<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-23092
NATIONAL DENTEX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2762050
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
526 BOSTON POST ROAD, WAYLAND, MA 01778
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(508) 358-4422
(REGISTRANT'S TELEPHONE NO., INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 15, 2000, the aggregate market value of the 3,453,112
outstanding shares of voting stock held by non-affiliates of the registrant was
$59,134,543.
As of February 15, 2000, 3,551,083 shares of the registrant's Common Stock,
par value $.01 per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the Registrant's Special
Meeting in Lieu of Annual Meeting of Stockholders to be held on April 4, 2000 is
incorporated by reference into Part III.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
National Dentex Corporation (the "Company") was founded in 1982 as H&M
Laboratories Services, Inc., a Massachusetts corporation, which acquired six
full-service dental laboratories and related branch laboratories from Healthco,
Inc. In 1983, the Company changed its name to National Dentex Corporation and
acquired 20 additional full-service dental laboratories and related branch
laboratories from Lifemark Corporation. The Company today owns and operates 31
dental laboratories, consisting of 26 full-service dental laboratories and five
branch laboratories located in 22 states throughout the United States. The
Company's dental laboratories custom design and fabricate dentures, crowns and
fixed bridges, and other dental prosthetic appliances. Each dental laboratory
operates under its own business name. The Company's principal executive offices
are located at 526 Boston Post Road, Wayland, MA 01778, telephone number (508)
358-4422. Its corporate web site is located at www.nadx.com.
INFORMATION AS TO INDUSTRY SEGMENTS
The Company's business consists of only one industry segment, which is the
design, fabrication, marketing and sale of custom dental prosthetic appliances
for and to dentists.
DESCRIPTION OF BUSINESS
The Company's dental laboratories design and fabricate custom dental
prosthetic appliances such as dentures, crowns and bridges. These products are
produced by trained technicians working primarily in dental laboratories in
accordance with work orders and cases (consisting of impressions, models and
occlusal registrations of a patient's teeth) provided by the dentist. Dentists
are the direct purchasers of the Company's products.
The Company's products are grouped into the following three main
categories:
Restorative Products. Restorative products sold by the Company's
dental laboratories consist primarily of crowns and bridges. A crown
replaces the part of a tooth which is visible, and is usually made of gold
or porcelain. A bridge is a restoration of one or more missing teeth which
is permanently attached to the natural teeth or roots. In addition to the
traditional crown, the Company also makes porcelain jackets, which are
crowns constructed entirely of porcelain; onlays, which are partial crowns
which do not cover all of the visible tooth; and precision crowns, which
are restorations designed to receive and connect a removable partial
denture. The Company also makes inlays, which are restorations made to fit
a prepared tooth cavity and then cemented into place.
Reconstructive Products. Reconstructive products sold by the
Company's dental laboratories consist primarily of partial dentures and
full dentures. Partial dentures are removable dental prostheses which
replace missing teeth and associated structures. Full dentures are dental
prostheses which substitute for the total loss of teeth and associated
structures. The Company also sells precision attachments, which connect a
crown and an artificial prosthesis, and implants, which are fixtures
anchored securely in the bone of the mouth to which a crown, partial or
full denture is secured by means of screws or clips.
Cosmetic Products. Cosmetic products sold by the Company's dental
laboratories consist primarily of porcelain veneers and ceramic crowns.
Porcelain veneers are thin coverings of porcelain cemented to the front of
a tooth to enhance personal appearance. Ceramic crowns are crowns made from
ceramic materials which most closely replicate natural teeth. The Company
also sells composite inlays and onlays, which replace silver fillings for a
more natural appearance, and orthodontic appliances, which are products
fabricated to move existing teeth to enhance function and appearance.
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LABORATORY AND CORPORATE OPERATIONS
The Company's full-service dental laboratories design and fabricate a full
range of custom-made dental prosthetic appliances. These custom products are
manufactured from raw materials, such as high noble, noble and predominantly
base alloys, dental resins, composites and porcelain. There are different
production processes for the various types of prosthetic appliances depending
upon the product and the materials used in the type of appliance being
fabricated, each of which requires different skills and levels of training. The
Company's dental laboratories perform numerous quality control checks throughout
the production cycle to improve the quality of its products and to make certain
the design and appearance satisfy the needs of the dentist and the patient. The
Company's branch dental laboratories are smaller in size and offer a limited
number of products. When a branch receives an order that it cannot fill, the
branch refers the business to its affiliated full-service dental laboratory.
The Company operates each of its dental laboratories as a stand-alone
facility under the direction of a local manager responsible for operation of the
dental laboratory, supervision of its technical and sales staff and delivery of
quality products and services. Each of the Company's dental laboratories markets
and sells its products through its own direct sales force, supported by regional
sales managers and Company-wide marketing programs. Employees at each dental
laboratory have a direct stake in the financial success of the dental laboratory
through participation in the Company's cash and stock incentive plans.
The Company's corporate management provides overall strategy, direction and
financial management for the Company and negotiates all acquisitions. Corporate
personnel also support the operations of its dental laboratories by performing
functions which are not directly related to the production and sale of dental
laboratory products, such as processing payroll and related benefit programs,
obtaining insurance and procuring financing. The Company's corporate management
provides marketing, financial and administrative services, negotiates
Company-wide purchasing arrangements, and sets quality and performance standards
for the dental laboratories.
SALES AND MARKETING
The Company's local dental laboratories market and sell their products
through their own direct sales force. The sales force interacts with dentists
within its market area, primarily through visits to dentists' offices, to
introduce the dental laboratory's services and products offered, and to promote
new products and techniques that can assist dentists in expanding their
practices. The Company has developed a customer-focused marketing and sales
program entitled "Knowledge Based Relationships".(TM) The Company believes that
this unique approach to assist the dentist and his or her staff to improve
chairtime efficiencies will enhance its ability to expand its base of business
by establishing lasting professional relationships with its customers. The
Company presently has a total of 21 sales representatives. In addition, the
dental laboratories, either alone or with local dental societies, dental schools
or study clubs, sponsor technical training clinics for dentists on topics such
as advanced clinical techniques. The local dental laboratories also exhibit at
state and local dental conventions.
COMPETITION
The dental laboratory industry is highly competitive and fragmented. A
typical dental laboratory's business originates from dentists located within 50
miles of the dental laboratory. There are approximately 12,000 dental
laboratories in the United States, ranging in size from one to approximately 200
technicians. The Company estimates that presently its sales represent less than
3% of the total sales of custom-made dental prosthetic appliances in the United
States. Competition is primarily from other dental laboratories in the
respective local market areas. The vast majority of dental laboratories consist
of single units, although the Company believes there is one national chain,
Dental Services Group -- Sentage Corporation, which competes with the Company in
two market areas. There is also limited competition from mail order dental
laboratories.
Most dentists use a limited number of dental laboratories, relying on those
laboratories which produce quality products delivered on a timely basis and
which carry all of the products which the dentist may need,
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even if a particular item is a newer specialty product used only sporadically by
the dentist. While price is one of the competitive factors in the dental
laboratory industry, the Company believes that most dentists consider product
quality and service to be more important. The Company believes that it competes
favorably with respect to these factors. The Company considers that its ability
to produce quality products locally and to deliver such products on a timely
basis, the breadth of its product line, the use of innovative marketing
programs, and its sponsorship of educational clinics provide a competitive
advantage over other dental laboratories in the local markets in which its
dental laboratories operate. The Company's ability to provide newer specialty
products for implantology, adult orthodontics and cosmetic dentistry, which
require highly skilled technicians, more extensive inventories, additional
working capital, and investment in both training and capital equipment, also
distinguishes it from many smaller dental laboratories which do not have
comparable resources to provide these products. While such specialty products
presently represent less than 20% of the Company's business, the Company
believes that the ability to offer these products is essential for dental
laboratories to remain competitive.
EMPLOYEES
As of December 31, 1999, the Company had 1,241 employees, 1,220 of whom
worked at individual laboratories. Corporate management and administrative staff
totaled 21 people. None of the Company's employees is covered by a collective
bargaining agreement. Management considers the Company's employee relations to
be good.
INTELLECTUAL PROPERTY
The Company's general technological know-how and experience are important
to the conduct of the Company's business. The Company has several trademarks and
licenses to use trademarks, but does not deem any of such trademarks or licenses
to be material to the conduct of its business. Each of its dental laboratories
operates under its own trade name, and the Company considers these trade names
to be important to the goodwill of its dental laboratories.
ITEM 2. PROPERTIES
The Company currently leases a total of approximately 157,000 square feet
of space. As of December 31, 1999, the aggregate minimum annual rent payable for
all of its leased real properties was approximately $1,319,000. The Company
considers these properties to be modern, well maintained and suitable for its
purposes and believes that its current facilities are adequate to meet its needs
for the foreseeable future. The Company also believes that suitable substitute
or replacement space is readily available. The Company's principal executive and
administrative offices occupy approximately 10,200 square feet of space in
Wayland, Massachusetts. Its 25 leased dental laboratories range in size from
1,000 to 21,000 square feet and average $49,000 in annual base rent.
The Company owns six dental laboratory facilities, which are located in
Denver, Colorado; Metairie, Louisiana; Dallas, Texas; Houston, Texas;
Jacksonville, Florida; and Waukesha, Wisconsin. These locations total
approximately 70,000 square feet and range in building size from 4,000 to 20,000
square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect upon the operations or financial condition of the
Company and will not disrupt the normal operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.01 par value, is traded on the
over-the-counter market, on the Nasdaq National Market System, under the symbol
"NADX". The following table presents low and high bid information for the time
periods specified. The over-the-counter market quotations reflect inter-dealer
prices, without retail markup, markdown or commission and may not necessarily
represent actual transactions. The over-the-counter market quotations have been
furnished by the Nasdaq Stock Market, Inc. Trading in the Company's Common Stock
commenced on December 21, 1993.
