realized from
the sale of such products, to a maximum of $1,517,000.
In January 1996, the Goldsmiths signed a first supplement to the purchase
agreement (the "First Supplement") revising these payment terms. The revised
payments will generally be smaller and extend over a longer period of time.
Quarterly, the Goldsmiths are to receive the following: (i) 6% until December
31, 1997 and 7% of net sales for Japan, thereafter; (ii) 10% of Japanese net
royalties earned by ADT on products for Japan; and (iii) in certain
circumstances, 40% of other amounts received by ADT related to products for
Japan, if any. These payments will continue to be allocated as originally
agreed until the Goldsmiths receive $4,645,000, or until December 31, 2045,
whichever comes first. In addition, existing stock options held by the
Goldsmiths for 143,000 shares of ADT Common Stock were terminated and ten year
warrants to acquire 393,000 shares of ADT Common Stock at a price of $1.00 per
share were issued to the Goldsmiths. ADT's obligations to the Goldsmiths are
secured by the ADL-Japan stock acquired by ADT. No payments were made to the
Goldsmiths pursuant to the agreements during either 1995 or 1994.
STOCK, LOAN AND OTHER TRANSACTIONS
In April 1994, ADT issued shares of ADT Common Stock with warrants to
purchase an equal number of shares of ADT Common Stock at $2.00 per share,
exercisable over a two year period, to several private investors who are 5%
Owners and current or former directors of ADT. The purchase price for the
shares and warrants was established after consultation with an independent
investment advisor and was based on several factors, including without
limitation, the unavailability of other equity and debt financing, the inherent
investment risks, the restricted transferability and the size of the
investments. For $1,000,000, Dr. William D. Myers, Chairman of the Board of
Directors, and his wife, acquired 1,000,000 shares of ADT Common Stock with
warrants to purchase an equal number of shares. For $564,000, Michael F.
Radner, a 5% Owner and former director, acquired 564,000 shares of ADT Common
Stock with warrants to purchase an equal number of shares. For $500,000, the
spouse of William D. Maroney, a 5% Owner and former director, acquired 500,000
shares of ADT Common Stock with warrants to purchase an equal number of shares.
For $600,000, QueQuoin Holdings, Ltd. became a 5% Owner when it acquired
600,000 shares of ADT Common Stock with warrants to purchase an equal number of
shares.
72
<PAGE> 81
In July 1995, ADT received $800,000 when it completed a private placement
transaction with the Chairman of the Board and his wife and principal
stockholders, Michael F. Radner and William D. Maroney and his wife. ADT
issued these investors 888,888 shares of ADT Common Stock together with
non-transferable warrants to acquire 1,777,776 additional shares of stock at
exercise prices ranging from $1.75 to $2.00 per share, exercisable on or before
July 7, 1998. Simultaneously, the exercise date on the existing April 1994
common stock purchase warrants held by these same stockholders was extended
from April 21, 1996 to April 21, 1998. In August 1995, ADT canceled the
existing common stock purchase warrants held by these stockholders at exercise
prices ranging from $1.75 to $2.00 and reissued the common stock purchase
warrants at an exercise price of $1.00 per share. The consideration for the
shares and warrants was established based on several factors, including without
limitation, the amounts and duration of these stockholders prior investments,
the unavailability of other equity or debt financing, the fair market value of
the stock as reported by the Nasdaq, the inherent investment risks, restricted
transferability and the size of the investments.
On June 10, 1993, ADT agreed with Denics to form a joint venture to
distribute dental products in certain Asian and Pacific markets. Under the
terms of the agreement, as amended in July and August 1993, ADT granted Denics
territorial manufacturing rights for all dental laser and air abrasive products
owned by ADT, in Japan. In consideration, Denics provided ADT with a
$3,000,000 non-refundable, prepaid royalty payment. By mutual agreement, the
formation of the contemplated joint venture, which is to exist for an initial
term of ten years, has been delayed. During 1993, ADT issued Denics
convertible Series A preferred stock in exchange for $2,000,000 in loans made
to ADT during 1993. In April 1994, Denics converted all 860,240 shares of
Series A preferred stock into 860,240 shares of ADT Common Stock and became a
5% Owner. As of December 31, 1995, ADT also has $800,000 outstanding under a
$1,000,000 note payable to Denics. Interest is payable each June 30 and
December 31 at 3% above the discount rate in Japan (0.5% at December 31, 1995).
Principal payments of $200,000 are payable each June 30. Borrowings are
secured by an assignment of ADT's Japanese patent rights and related
technologies. ADT has accounts receivable from Denics of $640,059 at December
31, 1995. ADT earned royalty payments from Denics or its affiliates for dental
laser units sold in Japan and certain Asian and Pacific markets, net of foreign
taxes, of $261,000 and $285,000 during the years ended December 31, 1995 and
1994, respectively. ADT realized $3,671,568, $3,320,300 and $306,855 during
the years ended December 31, 1995, 1994 and 1993, respectively, from the sale
of KCP units, lasers and related parts to Denics.
PROPOSAL TO AMEND ADT'S LONG-TERM INCENTIVE PLAN
On March 25, 1996, the Board approved an amendment to ADT's Long-Term
Incentive Plan (the "Plan") to increase the number of shares issuable under the
Plan from 1.5 million to 2.5 million shares of ADT Common Stock. The Board and
the Compensation Committee have determined that additional shares should be
made available under the Plan to attract, retain and motivate highly qualified
individuals to serve as employees and consultants of ADT and its subsidiaries.
Awards under the Plan are intended to align the interests of employees with
those of ADT's stockholders and encourage employees to acquire an ownership
interest in ADT. As ADT realizes future business success, the Plan may provide
compensation incentives which it cannot presently provide through salary or
bonus.
ADT'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF AN AMENDMENT TO THE
PLAN TO INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE PLAN TO 2.5 MILLION
SHARES.
The executive officers and directors of ADT and Texas Air together with
certain principal stockholders of ADT beneficially own approximately 57% of the
outstanding ADT Common Stock. Such persons have advised ADT that they intend
to vote all of the shares over which they have voting power in favor of this
proposal. Consequently, if such persons vote as indicated, approval is
assured.
73
<PAGE> 82
GENERAL
On May 25, 1993, the stockholders approved the Plan, which is intended to
attract and motivate highly qualified individuals to serve as employees,
consultants and directors of ADT and to encourage employees, consultants and
directors of ADT and its subsidiaries to acquire an ownership interest in the
company and to make greater efforts on behalf of ADT. Approximately 48
employees, 6 consultants and 4 directors who are not employees of ADT and its
subsidiaries, are currently eligible to participate in the Plan. If the Merger
is consummated, an additional 30 employees will become eligible to participate
in the Plan.
The Plan is administered by the Compensation Committee of ADT's Board of
Directors (the "Committee"), which is comprised of three disinterested members
of the Board who are not employees or consultants. The Committee is authorized
to administer and interpret the Plan and to adopt such rules and regulations as
it determines are appropriate. On May 24, 1994, the stockholders approved an
amendment to the Plan increasing the shares issuable to the 1.5 million shares
of ADT Common Stock that are presently reserved for issuance under the Plan
(subject to adjustment by the Committee to prevent dilution or enlargement of
benefits resulting from stock dividends, recapitalizations, mergers and other
changes in the common stock). Shares subject to the canceled, forfeited,
terminated or expired portion of awards made under the Plan may again be used
for grants and awards under the Plan. As of June 21, 1996, the last reported
sale price of ADT's Common Stock on the Nasdaq SmallCap Market was $2.00 per
share.
ADT directors who are not employees or consultants each receive an annual
automatic grant of an option to purchase 1,250 shares of common stock at an
exercise price equal to the fair market value per share of ADT Common Stock on
the grant date. Each such option will become exercisable in equal annual
installments over four years beginning on the first anniversary of the grant
date and expires ten years after grant. There are three directors eligible for
such awards (not including Mr. Merrill who is resigning as of the date of the
ADT Annual Meeting). Such directors are not otherwise eligible for awards
under the Plan.
Awards by the Committee to employees and consultants as the Committee may
select may be in the form of stock options, restricted stock or performance
shares. Other than one subsequently rescinded stock grant of 250,000 shares to
Mr. Fiorillo, only stock option grants have been made. Options to purchase a
total of 1,493,777 shares of ADT Common Stock, net of canceled, forfeited,
terminated and expired option shares, have been granted under the Plan.
Currently, there are 6,223 shares available for future grant under the Plan.
The following table sets forth the number of shares of ADT Common Stock
subject to options granted under the Plan to the Named Officers, any person who
has received more than 5 % of the options outstanding, all current executive
officers as a group, all other employees as a group and all non-employee
directors as a group. For a detailed description of the options granted to the
Named Officers during 1995, see "Executive Compensation -- Option Grants." The
exercise price of all options range from $0.50 to $2.625 per share, exercise
prices that were equal to or higher than the fair market value of the common
stock on the various grant dates. Such options become exercisable at various
times, ranging from immediately upon grant to one-third per year beginning one
year after grant. All such options terminate ten years after the date of grant
(or the initial grant date in the case of repriced and regranted options), or
earlier if employment terminates. Except as disclosed in the table, no
associates of the directors or executive officers received options and no other
person received more than 5% of the options granted under the Plan.
74
<PAGE> 83
<TABLE>
<CAPTION>
Number of Shares
Name of Person or Group Subject to Options
------------------------------ ------------------
<S> <C>
Anthony D. Fiorillo 350,000
Diane M. Miller 202,000
Michael Yessik 100,000
Terry D. Myers 95,309
Thomas Waugh 75,000
Johannes Homolko 64,576
All Current Executive Officers 841,885
All Other Employees 315,284
All Non-Employee Directors 10,000
</TABLE>
STOCK OPTION GRANTS
Options granted under the Plan may be either incentive stock options under
Section 422 of the Internal Revenue Code or nonqualified stock options. The
exercise price for incentive stock options must be at least the fair market
value of the shares on the date of grant. The exercise price of nonqualified
stock options may be less than fair market value, at the discretion of the
Committee. Options granted under the Plan become exercisable at such times as
the Committee may determine and will generally have a term of ten years unless
otherwise determined by the Committee. No incentive stock option may be
exercisable after ten years from the date of grant. Nonqualified stock options
will expire ten years after grant unless the Committee provides otherwise. The
aggregate fair market value, determined on the grant date, of ADT Common Stock
with respect to which incentive stock options may first become exercisable for
an optionee during any calendar year may not exceed $100,000.
Payment for shares to be acquired upon exercise of options granted under
the Plan may be made in cash, by check or, at the discretion of the Committee,
an optionee who is an employee or consultant may exercise an option through a
cashless exercise procedure whereby the optionee provides an option exercise
notice to ADT and simultaneously irrevocably instructs a broker to sell a
sufficient number of the shares from the option exercise to pay the option
exercise price and accompanying taxes. At the Committee's discretion, shares
may be tendered to ADT or the cashless exercise procedure may be used to
satisfy tax obligations.
RESTRICTED STOCK GRANTS AND PERFORMANCE SHARE AWARDS
The Plan authorizes the Committee to grant restricted stock awards
pursuant to which shares of ADT Common Stock will be awarded, subject to
restrictions on transfer which lapse over a period of time or upon achievement
of performance goals, as determined by the Committee. Participants who receive
restricted stock grants are entitled to dividend and voting rights on the
awarded shares prior to the lapse of restrictions on such awards. The
Committee is also authorized to grant performance share awards under the Plan,
which are payable at the discretion of the Committee in cash or shares of ADT
Common Stock upon achievement of performance goals established by the
Committee. The terms and conditions of restricted stock and performance share
awards, including the acceleration or lapse of any restrictions or conditions
of such awards, will be determined by the Committee.
TERMINATION; CHANGE IN CONTROL
Options which are not yet exercisable, restricted stock which is not yet
transferable and performance share awards with respect to which performance
goals have not been achieved will generally be forfeited if the holder's
employment, consulting arrangement or term of office as a director are
terminated. The Committee, however, is granted discretion under the Plan to
accelerate the exercisability of options (other than options held by
non-employee directors) and waive the restrictions or conditions applicable to
restricted stock or performance share awards and such acceleration and waiver
will occur automatically upon a change in control of ADT (as defined in the
Plan). An option (or portion thereof) which is exercisable at the time of the
holder's termination may be exercised after such time to the extent it was
exercisable at the time of the holder's termination until such option
terminates.
75
<PAGE> 84
Unless the Committee otherwise provides, an exercisable option will
terminate at various times after the holder's relationship with ADT terminates,
based upon the reason for the holder's termination. Generally, if an
employee's employment or a consultant's consulting arrangement is terminated
for any reason other than death, disability or retirement, or if a director's
term of office is terminated for any reason, such option will terminate on the
earlier of the expiration date of the option and the first anniversary of the
option holder's termination. If an employee's or consultant's relationship
with ADT has terminated because such person has died or become disabled, such
option will terminate one year following the date of the option holder's
termination. If an employee's or consultant's relationship with ADT has
terminated due to retirement, the option will terminate on the earlier of the
expiration date of the option and the second anniversary of the option holder's
termination.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Under the Code as now in effect, at the time an
incentive stock option is granted or exercised, the optionee will not be deemed
to have received any income, and ADT will not be entitled to a deduction.
However, the difference between the exercise price and the fair market value of
the shares of ADT Common Stock on the date of exercise is a tax preference
item, which may subject the optionee to the alternative minimum tax in the year
of exercise. The holder of an incentive stock option generally will be
accorded capital gain or loss treatment on the disposition of the ADT Common
Stock acquired by exercise of an incentive stock option, provided the
disposition occurs more than two years after the date of grant and more than
one year after exercise. An optionee who disposes of shares acquired by
exercise of an incentive stock option prior to the expiration of the foregoing
holding periods realizes ordinary income upon the disposition equal to the
difference between the exercise price and the lesser of the fair market value
of the shares on the date of exercise or the disposition price. To the extent
ordinary income is recognized by the optionee, ADT may deduct a corresponding
amount as compensation expense.
Nonqualified Stock Options. Upon the exercise of a nonqualified stock
option, an optionee will generally recognize ordinary income equal to the
difference between the exercise price and the fair market value of the ADT
Common Stock on the date of exercise. Upon withholding for income and
employment tax, ADT will receive a corresponding compensation deduction. When
the optionee disposes of the shares acquired upon exercise of the option, any
amount received in excess of the fair market value of the shares on the date of
exercise will be treated as capital gain.
Restricted Stock Awards and Performance Share Awards. A participant who
receives a restricted stock or performance share award realizes ordinary income
equal to the fair market value of ADT Common Stock on the date the restrictions
lapse or the date of receipt, respectively, and, upon withholding for income
and employment taxes, ADT will receive a compensation tax deduction equal to
the ordinary income realized by the participant.
AMENDMENT
The Plan may be terminated or amended at any time by ADT's Board of
Directors, but no amendment may, without the approval of stockholders, (i)
materially increase the benefits accruing to participants, (ii) increase the
number of shares issuable under the Plan, or (iii) change the requirements for
eligibility, unless such amendment is permitted by Rule 16b-3 under the
Securities Exchange Act of 1934 without stockholder approval. The terms of the
Plan relating to option grants to directors who are not employees or
consultants generally may not be amended more than once every six months. No
amendment, modification or termination of the Plan may adversely affect any
option, restricted stock award or performance share award previously granted
under the Plan without the consent of the participant. Unless the Plan is
terminated sooner by the Board, no new awards or grants may be authorized under
the Plan after March 22, 2003.
76
<PAGE> 85
INFORMATION ABOUT TEXAS AIR
INTRODUCTION
Texas Air develops, manufactures and markets high precision micro abrasive
systems for dentistry and numerous industrial applications. Texas Air's
primary product lines are KCP cavity preparation systems for dentistry and air
abrasive jet machining ("AJM") systems for industrial applications.
Texas Air was incorporated in June 1980 as a Texas corporation and spent
several years primarily engaged in research and development, perfection of
patent rights and seeking to commercialize its AJM technology. In July 1991,
Texas Air and ADT entered into a development agreement for KCP dental systems.
Since that time, Texas Air has devoted most of its resources to development and
manufacture of KCP systems. Through the year 2003, Texas Air has the exclusive
manufacturing rights for the KCP dental systems worldwide, except for Japan and
the Pacific Rim. ADT is the exclusive distributor of all KCP dental systems
manufactured by Texas Air and has been Texas Air's primary customer since 1991.
Texas Air's patented AJM technology uniformly delivers a consistent stream
of micro fine particles for precision machining operations without heat,
friction, shock or vibrations associated with conventional machining devices.
Since 1994, Texas Air has been increasing its emphasis on the industrial field.
Texas Air sells its industrial products primarily through distributors, with
some direct marketing.
Texas Air's AJM patent rights will be transferred to Texas Airsonics L.P.,
a Texas limited partnership, the partners of which will be former Texas Air
stockholders. ADT will be granted an exclusive license to use such patents for
six years in exchange for royalty payments, after which time the patent rights
will be conveyed to ADT, subject to certain conditions. See "The Agreement
- --Ownership of Industrial Patent Rights."
Texas Air's principal executive offices are located at 5555 Bear Lane,
Corpus Christi, Texas 78405, (512) 289-1145.
PRODUCTS
KCP Kinetic Cavity Preparation Systems
KCP systems are more fully described under "Information About ADT --
Products -- KCP Kinetic Cavity Preparation Systems." Such products accounted
for approximately 72%, 68% and 86% of Texas Air's total revenues in 1995, 1994
and 1993, respectively.
Industrial Products
Texas Air has an extensive line of AJM equipment for industrial use. AJM
has a wide range of applications, including drilling, cutting, abrading,
deburring, dressing, beveling, etching, shaping and polishing. Its principal
advantage over conventional machining is that the AJM process, which
accomplishes its work through kinetic particle displacement (an erosion
process), produces no heat, shock or vibration. This enables precise work to
be done on fragile materials without deburring or further processing.
Generally, the same is not true of drills, saws, laser or other types of
conventional machining equipment because all of these systems rely on heat
and/or friction to perform the work. These machining techniques generally
require further processing and in many instances do not provide the precision
available with AJM, particularly with fragile materials. AJM systems are often
used to remove the slag, burrs and flash resulting from conventional machining
processes. Some examples include deburring needles, beveling silicon wafers
and cutting fiber optics.
AJ Series -- Texas Air's most economical units, the AJ Series, were
designed for simple, manual AJM tasks at pressures lower than 120 psi.
HP Series - These units were developed for high-pressure, high-precision
AJM tasks. They perform major machining functions at pressures as high as 375
psi. The HP Series delivers a wider range of abrasive powders more
consistently and at a greater range of pressures than other technology
currently available.
HPD Series - Similar in technology and operation to the HP Series, these
units feature controls encased in an airtight enclosure which can be wall
77
<PAGE> 86
mounted. The HPD is capable of powering up to six of its patented Spirofeed(R)
powder delivery systems, each of which can be externally mounted on grinding
machines up to 50 feet away from the control unit.
HPW Series - These state of the art, self-contained work centers are the
top of the line of Texas Air's individual AJM units. They combine AJM
technology ranging from the AJ Series to the HPD Series, with an ergonomically
designed work chamber. The HPW Series units feature electrical and air controls
encased in a protected chamber. Operator controls are conveniently arrayed
across a panel above the work chamber. Depending on the model, either one or
two Spirofeed powder delivery system chambers are externally mounted adjacent
to the cabinet.
Work Chamber Series - These ergonomically designed units are used in
conjunction with the AJ, HP or HPD Series AJM units and provide a means of
performing precise, manual machining work on a wide variety of objects in an
enclosed area that retains residual powder. With the addition of a dust
collection system, powder can be removed from the work chamber during
processing.
Pressure Intensifier Series - Used to assist in producing higher air
pressures in situations where shop air pressures cannot exceed the standard 90
psi, these units can boost air pressures to 200-375 psi depending on the model
used. Increased pressure air supplies ensure top performance from Texas Air's
AJM systems used in conjunction with the Pressure Intensifier Series.
Multi-Flex Series - This is Texas Air's line of custom designed, automated
AJM systems, specifically engineered to accomplish critical machining tasks in
a high productivity environment. The Multi-Flex Series couples HP and HPD
technology with computer-controlled, automated indexing equipment to perform
multiple machining functions in a single set-up, including removal of the
machined parts to a collection bin and reloading another series of parts for
machining, all automatically and with minimal operator involvement.
BVQ Series - This system incorporates Multi-Flex technology and is
specifically designed for high production beveling of silicon and gallium
arsenide wafers in single, dual or triple angle configurations.
Industrial products accounted for 17%, 22% and 9% of Texas Air's total
revenues in 1995, 1994 and 1993, respectively.
MARKETING AND SALES
In the dental field, Texas Air relies on ADT for the marketing and sales
of KCP systems. The loss of Texas Air's relationship with ADT could have a
material adverse effect on Texas Air's business. See "Information About ADT --
Marketing, Sales and Training."
Through 1993, because of limited resources and the focus on developing the
first KCP system, Texas Air's marketing and sales efforts in the industrial
field were limited. During 1994 and 1995, Texas Air hired a national sales
manager and a western regional sales manager, increased its advertising, and
increased the number of industrial product distributors. Texas Air presently
has approximately 30 industrial products distributors.
Distributors are anticipated to be a primary source of sales for Texas
Air's industrial products in the future. Texas Air anticipates adding more
distributors in 1996. Distributors are supported by Texas Air through its
in-house development capabilities, advertising in the Thomas Register and trade
journals, and participation in trade shows. Texas Air exhibited at several
major trade shows in 1995 and expects to do so during 1996.
Texas Air also sells directly to customers through advertisements or
customer referrals and through original equipment manufacturers of grinding
equipment who purchase AJM systems to incorporate into their equipment.
78
<PAGE> 87
COMPETITION
Dental Products
In the dental field, Texas Air presently has two known competitors. One
such competitor is currently being sued by ADT for infringement of ADT's
patents. See "Information About ADT -- Competition" and "Information About ADT
- -- Legal Proceedings."
Industrial Products
In the industrial field, there are numerous companies which produce AJM
equipment. Some of these companies have been in business longer than Texas
Air, have more financial resources, and have a larger distribution network than
Texas Air. While Texas Air believes its products are competitive in terms of
price, quality and capabilities, competition has and may in the future
adversely affect Texas Air's business. Texas Air's competitive position is
dependent upon its pricing and marketing practices and its ability to
successfully promote the capabilities of its technology.
PATENTS
Texas Air believes it has a competitive advantage in those countries in
which patents have been issued. As of March 31, 1996, Texas Air owned or is
licensed to use five United States and nine international patents related to
AJM. The technology covered by the patents allows Texas Air products to (i)
provide a consistent abrasive powder flow; (ii) precisely adjust powder flow
independently of air volume; (iii) consistently allow for a wide range of
abrasive powder sizes; (iv) use smaller orifices than other existing AJM
technology; or (v) work at lower and higher pressures than other AJM
technology. These patents are listed below.
United States Patents
<TABLE>
<CAPTION>
DESCRIPTION PATENT NUMBER ISSUE DATE
- -------------------------------------------------------------- ------------- ----------
<S> <C> <C>
System for storing and feeding abrasive 4,708,534 11/24/87
High pressure abrasive jet unit 4,733,503 03/29/88
Abrasive jet machining 4,893,440 01/16/90
Dental air abrasive system 5,330,354 07/19/94
Dental air abrasive system 5,350,299 09/27/94
</TABLE>
79
<PAGE> 88
International Patents
<TABLE>
<CAPTION>
DESCRIPTION PATENT NUMBER ISSUE DATE
- -------------------------------------------------------------- ------------- ----------
<S> <C> <C>
Helical particle feed (Canada ) 1,213,144 10/28/86
Pinch tube shut-off device (Canada ) 1,216,272 01/06/87
System for storing and feeding abrasive (Great Britain) 2,145,389 10/28/87
System for storing and feeding abrasive (Canada) 1,229,984 12/08/87
System for storing and feeding abrasive (France) 84 13194 03/16/90
System for storing and feeding abrasive (Japan) 1,571,789 07/25/90
High pressure abrasive jet unit (Canada) 1,277,837 12/18/90
High pressure abrasive jet unit (France) 306,492 09/22/93
High pressure abrasive jet unit (Germany) 3787529.9 09/22/93
</TABLE>
Texas Air is the exclusive licensee for any uses outside of the dental
field of ADT's air abrasive patents. See "Information About ADT -- Patents --
KCP."
SUPPLIERS
Texas Air uses numerous suppliers for standard off the shelf parts and for
fabrication of certain parts. All such parts are available from multiple
sources. While the loss of Texas Air's relationship with a particular supplier
might result in some production delays, it should not materially affect Texas
Air's business.
MANUFACTURING
Texas Air manufactures its products at its company owned 21,000 square
foot facility in Corpus Christi, Texas. Texas Air has its own modern machining
operations allowing it to control the production of non-standard parts.
RESEARCH AND DEVELOPMENT
Certain research and development related to Texas Air's products is
performed by Texas Air's employees at its facility. Texas Air has its own
engineering and CAD/CAM drafting staff. Additionally, its machining division
manufactures a substantial portion of its prototype requirements. Texas Air
also performs research and development for ADT under its contracts. There has
been no specific allocation of expenditures for research and development to ADT
during the last three years. ADT also performs research and development
related to KCP systems and Texas Air shares certain of these expenses with ADT.
GOVERNMENTAL REGULATION
Governmental regulation of Texas Air's dental products is discussed under
"Information About ADT -- Governmental Regulations." Texas Air's industrial
products will be required to meet the ISO 9000 standards to be sold in European
markets after 1996. Texas Air believes its products will comply with these
standards.
PRODUCT LIABILITY EXPOSURE
Texas Air's business involves the inherent risk of product liability
claims. If such claims arise, they could have a material adverse effect on
Texas Air. For dental products, Texas Air currently maintains product
liability insurance on an "occurrence basis" with coverage per occurrence of
$1,000,000 and in the aggregate annually of $2,000,000. For products other
than those manufactured, distributed or sold for dental, medical, hospital or
surgical use, Texas Air currently maintains product liability insurance on an
"occurrence basis" with coverage per occurrence and in the aggregate annually
of $2,000,000. There is no assurance that such coverage will be sufficient to
protect Texas Air from all risks to which it may be subject or that product
liability insurance will be available at a reasonable cost, if at all in the
future.
80
<PAGE> 89
EMPLOYEES
On April 1, 1996, Texas Air had 30 full-time employees and 2 part-time
employees. Of these employees, 25 are engaged in manufacturing activities and
the remaining 5 are involved with a combination of finance, administration,
customer service, sales and research and development activities. Texas Air has
no collective bargaining agreements with any unions and believes that its
overall relations with its employees are good.
LEGAL PROCEEDINGS
Texas Air does is not currently a party to any material litigation.
Under Texas Air's agreements with ADT, Texas Air bears part of ADT's
litigation expenses incurred to protect air abrasive patents and proprietary
rights as mutually agreed. For 1995, Texas Air agreed to share approximately
$293,000 of litigation expenses incurred by ADT. If the Merger is not
completed, the sharing of such expenses will depend on the consent of Texas
Air.
PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF TEXAS AIR
The following table sets forth certain information regarding the ownership
of Texas Air's Common Stock as of June 14, 1996, except as otherwise indicated,
by each person who is known by Texas Air to own beneficially 5% or more of the
outstanding shares of Texas Air Common Stock and by the executive officers and
directors of Texas Air as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES CLASS
---------------------------------------- ---------- ----------
<S> <C> <C>
Ben J. Gallant, President, CEO, Director
5555 Bear Lane
Corpus Christi, Texas 78405 557,500 26.5
Charles A. Nichols, Treasurer, Director
5555 Bear Lane
Corpus Christi, Texas 78405 362,500 17.2
Denics Co., Ltd.
Yotsuya Y's Bldg.
7-6 Honshio-cho
Shinjuku-ku Tokyo 160 Japan 236,110(1) 11.0
Wayne A. Johnson II, Director
12440 Highway 155 South
Tyler, Texas 75703 158,894 7.5
Johnson Revocable Trust
Leo E. Johnson, Trustee
4600 Ocean Drive, #607
Corpus Christi, Texas 78412 147,000 7.0
John E. Vickers III, CFO, Director
5555 Bear Lane
Corpus Christi, Texas 78405 65,000 3.1
Gary A. Chatham, Director
5555 Bear Lane
Corpus Christi, Texas 78405 30,000 1.4
All executive officers and directors
as a group (five persons) 1,173,894 55.8
</TABLE>
- ---------------
81
<PAGE> 90
(1) Includes common stock purchase warrants for 83,333 shares of common stock
that are presently exercisable (the "Old Warrants").
The following table sets forth certain information regarding the current
ownership of ADT Common Stock by the persons or group listed and assuming the
Merger is consummated.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES CLASS SHARES (1) CLASS
- ------------------------------------ --------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Ben J. Gallant
5555 Bear Lane
Corpus Christi, Texas 78405 743,049 4.6 3,767,486 13.7
Charles A. Nichols
5555 Bear Lane
Corpus Christi, Texas 78405 27,288 * 1,993,850 7.3
Denics Co., Ltd.
Yotsuya Y's Bldg.
7-6 Honshio-cho
Shinjuku-ku Tokyo 160 Japan 860,240 5.5 1,689,055(2) 6.2(2)
Wayne A. Johnson II
12440 Highway 155 South
Tyler, Texas 75703 9,520 * 871,519 3.2
Johnson Revocable Trust
Leo E. Johnson, Trustee
4600 Ocean Drive, #607
Corpus Christi, Texas 78412 17,005 * 814,480 3.0
John E. Vickers III
5555 Bear Lane
Corpus Christi, Texas 78405 165,975 1.0 518,600 1.9
Gary A. Chatham
5555 Bear Lane
Corpus Christi, Texas 78405 -- -- 162,750 0.6
All executive officers and directors
as a group (five persons) 945,832 5.9 9,817,740 35.8
</TABLE>
*less than one percent
- ---------------
(1) The column sets forth shares of ADT Common Stock which are deemed to be
"beneficially owned" by the person named in the table under Rule 13d-3 of
the Commission. It excludes shares of ADT Common Stock that may be
acquired upon the exercise of the following Merger Warrants that will
become exercisable one year and one day following the Effective Time if
the Merger is consummated: Mr. Gallant - 1,851,458 shares; Mr. Nichols -
1,203,863 shares; Denics - 507,372 shares; Mr. Johnson - 527,687 shares;
Johnson Revocable Trust - 488,187 shares; Mr. Vickers - 215,865 shares;
Mr. Chatham - 99,630 shares; and all executive officers and directors as a
group - 3,898,503 shares. Each of the persons named in the table has sole
voting and investment power with respect to all shares beneficially owned
by him unless otherwise described below.
82
<PAGE> 91
(2) Excludes ADT Common Stock and Merger Warrant shares obtainable upon
exercise of the Old Warrants. Denics could acquire 452,081 additional
shares of ADT Common Stock and a Merger Warrant for 276,748 shares of ADT
Common Stock upon exercise of the Old Warrants on or before July 1, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF TEXAS AIR'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information herein should be read and considered in conjunction with
Texas Air's financial statements and related notes which appear elsewhere in
this Joint Proxy Statement/Prospectus.
Results of Operations for the Years Ended December 31, 1995, 1994 and 1993
Revenues in 1995 increased to $4,391,001 from $2,709,971 in 1994. The
increase in sales from 1994 is attributable to a 74% increase in KCP sales and
a 20% increase in industrial sales. The increase in sales of KCP units in 1995
is attributable to the successful introduction of the KCP 1000. The increase
in industrial sales is primarily attributable to the addition of 25 new
distributors and six new industrial product series during 1994. Revenues in
1994 declined to $2,709,971 from $3,695,121 in 1993. The decrease in sales for
1994 is due to a 43% decline in KCP units sold compared to 1993. This decrease
resulted from distributor inventory adjustments in anticipation of the
introduction of the next generation KCP 1000 in the fourth quarter of 1994.
Texas Air developed the KCP 1000 whisperjet during the second and third
quarters of 1994. Shipments of the whisperjet began in November 1994.
Gross profit as a percentage of sales was 40% for 1995 compared to 49% for
1994 and 51% for 1993. The decline in gross margins in primarily attributable
to two factors. In 1994, Texas Air extended its contract with ADT and lowered
its gross margin. In 1995, Texas Air gave ADT price concessions to help
promote the introduction of the KCP 1000. The lower gross profit margin on the
KCP 1000 should be partially offset in future years by increased sales of
industrial products. At December 31, 1995, the average gross profit margin on
industrial products was approximately 65%.
Selling, general and administrative expenses for 1995 increased to
$1,455,949 compared to $697,449 in 1994 and $668,075 in 1993. The increase
from 1994 to 1995 was primarily attributable to Texas Air sharing $895,000 of
ADT's legal, research and development, and marketing costs. The increase from
1993 to 1994 was due primarily to the hiring of a national and a western
regional sales manager, costs associated with adding distributors, and the cost
of adding new products to the industrial line.
In 1993, Texas Air recognized other income of $1,039,575 in connection
with the sale of its manufacturing technology rights to ADT. Texas Air
received 297,123 shares of ADT's Common Stock as part of the consideration for
the manufacturing technology rights. The fair value of this stock decreased by
$547,988 and $182,372 in 1993 and 1994, respectively, and Texas Air recorded
the loss on investments in each year.
Results of Operations for the Three Months Ended March 31, 1996 and 1995
For the three month period ended March 31, 1996, revenues increased to
$1,409,628 from $1,015,906 in the same period in 1995. This increase is
primarily due to a 23% increase in the volume of KCPs sold.
Gross profit as a percentage of sales for the three month period ended
March 31, 1996 was 40% compared to 47% for the same period in 1995. The
decrease in gross profit as a percentage of sales is primarily due to price
concessions provided to ADT in connection with introduction of the KCP 1000.
83
<PAGE> 92
Selling, general and administrative expense increased to $214,476 for the
three months ended March 31, 1996 as compared to $162,495 for the same period
in 1995 primarily due to increased headcount, salaries and related employee
expenses. The increase in other income relates to the $1,500,000 note
receivable from ADT. The increase in interest expense relates to the note
payable to The International Bank, Corpus Christi, Texas.
Liquidity and Capital Resources for the Years Ended December 31, 1995 and 1994
On August 7, 1995, Texas Air obtained a $1,490,000 loan from The
International Bank, Corpus Christi, Texas, with interest payable at prime (8.5%
at December 31, 1995). Interest is due on a quarterly basis and principal in
the amount of $200,000 was paid on February 1, 1996 with $200,000 principal
payments due quarterly until the balance is due in full on August 1, 1997.
Texas Air's obligations are secured by its accounts receivable, its inventory
and all of ADT's assets which were pledged to Texas Air pursuant to a
concurrent loan from Texas Air to ADT. See "Certain Relationships and Related
Transactions -- Texas Air." As of April 1, 1996, the principal balance of the
loan from The International Bank was $1,290,000 and the principal balance of
the loan to ADT was $1,500,000. The note receivable from ADT is due August 1,
1996, however, it will be extended or eliminated if the Merger is consummated.
During 1994, Texas Air purchased 30,000 shares of its own common stock for
$30,000 in cash and a $30,000 note payable. Texas Air re-issued 27,777 shares
of this stock for $250,000 to Denics in 1994. During 1995, Denics purchased
125,000 shares of Texas Air Common Stock for $750,000.
Texas Air's operating activities used $28,184 of cash resources in 1995,
compared to the use of $252,077 in 1994. The difference in cash used by
operations in 1995 compared to 1994 is due principally to increased accounts
receivable from ADT.
Accounts receivable increased from $780,451 in 1994 to $1,844,085 in 1995,
while accounts payable increased from $255,294 in 1994 to $1,465,051 in 1995.
The increases in accounts receivable and accounts payable were primarily due to
the increase in sales of KCP 1000 which began in November 1994. Investing
activities in 1995 include the loan of $1,500,000 to ADT and $465,930 to add
approximately 11,250 square feet to Texas Air's manufacturing facility and
offices.
Texas Air had working capital of $2,555,553 at December 31, 1995 and
$1,602,627 at December 31, 1994. The increase in working capital resulted
primarily from the sale of $750,000 of Texas Air Common Stock and the issuance
of a $1,500,000 note to ADT from the proceeds of Texas Air's loan payable, less
its current maturity, and $465,930 expended for the expansion of Texas Air's
manufacturing facility and offices.
Sales thus far in 1996 are ahead of 1995. Although there can be no
assurance, Texas Air expects that sales will improve in 1996. Further, Texas
Air agreed to share $895,000 of ADT's legal, research and development and
marketing costs in 1995. Although there can be no assurance, Texas Air expects
that its sharing of such costs for 1996, if any, will be substantially less
than $895,000. The foregoing statements in this paragraph are "forward looking
statements" within the meaning of the Securities Exchange Act of 1934, as
amended, and are subject to uncertainties. Such uncertainties include, without
limitation, the failure of ADT's distributors to meet purchase commitments and
the loss by ADT of distributor relationships, a failure to receive necessary
regulatory approvals, a loss of industrial product distributors and the
negative effects of competition on prices and sales volumes.
Texas Air believes, based on its current business plan and irrespective of
whether the Merger with ADT is completed, that current cash resources and cash
generated through operations should be sufficient to meet Texas Air's
anticipated liquidity needs through 1996. However, if the Merger is not
completed as planned and if ADT is unable to pay for the product it purchases,
there would be a need for additional working capital. Texas Air concurs with
the prospects for the combined businesses of Texas Air and ADT as set forth in
"Information About ADT -- Management's Discussion and Analysis of ADT's
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
84
<PAGE> 93
Liquidity and Capital Resources for the Three Months Ended March 31, 1996 and
1995
On August 7, 1995, Texas Air obtained a $1,490,000 loan from The
International Bank, Corpus Christi, Texas, with interest payable at prime
(8.25% at March 31, 1996). Interest is due on a quarterly basis and principal
in the amount of $200,000 was paid on February 1, 1996 with $200,000 principal
payments due quarterly until the balance is due in full on August 1, 1997.
Texas Air's obligations are secured by its accounts receivable, its inventory
and all of ADT's assets which were pledged to Texas Air pursuant to a
concurrent loan from Texas Air to ADT. See "Certain Relationships and Related
Transactions -- Texas Air." As of June 1, 1996, the principal balance of the
loan from The International Bank was $1,090,000 and the principal balance of
the note receivable from ADT was $1,300,000. The note receivable from ADT is
due August 1, 1996, however, it will be extended or eliminated if the Merger is
completed.
Texas Air's operating activities used $115,078 of cash resources for the
three months ending March 31, 1996, compared to the use of $223,979 for the
same period in 1995. The use of cash during the period ended March 31, 1996 is
due primarily to an increase in accounts receivable and a decrease in accounts
payable, partially offset by the net income and a decrease in inventory during
the period. The use of cash during the three months ended March 31, 1995
generally relates to an increase in accounts receivable, primarily from ADT,
partially offset by the net income and an increase in other current liabilities
during the period.
Texas Air had a working capital of $2,446,802 at March 31, 1996 and
$2,555,553 at December 31, 1995. This decrease relates primarily to dividends
of $94,700 declared in March 1996.
Sales thus far in 1996 are ahead of 1995. Although there can be no
assurance, Texas Air expects that sales will improve in 1996. The foregoing
statement in this paragraph is a "forward looking statement" within the meaning
of the Securities Exchange Act of 1934, as amended, and is subject to
uncertainties. Such uncertainties include, without limitation, the failure of
ADT's distributors to meet purchase commitments and the loss by ADT of
distributor relationships, a failure to receive necessary regulatory approvals,
a loss of industrial product distributors, and the negative effects of
competition on prices and sales volumes.
