Filed On 1/7/03 3:53pm ET · SEC File 0-22835 · Accession Number 927016-3-37
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
| Page | (sequential) | | | | (alphabetic) | Top |
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- Alternative Formats (RTF, XML, et al.)
- Abstentions and Broker Non-Votes
- Amendment and Waiver
- Appraisal Rights
- Arrangement Between Bright Now! Dental and Our Lenders
- Arrangements Between Bright Now! Dental and Our Major Stockholders
- Background of the Merger
- Bright Now! Dental, Inc
- Cautionary Statement Concerning Forward-Looking Information
- Certain Effects of the Merger
- Conditions to the Merger
- Consequences to Non-U.S. Stockholders
- Consequences to U.S. Stockholders
- Date, Time and Place of the Special Meeting
- Effective Time
- Employee Benefits
- Exchange of Stock Certificates
- Federal Income Tax Consequences
- Financing Arrangements
- General
- Indemnification
- Indemnification of Our Directors and Executive Officers
- Information Reporting and Backup Withholding
- Interests of Certain Persons in the Merger
- Introduction
- Merger Agreement, The
- Merger and Related Transactions, The
- Merger Consideration
- Milkweed, Inc
- Monarch Dental Corporation
- Opinion of Financial Advisor
- Our Conduct of Business Prior to Completing the Merger
- Parties to the Merger
- Parties to the Merger, The
- Proxies, Voting and Revocation
- Purpose of the Special Meeting
- Questions and Answers About the Merger
- Quorum
- Quorum and Vote Required
- Recommendations of Our Board of Directors and The Special Committee and Reasons for the Merger
- Record Date
- Regulatory and Other Approvals
- Representations and Warranties
- Rights of Holders of Our Common Stock at the Effective Time of the Merger
- Security Ownership of Management and Certain Beneficial Owners
- Severance Payments to Officers and Employees
- Shareholder Rights Plan
- Solicitation of Proposals from Other Parties
- Solicitation of Proxies and Expenses
- Special Meeting, The
- Status of Our Credit Facility
- Stay Bonus Agreements
- Stockholder Proposals
- Stock Options of Our Directors and Executive Officers
- Structure
- Structure of the Merger
- Summary Term Sheet
- Table of Contents
- Termination Fee; Expenses
- Termination of Employee Stock Purchase Plan
- Termination of the Merger Agreement
- The Merger Agreement
- The Merger and Related Transactions
- The Parties to the Merger
- The Special Meeting
- Treatment of Stock Options and Warrants
- Vote Required
- Where You Can Find More Information
- Who Can Help Answer Your Questions
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| 1 | 1st Page
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| " | Summary Term Sheet
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| " | Parties to the Merger
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| " | The Merger and Related Transactions
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| " | Recommendations of Our Board of Directors and The Special Committee and Reasons for the Merger
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| " | Opinion of Financial Advisor
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| " | Financing Arrangements
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| " | Status of Our Credit Facility
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| " | Arrangement Between Bright Now! Dental and Our Lenders
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| " | Arrangements Between Bright Now! Dental and Our Major Stockholders
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| " | Interests of Certain Persons in the Merger
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| " | The Special Meeting
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| " | Record Date
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| " | Quorum and Vote Required
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| " | Proxies, Voting and Revocation
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| " | Appraisal Rights
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| " | Exchange of Stock Certificates
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| " | Conditions to the Merger
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| " | Solicitation of Proposals from Other Parties
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| " | Termination of the Merger Agreement
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| " | Termination Fee; Expenses
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| " | Amendment and Waiver
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| " | Federal Income Tax Consequences
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| " | Regulatory and Other Approvals
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| " | Table of Contents
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| " | Introduction
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| " | Questions and Answers About the Merger
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| " | Who Can Help Answer Your Questions
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| " | Cautionary Statement Concerning Forward-Looking Information
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| " | The Parties to the Merger
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| " | Monarch Dental Corporation
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| " | Bright Now! Dental, Inc
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| " | Milkweed, Inc
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| " | General
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| " | Background of the Merger
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| " | Structure of the Merger
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| " | Certain Effects of the Merger
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| " | Date, Time and Place of the Special Meeting
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| " | Purpose of the Special Meeting
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| " | Quorum
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| " | Vote Required
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| " | Abstentions and Broker Non-Votes
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| " | Solicitation of Proxies and Expenses
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| " | Severance Payments to Officers and Employees
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| " | Stay Bonus Agreements
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| " | Stock Options of Our Directors and Executive Officers
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| " | Indemnification of Our Directors and Executive Officers
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| " | The Merger Agreement
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| " | Structure
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| " | Effective Time
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| " | Merger Consideration
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| " | Rights of Holders of Our Common Stock at the Effective Time of the Merger
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| " | Our Conduct of Business Prior to Completing the Merger
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| " | Representations and Warranties
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| " | Shareholder Rights Plan
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| " | Treatment of Stock Options and Warrants
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| " | Termination of Employee Stock Purchase Plan
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| " | Employee Benefits
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| " | Indemnification
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| " | Consequences to U.S. Stockholders
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| " | Consequences to Non-U.S. Stockholders
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| " | Information Reporting and Backup Withholding
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| " | Security Ownership of Management and Certain Beneficial Owners
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| " | Stockholder Proposals
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| " | Where You Can Find More Information
|
This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]
| SPECIAL NOTICE & PROXY STATEMENT |
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. )
Check the appropriate box:
| [ ] Preliminary Proxy Statement |
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[ ] Confidential, for Use of the Commission |
| [X] Definitive Proxy Statement |
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Only (as permitted by Rule l4a-6(e)(2)) |
| [ ] Definitive Additional Materials |
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| [ ] Soliciting Material Under Rule 14a-12 |
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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):
[ ] |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
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Title of each class of securities to which transaction applies: |
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(2) |
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Aggregate number of securities to which transaction applies: |
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(3) |
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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): |
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(4) |
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Proposed maximum aggregate value of transaction: |
[X] |
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Fee paid previously with preliminary materials: $1,174 |
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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. |
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(1) |
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Amount previously paid: |
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(2) |
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Form, Schedule or Registration Statement No.: |
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,
W. Barger Tygart
Chairman, President and
Chief Executive Officer
MONARCH DENTAL CORPORATION
Tollway Plaza II
15950 North Dallas Parkway, Suite 825
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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
Lisa K. Peterson
Secretary
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.
MONARCH DENTAL CORPORATION
Tollway Plaza II
15950 North Dallas Parkway, Suite 825
PROXY STATEMENT
Special Meeting of Stockholders
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.
• 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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• The Antares Group’s obligation to provide the
senior secured credit facility is subject to a number of conditions, including, among others:
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the satisfactory completion of due diligence; |
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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; |
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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; |
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the receipt by the Antares Group of satisfactory projections and pro forma and unaudited financial statements from Monarch Dental and Bright Now! Dental;
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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; |
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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; |
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the absence of any litigation seeking to enjoin or prevent the merger or any related transactions; and |
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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:
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the satisfactory completion of due diligence; |
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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; |
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the final terms of the senior credit facility with the Antares Group being in form and substance satisfactory to Blackstone; |
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Blackstone’s execution of intercreditor and subordination agreements with the Antares Group and the holders of the junior subnotes, containing terms
satisfactory to Blackstone; |
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the satisfaction of certain funding limitations in connection with the merger; |
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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; |
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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; |
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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 |
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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:
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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 |
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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.
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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:
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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; |
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exercising any self-help remedies with respect to the collateral under the credit facility; |
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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
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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:
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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; |
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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; |
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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;
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not grant any proxy or power of attorney with respect to their shares of our common stock; |
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not exercise any appraisal rights under Delaware law; and |
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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:
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the effective time of the merger; |
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any termination of the merger agreement; |
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any material amendment to the merger agreement not agreed to in writing by the applicable stockholder; and |
•
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:
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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 |
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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.
• 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:
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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 |
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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:
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delivering to our secretary a written notice of revocation bearing a later date than the proxy; |
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duly executing, dating and delivering to our secretary a subsequent proxy; or |
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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:
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a merger, consolidation, business combination or similar transaction involving us or any of our subsidiaries; |
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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; |
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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; |
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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 |
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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:
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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 |
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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:
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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 |
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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:
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the parties mutually agree in writing to terminate the merger agreement by action of their respective boards of directors; |
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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; |
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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 |
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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:
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our board of directors withdraws or adversely modifies its recommendation to our stockholders to vote in favor of the merger agreement;
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our board determines to recommend to our stockholders that they approve another acquisition proposal or determines to accept a superior proposal;
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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; |
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we fail to hold the special meeting by the outside meeting date; |
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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 |
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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:
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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; |
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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 |
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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:
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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; |
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our board determines to recommend to our stockholders that they approve another acquisition proposal; |
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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 |
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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:
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the merger agreement may be amended by the respective boards of directors of the parties; and |
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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 conditions in the merger agreement. |
• Following the adoption and approval of the merger agreement by our stockholders, no amendment or waiver may be made without stockholder approval if the amendment or waiver
requires further stockholder approval under applicable law or the rules of any relevant stock exchange.
Federal Income Tax Consequences (Page 50)
• If
the merger is completed, the exchange of common stock by any of our stockholders in return for the cash merger consideration will be a taxable transaction under the Internal Revenue Code of 1986. Because of the complexities of the tax laws, we
advise you to consult your own personal tax advisors concerning the applicable federal, state, local, foreign and other tax consequences resulting from the merger.
Regulatory and Other Approvals (Page 52)
• No
federal or state regulatory requirements remain to be complied with in order to complete the merger, other than the filing of the certificate of merger with the Secretary of State of the State of Delaware.
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APPENDICES
Appendix C—Section 262 of the General
Corporation Law of Delaware—Appraisal Rights
Appendix D—Monarch Dental’s Annual Report on Form 10-K for the fiscal
year ended
Appendix E—Monarch Dental’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (excluding non-financial
exhibits)
This proxy statement is being furnished to holders of shares of
common stock of Monarch Dental Corporation, a Delaware corporation, in connection with the solicitation of proxies by our board of directors for use at the special meeting of stockholders 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, and any adjournments or postponements of that meeting. The purpose of the special meeting is for our stockholders to consider and vote upon a
proposal to adopt and approve the merger agreement which provides for the merger of Milkweed, Inc., a wholly-owned subsidiary of Bright Now! Dental, Inc., with and into our company. Milkweed is referred to throughout this document as Merger
Subsidiary. Our board has fixed the close of business on January 2, 2003, as the record date for the special meeting. Accordingly, only stockholders of record on that date will be entitled to notice of, and to vote at, the special meeting.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Upon what am I
being asked to vote?
A: You are being asked to adopt and approve the merger agreement,
which provides for the merger of Merger Subsidiary with and into our company. After the merger, Monarch Dental, as the surviving corporation, will be a wholly-owned subsidiary of Bright Now! Dental, and you will no longer own an equity interest in
us. Our board of directors and the special committee have unanimously approved the merger agreement and recommend that you vote “For” the adoption and approval of the merger agreement at the special meeting.
Q: What will happen in the merger?
A: Upon completion of the merger, Merger Subsidiary will be merged with and into Monarch Dental, with Monarch
Dental being the surviving corporation, and our stockholders will receive a cash payment of $5.75, without interest, for each share of common stock that they hold (other than shares as to which appraisal rights have been demanded and not withdrawn
or lost).
Q: Why has the merger been proposed?
A: Our board of directors and the special committee have proposed the merger because they believe that the merger
represents the alternative that is in the best interests of our stockholders and other constituencies. We have been in default under the terms of our credit facility since December 31, 2001. 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. Due to the financial uncertainty resulting from the defaults under our credit facility, the special committee has been pursuing strategic alternatives for our company since the beginning of 2002. In the special committee’s view, the
current economic and capital markets, as well as our recent operating performance, make it difficult for us to raise the capital necessary to repay our outstanding obligations to our lenders and continue our business operations as an independent
company. Our board and the special committee have determined that no other alternative, including continuing to operate as an independent public company, would be as favorable to our stockholders and other constituencies as the merger.
Q: Why was the special committee formed?
A: Our board of directors established the special committee, comprised of three directors who are disinterested, to
review and evaluate potential strategic alternatives for our company. Our board formed the special committee because it believed that a strategic alternative or other business combination transaction, such as the merger, might present potential
conflicts of interest for W. Barger Tygart as part of our senior management, as well as Dr. Warren F. Melamed, who had in the past made proposals to acquire our company. The special committee has determined that the merger agreement is fair to and
in the best interests of our stockholders.
1
Q: Who will own Monarch Dental after the
merger?
A: After the merger, we will be a wholly-owned subsidiary of Bright Now!
Dental. Our common stock will no longer be listed on NASDAQ or registered with the Securities and Exchange Commission.
Q: What vote is required to adopt and approve the merger agreement?
A: Approval of the merger agreement requires the affirmative vote of holders of a majority of the shares of our common stock outstanding and entitled to vote on the matter. 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. We urge you to complete, execute and return the enclosed proxy card to assure the representation of your shares of
common stock at the special meeting.
Q: What rights do I have if I oppose the
merger agreement?
A: You can vote against the adoption and approval of the merger
agreement by completing, signing and mailing your proxy card or by voting against the adoption and approval of the merger agreement in person at the special meeting. Under Delaware law, you are also entitled to an appraisal of the fair value of your
shares. To exercise these appraisal rights, you must strictly comply with all of the procedures set forth in Section 262 of the Delaware General Corporation Law. You will not be entitled to receive the merger consideration if you demand an appraisal
of your shares and such demand is not withdrawn or lost.
Q: What will I receive in the
merger?
A: As a stockholder of Monarch Dental, you will receive $5.75 in cash, without
interest, for each share of our common stock that you own (unless you demand an appraisal of your shares and such demand is not withdrawn or lost). This is referred to as the merger consideration. For example, if you own 100 shares of our common
stock, upon completion of the merger, you will receive $575 in cash.
Q: If the merger
is completed, when can I expect to receive the merger consideration for my shares of common stock?
A: Promptly after the merger is completed, you will receive detailed instructions regarding the surrender of your stock certificates. You should not send your stock certificates to us or anyone else until you
receive these instructions. Bright Now! Dental will arrange for the payment of the merger consideration to be sent to you as promptly as practicable following receipt of your stock certificates and other required documents.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger during the first calendar quarter of 2003. The parties, however, are not required to complete the merger
until two business days after all of the conditions to the merger described in the merger agreement are satisfied or waived.
Q: What are the tax consequences of the merger to me?
A: Your receipt of the merger consideration will be a taxable transaction for federal income tax purposes. To review the tax consequences to you in greater detail, see pages 50 through 52 of this proxy
statement. Your tax consequences will depend on your personal situation. You should consult your personal tax advisors for a full understanding of the tax consequences of the merger to you.
Q: What will happen to my shares of Monarch Dental common stock after the merger?
