<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q / A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the
Quarter Ended June 30, 1999.
[ ] 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 August 11,
1999:
7,432,047 Shares
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
American Dental Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Equipment $6,211,951 $6,328,522 $12,300,307 $11,940,635
Royalties 356,854 68,391 685,252 163,945
----------- ------------ ------------ -------------
6,568,805 6,396,913 12,985,559 12,104,580
Cost of products sold 3,536,617 2,718,550 6,512,980 5,297,384
------------ ------------ ----------- ------------
Gross profit 3,032,188 3,678,363 6,472,579 6,807,196
Selling, general and administrative 2,597,727 2,491,393 5,480,227 4,651,875
Research and development 209,672 223,497 385,143 398,179
------------ ------------ ----------- ------------
Income from operations 224,789 963,473 607,209 1,757,142
Other income (expense):
Other income 31,957 41,544 41,647 92,879
Interest expense (88,594) (2,620) (176,128) (6,960)
------------ ------------ ----------- ------------
Net income before taxes 168,152 1,002,397 472,728 1,843,061
Income taxes 131,282 --- 307,182 ---
----------- -------------- ----------- --------------
Net income $ 36,870 $ 1,002,397 $ 165,546 $ 1,843,061
=========== ============== =========== ==============
Net income per share $ 0.01 $ 0.14 $ 0.02 $ 0.26
=========== ============== =========== ==============
Net income per share assuming dilution $ 0.01 $ 0.13 $ 0.02 $ 0.25
=========== ============== =========== ==============
</TABLE>
See accompanying notes.
2
<PAGE> 3
American Dental Technologies, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,244,317 $ 1,409,404
Accounts receivable:
Trade, less allowance of $175,000
in 1999 and 1998 3,809,154 4,423,633
Related party 1,463,276 1,143,475
------------- -----------
5,272,430 5,567,108
Inventories 10,626,792 11,225,208
Deferred taxes 1,610,910 1,857,143
Prepaid expenses and other current assets 1,047,636 919,633
Note receivables-related party 120,000 300,000
------------- -----------
Total current assets 19,922,085 21,278,496
Deferred taxes 3,445,476 3,445,476
Property and equipment, net 2,800,051 2,462,747
Intangible assets, net:
Goodwill 12,296,303 12,170,149
Air abrasive technology rights 641,358 730,878
Other 1,651,466 1,667,439
------------- -----------
14,589,127 14,568,466
Other receivable 100,000 100,000
------------- -----------
Total assets $ 40,856,739 $41,855,185
============= ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
American Dental Technologies, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
--------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,661,257 $ 2,877,517
Compensation and employee benefits 262,732 405,850
Other accrued liabilities 590,747 491,180
----------------- ----------------
Total current liabilities 3,514,736 3,774,547
Notes payable 5,150,000 5,950,000
Other non-current liabilities 259,238 321,336
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: 7,432,047
shares in 1999; and 7,409,865 shares in 1998 297,285 296,773
Warrants and options 801,000 772,500
Additional paid-in capital 42,401,407 42,359,016
Accumulated deficit (11,347,683) (11,513,230)
Foreign currency translation (219,244) (105,757)
----------------- ----------------
Total stockholders' equity 31,932,765 31,809,302
---------------- ----------------
Total liabilities and stockholders' equity $ 40,856,739 $ 41,855,185
================ ================
</TABLE>
See accompanying notes.
4
<PAGE> 5
American Dental Technologies, Inc.
