<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 September 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
November 6, 1998:
7,419,259 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 Nine Months Ended
September 30 September 30
1998 1997 1998 1997
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues:
Equipment $6,522,218 $4,045,298 $18,462,853 $14,909,803
Royalties 49,430 8,869 213,375 111,308
---------- ---------- ----------- -----------
6,571,648 4,054,167 18,676,228 15,021,111
Cost of products sold 3,197,609 1,918,826 8,494,993 6,519,096
---------- ---------- ----------- -----------
Gross profit 3,374,039 2,135,341 10,181,235 8,502,015
Selling, general and administrative 2,532,704 1,802,104 7,184,578 6,000,224
Research and development 258,258 171,873 656,437 394,990
---------- ---------- ----------- -----------
Income from operations 583,077 161,364 2,340,220 2,106,801
Other income (expense):
License transfer fee --- --- --- 375,000
Other income 38,692 --- 131,571 ---
Interest expense (71,910) (4,350) (78,871) (34,740)
---------- ---------- ----------- -----------
Net income $ 549,859 $ 157,014 $ 2,392,920 $ 2,447,061
========== ========== =========== ===========
Net income per share $ 0.07 $ 0.02 $ 0.33 $ 0.35
========== ========== =========== ===========
Net income per share assuming dilution $ 0.07 $ 0.02 $ 0.33 $ 0.32
========== ========== =========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 3
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
----------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 1,532,500 $ 1,831,683
Accounts receivable:
Trade, less allowance of $150,000 and
$250,000 in 1998 and 1997, respectively 3,254,825 3,129,352
Related party 740,149 223,150
----------- -----------
3,994,974 3,352,502
Inventories 10,510,403 4,128,905
Prepaid expenses and other current assets 645,994 614,084
Note receivables-related party 300,000 500,000
----------- -----------
Total current assets 16,983,871 10,427,174
Property and equipment, net 2,191,753 1,199,130
Intangible assets, net:
Goodwill 12,360,052 8,712,250
Air abrasive technology rights 775,638 909,918
Other 1,197,654 1,181,835
----------- -----------
14,333,344 10,804,003
Other receivable 100,000 100,000
----------- -----------
Total assets $33,608,968 $22,530,307
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Note payable $ --- $ 250,000
Accounts payable 2,001,479 1,316,986
Compensation and employee benefits 239,582 247,025
Taxes other than income 22,900 8,429
Other accrued liabilities 554,565 315,039
------------ ------------
Total current liabilities 2,818,526 2,137,479
Notes payable 5,400,000 ---
Other non-current liabilities 110,656 135,392
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: 7,413,615
shares in 1998; and 6,896,556 shares in 1997 296,548 277,923
Warrants 720,000 ---
Additional paid-in capital 42,336,666 40,446,624
Accumulated deficit (17,969,626) (20,362,547)
Foreign currency translation (103,802) (104,564)
------------ ------------
Total stockholders' equity 25,279,786 20,257,436
------------ ------------
Total liabilities and stockholders' equity $ 33,608,968 $ 22,530,307
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
American Dental Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1998 1997
------------------------------------
Operating Activities:
<S> <C> <C>
Net income $ 2,392,920 $ 2,447,061
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 133,000 84,674
Amortization 843,675 705,625
Gain on extinguishment of debt (100,000)
Changes in operating assets and liabilities:
Accounts receivable (644,275) 1,173,600
Inventories (2,802,965) (1,668,418)
Prepaid expenses and other current assets 19,264 (6,298)
Notes receivable 200,000 (100,000)
Accounts payable 707,645 (110,139)
Compensation and employee benefits (7,654) (98,941)
Taxes other than income 14,471 (349,929)
Other accrued liabilities 222,963 (206,910)
Other non-current liabilities (24,736) (41,571)
------------ -----------
Net cash provided by operating activities (1,054,308) 1,728,754
INVESTING ACTIVITIES:
Purchases of property and equipment (859,141) (109,823)
Acquisition of business (6,900,000) ---
Increase in intangible assets (345,515) (1,054,906)
------------ -----------
Net cash used in investing activities (8,104,656) (1,164,729)
FINANCING ACTIVITIES:
Payments on notes payable to related parties (250,000) (500,000)
Payments on notes payable --- (250,000)
Proceeds from notes payable 5,400,000 ---
Proceeds from exercise of stock warrants 1,564,000 ---
Proceeds from exercise of stock options 37,165 214,988
------------ -----------
Net cash provided by (used in) financing activities 6,751,165 (535,012)
------------ -----------
Increase (decrease) in cash (299,183) 29,013
Cash at beginning of year 1,831,683 1,832,192
------------ -----------
Cash at end of period $ 1,532,500 $ 1,861,205
============ ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 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 nine months ended September 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>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Finished goods $ 1,903,230 $ 920,919
Work in progress 13,812 10,633
Raw materials, parts and supplies 8,593,361 3,197,353
----------- -----------
$10,510,403 $ 4,128,905
=========== ===========
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,633,106 at
September 30, 1998 and $1,500,105 at December 31, 1997.
Intangible Assets - Accumulated amortization aggregated $3,969,979 at September
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 Nine Months Ended
September 30 September 30
1998 1997 1998 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net Income $ 549,859 $ 157,014 $2,392,920 $2,447,061
--------- --------- ---------- ----------
Numerator for basic and diluted earnings
per share - income available to common
stockholders after assumed conversions 549,859 157,014 2,392,920 2,447,061
Denominator for basic earnings per share
- weighted average shares 7,413,615 6,917,208 7,272,928 6,931,270
Effect of dilutive securities:
Employee stock options 43,665 126,945 54,012 145,809
Warrants 10,629 429,539 17,338 546,748
--------- --------- ---------- ----------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 7,467,909 7,473,692 7,344,278 7,623,827
========= ========= ========== ==========
Basic earnings per share $0.07 $0.02 $0.33 $0.35
===== ===== ===== =====
Diluted earnings per share $0.07 $0.02 $0.33 $0.32
===== ===== ===== =====
</TABLE>
6
<PAGE> 7
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1998 (Unaudited)
Reclassifications - Certain amounts in prior year financial statements have been
reclassified to conform with the presentation used in 1998.
2. Business Combination
On August 1, 1998, the Company acquired 100% of the outstanding stock of Dental
Vision Direct ("DVD"), which manufactures and markets intra oral cameras and
related equipment. The total compensation paid was $7.620 million, including
$3.0 million in cash, a promissory note of $3.9 million and warrants to purchase
600,000 shares of Company common stock at a price of $5.50 per share. The $3.9
million promissory note was repaid in October 1998 with proceeds from the new
line of credit as described in Note 3. The acquisition was accounted for as a
purchase and, accordingly, the total consideration paid of $7.620 million has
been allocated to the acquired assets and assumed liabilities based on their
estimated fair values as of the acquisition date and the excess consideration of
$3.320 million has been allocated as goodwill and will be amortized over a 25
year period.
The following unaudited pro forma summary of operations is presented as though
Dental Vision Direct was acquired at the beginning of the period.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------
<S> <C>
Revenues $22,705,410
Net income 1,886,988
Net income per share $0.26
</TABLE>
3. Lines of Credit
At September 30, 1998, the Company had a $1,500,000 revolving line of credit
from a bank, with interest at prime (8.5% at September 30, 1998), which became
due in October 1998. The line of credit is secured by a pledge of the Company's
accounts receivable, inventory and fixed assets. As of September 30, 1998,
$1,500,000 was outstanding under this line of credit. This line of credit was
not renewed and paid in full in October 1998 with borrowings under the Company's
new revolving line of credit from another bank.
The Company entered into an agreement in September 1998, for a $7,500,000
revolving line of credit from a bank, with interest at prime or the LIBOR rate
(Eurodollar rates, which were approximately 5% at September 30, 1998) plus 1.5%,
which is due in September 2000. The Company's borrowing is secured by a pledge
of the Company's accounts receivable, inventory, equipment, instruments,
patents, copyrights and trademarks. As of September 30, 1998, there was no
outstanding balance on this line and $7,500,000 was available.
4. 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 $573,874 and
$158,409 for the three months ended September 30, 1998 and 1997, respectively
and $2,393,682 and $2,389,032 for the nine months ended September 30, 1998 and
1997, respectively.
7
<PAGE> 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the three month period ended September 30, 1998, the Company had net
income of $549,859, as compared to net income of $157,014 in the same period in
1997, a 250% increase. This increase is primarily due to increased revenues
during the quarter. For the nine month period ended September 30, 1998, the
Company earned $2,392,920, a 2% decrease over net income for the same period in
1997. The decrease in 1998 net income is primarily due to the non-recurring
license transfer fee of $375,000 received in 1997.
The Company had equipment revenues of $6,522,218 and $18,462,853,
respectively, for the three and nine month periods ended September 30, 1998.
Revenues have increased 62% during the three month period ended September 30,
1998 primarily due to a 34% increase in air abrasion and laser sales as well as
the addition of camera sales since the acquisition of DVD on August 1, 1998.
Revenues increased 24% during the nine month period ended September 30, 1998 as
compared to the same period in 1997, primarily due to a 28% increase in domestic
air abrasion and laser sales.
Royalty income increased $40,561 and $102,067 for the three and nine
month periods ending September 30, 1998, respectively, 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 52% and 55% for the three and
nine month periods ended September 30, 1998 compared to 53% and 57% 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 and lower margins on a new product, the UltraCam intra oral camera.
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. In May 1998, the Company obtained a purchase contract
from Denics Co., Ltd. for lasers with $1.8 million remaining 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 $730,600 or 41%
and $1,184,354 or 20% for the three and nine months ended September 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 for the three and nine months ended September
30, 1998 increased $86,385 and $261,447, representing increases of 50% and 66%
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 introduced in October 1998.
Interest expense increased by $67,560 and $44,131, respectively, for
the three and nine month periods ended September 30, 1998. The increase during
1998 is primarily due to the acquisition of Dental Vision Direct, Inc. in August
1998 which was funded through debt. The Company expects borrowings under its
line of credit to continue into next year.
8
<PAGE> 9
Liquidity and Capital Resources
The Company's operating activities provided $1,054,308 in cash resources
during the nine month period ended September 30, 1998, compared to $1,728,754 in
the same period of 1997. The cash provided by operations in 1998 was primarily
due to net income of $2,392,920, a decrease in notes receivable of $200,000 and
an increase in accounts payable of $707,645, partially offset by increases in
inventories of $2,802,965 and accounts receivable of $644,275. The increases in
accounts payable and inventories are primarily due to increased KCP inventory to
meet anticipated demand. The increase in accounts receivable is a result of
increased sales in 1998.
The Company had working capital of $14,165,345 at September 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 increased inventories. Investing
activities for the nine months ended September 30, 1998 included the purchase of
a 12,000 square foot building in Southfield, Michigan and increases in
intangible assets related to the acquisition of Dental Vision Direct, Inc.
("DVD").
