<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
MONARCH DENTAL CORPORATION
4201 SPRING VALLEY ROAD, SUITE 320
DALLAS, TEXAS 75244
April 5, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Monarch Dental Corporation (the "Annual Meeting") to be held on Tuesday, May 11,
1999, at 1:00 p.m., local time, at the Hotel Inter-Continental Dallas, 15201
Dallas Parkway, Dallas, Texas.
The Annual Meeting has been called for the purpose of (i) electing two
Class II Directors for three-year terms and (ii) considering and voting upon
such other business as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
The Board of Directors has fixed the close of business on March 16, 1999 as
the record date for determining stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournments or postponements thereof.
The Board of Directors of the Company recommends that you vote "FOR" the
election of the nominees of the Board of Directors as Directors of the Company.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
Sincerely,
/s/ GARY W. CAGE
Gary W. Cage
Chief Executive Officer
<PAGE> 3
MONARCH DENTAL CORPORATION
4201 SPRING VALLEY ROAD, SUITE 320
DALLAS, TEXAS 75244
(972) 702-7446
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, MAY 11, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Monarch
Dental Corporation (the "Company") will be held on Tuesday, May 11, 1999, at
1:00 p.m., local time, at the Hotel Inter-Continental Dallas, 15201 Dallas
Parkway, Dallas, Texas (the "Annual Meeting"), for the purpose of considering
and voting upon:
1. The election of two Class II Directors for three-year terms; and
2. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on March 16, 1999 as
the record date for determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournments or postponements thereof. Only
holders of Common Stock of record at the close of business on that date will be
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
or postponements thereof.
In the event there are not sufficient shares to be voted in favor of any of
the foregoing proposals at the time of the Annual Meeting, the Annual Meeting
may be adjourned in order to permit further solicitation of proxies.
By Order of the Board of Directors,
/s/ STEVEN G. PETERSON
Steven G. Peterson
Secretary and Chief Financial
Officer
Dallas, Texas
April 5, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
MONARCH DENTAL CORPORATION
4201 SPRING VALLEY ROAD, SUITE 320
DALLAS, TEXAS 75244
(972) 702-7446
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, MAY 11, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Monarch Dental Corporation (the "Company")
for use at the Annual Meeting of Stockholders of the Company to be held on
Tuesday, May 11, 1999 at 1:00 p.m., local time, at the Hotel Inter-Continental
Dallas, 15201 Dallas Parkway, Dallas, Texas, and any adjournments or
postponements thereof (the "Annual Meeting").
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the following matters:
1. The election of two Class II Directors for three-year terms, such terms
to continue until the annual meeting of stockholders in 2002 and until
such Directors' successors are duly elected and qualified; and
2. Such other business as may properly come before the meeting and any
adjournments or postponements thereof.
The Notice of Annual Meeting, Proxy Statement and Proxy Card are first
being mailed to stockholders of the Company on or about April 5, 1999 in
connection with the solicitation of proxies for the Annual Meeting. The Board of
Directors has fixed the close of business on March 16, 1999 as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting (the "Record Date"). Only holders of Common Stock of record at
the close of business on the Record Date will be entitled to notice of, and to
vote at, the Annual Meeting. As of the Record Date, there were approximately
12,140,000 shares of Common Stock outstanding and entitled to vote at the Annual
Meeting and approximately 167 stockholders of record. Each holder of a share of
Common Stock outstanding as of the close of business on the Record Date will be
entitled to one vote for each share held of record with respect to each matter
submitted at the Annual Meeting.
The presence, in person or by proxy, of a majority of the total number of
outstanding shares of Common Stock is necessary to constitute a quorum for the
transaction of business at the Annual Meeting. A quorum being present, the
affirmative vote of a plurality of the votes cast is necessary to elect each
nominee as a Director of the Company.
Shares that reflect abstentions or "broker non-votes" (i.e., shares
represented at the meeting held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
such shares and with respect to which the broker or nominee does not have
discretionary voting power to vote such shares) will be counted for purposes of
determining whether a quorum is present for the transaction of business at the
meeting. With respect to the election of Directors, votes may be cast in favor
of or withheld from each nominee; votes that are withheld will be excluded
entirely from the vote and will have no effect. Broker non-votes will also have
no effect on the outcome of the election of Directors.
STOCKHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE. COMMON STOCK
REPRESENTED BY PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY AND NOT REVOKED
WILL BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE INSTRUCTIONS
CONTAINED THEREIN. IF INSTRUCTIONS ARE NOT GIVEN THEREIN, PROPERLY EXECUTED
PROXIES WILL BE VOTED "FOR" THE ELECTION OF
<PAGE> 5
THE NOMINEES FOR DIRECTOR LISTED IN THIS PROXY STATEMENT. IT IS NOT ANTICIPATED
THAT ANY MATTERS OTHER THAN THE ELECTION OF DIRECTORS WILL BE PRESENTED AT THE
ANNUAL MEETING. IF OTHER MATTERS ARE PRESENTED, PROXIES WILL BE VOTED IN
ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS.
Any properly completed proxy may be revoked at any time before it is voted
on any matter (without, however, affecting any vote taken prior to such
revocation) by giving written notice of such revocation to the Secretary of the
Company, or by signing and duly delivering a proxy bearing a later date, or by
attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
The Annual Report of the Company, including financial statements for the
fiscal year ended December 31, 1998 ("Fiscal 1998") is being mailed to
stockholders of the Company concurrently with this Proxy Statement. The Annual
Report, however, is not a part of the proxy solicitation material.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of six members and
is divided into three classes, with one Director in Class I, three Directors in
Class II and two Directors in Class III. Directors serve for three-year terms
with one class of Directors being elected by the Company's stockholders at each
annual meeting.
At the Annual Meeting, two Class II Directors will be elected to serve
until the annual meeting of stockholders in 2002. Following the Annual Meeting,
the Company's Board of Directors will consist of five members, of which only two
will be Class II Directors. The Board of Directors has nominated Warren F.
Melamed, D.D.S. and W. Barger Tygart for re-election as the Class II Directors.
The Board of Directors is nominating Dr. Melamed for re-election pursuant to the
terms of an agreement entered into by Dr. Melamed and the Company in connection
with Dr. Melamed's resignation as President and Chief Dental Officer of the
Company effective on December 31, 1998. See "Executive
Compensation -- Termination of Employment Arrangements With Executive Officers."
The Board of Directors has not nominated Roger B. Kafker for re-election at his
request. Mr. Kafker will cease to be a Director of the Company upon the
expiration of his current term on the date of the Annual Meeting. Unless
otherwise specified in the proxy, it is the intention of the persons named in
the proxy to vote the shares represented by each properly executed proxy for the
re-election of Dr. Melamed and Mr. Tygart as Directors. The nominees have agreed
to stand for re-election and to serve, if elected, as Directors. However, if the
persons nominated by the Board of Directors fail to stand for election or are
unable to accept election, the proxies will be voted for the election of such
other person or persons as the Board of Directors may recommend.
