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Monarch Dental Corp · DEFM14A · On 1/7/03

Filed On 1/7/03 3:53pm ET   ·   SEC File 0-22835   ·   Accession Number 927016-3-37

  in   Show  and 
  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 1/07/03  Monarch Dental Corp               DEFM14A     1/07/03    1:326                                    Donnelley R R & S..07/FA

Definitive Proxy Solicitation Material -- Merger or Acquisition   ·   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Special Notice & Proxy Statement                    HTML  2,641K

Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
"Summary Term Sheet
"Parties to the Merger
"The Merger and Related Transactions
"Recommendations of Our Board of Directors and The Special Committee and Reasons for the Merger
"Opinion of Financial Advisor
"Financing Arrangements
"Status of Our Credit Facility
"Arrangement Between Bright Now! Dental and Our Lenders
"Arrangements Between Bright Now! Dental and Our Major Stockholders
"Interests of Certain Persons in the Merger
"The Special Meeting
"Record Date
"Quorum and Vote Required
"Proxies, Voting and Revocation
"Appraisal Rights
"Exchange of Stock Certificates
"Conditions to the Merger
"Solicitation of Proposals from Other Parties
"Termination of the Merger Agreement
"Termination Fee; Expenses
"Amendment and Waiver
"Federal Income Tax Consequences
"Regulatory and Other Approvals
"Table of Contents
"Introduction
"Questions and Answers About the Merger
"Who Can Help Answer Your Questions
"Cautionary Statement Concerning Forward-Looking Information
"The Parties to the Merger
"Monarch Dental Corporation
"Bright Now! Dental, Inc
"Milkweed, Inc
"General
"Background of the Merger
"Structure of the Merger
"Certain Effects of the Merger
"Date, Time and Place of the Special Meeting
"Purpose of the Special Meeting
"Quorum
"Vote Required
"Abstentions and Broker Non-Votes
"Solicitation of Proxies and Expenses
"Severance Payments to Officers and Employees
"Stay Bonus Agreements
"Stock Options of Our Directors and Executive Officers
"Indemnification of Our Directors and Executive Officers
"The Merger Agreement
"Structure
"Effective Time
"Merger Consideration
"Rights of Holders of Our Common Stock at the Effective Time of the Merger
"Our Conduct of Business Prior to Completing the Merger
"Representations and Warranties
"Shareholder Rights Plan
"Treatment of Stock Options and Warrants
"Termination of Employee Stock Purchase Plan
"Employee Benefits
"Indemnification
"Consequences to U.S. Stockholders
"Consequences to Non-U.S. Stockholders
"Information Reporting and Backup Withholding
"Security Ownership of Management and Certain Beneficial Owners
"Stockholder Proposals
"Where You Can Find More Information

This is an EDGAR HTML document rendered as filed.  [ Alternative Formats ]

  SPECIAL NOTICE & PROXY STATEMENT  
Table of Contents
 
SCHEDULE 14A
(Rule 14a-101)
 
INFORMATION REQUIRED IN PROXY STATEMENT
 
SCHEDULE 14A INFORMATION
 
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No.     )
 
Filed by the Registrant [X]
Filed by a Party other than the Registrant [  ]
 
Check the appropriate box:
 
[  ]  Preliminary Proxy Statement
   
[  ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement
   
       Only (as permitted by Rule l4a-6(e)(2))
[  ]  Definitive Additional Materials
     
[  ]  Soliciting Material Under Rule 14a-12
     
 
MONARCH DENTAL CORPORATION
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
 
Payment of Filing Fee (Check the appropriate box):
 
[  ]
 
No fee required.
[  ]
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
(1)
 
Title of each class of securities to which transaction applies:
 
 
(2)
 
Aggregate number of securities to which transaction applies:
 
 
(3)
 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
(4)
 
Proposed maximum aggregate value of transaction:
 
 
(5)
 
Total fee paid:
 
[X]
 
Fee paid previously with preliminary materials:  $1,174
 
[  ]
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
 
 
(1)
 
Amount previously paid:
 
(2)
 
Form, Schedule or Registration Statement No.:
 
(3)
 
Filing Party:
 
(4)
 
Date Filed:

Table of Contents
 
Picture -- LOGO
 
January 7, 2003
 
Dear Stockholder:
 
You are cordially invited to attend a special meeting of stockholders of Monarch Dental Corporation to be held at the Hotel Inter-Continental, Crystal I Ballroom, 15201 Dallas Parkway, Addison, Texas, on Wednesday, February 12, 2003, at 10:00 a.m., local time. At the special meeting, you will be asked to consider and vote upon a proposal to adopt and approve the Agreement and Plan of Merger, dated as of November 27, 2002 and amended as of December 10, 2002, which provides for the merger of a wholly-owned subsidiary of Bright Now! Dental, Inc. with and into Monarch Dental. If the merger is completed, each outstanding share of our common stock (other than shares as to which appraisal rights have been demanded and not withdrawn or lost) will be converted into the right to receive $5.75 in cash, without interest. You should carefully read the merger agreement, a copy of which is attached as Appendix A to the accompanying proxy statement. The affirmative vote of holders of a majority of the shares of our common stock outstanding and entitled to vote at the special meeting is necessary to approve the merger agreement. Holders of approximately 23.1% of these shares have agreed with Bright Now! Dental to vote in favor of the adoption and approval of the merger agreement.
 
