<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the
Quarter Ended June 30, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition
period from _________________ to _________________
Commission File No: 0-19195
AMERICAN DENTAL TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 38-2905258
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
18860 West Ten Mile Road, Southfield, MI 48075-2657
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(248) 395-3900
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares outstanding of the registrant's common stock as
of July 31, 1998:
7,413,615 Shares
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
American Dental Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
---------------------------- ----------------------------
Revenues:
<S> <C> <C> <C> <C>
Equipment $ 6,328,522 $ 5,350,641 $ 11,940,635 $ 10,864,505
Royalties 68,391 89,472 163,945 102,439
------------ ------------ ------------ ------------
6,396,913 5,440,113 12,104,580 10,966,944
Cost of products sold 2,718,550 2,169,208 5,297,384 4,600,270
------------ ------------ ------------ ------------
Gross profit 3,678,363 3,270,905 6,807,196 6,366,674
Selling, general and administrative 2,491,393 2,142,856 4,651,875 4,240,774
Research and development 223,497 107,987 398,179 223,116
------------ ------------ ------------ ------------
Income from operations 963,473 1,020,062 1,757,142 1,902,784
Other income (expense):
License transfer fee -- 375,000 -- 375,000
Other income 41,544 20,920 92,879 42,653
Interest expense (2,620) (12,209) (6,960) (30,390)
------------ ------------ ------------ ------------
Net income $ 1,002,397 $ 1,403,773 $ 1,843,061 $ 2,290,047
============ ============ ============ ============
Net income per share $ 0.14 $ 0.20 $ 0.26 $ 0.33
============ ============ ============ ============
Net income per share assuming dilution $ 0.13 $ 0.18 $ 0.25 $ 0.30
============ ============ ============ ============
</TABLE>
See accompanying notes.
2
<PAGE> 3
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,788,416 $ 1,831,683
Accounts receivable:
Trade, less allowance of $150,000 and
$250,000 in 1998 and 1997, respectively 2,612,397 3,129,352
Related party 663,748 223,150
----------- -----------
3,276,145 3,352,502
Inventories (Note 1) 6,044,952 4,128,905
Prepaid expenses and other current assets 374,152 614,084
Note receivables-related party 500,000 500,000
----------- -----------
Total current assets 13,983,665 10,427,174
Property and equipment, net (Note 1) 1,851,266 1,199,130
Intangible assets, net (Notes 1):
Goodwill 8,754,109 8,712,250
Air abrasive technology rights 820,398 909,918
Other 1,161,512 1,181,835
----------- -----------
10,736,019 10,804,003
Other receivable 100,000 100,000
----------- -----------
Total assets $26,670,950 $22,530,307
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
--------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ -- $ 250,000
Accounts payable 1,991,207 1,316,986
Compensation and employee benefits 239,582 247,025
Taxes other than income 5,855 8,429
Other accrued liabilities 344,905 315,039
------------ ------------
Total current liabilities 2,581,549 2,137,479
Other non-current liabilities 110,989 135,392
Stockholders' equity:
Preferred stock, $.01 par value, authorized
10,000,000 shares; none outstanding
Common stock, $.04 par value, authorized
12,500,000 shares; outstanding: 7,409,865
shares in 1998; and 6,896,556 shares in 1997 296,398 277,923
Additional paid-in capital 42,329,316 40,446,624
Accumulated deficit (18,519,485) (20,362,547)
Foreign currency translation (127,817) (104,564)
------------ ------------
Total stockholders' equity 23,978,412 20,257,436
------------ ------------
Total liabilities and stockholders' equity $ 26,670,950 $ 22,530,307
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
American Dental Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,843,061 $ 2,290,047
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 85,000 52,874
Amortization 522,996 474,036
Gain on extinguishment of debt (100,000)
Changes in operating assets and liabilities:
Accounts receivable 76,946 999,123
Inventories (1,913,737) (1,044,064)
Prepaid expenses and other current assets 240,169 179,245
Notes receivable (100,000)
Accounts payable 674,691 (294,025)
Compensation and employee benefits (7,350) 56
Taxes other than income (2,574) (132,557)
Other accrued liabilities 2,802 (83,056)
Other non-current liabilities (24,403) (27,743)
----------- -----------
Net cash provided by operating activities 1,497,601 2,213,936
INVESTING ACTIVITIES:
Purchases of property and equipment (737,021) (85,338)
Increase in intangible assets (147,512) (1,054,906)
----------- -----------
Net cash used in investing activities (884,533) (1,140,244)
FINANCING ACTIVITIES:
Payments on notes payable to related parties (750,000)
Payments on notes payable to bank (250,000)
Proceeds from exercise of stock warrants 1,564,000
Proceeds from exercise of stock options 29,665 65,613
----------- -----------
Net cash provided by (used in) financing activities 1,343,665 (684,387)
----------- -----------
Increase in cash 1,956,733 389,305
Cash at beginning of year 1,831,683 1,832,192
----------- -----------
Cash at end of period $ 3,788,416 $ 2,221,497
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1998 (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 six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for other quarters of 1998
or for the year ended December 31, 1998. 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, 1997.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Finished goods $ 1,122,868 $ 920,919
Work in progress 13,812 10,633
Raw materials, parts and supplies 4,908,272 3,197,353
------------ ------------
$ 6,044,952 $ 4,128,905
============ ============
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,585,106 at June
30, 1998 and $1,500,105 at December 31, 1997.
Intangible Assets - Accumulated amortization aggregated $3,649,300 at June 30,
1998 and $3,126,303 at December 31, 1997.
Earnings Per Share - The following table sets forth the computation for basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
----------------------- --------------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $1,002,397 $1,403,773 $1,843,061 $2,290,047
---------- ---------- ---------- ----------
Numerator for basic and diluted earnings
per share - income available to common
stockholders after assumed conversions 1,002,397 1,403,773 1,843,061 2,290,047
Denominator:
Denominator for basic earnings per share
- weighted average shares 7,409,376 6,945,130 7,201,812 6,938,378
Effective of dilutive securities:
Employee stock options 70,760 129,971 71,463 132,000
Warrants 110,259 575,439 112,121 602,835
---------- ---------- ---------- ----------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 7,590,395 7,650,540 7,385,396 7,673,213
========== ========== ========== ==========
Basic earnings per share $ 0.14 $ 0.20 $ 0.26 $ 0.33
========== ========== ========== ==========
Diluted earnings per share $ 0.13 $ 0.18 $ 0.25 $ 0.30
========== ========== ========== ==========
</TABLE>
6
<PAGE> 7
Reclassifications - Certain amounts in prior year financial statements have been
reclassified to conform with the presentation used in 1998.