A: Following effectiveness of the merger, your shares of common stock will represent solely the right to receive the merger consideration (unless you
demand an appraisal of your shares and such demand is not withdrawn or lost) and trading of our common stock on NASDAQ will cease. Price quotations for our common stock will no longer be available and we will cease filing periodic reports under the
Securities Exchange Act of 1934.
2
Q: What do I need to do now?
A: This proxy statement contains important information regarding the merger agreement and the merger, as
well as information about our company and Bright Now! Dental. It also contains important information about what our board of directors and the special committee considered in approving the merger agreement. We urge you to read this proxy statement
carefully, including its appendices. You may also want to review the documents referenced under “Where You Can Find More Information.”
Q: How do I vote?
A: Indicate on your proxy card how you want to vote, sign and date your proxy card, and mail it in the enclosed, postage-paid envelope as soon as possible, so that your shares of common stock will be
represented at the special meeting. You may attend the special meeting and vote your shares of common stock in person, rather than voting by proxy. In addition, you may withdraw your proxy at any time up to and including the time the polls are
closed on the vote on the merger agreement at the special meeting and either change your vote or attend the special meeting and vote in person. The failure to vote, an abstention from voting, or a broker non-vote will have the same effect as a
vote against the proposal.
Q: What happens if I sell my shares before the special
meeting?
A: The record date for the special meeting is earlier than the expected
completion date of the merger. If you held your shares of common stock on the record date but have transferred those shares after the record date and before the merger, you may retain your right to vote at the special meeting but not the right to
receive the merger consideration. This right to receive the merger consideration will pass to the person to whom you transferred your shares of common stock.
Q: If my shares of common stock are held in “street name” by my broker, will my broker vote my shares for me?
A: Your broker will not vote your shares of common stock unless you provide instructions on how to vote. You should instruct your broker
how to vote your shares of common stock by following the directions your broker provides. If you do not provide instructions to your broker, your shares of common stock will not be voted, which will have the same effect as a vote against the
proposal to approve the merger agreement.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this
document, or if you would like to ask any additional questions about the merger, you should contact:
| MONARCH DENTAL CORPORATION Tollway Plaza II 15950 North Dallas Parkway, Suite 825 (972)
361-8420 Attention: Lisa K. Peterson, Secretary |
|
D. F. KING & CO., INC. 77 Water Street, 20th Floor (800)
488-8075 |
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement
contains forward-looking statements. These statements include statements regarding the intent, belief or current expectations of Monarch Dental, Gryphon, Bright Now! Dental and Merger Subsidiary and members of their respective management teams, as
well as the assumptions on which these statements are based. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those contemplated by the
forward-looking statements.
Important factors currently known to management of Monarch Dental, Gryphon, Bright
Now! Dental and Merger Subsidiary that could cause actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to, the following:
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the possibility that market or other factors, including our operating performance, could adversely affect Bright Now! Dental’s ability to obtain the
financing necessary to complete the merger; |
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the possibility that Bright Now! Dental and its investors will not be able to satisfy all of the conditions in their financing commitments;
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the possibility that we will be unable to maintain sufficient liquidity to fund our operations through the completion of the merger;
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the risk that we will be unable to satisfy all of the closing conditions set forth in the merger agreement; |
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the risk that stockholders or members of our other constituencies commence litigation which could prevent or delay the completion of the merger;
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the risk that Bright Now! Dental will breach the terms of its agreement with our lenders; |
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the risk that our lenders will exercise their rights of set-off and/or foreclosure or force our company into bankruptcy; and |
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the other risks discussed elsewhere in this proxy statement. |
Monarch Dental, Gryphon, Bright Now! Dental and Merger Subsidiary undertake no obligation to update or revise forward-looking statements in this proxy statement to reflect
changes in assumptions, the occurrence of unanticipated events, or changes in future operating results over time.
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THE PARTIES TO THE MERGER
Monarch Dental Corporation
We provide management and administrative services to
dental group practices in selected markets in Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, Utah and Virginia. We provide these services to the dental group practices under long-term
administrative services agreements, which cannot be terminated without cause, consisting primarily of bankruptcy or material default. We derive all of our revenue from these administrative services agreements. Dentists practicing at our dental
offices provide general dentistry services such as examinations, cleanings, fillings, bonding, placing crowns, and fitting and placing fixed or removable prostheses. At many of our dental offices, the dentists also provide specialty dental services
such as orthodontics, oral surgery, endodontics, periodontics, and pediatric dentistry. As of the date of this proxy statement, approximately 280 full-time dentists and 93 part-time dentists practiced at our affiliated dental offices.
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 is a dental practice management
company that provides business support services to more than 50 dental offices in California, Oregon and Washington. Bright Now! Dental provides administrative, financial, marketing and information services to independent dentists. Dentists at the
dental offices deliver general and preventive care, children’s dentistry, cosmetic dental care, orthodontic services and specialty dentistry, including oral surgery, endodontics and periodontics, to more than 250,000 patients each year. As of
the date of this proxy statement, approximately 126 full-time dentists and 91 part-time dentists practiced at Bright Now! Dental locations.
Entities affiliated with Gryphon Investors, Inc. own a majority of the outstanding capital stock of Bright Now! Dental. Gryphon, which currently has over $500 million of capital under management,
sponsors leveraged acquisitions of and growth equity investments in middle-market companies. In connection with the merger, Gryphon has partnered with The 180° Group, LLC, a Los Angeles-based consulting firm that specializes in turnaround
situations.
Bright Now! Dental’s principal executive offices are located at 201 E. Sandpointe, Suite 200,
Santa Ana, California 92707, and the telephone number of its principal office is (714) 668-1300.
Milkweed, or Merger Subsidiary, is a Delaware corporation recently
formed by Bright Now! Dental for the purpose of effecting the merger. Merger Subsidiary is a wholly-owned subsidiary of Bright Now! Dental. 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 principal office is (714) 668-1300.
5
THE MERGER AND RELATED TRANSACTIONS
The merger agreement provides for the merger of Merger Subsidiary with and
into our company. We will be the surviving corporation in the merger and will continue our existence under the laws of the State of Delaware as a wholly-owned subsidiary of Bright Now! Dental. We will cease to exist as a separate company and our
common stock will no longer be listed on NASDAQ. The merger will be completed when the certificate of merger has been filed with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law, which is
expected to occur as soon as practicable after the special meeting and the satisfaction or waiver of all other conditions to closing. The parties will not be required under the merger agreement, however, to complete the merger until two business
days after all of the conditions to the merger are satisfied or waived.
As of the effective time of the merger,
holders of shares of our common stock will have no further ownership interest in the surviving corporation. Instead, each holder of our common stock outstanding immediately prior to the effective time of the merger will be entitled to receive $5.75
in cash per share, without interest (except for shares as to which appraisal rights have been demanded and not withdrawn or lost). Upon completion of the merger, all of our outstanding stock options will be cancelled and, in full settlement of these
options, Bright Now! Dental will pay each holder an amount of cash equal to the number of shares of common stock underlying the stock option, multiplied by the difference between the merger consideration and the exercise price applicable to that
option.
Beginning in the fourth quarter of 1998, our company began to
experience issues related to the integration of our acquisitions and a resulting decline in our operating results. During the summer of 1999, we entered into an amendment and restatement of our credit agreement with our lenders, which required us to
raise $25.0 million of additional debt by December 31, 1999 to partially repay our outstanding obligations to our existing lending group. Due to market conditions and our operating performance at the time, we were unable to successfully complete an
offering prior to this date. The maturity of our $10.0 million of short-term debt, which was to be repaid with the proceeds of this offering, was extended to the earlier of June 30, 2000 or the issuance of the additional debt.
Following the failure of our debt offering, we entered into an engagement letter with Banc of America Securities LLC to explore
strategic alternatives in order to expand our company’s growth opportunities and maximize stockholder value. From March to September 2000, Banc of America Securities, on behalf of our company, actively solicited bids related to a potential sale
of the company. During the summer of 2000, we entered into exclusivity agreements with two prospective buyers, but neither transaction was completed primarily as a result of the inability of the prospective buyers to raise the necessary financing.
In October 2000, we terminated our efforts regarding the pursuit of a sale of our company. We did engage in preliminary discussions with a third party concerning a potential strategic transaction in November 2000, but these discussions were
terminated within several weeks.
In October 2000, following the termination of our efforts regarding a sale of
our company, we entered into an amendment to our credit agreement with our lenders which required us to raise either $25.0 million of debt ($10.0 million of which was required to be subordinated debt) or $15.0 million of subordinated debt by
December 15, 2000 (which date was extended to February 15, 2001). As a result, we entered into an engagement letter with Banc of America Securities to pursue subordinated debt financing on our behalf. An offering memorandum was drafted and
distributed to 10 potential investors. Throughout the end of 2000 and the beginning of 2001, we conducted presentations and commenced due diligence processes with several of these investors. Due to the condition of the debt markets and our operating
performance at the time, however, we were unable to successfully complete an offering.
6
As a result of our inability to complete a subordinated debt offering, in April
2001, we entered into a further amendment and restatement of the related credit agreement, which turned our credit facility into a term note with monthly amortization payments and a maturity date of July 1, 2002. In connection with the negotiation
of this amendment and restatement, our lenders put pressure on us to actively pay down our outstanding debt. In particular, our lenders proposed that it be an event of default under the related credit agreement if we failed to reduce the aggregate
principal amount outstanding under our credit facility to certain levels by specified dates. Through our negotiations, we were able to change the failure to reduce our outstanding debt from an event of default to a trigger for the payment of a fee
in the aggregate amount of up to $1.0 million.
In light of our discussions with our lenders, beginning in
February 2001, we switched our focus to a pursuit of sales of selected assets of our company. In connection with this sale process, our full board formed a special committee consisting of three disinterested directors, Glenn E. Hemmerle, Allan S.
Huston and Dr. John E. Maupin, Jr. Our board established the special committee to review and evaluate potential strategic alternatives for our company, including potential asset sales. Our board formed the special committee because it believed that
a strategic alternative transaction might present potential conflicts of interest for W. Barger Tygart as part of our senior management, as well as Dr. Warren F. Melamed, who had in the past made proposals to acquire our entire company and selected
assets of our company.
From February to December 2001, we entered into confidentiality agreements and received
numerous bids from third parties in connection with potential asset sales, including from affiliated dentists and strategic and financial investors. This process culminated in the sale of our Wisconsin market on December 31, 2001, for a sale price
of approximately $9.7 million. We used approximately $9.3 million of the proceeds to reduce the outstanding debt under our credit facility and, as a result, avoided the payment of the $1.0 million fee.
At December 31, 2001, we went into default under the terms of our credit facility with respect to our failure to satisfy the minimum
EBITDA and minimum net worth covenants. Declining revenues in certain of our markets, which resulted in lower than expected EBITDA levels, contributed to the defaults. These defaults gave our lenders the right to foreclose upon our assets and/or
set-off our cash accounts to offset a portion of the outstanding debt. In the event that our lenders exercised any of these rights, the likely alternative for our company would have been to declare bankruptcy. On February 7, 2002, our lenders
imposed the default interest rate under our credit facility, which is equal to the lead lender’s prime rate plus 6%, for the remaining duration of our default. The default interest rate significantly increased our interest payments under the
credit facility and negatively impacted our liquidity.
As a result of the defaults under our credit facility, we
resumed our pursuit of strategic alternatives, such as a sale of our company, an equity investment in our company, the issuance of debt securities or a sale of all or a portion of our assets, and re-engaged Banc of America Securities to pursue
strategic alternative proposals on our behalf. Beginning at the end of January 2002, the special committee met telephonically approximately once a week to discuss the status of the strategic alternatives process and related matters.
During the first quarter of 2002, we entered into three confidentiality agreements (excluding the confidentiality agreements
with The 180° Group and Gryphon discussed below) and received several bids from prospective buyers. All of these bids assumed that our lenders would accept a significant discount or that our outstanding debt would remain in place following the
completion of the transaction and proposed a per share consideration for our stockholders at or slightly above the then market price of our common stock.
On February 4, 2002, we entered into a confidentiality agreement with The 180° Group and provided them with preliminary due diligence materials. On February 19, 2002, we received a proposal from
The 180° Group and its partner to acquire our company for $5.00 per share (the opening price of our common stock on this date was $2.60 per share), which provided more consideration to our stockholders than the previous proposals that we had
received during this process. As a result, on February 19, 2002, we entered into a letter of intent with this group, which included a 30-day exclusivity period, in order for them to conduct due diligence and for us to further assess the ability of
this group to raise the financing necessary to consummate a successful transaction.
7
Due to the need to obtain our lenders’ consent to any business combination
transaction, the special committee agreed to permit The 180° Group to commence negotiations with our lenders regarding the proposed transaction. The letter of intent with The 180° Group provided that, if our lenders rejected the proposal
made by The 180° Group, the letter of intent would terminate. During March 2002, The 180° Group held discussions with our lenders regarding the proposed transaction. Our lenders ultimately rejected The 180° Group’s proposal and,
thus, the letter of intent, including the exclusivity period, terminated in accordance with its terms. Following the rejection of this proposal by our lenders, we continued our negotiations with The 180° Group on a non-exclusive basis.
In late March 2002, we were approached by Gryphon about a possible transaction. On March 27, 2002, we entered
into a confidentiality agreement with Gryphon and provided Gryphon with preliminary due diligence materials. During our continuing negotiations with The 180° Group, the special committee continued to raise issues concerning The 180°
Group’s ability to raise the financing necessary to complete a transaction. Because of Gryphon’s proven track record in raising financing and consummating transactions, the special committee allowed representatives of Gryphon and The
180° Group to discuss the possibility of working together to submit a bid to acquire our company. On April 11, 2002, Gryphon and The 180° Group made a proposal to acquire our company at a price of $3.50 per share. In reviewing the proposal,
the special committee noted in particular that this proposal was not conditioned on our lenders accepting a discount in the repayment of the outstanding debt under our credit facility. However, the special committee believed that the per share price
was not adequate given the then current trading price of our common stock. During the week of April 12, 2002, we negotiated a letter of intent with Gryphon and The 180° Group that set forth the material terms of a proposed transaction in which
Bright Now! Dental, an affiliate of Gryphon, would make a cash tender offer for all of the outstanding shares of our common stock at a price of $5.00 per share. The letter of intent, which included a 30-day exclusivity period, was executed by the
parties on April 16, 2002.
Following the execution of the letter of intent, a more comprehensive due diligence
process commenced. Beginning the week of April 22, 2002 and over the next two months, representatives of Gryphon and Bright Now! Dental visited our “data room” and performed due diligence with respect to our business, including the review
of legal and financial documents related to our company. During the course of the due diligence process, representatives from Gryphon, Bright Now! Dental and our company, including their respective legal counsel, discussed our operations, financial
condition, capital structure and other matters raised by Gryphon’s and Bright Now! Dental’s due diligence. In addition, the parties discussed when Gryphon and Bright Now! Dental should be given the opportunity to discuss the proposed
transaction with certain of our major stockholders (Dr. Melamed, Bruce Galloway and Fred Knoll).