You have the right under Delaware law to demand an appraisal of your shares and to have a judicial determination of the fair value of your shares. We have described these appraisal rights in detail in the accompanying proxy statement. You should read the relevant sections of the proxy statement and the statutory provisions carefully.
 
The special committee of our board of directors, consisting of three independent directors, was formed to consider and evaluate potential strategic alternatives for our company, including the merger. The special committee has unanimously recommended to our board that the merger agreement be adopted and approved. Among the factors considered by the special committee in evaluating the merger agreement was the opinion dated December 10, 2002, of Banc of America Securities LLC, our company’s financial advisor, which provides that, as of that date, the consideration to be received by holders of our common stock in the proposed merger was fair from a financial point of view to those stockholders, other than those stockholders who entered into agreements with Bright Now! Dental to vote in favor of the adoption and approval of the merger agreement. The written opinion of Banc of America Securities is attached as Appendix B to the accompanying proxy statement and should be read carefully and in its entirety.
 
Our board of directors, based on the recommendation of the special committee, has unanimously approved the merger agreement and determined that the merger agreement is advisable and fair to and in the best interests of our stockholders, and accordingly recommends that our stockholders vote to adopt and approve the merger agreement.
 
The accompanying proxy statement provides you with a summary of the merger agreement and additional information about the parties involved and their interests. If the merger agreement is approved by the requisite holders of our common stock, the closing of the merger will occur as soon after the special meeting as all of the other conditions to the closing of the merger are satisfied or waived.
 
Please give all of this information your careful attention. Whether or not you plan to attend the special meeting, you are requested to promptly complete, sign and date the enclosed proxy card and return it in the envelope provided. This will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting.
 
Sincerely,
 
Picture -- LOGO
W. Barger Tygart
Chairman, President and
Chief Executive Officer
 

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MONARCH DENTAL CORPORATION
Tollway Plaza II
15950 North Dallas Parkway, Suite 825
Dallas, Texas 75248
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
 
To Be Held On Wednesday, February 12, 2003
 
To the Stockholders of
Monarch Dental Corporation:
 
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Monarch Dental Corporation, a Delaware corporation, will be held at the Hotel Inter-Continental, Crystal I Ballroom, 15201 Dallas Parkway, Addison, Texas, on Wednesday, February 12, 2003, at 10:00 a.m., local time, for the following purposes:
 
1.  To consider and vote upon a proposal to adopt and approve the Agreement and Plan of Merger, dated as of November 27, 2002 and amended as of December 10, 2002, by and among Monarch Dental, Bright Now! Dental, Inc. and Milkweed, Inc., a wholly-owned subsidiary of Bright Now! Dental, which provides for the merger of Milkweed with and into Monarch Dental, with Monarch Dental being the surviving corporation. A copy of the merger agreement is attached as Appendix A to the accompanying proxy statement; and
 
2.  To consider and act upon any other business as may properly come before the special meeting and any adjournments or postponements of that meeting.
 
Only holders of record of our common stock at the close of business on January 2, 2003, are entitled to notice of and to vote at the special meeting and any adjournments or postponements of that meeting. A form of proxy and a proxy statement containing more detailed information with respect to matters to be considered at the special meeting accompany and form a part of this notice.
 
Holders of our common stock have the right under Delaware law to demand an appraisal of their shares and to have a judicial determination of the fair value of their shares. These rights, generally known as appraisal rights, are described in detail in the proxy statement accompanying this notice. In addition, a copy of Section 262 of the Delaware General Corporation Law, which governs appraisal rights, is attached as Appendix C to the proxy statement. We urge you to read both the applicable section of the proxy statement and the statutory provisions carefully. If you wish to demand an appraisal of your shares, you must strictly comply with the statutory requirements.
 
Your vote is important regardless of the number of shares of our common stock that you hold. To assure that your shares are represented at the special meeting, you are urged to complete, date and sign the enclosed proxy card and mail it promptly in the postage-paid envelope provided, whether or not you plan to attend the special meeting in person. You may revoke your proxy in the manner described in the accompanying proxy statement at any time before it is voted at the special meeting. If you attend the special meeting, you may vote in person even if you have already returned a proxy.
 
BY ORDER OF THE BOARD OF DIRECTORS
 
Picture -- LOGO
 
Lisa K. Peterson
Secretary
 
January 7, 2003
 
Please do not send your stock certificates at this time.
If the merger is completed, we will send you instructions regarding the surrender of your stock certificates.

Table of Contents
MONARCH DENTAL CORPORATION
Tollway Plaza II
15950 North Dallas Parkway, Suite 825
Dallas, Texas 75248
 
 
PROXY STATEMENT
 
 
Special Meeting of Stockholders
To Be Held On Wednesday, February 12, 2003
 
 SUMMARY TERM SHEET
 
This summary term sheet highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the merger fully, you should carefully read this entire document, as well as the other documents to which we refer you, including the merger agreement attached as Appendix A. See “Where You Can Find More Information” on page 55. We have included page references in parentheses to direct you to a more complete description of the topics presented in this summary. This proxy statement is first being mailed to our stockholders on or about January 7, 2003.
 