2. Line of Credit
The Company has a $1,500,000 revolving line of credit from a bank, with interest
at prime (8.5% at June 30, 1998), which becomes due in October 1998. The
Company's borrowing base is 80% of eligible accounts receivable and 50% of
inventory. The line of credit is secured by a pledge of the Company's accounts
receivable, inventory and fixed assets. As of June 30, 1998, there was no
outstanding balance under this line and $1,500,000 was available under the
borrowing base.
3. Comprehensive Income
During 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company adopted Statement 130 as of
January 1, 1998. The adoption of this Statement had no impact on the Company's
net earnings or shareholder's equity. Statement 130 requires foreign currency
translation adjustments and unrealized gains or losses on investments and
certain derivative instruments, which prior to the adoption of Statement 130
were reported as a component of shareholders' equity, to be included in other
comprehensive income.
Total comprehensive income, net of the related estimated tax, was $1,000,747 and
$1,409,340 for the three months ended June 30, 1998 and 1997, respectively and
$1,819,808 and $2,230,623 for the six months ended June 30, 1998 and 1997,
respectively.
4. Subsequent Event
In August 1998, the Company acquired 100% of the outstanding stock of a dental
technology company which manufacturers and markets intra oral cameras and
related equipment. The purchase price is estimated to be approximately $7
million, payable in cash and a promissory note. The Company will also issue
warrants to purchase 600,000 shares of Company common stock at a price equal to
110% of the closing price per share on the closing date in exchange for
consulting services and non-compete agreements. The acquisition will be
accounted for as a purchase.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the three month period ended June 30, 1998, the Company had net
income of $1,002,397, as compared to net income of $1,403,773 in the same period
in 1997. For the six month period ended June 30, 1998, the Company earned
$1,843,061, a 20% decrease over net income for the same period in 1997. The
decreases in 1998 net income are primarily due to the non-recurring license
transfer fee of $375,000 received in 1997.
For the three and six month periods ended June 30, 1998, the Company had
equipment revenues of $6,328,522 and $11,940,635, respectively, representing
increases of 18% and 10% over the same periods in 1997. Revenues have increased
10% during the six month period ended June 30, 1998 primarily due to a 47%
increase in foreign sales and an 18% increase in North American sales during the
three month period ended June 30, 1998, as compared to the same periods in 1997.
Royalty income decreased $21,801 for the three month period ending June
30, 1998; however, royalty income increased $61,506 for the six month period
ending June 30, 1998 compared to the same periods in 1997, primarily due to the
addition of a new air abrasion licensee in the fourth quarter of 1997.
Gross profit as a percentage of sales was 58% and 56% for the three and
six month periods ended June 30, 1998 compared to 60% and 58% for the same
periods in 1997. Gross profit as a percentage of sales decreased primarily due
to price reductions for promotional discounts extended to North American dealers
in 1998.
7
<PAGE> 8
Management anticipates that sales will continue to increase in 1998
compared to 1997, primarily from sales of KCPs in North America.
Internationally, the Company anticipates increased sales in 1998 in Europe and
Japan compared to 1997. The Company recently established a direct sales force in
Germany and has a purchase contract from Denics Co., Ltd. for lasers aggregating
$3,200,000 through March 1999 for distribution in Japan. The foregoing
statements 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 potential lack of product
acceptance, the potential failure of distributors to meet purchase commitments,
the potential loss of distributor relationships, the potential failure to
receive or maintain necessary regulatory approvals, and the extent to which
competition may negatively affect prices and sales volumes.
Selling, general and administrative expenses increased $348,537 or 16%
and $411,101 or 10% for the three and six months ended June 30, 1998 compared to
the same periods in 1997. These increases are primarily due to increased selling
and marketing expenses related to the increased North American KCP sales and to
increased legal expenses related to enforcement of our patents. Research and
development expenses increased for the three and six months ended June 30,
1998 by $115,510 or 107% and $175,063 or 79% compared to the same periods in
1997. The increases in 1998 are primarily due to expenses relating to clinical
reports for regulatory approvals and two new products that the Company plans
to introduce in 1998.
Liquidity and Capital Resources
The Company's operating activities provided $1,497,601 in cash resources
during the six month period ended June 30, 1998, compared to providing
$2,213,936 in the same period of 1997. The cash provided by operations in 1998
decreased due to a reduction in net income of $446,986, primarily resulting from
non-recurring license transfer fee of $375,000 received in 1997, and an increase
in inventories of $1,913,737, partially offset by an increase in accounts
payable of $674,691. The increases in inventories and accounts payable are
primarily due to the Company's efforts to increase its KCP inventory to meet
anticipated demand.
The Company had working capital of $11,402,116 at June 30, 1998 compared
to working capital of $8,289,695 at December 31, 1997. The increase in working
capital is primarily a result of the increase in inventories and $1.5 million
cash received upon the exercise of certain outstanding stock purchase warrants,
and was partially offset by decreases in accounts receivable, prepaid assets and
notes payable for the six month period ended June 30, 1998. Investing activities
for the six months ended June 30, 1998 included the purchase of a 12,000 square
foot building in Southfield, Michigan.
The Company has a $1,500,000 revolving line of credit from a bank, with
interest at prime (8.5% at June 30, 1998), which becomes due in October 1998.
The Company's borrowing base is 80% of eligible accounts receivable and 50% of
inventory. The line of credit is secured by a pledge of the Company's accounts
receivable, inventory and fixed assets. As of June 30, 1998, there was no
outstanding balance under this line and $1,500,000 was available under the
borrowing base.
In August 1998, the Company acquired 100% of the outstanding stock of a
dental technology company which manufacturers and markets intra oral cameras and
related equipment. The purchase price is estimated to be approximately $7
million, payable in cash and a promissory note. The Company is currently
negotiating new debt to finance the purchase.
The Company believes, based upon its current business plan, that current
cash, available financing resources and cash generated through operations should
be sufficient to meet the Company's anticipated short term liquidity needs, as
well as its long term liquidity needs for the foreseeable future.