At September 30, 1998, the Company had a $1,500,000 revolving line of
credit from a bank, with interest at prime (8.5% at September 30, 1998), which
became due in October 1998. The line of credit is secured by a pledge of the
Company's accounts receivable, inventory and fixed assets. As of September 30,
1998, $1,500,000 was outstanding under this line of credit. This line of credit
was not renewed and was paid in full in October 1998 with borrowings under the
Company's new revolving line of credit from another bank.
The Company entered into an agreement in September 1998 for a $7,500,000
revolving line of credit from a bank, with interest at prime or the LIBOR rate
(Eurodollar rates, which were approximately 5% at September 30, 1998) plus 1.5%,
which is due in September 2000. The Company's borrowing is secured by a pledge
of the Company's accounts receivable, inventory, equipment, instruments,
patents, copyrights and trademarks. As of September 30, 1998, there was no
outstanding balance on this line and $7,500,000 was available.
On August 1, 1998, the Company acquired 100% of the outstanding stock of
DVD which manufacturers and markets intra oral cameras and related equipment.
The purchase price was $7.620 million, payable with $3 million in cash and a
promissory note in the amount of $3.9 million. The promissory note was
refinanced in October 1998 with borrowings under the new line of credit. The
Company also issued warrants to purchase 600,000 shares of Company common stock
at a price of $5.50 per share in exchange for consulting services and
non-compete agreements. The acquisition was accounted for as a 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 and long term
liquidity needs for the foreseeable future.
Other Matters
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company has
established a team that has completed an awareness program and assessment
project to address the Year 2000 issue including information technology (IT) and
non-IT systems. The Company has determined that it will be required to upgrade
or replace portions of its software so that its computer and phone systems will
properly utilize dates beyond December 31, 1999 and that certain non-IT systems,
such as alarms, equipment, and heating and cooling systems may need to be
upgraded or replaced. While the Company expects to be able to complete all of
its planned year 2000 remediation during 1998 and believes that its systems will
then be Year 2000 compliant, if such planned remediation cannot be completed
prior to the end of 1999, the Year 2000 issue could cause production
interruptions that could have a material impact on the operations of the
Company. Anticipated spending for Year 2000 remediation, expected to cost
approximately $25,000, will be expensed as incurred and is not expected to have
a significant impact on the Company's ongoing results of operations. Through
September 30, 1998, the Company has incurred approximately $15,000 attributable
to year 2000 remediation.
9
<PAGE> 10
The Company has initiated communications with a substantial majority of
its significant suppliers and large customers to determine their plans to
address the Year 2000 issue. While the Company expects a successful resolution
of all issues, there can be no guarantee that the systems of other companies
will be converted in a timely manner, or that a failure to convert by a supplier
or customer would not have a material adverse effect on the Company. The Company
considers the failure of a supplier or customer to be Year 2000 compliant to be
the most reasonably likely worst case scenario, since it expects to be Year 2000
compliant prior to the end of 1998 and it has determined it has no material
exposure to contingencies related to the Year 2000 issue for the products it has
sold. The Company plans to document its preliminary contingency plan by April
1999 and to finalize these plans no later than June 30, 1999 after assessing
which third parties are most likely to have an adverse affect on the Company.
Some material adverse affect could result despite such contingency planning.
The costs of the project and the date by which the Company plans to
complete the Year 2000 upgrades are based on management's best estimates, which
were derived utilizing third party plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the compatibility of the
upgrades and conversions, availability of personnel to correct capability issues
and similar uncertainties.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) The Company issued warrants to purchase a total of 600,000 shares of
its common stock at $5.50 per share in exchange for consulting
services and non-compete agreements in connection with the acquisition
of DVD on August 5, 1998. The warrants were issued 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
purchaser, the lack of general solicitation, and actions taken by the
Company to restrict resale of the warrants without registration,
including provisions restricting the transferability of the warrants.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit Description
------- -----------
2.1 Stock Purchase Agreement, dated August 5, 1998, between
American Dental Technologies, Inc. and Ultrak, Inc. is
incorporated by reference to Exhibit 10.56 to the Form 10-Q
for the quarter ended June 30, 1998.
4.13 Nontransferable Common Stock Purchase Warrant, dated August
5,1998, 540,000 shares is incorporated by reference to Exhibit
4.13 to the Form 8-K filed August 5, 1998.
4.14 Nontransferable Common Stock Purchase Warrant, dated August 5,
1998, 60,000 shares is incorporated by reference to Exhibit
4.14 to the Form 8-K filed August 5, 1998.
4.15 Promissory Note to Ultrak, Inc. is incorporated by reference
to Exhibit 4.15 to the Form 8-K filed August 5, 1998.
4.16 Line of Credit of Agreement between NBD Bank and American
Dental Technologies Inc. dated September 26, 1998.
4.17 Revolving Business Credit Note (LIBOR - Based Interest Rate)
between NBD Bank and American Dental Technologies Inc. dated
September 26, 1998.
10
<PAGE> 11
4.18 Collateral Assignment of Patent between NBD Bank and American
Dental Technologies Inc. dated September 26, 1998.
4.19 Continuing Security Agreement between NBD Bank and American
Dental Technologies, Inc. dated September 26, 1998.
27 Financial Data Schedule
(b) During the quarter, the Company filed one report on Form 8-K dated
August 20, 1998 and amended October 20, 1998. The Form 8-K disclosed
information under Items 2 and 7 pertaining to the purchase of Dental
Vision Direct, Inc. ("DVD") and included the audited balance sheet as
of December 31, 1997 and the related Statements of Operations and Cash
Flows for the year then ended of DVD, as well as the unaudited balance
sheet as of June 30, 1998 and related Statements of Operations and Cash
Flows for the six months then ended of DVD.
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
Dated: November 16, 1998 Chief Executive Officer
By: /s/ Diane M. Miller
Chief Financial Officer
(Principal Financial Officer and
Dated: November 16, 1998 Principal Accounting Officer
11
<PAGE> 12
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.16 Line of Credit
4.17 Revolving Business Credit Note
4.18 Collateral Assignment of Patent
4.19 Continuing Security Agreement
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 4.16
[NBD LOGO] LINE OF CREDIT AGREEMENT
NBD BANK (the "Bank"), whose address is 611 Woodward Avenue, Detroit, Michigan
48226-3947, has approved the credit facilities listed below (collectively, the
"Credit Facilities," and, individually, as designated below) to (the
"Borrower"), whose address is subject to the terms and conditions set forth in
this agreement.
1.0 CREDIT FACILITIES.
1.1 FACILITY A. The Bank has approved a credit facility to the
Borrower in the principal sum not to exceed $7,500,000.00 in the
aggregate at any one time outstanding ("Facility A"). Credit under
Facility A shall be in the form of disbursements evidenced by
credits to the Borrower's account and shall be repayable as set
forth in a Master Business Credit Note executed concurrently
(referred to in this agreement both singularly and together with
any other promissory notes referenced in this Section 1 as the
"Notes"). The proceeds of Facility A shall be used for the
following purpose: working capital and to acquire the assets of
the Ultracom Division of Ultrak Inc. Facility A shall expire
September 30, 2000 unless earlier withdrawn.
The Bank agrees to review Facility A on or before September 30 of
each year to determine whether it desires to extend Facility A for
an additional year. The performance of the review will not
obligate the Bank to grant any extension. Such an extension will
take place at the Bank's sole discretion and may be conditioned
upon any changes in the terms of Facility A which the Bank may
require in its sole discretion.
1.2 FACILITY B (PURCHASE MONEY TERM LOANS AND/OR LEASES). The Bank has
approved a credit facility to the Borrower in the principal sum
not to exceed $250,000.00 in the aggregate at any one time
outstanding ("Facility B"). Facility B shall be in the form of
loans evidenced by the Borrower's notes on the Bank's form
(referred to in this agreement both singularly and together with
any other promissory notes referenced in this Section 1 as the
"Notes") or lease agreements on the Bank's standard lease form
(referred to in this agreement as the "Leases"), the proceeds of
which shall be used to purchase equipment. Interest on each loan
shall accrue at a rate to be agreed upon by the Bank and the
Borrower at the time the loan is made. Rent under any Lease shall
be in an amount to be negotiated by the Borrower and the Bank
prior to funding of the Lease. The maturity of each note or the
term of any Lease shall not exceed 60 months from the note date or
lease commencement date. Notwithstanding the aggregate amount of
Facility B stated above, the original principal amount of each
loan shall not exceed the lesser of 80% of the cost of the
equipment purchased with loan proceeds or $250,000.00, and the
amount funded under each Lease shall not exceed the cost of the
equipment. Facility B shall expire on September 30, 1999 unless
earlier withdrawn.
2.0 CONDITIONS PRECEDENT.
2.1 CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT. Before the
first extension of credit under this agreement, whether by
disbursement of a loan, issuance of a letter of credit, the
funding of a Lease or otherwise, the Borrower shall deliver to the
Bank, in form and substance satisfactory to the Bank:
A. LOAN DOCUMENTS. The Notes, and if applicable, the Leases, the
letter of credit applications, the security agreement,
financing statements, mortgage, guaranties, subordination
agreements and any other loan documents which the Bank may
reasonably require to give effect to the transactions
described by this agreement;
B. EVIDENCE OF DUE ORGANIZATION AND GOOD STANDING. Evidence
satisfactory to the Bank of the due organization and good
standing of the Borrower and every other business entity that
is a party to this agreement or any other loan document
required by this agreement;
C. EVIDENCE OF AUTHORITY TO ENTER INTO LOAN DOCUMENTS. Evidence
satisfactory to the Bank that (i) each party to this agreement
and any other loan document required by this agreement is
authorized to enter into the transactions described by this
agreement and the other loan documents, and (ii) the person
signing on behalf of each party is authorized to do so; and
<PAGE> 2
D. YEAR 2000 ASSESSMENT. If requested by the Bank, information
satisfactory to the Bank regarding the Borrower's plan for
addressing Year 2000 issues. "Year 2000 Issues" means
anticipated costs, problems and uncertainties associated with
the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as
such inability affects the business, operations, and financial
condition of the Borrower and of the Borrower's material
customers, suppliers and vendors.
2.2 CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. Before any
extension of credit under this agreement, whether by disbursement
of a loan, issuance of a letter of credit, the funding of a Lease
or otherwise, the following conditions shall have been satisfied:
A. REPRESENTATIONS. The Representations contained in this
agreement Shall be true on and as of the date of the extension
of credit;
B. NO EVENT OF DEFAULT. No event of default shall have occurred
and be continuing or would result from the extension of
credit;
C. ADDITIONAL APPROVALS, OPINIONS, AND DOCUMENTS. The Bank shall
have received such other approvals, opinions and documents as
it may reasonably request.
3.0 FEES AND EXPENSES.
3.1 NONUSAGE FEE. The Borrower shall pay the Bank a nonusage fee on
the average daily unused portion of at a rate of 1/8% per annum,
payable quarterly in arrears within 30 days of the end of the
quarter for which the fee is owing.