 Parties to the Merger (Page 5)
 
•    Monarch Dental Corporation.    We are a Delaware corporation that provides management and administrative services to dental group practices in selected markets. Our principal executive offices are located at Tollway Plaza II, 15950 North Dallas Parkway, Suite 825, Dallas, Texas 75248, and the telephone number of our offices is (972) 361-8420.
 
•    Bright Now! Dental, Inc.    Bright Now! Dental, a Washington corporation, is a dental practice management company that provides business support services to dental offices in California, Oregon and Washington. Entities affiliated with Gryphon Investors, Inc., a middle-market private equity fund, own a majority of the outstanding capital stock of Bright Now! Dental. In connection with the merger, Gryphon has partnered with The 180° Group, LLC, a Los Angeles-based consulting firm that specializes in turnaround situations. The principal executive offices of Bright Now! Dental are located at 201 E. Sandpointe, Suite 200, Santa Ana, California 92707, and the telephone number of its offices is (714) 668-1300.
 
•    Milkweed, Inc.     Milkweed is a Delaware corporation recently formed by Bright Now! Dental for the purpose of completing the merger. We refer to this corporation throughout this proxy statement as Merger Subsidiary. Merger Subsidiary will be merged out of existence at the effective time of the merger. The principal executive offices of Merger Subsidiary are located at 201 E. Sandpointe, Suite 200, Santa Ana, California 92707, and the telephone number of its offices is (714) 668-1300.
 
 The Merger and Related Transactions (Page 6)
 
•    We signed a merger agreement with Bright Now! Dental and Merger Subsidiary on November 27, 2002, which was subsequently amended on December 10, 2002. The merger agreement provides for the merger of Merger Subsidiary with and into Monarch Dental, with Monarch Dental being the surviving corporation. Following the merger, we will be a wholly-owned subsidiary of Bright Now! Dental.

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•    At the effective time of the merger, each outstanding share of our common stock (other than shares as to which appraisal rights have been demanded and not withdrawn or lost) will be converted automatically into the right to receive $5.75 in cash, without interest.
 
•    After the completion of the merger, the holders of our common stock will have no continuing equity interest in our company, and will not share in our future earnings, dividends or growth, if any. In addition, after the merger has been completed, our common stock will no longer be listed on NASDAQ or registered with the Securities and Exchange Commission.
 
 Recommendations of Our Board of Directors and The Special Committee and Reasons for the Merger (Page 14)
 
•    After an evaluation of a variety of business, financial and market factors and consultation with our legal and financial advisors, our board of directors, based on the recommendation of the special committee, unanimously approved the merger agreement and declared the merger advisable and in the best interests of our stockholders and voted to recommend that our stockholders adopt and approve the merger agreement.
 
 Opinion of Financial Advisor (Page 18)
 
•    On December 10, 2002, Banc of America Securities LLC rendered an opinion to our board of directors and the special committee that, as of the date of that opinion, the consideration to be received by holders of our common stock in the proposed merger was fair from a financial point of view to those stockholders, other than those stockholders who entered into agreements with Bright Now! Dental to vote in favor of the adoption and approval of the merger agreement.
 
•    The full text of the written opinion of Banc of America Securities, dated December 10, 2002, which sets forth the assumptions made, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix B to, and is incorporated by reference in, this proxy statement. The opinion of Banc of America Securities does not constitute a recommendation to any stockholder on how to vote on the merger agreement. You should read this opinion carefully and in its entirety.
 
 Financing Arrangements (Page 23)
 
•    In connection with the merger agreement, Bright Now! Dental has obtained commitment letters from Antares Capital Corporation, Madison Capital Funding LLC, and The Royal Bank of Scotland plc, to provide collectively a $73.0 million senior secured credit facility to finance the merger and related transactions on the terms and conditions set forth in the commitment letters. We refer in this proxy statement to Antares Capital Corporation, Madison Capital Funding LLC, and The Royal Bank of Scotland plc as the Antares Group. Bright Now! Dental has also obtained a commitment letter from Blackstone Mezzanine Partners, L.P., or Blackstone, to purchase up to $27.0 million in Bright Now! Dental senior subordinated notes and warrants to finance the merger and related transactions on the terms and conditions set forth in the commitment letter. As of the date of this proxy statement, these commitment letters are in full force and effect and have not been terminated.
 
•    Bright Now! Dental also will obtain additional financing from Gryphon affiliates in the amount of $28.4 million. We have been informed that Gryphon has equity commitments from its limited partners in the aggregate amount of $28.4 million and that the general partner may call these commitments to fund a portion of the costs of the merger. As of the date of this proxy statement, all internal and other approvals necessary for Gryphon to obtain these equity commitments have been obtained and remain in full force and effect. The aggregate amount of $28.4 million will be invested in Bright Now! Dental in exchange for 12.0% junior pay-in-kind subordinated notes with detachable warrants, or junior subnotes.