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a plurality of the votes
cast is necessary to elect the nominees as Directors of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINEES OF THE BOARD OF DIRECTORS AS DIRECTORS OF THE COMPANY.
2
<PAGE> 6
INFORMATION REGARDING DIRECTORS
The Board of Directors of the Company held eight (8) meetings during Fiscal
1998. During Fiscal 1998, each of the incumbent Directors then serving as a
Director attended at least 75% of the total number of meetings of the Board and
of the committees of which he was a member. The Board of Directors has
established an Audit Committee (the "Audit Committee"), a Compensation and
Option Committee (the "Compensation Committee") and a Nominating Committee (the
"Nominating Committee"). The Audit Committee recommends the firm to be appointed
as independent accountants to audit financial statements and to perform services
related to the audit, reviews the scope and results of the audit with the
independent accountants, reviews with management and the independent accountants
the Company's annual operating results, considers the adequacy of the internal
accounting procedures and considers the effect of such procedures on the
accountants' independence. The Compensation Committee reviews and recommends the
compensation arrangements for officers and other senior level employees, reviews
general compensation levels for other employees as a group, determines the
options or stock to be granted to eligible persons under the Company's 1999
Stock Option and Grant Plan (the "1999 Stock Plan") and 1996 Stock Option and
Incentive Plan (the "1996 Stock Plan") and takes such other action as may be
required in connection with the Company's compensation and incentive plans. The
Nominating Committee is responsible for identifying, interviewing and
recommending to the full Board of Directors new candidates to serve as Directors
of the Company. The Audit Committee currently consists of Glenn E. Hemmerle,
Roger B. Kafker and John E. Maupin, Jr., D.D.S. and held three meetings during
Fiscal 1998. The Compensation Committee currently consists of Messrs. Hemmerle
and Kafker and W. Barger Tygart and held two meetings during Fiscal 1998. The
Nominating Committee currently consists of Dr. Maupin, Warren F. Melamed, D.D.S.
and Mr. Tygart. The Nominating Committee was not created until March 1999 and,
therefore, did not hold any meetings during Fiscal 1998.
Non-employee directors other than Dr. Melamed and Mr. Kafker (the
"Independent Directors") receive an annual fee of $20,000 plus a fee of $1,000
for each meeting of the Board of Directors or a committee thereof that they
attend in person and $300 for each meeting that they attend by telephone
conference. Dr. Melamed receives an annual fee of $35,000 in his capacity as
Chairman of the Board of Directors plus the other per meeting fees received by
the Independent Directors. In addition, all Directors are reimbursed for travel
and other expenses incurred in attending meetings in person. Each Independent
Director acquired 10,000 shares of restricted Common Stock or options to
purchase 10,000 shares of Common Stock in connection with joining the Board. The
Company intends to grant options to purchase approximately 10,000 shares of
Common Stock to Independent Directors who join the Board in the future.
3
<PAGE> 7
Set forth below is certain information regarding the Directors of the
Company, including the Class II Directors who have been nominated for the
election at the Annual Meeting, based on information furnished by them to the
Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
- ---- --- --------
<S> <C> <C>
CLASS I -- TERM EXPIRES 2001
John E. Maupin, Jr., D.D.S.(1)(2)........................... 52 1997
CLASS II -- TERM EXPIRES 1999
W. Barger Tygart*(2)(3)..................................... 63 1999
Roger B. Kafker+(1)(3)...................................... 37 1996
Warren F. Melamed, D.D.S.*(2)............................... 52 1983
CLASS III -- TERM EXPIRES 2000
Gary W. Cage................................................ 54 1997
Glenn E. Hemmerle(1)(3)..................................... 53 1996
</TABLE>
- ---------------
* Nominee for re-election.
+ Declined to stand for reelection.
(1) Member of the Audit Committee.
(2) Member of the Nominating Committee.
(3) Member of the Compensation Committee.
The principal occupation and business experience for at least the last five
years for each Director of the Company is set forth below.
Gary W. Cage has served as the Chief Executive Officer of the Company since
March 1997 and as the President of the Company since December 1998. Mr. Cage
served as the Chief Operating Officer of the Company from March 1996 to March
1997. Prior to joining the Company, Mr. Cage served as the Chief Financial
Officer, Senior Vice President, Treasurer and Secretary of EmCare Holdings Inc.,
a provider of management services to emergency physicians, from 1992 to March
1996; as the Chief Financial Officer of Team Bancshares, Inc., a bank holding
company, from 1989 to 1992; and as Chief Financial Officer of Texas American
Bancshares, Inc., a bank holding company, from 1974 to 1989. Mr. Cage is also a
director of Business Services, Inc., a provider of integrated, software-based
cash management and accounts receivable financing solutions to banks and small
businesses.
Glenn E. Hemmerle has served as a director of the Company since August
1996. He has served as the President and Chief Executive Officer of The Johnny
Rockets Group, Inc., a restaurant-chain operator, since February 1997. Prior to
February 1997, Mr. Hemmerle served as the President and Chief Executive Officer
of Pearl Vision, Inc., a retail eyeglass company, from July 1994 to November
1996; and as the President and Chief Executive Officer of Crown Books Inc., a
retail bookseller, from 1992 to July 1994. Mr. Hemmerle is also a director of
The Bombay Company, a retail furniture company.
Roger B. Kafker has served as a director of the Company since February
1996. He has been associated with TA Associates, Inc., a private equity firm, or
its predecessor since 1989 and became a Principal of that firm in 1994 and a
Managing Director in 1995. Mr. Kafker is also a director of ANSYS, Inc., a
software company, and Boron, LePore & Associates, Inc., a company providing
outsourced marketing services to the pharmaceutical industry.
John E. Maupin, Jr., D.D.S. has served as a Director of the Company since
September 1997. He has served as the president of Meharry Medical College in
Nashville, Tennessee since July 1994. Prior to July 1994, Dr. Maupin was the
Executive Vice President of the Morehouse School of Medicine in Atlanta,
Georgia.
4
<PAGE> 8
Warren F. Melamed, D.D.S., founded the Company in 1983 and most recently
served as its President and Chief Dental Officer until December 1998, when he
resigned from these positions. Dr. Melamed continues to serve as Chairman of the
Board of Directors in a non-employee capacity.