Texas Air believes, based on its current business plan and irrespective of
whether the Merger with ADT is completed, that current cash resources and cash
generated through operations should be sufficient to meet Texas Air's
anticipated liquidity needs through 1996. However, if the Merger is not
completed as planned and if ADT is unable to pay for the product it purchases,
there would be a need for additional working capital. Texas Air concurs with
the prospects for the combined business of Texas Air and ADT as set forth in
"Information About ADT -- Management's Discussion and Analysis of ADT's
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
INFORMATION ABOUT MERGER SUB
ADT Merger Corp. ("Merger Sub"), a recently formed Texas corporation, is a
wholly-owned subsidiary of ADT. Merger Sub was organized solely to effect the
proposed Merger with Texas Air and has not engaged in any activities other than
those relating to its formation and capitalization and the Merger. The
principal office of Merger Sub is located at 28411 Northwestern Highway, Suite
1100, Southfield, Michigan 48034-5541.
DESCRIPTION OF CAPITAL STOCK OF ADT
ADT CAPITAL STOCK
The authorized capital stock of ADT presently consists of 25 million
shares of ADT Common Stock, par value $.01 per share and ten million shares of
Preferred Stock, par value $.01 per share. As of June 14, 1996, there were
outstanding 16,001,795 shares of ADT Common Stock and no shares of Preferred
Stock. All of the outstanding shares of ADT Common Stock are duly authorized,
validly issued, fully paid and nonassessable. The shares of ADT Common Stock
to be issued pursuant to the Merger will be, when issued, duly authorized,
validly issued, fully paid and nonassessable.
85
<PAGE> 94
COMMON STOCK
Holders of ADT Common Stock are entitled to such dividends as may be
declared by the Board of Directors out of the assets legally available for that
purpose and are entitled to one vote per share on all matters submitted to a
vote of the stockholders of ADT. The holders of shares of ADT Common Stock do
not have cumulative voting rights or pre-emptive rights. Therefore, the
holders of more than 50% of the shares voting for the election of directors can
elect all the directors, and the remaining holders will not be able to elect
any directors.
The Board of Directors of ADT has not declared any dividends on the ADT
Common Stock since June 1991 and does not expect to declare any dividends in
the foreseeable future.
PREFERRED STOCK
ADT's Board of Directors is authorized, without action by the holders of
ADT's Common Stock, to issue preferred stock from time to time, in one or more
series, to establish the number of shares to be included in each such series,
and to fix the designations, preferences and relative participating, optional
or other special rights, and qualifications, limitations and restrictions
thereof.
Classes of stock such as the preferred stock may be used, in certain
circumstances, to create dividend preferences, voting impediments on
extraordinary corporate transactions, or to hinder persons seeking to effect a
merger or otherwise to gain control of ADT. For the foregoing reasons, any
shares of preferred stock issued by ADT could have an adverse effect on the
rights of the holders of the Common Stock. ADT has no present plans to issue
any shares of preferred stock.
CERTAIN PROVISIONS OF ADT'S CERTIFICATE OF INCORPORATION
ADT's Certificate of Incorporation provides for the Board of Directors to
be divided into three classes of directors, serving staggered terms. In the
case of an increase in the number of directors, the additional directors may be
elected by the Board of Directors, and in the case of a vacancy in the Board of
Directors, the majority of the remaining directors may elect the director to
fill such vacancy. Special meetings of the stockholders may be called by
resolution adopted by the majority of the Board of Directors. In addition,
ADT's Certificate of Incorporation contains special provisions relating to
mergers, sale of assets and other transactions. See "Description of Capital
Stock of Texas Air; Comparison With Rights of ADT's Stockholders -- Comparison
of Stockholders' Rights -- Mergers, Sales of Assets and Other Transactions."
LIMITATION OF ADT DIRECTOR LIABILITY
As permitted by the DGCL, ADT's Certificate of Incorporation provides that
directors of ADT shall not be personally liable to ADT or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to ADT or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174
of the DGCL, relating to prohibited dividends or distributions or the
repurchase or redemption of stock; or (iv) for any transactions from which the
director derives an improper personal benefit. As a result of the inclusion of
such a provision, stockholders of ADT may be unable to recover monetary damages
against directors for actions taken by them which constitute negligence or
gross negligence or which are in violation of their fiduciary duties, although
it may be possible to obtain injunctive or other equitable relief with respect
to such actions.
86
<PAGE> 95
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF ADT
Section 145 of the DGCL sets forth the conditions and limitations
governing the indemnification of officers, directors and other persons.
ADT's By-Laws permit the company to indemnify its directors, officers,
employees and agents for expenses, judgment, penalties, fines and amounts paid
in settlement actually and reasonably incurred in connection with any pending,
threatened or completed action, suit or proceeding (other than by or in the
right of ADT) to which any such person was made a party by reason of the fact
that he or she was acting in such capacity for ADT or was serving as such for
another corporation or enterprise at ADT's request, if such person acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of ADT or its stockholders or, in respect to a
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In actions by or in the right of ADT indemnification is generally
limited to expenses and amounts paid in settlement as specified in Article X of
ADT's By-Laws. Article X of the By-Laws also authorizes ADT to purchase and
maintain insurance on behalf of any officer, director, employee or agent of ADT
against any liability asserted against or incurred by them in such capacity or
arising out of their status as such whether or not ADT would have the power to
indemnify such officer, director, employee or agent against such liability
under the provisions of such Article.
DESCRIPTION OF CAPITAL STOCK OF TEXAS AIR; COMPARISON
WITH RIGHTS OF ADT STOCKHOLDERS
TEXAS AIR COMMON STOCK
The authorized capital stock of Texas Air consists of 50 million shares of
common stock, no par value. As of June 14, 1996, there were outstanding
2,106,871 shares of Texas Air Common Stock held by 39 holders of record.
Texas Air Common Stock is not traded or quoted on any national securities
exchange or national market system and there has never been a public trading
market for the Texas Air Common Stock.
Holders of Texas Air Common Stock are presently entitled to receive such
dividends as may be legally declared by the Texas Air Board of Directors and
are entitled to one vote per share on all matters submitted to a vote. The
holders of Texas Air Common Stock do not have cumulative voting or pre-emptive
rights.
COMPARISON OF STOCKHOLDERS' RIGHTS
The following explains certain rights of holders of ADT Common Stock and
Texas Air Common Stock and summarizes material differences between the rights
of holders of Texas Air Common Stock and the rights of holders of ADT Common
Stock. ADT is incorporated under the laws of the State of Delaware and,
accordingly, the rights of ADT stockholders are governed by the Certificate of
Incorporation of ADT, as amended ("ADT Certificate"), the Amended and Restated
By-Laws of ADT (the "ADT By-Laws"), and the Delaware General Corporation Law
("DGCL"). Texas Air is incorporated under the laws of the State of Texas and,
accordingly, the rights of Texas Air stockholders are governed by the Articles
of Incorporation of Texas Air, as amended (the "Texas Air Articles"), the
By-Laws of Texas Air, as amended (the "Texas Air By-Laws"), and the Texas
Business Corporation Act ("TBCA").
Upon consummation of the Merger, Texas Air stockholders will become
stockholders of ADT and their rights will (i) be defined by the DGCL and cease
to be defined by the TBCA; and (ii) cease to be defined and governed by the
Texas Air Articles and Texas Air By-laws and will be defined and governed by
the ADT Certificate and ADT By-Laws. Certain provisions of the ADT Certificate
and ADT By-Laws afford different rights to stockholders than those that Texas
Air stockholders presently have. These differences arise from various
provisions of the corporate laws of such states as well as from various
differences in the Texas Air Articles, the Texas Air By-Laws, the ADT
Certificate, and the ADT By-Laws. This summary is qualified in its entirety by
reference to the DGCL, the TBCA, the ADT Certificate, the ADT By-Laws, the
Texas Air Articles and Texas Air By-Laws.
87
<PAGE> 96
Amendment to Articles/Certificate of Incorporation
Under the TBCA, a corporation's articles of incorporation may be amended
by the affirmative vote of the holders of two-thirds of the total outstanding
shares entitled to vote thereon, unless a different amount, not less than a
majority, is specified in the articles of incorporation. No such different
amount is specified in the Texas Air Articles. Further, in certain
circumstances, a class or series of outstanding shares is entitled to vote on
such an amendment. In such event, amendments to a corporation's articles of
incorporation are required to be approved by the affirmative vote of the
holders of at least two-thirds of the shares within such class or series,
voting as a class or series, and of at least two-thirds of the total
outstanding shares entitled to vote thereon.
Under the DGCL, amendments to a corporation's certificate of incorporation
require the approval of a majority of the board of directors and stockholders
holding a majority of the outstanding shares entitled to vote on such amendment
and, in certain circumstances, the holders of a majority of the outstanding
stock of each class entitled to vote on such amendment as a class, unless a
greater proportion is specified in the certificate of incorporation or by other
provisions of the DGCL. Pursuant to ADT's Certificate, in order to amend
Article Eight of the ADT Certificate (which relates to classification of the
Board of Directors) and Article Nine (which relates to stockholder approval of
certain significant transactions, unless approval shall have been recommended
by the Board of Directors), an affirmative vote by the holders of 80% of ADT's
Common Stock outstanding would be required.
Cumulative Voting
Under the TBCA, cumulative voting is available unless prohibited by a
corporation's articles of incorporation. Texas Air's Articles expressly
prohibit cumulative voting. Under the DGCL, cumulative voting is not available
unless so provided for in a corporation's certificate of incorporation. ADT's
Certificate does not provide for cumulative voting.
Classified Board
The DGCL and TBCA permit, but do not require, the adoption of a classified
board of directors consisting of any number of directors with staggered terms,
with each class having a term of office longer than one year but not longer
than three years. Texas Air does not have a classified board of directors, but
ADT does. The ADT Certificate provides for the Board of Directors to be
divided into three equal classes of directors, with the directors in each class
serving staggered three year terms.
Change in Number of Directors
Under the TBCA, the number of directors may be increased or decreased by
amendment to, or in the manner provided in the articles of incorporation or
bylaws, but no increase may have the effect of shortening the term of an
incumbent director. The Texas Air By-Laws provide that the number of directors
which shall constitute the whole Board of Directors shall be such number, one
or more, as shall be elected by the stockholders of Texas Air.
Under the DGCL, the authorized number of directors may be changed by an
amendment to the bylaws adopted by the directors unless the certificate of
incorporation fixes the number of directors, in which case a change in the
number of directors shall be made only by amendment of the certificate. The
ADT By-Laws provide that the number of directors shall be determined from time
to time by the vote of a majority of the entire Board of Directors.
88
<PAGE> 97
Newly Created Directorships and Vacancies
Under the TBCA, any vacancy occurring in the board of directors may be
filled by the affirmative vote of a majority of the remaining directors, though
less than a quorum, or by election at an annual or special meeting of
stockholders called for that purpose. The Texas Air By-Laws provide that any
such vacancy shall be filled by a majority of the remaining directors, though
less than a quorum.
The DGCL provides that vacancies and newly-created directorships may be
filled by a majority of the directors then in office (even though less than a
quorum) unless (i) otherwise provided in the certificate of incorporation or
bylaws of the corporation (the ADT Certificate and the ADT By-Laws do not
provide otherwise); or (ii) the certificate of incorporation directs that a
particular class is to elect such director, in which case any other directors
elected by such class, or sole remaining director, shall fill such vacancy (the
ADT Certificate does not have such a provision).
Removal of Directors
The TBCA provides that if a corporation's articles of incorporation or
bylaws so provide, at a meeting of stockholders called for that purpose, any
director or the entire board of directors may be removed, with or without
cause, by the vote of the holders of the portion of shares specified in the
corporation's articles of incorporation or bylaws, but not less than a majority
of the shares entitled to vote at an election of directors. Texas Air's
By-Laws provide for the removal of directors by the holders of a majority of
the outstanding shares present and entitled to vote.
Under the DGCL, unless otherwise provided in a corporation's certificate
of incorporation or bylaws, any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors, except that in the case of a
corporation having a classified board, and unless the certificate of
incorporation provides otherwise, stockholders may effect such removal only for
cause. The ADT Certificate does not provide otherwise.
Inspection of Books and Records
The TBCA permits any person who shall have been a stockholder for at least
six months immediately preceding his demand, or who is the holder of at least
5% of the outstanding stock of the corporation, to examine the books and
records upon written demand setting forth a proper purpose for such
examination. The DGCL permits any stockholder of record to inspect a company's
stock ledger, the stockholder list and its other books and records for any
purpose reasonably related to such person's interest as a stockholder provided
that his written demand under oath is directed to the corporation's registered
office in Delaware or to its principal place of business.
Right to Call Special Meetings of Stockholders
Under the TBCA, a special meeting of stockholders of a corporation may be
called by the president, board of directors or such other persons as may be
authorized in the articles of incorporation or bylaws of the corporation, or by
the holders of at least 10% of all the shares entitled to vote at the proposed
special meeting, unless the articles of incorporation provide for a lesser or
greater percentage (but not more than 50%). The Texas Air By-Laws provide that
the Board of Directors, President, or stockholders holding not less than
one-fifth (20%) of the Texas Air shares entitled to vote, may call a special
meeting of stockholders.
Under the DGCL, a special meeting of stockholders may be called by the
board of directors or by any other person authorized in the certificate of
incorporation or the by-laws. The ADT By-Laws provide that the Board of
Directors, pursuant to a resolution adopted by a majority of the entire Board
of Directors, may call a special meeting of stockholders, and that the Board of
Directors, at the request of stockholders holding not less than 10% of the
shares entitled to vote, shall call a special meeting of stockholders.
89
<PAGE> 98
Provisions Affecting Control Share Acquisitions and Business Combinations
Section 203 of the DGCL prohibits a Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested stockholder is a person or group (including
entities) who or which owns 15% or more of the corporation's outstanding voting
stock (including any right to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation and was the owner of
15% or more of such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include (i) mergers with or caused by the interested stockholder,
sales or other dispositions to the interested stockholder (except
proportionately with the corporation's other stockholders) of assets of the
corporation or a subsidiary equal to ten percent or more of the aggregate
market value of the corporation's consolidated assets or its outstanding stock;
(ii) the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or such subsidiary to the interested stockholder (except for
certain transfers in a conversion or exchange or a pro rata distribution or
certain other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock); and (iii) receipt by the interested stockholder (except
proportionately as a stockholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date at which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporations' voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person becomes an interested stockholder, the board
approves the business combination and it is also approved at a stockholder
meeting by 66-2/3% of the voting stock not owned by the interested stockholder.
Section 203 does not apply if the business combination is proposed prior to
the consummation or abandonment of, and subsequent to the earlier of, the
public announcement or the notice required under Section 203 of the proposed
transaction, where the proposed transaction (i) constitutes certain (x) mergers
or consolidations, (y) sales or other transfers of assets having an aggregate
market value equal to 50% of more of the aggregate market value of all of the
assets of the corporation determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation, or (z) proposed
tender or exchange offers for 50% or more of the corporation's outstanding
voting stock; (ii) is with or by a person who was either not an interested
stockholder during the last three years or who became an interested stockholder
with the approval of the corporation's board of directors; and (iii) is
approved or not opposed by a majority of the board members elected prior to any
person becoming an interested stockholder during the previous three years (or
their chosen successors). Texas Air is likely an interested stockholder under
Section 203. However, the transaction contemplated herein is exempt from the
three-year moratorium generally imposed by Section 203 since ADT's Board of
Directors approved the transaction which resulted in Texas Air becoming an
interested stockholder.
A Delaware corporation may elect not to be governed by Section 203 by a
provision of its original certificate of incorporation or an amendment thereto
or to the bylaws, which amendment must be approved by majority stockholder vote
and may not be further amended by the board of directors. Such an amendment is
not effective until 12 months following its adoption. ADT did not opt out of
Section 203, therefore, Section 203 applies to ADT.
ADT believes Section 203 will encourage any potential acquiror to
negotiate with ADT's Board of Directors. Section 203 may have the effect of
limiting the ability of a potential acquiror to make a two-tiered bid for ADT
in which all stockholders would not be treated equally. Section 203 may also
discourage certain potential acquirors unwilling to comply with its provisions.
The TBCA does not have a provision similar to Section 203.
90
<PAGE> 99
Mergers, Sales of Assets and Other Transactions
Under the TBCA, stockholders have the right, subject to certain
exceptions, to vote on all mergers to which the corporation is a party. In
certain circumstances, different classes of securities may be entitled to vote
separately as classes with respect to such mergers. Unless the articles of
incorporation provide otherwise, approval of the holders of at least two-thirds
of all outstanding shares entitled to vote is required by the TBCA to approve a
merger while under the DGCL, approval by the holders of a majority of all
outstanding shares is required to approve a merger, unless the certificate of
incorporation provides otherwise. The approval of the stockholders of the
surviving corporation in a merger is not required under the TBCA if (i) the
corporation is the sole surviving corporation in the merger; (ii) there is no
amendment to the corporation's articles of incorporation; (iii) each
stockholder holds the same number of shares after the merger as before with
identical designations, preferences, limitations and relative rights; (iv) the
voting power of the shares outstanding after the merger plus the voting power
of the shares issued in the merger does not exceed the voting power of the
shares outstanding prior to the merger by more than 20%; (v) the number of
shares outstanding after the merger plus the shares issued in the merger does
not exceed the number of shares outstanding prior to the merger by more than
20%; and (vi) the board of directors of the surviving corporation adopts a
resolution approving the plan of merger.
The TBCA also provides that, in general, a corporation may sell, lease,
exchange or otherwise dispose of all, or substantially all, of its property,
other than in the usual and regular course of business, if the stockholders
owning two-thirds of all the votes entitled to be cast in the transaction
approve the transaction, unless a different proportion is specified in the
articles of incorporation. The Texas Air Articles do not specify a different
proportion.
Under the DGCL, a merger or consolidation in which the corporation is a
constituent corporation must be approved by the board of directors and by the
holders of a majority of the outstanding stock of the corporation entitled to
vote thereon, provided that no vote of stockholders of a constituent
corporation surviving a merger is required (unless the corporation provides
otherwise in its certificate of incorporation) if (i) the merger agreement does
not amend the existing certificate of incorporation of such surviving
corporation; (ii) each share of stock of the surviving corporation outstanding
before the merger is an identical outstanding share after the merger; and (iii)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized, unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger, or the authorized, unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger, plus those initially issuable upon
conversion of any other shares, securities or obligations to be issued or
delivered under such plan, do not exceed 20% of the shares of common stock of
such constituent corporation outstanding immediately prior to the effective
date of the merger.
Under the DGCL, a corporation may sell, lease or exchange all or
substantially all of its assets after such transaction has been approved by the
corporation's board of directors and by the holders of a majority of the
outstanding stock of the corporation entitled to vote thereon.
ADT's Certificate requires that the holders of at least 80% of the shares
of stock of ADT with voting power must approve any merger, plan of exchange,
sale, lease, transfer or disposition of substantially all of the assets of ADT.
The ADT Certificate also provides, however, that in the event of a merger,
plan of exchange or sale, lease, transfer or other disposition of substantially
91
<PAGE> 100
all of the assets of ADT, if the current or pre-existing Board of Directors
shall have recommended such matter to the stockholders for approval, such
matter shall only require the affirmative vote of the holders of a majority of
the outstanding shares of stock with voting power.
The provisions of ADT's Certificate described above could have the effect
of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of ADT, even though such attempt might be
beneficial to ADT and its stockholders, and could have a depressive effect on
the market price of the Common Stock. ADT believes that such provisions will
help to assure the continuity and stability of the Board of Directors and ADT's
business strategies and policies. In addition, if confronted with an
unsolicited proposal from a third party that has acquired a block of voting
stock of ADT, the Board of Directors will have sufficient time to review the
proposal and appropriate alternatives to seek the best possible results for all
stockholders.
Stockholder Action Without a Meeting
Under the TBCA, any action to be taken by stockholders at a meeting may be
taken without a meeting if all stockholders entitled to vote on the matter
consent to the action in writing. In addition, a Texas corporation's articles
of incorporation may provide that stockholders may take action by a consent in
writing signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize such action at a
meeting. The Texas Air Articles do not contain such a provision.
The DGCL provides that, unless otherwise specified in a corporation's
certificate of incorporation, any action that may be taken at a stockholders
meeting may be taken without a meeting, without prior notice and without a vote
if the holders of outstanding stock, having not less than the minimum number of
votes that would be necessary to authorize action, consent in writing. The ADT
Certificate does not preclude actions by stockholders of ADT without a meeting.
Dissenters' Rights
Under the TBCA, a stockholder is entitled to dissent from and, upon
perfection of the stockholder's appraisal rights, to obtain the fair value of
his or her shares in the event of certain corporation actions, including
certain mergers, share exchanges, sales of substantially all assets of the
corporation, and certain amendments to the corporation's articles of
incorporation that materially and adversely affect stockholder rights. See
"The Merger and Related Transactions -- Dissenters' Rights."
Under the DGCL, a stockholder of a constituent corporation in certain
mergers or consolidations may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. Appraisal
rights are not available (i) with respect to the shares or depository receipts
which are either listed on a national securities exchange, designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. (the "NASD") or are held of
record by more than 2,000 holders, if such stockholders receive only shares or
depository receipts of the surviving corporation or shares or depository
receipts of any other corporation which are either listed on a national
securities exchange, designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than 2,000
holders, plus cash in lieu of fractional shares; or (ii) to stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate of incorporation of the surviving
corporation, each share of stock of the surviving corporation outstanding prior
to the merger is an identical outstanding or treasury share after the merger,
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized, unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger, plus those initially issuable upon
conversion of any other shares, securities or obligations to be issued or
delivered under such plan, do not exceed 20% of the shares of common stock of
such constituent corporation outstanding immediately prior to the effective
date of the merger. Holders of ADT Common Stock are not entitled to appraisal
rights because ADT is not a constituent corporation in the Merger.
92
<PAGE> 101
Dividends, Stock Repurchases and Redemptions
The TBCA provides that the board of directors of a corporation may
authorize, and the corporation may make, distributions subject to any
restrictions in its articles of incorporation and the following limitations:
(1) A distribution may not be made by a corporation, if after giving
effect thereto, the corporation would be insolvent or if the distribution
exceeds the surplus of the corporation, provided, however, that if the net
assets of a corporation are not less than the amount of the proposed
distribution, the corporation may make a distribution involving a purchase or
redemption of its own shares if made by the corporation to: (a) eliminate
fractional shares; (b) collect or compromise indebtedness owed by or to the
corporation; (c) pay dissenting stockholders entitled to payment for their
shares under the TBCA; or (d) effect the purchase or redemption of redeemable
shares in accordance with the TBCA.
(2) The corporation may make a distribution not involving a purchase or
redemption of any of its own shares if the corporation is a consuming assets
corporation.
The DGCL permits (subject to restrictions in its certificate of
incorporation) a corporation to declare and pay dividends out of statutory
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. ADT's Certificate contains no such
restrictions. In addition, the DGCL generally provides that a corporation may
redeem or repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation. The ability of a Delaware corporation
to pay dividends on, or to make repurchases or redemptions of, its shares is
dependent on the financial status of the corporation standing alone and not on
a consolidated basis.
Pre-emptive Rights
Under the TBCA, stockholders of a corporation have a pre-emptive right to
acquire additional, unissued, or treasury shares of the corporation, or
securities of the corporation convertible into or carrying a right to subscribe
to or acquire shares, except to the extent limited or denied by statute or by
the articles of incorporation. Texas Air's Articles expressly deny pre-emptive
rights.
Under the DGCL, stockholders have no pre-emptive rights to subscribe to
additional issues of stock or to any security convertible into such stock
unless, and except to the extent that, such rights are expressly provided for
in the certificate of incorporation. None are provided for in ADT's
Certificate.
Limitation on Director Liability
Texas law permits a corporation to include in its articles of
incorporation a provision that a director of the corporation is not liable to
the corporation or its stockholders for monetary damages for an act or omission
in the director's capacity as a director, except that such a provision cannot
eliminate or limit the liability of a director for (i) a breach of a director's
duty of loyalty to the corporation or its stockholders; (ii) an act or omission
not in good faith that constitutes a breach of duty of the director to the
corporation or an act or omission that involves intentional misconduct or a
knowing violation of the law; (iii) a transaction from which a director
received an improper benefit, whether or not the benefit resulted from an
action taken within the scope of the director's office; or
93
<PAGE> 102
(iv) an act or omission for which the liability of a director is expressly
provided for by statute. The Texas Air Articles contain a provision which
eliminates director liability to the extent provided by Texas law.
The DGCL permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting a director's liability to the
corporation or its stockholders for monetary damages from breaches of fiduciary
duty, including conduct which could be characterized as negligence or gross
negligence. The DGCL expressly provides, however, that the liability for (i)
breaches of the duty of loyalty; (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violation of the law; (iii) the
unlawful purchase or redemption of stock or payment of unlawful dividends; or
(iv) receipt of improper personal benefits, cannot be eliminated or limited in
this manner. The DGCL further provides that no such provision shall eliminate
or limit the liability of a director for any act or omission occurring prior to
the date when such provision becomes effective. The ADT Certificate contains a
provision eliminating director liability to the extent permitted by the DGCL.
Dissolution
The TBCA requires that voluntary dissolution occur upon the affirmative
vote of the holders of two-thirds of the outstanding shares entitled to vote
thereon.
Under the DGCL, except as otherwise provided in the certificate of
incorporation, voluntary dissolution of a corporation requires the adoption of
a resolution by a majority of the board of directors and the affirmative vote
of a majority of the outstanding shares entitled to vote thereon, together with
a majority vote of the outstanding shares of each class or series entitled to
vote as a class. ADT's Certificate requires that the holders of at least 80%
of the shares outstanding with voting power must approve any dissolution of
ADT.
Conflict of Interest Transactions
The Texas Air Articles contain provisions that validate contracts or
transactions between Texas Air and its stockholders, directors, officers,
employees, and entities in which such persons have an interest, if such
interest is disclosed or known to the Board of Directors voting on such
contract or transaction and the Board of Directors nevertheless approves or
ratifies the contract or transaction. The ADT Certificate has no such
provision.
The TBCA and the DGCL both contain provisions which provide that no
contract or transaction between one or more of its directors or officers or any
organization in which any of them has a financial interest is void or voidable
solely because the director or officer participates in the meeting of the board
or committee at which the contract or transaction is authorized or solely
because his votes are counted for such purpose if (i) the material facts as to
his relationship or interest and as to the contract or transaction are
disclosed or known to the board of directors and the contract or transaction is
authorized by a majority of the disinterested directors; or (ii) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or known to the stockholders and the contract or transaction is
specifically approved in good faith by a vote of the disinterested
stockholders; or (iii) the contract or transaction is fair to the corporation
at the time it is authorized, approved or ratified by the board or
stockholders.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF STOCKHOLDER
RIGHTS OR THE DIFFERENCES BETWEEN THE TBCA AND THE DGCL. SUCH RIGHTS AND
DIFFERENCES CAN BE DETERMINED BY FULL REFERENCE TO THE TBCA AND THE DGCL, THE
COMMON LAW OF EACH SUCH JURISDICTION, THE CERTIFICATE OF INCORPORATION AND
BY-LAWS OF ADT AND THE ARTICLES OF INCORPORATION AND BY-LAWS OF TEXAS AIR.
94
<PAGE> 103
LEGAL MATTERS
The legality of the shares of and warrants for ADT Common Stock to be
issued in connection with the Merger will be passed upon for ADT by Raymond F.
Winter, Southfield, Michigan, general counsel for ADT.
EXPERTS
The consolidated financial statements of ADT at December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 and the
financial statements of Texas Air at December 31, 1995, 1994 and 1993 and for
the years then ended included in this Joint Proxy Statement/Prospectus, which
are referred to and made a part hereof, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
ACCOUNTANTS' REPRESENTATIVES
ADT's Board, in accordance with the recommendation of its Audit Committee,
has appointed Ernst & Young LLP, Detroit, Michigan, as independent auditors to
audit ADT's financial statements for the fiscal year ending December 31, 1996.
Ernst & Young LLP has conducted the audits for ADT since 1989.
Representatives of Ernst & Young LLP, ADT's independent auditors, are
expected to be present at the ADT Annual Meeting and will have the opportunity
to make a statement if they desire to do so. Such representatives are also
expected to be able to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR ADT'S 1997 ANNUAL MEETING
Stockholder proposals intended to be presented at the ADT Annual Meeting
of Stockholders in 1997 must be received by ADT no later than February 27,
1997.
95
<PAGE> 104
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN DENTAL TECHNOLOGIES, INC. AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors ................................................................. F-1
Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 ...... F-2
Consolidated Balance Sheets, December 31, 1995 and 1994 ........................................ F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 ...... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993 ............................................................. F-5
Notes to Financial Statements (December 31, 1995) .............................................. F-6
AMERICAN DENTAL TECHNOLOGIES, INC. UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 (Unaudited) ................................................... F-16
Condensed Consolidated Balance Sheets at March 31, 1996 (Unaudited)
and December 31, 1995 ......................................................................... F-17
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (Unaudited) ..................................................... F-18
Notes to Financial Statements (March 31, 1996) ................................................. F-19
TEXAS AIRSONICS, INC. AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors ................................................................. F-21
Statements of Operations for the years ended December 31, 1995, 1994 and 1993 ................... F-22
Balance Sheets, December 31, 1995, 1994 and 1993 ................................................ F-23
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 ................... F-24
Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 ......... F-25
Notes to Financial Statements (December 31, 1995) ............................................... F-26
TEXAS AIRSONICS, INC. UNAUDITED FINANCIAL STATEMENTS
Condensed Statements of Operations for the three months ended
March 31, 1996 and 1995 (Unaudited) ........................................................... F-31
Condensed Balance Sheets at March 31, 1996 (Unaudited)
and December 31, 1995 ........................................................................ F-32
Condensed Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (Unaudited) ..................................................... F-33
Notes to Financial Statements (March 31, 1996) ................................................. F-34
</TABLE>
96
<PAGE> 105
Report of Independent Auditors
Stockholders and Board of Directors
American Dental Technologies, Inc.
We have audited the accompanying consolidated balance sheets of American Dental
Technologies, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in Item 21(b). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Dental Technologies, Inc. at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects the
information set forth therein.
Ernst & Young LLP
Detroit, Michigan
March 7, 1996
F-1
<PAGE> 106
American Dental Technologies, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Trade $ 9,653,536 $ 7,843,638 $ 10,374,294
Related party (Note 2) 3,672,000 3,320,000 307,000
------------ ------------ ------------
13,325,536 11,163,638 10,681,294
Cost of sales:
Trade 3,686,930 4,438,810 3,055,967
Related party (Note 2) 3,352,000 2,081,000 3,068,000
------------ ------------ ------------
7,038,930 6,519,810 6,123,967
Gross profit 6,286,606 4,643,828 4,557,327
------------ ------------ ------------
Selling, general and administrative 6,956,223 7,959,631 9,314,059
Litigation settlement expense (Note 5) 2,000,000
Research and development 784,319 1,194,468 274,102
------------ ------------ ------------
Loss from operations (1,453,936) (4,510,271) (7,030,834)
Other income (expense)
Royalty income:
Related party (Note 2) 261,000 285,000 169,645
Other 30,806 82,686 127,961
Other (1,621) 10,493 (35,085)
Interest expense (110,415) (49,518) (34,139)
------------ ----------- ------------
Net loss $ (1,274,166) $(4,181,610) $ (6,802,452)
============ =========== ============
Net loss per share $(0.08) $(0.31) $(0.79)
============ =========== ============
</TABLE>
See accompanying notes.
F-2
<PAGE> 107
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,665,718 $ 839,259
Accounts receivable:
Trade, less allowance of $350,000
in 1995 and $420,000 in 1994 1,220,010 1,463,360
Related parties (Note 2) 724,283 765,106
------------ ------------
1,944,293 2,228,466
Inventories (Note 1) 1,905,856 1,390,668
Prepaid expenses and other current assets 534,074 470,543
------------ ------------
Total current assets 6,049,941 4,928,936
Prepaid foreign taxes 225,000
Deposit (Notes 2 and 5) 1,410,267
Property and equipment, net (Note 1) 262,042 699,334
Intangible assets, net (Notes 1 and 2):
Goodwill 3,661,200 3,942,830
Air abrasive technology rights 1,267,998 1,447,038
Other 108,248 119,400
------------ ------------
5,037,446 5,509,268
------------ ------------
Total assets $ 12,984,696 $11,137,538
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties (Note 2) $ 1,700,000 $ 200,000
Accounts payable:
Trade 2,839,548 2,203,860
Related parties (Note 2) 884,374 765,106
------------ ------------
3,723,922 2,968,966
Compensation and employee benefits 346,668 175,872
Taxes other than income 607,177 801,394
Contingency reserves (Note 5) 500,000 350,000
Other accrued liabilities 609,464 420,200
Commitments (Note 2)
------------ ------------
Total current liabilities 7,487,231 4,916,432
Deferred royalty income (Note 2) 3,000,000 3,000,000
Other non-current liabilities (Note 3) 64,993 230,268
Notes payable to related party, less current portion (Note 2) 600,000 800,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized 10,000,000
shares; none outstanding
Common stock, $.01 par value, authorized
25,000,000 shares; outstanding: 15,738,858
shares in 1995; and 14,421,113 shares in 1994 157,387 144,210
Additional paid-in capital 31,288,188 30,385,565
Accumulated deficit (29,613,103) (28,338,937)
------------ ------------
Total stockholders' equity 1,832,472 2,190,838
------------ ------------
Total liabilities and stockholders' equity $ 12,984,696 $ 11,137,538
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 108
American Dental Technologies, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,274,166) $(4,181,610) $(6,802,452)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation 411,886 818,642 600,450
Amortization 471,822 472,605 256,019
Stockholder litigation settlement 2,000,000
Employee stock grant (273,003) 273,003
(Gain) loss on disposal of equipment (11,833) 6,055 122,583
Stock issued for services 16,500
Advances to Incisive Technologies, Inc.
prior to acquisition (1,194,776)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 284,173 (942,344) (4,667)
Decrease (increase) in inventories (486,081) 390,571 903,926
Decrease in advance payments to suppliers 184,287
Decrease (increase) in prepaid expenses and
other current assets (62,869) (258,423) 213,229
Increase in prepaid foreign taxes (225,000)
(Decrease) increase in accounts payable 754,955 180,401 (200,034)
(Decrease) increase in compensation
and employee benefits 170,796 (136,827) 121,949
Decrease in restructuring reserve (660,679)
Decrease in taxes other than income (194,217) (210,622) (4,329)
(Decrease) increase in other accrued liabilities 339,264 (527,115) (213,881)
Decrease in other non-current liabilities (70,975)
Increase in deferred royalty income 3,000,000
------------ ----------- ----------
Net cash provided by (used in) operating activities 124,255 (4,661,670) (1,405,372)
INVESTING ACTIVITIES
Decrease in notes receivable from related parties 35,000
Proceeds from sale of equipment 31,644 4,250 39,265
Purchases of equipment (24,173) (114,396) (518,450)
Increase in intangible assets (70,577)
Increase in non-current deposits (Notes 2 and 5) (1,410,267)
------------ ----------- -----------
Net cash used in investing activities (1,402,796) (110,146) (514,762)
FINANCING ACTIVITIES
Payments on note payable to related party (200,000)
Proceeds from notes payable to related party 1,500,000 1,000,000
Proceeds from sale of preferred stock 2,000,000
Proceeds from sale of common stock 800,000 2,914,000
Proceeds from exercise of stock options 5,000 1,066
------------ ------------ -----------
Net cash provided by financing activities 2,105,000 3,915,066 2,000,000
------------ ------------ -----------
Increase (decrease) in cash 826,459 (856,750) 79,866
Cash at beginning of year 839,259 1,696,009 1,616,143
------------ ------------ -----------
Cash at end of year $ 1,665,718 $ 839,259 $ 1,696,009
============ ============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 109
American Dental Technologies, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Series A Preferred Stock Common Stock
------------------------ ------------------ Additional Unearned Accumulated
Shares Amount Shares Amount Paid-In Capital Compensation Deficit Total
----------- ---------- --------- ------- --------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 7,547,313 $ 75,473 $18,527,271 $(17,313,423) $1,289,321
Net loss for 1993 (6,802,452) (6,802,452)
Note payable to related party
converted to common stock 359,220 3,592 1,113,587 1,117,179
Issuance of common stock for
intellectual property rights 35,164 351 103,649 104,000
Stock grant 250,000 2,500 1,153,751 $(883,248) 273,003
Issuance of common stock for
Incisive acquisition (Note 2) 1,534,991 15,350 3,016,442 3,031,792
Issuance of common stock for
acquisition of manufacturing
rights 165,975 1,660 648,340 650,000
Issuance of common stock for
litigation settlement
(Note 5) 761,906 7,619 1,992,381 2,000,000
Issuance of preferred stock
(Note 1) 860,240 $ 8,602 2,001,392 2,009,994
Accrued undeclared dividends
on Series A Preferred Stock (11,302) (11,302)
----------- ----------- ---------- ----------- ----------- --------- ------------ ----------
Balance at December 31, 1993 860,240 8,602 10,654,569 106,545 28,556,813 (883,248) (24,127,177) 3,661,535
Net loss for 1994 (4,181,610) (4,181,610)
Reversal of stock grant (250,000) (2,500) (1,153,751) 883,248 (273,003)
Exercise of stock options 26,692 267 799 1,066
Accrued undeclared dividends
on Series A Preferred Stock (30,150) (30,150)
Exercise of conversion from
Series A Preferred Stock
to Common Stock (Note 1) (860,240) (8,602) 860,240 8,602
Issuance of common stock for
intellectual property rights 130,612 1,306 97,694 99,000
Issuance of common stock
(Note 4) 2,999,000 29,990 2,884,010 2,914,000
----------- ----------- ---------- ----------- ----------- --------- ------------ ----------
Balance at December 31, 1994 14,421,113 144,210 30,385,565 (28,338,937) 2,190,838
Net loss for 1995 (1,274,166) (1,274,166)
Issuance of common stock for
intellectual property rights 400,000 4,000 90,300 94,300
Issuance of common stock
(Note 4) 907,745 9,077 807,423 816,500
Exercise of stock options 10,000 100 4,900 5,000
----------- ----------- ---------- ----------- ----------- --------- ------------ ----------
Balance at December 31, 1995 15,738,858 $ 157,387 $31,288,188 $(29,613,103) $1,832,472
========== =========== =========== ============ ==========
</TABLE>
See accompanying notes
F-5
<PAGE> 110
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
American Dental Technologies, Inc. (the "Company") develops, manufactures,
markets and sells high technology products for dentistry. The consolidated
financial statements include the accounts and operations of the Company and its
subsidiaries. All intercompany transactions and balances have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost, determined generally by the
first-in first-out method, or market. At December 31, inventories consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Finished goods $1,261,853 $ 678,631
Work in process 39,638 110,099
Raw materials, parts and supplies 604,365 601,938
---------- ----------
$1,905,856 $1,390,668
========== ==========
</TABLE>
Inventories at December 31, 1995 and 1994 are net of valuation allowances of
$935,000 and $750,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of the related assets, which range from three to five years for financial
reporting purposes and three to ten years for income tax purposes. At December
31, property and equipment consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Leasehold improvements $ -- $ 33,412
Demonstration dental products 950,578 985,506
Office furniture and equipment 1,377,097 1,550,822
------------ -----------
2,327,675 2,569,740
Accumulated depreciation (2,065,633) (1,870,406)
------------ -----------
$ 262,042 $ 699,334
============ ===========
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of goodwill, air abrasive technology rights, patents,
distribution rights and organization costs and are stated at cost less
accumulated amortization. The Company is amortizing goodwill over 15 years,
air abrasive technology rights over 10 years and other intangible assets over
lives ranging from 10 to 17 years. Accumulated amortization was $1,529,400 and
$1,057,600 at December 31, 1995 and 1994, respectively.
The Company periodically evaluates intangible assets for indicators of
impairment in value. When impairment is indicated, the Company revalues the
assets based on their fair value. In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indictors of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. The
Company will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of adoption will affect the
Company's financial statements.