8
<PAGE> 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On December 20, 1996, American Dental filed a lawsuit against Kreativ,
Inc. ("Kreativ") and two individuals in the United States District Court for the
Eastern District of Michigan, Southern Division. American Dental is seeking
injunctive relief and money damages because of the wrongful activities of
Kreativ and those individuals, including without limitation: for disparagement
of American Dental's business reputation and KCP products; false advertising;
unfair and deceptive business practices and trade defamation. In January 1997,
the federal court awarded American Dental a preliminary injunction ordering
Kreativ and the two individuals to stop making certain patently false statements
which misrepresent the ability of American Dental's KCP to perform several
classes of cavity preparation. The court also ordered Kreativ to print a
retraction. American Dental intends to vigorously pursue this litigation. In
August 1998, the Court granted American Dental Summary Judgement for liability
against Kreativ for false advertising. The trial for damages has not been
scheduled. The Company is unable to estimate the amount of potential gain that
may result.
On July 7, 1997, the Company filed a second lawsuit against Kreativ in
the United States District Court for the Southern District of Texas. The Company
is seeking injunctive relief and money damages for infringement of certain of
the Company's patents, including treble damages for certain willful
infringements, due to Kreativ's making, using, selling and offering for sale
systems which come within the scope of the patents.
As disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, the Company has previously filed two lawsuits against
Kreativ, Inc. On May 5, 1998, the Company filed a third lawsuit against Kreativ
in the United States District Court for the Southern District of Texas. The
Company is seeking injunctive relief and money damages for infringement of U.S.
Patent No. 5,476,596 issued on May 5, 1998, including treble damages for certain
willful infringements due to Kreativ's making, using, selling and offering for
sale, systems which come within the scope of the patent.
Item 2. Changes in Securities and Use of Proceeds
The Company issued 391,000 shares of its common stock at $4.00 per
share upon exercise of warrants held by a director and significant shareholder.
The Company issued the common stock without registration under the Securities
Act of 1933 (the "Act") in reliance upon Section 4(2) of the Act. The Company
relied upon this exemption based upon the limited number of purchasers, the
provision of financial and other information concerning the Company to the
warrant holder, the lack of general solicitation, and actions taken by the
Company to restrict resale of the common stock without registration, including
the placement of a restrictive legend on the common stock certificate.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 29, 1998,
at which time the stockholders considered and voted on the election of two
directors. Each of the nominees for director was an incumbent and both nominees
were elected. The following table sets forth the number of shares voted for and
withheld with respect to each nominee.
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Wayne A. Johnson, II 5,506,727 109,005
John E. Vickers, III 5,594,790 20,942
</TABLE>
9
<PAGE> 10
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 4.12 Form of revised July 1995 Common Stock Purchase Warrants,
July 1998
Exhibit 10.55 Patent License Agreement dated June 29, 1998
Prep-Technology Corp. and American Dental Technologies, Inc.
Exhibit 10.56 Stock Purchase Agreement dated August 5, 1998 American
Dental Technologies, Inc. and Ultrak, Inc.
Exhibit 27 - Financial Data Schedule
(b) There have been no reports on Form 8-K filed during the quarter ended
June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN DENTAL TECHNOLOGIES, INC.
By: /s/ Ben J. Gallant
--------------------------------
Ben J. Gallant
Dated: August 14, 1998 Chief Executive Officer
By: /s/ Diane M. Miller
--------------------------------
Diane M. Miller
Chief Financial Officer
(Principal Financial Officer and
Dated: August 14, 1998 Principal Accounting Officer)
10
<PAGE> 11
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.12 Form of revised July 1995 Common Stock Purchase
Warrants, July 1998
10.55 Patent License Agreement dated June 29, 1998
Prep-Technology Corp. and American Dental Technologies,
Inc.
10.56 Stock Purchase Agreement dated August 5, 1998 American
Dental Technologies, Inc. and Ultrak, Inc.
27 Financial Data Schedule
<PAGE> 1
WARRANT NO. W-9807
EXPIRATION DATE: 8-1-99
REVISED COMMON STOCK PURCHASE WARRANT
This is to certify that, for value received, the registered holder
named on the signature page (the "Holder"), is entitled on or on before the
Expiration Date and 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 set forth below Holder's name at a purchase
price of $4.875 per share.
This Warrant is nontransferable 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.
Within 10 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 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 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.
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. The Company will give Holder no less than 30 days advance
written notice
<PAGE> 2
of any proposed action or event which would result in dilution, notwithstanding
anything to the contrary contained herein.
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 exercised and the Common Stock purchasable upon the
exercise thereof shall have become deliverable to the Holder as herein provided.
Holder represents to the Company that this Warrant is being acquired,
and all shares of Common Stock of the Company acquired by it upon exercise of
this Warrant will be acquired, for investment purposes only and not with a view
to the resale or other distribution thereof.
This Warrant issued this 7 day of July, 1998.
- ---------------------------- AMERICAN DENTAL TECHNOLOGIES, INC.
Registered Holder
By:
---------------------------------
- ---------------------------- Ben J. Gallant, President
Address
- ----------------------------
- ----------------------------
Number of Shares
<PAGE> 1
Exhibit 10.55
Patent License
WHEREAS: PREP-TECHNOLOGY CORP. ("PREP-TECH") desires to obtain a
license under certain patents and patents pending which are owned by American
Dental Technologies, Inc. ("ADT"), and ADT is willing to license such patents to
PREP-TECH.
NOW THEREFORE, the parties agree as follows:
1. ADT hereby grants to PREP-TECH, a nonexclusive license under U.S.
Patent No. 5,275,561 and U.S. Patent No. 5,330,354, U.S. Patent No. 5,350,299
and U.S. Patent No. 5,525,058 and any foreign counterparts, reexaminations,
reissues, continuations-in-part based on the disclosures of the patents listed
in this paragraph 1, for the life of such patents to make, use, lease and sell
PREP-TECH'S air abrasive dental models and future models provided they do not
infringe any non-dental patents or non-dental patent applications of ADT (for
example helical feed mechanisms) throughout the world, but excluding Japan,
presently covered by agreements between ADT and Denics Co., Ltd., a/k/a Dental
Innovative Corporation, a Japanese corporation. Except as set forth in the
following sentence, the license granted in this paragraph 1 is non-transferable
by assignment, sublicense or other means of transfer provided, further, that
during the period in which PREP-TECH is licensed under this Agreement, PREP-TECH
shall have the right to have the products of this paragraph 1 manufactured by a
third party solely for PREP-TECH. PREP-TECH may transfer this license to another
party (except for Kreativ, Inc., its affiliates, successors or assignees) in
connection with the sale of the company or its air abrasion business. Such
transferee must assume the obligations hereunder and confirm the validity of the
patents covered by this Agreement. The license in this paragraph 1 is subject to
the payment provided in paragraph 2 of this Agreement.