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Table of Contents
 
•    The Antares Group’s obligation to provide the senior secured credit facility is subject to a number of conditions, including, among others:
 
 
•
 
the satisfactory completion of due diligence;
 
 
•
 
the execution of definitive documentation for the senior secured credit facility in form and substance satisfactory to the Antares Group and the satisfaction of the conditions in the definitive documentation;
 
 
•
 
the absence of any material adverse change since March 31, 2002, in the business condition (financial or otherwise), operations, performance or prospects of any of Monarch Dental, Bright Now! Dental or Merger Subsidiary;
 
 
•
 
the receipt by the Antares Group of satisfactory projections and pro forma and unaudited financial statements from Monarch Dental and Bright Now! Dental;
 
 
•
 
the execution by Gryphon of an indemnification agreement for the benefit of Bright Now! Dental, and upon which the Antares Group may rely, providing for the payment of all amounts in excess of the merger consideration required to be paid as a result of the exercise of appraisal rights by our stockholders;
 
 
•
 
the absence of any order or injunction or pending litigation that has a reasonable possibility of having a material adverse effect on any of Monarch Dental, Bright Now! Dental or Merger Subsidiary;
 
 
•
 
the absence of any litigation seeking to enjoin or prevent the merger or any related transactions; and
 
 
•
 
the satisfaction of certain financial covenants and ratios at the closing.
 
•    Blackstone’s obligation to purchase the senior subordinated notes and warrants is subject to a number of conditions, including, among others:
 
 
•
 
the satisfactory completion of due diligence;
 
 
•
 
the execution of definitive documentation for the senior subordinated notes and warrants in form and substance satisfactory to Blackstone and the satisfaction of the conditions in the definitive documentation;
 
 
•
 
the final terms of the senior credit facility with the Antares Group being in form and substance satisfactory to Blackstone;
 
 
•
 
Blackstone’s execution of intercreditor and subordination agreements with the Antares Group and the holders of the junior subnotes, containing terms satisfactory to Blackstone;
 
 
•
 
the satisfaction of certain funding limitations in connection with the merger;
 
 
•
 
the absence of any material adverse change since December 31, 2001, in the condition (financial or otherwise), business, rights, prospects, properties, assets or supplier, customer or employee relationships of Bright Now! Dental or Monarch Dental;
 
 
•
 
the receipt by Blackstone of satisfactory pro forma and unaudited financial statements from Monarch Dental and Bright Now! Dental that indicate compliance with certain financial ratios;
 
 
•
 
the execution by Gryphon of an indemnification agreement for the benefit of Bright Now! Dental, and upon which Blackstone may rely, providing for the payment of all amounts in excess of the merger consideration required to be paid as a result of the exercise of appraisal rights by our stockholders; and
 
 
•
 
the absence of any material pending litigation or proceeding against Bright Now! Dental or Monarch Dental.

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•    Bright Now! Dental and Merger Subsidiary have agreed in the merger agreement to use their reasonable best efforts to obtain the financing for the merger and to satisfy the conditions set forth in the commitment letters. Bright Now! Dental has represented in the merger agreement that, as of the date of that agreement, it has no reason to believe that any of these conditions that are entirely within its control cannot or will not be satisfied prior to the effective time of the merger.
 
•    We have the right to terminate the merger agreement upon receipt of notice from Bright Now! Dental that:
 
 
•
 
either the Antares Group or Blackstone has notified Bright Now! Dental that they are unable to provide the financing set forth in their respective commitment letters; or
 
 
•
 
Bright Now! Dental has determined that it is likely that it will be unable to satisfy any of the conditions in the financing commitment letters.
 
Bright Now! Dental is obligated to inform us of the occurrence of either of the events listed above as promptly as possible, but in no event later than 48 hours after the occurrence of the event.
 
•    As of the date of this proxy statement, Bright Now! Dental has not yet completed its financing, and no assurance can be given that Bright Now! Dental will have adequate funds to finance the merger. Bright Now! Dental currently does not have any alternative financing commitments in the event that the proposed financing with the Antares Group or Blackstone is not obtained.
 
 Status of Our Credit Facility (Page 6)
 
•    We have been in default under the terms of our credit facility since December 31, 2001, as a result of our breach of several financial covenants and subsequently due to our failure to make required principal and interest payments. As a result, our lenders have the right, among other things, to foreclose upon our assets and/or apply the cash held in our bank accounts maintained with our lenders to the payment of our obligations under the credit facility, either of which could have the effect of forcing our company into bankruptcy. Our lenders imposed the default interest rate under the credit facility which has significantly increased our interest payments and negatively impacted our liquidity. On July 1, 2002, our credit facility expired and the outstanding debt of approximately $63.1 million became due and payable. We have not repaid the outstanding debt, as we do not have sufficient funds to make this payment in full. On October 24, 2002, our lenders applied approximately $1.2 million from our cash accounts to repay a portion of the unpaid interest and unpaid professional fees due under the related credit agreement.
 
 Arrangement Between Bright Now! Dental and Our Lenders (Page 26)
 
•    In connection with the merger agreement, Bright Now! Dental has entered into an agreement with our lenders to pay at the closing of the merger approximately $63.1 million to our lenders, and our lenders have agreed to accept such amount in full satisfaction of all of our obligations under our credit facility. This amount represents the outstanding principal balance under our credit facility. In addition, if the merger does not close by February 28, 2003, Bright Now! Dental has agreed to pay additional amounts of interest that accrue during the period commencing March 1, 2003 and ending on the closing date of the merger. Upon the payment of the $63.1 million to our lenders, Bright Now! Dental shall cause us to release our lenders and our lenders shall release Bright Now! Dental from all claims arising from or related to our credit facility.
 