F-6
<PAGE> 111
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from dental product and part sales is recognized when title is
transferred to the customer, generally upon shipment. The Company recognizes
revenue on certain export sales to Denics, a Japanese company (see Note 2),
under terms which require shipment to a local independent warehouse.
PREFERRED STOCK
At December 31, 1993, 860,240 shares of a six percent Series A preferred stock
which was non-voting and convertible on a one-to-one basis into the Company's
common stock was outstanding. In April 1994, this Series A convertible
preferred stock was converted into 860,240 shares of common stock.
FOREIGN CURRENCY TRANSACTIONS
Gains and losses resulting from the effect of exchange rate changes on
transactions denominated in foreign currencies are included in other (expense)
income in the year in which the exchange rates change. Transactions
denominated in foreign currencies resulted in net foreign currency translation
losses of approximately $65,000, $37,400, and $78,800 in 1995, 1994 and 1993,
respectively.
NET LOSS PER SHARE
The computation of net loss per share is based on the weighted average number
of outstanding common shares during the period plus, when the effect is
dilutive, common stock equivalents consisting of certain shares subject to
stock options. The weighted average number of common and equivalent shares
used in the computation of net loss per share was 15,346,716 shares in 1995,
13,462,803 shares in 1994 and 8,566,844 in 1993. The net loss used in the
computation of the net loss per share is adjusted by preferred stock dividend
requirements of $30,150 and $11,302 in 1994 and 1993, respectively.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price no less than the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense
approximated $338,200, $416,300 and $354,300 in 1995, 1994 and 1993,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable, accounts payable,
and note payable to Texas Airsonics, Inc. ("Texas Air") approximates their
carrying value due to their short term nature. The fair value of the Company's
note payable to Denics Co., Ltd. ("Denics") approximates $571,000 as compared
to its carrying value of $800,000. The fair value of this note payable was
estimated using discounted cash flow analysis based on current incremental
borrowing rates for similar types of borrowing arrangements.
F-7
<PAGE> 112
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform with the presentation used in 1995.
2. ACQUISITIONS AND AGREEMENTS WITH RELATED PARTIES
Texas Airsonics, Inc.
In November 1995, the Company entered into a merger agreement with Texas Air,
which develops and manufactures air abrasive products for the dental and
industrial manufacturing markets. Texas Air is the Company's sole supplier of
air abrasive products. The Company will acquire all of Texas Air's outstanding
stock in exchange for 11,429,775 shares of the Company's common stock and
warrants to purchase 6,996,919 additional shares of common stock at $1.00 per
share, exercisable for three years. It is expected that the merger will be
completed, subject to certain customary conditions, in the second quarter of
1996. The Company intends to account for the merger as a purchase. In 1995,
Texas Air sales approximated $4,391,000 and its total assets at December 31,
1995 were approximately $5,884,000.
On August 7, 1995, the Company obtained a $1,500,000 note from Texas Air with
interest payable at prime (8.5% at December 31, 1995). Interest is due on a
quarterly basis and a principal payment of $200,000 is due May 1, 1996, with
the balance due on August 1, 1996, unless extended. Approximately $1,410,000
of the loan was deposited with the Court in October 1995, to stay enforcement
of a judgment against the Company in the Alameda Superior Court, Oakland,
California while the Company pursues an appeal of the judgment. The Company's
obligations are secured by a pledge of all the Company's assets (Note 5).
On September 30, 1994, the Company amended its agreements with Texas Air to
extend the term of an existing exclusive manufacturing rights agreement for air
abrasive products through December 2003, in exchange for Texas Air reducing its
price on products sold to the Company. Additionally, Texas Air increased the
Company's credit limit to $1,500,000 on inventory purchases and agreed to share
in research and development, legal and marketing costs related to air abrasive
products. The Company's obligations to Texas Air are secured by a pledge of
the Company's air abrasive patent rights. The Company has a minimum purchase
commitment of approximately $1,650,000 for 1996 and no purchase commitments
thereafter. On November 1, 1994, the Company issued Texas Air warrants to
purchase 1,000,000 shares of common stock at $2.00 per share, exercisable
through October 31, 1996.
The Company's purchases of KCP units and related parts from Texas Air were
approximately $3,663,000, $1,852,000, and $3,367,000 in 1995, 1994 and 1993,
respectively. In 1995, Texas Air shared research and development, legal, and
marketing costs of $895,000. The Company also has accounts payable of $792,000
to Texas Air at December 31, 1995.
In 1993, the Company acquired the manufacturing rights for all dental air
abrasive products from Texas Air in exchange for 165,975 shares of restricted
common stock. The Company also obtained the rights to patents, patent
applications and other proprietary intellectual property from the president of
Texas Air in exchange for $160,000 to be paid in four annual installments of
$40,000 commencing in April 1994 and $640,000 of restricted common stock to be
issued in four annual installments. The number of shares to be issued is based
upon the market value of the Company's common stock in April of each of the
four years in the period ending April 1996. The fair value of the restricted
stock and the cash to be provided under the agreement, which aggregated
$1,170,000 was capitalized as an intangible asset.
F-8
<PAGE> 113
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
2. ACQUISITIONS AND AGREEMENTS WITH RELATED PARTIES (CONTINUED)
Denics Co., Ltd.
In 1993, the Company executed an agreement with Denics to form a joint venture
to distribute dental products in certain Asian and Pacific markets. Under the
terms of the agreement, the Company granted Denics territorial manufacturing
rights for all dental laser and air abrasive products owned by the Company, in
Japan. In consideration, Denics provided the Company with a $3,000,000
non-refundable, prepaid royalty payment. The joint venture was to exist for an
initial term of ten years and may continue thereafter by mutual consent of both
parties. By mutual agreement, the formation of the contemplated joint venture
has been delayed until March 31, 1997 or later. Denics has placed an order in
excess of $5,000,000 for PulseMaster lasers, KCP units and related products for
1996.
The Company has accounts receivable of $640,059 from Denics at December 31,
1995. The Company earned royalty payments of $261,000 in 1995 and $285,000 in
1994 from Denics for dental laser systems sold in Japan and certain Asian and
Pacific markets. Prior to the Company's acquisition of American Dental
Laser-Japan, Inc. in March 1993, the Company had related party royalty income
for each dental laser sold in Japan.
The Company has a $1,000,000 note payable to Denics, with interest at 3% above
the discount rate in Japan (0.5% at December 31, 1995). As of December 31,
1995, $800,000 was outstanding. Borrowings are being repaid in annual
installments of principal of $200,000 over a five year period which began in
June 1995. Borrowings are secured by an assignment of the Company's Japanese
patent rights and related technologies.
As a result of the agreements with Texas Air and Denics, the Company's
continued operations are dependent upon Texas Air's and Denics' ability to
produce or distribute their respective products. Their failure or inability to
meet manufacturing and purchasing commitments would have a material adverse
effect on the Company.
Incisive Technologies, Inc. and American Dental Laser-Japan, Inc.
On December 30, 1993, the Company acquired 100% of the outstanding common stock
of Incisive Technologies, Inc. ("Incisive") in exchange for 1,534,991 shares of
ADT common stock. In addition, the Company issued 86,395 stock options to
former holders of Incisive stock options. The acquisition was accounted for as
a purchase, and accordingly, the total value of common stock and stock options
issued ($3,031,792) has been allocated to the acquired assets and assumed
liabilities based on their estimated fair values as of the acquisition date.
The excess consideration provided over the estimated net deficiency in assets
acquired of $4,224,461 has been accounted for as goodwill and was assigned a 15
year life.
On March 15, 1993, the Company agreed with its former chief executive officer
and members of his immediate family to purchase all the common stock of
American Dental Laser - Japan, Inc. ("ADL Japan"), thereby re-acquiring the
previously sold distribution and sales rights for the Company's products in
Japan. At December 31, 1995, $46,010 has been capitalized as an other
intangible asset, primarily distribution rights, and is being amortized over a
10 year period. Accumulated amortization was $11,500 at December 31, 1995.
Prior to the acquisition of ADL - Japan, the Company earned a $5,000 royalty
payment for each dental laser system sold in Japan. A royalty payment of
$169,645 was received in 1993.
F-9
<PAGE> 114
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
2. ACQUISITIONS AND AGREEMENTS WITH RELATED PARTIES (CONTINUED)
Other
The Company obtained consulting and research services from related parties and
paid approximately $260,800, $254,000 and $30,000 in 1995, 1994 and 1993,
respectively, for such services.
3. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities at December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Air abrasive liability (Note 2) $ 165,700
Capital lease obligations 74,568
----------
240,268
Less: current portion (175,275)
----------
Non-current portion $ 64,993
==========
</TABLE>
The Company leases certain equipment under capital leases. Equipment related
to these capital leases had a net book value of $87,221 at December 31, 1995.
Future minimum lease payments under capital and operating leases as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
---- --------- -------
<S> <C> <C>
1996 $ 244,823 $ 47,662
1997 236,614 29,252
1998 57,061 3,674
--------- ---------
$ 538,498 80,588
========= ---------
Less amount representing interest (6,020)
---------
$ 74,568
=========
</TABLE>
Rental expense for 1995, 1994 and 1993 approximated $113,000, $214,000 and
$494,000, respectively.
The Company paid interest of approximately $104,000 and $20,200 in 1995 and
1994, respectively. The Company paid no interest in 1993.
4. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
In July 1995, the Company received $800,000 when it completed a private
placement transaction with the Chairman of the Board and two principal
stockholders. The Company issued these investors 888,888 shares of common
stock together with non transferable warrants to acquire 1,777,776 additional
shares of stock at exercise prices ranging from $1.75 to $2.00 per share,
exercisable on or before July 7, 1998. Simultaneously, the exercise date on
existing common stock purchase warrants held by these same stockholders was
extended from April 21, 1996 to April 21, 1998. In August 1995, the Company
canceled existing common stock purchase warrants held by these same
stockholders at exercise prices ranging from $1.75 to $2.00 and reissued the
common stock purchase warrants at an exercise price of $1.00 per share.
In April 1994, the Company issued 2,999,000 shares of common stock with
warrants to purchase an equal number of shares to common stock at $2.00 per
share, exercisable over a two year period, to private investors for $2,914,000.
Several of the private investors are principal stockholders and current or
former directors of the Company.
F-10
<PAGE> 115
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
4. STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
Warrant activity is summarized as follows:
<TABLE>
<CAPTION>
Shares Exercise Price
----------- --------------
<S> <C> <C>
Outstanding at January 1, 1994
Warrants issued 4,054,000 $2.00
Warrants canceled (55,000) $2.00
-----------
Outstanding at December 31, 1994 3,999,000 $2.00
Warrants issued 7,119,552 $1.00 - $2.00
Warrants canceled (3,841,776) $1.75 - $2.00
-----------
Outstanding at December 31, 1995 7,276,776 $1.00 - $2.00
===========
</TABLE>
The Company established its Nonqualified Stock Option Plan in January 1990, and
775,000 shares of common stock were reserved for issuance to employees,
officers, directors, consultants, and other key personnel. In 1991, the plan
was amended to increase the number of shares available for issuance under the
Plan to 1,150,000.
The Company established its Stock Option Plan for Employees in June 1991 and
68,181 shares of common stock were reserved for issuance.
The Company established its Long-Term Incentive Plan in May 1993, and 1,000,000
shares of common stock were reserved for issuance to employees, officers,
directors and other key personnel. In May 1994, an additional 500,000 shares
of common stock were reserved, increasing the number of shares available for
issuance to 1,500,000.
Under these plans the options granted by the Board of Directors or its
Compensation Committee may not have an exercise price less than the fair market
value at the time the options are granted. The period during which options are
exercisable is fixed at the time of grant but may not exceed ten years.
The Company has also authorized and granted 325,568 stock options exclusive of
the above described plans, of which 194,887 options have been exercised or
canceled and 130,681 options were outstanding at December 31, 1995.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price
----------- --------------
<S> <C> <C>
Outstanding at January 1, 1993 1,333,918 $1.76 - $12.50
Options granted 1,378,486 $.04 - $4.125
Options canceled (655,365) $2.625 - $10.25
-----------
Outstanding at December 31, 1993 2,057,039 $.04 - $12.50
Options granted 950,436 $.656 - $2.375
Options exercised (26,692) $.04
Options canceled (599,990) $.04 - $12.50
-----------
Outstanding at December 31, 1994 2,380,793 $.656 - $12.50
Options granted 1,278,800 $.50 - $1.00
Options exercised (10,000) $.50
Options canceled (1,244,212) $.50 - $3.00
-----------
Outstanding at December 31, 1995 2,405,381 $.50 - $12.50
===========
</TABLE>
F-11
<PAGE> 116
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
4. STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
Following is a summary of options outstanding at December 31, 1995 which are
exercisable from $.50 to $12.50 per share at December 31 of each of the
following years:
<TABLE>
<S> <C>
1995 1,821,720
1996 2,225,821
1997 2,401,637
1998 2,404,131
1999 and thereafter 2,405,381
</TABLE>
5. LITIGATION
Sunrise Technologies International, Inc. ("Sunrise"), ADT's former laser
supplier, initiated a lawsuit in the Alameda County Superior Court on October
18, 1993, claiming ADT breached the parties' February 1993 settlement agreement
by failing to accept and pay for certain dental lasers, claims which ADT
denied. On July 28, 1995, an Alameda Superior Court jury in Oakland
California, returned a $728,707 verdict against ADT. ADT had requested that
the jury award it money damages because Sunrise breached the settlement
agreement, engaged in unfair and deceptive business practices and interfered
with certain of ADT's business relationships. ADT believes the jury's
deliberations were adversely affected by a ruling which erroneously precluded
jury consideration of ADT's claims. On October 17, 1995 the trial judge denied
ADT's motion for a new trial. The trial judge also reduced Sunrise's request
for attorney fees and costs by 25% and awarded Sunrise $211,471 for such fees.
In November 1995, ADT deposited approximately $1,410,000 with the court to stay
execution and is vigorously pursuing an appeal. ADT is unable to estimate the
amount of any potential gain or loss that ultimately may result, if any.
On May 2, 1994, Sunrise and Danville Engineering, Inc. ("Danville") filed two
lawsuits against ADT in the United States District Court for the Northern
District of California. One suit challenges four patents covering proprietary
air abrasive technology and the parties have agreed that the lawsuit will
likely be dismissed, without prejudice. The other suit challenges ADT's patent
on preparing tooth structure for bonding using an air abrasive stream. The
complaint seeks declaratory findings that Sunrise and Danville are not
infringing the patent and that the patent is invalid. ADT believes the patent
is valid and is vigorously defending the action. ADT has asserted that Sunrise
and Danville are infringing this bonding patent. Trial has been scheduled for
April 1997. While it cannot predict the outcome of this action, management
believes that the ultimate result will not have a material adverse effect on
ADT's financial position or results of operations.
On October 14, 1994, ADT filed a lawsuit against Sunrise, Danville, Meer
Dental, Sullivan Dental Products, Inc. and Benco Dental Supply Co. (the
"defendants") in the United States District Court for the Eastern District of
Michigan, Southern Division. ADT asserts the defendants are infringing U.S.
patent number 5,330,354, an ADT patent that covers dental air abrasive systems,
like its KCP. In May 1994, the defendants began selling an air abrasive system
similar to the KCP. ADT is seeking money damages and an injunction to prevent
the defendants from selling infringing products. In May 1995, the case was
transferred to the United States District Court for the Northern District of
California and Benco Dental Supply Co. was dismissed from the case. The case
has been consolidated with the pending patent action referred to above. Trial
has been scheduled for April 1997. Discovery is incomplete and ADT is unable
to estimate the amount of potential gain or loss that may result, if any.
A lawsuit by Dr. Robert Cameron and certain other dentists alleging
misrepresentations as to the use of ADT's dLase 300 for certain dental
procedures pending in the United States District Court for the Eastern District
of Michigan, Southern Division, was settled in December 1995. In April 1996,
the case was dismissed with prejudice and ADT released from all claims.
The Company has recorded a $500,000 contingency reserve at December 31, 1995
based on its best estimate of the legal and other related costs to resolve
legal matters.
F-12
<PAGE> 117
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
5. LITIGATION (CONTINUED)
A securities class action settlement was entered into in December 1993 and
finalized in February 1994, following notice to the class members. Under the
terms of the settlement, the Company was not required to make any cash payment.
However, the Company issued 761,906 shares of common stock to certain present
or former officers and directors named in the suit as reimbursement for
$2,000,000 contributed to the settlement on behalf of the Company. The Company
recognized $2,000,000 of expense in the fourth quarter of 1993 related to the
settlement.
6. INCOME TAXES
At December 31, 1995, the Company has a $22,500,000 net operating loss
carryforward for federal income tax purposes, which expires in the years 2006
through 2010.
Deferred tax assets, which are fully reserved at December 31, 1995 and 1994,
represent the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. Significant components of the Company's deferred
tax assets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
----------- ----------
<S> <C> <C>
Allowance for doubtful accounts $ 142,000 $ 200,000
Inventory valuation reserves 318,000 255,000
Depreciation 290,000 286,000
Compensation and employee benefits 63,000 72,000
Deferred royalties 925,000 1,037,000
Deferred liabilities and other 692,000 468,000
Net operating loss carryforwards 7,644,000 7,212,000
----------- ----------
Net deferred tax asset $10,074,000 $9,530,000
=========== ==========
Valuation allowance $10,074,000 $9,530,000
=========== ==========
</TABLE>
7. OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS
The Company develops, manufactures, markets and sells high technology products
for dentistry. Its operations constitute a single business segment. The
Company has operations in various foreign countries which market the Company's
dental products in their respective geographic areas. The Company does not
typically require collateral from its customers.
Sales into Germany, through two regional distribution groups, Dental Liga GmbH
and Orbis High Tech Dental GmbH, were approximately 40%, in 1995 and 33% of
consolidated sales in 1994 and 1993. Sales to Denics for certain Asian and
Pacific markets were approximately 28%, 30% and 27% of consolidated sales in
1995, 1994 and 1993, respectively. Sales to Patterson Dental Company, the
major domestic distributor of the Company's kinetic cavity preparation units,
were approximately 10%, 20% and 30% of consolidated sales in 1995, 1994 and
1993, respectively.
F-13
<PAGE> 118
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
7. OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS (CONTINUED)
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States $ 2,980,292 $ 3,751,827 $ 5,161,347
Europe 6,532,237 3,717,125 4,274,732
Other international 3,813,007 3,694,686 1,245,215
----------- ----------- -----------
$13,325,536 $11,163,638 $10,681,294
=========== =========== ===========
Gross profit:
United States $ 1,133,772 $ 1,529,430 $ 2,192,080
Europe 3,310,644 1,731,868 1,906,830
Other international 1,842,190 1,382,530 458,417
----------- ----------- -----------
$ 6,286,606 $ 4,643,828 $ 4,557,327
=========== =========== ===========
Accounts receivable:
United States $ 711,335 $ 679,917 $ 404,741
Europe 548,640 764,663 740,338
Other international 684,318 783,886 141,043
----------- ----------- -----------
$ 1,944,293 $ 2,228,466 $ 1,286,122
=========== =========== ===========
Other identifiable assets:
United States $ 9,513,529 $ 8,661,670 $10,752,607
Europe 1,252,974 247,402 219,537
Other international 273,900 112,982
----------- ----------- -----------
$11,040,403 $ 8,909,072 $11,085,126
=========== =========== ===========
</TABLE>
8. MANAGEMENT'S PLANS AND LIQUIDITY
Significant losses over previous years have resulted in cash flow and liquidity
constraints. Measures adopted by management have resulted in positive cash
flow from operations in 1995. This was achieved by increased sales and
reducing selling, general and administrative expenses by approximately
$1,000,000 since 1994 through (1) the reduction of payroll and related costs;
(2) the reduction of services from consultants and other professionals; and (3)
the elimination of selected marketing and advertising programs.
The Company has a working capital deficit of $1,437,000 at December 31, 1995,
primarily due to proceeds of the $1,500,000 note payable being utilized for
non-current assets, primarily a deposit of $1,410,000. Management believes it
has taken steps to strengthen its financial position and improve its cash flow
by entering into an agreement to merge with Texas Air; continuing its efforts
to expand sales and control selling, general and administrative expenses; and
attempting to obtain additional financing. Upon completion of the proposed
merger with Texas Air, the Company expects to benefit from improved gross
margins and cash flow from the manufacturing operations.
Although the volume of PulseMaster sales increased 26% in 1995, this increase
was due in part to a 14% decline in the average price. Management believes
that the sales growth and profitability anticipated from its laser product line
will require broader market acceptance of laser products in general, increased
market share, additional regulatory approvals and additional cost reductions.
The Company is continuing its efforts to obtain additional regulatory approvals
in the United States and Japan and to increase the Company's market share to
improve laser sales growth and to achieve profitability in the laser product
line.
F-14
<PAGE> 119
American Dental Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
8. MANAGEMENT'S PLANS AND LIQUIDITY (CONTINUED)
Sales thus far in 1996 are in line with the Company's business plan and
management expects that trend to continue. Although there can be no
assurances, the Company anticipates sales will improve in 1996, primarily
resulting from sales of the KCP 1000 whisperjet and the PulseMaster 600 LE
laser. In February 1996, the Company signed distribution agreements for lasers
and KCP products with two significant distributors. Purchases under these
agreements are expected to aggregate approximately $8,600,000 in 1996.
Management expects the improved sales to be primarily in Europe and the Pacific
Rim.
Management is confident that the results of its plans will provide the Company
with sufficient cash flow to meet its liquidity needs.
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
1995 1995 1995 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $4,392,000 $3,460,836 $2,286,035 $3,186,665
Gross profit 2,184,627 1,900,165 1,019,997 1,181,817
Net income (loss) 176,196 202,068 (954,332) (698,098)(1)
Net income (loss) per
common and common
equivalent share $.01 $.01 $(.06) $(.04)
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
1994 1994 1994 1994
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $3,692,837 $3,373,274 $1,384,377 $2,713,150
Gross profit 1,734,679 1,770,469 549,393 589,287(2)
Net loss (435,356) (441,284) (1,661,517) (1,643,453)
Net loss per
common and common
equivalent share $(.04) $(.03) $(.11) $(.11)
</TABLE>
- ---------------
(1) During 1995, the Company incurred expenses of approximately $700,000
related to selling and marketing incentive programs for the introduction
of the new products. Pursuant to its agreement, Texas Air shared research
and development, legal, and marketing expenses of approximately $895,000
in 1995.
(2) Includes a charge for inventory valuation of approximately $600,000.
F-15
<PAGE> 120
American Dental Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
---------- ----------
<S> <C> <C>
Net sales $5,254,047 $4,392,000
Cost of sales 2,855,426 2,207,373
---------- ----------
Gross profit 2,398,621 2,184,627
Selling, general and administrative 1,669,058 1,925,058
Research and development 234,350 249,406
---------- ----------
Income from operations 495,213 10,163
Other income (expense)
Royalty income:
Related party (Note 2) 171,000
Other 17,875
Other (4,640)
Interest expense (42,263) (22,842)
---------- ----------
Net income $ 448,310 $ 176,196
========== ==========
Net income per share $ 0.03 $ 0.01
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-16
<PAGE> 121
American Dental Technologies, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,146,490 $ 1,665,718
Accounts receivable:
Trade, less allowance of $350,000 in 1996 and 1995 2,600,978 1,220,010
Related parties 690,488 724,283
------------ -----------
3,291,466 1,944,293
Inventories 1,381,223 1,905,856
Prepaid expenses and other current assets 418,975 534,074
------------ -----------
Total current assets 6,238,154 6,049,941
Prepaid foreign taxes 300,000 225,000
Deposit (Note 2) 1,410,267 1,410,267
Property and equipment, net 217,953 262,042
Intangible assets, net:
Goodwill 3,590,792 3,661,200
Air abrasive technology rights 1,223,238 1,267,998
Other 144,017 108,248
------------ -----------
4,958,047 5,037,446
------------ -----------
Total assets $ 13,124,421 $12,984,696
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties (Note 2) $ 1,700,000 $ 1,700,000
Accounts payable:
Trade 2,751,214 2,839,548
Related parties 1,129,971 884,374
----------- -----------
3,881,185 3,723,922
Compensation and employee benefits 335,260 346,668
Taxes other than income 611,127 607,177
Contingency reserve (Note 3) 500,000 500,000
Other accrued liabilities 164,363 609,464
----------- -----------
Total current liabilities 7,191,935 7,487,231
Deferred royalty income 3,000,000 3,000,000
Other non-current liabilities 51,704 64,993
Notes payable to related party,
less current portion (Note 2) 600,000 600,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized
10,000,000 shares; none outstanding
Common stock, $.01 par value, authorized
25,000,000 shares; outstanding: 15,738,858 157,387 157,387
Additional paid-in capital 31,288,188 31,288,188
Accumulated deficit (29,164,793) (29,613,103)
----------- -----------
Total stockholders' equity 2,280,782 1,832,472
----------- -----------
Total liabilities and stockholders' equity $ 13,124,421 $12,984,696
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-17
<PAGE> 122
American Dental Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
-------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 448,310 $ 176,196
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation 48,000 109,500
Amortization 116,803 121,414
Gain on disposal of fixed assets (375) (10,200)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,347,173) (968,576)
Decrease in inventories 524,633 296,359
Decrease in prepaid expenses and other current assets 115,267 72,965
Increase in prepaid foreign taxes (75,000) (75,000)
Increase in accounts payable 157,263 462,672
Increase (decrease) in compensation and employee benefits (11,408) 156,715
Increase (decrease) in taxes other than income 3,950 (37,896)
Increase (decrease) in other accrued liabilities (445,101) 43,932
Decrease in other non-current liabilities (13,289)
----------- -----------
Net cash provided by (used in) operating activities (478,120) 348,081
INVESTING ACTIVITIES
Proceeds from sale of property 375 10,200
Purchases of property and equipment (4,079) (21,399)
Increase in intangible assets (37,404)
----------- -----------
Net cash used in investing activities (41,108) (11,199)
Increase (decrease) in cash (519,228) 336,882
Cash at beginning of period 1,665,718 839,259
----------- -----------
Cash at end of period $ 1,146,490 $ 1,176,141
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-18
<PAGE> 123
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1996 (Unaudited)
1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATION
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements of American Dental Technologies, Inc. (the "Company" or
"ADT") have been prepared by management in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for other quarters of 1996
or for the year ended December 31, 1996. The accompanying unaudited condensed
consolidated financial statements should be read with the annual consolidated
financial statements and notes contained in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Finished goods $ 684,163 $ 1,261,853
Work in progress 85,778 39,638
Raw materials, parts and supplies 611,282 604,365
------------ --------------
$ 1,381,223 $ 1,905,856
============ ==============
</TABLE>
Property and equipment - Accumulated depreciation aggregated $2,098,333 at
March 31, 1996 and $2,065,633 at December 31, 1995.
Intangible Assets - Accumulated amortization aggregated $1,634,725 at March
31, 1996 and $1,529,400 at December 31, 1995.
2. RELATED PARTY TRANSACTIONS
Texas Airsonics, Inc. In November 1995, the Company entered into a merger
agreement with Texas Airsonics, Inc. ("Texas Air"), which develops and
manufactures air abrasive products for the dental and industrial manufacturing
markets. Texas Air is the Company's sole supplier of air abrasive products.
If the merger is approved, the Company will acquire all of Texas Air's
outstanding stock in exchange for 11,429,775 shares of the Company's common
stock and warrants to purchase 6,996,919 additional shares of common stock at
$1.00 per share, exercisable for three years. It is expected that the merger
will be completed, subject to certain customary conditions, including without
limitation, stockholder approvals, in the second quarter of 1996. The Company
will account for the merger as a purchase.
On August 7, 1995, the Company obtained a $1,500,000 note from Texas Air with
interest payable at prime (8.25% at March 31, 1996). Interest is due on a
quarterly basis and a principal payment of $200,000 is due May 1, 1996, with
the balance due on August 1, 1996, unless extended. Approximately $1,410,000
of the loan was deposited with the Court in October 1995, to stay enforcement
of a judgment against the Company in the Alameda Superior Court, Oakland,
California while the Company pursues an appeal of the judgment. The Company's
obligations are secured by a pledge of all the Company's assets.
Denics Co., Ltd. The Company has a $1,000,000 note payable to Denics Co., Ltd.
("Denics"), with interest at 3% above the discount rate in Japan (0.5% at March
31, 1996). As of March 31, 1996, $800,000 was outstanding. Borrowings are
being repaid in annual principal installments of $200,000 over a five year
period which began in June 1995. Borrowings are secured by an assignment of
the Company's Japanese patents and related technologies.
Denics manufactured dental lasers in the third quarter of 1994 through 1995 and
pursuant to its agreements, the Company earned a royalty on units sold in Japan
and certain Asian and Pacific markets. The Company earned royalty payments,
net of foreign taxes, of $171,000 during the three
F-19
<PAGE> 124
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1996 (Unaudited)
2. RELATED PARTY TRANSACTIONS (CONTINUED)
month period ended March 31, 1995. No royalty payments were due from Denics
for the three month period ended March 31, 1996 because Denics purchased
products directly from the Company. Management expects that during the
remainder of 1996, Denics will continue to purchase products directly from the
Company rather than manufacturing them, which will result in a significant
reduction in royalty income, but sales and gross profits to the Pacific Rim
market will increase. Denics has placed an order in excess of $5,000,000 for
PulseMaster lasers, KCP units and related products for 1996.
3. LITIGATION
Sunrise Technologies International, Inc. ("Sunrise"), ADT's former laser
supplier, initiated a lawsuit in the Alameda County Superior Court on October
18, 1993, claiming ADT breached the parties' February 1993 settlement agreement
by failing to accept and pay for certain dental lasers, claims which ADT
denied. On July 28, 1995, an Alameda Superior Court jury in Oakland
California, returned a $728,707 verdict against ADT. ADT had requested that
the jury award it money damages because Sunrise breached the settlement
agreement, engaged in unfair and deceptive business practices and interfered
with certain of ADT's business relationships. ADT believes the jury's
deliberations were adversely affected by a ruling which erroneously precluded
jury consideration of ADT's claims. On October 17, 1995 the trial judge denied
ADT's motion for a new trial. The trial judge also reduced Sunrise's request
for attorney fees and costs by 25% and awarded Sunrise $211,471 for such fees.
In November 1995, ADT deposited approximately $1,410,000 with the court to stay
execution and is vigorously pursuing an appeal. ADT is unable to estimate the
amount of any potential gain or loss that ultimately may result, if any.
On May 2, 1994, Sunrise and Danville Engineering, Inc. ("Danville") filed two
lawsuits against ADT in the United States District Court for the Northern
District of California. One suit challenges four patents covering proprietary
air abrasive technology and the parties have agreed that the lawsuit will
likely be dismissed, without prejudice. The other suit challenges ADT's patent
on preparing tooth structure for bonding using an air abrasive stream. The
complaint seeks declaratory findings that Sunrise and Danville are not
infringing the patent and that the patent is invalid. ADT believes the patent
is valid and is vigorously defending the action. ADT has asserted that Sunrise
and Danville are infringing this bonding patent. Trial has been scheduled for
April 1997. While it cannot predict the outcome of this action, management
believes that the ultimate result will not have a material adverse effect on
ADT's business.
On October 14, 1994, ADT filed a lawsuit against Sunrise, Danville, Meer
Dental, Sullivan Dental Products, Inc. and Benco Dental Supply Co. (the
"defendants") in the United States District Court for the Eastern District of
Michigan, Southern Division. ADT asserts the defendants are infringing U.S.
patent number 5,330,354, an ADT patent that covers dental air abrasive systems,
like its KCP. In May 1994, the defendants began selling an air abrasive system
similar to the KCP. ADT is seeking money damages and an injunction to prevent
the defendants from selling infringing products. In May 1995, the case was
transferred to the United States District Court for the Northern District of
California and Benco Dental Supply Co. was dismissed from the case. The case
has been consolidated with the pending patent action referred to above. Trial
has been scheduled for April 1997. Discovery is incomplete and ADT is unable
to estimate the amount of potential gain or loss that may result, if any.
A lawsuit by Dr. Robert Cameron and certain other dentists alleging
misrepresentations as to the use of ADT's dLase 300 for certain dental
procedures pending in the United States District Court for the Eastern District
of Michigan, Southern Division, was settled in December 1995. In April 1996,
the case was dismissed with prejudice and ADT released from all claims.
The Company has a $500,000 contingency reserve at March 31, 1996 based on its
best estimate of the legal and other related costs to resolve legal matters.
F-20
<PAGE> 125
Report of Independent Auditors
Board of Directors
Texas Airsonics, Inc.
We have audited the accompanying balance sheets of Texas Airsonics, Inc. as of
December 31, 1995, 1994 and 1993, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Texas Airsonics, Inc. at
December 31, 1995, 1994 and 1993, and the results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Detroit, Michigan
February 16, 1996
F-21
<PAGE> 126
Texas Airsonics, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales (Note 4) $4,391,001 $2,709,971 $3,695,121
Cost of sales 2,628,695 1,370,111 1,828,678
---------- ---------- ----------
Gross profit 1,762,306 1,339,860 1,866,443
Selling, general and administrative (Note 4) 1,455,949 697,449 668,075
Research and development 272,000 4,658 1,550
---------- ---------- ----------
Income from operations 34,357 637,753 1,196,818
Other income (expense):
Manufacturing technology rights (Note 4) 1,039,575
Interest and other 70,030 30,881 21,527
Interest expense (58,362) (12,085) (20,398)
Gain (loss) on investments (Note 2) 33,194 (182,572) (547,988)
---------- ---------- ----------
Income before federal income taxes 79,219 473,977 1,689,534
Income taxes (Note 6) 33,500 173,000 599,300
---------- ---------- ----------
Net income $ 45,719 $ 300,977 $1,090,234
========== ========== ==========
</TABLE>
See accompanying notes.
F-22
<PAGE> 127
Texas Airsonics, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 724,831 $ 728,735 $1,055,025
Accounts receivable (Notes 3 and 4) 1,844,085 780,451 569,306
Inventories (Note 3) 640,667 528,023 357,810
Prepaid expenses and other current assets 33,342 11,323 13,833
Note receivable (Note 4) 1,500,000
Deferred taxes (Note 6) 64,800
Federal income taxes receivable (Note 6) 159,444
---------- ---------- ----------
Total current assets 4,902,369 2,113,332 1,995,974
Property and equipment, net (Note 1) 817,647 419,241 390,861
Intangibles and other assets:
Intellectual property rights, net (Note 4) 163,510 176,577 189,644
Investments (Note 2) 66,390 491,587
Other 500 1,975 2,966
---------- ---------- ----------
Total intangibles and other assets 164,010 244,942 684,197
---------- ---------- ----------
Total assets $5,884,026 $2,777,515 $3,071,032
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,465,051 $ 255,294 $ 114,872
Current maturities of long-term
debt (Note 3) 803,329 66,159 78,281
Note payable (Note 3) 30,000
Taxes payable 35,292 63,784 98,734
Deferred compensation 87,300
Federal income taxes payable (Note 6) 87,446 556,844
Deferred taxes (Note 6) 11,700
Other liabilities 31,444 8,022 1,011
---------- ---------- ----------
Total current liabilities 2,346,816 510,705 937,042
Long-term debt, less current
maturities (Note 3) 690,000 53,328 118,864
Stockholders' equity:
Common stock, no par value, and paid-in
capital, 50,000,000 shares authorized,
shares outstanding 2,106,871 in 1995,
1,971,871 in 1994 and 1,884,094 in 1993 2,155,568 1,362,868 1,080,222
Retained earnings 1,046,088 1,205,060 1,284,904
---------- ---------- ----------
3,201,656 2,567,928 2,365,126
Less treasury stock-at cost
(427,473 shares in 1995 and 1994
and 425,250 shares in 1993) (Note 5) (354,446) (354,446) (350,000)
---------- ---------- ----------
Total stockholders' equity 2,847,210 2,213,482 2,015,126
---------- ---------- ----------
Total liabilities and stockholders' equity $5,884,026 $2,777,515 $3,071,032
========== ========== ==========
</TABLE>
See accompanying notes.
F-23
<PAGE> 128
Texas Airsonics, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
1995 1994 1993
----------- --------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 45,719 $ 300,977 $ 1,090,234
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Compensatory stock options 42,700 101,850
Manufacturing rights (1,039,575)
Depreciation and amortization 80,591 64,937 60,185
Deferred taxes 76,500 (64,800) 8,200
Provision for investment losses 182,572 547,988
Gain on sale of investments (33,194)
Changes in operating assets and liabilities:
Accounts receivable (1,055,994) (211,145) (257,797)
Inventory (112,644) (170,213) 47,425
Prepaid expenses (22,019) 2,510 (12,484)
Accounts payable 1,209,757 140,422 20,771
Taxes payable (28,492) (34,950) 97,964
Other liabilities 23,422 7,011 1,011
Federal income taxes payable (254,530) (469,398) 443,222
----------- ---------- -----------
Net cash provided by (used in) operating activities (28,184) (252,077) 1,108,994
INVESTING ACTIVITIES
Proceeds from sale of investments 99,584
Purchases of property and equipment (465,930) (78,759) (293,292)
Receivable from ADT (1,500,000)
Other 1,475 (500)
----------- ---------- -----------
Net cash used in investing activities (1,864,871) (79,259) (293,292)
FINANCING ACTIVITIES
Proceeds from bank borrowings 1,490,000
Proceeds from issuance of common stock 750,000 250,900 2,300
Dividends paid (204,691) (138,196)
Payments on notes payable (146,158) (77,658) (127,943)
Purchase of treasury stock (30,000)
----------- ---------- -----------
Net cash provided by (used in) financing activities 1,889,151 5,046 (125,643)
----------- ---------- -----------
Net increase (decrease) in cash (3,904) (326,290) 690,059
Cash at beginning of year 728,735 1,055,025 364,966
----------- ---------- -----------
Cash at end of year $ 724,831 $ 728,735 $ 1,055,025
=========== ========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 129
Texas Airsonics, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
AND PAID-IN CAPITAL TREASURY STOCK
---------------------- RETAINED ---------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT TOTAL
---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 1,654,094 $ 869,372 $ 194,670 (425,250) $(350,000) $ 714,042
Net income for 1993 1,090,234 1,090,234
Exercise of stock options 230,000 210,850 210,850
---------- ---------- ---------- -------- --------- ----------
Balance at December 31, 1993 1,884,094 1,080,222 1,284,904 (425,250) (350,000) 2,015,126
Net income for 1994 300,977 300,977
Dividends paid (Note 5) (380,821) (380,821)
Sale of common stock from
treasury 27,777 194,446 (27,777) 55,554 250,000
Exercise of stock options 90,000 88,200 88,200
Purchases of common stock (30,000) 30,000 (60,000) (60,000)
---------- ---------- ---------- -------- --------- ----------
Balance at December 31, 1994 1,971,871 1,362,868 1,205,060 (427,473) (354,446) 2,213,482
Net income for 1995 45,719 45,719
Dividends paid (Note 5) (204,691) (204,691)
Sale of common stock 125,000 750,000 750,000
Exercise of stock options 10,000 42,700 42,700
---------- ---------- ---------- -------- --------- ----------
Balance at December 31, 1995 2,106,871 $2,155,568 $1,046,088 (427,473) $(354,446) $2,847,210
========== ========== ========== ======== ========= ==========
</TABLE>
See accompanying notes.
F-25
<PAGE> 130
Texas Airsonics, Inc.
Notes To Financial Statements
December 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Texas Airsonics, Inc. (the "Company") develops and manufactures air abrasive
products for dentistry and various other industrial applications.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market. Inventories consist of abrasive powders and raw
materials used in the manufacture of the Company's air abrasive products.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for financial
reporting and income tax purposes is computed using accelerated methods over
the estimated useful lives of the assets.