3.2 OUT-OF-POCKET EXPENSES. The Borrower shall reimburse the Bank for
its out-of-pocket expenses.
4.0 SECURITY.
4.1 Payment of the borrowings and all other obligations under the
Credit Facilities shall be secured by a first security interest
covering all assets to be acquired and the following property and
all its additions, substitutions, increments, proceeds and
products, whether now owned or later acquired ("Collateral"):
A. ACCOUNTS RECEIVABLE. All of the Borrower's accounts, chattel
paper, general intangibles, instruments, and documents (as
those terms are defined in the Michigan Uniform Commercial
Code), rights to refunds of taxes paid at any time to any
governmental entity, and any letters of credit and drafts
under them given in support of the foregoing, wherever
located. The Borrower shall deliver to the Bank executed
security agreements and financing statements in form and
substance satisfactory to the Bank.
B. INVENTORY. All of the Borrower's inventory, wherever located.
The Borrower shall deliver to the Bank executed security
agreements and financing statements in form and substance
satisfactory to the Bank.
C. EQUIPMENT. All of the Borrower's equipment, wherever located.
The Borrower shall deliver to the Bank executed security
agreements and financing statements in form and substance
satisfactory to the Bank.
D. PATENTS, COPYRIGHTS, TRADEMARKS. All of the Borrower's present
and future patents, copyrights and trademarks. The Borrower
shall deliver to the Bank executed assignments, pledges and
financing statements satisfactory to the Bank.
4.2 No forbearance or extension of time granted any subsequent owner
of the Collateral shall release the Borrower from liability.
4.3 ADDITIONAL COLLATERAL/SETOFF. To further secure payment of the
borrowings and all other obligations under the Credit Facilities
and all of the Borrower's other liabilities to the Bank, the
Borrower grants to the Bank a continuing security interest in: (i)
all securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the
Bank solely in a fiduciary capacity) and (ii) all balances of
deposit accounts of the Borrower with the Bank. The Bank shall
have the right at any time to apply its own debt or liability to
the Borrower, or to any
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<PAGE> 3
other party liable for payment of the obligations under the Credit
Facilities, in whole or partial payment of such obligations or
other present or future liabilities, without any requirement of
mutual maturity.
4.4 CROSS LIEN. Any of the Borrower's other property in which the Bank
has a security interest to secure payment of any other debt,
whether absolute, contingent, direct or indirect, including the
Borrower's guaranties of the debts of others, shall also secure
payment of and be part of the Collateral for the Credit
Facilities.
5.0 AFFIRMATIVE COVENANTS. So long as any debt or obligation remains
outstanding under the Credit Facilities, the Borrower, and each of its
subsidiaries, if any, shall:
5.1 INSURANCE. Maintain insurance with financially sound and reputable
insurers covering its properties and business against those
casualties and contingencies and in the types and amounts as shall
be in accordance with sound business and industry practices.
5.2 EXISTENCE. Maintain its existence and business operations as
presently in effect in accordance with all applicable laws and
regulations, pay its debts and obligations when due under normal
terms, and pay on or before their due date, all taxes,
assessments, fees and other governmental monetary obligations,
except as they may be contested in good faith if they have been
properly reflected on its books and, at the Bank's request,
adequate funds or security has been pledged to insure payment.
5.3 FINANCIAL RECORDS. Maintain proper books and records of account,
in accordance with generally accepted accounting principles where
applicable, and consistent with financial statements previously
submitted to the Bank. The Bank retains the right to inspect the
Collateral and business records related to it at such times and at
such intervals as the Bank may reasonably require.
5.4 NOTICE. Give prompt notice to the Bank of the occurrence of (i)
any Event of Default, and (ii) any other development, financial or
otherwise, which would affect the Borrower's business, properties
or affairs in a materially adverse manner.
5.5 COLLATERAL AUDITS. Permit the Bank or its agents to perform
periodic audits of the Collateral. The Borrower shall compensate
the Bank for such audits in accordance with the Bank's schedule of
fees as amended from time to time.
5.6 MANAGEMENT. Maintain current management.
5.7 FINANCIAL REPORTS. Furnish to the Bank whatever information,
books, and records the Bank may reasonably request, including at a
minimum: (If the Borrower has subsidiaries, all financial
statements required will be provided on a consolidated and on a
separate basis.)
A. Promptly upon (i) furnishing to the shareholders of the
Borrower, copies of all financial statements, reports and
proxy statements and (ii) filing with the Securities and
Exchange Commission, copies of all registration statements and
annual, quarterly, monthly or other regular reports, including
but not limited to, the Borrower's and any subsidiary's 10Qs
and 10Ks.
B. Within five (5) days after filing, a signed copy of the annual
tax return, with exhibits, of the Borrower.
5.8 YEAR 2000 ISSUES. The Borrower will take all actions reasonably
necessary to assure that Year 2000 Issues will not have a material
adverse effect on the business operations or financial condition
of the Borrower. Upon the Bank's request, the Borrower will
provide the Bank with a description of its plan to address Year
2000 Issues, including updates and progress reports. Borrower will
advise the Bank of any reasonably anticipated material adverse
effect on the business operations or financial condition of the
Borrower as a result of Year 2000 Issues.
6.0 NEGATIVE COVENANTS.
6.1 DEFINITIONS. As used in this agreement, the following terms shall
have the following respective meanings:
A. "Debt Service" means for any period, principal and interest
payments either paid or due during that period on all debt
of the Borrower.
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<PAGE> 4
B. "EBITDA" means for any period, net income plus to the extent
deducted in determining net income, interest expense
(including but not limited to imputed interest on capital
leases), tax expense, depreciation, and amortization and other
mutually agreed upon non-cash charges.
C. "Subordinated Debt" means debt subordinated to the Bank in
manner and by agreement satisfactory to the Bank.
D. "Tangible Net Worth" means total assets less intangible
assets, total liabilities, and all sums owing from
stockholders, members, or partners, as the case may be, and
from officers, managers, and directors. Intangible assets
include goodwill, patents, copyrights, mailing lists,
catalogs, trademarks, bond discount and underwriting expenses,
organization expenses, and all other intangibles.
6.2 Unless otherwise noted, the financial requirements set forth in
this section shall be computed in accordance with generally
accepted accounting principles applied on a basis consistent with
financial statements previously submitted by the Borrower to the
Bank.
6.3 Without the written consent of the Bank, so long as any debt or
obligation remains outstanding under the Credit Facilities, the
Borrower shall not: (where appropriate, covenants apply on a
consolidated basis).
A. DEBT. Incur, or permit to remain outstanding, debt for
borrowed money or installment obligations, except (i) debt
reflected in the latest financial statement of the Borrower
furnished to the Bank prior to execution of this agreement and
not to be paid with proceeds of borrowings or leases under the
Credit Facilities and (ii) purchase money term loans and/or
leases to acquire equipment in an aggregate, annual amount not
to exceed $300,000. For purposes of this covenant, the sale of
any accounts receivable shall be deemed the incurring of debt
for borrowed money.
B. GUARANTIES. Guarantee or otherwise become or remain
secondarily liable on the undertaking of another, except for
endorsement of drafts for deposit and collection in the
ordinary course of business.
C.. LIENS. Create or permit to exist any lien on any of its
property, real or personal, including but not limited to
copyrights, patents and trademarks, except: existing liens
known to the Bank; liens to the Bank; liens incurred in the
ordinary course of business securing current nondelinquent
liabilities for taxes, worker's compensation, unemployment
insurance, social security and pension liabilities; and liens
for taxes being contested in good faith.
D. TANGIBLE NET WORTH PLUS SUBORDINATED DEBT. Permit its Tangible
Net Worth plus Subordinated Debt to be less than
$7,500,000.00.
E. LEVERAGE RATIO. Permit the ratio of its total liabilities to
its Tangible Net Worth plus Subordinated Debt to exceed 1.50
to 1.00.
F. CASH FLOW COVERAGE RATIO. For each fiscal quarter, permit the
ratio of the Borrower's EBITDA to its Debt Service, determined
as of the end of that quarter, to be less than 2.00 to 1.00.
7.0 REPRESENTATIONS BY BORROWER. Each Borrower represents that: (a) the
execution and delivery of this agreement, the Notes, and the Leases and
the performance of the obligations they impose do not violate any law,
conflict with any agreement by which the Borrower is bound, or require
the consent or approval of any governmental authority or other third
party; (b) this agreement, the Notes, and the Leases are valid and
binding agreements, enforceable in accordance with their terms; and (c)
all balance sheets, profit and loss statements, and other financial
statements furnished to the Bank are accurate and fairly reflect the
financial condition of the organizations and persons to which they
apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and
adversely since those dates. Each Borrower, if other than a natural
person, further represents that: (a) it is duly organized, existing and
in good standing under the laws of the jurisdiction under which it was
organized; and (b) the execution and delivery of this agreement, the
Notes, and the Leases and the performance of the obligations they
impose (i) are within its powers; (ii) have been duly authorized by all
necessary action of its governing body; and (iii) do not contravene the
terms of its articles of incorporation or organization, its bylaws, or
any partnership, operating or other agreement governing its affairs.
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<PAGE> 5
8.0 DEFAULT/ACCELERATION.
8.1 EVENTS OF DEFAULT/ACCELERATION. If any of the following events
occurs, the Credit Facilities shall terminate and all borrowings
and other obligations under them shall be due immediately, without
notice, at the Bank's option whether or not the Bank has made
demand.