Condensed consolidated statements of cash flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1999 1998
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 165,546 $ 1,843,061
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 180,000 85,000
Amortization 701,067 522,996
Deferred income taxes 246,233 ---
Changes in operating assets and liabilities:
Accounts receivable 337,333 76,946
Inventories 682,803 (1,913,737)
Prepaid expenses and other current assets (91,674) 240,169
Notes receivable 180,000 ---
Accounts payable (181,044) 674,691
Compensation and employee benefits (141,903) (7,350)
Other accrued liabilities (72,973) 228
Other non-current liabilities (756,702) (24,403)
--------------- -------------
Net cash provided by operating activities 1,248,686 1,497,601
INVESTING ACTIVITIES:
Purchases of property and equipment (515,303) (737,021)
Increase in intangible assets (141,373) (147,512)
--------------- ---------
Net cash used in investing activities (656,676) (884,533)
FINANCING ACTIVITIES:
Payments on notes payable to bank (800,000) (250,000)
Proceeds from exercise of stock warrants --- 1,564,000
Proceeds from exercise of stock options 42,903 29,665
-------------- ------------
Net cash provided by (used in) financing activities (757,097) 1,343,665
-------------- ------------
Increase (decrease) in cash (165,087) 1,956,733
Cash at beginning of year 1,409,404 1,831,683
-------------- ------------
Cash at end of period $ 1,244,317 $ 3,788,416
============== ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (Unaudited)
1. Basis of Presentation and Other Accounting Information
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
American Dental Technologies, Inc. (the "Company" or "ADT") have been prepared
by management in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for other quarters of 1999
or for the year ended December 31, 1999. 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, 1998.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Finished goods $ 1,605,138 $ 1,255,608
Raw materials, parts and supplies 9,021,654 9,969,600
-------------- -----------------
$ 10,626,792 $ 11,225,208
============== =================
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,924,673 at June
30, 1999 and $1,744,673 at December 31, 1998.
Intangible Assets - Accumulated amortization aggregated $5,052,715 at June 30,
1999 and $4,351,647 at December 31, 1998.
Earnings Per Share - The following table sets forth the computation for basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 36,870 $1,002,397 $ 165,546 $1,843,061
----------- ---------- ----------- ----------
Numerator for basic and diluted earnings
per share - income available to common
stockholders after assumed conversions 36,870 1,002,397 165,546 1,843,061
Denominator:
Denominator for basic earnings per share
- weighted average shares 7,431,796 7,409,376 7,427,688 7,201,812
Effect of dilutive securities:
Employee stock options 23,126 70,760 24,721 71,463
Warrants --- 110,259 --- 112,121
----------- ---------- ----------- ----------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 7,454,922 7,590,395 7,452,409 7,385,396
=========== ========== =========== ==========
Basic earnings per share $ 0.01 $ 0.14 $ 0.02 $ 0.26
=========== ========== =========== ==========
Diluted earnings per share $ 0.01 $ 0.13 $ 0.02 $ 0.25
=========== ========== =========== ==========
</TABLE>
6
<PAGE> 7
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (Unaudited)
Reclassifications - Certain amounts in prior year financial statements have been
reclassified to conform with the presentation used in 1999.
2. Comprehensive Income (Loss)
Total comprehensive income (loss), net of the related estimated tax, was
$(76,617) and $1,001,204 for the three months ended June 30, 1999 and 1998,
respectively, and $52,059 and $1,841,868 for the six months ended June 30, 1999
and 1998, respectively.
3. Segment Reporting
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, for the year ended December 31, 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of the enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance.
The Company develops, manufactures, markets and sells high technology dental
products, such as air abrasive equipment, lasers, curing lights and intra oral
cameras. The Company sells these products to national and regional dental
distributors in its four fundamental business segments: North America, Japan,
Europe and Other International. The reportable segments are managed separately
because selling techniques and market environments differ from country to
country. The remaining activities of the Company, which are reported as "Other",
include industrial, parts and accessories and royalty income.
The accounting policies of the business segments are consistent with those
described in Note 1. The Company's Chief Operating Decision Maker evaluates
segmental performance and allocates resources based on operational earnings
(gross profit less selling and marketing expenses).