On May 15, 2002,
the parties began discussions regarding an amendment to the letter of intent. The parties determined to shift the structure of the transaction from a cash tender offer to a cash merger in order to facilitate Gryphon’s and Bright Now!
Dental’s ability to raise the necessary financing for the transaction. Because our common stock had been trading during the past week at prices in excess of the $5.00 per share price set forth in the letter of intent, the special committee
asked Gryphon to increase its proposed share price in connection with negotiating the amendment to the letter of intent.
On May 22, 2002, the parties entered into an amendment to the letter of intent which included the following material terms for a proposed transaction: (1) cash merger structure pursuant to which we would merge with a subsidiary of
Bright Now! Dental; (2) price of $5.60 per share, plus a proportional share of 50% of any discount that our lenders would be willing to accept above $3.0 million with respect to the repayment of our outstanding debt; (3) the transaction not being
conditioned on our lenders accepting a discount in the repayment of the outstanding debt under our credit facility; and (4) the ability of Gryphon to discuss the proposed transaction with our major stockholders. Also, the letter of intent included
an exclusivity period through June 28, 2002. Following the execution of the letter of intent and in accordance with its terms, Gryphon commenced discussions with Dr. Melamed regarding the proposed transaction and the possibility of a
stockholder support agreement.
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On June 5, 2002, we received an initial draft of the merger agreement for the
proposed cash merger structure. Following the receipt of this initial draft, the parties and their respective legal counsel negotiated the terms of the agreement. These negotiations focused on a variety of subjects, including: (1) the scope of our
representations and warranties; (2) the covenants governing our operations between signing and closing; (3) the conditions to the parties’ respective obligations to close the transaction; (4) the events giving rise to the parties’
respective rights to terminate the merger agreement, including our ability to terminate the agreement if presented with the opportunity to consummate a more favorable transaction; and (5) the circumstances in which a termination fee would be paid
and expenses would be reimbursed.
On June 18, 2002, representatives of Gryphon and Bright Now! Dental met with
our lenders to discuss the proposed transaction. Mr. Huston, members of our management team and our legal and financial advisors also attended the meeting. At the meeting and based on their due diligence findings, Gryphon proposed that our lenders
accept a 13.8% discount on the repayment of our outstanding debt in connection with the completion of the merger. The proposal was rejected by our lenders.
Over the next several weeks, negotiations regarding the merger agreement continued. Among the open issues discussed were: (1) the termination fee and reimbursement of expenses; (2) whether we would be
required to hold a stockholders’ meeting to vote on the adoption of the merger agreement if we received a more favorable proposal; (3) the consents that would be required to be obtained prior to the closing; and (4) the other conditions to
closing. The parties also focused on due diligence items, Gryphon’s financing commitments, and issues regarding our major stockholders and their potential opposition to the transaction, including the ongoing discussions between Gryphon and Dr.
Melamed.
Beginning in May 2002 and during the period thereafter, we had been separately negotiating with our
lenders regarding a forbearance agreement in light of the upcoming maturity of our outstanding debt on July 1, 2002. By late June, however, it became clear that our lenders were unwilling to proceed with their negotiations with us regarding a
forbearance agreement. On June 24, 2002, Mr. Huston, members of our management team and our lenders met in Dallas to discuss Gryphon’s due diligence findings and the status of Gryphon’s negotiations with our lenders. Following this
meeting, we received a letter from counsel to our lenders expressing their opposition to accepting any discount on the repayment of the outstanding debt under our credit facility upon the closing of the transaction. In light of our lenders’
opposition, at a telephonic meeting held on June 26, 2002, the special committee decided to let the exclusivity period with Gryphon, Bright Now! Dental and The 180° Group expire so that we could pursue other strategic alternatives. On June 28,
2002, the letter of intent with Gryphon, Bright Now! Dental and The 180° Group expired in accordance with its terms.
On July 1, 2002, our credit facility expired and the outstanding debt of approximately $63.1 million became due and payable. We did not repay the outstanding debt because we did not have sufficient funds to repay this entire amount.
From July through early September 2002, Banc of America Securities continued to pursue strategic alternatives on
our behalf and contacted the previous bidders and several other potentially interested parties. During this period, we entered into five confidentiality agreements and received five offers from third parties. We conducted management presentations
for several bidders and provided preliminary due diligence materials as requested by the bidders. Among the bidders were Messrs. Galloway and Knoll. Mr. Galloway agreed to enter into a confidentiality agreement with us, while Mr. Knoll refused to do
so. We also continued our discussions with Gryphon, although on a non-exclusive basis, and Gryphon continued its negotiations with our lenders.
On August 6, 2002, we received a new proposal from Gryphon regarding a cash merger transaction at a price of $3.25 per share, which included a letter from our lenders consenting to a transaction with
Gryphon, but requiring that we agree, among other things, to: (1) the payment of a forbearance fee in the amount of $150,000; (2) in the event the transaction did not close for any reason, the issuance of additional warrants equal to 5% of our
outstanding common stock on a fully-diluted basis; and (3) the retention of a restructuring officer at our expense. Gryphon, Bright Now! Dental and The 180° Group requested that we enter into a new exclusivity
9
agreement with them; however, the special committee decided not to grant any exclusivity, but to continue to pursue the other strategic alternatives being presented to our company.
By the middle of August, after discussions with its legal and financial advisors, the special committee determined that it had
conducted a full process by which it had identified all potential bidders who were interested in pursuing strategic alternatives and that these persons had sufficient time to conduct due diligence and consider their interest in pursuing a
transaction with us. Accordingly, the special committee instructed Banc of America Securities to inform the prospective bidders that they should submit their best and final offers by August 30, 2002 for the special committee’s consideration. On
August 30, 2002, we received a revised proposal from Gryphon, Bright Now! Dental and The 180° Group which included the following material terms for a proposed transaction: (1) a cash merger structure; (2) a price of $5.00 per share; (3) the
transaction not being conditioned on our lenders accepting a discount in the repayment of the outstanding debt under our credit facility; and (4) no other conditions being imposed by our lenders. The proposal also included financing commitment
letters from both the Antares Group and Blackstone Mezzanine Partners, L.P. We also received four other offers from the prospective bidders solicited by Banc of America Securities over the summer.
On September 5, 2002, the special committee held a meeting in Dallas to discuss the five offers that it had received. After lengthy
discussions, the special committee decided that the Gryphon proposal was in the best interests of our company and its stockholders and other constituencies and, as a result, determined to continue to pursue the Gryphon transaction and to enter into
another exclusivity agreement with Gryphon. Among the factors considered by the special committee and deemed favorable were: (1) the firm financing commitments from the Antares Group and Blackstone; (2) the ability of Gryphon and Bright Now! Dental
to consummate the transaction in a timely manner, given that their due diligence was substantially completed, the merger agreement was substantially negotiated, and their financing was already in place; (3) the proposed transaction providing cash
consideration to our stockholders; (4) the $5.00 per share price to be paid to our stockholders, which was approximately 56.3% higher than the closing price of our common stock of $3.20 on September 4, 2002 and approximately $1.78 per share more
than the next highest offer providing cash consideration to our stockholders; (5) the proposal not being conditioned upon our lenders accepting a discount in the repayment of the outstanding debt under our credit facility; and (6) the offer being
for our company as an entirety and not the sale of selected assets.
Following the September 5, 2002 meeting of
the special committee, we negotiated the terms of a letter of intent with Gryphon, Bright Now! Dental and The 180° Group. These negotiations focused on a variety of issues, including: (1) the circumstances in which a termination fee would be
paid and the amount of that fee; (2) the circumstances in which expenses would be reimbursed and the maximum amount of those expenses; (3) the consents required to be obtained prior to the closing; (4) the condition to closing regarding
the absence of any pending or threatened litigation; and (5) our ability to negotiate with our lenders regarding a forbearance agreement before entering into a definitive merger agreement. On September 12, 2002, we entered into this new letter of
intent with Gryphon, Bright Now! Dental and The 180° Group, which included an exclusivity period through October 14, 2002.
On September 6, 2002, we issued a press release announcing that our lenders had demanded the immediate payment in full of all of the outstanding debt under our credit facility. Due to the financial uncertainty facing our company,
which was compounded by the announcement of our receipt of the demand letter from our lenders, the special committee decided to publicly announce the execution of the letter of intent, and a press release to that effect was issued on September 12,
2002.
Also on September 12, 2002, the trading volume of our common stock increased significantly from historical
levels. The trading volume on this day was 156,100 shares, which was more than the last 36 trading days combined. On September 13, 2002, Mr. Knoll filed an amendment to his Schedule 13D filings with the Securities and Exchange Commission reporting
the purchase of 121,000 shares and stating his intention to purchase a majority of our outstanding common stock to gain control of our company and block the proposed transaction with Bright Now! Dental.
10
Based on these events and the public opposition to the proposed transaction by
Messrs. Galloway and Knoll, on September 16, 2002, the special committee unanimously recommended the adoption of a shareholder rights plan to our full board, and our board thereafter approved the shareholder rights plan, with Dr. Melamed abstaining
from the vote. Under the shareholder rights plan, our board declared a dividend distribution of one preferred stock purchase right for each outstanding share of our common stock to stockholders of record as of the close of business on September 17,
2002. The rights generally become exercisable if a person becomes an “acquiring person” by acquiring 15% or more of our common stock or if a person commences a tender offer that could result in that person owning 15% or more of our common
stock. Stockholders who beneficially owned 15% or more of our total outstanding common stock were “grandfathered” at their percentage ownership as of the date of adoption of the plan (including Dr. Melamed and Messrs. Galloway and Knoll).
If any of these persons were to acquire additional shares representing more than 0.5% of our outstanding common stock, that stockholder would become an “acquiring person” and trigger the provisions of the plan.
On September 17, 2002, we re-commenced negotiations with our lenders regarding the proposed transaction, the granting of forbearance,
additional liquidity and related matters. These negotiations continued throughout September and October 2002. Because no agreement with our lenders had been obtained and we were continuing to negotiate the merger agreement with Gryphon and Bright
Now! Dental, on October 14, 2002, the parties extended the letter of intent through October 28, 2002.
During
October 2002, the parties and their respective counsel continued to negotiate the open issues in the merger agreement. On October 29, 2002, the merger agreement was substantially complete, and the parties issued a press release announcing that they
had reached an agreement in principle regarding the proposed merger. Because no agreement with our lenders had been obtained, however, on October 28, 2002, the exclusivity period under the letter of intent was extended through November 12, 2002. The
letter of intent provided that if we had reached an agreement with Gryphon and Bright Now! Dental on the terms of the definitive merger agreement, but we had not reached an agreement with our lenders regarding the proposed transaction, the granting
of forbearance, and certain other matters, Gryphon and Bright Now! Dental, at their option, could extend the exclusivity period for up to two consecutive 15-day periods.
Also on October 29, 2002, we issued a press release announcing that our lenders had exercised their right of set-off and applied approximately $1.2 million from our cash
accounts to offset a portion of the unpaid interest and certain professional fees due under our credit facility.
Following the extension of the letter of intent and in light of our lenders’ exercise of their set-off rights, we continued our negotiations with our lenders regarding the proposed transaction, a forbearance agreement,
additional liquidity and related matters. On October 31, 2002, the special committee and members of our management team met with our lenders to discuss these issues, but were unable to reach an agreement. Following this meeting, we contacted Gryphon
and Bright Now! Dental and informed them of our willingness to enter into a definitive merger agreement without having an agreement with our lenders. In response and with our consent, Gryphon and Bright Now! Dental decided to enter into negotiations
with our lenders regarding the proposed transaction, the granting of forbearance, and other related matters.
On November 12, 2002, pursuant to the terms of the letter of intent, the exclusivity period was extended through November 27, 2002, because no agreement with our lenders had yet been obtained. Following this extension, Gryphon
and Bright Now! Dental continued their negotiations with our lenders.
Also during November 2002, the discussions
between Gryphon and Dr. Melamed continued without any agreement being reached. Gryphon and Bright Now! Dental continued discussions with Messrs. Galloway and Knoll regarding the possibility of these stockholders entering into stockholder support
agreements with Bright Now! Dental with respect to the proposed merger. Gryphon and Bright Now! Dental had commenced discussions with Mr. Galloway in the summer of 2002, and Mr. Knoll in or around October 2002.
On November 26, 2002, the special committee held a telephonic meeting to consider the merger agreement, the merger and the related
transactions. Legal counsel to the special committee made a presentation in which they
11
reviewed the fiduciary duties of the directors in connection with the proposed transaction and summarized the terms of the definitive documentation, including the closing conditions, termination
rights and termination fee. Representatives of Banc of America Securities then provided the special committee with a detailed and lengthy presentation concerning the terms of the merger and certain methods of valuation and financial analysis. Banc
of America Securities then delivered its oral opinion (subsequently confirmed by delivery of a written opinion dated November 26, 2002) to the special committee that, as of that date, the consideration to be received by our stockholders in the
proposed merger was fair from a financial point of view to our stockholders, but it expressed no opinion with respect to the consideration to be received by any stockholders who may enter into separate arrangements or agreements with Bright Now!
Dental or any of its affiliates. The special committee discussed at length the terms of the proposed merger and considered the factors described below under the heading “Recommendations of Our Board of Directors and The Special Committee and
Reasons for the Merger.” Based on these deliberations, the special committee unanimously recommended that our full board adopt and approve the merger agreement.
Immediately following the meeting of the special committee, our full board held a telephonic meeting to discuss the approval of the merger agreement. At the meeting, the
special committee and its legal and financial advisors updated the board on recent events. Legal counsel to the board made a presentation in which they reviewed the fiduciary duties of the directors in connection with the proposed transaction and
summarized the terms of the definitive documentation, including the closing conditions, termination rights and termination fee. Representatives of Banc of America Securities then provided our board with the detailed and lengthy presentation
concerning the terms of the merger and certain methods of valuation and financial analysis that was given to the special committee. Banc of America Securities then delivered its oral opinion (subsequently confirmed by delivery of a written opinion
dated November 26, 2002) to the board that, as of that date, the consideration to be received by our stockholders in the proposed merger was fair from a financial point of view to our stockholders, but it expressed no opinion with respect to the
consideration to be received by any stockholders who may enter into separate arrangements or agreements with Bright Now! Dental or any of its affiliates. Our board discussed at length the terms of the proposed merger and considered the factors
described below under the heading “Recommendations of Our Board of Directors and The Special Committee and Reasons for the Merger.” Based on these deliberations, our board unanimously adopted and approved the merger agreement.
On November 27, 2002, Bright Now! Dental completed its negotiations with our lenders and entered into an
agreement with our lenders which provides, among other things, that the lenders will not file suit against our company, foreclose on any collateral, exercise self-help remedies with respect to any collateral, or set-off any of our cash accounts. The
agreement will terminate upon the earliest of the closing of the merger, the termination of the merger agreement, a default by Bright Now! Dental under the agreement with our lenders, and April 1, 2003. The agreement will also terminate upon the
failure to meet certain milestones in connection with this proxy statement and the special meeting. Under this agreement, our lenders also agreed, to the extent permitted by applicable law, to exercise their warrants prior to the record date for the
special meeting and to transfer the shares to a Gryphon affiliate, without further consideration, after receiving the repayment of our debt upon the closing of the merger. By its terms, the agreement does not constitute a waiver by the lenders of
any rights they may have with respect to us. We are not a party to the agreement and may not enforce its terms. The agreement between Bright Now! Dental and our lenders is described in more detail below under the heading “Arrangement Between
Bright Now! Dental and Our Lenders.”