<TABLE>
<CAPTION>
PRICE
-------------------
QUARTER ENDING LOW BID HIGH BID
-------------- ------- --------
<S> <C> <C>
03/31/98................................................. $21.000 $25.750
06/30/98................................................. $21.000 $26.750
09/30/98................................................. $15.000 $24.000
12/31/98................................................. $14.500 $19.000
03/31/99................................................. $14.500 $19.500
06/30/99................................................. $12.438 $17.250
09/30/99................................................. $15.375 $18.125
12/31/99................................................. $16.000 $18.625
</TABLE>
The Company has paid no cash dividends in the past and has no plans to pay
cash dividends in the foreseeable future.
As of February 15, 2000, there were approximately 375 registered record
holders of the Company's Common Stock, which the Company believes represented
approximately 1,375 beneficial holders. As of February 15, 2000, the low and
high bid prices of the Common Stock were each $17.125.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1999 are derived from the audited consolidated financial statements of the
Company. The data should be read in conjunction with the consolidated financial
statements and the related notes included in this Report and in conjunction with
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME:
Net sales................................ $44,283 $51,971 $59,196 $63,817 $69,639
Cost of goods sold....................... 24,853 29,627 33,755 36,697 40,396
------- ------- ------- ------- -------
Gross profit............................. 19,430 22,344 25,441 27,120 29,243
Total operating expenses................. 14,440 16,462 18,370 19,545 20,803
------- ------- ------- ------- -------
Operating income......................... 4,990 5,882 7,071 7,575 8,440
Other income (expense)................... 187 141 69 18 (57)
Interest income.......................... 234 131 81 187 336
------- ------- ------- ------- -------
Income before provision for income
taxes.................................. 5,411 6,154 7,221 7,780 8,719
Provision for income taxes............... 2,167 2,449 2,874 3,097 3,457
------- ------- ------- ------- -------
Net income............................... $ 3,244 $ 3,705 $ 4,347 $ 4,683 $ 5,262
======= ======= ======= ======= =======
Net income per share -- basic............ $ 1.02 $ 1.09 $ 1.26 $ 1.34 $ 1.48
======= ======= ======= ======= =======
Net income per share -- diluted.......... $ 0.95 $ 1.06 $ 1.24 $ 1.32 $ 1.48
======= ======= ======= ======= =======
Weighted average shares
outstanding-basic...................... 3,175 3,414 3,454 3,486 3,544
Weighted average shares
outstanding-diluted.................... 3,427 3,509 3,517 3,560 3,566
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................... $ 7,557 $ 9,859 $ 9,611 $13,652 $16,713
Total assets............................. 28,202 30,234 35,730 42,470 49,205
Long-term debt, including current
portion................................ 298 204 -- -- --
Stockholders' equity..................... $19,956 $24,036 $28,669 $33,877 $39,549
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased from $13,652,000 at December 31,
1998 to $16,713,000 at December 31, 1999. Cash and equivalents increased
$2,689,000 from $8,526,000 at December 31, 1998 to $11,215,000 at December 31,
1999. Operating activities provided $5,695,000 in cash flow for the year ended
December 31, 1999. Inventories increased $503,000 from December 31, 1998. The
increase in inventory was attributable to the acquisition of dental laboratories
and the increased cost of palladium, a component of many dental alloys.
Cash outflows related to dental laboratory acquisitions totaled $2,680,000
for the year ended December 31, 1999. Capital expenditures for the same period
were $1,752,000. The Company expects that increases in capital expenditures, if
any, will be in proportion with increasing revenues.
The Company maintains a financing agreement (the "Agreement") with Citizens
Bank of Massachusetts (formerly State Street Bank and Trust Company) (the
"Bank"). The Agreement, as amended and extended on June 27, 1997, includes
revolving lines of credit of $4,000,000 and $8,000,000. The interest rate on
both revolving lines of credit is the prime rate minus 0.5% or LIBOR rate plus
1.5%, at the Company's option. Both revolving lines of credit mature on June 1,
2001. A commitment fee of one eighth of 1% is payable on the unused amount of
both lines of credit. At December 31, 1999, the full principal amount was
available to the Company under both revolving lines of credit. The Agreement
requires compliance with certain covenants, including the maintenance of net
worth and other financial ratios. As of December 31, 1999, the Company was in
compliance with these covenants.
Management believes that cash flow from operations and existing financing
will be sufficient to meet contemplated operating and capital requirements,
including costs associated with anticipated acquisitions, if any, in the
foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items in the Company's Consolidated Financial
Statements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 57.0 57.5 58.0
----- ----- -----
Gross profit................................................ 43.0 42.5 42.0
Total operating expenses.................................... 31.0 30.6 29.9
----- ----- -----
Operating income............................................ 12.0 11.9 12.1
Other income (expense)...................................... 0.1 0.0 (0.1)
Interest income............................................. 0.1 0.3 0.5
----- ----- -----
Income before provision for income taxes.................... 12.2 12.2 12.5
Provision for income taxes.................................. 4.9 4.9 5.0
----- ----- -----
Net income.................................................. 7.3% 7.3% 7.5%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net Sales
For the year ended December 31, 1999, net sales increased $5,822,000 or
9.1% over the prior year. Approximately $4,285,000 of this increase was
attributable to business at dental laboratories owned less than one year, with
the remaining increase representing sales growth at dental laboratories owned
both the year ended December 31, 1999 and the comparable year ended December 31,
1998.
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Cost of Goods Sold
The Company's cost of goods sold increased by $3,699,000 or 10.1% in the
fiscal year ended December 31, 1999 over the prior fiscal year, attributable
primarily to increased unit sales. As a percentage of sales, cost of goods sold
increased from 57.5% to 58.0%. Increases in labor and material costs were
partially offset by decreases in laboratory overhead expenses. The continued
rising cost of palladium, a component of dental alloys used in the manufacture
of many of the Company's products, continues to be a factor in the increased
material costs. The average cost of this "noble" metal rose 26% in 1999 over the
average cost during 1998. During 1998 the Company attempted to address this
issue in each marketplace by instituting price increases, temporary surcharges
and the use of substitute metals. Since the cost of this commodity shows no sign
of returning to historical levels, each of the Company's laboratories has begun
a program to either switch its current noble metal customers to "high noble"
metals, such as gold, or to make the surcharges permanent by eliminating all
unit pricing and charging a fee per unit plus metal.
Total Operating Expenses
Operating expenses, which consist of selling, delivery and administrative
expenses both at the laboratory and corporate level, increased by $1,258,000 or
6.4% in the year ended December 31, 1999 over 1998. During this same period
operating expenses decreased as a percentage of net sales from 30.6% in 1998 to
29.9% in 1999.
Operating Income
Due to the increase in net sales and a reduction in operating expenses as a
percent of net sales, operating income increased $865,000 or 11.4% in fiscal
year 1999 over fiscal year 1998.
Interest (Income) Expense
Interest income increased by $149,000 in the year ended December 31, 1999
from 1998. The increase was due to increased investment principal and rising
interest rates.
Provision for Income Taxes
The provision for income taxes increased to $3,456,000 in 1999 from
$3,096,000 in 1998. This $360,000 increase was the result of increased income.
The 39.8% effective tax rate for fiscal year 1998 declined to 39.6% for fiscal
year 1999.
Net Income
As a result of all the factors discussed above, net income increased to
$5,262,000 or $1.48 per share on a diluted basis in 1999 from $4,683,000 or
$1.32 per share on a diluted basis in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net Sales
Net sales increased $4,621,000 or 7.8% for the year ended December 31, 1998
over the year ended December 31, 1997. Approximately $3,014,000 of this increase
was attributable to business at dental laboratories owned less than one year,
with the remaining increase representing sales growth at dental laboratories
owned both the year ended December 31, 1998 and the comparable year ended
December 31, 1997.
Cost of Goods Sold
Cost of goods sold, which consists principally of labor and related
benefits, cost of materials, and laboratory overhead, increased by $2,942,000.
As a percentage of sales, cost of goods sold increased from 57.0% to 57.5%,
representing a gross margin decrease of 0.5%. Increases in materials costs
(primarily the
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increased cost of palladium, as discussed above) and laboratory overhead
expenses were partially offset by improvements in labor productivity.
Total Operating Expenses
Total operating expenses, which consist of (i) selling expenses, the cost
of the Company's pick-up and delivery services and administrative expenses at
the dental laboratory level, (ii) costs of operation by the Company's corporate
headquarters and field support services and (iii) amortization expense,
increased by $1,175,000 or 6.4% during the year ended December 31, 1998 over the
corresponding period in 1997. This increase was primarily attributable to the
operating and amortization expenses associated with acquired dental
laboratories.
Operating expenses decreased as a percentage of net sales from 31.0% to
30.6% during the year ended December 31, 1998 compared with the corresponding
period in 1997.
Operating Income
Operating income increased by $504,000 or 7.1% for the year ended December
31, 1998 over the corresponding period in 1997. The increase was the result of
higher sales volume and reductions in operating expenses as a percentage of net
sales, partially offset by an increase in cost of goods sold.