Payments
2. Beginning March 1, 1998, PREP-TECH, or its permitted successor or
assignee, shall pay to ADT a royalty on the net sales price (defined as gross
sales price less freight, duties and excise taxes) on all abrasive products used
for cavity preparations manufactured, sold or leased by PREP-TECH, or its
permitted successor or assignee, which are manufactured (by or on behalf of
PREP-TECH), sold or leased in a country in which ADT, presently or in the
future, owns or controls patents or patent applications on any dental air
abrasive products or methods of treatment, until the expiration of all such
patents/patent applications. For air abrasive products used for cavity
preparations which have an electro mechanically operated system and which are
covered by either U.S. Patent No. 5,275,561, U.S. Patent 5,330,354 or U.S Patent
5,350,299, or U.S. Patent No. 5,525,058 or any of their foreign counterparts or
continuations-in-part, the royalty shall be **. For all other air abrasive
products used for cavity preparation, such as completely pneumatic systems, the
royalty shall be **. In the event that PREP-TECH manufactures or has
manufactured on its behalf, and sells or leases air abrasive products used for
cavity preparations wholly within a country where ADT holds no such patents or
patent applications or where all such patents have expired, then no such
payments shall be required. The payments required under this paragraph 2 of this
Agreement shall accrue when the subject products are delivered, invoiced or paid
for, which ever occurs first. All payments shall be made in U.S. dollars.
**Redacted confidential information has been filed separately with the
SEC pursuant to Rule 24b-2.
<PAGE> 2
Payment Date and Records
3. PREP-TECH shall make the payments required in paragraph 2 of this
Agreement on February 15th, May 15th, August 15th, and November 15th for the
preceding accounting quarter. PREP-TECH shall keep accurate books and records
reflecting transactions made under this Agreement and shall make reports at the
time of such payments fully supporting the calculation of payments made,
including the number of units sold or leased and the sales price used to
determine payments. ADT shall have the right to inspect such books and records
through an independent certified accountant, not to exceed one such audit per
year. Past due payments shall bear interest at the highest lawful rate from the
due date.
Termination
4. ADT may terminate the license granted by paragraph 1 of this
Agreement only in the event of a material breach of this Agreement by PREP-TECH,
and then only if, upon receiving notice of such breach, PREP-TECH fails to cure
such breach within thirty (30) days of such notice; such right of termination
shall not be in lieu of other remedies such as specific performance.
Patent Marking
5. PREP-TECH shall apply statutory notice to its air abrasive units
sold in the United States substantially as follows: "This unit and its use is
protected by one or more of the following U.S. Patents:
5,275,561; 5,330,354; 5,350,299; and 5,525,058."
Favored Rate
6. PREP-TECH royalty rates will be lowered in a most favorable rate
relationship with ADT for air abrasive units.
Private Label
7. PREP-TECH shall have the right to "private label" the licensed air
abrasive cavity prep products it manufactures so long as the appropriate
royalties are paid.
Japan
8. In the event ADT acquires patents rights for Japan, this license
will extend to Japan.
Notice
9. All notices required to be given under this Agreement shall be given
in writing and shall be sent by regular mail, postage prepaid, certified mail or
by recognized overnight express mail service to the parties at the addresses
below.
If to ADT, to:
Ben J. Gallant
President and Chief Executive Officer
American Dental Technologies, Inc.
5555 Bear Lane
Corpus Christi, TX 78405
Tel: (512) 289-1145 / Fax: (512) 289-5554
If to PREP-TECH to:
Joe Schaeffer
43204 Christy Street
Fremont, California 43204
Tel: (510) 440-8800 / Fax: (510) 440-8797
<PAGE> 3
Effect of Notices
10. A notice sent pursuant to paragraph 9 of this Agreement shall be
deemed given on the date it is mailed, unless the intended recipient can
establish that such notice was not timely received.
Governing Law and Collection Costs
11. This Agreement is made in the County of Nueces, State of Texas, and
shall be governed by the laws of the State of Texas without regard to its
conflict of laws and principles. PREP-TECH agrees to pay any costs incurred by
ADT in collecting royalties due hereunder or enforcing its rights hereunder,
including attorney fees.
Warranties
12. Both parties represent that their undersigned representatives have
the full power and authority to enter into this Agreement. ADT represents and
warrants that it has the right and power to grant the license of paragraph 1 of
this Agreement, but makes no other warranties whatsoever regarding the patents
so licensed. PREP-TECH acknowledges the validity of the patents covered by this
Agreement and agrees that it will not challenge the validity, or institute any
proceeding which may adversely affect the validity of the patents covered by
this Agreement.
Relationship of Parties
13. This Agreement is not intended by the parties to, and shall not,
constitute or create a joint venture, partnership or other business organization
and neither party shall be nor shall act as an agent of the other party. Neither
party shall use the other party's name in any marketing efforts.
Severability
14. The invalidity of any provision of this Agreement shall not affect
the validity of any other provision of this Agreement.
Complete Agreement
15. This Agreement constitutes the entire agreement of the parties
regarding this subject matter and supersedes any and all prior or
contemporaneous oral or written agreements, understandings, negotiations or
discussions among the parties regarding this subject matter. Any amendment or
other modifications to this Agreement must be made in writing and must be duly
executed by an authorized representative or agent of each party.
Counterparts
16. This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
Permitted Successors and Assigns
17. This Agreement, and all provisions herein, shall bind the parties
and their permitted successors and permitted assigns.
AMERICAN DENTAL PREP-TECHNOLOGY CORP.
TECHNOLOGIES, INC.
/S/ Ben J. Gallant /s/ Joe W. Shaffer
President and Chief Executive Officer President
Date: 06/29/98 Date: 06/25/98
<PAGE> 1
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated August 5, 1998 (the "Signing Date"), is between
American Dental Technologies, Inc., a Delaware corporation ("ADT"), and Ultrak,
Inc., a Delaware corporation ("Ultrak").