W. Barger Tygart has served as a Director of the Company since February
1999. Mr. Tygart served as Vice Chairman of the Board of Directors of J. C.
Penney Company, Inc. ("J. C. Penney"), a clothing retailer, from November 1997
until his retirement in July 1998. Mr. Tygart had previously served as President
and Chief Operating Officer of J. C. Penney from January 1995 to November 1997,
Senior Executive Vice President from 1992 to January 1995, Executive Vice
President from 1987 to 1992 and in various other positions with J. C. Penney
since 1960.
EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company and the
principal occupation and business experience for at least the last five years
for each are set forth below (unless previously set forth above) as of January
1, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary W. Cage.......................... 54 President and Chief Executive Officer
Allan M. Dworkin, D.D.S. ............. 61 Chief Dental Officer
Joseph J. Frank....................... 46 Chief Operating Officer
Steven G. Peterson.................... 33 Chief Financial Officer and Secretary
</TABLE>
Allan M. Dworkin, D.D.S. has served as the Chief Dental Officer of the
Company since January 1999. Prior to joining the Company, he served as Chairman
of the Clinical Advisory Board of Valley Forge Dental Associates, Inc. from
October 1997 to December 1998. Dr. Dworkin was President of Cross Keys Dental
Associates from its founding in 1968 until its acquisition by Valley Forge
Dental Associates, Inc. in October 1997. Dr. Dworkin has also served as the
Chief of Pediatric Dentistry for Sinai Hospital of Baltimore since 1995.
Joseph J. Frank has served as the Chief Operating Officer of the Company
since September 1998. Prior to joining the Company, he served as President,
Chief Executive Officer and a director of Valley Forge Dental Associates, Inc.
from June 1996 until its acquisition by the Company in September 1998. Mr. Frank
was Senior Vice President of Surgical Care Affiliates ("SCA"), an operator of
free standing surgical centers, from 1990 until January 1996 when SCA was
acquired by HealthSouth Corporation.
Steven G. Peterson has served as the Chief Financial Officer of the Company
since April 1997 and served as the Director of Finance of the Company from April
1996 to April 1997. Prior to joining the Company, he served as the Director of
Finance of EmCare Holdings Inc. from 1993 to April 1996. From 1990 to 1993, Mr.
Peterson served in numerous positions with Bank One, Texas, N.A., and its
predecessor, Team Bancshares, Inc., most recently as Vice President and Director
of Planning and Budgeting.
Each of the officers holds his respective office until the regular annual
meeting of the Board of Directors following the annual meeting of stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal.
5
<PAGE> 9
EXECUTIVE COMPENSATION
The following sections of this Proxy Statement set forth and discuss the
compensation paid or awarded during the last three years to the Company's Chief
Executive Officer and the four most highly compensated executive officers who
earned in excess of $100,000 during Fiscal 1998 (the "Named Executive
Officers").
SUMMARY COMPENSATION
Summary Compensation. The following summary compensation table sets forth
information concerning compensation for services rendered in all capacities
awarded to, earned by or paid to the Named Executive Officers during each of the
last three completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ----------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS (SHARES) ($)
- --------------------------- ---- --------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Warren F. Melamed, D.D.S.(1)........... 1998 300,000 -- -- 1,601,291(2)
Chairman, President 1997 300,000 150,000 150,000 14,702(2)
and Chief Dental Officer 1996 275,000 -- -- 10,717(2)
Gary W. Cage(3)........................ 1998 211,538 -- 50,000 2,000(4)
Chief Executive Officer 1997 193,269 100,000 175,000 2,000(4)
1996 134,615 70,000 25,000 --
Joseph J. Frank(5)..................... 1998 60,289 50,000 25,000 2,492(6)
Chief Operating Officer
Steven G. Peterson(7).................. 1998 120,769 15,000 20,000 2,000(8)
Chief Financial Officer 1997 84,231 36,000 20,000 1,038(8)
1996 51,923 27,500 -- --
</TABLE>
- ---------------
(1) Resigned as an employee of the Company effective in December 1998.
(2) Includes severance payments and other benefits and expense reimbursements
which the Company has agreed to pay or provide to Dr. Melamed in connection
with his resignation that have an aggregate estimated value of $1,588,320.
See "-- Termination of Employment Arrangements With Executive Officers."
Also includes annual matching contributions by the Company of $2,000 to Dr.
Melamed's 401(k) account and $10,971, $12,702 and $8,717 paid to Dr. Melamed
as a car allowance in 1998, 1997 and 1996, respectively.
(3) Employment commenced in March 1996.
(4) Constitutes matching contributions by the Company to Mr. Cage's 401(k)
account.
(5) Employment commenced in September 1998.
(6) Constitutes a car allowance paid by the Company.
(7) Employment commenced in April 1996.
(8) Constitutes matching contributions by the Company to Mr. Peterson's 401(k)
account.
6
<PAGE> 10
Option Grants. The following table sets forth certain information
concerning the individual grant of options to purchase Common Stock of the
Company to the Named Executive Officers of the Company who received such grants
during Fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT VALUE AT ASSUMED ANNUAL
SECURITIES OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS EXERCISE APPRECIATION FOR OPTION
OPTIONS GRANTED OR BASE TERM(1)
GRANTED TO EMPLOYEES PRICE PER EXPIRATION ------------------------
NAME (#)(2) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- -------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gary W. Cage.................... 50,000 9.6% 15.375 3/6/08 483,463 1,225,190
Joseph J. Frank................. 25,000 4.8% 11.375 9/10/08 178,842 453,221
Steven G. Peterson.............. 20,000 3.8% 15.375 3/6/08 193,385 490,076
</TABLE>
- ---------------
(1) This column shows the hypothetical gain or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full 10-year term of the options. The 5% and 10% assumed rates
of appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise of the option or the sale of the underlying shares, or
reflect non-transferability, vesting or termination provisions. The actual
gains, if any, on the exercises of stock options will depend on the future
performance of the Common Stock.
(2) The options set forth above become exercisable in four equal annual
installments, commencing on the first anniversary of the grant date. All
options are subject to the employee's continued employment and terminate ten
years after the grant date. All options were granted at fair market value as
determined by the Compensation Committee of the Board of Directors of the
Company on the date of grant. See "1996 Stock Option and Incentive Plan."
Option Exercises and Option Values. The following table sets forth
information concerning the number and value of unexercised options to purchase
Common Stock of the Company held by the Named Executive Officers of the Company
who held such options at December 31, 1998. No Named Executive Officer of the
Company exercised any options to purchase Common Stock during Fiscal 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT DECEMBER 31,
DECEMBER 31, 1998(#)(1) 1998($)(1)(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Warren F. Melamed, D.D.S....................... 37,500 112,500 -- --
Gary W. Cage................................... 56,250 193,750 12,891 12,891
Joseph J. Frank................................ -- 25,000 -- --
Steven G. Peterson............................. 5,000 35,000 -- --
</TABLE>
- ---------------
(1) The options set forth above become exercisable in four equal annual
installments, commencing on the first anniversary of the grant date. All
options are subject to the employee's continued employment and terminate ten
years after the grant date. All options were granted at fair market value as
determined by the Compensation Committee of the Board of Directors of the
Company on the date of grant. See "1996 Stock Option and Incentive Plan."