Interest Income
Interest income increased by $106,000 or 130.9% in the year ended December
31, 1998 over the corresponding period in 1997. The increase was primarily due
to increased investment principal, partially offset by declining interest rates.
Provision for Income Taxes
The Company's provision for income taxes for the year ended December 31,
1998 increased to $3,096,000 from $2,874,000 in the corresponding period in
1997. The effective tax rate remained constant at 39.8%.
Net Income
As a result of the factors discussed above, net income for the year ended
December 31, 1998 increased by $337,000 or 7.7% over the corresponding period in
1997. Net income per share, on a diluted basis, increased from $1.24 per share
to $1.32 per share.
YEAR 2000 (Y2K) COMPLIANCE
The Company has suffered no material adverse effects from Year 2000 ("Y2K")
compliance issues following the date change on January 1, 2000.
Information Technology Issues
The central focus of the Company's Y2K plan was to mitigate the data
processing issues. The areas that needed to be addressed were the Company's
centralized corporate financial systems along with individual laboratory billing
systems. The corporate systems embody the Company's general ledger and accounts
payable systems. The laboratory systems handle production scheduling, billing
and accounts receivable. Purchasing and inventory control records are generally
kept manually.
With respect to its central corporate financial systems, the Company
licensed and installed an upgrade from an existing vendor. While the vendor had
represented that the software was Y2K compliant, the Company completed its own
testing to gain further confidence in the vendor's representations.
The Company had also licensed an upgrade for each laboratory system. The
Company successfully implemented the upgrade at all of its locations by June
1999. While the vendor had represented that the
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software was Y2K compliant, the Company performed its own internal testing and
discovered programming errors, which were subsequently corrected by the vendor.
The costs of both the upgrade of the central corporate financial systems
and the laboratory systems of approximately $60,000 have been incurred and will
be amortized according to standard Company practice over an estimated useful
life of five years.
Business Partners
The Company has not experienced any material delays in raw materials
shipments as a result of Y2K difficulties affecting its suppliers.
Embedded Systems
The Company's laboratory manufacturing equipment, building systems,
communications equipment and other systems have not experienced any material
malfunctions due to Y2K issues.
GENERAL
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that could affect capital expenditures, the Company's
requirements for capital, the costs associated with anticipated acquisitions and
the Company's results of operations include general economic conditions, the
availability of laboratories for purchase by the Company, the ability of the
Company to acquire and successfully operate additional laboratories,
governmental regulation of health care, trends in the dental industry towards
managed care, other factors affecting patient visits to the Company's clients,
increases in labor and materials costs and other risks indicated from time to
time in filings with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QUARTERLY RESULTS
The following table sets forth certain selected financial information for
the Company for its eight most recent fiscal quarters. In the opinion of the
Company, this unaudited information has been prepared on the same basis as the
audited financial information and includes all adjustments (consisting of only
normal, recurring adjustments) necessary to present this information fairly when
reviewed in conjunction with the Company's Consolidated Financial Statements and
notes thereto contained herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $15,140 $16,710 $15,801 $16,166 $17,012 $18,233 $17,146 $17,248
Gross profit............ $ 6,423 $ 7,441 $ 6,366 $ 6,890 $ 7,198 $ 7,805 $ 7,004 $ 7,235
Gross margin............ 42.4% 44.5% 40.3% 42.6% 42.3% 42.8% 40.8% 41.9%
Operating income........ $ 1,708 $ 2,459 $ 1,614 $ 1,794 $ 2,001 $ 2,523 $ 1,861 $ 2,054
Operating margin........ 11.3% 14.7% 10.2% 11.1% 11.8% 13.8% 10.9% 11.9%
Net income.............. $ 1,054 $ 1,495 $ 1,016 $ 1,118 $ 1,210 $ 1,553 $ 1,165 $ 1,334
Net income per share.... $ 0.30 $ 0.42 $ 0.29 $ 0.32 $ 0.34 $ 0.44 $ 0.33 $ 0.37
</TABLE>
The Company's results of operations have historically fluctuated on a
quarterly basis and are expected to be subject to quarterly fluctuations in the
future. As a result, the Company believes that the results of
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operations for the interim periods are not necessarily indicative of the results
to be expected for any future period or for a full year. Quarterly results are
subject to fluctuations resulting from a number of factors, including the number
of working days in the quarter for both dentists and Company employees, the
number of paid vacation days and holidays in the period and general economic
conditions. Historically, the second quarter has generated the highest quarterly
net sales for the year and has been the most profitable for the Company due to
the greater number of working days in the quarter and more patients scheduling
visits with their dentists before departing for summer vacation.
LOCATION OF FINANCIAL STATEMENTS
The consolidated financial statements furnished in connection with this
Report are attached immediately following the Signatures.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors. The information with respect to directors required by this
item is incorporated herein by reference from the Company's Proxy Statement
dated March 3, 2000 for the Special Meeting in Lieu of Annual Meeting of
Shareholders to be held on April 4, 2000 (the "2000 Proxy Statement").
(b) Executive Officers. The information with respect to executive officers
required by this item is incorporated herein by reference from the 2000 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
from the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
from the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
from the 2000 Proxy Statement.
11
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a), (d) Financial Statements and Schedules.
(1) The financial statements set forth in the list below are filed as
part of this Report.
(2) The financial statement schedules set forth in the list below are
filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
The historical consolidated financial statements of National Dentex
Corporation included herein are as listed below:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Income for the three years ended
December 31, 1999......................................... F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1999....................... F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1999................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
Financial Schedule included herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the financial
statements or in the notes thereto.
(b) Reports on Form 8-K.
During the Company's fiscal quarter ended December 31, 1999, the Company
was not required to file, and did not file, any Current Report on Form 8-K.
(c) Exhibits.
(i) The following exhibits, required by Item 601 of Regulation S-K, are
filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<C> <S>
*10a Letter Agreement with Thomas E. Gildersleeve, dated
February 16, 2000.
*10b Employment Agreement between the Company and Donald E.
Merz, dated November 1, 1983.
*10c Employment Agreement between the Company and Eloy V.
Sepulveda, dated June 15, 1983.
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
12
<PAGE> 14
(ii) The following exhibits were filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and are
herein incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<C> <S>
*10d Long Term Incentive Plan, as amended.
*10e Employment Agreement between the Company and Richard F.
Becker, Jr., dated April 1, 1995.
*10f Change of Control Severance Agreement between the Company
and Richard F. Becker, Jr., dated April 1, 1995.
*10g Employment Agreement between the Company and David L.
Brown, dated April 1, 1995.
*10h Change of Control Severance Agreement between the Company
and David L. Brown dated April 1, 1995.
*10i Employment Agreement between the Company and William M.
Mullahy, dated April 1, 1995.
*10j Change of Control Severance Agreement between the Company
and William M. Mullahy, dated April 1, 1995.
</TABLE>
(iii) The following exhibits were filed as part of the Company's Form
S-1 Registration Statement (File No. 33-70440) declared effective
by the Securities and Exchange Commission on December 21, 1993 and
are herein incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<C> <S>
3a Restated Articles of Organization of the Company, filed
with Massachusetts Secretary of State on October 14, 1993.
3b By-Laws of the Company, as amended on December 31, 1982
and May 26, 1992.
4a Restated Letter Agreement, dated February 22, 1993,
between the Company and State Street Bank and Trust
Company (the "Bank").
*10k Salary Continuation Agreement, dated April 1, 1985,
between the Company and William M. Mullahy.
*10l Salary Continuation Agreement, dated April 1, 1985,
between the Company and Donald E. Merz.
*10m National Dentex Corporation Laboratory Incentive
Compensation Plan.
*10n National Dentex Corporation Corporate Executives Incentive
Compensation Plan.
*10o National Dentex Corporation Group Managers Incentive
Compensation Plan.
*10p National Dentex Corporation Dollars Plus Plan, as amended
on January 3, 1986.
*10q National Dentex Corporation Employees' Stock Purchase
Plan.
</TABLE>
- ---------------
* These exhibits relate to a management contract or to a compensatory plan or
arrangement.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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.
NATIONAL DENTEX CORPORATION
March 3, 2000
By: /s/ DAVID L. BROWN
------------------------------------
David L. Brown, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ DAVID V. HARKINS
- -----------------------------------------
David V. Harkins, Chairman of the Board
and Director
March 3, 2000
/s/ JACK R. CROSBY
- -----------------------------------------
Jack R. Crosby, Director
March 3, 2000
/s/ WILLIAM H. MCCLURG
- -----------------------------------------
William H. McClurg, Director
March 3, 2000
/s/ NORMAN F. STRATE
- -----------------------------------------
Norman F. Strate, Director
March 3, 2000
/s/ DAVID L. BROWN
- -----------------------------------------
David L. Brown, President, Treasurer,
and Director
(Principal Executive Officer)
March 3, 2000
/s/ RICHARD F. BECKER, JR.
- -----------------------------------------
Richard F. Becker, Jr, Vice President,
Finance, Chief Financial Officer and
Assistant Treasurer
(Principal Financial Officer)
March 3, 2000
14
<PAGE> 16
NATIONAL DENTEX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
The historical consolidated financial statements of
National Dentex Corporation included herein are as
listed below.