7
<PAGE> 8
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1999 1998
---------------------------------------------
<S> <C> <C>
Revenues:
North America $ 7,848,143 $ 9,090,483
Europe 1,118,662 522,846
Japan 2,136,500 1,330,000
Other international 16,200 136,085
--------------- -------------
$ 11,119,505 $ 11,079,414
=============== =============
Reconciliation of revenues:
Total segment revenues $ 11,119,505 $ 11,079,414
Other 1,866,054 1,025,166
--------------- -------------
Total revenues $ 12,985,559 $ 12,104,580
=============== ============
Operational earnings (loss):
North America $ 647,160 $ 2,615,158
Europe (45,434) (82,125)
Japan 1,004,155 627,238
Other international 8,375 50,653
--------------- -------------
$ 1,614,256 $ 3,210,924
=============== =============
Reconciliation of operation earnings
to income from operations:
Total segment operational earnings $ 1,614,256 $ 3,210,924
Other operational earnings 1,442,653 565,023
Research & development expenses (385,143) (398,180)
Administrative expenses (2,064,557) (1,620,625)
--------------- ------------
Income from operations $ 607,209 $ 1,757,142
=============== =============
<CAPTION>
June 30, 1999 December 31, 1998
--------------- -----------------
<S> <C> <C>
Long lived assets (excluding deferred taxes):
North America $ 16,573,722 $ 16,265,245
Europe 15,450 15,968
Other international 800,006 850,000
--------------- -------------
$ 17,389,178 $ 17,131,213
=============== =============
</TABLE>
4. Litigation
On December 20, 1996, American Dental filed a lawsuit against Kreativ, Inc.
("Kreativ") and two individuals in the United States District Court for the
Eastern District of Michigan, Southern Division. In February 1999, the Company
was awarded $635,203 in damages, plus attorney fees and interest. On August 2,
1999, the Company settled the judgment it had been awarded against Kreativ by
the Federal District Court in Michigan for false advertising violations of the
Lanham Act. Kreativ paid the Company $582,500 in settlement of the previously
awarded judgment which was recorded by the Company in August of 1999.
On July 7, 1997 and May 5, 1998, the Company filed lawsuits against Kreativ in
the United States District Court for the Southern District of Texas alleging
infringement of U.S. Patents. These claims were dismissed and the Company
appealed the dismissal. On June 10, 1999, the Company reached a settlement with
Kreativ on the two lawsuits the Company had filed against Kreativ alleging
patent infringement and which were on appeal. Kreativ paid the Company $300,000
and was granted a paid up license under the patents-in-suit. The Company
recorded this royalty during the three month period ended June 30, 1999.
The Company is not currently involved in any litigation.
8
<PAGE> 9
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (Unaudited)
5. Restatement
The Company has restated its previously reported net income for the three and
six month periods ended June 30, 1999 for the correction of an error. The effect
of the correction was to reduce net income by approximately $430,000 for the
three and six month periods ended June 30, 1999 or $0.05 and 0.06 per share for
the respective periods.
9
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward Looking Statements
The following discussion and analysis contains statements which 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, the extent to which competition may negatively
affect prices and sales volumes or necessitate increased sales expenses, and any
other uncertainties described in the discussion below.
Results of Operations
For the three month period ended June 30, 1999, the Company earned
$36,870 compared to $1,002,397 in the same period in 1998. For the six month
period ended June 30, 1999, the Company earned $165,546 compared to $1,843,061
for the same period in 1998. Net income in 1999 includes recognition of income
tax expense of $131,282 and $307,182 for the three and six month periods ended
June 30, 1999, respectively. In 1998, the Company offset current income tax
expense with a deferred income tax benefit related to net operating loss
carryforwards that were previously reserved.
The Company had revenues of $6,568,805 for the three month period ended
June 30, 1999 as compared to $6,396,913 for the same period in 1998. The Company
had revenues of $12,985,559 for the six month period ended June 30, 1999 as
compared to $12,104,580 for the same period in 1998. The increases in revenues
are due to a strong increase in international sales, partially offset by a
decline in North American sales. The decline in North American sales is
primarily attributable to the liquidation of dealer inventories. An overall
increase in revenues for 1999 will be primarily dependent on a return of higher
air abrasion sales after the liquidation of dealer inventories. Management is
actively working to liquidate dealer inventories in North America and stimulate
air abrasion sales.