On the evening of November 27, 2002, the parties executed the
definitive merger agreement and then issued a press release announcing the execution of this agreement.
Following
this announcement and over the next several weeks, discussions between Gryphon, Bright Now! Dental and Messrs. Galloway and Knoll continued regarding the possibility of stockholder support agreements between these stockholders and Bright Now!
Dental, pursuant to which the stockholders would agree to vote in favor of the adoption and approval of the merger agreement, as well as option agreements allowing these stockholders to decide whether or not to purchase from Gryphon, within 180 days
following the closing of the merger, at the price paid in connection with the proposed merger by Gryphon, an amount of securities of Bright Now! Dental equal to the proceeds received by these stockholders in the proposed merger. In consideration for
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these stockholders agreeing to support the proposed merger, Bright Now! Dental proposed an increase in the consideration to be paid to all of our stockholders upon completion of the merger from
$5.00 to $5.75 per share. The increase was also subject to our board amending our shareholder rights plan so that it would not apply or be triggered by the execution of the stockholder support agreements and the related documents and transactions
and granting a waiver under Section 203 of the Delaware General Corporation Law.
Bright Now! Dental therefore
requested that our board amend our shareholder rights plan and grant the Section 203 waiver, and amend the merger agreement to reflect the proposed increase in consideration. In connection with this request, the special committee asked for certain
financial information with respect to Bright Now! Dental, so that the special committee and our full board could understand the potential value of the benefits being received by these stockholders in connection with entering into the stockholder
support agreements and related documents. Bright Now! Dental, however, declined to provide us with any financial information because of its policy as a privately-held company of not releasing financial information, except in the most limited of
circumstances, for competitive and other significant business reasons.
On December 9, 2002, the special committee
held a telephonic meeting to consider Bright Now! Dental’s request for a Section 203 waiver, an amendment to our shareholder rights plan, and an amendment to the merger agreement to reflect the proposed increase in consideration. At this
meeting, counsel to the special committee recounted efforts to persuade Bright Now! Dental to supply the requested information. The special committee reiterated its position that the receipt of the requested financial information was necessary for
the special committee and the full board to understand the potential value of the benefits being received by these stockholders in connection with a decision by the special committee and the board whether to grant the Section 203 waiver and approve
the amendment to our shareholder rights plan and whether to proceed with an amendment to the merger agreement. Following the meeting, the special committee sent a written request for financial information to Bright Now! Dental and Gryphon. The
request for information was again declined because of Bright Now! Dental’s confidentiality policy.
On
December 10, 2002, the special committee held a telephonic meeting to consider the proposed amendment to the merger agreement to increase the merger consideration from $5.00 to $5.75 per share and the related Section 203 waiver and amendment to our
shareholder rights plan. At this meeting, the special committee discussed the refusal of Bright Now! Dental and Gryphon to provide the requested financial information. Following this discussion, legal counsel to the special committee made a
presentation in which they reviewed the fiduciary duties of the directors and summarized the terms of the various proposed amendments and the agreements to be entered into by Messrs. Galloway and Knoll and their respective affiliates.
Representatives of Banc of America Securities then provided the special committee with a detailed and lengthy presentation concerning the terms of the merger at the new price and certain methods of valuation and financial analysis. Banc of America
Securities then delivered its oral opinion (subsequently confirmed by delivery of a written opinion dated December 10, 2002) to the special committee that, as of that date, the $5.75 per share consideration to be received by our stockholders in the
proposed merger was fair from a financial point of view to our stockholders, but it expressed no opinion with respect to the consideration to be received by those stockholders who proposed to enter into agreements with Bright Now! Dental and its
affiliates. The special committee discussed at length the terms of the proposed amendments and reconsidered the factors described below under the heading “Recommendations of Our Board of Directors and The Special Committee and Reasons for the
Merger.” The special committee also discussed at length the pros and cons of proceeding without the requested financial information, including the concern that if our board did not agree to provide the Section 203 waiver and amend our
shareholder rights plan, our stockholders could otherwise lose the opportunity to have the per share merger consideration increased to $5.75 per share. Based on these deliberations, the special committee unanimously recommended that our full board
grant the Section 203 waiver, approve the amendment to our shareholder rights plan, and adopt and approve the amendment to the merger agreement.
Immediately following the meeting of the special committee, our full board held a telephonic meeting to discuss the approval of the amendment to the merger agreement to increase the merger
consideration from $5.00 to $5.75 per share, the approval of the amendment to our shareholder rights plan, and the related Section 203 waiver. At the meeting, the special committee and its legal and financial advisors updated the board on recent
13
events, including the refusal of Bright Now! Dental and Gryphon to provide the requested financial information. Following this discussion, legal counsel to the board made a presentation in which
they reviewed the fiduciary duties of the directors and summarized the terms of the various proposed amendments and the agreements to be entered into by Messrs. Galloway and Knoll and their respective affiliates. Representatives of Banc of America
Securities then provided our board with the detailed and lengthy presentation concerning the terms of the merger at the new price and certain methods of valuation and financial analysis that was given to the special committee. Banc of America
Securities then delivered its oral opinion (subsequently confirmed by delivery of a written opinion dated December 10, 2002) to the board that, as of that date, the $5.75 per share consideration to be received by our stockholders in the proposed
merger was fair from a financial point of view to our stockholders, but it expressed no opinion with respect to the consideration to be received by those stockholders who proposed to enter into agreements with Bright Now! Dental and its affiliates.
Our board discussed at length the terms of the proposed amendments and reconsidered the factors described below under the heading “Recommendations of Our Board of Directors and The Special Committee and Reasons for the Merger.” Our board
also discussed at length the pros and cons of proceeding without the requested financial information, including the concern that if our board did not agree to provide the Section 203 waiver and amend our shareholder rights plan, our stockholders
could otherwise lose the opportunity to have the per share merger consideration increased to $5.75 per share. Based on these deliberations, our board unanimously adopted and approved the amendment to the merger agreement on the terms discussed at
the meeting, approved the amendment to our shareholder rights plan and granted the Section 203 waiver.
On the
evening of December 10, 2002, the parties executed the amendment to the merger agreement and Messrs. Galloway and Knoll and their respective affiliates executed the stockholder support agreements and related documents. On December 11, 2002, we
issued a press release announcing the execution of the stockholder support agreements and the increase in the per share merger consideration from $5.00 to $5.75 per share.
Recommendations of Our Board of Directors and The Special Committee and Reasons for the Merger
Our full board of directors established the special committee, comprised of three disinterested directors, to review and evaluate potential strategic alternatives for our company. Our board formed the special committee because it
believed that a strategic alternative or other business combination transaction, such as the merger, might present potential conflicts of interest for W. Barger Tygart, as part of our senior management, as well as Dr. Warren F. Melamed, who had in
the past made proposals to acquire our company. The special committee unanimously determined that the merger agreement was fair to and in the best interests of our stockholders, and recommended that our board adopt and approve the merger
agreement. Following the unanimous recommendation of the special committee, our board unanimously determined that the merger agreement was fair to and in the best interests of our stockholders and recommended that our stockholders adopt and approve
the merger agreement. In connection with the foregoing, the special committee and our board each considered the analysis of Banc of America Securities, our company’s financial advisor, in making their respective recommendations. See below under
the heading “Opinion of Financial Advisor.” Our board and the special committee unanimously recommend that our stockholders vote “For” the adoption and approval of the merger agreement.
In reaching their determinations that the merger agreement was fair to and in the best interests of our stockholders, each of our
board and the special committee consulted with our financial and legal advisors, drew on knowledge of the business, operations, properties, assets, financial condition, operating results, historical market prices and prospects of our company, and
considered the following factors, each of which our board and the special committee deemed favorable:
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Value of Merger Consideration as Compared to Historical and Recent Market Prices of Our Common Stock. The initial $5.00 per share
merger consideration represented a premium of: |
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• |
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35.5% over the closing price of our common stock of $3.69 on September 12, 2002, which was the last trading day prior to the public announcement of the
execution of the letter of intent regarding the merger; |
14
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35.1% over the closing price of our common stock of $3.70 on November 25, 2002, which was the last trading day prior to the approval of the merger agreement by
our board of directors; and |
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61.8% over the then 52 week average price of our common stock of $3.09. |
The $5.75 per share merger consideration to be received by our stockholders represents a premium of:
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55.8% over the closing price of our common stock of $3.69 on September 12, 2002, which was the last trading day prior to the public announcement of the
execution of the letter of intent regarding the merger; |
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26.4% over the closing price of our common stock of $4.55 on December 9, 2002, which was the last trading day prior to the approval of the amendment to the
merger agreement by our board; and |
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81.4% over the then 52 week average price of our common stock of $3.17. |
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Our Business, Financial Condition and Prospects. Our board and the special committee believe that the merger represents a more
desirable alternative for all of our constituencies than continuing to operate as an independent public company under our current business plan. We have been in default under the terms of our credit facility as a result of our breach of certain
covenants and our failure to make timely payments of principal and interest. 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. The financial uncertainty that this has brought to our company has adversely affected our operating results and has
had a negative impact on our ability to expand our markets, recruit new dentists and other key personnel, and assist dental offices in increasing patient volume and fees. Given our operating results and current market conditions, we also have been
unable to refinance the debt under our credit facility and to obtain additional funds that would be necessary to continue to operate our business under our current business plan. As a result of the merger with Bright Now! Dental, we will be able to
eliminate our company’s financial uncertainty, while assuring continued quality management and administrative services to the dental group practices. The merger also provides our stockholders with liquidity for their investment at a stock price
at which we would not likely trade as an independent public company for the foreseeable future. |
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Other Strategic Alternatives Available to Us. As indicated above under the heading “Background of the Merger,” the
special committee of our board has been pursuing strategic alternatives for our company since the beginning of 2002. As a result of this process, our board and the special committee believe that the merger is the best offer reasonably available to
all of our constituencies. Our board and the special committee believed that there were no other prospective buyers or investors who would be willing to pay an aggregate consideration greater than that to be paid by Bright Now! Dental in the merger.
In particular, no other prospective buyer was willing to both repay the outstanding debt under our credit facility and offer liquidity to our stockholders at a premium price. In seeking to maximize value to our stockholders and other constituencies,
we, along with our financial advisor, instituted a multi-step process pursuant to which we solicited the interest of numerous prospective buyers, executed confidentiality agreements with several of these prospective buyers, and then received
indications of interest from several of these prospective buyers at various times. Bright Now! Dental’s proposal offered liquidity to our stockholders, the highest price on a per share basis, the payment of the outstanding debt under our credit
facility without a significant discount, financing commitments to fund the transaction, and fewer conditions than the other proposals. In addition, we believe Bright Now! Dental’s knowledge and experience in our industry and ability to raise
financing enables Bright Now! Dental to complete the merger more quickly and with a higher degree of certainty than other prospective buyers. For these reasons and others described in this proxy statement, our board and the special committee
concluded that the merger agreement was fair to and in the best interest of our stockholders and other constituencies. |
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Financial Ability and Willingness of Bright Now! Dental to Consummate the Merger. Our board and the special committee considered
the debt and equity commitments that Bright Now! Dental had
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15
obtained which would provide the financing necessary to consummate the merger, especially in light of the current weaknesses in the financial markets. Banc of America Securities also advised our
board and the special committee that it believed the conditions to the financing commitment letters were customary and that Bright Now! Dental should be able to obtain the financing necessary for the proposed transactions. Based on the foregoing,
our board and the special committee viewed as reasonable the risk that Bright Now! Dental would not be able to obtain the financing necessary to consummate the merger and repay the outstanding debt under our credit facility.
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Our Termination Rights in the Event of a Superior Proposal and Termination Fee. The merger agreement permits our board to continue
to receive unsolicited inquiries and proposals regarding other acquisition proposals, negotiate and give information to third parties, and subject to the satisfaction of certain conditions, in the exercise of its fiduciary duties, withdraw or modify
its recommendation to our stockholders regarding the merger agreement or terminate the merger agreement in connection with a superior proposal, subject to the payment upon the consummation of another acquisition proposal of a $1.5 million
termination fee to Bright Now! Dental and the reimbursement of up to $1.0 million of its reasonable out-of-pocket expenses in connection with the merger. |
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Banc of America Securities LLC Analysis and Fairness Opinion. Our board and the special committee considered as favorable to their
determinations the opinions, analyses and presentations of Banc of America Securities described below under the heading “Opinion of Financial Advisor,” including the opinion of Banc of America Securities to the effect that, as of the date
of its opinion, and based upon and subject to those matters stated in the 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. A copy of the December 10, 2002 fairness opinion is attached as Appendix B to this proxy statement.
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Informed Consent of Our Stockholders. Our board and the special committee believe that the requirement to submit the merger
agreement to our stockholders for approval permits our stockholders to make an informed vote on the merits of the transaction. |
Our board and the special committee also considered the following factors, all of which they considered as mitigating factors, in their deliberations concerning the approval of the merger agreement:
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Holders of Our Common Stock Unable to Share in Future Growth. Our board and the special committee acknowledged that the merger
would preclude the holders of our common stock from having the opportunity to participate in any future growth of our assets. They also considered the ability of certain large stockholders of our company to invest, at their option, in the combined
company following the merger and the fact that this option was not available to all of our stockholders. |
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Our Limited Remedies if Financing is Unavailable. In the event that Bright Now! Dental is unable to raise the necessary financing
for the merger, our sole and exclusive remedy is to terminate the merger agreement. |
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No Forbearance Agreement with Our Lenders. Our board and the special committee considered the potential consequences to our
company of proceeding with the proposed merger without first negotiating a forbearance agreement with our lenders. In particular, our lenders have the right to foreclose upon our assets and/or set-off our cash accounts, which could have the effect
of forcing our company into bankruptcy or otherwise preventing or delaying the completion of the merger. Although Bright Now! Dental has entered into an agreement with our lenders that provides for limited forbearance until the closing of the
merger, we are not a party to that 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. |
16
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Tax Consequences to Our Stockholders. Our board and the special committee acknowledged that the merger is a taxable transaction
and, as a result, holders of our common stock will be required to pay taxes on any recognized gain as a result of the receipt of the cash merger consideration. |
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Significant Costs Involved. Our board and the special committee considered the significant costs involved in connection with
completing the merger, the substantial management time and effort required to effectuate the merger, and the related disruption to our operations. They also considered the potential consequences to our company if the merger were not to be completed
for any reason. |
Our board and the special committee also considered the other potential
benefits to our directors and officers discussed in the section entitled “Interests of Certain Persons in the Merger,” including the severance payments to be paid to Lisa K. Peterson under her employment agreement, the stay bonus amounts
to be paid to certain officers and key employees, and the acceleration of the vesting of all outstanding options to acquire our common stock.