Report of Independent Public Accountants............... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999.................................................. F-3
Consolidated Statements of Income for the three years
ended December 31, 1999............................... F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31,
1999................................................. F-5
Consolidated Statements of Cash Flows for the three
years ended December 31, 1999......................... F-6
Notes to Consolidated Financial Statements............. F-7
Schedule:
Valuation and Qualifying Accounts....................Schedule II
</TABLE>
F-1
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To National Dentex Corporation:
We have audited the accompanying consolidated balance sheets of National
Dentex Corporation (a Massachusetts corporation) as of December 31, 1999 and
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Dentex Corporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein, in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Boston, Massachusetts
February 2, 2000
F-2
<PAGE> 18
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 8,525,648 $11,215,179
Accounts receivable:
Trade, less allowance of $145,000 in 1998 and $196,000
in 1999................................................ 7,322,515 7,722,729
Other................................................... 272,280 436,401
Inventories............................................... 3,338,103 3,840,821
Prepaid expenses.......................................... 714,066 912,513
Deferred tax asset........................................ 373,800 350,820
----------- -----------
Total current assets............................... 20,546,412 24,478,463
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings........................................ 3,683,402 3,887,402
Leasehold and building improvements....................... 3,297,586 3,976,361
Laboratory equipment...................................... 6,797,200 7,356,055
Furniture and fixtures.................................... 1,940,580 2,228,775
Capital leases............................................ 342,819 --
----------- -----------
16,061,587 17,448,593
Less -- Accumulated depreciation and amortization....... 8,561,566 9,020,264
----------- -----------
Net property and equipment.............................. 7,500,021 8,428,329
----------- -----------
OTHER ASSETS, net:
Goodwill.................................................. 9,763,813 11,111,435
Non-competition agreements................................ 3,639,302 3,539,947
Deferred tax asset........................................ -- 337,268
Other..................................................... 1,020,016 1,310,044
----------- -----------
14,423,131 16,298,694
----------- -----------
$42,469,564 $49,205,486
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,383,928 $ 1,491,285
Accrued liabilities:
Payroll and employee benefits........................... 3,249,460 3,764,657
Current portion of deferred purchase price.............. 1,839,856 2,403,888
Other................................................... 421,158 104,977
----------- -----------
Total current liabilities.......................... 6,894,402 7,764,807
----------- -----------
LONG TERM LIABILITIES:
Deferred tax liability.................................... 101,277 --
Payroll and employee benefits............................. 433,091 1,159,871
Deferred purchase price................................... 1,163,300 731,334
----------- -----------
Total long-term liabilities........................ 1,697,668 1,891,205
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value Authorized -- 500,000
shares; None issued and outstanding..................... -- --
Common stock, $.01 par value Authorized -- 8,000,000
shares; Issued and outstanding -- 3,513,148 shares at
December 31, 1998, and 3,550,083 shares at December 31,
1999.................................................... 35,131 35,500
Paid-in capital........................................... 14,493,655 14,903,119
Retained earnings......................................... 19,348,708 24,610,855
----------- -----------
Total stockholders' equity......................... 33,877,494 39,549,474
----------- -----------
$42,469,564 $49,205,486
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 19
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................................... $59,196,110 $63,817,100 $69,639,240
Cost of goods sold.................................. 33,755,470 36,697,495 40,396,188
----------- ----------- -----------
Gross profit...................................... 25,440,640 27,119,605 29,243,052
Total operating expenses............................ 18,370,360 19,545,023 20,802,705
----------- ----------- -----------
Operating income.................................. 7,070,280 7,574,582 8,440,347
Other income (expense).............................. 69,265 17,922 (57,491)
Interest income..................................... 81,114 187,257 335,722
----------- ----------- -----------
Income before provision for income taxes.......... 7,220,659 7,779,761 8,718,578
Provision for income taxes.......................... 2,873,823 3,096,345 3,456,431
----------- ----------- -----------
Net income........................................ $ 4,346,836 $ 4,683,416 $ 5,262,147
=========== =========== ===========
Net income per share -- Basic....................... $ 1.26 $ 1.34 $ 1.48
=========== =========== ===========
Net income per share -- Diluted..................... $ 1.24 $ 1.32 $ 1.48
=========== =========== ===========
Weighted average shares outstanding -- Basic........ 3,454,473 3,485,763 3,543,752
=========== =========== ===========
Weighted average shares outstanding -- Diluted...... 3,516,770 3,560,392 3,566,332
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 20
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- --------------------
NUMBER OF $.01 PAR NUMBER OF $.01 PAR PAID-IN RETAINED
SHARES VALUE SHARES VALUE CAPITAL EARNINGS TOTAL
--------- -------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996............. -- $-- 3,440,738 $34,407 $13,683,615 $10,318,456 $24,036,478
Issuance of 6,295 shares of common
stock under the stock option plans... -- -- 6,295 63 79,635 -- 79,698
Issuance of 12,386 shares of common
stock under the employee stock
purchase plan........................ -- -- 12,386 124 181,525 -- 181,649
Issuance of 1,410 shares of common
stock as director's fees............. -- -- 1,410 14 23,956 -- 23,970
Net income............................. -- -- -- -- -- 4,346,836 4,346,836
-- -- --------- ------- ----------- ----------- -----------
BALANCE, December 31, 1997............. -- -- 3,460,829 34,608 13,968,731 14,665,292 28,668,631
-- -- --------- ------- ----------- ----------- -----------
Issuance of 36,758 shares of common
stock under the stock option plans... -- -- 36,758 367 287,470 -- 287,837
Issuance of 14,601 shares of common
stock under the employee stock
purchase plan........................ -- -- 14,601 146 213,464 -- 213,610
Issuance of 960 shares of common stock
as director's fees................... -- -- 960 10 23,990 -- 24,000
Net income............................. -- -- -- -- -- 4,683,416 4,683,416
-- -- --------- ------- ----------- ----------- -----------
BALANCE, December 31, 1998............. -- -- 3,513,148 35,131 14,493,655 19,348,708 33,877,494
-- -- --------- ------- ----------- ----------- -----------
Issuance of 19,483 shares of common
stock under the stock option plans... -- -- 19,483 195 187,919 -- 188,114
Issuance of 16,624 shares of common
stock under the employee stock
purchase plan........................ -- -- 16,624 166 209,547 -- 209,713
Issuance of 828 shares of common stock
as director's fees................... -- -- 828 8 11,998 -- 12,006
Net income............................. -- -- -- -- -- 5,262,147 5,262,147
-- -- --------- ------- ----------- ----------- -----------
BALANCE, December 31, 1999............. -- $-- 3,550,083 $35,500 $14,903,119 $24,610,855 $39,549,474
-- -- --------- ------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 21
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 4,346,836 $ 4,683,416 $ 5,262,147
Adjustments to reconcile net income to net cash
provided by operating activities, net of
effects of acquisitions:
Depreciation and amortization.................. 1,753,376 2,004,927 2,286,977
Increase in accounts receivable................ (47,640) (271,559) (220,969)
Increase in inventories........................ (106,745) (114,255) (413,416)
Decrease (increase) in prepaid expenses........ 178,355 (219,137) (198,447)
Decrease (increase) in deferred tax asset...... 47,724 1,179 (298,288)
Increase in other assets....................... (309,343) (262,907) (97,878)
Increase (decrease) in accounts payable and
accrued liabilities.......................... 19,480 950,703 (523,888)
Decrease in deferred tax liability............. (108,992) (94,550) (101,277)
----------- ----------- -----------
Net cash provided by operating activities...... 5,773,051 6,677,817 5,694,961
----------- ----------- -----------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired.... (3,691,799) (2,066,966) (2,172,123)
Payment of deferred purchase price................ (684,631) (691,949) (508,063)
Additions to property and equipment, net.......... (1,524,666) (830,799) (1,751,948)
Proceeds from officer's life insurance policy..... -- -- 1,016,871
----------- ----------- -----------
Net cash used in investing activities.......... (5,901,096) (3,589,714) (3,415,263)
----------- ----------- -----------
Cash flows from financing activities:
Net payments of current and long-term
obligations.................................... (204,213) -- --
Net proceeds from issuance of common stock........ 285,317 525,448 409,833
----------- ----------- -----------
Net cash provided by financing activities...... 81,104 525,448 409,833
----------- ----------- -----------
Net (decrease) increase in cash and equivalents..... (46,941) 3,613,551 2,689,531
Cash and equivalents at beginning of period......... 4,959,038 4,912,097 8,525,648
----------- ----------- -----------
Cash and equivalents at end of period............... $ 4,912,097 $ 8,525,648 $11,215,179
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid..................................... $ 11,179 $ 12,084 $ 10,139
=========== =========== ===========
Income taxes paid................................. $ 3,071,545 $ 2,993,473 $ 3,897,742
=========== =========== ===========
Supplemental schedule of noncash investing and financing activities:
</TABLE>
The Company purchased the operations of certain dental laboratories in
1997, 1998 and 1999.
In conjunction with these acquisitions, liabilities were assumed as
follows:
<TABLE>
<S> <C> <C> <C>
Fair value of assets acquired.................. $ 5,735,000 $ 3,434,000 $ 3,352,000
Cash paid...................................... (3,893,000) (2,067,000) (2,172,000)
Deferred purchase price at date of
acquisition.................................. (1,545,000) (1,080,000) (883,000)
----------- ----------- -----------
Liabilities assumed.......................... $ 297,000 $ 287,000 $ 297,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 22
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) ORGANIZATION
National Dentex Corporation (the "Company") owned and operated 26
full-service dental laboratories and five branch laboratories in 22 states
throughout the United States as of December 31, 1999. Working from dentists'
work orders, the Company's dental laboratories custom design and fabricate
dentures, crowns and fixed bridges, and other dental prosthetic appliances.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include all operations of the
Company. Acquisitions are reflected from the date acquired by the Company (see
Note 3) to December 31, 1999. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is recognized as the dentists' orders are shipped.