At December 31, property and equipment consisted of the following:
<TABLE>
<CAPTION>
Useful
1995 1994 1993 Lives
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Land $ 30,000 $ 30,000 $ 30,000
Building 643,524 236,860 236,860 31 years
Office furniture and equipment 74,015 50,584 42,611 5-7 years
Machinery and equipment 333,407 304,178 239,076 5-7 years
Leasehold improvements 9,885 9,885 9,885 7 years
Automobiles 31,994 31,994 26,310 5 years
---------- ---------- ----------
1,122,825 663,501 584,742
Accumulated depreciation 305,178 244,260 193,881
---------- ---------- ----------
$ 817,647 $ 419,241 $ 390,861
========== ========== ==========
</TABLE>
INCOME TAXES
Income tax expense is based on income as reported in the statements of
operations. When income and expenses are recognized in different periods for
tax purposes, deferred taxes are provided in the financial statements.
INTANGIBLE ASSETS
Intangible assets consist of intellectual property rights and patents and are
stated at cost less accumulated amortization. The Company is amortizing
manufacturing and technology rights over 15 years and patents over 5 years.
Accumulated amortization was $133,314, $120,247 and $105,689 at December 31,
1995, 1994 and 1993, respectively.
INVESTMENTS
Investments are accounted for in accordance with Statement of Financial
Accounting Standards Number 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("Statement 115"). The Company's investments are considered
available for sale as defined in Statement 115 and are stated at fair value.
F-26
<PAGE> 131
Texas Airsonics, Inc.
Notes To Financial Statements
December 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable, note receivable, and
investments approximates their carrying value due to their short term nature.
The fair value of the Company's notes payable approximates their carrying value
based on the Company's incremental borrowing rates as compared to similar types
of current borrowing arrangements.
2. INVESTMENTS
Investments consist of unregistered and restricted shares of common stock of
American Dental Technologies, Inc. (ADT). The Company is restricted from
trading the common stock of ADT for two years from the date of its acquisition
under the provisions of the Securities and Exchange Commission's rule 144;
accordingly, the carrying value of the common stock upon receipt was recorded
at a discount from the trading value of related registered and unrestricted
shares of ADT common stock.
The decrease in the fair value of the ADT common stock is considered other than
temporary by the Company and, accordingly, changes in the valuation allowance
have been included in operations in the accompanying financial statements. The
valuation allowance on investments approximated $584,000 and $548,000 at
December 31, 1994 and 1993, respectively.
In December 1995, an officer of the Company purchased the remaining shares of
ADT common stock from the Company for approximately $96,000.
The following summarizes the Company's investment activities:
<TABLE>
<CAPTION>
COMMON STOCK OF
AMERICAN DENTAL TECHNOLOGIES, INC.
SHARES FAIR VALUE
--------- ----------
<S> <C> <C>
Balance at December 31, 1992 131,148 $ 389,575
Shares received in 1993 (Note 4) 165,975 650,000
Decline in fair value in 1993 (547,988)
---------- ----------
Balance at December 31, 1993 297,123 491,587
Dividend of shares (Note 5) (131,148) (242,625)
Decline in fair value in 1994 (182,572)
---------- ----------
Balance at December 31, 1994 165,975 66,390
Sale of shares in 1995 (165,975) (66,390)
---------- ----------
Balance at December 31, 1995 -- $ --
========== ==========
</TABLE>
F-27
<PAGE> 132
Texas Airsonics, Inc.
Notes To Financial Statements
December 31, 1995
3. NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1995, 1994 and 1993 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993 Collateral
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
Note payable to bank, bearing
interest at the bank's prime rate
(8.5% at December 31, 1995), Inventory and
payable in quarterly installments accounts
of $200,000, plus interest $1,490,000 receivable
Note payable to Bank,
bearing interest at 9%,
payable in monthly
installments of $2,117, Certain
including interest $ 10,374 $ 33,511 equipment
Note payable to Finance
Company, bearing interest
at 8%, payable in monthly
installments of $488,
including 1992 Ford
interest 3,329 9,113 13,634 Explorer
Note payable to former
stockholder bearing
interest at 6%, payable in
annual installments of
$50,000, plus interest
100,000 150,000 Stock acquired
---------- -------- --------
1,493,329 119,487 197,145
Less: Current portion 803,329 66,159 78,281
---------- -------- --------
Non-current portion $ 690,000 $ 53,328 $118,864
========== ======== ========
</TABLE>
At December 31, 1994 the Company had a noninterest bearing, unsecured $30,000
note outstanding which was paid on April 1, 1995. The note comprised a portion
of the consideration for redemption of 30,000 shares of the Company's common
stock (Note 5).
4. TRANSACTIONS AND AGREEMENTS WITH AMERICAN DENTAL TECHNOLOGIES
In April 1992, the Company entered into an agreement which provides American
Dental Technologies, Inc. ("ADT") the exclusive perpetual right to market and
sell the Company's air abrasive dental products. In conjunction with this
agreement the Company assigned present and future patent rights related to air
abrasive dental products to ADT. In exchange for this right the Company
received $300,000 in cash and 131,148 shares of restricted ADT common stock.
ADT maintained a lien against the restricted stock issued to the Company as
security for the Company's agreement to manufacture 500 KCP units through 1993.
Therefore, the Company recorded the fair value of the restricted stock,
$389,575, as deferred revenue at December 31, 1992.
In February 1993, the Company sold its manufacturing rights for all dental air
abrasive products to ADT in exchange 165,975 shares of restricted ADT common
stock. In connection therewith, ADT terminated its lien and related production
contingency included in the 1992 agreement. The Company recognized the revenue
deferred at December 31, 1992 of $389,575 together with the fair value
($650,000) of the 165,975 shares received in connection with the sale of its
manufacturing rights during the first quarter of 1993.
F-28
<PAGE> 133
Texas Airsonics, Inc.
Notes To Financial Statements
December 31, 1995
4. TRANSACTIONS AND AGREEMENTS WITH AMERICAN DENTAL TECHNOLOGIES (CONTINUED)
On September 30, 1994, the Company and ADT extended the terms of an existing
exclusive manufacturing rights agreement for air abrasive products through
December 2003 and ADT agreed in exchange for a reduction in the price of
products sold to ADT and an increase in ADT's credit limit with the Company to
$1,500,000. ADT's obligations to the Company are secured by a pledge of ADT's
air abrasive patent rights. ADT has a minimum purchase commitment of
approximately $1,650,000 for 1996, and no purchase commitments thereafter. On
November 1, 1994, ADT issued the Company warrants to purchase 1,000,000 shares
of ADT common stock at $2 per share, exercisable through October 31, 1996.
In August 1995, the Company loaned ADT $1,500,000. The note bears interest at
the Company's bank's prime rate (8.5% at December 31, 1995) and is due August
1, 1996. The note is secured by all assets, including intangible assets, of
ADT.
The Company's accounts receivable and sales include the following amounts with
ADT:
<TABLE>
<CAPTION>
Accounts Accounts
Payable Receivable Sales
-------- ---------- ----------
<S> <C> <C> <C>
1995 $895,000 $1,687,000 $3,663,000
1994 678,000 1,852,000
1993 479,000 3,367,000
</TABLE>
As a result of the agreements with ADT, the Company's continued operations are
dependent upon ADT's ability to market and sell the Company's products. ADT's
failure or inability to meet its purchase commitments with the Company would
have a material adverse effect on the Company.
During the fourth quarter of 1995 the Company signed an agreement to merge with
ADT whereby each issued and outstanding share of the Company's common stock
would be exchanged for 11,429,775 shares of ADT's common stock and warrants to
purchase 6,996,919 additional shares of ADT common stock at $1.00 per share,
exercisable for three years. The merger is subject to shareholder approval of
both companies and is expected to be completed in the second quarter of 1996.
The merger will be accounted for using the purchase method.
In addition, as part of the 1994 agreement, the Company agreed to reimburse ADT
for a portion of future research and development costs related to dental air
abrasive products, legal costs related to air abrasive technologies and
marketing expenses of new products. In 1995, the Company's share of these
expenses approximated $895,000.
5. STOCKHOLDERS' EQUITY
During 1994, the Company purchased 30,000 shares of its outstanding common
stock for $60,000. The Company re-issued 27,777 shares of this stock for
$250,000 to Denics, Co., Ltd. ("Denics").
The Company declared and paid a cash dividend of 10 cents per share in October
1995 and 7 cents per share and a noncash dividend of ADT common stock in 1994.
Stockholders received 67 shares of ADT stock for each 1,000 shares of Company
stock owned (Note 2).
Pursuant to an agreement entered into on April 6, 1995, Denics subscribed for
125,000 shares of common stock of the Company at a price of $6 per share.
Denics also obtained an option to purchase 83,333 shares at $6 per share on or
before January 1, 1996 and 83,333 shares at $6 per share on or before July 1,
1996. Denics was appointed exclusive distributor for the sale and distribution
of industrial air abrasive products in Japan and the Pacific Rim through
October 1, 1996.
F-29
<PAGE> 134
Texas Airsonics, Inc.
Notes To Financial Statements
December 31, 1995
6. INCOME TAXES
Significant components of the provision for federal income taxes are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
--------- -------- --------
Current (credit) $(43,000) $237,800 $591,100
Deferred (credit) 76,500 (64,800) 8,200
--------- -------- --------
$33,500 $173,000 $599,300
========= ======== ========
</TABLE>
Deferred taxes consist principally of differences in the timing of recognizing
losses on investments held for financial reporting and federal income tax
purposes.
A reconciliation of income tax computed at the federal statutory rates to
income tax expense is:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ------
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0%
Investment losses 32.0
Sale of marketing rights (35.0)
Compensation 2.5 6.0
Intangibles and other 8.3 (.2)
----- ----- ------
42.3% 36.5% 36.8%
===== ===== ======
</TABLE>
The Company paid income taxes of $156,000, $130,000 and $74,000 in 1995, 1994
and 1993, respectively.
7. STOCK OPTIONS
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
Outstanding at December 31, 1992 15,000
Options granted 305,000
Options exercised 230,000
-------
Outstanding at December 31, 1993 90,000
Options exercised 90,000
-------
Outstanding at December 31, 1994
Options granted 10,000
Options exercised 10,000
-------
Outstanding at December 31, 1995 --
=======
</TABLE>
In 1993, the Company granted 200,000 options which had an exercise price of
$.01 to the Company's President in consideration for the acquisition of the
intellectual property rights of the industrial air abrasive technologies used
by the Company. The difference between the fair value of the Company's common
stock and the exercise price of the stock options ($194,000) was capitalized as
intellectual property rights on the date of grant.
In 1993 and 1995 the Company granted 105,000 and 10,000 options, respectively,
with exercise prices of $.01 to certain of its employees and directors. The
Company accounts for stock option grants in accordance with APB No. 25
"Accounting for Stock Issued to Employees" and accordingly, recognized
compensation expense in the accompanying financial statements for the
difference between the fair value of the shares and the option's exercise price
of $101,850 and $42,700 in 1993 and 1995, respectively.
F-30
<PAGE> 135
Texas Airsonics, Inc.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
---------- -----------
<S> <C> <C>
Net sales $1,409,628 $ 1,015,906
Cost of sales 841,573 534,673
---------- -----------
Gross profit 568,055 481,233
Selling, general and administrative 214,476 162,495
---------- -----------
Income from operations 353,579 318,738
Other income (expense)
Other 38,341 4,822
Interest expense (32,664) (457)
---------- -----------
Income before income taxes 359,256 323,103
Income tax 122,803 95,546
---------- -----------
Net income $ 236,453 $ 227,557
========== ===========
</TABLE>
See notes to unaudited condensed financial statements.
F-31
<PAGE> 136
Texas Airsonics, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 404,191 $ 724,831
Accounts receivable 2,017,470 1,844,085
Inventories 507,545 640,667
Prepaid expenses and other current assets 22,250 33,342
Note receivable 1,500,000 1,500,000
Prepaid federal income tax 109,481 159,444
------------ -----------
Total current assets 4,560,937 4,902,369
Property and equipment, net 806,629 817,647
Intangible assets 160,243 163,510
Other assets 65,289 500
------------ -----------
Total assets $ 5,593,098 $ 5,884,026
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,170,794 $ 1,465,051
Current maturities of long term debt 801,921 803,329
Other liabilities 141,420 78,436
------------ -----------
Total current liabilities 2,114,135 2,346,816
Long term debt, less current maturities 490,000 690,000
Stockholders' equity:
Common stock, no par value, and paid in
capital 50,000,000 shares authorized
shares outstanding 2,106,871
in 1996 and 1995 2,155,568 2,155,568
Accumulated earnings 1,187,841 1,046,088
Less treasury stock (354,446) (354,446)
------------ -----------
Total stockholders' equity 2,988,963 2,847,210
------------ -----------
Total liabilities and stockholders' equity $ 5,593,098 $ 5,884,026
============ ===========
</TABLE>
See notes to unaudited condensed financial statements.
F-32
<PAGE> 137
Texas Airsonics, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 236,453 $ 227,557
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation 16,580 13,374
Amortization 3,267 3,267
Changes in operating assets and liabilities:
Increase in accounts receivable (173,385) (490,805)
(Increase) decrease in inventory 133,122 (11,610)
(Increase) decrease in prepaid expenses 11,092 (10,797)
(Increase) decrease in federal income tax receivable 49,963 (11,727)
Increase in other assets (64,789)
Decrease in accounts payable (294,257) (9,434)
Increase (decrease) in other non-current liabilities (33,124) 66,196
------------- -----------
Net cash used in operating activities (115,078) (223,979)
INVESTING ACTIVITIES
Purchases of property and equipment (5,562) (19,857)
------------- -----------
Net cash used in investing activities (5,562) (19,857)
FINANCING ACTIVITIES:
Payments on notes payable (200,000) (30,000)
------------- -----------
Net cash used in financing activities (200,000) (30,000)
------------- -----------
Decrease in cash (320,640) (273,836)
Cash at beginning of period 724,831 728,735
------------- -----------
Cash at end of period $ 404,191 $ 454,899
============= ===========
</TABLE>
See notes to unaudited condensed financial statements.
F-33
<PAGE> 138
Texas Airsonics, Inc.
Notes to Condensed Financial Statements
March 31, 1996 (Unaudited)
1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATION
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statement of Texas Airsonics,
Inc. (the "Company") have been prepared by management in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered for a fair presentation have been included.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for other quarters of 1996
for the year ended December 31, 1996. The accompanying unaudited condensed
financial statements should be read with the annual consolidated financial
statements and notes for the fiscal year ended December 31, 1995.
INVENTORIES
Inventories consist of abrasive powders and raw materials used in the
manufacture of the Company's air abrasive products.
PROPERTY AND EQUIPMENT
Accumulated depreciation aggregated $308,107 at March 31, 1996 and $305,178 at
December 31, 1995.
INTANGIBLE ASSETS
Accumulated amortization aggregated $136,581 at March 31, 1996 and $133.314 at
December 31, 1995.
2. TRANSACTIONS AND AGREEMENTS WITH AMERICAN DENTAL TECHNOLOGIES, INC.
("ADT")
During the fourth quarter of 1995, the Company signed an agreement to merge
with ADT whereby each issued and outstanding share of the Company's common
stock would be exchanged for 11,429,775 shares of ADT's common stock and
warrants to purchase 6,996,919 additional shares of ADT common stock at $1.00
per share, exercisable for three years. The merger is subject to shareholder
approval of both companies and is expected to be completed in the quarter of
1996. The merger will be accounted for as a purchase.
In August 1995, the Company loaned ADT $1,500,000. The note bears interest at
prime (8.25% at March 31, 1996). A principal payment of $200,000 plus accrued
interest is due May 1, 1996. The remaining principal and accrued interest is
due from ADT on August 1, 1996. The note is secured by all of ADT's assets.
3. STOCKHOLDERS' EQUITY
During March 1996, the Company declared a cash dividend of $94,700, $0.045
cents per share, to be paid in April 1996.
F-34
<PAGE> 139
ANNEX A
RESTATED AGREEMENT AND PLAN OF REORGANIZATION
THIS RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"),
entered into on November 22, 1995, as modified January 12, 1996, March 25, 1996
and May 9, 1996, is effective as of November 22, 1995, by and among AMERICAN
DENTAL TECHNOLOGIES, INC., a Delaware corporation ("ADT"), ADT MERGER CORP., a
Texas corporation and a wholly-owned subsidiary of ADT ("Sub") and TEXAS
AIRSONICS, INC., a Texas corporation ("Texas Air").
Recitals
A. The parties desire that ADT acquire Texas Air in a statutory merger
pursuant to which Texas Air will be merged with and into Sub (the "Merger")
with Sub being the surviving corporation of the Merger (the "Surviving
Corporation") on the terms and conditions set forth herein and in the Agreement
of Merger consistent with and corresponding to this Agreement (the "Merger
Agreement").
B. As a result of the Merger, Texas Air shall become a wholly-owned
subsidiary of ADT, and the shareholders of Texas Air shall receive ADT common
stock.
C. The Merger is intended to be treated as a tax-free reorganization
pursuant to Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code
of 1986, as amended (the "Code").
D. Capitalized terms used in this Agreement are defined as set forth in
Article 15 hereof.
NOW THEREFORE, the parties hereto hereby agree as follows:
AGREEMENTS
1. Plan of Reorganization
1.1 The Merger. Subject to the terms and conditions of this Agreement, Texas
Air will be merged with and into Sub in a statutory merger pursuant to the
Merger Agreement and in accordance with applicable provisions of Texas law as
follows:
(a) Conversion of Texas Air Interests. At the Effective Time,
(i) Each outstanding share of Texas Airsonics no par common stock
("Texas Air Common Stock") by virtue of the Merger and without any action by the
holders thereof, shall be converted into the right to receive 5.425 fully paid
and non-assessable shares of the common stock, $0.01 per value of ADT ("ADT
Common Stock"). For each outstanding share of Texas Air Common Stock, the
shareholder shall also receive a warrant to purchase 3.321 shares of ADT Common
Stock at a purchase price of $1.00 per share for a period commencing one year
and one day and ending three years after the Effective Time and existing Texas
Air Warrants to acquire 2.5 million shares of ADT Common Stock shall
simultaneously terminate. In the event, Denics Co. Ltd. exercises its right to
purchase all or part of 166,666 shares of Texas Air Common Stock before the
Effective Time, it shall receive ADT Common Stock and warrants to purchase ADT
Common Stock in the ratios set forth above. The conversion rate described in
this paragraph (the "Conversion Rate") shall be adjusted to take into account
any stock split or combination of ADT Common Stock (or for any
re-classification or recapitalization of ADT Common Stock, or any dividend on
ADT Common Stock payable in ADT Common Stock or securities convertible into, or
exchangeable or exercisable for, ADT Common Stock) with a record date on or
after the date hereof and on or before the Effective Time; and
(ii) each then outstanding right to purchase Texas Air Common Stock
(a "Texas Air Warrant") shall, by virtue of the Merger and without action on the
part of the holders thereof, be converted into the right to receive a warrant
to purchase 5.425 shares of ADT Common Stock and a warrant to purchase 3.321
shares of ADT Common Stock at a purchase price of $1.00 per share for a period
commencing one year and one day and ending three years after the Effective Time
<PAGE> 140
for each share of Texas Air Common Stock subject to the Texas Air Warrants;
provided that each converted Texas Air Warrant shall (A) specify a purchase
price of $6.00 for a unit which will consist of 5.425 shares of ADT Common Stock
and a warrant to purchase 3.321 shares of ADT Common Stock and (B) otherwise be
governed according to the terms of the corresponding Texas Air Warrant.
1.2 Fractional Shares. No fractional shares of ADT Common Stock shall be
issued in connection with the Merger. In lieu thereof, each Texas Air
shareholder who would otherwise be entitled to receive a fraction of a share of
ADT Common Stock will receive from ADT, promptly after the Effective Time, an
amount of cash equal to the per-share market value of ADT Common Stock. For
this purpose, per-share market value shall equal (i) the closing sale price of
ADT Common Stock as quoted on the Nasdaq SmallCap Market ("Share Price") on the
Closing Date (as defined in Section 6.1), reported in the Wall Street Journal
(the "Closing Date Price"), multiplied (ii) by the fraction of a share of ADT
Common Stock to which such shareholder would otherwise be entitled. Each Texas
Air warrant holder who would otherwise be entitled to receive a warrant for a
fraction of a share of ADT Common Stock will receive from ADT, promptly upon
the exercise of the warrant, an amount of Cash equal to (A) the per share
market value of ADT Common Stock, based on the closing sale price of ADT Common
Stock as quoted on the Nasdaq SmallCap Market on the date of exercise,
multiplied by (B) the fraction of a share of ADT Common Stock to which such
warrant holder would otherwise be entitled.
1.3 Certain Effects of the Merger. At the Effective Time, (a) the separate
existence of Texas Air will cease, and Texas Air will be merged with and into
Sub, and Sub will be the surviving corporation, pursuant to the terms of the
Merger Agreement, (b) the Articles of Incorporation and Bylaws of Sub will be
amended to contain the same provisions as the Articles of Incorporation and
Bylaws of Texas Air, (c) each outstanding share (and each share pertaining to
an outstanding warrant) of Texas Air Common Stock, as of immediately before the
Effective Time, will be converted into shares (or, as appropriate, warrants for
shares) of ADT Common Stock in the ratios determined pursuant to Subsection
l.l, and (d) the Merger will, from and after the Effective Time, have all of
the effects provided by applicable law.
1.4 Further Assurances. The certificate of incorporation of ADT as in effect
at the Effective Time shall from and after the Effective Time be the
certificate of incorporation of ADT until it is amended, except that the
certificate of incorporation of ADT shall, prior to the Effective Time, be
amended to increase the number of authorized shares of ADT Common Stock, par
value $0.01 per share, from 25,000,000 to 50,000,000. Texas Air, Sub and ADT
will cause to be executed and filed and recorded any document or documents
prescribed by the laws of the States of Delaware, Texas or any other state and
will cause to be performed all necessary or desirable acts within the States of
Delaware, Texas and elsewhere to effectuate the Merger provided for herein,
including, without limitation, execution, filing and delivery of any further
deeds, assignments or assurances necessary or desirable to vest, perfect or
confirm in the Surviving Corporation title to all property and rights of Sub
and Texas Air. By virtue of the adoption of this Agreement and of the Merger
Agreement by the respective boards of directors of ADT, Sub and Texas Air, the
respective proper officers of ADT, Sub and Texas Air are hereby authorized,
empowered and directed to do any and all acts and things, and to make, execute,
deliver, file and record any and all instruments, papers and documents that
shall be or become necessary, proper or convenient to effectuate any provision
of this Agreement, of the Merger Agreement or the Merger.
1.5 Registration Statement. ADT shall prepare and file with the SEC a joint
proxy statement/prospectus in connection with the merger and issuance of shares
on Form S-4. ADT and Texas Air each will use its best efforts to cause such
registration statement to become effective as soon as practicable. ADT and
Texas Air each shall furnish or cause to be furnished, for inclusion in a joint
proxy statement to be filed with the SEC (the "Joint Proxy Statement"), the
registration statement and the prospectus, such information about its company,
subsidiaries and security holders as may be required or as may be reasonably
requested, and shall continue to furnish or cause to be furnished such
information for the purpose of supplementing the Joint Proxy Statement,
amending the registration statement, and supplementing the prospectus until the
effective date of the registration statement. ADT and Texas Air each
represents and warrants that any information so supplied will not now, and will
not at any time prior to the effective date (i) contain an untrue statement of
a material fact; or (ii) omit to state a material fact required to be stated
therein or necessary to make the statements therein not false or misleading.
ADT and Texas Air each shall also take any action required to be taken by it
under applicable state "blue sky", securities, or takeover laws in connection
2
<PAGE> 141
with the issuance of ADT Common Stock pursuant to the Merger. Texas Air will
pay the costs attributable to registering on Form S-4 the ADT Common Stock
issued in connection with the merger.
1.6 Tax Free Reorganization. The parties intend to adopt this Agreement as a
plan of tax-free reorganization and to consummate the Merger in accordance with
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. The ADT Common Stock and
warrants issued in the Merger shall be issued solely in exchange for the Texas
Air Common Stock pursuant to this Agreement, and no transaction other than the
Merger represents, provides for or is intended to be an adjustment to the
consideration paid for the Texas Air Common Stock. Except for cash paid in
lieu of fractional shares, the assignment of patent rights to Texas Airsonics,
LP and the warrants to be issued hereunder, no consideration that could
constitute "other property" within the meaning of Section 356 of the Code is
being paid by ADT for the Texas Air Common Stock in the Merger. However, no
warranty is made by any party hereto respecting the tax treatment of the
foregoing structure.
2. Representations and Warranties of Texas Air and Certain
Affiliates
Texas Air hereby represents and warrants that, except as set forth on the
Texas Air Schedule of Exceptions to be attached hereto as Exhibit 2 (and
amended as provided for in Section 8.14) each statement recited in this Article
2 is accurate.
2.1 Organization and Good Standing. Texas Air is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is qualified as a foreign corporation in the jurisdictions
listed on Exhibit 2.1. Texas Air does not own or lease real property, have
employees or conduct intrastate business, nor is it required to be qualified to
do business in any jurisdiction other than those set forth in Exhibit 2.1.
2.2 Power, Authorization and Validity.
(a) Texas Air has the corporate right, power, legal capacity and authority
to enter into and perform its obligations under this Agreement, and all
agreements to which it is or will be a party that are required to be executed
pursuant to this Agreement, including, without limitation, the Merger Agreement
(the "Texas Air Ancillary Agreements"). The exercise, delivery and performance
of this Agreement and the Texas Air Ancillary Agreements has been duly and
validly approved and authorized by the Board of Directors of Texas Air, and,
prior to the Effective Time, will be duly and validly approved by (i) a
majority of the shareholders of Texas Air and (ii) the Warrant Holders of Texas
Air that hold warrants.
(b) No filing, authorization or approval, governmental or otherwise, is
necessary to enable Texas Air to enter into, and to perform its obligations
under, this Agreement and the Texas Air Ancillary Agreements, except for (a)
the filing of the Merger Agreement with the Texas Secretary of State and the
filing of appropriate documents with the relevant authorities of any other
states in which Texas Air is qualified to do business, if any; (b) such other
filings and permits as may be required to comply with federal and state
securities laws; and (c) the approval of this Agreement and the Merger
Agreement by the Texas Air shareholders.
(c) This Agreement and the Texas Air Ancillary Agreements are, or when
executed by Texas Air will be, valid and binding obligations of Texas Air
enforceable in accordance with their respective terms, except as to the effect,
if any, of (i) applicable bankruptcy and other similar laws affecting the
rights of creditors generally, (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies, and (iii) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities.
2.3 Capitalization. As of March 31, 1996, the authorized capital stock of
Texas Air consists of 50,000,000 shares of common stock, no par value, of which
2,106,871 shares are issued and outstanding. As of March 31, 1996, warrants to
purchase 83,333 shares of Texas Air Common Stock at $6.00 per share are issued
and outstanding. All issued and outstanding shares of Texas Air Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable,
are not subject to any right of rescission, and have been offered, issued, sold
and delivered in compliance with all registration or qualification requirements
(or applicable exemptions therefrom) of applicable federal and state securities
3
<PAGE> 142
laws. Exhibit 2.3 sets forth a true and correct list of all shareholders and
warrant holders of Texas Air. Other than as recited above, no rights
(including, without limitation, options, warrants, conversion privileges or
preemptive rights), whether vested or contingent, are held by any person in
respect of issued or unissued equity securities of Texas Air, Texas Air has no
liability for dividends accrued but unpaid, and no voting agreements, rights of
first refusal or other restrictions (other than normal restrictions on transfer
under applicable federal and state securities laws) apply to any of Texas Air
outstanding securities.
2.4 Subsidiaries. Texas Air has no subsidiaries nor any equity interest,
direct or indirect in any corporation, partnership, joint venture or other
business entity other than ADT.
2.5 No Violation of Existing Agreements. Neither the execution nor delivery
of this Agreement or any Texas Air Ancillary Agreement, nor the consummation of
the transactions contemplated hereby or thereby will conflict with, or (with or
without notice or lapse of time, or both) result in a termination, breach,
impairment or violation of (a) any provision of the Articles of Incorporation
or Bylaws of Texas Air, as currently in effect, (b) in any material respect,
any material instrument or contract to which Texas Air is a party or by which
Texas Air is bound, or (c) any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Texas Air or its
assets or properties. Once approved by the Texas Air shareholders, the
consummation of the Merger will not require the consent of any third party and
will not have a material adverse effect upon any rights, licenses, franchises,
leases or agreements of Texas Air pursuant to the terms of those agreements.
2.6 Litigation. No action, proceeding, claim or investigation is pending
against Texas Air before any court or administrative agency, and, to the best
of the knowledge of Texas Air, no such action, proceeding, claim or
investigation has been threatened. No shareholder or former shareholder of
Texas Air, or any other person, firm, corporation or entity, has any basis to
assert a claim against Texas Air, Sub or ADT based upon (a) ownership or rights
to ownership of any shares of Texas Air Common Stock, (b) any rights as or to
become a Texas Air shareholder, including any option or preemptive right or
rights to notice or to vote, or (c) any rights under any agreement between
Texas Air and any of its shareholders or former shareholders in their capacity
as such.
2.7 Texas Air Financial Statements. Attached hereto as Exhibit 2.7 are copies
of Texas Air's audited balance sheets as of December 1991, 1992, 1993 and 1994
and the related audited statements of income, retained earnings and cash flow
for the years then ended and a compilation for the ten months ending October
31, 1995 (collectively "Texas Air Financial Statements"). The Texas Air
Financial Statements (a) are in accordance with the books and records of Texas
Air, and (b) fairly present the financial condition of Texas Air at the
respective dates therein indicated and the results of operations for the
respective periods therein specified. Texas Air has no material debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected, reserved
against or disclosed in the Balance Sheet as of December 31, 1994 (the
"Financial Statement Date"), except for (i) those that are not required to be
reported in accordance with generally accepted accounting principles and are
disclosed by Texas Air in writing to ADT to the extent required pursuant to
Section 4.1, and (ii) those that may have been incurred after the Financial
Statement Date with the knowledge of ADT or in the ordinary course of Texas
Air's business, consistent with past practice.
2.8 Taxes. Except as reflected in Exhibit 2, Texas Air has filed all federal,
state, local and foreign tax and information returns required to be filed, has
paid all taxes required to be paid in respect of all periods for which returns
have been filed, has established an adequate accrual or reserve for the payment
of all taxes payable in respect of the periods subsequent to the periods
covered by the most recent applicable tax returns, has made all necessary
estimated tax payments, and has no liability for taxes in excess of the amount
so paid or accruals or reserves so established in the applicable Texas Air
Financial Statements. True, correct and complete copies of all such tax and
information returns have been provided or made available by Texas Air to ADT.
Texas Air is not delinquent in the payment of any tax or in the filing of any
tax returns, and no deficiencies for any tax have been threatened, claimed,
proposed or assessed which have not been settled or paid. Except for the audit
by the IRS of calendar year returns for 1991, 1992, 1993 and 1994 which has
been fully disclosed to ADT, no tax return of Texas Air has ever been audited
by the Internal Revenue Service or any state taxing agency or authority. For
the purpose of this Section, the terms "tax" and "taxes" include all federal,
excise, state, local and foreign income, gains, franchise, property, sales,
use, employment, license, payroll, occupation, recording, value added or
transfer taxes, governmental charges, fees, levies or assessments (whether
4
<PAGE> 143
payable directly or by withholding), and, with respect to such taxes, any
estimated tax, interest and penalties or additions to tax and interest on
such penalties and additions to tax. Texas Air will not, as a result of the
Merger, become liable for any income tax no adequately reserved against on the
Texas Air Financial Statements. Texas Air has not filed a consent pursuant to
Section 341(f) of the Code. Texas Air has previously disclosed to ADT that it
is currently undergoing an audit by the Internal Revenue Service for calendar
years 1991, 1992, 1993 and 1994. Texas Air does not anticipate that the total
adjustments including interest and penalties will exceed $100,000.
2.9 Title to Properties. Texas Air has good and marketable title to all of
its assets (fee simple absolute to all real property) included in the Texas Air
Financial Statements, free and clear of all liens, charges or encumbrances
(other than as disclosed therein or for taxes not yet due and payable). The
machinery and equipment included in such assets are in all material respects in
good condition and repair, normal wear and tear excepted, and all leases of
real or personal property to which Texas Air is a party are fully effective and
afford Texas Air peaceful and undisturbed possession of the subject matter of
the lease. Texas Air is not in violation of any zoning, building, safety or
environmental ordinance, regulation or requirement or other law or regulation
applicable to the operation of its owned or leased properties (the violation of
which would have a material adverse effect on its business), and Texas Air has
not received any notice of such violation with which it has not complied or had
waived.
2.10 Absence of Certain Changes. Since the Financial Statement Date, except
as contemplated by this transaction or as disclosed on Exhibit 2.10, there has
not been with respect to Texas Air:
(a) Any contingent liability incurred by Texas Air as guarantor or
surety with respect to the obligations of others.
(b) Any mortgage, encumbrance or lien placed on any of the properties
of Texas Air.
(c) Any material obligation or liability incurred by Texas Air other
than in the ordinary course of business.
(d) Any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of Texas Air, other than in the ordinary course of
business or in immaterial amounts.
(e) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or
business of Texas Air.
(f) Any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of Texas
Air, any split, combination or recapitalization of the capital stock of Texas
Air or any direct or indirect redemption, purchase or other acquisition of the
capital stock of Texas Air.
(g) Any material labor dispute or claim of material unfair labor
practices, any change in the compensation payable or to become payable to any
of Texas Air's officers, employees or agents earning compensation at an
anticipated annual rate in excess of $60,000, or any bonus payment or
arrangement made to or with any of such officers, employees or agents, or any
change in the net compensation payable or to become payable to any of Texas
Air's other officers, employees or agents other than normal annual raises in
accordance with past practice, or any bonus payment or arrangement made to or
with any of such officers, employees or agents other than normal bonuses or
arrangements made in accordance with past practices.
(h) Any material change with respect to the management, supervisory,
development or other key personnel of Texas Air.
(i) Any payment or discharge of a material lien or liability thereof,
which lien or liability was not either (A) shown on the balance sheets as of
the Financial Statement Date included in the Texas Air Financial Statements, or
(B) incurred in the ordinary course of business after the Financial Statement
Date.
5
<PAGE> 144
(j) Any obligation or material liability incurred by Texas Air to any
of its officers, directors or shareholders or any loans or advances made to any
of its officers, directors or shareholders, except normal compensation,
commissions, bonuses and expense allowances payable to officers consistent with
past practice.
2.11 Agreements and Commitments.
(a) Except as set forth in Exhibit 2.11 attached hereto, or as listed in
Exhibit 2.12, Exhibit 2.15(c) or Exhibit 2.15(f), Texas Air is not a party or
subject to any material oral or written agreement, obligation or commitment
described below:
(i) Contract, commitment, letter contract, quotation, purchase
order, bid or proposal providing for, or with a reasonable possibility of
resulting in, payments by or to Texas Air in any aggregate amount of (i)
$25,000 or more in the ordinary course of business, or (ii) $5,000 or more
outside the ordinary course of business.
(ii) License agreement as licensor or licensee providing for, or
with a reasonable possibility of resulting in, payment by or to Texas Air in an
aggregate amount of (i) $25,000 or more in the ordinary course of business, or
(ii) any amount if outside the ordinary course of business (including all
licenses to Texas Air, but excluding licenses where Texas Air is a licensee of
standard non-exclusive software licenses granted to end users by third parties
in the ordinary course of business).
(iii) Agreement by Texas Air to encumber, transfer or sell rights
in or with respect to any Intellectual Property (as defined in Section 2.12).
(iv) Agreement for the sale or lease of real or personal property
involving more than $10,000 per year.
(v) Dealer, distributor, sales representative, original equipment
manufacturer, value-added remarketer or other agreement for the distribution of
Texas Air's products.
(vi) Franchise agreement or financing statement.
(vii) Stock redemption or purchase agreement.
(viii) Joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons.
(ix) Instrument evidencing indebtedness for borrowed money by way
of direct loan, sale of debt securities, purchase money obligation, conditional
sale, guarantee or otherwise, except for trade indebtedness and advances to
employees incurred in the ordinary course of business, and except as disclosed
in the Texas Air Financial Statements dated as of, or for the period ending, on
the Financial Statement Date.
(x) Contract containing covenants purporting to limit Texas Air's
freedom to compete in any line of business in any geographic area.
(xi) Warranty, indemnity or guaranty agreements.
(b) All agreements, obligations and commitments listed in Exhibit 2.11,
Exhibit 2.12, Exhibit 2.15(c) or Exhibit 2.15(f) are valid and in full force
and effect in all material respects and a true and complete copy of each has
been delivered to ADT's legal counsel. Texas Air is not, and, to the best
knowledge of Texas Air, no other party is, in breach of or default in any
material respect under the terms of any such agreement, obligation or
commitment, which breach or default may reasonably be expected to have a
material adverse effect on Texas Air. Texas Air is not a party to any contract
or arrangement that it reasonably expects will have a material adverse effect
on its business or prospects. Texas Air has no material liability for
re-negotiation of government contracts or subcontracts, if any.
6
<PAGE> 145
2.12 Intellectual Property. To the best of its knowledge, Texas Air owns or
has the right to use on reasonable terms all right, title and interest in all
patents, trademarks, service marks, trade names, mask works, copyrights, trade
secrets, know-how, technology and other intellectual property and proprietary
rights reasonably necessary to the conduct of its business as now conducted and
as proposed to be conducted ("Intellectual Property"). All copyrighted works
created by or for Texas Air were created solely by full-time, regular employees
of Texas Air. Texas Air has taken measures that it believes are reasonable to
protect all Intellectual Property. Other than by Sunrise Technologies
International, Inc. and Kreativ, Inc., Texas Air is not aware of any
infringement of such Intellectual Property by any third party. Exhibit 2.12
attached hereto is a true and complete list of all copyright, mask work,
trademark, trade name and service mark registration and all patents and patent
applications for Intellectual Property owned by Texas Air, and no material
loss, cancellation, termination or expiration of any such registration or
patent is reasonably foreseeable by Texas Air except as set forth on Exhibit
2.12. Texas Air is not using any trademarks, trade names or service marks in
commerce other than those listed on Exhibit 2.12. Copies of all forms of
non-disclosure or confidentiality agreements utilized to protect such
Intellectual Property have been provided to or will be made available to ADT.
To the best of the knowledge of Texas Air, the business of Texas Air as now
conducted and as proposed to be conducted by Texas Air does not and will not
cause Texas Air to infringe or violate any of the patents, trademarks, service
marks, trade names, mask works, copyrights, trade secrets, proprietary rights
or other intellectual property of any other person, and Texas Air has not
received any claim or notice of infringement or potential infringement of the
intellectual property of any other person that could be expected to have a
material adverse affect on Texas Air's business. Texas Air has the right to
reproduce and distribute all of its products and the right to use all of its
registered user lists, and is not using any confidential information or trade
secrets of any former employer of any past or present employees.
2.13 Compliance with Laws. To the best of its knowledge, Texas Air has
complied, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all order, writs, injunctions, awards, judgment and
decrees, applicable to Texas Air or to its assets, properties and business (the
violation of which would have a material adverse effect upon Texas Air),
including, without limitation, (a) all applicable federal and state securities
laws and regulations, (b) all applicable federal, state and local laws,
ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing,
ownership or management of Texas Air's owned, leased, or licensed real or
personal property, products and technical data, (ii) employment and employment
practices, terms and conditions of employment, and wages and hours, and (iii)
safety, health, fire prevention, environmental protection (including toxic
waste disposal and related matters described in Section 2.21), building
standards, zoning and other similar mattes, and (c) the Export Administration
Act and regulations promulgated thereunder and all other laws, regulations,
rules, orders, writs, injunctions, judgment and decrees applicable to the
export or re-export of controlled commodities or technical data controlled
under the Export Administration Act. Texas Air has received all material
permits and approvals from, and has made all material filings with, third
parties, including governmental agencies and authorities, that are necessary in
connection with its present business.