In the opinion of our board and the special committee, the above factors represent the material potential adverse consequences which could occur as a result of the merger. In considering the merger
agreement, our board and the special committee considered the impact of these factors on our stockholders and other constituencies.
In view of the wide variety of factors considered by our board and the special committee, our board and the special committee did not find it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered. Our board and the special committee viewed their positions and recommendations as being based on the totality of the information presented to and considered by them. After taking into consideration all of
the factors set forth above, our board and the special committee determined that the potential benefits of the proposed merger outweighed the potential detriments associated with the merger.
In the event that the merger is not completed for any reason, we will continue to pursue:
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negotiating a satisfactory forbearance agreement with our lenders; |
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refinancing the debt under our credit facility; |
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obtaining additional funds necessary to operate our business; and |
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evaluating other strategic alternatives. |
There can be no assurance that we will be able to negotiate a favorable agreement with our lenders, refinance our debt, obtain additional funds, or consummate a strategic alternative. If the merger is
not completed, our lenders may be more likely to exercise their remedies under the credit agreement, including foreclosing upon our assets and forcing our company into bankruptcy. Even if our lenders do not foreclose upon our assets, the financial
uncertainty of our company, coupled with the public failure of the merger, will likely have a negative impact on our operations and financial condition. As a result, we may not have sufficient liquidity to continue to fund our operations.
After careful consideration, our board and the special committee have determined that the merger agreement is
advisable and fair to and in the best interests of our stockholders. Accordingly, our board, based on the recommendation of the special committee, has unanimously approved the merger agreement and recommends that our stockholders vote
“For” the adoption and approval of the merger agreement.
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Opinion of Financial Advisor
On February 14, 2002, we retained Banc of America
Securities as our sole financial advisor to provide financial advice and assistance with negotiations with regard to the merger and to render an opinion to the special committee and our board of directors as to the fairness, from a financial point
of view, of the consideration to be received by our stockholders, other than those stockholders who proposed to enter into agreements with Bright Now! Dental and its affiliates (which agreements we refer to in this section as the stockholder
agreements), in connection with the merger.
On November 26, 2002, at meetings of the special committee and our
board held to evaluate the merger agreement, Banc of America Securities delivered to the special committee and our board its oral opinion, which opinion was subsequently confirmed by a written opinion dated November 26, 2002, that, as of that date
and based upon and subject to various assumptions and limitations existing as of that date, the consideration to be received by our stockholders in the proposed merger was fair, from a financial point of view, to those stockholders, other than those
stockholders who may enter into separate arrangements or agreements with Bright Now! Dental or any of its affiliates.
On December 10, 2002, at meetings of the special committee and our board held to evaluate the amendment to the merger agreement, Banc of America Securities delivered to the special committee and our board its oral opinion, which
opinion was subsequently confirmed by a written opinion dated December 10, 2002, that, as of that date and based upon and subject to the various assumptions and limitations summarized below, the consideration to be received by our stockholders in
the proposed merger was fair, from a financial point of view, to those stockholders, other than those stockholders who proposed to enter into the stockholder agreements.
The full text of Banc of America Securities’ written opinion to the special committee and our board, dated December 10, 2002, is attached as Appendix
B to this proxy statement. This opinion sets forth the assumptions made, procedures followed, other matters considered and limits of the review undertaken. We incorporate the Banc of America Securities opinion in its entirety into this
document and summary of the opinion by reference, and urge you to read the opinion carefully and in its entirety. This section is only a summary of the Banc of America Securities opinion and as a summary is qualified by reference to, and is not a
substitute for, the full text of that opinion.
Banc of America Securities’ analyses and opinion were
prepared for and addressed to the special committee and our board and are directed only to the fairness, from a financial point of view, of the consideration to be received by our stockholders, other than those stockholders who proposed to enter
into the stockholder agreements, in the proposed merger, as of the date of the opinion and do not constitute an opinion as to the merits of the merger or a recommendation to any stockholder as to how to vote on the merger agreement. The amount of
consideration to be paid in the merger was determined through negotiations between Monarch Dental and Bright Now! Dental and not pursuant to recommendations of Banc of America Securities.
In arriving at its opinion, Banc of America Securities:
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reviewed certain publicly available financial statements and other business and financial information of Monarch Dental; |
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reviewed certain internal financial statements and other financial and operating data concerning Monarch Dental; |
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analyzed certain financial forecasts prepared by the management of Monarch Dental; |
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reviewed and discussed with senior executives of Monarch Dental information relating to certain strategic, financial and operational benefits anticipated from
the merger, prepared by the management of Monarch Dental; |
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discussed the past and current operations, financial condition and prospects of Monarch Dental with senior executives of Monarch Dental;
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reviewed the reported prices and trading activity for Monarch Dental common stock; |
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compared the financial performance of Monarch Dental and the prices and trading activity of Monarch Dental common stock with that of certain other publicly
traded companies Banc of America Securities deemed relevant; |
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compared certain financial terms to financial terms, to the extent publicly available, of certain other business combination transactions Banc of America
Securities deemed relevant; |
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participated in discussions and negotiations among representatives of Monarch Dental and Bright Now! Dental and their financial and legal advisors;
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reviewed the executed merger agreement, a December 9, 2002 draft of the amendment to the merger agreement and certain related documents;
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reviewed December 5, 2002 drafts of (1) the stockholder support agreement by Bruce Galloway for the benefit of Bright Now! Dental, (2) the letter
agreement between Gryphon Partners II, L.P. and Mr. Galloway, (3) the consulting agreement between Gryphon Investors, Inc. and Galloway Capital Management, LLC, (4) the release of claims and covenant not to sue between Mr. Galloway, Gryphon
Investors and Bright Now! Dental, (5) the stockholder support agreement between Europa International, Inc. and Bright Now! Dental, (6) the letter agreement between Gryphon Partners and Fred Knoll, and (7) the release of claims and covenant not
to sue between Mr. Knoll, Europa International, Gryphon Investors and Bright Now! Dental; and |
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performed such other analyses and considered such other factors as Banc of America Securities deemed appropriate. |
In conducting its review and arriving at its opinion, Banc of America Securities assumed and relied upon, without independent
verification, the accuracy and completeness of the financial and other information reviewed by Banc of America Securities for the purposes of the opinion. With respect to the financial forecasts, including information relating to certain strategic,
financial and operational benefits anticipated from the merger, Banc of America Securities assumed that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the future financial
performance of Monarch Dental. Banc of America Securities did not make any independent valuation or appraisal of the assets or liabilities of Monarch Dental nor was Banc of America Securities furnished with any such appraisals. Banc of America
Securities assumed that the merger would be consummated in all material respects upon the terms set forth in the merger agreement and the December 9, 2002 draft of the amendment to the merger agreement reviewed by Banc of America Securities and that
the stockholder agreements would be entered into in all material respects upon the terms set forth in the December 5, 2002 drafts of the stockholder agreements reviewed by Banc of America Securities.
As is customary in the rendering of fairness opinions, Banc of America Securities based its opinion on financial, economic, market and
other conditions as in effect on, and the information made available to Banc of America Securities as of, December 9, 2002. It was understood that, although subsequent developments may affect Banc of America Securities’ opinion, Banc of America
Securities does not have any obligation to update, revise or reaffirm its opinion. Banc of America Securities expressed no opinion as to whether any alternative transaction might produce consideration for Monarch Dental’s stockholders in an
amount in excess of that contemplated in the merger. The opinion of Banc of America Securities expressed in its opinion letter was provided for the information of the special committee and our board. Banc of America Securities expressed no opinion
or recommendation as to how our stockholders should vote with respect to the merger agreement.
In accordance with
customary investment banking practice, Banc of America Securities employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses that Banc of America Securities utilized in
providing its opinion. We have presented some of the summaries of financial analyses in tabular format. In order to understand the financial analyses used by Banc of America Securities more fully, you should read the tables together with the related
text. The tables alone do not constitute a complete description of the financial analyses utilized by Banc of America Securities.
Analysis of Selected Publicly Traded Companies
Using publicly available and other
information, Banc of America Securities compared selected historical and projected operating and financial data of Monarch Dental with similar data for selected publicly traded companies engaged in businesses that Banc of America Securities judged
to be comparative to those of Monarch Dental. The purpose of this analysis was to provide information regarding the fairness from a financial point of
19
view of the proposed cash consideration based upon a comparison of specific financial information of Monarch Dental with selected comparative public companies. These companies were:
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American Dental Partners, Inc.; |
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Birner Dental Management Services, Inc.; |
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Castle Dental Centers, Inc.; |
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Coast Dental Services, Inc.; |
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Orthodontic Centers of America, Inc. |
Banc of America Securities selected these companies because they engage in businesses comparative to those of Monarch Dental, among other reasons. Based on public and other available information for each company, Banc of America
Securities calculated enterprise value (which Banc of America Securities defined as equity value plus total debt, minority interest and preferred stock, less cash and cash equivalents) for each selected publicly traded company. Equity values were
calculated based on closing stock prices on December 6, 2002. Estimated financial data for selected comparable companies were based on Wall Street research with respect to calendar years 2002 and 2003 revenue, earnings before interest, taxes,
depreciation and amortization, or EBITDA, and earnings before interest and taxes, or EBIT. This analysis indicated the ranges and medians for enterprise value as a multiple of revenue for the latest twelve months, or LTM (and estimated revenue for
calendar years 2002 and 2003), LTM EBITDA (and estimated EBITDA for calendar years 2002 and 2003), and LTM EBIT (and estimated EBIT for calendar years 2002 and 2003), as set forth below.
Range of Multiples for Selected Companies
Enterprise Value as a Multiple of:
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Revenue
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EBITDA
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EBIT
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LTM
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2002E
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2003P
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LTM
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2002E
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2003P
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LTM
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2002E
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2003P
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| High |
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1.44 |
x |
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1.37 |
x |
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1.21 |
x |
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6.3 |
x |
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4.4 |
x |
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3.4 |
x |
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10.9 |
x |
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5.2 |
x |
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3.9 |
x |
| Average |
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0.71 |
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1.37 |
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1.21 |
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5.1 |
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4.4 |
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3.4 |
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8.5 |
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5.2 |
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3.9 |
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| Median |
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0.69 |
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1.37 |
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1.21 |
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5.1 |
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4.4 |
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3.4 |
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9.1 |
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|
5.2 |
|
|
3.9 |
|
| Low |
|
0.05 |
|
|
1.37 |
|
|
1.21 |
|
|
3.8 |
|
|
4.4 |
|
|
3.4 |
|
|
5.0 |
|
|
5.2 |
|
|
3.9 |
|
Banc of America Securities then selected a range of multiples for
each of the selected financial performance benchmarks and applied these multiples to the respective operating statistics of Monarch Dental. This analysis yielded an implied enterprise value for Monarch Dental of approximately $60.0 million to $80.0
million, or from no value to $7.28 per share of Monarch Dental common stock.
Although the selected companies were
used for comparative purposes, none of such companies is directly comparable to Monarch Dental. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating characteristics of the selected companies and other factors that could affect the public trading value of the companies or Monarch Dental to which they are being compared.
Analysis of Selected Acquisitions
Banc of America Securities analyzed publicly available financial information relating to selected acquisitions in the dental practice management industry that
Banc of America Securities deemed relevant in evaluating the transaction. Banc of America Securities analyzed the following transactions:
| Announcement Date
|
|
Acquiror
|
|
Target
|
| |
|
Bayview Capital Partners L.P. |
|
Monarch Dental Corporation (Wisconsin Operations) |
| |
|
Mon Acquisition Corp. |
|
InterDent, Inc. (East Coast Division) |
| |
|
Orthodontic Centers of America, Inc. |
|
OrthAlliance, Inc. |
| |
|
OrthAlliance, Inc. |
|
New Image Orthodontic Group, Inc. |
20
Banc of America Securities reviewed, as of the announcement date of the
transaction, the enterprise value of the target in each of these four acquisitions as a multiple of revenue, EBITDA and EBIT, in each case, for the latest twelve months, or LTM, for which data was publicly available at the time of the announcement
date of the transaction. Based on these calculations, Banc of America Securities noted the ranges for and median of the multiples in each of the selected acquisitions as summarized below.
| |
|
Enterprise Value as a Multiple of LTM (Summary of Multiples)
|
|
| |
|
Revenue
|
|
|
EBITDA
|
|
|
EBIT
|
|
| High |
|
1.5 |
x |
|
3.7 |
x |
|
5.1 |
x |
| Average |
|
1.0 |
|
|
3.4 |
|
|
4.8 |
|
| Median |
|
1.1 |
|
|
3.4 |
|
|
4.8 |
|
| Low |
|
0.4 |
|
|
3.0 |
|
|
4.4 |
|
Banc of America Securities then applied a range of selected
multiples to LTM EBITDA. This analysis yielded an implied enterprise value for Monarch Dental of approximately $45.0 million to $68.0 million, or from no value to $1.94 per share of Monarch Dental common stock.
Although the selected transactions were used for comparative purposes, none of these transactions is directly comparable to the merger,
and none of the companies in such transactions is directly comparable to Monarch Dental or Bright Now! Dental. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and
judgments concerning differences in historical and projected financial and operating characteristics of the companies involved and other factors that could affect the acquisition value of the selected companies or Monarch Dental to which they are
being compared.
Discounted Cash Flow Analysis
Banc of America Securities conducted a discounted cash flow analysis to determine the diluted equity value per share of Monarch Dental common stock by valuing
Monarch Dental based on the present value of its projected free cash flow, assuming no debt obligations. In conducting this analysis, Banc of America Securities calculated the debt-free free cash flows that Monarch Dental was expected to generate
during fiscal years 2003 through 2007.
Banc of America Securities calculated terminal values for Monarch Dental
at the conclusion of a five-year period ending in 2007. In calculating this range of terminal values, Banc of America Securities applied multiples to Monarch Dental’s projected 2007 EBITDA, ranging from 4.5x to 5.5x. Banc of America Securities
then discounted the free cash flows projected from 2003 through 2007 and the terminal values to present values using a range of discount rates from 20% to 25%. Based upon this analysis, Banc of America Securities identified a range of aggregate
values, which were then reduced by Monarch Dental’s total debt and minority interest as of September 30, 2002, to calculate a range of equity values. These equity values were then divided by fully diluted shares to calculate implied equity
values per share ranging from $1.71 to $6.17.
Leveraged Buyout Analysis
Banc of America Securities performed a leveraged buyout analysis on Monarch Dental to determine what a potential financial
investor could afford to pay in order to acquire Monarch Dental. This analysis was based on assumed interest rates of 8% for bank debt, an approximately 20% return for subordinated debt and current acceptable debt coverage ratios. In calculating
implied enterprise values for Monarch Dental, Banc of America Securities applied multiples to Monarch Dental’s projected 2007 EBITDA, ranging from 4.5x to 5.5x. In conducting this analysis, Banc of America Securities assumed that a financial
investor would require a minimum internal rate of return, or IRR, of 25% to 35% over the term of its investment. Based upon these assumptions,
21
Banc of America Securities determined that a financial investor would be able to pay from $60.0 million to $70.0 million for Monarch Dental, or from no value to $2.86 per share of Monarch
Dental common stock.