•    Under this agreement, our lenders have agreed to refrain from taking the following actions, among others, until the earliest of (1) the termination of the merger agreement, (2) any default by Bright Now! Dental of the terms of this agreement with our lenders, (3) April 1, 2003, and (4) the closing of the merger:
 
 
•
 
filing suit against us in connection with our credit facility;

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•
 
foreclosing or initiating a foreclosure action on any collateral under the credit facility;
 
 
•
 
exercising any self-help remedies with respect to the collateral under the credit facility;
 
 
•
 
interfering with our use of our cash by applying the cash held in our bank accounts to the payment of our obligations under the credit facility; or
 
 
•
 
exercising remedies and collecting interest and fees.
 
•    Our lenders also agreed, to the extent permitted by applicable law, to exercise all of their warrants to purchase shares of our common stock prior to the record date for the special meeting and to transfer the shares to a Gryphon affiliate, without further consideration, immediately upon the payment of the $63.1 million, plus any interest required to be paid, upon the closing of the merger. Our lenders exercised their warrants on December 27, 2002 by reducing the number of shares underlying the warrants by the number of shares having a fair market value equal to the exercise price of the warrants. On the record date, the resulting 174,245 warrant shares represented approximately 7.4% of our outstanding common stock.
 
•    In addition, this agreement includes certain milestones to be met in connection with the preparation, filing and mailing of the proxy statement to our stockholders, the holding of the special meeting and the closing of the merger. The failure to meet any of these milestones would result in the termination of this agreement.
 
•    We are not a party to this agreement and, thus, we cannot enforce its terms. If Bright Now! Dental were to breach the terms of this agreement or the merger agreement were to terminate for any reason, the agreement would terminate and our lenders would be able to exercise their rights under the credit agreement without violation, including their rights of foreclosure and set-off.
 
 Arrangements Between Bright Now! Dental and Our Major Stockholders (Page 28)
 
Bruce Galloway and Europa International, Inc. (an affiliate of Fred Knoll), who collectively with their affiliates own approximately 23.1% of the outstanding shares of our common stock, have entered into separate arrangements with Bright Now! Dental and its affiliates regarding the merger. Our board of directors and the special committee are aware of these arrangements, which are summarized below, and considered them, among other matters, in approving the merger agreement.
 
•     These stockholders entered into stockholder support agreements with Bright Now! Dental under which they agreed to:
 
 
•
 
vote all of their shares of our common stock in favor of the adoption and approval of the merger agreement and any other matter necessary to consummate the transactions contemplated by the merger agreement;
 
 
•
 
vote all of their shares of our common stock against any other acquisition proposal or any corporate action the consummation of which would impede, prevent or delay the completion of the transactions contemplated by the merger agreement;
 
 
•
 
not transfer or otherwise dispose of any of their shares of our common stock or enter into any voting agreement or arrangement with respect to these shares;
 
 
•
 
not grant any proxy or power of attorney with respect to their shares of our common stock;
 
 
•
 
not exercise any appraisal rights under Delaware law; and
 
 
•
 
not solicit, initiate or encourage the submission of an acquisition proposal with respect to our company, participate in any discussions or negotiations regarding an acquisition proposal, furnish to any person any information with respect to an acquisition proposal, or take any other action to facilitate any inquiries or the making of a proposal that constitutes, or may reasonably be expected to lead to, an acquisition proposal.

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•     The stockholder support agreements will terminate upon the earliest to occur of:
 
 
•
 
the effective time of the merger;
 
 
•
 
any termination of the merger agreement;
 
 
•
 
any material amendment to the merger agreement not agreed to in writing by the applicable stockholder; and
 
 
•
 
the 180th day following the December 10, 2002 execution date of these agreements.
 
•     The stockholder support agreements also provide for Mr. Galloway and Europa International to be reimbursed by Bright Now! Dental for documented legal fees incurred by them in connection with the merger and the other transactions contemplated by the stockholder support agreements. The reimbursement of legal fees is limited to an aggregate of $35,000 for Mr. Galloway and $60,000 for Europa International.
 
•     In connection with entering into the stockholder support agreements, the parties, including their respective affiliates, also entered into mutual releases and covenants not to sue with respect to specified claims related to the transactions contemplated by the merger agreement. The releases and covenants not to sue made by the stockholders are also in favor of Monarch Dental, and the releases and covenants not to sue made by Bright Now! Dental are also made on behalf of Monarch Dental at such time as our company is controlled by Bright Now! Dental. The stockholder releases, but not the covenants not to sue, are effective only upon the completion of the merger and only if the merger consideration is not less than $5.75 per share. The stockholder releases and covenants not to sue terminate if the applicable stockholder is not reimbursed for legal fees as provided in the relevant stockholder support agreement.
 
•     Also in connection with the execution of the stockholder support agreements, Messrs. Galloway and Knoll entered into letter agreements with Gryphon Partners II, L.P. that provide each of them with the option to purchase from Gryphon Partners following the completion of the merger, an amount of junior subnotes in Bright Now! Dental having an aggregate purchase price equal to the proceeds that they each receive in the merger. The stockholders may elect to make this investment at any time up to and including the 180th day following the completion of the merger and the receipt of a disclosure document from Bright Now! Dental. The option election period may be extended under limited circumstances. Any investment in the securities of Bright Now! Dental would be at the same price as the purchase by Gryphon Partners.
 