(2) Based on the last reported sale price on the Nasdaq National Market on
December 31, 1998 ($4.03125 per share) less the option exercise price.
7
<PAGE> 11
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Compensation Committee is responsible for the oversight of all of the
Company's compensation policies and practices including benefits and
perquisites. Compensation is defined as base salary, all forms of variable pay
and pay-for-performance, and stock options, restricted stock or any other plans
directly or indirectly related to the Company's stock. Members of the
Compensation Committee will be appointed from the Board of Directors annually at
the first meeting of the Board following the annual meeting of stockholders. Not
less than a majority of the Compensation Committee will consist of outside
directors. It is also envisioned that the composition of the Compensation
Committee will reflect the requirements of Rule 16b-3 under the Securities
Exchange Act of 1934 as in effect from time to time.
Compensation Philosophy. The objective of the Company's Compensation
Committee is to provide compensation that will attract and retain executives,
motivate each executive toward the achievement of the Company's short and
long-term financial goals and objectives and recognize individual contributions
as well as overall business results. In order to achieve this objective, the
primary focus of the Compensation Committee has been on the competitiveness of
each of the key elements of executive compensation (base salary, bonus and stock
option grants) and the compensation package as a whole. In general, the
Compensation Committee believes that total compensation should reflect both the
relative performance of the Company among its peer group of dental practice
management companies and other public companies of similar size as well as the
Company's performance as measured against its own financial objectives. The
Company's objectives include quantitative factors that directly improve the
Company's short-term financial performance and qualitative factors that
strengthen the Company's ability to enhance profitable growth over the
long-term, such as demonstrated leadership ability, management development,
insuring compliance with laws, regulations and Company policies, and
anticipating and responding to changing market and economic conditions.
Compensation of the Chief Executive Officer. In determining compensation
for Fiscal 1998, the Compensation Committee reviewed information regarding the
compensation paid to the Chief Executive Officers of comparable companies, and
evaluated achievement of corporate, individual and organizational objectives for
the year. Mr. Cage's annual compensation for Fiscal 1998 was $211,538. Mr. Cage
did not receive a bonus for Fiscal 1998 as a result of the Company's performance
in the fourth quarter of Fiscal 1998. Mr. Cage, however, was awarded options to
purchase 50,000 shares of the Company's Common Stock in March 1998 at an
exercise price of $15.375 per share in order to provide him with a long-term
incentive tied to the Company's performance.
Deductibility of Executive Compensation. Beginning in 1994, the Internal
Revenue Code of 1986, as amended (the "Code"), limited the federal income tax
deductibility of compensation paid to the Company's Chief Executive Officer and
to each of the other four most highly compensated executive officers. For this
purpose, compensation can include, in addition to cash compensation, the
difference between the exercise price of stock options and the value of the
underlying stock on the date of exercise. The Company may deduct compensation
with respect to any of these individuals only to the extent that during any
fiscal year such compensation does not exceed $1 million or meets certain other
conditions (such as stockholder approval). Considering the Company's current
compensation plans and policy, the Company and the Committee believe that, for
the near future, there is little risk that the Company will lose any significant
tax deduction relating to executive compensation. If the deductibility of
executive compensation becomes a significant issue, the Company's compensation
plans and policy will be modified to maximize deductibility if the Company and
the Committee determine that such action is in the best interests of the
Company.
COMPENSATION COMMITTEE
Glenn E. Hemmerle
Roger B. Kafker
W. Barger Tygart
8
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since April 1996, all executive officer compensation decisions have been
made by the Compensation Committee. The Compensation Committee reviews and makes
recommendations to the Board of Directors regarding the compensation for senior
management and key employees of the Company, including salaries and bonuses. The
current members of the Compensation Committee are Messrs. Hemmerle, Kafker and
Tygart, none of whom is an employee of the Company. Mr. Kafker will cease to be
a member of the Compensation Committee following the Annual Meeting and the
concurrent expiration of his term as a Director of the Company.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return on the Company's Common Stock, based on the
market price of the Company's Common Stock, with the total return of companies
included within the Nasdaq National Market Composite Index and a peer group of
companies described below that the Company selected for purposes of this
comparison (the "Peer Group") for the period commencing July 18, 1997, and
ending December 31, 1998. The calculation of total cumulative return assumes a
$100 investment in the Company's Common Stock, the Nasdaq National Market
Composite Index and the Peer Group on July 18, 1997, the date of the Company's
initial public offering, and the reinvestment of all dividends.
LOGO
The Peer Group is comprised of Coast Dental Services, Inc., Gentle Dental
Services Corporation and Orthodontic Centers of America, Inc. The companies in
the Peer Group are all engaged in the dental practice management
line-of-business within the healthcare industry.
EMPLOYEE STOCK PLANS
1999 Stock Option and Grant Plan. The 1999 Stock Plan was adopted by the
Board of Directors in March 1999. The 1999 Stock Plan permits (i) the grant of
non-qualified stock options ("Non-Qualified Options"), (ii) the issuance or sale
of Common Stock with vesting or other restrictions ("Restricted Stock Grants")
or (iii) the issuance or sale of Common Stock without restrictions
("Unrestricted Stock Grants"). These grants may be made to employees, advisors,
consultants and other key persons of the Company and its
9
<PAGE> 13
subsidiaries, including affiliated professional corporations. The 1999 Stock
Plan provides for the issuance of 1,000,000 shares of Common Stock. On and after
the date the 1999 Stock Plan becomes subject to Section 162(m) of the Internal
Revenue Code of 1986, as amended, options with respect to no more than 150,000
shares of Common Stock may be granted to any one individual in any calendar
year. No grants were made under the 1999 Stock Plan in Fiscal 1998, although
Non-Qualified Options to purchase 100,001 shares of Common Stock with a weighted
average exercise price of $3.125 per share have been granted under the 1999
Stock Plan through March 15, 1999.
The 1999 Stock Plan is administered by the Compensation Committee. Subject
to the provisions of the 1999 Stock Plan, the Compensation Committee has full
power to determine from among the persons eligible for grants under the 1999
Stock Plan the individuals to whom grants will be made, the combination of
grants to participants and the specific terms of each grant, including vesting.