Premiums Paid Analysis
Banc of America Securities reviewed the premium of the consideration paid over the trading prices one trading day, one week and four weeks prior to the
announcement date of 416 selected cash transactions announced since January 1, 1997, with transaction values up to $200 million. The following table sets forth the average and median premiums paid in these transactions.
| |
|
Premium One Day Prior to Announcement
|
|
|
Premium One Week Prior to Announcement
|
|
|
Premium Four Weeks Prior to Announcement
|
|
| Average |
|
37.8 |
% |
|
45.2 |
% |
|
53.6 |
% |
| Median |
|
32.9 |
% |
|
38.7 |
% |
|
46.5 |
% |
This analysis yielded an implied trading value for Monarch Dental
common stock of approximately $4.25 to $5.25 per share.
Banc of America Securities also noted that the cash
consideration to be paid in the merger implied a premium of 27.8% over Monarch Dental’s closing share price of $4.50 on December 6, 2002 and an 81.4% premium over Monarch Dental’s 52-week average share price of $3.17 as of December 6,
2002.
Although the selected transactions were used for comparative purposes, none of these transactions is
directly comparable to the merger, and none of the companies in such transactions is directly comparable to Monarch Dental or Bright Now! Dental. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead
involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the companies involved and other factors that could affect the acquisition value of such companies or Monarch
Dental to which they are being compared.
Stock Trading History
Banc of America Securities reviewed the historical market prices of Monarch Dental common stock for the 52-week period ended December 6,
2002. For the indicated period, the high and low closing prices of Monarch Dental common stock were $5.46 and $1.70, respectively. Banc of America Securities also reviewed the following closing prices of Monarch Dental common stock over the
following periods prior to December 6, 2002 and the related premiums represented by the cash consideration to be received by holders of Monarch Dental common stock in the proposed merger:
| Trading Period
|
|
Average Price
|
|
Implied Premium
|
|
| |
|
$ |
4.50 |
|
27.8 |
% |
| Previous Month |
|
$ |
4.02 |
|
43.0 |
% |
| Previous Three Months |
|
$ |
4.07 |
|
41.3 |
% |
| Previous Six Months |
|
$ |
3.57 |
|
61.1 |
% |
| Last 12 Months |
|
$ |
3.17 |
|
81.4 |
% |
The summary set forth above does not purport to be a complete
description of all the analyses performed by Banc of America Securities. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of these methods
to particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Banc of America Securities did not attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding the separate factors summarized above, Banc of America Securities
22
believes, and has advised the special committee and our board, that Banc of America Securities’ analyses must be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying its opinion. In performing its analyses, Banc of America Securities made numerous assumptions with respect to economic,
market and other conditions in effect on, and the information made available to it as of, the date of its opinion, many of which are beyond the control of Monarch Dental. The analyses performed by Banc of America Securities are not necessarily
indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at
which businesses or securities may actually be sold. Accordingly, such analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, and none
of Monarch Dental, Banc of America Securities or any other person assumes responsibility if future results are materially different from those projected. As mentioned above, the analyses supplied by Banc of America Securities and its opinion were
among the factors taken into consideration by the special committee and our board in making their respective decisions to recommend and approve the merger agreement and should not be considered as determinative of such decisions.
Banc of America Securities is a nationally recognized investment banking firm that regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. We selected Banc of
America Securities to act as our financial advisor and to render an opinion to the special committee and our board on the basis of Banc of America Securities’ experience and expertise in transactions similar to the merger, its reputation in the
investment community and its historical investment banking relationship with us. In the past, Banc of America Securities or its affiliates have provided financial advisory and financing services to us and have received fees for rendering these
services. An affiliate of Banc of America Securities, Bank of America, N.A., was the sole lead arranger and sole book manager under our April 2001, $80.2 million credit facility. Bank of America, N.A. currently serves as administrative agent and is
also a lender under the credit facility. As discussed in greater detail elsewhere in this proxy statement, we are in default with the terms of our credit facility. In addition, in the ordinary course of their businesses, Banc of America Securities
and its affiliates are engaged in a broad range of securities activities and financial services, including trading or otherwise effecting transactions in debt or equity securities of Monarch Dental for their own account or for the accounts of their
customers and, accordingly, may at any time hold long or short positions in such securities.
Pursuant to a letter
agreement, we have agreed to pay Banc of America Securities a fee of $250,000, which was contingent upon rendering the opinion, and an additional fee of $650,000 upon the consummation of the transaction. Regardless of whether a transaction is
completed, and in addition to the compensation described above, we have agreed to reimburse Banc of America Securities, immediately upon its request, for all reasonable out-of-pocket expenses, including reasonable fees and disbursements of Banc of
America Securities’ counsel, up to a maximum of $50,000, and have agreed to indemnify Banc of America Securities against certain liabilities, including liabilities under the federal securities laws. The terms of the fee arrangement with Banc of
America Securities, which are customary in transactions of this nature, were negotiated at arm’s length between Monarch Dental and Banc of America Securities, and our board was aware of that arrangement, including the fact that a portion of
Banc of America Securities’ fee was contingent upon delivery of the opinion.
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
23
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. The junior subnotes will be unsecured and will be subordinated only to the debt under the senior secured credit facility and
the senior subordinated notes. Interest on the junior subnotes will be paid at a rate of 12.0% per year in additional notes. The junior subnotes will have no mandatory redemption date, but will be redeemable upon a liquidation event, including a
sale of Bright Now! Dental or an initial public offering. The detachable warrants will represent the right to purchase 30.0% of the common stock of Bright Now! Dental on a fully diluted basis (excluding incentive options issued to management and
warrants issued to the holders of the senior subordinated notes). Depending on the ultimate principal amount of the junior subnotes required to fund the merger and related transactions, the warrant percentage may be increased to not more than 40.0%
in the aggregate. The warrants will be exercisable at a price of $0.01 per share and will be subject to anti-dilution provisions.
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 determination by the Antares Group that there has been no 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, and no change, development or event that has or would reasonably be expected to have a material adverse effect; |
| |
• |
|
the receipt by the Antares Group of: |
| |
• |
|
satisfactory projections from Monarch Dental and Bright Now! Dental for the period from 2002 to 2007; |
| |
• |
|
a pro forma closing balance sheet, as adjusted to reflect the merger, that is satisfactory to the Antares Group; |
| |
• |
|
unaudited financial statements for each monthly period from January 2002 through the most recent month ended prior to the closing date; and
|
| |
• |
|
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 procurement of all governmental, regulatory and other consents or approvals required to complete the merger and the financing, as reasonably determined by
the Antares Group; |
| |
• |
|
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; |
24
| |
• |
|
the absence of any litigation seeking to enjoin or prevent the merger or any related transactions; |
| |
• |
|
the junior subnotes, when combined with the existing equity in Bright Now! Dental of approximately $29.5 million, must equal at least 40.0% of the total
capitalization of Bright Now! Dental; |
| |
• |
|
senior debt to twelve-month pro forma EBITDA (generally, earnings before interest, taxes, depreciation and amortization) no greater than 2.1x and total debt to
twelve-month pro forma EBITDA no greater than 3.1x at the closing; and |
| |
• |
|
satisfactory corporate approval of the merger agreement and the financing, as well as the delivery of opinions from counsel satisfactory to the Antares Group.
|
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; |
| |
• |
|
the receipt by Bright Now! Dental of $28.4 million from Gryphon affiliates in exchange for the junior subnotes, plus additional cash investments to the extent
pro forma EBITDA on the closing date is less than $25.4 million (for this purpose, EBITDA means earnings before interest, taxes, depreciation and amortization for the then latest twelve-month period, exclusive of any expected synergies from the
merger); |
| |
• |
|
Blackstone’s execution of intercreditor and subordination agreements with the Antares Group and the holders of junior subnotes, containing terms
satisfactory to Blackstone; |
| |
• |
|
the total uses of funds in connection with the merger not exceeding $113.4 million; |
| |
• |
|
the purchase by Bright Now! Dental of all of our outstanding common stock at a total price not to exceed $14.0 million; |
| |
• |
|
the repayment of all indebtedness of Bright Now! Dental and Monarch Dental in connection with the merger; |
| |
• |
|
the availability of at least $13.0 million under the proposed revolving credit line under the proposed senior secured credit facility on terms satisfactory to
Blackstone; |
| |
• |
|
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 absence of any material pending litigation or proceeding against Bright Now! Dental or Monarch Dental; |
| |
• |
|
the receipt by Blackstone of: |
| |
• |
|
at least 30 days prior to the closing date, a pro forma consolidated balance sheet and income statement, as adjusted to reflect the transaction, which shows
total debt to EBITDA not to exceed 3.3x and total senior debt to EBITDA not to exceed 2.25x; and |
25
| |
• |
|
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 procurement of all governmental, regulatory and other consents and approvals required to complete the merger and the financing, as reasonably determined by
Blackstone. |
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 outlined above. Bright Now! Dental has represented in the merger agreement that, as of the date of the merger 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 advised Bright Now! Dental that they are unable to provide the financing commitment amount; or
|
| |
• |
|
Bright Now! Dental has determined that it is unlikely that it will be able to satisfy the conditions in the commitment letters with the Antares Group or
Blackstone. |
Bright Now! Dental is obligated to inform us of the occurrence of either of the
events listed above no later than 48 hours from 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 its financing will be completed. Bright Now! Dental currently does not have any alternative financing commitments in the event that the financing
with the Antares Group or Blackstone is not obtained. Both commitment letters will terminate in accordance with their terms unless definitive loan documents are executed on or before April 1, 2003.
Arrangement Between Bright Now! Dental and Our Lenders
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. Upon payment of this amount, Bright Now! Dental shall, and shall cause us to, release our lenders and each of their officers,
directors, employees, agents, representatives and attorneys, and our lenders shall release Bright Now! Dental and its officers, directors, employees, agents, representatives and attorneys, from all claims, causes of action, or the like arising from
or related to our credit facility.
In addition, if the merger does not close by February 28, 2003, Bright Now!
Dental has agreed to pay an amount equal to the amount of interest accrued on the $63.1 million at an annual rate equal to the higher of the federal funds rate plus 0.5% or our lead lender’s prime rate for the number of days in the period
commencing March 1, 2003 and ending on the closing date of the merger.
Under this agreement, our lenders have
agreed to refrain from taking the following actions 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, including the failure to meet any milestone
under this agreement, (3) April 1, 2003, and (4) the closing of the merger:
| |
• |
|
filing suit against us in connection with our credit facility; |
| |
• |
|
foreclosing or initiating a foreclosure action on any collateral under the credit facility; |
26
| |
• |
|
exercising any self-help remedies with respect to the collateral under the credit facility; |
| |
• |
|
imposing any fee, charge or expense not expressly provided for in the credit agreement; |
| |
• |
|
assigning, selling or transferring our indebtedness to any other person, unless such party agrees to be bound by the terms of this agreement;
|
| |
• |
|
assigning, selling or transferring the warrants or the shares of our common stock issued upon exercise of the warrants, except in connection with the
assignment, sale or transfer of our indebtedness as permitted above; |
| |
• |
|
exercising remedies and collecting interest and fees; |
| |
• |
|
interfering with our use of our cash by setting off any of our cash accounts against the debt owed to our lenders; |
| |
• |
|
blocking, freezing or restricting our ability to access our cash accounts; or |
| |
• |
|
dishonoring checks, transfers or payments drawn by us against sufficient collected funds. |
Our lenders also agreed to take all required actions, to the extent permitted by applicable law, to exercise all of their warrants to
purchase shares of our common stock in full prior to the record date for the special meeting and to transfer the shares of our common stock issued upon exercise of the warrants to a Gryphon affiliate, without further consideration, immediately upon
the payment of the $63.1 million, plus any interest required to be paid, at the closing of the merger. The warrants were issued to our lenders in connection with prior amendments to our credit agreement. 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.
This agreement also includes the following
representations, warranties and covenants:
| |
• |
|
the closing of the merger shall occur on or prior to April 1, 2003; |
| |
• |
|
the retention of a consultant by our lenders and at their expense, with the authority to investigate all aspects of our business, including all financial and
business records and operations, and to make recommendations to our lenders regarding the enhancement of our operating performance; |
| |
• |
|
the absence of any material breach of the merger agreement by any party prior to the closing, unless such breach has been waived;
|
| |
• |
|
Bright Now! Dental’s representation and warranty that its financing commitments will provide sufficient funds to consummate the merger, including the
payment of the $63.1 million principal amount, plus any interest required to be paid, upon the closing of the merger; |
| |
• |
|
Bright Now! Dental’s representation and warranty that it has no reason to believe that any of the conditions in its financing commitment letters that are
entirely within its control cannot or will not be satisfied prior to the effective time of the merger; and |
| |
• |
|
the completion of certain milestones in connection with the merger, including the following: |
| |
• |
|
filing the definitive proxy statement within five days from the date we are notified by the Securities and Exchange Commission that they will not review the
proxy statement, or within 20 days after we receive comments from the Securities and Exchange Commission, if the proxy statement is reviewed by the Securities and Exchange Commission; |
| |
• |
|
mailing the proxy statement to our stockholders within 10 days from the date that we are notified that the proxy statement will not be reviewed by the
Securities and Exchange Commission, or within 25 days after we receive comments from the Securities and Exchange Commission, if the proxy statement is reviewed by the Securities and Exchange Commission; and |
27
| |
• |
|
holding the special meeting within 55 days after the date that we are notified that the proxy statement will not be reviewed by the Securities and Exchange
Commission, if the proxy statement is not reviewed by the Securities and Exchange Commission, or within 70 days after we receive comments from the Securities and Exchange Commission, if the proxy statement is reviewed by the Securities and Exchange
Commission. |
We are not a party to this agreement and, thus, we cannot enforce its terms. If
Bright Now! Dental breaches this agreement or the merger agreement terminates for any reason, our lenders may exercise their rights under the credit agreement without violation, including their rights of set-off and foreclosure, which could have the
effect of delaying or preventing the merger or forcing our company into bankruptcy.
Arrangements Between Bright Now! Dental and Our Major Stockholders
Stockholder
Support Agreements
Bruce Galloway and Europa International, Inc. (an affiliate of Fred Knoll), who are
two of our largest stockholders and who collectively with their affiliates own approximately 23.1% of the outstanding shares of our common stock, entered into stockholder support agreements with Bright Now! Dental in connection with the proposed
merger. The material terms of the stockholder support agreements are set forth below.