•     Assuming the full exercise of these options and an aggregate purchase of $28.4 million principal amount of junior subnotes by Gryphon affiliates:
 
 
•
 
Mr. Knoll’s option would entitle him to approximately 8.2% of the total junior subnotes, with the shares of Bright Now! Dental common stock he may purchase upon exercise of the accompanying warrants at a price of $0.01 per share, representing approximately 2.5% of the fully diluted common stock of Bright Now! Dental; and
 
 
•
 
Mr. Galloway’s option would entitle him to approximately 2.8% of the total junior subnotes, with the shares of Bright Now! Dental common stock he may purchase upon exercise of the accompanying warrants at a price of $0.01 per share, representing approximately 0.8% of the fully diluted common stock of Bright Now! Dental.
 
In the event the principal amount of the junior subnotes issued for purposes of funding the merger and related transactions exceeds $28.4 million, the number of warrants accompanying the junior subnotes could increase, but the common stock subject to the warrants would not, in any event, represent more than 40.0% of the fully diluted common stock of Bright Now! Dental. In the event the principal amount of the junior subnotes issued by Bright Now! Dental exceeds $28.4 million, the percentage interests of the stockholders in those subnotes would decrease proportionately. In addition, if the number of warrants accompanying the junior subnotes is increased as a result of an increase in the principal amount of the junior subnotes issued, the percentage of the fully diluted Bright Now! Dental common stock represented by warrants held by the stockholders would increase.

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•     Gryphon Investors, Inc. also entered into a one-year consulting agreement, effective upon the completion of the merger, with Galloway Capital Management, LLC, an affiliate of Mr. Galloway, which can be extended under limited circumstances for an additional one-year term. Under the consulting agreement, Galloway Capital agreed to provide Gryphon with a right of first offer with respect to all new transaction ideas that Galloway Capital generates in connection with public company going-private transactions. For these services, Galloway Capital will receive a fee of $150,000 per year.
 
 Interests of Certain Persons in the Merger (Page 35)
 
Some of our directors and executive officers have interests in the merger that differ from, or are in addition to, your interests as a stockholder. Our board of directors and the special committee are aware of these interests, which are summarized below, and considered them, among other matters, in approving the merger agreement.
 
•    Severance Payments.    Lisa K. Peterson, our Chief Financial and Administrative Officer, has an employment agreement that provides for certain benefits if her employment is terminated, whether by our company or Ms. Peterson, for any reason except termination for cause. As a result, upon the termination of her employment, Ms. Peterson will be entitled to receive a cash payment equal to her annual base salary and bonus for the prior year ($231,000), as well as certain health benefits and outplacement services. In addition, Ms. Peterson will be entitled to receive a stay bonus in the amount of $110,000, if the merger is completed on or prior to March 31, 2003.
 
•    Stay Bonus Agreements.    When the special committee of our board of directors authorized the pursuit of a sale of our company, the special committee determined that the potential sale of the company could create an atmosphere of uncertainty or insecurity among our employees, and could result in the departure of valuable employees, to the detriment of our company and our stockholders. As a result of that determination, we entered into stay bonus agreements with certain key officers and employees to induce them to continue their employment with us. In exchange for the employee’s promise to continue to perform his or her duties through the date of the merger or other specified dates, we agreed to pay these employees cash bonuses in an aggregate amount of up to $979,500. The following executive officers will be entitled to the stay bonus amounts listed if the merger is completed on or prior to March 31, 2003: W. Barger Tygart, $225,000; Lisa K. Peterson, $110,000; Dr. Roy D. Smith, III, $102,500; Timothy J. Kriske, $97,500; and Thurman Brown, $90,000.
 
•    Stock Options.    As of the closing of the merger, all of our outstanding stock options will become fully vested and exercisable. In full settlement of these options, Bright Now! Dental will make a cash payment to each option holder as of the closing equal to the difference between the merger consideration that would be payable with respect to each share of common stock underlying that option and the applicable option exercise price. As a result, our officers and directors holding options will receive cash payments at closing in settlement of those options in an aggregate amount of $245,068. The following officers and directors will be entitled to receive option settlement payments in the amounts listed: W. Barger Tygart, $218,729; Allan S. Huston, $16,439; Glenn E. Hemmerle, $3,300; Dr. John E. Maupin, Jr., $3,300; and Dr. Warren F. Melamed, $3,300. These options constitute all of the in-the-money options held by our officers, directors and other employees.
 
 The Special Meeting (Page 32)
 
•     A special meeting of the holders of our common stock will be held at the Hotel Inter-Continental, Crystal I Ballroom, 15201 Dallas Parkway, Addison, Texas, on Wednesday, February 12, 2003, at 10:00 a.m., local time, to vote on the proposal to adopt and approve the merger agreement.
 
 Record Date (Page 32)
 
•    Our board of directors has fixed the close of business on January 2, 2003, as the record date for determining stockholders entitled to notice of and to vote at the special meeting. On the record date, we had 2,348,634 outstanding shares of common stock held by approximately 557 stockholders of record. We have no other class of voting securities outstanding.

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•    Stockholders of record on the record date will be entitled to one vote per share of our common stock on any matter that may properly come before the special meeting and any adjournment or postponement of that meeting.
 
 Quorum and Vote Required (Page 32)
 
•    Our charter and by-laws and Delaware law require:
 
 
•
 
the presence, in person or by duly executed proxy, of the holders of a majority of the shares of our common stock outstanding and entitled to vote at the special meeting in order to constitute a quorum; and
 
 
•
 
the affirmative vote of holders of a majority of the shares of our common stock outstanding and entitled to vote at the special meeting in order to adopt and approve the merger agreement.
 