A. The Borrower or any guarantor of any of the Credit Facilities,
the Notes or the Leases ("Guarantor") fails to pay when due
any amount payable under the Credit Facilities or under any
agreement or instrument evidencing debt to any creditor;
B. The Borrower or any Guarantor (a) fails to observe or perform
any other term of this agreement, the Notes, or the Leases;
(b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c)
makes any materially incorrect or misleading representation in
any financial statement or other information delivered to the
Bank; or (d) defaults under the terms of any agreement or
instrument relating to any debt for borrowed money (other than
borrowings under the Credit Facilities) such that the creditor
declares the debt due before its maturity;
C. There is a default under the terms of any loan agreement,
mortgage, security agreement or any other document executed as
part of the Credit Facilities, or any guaranty of the
obligations under the Credit Facilities becomes unenforceable
in whole or in part, or any Guarantor fails to promptly
perform under its guaranty;
D. A "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974 as amended) occurs that would
permit the Pension Benefit Guaranty Corporation to terminate
any employee benefit plan of the Borrower or any affiliate of
the Borrower;
E. The Borrower or any Guarantor becomes insolvent or unable to
pay its debts as they become due;
F. The Borrower or any Guarantor (a) makes an assignment for the
benefit of creditors; (b) consents to the appointment of a
custodian, receiver or trustee for it or for a substantial
part of its assets; or (c) commences any proceeding under any
bankruptcy, reorganization, liquidation or similar laws of any
jurisdiction;
G. A custodian, receiver or trustee is appointed for the Borrower
or any Guarantor or for a substantial part of its assets
without its consent and is not removed within 60 days after
such appointment;
H. Proceedings are commenced against the Borrower or any
Guarantor under any bankruptcy, reorganization, liquidation,
or similar laws of any jurisdiction, and such proceedings
remain undismissed for 60 days after commencement; or the
Borrower or Guarantor consents to the commencement of such
proceedings;
I. Any judgment is entered against the Borrower or any Guarantor,
or any attachment, levy or garnishment is issued against any
property of the Borrower or any Guarantor;
J. The Borrower or any Guarantor dies;
K. The Borrower or any Guarantor, without the Bank's written
consent, (a) is dissolved, (b) merges or consolidates with any
third party, (c) leases, sells or otherwise conveys a material
part of its assets or business outside the ordinary course of
business, (d) leases, purchases, or otherwise acquires a
material part of the assets of any other corporation or
business entity, except in the ordinary course of business, or
(e) agrees to do any of the foregoing, (notwithstanding the
foregoing, any subsidiary may merge or consolidate with any
other subsidiary, or with the Borrower, so long as the
Borrower is the survivor);
L. The loan-to-value ratio of any pledged securities at any time
exceeds N/A%, and such excess continues for five (5) days
after notice from the Bank to the Borrower;
M. There is a substantial change in the existing or prospective
financial condition of the Borrower or any Guarantor which the
Bank in good faith determines to be materially adverse; or
N. The Bank in good faith shall deem itself insecure.
O. The acquisition by any Person (as defined below), or two or
more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934)
of 20% or more of the outstanding shares of voting stock of
the Borrower. For purposes of this covenant, "Person" means
any natural person, corporation, firm, joint venture,
partnership, association, limited liability
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<PAGE> 6
company, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency,
department or instrumentality thereof.
8.2 REMEDIES. If the borrowings and all other obligations under the
Credit Facilities are not paid at maturity, whether by demand,
acceleration or otherwise, the Bank shall have all of the rights
and remedies provided by any law or agreement. Any requirement of
reasonable notice shall be met if the Bank sends the notice to the
Borrower at least seven (7) days prior to the date of sale,
disposition or other event giving rise to the required notice. The
Bank is authorized to cause all or any part of the Collateral to
be transferred to or registered in its name or in the name of any
other person, firm or corporation, with or without designation of
the capacity of such nominee. The Borrower shall be liable for any
deficiency remaining after disposition of any Collateral. The
Borrower is liable to the Bank for all reasonable costs and
expenses of every kind incurred in the making or collection of the
Credit Facilities, including, without limitation, reasonable
attorney's fees and court costs (whether attributable to the
Bank's in-house or outside counsel). These costs and expenses
shall include, without limitation, any costs or expenses incurred
by the Bank in any bankruptcy, reorganization, insolvency or other
similar proceeding.
9.0 MISCELLANEOUS.
9.1 Notice from one party to another relating to this agreement shall
be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address,
telex number or fax number set forth under its name below by any
of the following means: (a) hand delivery, (b) registered or
certified mail, postage prepaid, with return receipt requested,
(c) first class or express mail, postage prepaid, (d) Federal
Express or like overnight courier service or (e) fax, telex or
other wire transmission with request for assurance of receipt in a
manner typical with respect to communication of that type. Notice
made in accordance with this section shall be deemed delivered
upon receipt if delivered by hand or wire transmission, 3 business
days after mailing if mailed by first class, registered or
certified mail, or one business day after mailing or deposit with
an overnight courier service if delivered by express mail or
overnight courier.
9.2 No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by
the Bank of any right or remedy shall preclude any other future
exercise of it or the exercise of any other right or remedy. No
waiver or indulgence by the Bank of any default shall be effective
unless in writing and signed by the Bank, nor shall a waiver on
one occasion be construed as a bar to or waiver of that right on
any future occasion.
9.3 This agreement, the Notes, the Leases and any related loan
documents embody the entire agreement and understanding between
the Borrower and the Bank and supersede all prior agreements and
understandings relating to their subject matter. If any one or
more of the obligations of the Borrower under this agreement, the
Notes or the Leases shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the
remaining obligations of the Borrower shall not in any way be
affected or impaired, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the
validity, legality or enforceability of the obligations of the
Borrower under this agreement, the Notes or the Leases in any
other jurisdiction.
9.4 The Borrower, if more than one, shall be jointly and severally
liable.
9.5 This agreement is delivered in the State of Michigan and governed
by Michigan law. This agreement is binding on the Borrower and its
successors, and shall inure to the benefit of the Bank, its
successors and assigns.
9.6 Section headings are for convenience of reference only and shall
not affect the interpretation of this agreement.
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<PAGE> 7
10.0 WAIVER OF JURY TRIAL. The Bank and the Borrower knowingly and
voluntarily waive any right either of them have to a trial by jury in
any proceeding (whether sounding in contract or tort) which is in any
way connected with this or any related agreement, or the relationship
established under them. This provision may only be modified in a
written instrument executed by the Bank and the Borrower.
Executed by the parties on: September 26, 1998.
-------------------
NBD BANK AMERICAN DENTAL TECHNOLOGIES, INC.
By: /s/ JAMES L. WOLFINGTON By: /s/ BEN J. GALLANT
--------------------------- ------------------------------
James L. Wolfington Ben J. Gallant
Its: Vice President Its: President
--------------------------- ------------------------------
Address for Notices Address for Notices
28660 Northwestern Highway 18860 West Ten Mile Road
- --------------------------------- -------------------------------------
Southfield, Michigan 48034 Southfield, Michigan 48075
- --------------------------------- -------------------------------------
Fax/Telex No. 248-799-5832 Fax/Telex No. 248-395-3901
------------------- -----------------------
7
<PAGE> 1
EXHIBIT 4.17
APPROVED BY:
ORC# 8311 INITIALS
PRIMARY ORC#: 8311
[NBD LOGO] REVOLVING BUSINESS CREDIT NOTE (LIBOR - BASED INTEREST RATE)
Due September 30, 2000 $7,500,000.00
-------------------
No. Date: September 26, 1998
------------------- ---------------------
PROMISE TO PAY. On or before September 30, 2000, for value received, (the
"Borrower") promises to pay to NBD BANK (the "Bank"), or order, at any office of
the Bank in the State of Michigan, the sum of SEVEN MILLION FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($7,500,000.00), or such lesser sum as is indicated
on Bank records, plus interest as provided below.
DEFINITIONS.
As used in this note, the following terms have the following respective
meanings.
"APPLICABLE MARGIN" means with respect to any Floating Rate Loan 0% per
annum and with respect to any Eurodollar Loan 1.5% per annum.
"BUSINESS DAY" means a day other than a Saturday or Sunday, or other
day that commercial banks in Detroit, Michigan are authorized or
required to close under the laws of the State of Michigan and, with
respect to any Eurodollar Loan, on which dealings in United States
dollar deposits are carried out in the London interbank market.
"CREDIT AGREEMENT" is defined in the paragraph entitled "CREDIT
AGREEMENT" below.
"CREDIT FACILITY" is defined in the paragraph entitled "CREDIT
FACILITY" below.
"EURODOLLAR LOAN" means any Loan under the Credit Facility when and to
the extent that its interest rate is determined by reference to the
Eurodollar Rate.
"EURODOLLAR RATE" means, with respect to any Eurodollar Loan and the
related Interest Period, the per annum rate that is equal to the sum
of:
(A) the Applicable Margin, plus
(B) the rate obtained by dividing (i) the per annum rate of interest
at which deposits in United States dollars for the Interest Period and
in an aggregate amount comparable to the amount of the Loan are offered
the First National Bank of Chicago by other prime banks in the London
to interbank market, at approximately 11:00 a.m. London time on the
second Business Day prior to the first day of the Interest Period by
(ii) an amount equal to one minus the stated maximum rate (expressed
as a decimal) of all reserve requirements (including, without
limitation, any marginal, emergency, supplemental, special or other
reserves) specified on the first day of such Interest Period by the
Board of Governors of the Federal Reserve System (or any successor
agency) for determining the maximum reserve requirement with respect to
eurocurrency funding required to be maintained by a Federal Reserve
System member bank;
all as conclusively determined by the Bank, such sum to be rounded up,
if necessary, to the nearest one-hundredth of one percent (1/100 of
1%).
"FLOATING RATE" means the per annum rate of interest equal to the sum
of the rate announced by the Bank as its "prime rate" in effect from
time to time, which is not necessarily the lowest rate charged by the
Bank to any of its customers, plus the Applicable Margin. Any change in
the Bank's "prime rate" shall immediately change the Floating Rate.
<PAGE> 2
"FLOATING RATE LOAN" means any Loan under the Credit Facility when and
to the extent that its interest rate is determined by reference to the
Floating Rate.
"INTEREST PERIOD" means, with respect to any Eurodollar Loan, a period
of one, two or three months agreed upon by the Borrower and the Bank,
commencing on the Business Day the Loan is made. If the Interest Period
would end on a day which is not a Business Day, the Interest Period
shall end on the next succeeding Business Day unless that Business Day
would fall in the next calendar month, in which case the Interest
Period shall end on the immediately preceding Business Day.
"LOAN" and "LOANS" are defined in the paragraph entitled "CREDIT
FACILITY" below.
"LOAN DOCUMENTS" means this note, the Credit Agreement, and any other
documents executed in connection with the Credit Facility.
CREDIT FACILITY. The Bank has authorized a credit facility to the Borrower in a
principal amount not to exceed the face amount of this note. The credit facility
is in the form of loans (EACH, A "LOAN", AND, TOGETHER, THE "LOANS") made from
time to time by the Bank to the Borrower. This note evidences the Borrower's
obligation to repay those Loans. The Bank shall, in the ordinary course of
business, make notations in its records of the date, amount, interest rate and
Interest Period of each Loan, the amount of each payment on the Loans, and other
information. Such records shall, in the absence of manifest error, be conclusive
as to the outstanding principal balance of and interest rate or rates applicable
to the Loans. The aggregate principal amount of debt evidenced by this note
shall be the amount reflected from time to time in the records of the Bank but
shall not exceed the face amount of this note. Until maturity, the Borrower may
borrow, pay down, and reborrow under this note so long as the aggregate
principal amount outstanding at any one time does not exceed the face amount of
this note.
CREDIT AGREEMENT. This note evidences a debt under the terms of a Line of Credit
Agreement (the "Credit Agreement") between the Bank and the Borrower dated
concurrently, and any amendments.
INTEREST RATES. Each Loan under the Credit Facility may be outstanding as either
a Floating Rate Loan or a Eurodollar Loan. The Borrower shall pay interest to
the Bank on the outstanding and unpaid principal amount of each Floating Rate
Loan at the Floating Rate and each Eurodollar Loan at the Eurodollar Rate.