Under the terms of the
stockholder support agreements, these stockholders 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; |
| |
• |
|
against any other merger agreement or merger, consolidation, combination, sale of substantial assets, sale of securities, reorganization, recapitalization,
liquidation or winding up of our company or any other similar transaction involving our company; and |
| |
• |
|
against any corporate action the consummation of which would frustrate the purposes or impede, prevent, nullify or delay the completion of the transactions
contemplated by the merger agreement. |
Mr. Galloway also agreed to vote his shares against any amendment to our
certificate of incorporation or by-laws or any other action or agreement that would result in a breach of any of our representations, warranties, agreements or other obligations under the merger agreement or which could result in any of the
conditions to our obligations under the merger agreement not being fulfilled.
Also under the stockholder support
agreements, Mr. Galloway and Europa International agreed not to:
| |
• |
|
offer to sell, sell, assign, transfer, pledge, encumber or otherwise dispose of any of their shares of our common stock; |
| |
• |
|
deposit any of their shares of our common stock into a voting trust or enter into a voting agreement or arrangement with respect to these shares;
|
| |
• |
|
grant any proxy or power of attorney with respect to their shares of our common stock; |
| |
• |
|
enter into any contract, option, agreement or other arrangement with respect to any sale, assignment, transfer or other disposition of or transfer of any
interest in or the voting of any of their shares of our common stock or other securities of our company; or |
| |
• |
|
exercise any appraisal rights under Delaware law. |
Each of Mr. Galloway and Europa International also agreed not to, and not to permit any of their respective affiliates, or any director, officer, employee, partner, member, investment banker, attorney
or other advisor or representative of such stockholder or such stockholder’s affiliates to:
| |
• |
|
solicit, initiate or encourage the submission of an acquisition proposal with respect to our company; |
28
| |
• |
|
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. |
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 Mr. Galloway or Europa International, as applicable, including any amendment or
waiver that would result in such stockholder receiving less than $5.75 per share in cash upon completion of the merger; and |
| |
• |
|
the 180th day
following the December 10, 2002 execution date of the stockholder support agreements. |
The
stockholder support agreements 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. Bright Now! Dental is obligated to reimburse these fees immediately following the completion
of the merger, but no later than two business days following the adoption and approval of the merger agreement by our stockholders. If the applicable stockholder is not paid this amount within the prescribed time period, the stockholder support
agreement with that stockholder will become null and void and be of no further force and effect.
Mutual
Releases
In connection with entering into the stockholder support agreements, the parties to these
agreements, including their respective affiliates, also entered into mutual releases and covenants not to sue with respect to all prior claims, including claims which were asserted or could have been asserted in connection with the transactions
contemplated by the merger agreement or which could arise out of any action taken in connection with the merger agreement. The stockholder parties also released, and agreed not to sue with respect to, any claims related to matters occurring at or
prior to the completion of the merger which relate to the transactions contemplated by the merger agreement. The releases exclude any claims arising out of or related to any breach of the releases, as well as the letter agreements or the consulting
agreement described below, or any breach of the merger agreement.
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. 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.
Options to
Invest in Bright Now! Dental Following the Merger
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 within 180 days following the completion of the merger, an amount of
securities in Bright Now! Dental having an aggregate purchase price equal to the proceeds that they each receive in the merger. As part of the financing for the merger, Gryphon Partners intends to provide financing by purchasing securities of Bright
Now! Dental, specifically 12.0% junior pay-in-kind subordinated notes with detachable warrants, or junior subnotes. The warrants will be exercisable at a price of $0.01 per share and will be subject to anti-dilution provisions. Any investment in the
junior subnotes by Messrs. Galloway and Knoll would be at the same price as the purchase by Gryphon Partners.
29
Set forth below is a table which indicates the potential ownership interests of
Messrs. Galloway and Knoll in the combined company under certain assumptions, including the full exercise of their respective options. The amounts set forth below assume that Gryphon affiliates purchase $28.4 million principal amount of junior
subnotes in the transaction, with the shares of Bright Now! Dental common stock issuable upon exercise of the accompanying warrants representing 30.0% of the fully diluted common stock of Bright Now! Dental immediately following the transaction
(excluding incentive options issued to management and warrants issued to the holders of Bright Now! Dental’s senior subordinated notes). 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.
| Stockholder
|
|
Number of Shares of Monarch Dental Common Stock Beneficially Owned
|
|
Proceeds to be Received in Merger ($5.75 per share)
|
|
Percentage of Total Principal Amount of Junior Subnotes Subject to Option
|
|
Percentage of Fully Diluted Bright Now! Dental Common Stock Represented by Warrants Subject
to Option
|
| Fred Knoll |
|
403,900 |
|
$2,322,425 |
|
8.2% |
|
2.5% |
| Bruce Galloway |
|
139,399 |
|
$ 801,544 |
|
2.8% |
|
0.8% |
Messrs. Galloway and Knoll may elect to make the investment at any
time following the completion of the transaction up to and including the 180th day following the
completion of the merger, following receipt of a disclosure document from Bright Now! Dental regarding the junior subnotes. The option election period will be extended by one day for each additional day between the 60th day following the closing of the merger and the date of delivery of the disclosure document.
Consulting Agreement
Gryphon Investors, Inc. also entered into a consulting agreement, effective upon the completion of the merger, with Galloway Capital Management, LLC, an affiliate of Mr. Galloway. 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.
Gryphon retained Galloway Capital to render these consulting
services to Gryphon for a one-year period beginning on the closing date of the merger. If during the initial one-year consulting period, however, Gryphon or any of its affiliated entities substantially completes negotiations with respect to a
definitive agreement, including related documentation, for a transaction originated by Galloway Capital, then the consulting period will be automatically extended for one additional year on similar terms. The additional one-year consulting period
will not be subject to further extension.
In the merger, Merger Subsidiary will merge with and into our
company, and Monarch Dental will be the surviving corporation. As a result, we will become a wholly-owned subsidiary of Bright Now! Dental. In the merger, each share of our common stock outstanding immediately prior to the effective time of the
merger will be canceled, retired and converted into the right to receive the merger consideration (other than shares as to which appraisal rights have been demanded and not withdrawn or lost).
30
Certain Effects of the Merger
If the merger is completed, holders of shares of our
common stock will not have an opportunity to continue their equity interest in the surviving corporation as an ongoing corporation and, therefore, will not have the opportunity to share in its future earnings, dividends or growth, if any. In
addition, upon completion of the merger, our common stock will no longer be listed on NASDAQ and our company will cease to be registered with the Securities and Exchange Commission.
31
Date, Time and Place of the Special Meeting
The special meeting 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.
Purpose of the Special Meeting
At the special meeting, you will be asked to consider
and vote on the following proposals:
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• |
|
to adopt and approve the merger agreement, which provides for the merger of Merger Subsidiary, a wholly-owned subsidiary of Bright Now! Dental, with and into
our company; and |
| |
• |
|
to act upon any other business that may properly come before the special meeting or any adjournment or postponement of that meeting.
|
Our board of directors has fixed the close of business on January 2,
2003 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting. At the close of business on the record date, 2,348,634 shares of our common stock were outstanding and entitled to vote. Our
shares were held of record by approximately 557 stockholders. The common stock is our only outstanding class of stock. Stockholders of record on the record date will be entitled to one vote per share of common stock on any matter that properly comes
before the special meeting and any adjournment or postponement of that meeting.
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. If a quorum is not present, we expect to adjourn or postpone the special
meeting to solicit additional proxies and intend to vote any proxies we have at the time in favor of an adjournment or postponement.
Our charter and by-laws and Delaware law require the affirmative
vote of holders of a majority of the shares of our common stock outstanding and entitled to vote at the special meeting 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. Also, on the record date, our directors and executive officers owned 378,370 shares of our common stock, or approximately 16.1% of our total outstanding shares. On the record date, Bright
Now! Dental owned no shares of our common stock.
Abstentions and Broker Non-Votes
For purposes only of determining the presence or
absence of a quorum for the transaction of business at the special meeting, we intend to count abstentions as present at the special meeting. Abstentions and broker non-votes are not, however, counted as favorable votes and, therefore, have the same
effect as a vote against the adoption and approval of the merger agreement. Broker non-votes are proxies from brokers or other nominees indicating that the person has not received instructions from the beneficial owner or other person entitled to
vote the shares which are the subject of the proxy on a particular matter with respect to which the broker or other nominee does not have discretionary voting power. If you fail to vote or abstain from voting, it will have the effect of a vote
against the proposal.
The actions proposed in this proxy statement are not matters that can be voted on by
brokers holding shares for beneficial owners without the owners’ specific instructions. Accordingly, we urge you to return the enclosed proxy card marked to indicate your vote or to give your broker proper instructions.
32
Proxies, Voting and Revocation
You are requested to complete, date and sign the
accompanying proxy card and promptly return it to us. All properly executed proxies received prior to taking the vote at the special meeting and not revoked, will be voted as instructed on the proxy card. If the proxy card is signed and returned
without indicating any voting instructions, the shares represented by that proxy will be voted “For” the adoption and approval of the merger agreement and in the discretion of the individuals named as proxies as to any other matter that
may come before the special meeting, including, among other things, a motion to adjourn or postpone the special meeting to another time and/or place for the purpose of soliciting additional proxies. No proxy which is voted against the proposal
will be voted in favor of any adjournment or postponement of the meeting.
You may revoke your proxy at any
time before it is voted at the special meeting by:
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• |
|
delivering to our secretary at the address listed below a written notice of revocation bearing a later date than the proxy; |
| |
• |
|
duly executing, dating and delivering to our secretary at the address listed below a new proxy card, dated later than the first proxy card, which will
automatically replace any earlier dated proxy card that you returned; 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.
You should send any notice of revocation of your proxy card to:
Monarch
Dental Corporation
Tollway Plaza II
15950 North Dallas Parkway,
Suite 825
Attention: Lisa K. Peterson, Secretary
If your broker holds
shares in “street name,” your broker will vote your shares only if you provide instructions on how to vote. Your broker will provide directions regarding how to instruct your broker to vote your shares. Please note, however, that if the
holder of record of your shares is your broker, bank or other nominee and you wish to vote at the special meeting, you must bring a letter from your broker, bank or other nominee confirming that you are the beneficial owner of the shares.
33
Solicitation of Proxies and Expenses
We will bear the entire cost of solicitation of
proxies from our stockholders. We have retained D. F. King & Co., Inc. to assist in soliciting proxies and will pay approximately $12,500, plus reasonable out-of-pocket expenses, in connection with the solicitation. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding in their names shares of common stock owned by others to forward to those beneficial owners. We will reimburse persons representing beneficial owners of
the shares of common stock for their expenses in forwarding solicitation materials to those beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone or personal solicitation by our directors, officers or other
regular employees. No additional compensation will be paid to our directors, officers or other regular employees for these services.
The matters to be considered at the special meeting are of great importance to you. Accordingly, we urge you to read and carefully consider the information presented in this proxy statement and to complete, sign, date and
promptly return the enclosed proxy in the enclosed postage-paid envelope.
In connection with the proposal to adopt and approve the merger
agreement you may, under certain circumstances and by following procedures prescribed by Delaware law, exercise appraisal rights and receive cash equal to the fair value of your shares of our common stock. The failure of a stockholder seeking an
appraisal of his or her shares to follow the appropriate procedures may result in the termination or waiver of these rights. See the section of this proxy statement entitled “Appraisal Rights” beginning on page 47 for a summary of your
appraisal rights and the procedures to follow to assert these rights. In addition, a copy of Section 262 of the Delaware General Corporation Law, which governs appraisal rights, is attached as Appendix C to this proxy statement. If you wish
to demand an appraisal of your shares, you must strictly comply with the statutory requirements.
34
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As you consider the recommendations of our
board of directors and the special committee with respect to the merger agreement, you should be aware that some of our directors and officers may have interests in the merger and participate in arrangements that are different from, or are in
addition to, those of our stockholders generally. Our board and the special committee are aware of these interests and considered them, among other matters, when they approved the merger agreement. These interests include the following:
Severance Payments to Officers and Employees
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). Furthermore, if Ms. Peterson would be subject to an excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, she would also be entitled to an additional payment, referred to as a gross-up payment, so that the new amount retained by Ms. Peterson after paying any excise tax, would equal the intended cash severance payment. In addition,
for the twelve-month period following the termination of her employment, Ms. Peterson will be entitled to the continuation of health benefits coverage at a premium payable in the same proportion as in effect prior to Ms. Peterson’s termination,
and outplacement services not to exceed $20,000 in the aggregate. Ms. Peterson will also 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.
The employment agreement between Monarch Dental and Ms. Peterson is the only severance agreement that currently exists between Monarch
Dental and any of our employees.
When the special committee authorized the pursuit of a sale of
Monarch Dental, it determined that the potential sale of our company could create an atmosphere of uncertainty and insecurity among our employees, and may 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 as an employee through the date of the merger or other specified dates, we agreed to pay these employees cash bonuses, of varying amounts, as more fully described below.
We have entered into stay bonus agreements with the executive officers listed in the table below. The table lists for each executive officer the stay bonus amount granted
and the timing of that payment.
| Name
|
|
Stay Bonus Amount
|
|
Payable if the merger closes on or prior
to:
|
| W. Barger Tygart |
|
$ |
225,000 |
|
|
| Lisa K. Peterson |
|
$ |
110,000 |
|
|
| Dr. Roy D. Smith, III |
|
$ |
102,500 |
|
|
| Timothy J. Kriske |
|
$ |
97,500 |
|
|
| Thurman Brown |
|
$ |
90,000 |
|
|
In addition, we entered into stay bonus agreements with six
other key employees who may receive up to $354,500 in the aggregate upon the completion of the merger or at other specified dates if they remain as employees in good standing. In accordance with the terms of the stay bonus agreements, we paid
$126,500 of this aggregate amount to these key employees for the continuation of their employment with us through December 31, 2002.
35
Stock Options of Our Directors and Executive Officers
In connection with 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 the approximate amounts (before withholding) indicated in the following table.
| Name
|
|
Number of Option Shares
|
|
Option Shares Exercise
Price
|
|
Option Settlement Amount
|
| W. Barger Tygart |
|
75,000 |
|
$ |
2.91 |
|
$ |
213,000 |
| |
|
8,333 |
|
$ |
5.0625 |
|
$ |
5,729 |
| Allan S. Huston |
|
3,333 |
|
$ |
1.3128 |
|
$ |
14,789 |
| |
|
500 |
|
$ |
2.45 |
|
$ |
1,650 |
| Glenn E. Hemmerle |
|
1,000 |
|
$ |
2.45 |
|
$ |
3,300 |
| Dr. John E. Maupin, Jr. |
|
1,000 |
|
$ |
2.45 |
|
$ |
3,300 |
| Dr. Warren F. Melamed |
|
1,000 |
|
$ |
2.45 |
|
$ |
3,300 |
| |
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
$ |
245,068 |
| |
|
|
|
|
|
|
|
|
Our directors and executive officers hold additional stock options
which will become fully vested and exercisable in connection with the merger. The exercise prices of these options, however, exceed the $5.75 per share merger consideration. The options listed in the table above constitute all of the in-the-money
options held by our directors, officers and other employees.