2.14 Certain Transactions and Agreements. None of the officers or directors
of Texas Air, nor any member of any officer's or director's immediate family,
has any direct or indirect ownership interest in any firm or corporation that
competes with Texas Air (except with respect to any interest in less than one
percent of the stock of any corporation whose stock is publicly traded). None
of such officers or directors, or any member of any officer's or director's
immediate family, is or has been directly or indirectly interested in any
material contract or informal arrangement with Texas Air, within the last three
years, except for compensation for services as an officer, director or employee
of Texas Air. None of such officers or directors or family members has any
interest in any property, real or personal, tangible or intangible, including
but not limited to Intellectual Property, used in the business of Texas Air,
except for the normal rights of a shareholders.
2.15 Employees.
(a) All employment contracts currently in effect are terminable at will
(other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions). All
officers, employees and consultants of Texas Air having access to proprietary
information of Texas Air have executed and delivered to Texas Air an agreement
regarding the protection of such proprietary information and the assignment of
7
<PAGE> 146
inventions to Texas Air, and copies of the forms of all such agreements have
been delivered or made available to ADT's counsel. The only non-competition
agreements from Texas Air employees will be those of Ben J. Gallant, John E.
Vickers III and Larry Pilbin.
(b) Texas Air has (i) never been and is not now subject to a union
organizing effort,(ii) is not subject to any collective bargaining agreement
with respect to any of its employees, (iii) is not subject to any other
contract, written or oral, with any trade or labor union, employees'
association or similar organization, and (iv) has no material current labor
dispute. Texas Air has good labor relations, and has no knowledge of any facts
indicating that the consummation of the transactions contemplated hereby will
have a material adverse effect on such labor relations, and has no knowledge
that any of its key employees intends to leave its employer.
(c) Exhibit 2.15(c) delivered to ADT herewith contains a list of all
pension, retirement, disability, medical, dental or other health plans, life
insurance or other death benefit plans, profit sharing, deferred compensation
agreements, stock, option, bonus or other incentive plans, vacation, sick,
holiday or other paid leave plans, severance plans or other similar employee
benefit plans maintained by Texas Air (the "Employee Plans"), including without
limitation, all "employee benefit plans" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Each of
the Employee Plans, and its operation and administration, is, in all material
respects, in compliance with all applicable, federal, state, local and other
governmental laws and ordinances, orders, rules and regulations, including the
requirements of ERISA and the Code. All such Employee Plans that are "employee
pension benefit plans" (as defined in Section 3(2) of ERISA) have received
favorable determination letters that such plans satisfy the qualification
requirements of the Tax Equity and Fiscal Responsibility Act of 1982, the
Deficit Reduction Act of 1984 and the Retirement Equity Act of 1984. In
addition, Texas Air has not been a participant in any "prohibited transaction,"
within the meaning of Section 406 of ERISA, with respect to any employee
pension benefit plan (as defined in Section 3(2) of ERISA) that Texas Air
sponsors as employer or in which Texas Air participates as an employer, that
was not otherwise exempt pursuant to Section 408 of ERISA (including any
individual exemption granted under Section 408(a) of ERISA), or that could
result in an excise tax under the Code. The group health plans, as defined in
Section 4980B(g) of the Code, that benefit employees of Texas Air are in
compliance with the continuation coverage requirements of Subsection 4980B of
the Code with respect to any Employee Plan, covered employees or qualified
beneficiaries.
(d) To the best knowledge of Texas Air, no employee of Texas Air is in
material violation of (i) any term of any employment contract, patent
disclosure agreement or non-competition agreement; or (ii) any other contract
or agreement, or any restrictive covenant, relating to the right of any such
employee to be employed by Texas Air or to use trade secrets or proprietary
information of others. To Texas Air's best knowledge, the employment of any
employee of Texas Air does not subject it to any liability to any third party.
(e) Texas Air is not a party to any (i) agreement with any executive
officer or other key employee of Texas Air (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction involving Texas Air in the nature of any of the transactions
contemplated by this Agreement and the Texas Air Ancillary Agreements, (B)
providing any term of employment or compensation guarantee, or (C) providing
severance benefits or other benefits after the termination of employment of
such employee regardless of the reason for such termination of employment; or
(ii) agreement or plan, including without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be materially increased, or
the vesting of benefits of which will be materially accelerated, by the
occurrence of any of the transactions contemplated by this Agreement and the
Texas Air Ancillary Agreements or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement and the Texas Air Ancillary Agreements, and Texas Air is not
obligated to make any excess parachute payment, as defined in Section
280G(b)(I) of the Code, nor will any excess parachute payment be deemed to have
occurred as a result of or arising out of the Merger.
(f) A list of all ongoing employees, officers and technical,
engineering and development consultants of Texas Air and their current
compensation is set forth on Exhibit 2.15(f) attached hereto.
8
<PAGE> 147
(g) All contributions due from Texas Air with respect to any Employee
Plans have been made or accrued on Texas Air's financial statements, and no
further contributions will be due or will have accrued thereunder as of the
Closing Date.
2.16 Corporate Documents. Texas Air has made available to ADT for
examination all material documents and information of Texas Air, including
without limitation, the documents and agreements referenced in the Exhibits to
this Agreement and the following: (a) copies of Texas Air's Articles of
Incorporation and Bylaws as currently in effect, (b) Texas Air's minute book
containing all records of all proceedings, consents, actions and meetings of
Texas Air's board of directors and shareholders, (c) Texas Air's stock ledger
and journal reflecting all stock issuances and transfers; and (d) all permits,
orders and consents issued by any regulatory agency with respect to Texas Air,
or any securities of Texas Air, and all applications for such permits, orders
and consents.
2.17 No Brokers. Texas Air is not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or the Texas Air Ancillary
Agreements or in connection with any transaction contemplated hereby or
thereby.
2.18 Disclosure. Neither this Agreement, its exhibits and schedules, nor any
of the certificates or documents to be delivered by Texas Air to ADT under this
Agreement, taken together, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading. None of the information supplied or to
be supplied by Texas Air for inclusion in the Joint Proxy Statement, the S-4
registration statement or prospectus, at the date such information is supplied
and at the time of the meetings of the Texas Air's shareholders to be held to
approve the Merger, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
2.19 Books and Records.
(a) The books, records and accounts of Texas Air (i) are in all material
respects true, complete and correct; (ii) have been maintained in accordance
with good business practices on a basis consistent with prior years; (iii) are
stated in reasonable detail and accurately and fairly reflect the transactions
and dispositions of the assets of Texas Air; and (iv) accurately and fairly
reflect the basis for the Texas Air Financial Statements.
(b) Texas Air has devised and maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary (A) to permit preparation of
financial statements in conformity with generally accepted accounting
principles or any other criteria applicable to such statements and (B) to
maintain accountability for assets; and (iii) the amount recorded for assets on
the books and records of Texas Air is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference.
2.20 Insurance. Texas Air maintains the insurance policies listed on Exhibit
2.20.
2.21 Environmental Matters.
(a) During the period that Texas Air has owned its properties, there has
been no disposal, release or threatened release of Hazardous Materials (as
defined below) from, or any presence thereof on, such properties that
reasonably could have a material adverse effect upon the business or financial
statements of Texas Air. Texas Air has no knowledge of any presence,
disposals, releases or threatened releases of Hazardous Materials on or from
any of such properties that may have occurred prior to Texas Air's having taken
possession of any of such properties, which reasonably could have a material
adverse effect upon the business or financial statements of Texas Air. For
purposes of this Agreement, the term "disposal," "release," and "threatened
release" shall have the definitions assigned thereto by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S. B9601
et seq., as amended ("CERCLA"). For the purposes of this Section 2.22,
"Hazardous Materials" shall mean any hazardous or toxic substance, material or
9
<PAGE> 148
waste that is or that becomes prior to the Closing Date regulated under, or
defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous material," "toxic substance" or "hazardous chemical"
under (i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act,
42 U.S. Code 11001 et seq.; (iii) the Hazardous Materials Transportation Act,
49 U.S. Code 1801, et seq.; (iv) the Toxic Substance Control Act, 15 U.S. Code
2601 et seq.; (v) the Occupational Safety and Health Act of 1970, 29 U.S. Code
651 et seq.; (vi) regulations promulgated under any of the above statutes; or
(vii) any applicable state or local statute, ordinance, rule or regulation that
has a scope or purpose similar to those identified above.
(b) None of the properties owned or leased by Texas Air are in material
violation of any federal, state or local law, ordinance, regulation or order
relating to industrial hygiene or to the environmental conditions in such
properties, including but not limited to, soil and ground water condition.
(c) During the time that Texas Air has owned or leased its properties,
Texas Air has not, nor, to its best knowledge, has any third party used,
generated, manufactured or stored in such properties or transported to or from
such properties any material amount of Hazardous Materials.
(d) During the time that Texas Air has owned or leased its properties,
no litigation, proceeding or administrative action has been brought or
threatened in writing against Texas Air (and, to Texas Air's best knowledge, no
such action has been otherwise threatened), or any settlement reached by Texas
Air with, any party or parties alleging the presence, disposal, release or
threatened release of any Hazardous Materials on, from or under any such
properties.
(e) During the period that Texas Air has owned or leased its
properties, to the best knowledge of Texas Air, no Hazardous Materials have been
transported from such properties to any site or facility now listed or proposed
for listing on the National Priorities List, at 40 C.F.R. Part 300, or any list
with a similar scope or purpose published by any state authority.
2.22 Government Contracts. All representations, certifications and
disclosures made by Texas Air to any Government Contract Party (as defined
below) were in all material respects current, complete and accurate at the time
they were made, and Texas Air has no knowledge of acts, omissions or
noncompliance with regard to any applicable public contracting statute,
regulation, or contract requirement (whether express or incorporated by
reference) relating to any of Texas Air's contracts with any Government
Contract Party that has led to or reasonably could lead to, either before or
after the Closing Date (i) any material claim or dispute involving Texas Air
and/or ADT and any Government Contract Party, or (ii) any suspension, debarment
or contact termination, or proceeding related thereto which could be reasonably
expected to have a material adverse effect on Texas Air. Texas Air represents
and warrants that it has no knowledge of, and has no reason to know of, any
acts or omissions relating to the licensing or selling to any Government
Contract Party, or marketing of, or any of Texas Air technical data or computer
software, that has led to or reasonably could lead to, either before or after
the Closing Date, any material cloud on any of Texas Air's rights in and to its
technical data or computer software, and that all of Texas Air's development of
technical data and computer software was developed exclusively at private
expense. For purposes of this Section 2.22, the term "Government Contract
Party" means any independent or executive agency, division, subdivision,
including any prime contractor of the federal government and any higher level
subcontractor of a prime contractor of the federal government, and including
any employees or agents thereof, in each case acting in such capacity.
2.23 Outstanding Debt and Related Rights.
(a) Prior to the Effective Time, each person holding any right to
directly or indirectly acquire any direct or indirect equity interest in Texas
Air ("Warrant Holders") has in writing requested, and Texas Air has in writing
confirmed, that all such rights for Texas Air Common Stock will be converted to
rights to acquire ADT Common Stock and Warrants.
(b) Forgiveness and release will be effected in the case of all Warrant
Holders solely in exchange for ADT Common Stock and warrants solely in
consideration of the exchange anticipated under Clause (ii) of Subsection
1.1(a).
10
<PAGE> 149
3. Representations and Warranties of ADT and Sub
ADT and Sub hereby jointly and severally represent and warrant, that,
except as set forth on the ADT Schedule of Exceptions attached hereto as
Exhibit 3.
3.1 Organization and Good Standing. ADT and Sub are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and Texas, respectively, and each has the corporate power and
authority to own, operate and lease its properties and to carry on its business
as now conducted and as proposed to be conducted.
3.2 Power, Authorization and Validity.
(a) Each of ADT and Sub has the corporate right, power, legal capacity
and authority to enter into and perform their respective obligations under this
Agreement, and all agreements to which ADT or Sub is or will be a party that
are required to be executed pursuant to this Agreement, including without
limitation, the Merger Agreement (the "ADT Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the ADT Ancillary
Agreements has been duly and validly approved and authorized by each of ADT's
and Sub's Board of Directors and by ADT, as the sole shareholder of Sub and
prior to the Effective Time, will be duly and validly approved by a majority of
the stockholders of ADT.
(b) No filing, authorization or approval, governmental or otherwise, is
necessary to enable ADT or Sub to enter into, and to perform its obligations
under, this Agreement and the ADT Ancillary Agreements, except for (a) the
filing of the Merger Agreement with the Texas Secretary of State; (b) the
filing of the Joint Proxy Statement with the SEC; and (c) such other filings as
may be required to comply with federal and state securities laws.
(c) This Agreement and the ADT Ancillary Agreements are, or when
executed by ADT and Sub will be, valid and binding obligations of ADT or Sub,
enforceable in accordance with their respective terms, except as to the effect,
if any, of (i) applicable bankruptcy and other similar laws affecting the
rights of creditors generally; (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies; and (iii) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities.
3.3 Capitalization. The authorized capital stock of Sub consists of 1,000
shares of common stock, no par value, all of which are outstanding and issued
to ADT. The authorized capital stock of ADT presently consists of 25,000,000
shares of ADT Common Stock, of which 15,999,956 shares are issued and
outstanding and 10,000,000 shares of ADT Preferred Stock, of which no shares
are outstanding. An aggregate of 2,884,658 shares of ADT Common Stock are
reserved and authorized for issuance pursuant to the Amended and Restated
Non-qualified Stock Option Plan, the Long-Term Incentive Plan, the Stock Option
Plan for Employees and Pre-IPO options (the "ADT Plans"), of which options to
purchase shares of ADT Common stock are outstanding. Excluding Texas Air's
existing warrants, warrants or options to purchase an additional 4,390,556
shares are outstanding. Attached hereto as Exhibit 3.3 is a schedule
reflecting all outstanding warrants or options to acquire ADT Common Stock, the
holder, the term and the strike price. All issued and outstanding shares of
ADT Common Stock have been duly authorized and validly issued, are fully paid
and nonassessable, are not subject to any right of rescission, and have been
offered, issued, sold and delivered by ADT or Sub in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws. There are no other options,
warrants (other than those listed in Exhibit 3.3 attached hereto), conversion
privileges or preemptive or other rights or agreements outstanding to purchase
or otherwise acquire any of ADT's or Sub's authorized but unissued capital
stock and there is no liability for dividends accrued but unpaid (other than
$41,453 to Denics). There are no voting agreements, rights of first refusal or
other restrictions (other than normal restrictions on transfer under applicable
federal and state securities laws) applicable to any of ADT's outstanding
securities. The shares of ADT Common Stock to be issued pursuant to the Merger
will, when issued, be duly and validly issued, fully paid and non-assessable,
and such shares shall be issued in compliance with all applicable federal and
state securities laws.
3.4 No Violation of Existing Agreements. Neither the execution nor delivery
of this Agreement or any ADT Ancillary Agreement, nor the consummation of the
transactions contemplated thereby or thereby, will conflict with, or (with or
without notice or lapse of time, or both) result in a termination, breach,
11
<PAGE> 150
impairment or violation of (a) any provision of the Articles or Certificate of
Incorporation or Bylaws of ADT or Sub, as currently in effect; (b) in any
material respect, any material instrument or contract to which ADT or Sub is a
party or by which ADT or Sub is bound; or (c) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable
to ADT or its assets or properties.
3.5 Litigation. No action, proceeding, claim or investigation is pending
against ADT or Sub before any court or administrative agency not disclosed in
the materials referenced in Section 3.6 and 3.7, that if determined adversely
to ADT or Sub, may reasonably be expected to have a material adverse effect on
the present or future operations or financial condition of ADT or Sub, and, to
the best of ADT's knowledge, no such action, proceeding, claim or investigation
has been threatened. To the best of ADT's knowledge, no stockholder or former
stockholder of ADT, or any other person, firm, corporation or entity, has any
basis to assert a claim against ADT based upon (a) ownership or rights to
ownership of any shares of ADT Common Stock; (b) any rights as or to become an
ADT stockholder, including any option or preemptive right or rights to notice
or to vote; or (c) any rights under any agreement among ADT and its
stockholders or former stockholders in their capacity as such.
3.6 Public Information. Since June of 1991, ADT has timely filed all forms,
reports and documents with the Securities and Exchange Commission ("SEC")
required to be filed by ADT pursuant to the federal securities laws and the SEC
rules and regulations thereunder (the "SEC Reports"), all of which complied in
all material respects with all applicable requirements of the Securities Act of
1933 and the Securities Exchange Act of 1934, as amended. All of the SEC
Reports, at the time filed, were accurate in all material respects.
3.7 ADT Financial Statements. The consolidated balance sheets and the related
statements of income, stockholders' equity and cash flow (including the related
notes thereto) of ADT included in SEC Reports comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent
with prior periods (unless otherwise noted therein), and present fairly the
financial position of ADT as of their respective dates, and the results of its
operations and its cash flow for the periods presented therein (subject, in the
case of the unaudited interim financial statements, to normal year-end
adjustments).
3.8 Compliance with Laws. To the best of its knowledge, ADT and Sub have
complied, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all order, writs, injunctions, awards, judgment and
decrees, applicable to each ADT and Sub or to its assets, properties and
business (the violation of which would have a material adverse effect upon ADT
and Sub), including without limitation, (a) all applicable federal and state
securities laws and regulations; (b) all applicable federal, state and local
laws, ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing,
ownership or management of ADT's owned, leased, or licensed real or personal
property, products and technical data, (ii) employment and employment
practices, terms and conditions of employment, and wages and hours; and (iii)
safety, health, fire prevention, environmental protection, building standards,
zoning and other similar matters; and (c) the Export Administration Act and
regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgment and decrees applicable to the export or
re-export of controlled commodities or technical data controlled under the
Export Administration Act. Each of ADT and Sub has received all material
permits and approvals from, and has made all material filings with, third
parties, including governmental agencies and authorities, that are necessary in
connection with its present business.
3.9 Corporate Documents. ADT has made available to Texas Air for examination
all material documents and information of ADT and Sub, including without
limitation, the documents and agreements referenced in the Exhibits to this
Agreement and the following: (a) copies of ADT's and Sub's Articles or
Certificate of Incorporation and Bylaws as currently in effect; (b) ADT's and
Sub's respective minute books containing all records of all proceedings,
consents, actions and meetings of ADT's and Sub's board of directors and
shareholders; (c) ADT's and Sub's respective stock ledgers and journals
reflecting all stock issuances and transfers; and (d) all permits, orders and
consents issued by any regulatory agency with respect to ADT or Sub, or any
securities of ADT, and all applications for such permits, orders and consents.
12
<PAGE> 151
3.10 No Brokers. ADT is not obligated for the payment of fees or expenses of
any investment banker, broker or finder in connection with the origin,
negotiation or execution of this Agreement or the ADT Ancillary Agreements or
in connection with any transaction contemplated hereby or thereby.
3.11 No Violation of Existing Agreements. Neither the execution nor delivery
of this Agreement or any ADT Ancillary Agreement, nor the consummation of the
transactions contemplated hereby, will conflict with, or (with or without
notice or lapse of time, or both) result in a termination, breach, impairment
or violation of (a) any provision of the Articles or Certificate of
Incorporation or Bylaws of ADT or Sub, as currently in effect; (b) in any
material respect, any material instrument or contract to which ADT or Sub is a
party or by which ADT or Sub is bound or which ADT or Sub will become a party
to or be bound by prior to the Closing; or (c) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable
to ADT or Sub or their assets or properties.
3.12 Disclosure. ADT has made available to Texas Air (and Texas Air has in
turn distributed to its shareholders and Warrant Holders) a disclosure package
consisting of ADT's annual report on Form 10-K for its fiscal year ending
December 31, 1994 (the "1994 Year End"), all forms 10-Q and 8-K filed by ADT
with the SEC since the 1994 Year End and up to the date of this Agreement, and
all proxy materials distributed to ADT's stockholders since the 1994 Year End
and up to the date of this Agreement (the "ADT Disclosure Package"). The ADT
Disclosure Package, the other SEC Reports (all of which has been offered or
otherwise made available, to Texas Air and its affiliates), the Joint Proxy
Statement, this Agreement, the exhibits and schedules hereto, the S-4
registration statement, prospectus and any other certificates or documents to
be delivered to Texas Air pursuant to this Agreement, when taken together, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which such statements were made,
not misleading.
4. Preclosing Covenants of Texas Air.
During the period from the date of this Agreement until the Effective
Time, Texas Air covenants, agrees and guarantees that Texas Air shall take the
following actions:
4.1 Advice of Changes. Texas Air shall promptly advise ADT in writing (a) of
any event occurring subsequent to the date of this Agreement that would render
any representation or warranty of Texas Air contained in this Agreement, if
made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect; and (b) of any material adverse change in
Texas Air's business, results of operations or financial condition. Texas Air
shall deliver to ADT within 15 days after the end of each monthly accounting
period ending after October 31, 1995 and before the Closing Date, an unaudited
balance sheet and statement of operations, which financial statements shall be
prepared in the ordinary course of business, in accordance with the
corporation's books and records and generally accepted accounting principles
and shall fairly present the financial position of the corporation as of their
respective dates and the results of the corporation's operations for the
periods then ended.
4.2 Maintenance of Business. Texas Air shall use its best efforts to carry on
and preserve its goodwill, business and its relationships with customers,
suppliers, employees and others in substantially the same manner as it has
prior to the date hereof. If Texas Air becomes aware of a material
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of ADT in writing
(provided, however, that Texas Air shall not be required to disclose to ADT
confidential information of a third party so long as Texas Air informs ADT in
writing that it is unable to provide such information in a specific case and
the reason therefor, and provides such information to ADT's counsel, on an
"attorney-only basis,") and, if requested by ADT, will exert all reasonable
efforts to restore the relationship.
4.3 Conduct of Business. Texas Air will continue to conduct its business and
maintain its business relationships in the ordinary and usual course, and Texas
Air will not, without the prior written consent of the President of ADT, not to
be unreasonably withheld:
(a) Borrow any money;
13
<PAGE> 152
(b) Enter into any transaction not in the ordinary course of business or
enter into any transaction or make any commitment involving an expense or
capital expenditure in excess of $40,000;
(c) Encumber or permit to be encumbered any of its assets except in the
ordinary course of its business consistent with past practice and to an extent
which is not material;
(d) Dispose of any of its material assets except in the ordinary course
of business consistent with past practice;
(e) Enter into any material lease or contract for the purchase or sale
of any property, real or personal, tangible or intangible, except in the
ordinary course of business consistent with past practice;
(f) Fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date
of this Agreement, subject only to ordinary wear and tear;
(g) Except for normal bonuses consistent with past practice, pay any
bonus, royalty, increased salary or special remuneration to any officer,
employee or consultant or enter into any new employment or consulting agreement
with any such person, or enter into any agreement or plan of the type described
in Subsection 2.15(e);
(h) Change accounting methods;
(i) Except for a distribution of the ADT Common Stock held by Texas Air
or the proceeds from the sale thereof, declare, set aside or pay any cash or
stock dividend or other distribution in respect of capital stock, or redeem or
otherwise acquire any of its capital stock;
(j) Amend or terminate any contract, agreement or license to which it
is a party, except those amended or terminated in the ordinary course of
business, consistent with past practice, and that are not material in amount or
effect;
(k) Lend any amount to any person or entity, other than advances for
travel and expenses that are incurred in the ordinary course of business
consistent with past practice, that are not material in amount and that are
documented by receipts for the claimed amounts;
(l) Guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course
of business, consistent with past practice;
(m) Waive or release any material right or claim, except in the ordinary
course of business, consistent with past practice;
(n) Except for shares issued to Denics Co., Ltd. pursuant to its current
subscription agreements or warrants, issue or sell any shares of its capital
stock of any class, or any other of its securities, or issue or create any
warrants, obligations, subscriptions, options, convertible securities or other
commitments to issue shares of capital stock;
(o) Split or combine the outstanding shares of its capital stock or
enter into any recapitalization or reclassification affecting the number of
outstanding shares of its capital stock or affecting any other of its
securities;
(p) Merge, consolidate or reorganize with, or acquire, any entity;
(q) Amend its Articles of Incorporation or Bylaws;
(r) Agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return unless copies of such returns
have been delivered to ADT for its review prior to filing;
(s) License any of its technology or any Intellectual Property, except
in the ordinary course of business, consistent with past practice;
14
<PAGE> 153
(t) Change any insurance coverage;
(u) Terminate the employment of any key employee; or
(v) Agree to do any of the things described in the preceding Subsections
4.3(a) through 4.3(u).
4.4 Shareholders Approval. Texas Air shall solicit the approval of its
shareholders and of the Warrant Holders (collectively, the "Texas Air
Participants") for the purpose of approving this Agreement, the Merger
Agreement, the Merger and all other matters necessary to consummate the
transactions contemplated in this Agreement. In connection with such
solicitation, Texas Air will recommend such approval to its shareholders and
Warrant Holders and all of the directors of Texas Air will vote their stock
in favor of approval of the merger.
4.5 Disclosure. Texas Air shall send to the Texas Air Participants in a
timely manner, for the purpose of considering and approving this Merger, the ADT
Disclosure Package and the other information described in Section 3.12. Texas
Air will promptly provide to ADT all information relating to its business or
operations necessary for inclusion in the Joint Proxy Statement and the S-4
registration statement or that may otherwise be required to satisfy all
applicable state and federal securities laws. Texas Air shall be solely
responsible for any statement, information or omission in the Joint Proxy
Statement and S-4 registration statement relating to it. Texas Air will
neither provide nor publish to any Texas Air Participant any material
concerning it that violates any applicable federal or state securities laws
with respect to the transactions contemplated hereby.
4.6 Regulatory Approvals. Texas Air shall execute and file, or join the
execution and filing, of any application or other document that may be
necessary or desirable to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign that may be reasonably
required, or that ADT may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. Texas Air
will use all reasonable efforts to obtain all such authorizations, approvals
and consents.
4.7 Necessary Consents. Texas Air shall use all reasonable efforts to obtain
such written consents and shall take such other actions as may be necessary or
appropriate for Texas Air, in addition to those referenced in Section 4.6, to
allow the consummation of the transactions contemplated hereby and to allow the
Surviving Corporation to carry on Texas Air's business after the closing.
4.8 Litigation. Texas Air shall notify ADT in writing promptly after learning
of any material actions, suits, proceedings or investigations by or before any
court, board or governmental agency, initiated by or against Texas Air, or
known by Texas Air to be threatened against it.
4.9 No Other Negotiations. From the date hereof until the termination of this
Agreement (provided such termination is not in breach of this Agreement) or
consummation of the Merger, Texas Air shall not, and shall not authorize or
permit any officer, director, employee or affiliate of Texas Air, or any other
person, on its behalf to, directly or indirectly, solicit or encourage any
offer from any party or consider any inquiry or proposal received from any
party other than ADT, concerning the possible disposition of all or any
material portion of Texas Air's business, assets or capital stock by merger,
sale or any other means. Texas Air shall promptly notify ADT orally and in
writing of any such offer, inquiry or proposal.
4.10 Access to Information. Until the Closing, Texas Air shall allow ADT and
its agents reasonable access to the files, books, records and offices of Texas
Air, including, without limitation, any and all information relating to Texas
Air's commitments, contracts, leases, taxes, licenses, and real, personal and
intangible property and financial condition. Texas Air will cause its
accountants to cooperate with ADT and its agents in making available all
financial information reasonably requested, including without limitation the
right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
4.11 Satisfaction of Conditions Precedent. Texas Air shall use all reasonable
efforts to satisfy or cause to be satisfied all the conditions precedent set
forth in Article 8, transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
15
<PAGE> 154
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part to effect the transactions contemplated hereby.
4.12 Securities-Law Representation Letter. Prior to the Effective Time, Texas
Air shall deliver to ADT a list of all Texas Air shareholders who may be deemed
to be "affiliates" of Texas Air for purposes of SEC Rule 145 (the
"Affiliates"), and shall cause each Texas Air Affiliate to deliver to ADT, on
or before the Effective Time, a letter confirming that such shareholder will
not sell, pledge, transfer or otherwise dispose of any ADT Common Stock issued
to such shareholder pursuant to the Merger, except (i) pursuant to an effective
registration statement; (ii) in compliance with SEC Rule 145; or (iii) in
compliance with an exemption from the registration requirements of the
Securities Act.
4.13 Tax-Law Representation Letter. Texas Air shall use its best efforts to
cause each Texas Air shareholder holding (immediately before the Effective
Time) 5% of more of Texas Air Common Stock to execute and deliver to ADT a
representation letter in the form of Exhibit 4.13.
5. ADT Preclosing Covenants.
During the period from the date of this Agreement until the Effective
Time, ADT and Sub each covenants and agrees as follows:
5.1 Advice of Changes. Each of ADT and Sub shall promptly advise Texas Air in
writing (a) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of ADT or Sub contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect; and (b) of any material adverse
change in ADT's or Sub's business, results of operations or financial
condition. ADT or Sub shall deliver to Texas Air within 15 days after the end
of each monthly accounting period ending after September 30, 1995 and before
the Closing Date, an unaudited balance sheet and statement of operations, which
financial statements shall be prepared in the ordinary course of business, in
accordance with the corporation's books and records and generally accepted
accounting principles and shall fairly present the financial position of the
corporation as of their respective dates and the results of the corporation's
operations for the periods then ended; and (ii) copies of any filings made with
the SEC including without limitation, any reports filed on Form 10-K, Form
10-Q, Form 8-K or Form 8.
5.2 Conduct of Business. ADT will continue to conduct its business and
maintain its business relationships in the ordinary and usual course, and ADT
will not, without the prior written consent of the President of Texas Air, not
to be unreasonably withheld:
(a) Borrow any money;
(b) Enter into any transaction not in the ordinary course of business or
enter into any transaction or make any commitment involving an expense or
capital expenditure in excess of $100,000;
(c) Encumber or permit to be encumbered any of its assets except in the
ordinary course of its business consistent with past practice and to an extent
which is not material;
(d) Dispose of any of its material assets except in the ordinary course
of business consistent with past practice;
(e) Enter into any material lease or contract for the purchase or sale
of any property, real or personal, tangible or intangible, except in the
ordinary course of business consistent with past practice;
(f) Fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date
of this Agreement, subject only to ordinary wear and tear;
(g) Except for any bonuses consistent with past practice, pay any bonus,
royalty, increased salary or special remuneration to any officer, employee or
16
<PAGE> 155
consultant or enter into any new employment or consulting agreement with any
such person, or enter into any agreement or plan of the type described in
Subsection 2.15(e);
(h) Change accounting methods;
(i) Declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock;
(j) Amend or terminate any contract, agreement or license to which it
is a party, except those amended or terminated in the ordinary course of
business, consistent with past practice, and that are not material in amount or
effect;
(k) Lend any amount to any person or entity, other than advances for
travel and expenses that are incurred in the ordinary course of business
consistent with past practice, that
are not material in amount and that are documented by receipts for the claimed
amounts;
(l) Guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course
of business, consistent with past practice;
(m) Waive or release any material right or claim, except in the ordinary
course of business, consistent with past practice;
(n) Except for shares issued pursuant to the exercise of any currently
outstanding options or warrants, issue or sell any shares of its capital stock
of any class, or any other of its securities, or issue or create any warrants,
obligations, subscriptions, options, convertible securities or other
commitments to issue shares of capital stock;
(o) Split or combine the outstanding shares of its capital stock or
enter into any recapitalization or reclassification affecting the number of
outstanding shares of its capital stock or affecting any other of its
securities;
(p) Merge, consolidate or reorganize with, or acquire, any entity;
(q) Except as contemplated herein, amend its Articles of Incorporation
or Bylaws;
(r) Agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return unless copies of such returns
have been delivered to Texas Air for its review prior to filing;
(s) License any of its technology or any Intellectual Property, except
in the ordinary course of business, consistent with past practice;
(t) Change any insurance coverage;
(u) Terminate the employment of any key employee; or
(v) Agree to do any of the things described in the preceding Subsections
5.2(a) through 5.2(u).
5.3 Stockholders Approval. ADT shall solicit the approval of its stockholders
for the Merger, an amendment to ADT's Articles of Incorporation increasing its
authorized common stock and all other matters necessary to consummate the
transactions contemplated in this Agreement. In connection with such
solicitation, ADT will recommend approval to its stockholders and all of the
directors of ADT will vote their stock in favor of approval of the Merger.
5.4 Joint Proxy Statement. ADT shall send to ADT stockholders in a timely
manner, for the purpose of considering and approving the Merger and the
amendment to ADT's Articles of Incorporation increasing its authorized common
stock, a Joint Proxy Statement in the form filed by ADT with the SEC. ADT shall
be solely responsible for any statement, information or omission in the Joint
Proxy Statement relating to ADT and will satisfy all requirements of applicable
state and federal securities law.
17
<PAGE> 156
5.5 Litigation. ADT and Sub shall each notify Texas Air in writing promptly
after learning of any material actions, suits, proceedings or investigations by
or before any court, board or governmental agency, initiated by or against ADT,
or known by ADT to be threatened against it. ADT will not grant any licenses
or assignments of its patents, rights or technological know how to any party to
settle a lawsuit or claim without Texas Air's consent, which shall not be
unreasonably withheld.
5.6 Access to Information. Until the Closing, ADT and Sub will allow Texas
Air and its agents reasonable access to the files, books, records and offices of
ADT and Sub, including, without limitation, any and all information relating to
ADT's and Sub's taxes, commitments, contracts, leases, licenses, and real,
personal and intangible property and financial condition. Each of ADT and Sub
will cause its accountants to cooperate with Texas Air and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants. Notwithstanding the
foregoing, each of ADT and Sub shall not be required to provide Texas Air with
access to competitive information, and may provide that such information shall
only be available to Texas Air's outside accountants or legal counsel.
5.7 Satisfaction of Conditions Precedent. ADT and Sub shall use all
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent set forth in Article 7 and ADT and Sub shall use all reasonable
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part to effect the transactions contemplated hereby.
5.8 Regulatory Approvals. ADT and Sub shall execute and file, or join the
execution and filing, of any application or other document that may be
necessary to obtain the authorization, approval or consent of any governmental
body, federal, state, local or foreign that may be reasonably required, or that
Texas Air may reasonably request, in connection with the consummation of the
transactions contemplated by this Agreement. ADT and Sub will use all
reasonable efforts to obtain all such authorizations, approvals and consents.
5.9 Necessary Consents. ADT and Sub shall use all reasonable efforts to
obtain such written consents and shall take such other actions as may be
necessary or appropriate for ADT and Sub, in addition to those referenced in
Section 5.9, to allow the consummation of the transactions contemplated hereby
and to allow the Surviving Corporation to carry on Texas Air's business after
the closing.
6. Closing Matters
6.1 The Closing. Subject to termination of this Agreement as provided in
Article 9, the closing of the transactions provided for herein (the "Closing")
will take place at the offices of ADT, 28411 Northwestern Highway, Suite 1100,
Southfield, Michigan 48034-5541, at 11:00 a.m. local time, on July 31, 1996, or
on such other time and date as ADT and Texas Air may select (the "Closing
Date"). Prior to or concurrently with the Closing, the Merger Agreement will
be filed in the office of the Secretary of the State of Texas.
6.2 Exchange of Certificates.
(a) As of the Effective Time, shares of Texas Air Common Stock that are
outstanding immediately prior thereto shall, by virtue of the Merger and
without further action, cease to exist and shall be converted into the right to
receive from ADT the number of shares of ADT Common Stock, warrants and cash
determined pursuant to Section 1.1.
(b) At the Closing, the Texas Air shareholders shall surrender the
certificate(s) for their shares of Texas Air Common Stock (the "Texas Air
Certificates"), duly endorsed as requested by ADT, to ADT for cancellation.
Promptly after receipt of such Texas Air Certificates, ADT shall issue to each
such tendering holder a certificate for the number of shares of ADT Common
Stock and warrants to which such holder is entitled pursuant to Section 1.1.
18
<PAGE> 157
(c) All ADT Common Stock and warrants delivered upon the surrender of
Texas Air Certificates in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such Texas
Air Common Stock. After the Effective Time, no further transfer will be
registered on the stock transfer books of Texas Air or its transfer agent of
the Texas Air Common Stock owned by the Texas Air shareholders immediately
before the Effective Time.
7. Conditions to Obligations of Texas Air.
Texas Air's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions
(any one or more of which may be waived by Texas Air, but only in a writing
signed by Texas Air):
7.1 Accuracy of Representations and Warranties. The representations and
warranties of ADT and Sub set forth in Article 3 shall be true and accurate in
every material respect on and as of the Closing with the same force and effect
as if they had been made at the Closing.
7.2 Covenants. ADT and Sub shall have performed and complied in all material
respects with all of their respective covenants contained in Article 5 on or
before the Closing.
7.3 ADT Compliance Certificate. Texas Air shall have received a certificate
signed by the president of ADT certifying that the conditions set forth in
Section 7.1 and 7.2 have been fulfilled.
7.4 Compliance with Law. There shall be no order, decree, or ruling by any
court or government agency or threat thereof, or any other the or circumstance,
that would prohibit or render illegal the transactions contemplated by this
Agreement.
7.5 Government Consents. There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to requirements under
applicable federal and state securities laws.
7.6 Registration. An S-4 registration statement shall have become effective
in accordance with the provisions of the Securities Act of 1933, as amended.
Neither the SEC nor the "blue-sky" or securities authority of any jurisdiction
shall have issued an order (a "Stop Order") suspending the effectiveness of the
registration statement, preventing or suspending the use of the preliminary
Joint Proxy Statement, the Joint Proxy Statement, the prospectus, or the
registration statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the registration statement, or suspending the
registration or qualification of the ADT Common Stock covered thereby, nor
shall any of such authorities have instituted or threatened to institute any
proceedings with respect to a Stop Order.
7.7 Documents. Texas Air shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by their legal counsel to consummate the transactions contemplated
hereby.
7.8 Shareholder Approval. The principal terms of this Agreement, the Merger
Agreement and the Merger, shall have been approved and adopted by Texas Air's
Board of Directors, by a majority of the holders of Texas Air's Common Stock
and by a majority of the holders of ADT's Common Stock, all in accordance with
applicable law.
7.9 Merger Agreement. Sub shall have executed and delivered the Merger
Agreement.
7.10 Absence of Adverse Business Change. There shall not have been any
material adverse change in the business or financial condition of ADT or Sub.
7.11 ADL - JAPAN. An agreement mutually acceptable to Texas Air and ADT has
been negotiated with the former shareholders and their assigns of ADL - JAPAN
19
<PAGE> 158
whereby they relinquish rights under the Purchase Agreement dated March
15, 1993 by and between American Dental Laser, Inc. and Daniel S. Goldsmith and
Walter J. Goldsmith, in exchange for ADT Common Stock and/or warrants, if any.
7.12 Gallant Employment Agreement. An employment agreement acceptable to Ben
Gallant has been negotiated with ADT and Texas Air.
7.13 The ADT Common Stock to be issued in connection with the Merger must be
issued before the record date for purposes of voting at the next annual
shareholder meeting of ADT.
7.14 Dissenters. Holders of less than 50,000 shares of Texas Air stock have
filed a written objection to the Merger as required to exercise dissenters
rights under Sections 5.11-5.13 of the Texas Business Corporation Act.
8. Conditions to Obligations of ADT.
The obligations of ADT and of Sub hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by ADT, but only in a writing signed by
ADT):
8.1 Accuracy of Representations and Warranties. The representations and
warranties set forth in Article 2 shall be true and accurate in every material
respect on and as of the Closing with the same force and effect as if they had
been made at Closing.