Interest shall be calculated on the basis of the actual number of days elapsed
in a year of 360 days. In no event shall the interest rate applicable to any
Loan exceed the maximum rate allowed by law. Any interest payment which would
for any reason be deemed unlawful under applicable law shall be applied to
principal.
NOTICE AND MANNER OF BORROWING. The Borrower shall give the Bank written notice
(effective upon receipt) of any Loan under the Credit Facility no later than
11:00 A.M. Detroit time, one (1) Business Day before each Floating Rate Loan and
three (3) Business Days before each Eurodollar Loan specifying: (A) the date of
the Loan, (B) the amount of the Loan, (C) the type of the Loan (Floating Rate
Loan or Eurodollar Loan), and (D) in the case of a Eurodollar Loan, the duration
of the applicable Interest Period. Each Eurodollar Loan shall be in a minimum
amount of $500,000.00. All notices under this paragraph are irrevocable. By the
Bank's close of business on the date of the Loan and upon fulfillment of the
conditions set forth in the Credit Agreement, the Bank shall make the Loan
available to the Borrower in immediately available funds by crediting the amount
of the Loan to the Borrower's account with the Bank.
CONVERSION AND RENEWALS. The Borrower may elect from time to time to convert one
type of Loan into another or to renew any Loan by giving the Bank written notice
no later than 11:00 A.M. Detroit time one (1) Business Day before conversion
into a Floating Rate Loan and three (3) Business Days before conversion into or
renewal of a Eurodollar Loan, specifying: (A) the renewal or conversion date,
(B) the amount of the Loan to be converted or renewed, (C) in the case of
conversion, the type of Loan to be converted into (Floating Rate Loan or
Eurodollar Loan), and (D) in the case of renewals of or conversion into a
Eurodollar Loan, the applicable Interest Period, provided that (i) the minimum
principal amount of each Eurodollar Loan outstanding after a renewal or
conversion shall be $ and (ii) a Eurodollar Loan can only be converted on the
last day of the Interest Period for the Loan. All notices given under this
paragraph are irrevocable. If the Borrower fails to give the Bank the notice
specified above for the renewal or conversion of a Eurodollar Loan by 11:00 a.m.
Detroit time three (3) Business Days before the end of the Interest Period for
that Loan, the Loan shall automatically be converted to a Floating Rate Loan on
the last day of the Interest Period for the Loan.
INTEREST PAYMENTS. Interest on the Loans shall be paid as follows:
(A) For each Floating Rate Loan, on the 30th day of each month
beginning with the first full month following disbursement of the
Loan and at the maturity of the Loan;
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<PAGE> 3
(B) For each Eurodollar Loan, on the last day of the Interest Period
for the Loan and, if the Interest Period is longer than three
months, at three-month intervals beginning with the day three
months from the date the Loan is disbursed.
OVERDUE AMOUNTS. Any principal amount not paid when due (at maturity, by
acceleration, or otherwise) shall bear interest thereafter until paid in full,
payable on demand, at a per annum rate equal to:
(A) For each Floating Rate Loan a rate equal to the Floating Rate plus
three percent (3%).
(B) For each Eurodollar Loan, a rate equal to the Eurodollar Rate plus
three percent (3%) from the time of default in payment of
principal until the end of the then current Interest Period for
the Loan and after that at a rate equal to the Floating Rate plus
three percent (3%).
PREPAYMENT. The Borrower may prepay all or any part of any Floating Rate Loan
at any time without premium or penalty. The Borrower may prepay any Eurodollar
Loan only at the end of an Interest Period.
FUNDING LOSS INDEMNIFICATION. Upon the Bank's request, the Borrower shall pay
the Bank amounts sufficient (in the Bank's reasonable opinion) to compensate it
for any loss, cost, or expense incurred as a result of:
(A) Any payment of a Eurodollar Loan on a date other than the last day
of the Interest Period for the Loan, including, without
limitation, acceleration of the Loans by the Bank pursuant to this
note or the Loan Documents; or
(B) Any failure by the Borrower to borrow or renew a Eurodollar Loan
on the date specified in the relevant notice from the Borrower to
the Bank.
ADDITIONAL COSTS. If any applicable domestic or foreign law, treaty, government
rule or regulation now or later in effect (whether or not it now applies to the
Bank) or the interpretation or administration thereof by a governmental
authority charged with such interpretation or administration, or compliance by
the Bank with any guideline, request or directive of such an authority (whether
or not having the force of law), shall (A) affect the basis of taxation of
payments to the Bank of any amounts payable by the Borrower under this note or
the Loan Documents (other than taxes imposed on the overall net income of the
Bank by the jurisdiction or by any political subdivision or taxing authority of
the jurisdiction in which the Bank has its principal office), or (B) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Bank, or (C) impose any other condition with respect to this note or the
Loan Documents and the result of any of the foregoing is to increase the cost to
the Bank of maintaining any Eurodollar Loan or to reduce the amount of any sum
receivable by the Bank on such a Loan, or (D) affect the amount of capital
required or expected to be maintained by the Bank (or any corporation
controlling the Bank) and the Bank determines that the amount of such capital is
increased by or based upon the existence of the Bank's obligations under this
note or the Loan Documents and the increase has the effect of reducing the rate
of return on the Bank's (or its controlling corporation's) capital as a
consequence of the obligations under this note or the Loan Documents to a level
below that which the Bank (or its controlling corporation) could have achieved
but for such circumstances (taking into consideration its policies with respect
to capital adequacy) by an amount deemed by the Bank to be material, then the
Borrower shall pay to the Bank, from time to time, upon request by the Bank,
additional amounts sufficient to compensate the Bank for the increased cost or
reduced sum receivable. Whenever the Bank shall learn of circumstances described
in this section which are likely to result in additional costs to the Borrower,
the Bank shall give prompt written notice to Borrower of the basis for and the
estimated amount of any such anticipated additional costs. A statement as to the
amount of the increased cost or reduced sum receivable, prepared in good faith
and in reasonable detail by the Bank and submitted by the Bank to the Borrower,
shall be conclusive and binding for all purposes absent manifest error in
computation.
ILLEGALITY. If any applicable domestic or foreign law, treaty, rule or
regulation now or later in effect (whether or not it now applies to the Bank) or
the interpretation or administration thereof by a governmental authority charged
with such interpretation or administration, or compliance by the Bank with any
guideline, request or directive of such an authority (whether or not having the
force of law), shall make it unlawful or impossible for the Bank to maintain or
fund the Eurodollar Loans, then, upon notice to the Borrower by the Bank, the
outstanding principal amount of the Eurodollar Loans, together with accrued
interest and any other amounts payable to the Bank under this note or the Loan
Documents on account of the Eurodollar Loans shall be repaid (A) immediately
upon the Bank's demand if such change or compliance with such requests, in the
Bank's judgment, requires immediate repayment, or (B) at the expiration of the
last Interest Period to expire before the effective date of any such change or
request provided, however, that subject to the terms and conditions of this note
and the Loan Documents the Borrower shall be entitled to simultaneously replace
the entire outstanding balance of any Eurodollar Loan repaid in accordance with
this section with a Floating Rate Loan in the same amount.
3
<PAGE> 4
INABILITY TO DETERMINE INTEREST RATE. If the Bank determines that (A) quotations
of interest rates for the relevant deposits referred to in the definition of
Eurodollar Rate are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the interest rate on a
Eurodollar Loan as provided in this note, or (B) the relevant interest rates
referred to in the definition of Eurodollar Rate do not accurately cover the
cost to the Bank of making or maintaining Eurodollar Loans, then the Bank shall
forthwith give notice of such circumstances to the Borrower, whereupon (1) the
obligation of the Bank to make Eurodollar Loans shall be suspended until the
Bank notifies the Borrower that the circumstances giving rise to the suspension
no longer exists, and (2) the Borrower shall repay in full the then outstanding
principal amount of each Eurodollar Loan, together with accrued interest, on the
last day of the then current Interest Period applicable to the Loan, provided,
however, that, subject to the terms and conditions of this note and the Loan
Documents, the Borrower shall be entitled to simultaneously replace the entire
outstanding balance of any Eurodollar Loan repaid in accordance with this
section with a Floating Rate Loan in the same amount.
OBLIGATIONS DUE ON NON-BUSINESS DAY. Whenever any payment under this note
becomes due and payable on a day that is not a Business Day, if no event of
acceleration has occurred and is continuing, the maturity of the payment shall
be extended to the next succeeding Business Day, except, in the case of a
Eurodollar Loan, if the result of the extension would be to extend the payment
into another calendar month, the payment must be made on the immediately
preceding Business Day.
SECURITY. To secure the payment of this note and all other present or future
liabilities of the Borrower to the Bank, whether several, joint, or joint and
several, the Borrower pledges and grants to the Bank a continuing security
interest in the following described property and all of its additions,
substitutions, increments, proceeds and products, whether now owned or later
acquired ("Collateral"):
1. All securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the Bank
solely in a fiduciary capacity);
2. All property or securities declared or acknowledged to constitute
security for any past, present or future liability of the Borrower to
the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: all of the Borrower's present and
future accounts, chattel paper and general intangibles; all of the
Borrower's present and future inventory and equipment, wherever
located; all of the Borrower's patents, copyrights and trademarks.
BANK'S RIGHT TO SETOFF. The Bank shall have the right at any time to apply its
own debt or liability to the Borrower or to any other party liable on this note
in whole or partial payment of this note or other present or future liabilities,
without any requirement of mutual maturity.
REPRESENTATIONS BY BORROWER. Each Borrower represents: (a) that the execution
and delivery of this note and the performance of the obligations it imposes do
not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or any third
party; (b) that this note is a valid and binding agreement, enforceable
according to its terms; and (c) that all balance sheets, profit and loss
statements, and other financial statements furnished to the Bank are accurate
and fairly reflect the financial condition of the organizations and persons to
which they apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and adversely
since those dates. Each Borrower, other than a natural person, further
represents: (a) that it is duly organized, existing and in good standing
pursuant to the laws under which it is organized; and (b) that the execution and
delivery of this note and the performance of the obligations it imposes (i) are
within its powers and have been duly authorized by all necessary action of its
governing body; and (ii) do not contravene the terms of its articles of
incorporation or organization, its by laws, or any partnership, operating or
other agreement governing its affairs.
EVENTS OF DEFAULT/ACCELERATION. If any of the following events occurs, this
note shall be due immediately, without notice, at the Bank's option.