•    Holders of approximately 23.1% of the shares of our common stock outstanding and entitled to vote have agreed with Bright Now! Dental to vote in favor of the adoption and approval of the merger agreement. Also, on the record date, our directors and executive officers and their affiliates owned 378,370 shares of our common stock, or approximately 16.1% of our outstanding shares.
 
 Proxies, Voting and Revocation (Page 33)
 
•    Shares of our common stock represented at the special meeting by properly executed proxies received prior to or at the special meeting, and not revoked, will be voted at the special meeting, and at any adjournments or postponements of that meeting, in accordance with the instructions on the proxies. If a proxy is duly executed and submitted without instructions, the shares of common stock represented by that proxy will be voted “For” the adoption and approval of the merger agreement. Proxies are being solicited on behalf of our board of directors.
 
•    A proxy may be revoked by the person who executed it at or before the special meeting by:
 
 
•
 
delivering to our secretary a written notice of revocation bearing a later date than the proxy;
 
 
•
 
duly executing, dating and delivering to our secretary a subsequent proxy; or
 
 
•
 
attending the special meeting and voting in person.
 
•    Attendance at the special meeting will not, in and of itself, constitute revocation of a proxy.
 
 Appraisal Rights (Page 47)
 
•    Under Delaware law, you may exercise appraisal rights with respect to your shares of our common stock in connection with the merger. These rights entitle you to seek an appraisal of the fair value of your shares of our common stock, exclusive of any element of value arising from the expectation or completion of the merger. If you exercise your appraisal rights, you will not be entitled to receive the merger consideration unless you withdraw or lose your right to appraisal.
 
•    Stockholders who elect to exercise their appraisal rights must strictly comply with all of the procedures set forth in Section 262 of the Delaware General Corporation Law. If you fail to follow these statutory procedures, your appraisal rights may be terminated or waived. The full text of Section 262 of the Delaware General Corporation Law is attached to this proxy statement as Appendix C.
 
 Exchange of Stock Certificates (Page 37)
 
•    Bright Now! Dental has designated Mellon Investor Services LLC to act as the exchange agent in the merger.

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•    Promptly after the effective time of the merger, the exchange agent will mail to each of our stockholders a letter of transmittal and instructions specifying the procedures to be followed in surrendering your shares of our common stock in exchange for the merger consideration. You should not submit your stock certificates for exchange until you receive the letter of transmittal and instructions from the exchange agent. When you surrender your stock certificates along with the properly executed letter of transmittal, you will receive the merger consideration.
 
 Conditions to the Merger (Page 39)
 
•    We will not complete the merger unless a number of conditions are satisfied or waived, including approval of the merger agreement by our stockholders and the receipt by Bright Now! Dental of the proceeds of its financing commitments.
 
 Solicitation of Proposals from Other Parties (Page 42)
 
•    We have agreed that, until the termination of the merger agreement or the effective time of the merger, neither we nor any of our subsidiaries will take any action, or authorize or permit any of our directors, officers, employees, accountants, consultants, legal counsel, advisors and agents, or other representatives to take any action, to knowingly encourage, solicit, initiate or facilitate or enter into any agreement, arrangement or understanding or participate in any discussions or negotiations with, or furnish information to, any third party or take any action to knowingly facilitate any inquiries or making of a proposal that constitutes, or would reasonably be expected to lead to, any of the following:
 
 
•
 
a merger, consolidation, business combination or similar transaction involving us or any of our subsidiaries;
 
 
•
 
a sale, lease or other disposition, directly or indirectly, by merger, consolidation, business combination, share exchange, joint venture, or otherwise, of 50% or more of our assets on a consolidated basis with our subsidiaries;
 
 
•
 
the issuance, sale or other disposition, including by merger, consolidation, business combination, share exchange, joint venture, or otherwise, of our securities representing 50% or more of our voting power;
 
 
•
 
a transaction in which any person acquires beneficial ownership or the right to acquire beneficial ownership of, or any group forms which beneficially owns or has the right to acquire beneficial ownership of, 50% or more of our common stock; or
 
 
•
 
any combination of the above.
 
•    If we receive an acquisition proposal concerning any of the transactions mentioned above, however, and our board of directors determines, in good faith, after consultation with outside legal counsel, that failing to take any of the actions listed below would be inconsistent with its fiduciary duties to our stockholders, then we may, in response to an acquisition proposal that our board, after consultation with our financial advisor, determines is reasonably likely to lead to a transaction that is more favorable to our stockholders, from a financial viewpoint, than the proposed merger, take any of the following actions:
 
 
•
 
furnish information to the person making the acquisition proposal so long as that party enters into a customary confidentiality agreement no more favorable to that person than the one entered into by Bright Now! Dental; and
 
 
•
 
participate in discussions or negotiations concerning the acquisition proposal.
 
•    We must notify Bright Now! Dental as promptly as practicable, and in any event within 48 hours, of any inquiry that we receive relating to an acquisition proposal and of the material terms of any acquisition proposal or inquiry.
 