Inventories
Inventories, consisting principally of raw materials, are stated at the
lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the following
estimated depreciable lives:
<TABLE>
<S> <C>
Buildings................................................ 25 years
Furniture and fixtures................................... 5-10 years
Automobiles and trucks................................... 5 years
Laboratory equipment..................................... 10 years
Computer equipment....................................... 5 years
</TABLE>
Leasehold improvements and capital leases are amortized over the lesser of
the assets' estimated useful lives or the lease terms.
Gains and losses are recognized upon the disposal of property and
equipment, and the related accumulated depreciation and amortization are removed
from the accounts. Maintenance, repairs and betterments that do not enhance the
value of or increase the life of the assets are charged to operations as
incurred.
Other Assets
Included in other assets are the costs of noncompetition agreements which
are deferred and amortized on a straight-line basis according to the terms of
the agreements over five to ten years. Goodwill is being amortized using the
straight-line method over a period of 20 years, the estimated useful life. The
Company continually evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. When
factors indicate that goodwill should be evaluated for possible impairment, the
Company uses an estimate of the related business segment's undiscounted
operating income over the remaining life of the
F-7
<PAGE> 23
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
goodwill in measuring whether the goodwill is recoverable. As of December 31,
1999 there have been no write-downs of goodwill.
Accumulated amortization on these intangible assets was approximately
$3,972,000 and $5,295,000 at December 31, 1998 and 1999, respectively.
Income Taxes
The Company follows Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the expected future tax consequences of events
that have been included in the financial statements or tax returns. The amount
of deferred tax asset or liability is based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates.
Earnings Per Share
The Company adopted SFAS No. 128, "Earnings per Share," effective December
15, 1997. In accordance with the requirements of SFAS No. 128, basic earnings
per share is computed by dividing net income by the weighted average number of
shares outstanding and diluted earnings per share reflects the dilutive effect
of stock options and warrants. The pro forma weighted average number of shares
outstanding, the dilutive effects of outstanding stock options and warrants, and
the shares under option plans which were anti-dilutive for the years ended
December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of shares used in basic earnings
per share calculation................................... 3,454,473 3,485,763 3,543,752
Incremental shares under option plans..................... 62,297 74,629 22,580
--------- --------- ---------
Weighted average number of shares used in diluted earnings
per share calculation................................... 3,516,770 3,560,392 3,566,332
========= ========= =========
Shares under option plans excluded in computation of
diluted earnings per share due to anti-dilutive
effects................................................. 185,789 11,800 187,851
========= ========= =========
</TABLE>
Cash and Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue to account for employee stock
options at intrinsic value with disclosure of the effects of fair value
accounting on net income and earnings per share on a pro forma basis.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Disclosures About the Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and equivalents,
accounts receivable, accounts payable, accrued liabilities and long-term
liabilities. The carrying amounts of the Company's cash
F-8
<PAGE> 24
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and equivalents, accounts receivable, accounts payable and accrued liabilities
approximate their fair value due to the short-term nature of these instruments.
The carrying amounts of the long-term liabilities also approximates their fair
value, based on rates available to the Company for debt with similar terms and
remaining maturities.
Reclassifications
Certain amounts in the 1998 and 1997 financial statements and notes have
been reclassified to conform with the 1999 presentation.
(3) ACQUISITIONS
During 1998, the Company acquired the following dental laboratory
operations:
<TABLE>
<S> <C>
Continental Dental Laboratory....................... March 1998
Monroe Dental....................................... July 1998
Excel Berger Dental................................. November 1998
Hearn Dental Laboratory............................. November 1998
</TABLE>
During 1999, the Company acquired the following dental laboratory
operations:
<TABLE>
<S> <C>
Advanced Dental Arts................................ January 1999
TVC Dental Laboratory............................... February 1999
Oratech Dental Laboratory........................... April 1999
Southside Dental Laboratory......................... April 1999
Dentaltech Dental Laboratory........................ December 1999
</TABLE>
These acquisitions, which have been reflected in the accompanying
consolidated financial statements from the dates of acquisition, have been
accounted for as purchases in accordance with Accounting Principles Board (APB)
Opinion No. 16. The excess of the total purchase price over the prior carrying
amount of the net assets acquired, based on preliminary estimates of their
related fair values (which are subject to revision), was allocated as follows as
of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Total purchase price................................ $3,323,000 $3,055,000
Less fair market values assigned to assets and
liabilities:
Cash.............................................. 101,000 --
Accounts receivable............................... 407,000 343,000
Property and equipment............................ 123,000 141,000
Noncompete agreements............................. 720,000 570,000
Inventories....................................... 132,000 89,000
Other assets...................................... 11,000 17,000
Accounts payable.................................. (8,000) (37,000)
Accrued liabilities and other..................... (203,000) (260,000)
---------- ----------
Goodwill............................................ $2,040,000 $2,192,000
========== ==========
</TABLE>
In connection with these acquisitions, the Company has incurred certain
deferred purchase costs relating to noncompete agreements with certain
individuals, ranging over periods of five to ten years and other contingent
payments provided for in the purchase agreements.
F-9
<PAGE> 25
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma operating results of the Company assume
the acquisitions had been made as of January 1, 1998. Such information includes
adjustments to reflect additional depreciation, noncompete amortization,
amortization of goodwill and interest expense, and does not purport to represent
what the Company's results of operations would actually have been, or to be
indicative of the results of operations in future periods.
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $69,250 $70,268
Net income.................................................. 4,943 5,284
Net income per share:
Basic..................................................... $ 1.42 $ 1.49
Diluted................................................... $ 1.39 $ 1.48
</TABLE>
(4) INCOME TAXES
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Federal:
Current..................................... $2,343,556 $2,660,011 $3,261,696
Deferred.................................... (70,966) (92,012) (353,230)
---------- ---------- ----------
2,272,590 2,567,999 2,908,466
---------- ---------- ----------
State:
Current..................................... 613,756 544,583 610,300
Deferred.................................... (12,523) (16,237) (62,335)
---------- ---------- ----------
601,233 528,346 547,965
---------- ---------- ----------
$2,873,823 $3,096,345 $3,456,431
========== ========== ==========
</TABLE>
F-10
<PAGE> 26
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are comprised of the following at December 31, 1998
and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
Deferred tax assets:
Noncompete agreements............................... $ 195,366 $ 315,221
Other liabilities................................... 110,901 491,660
Vacation benefits................................... 182,515 191,398
Inventory basis differences......................... 59,896 15,840
Receivables basis differences....................... 47,402 55,672
Other reserves...................................... 83,987 87,910
--------- ----------
Total deferred tax assets...................... 680,067 1,157,701
--------- ----------
Deferred tax liabilities:
Property basis differences.......................... (407,544) (469,613)
--------- ----------
Total deferred tax liabilities................. (407,544) (469,613)
--------- ----------
Net deferred tax (liability) asset.................. $ 272,523 $ 688,088
========= ==========
</TABLE>
A reconciliation between the provision for income taxes computed at
statutory rates and the amount reflected in the accompanying consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate............. 34.0% 34.0% 34.0%
State income tax, net of federal income tax
benefit..................................... 5.6 4.6 4.6
Other......................................... 0.2 1.2 1.0
---- ---- ----
Effective income tax rate..................... 39.8% 39.8% 39.6%
==== ==== ====
</TABLE>
(5) LONG-TERM OBLIGATIONS
The Company maintains a financing agreement (the "Agreement") with Citizens
Bank of Massachusetts (formerly State Street Bank and Trust Company) (the
"Bank"). The Agreement, as amended on June 27, 1997, includes revolving lines of
credit of $4,000,000 and $8,000,000. The interest rate on both revolving lines
of credit is the prime rate minus 0.5% or the LIBOR rate plus 1.5%, at the
Company's option. Both revolving lines of credit mature on June 1, 2001.
A commitment fee of one eighth of one percent is payable on the unused
amount of both revolving lines of credit. As of December 31, 1999, the full
principal amount was available to the Company under both revolving lines of
credit. The Agreement requires compliance with certain covenants, including the
maintenance of net worth and other financial ratios. As of December 31, 1999,
the Company was in compliance with these covenants.
In August, 1999, the Company received approximately $1,000,000 in proceeds
from an officer's life insurance policy. Related to these proceeds, the Company
simultaneously recorded an obligation of approximately $1,000,000 in accordance
with the terms of the officer's employment agreement. The obligation has been
classified in accrued payroll and employee benefits in the Company's
consolidated balance sheet.
F-11
<PAGE> 27
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) BENEFIT PLANS
The Company has an employee savings plan (the "Plan") under IRS Code
Section 401(k). The Plan allows contributions of up to 10% of a participant's
salary, a portion of which is matched in cash by the Company. The Company
contributes this amount once a year, within 120 days after December 31, the
Plan's year-end. All employees are eligible to participate in the Plan after
completing one year of service with the Company and the attainment of age 21.
Participants become fully vested after six years of service or upon attaining
age 65. The Company has incurred charges to operations of approximately
$253,000, $334,000 and $401,000 to match contributions for the years ended
December 31, 1997, 1998 and 1999, respectively.
The Company has an incentive plan, the Laboratory Plan, for dental
laboratory management and other designated key employees who could directly
influence the financial performance of an individual dental laboratory.