8.2 Covenants. Texas Air shall have performed and complied in all material
respects with all of its covenants contained in Article 4 on or before the
Closing.
8.3 Texas Air Compliance Certificate. ADT shall have received a certificate
signed by the president of Texas Air certifying that the conditions set forth
in Section 8.1 and 8.2 have been fulfilled.
8.4 Compliance with Law. There shall be no order, decree, or ruling by any
court or government agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.5 Government Consents. There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to requirements under
applicable federal and state securities laws.
8.6 Registration. An S-4 registration statement shall have become effective
in accordance with the provisions of the Securities Act of 1933, as amended.
Neither the SEC nor the "blue-sky" or securities authority of any jurisdiction
shall have issued an order (a "Stop Order") suspending the effectiveness of the
registration statement, preventing or suspending the use of the preliminary
Joint Proxy Statement, the Joint Proxy Statement, the prospectus, or the
registration statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the registration statement, or suspending the
registration or qualification of the ADT Common Stock covered thereby, nor
shall any of such authorities have instituted or threatened to institute any
proceedings with respect to a Stop Order.
8.7 Documents. ADT shall have received all written consents, assignments,
waivers, authorizations or other certificates reasonably deemed necessary by
ADT's legal counsel to provide for the continuation in full force and effect of
any and all material contracts and leases of Texas Air to consummate the
transactions contemplated hereby.
8.8 No Litigation. No litigation or proceeding shall be threatened or
pending that could be reasonably expected to have a material adverse effect on
the present or future operations or financial condition of Texas Air.
20
<PAGE> 159
8.9 Requisite Approvals. The principal terms of this Agreement, the Merger
Agreement, the Merger, and the amendment to the Articles of Incorporation
increasing ADT's authorized common stock shall have been approved and adopted
by the Board of Directors of ADT, by ADT, as sole shareholder of Sub, by a
majority of holders of ADT's Common Stock and by two-thirds of the holders of
the shares of Texas Air's Common Stock, all in accordance with applicable law.
8.10 Merger Agreement. Texas Air shall have executed and delivered the Merger
Agreement.
8.11 Non-Competition Agreements. ADT shall have received an executed
NonCompetition Agreement from each of Ben J. Gallant, John E. Vickers III and
other key Texas Air employees as may be reasonably requested.
8.12 Accountants Letter. ADT shall have received on the effective date of the
S-4 registration statement and at the Effective Time, letters from Ernst &
Young, its independent certified public accountants, dated as of those dates,
in the form customarily provided in like transactions and heretofore agreed
upon.
8.13 Absence of Adverse Business Change. There shall not have been any
material adverse change in the business or financial condition of Texas Air.
8.14 Texas Air Schedule of Exceptions. Issues raised by ADT pursuant to the
disclosures comprising the Texas Air Schedule of Exceptions (Exhibit 2), if
any, shall be resolved to the satisfaction of ADT. No amendment to the Texas
Air Schedule of Exceptions, and no underlying documentation promptly requested
by ADT in response to the Texas Air Schedule of Exceptions, shall (a) be
presented to ADT after December 31, 1995; or (b) disclose any material adverse
change in the business or financial condition of Texas Air.
8.15 Fairness Opinion. ADT shall have received an opinion from its financial
advisor, as of the date of the Joint Proxy Statement and for inclusion therein,
to the effect that the Merger and the other transactions contemplated by this
Agreement are fair, from a financial point of view, to ADT and its
stockholders, and such opinion shall have been confirmed in writing at the
Effective Time.
8.16 Title Insurance. ADT shall have received at or prior to the Effective
Time a commitment for title insurance from a title insurance company or
companies designated by ADT to issue an owner's policy and, if requested by
ADT, a current survey certified to ADT and to such title insurance company
showing all improvements, rights-of-way, and easements and encroachments, all
at ADT's expense, with respect to the real property owned by Texas Air, such
commitment to show to the satisfaction of ADT that immediately prior to the
Effective Time, Texas Air had good and marketable title in fee simple absolute
to such real property, free and clear of all liens, mortgages, security
interests, pledges, charges, and encumbrances. Such commitment shall, if
required by ADT, contain no exception for survey matters except for those shown
on the current survey, and shall contain no exceptions for rights of tenants or
other third parties. Such commitment shall also contain a nonimputation
endorsement in respect of acts or knowledge of Texas Air prior to the Effective
Time.
9. Termination of Agreement.
9.1 Termination.
(a) This Agreement may be terminated at any time prior to the Closing,
by the mutual written consent of each of the parties hereto.
(b) Any party may terminate this Agreement if the Merger is not
consummated by August 30, 1996; provided, however, that such termination shall
not release any party hereto from any liability they might have on account of
the breach of any of their obligations under this Agreement (including, without
limitation, their obligations to use all reasonable effort to cause the
transactions contemplated by this Agreement to be consummated).
21
<PAGE> 160
(c) If there is a material adverse change in the business, or financial
condition, of ADT or Texas Air, the other party may, at its option, terminate
this Agreement.
(d) If there is a material condition precedent which cannot be
satisfied and is not waived, including without limitation, if the holders of at
least a majority of the shares of ADT Common Stock or two-thirds of the shares
of Texas Air Common Stock shall not have voted in favor of the adoption or
approval of this Merger and the other transactions contemplated, this Agreement
may be terminated by either party.
9.2 Notice. Any termination of this Agreement under this Article 9 will be
effective upon the delivery of written notice by the terminating party to the
other party hereto.
9.3 Certain Continuing Obligations. Following any termination of this
Agreement pursuant to this Article 9, the parties hereto shall continue to
perform their respective obligations under Section 14.15 and 14.16 but shall
not be required to continue to perform their other covenants under this
Agreement.
9.4 Breakup Fee. In the event the Merger is not consummated for any reason
whatsoever and this Agreement is terminated, ADT agrees to pay Texas Air
$700,000. ADT shall pay such amount over a reasonable time period which does
not jeopardize the financial health of ADT. Texas Air may offset all or a
portion of the $700,000 against any amount it owes ADT.
10. Material Deviations and Survival of Representations.
10.1 Material Deviations. In the event there is a material deviation in the
condition of either Texas Air or ADT from what has been represented by the
parties to each other or to Equity Partners, Ltd. and such material deviation
is discovered prior to closing, both parties shall negotiate a good faith
adjustment to the consideration for the Merger.
10.2 Survival of Representations. Unless otherwise specified herein, the
respective representations, warranties and covenants of Texas Air, ADT and Sub
contained in this Agreement shall terminate on the Closing Date.
11. Indemnification
11.1 Recourse of ADT. Texas Air agrees to defend, indemnify and hold harmless
ADT (and its stockholders, directors, officers, employees and agents) against
and in respect of:
(a) Any and all loss, damage or injury resulting from any material
breach of this Agreement by Texas Air. For purposes of this Section 11.1, such
a breach shall be deemed material if it and any other such breach(es), when
combined, give rise to a loss or other liability in excess of $100,000.00
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, legal fees and other expenses, pertaining to any
of the foregoing, provided, however that if any such action, suit or proceeding
shall be commenced against, or any such claim, demand or assessment shall be
asserted against ADT in respect of which ADT proposes to demand
indemnification, a Texas Air shall be notified to that effect and shall be
given the opportunity to assume the entire control of the defense, compromise
or settlement thereof, including, at the Texas Air expense, employment of
counsel, and in connection therewith ADT shall cooperate fully to make
available to the Texas Air all pertinent information under its control. Texas
Air shall decide whether to assume the defense of any such claim, within 15
days after notice from ADT of the claim.
11.2 Recourse of Texas Air. ADT agrees to defend, indemnify and hold harmless
Texas Air (and its shareholders, directors, officers, employees and agents)
against and in respect of:
(a) Any and all loss, damage or injury resulting from any material
breach of this Agreement by ADT or Sub. For purposes of this Section 11.2,
such a breach shall be deemed material if it and any other such breach(es),
when combined, give rise to a loss or other liability in excess of $100,000.
22
<PAGE> 161
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, legal fees and other expenses, pertaining to any
of the foregoing, provided, however that if any such action, suit or proceeding
shall be commenced against, or any such claim, demand or assessment shall be
asserted against Texas Air in respect of which Texas Air proposes to demand
indemnification, ADT shall be notified to that effect and shall be given the
opportunity to assume the entire control of the defense, compromise or
settlement thereof, including, at ADT's expense, employment of counsel, and in
connection therewith Texas Air shall cooperate fully to make available to ADT
all pertinent information under its control. ADT shall make such decision
whether to assume the defense of any such claim, within 15 days after notice of
the claim.
11.3 Jurisdiction and Forum. Notwithstanding any provision of this Agreement
to the contrary, any claim brought under this Agreement shall be brought:
(a) in the Federal District Court for the Eastern District of Michigan
or in the Michigan Circuit Court for the County of Oakland (which jurisdiction
and venue is hereby acknowledged to be proper), if such claim is asserted by
Texas Air or any shareholder, Warrant Holder, or any assignee thereof or
successor thereto, or
(b) in the Federal District Court for the Western District of Texas or
in court of general jurisdiction for the county of Nueces, Texas (which
jurisdiction and venue is hereby acknowledged to be proper), if such claim is
asserted by ADT or Sub or any stockholder, assignee thereof or successor
thereto.
12. Industrial Patents
12.1 Industrial Patents. Immediately after the approval of the Agreement by
the stockholders of ADT and Texas Air, Texas Air shall distribute all of its
industrial patents and $10,000 to a Texas limited partnership ("Texas
Airsonics, L.P."). The industrial patents will be transferred to Texas
Airsonics L.P. subject to a license assignment agreement which will contain the
following and other standard terms for such agreements.
(a) The license will be for a term of 6 years from the Effective Time.
(b) Texas Air will pay Texas Airsonics L.P. an 8% royalty on gross
revenues from any industrial product. Industrial products shall mean any
product which is not intended for ultimate use in the dental field. The
royalty will be paid quarterly within 30 days after March 30th, June 30th,
September 30th and December 31st.
(c) In the event ADT transfers, is acquired or sells substantially all
of its dental business (including a merger with or acquisition by another
company) within 3 years from the Effective Time, the license will terminate
immediately upon transfer or sale of ADT. Further, if the acquiring entity
terminates manufacturing at the Texas Air plant within one year of sale by ADT,
Texas Airsonics L.P. shall have the exclusive right to purchase such
manufacturing facility for book value.
(d) In the event ADT transfers or sells substantially all of its
dental business more than 3 years after the Effective Time, the royalty shall
continue on industrial revenues through 6 years after the Effective Time. On
the day following 6 years from the Effective Time, Texas Airsonics L.P. shall
assign transfer and convey to ADT ownership of 100% of its industrial patents
free and clear of any liens, encumbrances, licenses or restrictions whatsoever.
(e) In the event ADT has not transferred or sold substantially all of
its business by the 6th anniversary of the Effective Time, then Texas Airsonics
L.P. shall immediately assign, transfer and convey to ADT ownership of 100% of
its industrial patents free and clear of any liens, encumbrances, licenses or
restrictions whatsoever.
23
<PAGE> 162
(f) Texas Airsonics L.P. will be owned by the shareholders of Texas
Air at the time of the merger in proportion to their ownership of Texas Air.
Charles A. Nichols, Wayne Johnson II and Ben J. Gallant, will be the sole
general partners.
13. Management
13.1 Management. Effective as of the Closing, the board of directors of ADT
shall consist of nine directors, four of ADT's current members and four members
to be selected by Texas Air. An additional director shall be selected later by
the eight directors. William D. Myers shall continue as the chairman of the
board of directors.
(a) Effective as of the Closing, an executive committee comprised of
Anthony D. Fiorillo and Ben J. Gallant shall be established. The executive
committee shall have the same powers as currently held by the President and CEO
of ADT. Anthony D. Fiorillo and Ben J. Gallant shall report directly to the
executive committee. The term of the members shall be two years. In the event
of a deadlock on the executive committee the issue shall be submitted to the
board of directors of ADT. A meeting of the board of directors will be held to
resolve any deadlock within 10 days of written notice from either member of the
executive committee. Anthony D. Fiorillo, as President and CEO of ADT and Ben
J. Gallant as President and CEO of Texas Air will have authority for the day to
day operations of the respective companies within the policy guidelines set by
the executive committee.
(b) Effective as of the closing, the officers of Sub shall resign and
the officers of Texas Air will be elected to the same offices for the Sub except
that Diane Miller shall be elected Treasurer.
(c) Effective as of the Closing, one of the directors nominated by
Texas Air will be appointed to each of the current committees of ADT.
14. Miscellaneous
14.1 Governing Law. The law of the State of Delaware (irrespective of any
choice of law principles to the contrary) shall govern the validity of this
Agreement, the construction of terms, and the interpretation and enforcement of
the rights and duties of the parties hereto.
14.2 Assignment. Neither party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other party
hereto. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
14.3 Severability. If any provision of this Agreement, or the application
thereof, is for any reason held to any extent to be invalid or unenforceable,
the remainder of this Agreement and application of such provision to other
persons or circumstances shall be interpreted so as reasonably to effect the
intent of the parties hereto.
14.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument.
14.5 Other Remedies. Subject to the restrictions set forth in Article 11, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by
law on such party, and the exercise of any one remedy will not preclude the
exercise of any other.
14.6 Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof
will not be deemed to constitute a waiver of any other default or any
succeeding breach or default.
24
<PAGE> 163
14.7 No Waiver. The failure of any party to enforce any of the provisions
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
14.8 Expenses. Each party will bear its respective expenses and fees of its
own accountant, attorneys, investment advisors and other professionals incurred
with respect to (i) this Agreement; and (ii) the transactions contemplated
hereby.
14.9 Attorneys' Fees. Should suit be brought to enforce or interpret any part
of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
14.10 Notices. Any notice or other communication required or permitted to be
given under this Agreement shall be in writing, and shall be delivered
personally or sent by certified or registered mail, return receipt requested,
or by a nationally recognized express courier service, postage or other fees
prepaid, and will be deemed given upon actual delivery or, if mailed by
registered or certified mail, three business days after deposit in the mails,
or, if sent by courier service, one business day after delivery to the courier
service, addressed as follows:
(a) if to ADT or Sub:
Anthony D. Fiorillo
28411 Northwestern Highway, Suite 1100
Southfield, Michigan 48034-5541
with a copy to:
Mr. Frank Zinn
Dykema Gossett
400 Renaissance Center
35th Floor
Detroit, Michigan 48243
(b) if to Texas Air:
Ben J. Gallant
5555 Bear Lane
Corpus Christi, TX 78405
with a copy to:
John E. Vickers III
5555 Bear Lane
Corpus Christi, Texas 78405
or to such other address as a party may have furnished to the other by written
notice given in accordance with this Section 14.10.
14.11 Construction of Agreement. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof shall not
be construed for or against either party. A reference to a section or an
exhibit shall mean a section or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference
purposes only and shall not in any manner limit the construction of this
Agreement which will be considered as a whole.
14.12 No Joint Venture. Nothing contained in this Agreement will be deemed or
construed as creating a joint venture or partnership between any of the parties
hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party shall have the
power to control the activities and operations of any other and their status
25
<PAGE> 164
is, and at all times, will continue to be, that of independent contractors
with respect to each other. No party shall have any power or authority to bind
or commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section.
14.13 Further Assurances. Each party agrees to cooperate fully with the other
parties and to execute such further instruments, documents and agreements and
to give such further written assurances as may be reasonably requested by any
other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
14.14 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or employee of any party hereto or
any other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between
the parties to this Agreement.
14.15 Public Announcement. Texas Air will not issue any press release or make
any other public disclosure regarding the matters set forth herein without the
prior express written approval of ADT, which approval shall not be unreasonably
withheld. ADT may issue such press releases, and make such other disclosures
regarding the Merger, as it determines are required under applicable securities
laws or NASD rules after reasonable consultation, where possible, with Texas
Air. ADT and Texas Air will take all reasonable precautions to prevent any
trading in the securities of ADT by officers, directors, employees and agents
of ADT or Texas having knowledge of any material information regarding ADT or
Texas Air provided hereunder until the information in question has been
publicly disclosed.
14.16 Confidentiality. The parties hereto agree that all information, whether
printed, written or oral, in answer to specific inquiry or voluntarily
furnished, concerning the other party, its customers, personnel, products,
financial performance or business, disclosed to the other party or its
representatives in the course of meetings, conversation, negotiations or due
diligence investigations in connection with the transactions contemplated by
this Agreement, and the terms and conditions of this Agreement, shall be held
in confidence and not used by the receiving party or its representatives,
except as contemplated by this Agreement. Each party shall, exercise the same
standard of care to protect such information as is used to protect its own
confidential information. If this Agreement is terminated, then (i) this
obligation shall survive for all parties to this Agreement; (ii) each party
shall return to the other any documents containing confidential information of
the other party; and (iii) neither party shall use or disclose or allow a third
party to use or disclose the confidential information of the other party. The
foregoing restrictions will not apply to information that (a) has become
publicly known through no wrongful act of the receiving party, (b) has been
rightfully received from a third party authorized by the disclosing party to
make such disclosure without restriction, (c) has been approved for release by
written authorization of the disclosing party; or (d) has been ordered
disclosed by court order. Each party hereby acknowledges that unauthorized use
or disclosure of confidential information would cause irreparable harm and
significant injury that may be difficult to ascertain. Accordingly, each party
agrees that the other party shall have the right to seek an immediate
injunction enjoining any breach of this confidentiality provision.
14.17 Entire Agreement. This Agreement and the exhibits hereto constitute the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto. The express terms hereto control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
14.18 Exhibits. The Exhibits referred to in this Agreement will be provided by
the respective parties with 20 days of the date of signing.
14.19 Warrant Provisions. Notwithstanding anything else contained in this
Agreement, in the event the average closing price of ADT Common Stock as
reported by Nasdaq for the 15 trading days immediately preceding the date of
the ADT annual shareholder meeting exceeds $2.00, then the exercise price of
the warrants to acquire ADT Common Stock to be issued hereunder will be
increased by 50% of the sum obtained by taking the average closing price of ADT
Common Stock for such 15 day period and deducting $2.00. The Merger Warrants
will not be freely tradeable and are non transferable. ADT agrees to use its
best efforts to file a registration statement on Form S-3 (or a successor form)
26
<PAGE> 165
on September 1, 1997, May 15, 1998, November 15, 1998 and August 15, 1999 (or
if such date is not a business day, on the first business day thereafter),
providing for the sale by the holders of shares of ADT Common Stock acquired
upon exercise of Merger Warrants at least ten days prior to such date and which
were not previously registered under the Securities Act of 1933, and to use its
reasonable best efforts to cause each such registration statement to be
declared effective by the Securities and Exchange Commission and to continue to
be effective for at least two years after the effective date thereof. ADT's
obligation to register shares on behalf of any such holder shall be conditional
upon ADT's receipt from such holder in writing, at least five days prior to the
date of such registration statement filing, of (i) all information reasonably
requested by ADT in connection with the preparation of such registration
statement, and (ii) an undertaking by such holder to (a) indemnify ADT and its
directors, officers and affiliates for all claims, damages, liabilities and
expenses incurred by them arising out or based upon any untrue statement or
omission, or alleged untrue statement or omission, made in such registration
statement or prospectus in reliance upon information furnished to ADT by such
holder for use therein and (b) temporarily cease making sales of shares
registered under such registration statement upon receipt of written notice
from ADT, if ADT determines, in good faith, that the use of the prospectus
included in such registration statement would require the disclosure of
important information which ADT has a bona fide purpose for preserving as
confidential or the disclosure of which would impede ADT's ability to
consummate a significant transaction, until the receipt of a further notice
from ADT that sales may resume under the registration statement. ADT shall not
be required to file a registration statement if, on the applicable filing date
thereof, (i) the number of shares to be registered by such registration
statement is less than 500,000 shares, (ii) ADT is not eligible to use Form S-3
in connection with such registration, (iii) ADT has determined, in good faith,
as of such date that the filing of such registration statement would require
the disclosure of important information which ADT has a bona fide purpose for
preserving as confidential or the disclosure of which would impede ADT's
ability to consummate a significant transaction; provided, that in the case of
(ii), ADT shall be required to file such registration statement as soon as
practicable after it becomes eligible to use Form S-3 in connection with such
registration and, in the case of (iii), ADT shall be required to file such
registration statement as soon as practicable after it has determined that such
disclosure would no longer be required or ADT's ability to consummate such
transaction would no longer be impeded.
27
<PAGE> 166
15. Index of Capitalized Terms
"ADT" has the meaning ascribed to it in the lead paragraph of this Agreement.
"ADT Ancillary Agreements" has the meaning ascribed to it in Section 3.2(a) of
this Agreement.
"ADT Common Stock" has the meaning ascribed to it in Section
1.1(a)(i) of this Agreement.
"ADT Disclosure Package" has the meaning ascribed to it in Section 3.12 of this
Agreement.
"ADT Plans" has the meaning ascribed to it in Section 3.3 of this Agreement.
"Affiliates" has the meaning ascribed to it in Section 4.13 of this Agreement.
"CERCLA" has the meaning ascribed to it in Section 2.21(a) of this Agreement.
"Closing" has the meaning ascribed to it in Section 6.1 of this Agreement.
"Closing Date" has the meaning ascribed to it in Section 6.1 of this Agreement.
"Closing Date Price" has the meaning ascribed to it in Section 1.2 of this
Agreement.
"Code" has the meaning ascribed to it in Recital C of this Agreement.
"Conversion Rate" has the meaning ascribed to it in Section 1.1(a)(i) of this
Agreement.
"Debt" has the meaning ascribed to it in Section 2.23(a) of this Agreement.
"Effective Time" has the meaning ascribed to it in Section 1.1(a) of this
Agreement.
"Employee Plans" has the meaning ascribed to it in Section 2.15(c) of this
Agreement.
"ERISA" has the meaning ascribed to it in Section 2.15(c) of this Agreement.
"Financial Statement Date" has the meaning ascribed to it in Section 2.7 of
this Agreement.
"Government Contract Party" has the meaning ascribed to it in Section 2.22 of
this Agreement.
"Hazardous Materials" has the meaning ascribed to it in Section 2.21 (a) of
this Agreement.
"Intellectual Property" has the meaning ascribed to it in Section 2.12 of this
Agreement.
"Joint Proxy Statement" has the meaning ascribed to it in Section 1.5 of this
Agreement.
"Merger" has the meaning ascribed to it in Recital A of this Agreement.
"Merger Agreement" has the meaning ascribed to it in Recital A of this
Agreement.
"1994 Year End" has the meaning ascribed to it in Section 3.12 of this
Agreement.
"SEC Reports" has the meaning ascribed to it in Section 3.6 of this Agreement.
"Share Price" has the meaning ascribed to it in Section 1.2 of this Agreement.
"Sub" has the meaning ascribed to it in the lead paragraph of this Agreement.
"Surviving Corporation" has the meaning ascribed to it in Recital A of this
Agreement.
"Texas Air" has the meaning ascribed to it in the lead paragraph of this
Agreement.
"Texas Air Ancillary Agreements" has the meaning ascribed to it in Section
2.2(a) of this Agreement.
"Texas Air Certificates" has the meaning ascribed to it in Section 6.2(b) of
this Agreement.
"Texas Air Common Stock" has the meaning ascribed to it in Section 1.1(a)(i) of
this Agreement.
"Texas Air Financial Statements" has the meaning ascribed to it in Section 2..7
of this Agreement.
"Texas Air Participants" has the meaning ascribed to it in Section 4.4 of this
Agreement.
"Texas Air Warrant" has the meaning ascribed to it in Section 1.1 (a)(ii) of
this Agreement.
"Warrant Holders" has the meaning ascribed to it in Section 2.23 of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AMERICAN DENTAL TECHNOLOGIES, INC.,
a Delaware Corporation
/s/ Anthony D. Fiorillo
-------------------------------------
Anthony D. Fiorillo, President
ADT MERGER CORP., a Texas Corporation
/s/ Anthony D. Fiorillo
-------------------------------------
Anthony D. Fiorillo, President
TEXAS AIRSONICS, INC., a Texas Corporation
/s/ Ben J. Gallant
-------------------------------------
Ben J. Gallant, President
28
<PAGE> 167
Directors of American Dental Technologies, Inc.,
signing only to evidence their agreement to vote their stock in favor of the
merger:
/s/ William D. Myers
- -------------------------------
William D. Myers, M.D.
/s/ Anthony D. Fiorillo
- -------------------------------
Anthony D. Fiorillo
/s/ Michael J. Yessik
- -------------------------------
Michael J. Yessik
/s/ Kenneth C. Merrill
- -------------------------------
Kenneth C. Merrill
/s/ James Bernard Machen
- -------------------------------
James Bernard Machen
/s/ Bertrand R. Williams, Sr.
- -------------------------------
Bertrand R. Williams, Sr.
Directors of Texas Airsonics, Inc.,
signing only to evidence their agreement to vote their stock in favor of the
Merger.
/s/ Ben J. Gallant
- -------------------------------
Ben J. Gallant
/s/ Gary Chatham
- -------------------------------
Gary Chatham
/s/ John E. Vickers III
- -------------------------------
John E. Vickers III
/s/ Wayne A. Johnson II
- -------------------------------
Wayne A. Johnson II
/s/ Charles A. Nichols
- -------------------------------
Charles A. Nichols
29
<PAGE> 168
RESTATED
AGREEMENT OF MERGER
of
ADT MERGER CORP.
a Texas corporation and
TEXAS AIRSONICS, INC
a Texas corporation
This RESTATED Agreement of Merger (the "Merger Agreement") entered into on
November 22, 1995, as modified March 25, 1996 and May 9, 1996, is effective as
of November 22, 1995 by and between ADT Merger Corp. ("Subsidiary"), a Texas
corporation and wholly-owned subsidiary of American Dental Technologies, Inc.,
a Delaware corporation ("ADT"), and Texas Airsonics, Inc., a Texas corporation
("Texas Air").
A. Subsidiary, Texas Air and ADT have entered into an Agreement and Plan
of Reorganization (the "Plan") providing for the merger of Texas Air with and
into Subsidiary (the "Merger"), with Subsidiary to survive the Merger as a
wholly-owned subsidiary of ADT.
B. The Board of Directors of Subsidiary, Texas Air and ADT deem it
advisable and in the best interests of their respective stockholders that the
Merger be consummated.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Merger of Subsidiary. Texas Air shall be merged with and into
Subsidiary pursuant to the applicable provisions of the Texas Business
Corporations Act (the "Act"). Subsidiary shall be the surviving corporation of
the Merger (and is sometimes hereinafter referred to as the "Surviving
Corporation"), and shall continue to exist as the surviving corporation under
the name Texas Airsonics, Inc. pursuant to the provisions of the Act. The
separate existence of Texas Air shall cease at the Effective Time (defined
below) in accordance with the provisions of Act. The effective time of the
Merger (the "Effective Time") shall be at the time and on the date on which the
required merger certificate or other documentation is filed with the Texas
Secretary of the State.
2. Articles of Incorporation. The Articles of Incorporation of Texas
Air, as now in force and effect, shall be the Articles of Incorporation of the
Surviving Corporation by virtue of an amendment to be filed and said Articles
of Incorporation shall continue in full force and effect until amended in the
manner prescribed by the provisions of the Texas Business Corporations Act.
3. By-Laws. The By-laws of Texas Air, as now in force and effect, shall
be the By-laws of the Surviving Corporation, by virtue of an amendment to the
By-laws of the Surviving Corporation, and shall continue in full force and
effect until changed, altered or amended as therein provided and in the manner
prescribed by the provisions of the Texas Business Corporations Act.
4. Directors and Officers. As of the Effective Time, the directors of
the Surviving Corporation shall be Anthony D. Fiorillo, Ben J. Gallant and John
E. Vickers III, and the officers of the Surviving Corporation shall be Ben J.
Gallant - President, Diane M. Miller, Treasurer, and John E. Vickers III -
Chief Financial Officer and Secretary, all of whom shall hold their
directorships and offices until election and qualification of their respective
successors or until their tenure is otherwise terminated in accordance with the
By-laws of the Surviving Corporation.
5. Conversion of Texas Air Shares
(a) Conversion. At the Effective Time, each outstanding share of Texas
Air Common Stock, which is the only stock of Texas Air outstanding, shall be
converted into the right to receive 5.425 fully paid and non-assessable shares
of the common stock $0.01 par value, of ADT ("ADT Common Stock") and a warrant
to purchase 3.321 shares of ADT Common Stock at a purchase price of $1.00 per
share for a period commencing one year and one day and ending three years after
<PAGE> 169
the Effective Time. Pursuant to the Plan each holder of a Texas Air
option for common stock, shall have such option converted into an option for
ADT Common Stock and warrants.
(b) Exchange of Certificates. As soon as practical after the Effective
Time, each holder of any certificate representing Texas Air Common Stock issued
and outstanding immediately prior to the Effective Time, shall surrender such
certificate to ADT or its transfer agent. Thereupon, each such holder will be
entitled to receive in exchange therefore a certificate representing the number
of whole shares of ADT Common Stock and warrants into which the shares
previously evidenced by such certificate were converted in the Merger. ADT or
its transfer agent will forward a Letter of Transmittal with detailed
instructions for the surrender of the replaced Texas Air certificates and shall
issue new certificates as soon as practical following such surrender.
(c) No Fractional Shares. No fractional shares of ADT Common Stock shall
be issued in connection with the Merger. Any person who would otherwise be
entitled to a fractional share of ADT Common Stock pursuant to this Merger
Agreement shall in lieu of such fractional share be paid by check by ADT the
product determined by multiplying such fraction by the Share Price, as defined
in the Plan.
(d) Effect of Conversion. Each certificate which immediately before the
Effective Time evidenced Texas Air shares shall, at the Effective Time be
automatically converted without any action on the part of the Texas Air
shareholder into that number of whole shares of ADT Common Stock and warrants
authorized by this Merger Agreement; provided however, that until the
shareholder's Texas Air Common Stock certificate is surrendered to ADT, no
dividend or other distribution payable to the holder of record of such ADT
Common Stock after the Effective Time, or cash payable in lieu of fractional
share of ADT Common Stock, shall be paid in respect of such certificate.
6. Warrant Provisions. Notwithstanding anything else contained in this
Merger Agreement, in the event the average closing price of ADT Common Stock as
reported by Nasdaq for the 15 trading days immediately preceding the date of
the ADT annual shareholder meeting exceeds $2.00, then the exercise price of
the warrants to acquire ADT Common Stock to be issued hereunder (the "Merger
Warrants") will be increased by 50% of the sum obtained by taking the average
closing price of ADT Common Stock for such 15 day period and deducting $2.00.
The Merger Warrants will not be freely tradeable and are non transferable. ADT
agrees to use its best efforts to file a registration statement on Form S-3 (or
a successor form) on September 1, 1997, May 15, 1998, November 15, 1998 and
July 10, 1999 (or if such date is not a business day, on the first business day
thereafter), providing for the sale by the holders of shares of ADT Common
Stock acquired upon exercise of Merger Warrants at least ten days prior to such
date and which were not previously registered under the Securities Act of 1933,
and to use its reasonable best efforts to cause each such registration
statement to be declared effective by the Securities and Exchange Commission
and to continue to be effective for at least two years after the effective date
thereof. ADT's obligation to register shares on behalf of any such holder
shall be conditional upon ADT's receipt from such holder in writing, at least
five days prior to the date of such registration statement filing, of (i) all
information reasonably requested by ADT in connection with the preparation of
such registration statement, and (ii) an undertaking by such holder to (a)
indemnify ADT and its directors, officers and affiliates for all claims,
damages, liabilities and expenses incurred by them arising out or based upon
any untrue statement or omission, or alleged untrue statement or omission, made
in such registration statement or prospectus in reliance upon information
furnished to ADT by such holder for use therein and (b) temporarily cease
making sales of shares registered under such registration statement upon
receipt of written notice from ADT, if ADT determines, in good faith, that the
use of the prospectus included in such registration statement would require the
disclosure of important information which ADT has a bona fide purpose for
preserving as confidential or the disclosure of which would impede ADT's
ability to consummate a significant transaction, until the receipt of a further
notice from ADT that sales may resume under the registration statement. ADT
shall not be required to file a registration statement if, on the applicable
filing date thereof, (i) the number of shares to be registered by such
registration statement is less than 500,000 shares, (ii) ADT is not eligible to
use Form S-3 in connection with such registration, (iii) ADT has determined, in
good faith, as of such date that the filing of such registration statement
would require the disclosure of important information which ADT has a bona fide
purpose for preserving as confidential or the disclosure of which would impede
<PAGE> 170
ADT's ability to consummate a significant transaction; provided, that in the
case of (ii), ADT shall be required to file such registration statement as soon
as practicable after it becomes eligible to use Form S-3 in connection with
such registration and, in the case of (iii), ADT shall be required to file such
registration statement as soon as practicable after it has determined that such
disclosure would no longer be required or ADT's ability to consummate such
transaction would no longer be impeded.
7. Consistent Construction. The parties to this Merger Agreement are also
parties to the Plan, to which ADT also is a party. The Plan and this Merger
Agreement are intended to be consistent with each other and construed together
in order to carry out their shared purposes.
8. Further Assurances ADT, Texas Air and Subsidiary have agreed that they
will cause to be executed and filed and recorded any document or documents
prescribed by the laws of the State of Texas, and that they will cause to be
performed all necessary acts within the State of Texas and elsewhere to
effectuate the Merger provided for herein, including, without limitation,
execution, filing and delivery of any further deeds, assignments or assurances
necessary or desirable to vest, perfect or confirm in Surviving Corporation
title to any property or rights of surviving or terminating corporation. The
Board of Directors and the proper officers of Subsidiary and Texas Air are
hereby authorized, empowered and directed to do any and all acts and things,
and to make, execute, deliver, file and record any and all instruments, papers
and documents which shall be or become necessary, proper or convenient to carry
out or put into effect any of the provisions of this Merger Agreement, the Plan
or of the Merger provided for herein.
9. Termination. This Merger Agreement shall automatically terminate in
the event that the Plan is terminated as provided therein.
10. Amendment. This Merger Agreement may be amended only by a written
instrument executed by the parties hereto.
11. Counterparts. This Merger Agreement may be executed in counterparts,
each of which shall be deemed an original and other they shall constitute one
instrument.
12. Tax Free Reorganization. The Merger contemplated hereby is intended
to be a tax free plan of reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended.
13. Assignment. No party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other party
hereto. This Merger Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, personal representatives
and permitted assigns.
<PAGE> 171
IN WITNESS WHEREOF, this Restated Agreement of Merger is hereby signed and
attested on behalf of each of the constituent corporations parties hereto.
ADT MERGER CORP.
By: /s/ Anthony D. Fiorillo
--------------------------
Anthony D. Fiorillo
Its: President
------------------------
Attest:
By: /s/ Raymond F. Winter
--------------------------
Its Secretary
TEXAS AIRSONICS, INC.
By: /s/ Ben J. Gallant
-------------------------
Ben J. Gallant
Its: President
-----------------------
Attest:
By: /s/ John E. Vickers III
------------------------------
Its Secretary
<PAGE> 172
CERTIFICATE OF APPROVAL
of
AGREEMENT OF MERGER
OF
TEXAS AIRSONICS, INC
AND
ADT MERGER CORP.
The undersigned, Ben J. Gallant and John E. Vickers III certify that:
1. They are the President and Secretary, respectively of Texas Airsonics,
Inc., a Texas corporation (the "Company").
2. The Agreement of Merger in the form attached hereto was duly approved by
the Board of Directors and shareholders of the Company.
3. The shareholder approval was by a majority of the outstanding shares of
the Company.
4. There is only one class of shares, and the number of shares outstanding
is 2,106,869.
We further declare under penalty of perjury under the laws of the State of
Texas, that the matters set forth in this Certificate are true and correct of
our own knowledge.
Date: July 27, 1996
---------------------------
Ben J. Gallant
---------------------------
John E. Vickers III
<PAGE> 173
CERTIFICATE OF APPROVAL
of
AGREEMENT OF MERGER
OF
TEXAS AIRSONICS, INC
AND
ADT MERGER CORP.
The undersigned, Anthony D. Fiorillo and Raymond F. Winter certify that
1. They are the President and Secretary, respectively of ADT Merger Corp., a
Texas corporation (the "Company").
2. The Agreement of Merger in the form attached hereto was duly approved by
the Board of Directors and sole shareholder of the Company.
3. The shareholder approval was by the sole shareholder of 100% of the
outstanding shares of the Company.
4. There is only one class of shares, and the number of shares outstanding
is 1,000.
We further declare under penalty of perjury under the laws of the State of
Texas, that the matters set forth in this Certificate are true and correct of
our own knowledge.
Date: July 29, 1996
---------------------------
Anthony D. Fiorillo
---------------------------
Raymond F. Winter
<PAGE> 174
ANNEX B
[Logo]
April 4, 1996
Board of Directors
American Dental Technologies, Inc.
28411 Northwestern Hwy.
Suite 1100
Southfield, Michigan 48034
Gentlemen:
You have retained us to render our opinion as to the fairness to American
Dental Technologies, Inc. ("ADT") and its shareholders, from a financial point
of view, of the proposed transaction by which ADT will acquire all of the
outstanding common stock of Texas Airsonics, Inc. ("Texas Air") under the terms
of the Agreement and Plan of Reorganization dated November 22, 1995, as amended
on March 25, 1996.
Under the terms of the proposed transaction, among other matters, ADT will
issue 5.425 shares of its common stock in exchange for each share of Texas Air
common stock and, as a result, 11,429,775 shares of ADT authorized, but
previously-unissued, common stock will be issued to Texas Air stockholders. In
addition, Texas Air stockholders will receive warrants to acquire 6,996,919
additional shares of ADT common stock at an exercise price of $1.00 per share
(exercise price subject to potential adjustment depending on trading prices of
ADT common stock prior to closing); these warrants will not be transferable
and, as a result, will not trade in the public or private markets, and are
exercisable during the three-year period commencing with the effective date of
the transaction. Previously issued and outstanding warrants to acquire ADT
common stock held by Texas Air (applicable to 2,500,000 shares of common stock)
will be canceled and, prior to the transaction effective date, Texas Air will
distribute certain limited industrial patent rights to its shareholders.
Equity Partners Ltd. ("EPL") is a private investment banking firm which is
engaged in designing, negotiating and evaluating the financial terms of mergers
and acquisitions as part of its investment banking business and in providing
corporate finance services to its clients and advising them with respect to the
value of businesses. In addition, the principals of EPL act as principals in
certain acquisitions from time-to-time for their own account. Neither EPL nor
its principals are registered broker/dealers and do not engage in the trading
of financial securities in the public marketplace.
For purposes of rendering our opinion on the proposed transaction, we have
performed the following procedures, among other things, as part of our
evaluation of the transaction and its fairness from a financial point of view:
1) Read the Agreement and Plan of Reorganization, related Agreement of
Merger, as amended, and related documents associated with the proposed
transaction.
2) Reviewed ADT's June, 1991 Prospectus filed with the Securities and
Exchange Commission.
3) Reviewed ADT's 1992, 1993, 1994 and 1995 financial statements and
annual reports to shareholders and/or applicable Form 10k reports filed
with the Securities and Exchange Commission.
<PAGE> 175
4) Reviewed ADT's business plans prepared by management for prior years,
for 1995 and for the next five years (the latter prepared at the request
of EPL and was not a document prepared in the ordinary course of business
by ADT).
5) Reviewed ADT's most recent financial statements, cash and debt
position and updated financial projections.
6) Interviewed ADT's legal counsel, Mr. Raymond F. Winter, regarding the
status of existing ADT litigation and circumstances related to the recent
issuance by ADT of stock options and warrants to purchase ADT stock.
7) Interviewed Mr. Anthony D. Fiorillo, CEO and President of ADT,
regarding current operations, current financial position, competition,
product and technology acceptance and regulatory milestones and the
rationale for the proposed acquisition.