Recitals. Ultrak owns all of the issued and outstanding Common Stock,
$0.01 par value per share (the "DVD Stock"), of Dental Vision Direct, Inc., a
Texas corporation ("DVD"). DVD owns all of the issued and outstanding Common
Stock, $0.01 par value per share (the "VVI Stock"), of Veravision, Inc., a Texas
corporation ("VVI"). ADT desires to acquire the issued and outstanding DVD Stock
from Ultrak in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the terms of this
Agreement, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby covenant and agree as
follows:
ARTICLE I: THE PURCHASE
1.01. The Purchase. On the terms and subject to the conditions set
forth herein, at the Closing (as hereinafter defined) ADT agrees to purchase
from Ultrak, and Ultrak agrees to sell to ADT, on the Closing Date (as
hereinafter defined) 11,111 shares of the DVD Stock (the "Shares").
1.02. Purchase Price.
(a) The purchase price to be paid to Ultrak by ADT for the
Shares shall be an amount equal to the aggregate of Sections
1.02(a)(i), 1.02(a)(ii), 1.02(a)(iii), and 1.02(a)(iv) below
(collectively, the "Purchase Price"):
(i) Three Million Dollars ($3,000,000); plus
(ii) DVD's inventory as reflected on DVD's books
at actual cost; provided, however, Ultra Cam
II inventory shall be valued at one-half of
actual cost; provided further, however, the
term "actual cost" for this Section
1.02(a)(iii) shall mean historical transfer
price without inter-company profit for
inventory manufactured and sold to DVD by
Ultrak; plus
<PAGE> 2
(iii) DVD's current assets (excluding DVD's cash
and cash equivalents) as reflected on DVD's
books as of the date hereof; plus
(iv) DVD's furniture and equipment at their cost
less accumulated depreciation as reflected
on DVD's books as of the date hereof.
At the Closing, the parties shall complete and execute Schedule A
showing the calculation of the Purchase Price.
(b) The Purchase Price shall be paid by ADT paying Ultrak
Three Million Dollars ($3,000,000) in cash (the "Cash Purchase Price")
at the Closing by wire transfer and delivering to Ultrak at the Closing
a Promissory Note in the form of Exhibit A attached hereto (the "Note")
and a Stock Pledge Agreement, with original stock certificates
representing the Shares issued in ADT's name and a duly executed blank
stock power for each stock certificate, in the form of Exhibit B
attached hereto (the "Pledge Agreement").
1.03 Other Matters.
(a) At the Closing, each of ADT and Ultrak shall execute and
deliver to the other a Consulting and Non-Competition Agreement in the
form of Exhibit C attached hereto (the "Consulting Agreement").
(b) At the Closing, ADT shall execute and deliver to (i)
Ultrak a Common Stock Purchase Warrant in the form of Exhibit D
attached hereto (the "Warrant") and (ii) Ronald Williams ("Williams") a
Common Stock Purchase Warrant in the form of Exhibit E attached hereto
(the "Williams Warrant").
(c) Ultrak agrees to continue to allow DVD to use the office
space at Ultrak's Lewisville, Texas facility currently occupied by
DVD's employees through December 31, 1998 without charge. Neither DVD
nor ADT shall be entitled to utilize any of Ultrak's warehouse space
except for the ninety (90) days pursuant to Section 1.05.
(d) Ultrak agrees to continue to provide to DVD the current
level of engineering support or such lesser amount of engineering
support as may be necessary to complete the PAL version of Ultra Cam
III (the "First Project") and the image capture CD Product (the "Second
Project"). ADT or DVD will be fully and solely responsible (and Ultrak
shall not be responsible) for payment of any third party charges and
costs associated with the First Project and the Second Project and for
obtaining any consents or approvals of third parties required in
connection with the First Project or the Second Project and Ultrak
makes no representation or warranty to ADT that any
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<PAGE> 3
consent or approval will be granted or obtained. Ultrak's
responsibilities for the First Project shall cease upon Ultrak
delivering to ADT the deliverables set forth on Schedule B attached
hereto. Ultrak's responsibility for the Second Project shall cease upon
Ultrak delivering to ADT the deliverables set forth on Schedule C
attached hereto.
(e) ADT acknowledges and agrees that all cash, cash
equivalents, and receivables (the "DVD Receivables") of DVD as of the
Closing are hereby transferred by DVD to Ultrak as of the Closing.
1.04 Collection of Accounts Receivable. ADT agrees to collect, and
cause DVD to collect, the DVD Receivables for and on behalf of Ultrak. ADT shall
use all reasonable best efforts to promptly collect the DVD Receivables. ADT
shall create and maintain detailed records on the collection of the DVD
Receivables. Each Friday by 2:00 p.m., Dallas, Texas time, ADT shall cause an
amount equal to the DVD Receivables collected and not previously sent to Ultrak
to be wire transferred to Ultrak to such bank account(s) as Ultrak shall
identify in writing. In addition, upon originating the wire transfer each
Friday, ADT shall telecopy to Ultrak a detailed listing of the DVD Receivables
collected and included in the wire transfer. On the first business day that is
at least ninety (90) days after the Closing Date, ADT will wire transfer to
Ultrak an amount equal to the total face amount of the DVD Receivables not yet
collected by ADT and Ultrak shall assign such uncollected DVD Receivables to
ADT, without recourse. Ultrak shall have the full right to review and audit
ADT's books and records in connection with the DVD Receivables.
1.05. Inventory. ADT shall cause DVD's inventory to be removed from
Ultrak's Lewisville, Texas facility within ninety (90) days from the Closing
Date. ADT will not be charged by Ultrak for using Ultrak's facility during such
ninety (90) days. During such period that DVD's inventory is at Ultrak's
facility after the Closing, (a) Ultrak shall have no duties or responsibilities
with respect to such inventory (other than as set forth in (c) of this Section
1.05), (b) DVD and/or ADT shall be responsible for insuring, maintaining, and
protecting such inventory, and (c) Ultrak shall fill orders from such inventory
on behalf of DVD or ADT. In consideration for Ultrak filling orders, ADT shall
pay Ultrak $3,000 per month for each of the first two months and $5,000 per
month for the third month. Payments to Ultrak shall be due on the fifteenth of
each month, with the first payment due on August 15, 1998. Time is of the
essence with respect to such payments. ADT shall be solely responsible and
liable for loading and shipping to ADT or DVD the DVD inventory from Ultrak's
facility at the end of the ninety (90) day period
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<PAGE> 4
and for any other inventory that ADT earlier ships, or causes to be shipped,
from Ultrak's facilities to ADT or DVD and shall be liable for any loss or
damage during loading or shipment.