Eligibility is determined annually for each laboratory. Each participant is
eligible to receive an amount based on the achievement of certain earnings
levels of the participant's laboratory, as defined. The Company has incurred
charges to operations of approximately $1,897,000, $2,117,000 and $2,157,000 for
the years ended December 31, 1997, 1998 and 1999, respectively, under the
Laboratory Plan.
The Company has an executive bonus plan (the "Executive Plan") for key
executives and management of the Company, and a management bonus plan (the
"Managers Plan") for laboratory group managers. Eligibility to participate in
each plan is determined annually. Participants are eligible to receive a bonus,
based on a percentage of salary, dependent upon the achievement of earnings
targets, as defined. The bonus is distributed within 90 days after year-end. The
Company has incurred aggregate charges to operations of approximately $592,000,
$480,000 and $507,000 for the years ended December 31, 1997, 1998 and 1999,
respectively, with respect to these plans.
The Company established a Supplemental Executive Retirement Plan ("SERP")
for certain key employees providing for annual benefits payable over a period of
ten years beginning at age 65 or date of retirement. Benefits will be funded by
life insurance contracts purchased by the Company. The cost of these benefits is
being charged to expense and accrued using a present value method over the
expected terms of employment. The charges to expense for the years ended
December 31, 1997, 1998 and 1999 were approximately $124,000, $146,000 and
$171,000, respectively.
(7) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is committed under various noncancelable operating lease
agreements covering its office space and dental laboratory facilities. Certain
of these leases also require the Company to pay maintenance, repairs, insurance
and related taxes. The total rental expense for the years ended December 31,
1997, 1998 and 1999 was approximately $1,095,000, $1,207,000 and $1,319,000,
respectively. The approximate aggregate minimum lease commitments under these
leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
2000..................................................... $1,173,000
2001..................................................... 1,127,000
2002..................................................... 1,029,000
2003..................................................... 871,000
2004..................................................... 760,000
Thereafter............................................... 2,361,000
----------
$7,321,000
==========
</TABLE>
F-12
<PAGE> 28
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employment Contracts and Change-In-Control Arrangements
In April 1995, the Company entered into employment contracts and
change-in-control arrangements with certain key executives. The initial term of
these employment contracts expired in April 1998, and the contracts by their
terms renew automatically thereafter until termination by the Company or the
executive. The change-in-control arrangements provide certain severance benefits
in the event that the executive is terminated by the Company without cause or
the executive terminates the employment contract for certain specified reasons.
(8) STOCK OPTIONS AND WARRANTS
Stock Option Plans
In May 1992, the Company's Board of Directors (the "Board") adopted the
1992 Long-Term Incentive Plan (the "LTIP"). Under the LTIP, the Board may grant
stock options, stock appreciation rights, restricted stock, deferred stock,
stock purchase rights and other stock-based compensation to key employees,
officers and directors of the Company. In August 1995 the Board amended the LTIP
to increase the number of shares of common stock reserved for issuance under the
plan from 150,000 to 235,000, in April 1997 to 335,000 and in April 1998 to
485,000. As of December 31, 1999, 325,624 options were outstanding, at between
$12.25 and $25.00 per share, the fair market value on the dates of grant,
233,096 of which were exercisable.
The following summarizes the transactions of the Company's LTIP for the
years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................... 209,302 $15.25 320,771 $17.28 370,138 $17.28
Granted.......................... 124,960 20.38 84,930 15.48 6,980 16.75
Exercised........................ (4,295) 10.64 (24,844) 11.59 (19,483) 9.66
Canceled......................... (9,196) 16.41 (10,719) 18.29 (32,011) 18.66
-------- -------- --------
Outstanding at end of year....... 320,771 $17.28 370,138 $17.28 325,624 $17.51
======== ====== ======== ====== ======== ======
Exercisable at end of year....... 116,620 $13.77 183,223 $16.32 233,096 $17.66
Weighted average fair value of
options granted................ $ 4.64 $ 3.40 $ 3.76
</TABLE>
Of the options outstanding at December 31, 1999, 132,773 have exercise
prices between $12.25 and $15.25, with a weighted average price of $14.19 and a
weighted average remaining contractual life of 7.4 years. Of these options,
81,777 are exercisable at a weighted average exercise price of $13.52. Another
86,277 of the options outstanding have exercise prices between $16.25 and
$19.75, with a weighted average exercise price of $18.74 and a weighted average
remaining contractual life of 6.7 years. Of these options, 75,155 are
exercisable at a weighted average exercise price of $19.08. The remaining
106,574 options have exercise prices between $20.125 and $25.00, with a weighted
average exercise price of $20.66 and a weighted average remaining contractual
life of 7.6 years. Of these options, 76,164 are exercisable at a weighted
average exercise price of $20.68.
Also, the Company has the 1992 Employees' Stock Purchase Plan (the "Stock
Purchase Plan") under which an aggregate of 100,000 shares of the Company's
common stock may be purchased, through a payroll deduction program, primarily at
a price equal to 85% of the fair market value of the common stock on either the
grant date or the exercise date, whichever is lower. The number of shares of
common stock purchased through the Stock Purchase Plan for 1997, 1998 and 1999
was 12,386, 14,601 and 16,624, respectively. The Stock Purchase Plan was renewed
with a grant date of April 1, 1999 and an exercise date of March 31, 2000.
F-13
<PAGE> 29
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for the LTIP and Stock Purchase Plan under APB Opinion
No. 25 under which no compensation cost has been recognized. Had compensation
costs for these plans been determined consistent with Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), the Company's net income and
diluted earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported.................................. $4,346,836 $4,683,416 $5,262,147
Pro forma.................................... 4,026,642 4,216,387 4,852,296
Diluted earnings per share
As reported.................................. $1.24 $1.32 $1.48
Pro forma.................................... 1.15 1.19 1.37
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
In calculating the pro forma information set forth above, the fair value of
each option grant under the LTIP and the Stock Purchase Plan is estimated as of
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997, 1998 and 1999,
respectively: risk-free interest rates of between 5.19% and 5.48% for the 1997
option grants, between 4.45% and 4.72% for the 1998 option grants and between
5.56% and 6.47% for the 1999 option grants; no expected dividend yield for any
plan year; expected lives of between one and three years for the 1997, 1998 and
1999 option grants, based on vesting periods; expected volatility of between
33.34% and 36.74% for 1997 option grants, between 31.63% and 33.77% for option
grants in 1998 and between 30.96% and 32.78% for option grants in 1999.
Warrants
In December 1993, the Company issued warrants to the representative of its
underwriters to purchase 100,000 shares of common stock of the Company at an
exercise price of 135% of the initial offering price of $8.00, or $10.80 per
share. In December 1998, the remaining 30,000 warrants were exercised in a
cashless transaction and 11,914 shares of common stock were issued.
(9) SUBSEQUENT EVENT
On January 25, 2000, the Board of Directors voted, subject to shareholder
approval, to increase the number of common shares reserved for issuance under
the Employee Stock Purchase Plan from 100,000 to 200,000 shares.
F-14
<PAGE> 30
SCHEDULE II
NATIONAL DENTEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
December 31, 1997............................. $204,139 $49,473 $107,936 $145,676
December 31, 1998............................. 145,676 64,661 65,788 144,549
December 31, 1999............................. 144,549 94,059 42,850 195,758
</TABLE>
F-15
<PAGE> 1
Exhibit 10A
NATIONAL DENTEX CORPORATION
526 BOSTON POST ROAD, SUITE 207
WAYLAND, MA 01778
PERSONAL AND CONFIDENTIAL
February 16, 2000
Mr. Thomas E. Gildersleeve
12 Hudson Street
Natick, Massachusetts 01760
Dear Tom:
This letter will confirm certain agreements and understandings we have reached
in conjunction with termination of your employment with National Dentex
Corporation (the "Company"), effective December 13, 1999, as follows:
1. As consideration for this Agreement, the Company will make four
severance payments to you. The first payment was made on December 24,
1999 in the amount of $3,846. The next three payments will each be in
the amount of $8,750 (less applicable withholding) and will be made on
February 14, 2000, February 29, 2000, and March 31, 2000, respectively.
In addition, the Company will pay you $77,400 (less applicable
withholding) as payment of the amounts due to you under the Company's
Key Employee & Corporate Support Group Incentive Compensation Plan 1999
at the same time as payments are made to other participants under the
Plan.
2. The last date of your employment is recognized as December 13, 1999 for
purposes of vesting under your stock options. You may exercise any
vested options within ninety (90) days after such date.
3. You hereby confirm and agree that you have returned to the Company all
documents and equipment belonging to the Company including, but not
limited to, credit cards, keys, books and records, customer and
supplier lists, and financial and other information relating to the
business of the Company and its prospective acquisition candidates. The
Company understands and accepts that you have and plan to keep certain
industry journals and directories, trade show handouts, promotional
mailings and videos and other similar materials.
4. In consideration of the payments set forth above, you hereby, on behalf
of yourself, your executors, heirs, administrators, assigns, and anyone
else claiming by, through or under you, release and forever discharge
the Company, its subsidiaries, affiliates, predecessors, successors,
assigns, partners, agents, employees, officers, and directors
(collectively the Company) of, from and with respect to any and all
claims, demands, and liabilities whatsoever, in law or in equity,
existing up to the date hereof, including, but not limited to, any
claims arising out of, based on or connected with the dealings between
the parties, your employment by the Company, and the termination of
that employment, including, but not limited to, any causes of action or
claims for unlawful employment discrimination arising under or based on
Title VII of the Civil Rights Act
<PAGE> 2
Mr. Thomas E. Gildershleeve
February 16, 2000
Page 2
of 1964, as amended, Massachusetts General Laws, Chapter 151B, and any
other state or federal law, statute, order, public policy, regulation,
or common law claim affecting or relating to the claims or rights of
employees, which you had, now have, or claim to have against the
Company, whether or not now known or anticipated; provided that you are
not releasing (1) any claim you may have with respect to fraud or (2)
any claims or rights you may have arising out of this Agreement.