1. The Borrower or any guarantor of this note ("Guarantor") fails to pay
when due any amount payable under this note or under any agreement or
instrument evidencing debt to any creditor;
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults
under the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this note) such that
the creditor declares the debt due before its maturity;
3. There is a default under the terms of any loan agreement, mortgage,
security agreement, or any other document executed as part of the loan
evidenced by this note, or any guaranty of the loan evidenced by this
note becomes unenforceable in whole or in part, or any Guarantor fails
to promptly perform under its guaranty;
4
<PAGE> 5
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of
the Borrower or any affiliate of the Borrower;
5. The Borrower or any Guarantor becomes insolvent or unable to pay its
debts as they become due;
6. The Borrower or any Guarantor (a) makes an assignment for the benefit
of creditors; (b) consents to the appointment of a custodian, receiver,
or trustee for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction;
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without the consent
of the party against which the appointment is made and is not removed
within 60 days after such appointment;
8. Proceedings are commenced against the Borrower or any Guarantor under
any bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement
of such proceedings;
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor;
10. The Borrower or any Guarantor dies;
11. The Borrower or any Guarantor, without the Bank's written consent, (a)
is dissolved, (b) merges or consolidates with any third party, (c)
leases, sells or otherwise conveys a material part of its assets or
business outside the ordinary course of business, (d) leases, purchases
or otherwise acquires a material part of the assets of any other
corporation or business entity except in the ordinary course of
business, or (e) agrees to do any of the foregoing (notwithstanding the
foregoing, any subsidiary may merge or consolidate with any other
subsidiary, or with the Borrower so long as the Borrower is the
survivor);
12. The loan-to-value ratio of any pledged securities at any time exceeds
N/A%, and such excess continues for five (5) days after notice from the
Bank to the Borrower;
13. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor which the Bank in good faith
determines to be materially adverse;
14. The Bank in good faith deems itself insecure.
15. The acquisition by any Person (as defined below), or two or more
Persons acting in concert, of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of 20% or more of the outstanding
shares of voting stock of the Borrower. For purposes of this covenant,
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, limited liability company, enterprise, trust
or other entity or organization, or any government or political
subdivision or any agency, department or instrumentality thereof.
REMEDIES. If this note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall be met if the Bank
sends the notice to the Borrower at least seven (7) days prior to the date of
sale, disposition or other event giving rise to the required notice. The Bank is
authorized to cause all or any part of the Collateral to be transferred to or
registered in its name or in the name of any other person, firm or corporation,
with or without designation of the capacity of such nominee. The Borrower shall
be liable for any deficiency remaining after disposition of any Collateral. The
Borrower is liable to the Bank for all reasonable costs and expenses of every
kind incurred in the making or collection of this note, including, without
limitation, reasonable attorneys' fees and court costs. These costs and expenses
shall include, without limitation, any costs or expenses incurred by the Bank in
any bankruptcy, reorganization, insolvency or other similar proceeding.
WAIVER. Each endorser and any other party liable on this note severally waives
demand, presentment, notice of dishonor and protest, and consents to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of the
Collateral, to the addition of any party, and to the release or discharge of, or
suspension of any rights and remedies against, any person who may be liable for
the payment of this note. No delay on the part of the Bank in the exercise of
any right or remedy shall operate as a waiver. No single or partial exercise by
the Bank of any right or remedy shall preclude any other future exercise of it
or the exercise of any other right or remedy. No waiver or indulgence by the
Bank of any default shall be effective unless in writing and signed by the Bank,
nor shall a waiver on one occasion be construed as a bar to or waiver of that
right on any future occasion.
5
<PAGE> 6
MISCELLANEOUS. The Borrower, if more than one, shall be jointly and severally
liable, and the term "Borrower" shall mean any one or more of them. This note
shall be binding on the Borrower and its successors, and shall inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank shall
include any holder of this note. This note is delivered in the State of Michigan
and governed by Michigan law. Section headings are for convenience of reference
only and shall not affect the interpretation of this note.
WAIVER OF JURY TRIAL. The Bank and the Borrower knowingly and voluntarily waive
any right either of them have to a trial by jury in any proceeding (whether
sounding in contract or tort) which is in any way connected with this or any
related agreement, or the relationship established under them. This provision
may only be modified in a written instrument executed by the Bank and the
Borrower.
BORROWER:
ADDRESS: AMERICAN DENTAL TECHNOLOGIES, INC.
18860 West Ten Mile Road By: /s/ BEN J. GALLANT
- ------------------------------------ ------------------
Ben J. Gallant
Southfield, Michigan 48075-2463 Its: President
- ------------------------------------
6
<PAGE> 1
EXHIBIT 4.18
[NBD LOGO] COLLATERAL ASSIGNMENT OF PATENT
This Agreement is entered into on September 26, 1998, between , a whose address
is 18860 West Ten Mile Road, Southfield, Michigan 48075 ("Borrower"), and NBD
BANK, a Michigan banking corporation whose address is 611 Woodward Avenue,
Detroit, Michigan 48226 ("Bank").
Borrower has executed and delivered to Bank a Revolving Business Credit Note
dated September 26, 1998, in the aggregate principal amount of SEVEN MILLION
FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) ("Note"). To induce Bank to provide
the credit evidenced by the Note, Borrower has agreed to assign to Bank certain
patent rights.
Therefore, the parties agree as follows:
1. To secure the payment of all of Borrower's debt to the Bank of any kind
("Liabilities") whenever and however such Liabilities may arise or may have
arisen (including interest, costs, expenses, and reasonable attorney's fees
accruing to or incurred by Bank in collecting the Liabilities or in the
protection, maintenance, or liquidation of the Patents, as defined below),
Borrower grants, assigns and conveys to Bank all its right, title, and interest
in and to the patent applications and patents listed in Schedule A (collectively
called "Patents"), including (a) all proceeds (such as, by way of example,
license royalties and proceeds of infringement suits), (b) the right to sue for
past, present and future infringements, (c) all rights relating to the Patents
throughout the world, and (d) all reissues, divisions, continuations, renewals,
extensions, and continuations-in-part of the Patents.
2. Borrower covenants and warrants that:
(A) The Patents are subsisting and have not been adjudged invalid or
unenforceable, in whole or in part;
(B) To the best of Borrower's knowledge, each of the Patents is valid
and enforceable and Borrower has notified Bank in writing of all prior art
(including public uses and sales) of which it is aware;
(C) Borrower is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Patents, free and
clear of any liens, charges and encumbrances, including, without limitation,
pledges, assignments, licenses, shop rights, and covenants by Borrower not to
sue third persons; and
<PAGE> 2
(D) Borrower has the unqualified right to enter into this Agreement and
perform its terms and has entered and will enter into written agreements with
each of its present and future employees, agents, and consultants which will
enable it to comply with the covenants contained in this Agreement.
Except as specifically set forth above, Borrower does not warrant that the
Patents might not be declared invalid if challenged in court.
3. Borrower agrees that until all of the Liabilities have been satisfied
in full, it will not, without Bank's prior written consent, enter into any
agreement (for example, a license agreement) which is inconsistent with
Borrower's obligations under this Agreement.
4. If, before the Liabilities have been satisfied in full, Borrower (a)
obtains rights to any new patentable inventions or (b) becomes entitled to the
benefit of any patent application or patent for any reissue, division,
continuation, renewal, extension, or continuation-in-part of any Patent or any
improvement on any Patent, then the provisions of paragraph 1 shall
automatically apply to it and Borrower shall give to Bank prompt notice thereof.
5. Borrower authorizes Bank to modify this Agreement by amending Schedule
A to include any future patents and patent applications which are Patents under
paragraph 1 or paragraph 4 of this Agreement.
6. Unless and until there shall have occurred and be continuing an Event
of Default as defined in the Note ("Event of Default"), Bank grants to Borrower
the exclusive, nontransferable right and license under the Patents to make, have
made for it, use and sell the inventions disclosed and claimed in the Patents
for Borrower's own benefit and account and for none other. Without the prior
written consent of Bank, Borrower agrees not to sell or assign its interest in,
or grant any sublicense under, the license granted to Borrower in this paragraph
6.
7. If any Event of Default shall have occurred and be continuing,
Borrower's license under the Patents as set forth in paragraph 6 shall terminate
immediately, and the Bank shall have, in addition to all other rights and
remedies given to it by this Agreement, those allowed by law and the rights and
remedies of a secured party under the Uniform Commercial as enacted in any
jurisdiction in which the Patents may be located. Without limiting the
generality of the foregoing, the Bank may immediately, without demand of
performance and without other notice or demand whatsoever to Borrower (except as
set forth below), all of which are hereby expressly waived, and without
advertisement, sell at public or private sale or otherwise realize upon the
whole or from time to time any part of the Patents, or any interest which the
Borrower may have in them, and after deducting from the proceeds of sale or
other disposition of the Patents all expenses (including all reasonable expenses
for brokers' fees and legal services), shall apply the residue of such proceeds
toward the payment of the Liabilities. Any remainder of the proceeds after
payment in full of the Liabilities shall be paid over to the Borrower. Notice of
any sale or other disposition of the Patents shall be given to Borrower at least
five (5) days before the time of any intended public or private sale or other
disposition of the Patents is to be made, which
2
<PAGE> 3
Borrower agrees shall be reasonable notice of such sale or other disposition. At
any such sale or other disposition, any holder of the Note, or the Bank, may, to
the extent permissible under applicable law, purchase the whole or any part of
the Patents sold, free from any right of redemption on the part of Borrower,
which right is waived and released.
8. If any Event of Default shall have occurred and be continuing, Borrower
authorizes and empowers Bank to appoint any officer or agent of Bank, as Bank
may select in its exclusive discretion, as Borrower's true and lawful
attorney-in-fact, with the power to endorse Borrower's name on all
applications, documents, papers and instruments necessary for Bank to use the
Patents, or to grant or issue any exclusive or nonexclusive license under the
Patents to any third person, or necessary for Bank to assign, pledge, convey or
otherwise transfer title in or dispose of the Patents to any third person.
Borrower ratifies all that such attorney shall lawfully do or cause to be done
by virtue of this Agreement. This power of attorney shall be irrevocable for the
life of this Agreement.
9. At such time as Borrower shall completely satisfy all of the
Liabilities, this Agreement shall terminate and Bank shall execute and deliver
to Borrower all deeds, assignments and other instruments as may be necessary or
proper to re-vest in Borrower full title to the Patents, subject to any
disposition thereof which may have been made to Bank pursuant to this Agreement.
10. Any and all fees, costs, and expenses, of whatever kind or nature,
including the filing or recording of any documents (including all taxes in
connection therewith) in public offices, the payment or discharge of any taxes,
counsel fees, maintenance fees, encumbrances, or costs incurred in protecting,
maintaining or preserving the Patents, or in defending or prosecuting any
actions or proceedings arising out of or related to the Patents, shall be borne
and paid by Borrower on demand by Bank and until so paid shall be added to the
principal amount of the Liabilities and shall bear interest at the highest rate
prescribed in the Note.
11. Borrower shall have the duty, through counsel acceptable to Bank, to
prosecute diligently any patent applications of the Patents pending as of the
date of this Agreement, or thereafter, until the Liabilities have been paid in
full, to make application on unpatented but patentable inventions and to
preserve and maintain all rights in patent applications and patents of the
Patents, including without limitation the payment of all maintenance fees. Any
expenses incurred in connection with such an application shall be borne by
Borrower. The Borrower shall not abandon any right to file a patent application,
or any pending patent application or patent without the consent of the Bank.