Royalty income increased $288,463 for the three month period ending June
30, 1999, compared to the same period in 1998. Royalty income increased $521,307
for the six month period ending June 30, 1999 as compared to the same period in
1998. These increases are due to the licensing agreement with ESC Medical
Systems, Ltd. recorded in the first quarter of 1999 and the settlement of
$300,000 from Kreativ, Inc. regarding patent litigation recorded during the
second quarter of 1999.
Gross profit as a percentage of revenues was 46% and 50% for the three
and six month periods ended June 30, 1999 compared to 58% and 56% for the same
periods in 1998. The gross profit decline during 1999 compared to 1998 is
primarily attributable to sales in 1999 of camera systems which generally have
lower gross margins than the other products of the Company.
Selling, general and administrative expenses increased $106,334 or 4% and
$828,352 or 18% for the three and six month periods ended June 30, 1999 compared
to the same periods in 1998. These increases are primarily due to increased
selling, marketing, and general and administrative expenses related to the
camera business acquired from Dental Vision Direct ("DVD") in August 1998 and
amortization of goodwill also related to the camera business. Management expects
sales and marketing costs to return to historical norms in the second half of
the year.
Interest expense increased by $85,974 and $169,168 for the three and six
month periods ended June 30, 1999. The increase during 1999 is primarily due to
increased borrowings on the Company's revolving line of credit which was
primarily used to fund the acquisition of the camera business.
10
<PAGE> 11
Liquidity and Capital Resources
The Company's operating activities provided $1,248,686 in cash resources
during the six month period ended June 30, 1999. The cash provided by operations
in 1999 was primarily due to net income of $165,546, decreases in accounts
receivable of $337,333, inventories of $682,803, notes receivable of $180,000
and $1,127,300 of non-cash expenses including depreciation, amortization and
deferred taxes. Cash provided by operating activities was reduced primarily by
decreases in accounts payable of $181,044, compensation and employee benefits of
$141,903, other non-current liabilities of $756,702.
The Company's investing activities used $656,676 in cash resources during
the six month period ended June 30, 1999. The cash used in investing activities
in 1999 related primarily to the expansion of the manufacturing facility in
Corpus Christi, Texas.
The Company's financing activities used $757,097 in cash resources during
the six month period ended June 30, 1999. The cash used in financing activities
was primarily used to reduce borrowings on the Company's revolving line of
credit.
The Company has 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 June 30, 1999) 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
June 30, 1999, the Company had $5,150,000 outstanding and $2,350,000 available
under this line of credit.
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.
Year 2000 Issue
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
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 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. In April 1999, the Company upgraded its business software
and believes that it is Year 2000 compliant. The Company expects to be able to
complete the remaining Year 2000 remediation by the end of the August 1999 and
believes that all of 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 $50,000, will be expensed as incurred and is not
expected to have a significant impact on the Company's ongoing results of
operations. Through June 30, 1999, the Company incurred approximately $40,000
attributable to Year 2000 remediation.
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 August 1999 and has determined it has no material
exposure to contingencies related to the Year 2000 issue for the products it has
sold. The Company has substantially completed its contingency plan after
assessing which third parties are most likely to have an adverse effect on the
Company and continues to review potential exposure. The plan is expected to be
complete by the end of 1999. Some material adverse effect could result despite
such contingency planning.
11
<PAGE> 12
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. The disclosure in this section contains information
regarding Year 2000 readiness which constitutes "Year 2000 Readiness Disclosure"
as defined in the Year 2000 Readiness Disclosure Act.
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit Description
Exhibit 10.58 Patent licensing agreement dated June 10, 1999 between
American Dental Technologies, Inc. and Kreativ, Inc.
Exhibit 27 Financial Data Schedule
- ---------------
(b) There were no Form 8-Ks filed during the quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused amendment to this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN DENTAL TECHNOLOGIES, INC.