1.06. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at Ultrak's offices in Lewisville,
Texas on the Signing Date, at 10:00 o'clock a.m. The day on which the Closing
occurs is herein referred to as the "Closing Date."
1.07. Further Assurances. After the Closing, each party shall execute
and deliver such additional documents and take such additional actions as the
other party may reasonably deem to be practical and necessary or advisable in
order to consummate the transactions contemplated by this Agreement.
1.08. Effective Date. Notwithstanding anything to the contrary in this
Agreement, the transactions contemplated hereby shall, for all purposes
(including but not limited to accounting purposes), be effective as of 12:01
a.m. on August 1, 1998.
ARTICLE II: REPRESENTATIONS AND WARRANTIES OF ULTRAK
Ultrak represents and warrants to ADT that the following are true and
correct:
2.01. Organization, Qualification, and Good Standing. Ultrak is a
corporation duly organized and validly existing under Delaware law and has the
corporate power and authority to own or hold under lease its properties and
assets and to carry on its business as it is now being conducted. Each of DVD
and VVI is a corporation duly organized and validly existing under Texas law and
has the corporate power and authority to own or hold under lease its properties
and assets and to carry on its business as it is now being conducted.
2.02. Corporate Records. Each of the minute books of DVD and VVI
contains accurate and complete minutes of all meetings of and accurate
and complete consents to all actions taken without meetings by the board of
directors (and any committee thereof) and the shareholders of such corporation.
2.03. Corporate Authority Relative to This Agreement; No Violation.
Ultrak has the corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
Consulting Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly
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<PAGE> 5
authorized by Ultrak's board of directors and no other corporate proceedings on
the part of Ultrak are necessary to authorize this Agreement, the Consulting
Agreement, or the transactions contemplated hereby. Each of this Agreement and
the Consulting Agreement has been duly and validly executed and delivered by
Ultrak and, assuming each such document constitutes a valid and binding
agreement of each other party thereto, each such document constitutes a valid
and binding agreement of Ultrak, enforceable against Ultrak in accordance with
its terms. Neither the execution and delivery of this Agreement and the
Consulting Agreement by Ultrak nor the consummation of the transactions
contemplated hereby and thereby by Ultrak will: (a) violate or conflict with any
provision of the Charter or Bylaws of Ultrak, (b) violate or conflict with, or
result in the breach or termination of, or otherwise give any other contracting
party the right to terminate, or constitute a default (or an event which, with
the lapse of time, or the giving of notice, or both, will constitute a default)
under, any contract, license, other instrument or commitment to which Ultrak is
a party or by which Ultrak is bound (assuming the consent of NationsBank of
Texas, N.A. is obtained), or (c) violate or conflict with any applicable law,
regulation, permit, authorization, franchise, license, judgment, order, writ,
injunction or decree of any court or governmental body of any jurisdiction.
Other than the consent of NationsBank of Texas, N.A., no authorization, consent,
or approval of, or filing with, any governmental body or authority, any lender
or lessor, or any other person or entity is required to authorize, or is
required in connection with, the execution, delivery, and performance of this
Agreement or the agreements contemplated hereby on the part of Ultrak.
2.04. Capitalization. The authorized capital stock of DVD consists
solely of 1,000,000 shares of DVD Stock, and only the Shares are issued
and outstanding as of the date hereof. The authorized capital stock of VVI
consists solely of 1,000,000 shares of VVI Stock, 1,000 shares of which are
issued and outstanding on the date hereof. Ultrak owns the Shares. DVD owns all
of the issued and outstanding VVI Stock. All outstanding shares of DVD Stock
and VVI Stock are duly authorized, validly issued, fully paid, and
nonassessable. There are no preemptive rights with respect to the DVD Stock or
the VVI Stock. There are no outstanding subscriptions, options, warrants,
rights, or other arrangements or commitments, whether express or implied,
granted or issued by Ultrak or DVD obligating DVD to issue any shares of DVD
Stock or securities exchangeable for or convertible into DVD Stock.
2.05. The Shares. The Shares are free and clear of all liens,
liabilities, claims and encumbrances, except for general securities laws
restrictions.
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<PAGE> 6
2.06. DVD Financials. The unaudited monthly financial statements of
DVD as of the end of February 1998, March 1998, April 1998, May 1998 and June
1998 (a) were compiled from the books and records of DVD, which books and
records are, to the best knowledge of Ultrak, complete, maintained on a
consistent basis, and correctly reflect DVD's income, expenses, assets and
liabilities, and (b) are true, complete and accurate and present fairly the
financial position of DVD as of the dates thereof and for the periods covered
thereby. The inventory value reports for Lewisville and California, the
Customer Aging Summary as of July 28, 1998, and the Fixed Assets Detail as of
June 30, 1998 for DVD that were previously delivered to Ultrak were true,
complete, and accurate as of their respective dates.
2.07. Compliance with Laws. DVD has complied with all laws, rules,
and/or regulations applicable to it or its business, other than individual
items of non-compliance that would not have a material adverse effect on DVD.
2.08. Taxes. DVD has duly filed when due all income, excise, corporate,
franchise, property, sales, payroll, withholding, and other tax returns and
reports required to be filed by it by the U.S. government or any state or any
political subdivision thereof and has paid or established adequate reserves for
all taxes which have or may become due for the periods covered by such returns.
All such tax returns or reports which are income tax returns or reports fairly
reflect the taxable income generated by DVD and the taxes of DVD for the periods
covered thereby. DVD is not delinquent in the payment of any tax and there is no
tax deficiency or delinquency being asserted against DVD.
2.09. Litigation and Claims. Ultrak has not received notice that DVD
is a party to, or that the business and assets of DVD are the subject of or
affected by, any pending or threatened suit, claim, action, or
litigation by or with any party or any administrative, arbitration, or other
governmental proceeding, investigation, or inquiry. DVD is not (a) subject to
any continuing court or administrative order, writ, injunction, or decree
applicable specifically to DVD or to its business, assets, operations, or
employees, or (b) in default with respect to any such order, writ, injunction,
or decree.