12. Borrower shall have the right, with the written consent of Bank, to
bring suit in its own name and to join Bank, as necessary, as a party to such
suit, so long as Bank is satisfied that such joinder will not subject it to any
risk of liability, to enforce the Patents and any licenses under them. Borrower
shall promptly, upon demand, reimburse and indemnify Bank for all damages, costs
and expenses, including legal fees, incurred by Bank pursuant to this paragraph
12.
3
<PAGE> 4
13. No course of dealing between Borrower and Bank, nor any failure to
exercise, nor any delay in exercising, on the part of Bank, any right, power or
privilege under this Agreement or the Note shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power, or privilege under
this Agreement or under the Note preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege.
14. All of Bank's rights and remedies with respect to the Patents, whether
established by this Agreement, by any other agreements, or by law, shall be
cumulative and may be exercised singularly or concurrently.
15. The provisions of this Agreement are severable, and if any clause or
provision shall be held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction.
16. This Agreement is subject to modification only by a writing signed by
the parties, except as provided in paragraph 5.
17. This Agreement shall be binding on and inure to the benefit of the
respective successors and permitted assigns of the parties.
18. The validity and interpretation of this Agreement and the rights and
obligations of the parties shall be governed by the laws of the State of
Michigan.
Executed on the date first written above.
BANK: BORROWER:
NBD Bank American Dental Technologies, Inc.
By: /s/ JAMES L. WOLFINGTON By: /s/ BEN J. GALLANT
----------------------- --------------------------
James L. Wolfington Ben J. Gallant
Its: Vice President Its: President
----------------------- --------------------------
4
<PAGE> 5
ACKNOWLEDGMENT
State of Michigan
County of Oakland
The foregoing instrument was acknowledged before me on September 26,
1998 by James L. Wolfington, a Vice President of NBD Bank.
/s/ VIRGINIA B. NEEF
--------------------------------
Notary Public, Oakland County, MI
My Commission Expires: 04-10-00
ACKNOWLEDGMENT
State of Michigan
County of Oakland
The foregoing instrument was acknowledged before me on September 26,
1998 by Ben J. Gallant the President of American Dental Technologies, Inc.
/s/ NANCY GILLIE BARRON
---------------------------------
Notary Public, Oakland County, MI
My Commission Expires: 12-19-2000
5
<PAGE> 6
SCHEDULE A
Schedule A to Collateral Assignment of Patent dated September 26, 1998, between
American Dental Technologies, Inc., a Delaware corporation whose address is
18860 W. Ten Mile Road, Southfield, Michigan 48075 ("Borrower"), and NBD BANK, a
Michigan banking corporation, whose address is 611 Woodward Avenue, Detroit,
Michigan ("Bank").
<TABLE>
<CAPTION>
Application or Registration
Mark No. Country Filing Date
<S> <C> <C>
4,940,411 U.S. April 24, 1989
5,055,048 U.S. March 15, 1990
4,635,897 U.S. March 29, 1985
4,708,534 U.S. February 18, 1986
4,733,503 U.S. May 1, 1986
4,893,440 U.S. May 19, 1989
5,122,060 U.S. May 28, 1991
5,123,845 U.S. May 28, 1991
5,180,304 U.S. December 6, 1991
5,207,576 U.S. April 25, 1989
5,228,852 U.S. March 31, 1992
5,232,367 U.S. February 12, 1992
5,257,935 U.S. April 25, 1989
5,275,561 U.S. April 3, 1992
5,275,564 U.S. February 12, 1992
5,324,200 U.S. December 6, 1991
5,330,354 U.S. March 27, 1992
5,334,019 U.S. December 6, 1991
5,342,198 U.S. May 10, 1993
5,350,299 U.S. March 25, 1993
5,507,739 U.S. June 15, 1992
5,525,058 U.S. July 19, 1994
5,621,745 U.S. December 7, 1994
5,746,596 U.S. June 10, 1996
5,748,655 U.S. February 7, 1996
5,752,829 U.S. August 1, 1994
5,759,031 U.S. June 3, 1996
</TABLE>
6
<PAGE> 1
EXHIBIT 4.19
[NBD LOGO] CONTINUING SECURITY AGREEMENT
AMERICAN DENTAL TECHNOLOGIES, INC. (the "Debtor")
TAXPAYER I.D. NO.: 38-2905258
CHIEF EXECUTIVE OFFICE:18860 WEST TEN MILE ROAD, SOUTHFIELD, MICHIGAN 48075-2463
GRANT OF SECURITY INTEREST. The Debtor grants to NBD BANK, the secured party
referred to as "Bank", whose address is 611 Woodward Avenue, Detroit, Michigan
48226, a continuing security interest in the Collateral listed below, to secure
the payment and performance of all of the Debtor's debt to the Bank.
Debt shall include each and every debt, liability and obligation of every type
and description now owed or arising at a later time, whether they are direct or
indirect, joint, several, or joint and several and whether or not of the same
type or class as presently outstanding, which shall collectively be referred to
as "Liabilities." Liabilities shall also include all interest, costs, expenses
and reasonable attorney's fees accruing to or incurred by the Bank in collecting
the Liabilities or in the protection, maintenance or liquidation of the
Collateral.
COLLATERAL: Accounts Receivable, Inventory, Equipment, Instruments, Patents,
Copyrights and Trademarks.
DESCRIPTION OF COLLATERAL. The Collateral covered by this agreement is all of
the Debtor's property indicated above and as defined below, present and future,
including but not limited to any items listed on any schedule or list attached.
Also included are all proceeds, including but not limited to stock rights,
subscription rights, dividends, stock dividends, stock splits, or liquidating
dividends, and all cash, instruments, accounts, chattel paper and general
intangibles arising from the sale, rent, lease, casualty loss or other
disposition of the Collateral, and any Collateral returned to, repossessed by or
stopped in transit by the Debtor. Also included are the Debtor's books and
records which relates to the Collateral. Where the Collateral is in the
possession of the Bank, the Debtor agrees to deliver to the Bank any property
which represents an increase in the Collateral or profits or proceeds of the
Collateral.
DEFINITIONS.
1. "ACCOUNTS RECEIVABLE" shall consist of accounts, chattel paper and general
intangibles (including patents as described in the attached Schedule A) as those
terms are defined in the Michigan Uniform Commercial Code ("UCC"). Also included
is any right to a refund of taxes paid at any time to any governmental entity.
Also included are letters of credit, and drafts under them, given in support of
Accounts Receivable. Debtor warrants that its chief executive office is at the
address shown above.
2. "INVENTORY" shall consist of all property held at any location by or for
Debtor for sale, rent, or lease, or furnished or to be furnished by the Debtor
under any contract of service, or raw materials or work in process and their
products, or materials used or consumed in its business, and shall include
containers and shelving useful for storing. Without limiting the security
interest granted, Inventory is presently located at 18860 West Ten Mile Road,
Southfield, Michigan 48075 and 5555 Bear Lane, Corpus Christi, Texas 78405.
3. "EQUIPMENT" shall consist of any goods at any time acquired, owned or held by
Debtor at any location primarily for use in its business, including, but not
limited to, machinery, fixtures, furniture, furnishings and vehicles, and any
accessions, parts, attachments, accessories, tools, dies, additions,
substitutions, replacements and appurtenances to them or intended for use with
them. Without limiting the security interest granted, Equipment is presently
located at 18860 West Ten Mile Road, Southfield, Michigan 48075 and 5555 Bear
Lane, Corpus Christi, Texas 78405
4. "INSTRUMENTS" shall consist of Debtor's interest of any kind in any
negotiable instrument or security as those terms are defined in the UCC, or any
other writing which evidences a right to payment of money and is of a type which
is, in the ordinary course of business, transferred by delivery alone or by
delivery with any necessary endorsement or assignment.
<PAGE> 2
WARRANTIES AND COVENANTS. The Debtor warrants and covenants to the Bank that:
1. It will pay its Liabilities to the Bank secured by this agreement;
2. It is or will become the owner of the Collateral free from any liens,
encumbrances or security interests, except for this security interest, and
existing liens disclosed to and accepted by the Bank in writing, and will defend
the Collateral against all claims and demands of all persons at any time
claiming any interest in it;
3. It will keep the Collateral free of liens, encumbrances and other security
interests, maintain it in good repair, not use it illegally, and exhibit it to
the Bank on demand;
4. At its own expense, the Debtor will maintain comprehensive casualty insurance
on the Collateral against such risks, in such amounts, with such deductibles and
with such companies as may be satisfactory to the Bank, and provide the Bank
with proof of insurance acceptable to the Bank. Each insurance policy shall
contain a lender's loss payable endorsement satisfactory to the Bank and a
prohibition against cancellation or amendment of the policy or removal of the
Bank as loss payee without at least 30 days prior written notice to the Bank. In
all events, the amounts of such insurance coverages shall conform to prudent
business practices and shall be in such minimum amounts that the Debtor will not
be deemed a co-insurer;
5. It will not sell or offer to sell or otherwise transfer the Collateral, nor
change the location of the Collateral, without the written consent of the Bank,
except in the ordinary course of business;
6. It will pay promptly when due all taxes and assessments upon the Collateral,
or for its use or operation;
7. No financing statement covering all or any part of the Collateral or any
proceeds is on file in any public office, unless the Bank has approved that
filing. At the Bank's request, Debtor will execute one or more financing
statements in form satisfactory to Bank and will pay the cost of filing them in
all public offices wherever filing is deemed by Bank to be desirable;
8. It will immediately notify Bank in writing of any name change or any change
in business organization;
9. It will provide any information that Bank may reasonably request, and will
permit Bank upon prior notice to inspect and copy its books and records during
normal business hours.
ACCOUNTS RECEIVABLE. The Debtor acknowledges that if the Collateral includes
"Accounts Receivable," then until the Bank gives notice to Debtor to the
contrary, Debtor will, in the usual course of its business and at its own cost
and expense, on the Bank's behalf but not as the Bank's agent, demand and
receive and use its best efforts to collect all moneys due or to become due on
the Accounts Receivable. Until the Bank gives notice to Debtor to the contrary
or until the Debtor is in default, it may use the funds collected in its
business. Upon notice from the Bank or upon default, the Debtor agrees that all
sums of money it receives on account of or in payment or settlement of the
Accounts Receivable shall be held by it as trustee for the Bank without
commingling with any of its funds, and shall immediately be delivered to the
Bank with endorsement to the Bank's order of any check or similar instrument. It
is agreed that, at any time the Bank elects, it shall be entitled, in its own
name or in the name of the Debtor or otherwise, but at the expense and cost of
the Debtor, to collect, demand, receive, sue for or compromise any and all
Accounts Receivable, and to give good and sufficient releases, to endorse any
checks, drafts or other orders for the payment of money payable to the Debtor in
payment and, in its discretion, to file any claims or take any action or
proceeding which the Bank may deem necessary or advisable. It is expressly
understood and agreed, however, that the Bank shall not be required or obligated
in any manner to make any demand or to make any inquiry as to the nature or
sufficiency of any payment received by it or to present or file any claim or
take any other action to collect or enforce the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
All notices required in this paragraph will be immediately effective when sent.