The option exercise price of options granted under the 1999 Stock Plan is
determined by the Compensation Committee. Non-Qualified Options may be granted
at prices less than the fair market value of the underlying shares on the date
granted. Options typically are subject to vesting schedules, terminate 10 years
from the date of grant and may be exercised for specified periods subsequent to
the termination of the optionee's employment or other business relationship with
the Company. At the discretion of the Compensation Committee, any option may
include a "reload" feature pursuant to which an optionee exercising an option
receives in addition to the number of shares of Common Stock due on the exercise
of such an option an additional option with an exercise price equal to the fair
market value of the Common Stock on the date such additional option is granted.
Upon the exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Compensation Committee or, in the sole discretion of the Compensation
Committee, by delivery of shares of Common Stock already owned by the optionee.
The 1999 Stock Plan also permits Restricted Stock Grants and Unrestricted
Stock Grants. Restricted Stock Grants and Unrestricted Stock Grants may be made
to persons eligible under the 1999 Stock Plan, subject to such conditions and
restrictions as the Compensation Committee may determine. Prior to the vesting
of shares, recipients of Restricted Stock Grants and Unrestricted Stock Grants
generally will have all the rights of a stockholder with respect to the shares,
including voting and dividend rights, subject only to the conditions and
restrictions set forth in the 1999 Stock Plan or in any agreement. The
Compensation Committee may also make Restricted Stock Grants and Unrestricted
Stock Grants to persons eligible under the 1999 Stock Plan in recognition of
past services or other valid consideration, or in lieu of cash compensation.
The Compensation Committee may, in its sole discretion, accelerate or
extend the date or dates on which all or any particular option or options
granted under the 1999 Stock Plan may be exercised or vest. To the extent not
exercised, all options granted under the 1999 Stock Plan terminate upon the
merger, liquidation or sale of substantially all of the assets of the Company
unless assumed by a successor entity or otherwise determined by the Compensation
Committee. Unless otherwise provided by the Compensation Committee, all shares
of restricted Common Stock issued under the 1999 Stock Plan are generally
treated as fully vested on any merger, liquidation or sale of substantially all
of the assets of the Company.
1996 Stock Option and Incentive Plan. The 1996 Stock Plan was initially
adopted by the Board of Directors in February 1996 and was subsequently approved
by the Company's stockholders. The 1996 Stock Plan permits (i) the grant of
incentive stock options ("Incentive Options"), (ii) the grant of Non-Qualified
Options, (iii) the making of Restricted Stock Grants, (iv) the making of
Unrestricted Stock Grants, (v) the grant of Common Stock upon the attainment of
specified performance goals ("Performance Share Awards") and (vi) the grant of
the right to receive cash dividends with the holders of the Common Stock as if
the recipient held a specified number of shares of the Common Stock ("Dividend
Equivalent Rights"). These grants may be made to officers and other employees,
directors, advisors, consultants and other key persons of the Company and its
subsidiaries. The 1996 Stock Plan provides for the issuance of 1,376,250 shares
of Common Stock of which (i) 1,087,500 shares were subject to outstanding
options with a weighted average exercise price of $12.34 per share at December
31, 1998 and (ii) 330,208 were sold pursuant to restricted
10
<PAGE> 14
stock awards for an aggregate cash purchase price of $70,004 and remained
outstanding at December 31, 1998. On and after the date the 1996 Stock Plan
becomes subject to Section 162(m) of the Internal Revenue Code of 1986, as
amended, options with respect to no more than 150,000 shares of Common Stock may
be granted to any one individual in any calendar year. During Fiscal 1998,
Non-Qualified Options to purchase 520,750 shares of Common Stock with a weighted
average exercise price of $12.51 per share were granted under the 1996 Stock
Plan.
The 1996 Stock Plan is administered by the Compensation Committee. Subject
to the provisions of the 1996 Stock Plan, the Compensation Committee has full
power to determine from among the persons eligible for grants under the 1996
Stock Plan the individuals to whom grants will be made, the combination of
grants to participants and the specific terms of each grant, including vesting.
Incentive Options may be granted only to officers or other full-time employees
of the Company or its subsidiaries, including members of the Board of Directors
who are also full-time employees of the Company or its subsidiaries.
The option exercise price of options granted under the 1996 Stock Plan is
determined by the Compensation Committee but, in the case of Incentive Options,
may not be less than 100% of the fair market value of the underlying shares on
the date of grant. If any employee of the Company or any subsidiary owns (or is
deemed to own) at the date of grant shares of stock representing in excess of
10% of the combined voting power of all classes of stock of the Company or any
parent or subsidiary, the option exercise price for Incentive Options granted to
such employee may not be less than 110% of the fair market value of the
underlying shares on that date. Non-Qualified Options may be granted at prices
less than the fair market value of the underlying shares on the date granted.
Options typically are subject to vesting schedules, terminate 10 years from the
date of grant and may be exercised for specified periods subsequent to the
termination of the optionee's employment or other business relationship with the
Company. At the discretion of the Compensation Committee, any option may include
a "reload" feature pursuant to which an optionee exercising an option receives
in addition to the number of shares of Common Stock due on the exercise of such
an option an additional option with an exercise price equal to the fair market
value of the Common Stock on the date such additional option is granted. Upon
the exercise of options, the option exercise price must be paid in full either
in cash or by certified or bank check or other instrument acceptable to the
Compensation Committee or, in the sole discretion of the Compensation Committee,
by delivery of shares of Common Stock already owned by the optionee.
The 1996 Stock Plan also permits Stock Grants, Performance Share Awards and
grants of Dividend Equivalent Rights. Stock Grants may be made to persons
eligible under the 1996 Stock Plan, subject to such conditions and restrictions
as the Compensation Committee may determine. Prior to the vesting of shares,
recipients of Stock Grants generally will have all the rights of a stockholder
with respect to the shares, including voting and dividend rights, subject only
to the conditions and restrictions set forth in the 1996 Stock Plan or in any
agreement. The Compensation Committee may also make Stock Grants to persons
eligible under the 1996 Stock Plan in recognition of past services or other
valid consideration, or in lieu of cash compensation. In the case of Performance
Share Awards, the issuance of shares of Common Stock will occur only after the
conditions and restrictions set forth in the grant agreement are satisfied. In
addition, the Compensation Committee may grant Dividend Equivalent Rights in
conjunction with any other grant made pursuant to the 1996 Stock Plan or as a
free-standing grant. Dividend Equivalent Rights may be paid currently or deemed
to be reinvested in additional shares of Common Stock, which may thereafter
accrue further dividends.
The Compensation Committee may, in its sole discretion, accelerate or
extend the date or dates on which all or any particular option or options
granted under the 1996 Stock Plan may be exercised or vest. To the extent not
exercised, all options granted under the 1996 Stock Plan terminate upon the
merger, liquidation or sale of substantially all of the assets of the Company
unless assumed by a successor entity or otherwise determined by the Compensation
Committee. Unless otherwise provided by the Compensation Committee, all shares
of restricted Common Stock issued under the 1996 Stock Plan are generally
treated as fully vested on any merger, liquidation or sale of substantially all
of the assets of the Company.