•    Under the merger agreement, we agreed that neither our board of directors nor the special committee would:
 
 
•
 
withdraw or modify, or propose publicly to withdraw or modify, its approval or recommendation of the merger agreement;

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•
 
approve or recommend, or propose publicly to approve or recommend, any other acquisition proposal; or
 
 
•
 
cause Monarch Dental to enter into any letter of intent, agreement in principle, acquisition agreement or similar agreement with respect to any other acquisition proposal.
 
Ÿ    However, if our board of directors determines, in good faith, after consultation with outside legal counsel, that failing to do so would be inconsistent with its fiduciary duties to our stockholders, then it may, upon five days prior written notice to Bright Now! Dental, withdraw or modify its recommendation of the merger agreement or terminate the merger agreement in connection with accepting a superior proposal. Under these circumstances, we will be required to pay Bright Now! Dental a $1.5 million termination fee upon the completion of the alternative business combination and to reimburse Bright Now! Dental’s reasonable out-of-pocket expenses in an aggregate amount of up to $1.0 million.
 
 Termination of the Merger Agreement (Page 43)
 
Ÿ    Either Bright Now! Dental or Monarch Dental may terminate the merger agreement if any of the following occurs:
 
 
•
 
the parties mutually agree in writing to terminate the merger agreement by action of their respective boards of directors;
 
 
•
 
the merger is not completed by the later of (a) May 31, 2003, or (b) the first business day following the special meeting if the date of the special meeting has been postponed or rescheduled or the special meeting has been adjourned in accordance with the terms of the merger agreement (we refer to this later date throughout this proxy statement as the outside meeting date), provided that Bright Now! Dental may extend such date to July 31, 2003, upon written notice to us if certain regulatory conditions have been or are capable of being satisfied by July 31, 2003;
 
 
•
 
any governmental entity issues an order, decree or ruling, or takes any action that permanently enjoins or prohibits the merger, and the order, decree or ruling becomes final and nonappealable; or
 
 
•
 
our stockholders do not vote to adopt and approve the merger agreement.
 
•    In addition, Bright Now! Dental has the right to terminate the merger agreement if:
 
 
•
 
our board of directors withdraws or adversely modifies its recommendation to our stockholders to vote in favor of the merger agreement;
 
 
•
 
our board determines to recommend to our stockholders that they approve another acquisition proposal or determines to accept a superior proposal;
 
 
•
 
our board fails to recommend to our stockholders that they not tender or exchange their shares in a tender offer or exchange offer that would result in any person becoming a beneficial owner of 50% or more of our outstanding shares of common stock;
 
 
•
 
we fail to hold the special meeting by the outside meeting date;
 
 
•
 
there is any event or development that has had or would reasonably be expected to have a material adverse effect on our assets, liabilities, financial condition or results of operations, which is not cured within 10 days; or
 
 
•
 
any material breach of the merger agreement by us exists or any of our representations or warranties becomes untrue, in either case, which is not cured within 10 days.
 
•    We have the right to terminate the merger agreement if:
 
 
•
 
our board of directors determines to accept a superior proposal and, five days prior to terminating the merger agreement, we notify Bright Now! Dental of our intent to terminate and specify the material terms of the superior proposal;
 
 
•
 
any material breach of the merger agreement by Bright Now! Dental or Merger Subsidiary exists or any of Bright Now! Dental’s or Merger Subsidiary’s representations or warranties becomes untrue, in either case, which is not cured within 10 days;

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•
 
Bright Now! Dental notifies us that either the Antares Group or Blackstone has advised Bright Now! Dental that they are unable to provide the financing set forth in their respective commitment letters; or
 
 
•
 
Bright Now! Dental has determined that it is likely that it will be unable to satisfy any of the conditions in the commitment letters with the Antares Group or Blackstone.
 
 Termination Fee; Expenses (Page 44)
 
•    As a condition to Bright Now! Dental’s willingness to enter into the merger agreement, we have agreed to pay Bright Now! Dental a termination fee of $1.5 million if the merger agreement is terminated because:
 
 
•
 
our board of directors withdraws or adversely modifies its recommendation to our stockholders to vote in favor of the merger agreement and, prior to the date of termination, another acquisition proposal is made;
 
 
•
 
our board determines to recommend to our stockholders that they approve another acquisition proposal;
 
 
•
 
our board fails to recommend to our stockholders that they not tender or exchange their shares in a tender offer or exchange offer that would result in any person becoming a beneficial owner of 50% or more of our outstanding shares of common stock; or
 
 
•
 
our board determines to accept a superior proposal.
 
•    In addition, if any of the above actions occurs, we have also agreed to reimburse Bright Now! Dental’s reasonable out-of-pocket expenses in an aggregate amount of up to $1.0 million.
 
•    We will be required to pay the termination fee and related expenses to Bright Now! Dental on the consummation of the alternative acquisition proposal or the completion of the tender offer.
 
•    In addition, if either party terminates the merger agreement because of a breach of a representation, warranty, covenant or agreement by the other party, then the breaching party must reimburse the non-breaching party for 50% of its reasonable out-of-pocket expenses up to an aggregate amount of $500,000.
 
 Amendment and Waiver (Page 46)
 
•     At any time prior to the adoption and approval of the merger agreement by our stockholders:
 
 
•
 
the merger agreement may be amended by the respective boards of directors of the parties; and
 
 
•
 
either party may extend the time for performance of any of the obligations of the other party, waive any inaccuracies in the representations and warranties of the other party, or waive compliance by the other party with any of the agreements or