5. In exchange for the mutual promises and releases contained in this
Agreement, the Company (as defined in paragraph 4 above) hereby
releases and forever discharges you, your executors, heirs,
administrators, partners and assigns of, from and with respect to any
and all claims, demands, and liabilities whatsoever, in law or in
equity, existing up to the date hereof, which it had, now has or claims
to have against you, whether or not now known or anticipated; provided
that the Company is not releasing (1) any claim it may have with
respect to fraud or (2) its rights to enforce this Agreement.
6. Each party hereby covenants and agrees that it will not directly or
indirectly, and will not authorize or permit any third party acting on
his or its behalf to, institute any investigation, claim or proceeding
before any court, administrative or governmental body with regard to
the subject matter of this Agreement or any of the matters for which
such party has released the other party as provided above; provided,
however, that nothing herein shall prevent any party from enforcing any
other rights or claims not expressly released as set forth in this
Agreement.
7. This Agreement contains the entire agreement between you and the
Company and supercedes, cancels and terminates all other agreements
between you and the Company, including, but not limited to, the
proposed, and not executed, Change of Control Severance Agreement
between the Company and you to be dated as of April 1, 1999. This
Agreement may not be changed orally, but only by written agreement
signed by you and a duly authorized officer of the Company. In the
event this Agreement is not finally consummated, it and any preceding
settlement discussions shall be without prejudice to any party, and
shall not be used in any subsequent proceedings, judicial,
administrative, or otherwise. This Agreement shall be governed by
Massachusetts law.
<PAGE> 3
Mr. Thomas E. Gildershleeve
February 16, 2000
Page 3
Would you please sign and return the enclosed copy of this letter, thereby
confirming your agreement to the matters set forth herein.
On behalf of the Company, I want to wish you much success in your future
ventures.
Very truly yours,
NATIONAL DENTEX CORPORATION
By: /s/ David L. Brown
---------------------------
David L. Brown, President
Received and agreed to:
/s/ Thomas E. Gildersleeve
- ------------------------------
Thomas E. Gildersleeve
<PAGE> 1
Exhibit 10B
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of November, 1983, between
NATIONAL DENTEX, INC., a Delaware Corporation, d/b/a Oral Arts, with offices in
Dubuque, Iowa, (the "Employer"), and Donald E. Merz, residing in Dubuque, Iowa,
(the "Employee"),
WITNESSETH:
WHEREAS, the Employer desires to obtain the services of the Employee,
and the Employee desires to be employed by the Employer upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the agreements herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Employer hereby agrees to employ the Employee, and the Employee
hereby agrees to serve the Employer, with respect to its operations for the Term
of Employment as herein set forth.
2. During the Term of Employment hereunder, the Employee will:
(a) devote his full time, attention and energies to the
business of the Employer and will diligently and to the best of his ability
perform all duties incident to his employment hereunder;
(b) use his best efforts to promote the interests of the
Employer;
(c) perform such other duties as the Employer may from time to
time assign to him including duties as General Manager.
<PAGE> 2
3. The Employee shall be entitled to an annual vacation in accordance
with the regular vacation policy of the Employer.
4. As compensation for his services hereunder and in consideration of
his agreement not to compete as set forth in paragraph 8, the Employer shall pay
the Employee in equal bi-weekly installments, a salary at the rate of $55,080.00
per year.
5. The "Term of Employment", as used herein, shall mean the period
commencing on November 1st, 1983, and continuing until terminated by not less
than thirty (30) days notice given by either party to the other, or, if sooner,
with the first to occur of the following:
(a) the death of the Employee;
(b) in the event of the inability of the Employee to perform
his duties hereunder, whether by reason of injury (physical or mental), illness
or otherwise, incapacitating him for a continuous period exceeding 30 days,
excluding any leaves of absence approved by the Employer, upon 14 days' prior
written notice to the Employee. In this connection, the Employer shall have the
right to have the Employee examined at such reasonable time or times by such
physicians as the Employer may designate, and the Employee will make himself
available for and submit to such examination as and when requested; or
(c) upon discharge of the Employee by the Employer for failure
to satisfactorily perform his duties hereunder.
6. In the event of termination of employment for any reason specified
in paragraphs 5(a), (b) or (c) above, the Employer shall no longer be obligated
to make any payments of any kind whatsoever to the Employee. However, any
payments earned but not yet paid shall be paid by Employer to the Employee, and
the Employee shall pay any amount or amounts then owed by
2
<PAGE> 3
the Employee to the Employer or its affiliates without prejudice to any other
rights or remedies of such corporation available at law or equity.
7. The Employer agrees that during the Term of Employment it will
reimburse the Employee for out-of-pocket expenses reasonably incurred by him in
connection with the performance of his service hereunder and approved by the
Employer.
8. The Employee agrees that during the term of this Agreement, and for
a period of one year after the expiration or termination of this Agreement, he
will not, directly or indirectly, within Dubuque, Iowa, and a radius of fifty
miles therefrom, own, operate, manage, control, participate in the management or
control of, be employed by, lend his name to or maintain or continue any
interest whatsoever in any enterprise, other than Employer's, having to do with
the manufacture and sale of dental prosthetic devices. The Employee also agrees
that for a period of one year after the expiration or termination of his
employment he will not, directly or indirectly, employ or solicit the employment
of any person who is an employee of Employer during the term of this Agreement
or any predecessor Agreements between Employee and Employer. Employee further
agrees and covenants that for the same one-year period following the expiration
or termination of his employment, he will not, directly or indirectly, solicit
or accept any contract for, or be involved in the construction of, dental
prosthetic appliances for any dentist who was a customer of Employer during the
term of the Agreement. For the purposes of this paragraph 8, the term "customer
of Employer" means any dentist who, during the term of this Agreement or any
predecessor Agreements between Employee and Employer, sent five or more
prescriptions for the construction of dental prosthetic appliances to Employer.
If any restriction contained in this paragraph is held by any court to be
unenforceable or unreasonable, the court
3
<PAGE> 4
shall be free to enforce a lesser restriction in its place and the remaining
restrictions contained herein shall be severable therefrom and shall remain
fully in effect, and shall be enforceable independently of each other.
9. During the period of his employment by the Employer, the Employee
will disclose to the Employer all ideas and business plans developed by him
during such period which relate directly to the business of the Employer, or any
business conducted by the Employer. The Employee agrees that, during the Term of
Employment and for a period of two years after the termination of this
Agreement, he will not, without the written consent of the Employer, disclose or
authorize or permit anyone under his direction to disclose to anyone not
properly entitled thereto, any confidential information relative to the
business, sales, financial condition or products of the Employer or any
affiliate thereof. For purposes of the preceding sentence, persons properly
entitled to such information shall be the Board of Directors and such officers,
employees and agents of the Employer or any affiliate thereof to which such
information is furnished in the normal course of business under established
policies approved by the Employer and such outside parties as are legally
entitled to such information, and banking, lending, collection, accounting, and
data processing institutions or agencies in the course of maintaining ordinary
business procedures of the Employer. The Employee further agrees that should he
leave the active service of the Employer, he will not take with him or retain,
without written authorization from the Employer, any papers, Company policy,
procedure or technical manuals, customer lists, or customer account analysis
(including without limitation, accounts receivable agings, customer payment
histories, and customer account activity reports), price books, files or other
documents or copies thereof, any materials, supplies, equipment or furnishings
or other
4
<PAGE> 5
confidential information or property of any kind belonging to the Employer or
any subsidiary or affiliate thereof pertaining to its business, sales, financial
condition or products.
10. All patents, formulae, inventions, processes, secret processes,
copyrights, know-how, proprietary information, rights trademarks or trade names,
or future improvements to patents, formulae, inventions, processes, secret
processes, copyrights, know-how, proprietary information, rights, trademarks or
tradenames (collectively "Items") developed or completed by the Employee during
the term of this Agreement or during any period of employment extending beyond
the term of this Agreement shall be promptly disclosed to the Employer, and the
Employee shall execute such instruments of assignment of such Items to the
Employer as the Employer shall request.
11. This Agreement is a personal employment contract and the rights and
interest of the Employee hereunder may not be sold, transferred, assigned,
pledged or hypothecated. The Employee acknowledges that a remedy at law for any
breach by him of the provisions of paragraphs 8 and 9 will be inadequate, and
the Employee hereby agrees that the Employer shall be entitled to injunctive
relief in case of any such breach.
12. This Agreement shall inure to the benefit of and be binding upon
the Employer and its successors and assigns and upon the Employee and his legal
representative.
13. This Agreement, which contains the entire contractual understanding
between the parties, may not be changed orally but only by a written instrument
signed by the parties hereto.
14. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
5
<PAGE> 6
15. The waiver of any breach of any term or condition of this Agreement
shall not be deemed to constitute the waiver of any other breach of the same or
any other term or condition.
16. In the event any provision of this Agreement is found to be
unenforceable or invalid, such provision shall be severable from this Agreement
and shall not affect the enforceability or validity of any other provision
contained in this Agreement.
17. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by registered mail, postage prepaid, and if
to the Employee, addressed to him at the address set forth below, and if to the
Employer addressed to it at 25 Stuart Street, Boston, Massachusetts 02116,
Attention: David V. Harkins, or such other address as shall have been specified
in writing by either party to the other, and any such notice or communication
shall be deemed to have been given as of the date so mailed.
18. This Agreement supercedes any outstanding employment contracts
between the Employer and the Employee which are hereby declared to be null and
void and without further force and effect.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto set his
hand as of the date first above written.
NATIONAL DENTEX, INC.
By:
------------------------
6
<PAGE> 7
EMPLOYEE
/s/ DONALD E. MERZ
------------------------------
Donald E. Merz
Address: 565 West 16th Street
Dubuque, Iowa 52001
7
<PAGE> 1
Exhibit 10C
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 15th day of June, 1983, between NATIONAL
DENTEX, INC., a Delaware Corporation, d/b/a Stern Empire with offices in
Houston, Tx., (the "Employer"), and Eloy Sepulveda, residing in Houston, Texas,
(the "Employee"),
WITNESSETH:
WHEREAS, the Employer desires to obtain the services of the Employee,
and the Employee desires to be employed by the Employer upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the agreements herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Employer hereby agrees to employ the Employee, and the Employee
hereby agrees to serve the Employer, with respect to its operations for the Term
of Employment as herein set forth.
2. During the Term of Employment hereunder, the Employee will:
(a) devote his full time, attention and energies to the
business of the Employer and will diligently and to the best of his ability
perform all duties incident to his employment hereunder;
(b) use his best efforts to promote the interests of the
Employer;
(c) perform such other duties as the Employer may from time to
time assign to him including duties as Fixed Production Manager.
<PAGE> 2
3. The Employee shall be entitled to an annual vacation in accordance
with the regular vacation policy of the Employer.
4. As compensation for his services hereunder and in consideration of
his agreement not to compete as set forth in paragraph 8, the Employer shall pay
the Employee in equal bi-weekly installments, a salary at the rate of $53,750.00
per year.
5. The "Term of Employment", as used herein, shall mean the period
commencing on June 15th, 1983, and continuing until terminated by not less than
thirty (30) days notice given by either party to the other, or, if sooner, with
the first to occur of the following:
(a) the death of the Employee;
(b) in the event of the inability of the Employee to perform
his duties hereunder, whether by reason of injury (physical or mental), illness
or otherwise, incapacitating him for a continuous period exceeding 30 days,
excluding any leaves of absence approved by the Employer, upon 14 days' prior
written notice to the Employee. In this connection, the Employer shall have the
right to have the Employee examined at such reasonable time or times by such
physicians as the Employer may designate, and the Employee will make himself
available for and submit to such examination as and when requested; or
(c) upon discharge of the Employee by the Employer for failure
to satisfactorily perform his duties hereunder.
6. In the event of termination of employment for any reason specified
in paragraphs 5(a), (b) or (c) above, the Employer shall no longer be obligated
to make any payments of any kind whatsoever to the Employee. However, any
payments earned but not yet paid shall be paid by Employer to the Employee, and
the Employee shall pay any amount or amounts then owed by
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<PAGE> 3
the Employee to the Employer or its affiliates without prejudice to any other
rights or remedies of such corporation available at law or equity.
7. The Employer agrees that during the Term of Employment it will
reimburse the Employee for out-of-pocket expenses reasonably incurred by him in
connection with the performance of his service hereunder and approved by the
Employer.
8. The Employee agrees that during the term of this Agreement, and for
a period of one year after the expiration or termination of this Agreement, he
will not, directly or indirectly, within Houston, Texas, and a radius of fifty
miles therefrom, own, operate, manage, control, participate in the management or
control of, be employed by, lend his name to or maintain or continue any
interest whatsoever in any enterprise, other than Employer's, having to do with
the manufacture and sale of dental prosthetic devices. The Employee also agrees
that for a period of one year after the expiration or termination of his
employment he will not, directly or indirectly, employ or solicit the employment
of any person who is an employee of Employer during the term of this Agreement
or any predecessor Agreements between Employee and Employer. Employee further
agrees and covenants that for the same one-year period following the expiration
or termination of his employment, he will not, directly or indirectly, solicit
or accept any contract for, or be involved in the construction of, dental
prosthetic appliances for any dentist who was a customer of Employer during the
term of the Agreement. For the purposes of this paragraph 8, the term "customer
of Employer" means any dentist who, during the term of this Agreement or any
predecessor Agreements between Employee and Employer, sent five or more
prescriptions for the construction of dental prosthetic appliances to Employer.
If any restriction contained in this paragraph is held by any court to be
unenforceable or unreasonable, the court
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shall be free to enforce a lesser restriction in its place and the remaining
restrictions contained herein shall be severable therefrom and shall remain
fully in effect, and shall be enforceable independently of each other.
9. During the period of his employment by the Employer, the Employee
will disclose to the Employer all ideas and business plans developed by him
during such period which relate directly to the business of the Employer, or any
business conducted by the Employer. The Employee agrees that, during the Term of
Employment and for a period of two years after the termination of this
Agreement, he will not, without the written consent of the Employer, disclose or
authorize or permit anyone under his direction to disclose to anyone not
properly entitled thereto, any confidential information relative to the
business, sales, financial condition or products of the Employer or any
affiliate thereof. For purposes of the preceding sentence, persons properly
entitled to such information shall be the Board of Directors and such officers,
employees and agents of the Employer or any affiliate thereof to which such
information is furnished in the normal course of business under established
policies approved by the Employer and such outside parties as are legally
entitled to such information, and banking, lending, collection, accounting, and
data processing institutions or agencies in the course of maintaining ordinary
business procedures of the Employer. The Employee further agrees that should he
leave the active service of the Employer, he will not take with him or retain,
without written authorization from the Employer, any papers, Company policy,
procedure or technical manuals, customer lists, or customer account analyses
(including without limitation, accounts receivable agings, customer payment
histories, and customer account activity reports), price books, files or other
documents or copies thereof, any materials, supplies, equipment or furnishings
or other
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confidential information or property of any kind belonging to the Employer or
any subsidiary or affiliate thereof pertaining to its business, sales, financial
condition or products.
10. All patents, formulae, inventions, processes, secret processes,
copyrights, know-how, proprietary information, rights, trademarks or trade
names, or future improvements to patents, formulae, inventions, processes,
secret processes, copyrights, know-how, proprietary information, rights,
trademarks or trade names (collectively "Items") developed or completed by the
Employee during the term of this Agreement or during any period of employment
extending beyond the term of this Agreement shall be promptly disclosed to the
Employer, and the Employee shall execute such instruments of assignment of such
Items to the Employer as the Employer shall request.
11. This Agreement is a personal employment contract and the rights and
interest of the Employee hereunder may not be sold, transferred, assigned,
pledged or hypothecated. The Employee acknowledges that a remedy at law for any
breach by him of the provisions of paragraphs 8 and 9 will be inadequate, and
the Employee hereby agrees that the Employer shall be entitled to injunctive
relief in case of any such breach.
12. This Agreement shall inure to the benefit of and be binding upon
the Employer and its successors and assigns and upon the Employee and his legal
representatives.
13. This Agreement, which contains the entire contractual understanding
between the parties, may not be changed orally but only by a written instrument
signed by the parties hereto.
14. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
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15. The waiver of any breach of any term or condition of this Agreement
shall not be deemed to constitute the waiver of any other breach of the same or
any other term or condition.
16. In the event any provision of this Agreement is found to be
unenforceable or invalid, such provision shall be severable from this Agreement
and shall not affect the enforceability or validity of any other provision
contained in this Agreement.
17. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by registered mail, postage prepaid, and if
to the Employee, addressed to him at the address set forth below, and if to the
Employer addressed to it at 25 Stuart Street, Boston, Massachusetts 02116,
Attention: David V. Harkins, or such other address as shall have been specified
in writing by either party to the other, and any such notice or communication
shall be deemed to have been given as of the date so mailed.
18. This Agreement supercedes any outstanding employment contracts
between the Employer and the Employee which are hereby declared to be null and
void and without further force and effect.
IN WITNESS WHEREOF, the .Employer has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto set his
hand as of the date first above written.
NATIONAL DENTEX, INC.
By: /s/ Donald E. Faber
---------------------
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EMPLOYEE
/s/ Eloy Sepulveda
------------------
Eloy Sepulveda
Address: 5902 Jim
Houston, TX 77018
7
<PAGE> 1
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To National Dentex Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-77266, 33-77268, 33-77264, 333-28623 and
333-50341.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT
OF INCOME AND CASH FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,215,179
<SECURITIES> 0
<RECEIVABLES> 8,159,130
<ALLOWANCES> 195,758
<INVENTORY> 3,840,821
<CURRENT-ASSETS> 24,478,463
<PP&E> 17,448,593
<DEPRECIATION> 9,020,264
<TOTAL-ASSETS> 49,205,486
<CURRENT-LIABILITIES> 7,764,807
<BONDS> 0
0
0
<COMMON> 35,500
<OTHER-SE> 39,513,974
<TOTAL-LIABILITY-AND-EQUITY> 49,205,486
<SALES> 69,639,240
<TOTAL-REVENUES> 69,639,240
<CGS> 40,396,188
<TOTAL-COSTS> 20,802,705
<OTHER-EXPENSES> 57,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (335,722)
<INCOME-PRETAX> 8,718,578
<INCOME-TAX> 3,456,431
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,262,147
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.48
</TABLE>