11
<PAGE> 15
Since adopting the 1996 Stock Plan, the Company has sold an aggregate of
345,028 shares of restricted Common Stock to employees and directors of the
Company under the 1996 Stock Plan. These shares generally vest in equal monthly
installments (or annually in the case of shares sold to Dr. Melamed) over four
years beginning with the date of sale, with unvested shares subject to
repurchase at cost upon the termination of the purchaser's employment or other
relationship with the Company. All shares of restricted Common Stock issued are
generally treated as fully vested on any merger, liquidation or sale of
substantially all of the assets of the Company.
1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and
approved by the Company's stockholders. Up to 250,000 shares of Common Stock may
be issued under the Purchase Plan. The Purchase Plan is administered by the
Compensation Committee.
Offerings under the Purchase Plan commence on each January 1 and July 1 and
have a duration of six months. Generally, all employees who are customarily
employed for more than 20 hours per week as of the first day of the applicable
offering period are eligible to participate in the Purchase Plan. Any employee
who owns or is deemed to own shares of stock representing in excess of 5% of the
combined voting power of all classes of stock in the Company may not participate
in the Purchase Plan.
During each offering, an employee may purchase shares under the Purchase
Plan by authorizing payroll deductions of up to 10% of his or her cash
compensation during the offering period. The maximum number of shares which may
be purchased by any participating employee during any offering period is limited
to 1,000 shares (as adjusted by the Compensation Committee from time to time).
Unless the employee has previously withdrawn from the offering, his or her
accumulated payroll deductions will be used to purchase Common Stock on the last
business day of the period at a price equal to 85% of the fair market value of
the Common Stock on the first or last day of the offering period, whichever is
lower. Under applicable tax rules, an employee may purchase no more than $25,000
worth of Common Stock in any calendar year. The Company issued an aggregate of
48,081 shares of Common Stock in Fiscal 1998 under the Purchase Plan.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company has an employment agreement with Mr. Cage. The agreement
entitles Mr. Cage to a minimum annual base salary of $200,000. The agreement has
an initial employment term ending on June 30, 2001 and automatically renews for
one year periods thereafter. In the event of a termination of employment without
cause or a material breach by the Company, the agreement provides for severance
equal to the greater of Mr. Cage's unpaid compensation under the agreement
through the end of the initial term or two years' average total compensation
over the three most recently completed years. Upon termination by the Company of
Mr. Cage's employment without cause or upon resignation by the executive for
Good Reason (as defined) within twelve months following a change in control of
the Company (as defined), Mr. Cage is entitled to receive severance equal to the
greater of his unpaid total compensation under the agreement up to a maximum of
three years' total compensation or two years' average total compensation.
Mr. Cage has also entered into a non-competition agreement with the Company
pursuant to which he may not engage in certain competitive activities in the
dental industry without the Company's consent prior to the later of June 30,
2001 or the date on which he stops receiving severance payments following the
termination of employment for any reason.
The Company entered into an employment agreement with Mr. Frank in
connection with the acquisition of Valley Forge Dental Associates, Inc. pursuant
to which Mr. Frank agreed to serve as the Company's Chief Operating Officer. The
agreement provides for (i) an annual base salary of $175,000, (ii) the payment
of a special bonus to Mr. Frank if he is still serving as an employee of the
Company on September 11, 1999, (iii) an employment term ending on September 11,
2002 and (iv) the continuation of base salary payments for up to one year
following the termination of his employment with the Company in the event his
employment is terminated by the Company without cause (as defined) or by Mr.
Frank following a material breach of the agreement by the Company.
12
<PAGE> 16
The Company also entered into a non-competition agreement with Mr. Frank.
The agreement provides that Mr. Frank will not engage in certain competitive
activities without the Company's consent prior to one year following the
termination of Mr. Frank's employment with the Company.
TERMINATION OF EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
In connection with Dr. Melamed's resignation from the Company effective on
December 31, 1998, the Company entered into an agreement with Dr. Melamed which
supplanted the terms of his existing employment arrangements. Pursuant to this
agreement, the Company paid Dr. Melamed a lump-sum payment of $730,000 and has
agreed to pay him an aggregate of $730,000 on a monthly basis through July 2001.
In addition, the Company agreed to pay or reimburse Dr. Melamed for a number of
perquisites and other benefits in an aggregate amount not to exceed $3,720 per
month through July 2001. Pursuant to this agreement, the Company's Board of
Directors has also pledged to support Dr. Melamed's continued status as a
Director and position as Chairman of the Board of Directors. In exchange, Dr.
Melamed has agreed not to solicit proxies in connection with any vote of the
Company's stockholders other than in his capacity as a Director of the Company
and has agreed to vote his shares of the Company's Common Stock on each matter
submitted to a vote either in proportion to the votes cast by the Company's
other stockholders or in accordance with the recommendation of the Company's
Board of Directors, in each case through July 2001. Dr. Melamed also has agreed
not to engage in certain competitive activities in the dental industry without
the Company's consent prior to February 5, 2001.
CERTAIN TRANSACTIONS
The Company leases one facility from Dr. Melamed in connection with which
the Company made aggregate lease payments of $73,750 to Dr. Melamed during 1998.
The Company believes that this lease is on terms and at a rate no less favorable
to the Company than could have been obtained from an unaffiliated third party.
The Company has entered into a Management Agreement dated as of February 6,
1996 with Modern Dental Professionals, P.C., a dental professional corporation
owned by Dr. Melamed until March 1999 (the "Texas P.C."), which employs or
contracts with all of the dental professionals practicing at the Company's
dental offices in Texas under the Management Agreement. The Company provides the
Texas P.C. with, among other things, the facilities, administrative personnel
and supplies, as well as numerous services, including administrative,
accounting, cash management, financial statements and reports, budgeting
including capital expenditures, recruiting, insurance, litigation management,
managed care contracting, management information systems, billing and collection
services. The Management Agreement is for a term of 40 years, with automatic
renewal thereafter, and generally may be terminated by the Texas P.C. only for
cause, which includes an uncured breach of the agreement by the Company, or upon
the Texas P.C.'s bankruptcy or voluntary dissolution. The Management Agreement
may be terminated by the Company as of any anniversary date of the Management
Agreement upon 90 days' prior written notice.
The Company receives a management fee under the Management Agreement with
the Texas P.C. equal to the Company's costs plus the lower of (i) 30% of the
Texas P.C.'s net revenues or (ii) the P.C.'s net pre-tax income. The Company's
costs include all direct and indirect costs, overhead and expenses relating to
the Company's provision of services to the Texas P.C. under the Management
Agreement.