2.10. Brokers and Finders. Neither Ultrak nor DVD has employed any
broker, finder, or investment bank or incurred any liability for any investment
banking fees, financial advisory fees, brokerage fees, or finders' fees in
connection with the transactions contemplated hereby.
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<PAGE> 7
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF ADT
ADT represents and warrants to Ultrak that the following are true and
correct:
3.01. Organization, Qualification, and Good Standing. ADT is a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware, and ADT has the corporate power and
authority to own or hold under lease its properties and assets and to carry on
its business as it is now being conducted.
3.02. Corporate Authority Relative to This Agreement; No Violation.
ADT has the corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement, the Note,
the Pledge Agreement, the Consulting Agreement, the Warrant, and the Williams
Warrant and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by ADT's board of directors and
no other corporate proceedings on the part of ADT are necessary to authorize
this Agreement, the Note, the Pledge Agreement, the Consulting Agreement, the
Warrant, the Williams Warrant, or the transactions contemplated hereby. Each of
this Agreement, the Note, the Pledge Agreement, the Consulting Agreement, the
Warrant, and the Williams Warrant has been duly and validly executed and
delivered by ADT and, assuming each such document constitutes a valid and
binding agreement of each other party thereto, each such document constitutes a
valid and binding agreement of ADT, enforceable against ADT in accordance with
its terms. Neither the execution and delivery of this Agreement, the Note, the
Pledge Agreement, the Consulting Agreement, the Warrant, and the Williams
Warrant by ADT nor the consummation of the transactions contemplated hereby and
thereby by ADT will: (a) violate or conflict with any provision of the
Certificate of Incorporation or Bylaws of ADT, (b) violate or conflict with, or
result in the breach or termination of, or otherwise give any other contracting
party the right to terminate, or constitute a default (or an event which, with
the lapse of time, or the giving of notice, or both, will constitute a default)
under, any contract, license, other instrument or commitment to which ADT is a
party or by which ADT is bound, or (c) violate or conflict with any law,
regulation, permit, authorization, franchise, license, judgment, order, writ,
injunction or decree of any court or governmental body of any jurisdiction, in
each case as such is related to ADT or its assets.
3.03. Consents. No authorization, consent, or approval of, or filing
with, any governmental body or authority, any lender or lessor, or any other
person or entity is required to authorize, or is required
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<PAGE> 8
in connection with, the execution, delivery, and performance of this Agreement
or the agreements contemplated hereby on the part of ADT.
3.04. Brokers and Finders. ADT has not employed any broker, finder, or
investment bank or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees, or finders' fees in connection with the
transactions contemplated hereby.
ARTICLE IV: COVENANTS OF ADT
4.01. Employee Severance. ADT agrees that if any employee of DVD or VVI
is terminated by ADT, DVD, or VVI on or after the Closing, then ADT shall, upon
termination, pay each such terminated employee an amount equal to one week of
such employee's then base salary for each year of service with DVD, VVI, or
VVI's predecessor-in-interest with a minimum payment to each such terminated
employee of two weeks of base salary.
4.02. Product Warranty Work and Claims. DVD shall be fully and solely
responsible for all warranty repairs, warranty replacements, and warranty
returns for credit with respect to the products previously or hereafter sold by
or for the account of DVD.
ARTICLE V: CLOSING DELIVERIES
5.01. Deliveries by ADT. At the Closing, ADT shall deliver to Ultrak
each of the following (with each document duly executed by ADT):
(a) The Cash Purchase Price.
(b) The Note.
(c) The Pledge Agreement.
(d) The Warrant.
(e) The Consulting Agreement.
(f) Certified Resolutions of ADT's Board of Directors
approving the execution, delivery, and performance of this Agreement,
the Note, the Pledge Agreement, the Warrant, the Williams Warrant, and
the Consulting Agreement by ADT and the consummation by ADT of the
transactions contemplated hereby and thereby.
(g) Such other documents as Ultrak shall reasonably request.
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<PAGE> 9
5.02. Deliveries by Ultrak. At the Closing, Ultrak shall deliver to ADT
each of the following (with each document duly executed by Ultrak):
(a) Stock Certificate(s) representing the Shares.
(b) Stock Power(s) transferring the Shares to ADT.
(c) The Consulting Agreement.
(d) Certified Resolutions of Ultrak's Board of Directors
approving the execution, delivery, and performance of this Agreement,
the Stock Power(s), and the Consulting Agreement by Ultrak and the
consummation by Ultrak of the transactions contemplated hereby and
thereby.
(e) Such other documents as ADT shall reasonably request.
ARTICLE VI: INDEMNIFICATION
6.01. Mutual Indemnity. Subject to the terms and conditions of this
Article VI, (a) ADT hereby agrees to indemnify, defend and hold Ultrak and
Ultrak's officers, directors, and affiliates harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, attorneys' fees and expenses (collectively, "Damages"), asserted
against or incurred by them by reason of or resulting from (i) any breach by ADT
of any representation, warranty, or covenant contained herein or in any
agreement executed pursuant hereto (including but not limited to the obligations
under Section 4.01 hereof) or (ii) the failure of DVD to pay or perform any of
its liabilities or obligations under Section 4.02 hereof or arising on or after
the Effective Date and (b) Ultrak hereby agrees to indemnify, defend and hold
ADT and ADT's officers, directors, and affiliates harmless from and against all
Damages asserted against or incurred by them by reason of or resulting from (i)
any breach by Ultrak of any representation, warranty, or covenant contained
herein or in any agreement executed pursuant hereto or (ii) any liability or
obligation of DVD or VVI for any act or activity of DVD or VVI that occurred
prior to the Effective Date to the end that ADT shall be in the same position
vis a vis DVD and VVI as if it had purchased the assets of DVD and VVI;
provided, however, that, notwithstanding anything to the contrary in this
Agreement, Ultrak shall have no liability or responsibility under this Section
6.01 or under any other provision of this Agreement for any matter covered by
Sections 4.01 or 4.02 hereof.