Indemnification of Our Directors and Executive Officers
In addition, under the terms
of the merger agreement, our directors and executive officers will be entitled to indemnification in specified circumstances, as more fully described in the section below entitled “The Merger Agreement—Indemnification.”
36
The terms of and conditions to the merger are contained in the
merger agreement, a copy of which is attached to this proxy statement as Appendix A and incorporated in this document by reference. Set forth below is a description of the material terms and conditions of the merger agreement. This description is
qualified in its entirety by, and made subject to, the more complete information set forth in the merger agreement. You should read the merger agreement carefully and in its entirety.
The merger agreement provides that Merger Subsidiary will be merged with and
into Monarch Dental, with Monarch Dental being the surviving corporation. We will cease to exist as a separate company and our common stock will no longer be listed on NASDAQ or registered with the Securities and Exchange Commission. After the
merger, we will be a wholly-owned subsidiary of Bright Now! Dental.
The merger will become effective when the certificate of merger has
been filed with the Secretary of State of the State of Delaware and become effective in accordance with the Delaware General Corporation Law. We expect the merger to become effective as soon as practicable after the special meeting and the
satisfaction or waiver of all other conditions to closing the merger. The parties will not be required under the merger agreement, however, to complete the merger until two business days after all of the conditions to closing the merger described in
the merger agreement are satisfied or waived.
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 into the right to receive $5.75 in cash, without interest. We expect that the merger will be completed during the first
calendar quarter of 2003.
Rights of Holders of Our Common Stock at the Effective Time of the Merger
At the
effective time of the merger, holders of our common stock will cease to be, and will have no rights, as our stockholders, other than the right to receive the merger consideration (unless you demand an appraisal of your shares and such demand is not
withdrawn or lost). After the merger occurs, there will be no transfers on our stock transfer books of any shares of our common stock.
Exchange of Stock Certificates
Bright Now! Dental has designated Mellon Investor
Services LLC to act as the exchange agent in the merger. Promptly after the effective time of the merger, the exchange agent will mail a letter of transmittal and instructions for use in surrendering your shares of our common stock in exchange for
the merger consideration. The letter of transmittal and instructions will specify that delivery will be effected and risk of loss and title to stock certificates will pass only upon proper delivery of the stock certificate to the exchange agent and
will specify how to properly surrender your stock certificates for payment. You should not submit your stock certificates for exchange until you receive the letter of transmittal and instructions referred to above.
When you deliver your stock certificates to the exchange agent along with a properly executed letter of transmittal and any other required
documents, subject to any required withholding of taxes, you will receive the merger consideration to which you are entitled under the merger agreement for each share of common stock previously represented by your stock certificate, and the stock
certificate will be canceled.
37
You are not entitled to receive any interest on the merger consideration. The
exchange agent will only issue a check for the merger consideration in a name other than the name in which a surrendered stock certificate is registered if the stock certificate surrendered is properly endorsed, or otherwise in proper form for
transfer, and you show that you paid any applicable stock transfer taxes. Until surrendered in accordance with the provisions stated above, each certificate will, after the effective time of the merger, represent only the right to receive the merger
consideration.
After the effective time of the merger, there will be no transfers of certificates that previously
represented common stock on our stock record books. If, after the effective time, stock certificates are presented to the surviving corporation or the exchange agent for payment, they will be canceled and exchanged for the merger consideration,
without interest. However, no holder of a stock certificate will have any greater rights against the surviving corporation than may be accorded to general creditors of the surviving corporation under applicable law.
Our Conduct of Business Prior to Completing the Merger
Under the merger agreement, we
have agreed that, until the effective time of the merger, we will conduct our operations only in the ordinary and usual course of business consistent with past practice, and we will use our reasonable best efforts to keep available the services of
our current officers, key employees and consultants and to preserve the current relationships with our customers, suppliers and other persons with which we have a significant business relation as is reasonably necessary to preserve substantially
intact our business organization.
In addition, the merger agreement specifically prohibits us, without Bright
Now! Dental’s prior written consent, from taking any of the following actions:
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• |
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amending or otherwise changing our organizational documents; |
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• |
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issuing, selling, pledging, disposing of or authorizing the issuance, sale, pledge or disposition of any of our securities, options, warrants or rights to
acquire those securities; |
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• |
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selling, pledging, transferring or otherwise disposing of or authorizing the sale, pledge, transfer or disposition of any of our property or assets, other than
as required under existing agreements or in the ordinary course of business consistent with past practice; |
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• |
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entering into any commitment or transaction outside the ordinary course of business consistent with past practice, other than transactions with our wholly-owned
subsidiaries; |
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• |
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declaring, making or paying any dividend or other distribution on our capital stock or entering into any voting agreement involving our capital stock;
|
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• |
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reclassifying, combining, splitting, or redeeming, purchasing or otherwise acquiring any of our capital stock or other equity interests;
|
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• |
|
acquiring any interest in any other business or any assets, other than in the ordinary course of business consistent with past practice and not in excess of
$100,000 individually or $250,000 in the aggregate; |
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• |
|
incurring any indebtedness or issuing any debt securities other than in the ordinary course of business or other indebtedness with a maturity of not more than
one year and in a principal amount not in excess of $250,000 in the aggregate; |
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• |
|
terminating, canceling or requesting any material change in our material contracts, other than in the ordinary course of business consistent with past practice;
|
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• |
|
making or authorizing any capital expenditure in excess of our budget (including maintenance capital expenditures in excess of $100,000 per month), other than
capital expenditures that are not in the aggregate in excess of $75,000; |
38
| |
• |
|
amending or modifying the existing terms of our benefit plans to increase the compensation payable to our directors, officers or employees (except for increases
in accordance with past practices in salaries or wages of our employees which are not across-the-board increases), to grant any rights to severance or termination pay, or to amend or waive any vesting or performance criteria;
|
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• |
|
prepaying any long-term debt or paying, discharging or satisfying claims, liabilities or obligations, other than in the ordinary course of business consistent
with past practice; |
| |
• |
|
accelerating or delaying the collection of notes or accounts receivable in advance of or beyond their due dates or the dates when they would have been collected
in the ordinary course of business consistent with past practice; |
| |
• |
|
delaying in excess of 15 days or accelerating the payment of accounts payable in advance of their due date or the date the liability would have been paid in the
ordinary course of business consistent with past practice; |
| |
• |
|
varying our inventory practices in any material respect from our past practices; |
| |
• |
|
making any changes to our accounting policies or procedures, other than in the ordinary course of business consistent with past practice or as required by
generally accepted accounting principles, or GAAP, or applicable law; |
| |
• |
|
waiving, releasing or settling any material claims or any material litigation or arbitration, other than where the settlement (after giving effect to insurance
proceeds actually received) does not exceed $50,000 individually or $150,000 in the aggregate; |
| |
• |
|
making or changing any tax elections, adopting or changing any accounting method in respect of taxes (other than as required by law), entering into any tax
allocation agreement, tax sharing agreement, tax indemnity agreement or closing agreement, settling or compromising any claim, notice, audit report or assessment in respect of taxes, or consenting to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of taxes; |
| |
• |
|
modifying, amending, terminating or waiving any rights or material claims with respect to any confidentiality or standstill agreement to which we are a party;
|
| |
• |
|
writing up, writing down or writing off the book value of our assets in an amount individually or in the aggregate in excess of $100,000, except in accordance
with GAAP and any impairment charge pursuant to Statement of Financial Accounting Standards No. 142; |
| |
• |
|
taking any action to exempt any other person from any state anti-takeover law or our shareholder rights agreement; or |
| |
• |
|
authorizing or entering into any agreement or otherwise making a commitment to take any of the actions described above. |
The agreements relating to the conduct of our business in the merger agreement are complicated and not easily summarized. You
are urged to carefully read Section 5.1 of the merger agreement attached to this proxy statement as Appendix A.
The obligations of Monarch Dental and Bright Now! Dental to
complete the merger are subject to the satisfaction of the following conditions, which generally cannot be waived:
| |
• |
|
the adoption and approval of the merger agreement by the requisite vote of our stockholders; |
39
| |
• |
|
the absence of any law, order or injunction prohibiting or restricting the completion of the merger; and |
| |
• |
|
the receipt of all required governmental consents or approvals. |
Our obligation to complete the merger is subject to the satisfaction of the following additional conditions, any of which can be waived by us:
| |
• |
|
each of the representations and warranties of Bright Now! Dental and Merger Subsidiary contained in the merger agreement must be true and correct in all
material respects as of the date of the merger agreement and the effective time of the merger, except to the extent those representations and warranties speak as of an earlier date or for changes expressly contemplated by the merger agreement, and
all changes and conditions that constitute exceptions to Bright Now! Dental and Merger Subsidiary representations and warranties made as of the effective time (except to the extent those representations and warranties speak as of an earlier date,
then as of that date), disregarding in each case all references to any materiality qualifications, will not constitute a material adverse effect on Bright Now! Dental and Merger Subsidiary; and |
| |
• |
|
Bright Now! Dental and Merger Subsidiary must perform in all material respects all of their respective obligations under the merger agreement.
|
The obligations of Bright Now! Dental and Merger Subsidiary to complete the merger are subject to the
satisfaction of the following additional conditions, any of which can be waived by Bright Now! Dental:
| |
• |
|
each of our representations and warranties contained in the merger agreement must be true and correct in all material respects as of the date of the merger
agreement and the effective time of the merger, except to the extent those representations and warranties speak as of an earlier date or for changes expressly contemplated by the merger agreement, and all changes and conditions that constitute
exceptions to our representations and warranties made as of the effective time (except to the extent those representations and warranties speak as of an earlier date, then as of that date), disregarding in each case all references to any materiality
qualifications, will not constitute a material adverse effect on our company; |
| |
• |
|
we must have performed in all material respects all of our obligations under the merger agreement; |
| |
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we must have obtained all of the required consents and approvals from any third parties, other than governmental entities; |
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the absence of any material adverse change on Monarch Dental, except any material adverse change that primarily results from the announcement or pendency of the
merger, that generally affects our industry and does not affect us in a disproportionate manner (other than changes in laws or regulations), or that is related to a general drop in stock prices in the Unites States that does not affect us in a
disproportionate manner; |
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the absence of any action seeking damages or equitable relief in connection with the merger, with respect to which Bright Now! Dental believes in good faith,
after consulting with its legal counsel, that a material risk exists that the plaintiff will prevail and the damages which the plaintiff would reasonably be expected to be awarded would either exceed $2.5 million or, to the extent that equitable
relief is sought, would rescind the merger; and |
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Bright Now! Dental shall have received the proceeds of its financing commitments. |
Representations and Warranties
In the merger agreement, we made representations and
warranties, subject to exceptions which were disclosed to Bright Now! Dental, concerning our business and assets. The representations and warranties must be true and correct in all material respects at the effective time of the merger or Bright Now!
Dental will not be required to complete the merger. These representations and warranties include, among others, that:
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we have complied with our organizational documents including our charter and by-laws; |
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we and our subsidiaries are validly existing and in good standing and that the issued and outstanding shares of our capital stock and the capital stock of any
of our subsidiaries are fully paid, nonassessable and free of preemptive rights; |
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our board of directors authorized the signing and performance of the merger agreement; |
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we and our subsidiaries possess all authorizations, licenses, permits, certificates, approvals and clearances from any governmental entity necessary for us or
our subsidiaries to own, lease and operate our properties and carry on our business; |
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neither we nor our subsidiaries have any undisclosed liabilities or obligations of any nature that would be required to be reflected on a balance sheet prepared
in accordance with GAAP; |
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we are not subject to any pending or threatened controversies by any of our current or former employees that if decided adversely would have a material adverse
effect on us; |
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there are no suits or actions filed or threatened against us or any of our subsidiaries that would reasonably be expected to have a material adverse effect on
our assets, liabilities, financial condition or results of operations; |
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we and our subsidiaries have timely filed all tax returns, which were complete and correct, and neither we nor our subsidiaries have any unpaid taxes that
exceed our reserve for tax liabilities; |
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neither we nor our subsidiaries are subject to any audits, assessments or other administrative or court proceedings with regard to our taxes or tax returns; and
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each of our leases has been properly authorized and executed by us, is in full force and effect, constitutes a legal, valid and binding obligation of ours and
does not require any consent or approval in connection with the merger. |
We have also made representations and
warranties with respect to the professional corporations that operate the dental offices and with which we have administrative services agreements.
The merger agreement also contains representations and warranties of Bright Now! Dental and Merger Subsidiary relating to various aspects of their business, including, among others, that:
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Bright Now! Dental and its subsidiaries are validly existing and in good standing and that Bright Now! Dental owns all of the issued and outstanding shares of
Merger Subsidiary; |
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Bright Now! Dental’s and Merger Subsidiary’s boards of directors authorized the signing and performance of the merger agreement;
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there are no suits or actions filed or threatened against Bright Now! Dental or any of its subsidiaries that would result in a material adverse effect on the
assets, liabilities, financial condition or results of operations of Bright Now! Dental; |
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Bright Now! Dental has provided to us true, complete and correct copies of its financing commitment letters and that, as of the date of the merger agreement,
Bright Now! Dental has no reason to believe that any of the conditions set forth in the financing commitment letters will not be satisfied prior to the effective time of the merger; and |
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Bright Now! Dental has provided to us true, complete and correct copies of its financial statements prepared in accordance with GAAP.
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The representations and warranties included in the merger agreement are complicated and not easily
summarized. You are urged to carefully read Articles 3 and 4 of the merger agreement attached to this proxy statement as Appendix A.
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Solicitation of Proposals from Other Parties
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:
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a merger, consolidation, business combination or similar transaction involving us or any of our subsidiaries; |
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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; |
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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; |
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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 |
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any combination of the above. |
If we receive an unsolicited 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:
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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 |
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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 nor the special committee would:
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withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Bright Now! Dental, 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 |
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cause us to enter into any letter of intent, agreement in principle, acquisition agreement or similar agreement with respect to any other acquisition proposal.
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However, if our board 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
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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
Either Bright Now! Dental or Monarch Dental may
terminate the merger agreement if any of the following occurs:
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the parties mutually agree in writing to terminate the merger agreement by action of their respective boards of directors; |
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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; |
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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 |
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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:
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our board withdraws or adversely modifies its recommendation to our stockholders that they vote in favor of the merger agreement;
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our board determines to recommend to our stockholders that they approve another acquisition proposal or determines to accept a superior proposal;
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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 is
commenced and our board fails to recommend to our stockholders that they not tender or exchange their shares; |
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we fail to hold the special meeting by the outside meeting date; |
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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 operation, which is not cured within 10 days; or |
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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:
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our board 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; |
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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 |
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Bright Now! Dental has determined that it is likely that it will be unable to satisfy any one of the conditions in the commitment letters with the Antares Group
or Blackstone. |
Termination Fee; Expenses
Termination Fee
We must pay Bright Now! Dental a termination fee of $1.5 million if the merger agreement is terminated because:
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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; |
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our board determines to recommend to our stockholders that they approve another acquisition proposal; |