By: Ben J. Gallant
Dated: November 15, 1999 Chief Executive Officer
By: Barbara A. Danieli
Chief Financial Officer
(Principal Financial Officer and
Dated: November 15, 1999 Principal Accounting Officer)
13
<PAGE> 14
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
10.58 Patent licensing agreement dated June 10,
1999 between American Dental Technologies,
Inc. and Kreativ, Inc.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.58
Patent License, Dismissal of Lawsuits and Universal Release
WHEREAS: Kreativ, Inc. ("KREATIV") desires to obtain a license under
certain patents and patents pending which are owned by American Dental
Technologies, Inc. ("ADT"), and ADT is willing to license such patents to
KREATIV.
NOW THERFORE, the parties agree as follows:
1. Excluding ADT's non-dental patents as set forth below, ADT hereby
grants to KREATIV, a nonexclusive, fully paid-up, royalty free, irrevocable
license under all patents and patent applications owned by or assigned to ADT
which relate to air abrasive dentistry and are in existence on the date of this
Agreement, including but not limited to U.S. Patent No. 5,275,561 and U.S.
patent No. 5,330,354, U.S. Patent No. 5,350,299, U.S. Patent No. 5,525,058, and
U.S. Patent No. 5,746,596 and any foreign counterpart, extension,
re-examination, reissue, continuation, continuation-in-part and divisional
patents and patent applications based on the disclosures of the patents listed
in this paragraph 1 which now exist or hereafter may be filed, for the life of
such patents and patent applications to engage in any and all activities covered
by such patents and patent applications with respect to any apparatuses of
methods relating to air abrasive dentistry throughout the world; but excluding
Japan, presently covered by agreements between ADT and Denics Co., Ltd., a/k/a
Dental Innovative Corporation, a Japanese corporation. Kreativ may not assign
this license, except in connection with the sale or merger of the company or its
air abrasion business. Kreativ may not grant sub-licenses to any party or
entity.
The following industrial patents, along with continuations-in-part
applications, foreign counterparts, re-examinations and reissues, of ADT are
excluded from this Agreement: U.S. Patent No. 4,893,440, U.S. Patent No.
4,733,503, U.S. Patent No. 4,708,534 and U.S. Patent No. 4,635,897. ADT
stipulates that the past and present Kreativ air abrasive units do not infringe
on the above listed patents.
Payments
2. KREATIV will pay ADT Three Hundred Thousand ($300,000) Dollars upon
execution of this Agreement.
Japan
3. In the event ADT acquires patent rights for Japan, this license will
extend to Japan.
<PAGE> 2
Confidentiality
4. The terms of this Agreement shall be maintained in strict confidence
and not disclosed to any person, except that (i) each party may advise
prospective licensees or customers (without revealing any of the specific terms)
that this license has been granted, (ii) each party may disclose the terms of
this Agreement if and to the extent compelled to do so by a court or authorized
governmental agency or otherwise required by law to do so, provided such party
provides the other party with at least ten (1) days written notice of its intent
to make such compelled disclosure, so that the other party may oppose such
disclosure or seek a protective order limiting or setting terms in connection
therewith before such court or governmental agency, (iii) each party may
disclose the terms of this Agreement to the extent necessary in any proceeding
to enforce any of the terms of this Agreement, and (iv) each party may disclose
the terms of this Agreement to its officers, directors, legal advisors, and
accountants who have a need to know the same and who agree to be bound by the
confidentiality obligations of this Agreement.
Notice
5. All notices required to be given under this Agreement shall be given
in writing and shall be sent by regular mail, postage prepaid, certified mail
or by recognized overnight express mail service to the parties at the addresses
indicated.
If to ADT, to:
Ben J. Gallant, President and Chief Executive Officer
American Dental Technologies, Inc.
5555 Bear Lane
Corpus Christi, TX 78405
Tel: (512) 289-1145/Fax: (512) 289-5554
If to KREATIV to:
Legal Department
Welch Allyn, Inc.
4341 State Street Road
Skaneateles Falls, NY 13153
Effect of Notices
6. A notice sent pursuant to paragraph 5 of this Agreement shall be
deemed given on the date it is mailed, unless the intended recipient can
establish that such notice was not timely received.