In addition to the Management Agreement with the Texas P.C., the Company
has a contractual right to designate or approve the licensed dentist or dentists
who own the Texas P.C.'s capital stock in the event the owner of the Texas P.C.
ceases to be affiliated with the Company for any reason. The Company exercised
this contractual right in connection with Dr. Melamed's resignation and approved
the transfer of Dr. Melamed's ownership interest in the Texas P.C. to a licensed
dentist employed by the Company who is neither a Director nor an executive
officer of the Company.
In September 1998 in connection with the acquisition of Valley Forge Dental
Associates, Inc. ("Valley Forge") by the Company, Dr. Dworkin and Mr. Frank
received 6,557 and 49,180 shares of the Company's
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<PAGE> 17
Common Stock, respectively, in exchange for their interests in Valley Forge. As
part of the acquisition, the Company also assumed an obligation of Valley Forge
Dental Associates, Inc. to pay Mr. Frank $100,000 upon consummation of the
acquisition. The Company paid off this obligation to Mr. Frank immediately
following the acquisition.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties. In addition, this policy will require that any loans
by the Company to its officers, directors or other affiliates be for bona fide
business purposes only.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who own more than 10% of the Company's
outstanding shares of Common Stock (collectively, "Section 16 Persons"), to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission ("SEC") and The Nasdaq Stock Market, Inc.
Section 16 Persons are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain Section 16 Persons that no Section 16(a)
reports were required for such persons, the Company believes that during Fiscal
1998, the Section 16 Persons complied with all Section 16(a) filing requirements
applicable to them.
PRINCIPAL AND MANAGEMENT STOCKHOLDER
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table represents certain information about persons or
entities known to the Company to own, directly or indirectly, more than five
percent of the Company's Common Stock as of March 1, 1999.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ ---------- --------
<S> <C> <C>
Warren F. Melamed, D.D.S.................................... 2,053,432(1)(2) 16.9%
17723 Cedar Creek Canyon Road
Dallas, Texas 75252
TA Associates Group......................................... 1,695,682(3)(4) 14.0%
c/o TA Associates, Inc.
High Street Tower
125 High Street, Suite 2500
Boston, MA 02110-2720
Foster Management Company................................... 1,147,540(5) 9.5%
1018 West Ninth Avenue
King of Prussia, PA 19406
</TABLE>
- ---------------
(1) The information reported is based upon representations made to the Company
by Dr. Melamed with respect to his beneficial ownership.
(2) Includes 37,500 shares subject to options exercisable within 60 days and
150,000 shares of restricted stock held by Dr. Melamed, 112,500 shares of
which had vested as of March 1, 1999, and the remainder of which vest on
February 6, 2000 and are subject to repurchase at a price of $0.21 per share
upon a termination (as defined under the relevant agreement) of Dr.
Melamed's employment prior to the relevant vesting date. Dr. Melamed's
resignation effective on December 31, 1998 did not constitute a
14
<PAGE> 18
termination of Dr. Melamed's employment within the meaning of such
agreement. Does not include 289,830 shares held by irrevocable trusts for
the benefit of members of Dr. Melamed's family of which Dr. Melamed is not a
trustee, as to which shares Dr. Melamed disclaims beneficial ownership.
Excludes 112,500 shares subject to options not exercisable within 60 days.
(3) The information reported is based upon a Schedule 13G filed with the
Securities and Exchange Commission and delivered to the Company reporting
beneficial ownership as of December 31, 1998.
(4) Includes (i) 829,029 shares of Common Stock owned by Advent VII L.P., (ii)
631,433 shares of Common Stock owned by Advent Atlantic and Pacific II L.P.,
(iii) 182,885 shares of Common Stock owned by Advent New York L.P., (iv)
29,853 shares of Common Stock owned by TA Venture Investors Limited
Partnership, (v) 18,504 shares of Common Stock owned by TA Associates VII
L.P., (vi) 1,989 shares of Common Stock owned by TA Associates, Inc. and
(vii) 1,989 shares of Common Stock owned by TA Associates Service
Corporation. Advent VII L.P., Advent Atlantic and Pacific II L.P., Advent
New York L.P., TA Venture Investors Limited Partnership, TA Associates VII
L.P., TA Associates, Inc. and TA Associates Service Corporation are part of
an affiliated group of investment partnerships and other entities referred
to, collectively, as the TA Associates Group. The general partner of Advent
VII L.P. is TA Associates VII L.P. The general partner of Advent Atlantic
and Pacific II L.P. is TA Associates AAP II Partners L.P. The general
partner of Advent New York L.P. is TA Associates VI L.P. The general partner
of each of TA Associates VII L.P., TA Associates AAP II Partners L.P. and TA
Associates VI L.P. is TA Associates, Inc. and TA Associates Service
Corporation is a wholly-owned subsidiary of TA Associates, Inc. In such
capacity, TA Associates, Inc. exercises sole voting and investment power
with respect to all of the shares held of record by the named investment
partnerships, with the exception of those shares held by TA Venture
Investors Limited Partnership; individually, no stockholder, director or
officer of TA Associates, Inc. is deemed to have or share such voting or
investment power. Principals and employees of TA Associates, Inc. (including
Mr. Kafker, a director of the Company) comprise the general partners of TA
Venture Investors Limited Partnership. In such capacity, Mr. Kafker may be
deemed to share voting and investment power with respect to the 29,853
shares held of record by TA Venture Investors Limited Partnership. Mr.
Kafker disclaims beneficial ownership of such shares, except as to 5,115
shares as to which he holds a pecuniary interest.
(5) Includes (i) 57,377 shares of Common Stock owned by Business Development
Capital Limited Partnership -- III, (ii) 154,918 shares of Common Stock
owned by Abbingdon Venture Partners Limited Partnership, (iii) 568,032
shares of Common Stock owned by Abbingdon Venture Partners Limited
Partnership II and (iv) 367,213 shares of Common Stock owned by Abbingdon
Venture Partners Limited Partnership III. Business Development Capital
Limited Partnership -- III, Abbingdon Venture Partners Limited Partnership,
Abbingdon Venture Partners Limited Partnership II and Abbingdon Venture
Partners Limited Partnership III are all associated with Foster Management
Company.
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<PAGE> 19
SECURITY OWNERSHIP OF MANAGEMENT
The following table represents certain information as to each director and
Named Executive Officer of the Company as of March 1, 1999 (other than Dr.