8) Interviewed Ms. Diane Miller, CFO, regarding business plans, current
and projected financial position, pro-forma post merger financial
statements and certain ownership concentration issues, as well as her
opinion regarding the rationale for the proposed acquisition, among other
matters.
9) Interviewed an investment research firm regarding the dental supply
industry and the marketplace perception of ADT.
10) Reviewed investment research on firms in the dental supply business,
in particular Sullivan Dental Products, Inc. and Patterson Dental Co.,
both publicly-traded dental supply houses.
11) Reviewed the trading price range and volume of ADT's common stock for
the last several years, at the time of the negotiation of the acquisition
of Texas Air and for the periods subsequent to the public announcement of
the proposed acquisition.
12) Performed net present value analyses of ADT's five-year business
plans prepared by senior ADT management and related financial projections
and compared that range of values, less a control premium, to the trading
range of ADT's common stock at the time of the negotiation of the
proposed transaction.
13) Reviewed the pro forma post merger financial statements prepared by
senior ADT management, analyzed certain aspects of those pro formas,
reviewed additional financial projections and considered the effect such
pro forma financial performance would have on the combined entities
trading value.
14) Performed a valuation and study of Texas Air utilizing historical
financial statements of Texas Air and ADT's senior management's
projections of the expected purchases from Texas Air for the next five
years, Texas Air senior management's projections of industrial product
sales and margins, dental supply product manufacturing costs and other
costs and expenses for the next five years, and historical transactions
in Texas Air common stock, among other matters.
15) Read certain agreements, including subsequent amendments thereto,
associated with certain existing Texas Air/ADT manufacturing rights and
cost plus supply contracts (which will terminate with the proposed
transaction).
16) Read the ADT Form S-4 registration statement intended to be filed
with the Securities and Exchange Commission covering, among other
matters, the proposed acquisition and related issuance of additional
shares of ADT common stock, ADT financial information and pro forma ADT
financial information combined with Texas Air.
<PAGE> 176
17) Performed such other procedures and taken such other actions as we
considered relevant and necessary in the circumstances.
We have assumed the accuracy and completeness of, and have not independently
verified, the information supplied to us by senior management, ADT and Texas
Air, including the estimates by ADT senior management of various operating
improvements achievable as a result of the proposed transaction. Further,
because we did not deem it appropriate, we have not reviewed current
independent appraisals of certain properties or assets of ADT or Texas Air and
therefore did not arrive at a value of ADT or Texas Air assuming a liquidation.
We did not independently investigate pending litigation or contingent
liabilities, nor did we make inquiries of customers, suppliers, competitors,
general creditors, regulatory bodies or others.
Based on the foregoing, it is our opinion that, as of the date hereof, the
proposed transaction is fair, from a financial point of view, to ADT and its
shareholders.
Sincerely,
Equity Partners Ltd.
<PAGE> 177
ANNEX C
TEXAS BUSINESS CORPORATION ACT
ART. 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote thereon
as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided in
the articles of incorporation) of all, or substantially all, the property and
assets, with or without good will, of a corporation requiring the special
authorization of the shareholders as provided by this Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the shareholder are
to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if (1) the shares held by the shareholder are part
of a class of shares which are listed on a national securities exchange, or are
held of record by not less than 2,000 holders, on the record date fixed to
determine the shareholders entitled to vote on the plan of merger or the plan
of exchange, and (2) the shareholder is not required by the terms of the plan
of merger or the plan of exchange to accept for his shares any consideration
other than (a) shares of a corporation that, immediately after the effective
time of the merger or exchange, will be part of a class or series of shares of
which are (i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange, or (ii) held of record by not less
than 2,000 holders, and (b) cash in lieu of fractional shares otherwise
entitled to be received.
Acts 1955, 54th Leg., p.239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1957,
55th Leg., p. 111, ch. 54, Section 10; Acts 1973, 63rd Leg., p. 1508, ch. 545,
Section 36 ,eff. Aug. 27, 1973; Acts 1989, 71st Leg., ch. 801, Section 34,
eff. Aug. 28, 1989; Acts 1991, 72nd Leg., ch. 901, Section 32, eff. Aug. 26,
1991.
Art. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to
dissent from any of the corporate actions referred to in Article 5.11 of this
Act may exercise that right to dissent only by complying with the following
procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall
be delivered or mailed in that event. If the action is effected and the
shareholder shall not have voted in favor of the action, the corporation, in
the case of action other than a merger, or the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten (10)
days after the action is effected, deliver or mail to the shareholder written
notice that the action has been effected, and the shareholder may, within ten
(10) days from the delivery or mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the value thereof as of the day
immediately preceding the meeting, excluding any appreciation or depreciation
in anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the shares
as estimated by the shareholder. Any shareholder failing to make demand within
the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right
of dissent, in the case of a merger, shall, within ten (10) days after the date
the action is effected, mail to each shareholder of record as of the effective
date of the action notice of the fact and date of the action and that the
shareholder may exercise the shareholder's right to dissent from the action.
The notice shall be accompanied by a copy of this Article and any articles or
documents filed by the corporation with the Secretary of State to effect the
action. If the shareholder shall not have consented to the taking of the
action, the shareholder may, within twenty (20) days after the mailing of the
notice, make written demand on the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, for payment of the
<PAGE> 178
TEXAS BUSINESS CORPORATION ACT
fair value of the shareholder's shares. The fair value of the shares shall be
the value thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this Act,
excluding any appreciation or depreciation in anticipation of the action. The
demand shall state the number and class of shares owned by the dissenting
shareholder and the fair value of the shares as estimated by the shareholder.
Any shareholder failing to make demand within the twenty (20) day period shall
be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may be,
of a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall be
made within ninety (90) days after the date on which the action was effected
and, in the case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the shareholder
shall cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which
the corporate action was effected, the shareholder and the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may be,
do not so agree, then the shareholder or the corporation (foreign or domestic)
or other entity may, within sixty (60) days after the expiration of the sixty
(60) day period, file a petition in any court of competent jurisdiction in the
county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder, service of a
copy thereof shall be made upon the corporation (foreign or domestic) or other
entity, which shall, within ten (10) days after service, file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation (foreign or
domestic) or other entity, the petition shall be accompanied by such a list.
The clerk of the court shall give notice of the time and place fixed for the
hearing of the petition by registered mail to the corporation (foreign or
domestic) or other entity and to the shareholders named on the list at the
addresses therein stated. The forms of the notices by mail shall be approved by
the court. All shareholders thus notified and the corporation (foreign or
domestic) or other entity shall thereafter be bound by the final judgment of
the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
<PAGE> 179
TEXAS BUSINESS CORPORATION ACT
judgment determine the fair value of the shares of the shareholders entitled
to payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as
court costs, and all court costs shall be allotted between the parties in the
manner that the court determines to be fair and equitable. E. Shares acquired
by the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, pursuant to the payment of the agreed value of the
shares or pursuant to payment of the judgment entered for the value of the
shares, as in this Article provided, shall, in the case of a merger, be treated
as provided in the plan of merger and, in all other cases, may be held and
disposed of by the corporation as in the case of other treasury shares. F. The
provisions of this Article shall not apply to a merger if, on the date of the
filing of the articles of merger, the surviving corporation is the owner of all
the outstanding shares of the other corporations, domestic or foreign, that are
parties to the merger. G. In the absence of fraud in the transaction, the
remedy provided by this Article to a shareholder objecting to any corporate
action referred to in Article 5.11 of this Act is the exclusive remedy for the
recovery of the value of his shares or money damages to the shareholder with
respect to the action. If the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, complies with the
requirements of this Article, any shareholder who fails to comply with the
requirements of this Article shall not be entitled to bring suit for the
recovery of the value of his shares or money damages to the shareholder with
respect to the action.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955, Amended by Acts 1967,
60th Leg., p. 1721, ch. 657, Section 12, eff. June 17, 1967; Acts 1983, 68th
Leg., p. 2570, ch. 442, Section 9, eff. Sept. 1, 1983; Acts 1987, 70th Leg., ch.
93, Section 27, eff. Aug. 31, 1987; Acts 1989, 71st Leg., ch. 801, Section 35,
eff. Aug. 28, 1989; Acts 1993, 73rd Leg., ch. 215, Section 2.16, eff. Sept. 1,
1993.
ART 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled
to vote or exercise any other rights of a shareholder except the right to
receive payment for his shares pursuant to the provisions of those articles and
the right to maintain an appropriate action to obtain relief on the ground that
the corporate action would be or was fraudulent, and the respective shares for
which payment has been demanded shall not thereafter be considered outstanding
for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good
and sufficient cause shown shall otherwise direct. If uncertificated shares
for which payment has been demanded or shares represented by a certificate on
which notation has been so made shall be transferred, any new certificate
issued therefor shall bear similar notation together with the name of the
original dissenting holder of such shares and a transferee of such shares shall
acquire by such transfer no rights in the corporation other than those which
the original dissenting shareholder had after making demand for payment of the
fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
<PAGE> 180
TEXAS BUSINESS CORPORATION ACT
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act,
as the case may be, or if after the hearing of a petition filed pursuant to
Article 5.12 or 5.16, the court shall determine that such shareholder is not
entitled to the relief provided by those articles, then, in any such case, such
shareholder and all persons claiming under him shall be conclusively presumed
to have approved and ratified the corporate action from which he dissented and
shall be bound thereby, the right of such shareholder to be paid the fair value
of his shares shall cease, and his status as a shareholder shall be restored
without prejudice to any corporate proceedings which may have been taken during
the interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1967,
60th Leg., p. 1723, ch. 657, Section 13, eff. June 17, 1967; Acts 1983, 68th
Leg., p. 2573, ch. 442, Section 10, eff. Sept. 1, 1983; Acts 1993, 73rd Leg.,
ch. 215, Section 217, eff. Sept. 1, 1993.
<PAGE> 181
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify its officers, directors,
employees and agents (or persons who have served, at the corporation's request,
as officers, directors, employees or agents of another corporation) against the
expenses, including attorneys' fees, actually and reasonably incurred by them
in connection with the defense of any action by reason of being or having been
directors, officers, employees or agents, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceedings, had no reason to believe his conduct was unlawful, except that
if such action shall be in the right of the corporation, no such
indemnification shall be provided as to any claims, issue or matter as to which
such person shall have been adjudged to have been liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware, or any other court in which the suit was brought, shall determine
upon application that, in view of all the circumstances of the case, such
person is fairly and reasonable entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Articles X of ADT's Amended and Restated By-Laws states:
INDEMNIFICATION
Section 10.1 Action by Third Party. The Corporation has the power to
indemnify a person who was or is a party or is threatened to be made a party to
a threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, other
than an action by or in the right of the Corporation, by reason of the fact
that he or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses, including attorneys' fees,
judgments, penalties, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action, suit, or
proceeding, if the person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation or stockholders, and with respect to a criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful. The termination of an action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendre or its
equivalent, does not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation or its stockholders, and, with
respect to a criminal action or proceeding, had reasonable cause to believe
that his or her conduct was unlawful.
Section 10.2 Action by or in Right of Corporation. The Corporation has
the power to indemnify a person who was or is a party to or is threatened to be
made a party to a threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not, against expenses, including actual and reasonable
attorneys' fees, and amount paid in settlement incurred by the person in
connection with the action or suit, if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the Corporation or its stockholders. However, indemnification
shall not be made for a claim, issue, or matter in which the person has been
found liable to he Corporation unless and only to the extent that the court in
which the action or suit was brought has determined upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, the person is fairly and reasonably entitled to indemnification for the
expenses which the court considers proper.
1
<PAGE> 182
Section 10.3. Expense. Indemnification against expenses:
(a) To the extent that a director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise in defense of an
action, suit, or proceeding referred to above in Section 10.1 or 10.2, or in
defense of a claim, issue, or matter in the action, suite, or proceeding, he or
she shall be indemnified against expenses, including actual and reasonable
attorneys' fees, incurred by him or her in connection with the action, suit, or
proceedings and an action, suit, or proceeding brought to enforce the mandatory
indemnification provided in this Subsection.
(b) An indemnification under Sections 10.1 and 10.2 above, unless ordered
by a court, shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee, or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Subsections (a) and (b) above.
This determination shall be made in any of the following ways:
(i) By a majority vote of a quorum of the board consisting of
directors who were not parties to the action, suit, or proceeding.
(ii) If the quorum described in subdivision (i) is not obtainable,
then by a majority vote of a committee of directors who are not parties to the
action. The committee shall consist of not less than two disinterested
directors.
(iii) By independent legal counsel in a written opinion.
(iv) By the stockholders.
(c) If a person is entitled to indemnification under Section 10.1 or 10.2
for a portion of expenses including attorneys' fees, judgments, penalties,
fines and amounts paid in settlement, but not for the total amount thereof, the
Corporation may indemnify the person for the portion of the expenses,
judgments, penalties, fines, or amounts paid in settlement for which the person
is entitled to be indemnified.
Section 10.4 Payment in Advance. Expenses incurred in defending a civil
or criminal action, suit or proceeding described in Sections 10.1 or 10.2 above
may be paid by the Corporation in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay the expenses if it is
ultimately determined that the person is not entitled to be indemnified by the
Corporation. The undertaking shall be by unlimited general obligation of the
person on whose behalf advances are made but need not be secured.
Section 10.5 Nonexclusivity.
(a) The indemnification or advancement of expenses provided under
Sections 10.1 to 10.4 is not exclusive of other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation, bylaws, or a contractual agreement. However, the
total amount of expenses advanced or indemnified from all sources combined
shall not exceed the amount of actual expenses incurred by the person seeking
indemnification or advancement of expenses.
(b) The indemnification provided for in Sections 10.1 to 10.5 continues
as to a person who ceases to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors, and administrators of the
person.
Section 10.6 Insurance. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
2
<PAGE> 183
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under Section 10.1 to 10.5.
Section 10.7 Constituent Corporations. For purposes of Section 10.1 to
10.6 above, "corporation" includes all constituent corporations absorbed in a
consolidation or merger and the resulting or surviving corporation, so that a
person who is or was a director, officer, employee, or agent of the constituent
corporation or is or was serving at the request of the constituent corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
whether for profit or not, shall stand in the same position under the
provisions of this Subsection with respect to the resulting or surviving
corporation as the person would if he or she had served the resulting or
surviving corporation in the same capacity.
Section 10.8 Definitions. For the purposes of Sections 10.1 to 10.7
above, "other enterprises" shall include employee benefit plans; "fine" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, the director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be considered to have acted in a manner "not
opposed to the best interests of the Corporation or its stockholders" as
referred to in Section 10.1 and 10.2 above.
Article Seventh of ADT's Certificate of Incorporation states:
SEVENTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) pursuant to Section 174 of the Delaware
General Corporation Law; or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this
Article Seventh shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
ADT maintains a directors and officers liability insurance policy which,
subject to certain exceptions and exclusions, provides coverage to ADT's
officers and directors for losses from claims first made against them during
the annual policy period, (i) for any actual or alleged act, error, omission,
misstatement, misleading statement or breach of duty in their capacity as a
director or officer of ADT, and (ii) for any matter asserted against such
persons by reason of their status as a director or officer of ADT; other than
indemnifiable losses paid to or on behalf of such persons by ADT. ADT, subject
to certain exceptions and exclusions, is covered for losses from claims first
made during the annual policy period for amounts ADT pays to or on behalf of
such persons as indemnification. The aggregate limit of liability is $2.5
million and there is a $125,000 deductible for losses indemnifiable by ADT.
ITEM 21. LIST OF EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits: Certain of the following Exhibits have been previously
filed with the Securities and Exchange Commission pursuant to the requirements
of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such
exhibits are identified by the parenthetical references following the listing
of each such exhibit and are incorporated herein by reference.
Exhibit Number Description of Document
2.1 Agreement and Plan of Reorganization, dated as of October 30, 1993,
and executed on November 12, 1993, among American Dental Technologies,
3
<PAGE> 184
Inc., ADT Merger Corp., Incisive Technologies, Inc., Michael Yessik,
Rex Doherty, and Mario Barton, and First Amendment to Agreement
and Plan of Reorganization, Dated November 11, 1993 and executed
November 12, 1993 (Form 10-Q for the quarter ended September 30, 1993,
Exhibit 10.2)
2.2 Certificate of Ownership merging Incisive Technologies, Inc. with and
into American Dental Technologies, Inc., effective as of the end of
business, December 31, 1994 (Form 10K for the year ended December 31,
1994, Exhibit 2.2)
2.3 Restated Agreement and Plan of Reorganization dated as of November
22, 1995, among American Dental Technologies, Inc., ADT Merger Corp. and
Texas Airsonics, Inc., (Included as Annex A in the joint proxy
statement/prospectus)
3.1 Certificate of Incorporation of American Dental Laser, Inc. filed on
November 21, 1989, as amended on January 12, 1990 and May 15, 1991.
(Registration No. 33-40140, Exhibit 3.1)
3.2 Restated By-Laws of American Dental Laser, Inc. as amended on May 20,
1991 (Registration No. 33-40140, Exhibit 3.3)
3.3 Certificate of Amendment of Certificate of Incorporation changing the
Company's name to American Dental Technologies, Inc., dated June 1, 1993
(Form 10-K for the year ended December 31, 1993, Exhibit 3.3)
3.4 Amendments to the Restated By-Laws of the Company, dated December 15,
1993 (Form 10-K for the year ended December 31, 1993, Exhibit 3.4)
3.5 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of American Dental Technologies, Inc., dated February
18, 1994 (Form 10-K for the year ended December 31, 1993, Exhibit 3.5)
4.1 Specimen of Common Stock Certificate of American Dental Laser, Inc.
(Registration No. 33-40140, Exhibit 4)
4.2 Form of Common Stock Purchase Warrant, April 1994 (Form 10-Q for the
quarter ended June 30, 1994, Exhibit 4.1)
4.3 Form of Common Stock Purchase Warrant to Texas Airsonics, Inc.,
November 1994, as amended August 1995 (Form 10-K for the year ended
December 31, 1995, Exhibit 4.3)
4.4 Form of Common Stock Purchase Warrant to Texas Airsonics, Inc.,
August 1995 (Form 10-Q for the quarter ended July 31, 1995, Exhibit 4.2)
4.5 Form of revised April 1994 Common Stock Purchase Warrants, August
1995 (Form 10-K for the year ended December 31, 1995, Exhibit 4.5)
4.6 Form of revised July 1995 Common Stock Purchase Warrants, August 1995
(Form 10-K for the year ended December 31, 1995, Exhibit 4.6)
4.7 Form of Merger Warrant
5.1 Opinion Re: legality and consent of Raymond F. Winter
9.1 Stockholder Voting Agreement between Ben J. Gallant and William D. Myers
10.1* American Dental Laser, Inc. Amended and Restated Nonqualified Stock
Option Plan. (Registration No. 33-40140, Exhibit No. 10.16)
4
<PAGE> 185
10.2* American Dental Laser, Inc. Stock Option Plan for Employees.
(Registration No. 33-40140, Exhibit No. 10.18)
10.3 U.S. Patent No. 4,521,194 issued June 4, 1985. (Registration
No. 33-40140, Exhibit No. 10.38)
10.4 U.S. Patent No. 4,818,230 issued April 4, 1989. (Registration
No. 33-40140, Exhibit No. 10.39)
10.5 U.S. Patent No. 4,940,411 issued July 10, 1990. (Registration
No. 33-40140, Exhibit No. 10.40)
10.6 U.S. Patent Number 5,055,048 issued October 8, 1991 (Form 10-K for the
year ended December 31, 1991, Exhibit 10.36)
10.7 Letter Agreement dated as of July 23, 1991 between American Dental
Laser, Inc., Texas Airsonics, Inc. and Ben Gallant. (Form 10-K for the
year ended December 31, 1992, Exhibit 10.37)
10.8 Agreement, including First and Second Supplements, dated as of April
18, 1992 between American Dental Laser, Inc., Texas Airsonics, Inc. and
Ben Gallant. (Form 10-K for the year ended December 31, 1992, Exhibit
10.38)
10.9 Third Supplement dated as of February 12, 1993 to Letter Agreement and
Agreement between American Dental Laser, Inc., Texas Airsonics, Inc. and
Ben Gallant. (Form 10-K for the year ended December 31, 1992, Exhibit
10.39)
10.10 Assignment of patents dated as of April 24, 1992 from Texas Airsonics,
Inc. to American Dental Laser, Inc. (Form 10-K for the year ended
December 31, 1992, Exhibit 10.40)
10.11 Confirmation of Technology Transfer dated April 24, 1992 from Texas
Airsonics, Inc. and Ben J. Gallant to American Dental Laser, Inc. (Form
10-K for the year ended December 31, 1992, Exhibit 10.41)
10.12 U.S. Patent No. 4,635,897 issued January 13, 1987. (Form 10-K for the
year ended December 31, 1992, Exhibit 10.42)
10.13 U.S. Patent No. 4,708,534 issued November 24, 1987. (Form 10-K for
the year ended December 31, 1992, Exhibit 10.43)
10.14 U.S. Patent No. 4,733,503 issued March 29, 1988. (Form 10-K for the
year ended December 31, 1992, Exhibit 10.44)
10.15 U.S. Patent No. 4,893,440 issued January 16, 1990. (Form 10-K for the
year ended December 31, 1992, Exhibit 10.45)
10.16* Employment Agreement dated as of April 28, 1992 between American Dental
Laser, Inc. and Anthony D. Fiorillo. (Form 10-K for the year ended
December 31, 1992, Exhibit 10.46)
10.17 U.S. Patent No. 5,122,060 issued June 16, 1992. (Form 10-K for the
year ended December 31, 1992, Exhibit 10.47)
10.18 U.S. Patent No. 5,123,845 issued June 23, 1992. (Form 10-K for the
year ended December 31, 1992, Exhibit 10.48)
10.19 U.S. Patent No. 5,180,304 issued January 19, 1993. (Form 10-K for the
year ended December 31, 1992, Exhibit 10.59)
5
<PAGE> 186
10.20 Settlement Agreement dated February 4, 1993 between American Dental
Laser, Inc. and Sunrise Technologies, Inc. (Form 8-K dated February 15,
1993, Exhibit 28.1)
10.21 Purchase Agreement dated as of March 15, 1993 for American Dental
Laser Japan, Inc. stock between American Dental Laser, Inc., Daniel S.
Goldsmith and Walter J. Goldsmith. (Form 10-K for the year ended
December 31, 1992, Exhibit 10.63)
10.22* Amended and Restated Long-Term Incentive Plan (Registration No.
33-86062, Exhibit 4)
10.23 U.S. Patent No. 5,207,576, issued May 4, 1993 (Form 10-K for the year
ended December 31, 1993, Exhibit 10.67)
10.24 Memorandum Agreement dated June 10, 1993 between the Company and
Dental Innovate Corporation (Form 10-Q for the quarter ended June 30,
1993, Exhibit 10.1)
10.25 U.S. Patent No. 5,228,852, issued July 20, 1993 (Form 10-K for the
year ended December 31, 1993, Exhibit 10.69)
10.26 Distribution Agreement between the Company and Patterson Dental
Company, dated July 1, 1993 (Form 10-K for the year ended December 31,
1993, Exhibit 10.70)
10.27 Supplemental Agreement dated July 27, 1993 between the Company and
Dental Innovate Corporation (Form 10-Q for the quarter ended June 30,
1993, Exhibit 10.2)
10.28 U.S. Patent No. 5,232,367, issued August 3, 1993 (Form 10-K for the
year ended December 31, 1993, Exhibit 10.72)
10.29 Amendment Agreement dated August 16, 1993 between American Dental
Technologies, Inc. and Dental Innovate Corporation (Form 10-Q for the
quarter ended September 30, 1993, Exhibit 10.1)
10.30 U.S. Patent No. 5,257,935, issued November 2, 1993 (Form 10-K for the
year ended December 31, 1993, Exhibit 10.75)
10.31 Non-Competition Agreements of Michael Yessik, Mario Barton, Gary
Coughlen and Rex Doherty (Form 10-K for the year ended December 31,
1993, Exhibit 10.77)
10.32 Lease Agreement, 125 Shoreway Road, Suite 300, San Carlos, California
dated November 7, 1991 (Form 10-K for the year ended December 31, 1993,
Exhibit 10.78)
10.33 U.S. Patent No. 5,275,561, issued January 4, 1994 (Form 10-K for the
year ended December 31, 1993, Exhibit 10.79)
10.34 U.S. Patent No. 5,275,564, issued January 4, 1994 (Form 10-K for the
year ended December 31, 1993, Exhibit 10.80)
10.35 Letter agreement between the Company and Denics Co., Ltd., dated
February 1994 (Form 10-K for the year ended December 31, 1993, Exhibit
10.81)
10.36 U.S. Patent No. 5,310,344, issued May 10, 1994 (Form 10-K for the
year ended December 31, 1994, Exhibit 10.82)
10.37 U.S. Patent No. 5,324,200, issued June 28, 1994 (Form 10-K for the
year ended December 31, 1994, Exhibit 10.83)
6
<PAGE> 187
10.38 U.S. Patent No. 5,330,354, issued July 19, 1994 (Form 10-K for the
year ended December 31, 1994, Exhibit 10.84)
10.39 U.S. Patent No. 5,334,016, issued August 2, 1994 (Form 10-K for the
year ended December 31, 1994, Exhibit 10.85)
10.40 U.S. Patent No. 5,334,019, issued August 2, 1994 (Form 10-K for the
year ended December 31, 1994, Exhibit 10.86)
10.41 U.S. Patent No. 5,342,198, issued August 30, 1994 (Form 10-K for the
year ended December 31, 1994, Exhibit 10.87)
10.42 U.S. Patent No. 5,350,299, issued September 27, 1994 (Form 10-K for
the year ended December 31, 1994, Exhibit 10.88)
10.43 Fourth Supplement to Agreement between the Company and Texas
Airsonics, Inc., dated as of September 30, 1994 (Form 10Q for the
quarter ended September 30, 1994, Exhibit 10.1)
10.44* Employment Agreement of Michael J. Yessik, dated as of January 1, 1995
(Form 10-K for the year ended December 31, 1994, Exhibit 10.90)
10.45 U.S. Patent No. 5,390,204 issued February 14, 1995 (Form 10-K for the
year ended December 31, 1995, Exhibit 10.45)
10.46 Second Memorandum Agreement dated February 24, 1995 between the
Company and Dental Innovate Corporation (Form 10-K for the year ended
December 31, 1995, Exhibit 10.46)
10.47 Lease Agreement, 28411 Northwestern Highway, Suite 1100, Southfield,
Michigan, dated April 7, 1995 (Form 10-K for the year ended December 31,
1995, Exhibit 10.47)
10.48 Variable Rate Commercial Promissory Note dated August 7, 1995 from the
Company to Texas Airsonics, Inc. (Form 10-Q for the quarter ended July
31, 1995, Exhibit 10.1)
10.49 Security Agreement dated August 7, 1995 between the Company and Texas
Airsonics, Inc. (Form 10-Q for the quarter ended July 31, 1995, Exhibit
10.2)
10.50 Distribution Agreement between the Company and Orbis High Tech Dental
GmbH (Form 10-K for the year ended December 31, 1995, Exhibit 10.50)
10.51 First Supplement to Purchase Agreement dated as of January 1, 1996
between American Dental Technologies, Inc., Daniel S. Goldsmith and
Walter J. Goldsmith (Form 10-K for the year ended December 31, 1995,
Exhibit 10.51)
10.52 Third Memorandum Agreement dated February 23, 1996 between the Company
and Denics Co., Ltd. (Form 10-K for the year ended December 31, 1995,
Exhibit 10.52)
10.53* Form of Ben J. Gallant Employment Agreement
10.54 Form of License Agreement between Texas Airsonics, Inc., a wholly
owned subsidiary of American Dental Technologies, Inc. and Texas
Airsonics, L.P.
11.1 Statement Re: Computation of Net Loss Per Share (Form 10-K for the year
ended December 31, 1995, Exhibit 11.1)
11.2 Statement Re: Computation of Net Income Per Share (Form 10-Q for the
quarter ended March 31, 1996, Exhibit 11.1)
7
<PAGE> 188
14.1 European Patent No. 0-357-760-B1, issued May 26, 1993 (Form 10-K for
the year ended December 31, 1993, Exhibit 14.1)
21.1 Subsidiaries of the Registrant (Form 10-K for the year ended December
31, 1995, Exhibit 21.1)
23.1 Consent of Independent Auditors, Ernst & Young LLP
23.2 Consent of Independent Auditors, Ernst & Young LLP
23.3 Consent of Equity Partners, Ltd.
23.4 Consent of John E. Vickers, III
23.5 Consent of Raymond F. Winter (Included in Exhibit 5.1)
23.6 Consent of Designee, Ben J. Gallant, for the Board of Directors of ADT
23.7 Consent of Designee, Wayne A. Johnson II, for the Board of Directors
of ADT
23.8 Consent of Designee, Charles A. Nichols, for the Board of Directors of
ADT
23.9 Consent of Designee, John E. Vickers III, for the Board of Directors
of ADT
99.1 Form of Proxy to be used in soliciting holders of shares of Texas Air
Common Stock for its Special Meeting to be held on July 27, 1996
99.2 Form of Proxy to be used in soliciting holders of shares of ADT Common
Stock for its Annual Meeting to be held on July 29, 1996.
_______________
*Identifies current management contracts or compensatory plans or arrangements.
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts (Form 10-K for the
year ended December 31, 1995, Schedule II)
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in such Act and is,
8
<PAGE> 189
therefore, unenforceable. In the event a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
(4) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4,10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(5) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
9
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant, American Dental Technologies, Inc., a Delaware corporation, has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Southfield, State of
Michigan, on the 21st day of June, 1996.
AMERICAN DENTAL TECHNOLOGIES, INC.
BY: /s/ Anthony D. Fiorillo
-----------------------------------
Anthony D. Fiorillo, President and CEO
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 21st day of June, 1996.
SIGNATURE TITLE
/s/ Anthony D. Fiorillo President and Chief Executive Officer
------------------------------ (Principal Executive Officer) and Director
Anthony D. Fiorillo
/s/ Diane M. Miller Chief Financial Officer (Principal
------------------------------ Financial and Accounting Officer)
Diane M. Miller
/s/ William D. Myers Director and Chairman of the Board
------------------------------
William D. Myers
/s/ James Bernard Machen Director
------------------------------
James Bernard Machen
/s/ Kenneth C. Merrill Director
------------------------------
Kenneth C. Merrill
/s/ Bertrand R. Williams, Sr. Director
------------------------------
Bertrand R. Williams, Sr.
10
<PAGE> 191
EXHIBIT INDEX
4.7 Form of Merger Warrant
5.1 Opinion Re: legality and consent of Raymond F. Winter
9.1 Stockholder Voting Agreement between Ben J. Gallant and William D.
Myers
10.53* Form of Ben J. Gallant Employment Agreement
10.54 Form of License Agreement between Texas Airsonics, Inc., a wholly
owned subsidiary of American Dental Technologies, Inc. and Texas
Airsonics, L.P.
23.1 Consent of Independent Auditors, Ernst & Young LLP
23.2 Consent of Independent Auditors, Ernst & Young LLP
23.3 Consent of Equity Partners, Ltd.
23.4 Consent of John E. Vickers, III
23.5 Consent of Raymond F. Winter (Included in Exhibit 5.1)
23.6 Consent of Designee, Ben J. Gallant, for the Board of Directors of ADT
23.7 Consent of Designee, Wayne A. Johnson II, for the Board of Directors of
ADT
23.8 Consent of Designee, Charles A. Nichols, for the Board of Directors of
ADT
23.9 Consent of Designee, John E. Vickers III, for the Board of Directors of
ADT
99.1 Form of Proxy to be used in soliciting holders of shares of Texas Air
Common Stock for its Special Meeting to be held on July 27, 1996
99.2 Form of Proxy to be used in soliciting holders of shares of ADT Common
Stock for its Annual Meeting to be held on July 29, 1996.
_______________
*Identifies current management contracts or compensatory plans or arrangements.
<PAGE> 1
EXHIBIT 4.7
MERGER WARRANT NO. 96-000
EXPIRATION DATE: 7-31-99
NON-TRANSFERABLE COMMON STOCK PURCHASE WARRANT
This is to certify that, for value received, the registered holder named
on the signature page (the "Holder"), is entitled for a period commencing one
year and one day after the date hereof and ending on the Expiration Date,
subject to the terms and conditions herein set forth, to purchase from American
Dental Technologies, Inc. (the "Company") the number of shares of the Company's
common stock ("Common Stock") set forth below Holder's name at a purchase price
of [$1.00] per share.
Other than as specified below, this Warrant is non-transferable and may
only be exercised by the Holder in whole or in part by written certified or
registered mail notice to the Company accompanied by the surrendered Warrant
and payment of the purchase price in certified or bank funds for the number of
shares so purchased. If this Warrant is exercised in part only, the Company
shall execute and deliver a new Warrant evidencing the rights of the Holder to
purchase the remaining number of shares purchasable hereunder.
This Warrant may be exercised only by Holder and may not be transferred
other than by will, laws of descent and distribution, a qualified domestic
relations order, or upon the prior written consent of Company. Any attempted
assignment, transfer, pledge or other disposition of this Warrant other than as
provided herein, shall be void and of no effect.
Within five business days of receipt of notice of exercise of the Warrant
as above provided, the Company shall cause to be issued in the name of and
delivered to Holder a certificate or certificates for the shares of Common
Stock so purchased. The Company covenants and agrees that all shares of
Common Stock which may be delivered upon exercise of this Warrant will, upon
delivery, be fully paid and non-assessable. The Holder of this Warrant agrees,
by the acceptance hereof, to pay all transfer taxes with respect to the
issuance or delivery of this Warrant or the Common Stock which may be delivered
upon its exercise. The Company agrees at all times to reserve and hold
available a sufficient number of authorized shares of Common Stock to cover the
number of shares issuable upon the exercise of this Warrant.
In case the shares of Common Stock at any time outstanding shall be
subdivided into a greater number of shares, or combined into a lesser number of
shares, then each share of Common Stock purchasable under this Warrant shall be
replaced for the purposes hereof by the number of the subdivided or
consolidated shares, as the case may be, issued in substitution for each one
share of Common Stock then issued and outstanding; and in case at any time the
Company shall issue any additional shares of Common Stock as a stock dividend
which the Holder of this Warrant shall thereafter be entitled to purchase for
the same aggregate price upon the exercise of its rights hereunder, then the
shares
Page 1 of 3 pages
<PAGE> 2
purchasable under this Warrant shall be increased in the same ratio as the then
outstanding Common Stock was increased by such stock dividend, and the purchase
price per share correspondingly decreased. No fractional shares will be issued
and in lieu thereof, Holder would receive an amount of cash equal to the
closing sale price of the Common Stock as reported by Nasdaq on the last
trading day before the adjustment date multiplied by the fractional share to
which Holder would otherwise be entitled.
The Company will at all times in good faith assist in carrying out the
terms of this Warrant to protect the rights of the Holder against dilution as
provided herein.
Neither this Warrant nor the shares issuable upon exercise of this Warrant
have been registered under the Securities Act of 1933, as amended (the "Act"),
or any applicable state "Blue Sky" laws. By acceptance of this Warrant, the
Holder represents and warrants to the Company that Holder will not offer,
distribute, sell, transfer or otherwise dispose of the shares received upon
exercise of the Warrant except pursuant to (i) an effective registration
statement under the Act and any applicable Blue Sky laws with respect thereto;
(ii) an opinion, satisfactory to the Company, addressed to the Company, from
counsel satisfactory to the Company, that such offering, distribution, sale,
transfer or disposition is exempt from registration under the Act and any
applicable Blue Sky laws; or (iii) a letter from the staff of the Securities
and Exchange Commission ("SEC") or any state securities commissioner, as the
case may be, to the effect that it will recommend that no action be taken with
respect to such transaction. The Holder agrees, by acceptance of this Warrant,
to execute any and all documents deemed necessary by the Company and required
by the regulatory authority of any state in connection with any public offering
of the shares underlying the Warrant.
The Company agrees to use its best efforts to file a registration
statement on Form S-3 (or a successor form) on September 1, 1997, May 15, 1998,
November 15, 1998 and August 15, 1999 (or if such date is not a business day,
on the first business day thereafter), providing for the sale by Holder of
shares of Common Stock acquired upon exercise of this Warrant at least ten days
prior to such date and which were not previously registered under the Act, and
to use its reasonable best efforts to cause each such registration statement to
be declared effective by the SEC and to continue to be effective until the
second anniversary of the effective date thereof or until such shares may be
sold pursuant to Rule 144(k) under the Act, whichever occurs earlier. The
Company 's obligation to register shares on behalf of any Holder shall be
conditional upon the Company 's receipt from such Holder in writing, at least
five days prior to the date of such registration statement filing, of (i) all
information reasonably requested by the Company in connection with the
preparation of such registration statement, and (ii) an undertaking by such
Holder to (a) indemnify the Company and its directors, officers and affiliates
for all claims, damages, liabilities and expenses incurred by them arising out
or based upon any untrue statement or omission, or alleged untrue statement or
omission, made in such registration statement or prospectus in reliance upon
information furnished to the Company by such Holder for use therein and (b)
temporarily cease making sales of shares registered under such registration
Page 2 of 3 pages
<PAGE> 3
statement upon receipt of written notice from the Company , if the Company
determines, in good faith, that the use of the prospectus included in such
registration statement would require the disclosure of important information
which the Company has a bona fide purpose for preserving as confidential or
the disclosure of which would impede the Company's ability to consummate a
significant transaction, until the receipt of a further notice from the Company
that sales may resume under the registration statement. The Company shall
not be required to file a registration statement if, on the applicable filing
date thereof, (i) the number of shares to be registered by such registration
statement is less than 500,000 shares, (ii) the Company is not eligible to use
Form S-3 in connection with such registration, (iii) the Company has
determined, in good faith, as of such date that the filing of such registration
statement would require the disclosure of important information which the
Company has a bona fide purpose for preserving as confidential or the
disclosure of which would impede the Company 's ability to consummate a
significant transaction; provided, that in the case of (ii), the Company shall
be required to file such registration statement as soon as practicable after it
becomes eligible to use Form S-3 in connection with such registration and, in
the case of (iii), the Company shall be required to file such registration
statement as soon as practicable after it has determined that such disclosure
would no longer be required or the Company's ability to consummate such
transaction would no longer be impeded.
The Holder of this Warrant shall not be entitled to vote or receive
dividends nor be deemed the owner of Common Stock of the Company for any
purpose, nor shall anything contained herein be construed to confer upon the
Holder of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether upon any recapitalization, issue of stock, reclassification of the
stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, until this
Warrant shall have been validly exercised as provided above and the Common
Stock purchasable upon the exercise thereof shall have become deliverable to
the Holder as herein provided.
In case any Warrant shall be mutilated, lost, stolen or destroyed, the
Company shall issue a new Warrant of like date, tenor, and denomination and
deliver the same in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or in lieu of any lost, stolen or
destroyed Warrant, upon receipt of an indemnity agreement or bond reasonably
satisfactory to the Company.
This Warrant issued this 31st day of July, 1996.
AMERICAN DENTAL TECHNOLOGIES, INC.
- ---------------------------
Registered Holder
By:
- --------------------------- --------------------------------
Address Anthony D. Fiorillo, President
- ---------------------------
- ---------------------------
Number of Shares
Page 3 of 3 pages
<PAGE> 1
EXHIBIT 5.1
[Logo]
Board of Directors
American Dental Technologies, Inc.
28411 Northwestern Highway, Suite 1100
Southfield, Michigan 48034-5541
Re: Registration Statement on Form S-4
Gentlemen:
I have acted as general counsel for American Dental Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), of a registration statement on Form S-4 (the
"Registration Statement") relating to the offering by the Company in the manner
described in the Registration Statement, of up to 11,881,856 shares of the
Company's common stock ("Common Stock").