<PAGE> 3
Validity of Patents
7. KREATIV hereby confirms the validity of the patents set forth in
Paragraph 1, and will not take any action to challenge the validity of such
patents.
Governing Law
8. This Agreement shall be governed by the laws of the State of New York
without regard to its conflict of laws and principles.
Warranties
9. Both parties represent that their undersigned representatives have
the full power and authority to enter into this Agreement. ADT represents and
warrants that it has the right and power to grant the license of paragraph 1 of
this Agreement, but makes no other warranties whatsoever regarding the patents
so licensed. KREATIV acknowledges the validity of the patents covered by this
Agreement and agrees that it will not challenge the validity, or institute any
proceeding which may adversely affect the validity of the patents covered by
this Agreement.
Relationship of Parties
10. This Agreement is not intended by the parties to, and shall not,
constitute or create a joint venture, partnership or other business organization
and neither party shall be nor shall act as an agent of the other party.
Neither party shall use the other party's name in any marketing efforts.
Severability
11. The invalidity of any provision of this Agreement shall not affect
the validity of any other provision of this Agreement.
Complete Agreement
12. This Agreement constitutes the entire agreement of the parties
regarding this subject matter and supersedes any and all prior or
contemporaneous oral or written agreements, understandings, negotiations or
discussions among the parties regarding this subject matter. Any amendment or
other modifications to this Agreement must be made in writing and must be duly
executed by an authorized representative or agent of each party.
<PAGE> 4
Counterparts
13. This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
Permitted Successors and Assigns
14. This Agreement, and all provisions herein, shall bind the parties and
their permitted successors and permitted assigns.
Dismissal of Lawsuits with Prejudice, Fees and Costs
15. The parties hereby authorize a dismissal with prejudice of the two
lawsuits between them originally filed in the United States District Court for
the Southern District of Texas, case numbers C-97-374 and C-98-181, now on
appeal to the Federal Circuit (the "Lawsuits"). The Lawsuits shall be dismissed
with prejudice and each party shall bear its own fees and costs including
attorney fees and the implementation of any action agreed to under this
Agreement.
Universal Release
16. Each party hereby forever generally and completely releases and
discharges the other party and its servants, agents, directors, officers and
employees, and all others, including distributors, representatives and
customers, of and from any and all claims and demands of every kind and nature,
known and unknown, suspected and unsuspected, disclosed and undisclosed, and in
particular of and from all claims and demands of every kind and nature, known
and unknown, suspected and unsuspected, disclosed and undisclosed, for damages
actual and consequential, past, present and future, arising out of or in any way
related to their respective obligations, activities and/or dealings with one
another at any time prior to the date hereof, including (without limitation) all
such claims and demands arising out of or in any way related to the Lawsuits.
THIS RELEASE DOES NOT RELEASE EITHER PARTY FROM ANY LIABILITY FOR ANY OF
THE CLAIMS OR CAUSES OF ACTON ALLEGED IN THE LAWSUIT ENTITLED AMERICAN DENTAL
TECHNOLOGIES, INC. v. KREATIV, INC., CASE NO. 96-40454 ORIGINALLY FILED IN THE
UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF MICHIGAN, SOUTHERN DIVISION
AND SHALL NOT BE CONSTRUED TO REFER OR AFFECT SUCH LAWSUIT IN ANY MANNER
WHATSOEVER, EXCEPT THAT ADT RELEASES KREATIV FROM ANY LIABILITY OR OBLIGATION TO
PAY ANY AMOUNT TO ADT WHICH IS NOT COVERED AND PAID BY KREATIV'S INSURANCE
CARRIER.
<PAGE> 5
AMERICAN DENTAL TECHNOLOGIES, INC. KREATIV, INC.
/s/ Ben J. Gallant /s/ Michael Stone
- ------------------------------------ --------------------------------
Ben J. Gallant By: Michael Stone
President and Chief Executive Officer -----------------------------
Date: 6/10/99 Title: Vice President
------------------------------- --------------------------
Date: 6/10/99
---------------------------
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