Melamed whose beneficial ownership is set forth above), based on representations
to the Company by each director and Named Executive Officer with respect to such
person's beneficial ownership. All individuals listed in the table have sole
voting and investment power over the shares reported as owned unless otherwise
indicated, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ --------- -------
<S> <C> <C>
Gary W. Cage(1)............................................. 175,000 1.4%
Joseph J. Frank(2).......................................... 49,180 *
Steven G. Peterson(3)....................................... 17,500 *
Glenn E. Hemmerle(4)........................................ 12,500 *
Roger B. Kafker(5).......................................... 5,115 *
John E. Maupin, Jr., D.D.S.(6).............................. 2,500 *
W. Barger Tygart............................................ -- *
All executive officers and directors as a group
(9 persons)(7)............................................ 2,321,784 19.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 100,000 shares of restricted stock held by Mr. Cage, approximately
70,833 shares of which were vested as of March 1, 1999, and the remainder of
which will become vested in equal monthly installments of approximately
2,083 shares and are subject to repurchase at a price of $0.21 per share
upon a termination of Mr. Cage's employment prior to the relevant vesting
date. Includes 75,000 shares subject to options exercisable within 60 days.
Excludes 175,000 shares subject to options not exercisable within 60 days.
(2) Excludes 25,000 shares subject to options not exercisable within 60 days.
(3) Includes 7,500 shares of restricted stock held by Mr. Peterson,
approximately 4,583 shares of which were vested as of March 1, 1999, and the
remainder of which will become vested in equal monthly installments of
approximately 208 shares and are subject to repurchase at a price of $0.21
per share upon a termination of Mr. Peterson's employment prior to the
relevant vesting date. Includes 10,000 shares subject to options exercisable
within 60 days. Excludes 30,000 shares subject to options not exercisable
within 60 days.
(4) Includes 10,000 shares of restricted stock held by Mr. Hemmerle,
approximately 6,458 shares of which were vested as of March 1, 1999, and the
remainder of which will become vested in equal monthly installments of
approximately 208 shares and are subject to repurchase at a price of $0.21
per share upon a termination of Mr. Hemmerle's service as a director prior
to the relevant vesting date. Includes 2,500 shares subject to options
exercisable within 60 days. Excludes 7,500 shares subject to options not
exercisable within 60 days.
(5) Includes 5,115 shares of Common Stock beneficially owned by Mr. Kafker
through TA Venture Investors Limited Partnership, all of which shares are
included in the 1,695,682 shares described in footnote (2) under "Security
Ownership of Certain Beneficial Owners." Does not include any shares
beneficially owned by Advent VII L.P., Advent Atlantic and Pacific II L.P.,
Advent New York L.P., TA Associates VII L.P., TA Associates, Inc. or TA
Associates Service Corporation of which Mr. Kafker disclaims beneficial
ownership.
(6) Constitutes 2,500 shares subject to options exercisable within 60 days.
Excludes 7,500 shares subject to options not exercisable within 60 days.
(7) Includes 73,126 shares of restricted stock held by executive officers and
directors, which are subject to repurchase in certain circumstances, and
127,500 shares subject to options exercisable within 60 days.
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<PAGE> 20
MARKET VALUE
On December 31, 1998, the closing price of a share of the Company's Common
Stock on the Nasdaq National Market was $4.03125.
EXPENSES OF SOLICITATION
The Company will pay the entire expense of soliciting proxies for the
Annual Meeting. In addition to solicitations by mail, certain Directors,
officers and regular employees of the Company (who will receive no compensation
for their services other than their regular compensation) may solicit proxies by
telephone, telegram or personal interview. Banks, brokerage houses, custodians,
nominees and other fiduciaries have been requested to forward proxy materials to
the beneficial owners of shares held of record by them and such custodians will
be reimbursed for their expenses.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholder proposals intended to be presented at the Company's 2000 annual
meeting of stockholders must be received by the Company on or before February
26, 2000 in order to be considered for inclusion in the Company's proxy
statement and form of proxy for that meeting. The Company's By-laws provide that
any stockholder of record wishing to have a stockholder proposal considered at
an annual meeting must provide written notice of such proposal and appropriate
supporting documentation, as set forth in the By-laws, to the Company at its
principal executive office not less than 75 days or more than 120 days prior to
the first anniversary of the date of the preceding year's annual meeting. In the
event, however, that the annual meeting is scheduled to be held more than 30
days before such anniversary date or more than 60 days after such anniversary
date, notice must be so delivered not later than (i) the 15th day after the date
of public disclosure of the date of such meeting or (ii) the 75th day prior to
the scheduled date of such meeting. Any such proposal should be mailed to:
Secretary, Monarch Dental Corporation, 4201 Spring Valley Road, Suite 320,
Dallas, Texas 75244.
INDEPENDENT ACCOUNTANTS
The Company has selected Arthur Andersen LLP as the independent public
accountants for the Company for the fiscal year ending December 31, 1999. The
firm of Arthur Andersen LLP has served as the Company's independent public
accountants since 1996. A representative of Arthur Andersen LLP will be present
at the Annual Meeting and will be given the opportunity to make a statement if
he or she so desires. The representative will be available to respond to
appropriate questions.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement which will be presented for action at the
Annual Meeting. If other matters are duly presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
17
<PAGE> 21
MONARCH DENTAL CORPORATION
4201 SPRING VALLEY ROAD, SUITE 320
DALLAS, TEXAS 75244
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF STOCKHOLDERS, MAY 11, 1999
The undersigned hereby appoints Gary W. Cage and Joseph J. Frank and each
or any of them, attorneys and proxies with full power of substitution, to
represent the undersigned and to vote all shares of stock of Monarch Dental
Corporation which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Monarch Dental Corporation to be held at the Hotel
Inter-Continental Dallas, Dallas, Texas on Tuesday, May 11, 1999, at 1:00 p.m.,
local time, or at any adjournments or postponements thereof, upon all matters
as set forth in the Notice of Annual Meeting and Proxy Statement, receipt of
which is hereby acknowledged.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 22
<TABLE>
<S> <C>
Please mark
your vote as [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES AS DIRECTORS. indicated in
this example
1. ELECTION OF DIRECTORS (except as indicated to the contrary below). Nominees: Warren F. Melamed, D.D.S. and W. Barger Tygart
FOR nominees WITHHOLD
listed to the right AUTHORITY --------------------------------------------------------
(except as marked to vote for nominees For all nominees except as noted above.
to the contrary) listed to the right
[ ] [ ] PLAN TO ATTEND MEETING [ ]
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON THIS PROXY WILL BE VOTED AS DIRECTED HEREON, OR IF
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING RETURNED EXECUTED WITH NO DIRECTION GIVEN, WILL BE
OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
THE PROXY SHOULD BE SIGNED EXACTLY AS NAME APPEARS
HEREON.
Executors, administrators, trustees, attorneys, etc.,
should give full title as such. If the signer is a
corporation or partnership, please sign full corporate
or partnership name by duly authorized officer.
Signature Signature Date
-------------------------------------------- --------------------------------------------- -------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
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-- FOLD AND DETACH HERE --
</TABLE>