Such notices need not be given prior to the Bank taking action.
REPRESENTATIONS BY DEBTOR. Each Debtor represents: (a) that the execution and
delivery of this agreement and the performance of the obligations it imposes do
not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or any third
party; (b) that this agreement is a valid and binding agreement, enforceable
according to its terms; and (c) that all balance sheets, profit and loss
statement, and other financial statements furnished to the Bank are accurate and
fairly reflect the financial condition of the organizations and persons to which
they apply on their effective dates, including contingent liabilities of every
type, which financial condition has not changed materially and adversely since
those dates. Each Debtor, other than a natural person, further represents: (a)
that it is duly organized, existing and in good standing pursuant to the laws
under which it is organized; and (b) that the execution and delivery of this
agreement and the performance of the obligations it imposes (i) are within its
powers and have been duly authorized by all necessary action of its governing
body; (ii) do not contravene the terms of its articles of incorporation or
organizations, its by-laws, or any partnership, operating or other agreement
governing its affairs.
2
<PAGE> 3
PLEDGE. If the Debtor is not liable for all or any part of the Borrower's
obligations to the Bank (the "Debt"), then it agrees that:
(a) If any monies become available to the Bank that it can apply to any Debt,
the Bank may apply them to Debt not secured by this agreement.
(b) Without notice to or the consent of the Debtor, the Bank may (i) take any
action it chooses against any Borrower, against any collateral for the Debt, or
against any other person liable for the Debt; (ii) release any Borrower or any
other person liable for the Debt, release any collateral for the Debt, and
neglect to perfect any interest in any such collateral; (iii) forbear or agree
to forbear from exercising any rights or remedies, including any right of
setoff, that it has against the Borrower, any other person liable for the Debt,
or any other collateral for the Debt; (iv) extend to any Borrower additional
Debt to be secured by this agreement; or (v) renew, extend, modify or amend any
Debt, and deal with any Borrower or any other person liable for the Debt as it
chooses.
(c) None of the Debtor's obligations under this agreement shall be affected by
(i) any act or omission of the Bank; (ii) the voluntary or involuntary
liquidation, sale or other disposition of all or substantially all of the assets
of any Borrower, (iii) any receivership, insolvency, bankruptcy, reorganization
or other similar proceedings affecting any Borrower or any of its assets; or
(iv) any change in the composition or structure of any Borrower or any Debtor,
including a merger or consolidation with any other entity.
(d) The Bank's rights under this section and this agreement are unconditional
and absolute, regardless of the unenforceability of any provision of any
agreement between any Borrower and the Bank, or the existence of any defense,
setoff or counterclaim that any Borrower may be able to assert against the Bank.
(e) It waives all rights of subrogation, contribution, reimbursement, indemnity,
exoneration, implied contract, recourse to security, and any other claim (as
that term is defined in the federal Bankruptcy Code, as amended from time to
time) that it may have or acquire in the future against any Borrower, any other
person liable for the Debt, or any collateral for the Debt, because of the
existence of this agreement, the Debtor's performance under this agreement, or
the Bank's availing itself of any rights or remedies under this agreement.
(f) If any payment to the Bank on any Debt is wholly or partially invalidated,
set aside, declared fraudulent or required to be repaid to the Borrower or
anyone representing the Borrower or the Borrower's creditors under any
bankruptcy or insolvency act or code, under any state or federal law, or under
common law or equitable principles, then this agreement shall remain in full
force and effect or be reinstated, as the case may be, until payment in full to
the Bank of the repaid amounts, and of the Debt. If this agreement must be
reinstated, the Debtor agrees to execute and deliver to the Bank new agreements
and financing statements, if necessary, in form and substance acceptable to the
Bank, covering the Collateral.
DEFAULT/REMEDIES. If the Debtor or the Borrower fails to pay any of the
Liabilities when due, or if a default by anyone occurs under the terms of any
agreement related to any of the Liabilities, or if the Debtor dies or fails to
observe or perform any term of this agreement, or if any representation or
warranty contained in this agreement is untrue, or if there is a material change
in the financial condition of the Debtor which the Bank in good faith determines
to be materially adverse, then the Bank shall have the rights and remedies
provided by law or this agreement, including but not limited to the right to
require the Debtor to assemble the Collateral and make it available to the Bank
at a place to be designated by the Bank which is reasonably convenient to both
parties, the right to take possession of the Collateral with or without demand
and with or without process of law, and the right to sell and dispose of it and
distribute the proceeds according to law. In connection with the right of the
Bank to take possession of the Collateral, the Bank may take possession of any
other items of property in or on the Collateral at the time of taking
possession, and hold them for the Debtor without liability on the part of the
Bank. If there is any statutory requirement for notice, that requirement shall
be met if the Bank sends notice to the Debtor at least seven (7) days prior to
the date of sale, disposition or other event giving rise to the required notice.
The Debtor shall be liable for any deficiency remaining after disposition of the
Collateral.
MISCELLANEOUS.
1. Where the Collateral is located at, used in or attached to a facility leased
by the Debtor, the Debtor will obtain from the lessor a consent to the granting
of this security interest and a subordination of the lessor's interest in any of
the Collateral, in form acceptable to the Bank.
2. At its option the Bank may, but shall be under no duty or obligation to,
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral, pay for insurance on the Collateral, and pay
for the maintenance and preservation of the Collateral, and the Debtor agrees to
reimburse the Bank on demand for any payment made or expense incurred by the
Bank, with interest at the maximum legal rate.
3
<PAGE> 4
3. No delay on the part of Bank in the exercise of any right or remedy shall
operate as a waiver, no single or partial exercise by the Bank of any right or
remedy shall preclude any other exercise of it or the exercise of any other
right or remedy, and no waiver or indulgence by the Bank of any default shall be
effective unless in writing and signed by the Bank, nor shall a waiver on one
occasion be construed as a waiver of that right on any future occasion.
4. If any provision of this agreement is invalid, it shall be ineffective only
to the extent of its invalidity, and the remaining provisions shall be valid and
effective.
5. Notice from one party to another relating to this agreement shall be deemed
effective if made in writing (including telecommunications) and delivered to the
recipient's address, telex number or telecopier number set forth above by any of
the following means: (a) hand delivery, (b) registered or certified mail,
postage prepaid, with return receipt requested, (c) first class or express mail,
postage prepaid, (d) Federal Express, Purolator Courier or like overnight
courier service or (e) telecopy, telex or other wire transmission with request
for assurance of receipt in a manner typical with respect to communications of
that type. Notice made in accordance with this section shall be deemed delivered
on receipt if delivered by hand or wire transmission, on the third business day
after mailing if mailed by first class, registered or certified mail, or on the
next business day after mailing or deposit with an overnight courier service if
delivered by express mail or overnight courier.
6. All rights of the Bank shall inure to the benefit of the Bank's successors
and assigns; and all obligations of the Debtor shall bind the Debtor's heirs,
executors, administrators, successors and assigns. If there is more than one
Debtor, their obligations are joint and several.
7. A carbon, photographic or other reproduction of this agreement is sufficient,
and can be filed as a financing statement. The Bank is irrevocably appointed the
Debtor's attorney-in-fact to execute any financing statement on Debtor's behalf
covering the Collateral.
8. The terms and provisions of this security agreement shall be governed by
Michigan law.
WAIVER OF JURY TRIAL. The Bank and the Debtor knowingly and voluntarily waive
any right either of them have to a trial by jury in any proceeding (whether
sounding in contract or tort) which is in any way connected with this or any
related agreement, or the relationship established under them. This provision
may only be modified in a written instrument executed by the Bank and the
Debtor.
DATED: SEPTEMBER 26, 1998
DEBTOR: AMERICAN DENTAL TECHNOLOGIES, INC.
By: /s/ BEN J. GALLANT
-------------------
Ben J. Gallant
Its: President
---------
ACKNOWLEDGMENT
State of Michigan
County of Oakland
The foregoing instrument was acknowledged before me on September 26, 1998
by Ben J. Gallant, the President of American Dental Technologies, Inc.
/s/ NANCY GILLIE BARRON
---------------------------------------
Notary Public, Oakland County, Michigan
My Commission Expires: 12-19-2000
4
<PAGE> 5
SCHEDULE A
Schedule A to Continuing Security Agreement dated September 26, 1998, between
American Dental Technologies, Inc., a Delaware corporation whose address is
18860 W. Ten Mile Road, Southfield, Michigan 48075-2462 ("Borrower"), and NBD
BANK, a Michigan banking corporation, whose address is 611 Woodward Avenue,
Detroit, Michigan ("Bank").
<TABLE>
<CAPTION>
Application or Registration
Mark No. Country Filing Date
<S> <C> <C>
4,940,411 U.S. April 24, 1989
5,055,048 U.S. March 15, 1990
4,635,897 U.S. March 29, 1985
4,708,534 U.S. February 18, 1986
4,733,503 U.S. May 1, 1986
4,893,440 U.S. May 19, 1989
5,122,060 U.S. May 28, 1991
5,123,845 U.S. May 28, 1991
5,180,304 U.S. December 6, 1991
5,207,576 U.S. April 25, 1989
5,228,852 U.S. March 31, 1992
5,232,367 U.S. February 12, 1992
5,257,935 U.S. April 25, 1989
5,275,561 U.S. April 3, 1992
5,275,564 U.S. February 12, 1992
5,324,200 U.S. December 6, 1991
5,330,354 U.S. March 27, 1992
5,334,019 U.S. December 6, 1991
5,342,198 U.S. May 10, 1993
5,350,299 U.S. March 25, 1993
5,507,739 U.S. June 15, 1992
5,525,058 U.S. July 19, 1994
5,621,745 U.S. December 7, 1994
5,746,596 U.S. June 10, 1996
5,748,655 U.S. February 7, 1996
5,752,829 U.S. August 1, 1994
5,759,031 U.S. June 3, 1996
</TABLE>
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,532,500
<SECURITIES> 0
<RECEIVABLES> 4,144,974
<ALLOWANCES> 150,000
<INVENTORY> 10,510,403
<CURRENT-ASSETS> 16,983,871
<PP&E> 3,824,859
<DEPRECIATION> 1,633,106
<TOTAL-ASSETS> 33,608,968
<CURRENT-LIABILITIES> 2,818,526
<BONDS> 0
0
0
<COMMON> 296,548
<OTHER-SE> 24,983,238
<TOTAL-LIABILITY-AND-EQUITY> 33,608,968
<SALES> 18,462,853
<TOTAL-REVENUES> 18,676,228
<CGS> 8,494,993
<TOTAL-COSTS> 8,494,993
<OTHER-EXPENSES> 7,841,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,871
<INCOME-PRETAX> 2,392,920
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,392,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,392,920
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