In so acting, I have examined and relied upon the originals, or copies
certified or otherwise identified to my satisfaction, of such corporate
records, documents, certificates and other instruments as in my judgment are
necessary or appropriate to enable me to render the opinion expressed below.
Based upon the foregoing, I am of the opinion that:
1. The Company has been duly incorporated and is in good standing under
the laws of the State of Delaware.
2. The shares of Common Stock to which the Registration Statement relates
are and, to the extent not yet issued, will be, when issued in the manner
specified in the Registration Statement, legally issued, fully paid and
non-assessable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement. I further consent to the reference to me under the heading "Legal
Matters" in the Registration Statement. In giving such consent, I do not
concede that I am an expert within the meaning of the Act or the rules or
regulations thereunder or that this consent is required by Section 7 of the
Act.
Sincerely,
/s/ Raymond F. Winter
Raymond F. Winter
<PAGE> 1
EXHIBIT 9.1
STOCKHOLDER VOTING AGREEMENT
This agreement is entered into effective as of the 23rd day of February,
1996, by and between William D. Myers and Ben J. Gallant (individually or
collectively, the "Stockholder"), contingent upon stockholder approvals of the
contemplated merger.
WHEREAS, each Stockholder desires that all American Dental Technologies,
Inc. ("ADT") $0.01 par value common stock currently or hereafter beneficially
owned by each (the "Stock") be voted as a unit according to the terms of this
voting agreement pursuant to Section 218(c) of the Delaware General Corporation
Law.
NOW THEREFORE, each Stockholder agrees as follows:
1) Until the 1999 annual ADT stockholders' meeting has been concluded,
each Stockholder shall:
a) vote all shares of Stock beneficially owned by him for the election
of the other stockholder as a director, and to maintain such person as a
director for so long as he makes himself available for such position; and
b) if either Stockholder ceases to be director for any reason, to vote
in favor of a replacement director named by such Stockholder and to otherwise
use his best efforts to elect or appoint such person as a director.
2. The provisions of this Agreement shall be binding upon and inure to
benefit of the parties hereto, their respective representatives, successors,
heirs and assigns. Provided however, in the event of a transfer of Stock to a
bona fide purchaser for value, this voting agreement shall terminate as to the
transferred Stock and such purchaser's Stock shall not be subject to the
provisions of this voting agreement.
3. This Agreement may be amended only by the written consent of both
Stockholders.
4. Stockholders agree a breach of the provisions of this Agreement could
not be adequately compensated by money damages and either shall be entitled to,
in addition to any other right and/or remedy available to him, an injunction
restraining such breach or threatened breach and to specific performance. In
either case, no bond or other security shall be required in connection
therewith and each Stockholder consents to such injunction and order for
specific performance.
/s/ William D. Myers /s/ Ben J. Gallant
- --------------------------- -----------------------------
William D. Myers Ben J. Gallant
<PAGE> 1
EXHIBIT 10.53*
EMPLOYMENT AGREEMENT
This Agreement shall be effective as of the 1st day of August, 1996,
between AMERICAN DENTAL TECHNOLOGIES, INC. a Delaware corporation (the
"Company" or "ADT"), and BEN J. GALLANT ("Gallant").
WHEREAS, the Company is engaged in the business of designing,
manufacturing and marketing dental laser products and dental air abrasive
products.
WHEREAS, Gallant is a significant stockholder of the Company and, subject
to the terms of this Agreement, shall be employed by the Company.
WHEREAS, the parties desire to enter into this Agreement to confirm their
respective rights and obligations.
NOW THEREFORE, in consideration of the mutual covenants and promises
recited herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement, the
Company shall employ Gallant as the President and Chief Executive Officer of
the Company's wholly owned subsidiary, Texas Airsonics, Inc. and as a member of
the Company's Executive Committee.
2. Term and Compensation. The term of this Agreement shall be three years
from the effective date, or through July 31, 1999 (the "Term"). During the
Term, Gallant's compensation shall be in pari pasui with that of Anthony D.
Fiorillo. Gallant shall receive the following compensation from the Company in
consideration of the performance of Gallant's duties hereunder:
(a) beginning on the effective date hereof, an annual base salary (before
appropriate payroll deductions) of $225,000 per year, payable in 24
semi-monthly installments in accordance with the normal payroll practices of
the Company;
(b) beginning on the effective date hereof, Company shall maintain an
existing $400,000 life insurance (or comparable policy) on Gallant's life for
the benefit of his designated beneficiaries and shall timely pay the premium
when due;
(c) beginning on the effective date hereof, Company shall provide Gallant
with an automobile allowance of $750 per month;
(d) beginning on the effective date hereof, all other benefits of
employment generally available to the Company's executive employees (which
shall be no less favorable to Gallant than those generally available to ADT's
other executive employees) shall be available to Gallant, including without
limitation, group health and 401(k) benefit plans and a paid vacation of four
weeks per year;
(e) beginning on the effective date hereof, reimbursement for reasonable
out-of-pocket expenses incurred by Gallant in connection with the Company's
business, including expenses for travel, food and lodging while away from home,
subject to compliance with such procedures as the Company may from time to time
reasonably establish for its employees; and
(f) for so long as Gallant shall be a member of ADT's board of directors,
reasonable out-of-pocket expenses incurred by Gallant in connection with his
participation on such board, provided however, Gallant shall receive no other
compensation from ADT for services as a director.
<PAGE> 2
3. Duties. Gallant hereby convenants and undertakes as follows:
(a) During the Term, Gallant shall devote his full energies, interest,
abilities and productive time to the Company and shall not, without the
Company's prior written consent, render to others services of any kind for
compensation, or engage in any other business activity that would materially
interfere with the performance of his duties under this Agreement or that could
adversely affect the Company.
(b) During the Term, Gallant shall not, directly or indirectly, whether
as a partner, employee, creditor, shareholder or otherwise (i) promote,
participate or engage in any activity or other business competitive with the
Company's business, or (ii) take any action to establish, form or become
employed by a competing business during the Term, or within 12 months after the
end of the Term.
4. Confidential Information/Non-Competition.
(a) In the course of his employment, Gallant will have access to
confidential information and trade secrets relating to the Company's business.
Except as required in the course of his employment by the Company, Gallant will
not, without the Company's prior written consent, either during his employment
by Company or for 12 months after termination of that employment, directly or
indirectly disclose to any third person any such confidential information or
trade secrets.
(b) In the course of his employment, Gallant will have access to
confidential records and data pertaining to the Company's customers and to the
relationship between these customers and the Company's products. Such
information is considered secret and is disclosed to Gallant in confidence.
During his employment by the Company and for 12 months after termination of
that employment, Gallant shall not directly or indirectly disclose or use any
such information, except as required in the course of his employment by the
Company. In addition, during, and for the 12 months after termination of his
employment, Gallant shall not induce or attempt to induce any agent, sales
representatives or distributor of the Company to discontinue representing the
Company for the purpose of representing any competitor of the Company.
(c) Due to his employment by the Company, Gallant will have access to
trade secrets and confidential information and its methods of doing business.
In consideration of his access to this information, Gallant agrees that for a
period of 12 months after termination of his employment, he shall not be
employed directly or indirectly by Kreativ, Inc.; Danville Engineering, Inc.;
Sunrise Technologies International, Inc.; Excel Technology, Inc.; Luxar
Corporation; or HGM Dental Laser Systems, Inc. and he shall not directly
compete with the Company in the field of dental-laser or air abrasive
technology within the United States. Gallant acknowledges that direct
competition includes design, development, production, promotion or sale of
products or services competitive with those of the Company.
(d) As used in this Agreement, the terms "confidential information" shall
not include information that (i) is now, or hereafter becomes, through no act
or failure to act on the part of Gallant or persons under his control,
generally known or available to the public, (ii) was acquired by Gallant before
receiving such information from the Company (or through his affiliation with,
or in his capacity as an employee of, the Company) and without restriction as
to use or disclosure, (iii) is hereafter rightfully furnished to Gallant by a
third party without restriction as to use or disclosure, (iv) is required to be
disclosed pursuant to law, provided Gallant uses reasonable efforts to give the
Company reasonable prior notice of such required disclosure, or (v) is
disclosed with the prior written consent of the Company.
5. Intangibles. All processes, inventions, patents, copyrights,
trademarks and other intangible rights that are already owned (or otherwise
owned) by the Company or that may be conceived or developed by Gallant, either
alone or with others, during the Term, whether or not conceived or developed
during Gallant's working hours, and with respect to which the equipment,
supplies, facilities or trade secret information of the Company was used, or
that relate, at the time of conception or reduction-to-practice of the
invention, to the business of the Company or to the Company's actual or
demonstrably anticipated research and development, or that result from any work
<PAGE> 3
performed by Gallant for the Company or its predecessor, shall be the sole
property of the Company. Gallant shall disclose to the Company all inventions
conceived during the term of employment and, for one year thereafter, inventions
that arise from property of the Company under this section, provided that such
disclosure shall be received by the Company in confidence. Gallant shall
execute all documents, including patent applications and assignments, required
by the Company to establish the Company's rights under this section.
6. Indemnification
(a) The Company shall indemnify, defend and hold harmless Gallant against
all losses, claims, demands, liabilities and expenses (including reasonable
legal and other expenses incurred in defending such claims or liabilities),
whether or not resulting in any liability to Gallant, that he may incur,
arising out of or based upon any breach by the Company of the terms of this
Agreement or arising out of or related to the proper performance of Gallant's
duties in accordance with the terms of this Agreement.
(b) Gallant shall indemnify, defend and hold harmless the Company, its
officers, directors, employees and agents against all losses, claims, demands,
liabilities and expenses (including reasonable legal and other expenses
incurred in defending such claims or liabilities), whether or not resulting in
any liability to the Company, its officers, directors, employees or agents,
that they or any of them may incur, arising out of or based upon breach by
Gallant of any of the terms of this Agreement.
7. Duration. The Term of this Agreement shall continue, until the first
to occur of:
(a) Three years from the date hereof; except as provided in sub-paragraph
(b) below.
(b) In the event Gallant shall commit any material criminal act, fraud,
dishonesty or malfeasance with respect to the Company or his employment,
Company may terminate this Agreement.
8. Disputes.
(a) In the event (i) Gallant's employment is terminated without cause,
(ii) Company materially changes his duties as President and Chief Executive
Officer of Texas Airsonics, Inc., or (iii) Company liquidates, dissolves,
merges with, or transfers substantially all of its assets to a corporation
which does not assume Company's obligations under this Agreement; Gallant will
continue to be entitled to his base salary and health insurance coverage.
(b) If either party institutes any action against the other relating to
this Agreement, the unsuccessful party in such action or proceeding shall
reimburse the successful party for its disbursements incurred in connection
therewith, including without limitation, reasonable attorneys' fees, to be
fixed by the court.
9. Assignment. This Agreement is personal to the Company and Gallant and
no party shall have the right, power or authority to assign this Agreement, or
any portion hereof or any monies due or to become due hereunder, or to delegate
any duties or obligations arising hereunder, whether voluntarily, involuntarily
or by operation of law, without the prior written approval of the other
parties.
10. Miscellaneous.
(a) Each provision of this Agreement is intended to be severable. If any
provision hereof shall be determined by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever, such provision shall be severed
from this Agreement and shall not affect the remainder of this Agreement unless
the essential purposes of this Agreement would thereby be confounded.
(b) No consent or waiver, express or implied, by either party to or of
any breach or default by the other party in the performance by the other of its
obligations hereunder shall be valid unless in writing, and no such consent or
waiver shall be deemed or construed to be a consent or waiver to or of any such
breach or default in the performance by such other party of the same or any
<PAGE> 4
other obligations of such party hereunder. Failure on the part of any party to
complain of any act or failure to act of the other party or to declare the other
party in default, irrespective of how long such failure continues, shall not
constitute a waiver by such party of its rights hereunder. The granting of any
consent or approval in any one instance by or on behalf of a party shall not be
construed to waive or limit the need for such consent in any other or subsequent
instance.
(c) This Agreement is entered into in the State of Michigan and shall
be governed by the laws thereof. The venue of any action or proceeding brought
by Company against Gallant arising out of this Agreement shall be in the County
of Oakland, Michigan. The venue of any action or proceeding brought by Gallant
against Company arising out of this Agreement shall be in the County of Nueces,
Texas.
(d) This constitutes the entire agreement between the parties with
regard to Gallant's employment. Any modification of this Agreement must be in
writing and signed by the party to be charged thereby.
(e) Nothing in this Agreement changes, alters or amends Gallant's rights
under an existing February 12, 1993 agreement with Company.
(f) All notices, requests and communications required or permitted
hereunder shall be in writing and be sufficiently given and deemed to have been
received upon personal delivery or, if mailed, upon the first to occur of
actual receipt or 48 hours after being placed in the United States mail,
postage prepaid, registered or certified mail, with return receipt requested,
addressed to the above parties as follows:
American Dental Technologies, Inc. Ben J. Gallant
Attention: Anthony D. Fiorillo 5555 Bear Lane
28411 Northwestern Hwy., #1100 Corpus Christi, Texas 78405
Southfield, Michigan 48034-5541
(g) The headings of this Agreement are inserted for convenience of
reference only and shall not affect the construction of anything herein
contained.
(h) This Agreement may be executed in counterparts, each of which when so
executed shall be deemed an original and all of which together shall constitute
but one agreement.
IT WITNESS WHEREOF, the parties have hereunto set their hands as of the
day and year first above written.
American Dental Technologies, Inc.
-------------------------------------
Anthony D. Fiorillo, President and
Chief Executive Officer
-------------------------------------
Ben J. Gallant
<PAGE> 1
EXHIBIT 10.54
LICENSE AGREEMENT
AGREEMENT dated as of , 1996 between Texas Airsonics
L.P., a limited partnership, wherein Charles A. Nichols, Wayne Johnson II and
Ben J. Gallant are general partners, having a place of business at 3141
Gollihar, Corpus Christi, Texas 78415 ("Licensor"), Texas Airsonics, Inc., a
Texas corporation having a place of business at 5555 Bear Lane, Corpus Christi,
Texas 78405 ("Licensee"), and a wholly owned subsidiary of American Dental
Technologies, Inc. ("ADT"), a Delaware corporation having a place of business
at 28411 Northwestern Highway, Suite 1100, Southfield, Michigan 48034.
WHEREAS, pursuant to Article 12 of the Agreement and Plan of
Reorganization entered into as of November 22, 1995 ("Merger Agreement")
between Licensee and ADT, all industrial patent rights of Licensee are to be
transferred to Licensor subject to a license agreement and are being
transferred concurrent with this Agreement; and
WHEREAS, the Merger Agreement has been approved by the shareholders of ADT
and Licensee and, therefore; Licensee, Licensor and ADT are desirous of
implementing the terms of the Merger Agreement;
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and conditions hereinafter contained, the parties hereby covenant and
agree as follows:
1. Definitions
(a) Whenever used in this Agreement, unless otherwise clearly indicated in
the context, the following terms shall have the meanings defined in this
Article 1.
(b) Effective Time has the same meaning as provided in the Merger
Agreement by and between Licensee, ADT and ADT Merger Corp., a Texas
corporation, wherein Licensee will become a wholly-owned subsidiary of ADT.
(c) Patent Rights means Licensor's rights in or under the patents and
patent applications now licensable by Licensor as listed in the Patent Schedule
attached hereto as Exhibit A. Patent Rights also means Licensor's rights in the
patents and patent applications acquired by license from ADT as listed in the
License Schedule attached hereto as Exhibit B. The rights in the patents and
patent applications listed in Exhibits A and B shall extend to any divisions,
continuations, reissues or re-examination certificates thereof and in any and
all patents issuing thereon throughout all countries of the world.
(d) Industrial Products means any product sold by Licensee and ADT, their
affiliates or assigns, which is not intended for ultimate use in the dental
field.
2. License
(a) Licensor hereby grants, and Licensee hereby accepts, upon the terms
and conditions set forth in this Agreement, the sole and exclusive license to
use the Patent Rights in manufacture, use and sale of Industrial Products.
(b) Licensee shall, at its sole expense, diligently prosecute patent
applications and maintain patents within the Patent Rights listed in Exhibit A
during the term of this Agreement. In no event shall Licensee be obligated to
continue prosecution of any application beyond the level of a final rejection
by the appropriate examining authority. In the event that Licensee elects not
to proceed with the prosecution of any application listed in Exhibit A beyond
the level of final rejection by the appropriate examining authority, Licensee
shall give timely notice to Licensor of its intention and shall afford Licensor
the right to continue prosecution at Licensor's sole expense.
1
<PAGE> 2
(c) Modifications by Licensee: Licensee may, in such manner as it deems
fit and at its sole cost and expense, modify, alter, change or improve any
component or assembly of components which comprises the licensed Industrial
Products and use the same by itself or in combination with any other product,
component or assembly of the components in accordance with paragraph 2(a)
hereof and the covenants and conditions of this Agreement.
3. Financial Terms
(a) Licensee Fee: Licensee shall pay to Licensor a Licensee Fee of eight
percent (8%) of Licensee's Revenues, as hereinafter defined from Industrial
Products sold or otherwise put into use.
(b) "Licensee's Revenues" Defined: As used herein, the term "Licensee's
Revenues" shall mean all sums invoiced by Licensee to its customers of
Industrial Products, whether from sales, rentals, leases, licenses or
otherwise, less only returns, uncompleted on-approval sales, shipping charges
and sales, use and excise taxes and customs duties separately stated on
invoices to Licensee's customers.
(c) Method of Payment; Books and Records: The License Fee shall be paid
to Licensor in accordance with the following terms and conditions:
(i) Statements: License Fees shall become payable to Licensor upon the
shipment of Industrial Products by Licensee to Licensee's customers. Within
thirty (30) days of the end of each fiscal quarter of each of Licensee's fiscal
years during the term of this Agreement, Licensee shall deliver to Licensor a
statement showing in reasonable detail all shipments in respect of Industrial
Products made during such period and all License Fees which are payable by
virtue of such shipments. Each such statement shall be accompanied by
Licensee's check in payment of the License Fees for such period.
(ii) Books and Records: Licensee shall keep and maintain accurate and
complete books and records relating to all matters affecting License Fees
payable hereunder. Licensor and Licensor's agents and representatives shall
have the right, at reasonable times and on reasonable notice, to audit such
books at Licensee's offices. Except as may be required in connection with the
resolution of any dispute arising under this Agreement, Licensor shall keep in
confidence all information furnished to it, either in the form of the statement
of License Fees delivered by Licensee, or any information which it might gain
or gather from the examination or audit of Licensee's books. If any audit
discloses any error, the parties shall, by appropriate payment forthwith,
adjust the same. If any such audit discloses errors exceeding ten percent
(10%) of the amount paid to Licensor as License Fees for the audited period,
the cost of such audit shall be borne by Licensee. Otherwise, such cost shall
be borne by Licensor.
(iii) Currency; Exchange Rate: The amounts payable hereunder shall be
paid by a check of the party drawn in United States dollars. To the extent
required under this Agreement, all amounts stated in a currency other than
United States dollars shall be translated into United States dollars, applying
a quarterly average conversion rate of exchange, calculated using the
prevailing New York rate(s) on the last day of each month in the quarter in
which any such computation must be made.
2
<PAGE> 3
4. Term
(a) Unless sooner terminated, this Agreement shall remain in effect for a
term of six (6) years from the Effective Time.
(b) Termination for Breach or Default: If Licensee shall materially
breach or default under this Agreement, the Licensor may give written notice of
its intention to terminate this Agreement, stating in reasonable detail the
nature of the breach or default. If Licensee fails to cure or remedy its
breach or default within thirty (30) days of receipt, Licensor may, while such
breach or default continues, terminate this Agreement forthwith on written
notice. Failure to timely pay the License Fee due hereunder shall be a
material breach or default.
(c) Termination for Other Events: In the event ADT is acquired or
transfers or sells substantially all (2/3's or more) of its dental business
(including a merger with, or acquisition by another company) within three (3)
years from the Effective Time, this Agreement shall terminate immediately upon
such transfer or sale. In such event, Licensor shall be the sole owner of the
Patents and Patent Rights listed in Exhibit A and its License Rights in the
patents and Patent Rights of Exhibit B shall become irrevocable.
(d) Assignment of Patent Rights: Texas Airsonics L.P. shall assign,
transfer and convey the entire Patent Rights to ADT, if, at six (6) years and
one (1) day from the Effective Time there exists no material breach or default
by Licensee or ADT hereunder.
5. Relationship
Nothing contained in this Agreement shall be construed by the parties
hereto, or by any third party, as constituting the parties as principal and
agent, partners or joint venturers, nor shall anything herein (except as
otherwise specifically provided) render either party liable for the debts and
obligations of the other, it being understood and agreed that the only
relationship between the parties is that of Licensor and Licensee.
6. Rights and Responsibilities of Parties
(a) Licensee shall be responsible for all manufacturing, marketing and
support activities and the expense attendant thereto.
(b) Licensee shall be solely responsible for any liability imposed on
Licensor, Licensee or any third party arising from the design, manufacture,
distribution or use of any of the Industrial Products. Licensee shall defend,
indemnify and hold Licensor harmless from and against any and all claim for
loss, liability, damage or expense (including reasonable attorneys' fees)
arising out of or in connection with this covenant.
7. Assignment
Prior to three (3) years and one (1) day from the Effective Time, this
Agreement and all rights and duties hereunder are personal to each party and
shall not, without the prior written consent of the other party, be assigned or
sublicensed. However, either party may, without such consent, assign its
rights or obligations under this Agreement to a corporation controlling,
controlled by or under common control with the assigning party; and provided
further that in the event of any such assignment without consent, the parties
hereto shall continue to be liable as guarantors of their respective
obligations hereunder.
3
<PAGE> 4
8. Waiver
None of the terms of this Agreement may be waived or modified, except by
an express agreement in writing signed by both parties. The failure of either
party hereto to enforce, or the delay by either party in enforcing any of its
rights under this Agreement shall not be deemed a continuing waiver or a
modification thereof and either party may, within the time provided by
applicable law, commence appropriate legal proceedings to enforce any or all of
such rights.
9. Infringement by Third Parties
If any party shall learn of any infringement or apparent infringement of
any patent of the Patent Rights of Exhibit A or other proprietary right
relating to the Industrial Products by any third party, it shall promptly
notify the other party stating in reasonable detail the facts known to it. In
any such case, Licensee may take such steps as it deems appropriate, in its
name and at its expense, and in its sole discretion, against the person or
persons thought to be infringing, including, without limitation commencement,
prosecution and settlement of legal actions or proceedings, and Licensee shall
be entitled to:
(i) reimburse itself from all amounts recovered by way of settlement or by
court aware for all expenses incurred in such action or proceedings; and
(ii) retain ninety-two percent (92%) of all amounts recovered (after such
reimbursement) by way of settlement or, by court award, with the balance paid
to Licensor. Licensor shall cooperate in such proceedings in all respects
reasonably requested by Licensee.
10. Name
Licensee consents to the use of the name Texas Airsonics, by Licensor, as
its business or tradename during the term of this Agreement but gives no
consent to use of the name as a trademark on products or as a service mark
promoting in any manner the marketing of services. In the event this Agreement
is terminated pursuant to the provisions of Section 4(c), Licensor shall have
the exclusive use of the name Texas Airsonics and Licensee shall cease using
the name.
11. Inclusive Reference
Any provision herein in which reference is made to Licensee shall be
deemed to include, and be binding upon, ADT, ADT Merger Corp., their successors
and assigns.
12. Future Licenses
In the event this Agreement is terminated pursuant to the provisions of
Section 4(c), Licensee shall grant Licensor a royalty free, exclusive and
irrevocable license for all, non-dental applications to all patents and/or
patent applications, know-how, proprietary information and technology developed
by Licensee, after the Effective Time, to the date of the termination of this
Agreement.
13. Entire Agreement
This Agreement and the License Schedule incorporated herein constitute the
entire Agreement between the parties with respect to the subject matter
thereof. There are no representations, promises, warranties, covenants, or
undertakings other than those contained in this Agreement.
14. Survival
All provisions of this Agreement relating to confidentially,
indemnification or the rights and obligations of the parties after termination
of this Agreement shall be deemed to survive such termination.
4
<PAGE> 5
15. Notices
All notices, reports and other documents provided for herein shall be
deemed to have been given or made when mailed, postage prepaid, or delivered by
telex or cable, addressed to the parties at their respective addresses set
forth above or such other addresses as either of the parties hereto may
designate in writing to the other from time to time for such purpose.
16. Construction
The operation and interpretation of this Agreement shall be governed by
the laws of the State of Texas. The titles of the Sections of this Agreement
are for convenience only and shall not define or limit any of the terms or
provisions hereof.
17. Arbitration
Any dispute or disagreement between the parties hereto arising out of or
connected by this Agreement shall be decided by arbitration. Arbitration may
be brought by Licensor in Corpus Christi, Texas and by Licensee and ADT in
Oakland County, Michigan. The arbitration will be conducted by an arbitrator
appointed by the American Arbitration Association and pursuant to the rules of
the American Arbitration Association. The decision rendered by the arbitrator
will be final and non-appealable. The substantially prevailing party shall be
awarded its costs incurred in the arbitration proceeding, including reasonable
attorney fees.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this License
Agreement the day and year first above written.
TEXAS AIRSONICS L.P. TEXAS AIRSONICS L.P.
By: By:
------------------------------- ------------------------------
Title: Title:
---------------------------- ---------------------------
TEXAS AIRSONICS L.P. TEXAS AIRSONICS, INC.
By: By:
------------------------------- ------------------------------
Title: Title:
---------------------------- ---------------------------
AMERICAN DENTAL TECHNOLOGIES, INC. ADT MERGER CORP.
By: By:
------------------------------- ------------------------------
Title: Title:
---------------------------- ---------------------------
5
<PAGE> 6
LICENSE SCHEDULE / EXHIBIT A
PATENTS
Canadian Patent No: 1,213,144
Issue Date: October 28, 1986
Subject: HELICAL PARTICLE FEED
Canadian Patent No.: 1,216,272
Issue Date: January 6, 1987
Subject: PINCH TUBE SHUT-OFF DEVICE
British Patent No.: 2,145,389
Issue Date: October 28, 1987
Subject: SYSTEM FOR STORING & FEEDING ABRASIVE
U.S. Patent No.: 4,708,534
Filing Date: November 24, 1987
Subject: SYSTEM FOR STORING & FEEDING ABRASIVE
Canadian Patent No.: 1,229,984
Issue Date: December 8, 1987
Subject: SYSTEM FOR STORING & FEEDING ABRASIVE
U.S. Patent No.: 4,733,503
Issue Date: March 29, 1988
Subject: HIGH PRESSURE ABRASIVE JET UNIT
U.S. Patent No.: 4,893,440
Issue Date: January 16, 1990
Subject: ABRASIVE JET MACHINING
French Patent No.: 84 13194
Issue Date: March 16, 1990
Subject: SYSTEM FOR STORING & FEEDING ABRASIVE
Japanese Patent No.: 1,571,789
Issue Date: July 25, 1990
Subject: SYSTEM FOR STORING & FEEDING ABRASIVE
Canadian Patent No.: 1,277,837
Filing Date: December 18, 1990
Subject: HIGH PRESSURE ABRASIVE JET UNIT
French Patent No.: 306,492
Issue Date: September 22, 1993
Subject: HIGH PRESSURE ABRASIVE JET UNIT
German Patent No.: 3787529.9
Issue Date: September 22, 1993
Subject: HIGH PRESSURE ABRASIVE JET UNIT
British Patent No.: 306,492
Issue Date: September 22, 1993
Subject: HIGH PRESSURE ABRASIVE JET UNIT
PATENT APPLICATIONS
German Serial No.: 341445.8
Filing Date: August 27, 1984
Subject: SYSTEM FOR STORING & FEEDING ABRASIVE
<PAGE> 7
LICENSE SCHEDULE / EXHIBIT B
PATENTS
U.S. Patent No.: 5,330,354
Issue Date: July 19, 1994
Subject: Air Abrasive Dental System
U.S. Patent No.: 5,350,299
Issue Date: September 27, 1994
Subject: Air Abrasive Dental System
PATENT APPLICATIONS
Australian Serial No.: 39397/93
Filing Date: March 26, 1993
Subject: Air Abrasive Dental System
Canadian Serial No.: 2,132,972
Filing Date: March 26, 1993
Subject: Air Abrasive Dental System
European Serial No.: 93 908651.8
Designating all EP countries
Filing Date: March 26, 1993
Subject: Air Abrasive Dental System
Japanese Serial No.: 05 517615
Filing Date: March 26, 1993
Subject: Air Abrasive Dental System
Korean Serial No.: 94 703416
Filing Date: March 26, 1993
Subject: Air Abrasive Dental System
New Zealand Serial No.: 251630
Filing Date: March 26, 1993
Subject: Air Abrasive Dental System
U.S. Serial No: 08/276,964
Filing Date: July 19, 1994
Subject: Servo Valve for Air Abrasive System
PCT Serial No.: PCT/US95/09146
Designating all PCT countries
Filing Date: July 17, 1995
Subject: Servo Valve for Air Abrasive System
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 7, 1996 included in the Proxy Statement of
American Dental Technologies, Inc. ("ADT") that is made part of the
Registration Statement (Form S-4) and Prospectus of ADT for the registration of
up to 11,881,856 shares of its common stock.
Ernst & Young LLP
Detroit, Michigan
June 21, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 16, 1996 with respect to the financial
statements of Texas Airsonics, Inc. included in the Proxy Statement of American
Dental Technologies, Inc. ("ADT") that is made part of the Registration
Statement (Form S-4) and Prospectus of ADT for the registration of up to
11,881,856 shares of its common stock.
Ernst & Young LLP
Detroit, Michigan
June 21, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF EQUITY PARTNERS, LTD.
We hereby consent to the use of our name and to the description of our
opinion letter dated April 4, 1996, under the captions "SUMMARY -- Opinion of
ADT's Financial Advisor" and "THE MERGER AND RELATED MATTERS -- Opinion of
ADT's Financial Advisor" in, and to the inclusion of such opinion letter as
Annex B to the joint proxy statement/prospectus of American Dental
Technologies, Inc. and Texas Airsonics, Inc., which joint proxy
statement/prospectus is part of the Registration Statement on Form S-4 of
American Dental Technologies, Inc. By giving such consent we do not thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in, or that we come
within the category of persons whose consent is required under the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
EQUITY PARTNERS, LTD.
June 21, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF JOHN E. VICKERS, III
[LOGO]
June 21, 1996
American Dental Technologies, Inc.
Mr. Raymond F. Winter
28411 Northwestern Highway
Suite 1100
Southfield, Michigan 48034
Dear Mr. Winter:
I hereby consent to the use of my tax opinion under the headings "Summary
- -- Certain Federal Income Tax Consequences" and "The Merger and Related Matters
- -- Certain Federal Income Tax Consequences" in the registration statement of
American Dental Technologies, Inc. filed on Form S-4. By giving such consent,
I do not concede that I am an expert within the meaning of the Act or the rules
or regulations thereunder or that this consent is required by Section 7 of the
Act.
Yours truly,
/s/ John E. Vickers III
<PAGE> 1
EXHIBIT 23.6
CONSENT OF DESIGNEE FOR THE
BOARD OF DIRECTORS OF
AMERICAN DENTAL TECHNOLOGIES, INC.
The undersigned designee for the Board of Directors of American Dental
Technologies, Inc. hereby consents to serve as a director of said corporation
upon the consummation of the combination of American Dental Technologies, ADT
Merger Corp. and Texas Airsonics, Inc., and to be named as such designee in the
Registration Statement on Form S-4 of American Dental Technologies, Inc. The
undersigned designee also consents to the statements concerning him in said
Registration Statement.
/s/ Ben J. Gallant
<PAGE> 1
EXHIBIT 23.7
CONSENT OF DESIGNEE FOR THE
BOARD OF DIRECTORS OF
AMERICAN DENTAL TECHNOLOGIES, INC.
The undersigned designee for the Board of Directors of American Dental
Technologies, Inc. hereby consents to serve as a director of said corporation
upon the consummation of the combination of American Dental Technologies, ADT
Merger Corp. and Texas Airsonics, Inc., and to be named as such designee in the
Registration Statement on Form S-4 of American Dental Technologies, Inc. The
undersigned designee also consents to the statements concerning him in said
Registration Statement.
/s/ Wayne A. Johnson II
<PAGE> 1
EXHIBIT 23.8
CONSENT OF DESIGNEE FOR THE
BOARD OF DIRECTORS OF
AMERICAN DENTAL TECHNOLOGIES, INC.
The undersigned designee for the Board of Directors of American Dental
Technologies, Inc. hereby consents to serve as a director of said corporation
upon the consummation of the combination of American Dental Technologies, ADT
Merger Corp. and Texas Airsonics, Inc., and to be named as such designee in the
Registration Statement on Form S-4 of American Dental Technologies, Inc. The
undersigned designee also consents to the statements concerning him in said
Registration Statement.
/s/ Charles A. Nichols
<PAGE> 1
EXHIBIT 23.9
CONSENT OF DESIGNEE FOR THE
BOARD OF DIRECTORS OF
AMERICAN DENTAL TECHNOLOGIES, INC.
The undersigned designee for the Board of Directors of American Dental
Technologies, Inc. hereby consents to serve as a director of said corporation
upon the consummation of the combination of American Dental Technologies, ADT
Merger Corp. and Texas Airsonics, Inc., and to be named as such designee in the
Registration Statement on Form S-4 of American Dental Technologies, Inc. The
undersigned designee also consents to the statements concerning him in said
Registration Statement.
/s/ John E. Vickers III
<PAGE> 1
EXHIBIT 99.1
TEXAS AIRSONICS, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF TEXAS AIRSONICS, INC.
The undersigned hereby constitutes and appoints Ben J. Gallant and Charles A.
Nichols, and each of them, the attorneys and proxies of the undersigned, with
full power of substitution, to vote on behalf of the undersigned all of the
shares of stock of Texas Airsonics, Inc. ("Texas Air") which the undersigned is
entitled to vote if then personally present, at the Special Meeting of
Stockholders of Texas Air to be held on July 27, 1996 at 9:00 a.m. at the
principal offices of Texas Air at 5555 Bear Lane, Corpus Christi, Texas, and
all adjournments thereof, upon the following matters which are being proposed
by Texas Air:
THE BOARD RECOMMENDS A VOTE FOR ALL MATTERS
Proposal to approve an Agreement and Plan of Reorganization between
American Dental Technologies, Inc., a Delaware corporation ("ADT");
ADT Merger Corp., a Texas corporation and wholly owned subsidiary of
ADT ("Merger Sub"); and Texas Air, dated as of November 22, 1995, and
related Agreement of Merger between Texas Air and Merger Sub, as
amended (collectively the "Agreement") (the "Merger"), pursuant to
which, among other things; (a) Texas Air will be merged with and into
Merger Sub (the "Merger"), pursuant to which, among other things, (i)
Merger Sub will be the surviving corporation and change its name Texas
Airsonics, Inc.; (ii) the separate existence of Texas Air will cease;
(iii) each outstanding share of Texas Air common stock ("Texas Air
Common Stock") (other than shares held by stockholders of Texas Air
who perfect their dissenters' rights in the manner described in the
enclosed Joint Proxy Statement/Prospectus) will be converted into
5.425 shares of ADT common stock, together with a warrant to purchase
3.321 shares of ADT common stock at a purchase price of $1.00 per
share (subject to adjustments depending upon the trading price of
ADT's common stock prior to approval of the Merger, as provided in the
Agreement) for three years following the Merger; and (iv) Texas Air
will distribute $10,000 and all of its patent rights for products not
intended for ultimate use in the dental field ("Patent Rights") to a
Texas limited partnership composed of Ben J. Gallant, Wayne A. Johnson
II and Charles A. Nichols as the general partners, and the other Texas
Air stockholders (other than those who exercise their dissenters'
rights) as limited partners, subject to a license agreement to ADT
providing, among other things, a royalty equal to eight percent (8%)
of industrial product gross revenues to the partnership for six (6)
years.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED; IF NO
DIRECTION IS MADE WITH RESPECT TO A PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH
PROPOSAL.
I (we) acknowledge receipt of the Notice of Special Meeting of Stockholders and
the Joint Proxy Statement/Prospectus dated June 27, 1996 and ratify all that
the proxies or either of them or their substitutes may lawfully do or cause to
be done by virtue hereof and revoke all former proxies.
NOTE: Please complete, sign and return promptly in the envelope provided.
Print and sign exactly as your name appears on your stock certificate.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. Joint tenants should both sign as such.
Date:
---------------------- -----------------------------
(please sign above)
-----------------------------
(print name above)
<PAGE> 1
EXHIBIT 99.2
<TABLE>
<S><C>
PLEASE MARK VOTES UNLESS AUTHORITY IS WITHHELD, THIS PROXY WILL BE VOTED
AS IN THIS EXAMPLE FOR THE ELECTION OF THE NOMINEES NAMED BELOW.
1) Proposal to approve the merger [ ]
between Texas Airsonics, Inc. and a For 2) Election as directors of
wholly owned subsidiary of ADT and the [ ] William D. Myers [ ] For
issuance of ADT common stock and Against [ ] Withhold
warrants in connection with the [ ] Ben J. Gallant [ ] For
merger, as described in the Joint Abstain (Conditional upon approval of [ ] Withhold
Proxy Statement/ Prospectus. Proposal 1)
3) Proposal to approve an amendment [ ] 4) Proposal to approve an [ ]
to ADT's certificate of incorporation For amendment to ADT's For
to increase the authorized common [ ] Long-Term Incentive Plan to [ ]
stock from 25 million to 50 million Against increase the number of Against
shares. (Amendment will not become [ ] shares issuable under the [ ]
effective unless Proposal 1 is Abstain plan to 2.5 million shares. Abstain
approved and the merger consummated.)
-------------------
Please be sure to sign and date this Proxy. Date: Mark box at right if comments or
- ------------------------------------------------------------------ address change has been noted on [ ]
the reverse side of this card.
Note: Please sign exactly as
name(s) appear(s) on stock
records.
When signing as attorney,
administrator, trustee, guardian
- ------------------------------------------------------------------ or corporate officer, please so
Stockholder sign above Co-owner sign above indicate.
- ------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
AMERICAN DENTAL TECHNOLOGIES, INC.
Dear Stockholder:
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
company that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, July
29, 1996.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
American Dental Technologies, Inc.
<PAGE> 2
AMERICAN DENTAL TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF AMERICAN DENTAL TECHNOLOGIES, INC.
I (we) hereby constitute and appoint Anthony D. Fiorillo and Raymond F. Winter,
and each of them, attorneys, agents and proxies with power of substitution to
vote all of the shares of common stock of American Dental Technologies, Inc.
("ADT") that I am (we are) entitled to vote at the Annual Meeting of
Stockholders of ADT, to be held at the Skyline Club, Mackinac Room, 2000 Town
Center, Suite 2800, Southfield, Michigan on July 29, 1996 at 9:00 a.m., local
time, and at any adjournments thereof, upon all matters set forth on the
reverse side of this card, all of which are being proposed by ADT.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED; IF NO
DIRECTION IS MADE WITH RESPECT TO A PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH
PROPOSAL. In their discretion, the proxies are also authorized to vote upon
such other matters as may properly come before the meeting, including the
election of any persons to the Board of Directors where a nominee named in the
Joint Proxy Statement/Prospectus dated June 27, 1996 is unable to serve or, for
good cause, will not serve.
I (we) acknowledge receipt of the Notice of Annual Meeting of Stockholders and
the Joint Proxy Statement/Prospectus dated June 27, 1996 and ratify all that
the proxies or either of them or their substitutes may lawfully do or cause to
be done by virtue hereof and revoke all former proxies.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ----------------------------------- ---------------------------------------
- ----------------------------------- ---------------------------------------
- ----------------------------------- ---------------------------------------