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<PAGE> 10
6.02. Conditions of Indemnification. The indemnity obligations under
Section 6.01 hereof shall be subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required
to avoid prejudicing the indemnifying party's position) after receipt
of notice of commencement of any action evidenced by service of
process, or other legal pleading, or with reasonable promptness after
the assertion in writing of any claim by a third party of a matter for
which a party (the "indemnified party") is entitled to indemnification
under Section 6.01, the indemnified party shall give the other party
(the " indemnifying party") written notice thereof together with a copy
of such claim, process, or other legal pleading, and the indemnifying
party shall have the right to undertake the defense thereof by
representatives of its own choosing and at its own expense; provided,
however, that the indemnified party may participate in the defense with
counsel of its own choice and at its own expense. Notwithstanding the
foregoing, if, in the reasonable opinion of counsel to the indemnified
party (which opinion must be furnished in writing to the indemnified
party), a potential conflict of interest shall exist as between the
indemnifying party and the indemnified party such that it would not be
in the best interest of the indemnified party to be represented by the
same counsel as the indemnifying party, the indemnified party shall be
entitled to retain separate counsel, all at the expense of the
indemnified party; provided, however, that in no event shall the
indemnifying party be required to pay for more than one counsel for the
indemnified party in any lawsuit, action, proceeding, or claim
(including any related lawsuits, actions, proceedings, or claims).
(b) If the indemnifying party, by the 20th day after receipt
of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to
prevent judgment by default in favor of the person asserting such
claim), does not notify in writing the indemnified party that the
indemnifying party shall defend against such claim, then the
indemnified party may (upon further notice to the indemnifying party)
undertake the defense, compromise, or settlement of such claim on
behalf of and for the account and risk of the indemnifying party and at
the indemnifying party's expense, subject to the right of the
indemnifying party to assume the defense of such claim at any time
prior to settlement, compromise, or final determination thereof.
(c) Anything in this Section 6.02 to the contrary
notwithstanding, the indemnifying party shall not settle any claim
without the consent of the indemnified party unless such
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<PAGE> 11
settlement involves only the payment of money and the claimant provides
to the indemnified party a full and complete release from all liability
in respect of such claim. If the settlement of the claim involves more
than the payment of money, then the indemnifying party shall not settle
the claim without the prior written consent of the indemnified party,
which consent shall not be unreasonably withheld.
(d) Each of Ultrak and ADT will cooperate with all reasonable
requests of the other pursuant to Section 6.01 and this Section 6.02.
6.03. Remedies Not Exclusive. The remedies provided in this Article VI
shall not be exclusive of any other rights or remedies available by one party
against the other, either at law or in equity; provided, however, that the
parties agree to arbitrate disputes pursuant to Section 7.09.
ARTICLE VII: MISCELLANEOUS
7.01. Modification, Amendment and Waiver. This Agreement may not be
modified unless such modification is in writing and signed by all parties
hereto. No waiver of any term of this Agreement shall be enforceable unless in
writing and signed by the party against which it is sought to be enforced. The
waiver by any party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by such party.
7.02. Expenses. Each party shall bear its own expenses incurred in
connection with the preparation of this Agreement and the consummation of the
transactions contemplated hereby; provided, however, in connection with the fees
and expenses of Grant Thornton to audit the financial statements of DVD as of
December 31, 1997, each of ADT and Ultrak shall pay one-half of such fees and
expenses.
7.03. Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered the same agreement and faxed
copies of manually executed signature pages to this Agreement will be fully
binding and enforceable without the need for delivery of the manually executed
signature page.
7.04. GOVERNING LAW. THE INTERNAL LAWS (AND NOT THE CONFLICTS OF LAWS
RULES) OF TEXAS GOVERN THIS AGREEMENT.
7.05. Notices. All notices hereunder will be in writing and will be
deemed given if delivered personally (or by recognized with postage prepaid
courier or delivery service) or mailed by registered or certified
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<PAGE> 12
air mail (return receipt requested with postage prepaid) to the parties at the
following addresses (or at such other addresses for a party as will be specified
by like notice) and will be deemed given on the date on which personally
delivered or delivered by courier or delivery service or on the third business
day following the date on which so mailed to the address set forth opposite the
name and signature block for each party to this Agreement.
7.06. Survival. All representations, warranties and covenants made by
ADT and Ultrak herein or in any agreement, certificate or other instrument
delivered by it hereunder shall be considered to have been relied upon by Ultrak
or ADT and shall survive the Closing, regardless of any investigation made by or
on behalf of Ultrak or ADT.
7.07. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
7.08. Assignments; Entire Agreement; Headings. This Agreement shall not
be assignable by operation of law or otherwise. Any attempted assignment of this
Agreement shall be void. This Agreement, the Schedules attached hereto, and the
Exhibits attached hereto constitute the entire agreement, and supersede all
other prior agreements and understandings, both written and oral, between the
parties, or any of them, with respect to the subject matter hereof. All
Schedules, Exhibits, and documents and agreements referred to herein or attached
hereto are fully and completely incorporated herein effective as of the first
reference herein. The headings contained in this Agreement are for reference
purposes and will not affect in any way the meaning or interpretation of this
Agreement. Use of "herein," "hereof" or similar terms refer to this Agreement as
a whole. The use of any term denoting a masculine, feminine, or neuter gender
shall include all such genders.
7.09. Arbitration. ANY DISPUTE OR CLAIM RELATING TO THIS AGREEMENT
SHALL BE FINALLY SETTLED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION (THE "ABA") WHICH RULES ARE DEEMED TO BE
INCORPORATED HEREIN BY REFERENCE. THE ABA SHALL APPOINT THE ARBITRATOR. ANY SUCH
ARBITRATION SHALL BE HELD IN SAN ANTONIO, TEXAS. JUDGMENT UPON THE AWARD
RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY
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<PAGE> 13
COURT HAVING JURISDICTION THEREOF. THE ARBITRATOR SHALL BE AUTHORIZED AND
ENTITLED TO AWARD THE COSTS AND EXPENSES OF ANY ARBITRATION.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
Address for Ultrak: ULTRAK, INC.
1301 Waters Ridge Drive
Lewisville, Texas 75057 By: /s/ George K. Broady
Fax # 972-353-6513 -----------------------------------
Attn: George K. Broady George K. Broady, CEO
Address for ADT:
5555 Bear Lane AMERICAN DENTAL TECHNOLOGIES, INC.
Corpus Christi, Texas 78405
Fax # 512-289-5554
Attn: Ben J. Gallant
By: /s/ Ben J. Gallant
-----------------------------------
Ben J. Gallant, President & CEO
-14-
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<PERIOD-START> JAN-01-1998
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296,398
0
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